Reporting Hedge Fund K-1 Items

Can anyone point me to information regarding the correct reporting of Hedge Fund K-1 info on the 1040? For those of you who have this issue you know that these K-1s have numerous items of income and deduction from multiple code sections. I have come across a site that states the proper reporting of the K-1 items involves combining various kinds of income into fewer categories. For example, Sec 988 income is combined with "other portfolio income" and entered as Schedule E, Part II, non-passive income. And so on.

Any link to publications, books, continuing education or articles would be appreciated.

Thanks in advance.

Did they not give you the instruction page of the K-1?

Also, our tax software lets you enter the k-1 and it puts it where it belongs. Are you preparing paper returns?

Here's some information:

http://media.straffordpub.com/products/ ... tation.pdf

JAD - Thanks for the reply. That is one of the items I found.

Noobie - If you have seen one of the K-1s from a hedge fund you would know what I refer to. For example, under line 11F they will break out many different items such as other ordinary income, section 1293 ordinary earnings, section 988 income, section 987 income, sec 1254 recapture,swap income, net swap income, capital gains, etc. They will also show some of the exact same items under line 11A.

Some examples I have seen combine some line 11 items with line 1 ordinary income, combine line 11 cap gains with lines 8 and 9 cap gains, etc.

The items don't loose their character just because of the line that they are reported on. Capital gains are still capital gains, even if they are on Line 11F. You are likely looking at a funds of funds that took the information on the K-1 that it received and reported it exactly the same way, which is why you get the same type of income on different lines. The link I provided suggests an Excel schedule to assist in organizing the information.

I ALSO charge 100 per k-1 of this sort.

The issue is how best to report both "Trader Income" and all other income all on one K-1. The trader income is considered non-passive income under special rules found in the 469 regulations. However at the same time the trader income is also considered property held for investment and subject to the IRC 163 inv interest limitation.

Since there really is a great way to agggregate all this activity on Line 1 of the K-1 it spills over into 11F. Don't let that really bother you though.

Agree that the line will not change the character of the income (cap vs ordinary) but due pay attention to the passive/non-passive and inv interest exp limitation.

Its also subject to NIIT.