This is a holding page that takes you through further description of the capital accounts — the outside basis, the inside basis and the minimum gain account. When the tax returns are filed, both of these accounts are submitted to the IRS — I have seen them. The account that matters most is the outside capital account (or the tax basis) for the tax investor, and that is described first. It is the account that can affect the after tax IRR of the tax investor by limiting the tax deductions of the tax investor. The format of the outside basis is consistent in models with a sub-total for computing the limit on taxes if dividends exceed the invested capital of the tax investor and an NOL type mechanism called the suspended loss if the balance of the tax equity is still negative.
The second account that is discussed in a separate page is the inside basis which is affected by the deficit restoration obligation, re-allocations, the minimum gain and other factors. This inside basis is more of a pain to compute and you must ask how balances in this account affects the IRR and the economics of different partners. From review of models and analysis of tax documents, this account has a very limited if any affect on the ultimate IRR’s of the partnership.
The third account is the most painful minimum gain account that goes into the inside basis. This account arises when there is debt at the partnership SPV. It does not arise from back leverage.