Form 6198

[-U3R2Me-]

After an initial Smart Check routine, TurboTax stops on new Form 6198.  Highlights Part 1 2.c Other for or schedule.  The box is pink.  What information populates this box and from what other form?

Respectfully,

[JulieS · Accepted solution]

Form 6198 reports gains and losses that are limited by the At-Risk rules. Somewhere in the interview you have indicated that you have a business loss, or loss carryover, that is not fully deductible because some of your investment in the business is "not at risk".

The information may come from self employment (Schedule C), rental or royalty income (Schedule E), K-1 income (Schedule E, page 2), farm income (Schedule F or Form 4835), casualty or theft losses (Form 4684) or sales of business property (Form 4797).

At risk is a test that the IRS uses to see if you can deduct losses from investments and businesses that you own.

The basic rule is that you can't deduct a loss from your investment or business if the loss doesn't actually cause you to lose money.

Money you've invested in your business that is not at risk includes:

•  Nonrecourse loans; that is, financing for which you're not personally liable.
•  Cash, property, or borrowed amounts protected against loss by a guarantee, a stop-loss agreement, or a similar agreement.
•  Money borrowed from a person who has an interest in the business, other than as a creditor.

If you have self employment income in the return try the following:

1. Open and continue your return.
2. Click on the word Federal from the menu.
3. Click on Income & Expenses.
4. Find Self-Employment Income & Expenses on the list.
5. Click Review on the right.
6. Click Review to the right of your business name.
7. Find Uncommon Situations near the bottom of the list.
8. Click Edit to right.
9. Carefully review your answers to these questions.

If you are using Turbo Tax Desktop, installed on your computer, you can look at Schedule C in Forms mode. Look at line 32b to see if this box is checked. 

[-U3R2Me-]

The Best Answer reviews the process to understand Schedule "C" line 32b that is checked.  OK .  I am not clear as to how to complete the request for the Other Form Information line 2c Form 6198.

Please help me understand how to provide the information requested for line 2c Form 6198?  What specific information is requested and from which form does Turbo Tax obtain the information?

Respectfully

[RobertG]

If you disposed of an activity where you are 'not at risk' for the loss, line 2c is asking how much of a gain or loss you reported on that activity.

If the disposition of the assets was on  Schedule D or Form 4797 it goes on lines 2a or 2b.

See JulieS' answer above if you did not have any activities where you were 'not at risk'.

[-U3R2Me-]

Based on the language and terminology within the response, I have not idea what is discussed.  Very plain and simple language within a response is greatly appreciated.

[ColeenD3]

Go in to your Schedule C or F and make sure you did not accidentally click "Box 32b Not at Risk".

[Mitzy20]

Hello,

I have an MLP/oil & gas partnership.

Last year, (2019)  a CPA did my taxes and form 6198 was generated. I had a negative number on line 21.

This year I am using TT (havent filed 2020 yet), and I entered the K-1 per the instructions in TT.

But I did not get form 6198. 

Do I need form 6198 and how do I get it to generate?

Thanks in advance.

[Mike9241]

form 6198 is used to limit the deductibility of losses when you're not at risk - for an MLP that would mean you have zero (or negative tax basis). we have no way of telling if this is the case. take this as a generality, every K-1 from an MLP that I've worked with reflects tax basis in schedule L.  so if ending capital is negative you're not at risk.  Turbotax would have asked a question "all investment in partnership is at-risk"  if you check it you're at risk there will be no 6198.  if you don't answer it the next question is "some investment in partnership is not at-risk" only checking this would take you to form 6198.  read the following  

from an investor's guide to k-1 package support states the following for an MLP "ending capital account represents your basis in the partnership at the end of the tax year" 

so if ending capital is positive form 6198 was not needed. and if it was positive at the beginning of the year it was not needed last year. you should check the first question all at-risk. 

[Mitzy20]

Hi Again,

Both beginning and ending capital account are positive on the K-1, Box L.

The last sentence in your reply below is "you should check the first question all at risk"

Where do I answer the all at risk question in TT?

[Ranger8]

Julie - The IRS is sending me CP11 and CP501 notices claiming I owe them money on my 2020 return because line 32b on my Sched C was incorrectly checked. 'Some Investment Is Not At Risk'. I have no idea how/why this box was arbitrarily checked and Turbo Tax did not kick out Form 6198 to detail my claim. Because of this, the IRS did not carry over deductions and expenses on my Schedule C, leaving me with a TAX LIABILITY. My 1040 is related to a small, sole proprietor business, not an S Corp.1) Why did TurboTax automatically check line 32b on my 1040 Schedule C? [That's NEVER happened before!]  2) Checking box 32b should have automatically prompted a Form 6198 to provide details - yet it did not appear on my return. Why is that?

Because of this, I am now in a quagmire with the IRS trying to unravel what should have been a simple calculation. I appreciate any help or insight you can offer. - Ron

[JamesG1]

Did you sign up for Audit Defense on your 2020 tax return?

Does your copy of the 2020 Federal Schedule C have boxes 32a or 32b checked?

Is your copy of the 2020 Federal Schedule C correct?  Did you paper-file the tax return and the at-risk question was incorrectly posted by the IRS?

You may disagree in writing with the CP11 and ask to amend the tax return to correct the at-risk question.

[Ranger8]

Unfortunately, I did not sign up for the Audit Defense on my 2020 return. I've never needed 'audit defense' and I am capable of defending my own tax return and have extensive records to back up my numbers.

On my 1040 Sched C, the box is checked on line 32b which states 'Some investment is not at risk'. I have no idea how that box got checked, or what TurboTax query prompted that box to be checked. Nor why I was not directed to fill out form 6198 to detail those expenditures as required by the IRS. That alone would have prompted me to flag this issue and correct it. Seems unusual.

This one checked box has caused me 60 days of going back and forth with the IRS, just trying to figure out where the 'math error' is. The first agent I talked to was stymied that my Sched C deductible expenses on the E-file return I sent were absent on the IRS transposed copy. She said it was clearly an IRS error and referred me to a 'manager', saying someone would call me back within 30 days. A month later and still no response from IRS.

I finally contacted another agent on the phone today and just learned it was line 32b that was somehow checked on my 1040, and since Form 6198 was not included [Thanks Turbo Tax!], they disallowed my deductions and expenses leaving me with a tax liability.

My recourse now is to disagree with the original CP11 and re-file an amended tax return WITHOUT the line 32b box checked - 32a checked instead.

This all could have been easily prevented if TurboTax had prompted an alert for Form 6198 when the line 32b box was checked  - regardless of how the mistake occurred.

I greatly appreciate your input, JamesG1 !

[Ranger8]

I need to amend my 2020 1040c to check box 32a INSTEAD OF 32b. HOW DO I DO THAT?? None of the recommended options through TurboTax allows me to actually change the checked box. Why is this so difficult??

[Ranger8]

OK - so what do you do if line 32b is accidentally checked and you need to change it to line 32A? I need to amend my 2020 return. Please help!

[GeorgeM777]

The 2020 Form 1040-X (which is entitled Amended U.S. Individual Income Tax Return) is the form that you will be amending when you log back into your TurboTax account, and begin the amendment process.  The 2020 1040-X is a two page form and given the information your provided, as you proceed through the TurboTax application, your answers to questions will populate answers on the first page of Form 1040-X, and probably Part III on the second page of Form 1040-X.  You will not be seeing a question or a box relating to unchecking box 32 b and checking box 32 a.  Rather you will be answering questions that will show how the original amounts entered on your 2020 Form 1040 have changed and additionally, the net change to such original amounts. 

Because you have indicated that your 2020 Form 1040, Schedule C should have reflected that you were at risk with respect to your investment in your business, (box 32 a), then those deductions and expenses that were disallowed because you were not at risk, will now be allowed on your Form 1040-X.  The net change as a result of adding back in those expenses or deductions will be reflected in the Net Change column on Form 1040-X.

Included below is a link to the 2020 Form 1040-X.  Upon review of that form you will see that on the first page there are three columns where the Original Amount is entered, then the Corrected Amount, and the Net Change.

 2020 Form 1040-X