Partnership K-1 & state returns

[Catherine]

So here's the question.  I have a client who has a partnership K-1 with info from eleven states.  Some of the states (don't have the list here; at my other office) info pages in TTB and online say "filing required for non-resident if there is ANY in-state income", regardless of amount.  

But is that at the partnership level or the partner level?  It's just senseless to file all these states; the partnership paid in taxes and from most of them he would have $1 - $4 refunds.  

Opinions?  Do we file these eleven states?  Just the one where the refund might be more than my charge?  None but the resident state?  Pick a number via dartboard?

[michaelmars]

we pick and choose, usually the income amt per state is below their filing threshold and the refund would be less than our fees.  Don't forget to take ht withholding on schedule A.  Some of the states might be part of a composite return, read carefully, if so then you don't file but get to take the resident state tax credit.

[Lion EA]

I lay it out for the client who almost always decides not to file state returns with tiny amounts and pay me for prep.  Of course, I require resident state and any other NR that they would do withOUT the K-1; for example, I include the K-1 input in CT and NY for my NY commuters without even asking.  I'm very clear on which states require them to file, how much I project their refunds to be in all states, and where losses now might help them when selling later in states.  I make the client decide.  I need to start putting that on paper over their signature.  Mike:  do you have a form they sign or a paragraph/bullet point in your engagement letter re NR state returns that you would share?

[rfassett]

I do about the same as Mike and Lion.  We pick and choose but let the client make the ultimate decision after explaining the client's exposure if ignoring to file.  I have that little small voice in the back of my head with everyone of these though with the "what if this client had other income in that state that he conveniently forgot to tell me about?".  The exposure lottery just took a bad turn.  As an example, I did a client's return for several years before I learned he did business in another state.  The type of business was in the veterinary area.  Who would have thought that this Vet, who had an office in PA, would fly out to North Dakota once a month to do work there?  No office in North Dakota.  Just set up at one of the local farms and take care of every one in the area from there.  You just do not ever know for sure.  I guess I made too many assumptions and did not ask the correct questions.  My point is, be very careful with the filing threshold issue.  The rest of the story?  I started asking the right questions and now we are filing in five states for this guy.  Clients do funny things that defy logic.  But that is what keeps this business interesting. 

[SaraEA]

I am usually a real stickler for rules, but some of the PTPs have 40 states listed. I am not going to look up the filing thresholds for 40 states.  (I give you credit, Lion, for all those projections.)  Unless I see a significant number listed, I tell the client that I am not going to do the states.  If the states think they are owed money, let them alert the client.  I'll take it from there if they do.  In all these years, handling countless PTPs, I have never had a client get a letter from any state.

When a client sells a PTP, I do complete the worksheet that comes with the K1 by hand.  (Am I exonerated?) This breaks out the capital from the ordinary gain.  This summer I had a client with FIFTY EIGHT of these #**?!# things, 54 of which had been sold.  I spent hours and hours doing all those calcs by hand, entering them in the program, and double checking every single one.  You should have seen his bill.

[Lion EA]

My "projections" are just on the fly, off the top of my head, looking at the numbers on the state's K-1s, no calculations that take pencil & paper....

It's hard to bill enough for these blasted things!  Hope you got what you were worth, Sara, for 58!  I have one client with a dozen or so and a dozen in his trust, also, and other clients with six of more; of course, they all have 4-6 activities in each K-1.  I really need to raise my prices on these.

[Abby Normal]

I ignore all the states too. It's almost always a loss anyway.

I also ignore the state decoupling modifications until it's sold. ATX doesn't keep track of the state PTP suspended loss, but the K1 usually gives you state difference on disposition, so I think that's all you need.

One thing I know I've missed in the past is partial dispositions. But not anymore. Unless the client doesn't give me all the pages. The K1 needs to be improved so it's obvious there's been a partial distribution and the numbers you need are on the K1, not on some schedule.