Sale of QSBS by a Partnership reported on both the K-1 as ordinary gain and 1099-B as capital gain

Forum|Forum|3 years ago
April 30, 2023
1 reply
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I have a client who received a 1065 K-1 with Box 11i reported and a 1099-B for the sale of QSBS stock that is not eligible for the exclusion because the holding period was less than 5 years and the gain was not deferred in any other allowable way.

Entering the information from both the K-1 and 1099-B obviously reports the income twice, once as ordinary gain that flows through Sch E to Schedule 1 and once as capital gain through the 8949 and Schedule D. I believe the capital gain treatment is correct. It appears that both methods of reporting are correct but it should only be reported one way. This is slightly confusing because one iway results in ordinary gain and the other in capital gain.

How do I report this income correctly given that I have two different forms reporting it differently? Is the capital gain treatment correct?

All knowledgeable help is appreciated.

Lacerte Tax

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George4Tacks

Level 15

Did the entity sell some of this stock and your client also sold some of this stock? Did the entity get a 1099B?

Answers are easy. Questions are hard!

P

pat11Author

Level 5

Hi George, i have emailed the client to confirm the number of sales and who owned the stock and suspect that the entity reported this incorrectly. The k-1 does not include all of the info they are supposed to provide for the holding period and basis.
But in the event I have to report the k-1 for the client how do i correctly report the k-1 amount reported in box 11i - when i enter that to Lacerte it flows as ordinary gain from the sch E to sch 1 but should be entered as capital gain on the 8949/Sch D.
My client is not eligible for the exclusion for the 1099b transaction due to a shorter than required holding period. I will require the omitted info to finish reporting for the k-1 if it is valid. If not I will have to go back to my client and find out if they will refile their 1065 to eliminate the wrong k-1. Otherwise, not sure what to do with if that’s the case. Any ideas?

George4Tacks

Level 15

I think you have a good handle on what to do. You can't correct a K-1. If you think it is wrong, get the client to get a corrected K-1.

Answers are easy. Questions are hard!

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