Amendment possibility?

[ILLMAS]

Scenario: Tax preparer relied on tax payer accounting records to prepare a partnership return from 2007 to 2012, return were always timely filed. In 2007 the partnership bought land and developed it at an approximate cost of 1.3M and the land cost was around 900K, somehow on the books only 600K was allocated for construction cost and 254K for land, the rest was expensed. Fast forward to 2012, building/land was sold for 3M resulting in a gain of over 2M, from looking at one of the partner 1040 he didn't benefit from the loss in the K-1's because his other properties were at a loss already. Can the partnership returns be amended to capitalize the improvement back in 2007 when everything started?

thanks

mas

[Lee B]

Interesting dilema. I'm curious as to what will be the best way to resolve this mess.

[jainen]

>>Can the partnership returns be amended to capitalize the improvement back in 2007 when everything started?<<

I'd like to hear what you tell the other partners--"Please cancel the big deduction you took back in 2007. Even though it means more ordinary income with five years penalty and interest, you will have lower long term capital gain!"

Anyway, no. That accounting change would require a Private Letter Ruling. And it wouldn't be approved, because there is no business purpose other than tax savings for one of the partners who wants to cover unrelated investments.

I don't understand what "loss" you are referring to. If he couldn't take the original losses because they were passive, they are still available for the year of sale. If he couldn't take them because they exceeded his investment basis, he doesn't have much to complain about. It kind of sounds like he DID take them but just didn't benefit because he was already at zero. In that case, you might take a look at an NOL, but 2007 is pretty much off the table by now.

[kcjenkins]

I agree with Jainen on this, Marco.

[OldJack]

I also agree with Jainen.