11414: 1041/1065/1120S - Last K-1 Entered Shows Incorrect Distribution

Why is the distribution on the last K1 in a 1065, 1120S, or 1041 return sometimes larger or smaller than it should be?

This is the result of a K-1 rounding issue. The last K-1 has been adjusted to bring the total distribution for all K-1s to 100% of the distributable amount. The entity whose K1 screen is the last entered is considered the rounding partner, shareholder or beneficiary, unless you make a different selection for that purpose.

The rounding K-1 is adjusted when the distribution percentages for all partners, shareholders, or fiduciaries are more than or less than 100% because:

• The partner or shareholder ownership percentages or beneficiary percentages do not add up to 100%
• Special allocations are incorrect because they are either:
  • Incorrect Total - in a distribution category, the total allocated does not equal 100% of the distributable amount. The total is either more or less than 100%, or 
  • Incomplete - in a distribution category, special allocations have been made to some, but not all owners or beneficiaries and the total allocated is not equal to 100% of the total distribution.

In these circumstances, the software applies the correct percent to all of the K-1s before the rounding K-1 and then adjusts that K-1 to bring the total to 100%.

Note: Through the linked SA windows (see Related Links below), the software handles an incomplete allocation by allocating any remaining distributable amount pro-rata to the remaining partners, instead of adjusting the rounding K-1.

In partnership returns

Rounding occurs when:

• The partners' ownership percentages (section J of screen K1) do not add up to 100%. 
• A special allocation is totaled incorrectly or incomplete. The rounding K-1 can be affected: 
  • If an SA window allocation is totaled incorrectly, the rounding K-1 is adjusted to bring the total to 100%.
  • If an SA window allocation is incomplete, any amount remaining is allocated to the remaining partners on a pro-rata calculation of partners' ownership percentages.

In S corporation returns

Rounding occurs when:

• Shareholder's % of stock ownership on K1 screens and shareholders' ownership percentages do not add up to 100%.
• Or special allocations on K1 screen overrides are incorrectly totaled or limited.

In fiduciary returns

Rounding occurs when:

• The federal beneficiary distribution percentages do not add up to 100% (the Fed % field on the K1 screens).
• Special allocations on K1 screen overrides are incorrectly totaled or limited.