You really should prepare a partnership (Form 1065) income tax return and issue Schedule k-1's to each partner and retitle the account to a partnership account.
However...
The IRS has instructions on what to do when you receive a 1099-B as a nominee for someone else:
You put a code of "N" in column (f) of the Form 8949 and then
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"Report the transaction on Form 8949 as you would if you were the actual owner, but also enter any resulting gain as a negative adjustment (in parentheses) in column (g) or any resulting loss as a positive adjustment in column (g). As a result of this adjustment, the amount in column (h) should be zero."
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(THESE INSTRUCTIONS WERE WRITTEN ASSUMING THAT 100% OF THE 1099-B TRANSACTIONS WERE "SOMEONE ELSE'S" BUT THERE'S NO REASON THAT YOU COULDN'T ALLOCATE ALLOCATE HALF OF THE TRANSACTIONS TO SOMEONE ELSE IF THAT WAS THE CASE.)
You can't literally do what the IRS instructs you do in in TurboTax unless you go into Forms mode and make entries directly on Form 8949, but that invalidates the "Accuracy Guarantee" and also means you can't e-file.
There is a work around however that gets each partner's gain or loss correctly stated and gets your Form 8949 looking very close to what the IRS expects to see. Certainly the really, really important thing is getting each partner's income correctly stated on their income tax return. The IRS just can't do much to you if each partner's income is correctly stated.
Enter the 1099-B as it reads. Then tick the box next to "This sale involves an employee stock plan (including ESPP) or an uncommon situation." Click the blue "Start Now" button that shows up and then click the radio button next to "My 1099-B has info I know isn't right, or it has extra info I need to add." In that interview you adjust the amount of basis from what the broker reported to the basis that gets you to 1/2 of the gain or loss on the trades.
This will get the Form 8949 looking exactly as the IRS prescribes but with an a different letter (O?, B?, I forget right now) then the "N" the IRS wants to see. But with you income properly stated the IRS can't really lay a glove on you.
Your partner would enter 1/2 of the proceeds and basis on his/her own income tax return.
Tom Young
