Which statement about the capital account balance is true?

The statement that the capital account balance rarely matches the partner's tax basis is accurate because there are several factors that can cause discrepancies between the two figures.

A partner's capital account reflects their equity investment in the partnership and generally includes contributions, allocated profits, and losses. In contrast, a partner's outside basis includes the partner's initial investment in the partnership, adjusted for various factors such as liabilities assumed, distributions received, and any additional contributions made. The differences arise from how the capital account and outside basis are adjusted over time.

The capital account may not account for all the tax attributes, such as nonrecourse debt that can affect the outside basis but not necessarily the capital account. Consequently, it is common for the two accounts to show different balances due to these various adjustments and the nuanced ways partnerships handle tax treatment.

The other choices do not accurately represent the nature of capital accounts. Capital account balances can indeed match a partner's outside basis under certain circumstances, but it is not a requirement for them to always align. Additionally, capital accounts are updated throughout the year, not just at year-end, reflecting ongoing changes due to income allocations, withdrawals, and contributions. Lastly, capital accounts can be negative, particularly when the partner's share of losses exceeds