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Stephanie B.
Stephanie B., Enrolled Agent
Category: Tax
Satisfied Customers: 556
Experience:  MTax, EA, QuickBooks Proadvisor. Over 15 years accounting and tax experience specializing in individual and small business.
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I have a few questions regarding tax documents for partnerships

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I have a few questions regarding tax documents for partnerships (limited):

1. An investor invests $100k into a limited partnership. The partnership happened to have stock holdings in a public company that paid dividends in 2011. The dividend pro-rated amount for the $100k came to be $5k (5%). In addition my pro-rated shares had unrealized capital gains of $8k. However the limited partnership did not elect to distribute out dividends or gains to its partners for 2011. What is the best way to handle the $5k dividends that were pro-rated for my $100k for 2011 tax return?
2. Should the partnership K-1 show that my share of $5k dividend be included in the K-1? But I did not receive any payout - am I still required to pay tax for 2011 on the dividend of $5k?
3. Can the limited partnership not distribute dividends received in 2011? Under what circumstances can limited partnerships not distribute dividends and realized capital gains for any given tax year? Or must all dividends and realized gains be passed thru to its partners without exceptions?

I appreciate your time and help with these questions on limited partnership tax issues. Thank you.

RAS

Stephanie B. :

Thank you for using Just Answer.


 


Partnerships are flow-thru entities, meaning the partnership itself does not pay income tax but instead the income and expenses flows through to the partners on a K-1 based on the partners’ interest in the partnership.


 


As a partner, you will receive a K-1 and be taxed on your share of the net income/loss, regardless of the distributions you have received from the partnership. All income/expenses that flow into the partnership will flow back out to the partners.


 


The partnership is not required to payout the dividends received from the public stock holding company to the partners. The partnership agreement should state what your responsibilities are as a limited partner and what distributions you will receive.

Keep in mind the income that is reported to you on your K-1 will increase your outside basis in the partnership. Your basis is the amount of money contributed, plus/minus profit/loss, plus additional money/property you contribute, less distributions you receive.

For example, if your share of the partnership income is $5000, you contributed $100,000 initially to get into the partnership, and you took no distribution, your new basis would be $105,000. If you sold your partnership interest for $110,000, your basis would be $105,000 and you would only pay tax on the gain of $5000.


If this answers your question, please click the accept button as this is the only way we get paid for the assistance we provide to you.

If you need more clarification, please let me know. If I am not available at the time, I will be.

I appreciate the opportunity to assist you and I look forward to your response.

Stephanie


 


 

Customer:

Hello, Stephanie,

Customer:


Thank you for your help. Couple of quick questions:

Customer:

1. What if the partnership sends out K-1 later this year ins 2012 - but dividends received in 2011. And I already filed my 1040 for 2011. Do I need to amend 1040 with the late K-1?

Customer:

2. Or can I use the K-! info and file instead for 2012 tax return? Thank you!

Stephanie B. :

If the partnership is on a calendar year reporting, they have until April 17, 2012 to get you the 2011 K-1. If the partnership filed an extension, they have until Sept 17, 2012 to get the 2011 K-1 to you. If you have already filed your tax return for 2011, you will have to file an amended return once you receive the K-1.

Stephanie B. and other Tax Specialists are ready to help you