"Final K-1" Checkbox on Schedule K-1 (Form 1065)

[skywire]

• What does the IRS intend it to mean? In other words, what rule is a partnership supposed to follow in deciding whether to check it or not?
• How are partnerships observed to use it in the wild? In other words, do they sometimes get it wrong?
• How, if at all, should I allow it to influence my responses in the TurboTax K-1 interview? Does TurboTax refrain from asking the user about it because (see second bullet) it is unhelpful? What does TurboTax mean by "This partnership ended in ...."?

[SusanY1]

You will check the box "this is the final K-1" if the partnership is filing its last return because it was dissolved before the end of the tax filing year. 

If you are the partnership creating the K-1 you would provide the date the partnership was dissolved and indicate that it this is the final time the partnership is filing a return.

If you are entering a K-1 on your personal tax return, you will check it and enter the date if that information is provided on the K-1you have received.  

The IRS is asking here if it's the last time the partnership is issuing a K-1 (and filing a 1065).  There are some instances where an individual taxpayer may be getting the last K-1 they will receive for a particular entity (such as after the taxpayer has sold interest in a publicly traded partnership), but the box isn't used in that instance. 

[Mike9241]

another way to get a final K-1 is to completely dispose of your interest in the partnership. 

[rlottsman]

To receive a Final K-1, your "partnership" has merged or been exchanged for a Cuspid number.   The settlement date is shown at the top of the FORM-1065 "Beginning 01/01/2023 Ending 00/00/2023."  This will be the last K-1you will file from this company.  Going forward, look for the company's interest or dividends to be reported via your brokerage account's  FORM-1099-INT or FORM-1099-DIV.  

[skywire]

SusanY1, are you saying that publicly traded partnerships reliably check the Final K-1 checkbox on a K-1 that they issue to a taxpayer when and only when they are dissolving? And thus not, as so many people in the Community and other places online say, also when the partnership continues but the taxpayer has fully disposed of their interest in the partnership during the tax year?

Please allow me to point out that the taxpayer does not complete a K-1. And the TurboTax K-1 interview does not offer the taxpayer a checkbox labeled "Final K-1". What they do offer is a checkbox on the Describe the Partnership page labeled "This partnership ended in ...." Many people in the Community and elsewhere online claim that the taxpayer should check that checkbox when they have fully disposed of their interest even though the partnership has not ended. Are they right or wrong?

Thanks

[skywire]

Is there *anyone* who knows the answers to my questions (see bullet points in the OP) and is willing to answer them?

[skywire]

Thanks for your partial answer to one of the questions I asked.

[PatriciaV · Accepted solution]

What does the IRS intend it to mean? In other words, what rule is a partnership supposed to follow in deciding whether to check it or not?

If the partnership will not file another tax return in the future, the return itself is marked "Final." This designation also checks the "Final K-1" box on the partner's Schedule K-1. The IRS is then aware that no future tax returns are expected from the partnership.

If only Schedule K-1 is marked "final," the partner will not receive this form in the future. The IRS is aware that the partner has left the partnership.

How are partnerships observed to use it in the wild? In other words, do they sometimes get it wrong?

Yes, partnership returns are prepared by humans using software. Errors can and do occur but not often.

How, if at all, should I allow it to influence my responses in the TurboTax K-1 interview? Does TurboTax refrain from asking the user about it because (see second bullet) it is unhelpful? What does TurboTax mean by "This partnership ended in ...."?

TurboTax uses check the box "This partnership ended..." in place of "Final K-1" The interpretation is that the partner's investment in the partnership has ended. Perhaps the wording of this option could be improved in the future.

@skywire