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JP106
Level 1

ETF liquidation

An ETF I held was liquidated. It was structured as a partnership. I received a form 1065 / Schedule K-1.

The 1065 showed a short term loss (line 😎 of approximately 3% of my investment, and other income (loss) of around 80%.

 

While filling out the TT questions on the Schedule K-1, I do enter my cost basis (remaining 17% approximately I'd guess) and liquidation proceeds.

 

However my broker also included the loss from this liquidation on my 1099-B.

 

So in the end, TT, due to the 1099-B and schedule K-1 data, is trying to count my loss twice. The K-1 loss of about 17% ends up showing up on my schedule D under line 3 (from form 8949 with box C checked), while my 1099 loss was showing on the lines above.

 

I think the right thing to do here is not to show the cost basis and sale price when entering the K-1 data, and just allow my broker 1099's to cover it.

 

I'd appreciate any insight though as I of course want my taxes to be both correct - and not be audited.

 

Thanks!

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Accepted Solutions
DavidD66
Employee Tax Expert

ETF liquidation

There are a couple of ways to enter your 1099-B and K-1 to get to the correct result when you dispose of a Publicly Traded Partnership.  If you follow the instructions that should have been provided with your K-1, you will end up both a capital gain/loss and ordinary gain/loss.  So that you don't duplicate the capital gain/loss, you can then adjust your cost basis when you enter your 1099-B, so that it equals your proceeds and results in $0 capital gain/loss.  The cost basis on your 1099-B from your broker will not reflect any adjustment for return of principal and the ordinary income component.

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DavidD66
Employee Tax Expert

ETF liquidation

As I mentioned previously, there is more than one way to get to the correct result.  One is to adjust the cost basis on the 1099-B.  The other is to make an adjustment to the cost basis that you calculate when entering your K-1 information.  I mentioned adjusting the cost basis from the 1099-B, because they usually don't show the correct cost basis for a PTP.  It's a very simple adjustment to make.

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5 Replies
DavidD66
Employee Tax Expert

ETF liquidation

There are a couple of ways to enter your 1099-B and K-1 to get to the correct result when you dispose of a Publicly Traded Partnership.  If you follow the instructions that should have been provided with your K-1, you will end up both a capital gain/loss and ordinary gain/loss.  So that you don't duplicate the capital gain/loss, you can then adjust your cost basis when you enter your 1099-B, so that it equals your proceeds and results in $0 capital gain/loss.  The cost basis on your 1099-B from your broker will not reflect any adjustment for return of principal and the ordinary income component.

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JP106
Level 1

ETF liquidation

Thank you for your kind response.

 

(One of ) My broker(s) is reporting the transaction as a "covered".  So they are reporting both the cost basis and the proceeds.

Would it not be simpler to just show the loss through that 1099-B rather than through a form 8949 "Box C" checked transaction?    (Which has not been reported to the IRS)

 

Forgive me for "second-guessing" you here, I just want to do what's right to minimize my risk of having to deal with an audit. 

 

(To further complicate things, these ETF shares were purchased through two brokers - one reported it as a covered transaction with both basis and proceeds, the other was "unknown term", "basis not reported to IRS".)

 

Thanks again for your very helpful insight.

DavidD66
Employee Tax Expert

ETF liquidation

As I mentioned previously, there is more than one way to get to the correct result.  One is to adjust the cost basis on the 1099-B.  The other is to make an adjustment to the cost basis that you calculate when entering your K-1 information.  I mentioned adjusting the cost basis from the 1099-B, because they usually don't show the correct cost basis for a PTP.  It's a very simple adjustment to make.

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JP106
Level 1

ETF liquidation

Ok thank you David.

I'm very open to adjusting the 1099-B as to be honest, the basis from the broker that actually claims it is a covered security, is not accurate.  I can "make it hole" by setting the basis for the "uncovered" ETF from the other broker.

Last question - is adjusting the basis of a "covered security" likely to draw scrutiny from the IRS, or is basis adjustments fairly common and not something to be too worried about?

Thanks again!

ColeenD3
Employee Tax Expert

ETF liquidation

You are good as long as you keep records explaining why you did what you did.

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