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

by Intuit•1• Updated 3 months 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.

Option 1 - Reclassifying the debt as nonrecourse:

Navigate to Form 1065, page 5.
Find the Partners' Liabilities Smart Worksheet located below the Schedule L.
Input the amount of the debt reported on line D to the amount on line C.
Remove the number on line D and key in a 0.

Option 2 - Enter a special allocation code to allocate the recourse debt:

Navigate to Form 1065, page 5.
Find the Partners' Liability Smart Worksheet located below the Schedule L.
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.

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

by Intuit•1• Updated 3 months ago

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