Self-Employment from K-1

[Snaggletooth]

A K-1 from a Partnership reads "Ordinary business income(loss) of -34,000 (Line 1), also Guaranteed Payments (Line 4a) of $45,000. The "net" of these two is $11,000 and this appears in Line 14 for "Self Employment Earnings."

All appears to be well except the taxpayer cannot claim the loss of ($34,000) because he has insufficient basis to allow a loss.

QUESTION: For self-employment purposes (not for income purposes), can he subtract the disallowed $34,000 from his guaranteed payments of $45,000?? In other words, for self-employment tax purposes, does he have $45,000 or $11,000??

[New York Enrolled Agent]

You don’t trust the entry in box 14?

See Rev. Ruling 56-675

[terryats]

The full amount of $45000 is subject to SE Tax

[Snaggletooth]

You don’t trust the entry in box 14?

See Rev. Ruling 56-675

No I don't trust box 14 (That is another issue, won't drag it into discussion)

Research from "Tax Notes" confirms that the SE tax should be the net of guaranteed payments and the loss, but does not discuss a situation where the printed loss on the K-1 is not taken because of basis issues. Issuers of K-1 simply report the ostensible loss, as the recipient is responsible for basis calculation.

[RAG1775]

See the attached article summarizing a CCA position

https://www.currentfederaltaxdevelopments.com/blog/2020/3/6/irs-memorandum-argues-that-loss-limits-apply-in-computing-self-employment-income-of-a-taxpayer