Form 1065 K-1 code AE with zero balance - reporting confusion
Title: Form 1065 K-1 code AE with zero balance - reporting confusion 1 I'm trying to file my taxes and confused about my Form 1065 K-1. On line 13, there's a code AE with an asterisk after it and a balance of $0. I'm using FreeTaxUSA to file, but when I enter the code AE with the zero balance, it gives me an error saying this is incorrect. I'm not sure what to do here. Should I still report code AE with the zero balance even though the software is flagging it? Or should I just leave that row blank entirely? Anyone dealt with this before? This partnership tax stuff is giving me a headache!
18 comments
Join the conversation
Emma Wilson
8 The code AE on your K-1 line 13 relates to distribution deductions on qualified production activities income. Even though it shows $0, you should still report it. The asterisk likely refers to a footnote somewhere on your K-1 that provides additional information. FreeTaxUSA might be flagging it because it's unusual to report a code with zero value, but it's still technically part of your K-1 information. I'd recommend checking if there are any footnotes or additional pages with your K-1 that explain the asterisk. If you can't find any additional information, I would still include it exactly as shown on your K-1. The software may give a warning, but you can generally override these warnings since you're correctly reporting what's on your official form.
0 coins
Emma Wilson
•12 Thanks for explaining what code AE means! I've looked through all the pages of my K-1 and can't find any footnotes explaining the asterisk. Do you think I should contact the partnership that issued it to ask what the asterisk means? Or is it safe to just proceed with the zero balance entry?
0 coins
Emma Wilson
•8 You're welcome! It's definitely worth contacting the partnership to ask about the asterisk if you can't find an explanation in the documents they provided. Sometimes these footnotes are on a separate statement that might have been missed. In the meantime, you should proceed with entering the zero balance since that's what's on your official form. FreeTaxUSA will likely still show a warning, but you can continue past it. The IRS compares what you report with what was filed by the partnership, so it's important that your entries match the K-1 exactly, even for zero values.
0 coins
Emma Wilson
15 I had a similar issue last year with partnership K-1 codes showing warnings in tax software. After hours of research and frustration, I discovered taxr.ai (https://taxr.ai) which seriously saved me so much time. You can upload your K-1 and it will analyze all the codes and explain exactly how to report them in your tax software - even the strange zero balance situations like yours. I was confused about some codes on my Schedule K-1 and the system actually walked me through how to handle each entry properly, including when to override software warnings for valid entries. The explanations are really clear and specific to your actual documents.
0 coins
Emma Wilson
•7 Does it actually work with FreeTaxUSA specifically? I've tried other "helpers" before and they usually only work with TurboTax or H&R Block. Also, can it explain what the asterisk means or is it just for the codes?
0 coins
Emma Wilson
•19 I'm a bit skeptical about these tax document readers. How does it handle situations where there might be inconsistencies between what's on the form and what should actually be reported? Does it just tell you to blindly enter what's on the form?
0 coins
Emma Wilson
•15 It does work with FreeTaxUSA and other tax software too. It's not software-specific - it explains what each code means and how it should be handled generally, then you apply that knowledge to whatever software you're using. For the asterisk question, it actually does help with that. When I uploaded my K-1, it identified footnote references and explained what they meant, even pointing out where to find the footnote explanation in my document package. It doesn't tell you to blindly enter anything. It explains the tax concepts behind each entry and provides guidance on how to handle special situations like zeros or inconsistencies. In some cases, it specifically mentions when you should override warnings in tax software because the form is correct but uncommon.
0 coins
Emma Wilson
7 I wanted to follow up about using taxr.ai for my K-1 issues. I was hesitant at first, but I tried it with my confusing partnership K-1 forms last weekend. It immediately explained that code AE with zero balance should still be reported, and that the asterisk typically indicates there's a footnote with additional information somewhere in my K-1 package. The system helped me locate the footnote on page 4 of my K-1 package that I had completely missed - turns out the asterisk was explaining that while the amount was zero this year, I needed to track this for future years due to some partnership-level election. FreeTaxUSA accepted it once I entered it correctly following the guidance. Saved me hours of research and confusion!
0 coins
Emma Wilson
22 If you've tried everything and still can't figure it out, you might need to speak directly with an IRS agent to get clarification. I was in a similar situation last year with a different K-1 code issue. After spending days trying to get through to the IRS helpline with no luck, I found Claimyr (https://claimyr.com) which got me connected to an actual IRS representative in under 45 minutes. I was honestly shocked it worked after trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The IRS agent was able to confirm exactly how to handle my strange K-1 entry and explained that tax software often flags unusual but completely valid reporting situations.
0 coins
Emma Wilson
•10 How exactly does this service work? I thought it was impossible to get through to the IRS without waiting for hours. Do they have some special connection or something?
0 coins
Emma Wilson
•19 Sorry, but this sounds too good to be true. I've tried calling the IRS many times and it's always a nightmare. Are you sure this isn't just another scam trying to get people desperate for tax help to pay for nothing?
0 coins
Emma Wilson
•22 It works by using an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you directly to them. No special connection - they're just handling the hold time so you don't have to sit with your phone for hours. I was skeptical at first too - I've spent literally entire days trying to reach the IRS in previous years. But it's completely legitimate. They don't handle your tax information or speak to the IRS for you - they just get you past the hold time so you can speak directly with an IRS agent yourself. It saved me from taking a day off work just to sit on hold.
0 coins
Emma Wilson
19 I need to admit I was completely wrong about Claimyr. After my skeptical comment, I was still struggling with my K-1 issues and decided to try it as a last resort. The service actually connected me to an IRS representative in about 35 minutes while I continued working. The IRS agent explained that code AE with a zero balance is something that happens frequently on K-1s to establish tracking for future years, and the software warning can be ignored. They confirmed I should enter it exactly as shown on the K-1. The asterisk typically indicates there's additional information in a footnote or attached statement that explains why it's being reported with zero now but might have value in future years. Totally worth it for the peace of mind of having an official answer!
0 coins
Emma Wilson
3 Have you checked if there's a supplemental statement that came with your K-1? Often when there's an asterisk, it means there's additional information on a separate page. Partnership K-1s can be complex and sometimes include multiple pages of supplemental information.
0 coins
Emma Wilson
•1 I've looked through everything that was sent to me and don't see any supplemental information specifically about this line. There are a few other pages with details about some other entries but nothing about code AE or what the asterisk means. Should I contact the partnership? They're not always the most responsive.
0 coins
Emma Wilson
•3 Yes, definitely contact the partnership that issued the K-1. They're required to provide explanations for any special notations on the form. While you're waiting to hear back, I'd suggest entering it exactly as it appears on your K-1 (with the zero balance) and proceeding past the FreeTaxUSA warning. The code AE specifically relates to Qualified Production Activities Income deductions, which was part of the former Section 199 deduction. Since that deduction was repealed in the Tax Cuts and Jobs Act, it's possible they're reporting a zero balance but including the code for continuity or tracking purposes. The partnership's tax preparer would be able to confirm this.
0 coins
Emma Wilson
5 Is this your first year receiving a K-1 from this partnership? Sometimes they report zero balances in the first year to establish tracking for future years, especially for items like depletion, amortization, or basis tracking.
0 coins
Emma Wilson
•9 I've seen this too. My S-corporation K-1 often has codes with zero balances in years where certain activities didn't generate income but need to be tracked for continuity. The software warnings are annoying but can usually be ignored if you're entering exactly what's on the form.
0 coins