Where to report on 1065 nominee recipient 1099-S.

[Sjpcpa]

Family ptnrship name is on the real estate title in 2019.  Family ptnrship purchased land.The Land was booked on the family S Corp (residential construction co). The S Corp was started in 2019. A house was built on the land by the S Corp and sold in 2020. The S Corp shut down after building the one house. The ptnrsh received the 1099-S ($515,000) at sale. The ptnrship sent S Corp a 1099-S ($515,000). Lacerte does not allow form 8949 code N on the ptnrship return.

[qbteachmt]

Oh, wow. The good news is, there still is time to amend that 2019 S Corp return and the 2019 Partnership return.

Let's take it a bit at a time:

"Family ptnrship name is on the real estate title in 2019. Family ptnrship purchased land.The Land was booked on the family S Corp (residential construction co)."

Which is an error. The S corp didn't own the land, so it is not the corporation's asset or debt. I don't know what "booked" means, beyond these general comments. And it's never a good idea for an S Corp to hold real estate, anyway.

"The S Corp was started in 2019."

Yay! Easy to amend.

"A house was built on the land by the S Corp and sold in 2020."

The investment of the S Corp is on someone else's property, then. What you could do for 2019 is either:

Have the Partnership hire the S Corp for construction of a Spec Home.That way, the Costs are costs and the "price" is the reimbursement from the Partnership for the costs, as the customer (which can agree would be paid to the S Corp upon sale). The S Corp would not have any asset, then; not even the building(s). The S Corp would have WIP (work in progress) over the 2019 year end. It has costs and income for 2020.

Or, have the S Corp create a promissory note to buy the land once the improved property sells, with some sort of agreed-upon value for that land only; plus, an agreement that the S Corp is acting as a developer. These are legal issues to be resolved by a lawyer and are not a tax issue. You have to establish the relationship properly. Now the S Corp has the improvement asset and the partnership has the land asset.

"The S Corp shut down after building the one house."

Once again: we see bad guidance for entity formation given to innocent people. Sheesh.

"The ptnrsh received the 1099-S ($515,000) at sale."

You have to look at the Deed or Title. The Owner is who Sells something. You cannot sell something you do not own. The S Corp never was the owner of the RE. Of course the partnership gets the 1099-S.

"The ptnrship sent S Corp a 1099-S ($515,000)."

That's a mistake. The partnership did not Close the sale; a title company or other entity would issue the 1099-S. The 1099-S issued by the partnership to the S Corp also implies the S Corp bought the Improved property, which isn't what applies. Or, bought the land for $515,000  🙂

"Lacerte does not allow form 8949 code N on the ptnrship return."

I read it like this:

Partnership owns land in 2019.

Partnership hires S Corp as the Contractor of record. Partnership is either Customer, or S Corp is "co-investor" by creating their Improvement asset cooperatively on someone else's property.

In 2020, property sells.

Partnership sold land to S Corp "at point of closing" the improved property.

What you didn't mention is who is the shareholder in the S Corp. Is the partnership involved in the S Corp? Is the S Corp involved in the partnership?

[Sjpcpa]

Additional Clarification -- The Ptnrship is husband and wife. The S Corp is the same husband, wife and their son. The Ptnrship checking account had more money at the time of land purchase. The Ptnrship recorded the land purchase price as a draw by the ptnrs. The S Corp recorded the purchase of the land as an asset with a corresponding payable. The ptnrs to be reimbursed when the improved property was sold.  The business of transferring the title was never taken care of. 

The Ptnrship received a 1099-S from the abstract co for $515,000. The Ptnrship sent S Corp 1099-S for $515,000. 

I thought that recognizing the receipt of the 1099-S from the abstract co and the sending of the 1099-S from the Ptnrship to the S Corp on form 1065 Sch D, form 8949 or 4797 would show a wash of the transaction.  The ptnrs are not trying to disguise a sale to evade taxes. I can not see the forest for the trees. 

[qbteachmt]

"on form 1065 Sch D, form 8949 or 4797 would show a wash of the transaction"

I don't see how any of these forms apply. You stated, "The Ptnrship recorded the land purchase price as a draw by the ptnrs." and that would mean they bought the land as Personal. That means, once the money was removed, there is no further involvement for the partnership. No Sched D, no form 8949 or 4797 for any of this activity.

The partnership didn't own land it supposedly sold on the 1099-S.

The S Corp didn't own it, either.

Using a nominee process isn't wrong. Understanding what really happened here, is what needs to be mapped.

I recommend finding local mentoring on this. Everyone has made a mess.