Peculiarities of a Specific K-1

[Curious One]

The sponsor of one of my investments has reported via K-1, the following information:

Box 5: 50,073

Box 11: 1,448 (Code A - Other portfolio income (loss))

Box 13: 13,817 (Code W - All other deductions from passthroughs)

Box 19: 37,704 (Code A - Cash and marketable securities)

Box 20:  51,521 (Code A- Investment income)

Pt II (Info about the Partner, Line L: 15,552 (Beginning Capital Account)

I raised a series of questions:  How Pt II, L is reflected in my return as additional loss? Is that "operating" income (loss)? Or capital loss? If capital loss, I'm guessing it's not included in net income per se. If as loss properly deducted from current year income from boxes 5 and 11, how is that reflected? In either case, Pt II, L states that an explanation is to be attached, but none was provided. 

I received the following response: "I am not a tax preparer, but my understanding from our tax accountant (and what other members are doing) is they are netting the amounts and simply reporting the combined amount (in your case, the $22,152) as a single amount as ordinary income.  None of the amounts are capital items.  The $15,552 adjustment (which is favorable for you) is simply a catch-up entry which zero’s out your capital account and is the result of you (and others) picking up book income which was ultimately distributed as promote (i.e., you picked up income in prior years before the promote calculation which is now being adjusted for)."

If the response is either correct or justifiable, it results in a better outcome.  However, in either case, it's not clear how I would report the figures.  If incorrect, is there anything I can do with the Box 13, Code W deductions?

Thanks in advance for your input.  

[Mike9241 · Accepted solution]

i would say you got some bad info on reporting. hopefully you haven't file because that can cause issues at the IRS when your return entries are compared to the copy of the k-1 the IRS gets from the partnership.

box 5 gets reported as interest income in Turbotax

box 11 gets report depending on what exactly this other portfolio income is - should be detail or explanation either on the back of the k-1 or a separate statement

box 13 code W also needs detail it should not be netted against any other item. if it represents portfolio deductions those items are no longer deductible for federal income tax purposes - certain states allow them. To net box 13 against box 5 could result in a major understatement of your taxable income for federal income tax purpose depending on what it is. What's worse the IRS might not catch this for a couple of years.

line 19 distributions has no effect on taxable income 

line 20 is a total of line 5 and 11 and is not used by Turbotax

lines 5 and 11 increase your tax basis in the partnership while line 19 reduces it

while Turbotax allows entry of schedule L in its K-1, it's completely ignored it merely representing the computation of your overall tax basis (ending capital). you could enter whatever you like for schedule L and you would see it does nothing to your taxes.  I don't even bother to enter it

schedule L shows:

1) beginning capital if you had an interest in the entity in th prior year . that would be your beginning tax basis

2) capital contributed during the year. that would have an amount only if you put money or other assets into the partnership in 2022

3) current year net income (loss) should be box 5 + box 11 less box 13

4) other increase/decrease - if this isn't zero or blank you need some additional info because that could affect taxable income

5) withdrawal and distributions should be the same as line 19 unless the partnership terminated or your interest in it terminated then it would likely be a plug so ending capital is zero

6) ending capital as required by the IRS this should reflect your ending tax basis and merely the combination of the other lines

you need to find out what lines 11A and 13W are since these require additional entries. without them they would be included in your return and Turbotax will not allow e-filing until these are complete. 11A can go on 

schedule E page 2 Part II, REMIC gets special reporting in part IV of schedule E, or it might be am item for schedule 1  line 8

 a few examples of what 13W could be

A) other taxes which go to schedule A

B) portfolio deductions - not deductible for federal income tax purposes

C) penalty on early withdrawal of savings goes to schedule 1 line 18

D) investment interest expense flows to form 4952. there may be a limitation as to amount deductible

so you see it matters. if there's no info with the k--1 contact the partnership. they are required to tell you what it is but not its tax treatment

15552 beginning capital is for tax basis it has no effect on current year income