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K-1 from Partnership


Lion EA
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Same family I'm rushing through one kid who's off to someplace remote for his Fulbright. Mom has a couple small K-1s from investment partnerships of her dad who gifted her shares years ago. (Not PTPs) I think he prepares his own two partnership tax returns, but getting information from him on the other side of the country, and older than I am, has been difficult. We've been trying to get basis information on her for the last few years.

Small loss this year (2,800ish), no basis, but capital account reported for the first time ever: Beginning (44,400), 2020 loss, so Ending (47,000+).

As this K-1 hits her 1040, is her 2,800 loss suspended due to her probable lack of basis? Or, is it income to her?

Ignoring prior years that I may need to revisit and being your usual understanding group while I'm sleep-deprived and stressed (I know, we all are) with my largest backlog ever trying to help out a long-time client as I sit here with my TTB open and a text on partnerships from a class I took long ago and not understanding what I'm reading.

Prepared this couple's biz return for years, but am more recent to their personal returns. She used to have a few hundred dollars income on each of these two K-1s, so no worries. Now it's losses, and we're supposed to show basis, and her dad's been unresponsive. Now that I have capital account info for one of the two K-1s, I'd like to report this right for the right tax bracket for Kiddie Tax for the kid leaving the country tomorrow.

My husband wants me to retire!

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Sorry I can't help you with this as I purged my brain of partnership knowledge a few years ago after my last one left (whew!)  I am puzzled, though, how the capital account can be higher at the eoy with a loss for the year.  Is there a way you can add up the income for the years you have done to see whether it is enough to cover this loss?  I'm sure someone still active and knowing about p'ships will chime in here soon. 

My husband also wants me to retire but I have just been shedding the business returns and not taking new clients so easing along that path.  Without businesses, I am still (mostly) enjoying the work even with all the credits and more.  But no virtual currency!  I have already declined one possible new client.  Won't do it.

Good luck!  And remember that amended returns are an option so long as you can honestly state that the returns are true to your knowledge, in my opinion.

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Given the absence of current information, if I were in your shoes, I either would suspend the loss or put these returns on the back burner.

It sounds like you are trying to do more than your share of heavy lifting on this group of returns!

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Thank you, all.

I am suspending the loss for now. I am also not filing that return, the parents of the Fulbright kid, until later when I have time to deal with a couple issues, proofread properly (4 K-1s, SS, Schedules A, B, C, D, E, lots of medical, pages and pages of stock transactions, IRA/SIMPLEs, 2 college students, AOC, 1099-Q,...). Just need to be in the right tax bracket and have all their investment totals to be able to calculate Kiddie Tax for that Fulbright kid.

My main fear is that the full ending loss without basis could be income in 2020 since we never accounted for it before. This is the first time her dad had a beginning balance on one, only one, of the K-1s she received.

This is a long-time biz return client. I've been preparing their personal returns for fewer years. Basis was not on my mind when she had a few hundred bucks income on each of the two K-1s from her dad's partnerships. I started asking her to ask her dad for information when she had like an $8 loss; then the IRS started (and postponed) requiring basis information for losses, etc. Nothing from dad until now. On only one of the two partnerships. Suddenly I find her 2020 beginning capital account is a loss (44,400ish). I never knew. And, I've had her personal returns for few enough years that those little losses, even with 2020's loss (2,800ish) don't add up to a (47,000ish) ending loss.

Still don't have any response about her other K-1 from her dad's other partnership.

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Hey I sent my stepdaughter and DIL who have birthdays today the wrong e-cards after midnight last night. I sent the younger one a Happy 40th ecard !!

I did catch it before sending the 40-year-old a plain card. So, the milestone birthday girl did receive her correct card. My younger DIL received the wrong one, an apology from me, and the right one.

I can NOT multi-task as well as when I was younger!

Oh, and I've gotten rid of all C-corps, and have only 2 partnerships, 2 S-corps, and 3 trusts left. Trying real hard to get to all 1040s, but don't want to lose families over the family businesses. And, no Crypto, yet. Have a gal who purchased in 2020; told her to use a tracking service if she wants me to continue. Her parents are big clients, so don't want to lose that family

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You didn't say anything about her taking money out of partnership, so I'm confused why you think the loss may be taxable income?  Sounds to me like non-deductible because of at risk limitations. 

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She didn't take anything out. Just a loss. Worried about the until-now missing starting capital account loss, also. (This family has four interconnected tax returns due to Kiddie Tax and a different biz issue that I understand, and I sent our daughters the wrong birthday cards -- so I'm not trusting anything I think today.)

Non-deductible because of at-risk limitations? Suspended due to basis limitations? The full $47K? It's not income nor deduction on parents' returns (right?), so I'm going to plow forward with Kiddie Tax for the return of the kid that's leaving the country tomorrow.

 

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So, what happened this year was a 2,800 loss, correct?  She didn't take any money out of the partnership, so no taxable gain for the year, and it appears there would not be an allowable loss.

At risk or basis limitations are likely the same thing when it comes down to it.  Prior years may be in error, but from what you are saying, I don't see how that would keep your from completing 2020 return.

Was there not a 6198 with the 1040 the year prior to when you took over?  Since there were not losses of the 40K nature during the years you were doing the returns, it certainly sounds like there should have been as the losses occurred prior.  If whoever was preparing the 1040's prior wasn't filing 6198's it may be a mess to clean up, but I don't see where it would keep you from completing 2020 return. 

 

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Thanx. I agree that I'm good enough to go for 2020. They did their own returns before me. They hired me to prepare their biz returns about 2009 (NOT the biz that sends this K-1). A few years later, they added their personal returns. No 6198 in prior personal returns; I always ask for three years. The husband who had been preparing their returns developed early-onset Alzheimer's. The K-1s without basis info come from wife's father's two businesses for which he prepares the tax returns, filing on paper to Ogden; father must be at least in his mid-80s.

Thank you, everyone. I managed to get parents' return enough to lock down their tax rate and have their investments entered, and got sister's investments entered and return ready to proofread. So, I let software calculate brother's return with Kiddie Tax. He eSigned, and I e-filed. He flies off to Jordan on Tuesday to start his Fulbright program. Whew! Now to start reading up on Fulbright Scholarship taxation...

Again, thank you, everyone who helped on my two frantic topics this week.

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