Se 1231 & Sec 1250

[John3cpa]

A client just had one of those "new" statistical audits that replaced TCMP. I did not represent him at the audit, as he is squeaky clean and his return is not complicated...except:
He had an investment in limited partnership that reported Sec 1231 gain of say 3,000 and unrecaptured 1250 gain of 4,000 which i dutifully pumped into my software. Bottom line-the 3,000 Sec 1231 gain was recharacterized and taxed at the 1250 25% rate instead of the capital gain rate, all of which is shown on worksheets attached to the client's copy of the return. Auditor says "i don't see the 4,000 on the return..."
Before i respond to auditor I just wanted to make sure that this is right, don't see this much in my small practice.
Merry Christmas, Happy Holidays to y'all!!

[Bees Knees]

I'm not sure exactly what you mean.

Tell us exactly what are the numbers that appear in each box on the K-1.

[John3cpa]

Per K1

Box 9c 4,008
Box 10 3,987 gain

[abby]

sec 1250 box 9c

I agree that this is not additional gain, but the character of part of the gain reported on Line 10.

It looks like there may have been a sale of real property that had a gain and perhaps other assets sold at a loss thus creating a net gain that happens to be less than the sec 1250 gain.

I think your auditor doesn't understand that the 4,000 is reporting the tax treatment of some of the sec 1231gain, not additional gain.

I'm with you.

[Bees Knees]

Agreed

The K-1 line instructions for line 9c give specific instructions on where that number is to go on the Unrecaptured Section 1250 Gain Worksheet found in the Schedule D (1040) instructions.

The K-1 line instructions for line 10 are very specific as to where the number goes on the 4797.

Rather than try to teach the auditor tax theory, just say those are the instructions the IRS has provided, which is how those numbers were reported on the tax return, and leave it at that.