The capital account is further adjusted to reflect the partner's additional capital contributions, allocable shares of partnership income and loss, and any distributions of cash or other property.

In addition, the capital account maintenance rules permit a partnership to revalue its assets and restate the partners' capital accounts to reflect each partner's economic share of the underlying assets at FMV, but only if the adjustments are made principally for a substantial nontax business purpose in connection with specific events.

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Unlimited liability is the most dramatic disadvantage of the partnership form of business, and a company should carefully consider whether a corporation would be a more advantageous method of organization. Furthermore, if there is no written agreement to the contrary, all income and losses of the partnership are divided equally, even if one partner contributed the bulk of the assets to the partnership at its inception.

A partnership allows individuals to combine talents and resources in business, and does not require the legal process involved in forming a corporation.

In contrast to these advantages, unlimited liability, mutual agency, and unlimited liability are potential disadvantages to the partnership form of organization.

A partnership is formed when the partners pool their assets.

Over time, the notion of revaluing partnership assets has become more prevalent, since valuing assets often is required for GAAP and other purposes, and the list of permissible revaluation events has grown.

The IRS added issuance of partnership interests in exchange for services and the issuance of noncompensatory partnership options to the list in 20, The IRS should consider expanding the list of revaluation events to include additional transactions that change the underlying economics of the partners' arrangement, if a reliable FMV for the revalued assets can be established in connection with them.

In this regard, the IRS may wish to(b)(2)(iv)(f)(5)(v)—which permits securities partnerships, substantially all the assets of which are readily tradable on established securities market, to revalue their property under GAAP—to include other partnerships whose assets may not be currently traded on an established exchange but which may have a reliable method for regularly adjusting the FMVs of their assets for GAAP purposes.

Finally, the authors suggest that the IRS consider making some or all of the revaluation events mandatory under the Sec.

704(b) safe While partners' capital accounts are not maintained in real time or systematically updated on a recurring basis to reflect changes in the underlying value of partnership property, revaluation events allow partnerships to adjust the partners' capital accounts to more accurately represent the partners' economic entitlements on the basis of current FMVs of partnership property.