How do I suppress Code AJ on Box 20, Schedule K-1?

[terralaw]

Hello,

Thank you for the help.

Lease bonus payments and production taxes are showing up with Code AJ on the partners' K-1s. I believe these amounts are NOT "income or gain" or "deduction attributable to a business activity". Therefore, I think there should be a way to suppress Code AJ.

The production taxes were incurred in connection with passive royalty income. Additionally, the royalty income that generated the production taxes is NOT "income or gain" showing up with Code AJ. Therefore, I don't think the production taxes should either.

[PhoebeRoberts]

Oil & gas royalties are portfolio, not passive. 

When you receive a lease bonus, it's (non-depletable) royalty income. When you pay a lease bonus, it's capitalizable (and depletable) Leasehold Cost, not an expense.

I don't even know how you entered that stuff on the 1065 for it to show up as Box 20 AJ. The production taxes should be in 13 I royalty deducts.

Are you using the oil & gas input? Does your Excel depletion schedule match the ProConnect depletion schedule?

[terralaw]

Thank you, Phoebe.

I entered royalties, production taxes and other expenses in the Oil & Gas Input, under property information. 

The costs indeed show up under 13 I, but the same costs are also showing up in Box 20 code AJ. Also showing up in Box 20, Code AJ is only lease bonus payments. The description is "Aggregate Business Activity Gross Income" for the lease bonus. The description is "Aggregate Business Activity Total Deductions" for the production tax and other expenses.

Given that the production tax and other expenses were generated in connection with royalties, I would expect the royalty income to get the same treatment as the expenses (production taxes & other expenses). However, the royalties are NOT showing up in Box 20, Code AJ.

Do you know why that would be happening? I didn't run into this problem last year with Proconnect, with the same inputs. Is Code AJ new?

[PhoebeRoberts]

I am pretty sure AJ is new this year. I haven't done an entity with royalties yet, so you are ahead of me there. But it looks like I have REPped one that will have royalties, because it always has the same states, so let's see what I get.

Forms instructions say AJ is " Excess business loss limitation," and I agree with you that royalty deducts are not that - and if they were, royalty income should also appear there. The amount also hits Sch K Line 20c, so overriding the K-1 is not the fix we want.

Override for everything is in Schedule K-1, Other Schedule K Items, Other Information, Aggregate Business Activity. Enter a -1 to make it all go away.

[terralaw]

Thank you Phoebe!