Yes, you are correct. When a partnership receives Form 1099-C reporting canceled debt, this becomes income passed through to the partners on Schedule K-1.
To enter cancelation of debt income in the partnership return, go to Forms:
- Open Form 1065 p5-6
- Go to Line 11 G
- Enter amount from 1099-C and code E will appear in the small box.
- This will be allocated according to ownership percentage and appear on Schedule K-1 Part III Line 11 Code E.
Entering 1099-C under Other Income includes the amount in net income but loses the debt cancellation character.
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