Get Ready For Major Changes to Schedule K-1

• October 3, 2019
• Paul Neiffer

A partnership or S-Corporation reports various items of income, loss, credits and other information on Schedule K-1.  For many years, this schedule had remained fairly static.  However, starting with the 2019 Form, major changes are coming.  Here is a recap of some of the changes (primarily on the partnership returns):

• You will now be required to report your capital on the income tax basis.  Many tax returns currently show GAAP or other types of tax basis.  That will no longer be allowed.  If you currently show GAAP, you will need to change all of the Schedule K-1s to show income tax basis.
• If any partner contributes property to the partnership and the tax basis is less than fair-market value, then Schedule K-1 will need to attach a statement outlining this information.
• You will need to reconcile the partners net Section 704(c) gain or loss (which can be very complicated).
• Code Z will now be used for all Section 199A information (QBI, wages, UBIA, PTP, REIT, etc.).
• Code AA will recap the Section 704(c) information.
• There are numerous other codes and changes listed on the page 2 of the Schedule K-1.  We can tell that they had to shrink the font to get it to fit all on one page.

The bottom line is that your partnership return will be more complicated and likely more costly.  Based on our current review, the cost increase could easily exceed 20% of your old income tax preparation fee for a partnership return.  As a matter of fact, the easy part of the return may be inputting the numbers, the hardest will likely be preparing Schedule K-1 for you.

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