Need help in understanding how to enter a K-1 with multiple companies reporting on the same K-1 and multiple activities

[poncho_mike]

I own shares in an MLP named Enterprise Transfer LP (stock ticker ET).   This company resulted from a merger of ET, USAC, and SUN.   On my Form 1065, in the Part III section my K-1 states "Do Not Use Part III Information, See 2019 Supplemental K-1 Information Statement". 

On a Supplemental K-1 Information Statement, it lists the FEIN for each of the three Separate Passive Activies.  All are PTP and Pass-thru.  The type of activity is Trade/Business.

There are entries for lines 1- 20 for ET, USAC, and SUN.  The numbers appear to total up to the totals shown on the Part III information.  For ET and USAC, there is data in Box 1, and none in Box 2 and Box 3.  For SUN, there is data in Box 1 and Box 2. 

I have seen several responses to breaking out the data, but those appear to be when there are numbers reported in only one of Boxe 1, 2, or 3.    If I check the box "This K-1 reports amounts in more than one of the boxes 1, 2, and 3, it says I have to enter the business activies on one K-1 and the real estate rental on another K-1.

As noted, this is a 2019 return I am amending.  I figured out while working on 2020 returns that I incorrectly entered the data on 2019, so I want to fix that before filing 2020.

So can somebody step me how to enter data for a company that generates one K-1, which includes three different companies with three different FEIN numbers, and one of the component companies is involved in Business (box 1) and Rental Real Estate (Box 2).

[nexchap]

In this case, you pretend that you actually received 3 separate K-1s --  one for ET, one for USAC, and one for SUN -- and enter accordingly.  The only other nuance is that you don't get separate Part I or II info for USAC and SUN, but its not really needed.  Enter ET using the Part I and II info, and then for SUN and USAC  use the FEINs provided and in the Partnership name use something like 'Energy Transfer, reporting USAC'

Note that the reason you have to do this is that losses from one MLP (e.g., SUN) can't be used to offset income from another MLP (e.g., USAC).  So even though you own all three through your ET investment, for tax reporting you have to keep the gains and losses separate.

[gradyquib]

Thanks for the response.  The issue with ET here is that in the supplemental statement to use to create the 3 K1 entries, SUN has an amount in line 1 and line 2.  That would require 2 entries for SUN for a total of 4 total entries.  How would you recommend breaking up SUN into 2 separate entries?  

[nexchap]

For SUN, enter the entire K-1 (excluding line 2), and then do a second one that is just line 2.  Titling with something descriptive (e.g., ET reporting SUN line 2) is fine.

[poncho_mike]

I think I'm making headway, but I am still somewhat confused.  When I go to create new K-1 entries for USAC and SUN, what do I do about the Part 1 and Part 2 information?  Do I leave it blank and continue  on and fill out the Part III info?  Or do I copy the Part 1 and Part 2 information into each of the other K-1s I will create?

To make this a little more confusing, I bought ET the last week of December 2018.  I reported data on ET on my 2018 tax return, but all of the entries were zero.  Is there any reason for me to go in and update my 2018 return?

[nexchap]

@poncho_mike Above, I mentioned this:

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The only other nuance is that you don't get separate Part I or II info for USAC and SUN, but its not really needed. Enter ET using the Part I and II info, and then for SUN and USAC use the FEINs provided and in the Partnership name use something like 'Energy Transfer, reporting USAC'

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Does that answer the question?  None of that info, other than the FEIN and partnership name, make it into the return.  So leaving it blank is fine.

If your 2018 K-1 was all zeros there's no reason to amend anything -- nothing on your taxes that year will have changed.

[poncho_mike]

The K-1s have been a real headache, but I think I've about got it.

First, the SUN K-1 had data in box 1 and 2, but the amount in box 2 was only $1.  I created two K-1s for SUN, but I wasn't sure which values in the other boxes were associated with Box 1 or Box 2.   Since the value in Box 1 value was 10X the value in Box 2,  I associated all other boxes with the Box 1 data.  

After I got all of the data entered, Turbotax gave me errors.  I contacted live help, and the person helping me couldn't figure out how to clear the errors associated with box 20, so they directed me to a CPA.

The problem I was having is value in Box 20, Code Z was a negative number.   The CPA said that the amount reported in Box 20 Code Z was used for a Qualified Business Income deduction, and it only applied if the amount was positive.  I removed the Box 20 Code Z line, and the errors went away.

The other thing I discussed with the CPA was that since the SUN K-1 had data in Box 1 and 2, but the other values were not broken out as to what they were associated with aBox 1 or Box 2, I could combine them into a single K-1 entry.  The value in Box 2 was only $1, so it would have little effect on the taxes owed.

@nexchap 

[nexchap]

@poncho_mike While the CPA correctly described the fact that the QBI deduction only applies when you have positive income, deleting the entry isn't the answer.  That's because you have to record these values, since they carry over to future years when you can actually use the deduction (for something like ET, it will be when you sell, and the Ordinary Income you receive qualifies for the deduction).  You can choose to do that record keeping outside of TT, but you definitely need to do it if you want to take the QBI deduction in the future.

Also, a negative number for 20Z is common with MLPs, and isn't the source of the error.

When you put the number back in, and complete the interview on the Section 199A  income it creates, go into Forms mode and look for a form with a red ! mark.  Sometimes, fixing the error is as simple as finding the red box on that form and seeing what it wants.

On the SUN Box 1, box 2, are you saying that you were told just to add the Box 2 $1 into box 1?  That's definitely not the way the tax rules work, but the CPA may have just decided that it wasn't worth messing with $1.  Just note that you're going to see those entries every year you hold ET, so will need to continue making the same choices.  The other option -- just creating a K-1 to track the rental income (none of the other boxes are going to pertain to it and go with the box 1 items -- is pretty straightforward.

[poncho_mike]

@nexchap , I have a question on terminology.   When I get to the statement "We see you have Section 199A income", the question "Is the business that generated the Section 199A income a separate business owned by the partnership?" is asked.  

So I assume the partnership is the parent, and it owns three companies (ET, USAC, & SUN).   The parent partnership (Energy Transfer LP) has the same FEIN number as the component company ET.   Which is the correct answer?  "The income comes from the parntership that created this K-!?"   Or "This income comes from another business.".

It seems to me the income comes from both the partnership, and from the businesses within the partnership.  The partnership having the same FEIN number as the component business is also very confusing.

Thanks for your help.

[nexchap]

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So I assume the partnership is the parent, and it owns three companies (ET, USAC, & SUN).   The parent partnership (Energy Transfer LP) has the same FEIN number as the component company ET.   

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Sort of.  There are really just 3 companies:  ET, USAC, and SUN.  Each are traded independently.  You could buy stock in any of them.

It so happens that ET owns some of the stock of USAC and SUN.  They bought it, just like anyone else could.  If they weren't a partnership they'd just add everything they got from USAC and SUN into their numbers, and you'd never know anything about it.  But they are a partnership, and are required to report things separately.  So you wind up with 3 K-1s:  one for each.

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"Is the business that generated the Section 199A income a separate business owned by the partnership?" is asked. 

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The answer is 'yes'.  When you're entering the USAC info, and handling their reported 20Z / 199A numbers, they're the business that generated the income.  Same for ET and SUN.  The reason the question is asked in TT is to make sure that you don't lump several businesses together.  And in this case, because you're splitting the K-1s, you're not.

[poncho_mike]

@nexchap , I really want to thank you for explaining this to me.  I had not considered that ET owned stock in other companies.   That really explains why the main body of the K-1 had Energy Transfer FEIN number, and the same FEIN number was listed when the financial information was split out.

This brings up a question that is unrelated to this specific stock and tax return.  I bought ET as I am near retirement and have been buying some dividend stocks.   While doing some research on this issue, I found in another TurboTax thread that some REITs report multiple  K-1s as well.   I am considering a REIT, but I don't want to make my taxes even more complicated.  Do REITs generally require multiple K-1 entries as well?  What about an ETF that holds REITs?  

Any advice you can share would be greatly appreciated.

Mike

[nexchap]

@poncho_mike Sorry, I haven't held any REITs so don't know the tax complications of any of them.  I know there are sites that tell you which tickers issue K-1s, but you'd probably need to contact the partnership to find out whether they send out something like ET.

[poncho_mike]

@nexchap , do I need to attach a copy of the K-1 to my amended return when I send it in?

Thanks for all your help.

[nexchap]

@poncho_mike It's for your records and does not need to be filed with your return.

[chiavarm]

It would be nice to have an embedded PDF example, is that possible?