Tax News Flash, August 9, 2011—Proposed Table 3 Schedule K-1 (565), Partner's Share of Cost of Goods Sold, Deductions, and Rental Income
We are proposing to add Table 3, Partner’s Share of Cost of Goods Sold, Deductions, and Rental Income to Schedule K-1 (565). Table 3 will enable partnerships to report proportional cost of goods sold, ordinary deductions, real estate rental income, and other rental income to all partnerships. Limited liability companies (LLC) are unable to correctly compute the LLC fee because these items are not found on Schedule K-1 (565) because the Schedule K-1 is designed to report pass-through net income. Table 3 gathers information from the pass-through entity’s own return as well as other Table 3s the entity receives, facilitating the path of reporting to an LLC subject to the LLC fee that will ultimately use the information to complete the LLC Income Worksheet. The proposed Table 3 benefits both us and business entities requirements by:
- Enhancing the ability of partnerships to accurately report their proportionate shares of aggregate gross receipts to other partnerships and LLCs subject to the LLC fee.
- Providing a new table for partnerships and LLCs to report their pass-through entity interests.
- Enabling LLCs subject to the LLC fee to more easily compute their correct total income from California sources.
- LLCs subject to the LLC fee will have the necessary information readily available to complete the LLC Income Worksheet, reducing their reporting burden and ease in tax preparation.
- We will significantly decrease the number of Return Information Notices (RINs) we issue each year for incorrect LLC total income computations. Fewer RINs will mean reduced telephone traffic for our Taxpayer Services Center, shortening the response time for taxpayers contacting the FTB for assistance.
Give your comments or suggestions about the form by August 31, 2011.