Tentative Depletion on form k1 (partnership)

[vivlewcpa]

Client is limited partner in oil and gas partnership. Form k1 shows both cost and percentage depletion. I understand that it is up to individual taxpayer to deduct - this is not deducted on partnership level. I am unfamiliar with how partnerships report this though. Do I enter BOTH figures on screen 20 in Lacerte or the larger of the two? Originally I thought I should enter both and Lacerte would run calculations to figure the best deduction - but it looks like Lacerte deducts BOTH if I enter both figures.

Also in regards to sec 59(e)(2) expenditures - client wishes to amortize rather than deduct - however no dates are provided for the "start date". Is this something usually provided by the partnership? Or is a "various" date allowed?

Thank you in advance!

[PhoebeRoberts]

Every partnership reports it differently. I've seen some funds-of-funds with 5 or 10 lines of variously-named depletion, plus the adjustment for percentage depletion in excess of basis. I take my best guess and make whatever Lacerte entries give me the desired result. Don't forget to make an entry for AMT depletion (same as regular tax unless indicated otherwise).

I've never seen a partnership report a date placed in service for IDC, in part because the whole point of an O&G partnership is to be able to write off all of your IDCs. The truth is likely to be various dates; you can either use the leading minus sign to indicate various, or 6/30/2019.

[vivlewcpa]

Thanks Phoebe! I was hoping you'd be the one to answer. 🙂 I'd seen your answers on so many posts and you're always so helpful.

My understanding (which I admit is quite limited to these O&G partnerships) is that if they take the IDCs all at once, my client is required to make AMT adjustments - which resulted in him paying some AMT tax. In addition, because he is a limited partner and subject to passive loss limitations anyways - he doesn't need the huge write offs... 

And not part of my original question - but Lacerte is doing this odd thing on the Federal K1 reconciliation worksheet where they are changing my "ordinary income" k1 input by a figure equal to what they are sticking in the "disallowed due to at-risk" column. I've filled out the "at-risk" boxes in the k1 section (he has enough "at-risk" basis) - any idea why Lacerte is doing this and how to fix it?

[PhoebeRoberts]

Yes, if you take all your IDCs at once, and you have sufficient excess IDCs, you do have an AMT adjustment. And I agree, limited partners don't qualify for the working interest exception. It's unusual to see an O&G partnership that starts you off as a limited partner; I'm guessing the "you get a big tax deduction in exchange for your cash" selling point isn't the selling point these days.

If he has both basis and at-risk, there shouldn't be any disallowed amount. Lacerte is generating a basis schedule (either as a statement or a worksheet), and it shows sufficient basis? The 6198 has a positive amount on Line 20?

The last time I had a weird basis limitation I wasn't expecting, I had a deduction entered as a negative amount, rather than a positive, and it made Lacerte unhappy in really strange ways.

[vivlewcpa]

Yes -sufficient basis on line 20 of form 6198 and on federal basis limitation worksheets and at-risk worksheets. Yet the federal k1 reconciliation worksheets shows a figure on the disallowed due to at risk column. And Lacerte changed my line 1 k-1 input to some other figure. Triple checked that and I've entered it correctly.

Also just double checked your suggestion and no deductions entered as negative amounts. 

Bizarre.

[PhoebeRoberts]

Very strange.

Do you have the IDC amortization linked to the partnership?

When you say Lacerte changed your K-1 input, you mean on the Federal K-1 Reconciliation worksheet, the topmost left-hand cell doesn't match your Screen 20.1 input? Is the amount it's off by a number that has meaning to you? The amortized IDC shows up three lines lower?

Do you have any diagnostics that might be relevant?

I'm poking around at a dummy return, and can't reproduce that 6198 adjustment or the Reconciliation Worksheet weirdness. If this is a very large return (lots of line-items), sometimes Lacerte can break in weird random ways that are specific to you. I figure out what the answer should be and judiciously override, making a note in my file as to what the carryforwards should be.

[vivlewcpa]

Yes, just double checked. I have the amortization linked to partnership k1.

No diagnostics at all pertaining to this.

Correct - on the Federal K-1 Reconciliation worksheet, the topmost left-hand cell doesn't match my Screen 20.1 input. The difference in this amount is the amount that Lacerte stuck into the "disallowed due to at-risk" column - but there is sufficient "at risk" basis!

I'm perplexed!