Daily Tax Update - February 27, 2007

IRS OFFERS TIPS FOR ACCURATE SCHEDULE K-1 REPORTING: Today, the IRS provided tips to businesses, individuals and tax professionals to avoid errors involving Schedules K-1. Income, deductions and credits from partnerships, S corporations, estates and trusts are reported to investors on Schedules K-1.

According to the IRS, "Businesses, individuals and return preparers can avoid unnecessary questions and correspondence by following these instructions:

  • For flow-through entities issuing Schedules K-1 — Ensure entity information on Schedules K-1 properly identifies the taxpayer (or other entity) responsible for reporting the Schedule K-1 income.
  • For recipients of Schedules K-1 — Avoid netting or combining income against losses or expenses not reported on Form 8582, Passive Activity Loss Limitations. Refer to the instructions for Form 8582 on how to properly report passive activity losses. Ordinary business income should be reported separately from related deductions, such as unreimbursed partnership expenses or the Section 179 expense deduction. Refer to the Schedule E instructions for information on properly accounting for deductions related to Schedule K-1 income."
  • The IRS also encouraged taxpayers to file electronically to help reduce errors.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

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