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I'm doing the 1065 and schedule K for the investment club, and have a question. We had cash distributions in 2011 that were return of capital, and so there is no tax due on that. It looks like I just put that on Line 19A of the Schedule K, and that will translate to a code A on Line 19 of the partner's K-1. Is that all I do here? How does the IRS know that this is a return of capital and not a gain?

I have the capital gains reported separately already, but I'm feeling like I am missing something in terms of reporting.


I suspect you're doing things entirely wrong, but need more information. Were these "returns of capital" funds the club received from one (or more) of its investments, or were they withdrawals by a member?

If the former, there is no reporting of the amount on the 1065 or associated K-1s.

I hope you are using investment club accounting software to maintain your records, because if you aren't, there is a very high likelihood that you haven't generated correctly all of the numbers you need to prepare an accurate return. If you are using one of the ICLUB products, you should be referring to the Allocation of Income and Expense report or purchasing their additional tax module. If you are using bivio, you can generate the 1065 directly within the program.

Ira
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