Schedule K1 | 1099B | Section 1256 Contracts

[MYazmania]

In 2020 I fully bought and sold an ETN (Section 1256 60/40 treatment eligible security) and made a $15K gain then received 1099B and Schedule K-1.  1099B correctly shows the $15K as short term gains.  Schedule K-1 shows a loss of $70K and provides instructions for trade-by-trade 1099B basis adjustments so that the 1099B shows an extra gain of $70K.  I entered the 1099B and Schedule K-1 in TurboTax Premier; TT correctly split the Schedule K-1 loss of $70K (60/40 ) as $42K long term loss and $28K short term loss. But, when I manually adjust the basis of each trade on 1099B, TT considers the total adjusted gains ($85K =$15K true gain+ $70K adjustments) as short term only (as TT doesn't know about the 60/40 rule on the 1099B side).

This creates a LT/ST gains vs losses matching problem and results in higher taxes (i.e. not enough ST losses to fully offset the ST gains).  What is the correct way to adjust the 1099B basis to apply the 60/40 LT/ST rule?  

Thanks in advance for your help!

[Mike9241]

direct section 1256 contract gains and losses are not entered on form 1099-B. they get entered on form 6781.  so why you got a 1099-B with trade by trade details rather than just a statement showing 1256 gain/loss is a mystery. hopefully, someone else can answer

if you received a k-1 with1256 gains and losses the net would be reported on line 11c.  from there they get carried to form 6781

we can't see the k-1 or supplement so it makes it difficult to give you a complete answer

the first I have is whether the ETN produces 1256 gain/loss

(b)Section 1256 contract defined
(1)In general
For purposes of this section, the term “section 1256 contract” means—
(A)any regulated futures contract,
(B)any foreign currency contract,
(C)any nonequity option,
(D)any dealer equity option, and
(E)any dealer securities futures contract.

[MYazmania]

Thanks for your reply. Here are are few missing details:

> The ETN is "SVXY" a multi-futures contract wrapped in an ETN offered as a security i.e. Sect 1256 eligible.

> K-1 sent by the ETN provider along with a Sales Schedule; yes, the code/amount in box 11 is "C -$70K".

> 1099B sent by the broker/dealer. Trades are reported as regular securities; no1256 specificity. All trades are marked as ST and reported to IRS.

Yes, TT correctly reflects the K-1 1256  $70K loss on 6781, split as 60% LT / 40% ST = $42K / $28K which are then transferred to Sch-D as LT and ST entries.

The K-1 Sales Schedule shows how to manually adjust the basis (per trade) shown on 1099B which are reported on 8949  then transferred to Sch-D as a ST gains entry (in my case the basis per trade is up-adjusted to create a total extra gain of $70K on the 8949).

The issue is : When the 6781 LT/ST losses and the 8949 ST gain are combined on Sch-D, I end up with a term mismatch from offsetting standpoint.  $42K LT loss + $28K ST loss from 6781 versus $70K+$15K ST gain from 8949.  This mismatch generates a higher overall cap-gains $tax when compared to correctly term matched $tax. Note the inaccurate dual treatment of the "same economic asset" here! 6781 is showing LT/ST losses; 8949 is showing ST gains only for the "same" asset.

I guess one way to fix the mismatch would be to override the 60/40 LT/ST split on 6781 to a 100/0 ST but that would perhaps violate the formulaic form instructions?  

Am I left with having to split the 100% ST gains on 8949 to 60/40 LT/ST gains? If yes, what is the correct way to accomplish this using TurboTax? I need to use the 1099B interview section but which adjustments should I use to split all ST to 60/40 LT/ST? 

Are there other suggestions on how to fix the term mismatch which results in dual treatment regarding offsetting of LT/ST gain/losses for the "same asset" ?