When is K-1 Income Earned

[Jill Graff]

Is the income that appears on a K-1 (in this for a partnership) considered earned at year end, ratably, or when actually earned?

Partnership sold large asset and received $11 million 2/29/08. Partner, in a community property state, was divorced 3/14/08. Partnership year end-12/31/08. When is the Net Sec 1231 that passes through to the partner considered as income to the partner?

Thanks in advance.

[Burke]

Partnership entity had constructive receipt of funds when they were received, and for tax purposes, it was when the sale occurred. Were any distributions made to partners? What you are asking is a legal question, and I can see where you are going with this due to divorce and community property state situation. Tell the client to see a lawyer. The spouse probably did.

[BOB W]

Earned income is income where Social Security tax are paid on that income. In the case of a partnership K-1 SE tax are due.