TCP Basis Rules Are All Blending Together. How Do I Separate the Entities?
The biggest mistake is trying to remember basis as one topic. Start every question with two questions: whose basis am I calculating, and basis in what?
Owner-side basis
You may be calculating shareholder stock basis, partner outside basis, or debt basis where applicable. Those are not the same thing as the entity's basis in an asset.
Entity-side basis
The corporation or partnership may receive property. Now ask what basis the entity takes in that property. That calculation can differ from the owner's basis in the ownership interest.
Use four boxes
For every formation or contribution question, draw owner before, entity before, owner after, and entity after. Then place cash, adjusted basis, fair market value, liabilities, services, gain recognized, resulting ownership basis, and entity asset basis into the correct box.
Separate C corporation, S corporation, and partnership
Do not learn the entities sequentially and hope the differences stay clear. Build them side by side and compare formation requirements, property contributions, services, liabilities, owner basis, entity basis, gain recognition, distributions, and loss rules.
Read the requirement before the facts
A TCP problem can give you a large paragraph. Read the requirement first. “Determine the shareholder's basis” and “determine the partnership's basis in the asset” ask for completely different calculations.
The takeaway
TCP basis is a network of related calculations belonging to different taxpayers and different assets.
Related Summit guides
FAQ
What is outside basis?
It is a partner's basis in the partnership interest rather than the partnership's basis in its assets.
Why do I keep calculating the wrong basis?
TCP questions often provide facts relevant to several taxpayers at once. Read the requirement first.
Should I study entities separately or together?
Learn each entity, then compare them side by side to make the differences explicit.