A finished ACC-661 Topic 4 liability share basis analysis example, reallocating a refinanced loan after one member's guarantee and tracing the deemed distribution into the other member's loss limit. Searches like "acc 661 topic 4 assignment example", "acc661 topic 4 sample" and "acc-661 topic 4 example" land here.
What a finished ACC-661 Topic 4 liability share basis analysis looks like
The finished analysis sets each member's basis before and after the refinancing, all figures illustrative. Before, the loan is nonrecourse, the building's $1,400,000 book value exceeds it, and the $1,000,000 is shared by the 50/50 profit split: the investor member's basis is $380,000 of tax capital plus $500,000, and the operating member's is $20,000 plus $500,000. The lender then requires the investor's guarantee. Because he now bears the economic risk of loss, the whole loan shifts to him. Section 752(b) treats the operating member's $500,000 decrease as a cash distribution, leaving her basis at $20,000, and her $60,000 share of next year's projected loss is only one-third deductible under section 704(d). An indemnity from her to the investor for half the loan restores her share, and the analysis prices both options.
How an ACC-661 Topic 4 example is structured
The analysis is arranged around one event, the refinancing, with the members' positions measured on each side of it. It opens with the loan's terms before and after, since recourse character under the section 752 regulations turns on who would pay if the partnership's assets were worthless. The pre-refinancing allocation comes second, and it explains why no minimum gain arises. The guarantee comes third: the loan is reallocated, and the deemed contribution to the guarantor and the deemed distribution to the other member are recorded. The fourth part carries the operating member's reduced basis into next year's projected loss and shows how much section 704(d) suspends. An indemnity alternative follows, tested against the same rules. A sixth part contrasts the S corporation result, where no member's basis would have included the bank loan at all. The analysis closes by recommending the indemnity and pricing her exposure under it.
Loan terms read before any share
The analysis sets out who is liable under the old and new loans, because the regulations assign a recourse liability to whoever would ultimately have to pay it.
No minimum gain, simple sharing
With the building carried above the loan, no partnership minimum gain exists, so the nonrecourse loan is shared under the profit percentages the agreement states.
A signature that moves both members
The investor's guarantee raises his share to $1,000,000, and the same reallocation lowers the operating member's share to zero without any action on her part.
A deemed distribution with real effects
Her $500,000 share decrease is treated as money distributed, and it reduces her basis to $20,000 before any of next year's loss is tested against it.
The loss that basis cannot carry
Only $20,000 of her projected $60,000 loss share clears section 704(d), and the $40,000 remainder stays suspended until her basis recovers.
An indemnity priced as a real exposure
Agreeing to reimburse the investor for half the loan gives her the economic risk of loss again, which restores her basis at the cost of a genuine obligation.
Where marks go in ACC-661 Topic 4
Basis analyses on this topic fall short most often by treating the guarantee as the guarantor's business alone. A paper that raises the investor's basis by $500,000 and leaves the operating member's untouched has recorded half of one reallocation, the half without consequences. Treating the deemed distribution as a bookkeeping entry, with no effect on her ability to deduct losses, misses the planning point. Papers that carry the partnership liability rules over to an S corporation's bank debt, or suggest the same guarantee would create shareholder basis, reach a result the S corporation rules reject. Sharing the nonrecourse loan by capital rather than by profit percentages misstates both members' starting basis. A recommendation proposing the indemnity without describing what the operating member would owe if the building failed presents a real obligation as a technicality.
Get an ACC-661 Topic 4 example written to your instructions
Send your ACC-661 Topic 4 instructions, your rubric and the partnership's liabilities and ownership facts. We write a custom example to them, with each liability characterized, shares allocated before and after the change, deemed contributions and distributions recorded, the basis effect on losses traced and any restructuring priced, back in 24 to 48 hours. The first one is free and supports coursework only.
ACC-661 Topic 4 questions, answered
Why does a decrease in a liability share count as a distribution?
Because section 752(b) treats any decrease in a partner's share of partnership liabilities as a distribution of money to that partner, mirroring section 752(a), which treats an increase as a contribution of money. The partner's basis rose when the liability was first allocated, so relief from it must reduce basis. If the decrease exceeded basis, the excess would be gain, which a later topic takes up.
What makes a liability recourse for these purposes?
A partnership liability is recourse to the extent a partner or related person bears the economic risk of loss for it, meaning that partner would be obligated to pay if the partnership's assets became worthless and the liability came due. Guarantees, indemnities and direct loans can all create that exposure. A nonrecourse liability, where no partner bears the risk, is shared under a separate set of rules.
Does the investor gain anything from the higher basis?
His basis rises to $1,380,000, which lets him absorb more losses and take more distributions without gain, but it also concentrates the loan's risk on him alone. Whether the extra basis is useful depends on his own position, including the section 465 and section 469 limits taken up later in the course. The analysis records the increase and declines to treat it as a free benefit.