don't know if this applies to you but there is a special rule for traders in financial instruments. income including interest, dividends, and capital gains from the trade or business of trading financial instruments such as stocks, bonds, options, forward or futures contracts or commodities is included in NII regardless of whether the business is a passive activity Reg 1.411-5(a)(2). the determination of this is made at the entity level.

(c) Trading in financial instruments or commodities -

(1) Definition of financial instruments. For purposes of section 1411 and the regulations thereunder, the term financial instruments includes stocks and other equity interests, evidences of indebtedness, options, forward or futures contracts, notional principal contracts, any other derivatives, or any evidence of an interest in any of the items described in this paragraph (c)(1). An evidence of an interest in any of the items described in this paragraph (c)(1) includes, but is not limited to, short positions or partial units in any of the items described in this paragraph (c)(1).

(2) Definition of commodities. For purposes of section 1411 and the regulations thereunder, the term commodities refers to items described in section 475(e)(2).

if this is not your situation and your dividends are exempt from the NIIT the adjustment is made through the 8960 on line 7

The dividend income that is reported on Line 6a of your K-1 is most likely subject to the NIIT. For that purpose, it is largely irrelevant that you materially participate in the business of the multi-member LLC (except income received in the ordinary course of the LLC's business is obviously not subject to the NIIT).

Also, Form 8960 is only filed by individual taxpayers and estates/trusts.

Thanks for this! The situation does not apply per se but the instructions regarding how to make the adjustment (line 7 on form 8960) were very helpful.

I'm clinging to your words "most likely" in hopes there's a chance I can still avoid the NIIT.  I mean, you didn't say "definitely"  🙂

Seriously, is it your understanding that dividend income is not subjected to the same "material participation" tests as ordinary income? Therefore, I'll owe the NIIT?

---

@Showtime1 wrote:

Seriously, is it your understanding that dividend income is not subjected to the same "material participation" tests as ordinary income? Therefore, I'll owe the NIIT?

---

In the vast majority of cases, dividend income would be considered investment income for the purposes of the NIIT as it is not typically derived in the ordinary course of the partnership's business.

this is what IRC 1411 says

The term “net investment income” means the excess (if any) of—
(A)the sum of—
(i)gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),
(ii)other gross income derived from a trade or business described in paragraph (2), and
(iii)net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over
(B)the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.
(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)).

iRC 469(c)

(c)Passive activity defined
For purposes of this section—
(1)In general
The term “passive activity” means any activity—
(A)which involves the conduct of any trade or business, and
(B)in which the taxpayer does not materially participate.

reg 1.1411-5

2) Application of income recharacterization rules -

(i) Income and gain recharacterization. To the extent that any income or gain from a trade or business is recharacterized as “not from a passive activity” by reason of § 1.469-2T(f)(2), § 1.469-2(f)(5), or § 1.469-2(f)(6), such trade or business does not constitute a passive activity within the meaning of paragraph (b)(1)(ii) of this section solely with respect to such recharacterized income or gain.

(ii) Gain recharacterization. To the extent that any gain from a trade or business is recharacterized as “not from a passive activity” by reason of § 1.469-2(c)(2)(iii) and does not constitute portfolio income under § 1.469-2(c)(2)(iii)(F), such trade or business does not constitute a passive activity within the meaning of paragraph (b)(1)(ii) of this section solely with respect to such recharacterized gain.

(iii) Exception for certain portfolio recharacterizations. To the extent that any income or gain from a trade or business is recharacterized as “not from a passive activity” and is further characterized as portfolio income under § 1.469-2(f)(10) or § 1.469-2(c)(2)(iii)(F), then such trade or business constitutes a passive activity within the meaning of paragraph (b)(1)(ii) of this section solely with respect to such recharacterized income or gain.

'

to avoid tax issues it may be best to consult a tax pro who can further research this issue.

Where would I find Net Investment Income Tax (NIIT) in Turbo Tax Premier 2021.  I looked "Other Tax Situations" under Federal Taxes tab but could not find it.

if it's applicable Turbotax will compute it from your entries. if adjustments are needed, you'll get to that section 

when you get to other tax situations and under that additional taxes and repayments

the computation of the tax, if applicable, is on form 8960