K1s issued for IRAs

[David]

Client has 2 K-1s for PTPs included in his IRA. These are final K-1s.

The K-1s report ordinary business income (loss) in box 1, interest income, dividends, royalties, 1231 losses, and minor amounts of UBTI in box 20 code V ( the net of the 2 K-1s is a loss).

The instructions indicate that since this is a final K-1 and the partnership interest has been terminated, then a gain or loss from the sale of the interest needs to be reported.

The K-1s don't need to be reported since they are related to an IRA account, do they? I don't want the client to get a letter from the IRS regarding unreported K-1 information.

Thanks.

 

[Ringers]

David,

 

Since the K-1's are within an IRA, no reporting is required.  I get a lot of these each year.

[Lion EA]

No reporting on the individual's 1040.  But, depending on the levels of UBTI on all the K-1's owned by an IRA, there may need to be reporting by the IRA.  Tell your client to take them to his plan administrator to combine with the other IRA investments.

[Catherine]

The first time I ever saw these it confused the dickens out of me, too.  But in and IRA = not reportable by the IRA holder.  The plan... well, that's their lookout.

[David]

Thanks all for your help with this.

[Richcpaman]

The UBTI has to be greater than $1,000 for your clients IRA in order to file the return that would tax it.

Kinda tough to get over that limit, unless your client bought ALOT of them.

 

Rich

 

[taxxcpa]

The UBTI is code v on the K-1.  If it is over $1000, it is taxable .  However I doubt that IRS adds them up to check

[Abby Normal]

Has anyone ever seen one of these PTPs that really made money? Because I sure haven't. I think they're so complicated that most people can't tell if they're making money or not. Plus our fees are much higher when clients have these investments.

[Gail in Virginia]

Actually, I have a client that had one that was a registered tax shelter with low income housing credit .  They saved a bundle in taxes over the years, and I think now they are actually getting a small amount of income from it.  That is the only one I have ever seen that I thought was worth the trouble, and I think that the same situation now would not lead to the same results due to the changes in the tax laws.  But it has given me a lot of respect for the investment adviser that client uses.

[RitaB]

I second what everybody is saying, plus I will add that the recipient ID number on all the ones I see are not my clients' SSNs.  That always makes them feel better when I'm telling them, "No, I don't need to amend your return since you got this two days after filing..."  (Every.  Time.  Grrrr.)

Edited May 8, 2015 by RitaB

[Gail in Virginia]

It does sometimes seem like brokerages and PTP's have a spy at the IRS that tells them as soon as the return has been filed and accepted so they can then send either this unexpected K1 or a corrected 1099.  Must be some kind of joke that I don't understand.  I ain't laughing.

[taxxcpa]

KKR sends its K-1 about April 30.  I sold it in the margin account and bought it in the IRA account to avoid this in the future.

[Richcpaman]

I have many clients tell me how they are making money from them, because of the monthly/quarterly distributions.  Then I show them that it isn't coming from INCOME, but from PRINCIPAL.  Usually 50-60% from Principal.  And I ask them who are they selling these assets to when they want to get out?  That always makes for a great Client "face".

And did we notice how many clients have these K-1's THIS year?  Because the sharp guys on Wall Street were dumping them.  Oil market/prices are going down, so sell these assets that were going up, that are starting to go DOWN, to *our* clients.  Thanks big brokerage firms....  You just stuffed the investment dreams of your clients.

 

Rich 

 

[kcjenkins]

I second what everybody is saying, plus I will add that the recipient ID number on all the ones I see are not my clients' SSNs.  That always makes them feel better when I'm telling them, "No, I don't need to amend your return since you got this two days after filing..."  (Every.  Time.  Grrrr.)

​Just be glad they bring them to you, Rita, because the time they don't will almost always be one of the few times they really should have!