[Jay]

An S corporation converted to an Partnership after 2 years of tax returns.

What happens with the negative Retained Earnings when filing the 1065. Would the Retained Earnings be offset against members distributions? This would essentially reduce their distributions for the year.

Since it’s a first year 1065, I have to put members beginning capital accounts. Could I just offset the negative RE with their Actual beg. Cap Acct?

I know this isn’t an exam question but I figured I’d ask anyway.

Thanks,

Jay

REG 82 (08/08/15)

[tuanxn]

Negative retained earnings?

When the S-corps sustain a loss, the loss flows through to the shareholders and decrease their basis. Are you talking about suspended losses in excess of basis?

When the shareholders or partners make more contributions or income to increase basis, the losses can be applied to the additional basis or income.

I'm still a little confused about the problem, so if anyone else can correct me; please do so.

[Author]

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