Grant Thornton Urges US Firms To Keep 3 Sets Of Books

by Leroy Baker, Tax-News.com, New York

29 August 2007

With the next earnings season around the corner, many partnerships and limited liability companies (LLC) taxed as partnerships may find it surprising that they should be keeping three sets of books, says tax advisor Grant Thornton.

These entities generally only maintain two sets of books: generally accepted accounting principles (GAAP) basis and tax basis. But there is a more important set of books that should be maintained, but is often not: "Section 704(b)" books. This set of books is based on the Section 704(b) regulations, and attempts to reflect the economics of the situation.

Grant Thornton LLP's most recent issue of Marquee, a newsletter for the hospitality and real estate industries, illustrates the importance of maintaining all three types of books.

"To the surprise of many partners, the capital accounts referred to in their partnership or LLC agreements are Section 704(b) capital accounts - not GAAP or tax," explained Jerry Williford, a senior manager in Grant Thornton's tax practice. "Even though Section 704(b) books are not required to be shown on the partnership's tax return balance sheet, they need to be available as they determine the economics of the deal."

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