1065 Partnership Filing - Schedule B1 does not allow >100% total ownership by related partners

[HudsonPartners]

I am using Turbo Tax for the first time to do a 1065 for a partnership LLC. We previously used an accountant. After creating the 1065, I see a discrepancy in 1065 Schedule B,1,II. Last year's filing showed each of the partners as having 100% each in the maximum percentage owned column. Turbo tax only allows a total of 100% total for all partners. While this makes logical sense, the IRS Instructions indicate that family members own shares "indirectly" for other family members. See below

"....an individual is considered to own an interest owned directly or indirectly by or for the individual’s family. The family of an individual includes only that individual's spouse, brothers, sisters, ancestors, and lineal descendants."

Is this restriction in Turbo tax disallowing >100% ownership correct when partners are family members?

[HudsonPartners]

Update: Ended up calling. My take on the discussion is that the agent thinks this is probably a flaw in the tool,not allowing accommodation for indirect ownership status. It is true that there is no impact on the actual tax compilation,and that the only place this shows up is in that one section of the 1065. I did purchase Audit protection, so if there turns out to be some problem, at least I will have a cellmate!

[PatriciaV]

No line entry under Schedule B-1 Part II should be greater than 100%. A partner cannot own more than 100% of the partnership, even if all other partners contribute to that partner's constructive ownership. The percentages are based on the partnership agreement, which would not provide for more than 100% total ownership.

Basically, you add up all the ownership percentages that contribute constructive ownership to determine the entry for Part II. 

See IRS Instructions for Form 1065 Schedule B: Constructive ownership of the partnership.

@HudsonPartners 

[HudsonPartners]

Thanks! I know logically that you can't have greater than 100% aggregated ownership, but Paragraph 2 under Constructive Ownership was hard to sort through. Our accountant showed 100% for all three sibling/owners, though all the profit allocation is 1/3 for the three partners. The statement in the instructions "...an individual is considered to own an interest owned directly or indirectly by or for the individual’s family. '  made some sense in that maybe the IRS wants to cover cases where a person has effective ownership through a child or something. That said, in that section it says "...an individual won't be considered to own, under section 267(c)(2), an interest in the partnership owned, directly or indirectly, by a family member of the individual unless the individual also owns an interest in the partnership either directly or indirectly through a corporation, partnership, or trust.". So maybe this means the >100% ownership status applies in only those situations. As the partner split of the profits is unaffected, I am just going with what I have.

[PatriciaV]

If the three partners are related under the IRS rules, then they all control 100% of the partnership. But no more than that. Schedule B-1 Part II may add up to more than 100, but that isn't a useful calculation. As long as you have the correct profit & loss percentages, you should be good.