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jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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Morning. Two questions with brief summary regarding partnership

Resolved Question:

Morning.

Two questions with brief summary regarding partnership K1 flow through to the 2012 Form 1040

#1. Partner has a negative outside basis of ($322). 2012 K1 Box 1 ordinary loss of ($123k). Partner paid $71k for unreimbursed expenses. The $71k was additional vested capital in 2012 and the company took deduction on 2012 Form 1065.

Question #1 My tax softwared is allowing a loss on line 17, pg 1 of Form 1040 up to the $71k 2012 vested capital even though she has a $322 negative outside basis. Is this correct?

Question #2 Partner also paid $6k in unreimbursed expenses with arrangements with the partnership that she would not be paid back. The company did not take the $6k deduction on 2012 Form 1065.

I entered the info on an additional K1 screen as unreimbursed expenses and basis of $6k so that she could take the deduction on her 2012 Form 1040.
Submitted: 9 months ago.
Category: Tax
Expert:  jgordosea replied 9 months ago.

Greetings,

 

Question #1 My tax softwared is allowing a loss on line 17, pg 1 of Form 1040 up to the $71k 2012 vested capital even though she has a $322 negative outside basis. Is this correct?

Presumably yes since the program should have used that additional contribution to allow the loss and then computed the basis with both the contribution and allowed loss in the basis total.

 

Question #2 Partner also paid $6k in unreimbursed expenses with arrangements with the partnership that she would not be paid back. The company did not take the $6k deduction on 2012 Form 1065.

Whether or not the partnership did or did not deduct anything this is still an additional capital contribution.

Caution may be needed not to record another (second) contribution for this amount when the partnership records the item.

 

Also, in order for a partner to claim unreimbursed expenses without reimbursement separately from the partnership accounting usually requires that is permitted by the partnership agreement. Many agreements may not allow or may require reimbursement of partnership expenses in the operating agreement.

For more detail see http://marcumllp.com/blog-tax-and-business/unreimbursed-business-expenses

"A partner cannot deduct expenses incurred on behalf of the partnership if the partnership would have reimbursed the partner for those expenses. The IRS has ruled that if, under the partnership agreement or practice, a partner must pay certain partnership expenses out of his or her own funds, he or she can deduct such expenses on the individual tax return."

 

Please ask if you need more discussion or clarification.

Thank you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience: I've prepared all types of taxes since 1987.
jgordosea and 4 other Tax Specialists are ready to help you
Customer: replied 9 months ago.


I just sent a reply through the question mode, so I apologize. This box did not come up on the first opening of viewing your answer!


 


You can void the additional question regarding this question if you received it.


 


However, I do have two other issues regarding this same topic and client. This client took 100 % of the K1 losses over and above her basis in prior years. She does not want to amend her returns. Going forward, the returns will be done correctly.


 


Should I file the 2012 return with the current year loss, knowing that she took additional losses in prior years above her basis?


Will a letter confirming my adamant suggestion to amend prior year returns protect me from IRS penalty as tax preparer?


 


Also, for some reason I have had to input my credit card information for each question. I am paying and have paid the monthly premium membership so the questions should show zero cost.


Any suggestions her?


 


Thank you!


 


Peg

Expert:  jgordosea replied 9 months ago.
Greetings,

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