Reporting UBTI From Investments in Partnerships and S Corporations

Description

An often-overlooked challenge for advisers of pass-through entities in preparing partnership and S corporation tax returns is the presence of exempt organizations as partners or shareholders. Partnerships are required to furnish their partners with the information necessary to compute their distributive share of partnership income and deductions from any unrelated trade or business. Box 20, Code V on the Schedule K-1 should indicate the amount of unrelated business income.

However, the UBTI information is often buried in footnotes, or the impact of UBTI is not accurately addressed at all. For partnerships with exempt org partners, accurate reporting of UBTI is critical to the exempt partner's tax return.

Tax advisers preparing partnership tax returns should consider making separate disclosures detailing UBTI that would be reportable by exempt organization partners. If the partnership holds debt-financed property as assets, this becomes especially critical because the exempt org partner is subject to reporting and payment obligations. Section 514(c)(9) qualified-organization rules may offer relief from unrelated debt-financed income (UDFI) obligations, so the partnership K-1 must identify UDFI in its K-1 disclosures.

Listen as our panel of experienced advisers provides a comprehensive and practical guide to K-1 reporting of UBTI and UDFI for exempt organization partners.