Client received a K1 from a partnership AND a form 1099-MISC. Wants to report the 1099 on her Sch C with expenses. Any problem with that? Seems to have the same effect as GP on K1 and UPE.
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clarification needed
Are you saying that the partnership gave her both the K1 and the 1099M? If that's the case my first question would be whether this is the correct treatment. As far as I know, to be correct the K1 and 1099M would have to be for different monies. My biggest concern is that if you report only one document on her return she'll get a cp notice about the one you don't report. It seems like before you fail to report a form you want to make absolutely sure you're right and if the partnership has messed up give them the chance to correct the prob on their end. -
Sorry for confusion. She received a correct K1. She is allowed to take 33% of any profits, but zero of any losses (don't ask, I don't prepare this return). I believe this is due to the fact that one partner has contributed all of the capital, and so takes all losses. The Partnership ended 2009 with a loss. Had there been profits, I believe those would have been split.
She also received a 1099-MISC instead of a GP. She would have UPE in accordance with the partnership agreement.
So, I think the tax effect is the same.Comment
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In other words, instead of the additional payments in addition to her 33% share of profits being reported as guaranteed payments, the partnership gave her a 1099-MISC instead.
If that is the case, expenses are allowed against income in the same way that unreimbursed partnership expenses are allowed against guaranteed payments, assuming the partnership agreement says she is responsible to pay those expenses.
The proper treatment is to put the income and expenses on Schedule E. However, since a 1099-MISC was issued, I would put the income and expenses on a Schedule C and make a note in your file that it was done that way to match how IRS computers want to see the income reported. If your client is audited, a simple explanation to the auditor saying the net result of reporting income and expenses on Schedule C verses Schedule E would be identical.
I would also have the partner inform the tax preparer of the partnership return that rather than issuing a 1099-MISC, the proper way to report the additional income is to include it as guaranteed payments on the K-1.Comment
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Thank you, Bees. I've taken your advice and informed the client regarding GP vs. 1099M.Comment
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