Vlad <vlad_REMOVE_THIS[at]null.net> wrote:

- quote -

I have seen this kind of thing before. I have never
researched it, but I believe the partnership return is
probably "correct." (In other words, partners who do not
materially participate in this type of venture are probably
treated differently that those who do.)

So, the question is, do YOU "materially participate" in this
business? That would generally (and perhaps over
simplistically) mean that you spend over 500 hours per year
related to this activity. Time spent merely reviewing
reports of investment results probably does NOT count for
this purpose.

MTW

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I have an investment in a hedge fund that is organized as a
partnership.

Form K-1 that I received shows the income before investment
interest expenses are taken into account (on in line 7). A
separate line (line 14) shows investment interest expenses,
which are pretty significant.

A footnote on this form says "This K-1 was prepared on the
basis that the partner does not materially participate in
the operations of the partnership. Therefore interest
expense has been included on line 14(A). 1040 filers should
consider this amount on form 4952".

I feel that this is incorrect. The partnership is an active
trader, and interest expenses should be deductible from the
income. Can I do it, given such a K-1 form? If yes, how?

I am contemplating just deducting line 14 from line 7, and
reporting the result as an ordinary income from the
partnership. Is this a legal thing to do?

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