01 Jul Use IRS Form 8082 to Report An Incorrectly Issued K1
This post addresses how to use IRS Form 8082 to report an incorrectly issued K1. The lesson learned is that you always start by requesting in writing that a corrected K1 be issued.
I’ve been working a very complicated file since my last post involving income in 11 states and countless K-1s, Partner’s Share of Income, Deductions, Credits, etc. Interestingly enough, one of my trusted lieutenants noticed that one of the K-1s from one of the partnerships incorrectly reported a gain on the sale of a partnership asset as a long-term capital gain rather than an IRC §1231 gain for property used in trade or business potentially causing an understatement of passive activity income.
To those of us that actually care about the US Tax Code, it does make a difference. So I requested a corrected K-1 and was refused basically because the other party’s tax practitioner is evidently incompetent, unlicensed and arguably moronic.
As opposed to getting my undies in a bundle and throwing down the gloves I simply filed IRS Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with the taxpayer’s IRS Form 1040 reporting items inconsistent with the K-1 as per IRC § 6222 and will now let the chips fall where they may as time is limited and there is no sense arguing with stupid people.
Filing IRS Form 8082
Here’s the takeaway, basically you file IRS Form 8082 with your original or amended return if Schedule K-1, Schedule Q, or a foreign trust statement is incorrect, requiring different reporting. You also file it if a partnership, S corporation, trust, estate, or real estate mortgage investment conduit (REMIC) has not filed a tax return or issued a Schedule K-1 by the time you must file your personal tax return. The other piece of this is that you can file an Administrative Adjustment Request (AAR) using the same form if you are filing an amended return to change an amount previously reported from a pass-through entity on the original tax return.
The question then of course became whether filing the 8082 form will increase the likelihood of an IRS audit and the answer is: I don’t know definitively as those selection algorithms are kept confidential but it is fair to say that the ‘Service’ has a long documented history in my files alone of examining with extra scrutiny both revenue and expense items receiving inconsistent treatment year over year or between parties, related or otherwise.
When to Not File Form 8082
The IRS Form 8082 Instructions will shed more light on this but do NOT file the form if any of the following apply:
1. You are a REMIC – file Form 1065X
2. Amounts on Schedules K-1, Q, or the foreign trust statement that you do not report on your personal income tax return because the amount is otherwise limited by law particularly relevant to losses limited to the ‘at-risk’ or ‘passive activity’ rules
3. The partnership had no more than 10 partners at any one time during the tax year (fyi husbands, wives and their respective estates are treated as one partner); each partner is an individual, an estate of a deceased partner or a C Corporation; and the partnership did not have an electioning effect under IRC 6231 for the tax year to have the consolidated audit rules apply
4. Shareholders of S corporations cannot request an administrative adjustment to a personal income tax return to correct S Corporation items
5. Beneficiaries or owners of an estate or domestic or foreign trust cannot request an administrative adjustment to an estate tax return
6 If you are a partner in an electing large partnership as only the partnership may file an AAR.
Generally, you may file an AAR to change items from a pass-through entity for any tax year that is within 3 years after the later of the date on which the pass-through entity filed AND before a notice of final pass-through entity administrative adjustment for that year is mailed.
For further guidance please feel welcome to contact me directly at your convenience.