Capital Account Analysis Tax Basis Methodology for Schedule K-1 (565) and Schedule K-1 (568) for Taxable Years 2021, 2022, and Subsequent Tax Years Public Service Bulletin

January 31, 2023

Purpose of bulletin

The purpose of this Public Service Bulletin is to provide details regarding the recently issued FTB Notice 2023-01.

Background

Starting in taxable year 2023, and all subsequent years, partnerships and limited liability companies taxed as partnerships will be required to report partners’ and members’ capital account information using the “tax basis method” described in the 2021 Instructions of IRS Form 1065, but calculated under California law, on their Schedule K-1 (565) and Schedule K-1 (568).

For taxable years 2021, and 2022, Franchise Tax Board has issued FTB Notice 2023-01 which allows partnerships and limited liability companies taxed as partnerships to report their partners’ or members’ capital account information using the “tax basis method” as determined under either federal or California law.

The option to use the federal amount is limited solely to reporting the capital account information on Schedule K-1 (565) and Schedule K-1 (568) for the taxable years 2021, and 2022, and does not allow any taxpayer to use such amounts for any other purpose, including reporting or determining their California tax liability.

Additonal Information

For more information see FTB Notice 2023-01.