Yes, earnings reported on a K-1 are taxable and need to be reported on your tax return. This is because the income tax liability is being passed through the business or fiduciary entity to the ones who have a financial interest in it. Since the income is not being taxed to the entity where the income was earned, the receivers of the K-1 forms get taxed on the income.
Here is some more information:
The United States tax code allows certain types of entities to utilize pass-through taxation. This effectively shifts the income tax liability from the entity earning the income to those who have a beneficial interest in it. The Schedule K-1 is the form that reports the amounts that are passed through to each party that has an interest in the entity. From: What
is a Schedule K-1 Form?
