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How to enter final K-1 when there is no sale of partnership interest. However, partnership converted into corporation.

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Level 1

Partners did not dispose off their partnership interest and and did not receive any sale proceeds. All their partnership interest is converted into corporation stock. This disposition is not taxable. Where is the option to check disposition not taxable.

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6 Replies 6
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Level 2

Just check the box for final K-1 but do not check any boxes regarding disposition. The disposition boxes generate the 4797, etc. which are not needed in this case.

This is not a disposition, it is a conversion.

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Level 1

In ProSeries, I have check the box for a final k-1 since the LP converted to a corporation.  However, I am still getting the error asking about the disposition in Part II.  How do I get rid of these?

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Level 15

Unmark the final K-1 box. Next year, delete the K-1 from the pro forma.


ex-AllStar
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Level 1

Thank you for your answer.  If the LP had passive loss carryforward what do you do with that?  Do those losses increase the basis of the stock received?

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Level 15

I don't know (yet). They are not allowed in 2019.  I think they carry over until the stock is disposed of in a fully taxable transaction (former passive activity rule). If you mark the final K-1 box I am afraid the software would allow them.


ex-AllStar
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Level 1

I agree with that answer but that stands to reason that the basis in the new stock needs to be adjusted for the losses that are being carried.  If I delete the k-1 next year, those losses will be deleted as well.  My only thought is to create an excel sheet showing the adjusted basis of the new stock in some sort of perm folder.

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