ETF liquidation

JP106 · ‎April 5, 2021

An ETF I held was liquidated. It was structured as a partnership. I received a form 1065 / Schedule K-1.

The 1065 showed a short term loss (line 😎 of approximately 3% of my investment, and other income (loss) of around 80%.

While filling out the TT questions on the Schedule K-1, I do enter my cost basis (remaining 17% approximately I'd guess) and liquidation proceeds.

However my broker also included the loss from this liquidation on my 1099-B.

So in the end, TT, due to the 1099-B and schedule K-1 data, is trying to count my loss twice. The K-1 loss of about 17% ends up showing up on my schedule D under line 3 (from form 8949 with box C checked), while my 1099 loss was showing on the lines above.

I think the right thing to do here is not to show the cost basis and sale price when entering the K-1 data, and just allow my broker 1099's to cover it.

I'd appreciate any insight though as I of course want my taxes to be both correct - and not be audited.

Thanks!

DavidD66 · ‎April 5, 2021

There are a couple of ways to enter your 1099-B and K-1 to get to the correct result when you dispose of a Publicly Traded Partnership. If you follow the instructions that should have been provided with your K-1, you will end up both a capital gain/loss and ordinary gain/loss. So that you don't duplicate the capital gain/loss, you can then adjust your cost basis when you enter your 1099-B, so that it equals your proceeds and results in $0 capital gain/loss. The cost basis on your 1099-B from your broker will not reflect any adjustment for return of principal and the ordinary income component.

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JP106 · ‎April 5, 2021

Thank you for your kind response.

(One of ) My broker(s) is reporting the transaction as a "covered". So they are reporting both the cost basis and the proceeds.

Would it not be simpler to just show the loss through that 1099-B rather than through a form 8949 "Box C" checked transaction? (Which has not been reported to the IRS)

Forgive me for "second-guessing" you here, I just want to do what's right to minimize my risk of having to deal with an audit.

(To further complicate things, these ETF shares were purchased through two brokers - one reported it as a covered transaction with both basis and proceeds, the other was "unknown term", "basis not reported to IRS".)

Thanks again for your very helpful insight.

DavidD66 · ‎April 5, 2021

As I mentioned previously, there is more than one way to get to the correct result. One is to adjust the cost basis on the 1099-B. The other is to make an adjustment to the cost basis that you calculate when entering your K-1 information. I mentioned adjusting the cost basis from the 1099-B, because they usually don't show the correct cost basis for a PTP. It's a very simple adjustment to make.

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JP106 · ‎April 5, 2021

Ok thank you David.

I'm very open to adjusting the 1099-B as to be honest, the basis from the broker that actually claims it is a covered security, is not accurate. I can "make it hole" by setting the basis for the "uncovered" ETF from the other broker.

Last question - is adjusting the basis of a "covered security" likely to draw scrutiny from the IRS, or is basis adjustments fairly common and not something to be too worried about?

Thanks again!

ColeenD3 · ‎April 6, 2021

You are good as long as you keep records explaining why you did what you did.

ETF liquidation

Business & farm

Business & farm

Business & farm

Business & farm

Business & farm