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Allocating recourse debt as nonrecourse or specially allocating recourse debt in a 1065 with LLC members

by Intuit•1• Updated 1 month ago

When working on a Form 1065 with LLC members and you receive the following error message:

"Form 1065 p4-5: Recourse liabilities. The program will not allocate recourse debt to Limited Liability Company Members. Either reclassify the debt as nonrecourse or enter a special allocation code to indicate how the amount should be allocated."

There are two ways to resolve this error:

  • Reclassify the debt as nonrecourse, or
  • Enter a special allocation code to allocate the recourse debt.

Please refer to the IRS instructions for Form 1065 and the Schedule K-1 for determining if you need to keep this amount as recourse or if you need to classify it as nonrecourse.

  1. Navigate to Form 1065, page 5.
  2. Find the Partners' Liabilities Smart Worksheet located below the Schedule L.
  3. Input the amount of the debt reported on line D to the amount on line C.
  4. Remove the number on line D and key in a 0.
    PCG_LSC_ L2DLWERUN_nonrecourse.jpg
  1. Navigate to Form 1065, page 5.
  2. Find the Partners' Liability Smart Worksheet located below the Schedule L.
  3. Enter a special allocation code in the column to the left of the dollar amount on line D.
    • To allocate by the partners profit percentage enter P.
    • To allocate by the partners loss percentage enter L.
    • To allocate by the partners ownership percentage enter O.
    • To allocate by any other dollar figure please see 1065, Special Allocation to Partners.PCG_LSC_ L2DLWERUN_recourse.jpg

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