"Art" <hidden[at]hidden.com> wrote in message
news:48232c59.2300625[at]news.la.sbcglobal.net...
- quote -

PTPs are not simple investments but the solution is simple. Either pay for
professional tax preparation services and hire someone who does understand
these complex rules or choose to invest in less complex investments.

Ira Smilovitz

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Wed, 7 May 2008 16:40:37 EDT, "Ira Smilovitz" <iras1[at]aol.comwrote:


- quote -

Yes, indeed, me too.

The problem with using the entries on the K-1 is that positive numbers
may actually be negative and vice versa. E.g., Box 18C "Tax-exempt
Income and Nondeductible Expenses." If it's tax-exempt, does it add
to or subtract from Tax Basis? Is it included in the Box 19A
Distributions or is it somehow separate and not actually distributed
to shareholders? Just WHOSE income is it, anyway?

I assume the K-1 items you refer to that the taxpayer can elect to
treat in different ways (and that therefore cannot be incorporated in
the PTP's K-1 Box L) include Passive Losses and Carryovers. You can
elect, it appears, to deduct or not deduct these in any given year.

The rules governing these items are way over my head, and all I can do
is enter into TurboTax whatever figures from the K-1 it asks for.
When it asks if I want to deduct the Losses, I say (wottheheck!) Yes,
but I really have no idea what I'm doing. Presumably this deduction
affects my Tax Basis but how? And that's just for one year--the
cumulative effects of the Passive Loss entries over a period of years
are also over my head, though TurboTax does appear to take a
not-too-reliable stab at keeping track of them.

And then there are separate figures and formulas for AMT! I have no
idea how these fit in.

Maybe individual shareholders in a PTP are not permitted to deduct
Passive Losses at all (or do other things with certain K-1 amounts)
but the PTP's K-1 instructions, the IRS's instructions, and TurboTax's
instructions all seem to assume you are a tax professional and know
the answers.

Still dazed & confused,
Art

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<removeps-groups[at]yahoo.com> wrote in message
news:a9a46061-74b3-4545-ab1a-b34746579e4f[at]z16g2000prn.googlegroups.com...
- quote -

Correct. If you didn't add this income to your tax basis, you would be
paying tax twice -- once on the $3 of income when it was earned and then the
$20 capital gain when you sold. However, you invested $100, received $120,
and paid tax on $23 of income/gain. But also see below...

- quote -

Yes, you would also subtract any distributions of property. However, I'm not
aware of any PTP that distributes anything other than cash. If the
cash/property distribution were exactly equal to the $3 of income reported
on the K-1, your tax basis would now be $100 + $3 income - $3 distributions
= $100. You sell for $120 and report $20 of capital gain. You would have
received a total of $123 in cash and paid tax on $3 income + $20 gain.

- quote -

There are certain items that are reported on Schedule K-1 which the
individual taxpayer can elect to treat in more than one way. The choice of
treatment affects the tax basis but the PTP has no way of knowing which
election the taxpayer made. These issues do not affect all PTPs, so you may
not encounter the problem. See the section titled "Elections" a little
higher on the same page.

- quote -

Ira Smilovitz

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

- quote -

Above algorithm seems confusing. Say box 1 (odrinary business income)
and box 5 (interest) are positive. You report these on Schedule E and
Schedule B part I and pay taxes on it. But from "year add all of the
income items from the K1" it seems that you're also saying that box 1
and box 5 add to your cost basis If this is so, then it means that
when you finally sell your shares you receive a furher tax break --
say you bought shares at $100 and sold at $120 two years later, so
long term gain is $20, but say box 1 and box 5 over those two years
add up to $3, then by the formula above your long term gain is $17.

And about "and subtract all of the cash distributions". What about
distributions of property (line 19b)?


- quote -

Strange that the IRS says you cannot trust the box L analysis done by
the partnership, which probably hires pros. But then it's OK to trust
your own records and analysis, and I for one am quite confused .

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Wed, 30 Apr 2008 11:34:20 EDT, DF2 <replyvia[at]newsgroup_please.comwrote:

- quote -

I hope it is. That would be convenient. But if so, then why does the
IRS booklet "Partner's Instructions for Schedule K-1 (Form 1065)"
state on p.2, "Although the partnership does provide an analysis of
the changes to your capital account in item L of Schedule K-1, that
information . . . cannot be used to figure your basis"???

Never stopping to explain WHY the PTP's records would differ from your
own, which consist entirely of the data on the PTP's annual K-l's, the
booklet then very helpfully adds, "You can figure the adjusted basis
of your partnership interest by adding items that increase your basis
and then subtracting items that decrease your basis."

Well, hey, now we know! Just add the plusses and subtract the
minuses!

But then the instructions furnish a nice "Worksheet for Adjusting the
Basis, etc." First, you take last year's adjusted basis and you add
"Money and your adjusted basis iin property contributed to the
partnership less the associated liabilities (but not less than
zero)."

(I would guess this refers to any new investments or contributions.)

Next, you subtract last year's Box M from this year's Box K and add
the amount of any new partnership liabilities you assumed and add the
result to your tax basis, (By this point I am totally lost).

Next, add your share of this year's partnership income including
tax-exempt income (does this mean all positive numbers on the K-1 such
as Box 6a, Ordinary Dividends?). And what about Box 16, Foreign
Transactions, including such choice items as "Deductions General
Category" and "Total Foreign Taxes Accrued"? And are these actually
positive or negative numbers?

There are 7 more mind-bending steps. I suspect the trouble here is
that the IRS requires that a PTP send its "limited partners" (who are
really just passive shareholders) the same K-1 form that an active
general partner receives. Small individual shareholders in a PTP,
while legally "limited partners" and eligible for the favorable tax
treatment of PTP distributions, would be better served by some sort of
special 1099 that doesn't require a battery of specialists to
decipher.

Art

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In misc.taxes.moderated, Ira Smilovitz wrote:

- quote -

Isn't that what box L "Ending capital account" on the K-1 is
supposed to be when the "Tax basis" box is selected?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Art" <hidden[at]hidden.com> wrote in message
news:4814b0ba.1869062[at]news.la.sbcglobal.net...
- quote -

There seems to have been a great deal of misinformation in this thread so
far. The calculation of tax basis in a PTP is straightforward. Start with
your initial purchase price. Each year add all of the income items from the
K-1, subtract all of the expense items, add any additional cash you
contributed to the PTP (reinvestments, additional purchases, etc.) and
subtract all of the cash distributions. The result is your new adjusted tax
basis. Continue each year until you sell. Should your adjusted tax basis
reach $0, any additional cash distribution is taxable income.

Ira Smilovitz

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Nice discussion of the PTP K-1 problem. Thanks for the suggestions.

Yes, on one or more of my PTP K-1's, the Box L "capital account" is in
negative territory. But this is a caculation made by the PTP for its
purposes, not a running tax basis number I can use in my own 1040.

Still, when I subtract all the distributions over the years from my
original cost (the simple, easy, and apparently incorrect procedure),
the result is now pretty close to zero and should hit zero by 2009.
The rule is that when your tax basis hits zero, new distributions must
be reported as income, either cap gains or dividends, not sure which
(and that's not too hard to find out, I think).

The problem remains: how do I use the figures in the annual K-1 to
calculate what portion of distributions is NOT return of capital and
therefore doesn't reduce my cost basis? It's got to be in there
somewhere.

If I had a "tax advisor" I would leave it up to him/her, but I do my
own 1040 using TurboTax, which works OK until the cost basis becomes
zero. TurboTax has me enter the K-1 figures box by box and then does
the calculations. But TurboTax doesn't seem to keep an annual tally
of PTP cost basis.

Art


On Sat, 19 Apr 2008 16:26:27 EDT, hidden[at]hidden.com (Art) wrote:

- quote -

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In misc.taxes.moderated, Art wrote:

- quote -

I have not have that happen. If I did, I guess I would consider
using zero if the number went negative. But that is a non-expert
guess.

- quote -

I agree that is an important point; many distributions are not
return of capital and are taxed in their various ways on each return

This is an interesting topic that few are brave enough to discuss. I
am nothing like an expert and don't have a recommendation. If I saw
the capital account number go negative, I would contact the
partnership by phone or email and ask what a negative number means.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <47046aa3-1e67-4a86-9b84-f001d576cd24[at]w1g2000prd.googlegroups.com> ,
removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:
- quote -


That was sloppy of me. I agree with you.


Also if AB recognized accrued interest paid, and passed that to
you on a K-1, it lowers your basis.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Apr 22, 12:22 pm, kam...[at]panix.com (Arthur Kamlet) wrote:

- quote -

Yes, AB is a partnership.

- quote -

Are you saying that that if AB pays dividends and those dividends are
not re-invested, they still add to my cost basis in AB? That doesn't
make sense to me.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <08c5c036-0cab-4a3e-a347-a073a43f234c[at]26g2000hsk.googlegroups.com> ,
removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:
- quote -

My last comment was directed at the statement that this was a
corporation.

We don't really deal with Distributions in a corporation.


I assume AB is treated as a PTP and not as a corporation?


If so, then your basis is your original basis plus dividends
paid to you plus reinvested amounts. Even capital gains
distributions you are paid add to your basis. And that is true
even if you do not do any reinvesting. In most cases if the PTP
tracks your basis, I would use their figures.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Apr 21, 7:04*pm, kam...[at]panix.com (Arthur Kamlet) wrote:

- quote -

I don't understand. Some LLC's, for example Alliance Bernstein (AB),
pay dividends. If those dividends are automatically reinvested, as
dividends from a mutual fund may be automatically reinvested, then
that adds to the capital basis. If this is the case, then the sum of
line 19 may be be larger than the initial investment, but still less
than the actual investment (which is initial investment plus re-
investments), and in this case there would be no excess to report on
Schedule D.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <wmmPj.119292$D_3.50124[at]bgtnsc05-news.ops.worldnet.att.net> ,
njoracle <njoracle[at]att.net> wrote:
- quote -


Distributions in excess of basis are reported in the year paid
on your 1040 schedule D.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Arthur Kamlet wrote:
- quote -

You are correct. It can't go below zero. I set Quicken up to record all
distributions as "Return of Capital" and because the total of the
distributions is more then what I paid for the stock, Quicken shows it
as negative. However, it should be treated as zero.

That said, it appears that I will owe tax on the distributions for 2008.
The question remains: How do I report these taxable distributions on
my 1040?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <e3cf811c-b7fd-4e32-ad8b-207aa7882176[at]w4g2000prd.googlegroups.com> ,
removeps-groups[at]yahoo.com <removeps-groups[at]yahoo.com> wrote:
- quote -

No.

See the OP. This is a publicly traded partnership in which OP is a
limited partner.

--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Apr 21, 11:58 am, kam...[at]panix.com (Arthur Kamlet) wrote:

- quote -

Could it be that the corporation earned dividends which were reported
on line 6a (ordinary dividends) but then re-invested those dividends.
Say the corporation paid dividends of 1k in 2004 and reinvested them.
Then the taxpayer would report 1k of dividends on Schedule B and pay
taxes on it. But then that 1k is added to the capital investment. So
say he originally bought shares of the corporation in 2002 for $500,
and line 19 over the years adds up to $700, that's OK because the
capital investment is 500+1000-700=800.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <IG9Pj.227630$cQ1.138920[at]bgtnsc04-news.ops.worldnet.att.net> ,
njoracle <njoracle[at]att.net> wrote:
- quote -

Until you reduce the distribution to zzero, it is all return of capital.

If it were something other than a distribution, the k-1 would
say so.


- quote -


Do you have any more capital invested to be returned to you?


Pleae re-read your last question. You can reduce your invested
capital to zero, but no more.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Arthur Kamlet wrote:
- quote -

I originally purchased the PTP from my broker anmd the price I paid is
what I put in. I get a statement from the broker showing the
distribution which is the same amount shown on line 19. So I know what I
paid and what the distributions but I don't know how to calculate how
much of the of the distribution is return of capital.

- quote -

If the distribution is 100% return of capital, how can you say that it
would be unusual that capital account would go negative?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <Y34Pj.226110$cQ1.181637[at]bgtnsc04-news.ops.worldnet.att.net> ,
njoracle <njoracle[at]att.net> wrote:
- quote -


Your capital is what you put in after reduction by other distributions,
plus what you earned and retained, such as interest and dividends paid
to you, less losses you recognized that came to you on a K-1.

It is unusual for your capital account to actually go negative.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >