Form 1065 K-3 schedule saga

Question

Good day,I've been using TurboTax Business & TurboTax Home & Business for decades.  Yet, this season it has been a major challenge.  Here's my story / situation:I run a Limited Partnership (LP) with 3 partners.  One (1) is general, two (2) are limited.  General has 1% interest, 2nd partner is limited has 1%, and 3rd is limited with a 98% interest.  It is a family partnership.  All partners are family members, all domestic, not foreign.  Last year the LP invested into shares of AllianceBernstein (AB) which issued a K-1 schedule back in March 15, with K-3 checkbox (#16 on K-1) is checked.  Instead of filing, we filed for extension, which is due on September 15, 2022.  Which is next Thursday from today's date. The AB partnership promised to send out a K3 by August 31, 2022.Sometime over the weekend, before the 6th of September, the AB partnership finally issued a K-3, a 20-pages long document.  Before we go further, on a K1 -- #21 "foreign taxes paid or accrued" is zero (0).   The partnership also has held shares of some foreign Swiss pharma company which paid dividends (Switzerland also withheld taxes).  The amount is like less than $50.  But because of this, I don't believe the exemption not to file for K-3,  and just ignore for this tax season is applicable in this situation.  Of course, correct me if I'm wrong.My TurboTax Business for Windows is up to date.  I regularly check for updates & install them.  I entered the K-1 received from that AB partnership into my own partnership return in the "step-by-step" regular mode.  There was no option to activate/mark the K-3 checkbox,  #16, so I had to go in and manually check that while I switched to the "Forms" mode.  I couldn't find how to enter the K-3 in the "step-by-step" mode.Then I thought, what if I go and simply re-create Schedule K-3 received manually under the "Forms" mode, all those 20 pages in and under my own LP, under my own EIN in hopes the TurboTax Business would flow that information back to partners.  I did it under the 98% partner.  Well, after few hours spent retyping, trying to put everything into the correct cells, we've discovered that even after the form's been manually entered it does NOT flow back to the partner through K-1.  [Not even sure if it should flow through K-1 or through some other forms.]Furthermore, if I go into the software and do the File -> Print, "All official forms require for filing", the K-3 Schedule, which was manually entered, is nowhere to be found.   When I go and Print "Forms to review or keep for your records", "Tax return, all calculation worksheets", the K-1 from the AB partnership with K-3 marked is there, the K-3 information I entered manually under my own LP is also there.As far as TurboTax Home and Business goes.   I ran a hypothetical of how would I enter the information IF I were to receive the K-3 under my own Tax ID (SSN) and not through the LP.   I do see in the "Forms" mode, the Schedule K-3, A through Z, then AA through AI, but to somehow migrate the information from the K-3 received from the AB partnership, I'd have to run around trying to enter various figures into the "correct cells" and hope that I didn't miss anything, or confuse one cell/field with another.  I don't see how one would not be making mistakes here.  It's just not clean or intuitive in anyway.Before you send me to read the forums -- I followed and read all of them over the summer, there are 4-5 different threads .  I also tried to reach out to the IRS Business Division by dialing [phone number removed].  Unfortunately, their automated system told me that they can't answer and I have to go call them back later.Stumbled  and confused.  What do I do next?   How do I avoid penalties ($10k+) and do the very "best effort" in filing my LP return?  My options are as follows:1. Do I uncheck box #16  (not that it matters in anyway), print all the forms required for filing and HOPE that Intuit fixes its products AND later amend what I filed.  Hope that the IRS's computer system wouldn't discover the missing information *before* we have a chance to amend, before they send an automated letter demanding that LP pays the penalties, OR2. Do I send IRS more than what is required to file: (a) include the K-3 manually entered, (b) box 16 checked for the K-1 of that Partnership,  the K-1 from the AB partnership, which I would include manually from the "all key calculations" print options.  Perhaps include a letter on behalf of LP explaining the situation, asking them permission "to leave and  amend" the filing before the next tax season, OR3. I could also try to locate a CPA firm, if I can find one on a *such short notice* and ask them to file it.  Pay anywhere from $350-600 to review or/and re-enter everything through their own software, but then I might not be able to "migrate" their work back into the TurboTax next season.  Thus, we'd have to continue paying them year after year.Any thoughts on what to do here?  Looking for sound advice.   Thank you for your time. -B

Mike9241 · Accepted Answer

@Mike9241

Thanks again for responding.

"since there is no FTC reported on the K-3 and if there is no net foreign source income at the partner level there will be no effect on the allowed FTC from other sources so in MY OPINION your wasting your time entering the k-3 info"

Before we even get to the K-1 & K-3 from that AB investment, the partner that has 98% interest of my Partnership does receive $48 (received as foreign dividends) from that Swiss company I mentioned earlier. These $48 are present on the Partner's K-1, at #21, "foreign taxes paid or accrued".

Perhaps I don't understand something. My thoughts are: because these $48 -- clearly a foreign source of income, the K-3 that was received from another investment will have to be somehow entered and should not be ignored.

Wouldn't this, in your opinion, be the "net foreign source income at the partner level" ?

i don't know what your partnership is invested in. it could get the foreign tax credit from another partnership investment or form a brokerage account. obviously, it's something you entered. it doesn't matter. The AB k-3 will have no effect on the results because there is no foreign income or foreign tax credit.

as explained earlier box 21 on the partner's k-1 is only to be used by the partner for computing tax basis in the partnership. so your partnership should still be generating form k-3 for the Swiss dividends and related FTC and each partner will probably end up receiving the k-3 even though i suspect only the 98% partner will have any numbers on the k-3

i can't tell you whether the $48 is net or not because you haven't told me the source. if it is a brokerage account that would likely be both the gross and net FSI.

evidently, Turbotax has not created the ability to enter the k-3's received from sub-partnerships and then accumulate the data for preparation of your partnership's k-3 but I have never worked with Turbotax business.

your option is to ignore the k-3's from sources that have no effect on the FTC at your partners level or create your own spreadsheet to accumulate the 20 pages of k-3 data from each source and brokerage account. then you would enter that in your partnership's k-3. that is if my understanding is right that Turbotax does not accommodate k-3's at the sub-partnership level.