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It's perfect weather here with beautiful days and crisp overnight temps. I love this time of year and am not looking forward to winter.

Yes - your reasoning is correct. Funds held for deposit to either be applied against a future payment or refunded are considered liabilities. Restricted Net Assets are funds that have been already recorded as income, but are designated for a specific purpose in the future.

I agree with your handling, John, and with Lee and Ron.

Your reasoning is sound. The monies paid were not contributions nor donations based upon your description. That would be a requirement for parking stuff in temporarily restricted funds under the non profit accounting rules, At least that is the way it was when I took that course eons ago. The only taint to your reasoning would be if the payers were taking a charitable contribution deduction on their tax returns - which they should not be doing according to your dialog.

Yes it is Bill. What comes next is more worrisome..

Went for a bike ride early this morning in the dark and nearly froze my.......fingers off. Shorter days are no fun, but fall is beautiful.

Most likely the external auditors are looking at it more of the organization acting as a fiscal agent, you mention it appears under the liabilities and therefore it appears as a liability of the organization when its not. If it's being questioned by the board, you might want to ask the external auditors about it.

I have easily unfrozen and re-frozen my security freeze a number of times without issue. Just don't loose that PIN #.

Judy and Rich, thanks for your inputs. Yes, it was a two person partnership with the partnership agreement stating that upon death of either partner, the remaining partner would buy out the deceased partner for $800,000, which wold first be used to pay off the decedent's capital account and the rest would go to buy out the decedent's share. The buyouts were funded by each partner having a personally paid insurance policy for $800K on the other partner. When the partn4r died, the remaining partner put the $800K insurance proceeds into the partnership and incr4eased his capital account. Then the full $800K was used to buy out the deceased partner's capital account of about $500K and the remainder to pay for gains on other assets of the partnership which were in the process of being sold, but not yet closed, on the date of the partner's death. Applying $230 K to these gains would account for a capital gain by the estate of deceased partner and increased basis in these assets for remaining partner to prevent him from having to pay double the gain on the assets in question (his portion and the deceased partner's portion). Can the remaining $70K of the buyout be used to increase the basis of the remaining assets ratable, or would it have to be shown as goodwill? If goodwill, and the LLC becomes a SMLLC and is disregarded, how would remaining partner ever recover that $70K, since he would not ever sell any portion of the SMLLC but only the remaining assets and show gain or loss on his personal return. After remaining assets would be sold, the $70K of goodwill would stand alone in the SMLLC and have no value. Nothing like a tough one to keep the mind sharp!! Thank you very much for you input and links. I have looked at many other links, but I will check the two out that you provided, Judy.

Thanks for the quick responses. Just to clarify Ron's question, the payers were not taking a charitable contribution deduction on their returns. My reasoning for it being a liability is along the lines of Evan's response. The organization assumed a responsibility to forward the funds to the tour operator when it accepted the funds. (or to return the money to the participants if the trip failed to materialize). Therefore, the cash in the bank account needed to be offset by the recognition of a corresponding liability. I'm still getting up to speed on non-profits, but in my way of reasoning, the "Temporarily Restricted Net Assets" is in reality a proxy for a liability account. Fund accounting is weird.

I am not a non-profit expert, but your logic makes sense to me !

Rich, it was a 2-person partnership according to the title of the post. I believe the article recommends depositing the proceeds of the life insurance into the partnership and handling the payout to the estate or successor from there. Just some ramblings, but I was thinking that if this were a partnership of more than 2 persons, it would consider making a sec 754 adjustment that basically has the effect of adjusting inside basis of remaining partners to their outside basis, but in this case the partnership is liquidating the deceased partner's interest, and so it has a technical termination. Does this mean that the remaining person has additional basis because of the buyout? And is that in the form of additional basis in all the assets he now owes as a SMLLC or is it still goodwill? Sorry if that's not helpful, and I may be creating more questions than answers....

I'm following also and don't have a clear answer either, and that is why I didn't respond sooner. I did find this article from The Tax Advisor that might provide useful though and get the discussion moving. https://www.thetaxadviser.com/issues/2015/aug/accounting-for-death-of-partner.html Also, this link to the Code that may be useful. After reading this, depending on how the buy-sell agreement is worded for the payout, it sounds like that $70K may well be goodwill. I'm not sure though and hoping others with more experience will weigh in. https://www.law.cornell.edu/cfr/text/26/1.736-1

RIngers: I just want to follow this... Was there only two partners? Since the deceased partner's estate was paid, why are you booking anything into the partnership? The remaining partner (s) may have an amortizable asset... Or its an adjustment to each partners returns and not reflected on the partnership. I want to follow this to see what everyone else has to say. Rich

You might be locked out of E-services when you are required to make the 6 month change in password? Or, when you renew your PTIN.

Rita lives in my state, not too far away and I've known her for several years. I'll take all the hugs she is willing to give out!