A finished ACC-661 Topic 2 built-in gain method comparison example, establishing outside basis, inside basis and capital accounts at formation and pricing the section 704(c) methods against an S corporation. Searches like "acc 661 topic 2 assignment example", "acc661 topic 2 sample" and "acc-661 topic 2 example" land here.
What a finished ACC-661 Topic 2 built-in gain method comparison looks like
The schedule opens with two sets of opening figures, all illustrative. For tax, section 721 recognizes no gain, section 722 gives the equipment contributor a $120,000 outside basis and the cash partner $300,000, and section 723 leaves the partnership holding the equipment at $120,000. For book, each capital account starts at $300,000. The gap between the two is the $180,000 of gain section 704(c) assigns to the contributor. Depreciation then exposes the problem. Book depreciation is $60,000 a year and tax depreciation only $24,000, so under the traditional method the ceiling rule leaves the cash partner $6,000 a year short of the deductions his book share implies. The schedule prices that shortfall at $30,000 over five years, compares a curative allocation of ordinary income, names the remedial method and runs the same formation as an S corporation.
How an ACC-661 Topic 2 example is structured
Opening basis comes first because every later comparison is measured from it. The schedule's first part lists the two contributions at value and basis and computes outside basis, inside basis and both capital accounts. The built-in gain is identified second, with the statement that section 704(c) requires it to follow the contributor. Depreciation under the traditional method comes third, year by year, with the ceiling rule's effect on the cash partner in a separate column. The fourth part reruns the same years under a curative allocation of ordinary income and describes what the remedial method would add. A fifth part forms the same business as an S corporation, where pro rata allocation leaves the cash partner bearing half of a gain that accrued before he arrived. The schedule closes by recommending the curative method and pricing the traditional method the contributor prefers.
Tax basis and book capital side by side
Each partner's outside basis, tax capital and book capital appear in one table, so the $180,000 difference is visible from the day of contribution onward.
The built-in gain assigned to its owner
Section 704(c) makes the contributor, not the cash partner, bear the gain that accrued before formation, and the schedule tracks it as a separate balance.
The ceiling rule priced in dollars
Tax depreciation of $24,000 cannot give the cash partner his $30,000 book share, and five years of that $6,000 shortfall total $30,000 of lost deductions.
A curative allocation closing the gap
Shifting $6,000 of ordinary income each year from the cash partner to the contributor restores the match, provided the partnership earns enough ordinary income to carry it.
The same formation as an S corporation
Without section 704(c), pro rata allocation would give the cash partner half the tax depreciation and half of any built-in gain, a cost the schedule quantifies.
Recommendation defended against the traditional method
The contributor prefers the traditional method because it defers her tax, and the cash partner is shown why he should price that preference before agreeing.
Where marks go in ACC-661 Topic 2
This schedule is marked on its planning consequence as much as on the basis arithmetic. A paper that computes $120,000 and $300,000 of outside basis correctly and stops has established the starting point and skipped the decision the topic is about. Setting the equipment's inside basis at its $300,000 value erases the built-in gain and overstates depreciation for five years. Papers that split tax depreciation 50/50 because the partners share profits equally ignore section 704(c) entirely. Describing the ceiling rule without computing its $6,000 annual effect leaves the cash partner unable to judge what he is giving up. Omitting the S corporation comparison, or running it without noticing that pro rata allocation moves part of the contributor's gain onto the cash partner, misses the sharpest difference between the two regimes on these facts.
Get an ACC-661 Topic 2 example written to your instructions
Send your ACC-661 Topic 2 instructions, the rubric and the contribution facts your section provided. A custom example is written to them, with outside basis, inside basis and capital accounts established, the built-in gain identified, the allocation methods compared in dollars and the entity alternative priced, returned in 24 to 48 hours. The first one is free, as coursework support rather than advice.
ACC-661 Topic 2 questions, answered
What is the ceiling rule?
A limit that applies under the traditional method in the section 704(c) regulations: tax allocations to a partner cannot exceed the tax items the partnership actually has. When contributed property's tax depreciation is smaller than its book depreciation, the noncontributing partner receives less tax depreciation than his book share, and the traditional method does nothing to correct it. The curative and remedial methods exist to address that gap.
Why would the contributor prefer the traditional method?
Because under it the ceiling rule's shortfall falls entirely on the cash partner while she reports nothing extra. Under a curative or remedial method she reports additional income that roughly matches the deductions the cash partner would otherwise lose. The difference is mainly timing and character rather than a permanent gain or loss, so the example treats the method as a negotiated term of the deal.
Does an S corporation have anything like section 704(c)?
No. S corporation items are allocated pro rata by shares and days under sections 1366 and 1377, and no provision reassigns built-in gain on contributed property to the shareholder who contributed it. A cash investor joining a shareholder who contributes appreciated property therefore shares the tax on gain that accrued earlier. Owners choosing that form often deal with the issue through valuation or a separate arrangement.