Microventure's K-1 Form

Forum|Forum|7 years ago
June 8, 2019
1 reply
26 views

I have had Microventures '500 Startup fund' for 6 years, each year, they sent me K-1 form with interest and capital gains they had never distributed to me, I have to pay tax for those money I have never received. I've asked them to either distribute the interest and capital gain or remove those amount from my K-1, they refused to correct do anything.

I feels like they are just shifting tax liability to me.

Should I discuss this with IRS and ask them to take a look at their business and decide if they should pay tax for the interest and capital gains they have never distributed to me?

What should I do?

Thank you.

TurboTax Business Windows

Rick19744

Level 13

Someone should have explained to you how passthrough entities work; both S corp and partnerships (and LLC's taxed as a partnership).

These entities do not pay tax (a few exceptions). The income, loss, gains, losses are reported to the shareholder's or partner's (owners) on the K-1. The owners then report the results of the K-1 on their respective form 1040 and either pay the necessary tax or reap the benefit of the losses.

For the reason above, these type of entities have a single level of tax. Typically, passthrough entities pass out a distribution that is estimated to cover any tax liability of the owner. This amount will be reported on the K-1.

These type of entities are attempting to run a business, and like all businesses, need cash to keep the business going, pay salaries, rent, inventory, etc. So it is not possible to invest in a business and expect the business to pay out all the earnings.

Bottom line, how this is reported is exactly how it should be reported. If you are not happy with the investment, you should look into selling the investment. Keep in mind, that the income you are reporting from your K-1, increases your basis in the investment. This is key as when you sell the investment, you are calculating gain on a larger amount than you initially invested. Hopefully you have been tracking your basis.

You don't indicate what type of entity, and I will assume it is a partnership K-1. Take a look at your K-1 line 19A to see if anything is reflected on that line. If the business is generating income they typically, as stated above, distribute out enough cash to help with any tax consequences. If they are not doing this, then ask them when they expect to reach a point of making distributions. If you are not comfortable with their response, consider selling.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

erika45220Author

Level 2

Hi, Rick19744:

   Thank you for your answer.

   You are right, it is an LLC, I am a Limited Partner.

   The K1 reported interest X  at box 5 and capital gains Y at box 9a, and deductions Z  at box 13,  there's nothing at box 19, I think at least they should distribute (X + Y - Z) to me, but they never distribute me anything for years.

    So I end up paying tax for the money I have never received, for years, is this legit? I can't see other LLC member's K-1 and I am not sure if other LLC members are getting any distribution, and they never provide any statement to me.

   The worst part is that, I can't sell it, I can't even exit it with a total loss.

Erika