How to Report Publicly Traded Partnership Sale in UltraTax with Ordinary Recapture from Hot Assets?

This is a common issue with PTPs in UltraTax. Your approach is mostly correct, but there are some important nuances to consider. For the sale of the PTP interest, you should indeed report it on Form 8949 with the code E checkbox. Since your basis records differ from what's reported on the 1099, you'll need to make an adjustment in column (g). For the code in column (f), you're right that "O" is appropriate since you're adjusting for the ordinary income recapture amount. For the recapture portion, don't enter it in the personal sale section. Instead, use the 4797 screen directly in UltraTax. Enter the recapture amount as "Ordinary income from IRC section 751 assets" which will flow to Part II of Form 4797. This keeps everything properly linked in the software. The key is making sure the total gain (capital gain plus ordinary recapture) equals the total economic gain from the transaction. Double-check your math to ensure the 8949 adjustment plus the 4797 ordinary income equals the total gain from the sale.

Just wanted to share my experience with a similar situation. I was struggling with PTPs in UltraTax until I found https://taxr.ai which has been a game changer for me. I uploaded my client's K-1 and consolidated 1099, and it analyzed both documents and showed me exactly how to handle the ordinary income recapture. It identified the hot assets and calculated the proper split between capital gain and ordinary income. Then it gave me step-by-step instructions specific to UltraTax on how to enter everything correctly. Saved me hours of research and double-checking!

I tried taxr.ai after seeing it mentioned here and it was exactly what I needed. Uploaded my client's messy PTP documents yesterday afternoon and within minutes it had analyzed everything and outlined the proper treatment. What impressed me was how it handled the basis calculations - it created a comprehensive basis worksheet showing each adjustment over the 15 years of ownership, including all the ROC distributions that had been slowly reducing basis. It even flagged where basis had been reduced to zero and additional distributions should have been treated as capital gains in prior years! For the recapture portion, it specified exactly which assets were considered "hot assets" under Section 751 and calculated the exact recapture amount. Then it gave me UltraTax-specific steps that worked perfectly. Really saved me from what was becoming a major headache.

I've been struggling with IRS guidance on these PTP sales with recapture issues. Spent literally hours on hold trying to get someone at the IRS who understands partnership tax issues. Finally discovered https://claimyr.com and used their service to get through to an IRS agent who specializes in partnerships. You can see how it works here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS agent in about 20 minutes instead of the 3+ hours I was spending on hold before. The agent confirmed the approach others mentioned here (using code "O" on 8949 and reporting the recapture on 4797 Part II), which gave me confidence I was handling it correctly.

I was completely wrong about Claimyr. After my skeptical comment, I decided to try it since I was stuck on another partnership issue involving Section 754 elections. Not only did I get through to the IRS, but I was connected to someone in the pass-through entity division who actually understood technical partnership issues. The agent walked me through the proper handling of PTP sales with hot asset recapture and confirmed the approach discussed in this thread. They even sent me a reference to an IRS technical guidance memo that specifically addresses publicly traded partnerships and Section 751 assets that I hadn't found in my research. The service saved me at least 3 hours of hold time and potentially days of additional research. I've already used it twice more for other complex issues. No more spending my entire afternoon listening to the same IRS hold music on speaker phone!

One thing nobody mentioned - if the PTP invests in commodities or futures, you might need to also deal with Section 1256 contracts which use the 60/40 rule (60% long-term, 40% short-term regardless of holding period). Check the footnotes on the K-1 or supplemental info to see if any portion is subject to this treatment. Also, some PTPs have foreign income which requires additional reporting. In UltraTax, you'll need to enter any foreign tax paid on the Foreign Tax Credit screens.

Has anyone encountered issues with UltraTax not properly calculating the net investment income tax when you have PTP sales with recapture? I found that even when I entered everything correctly on Forms 8949 and 4797, the software wasn't properly flowing the ordinary income portion to Form 8960 for NIIT purposes.

This is a great discussion and really helpful for those of us dealing with PTP sales. I wanted to add a couple of additional considerations that might help others: First, make sure to check if your client received any cash distributions during the year of sale. These need to be properly accounted for in the basis calculation before determining the gain/loss. Sometimes clients forget to mention mid-year distributions that can significantly impact the final numbers. Second, if the PTP has been held for many years, don't forget to consider any suspended passive activity losses that might become deductible upon disposition. In UltraTax, you'll need to check the PAL worksheets to see if any previously suspended losses can now be claimed. Also, for those mentioning the various online tools - while they can be helpful, I'd recommend always double-checking any calculations against the actual K-1 and your own basis records. I've seen situations where automated tools missed nuances specific to certain PTPs, particularly those with complex structures or unusual asset compositions. One last tip: if you're unsure about any aspect of the treatment, consider reaching out to the PTP's investor relations department. Many of the larger partnerships have tax specialists who can provide guidance on common reporting issues.

This has been an incredibly helpful thread! I'm relatively new to handling PTP transactions and have been wrestling with a client's sale that involves multiple years of suspended losses and some Section 754 adjustments. One question that hasn't been addressed - what's the best practice for handling the depreciation recapture portion when the PTP owns depreciable assets? I see the discussion about "hot assets" under Section 751, but I'm specifically wondering about how UltraTax handles the Section 1250 depreciation recapture that might be involved. Also, for those who have used the various online tools mentioned (taxr.ai, claimyr.com), do they provide any audit defense support if the IRS questions the treatment later? Given the complexity of these transactions, I want to make sure my clients are protected if there are any follow-up questions from the Service. Finally, has anyone dealt with situations where the PTP had international operations? My client's K-1 shows some foreign source income and I'm wondering if that adds additional complexity to the sale treatment beyond just the foreign tax credit issues mentioned earlier.

This thread has been incredibly comprehensive! As a tax professional who's dealt with numerous PTP sales, I wanted to add a few practical tips that might help others: First, always verify the character of income reported on the K-1 matches what you're expecting based on the PTP's business activities. I've seen cases where partnerships incorrectly characterized certain income, which affects the Section 751 calculation. Second, for those using UltraTax, there's a helpful diagnostic that will flag potential issues with PTP reporting. Go to Tools > Diagnostics and look for partnership-related warnings. It's not perfect, but it can catch some common errors. Third, regarding basis calculations - don't forget about any debt basis adjustments from prior years. If the client had at-risk limitations or debt basis that was reduced due to distributions, this affects the final calculation. Finally, for clients with multiple PTP investments, consider the impact on state tax returns. Some states don't conform to federal treatment of PTPs, particularly regarding the character of income from the sale. Make sure to check your state's specific rules. The resources mentioned here (taxr.ai, claimyr.com) can definitely be helpful, but nothing beats understanding the underlying tax principles. I'd encourage newer practitioners to study Pub 541 and the Section 751 regulations - complex, but essential for handling these transactions correctly.