Question

On its 2022 form 1065, hullabaloo partnership reported a different value for end-of-year partner capital accounts on schedule l, line 21(d), than it reported on schedule m-2, line 9. which of the following provides a possible explanation for this difference?

hullabaloo partnership:
a. used a different method of valuing capital accounts for book purposes than for tax purposes.
b. incurred nonrecourse debt during the year.
c. reported a separately-stated charitable contribution on schedule k.
d. is subject to the alternative minimum tax (amt).

Answer 1

Discrepancies between Schedule L and Schedule M-2 in the Form 1065 can occur due to differences in accounting principles between GAAP and tax-basis accounting, possibly influenced by items like the Alternative Minimum Tax.

Step-by-step explanation:

The reason there might be a difference between the value reported for end-of-year partner capital accounts on Schedule L, line 21(d), and Schedule M-2, line 9, for Hullabaloo Partnership's 2022 Form 1065 could be due to various accounting treatments for certain transactions. Schedule L reflects the partnership's capital accounts according to generally accepted accounting principles (GAAP), whereas Schedule M-2 tracks the capital accounts based on tax-basis accounting.

Differences between GAAP and tax-basis accounting can arise from how certain items are recognized, as well as timing differences in income and expense recognition. For example, the Alternative Minimum Tax (AMT) might require adjustments to be made under tax regulations that are not recognized under GAAP, leading to discrepancies between the two schedules.