Self Employment Taxes - Partnership

[Snaggletooth]

What is the amount subject to self-employment tax (before the 93.25%) for the following situation??

Taxpayer has:

• A proprietorship which made $12,000.
• A partnership with $120,000 in guaranteed payments
• A loss from the same partnership of $150,000, but taxpayer has insufficient basis to deduct ANY of this loss for AGI purposes.
• The K-1 from the partnership shows Self-employment income of -$30.000.

[Rapid Robert]

The instructions for Box 14 Schedule K-1(Form 1065) state the following for Code A (which I assume is what is shown).

"If the amount on this line is a loss, enter only the deductible amount on Schedule SE (Form 1040 or 1040-SR). See Limitations on Losses, Deductions, and Credits, earlier."

So I don't think you can use the negative $30K SE income on the Schedule SE. Therefore, my educated guess is $132K subject to SE tax, but I've never dealt with this situation and welcome any opportunity to get further educated.

[JudyL]

I agree that the loss can't be used to offset other s.e. income. This point was argued by the IRS last year, and there is a Chief Counsel memorandum that addresses its finding and the IRS position. The memorandum contains an example of partners with basis and at-risk limitations to their losses as it applies to calculation of net earnings from self-employment.

https://www.irs.gov/pub/irs-wd/202009024.pdf

ETA - I suppose I should point out that the CCA isn't authoritative and shouldn't be cited as precedent but serves as internal guidance. I posted it because it does have the code and reg sections cited, and also notates a rev ruling that's been erroneously used to justify allowing the loss in the calculation of net earnings from self-employment.

[BOB W]

I agree that the loss can't be used to offset other s.e. income. This point was argued by the IRS last year, and there is a Chief Counsel memorandum that addresses its finding and the IRS position. The memorandum contains an example of partners with basis and at-risk limitations to their losses as it applies to calculation of net earnings from self-employment.

https://www.irs.gov/pub/irs-wd/202009024.pdf

ETA - I suppose I should point out that the CCA isn't authoritative and shouldn't be cited as precedent but serves as internal guidance. I posted it because it does have the code and reg sections cited, and also notates a rev ruling that's been erroneously used to justify allowing the loss in the calculation of net earnings from self-employment.

Judy L, you are another shinning star on this board... RR has competition or at least likes the way you post. with cites..

[Snaggletooth]

Judy L, you are another shinning star on this board... RR has competition or at least likes the way you post. with cites..

BobW, you are correct. I know who Judy is, and I can't agree more. Immense knowledge.