THE WANDERING TAX PRO
Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 45+-year veteran tax professional Robert D Flach.
Tuesday, October 31, 2017
TALKING TAX REFORM - FIXING THE LIMITED PARTNERSHP K-1
seems appropriate on Halloween to discuss one of the scariest items involved
with 1040 preparation.
have said it before and I will say it again.I HATE K-1s.Specifically, the
K-1s, always late, for limited partnership investments.
almost all cases, unless there is a substantial investment, the financial tax
benefits of these type of investments, if there are any, are wiped out by the
cost of the additional work to actually prepare the investor’s individual tax
very seriously believe that brokers receive a higher commission for selling
these investments, and often brokerage houses instruct their brokers to sell
specific limited partnership investments to clients.I also firmly believe that there are
alternative mutual fund investments that provide the same, or perhaps better,
all we had to deal with were items in boxes 1 through 10 and 12 – business income,
interest, dividends, capital gains, and the Section 179 deduction – it would be
ok.The instructions on Page 2 of the
Form K-1 clearly indicate what line on series 1040 forms and schedules on which
to enter these numbers. The problem with
these GD forms concerns the items of “other income” and “other deductions”.
example, under “other income” the referenced internal supplemental statements
reference Internal Revenue Code Sections 475, 988, and 1256, cancellation of
debt, other portfolio income, and other income (not specifically identified). For most of these items the instructions say “See
the Partner’s Instructions”.
income” is interest, dividends, royalties, and capital gains.Sometimes the “other income” boxes detail specifically
references “interest, dividends, and capital gains”.Why is this income not included in the boxes
in the first 10 that specifically identify interest, dividends, royalties, and
long and short-term capital gains?Are
these items reported on Form 1040 Schedules, B, D or E, or are they merely “other
income” reported on Form 1040 Line 21?Or do they go elsewhere?
deductions” refers to Internal Revenue Code Sections 59(e)(2) and 743,
pass-thru deductions, royalty deductions, and, again not specifically
identified, other deductions.Again, we
are told to “See the Partner’s Instructions”.While I would expect “royalty deductions” are entered on Page 1 of
Schedule E, where do the rest of these deductions go?
course, the taxpayer investor has absolutely no idea what these things mean –
nor do they, for the most part, give a rat’s hind quarters.They just give the multiple K-1s to their tax
preparer, often as they arrive (usually after April 15th) and expect
us to figure it out.
“framework” for tax “reform” talks of doing away with business “loopholes”.The answer to fixing the dreaded limited
partnership K-1 would be to do away with all the “loopholes” and Internal
Revenue Code Sections that create the confusing and convoluted components of “other
income” and “other deductions” identified above, and have ONE net income item
for either “ordinary business income(loss)” or “net rental income(loss)” to
report all “non-portfolio” income and deductions, include all portfolio income
from all sources in the appropriate boxes 5 through 10, and limit “other
deductions” to the traditional Section 179 deduction, charitable contributions,
investment interest, and miscellaneous “portfolio” expenses.I hope this is part of what the “framework”
is talking about.
would be interested in hearing from other tax pros about the dreaded limited
partnership investment K-1.