Maybe on the K1 worksheet....

On the shareholders K1 on their 1040

Terry is right, I just had to do that on a shareholder 1040 K-1 entry in order for the loss to show up.  I think the idea is, how would the preparer know which shareholders in which years are actively participating?  Not a problem in most cases, when both the corporation and the shareholder are clients, but responsibility for the determination should be at the shareholder level.  

But for partnerships/LLCs preparers are expected to know. Go figure.

That might be so that the K-1 shows whether the income is subject to SE tax.  Or does it?  I consider preparing a partnership return is a sign of failure, so I haven't done any in years.  

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@BobKamman wrote:

That might be so that the K-1 shows whether the income is subject to SE tax.  Or does it?  I consider preparing a partnership return is a sign of failure, so I haven't done any in years.  

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Can you elaborate please.   

There's a reconciliation of income part where you show amount allocated to active and passive partners/members. SE income is also a factor.

@dkh  Partnerships are so 19th Century.  Your partner is driving to the bank to make a deposit, a tire blows out causing an accident that kills a neurosurgeon.  You get sued personally for $1 million.  That's when you find out you should have used on LLC.  Your profit is $200K one year and you max out on Social Security and pay Medicare tax on all of it.  The next year you have a $100K loss, don't get any money back and don't earn any Social Security quarters.  That's when you find out you should have elected to be taxed as an S corporation.  

One of two things happens with partnerships.  Either they make money, and the partners argue about how the profits are split.  Or they lose money, and the partners argue about who makes up the losses.  Well, OK, it doesn't happen every time, it's sort of like marriages that don't always end in divorce.  (Just 50% of the time these days, right?)  Those disputes can happen with corporations and with employer/employee or independent contractor arrangements also, but generally they're easier to avoid, and to settle when they happen.  

Family partnerships?  What if they're worth enough to worry about estate taxes?  How to gift percentage interests to the next generation?  I don't know of anyone trying to do that without a corporation these days.  

@BobKamman Thanks for your response.    LLCs are very popular in this area.  Lots and lots of Amish owned businesses form LLCs because the members have approved Form4029s.  No SE tax on the business profits and no SS/Medicare withholdings on any employee that has approved F4029.