by doing the override, the line 1 income on the k-1 would transfer to form 8960 which may result in you paying a 3.8% net investment income tax on it. I believe this would be wrong under IRC 1411 - the NIIT code section
IRC 1411(c)(2)Trades and businesses to which tax applies
A trade or business is described in this paragraph if such trade or business is—
(A)a passive activity (within the meaning of section 469) with respect to the taxpayer, or
(B)a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).
since this is non-passive under the reg you cited. the only workaround that I could come up with to avoid a bunch of overrides in your return(assuming you are subject to NIIT) is to check materially participate. this results in the income ending up in the nonpassive category and is zeroed out on form 8960 so you don't pay the NIIT on this. the IRS does not know that you answered the question incorrectly.
