You Will Spend More Time on K-1’s in 2020

• October 24, 2019
• Paul Neiffer

The IRS has released their draft Form 1120-S K-1 and Form 1065 K-1 forms and instructions and get ready to spend a lot more time on preparing these forms in 2020 than ever before.  

First, we will start with Form 1120-S since it has the least amount of changes.  Here are the changes:

• A new check box to indicate more than one at-risk activity in the return,
• A new check box to indicate more than one passive activity in the return,
• Much greater detail on Section 199A information.  Instead of one number, you will now attach a statement for each business that will provide detail on:
  • Income, gain, loss or deduction for each activity.  Likely you will provide the amount of Section 179 and Section 1231 gains for each business, not just a lump sum,
  • Indicate for each business whether it is an SSTB or not, and
  • Finally provide details for cooperative QBI and wages related to cooperative QBI,
• Detail on whether you have aggregated businesses at the entity level,
• Wages, UBIA, REIT, PTP, etc. for each business.

Second, we now take a look at the Form 1065 K-1.  They require all of the above information, plus:

• If the owner is a disregarded entity, you will provide the owner’s name and ID number, but then you will also provide the name and EIN of the disregarded entity,
• Indicate whether a change in profits, losses or capital is due to a sale or exchange,
• Indicate if any liabilities shown are from a lower tier partnership,
• Capital accounts in Section L are now required to be on the Income Tax Basis.  If you used any other method you will need to convert to income tax basis,
• Provide beginning and ending net built-in gain information for the partner, if any,
• Break down guaranteed payments between payments for capital (i.e. interest) and services (i.e. self-employed income).

If you are preparer of tax returns, get ready for a lot more work next tax season to prepare these forms.  If you a farmer, please realize your preparer may be asking for a lot more information to prepare your return and there is a good chance that your tax preparation invoice will be higher next year.

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