K-1 Conflicting Advice - Do I Report Line 1 or Line 19 for Royalty Partnership?

You need to report the amount on Line 1 ($24,863) on your Schedule E. The K-1 is reporting your share of the partnership's income based on your ownership percentage (11.53%), regardless of how much was actually distributed to you. The distribution amount on Line 19 ($6,851) represents what you actually received, but partnerships are "pass-through" entities, meaning you pay tax on your share of earnings whether they're distributed or not. The difference between your share of income and your distribution is likely being retained by the partnership for various reasons.

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I'm a retired accountant (not giving professional advice here) but wanted to mention that the partnership agreement is the key document here. It should specifically outline how profits, losses, and distributions are allocated among partners. If the agreement states you get 11.53% of profits but only 3.06% of distributions, then your CPA is correct. The tax law requires you to report your share of the partnership's income regardless of distributions. This is why partnerships can sometimes be tax-inefficient - you can end up paying tax on "phantom income" you never received in cash.

Just wondering... did you ever ask the partnership itself for an explanation? When I was in a similar situation, I emailed our partnership's accountant directly and they sent me a detailed breakdown of how my K-1 was calculated and why the distributions were different from my share of income. Sometimes going directly to the source is the fastest way to understand what's happening.

Your CPA is correct - you need to report the $24,863 from Line 1 on your Schedule E. This is a classic partnership taxation issue where your share of profits (11.53%) differs from your distribution percentage (3.06%). The key thing to understand is that partnerships are "pass-through" entities, meaning you're taxed on your allocated share of the partnership's income whether you receive it in cash or not. The partnership agreement clearly established different percentages for profit allocation versus distributions (likely due to that IRA loan conversion you mentioned). Think of it this way: the partnership earned income, and 11.53% of that income is legally "yours" for tax purposes even though the distribution formula gives you a smaller cash payout. The $17,012 difference between your taxable income and distribution is essentially being retained by the partnership, increasing your basis in the partnership. This might feel unfair since you're paying tax on money you didn't receive, but it's completely legal and common in partnership structures with special allocations. Your business partner may not fully understand the tax implications of the partnership agreement that was set up. I'd stick with your CPA's advice on this one - reporting only the distribution amount would likely trigger IRS issues down the road.