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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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I have a client who has a partnership with a couple of k1 investment.

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I have a client who has a partnership with a couple of k1 investment. On 1 k1 it states line 11 other income code F - NET IRC Section 988 Gain/Loss...under the other k1 it puts the same line 11 but under code A....I have to manually book this in the tax program...where does it go...on a D or a 4797??? what line on each form
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

There are actually several types of transactions that are covered by section 988.

 

For items that an individual has under section 988 these are often reported on Form 6781 because it is from a straddle or similar contract. See http://www.irs.gov/pub/irs-pdf/f6781.pdf

 

Unfortunately, most of the K-1, letters with the K-1 and notes do not give enough information to be certain exactly what is being listed on line 11.

 

When lacking guidance from the partnership as to whether or not this does belong on Form 6781 my usual form of reporting is to take all of these amounts as Other Income (line 21, Form 1040).

 

Even though the partnership is a passive activity, my understanding of these types of transactions are that the income is neither passive nor portfolio income (so Other Income is proper, and not subject to passive loss rules) for a partnership that is basically an investment vehicle for the partners.

 

"Sec. 988. Treatment of certain foreign currency transactions

(a) General rule
Notwithstanding any other provision of this chapter -
(1) Treatment as ordinary income or loss
(A) In general
Except as otherwise provided in this section, any foreign
currency gain or loss attributable to a section 988 transaction
shall be computed separately and treated as ordinary income or
loss (as the case may be). "

 

See also Reg. 1.469-1T(e)(6)(i), which says that "an activity of trading personal property for the account of the owners of interests in the activity is not a passive activity, regardless of whether the activity is a trade or business."

 

Hope this helps for deciding how to properly report these items or if you need more information from the partnership to make that decision.

 

Please ask if you need more discussion or clarification.

Customer: replied 1 year ago.


This k1 belongs to a partnership.....not an invididual...

Expert:  jgordosea replied 1 year ago.

Hello again,

 

Sorry I did not pick up on that. Nonetheless, the same principle applies.

 

This is neither portfolio income nor is it passive income.

 

So on the 1065 I would enter it as Other Income which is line 7 which will also flow and add to Schedule K line 11.

That should flow to the partners of that partnership as Other Income on K-1 line 11 and wind up on the individual line 21 of Form 1040.

 

Hope that clarifies for you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3032
Experience: I've prepared all types of taxes since 1987.
jgordosea and other Tax Specialists are ready to help you
Customer: replied 1 year ago.

IT seems like a gain/loss so can I put on a 4797? The other items in the same category hit the 4797.....Nothing hit the front of the 1065 except for the amounts of other income on the 4797

Expert:  jgordosea replied 1 year ago.

Hello again,

 

Not sure if you have a place to enter line 7 of Form 1065.

 

If you decide that is best, XXXXX XXXXX the information provided by the partnership, sure you can.

As previously stated this should usually be counted as ordinary income; so you may need to use Part I or enter on the 4797 to be ordinary.

 

The exception would be if you know these are from foreign currency contracts or future contracts, then you could use Form 6781 (but may not have enough information the program may require) and those are capital gains.

See www.irs.gov/pub/irs-access/f6781_accessible.pdf‎

 

Since there is not always enough information there may be several legitimate entry points to get the K-1 to properly show the item for the partners , I know.

 

Hope this clarifies for you .

 

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3032
Experience: I've prepared all types of taxes since 1987.
jgordosea and other Tax Specialists are ready to help you
Expert:  jgordosea replied 1 year ago.
Another expert has sent information to assist.

"The difference between that of 11A and 11F is that 11A is portfolio income (like investor income) thus investment interest expense and deductions attributable to this income is subject to the investor limitations.

Line 11F is used for traders and is not subject to limitation. You can have a K1 giving both types of income and that is when it get's confusing, especially for an individual doing his/her taxes....

The 988 income is ordinary income and would be reported on schedule K for a partnership, basically the partnership just passes on the K1 it received exactly as it receives it, same numbers in the same boxes. (i.e. flowthrough)"

Hopefully that helps to get the 11A and 11F to flow correctly to the K-1 from the partnership.

Thanks for using our service.

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