Partner's K-1

[tsuewalker]

Client got a 1065 K-1 from a partnership. There is an amount in 19A in the amount of $947. Explanation on K-1 shows this amount under cash distributions with the adjusted basis of the property at $1000. Not sure what to do with this. Thank you for your help.

[taxea]

The K-1 comes with a page attached that tells you where to put each entry on the return. Perhaps the client didn't give it to you. Either way if you input the K-1 as is your program should take care of putting the entry in correct location on the return.

[tsuewalker]

That's my problem. My program doesn't have a place to enter an amt. on 19A. I did do the research but I don't understand it fully. Here's what it said on IRS.......

Box 19. Distributions


Code A. Cash and marketable securities. Code A shows the distributions the partnership made to you of cash and certain marketable securities. The marketable securities are included at their fair market value (FMV) on the date of distribution (minus your share of the partnership's gain on the securities distributed to you). If the amount shown as code A exceeds the adjusted basis of your partnership interest immediately before the distribution, the excess is treated as gain from the sale or exchange of your partnership interest. Generally, this gain is treated as gain from the sale of a capital asset and should be reported on Form 8949 and the Schedule D for your return. However, if you receive cash or property in exchange for any part of a partnership interest, the amount of the distribution attributable to your share of the partnership's unrealized receivable or inventory items results in ordinary income (see Regulations section 1.751-1(a) and Sale or Exchange of Partnership Interest, earlier). For details, see Pub. 541.
The partnership will separately identify both of the following.

•The FMV of the marketable securities when distributed (minus your share of the gain on the securities distributed to you).


•The partnership's adjusted basis of those securities immediately before the distribution.


Decrease the adjusted basis of your interest in the partnership (but not below zero) by the amount of cash distributed to you and the partnership's adjusted basis of the distributed securities. Advances or drawings of money or property against your share are treated as current distributions made on the last day of the partnership's tax year.
Your basis in the distributed marketable securities (other than in liquidation of your interest) is the smaller of:

•The partnership's adjusted basis in the securities immediately before the distribution increased by any gain recognized on the distribution of the securities or


•The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities.


If you received the securities in liquidation of your partnership interest, your basis in the marketable securities is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities.

I really appreciate everybody's help. This is the first time I've seen this so I'm trying to learn and make sure I'm doing it right at the same time.

[David1980]

Even if you can type an amount on box 19 in the software I doubt the software does anything with it. I think this is one of those times you need to be smarter than the software.

How much do you understand about partnership taxation?

A partnership return is what we would call a pass-through return. In that the income or loss from the partnership flows through to the individual partner's returns. Each partner reporting their share of the income or loss from the partnership. The important thing is this happens regardless of contributions/distributions. If this is a two-member 50/50 partnership and the partnership is reporting income of $500,000 for the year each partner is going to report $250,000 of income on their individual returns. Even if they didn't take a distribution of a single penny. They're taxed on the income or loss of the partnership - not based on their contributions or distributions.

So what happens with the distributions? You have the relevant information from the partner's instructions for the k-1.

If the amount shown as code A exceeds the adjusted basis of your partnership interest immediately before the distribution, the excess is treated as gain from the sale or exchange of your partnership interest.

If my basis in the partnership is $500 and I receive a distribution of $1,000 it is treated as gain from the sale or exchange of the partnership interest. $500 of the distribution reduces my basis to $0 and then I have $500 of gain. That would be in addition to whatever my share of the partnership income is. If on the other hand my basis is $1,000 the distribution is not taxable.

So the very first question you need the answer to is - what was the partner's basis in the partnership when they received the distribution?

[tsuewalker]

David1980, you're a gem!!! When somebody tells me something in "layman" terms, I get it. This is a six way partnership and they plant soybeans on 200 acres. On the Partner's Basis Worksheet that is attached to K-1, it has cash distribution of $947 and it shows adjusted basis of property is $1,000. So, am I correct, in that now, the basis has been reduced to $53 and the $947 is not taxable. That's the way I thought I understood it looking at IRS.gov but sometimes they're clear as "mud". Thank you so much for your help.