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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2421
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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Im a British national now living long term in the U.S., and

Customer Question

I'm a British national now living long term in the U.S., and U.S. resident for tax purposes. I have some investments in UK partnerships (LLPs). I'm not a controlling partner, my interest is only 1-2 percent. How do I report this on my U.S. tax return? I receive occasional cash distributions. There is no K-1, as these partnerships operate only in the UK. Around October each year, I get a statement of profits and interest attributable to my share of the partnership for the UK tax year which runs to April 5th.
Submitted: 7 years ago.
Category: Tax
Expert:  Anne replied 7 years ago.
%HiCustomerbr />
Thank you for using just answer. Since you don't receive a K1, then you will need to manually enter the amounts on your tax return. For example, your interest from the partnership will be manually entered on 2009 Form1040 (Schedule B)Interest and Ordinary Dividends, and since you are not actively engaging in any activities in the partnership, (except for your investment), your % of the profits will be manually entereed on page 2 of 2009 Form 1040 (Schedule ESupplemental Income and Loss.

If there was any tax paid to the UK on any of the interest/profits you are reporting on your Federal 1040 form, then you may file
2009 Form 1116Foreign Tax Credit to help offset the US tax on that income.

I hope this helps.

Edited by Anne on 12/1/2009 at 8:36 PM EST
Customer: replied 7 years ago.
Thanks... so like a U.S. partnership, I only have to declare the profits and interest attiburable to me that appear in the financial statement, I don't need to worry about the cash distributions that I receive from the partnership? My concern is the timing because the tax years in the U.S. and U.K. are different. For example, I have just received financial statements for April 5th 2009, that is for the U.K. tax year which runs Apr 2008 to Apr 2009. Is this tax payable with my 2009 U.S. return? Although part of these profits will presumably have been generated in calendar 2008, I have no way of knowing what proportion; and I have no way of knowing the correct figure before late 2009.
Expert:  Anne replied 7 years ago.
That's a good question and one I should have thought to address in my answer.

US taxpayers are on a "cash basis, calendar year", which means that even though UK is on a fiscal year, you didn't receive the money until 2009, so what money you received in 2009 (even though it may be for UK's 2008 tax year) you will report the income in the year you receive it.

Cash distributions are generally not taxable to you, unless you have already recouped your initial investment plus any other investment you gave to the partnership such as additional cash, or if you had expenses for the partnership that were unreimbursed, then that value would also go to your "cash basis" in the partnership.

I hope this helps.
Customer: replied 7 years ago.
I'm totally conused now! I understand the concept of "cash basis, calendar year", but in this case what does it apply to? There is a financial statement of partnership profit made dated Apr 2009 for the year Apr08-Apr09, but Apr 2009 is not the date of any cash either accruing as profit to the partnership or being distributed to the partners, so it seems odd to apply the "cash basis, calendar year" principle to this date. Some or all or none of this profit may have been distributed as cash to the partners at various times during 2008 and 2009.
Expert:  Anne replied 7 years ago.
I'm sorry Ralph, I didn't mean to confuse you.

When did you receive the money? It matters not what the paper says, its when you received the money that counts. I have often had to amend a clients tax return because a partnership they are an investor in did not get the paperwork to them before the filing deadline.

I also understand that trying to figure out what proportion of the interest/profit was actually received by you in 2008 and what portion you received in 2009 will be difficult (I read your post regarding that) Sometimes you can get this information by studying your bank accounts to see when you deposited the money, and sometimes you can simply ask the accounting firm of the partnership itself to give you the dates they made the distributions to you.

You can only work with what you have, and its not my intention to confuse you or make it more difficult than it needs to be. If it were me, I personally would contact the partnership first as their records should be readily available and in today's electronic age they should be able to track your payment dates fairly easily.

I hope this helps.
Customer: replied 7 years ago.
Setting aside the timing issue for a moment, you now seem to be saying something different on the original basic point. For a UK partnership, should I be declaring the profits and interest generated by the partnership, or the actual cash distributed to me? Originally, you said it was the former. So, I do know the dates and amounts of cash distributed to me - but I dont see the relevance, as that's not what I'm paying tax on.
Expert:  Anne replied 7 years ago.
I am so sorry that the terminology I used confused you. You're correct that you are only paying tax on the interest and profit. When I mentioned the partnership should know when you were paid, or when I mentioned that US is on a cash basis, the money I was always referring to was the interest and the profit. THAT is what is taxable to you.

Most companies pay interest either quarterly or yearly, and your % of the profit was probably paid either quarterly or yearly. The interest and the profit earnings were what I was referring to when I mentioned checking with the partnership to see when the payments were made.

An alternate way to figure interest, if it is earned by the partnership ratably, is to divide the $ amount earned by 12 months, and then use the portion that would have been earned in 2009 calendar year.

In a pinch, you may do the same for the profits, but its always better/cleaner to get the exact dates that the interest and profits were paid to you if they're available.

Please let me know if you have follow up questions, and I will try to remember how much terminology can muddy the waters, especially when it comes to people's finances.