Discussion:Section 988 loss from partnership
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| {{ForumReplyPost|UserID=Jdl81|Date=2 October 2009|Text=This one in question is a trader partnership. Was your Schedule K-1 from a trader partnership?}} | {{ForumReplyPost|UserID=Jdl81|Date=2 October 2009|Text=This one in question is a trader partnership. Was your Schedule K-1 from a trader partnership?}} | ||
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| + | {{ForumReplyPost|UserID=JAD|Date=2 October 2009|Text=I don't recall, but I believe that the treatment is the same whether the partnership identifies itself as a trader or investor.}} | ||
Revision as of 23:48, 2 October 2009
Discussion Forum Index --> Tax Questions --> Section 988 loss from partnership
| 19 September 2007 | |
| Client has K-1 with Section 988 loss. Am I correct in treating this as interest expense? | |
| 19 September 2007 | |
| Instructions that I have received from preparer of K-1 has said to deduct on Sch E. | |
| 19 September 2007 | |
| Investment partnership? I have one of those too. They want investment interest and short sale dividends paid on the E. Haven't decided myself. The ordinary loss is passive, no? | |
Death&Taxes (talk|edits) said: | 19 September 2007 |
| So is the ordinary gain passive also? I am finishing someone who works for Goldman; she has twenty of these internal partnerships and 18 have Section 988 gains or losses in Block 11, with an overall gain. Instructions from the Big Four accountants say little. | |
| 19 September 2007 | |
| Just my opinion. I'd like to hear otherwise, but the little guys are limited partners and passive seems likely. My question is does sticking all these other odds and ends on the E make them passive too? At least they tell you what they all are. | |
Death&Taxes (talk|edits) said: | 19 September 2007 |
| In the past I'd been creating a schedule netting the amounts shown on Line 11 and dumping the result on Line 21. For the past three years the result has been a gain, but this year I have a 925 loss. Naturally these partnerships also show amounts on Lines 1 & 2 which are passive because the client is a limited partner.
The letter that accompanies the K-1 says nothing, and the K-1 notes, which break these figures out, gives no information besides 'Section 988 Gain(Loss). And on some of them, on the K-1 Line 11, Code F, the 988 income/loss is netted against "Other Income(loss) which is not explained, even in the Line 20 explanation in regards to Code V, UBTI, which is not relevant in this case. My vote would go toward passive also, but with Proseries, this means entering these items on Sch E direct, and what if that same partnership has a '988' loss and a Line 1 Gain.....is there an argument for netting these to simplify entry. The man has 30 K-1 worksheets, though some are duplicates caused by partnerships having entries on both Lines 1 & 2, or two different types of foreign income: passive and general limitation. This on a return with 7 figures of other income. Relevance, relevance, relevance! | |
| 19 September 2007 | |
| Line 21 means you have to force the suspended loss calculation, no? | |
| 19 September 2007 | |
| What about treas. reg. section 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." Here's the example:
A partnership is a trader of stocks, bonds, and other securities. The capital employed by the partnership in the trading activity consists of amounts contributed by the partners in exchange for their partnership interests, and funds borrowed by the partnership. The partnership derives gross income from the activity in the form of interest, dividends, and capital gains. Under these fact, the partnership is treated as conducting an activity of trading personal property for the account of its partners. Accordingly, the activity is not a passive activity. | |
Death&Taxes (talk|edits) said: | 19 September 2007 |
| Dennis: Using passive activities with Proseries I think I am going to have to force the suspended loss calculation no matter where I put it unless I net it with Line 1 or 2 of the K-1. | |
| 19 September 2007 | |
| Hey, I have someone with literally 50 - 70 of these. Nittiaj is right. They are not passive and not portfolio - although they do wind up becoming part of net investment income on the 4952 (overrides may be required). If the partnership takes the position that it is in the business of trading the accounts of its investors, (I call it a trader partnership) then the investment interest expense does go on Sch E - after running through the 4952. If the partnership takes the position that it is an investor, then the interest expense goes on Sch A. Line 1 losses may be the expenses of running the business of trading on the account or investing, in which case, again, it is not passive. This of course does not apply if the partnership is investing in other entities that are throwing off passive income. Unfortunately, sometimes the preparers of these partnership returns don't seem to know what they are doing, or maybe how they're supposed to report this stuff is unclear, and the instructions to us may be sketchy at best, and the reporting may be completely inconsistent with a similar return prepared by someone else. | |
| 19 September 2007 | |
| Hi agree with JAD and Nitt we do not subject the 988 loss to any passive loss rules before it is deducted on the schedule E for trader partnership. As well as the other deductions not labled portfolio(which would go on sch A misc.), we will report on schedule E labeled accordingly(interest expense etc). One should have a box on the k-1 input you can check to note "not a passive activity" bye | |
| 23 February 2009 | |
| All,
My client is being audited on this issue. The auditor insists that the expenses reported by the partnership - expenses incurred to generate the trading gains - are passive. I referred her to the Reg that Nittiaj referred to above. The auditor says this does not apply to the individual. If no material participation, then passive. Here's the thing: I haven't maintained a research file on that which I know to be true. I've referred her to the reg, an FSA, an article by the AICPA. She wants Code, Regs (although not apparently the one I gave her), or court cases. I would be grateful for any authority on this issue or experience with audits on this specific topic. Thank you for any help. | |
| 24 February 2009 | |
| For anyone else who might ever have this issue on audit, I actually found simple language that should be acceptable in the Passive Activty Loss Audit Technique Guide, chapter 3, passive income. It's as clear as can be that the reg above does not simply apply to the partnership (in which case, what would be the purpose of the reg?) but serves to remove the whole activity from the passive rules. | |
| 2 October 2009 | |
| JAD
The agent didn't recognize Reg. 1.469-1T(e)(6)(i) to take the ordinary loss on Schedule E? | |
| 2 October 2009 | |
| Correct. She said that the language in the reg was unclear or something like that. It was ridiculous. I was trying to find support for something that was already clear. Why would there be any discussion or pronouncements or anything on what is already clear? Fortunately I found what she needed in her own audit technique guide. | |
| 2 October 2009 | |
| Because I have a Schedule K-1 with a loss in Box 11. The partner does not materially participate and is a limited partner. Did the revenue agent tell you what you needed in order to take an ordinary loss? So, on your Schedule K-1 you also had a loss in Box 11 (other income or losses)? | |
| 2 October 2009 | |
| Correct. These investment partnerships are a different animal. It is trading of personal property on behalf of the partners, or something like that. The partnership will have only portfolio income - interest, dividends, capital gains/losses, 1256 gains/losses, 988 income or loss and other foreign currency stuff, and expenses related to generating that income. If the partnership takes the position that it is a trader partnership, then any interest expense (after going through the 4952) will be deducted on Sch E. If it takes the position that it is an investor partnership, then the interest expense is deducted on A (again, after going through the 4952). In general, you will see the expenses treated the same - either deducted on Sch E or Sch A, and of course the Sch A is the much worse tax benefit because it is a misc itemized deduction. If you are unsure of what this partnership is doing or of any item, tell the client that you need to clarify some issues, and speak with the preparer of the partnership tax return. | |
| 2 October 2009 | |
| This one in question is a trader partnership. Was your Schedule K-1 from a trader partnership? | |
| 2 October 2009 | |
| I don't recall, but I believe that the treatment is the same whether the partnership identifies itself as a trader or investor. | |
