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Old 06-09-2017, 01:50 PM
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Distributions from Partnership to S-Corp Partners

I am a CPA tax preparer but cannot find a clear answer to this question.

I have a client partnership with two S-Corps as partners. Cash is being distributed monthly based on profits of the partnership. I am treating these as distributions, thus the "profit" eventually flows to the Partner K1's (S-Corps) at 100%. I THINK that part of the accounting is correct, as payments cannot be made to the S-Corp partners as an expense of the Partnership, correct?

What I'm having trouble with is recording on the S-Corp side of the books so as not to cause double taxation on the S-Corp shareholders. If I treat the cash received & deposited as a Revenue it ends up recognizing the income twice - once through the P&L and again from the K1 when reflected in the S-Corp tax return.

This can't be right, so how do I handle this?

Any help or reference to a reliable source would be appreciated.

Thanks.



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Old 06-10-2017, 10:22 PM
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I have a client partnership with two S-Corps as partners. Cash is being distributed monthly based on profits of the partnership. I am treating these as distributions, thus the "profit" eventually flows to the Partner K1's (S-Corps) at 100%. I THINK that part of the accounting is correct, as payments cannot be made to the S-Corp partners as an expense of the Partnership, correct?===>Correct.

What I'm having trouble with is recording on the S-Corp side of the books so as not to cause double taxation on the S-Corp shareholders. If I treat the cash received & deposited as a Revenue it ends up recognizing the income twice - once through the P&L and again from the K1 when reflected in the S-Corp tax return. This can't be right, so how do I handle this?=========>>No you just need to report the d/b form the LLC to your S corp on box 12 of Sch K1 of 1120S. The LLC must provide each LLC member with a Sch K-1, which breaks down each member's share of the LLC's profits and losses. In turn, each LLC member reports this profit and loss information on his or her individual Form 1040, with Sch E attached.



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Old 06-12-2017, 11:09 AM
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Thanks for your assistance.

To make sure I understand the cash coming into the S-Corp partner bank account IS recorded as a credit to income/revenue. Then, when you prepare the S-Corp tax return the K1's that go to the individual partners shows the amounts received by the S-Corp as a DEDUCTION for the S-Corp shareholders (appropriately divided) that will correctly offset the income reported on line 1 of the K1. Is there any particular description that you would use or recommend on the K1 line 12, since there doesn't appear to be a standard code for this type of deduction? Thanks again for you help.



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Old 06-12-2017, 04:37 PM
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Originally Posted by wgreddencpa View Post
Thanks for your assistance.

To make sure I understand the cash coming into the S-Corp partner bank account IS recorded as a credit to income/revenue. Then, when you prepare the S-Corp tax return the K1's that go to the individual partners shows the amounts received by the S-Corp as a DEDUCTION for the S-Corp shareholders (appropriately divided) that will correctly offset the income reported on line 1 of the K1. Is there any particular description that you would use or recommend on the K1 line 12, since there doesn't appear to be a standard code for this type of deduction? Thanks again for you help.
To make sure I understand the cash coming into the S-Corp partner bank account IS recorded as a credit to income/revenue.=====> Each of the S corp shareholder's AAA/ capital account must be maintained accurately in order to allow for an accurate allocation to each shareholder of all pass-through items and to be able to compute gain or loss should a shareholder sell his stock. However in many cases this is not reality.

Then, when you prepare the S-Corp tax return the K1's that go to the individual partners shows the amounts received by the S-Corp as a DEDUCTION for the S-Corp shareholders (appropriately divided) that will correctly offset the income reported on line 1 of the K1. ==>I think so.the s corp member/ partner will recognize gain if money us distributed to the corp and the value exceeds the partner?s outside basis in its partnership interest as determined immediately before the distribution. Howeer, No gain or loss is recognized to a partnership on a distribution of property or money to a partnerThe distribution thenALSO reduces the S corp partner?s basis.
Is there any particular description that you would use or recommend on the K1 line 12, since there doesn't appear to be a standard code for this type of deduction?===>Not sure. If your S-Corp has capital gains , you'll get your pro-rata share of the capital gains; say,if the corp makes $300K CG from the MMLLC, the corp doesn?t pay the income tax on this d/b. Instead, each of three shareholders includes his share of the corporation profit,$100K per person in his or her taxable income. The shareholders pay the taxes owed on the $100K of the CG on their 1040s.



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