You need to do what you are comfortable doing since you are probably signing the tax return.
This is an area that has been more than murky since 1998. There were two sets of proposed regulations; one withdrawn and one that has been sitting there since 1998 as Congress and many commentator's thought that Treasury over stepped their boundary on the regulations. Congress took a position that nothing could be done or issued before July 1, 1998. Nothing has happened since then. Proposed regulations do not have the force of law. So we have been in limbo ever since.
You will have preparers on both sides of this issue; some being conservative and some being more aggressive. The real issue is the tolerance to risk and can you support your position.
The IRS has prevailed in a number of high profile cases. However, all of these cases involved service type LLC's where the member's were active. Your facts do not indicate your business.
So unfortunately you will not get the guidance you were expecting here. TT will take the position that if the K-1 box for general partner or LLC member-manager is checked all income will be reflected as self-employment income.
Once again, you need to decide as the preparer and signer of the tax return what position you are comfortable with taking. The accountant can always take a position contrary to the K-1 presentation, but it will need to be disclosed and they certainly do not want to set off the red flags on this matter. If the accountant is so sure in his position, then maybe he/she will prepare the return (form 1065) at a reduced cost to help their client.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
