How to Report Form 1065 Line 14c Gross Nonfarm Income for Limited Partners

Thanks for confirming! The software we're using didn't seem to have an obvious way to make this distinction. Is there a specific place in the partner setup where I should be indicating who is general vs. limited to prevent this from happening next year?

Most tax software has a section in the partner information setup where you can designate whether a partner is general or limited. Look for partner details, classification, or entity type settings. It's usually a dropdown or checkbox option when you first set up each partner's information. This designation should then automatically handle the proper flow-through of items like Box 14c in future filings. If you can't find this setting, you might need to check the software's help documentation or contact their support. Some less sophisticated software might not have this automatic functionality, in which case you'll need to continue making manual adjustments to the K-1s for limited partners.

Does it work with any tax software or is it just for specific ones? I use Drake for my partnership returns and always have to manually fix these issues.

I'm skeptical about these online tools. How does it actually know which partners are limited vs general? Does it somehow integrate with your tax software or do you still have to make manual adjustments?

It works with any tax software because it functions independently - you upload your documents and it gives you a detailed report that you can reference while preparing your return in whatever software you use. It doesn't directly integrate with tax software, but the analysis makes it clear what needs to be adjusted. The tool figures out partner classifications by analyzing your partnership documents. You upload your partnership agreement and other formation documents, and it uses AI to identify partner designations and applicable tax treatments. You still make the actual adjustments in your tax software, but you know exactly what needs to be changed and why, which saves tons of time compared to reading through IRS instructions and trying to figure it out yourself.

How does this actually work? I don't understand how they can get you through faster than if you called yourself. Seems like they would face the same hold times as everyone else.

Yeah right. I highly doubt this actually works. The IRS phone system is completely broken - nobody gets through in 20 minutes. Sounds like a scam to me.

It doesn't get you through faster than the normal IRS queue - they just handle the waiting for you. Instead of you sitting on hold for hours, their system waits in the IRS queue on your behalf. When an IRS agent picks up, you get a call letting you know an agent is on the line. So you're still waiting the same amount of time that you would normally, but you don't have to actively sit there listening to hold music. I understand the skepticism - I felt the same way. But the difference is you can go about your day while the system waits for you. For me, it took about 20 minutes to get through that day, which was surprising because it was during a busy period, but wait times vary based on when you call and which IRS department you're trying to reach.

Which tax software handles this correctly in your experience? I'm using ProSeries and it still puts 14c on all K-1s regardless of partner type.

I've had the best experience with Lacerte for correctly handling these partnership distinctions. It has specific fields in the partner setup section where you designate the partner type, and it properly applies the appropriate treatment to items like Box 14c. UltraTax CS also does a good job with this. ProSeries should have this capability too, but it might be tucked away in the partner detail screens. Look for a dropdown or checkbox labeled something like "Type of Partner" or "Partner Classification" where you can select limited or general. If you can't find it, it might be worth contacting their support directly since this is a pretty basic partnership return function.

No, gross farm rental income from Form 4835 doesn't go on Line 14c of Schedule K. Line 14c is specifically for gross nonfarm income from Schedule F or similar non-farming business activities. Farm rental income reported on Form 4835 is generally reported on Schedule K Line 2 as rental real estate income.

This is such a helpful point about verifying the actual legal status of limited partners versus just their designation in the partnership documents. I hadn't considered that some "limited partners" might actually be participating in management activities which could change their tax treatment. For someone new to partnership returns like me, how would you recommend verifying this? Should I be looking at specific language in the partnership agreement, or are there particular activities that would automatically disqualify someone from limited partner status? I want to make sure I'm not missing anything that could cause problems later. Also, your point about documentation is well taken - I'll make sure to keep detailed notes about any manual adjustments I make to the K-1s this year. Better safe than sorry with partnership returns!

This spreadsheet approach is brilliant! I've been handling partnership returns for a few years but never thought to create a systematic documentation method like this. Your suggestion about tracking the basis for classification and supporting tax code sections is especially helpful - I can see how that would save so much time during reviews or if questions come up later. One follow-up question: when you mention reviewing what partners actually do versus what the agreement allows, how do you typically gather that information? Do you send questionnaires to the partners, or is this something you discuss during client meetings? I want to make sure I'm being thorough but also efficient in how I collect this information from clients. Also, for the tax code section references in your spreadsheet, are you primarily citing IRC Section 469 for the passive activity rules, or are there other key sections you typically reference for limited partner determinations?