The IRS is going to tax the earnings, though, and when the earnings are shown on the K-1, the recipient gets taxed. What type of entity (LLC, Trust, etc) is giving you the K-1? For a partnership (LLC), the income has to get passed through and the tax paid by the K-1 recipient whether they received any income or not. A trust, though, can designate which earnings have been distributed and then the Trust will pay tax on the earnings not distributed.
