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A 1065 client received a payment called an earn-out. Where does this get reported on the investors K-1? Box 11 code A or F?


The BIDaWIZ Team's Answer:

In this case, it would be considered portfolio income. Earn-outs are generally treated as additional sales proceeds from the original transaction (with no basis) and should be reported on line 8 or 9 of the K-1 and flow to the partner's Schedule D.

References: IRS Publication 541
State: Michigan

The BIDaWIZ Team



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