K-1 capital gains timing for annual method penalty calculation

[samzandt]

I received a K-1 on March 30 indicating significant capital gains. Without these gains I would not owe additional federal tax beyond what was withheld. However, since the gains are significant not only do I owe taxes on these gains, but I also owe a large penalty. I would like to reduce my penalty by using the annual method. Since I received the K-1 on March 30 would I say the gains occurred in the last quarter of the tax year? It doesn't say when the LLC actually received these gains and even if it did I would not have known until the K-1 was sent to me. thanks.

[M-MTax]

Income received probably ratably throughout the tax year.

[JamesG1]

@samzandt

The IRS will presume that the income was earned proportionally throughout the year unless you can demonstrate otherwise. 

Since the K-1 was received March 30, I presume that the partnership has a December 31 year-end date.

IRS 2010 Instructions page 9 Annualized Income Installment Method states:

If your income varied during the year because, for example, you operated your business on a seasonal basis or had a large capital gain late in the year, you may be able to lower or eliminate the amount of one or more required installments by using the annualized income installment method.

Will the provider of the K-1 provide the detail you need?  Does the partnership agreement address this concern?

[samzandt]

Unfortunately, they won’t provide more detail than what the K-1 states and the operating agreements don’t specify anything on this topic. I guess without more information I would have to assume it is uniform over the year?

[JamesG1]

I think that the IRS will make that presumption and the burden is on the taxpayer to demonstrate differently.

I agree that the annualized method is the correct remedy for reducing the underpayment penalty.