My "Schedule K-1" form doesn't look right. I was told by the issuing party that it is a K-1 (1041), but there are no boxes only line items. What can I do?

[mxl1654]

Please see attached screenshot.

[JulieR · Accepted solution]

This K-1 sounds like a "Substitute K-1" The line items should be in the same order as they appear on a standard  K-1 (1041). (see example K-1 https://www.irs.gov/pub/irs-pdf/f1041sk1.pdf)

You should contact the issuing party if you need clarification about the way they have reported the information to you.

The following are the IRS requirements for substitute K-1s:

IRS requirements for Substitute K-1s accompanying fund tax forms
Substitute K-1s that accompany forms 1041, 1065, 1065-B, and 1120S (pooled income funds file a fund 1041 with the IRS) must meet the following requirements:

• The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity (estate, trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).

• The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the related form number (1041, 1065, 1065-B, or 1120S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.

• The Schedule K-1 must contain all the items required for use by the recipient.

• The line items that are used must be in the same order and arrangement as those on the official form.

• Each recipient's information must be on a separate sheet of paper. Therefore, all continuously-printed substitutes must be separated, by recipient, before filing with the IRS.

• The amount of each recipient's share of each line item must be shown. Furnishing a total amount of each line item and a percentage (or decimal equivalent) to be applied to such total amount by the recipient does not satisfy the law and the specifications of this revenue procedure.

• State or local tax-related information may not be included on the Schedules K-1 filed with the IRS.

• The legend "Important Tax Return Document Enclosed" must appear in a bold and conspicuous manner on the outside of the envelope that contains the substitute recipient copy of Schedule K-1.

• The entity may have to pay a penalty if substitute Schedules K-1 are filed that do not conform to the above specifications. In addition, the IRS may consider the Schedules K-1 as not processable and return Form 1041, 1065, 1065-B, or 11205 to the entity to be filed correctly.

[mxl1654]

Julie I appreciate the reply. Can you review my screenshot and let me know if you believe that this is a valid substitute? The issuing party informed me that it is a K-1 (1041), however, some of the line items (notably recourse and non-recourse debt) are from boxes that are found on a K-1 (1065) and the line items are out-of-order no matter which schedule K-1 this may be. The issuing party has provided no assistance at this point and the IRS now considers K-1 support out-of-scope. Struggling here...