Investments with K-1's multiple states

[equinecpa]

Curious I'm doing a couple of returns where the client lives in a state with no state income tax filing requirement. They received a K-1 from an investment they made. This K-1 includes a CA state k-1 (due to location of the actual LLC ) and a K-1 for NC due to location of LLC investment (rental property). Both state k-1's report losses.

Would you file state returns for these?
Both states say "non-residents with state source income" are required to file. Is a loss considered income?

[Super Mom]

do either one of these partners live in these states?

[spanel]

Curious I'm doing a couple of returns where the client lives in a state with no state income tax filing requirement. They received a K-1 from an investment they made. This K-1 includes a CA state k-1 (due to location of the actual LLC ) and a K-1 for NC due to location of LLC investment (rental property). Both state k-1's report losses.

Would you file state returns for these?
Both states say "non-residents with state source income" are required to file. Is a loss considered income?

A loss is not considered income. You might still want to file to show owing $0 as they do own a business in those states.

Chris

[Jiggers]

Texas has no state income tax. My engagement letter says that I prepare no state income tax returns for any clients. Actually, the only one state I do is Louisiana and that is if my Texas client has W-2G's from their casinos with Louisiana state income tax withheld.

[Lion]

When the LLC sells that NC rental property, your client will be very glad to have carryover losses to net against his sales income.

And, filing a return starts the SOL running. No return, then the SOL never runs.

That said, I explain to my clients and tell them my fees for preparing those states and let them decide.

[Roland Slugg]

Hello equinecpa. I presume you posted the question because you were hoping to get an actual answer. I'll try to help you.

There are two schools of thought about the situation you described.

Some would say the T/P should file returns in the other states, even though they would report losses, in order to get those PALs "on the record." Then if the underlying property is later sold at a gain, that gain will be reduced by the prior year suspended losses.

Others would argue that if the income is below the nonresident state's filing threshold, that a return need not be filed, but that the losses attributable to the other state(s) should simply be tracked and used as offsets against an eventual gain.

I fall into the latter category. In my opinion it would be unreasonable for California or any other state to assert that prior year losses were not allowable as reductions against a current year's gain simply because a return was not filed reporting those earlier losses. When a state has a minimum filing threshold, it means no return is required. It doesn't mean no return is required BUT if you want to get losses on the record, you better file one anyway.

[DaveO]

I have a few clients that have K-1's from real businesses in another state. I do not hesitate to prepare those other state returns. My problems is with the guy whose broker sells him a MLP for a pipeline and it reports out for 34 states. What then?

[spanel]

I have a few clients that have K-1's from real businesses in another state. I do not hesitate to prepare those other state returns. My problems is with the guy whose broker sells him a MLP for a pipeline and it reports out for 34 states. What then?

Look at each states profit/loss and then each states filing requirements and file states based off that.

Then charge $$$ and tell client to sell that MLP crap!

Chris