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Trust Form 1041 Partnership K-1 Allocating Depreciation

Level 2

This is based an article in 2007, Allocating Partnership Depreciation Between Trusts and Beneficiaries, By Justin P. Ransome, J.D., CPA MBA,PA  https://www.thetaxadviser.com/issues/2007/jul/allocatingpartnershipdepreciationbetweentrustsandbenef...

I have a major problem with oil/gas depletion that is directly on point with the article, only mine involves depletion.

§401(b) of the uniform principal and income act treats distributions from an entity as income only if they are made in cash. Zaritsky Federal Income Taxation of Estates and Trusts, Page S4-4 Ed 3, 2010 Cumulative Supplement. So when you have a schedule K-1 from a partnership has net business income of 15 million, before depreciation, You must ignore the schedule K-1's and use what the actual distribution, which in my case was the receipt of $5 million, in cash, from the partnership to the trust and then that $5 million, of cash, distributed to the beneficiaries. Partnership K-1's must separately state the trust's depreciation, which is not normally done. Revenue Ruling 74 – 71 that a trust that is a member of the partnership must separately take into account its distributive share of  depreciation deduction. This is done so that the depreciation deduction can be allocated between the trust and the trust beneficiaries under §642 (e) and §167 (d). So the trust is not afforded the benefit of offsetting depreciation deduction it received from the partnership against the partnership income, which it must recognize because the benefit of the depreciation deduction follows the distribution of trust income. As required §§642 (E) and §167 (D) in general, the determination of trust income under the uniform principal and income act does not take into consideration depreciation, as search terms is generally based on cash receipts and disbursements.

What all this means is that the total income of the trust is $15 million and a distributable net income deduction of $5 million, leaving a taxable income of $10 million, and a tax of $4,077,825.


I do not see in Proseries a way to show the depreciation allocation, except to do it manually.


Trust Form 1041 Partnership K-1 Allocating Depreciation

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Level 2

I am preparing a partnership return for 7 partners.  The program I used previously provided worksheets to calculate the percentage depletion and allocated to each partner, including the excess intangible drilling costs worksheets.  How can I enter the data for calculation in proseries professional?


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