Section 199A from LLC/Partnership 1065 to S Corp 1120S to Individual 1040

[mdaviscpa]

LLC/Partnership issues K1 to S Corp partner reporting QBI, wages and UBIA. The S Corp, for the most part, has no other operations of its own other than owning a 46% interest in the LLC and therefore has no wages paid in its own operations. In Pro Series, the S Corp K1 generated to the 100% stockholder is essentially reporting through the QBI, but zero wages and UBIA since it sees no wages or UBIA anywhere in the return of the S Corp. i.e. it is not using those three elements brought in to the 1120S via the partnership K1 worksheet). Therefore the S Corp shareholder (income in excess of $415K) has $0 199A deduction due to the wages paid limitation.

Since the elements of QBI, Wages and UBIA flow through the entity that generated them (1065 entity) to the individual return (1040 entity) where the deduction is actually realized, it would seem reasonable that an intermediate entity between the entity generating QBI and the individual taking the 199A deduction would do nothing more than pass these items (intact) through to the individual return. i.e. Even though the intermediate S Corp entity had no wages itself, it would still pass through the three elements of QBI, Wages, and UBIA as was reported to it by the Partnership entity.

Should these elements not flow through intact, or are the elements of QBI, Wages and UBIA recalculated at the S Corp level all over again?

[itonewbie · Accepted solution]

The S-corp is required to report pass-through QBI items from other RPE's per §1.199A-6(b)(3)(ii).  If W-2 wages and UBIA were not reported on the K-1, it would be treated as if those items have a value of zero.  An amended K-1 would be required if there should be W-2 wages and UBIA from the LLC/partnership.

[mdaviscpa]

Obewan is that you!  1065 K1  did report those items out on it’s K1 to the S Corp. partner.  The problem is ProSeries is reporting zero wages out on the K-1 to the individual S Corp shareholder.  Bear in mind the S Corp in itself has no other business operations and therefore no wages.

[itonewbie]

Does it mean you're preparing an 1120-S instead of 1040?

[mdaviscpa]

1120S is prepared but the 1120S does not get the 199A deduction, the 1040 return gets the 199A deduction.... Partnership 1065 K1 reports to S Corp partner. S Corp partner prepares 1120S and issues K1 to individual. Individual prepares 1040 based on 199A components reported to him on K1. The issue is because of the multi entity flow through (1065 to 1120S to 1040) ProSeries is not flowing the wages and UBIA on the 1120S K1 issued to the individual stockholder. The S Corp has no other operations other than its K1 received from the partnership so the 1120S only has the income reported to it by the 1065 K1. Thus the 1120S has QBI of the same amount as the 1065 K1 passed to it, zero wages on the face of the 1120S and no other investment in assets on the balance sheet. The S Corp K1 then reports QBI but zero wages and zero UBIA which results in no 199A deduction on the 1040 due to the wage limitation. I don't believe this is correct. Why wouldn't the various components of QBI, Wages and UBIA flow from the 1065 to the 1120S and then to the 1040 in the same amounts. It's as though ProSeries is flowing zero wages and UBIA since it sees no such items on the face of the 1120S, ignoring what was passed into the 1120S from the 1065 K1.

[itonewbie]

Correct, the S corp doesn't get the benefit of 199A as a PTE.

If W-2 wages and UBIA flowing through the lower-tier partnership are both already reported on the 1120-S K-1 with codes W and X as required, they should flow correctly on the 1040.

What am I missing from the picture you're trying to paint?

[Ernie]

@itonewbie that the LLC/Partnership K-1 with the 199A information is issued to an S-Corp.  What does the S-Corp do with that information - does it die or does it get transferred to the K-1 that the S-Corp issues.

[itonewbie]

It gets passed on from the partnership to the S corp and reported on the 1120S K-1.

[mdaviscpa]

@itonewbie that is my point. The Wage and UBIA info from the lower-tier partnership are both entered into 1120S via the Partnership K1 entry worksheet and are clearly showing in the 199A Summary Worksheet as activities passed through from K1s. The problem is that they don't in turn pass out to the S Corp shareholder K1 on the Code W and X lines.

[mdaviscpa]

@Ernie Also my point. It's as though it's dying with the S Corp since the S corp in and of itself has no wages reported on the face of 1120S. I feel as though the QBI, Wages and UBIA should flow through intact. If those items were reported directly from the 1065 K1 were reported directly to the individual he gets the deduction.

[itonewbie]

@mdaviscpa This means you ***are*** preparing the 1102S and not the 1040, right?  Otherwise, you wouldn't be entering anything "into 1120S via Partnership K1 entry worksheet".

If those figures are not coming out on the shareholder K-1 with Code W or X, you may just need to include those on a supplemental statement; part of the reason could be that QBI items related to each qualified trade or business should be listed separately and Line 17 (by how PS is programmed cannot be broken down into separate ToBs) is likely reserved for QBI items that are coming directly from the S corp and not other RPEs.

[mdaviscpa]

@itonewbie thanks to you and @Ernie for weighing in on this, by the way. Sorry, yes I am preparing the 1120S to include input from the 1065 K1 received by the S Corp. I am also preparing the Individual return that the 1120S K1 will flow to.  Again the problem is that when I then import the 1120S K1 into the 1040 via ProSeries import, line 17 of the S Corp K1 worksheet in the 1040 return brings in the net income of the 1120 K1 line 1 as QBI but does not bring over the Wages or the UBIA that flowed from the lower tier partnership. I really believe (and I think? you agree) that just because the 1120S entity in and of itself has no wages, it doesn't mean that the Wages from the lower tier partnership should be flowing to the individual 1040. I believe it is a program workflow issue.

[itonewbie]

Definitely a workflow issue.  See also citation provided in my initial response.

[mdaviscpa]

@itonewbie @Ernie I have been on the phone with support most of the day now. I hate the support model whereby I tell the phone receptionist the issue and once they realize they are in over their head they open a chat with the upper tier. Then with a series of back and forth whereby everything gets lost in the translation between me, receptionist and upper tier we are hours and hours into spinning our wheels. However, I think they might have realized an issue since their last response was "we will escalate this, what's you number, we will call you back!"

[itonewbie]

Sorry, @mdaviscpa.  That's why I don't call Support.  You spend all that time waiting for the call to be picked up, relating the technical rationale why you believe something is wrong, and it all ends up in a big black hole.  It's much more productive getting input here.  We also have some very helpful moderators we could escalate things to (although their hands are tied sometimes too).

[mdaviscpa]

Thanks @itonewbie I will try to come back and update the issue for others that may research the same.

[TANcpa]

In 2019 form 1040, the K-1 import from an S-corporation, leaves an error regarding Sec199A K-1 line 17 code V. Where do I manually enter the information?

[Anon3939]

we’re you able to figure this out on how to do this?  Was having this same problem.  

[CPASam]

You have to enter the entire 1065 K-1 items on K1 partner in the S Corp return.  You can then add all the QBID items.  You will not enter the income from the partnership separately on the S corp return as income since it will flow to the Scorp return as it normally does.  You can enter the QBID info from the partnership on statement A as usual for the partnership items.

The easiest way is to use "Where do I enter?" green box and type in K1 partner and you will find the partnership K1 that is reported to the SCorp.  All the QBID items will then flow to the shareholders of the Scorp including the partnership allocations.