Book adjustments on 1065 Schedule K-1, Item L are carrying to Other increase (decrease) when they should be carried to Current Year net income (loss) on a 1065 return in CCH Axcess Tax or CCH ProSystem fx Tax?

  • Article Type:
  • QA
  • Last Modified:
  • 02/12/2020

Question

Why are my book adjustments on 1065 Schedule K-1, Item L carried to the Other increase (decrease) Line when they should be carried to the Current Year net income (loss) line?

Environment

  • CCH Axcess Tax
  • CCH ProSystem fx Tax
  • Schedule K-1
  • 1065
  • 2019

Answer

The IRS wants Schedule K-1, item L, to be presented using the Tax Basis of accounting as opposed to GAAP or other method.  The 1065 instructions, page 30, suggest the tax basis capital include income and nontaxable income less deductions and non-deductible expenses.

For these purposes, the term “tax basis capital” means (i) the amount of cash plus the tax basis of property contributed to a partnership by a partner minus the amount of cash plus the tax basis of property distributed to a partner by the partnership net of any liabilities assumed or taken subject to in connection with such contribution or distribution, plus (ii) the partner's cumulative share of partnership taxable income and tax-exempt income, minus (iii) the partner's cumulative share of taxable loss and nondeductible, noncapital expenditures.
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