MLP Stock sale and Schedule K

[nexchap]

@JNKLQ First, as you've figured out, TT has not automated the process of handling K-1s in the same way they've automated W-2s, or 1099s.  That's partially because K-1s come in a thousand different varieties, and the tax issues are far more complex.  Anyone investing in partnerships needs to be aware of that:  you've either got to get hire tax advice, or invest the time to figure out how to use TT (or any other package).

In your original post, you mentioned a "Master Partnership".  Since this is a thread about MLPs, I assume that's what you invested in?  In that case, the basic answer is:

• Use the instructions that came with your Sales Schedule to figure out your correct cost basis.  TT will not figure that out for you.  You have to do it yourself.
• In the K-1 interview there will be a section asking about the sale.  You have to answer this carefully, because TT has a bug which hasn't been fixed yet.  The basic requirement is that you do not allow any Cap Gain/Loss to be calculated in this section:
  • If you don't have any Ordinary Gain listed on your Sales Schedule (or Gain Subject to Recapture....) then you enter 0 for sales and 0 for basis.
  • If you do have Ord Gain, their will be 2 numbers:  one regular and one for AMT.  You still enter 0 for sales, but you enter the two Ord Gain numbers in their columns and their inverse (e.g. if Ord Gain is 30, the inverse is -30) as basis.
  • When this is done, the sales summary screen will show zero for Cap Gain
• You now need to go to your 1099-B (you probably got one from the broker) to handle the Cap Gain/Loss.  You're going to use the Cost Basis you calculated here.  If you had no Ord Gain, you just enter the Cost Basis onto the 1099-B so you report the correct gain.  If you had Ord Gain, you enter your Cost Basis + Ord Gain.  This keeps you from being double-taxed on the Ord Gain.

[Valeo09]

Nexchap,

If I can add this, I have a few question on the subject of ptps given my current situation. I'm following your steps exactly from other posts.

- Towards the beginning of the process , "Capital Account Information", I enter exactly what is on my K1 for opening capital, capital contributed, withdrawals and distribution and ending capital correct? Doing so wont duplicate the process of my 1099b, I just want to make sure of this?

- Fast forward take into account each sold date on the schedule, and adjust this amount in respect to the recapture of gains & cumulative adjustment to basis.

For example: $1,021 average purchase price/ initial basis amount, $43 gain subject to recapture as ordinary income, cumulative adjustment to basis $-21, AMT Gain/loss adjustment 0 . New initial basis I then changed to $1043 as initial price on 1099b. 

Then sales information would then be $0 sale price, $0  selling expense, 0$ partnership basis, ordinary gain on "regular gain side" $43 & then inverse this to $-43 on "AMT side".

Please let me know if I did this correctly, there is a lot of confusion I have read from other post.

But judging by the responses you have made, you have been the only one to understand this down to the T.

Which I truly appreciate it!

[nexchap]

@Valeo09 Almost.

• Correct on capital account info, but note that TT ignores this.  Its just for your records.
• Correct on basis adjustment
• You wrote "$0 for partnership basis".  No.  If you have $43 for Ord Income, then your basis would be -$43 in the "regular" column.   Typically, the Sales Schedule will include some sort of small adjustment for AMT.  Let's say it shows -3.  Then in the AMT column you'd have $40 for Ord Income, and -$40 for basis.  Note that the AMT column only matters is you wind up paying AMT.  Otherwise, you can ignore it.  $0 for sales price and selling expenses is correct

[Valeo09]

Wow, awesome with the response timing. Thanks!

So in this case, if I am hearing you correctly on the "regular gain or loss side"

$0 Sale price, $0 Selling Expense, Partnership Basis $ -43, Ordinary Gain $43.

*Note: I had 0 on my sales schedule for AMT 

[nexchap]

@Valeo09 Correct.

[Valeo09]

Nexchap, thank you so much!

I'm sorry to ask you more about the subject, unfortunately I have a couple of ptps all with slight differences. If you could just run through what I wrote below if this was the okay to do.

- One is ETF USO, 1099 shows my shares without reverse splits, k1 shows with reverse splits, but all together same total cost. I changed the 1099 in turbotax to reflect the k1 exact.

- Another, If you have a 1099 with a cost basis slightly different say from the k1 cost basis, say a couple dollars. But k1 has all zeros in part 3 & no cumulative adjustment to basis. Only numbers shown capital contributed and withdrawn . * Which are same value.

I then changed cost basis to be exactly what's on k1 to be on 1099. Assuming Irs only sees k1 values? similar to the first question

- Another PTP, I had multiple lot purchases and sales, I treated this without dates and inputted both as "Various"

- & finally my last question, PTP Energy Transfer which has a controlling stake in companies USAC, SUN. They end up being reported under ETs k1 with each having there own part 2 {1-20}. I ended up making 3 k1s for each. 

ET K1 I stated all the information on the K1 capital account analysis, and then treated this one like we did the first post with "inversing partnership basis and recapture of ordinary income" then changed 1099.

The other k1s for USAC & SUN, I wrote 0s in everything, capital account analysis and sales schedule, & only inputted numbers from part 2 {1-20}

Is this the correct approach? my apologies for the minor questions

[nexchap]

@Valeo09 On your first 2 questions, all I can offer is to report the "correct" Capital Gain on the 1099-B.  Because TT won't do any of that automatically, you have to use your 1099s and K-1s to figure out the correct answer, and then these threads can help get the info into TT correctly.

On ET, the Ord Income applicable to SUN and USAC will be shown on line 20AB.  So you should enter the Ord Gain for each on their sales forms, using the same procedure as you did for ET.  Doing this keeps the passive income and losses from each segregated, which is what the tax code requires.

[Valeo09]

Gotcha

With that being said, I finished out the K1s. Odd thing is after finishing ET which was the only one that I had to do the sales schedule too.

Income and expense screen now shows "Sale of Business Property" at $71.00

* This number is exact to what I put in for partnership basis -71, ordinary gain 71, amt 0

I'm guessing this is normal ?

[nexchap]

@Valeo09 Yes.  The "Ord Gain" is broken out so that it can be reported on Form 4797, which will flow to your 1040 and be taxed at your "Ordinary" rate.  The rest of your gain is reported on Sched D and taxed at your "Capital" rate.

[Valeo09]

Next Chap, thanks for the help

truly appreciate it!

[GoodShip]

hello nextchap,

Can you add any insight into my K1 situation for tax year 2022. I received a K1 from Cypress Environmental for year for tax year 2022. The cover sheet stated the partnership did NOT qualify as a partnership in 2022.  The k1 therefore contains all zeros, and no sales schedule,  Nothing but zeros.. 

At 1/1/2022 I had  245K units, which were subsequently sold at a loss in 2022, right before they filed for ch11. I have a large "passive loss" from previous years carry-forward I intend to use. The "loss" gets released into my tax return on complete disposition of units on Sch E, but I cannot figure out how to calculate "ordinary gain" from sale on units, which gets reported on Form 4797. This is where I would normally use the K1 figures on the sales schedule...Ord gain.

Capital account at year-end was positive 200K and passive loss carryover at year end was (160K). Any insights as to how I can figure "ordinary gain" for Form 4797  from the sale of approx 245k units?? 

THANKS

the cover letter for the K1 read this ........

"Cypress qualified to be a publicly traded limited partnership for federal income tax purposes through December 31, 2021. For the year ended December 31,2022, Cypress did not generate sufficient qualifying income, as defined by the Internal Revenue Code, to qualify as a partnership, and accordingly CELP is treated as a corporation for federal income tax purposes effective January 1, 2022. As a result, the enclosed schedules do not include any information regarding the income and expenses of Cypress subsequent to December 31, 2021, nor any information on any purchases or sales of Cypress common units that you may have made subsequent to December 31, 2021."

[Mike9241]

see this link

https://www.businesswire.com/news/home/20220506005525/en/Cypress-Environmental-Partners-Announces-Pr... 

from the thread

Given the amount of Cypress’ outstanding senior secured debt, which currently totals $58.1 million, Cypress continues to expect that the Reorganization Transaction will result in its outstanding common units (“Common Units”) and Series A preferred units (including accrued and unpaid distributions) having no value.

so basically they went belly up and were delisted.

thus, you have a capital loss for tax purpose equal to the sales price less your tax basis. I would use the 2021 ending capital per the k-1. since the "k-1" for 2022 was all zeroes.   

I would take the position there is no ordinary income recapture on the basis the assets were not worth more than book value.

[GoodShip]

You said "I would use the 2021 ending capital per the k-1. since the "k-1" for 2022 was all zeroes" What would you use that for? My adjustment to original basis for Schedule D?

[Mike9241]

you ignore the 2022 k-1. your basis doesn't disappear because the k-1 for 2022 shows zero for beginning capital. that's because the partnership effectively terminated at midnight on12/31/2021. At that point there was no partnership so no beginning capital to report in 2022. the problem you have is the 1099-B.  proceeds are correct but the broker never adjusts your tax basis for the partnership's activity, so it misrepresents The 1099-B would probably show what you originally paid which is wrong.   by law the k-1s must now reflect tax basis and the last tax basis you have is from the 2021 ending capital so this is your correct tax basis for schedule D.   to use what the broker reports as cost would likely result in you overreporting your loss, which if caught could lead to substantial penalties and interest. even worse if the overstatement of the loss is large enough there could be additional penalties.  

[GoodShip]

I have already adjusted all my sales transactions in Form 8949 to reflect adjustments to basis. Which turned my Loss into a gain,  on schedule D. However, I still have "passive Loss carryover" I can use on complete sale of units, which has value in offsetting taxable income.

The problem I am having is figuring out "Ordinary Gain" on sale of units. I have ALWAYS had some ord gain on sale of units, no matter the partnership, and  no matter if units were sold for a capital loss,  or a capital gain. I have always used the K1 "ord gain"  column for this. But for this sale of units in 2022, there are none. I am trying to figure out how to calculate "Ord gain" per unit sold, to use on Form 4797. The only guide I have is the sale of units in 2021, which averaged .51/unit in ordinary gain on the K1 sales schedule.

Thanks