question #$4$

For TAX purposes, under Section $752$ of the Internal Revenue Code, any increase or decrease in a partner$$s allocated share of partnership liabilities will cause the outside basis of his or her partnership interest to increase or decrease. However, under GAAP, a partner$$s capital account cannot be increased or decreased by his or her share of partnership liabilities. Why can$$t a partner$$s capital account be increased or decreased by his or her share of the partnership liabilities?

Multiple Choice

A partner$$s capital account can only be increased or decreased by distributions, contributions, undistributed profits and losses.

GAAP prevents partners$$ capital accounts from being adjusted by the partnership$$s liabilities because this would hide the partnership$$s liabilities in the partners$$ capital account making it invisible to outsiders.

The tax rules are different from the GAAP rules.

None of the above.