that's the way partnership taxation works. you get taxed on the income regardless of whether they distribute the income or not. so you'll need to report this as income on your 1040. you will not get taxed twice because this income increases your tax basis which will lower your taxable gain.
here's info on how to report when you make a total disposition of all of your holdings. if tax laws change the following could change
If a total disposition, proceed as follows:
On the k-1 disposition section for sales price use the ordinary income (sometimes you’ll see a column with the “751” or the words ”gain subject to recapture as ordinary income”. this might be 0.
Cost is zero
Ordinary income is the sales price.
This info flows to form 4797 line 10 and is taxed as ordinary income.
Now for the 8949.
The broker’s form is probably coded as B or E – sales proceeds but not cost basis reported to the IRS. This is because the broker does not track the tax basis. It used what you paid originally which is not the correct.
The correct tax basis is:
What you paid originally, should be the same as what is on 8949,
Then there is a column on the sales schedule that says "cumulative adjustment to basis". If it’s positive add it to the original cost. If it’s negative subtract the amount.
Finally, add the amount of ordinary income reported above.
The result is your corrected tax basis for form 8949.
