Thank you very much for the reply. What I understand from your reply is use the correct information and don't worry that the K-1 line 9a amount after adjusting for 1202 effect will not agree with what was entered by the partnership issuing the K-1. I have two additional comments:
1. Seems like there should be a 1202 form which reconciles the K-1 and the Schedule D differences. It cannot be done on the K-1 itself because the partnerships will not take a tax position on the validity of a 1202 adjustment even though the underlying company claims the adjustment to be valid. If 1202 is going to stay, seems to me there should be a better way to handle the reporting. I did it all in a spreadsheet to make sure my numbers are accurate.
2. Another reply to the original problem suggested the solution is to make a second K-1. However, seems to me that could itself throw up a red flag. For example, if there is stock 100% excluded by 1202, then the second K-1 would be blank. The gain showed would be zero and the other tax related lines, 1, 5, 7, etc. would be blank so as not to duplicate.
