• To view this solution using the worksheet view, see our solution on how to enter a transfer of interest in a 1065 return using worksheet view.

The below video explains the steps involved with inputting a transfer of capital in a Partnership (1065) return.

Use Interview Form K-7 - Transfer of Capital to adjust the ending capital accounts of existing, or new, partners due to transfer of a partner's interest in the partnership, or due to withdrawal of a partner from the partnership. 

1. Go to Interview Form K-1 - Partner Information.
   • Enter new partner information.
   • Do not enter any Profit/Loss/Capital Percentages for new partners. 
   • Note: Skip this step if the transfer is for existing partners.
2. Go to Interview Form K-7 - Transfer of Capital.
   • In Box 50 - Partner Number, enter the transferring partner number.
   • In Box 51 - Date Transfer, enter the date of the first transfer.
   • In Box 52 - T/R Code, enter T.
   • In Box 54 - Percent* or Amount, enter the amount of capital being transferred.
     • Note: Percentages must be entered in decimal format and percentage transferred is relative to the transferring partner.
     • If the partner in question holds 50% of the total capital within in the partnership and is completely transferring out of the business then the amount entered in box 54 would be 1.0. This is because the partner is transferring out 100% of the capital of they personally own.
   • In Box 55 - Partner Number, enter the receiving partner's number.
   • In Box 56 - Date of Transfer, enter the same date of transfer from box 51.
   • In Box 57 - T/R Code, enter R.
   • In Box 58 - Transfer Partner Number, enter the partner number that was entered in box 50.
   • In Box 59 - Percent* or Amount, enter the amount of the transferred capital the receiving partner will receive.
     • If more than one partner is receiving the transfer repeat these steps for the receiving partners.
     • The combination of all partners receiving capital must equal 1.0 to ensure that the partnership overall capital balance remains the same.
   • Repeat this process for each additional change in Capital Interest.
3. Calculate the return.

Notes

• On Interview Form K-7 - Transfer of Capital  each transfer is entered as a transaction.  That means first you enter just one transferring partner and and then all the receiving partners to complete the first transaction, if there are more than one transactions continue subsequently using same logic.
• If multiple transfers are occurring for one receiving partner on different dates, use amounts instead of percents to get the most accurate results.
• For Tax Years 2012 and earlier, Interview Form K-7 was only for transferring Capital. Beginning with 2013 there are two options for transferring Capital. The above process is for utilizing K-7, the process listed below is a new feature that Utilizes Interview Form K-6 - Changes in Partner's Interest & Transferring Information.
  1. Go to Interview Form K-1 - Partner Information.
     • Enter new partner information.
     • Do not enter any Profit/Loss/Capital Percentages for new partners. 
  2. Go to Interview Form K-6 - Changes in Partner's Interest & Transferring Information.
     • In Box 40 - Date 1, enter the date of the first transfer.
     • In Box 42 - Partner Number, enter the transferring partner number.
     • In Box 44 - Code, enter T.
     • In Box 46 - Percentage/Units, enter the amount that the partner is transferring.
       • The amount entered here is relative to the partnership's total capital balance. If partner 1 holds 33% of the partnership capital and he/she is transferring out completely then the amount entered is .33
     • In Box 51 - Partner Number, enter the receiving partner's number.
     • In Box 53 - Code, enter R.
     • In Box 54 - Partner Number, enter the partner number entered in box 42.
     • In Box 55 - Percentage/Units, enter the amount the partner is receiving. 
       • This number is also relative to the partnerships total capital. If the partner received all of the transfer you would enter .33, but if he/she only receive 15 percentage points then you would enter .15.
     • If more than one partner is receiving capital from the transfer, then repeat these steps for the receiving partners.  
       • The total of the amounts entered as received by the partners must match the amount entered for the transferring partner.
  3. Calculate the return.