How do partnership distributions work when received by another partnership?

So I'm working with this business situation that's got me scratching my head. I have a client who has a partnership that received a Final K-1 from another partnership they had invested in. There's a distribution amount shown on this K-1, but I'm completely stuck on where to enter this in Ultratax. I've searched through all the menus and help sections but can't find any clear guidance. I'm especially confused about how partnership-to-partnership distributions impact basis calculations. The software doesn't seem to have an obvious place to enter this information. Has anyone dealt with this situation before? Can someone point me toward the right section in Ultratax or explain how these partner-to-partner distributions should be handled? Any advice would be super appreciated!

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18 comments

Isaiah Sanders

•8M

This is actually a common point of confusion with partnership returns! The distribution from one partnership to another partnership doesn't go directly on the tax return itself - it affects the receiving partnership's basis in the investment. In Ultratax, you'll need to track this manually through the capital accounts. The distribution reduces the receiving partnership's basis in the distributing partnership. Go to the Balance Sheet input screen and adjust the investment account balance to reflect the distribution received. Then make a corresponding entry to whatever asset account received the funds (typically cash). The distribution itself isn't taxable income - it's already been accounted for through the K-1 allocations. The distribution is just moving already-taxed money from the partnership to the partner, which happens to be another partnership in this case.

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Isaiah Sanders

•8M

You're exactly right - there's no specific distribution input on the K-1 screens because the distribution itself isn't a tax event, just a basis adjustment. You'll update the balance sheet as you described - reduce the investment account and increase whatever asset received the distribution. For a Final K-1, this typically means the partnership has terminated or your client has fully disposed of their interest. In this case, you'll want to make sure their final basis is correctly calculated to determine if there's any gain/loss on the complete disposition. If their basis after accounting for all income/loss allocations and distributions goes to zero, and they've received all distributions they're entitled to, you can remove this investment entirely from their books.

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Xan Dae

•8M

Just wanted to share my experience with this exact situation! I was struggling with partnership-to-partnership distributions last year and found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure it out. I uploaded the K-1 and it automatically identified the distribution and walked me through the proper accounting treatment. What I learned is that these distributions are essentially a reduction in basis rather than income, which wasn't intuitive to me at first. The tool explained how to handle it properly in Ultratax and even provided the specific screens where adjustments needed to be made. It saved me from making a major error in tracking the basis!

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Xan Dae

•8M

Yes, it works with all the major tax software including ProSeries! It doesn't actually change anything in your software - it analyzes the forms and documentation and tells you what to do and where to enter it. The security is really solid - they use bank-level encryption and don't store your documents after processing. It's more like an interactive guide that helps you understand what you're looking at. I was hesitant at first too, but it's become an invaluable resource for complex situations like partnership distributions that aren't covered well in the software help sections.

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Fiona Gallagher

•8M

Just wanted to follow up about that taxr.ai site that was mentioned. I decided to try it out with my partnership distribution issue in ProSeries and it was incredibly helpful! It analyzed my K-1 and explained exactly how the distribution impacts basis and where to make the adjustments in my software. What really impressed me was how it walked through the difference between distributions that exceed basis versus those that don't. The explanation was way more clear than anything I found in the ProSeries help center. It saved me at least a couple hours of research and probably prevented me from making some serious errors in basis tracking.

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Nalani Liu

•8M

If you're still having issues with the IRS after fixing this partnership distribution issue, I'd highly recommend checking out Claimyr (https://claimyr.com). I had a similar partnership situation that I needed to discuss with an actual IRS agent, but kept getting stuck on hold for hours. Claimyr got me connected to a real IRS representative in less than 45 minutes when I'd previously wasted entire afternoons waiting. They have a short video that shows exactly how it works: https://youtu.be/_kiP6q8DX5c After I got through to the IRS, the agent clarified that partnership-to-partnership distributions have some special considerations, especially when it involves a final K-1. Having that direct conversation saved me from potential issues down the road.

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Nalani Liu

•8M

It actually uses a smart system that navigates the IRS phone tree and waits on hold for you. When they reach a human agent, you get a call to connect with that agent. You're not paying for priority access - you're paying to not waste hours of your day listening to hold music. They don't have any special access to the IRS - they're just handling the waiting part for you. I was skeptical too until I tried it. I had spent over 3 hours on multiple days trying to get through, but with Claimyr I was connected to an agent during my lunch break. The time savings alone was worth it for me, especially during busy season when every hour counts.

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Thais Soares

•8M

I feel like I need to update my earlier comments. After spending another frustrating morning trying to reach the IRS about a different partnership issue, I broke down and tried Claimyr. I was absolutely blown away when I got a call back in about 35 minutes connecting me to an actual IRS agent. The agent walked me through some nuances of partnership distributions that weren't clear from the publications. For partnership-to-partnership situations, they confirmed that tracking basis correctly is crucial, especially with final K-1s where the entire investment is being liquidated. This saved me so much time and frustration - I've probably spent 15+ hours on hold with the IRS over the past month. Definitely going to use this service again when I need to speak with the IRS.

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Aidan Percy

•8M

Section 751 "hot assets" refer to unrealized receivables and substantially appreciated inventory. When a partnership distributes cash or property, you need to determine if any portion is attributable to these hot assets. The significance is that distributions attributable to hot assets are treated as ordinary income rather than capital gain, even if the distribution exceeds basis. This prevents converting what would be ordinary income into capital gain. In a partnership-to-partnership scenario, this analysis needs to be done at both partnership levels, which gets complex quickly.

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