Q: Schedule K-1 (Form 1065) Part II Section L. Do withdrawals and distributions include cash and non-cash distributions? Distributions at Line 19A are cash only distributions? Distributions at Lines 19B or 19C are non-cash distributions?
A: Distributions at Line 19A are cash and marketable securities distributed to the taxpayer by the partnership. These distributions reduce the basis that the taxpayer has in the partnership. No amounts reported at Line 19A flow to Form 1040.
Distributions at Line 19B are Section 737 property. Section 737 property is property contributed to the partnership by another partner. In addition, to reducing the taxpayer’s basis in the partnership, the property may include a recognized gain that flows to the taxpayer’s Form 1040 as taxable income, thereby further reducing the taxpayer’s basis in the partnership.
Distributions at Line 19C are property distributed to the taxpayer that is not cash, marketable securities, or property that was contributed to the partnership by another partner. These distributions reduce the basis that the taxpayer has in the partnership. No amount reported at Line 19C flows to Form 1040.
Please note that Schedule K-1 (Form 1120S) has only one line for distributions. Although most distributions are in cash, it would be necessary to check with the customer or accountant to determine if any of the distributions are property.
Course overview: Understanding Schedules K-1