The IRS has released a draft of the 2019 Form 1065 K-1. Whether you prepare partnership and LLC returns and their accompanying K-1s or whether you input your clients’ K-1 to their personal tax returns, the changes are important to note.
5 Changes to Note on New Draft of 2019 Form 1065 K-1
- The partner’s capital account must be reported on a tax basis. In prior years, the partner’s basis could be reported as tax basis, GAAP, §704(b) book or other. Requiring tax basis reporting will help the IRS to target potential losses claimed in excess of basis.
- The partner’s beginning and ending §704(c) gain (or loss) must be entered at Part II, N. If the basis of contributed property differs from its FMV at contribution, §704(c) requires gain (or loss) with respect to such property to be allocated to the contributing partner. The purpose of §704(c) is to prevent taxable gain or loss inherent in property at the time of contribution from being shifted to another partner.
- Separate lines have been added for guaranteed payments for services and guaranteed payments for capital (Part III, lines 4a and 4b).
- Lines 21 and 22 have been added to Part III to report “more than one activity for at-risk purposes” and “more than one activity for passive activity purposes.”
- Section 199A information will be reported on a supplemental schedule, instead of being detailed on the K-1 itself. Part III, line 20, code Z will direct the partner to the attachment. The supplemental schedule will report (1) qualified business income, (2) W-2 wages, (3) unadjusted basis -UBIA, (4) REIT dividends, and (5) PTP income. In addition, the supplemental schedule will report if the qualified business income is from a specified service trade or business (SSTB).