Online Support Chat
myICLUB.com

How do we handle Limited Partnerships (LP) and Master Limited Partnerships (MLP) that issue K-1 forms?

If your club has already purchased a Limited Partnership (LP) or a Master Limited Partnership (MLP), we recommend that you sell this security IMMEDIATELY. Club Accounting and Club Accounting Online are designed on a cash-only basis generally used for stocks, mutual funds, and fixed-cash investments such as CD's. Because the accounting and tax treatment is particular to each LP or MLP, they are unsupported in the current system.

By purchasing a Limited Partnership (LP) or a Master Limited Partnership (MLP), your club has created potentially massive headaches for the club and its partners, not the least of which is how investing in an LP or MLP affects the filing status of the club and its members.

As a unit holder in an LP or MLP, your club is considered to be operating a business in any state where that partnership operates a business. Your club and each of your members may be required to file non-resident income tax returns in each of those states. The LP or MLP would provide additional information with its K-1.

If the club has already invested in an LP or MLP, and has received a distribution of any kind, the transaction should be temporarily entered as a Return of Capital. This is only a placeholder, as the LP or MLP will be sending out a K-1 during the year. This will be sent out usually by March, but can sometimes be as late as October. The K-1 will detail the amount of income and expense allocated to your club's ownership of units (not shares) in the partnership. You will then have to adjust the return of capital transactions by the amounts of the income, dividend, and other items that you enter. Some clubs will enter the entire year's worth of these at year-end, while other clubs will calculate the percentage of each amount as it is applied to each distribution that has been entered during the year. It's important to get this information in your records because it affects your ongoing basis in the security. Only then will you be able to prepare your club's 1065.

Again, LPs and MLPs are not supported in the current club accounting system; this means that we cannot support making these edits or changes to the transactions; you would need to find an outside expert to help with these entries.

That's not the end, however. Depending on how the partnership classifies the various items on the K-1 (dividends, income, expenses), the tax software may not be able to correctly generate the tax return. Nor will it be able to allocate the items to the partners on their K-1s. When you sell the partnership, you will probably also need to file IRS Form 4797 (Sales of Business Property) in conjunction with this partnership. Form 4797 is used to report sales, exchanges, or involuntary conversions of business property, disposition of noncapital assets, disposition of capital assets not reported on Schedule D, and section 179 or 280F(b)(2) recapture amounts.