A finished ACC-661 Topic 1 pass-through character schedule example, carrying five partnership items to two members with their character intact, rolling outside basis and sizing a tax distribution. Searches like "acc 661 topic 1 assignment example", "acc661 topic 1 sample" and "acc-661 topic 1 example" land here.
What a finished ACC-661 Topic 1 pass-through character schedule looks like
The finished schedule lists five partnership items, every figure illustrative, and splits each 50/50 between the two members: $300,000 of ordinary business income, a $40,000 long-term capital gain on securities, a $20,000 section 1231 gain on land, a $10,000 charitable contribution and $60,000 of cash distributions. Under section 702 each item keeps its character on the members' returns, and the example makes the point concrete: one member's $50,000 capital loss carryforward absorbs her $20,000 share of the gain, while the other member reports his in full. Each member reports $180,000 of income items while receiving $30,000 of cash. Section 705 then raises each outside basis from $100,000 to $245,000, the figure that keeps the retained income from being taxed a second time when it is later paid out.
How an ACC-661 Topic 1 example is structured
The schedule runs from the entity's return to the owners' returns and then to the question the owners actually raised. It opens with the partnership's items as reported, each labeled separately stated or ordinary, since that label decides whether character survives the trip. A second part allocates every item under the operating agreement and gives each member's share its own line. The third part follows those shares onto the two members' returns, where the capital loss carryforward makes the same gain worth different amounts to each. Outside basis comes fourth, rolled from opening to closing with each adjustment shown. A fifth part measures the gap between tax owed on allocated income and cash received. The schedule ends with a tax distribution clause sized at the agreement's assumed rate, and it defends a pro rata formula against distributions matched to each member's actual liability.
Separately stated items kept apart
The capital gain, the section 1231 gain and the charitable contribution sit outside ordinary income because each is netted or limited differently on an owner's return.
Character decided at the entity
The securities gain is capital because of how the partnership held the securities, and section 702 carries that character to both members unchanged.
One gain, two different owners
A carryforward on one member's return absorbs her $20,000 share, while the other member reports his share in full, so identical allocations produce unequal tax.
Tax owed without cash received
Each member reports $180,000 of income items and receives $30,000, which is the practical meaning of pass-through that neither owner had anticipated.
Basis rising with income retained
Section 705 adds each member's share of income to outside basis, so the retained cash can later be distributed without being taxed a second time.
A distribution clause sized by formula
The schedule sizes a tax distribution at the agreement's assumed 40 percent rate, $72,000 per member less the $30,000 already paid, and keeps it pro rata.
Where marks go in ACC-661 Topic 1
Credit on this schedule is lost most often by collapsing every item into one income figure. A paper that reports a single $350,000 income figure, or $300,000 of ordinary income alone, has discarded the character section 702 preserves, and the capital loss carryforward then has nothing to absorb. Treating the $60,000 of distributions as the members' income confuses what they received with what they earned, the central distinction here. Basis rolls that omit the charitable contribution overstate each member's basis by $5,000, an error that surfaces years later. Papers that compute the tax gap and stop leave the owners with a problem and no mechanism. A tax distribution matched to each member's own liability sounds fair, and graders in many sections expect the writer to see that it pushes capital accounts apart and changes the deal.
Get an ACC-661 Topic 1 example written to your instructions
Send the ACC-661 Topic 1 instructions, the rubric and the partnership or S corporation facts your section assigned. We write a custom example to them, with each item's character carried to the owners, shares allocated, outside basis rolled forward and any cash gap met with a stated mechanism, back in 24 to 48 hours. The first one is free and is coursework support only.
ACC-661 Topic 1 questions, answered
Why are owners taxed on income they never received?
Because a partnership is not a taxpayer for income tax purposes. Section 701 places the tax on the partners, and each reports a distributive share whether or not cash is paid out. The same principle applies to S corporation shareholders under section 1366. The basis increase that follows is the other half of the rule, since it lets the retained income come out later without a second tax.
Why does character have to pass through?
Because the same dollar of income can be taxed differently depending on its nature, and an owner's own circumstances, such as capital loss carryforwards or other section 1231 results, decide what each item is worth. Section 702 requires items that could affect partners' tax differently to be stated separately. Collapsing them into one figure would let the entity settle questions only the owner's return can answer.
Is a tax distribution clause required?
No. It is a contract term the owners negotiate, not a tax rule, and many agreements omit it. Where it exists, it usually sizes distributions at an assumed rate stated in the agreement and treats them as advances against ordinary distributions. In an S corporation, distributions have to track share ownership, which constrains the clause further. The example uses 40 percent as the agreement's own assumption, not as any statutory rate.