Special Allocations

Facts

Enter the following information for a sample client:

The percentages are the same for profit, loss, and capital.

*The distributions were taken by partner 2.

The partnership agreement states the following:

• The portfolio income is to be distributed evenly between the general partners only.
• Of the $4,000 life insurance deduction, $2,500 is attributable to partner 1 and $1,500 is attributable to partner 2.
• The Section 179 expense cannot be deducted by a fiduciary partner; therefore, allocate it among the other partners equally.

Program Considerations

• Screen 29, Special Allocations can be used to allocate specific items to specific partners using an exact dollar amount or by percentages. The program allocates items of income, expense, etc. to each partner's Schedule K-1 in the following order:

1. Using the profit and loss sharing percentages entered for each partner in Screen 8, Partner Percentages.
2. Using the partner weighted-average allocations, which are calculated if you make entries in Screen 9, Change in Ownership. The weighted-average allocation supersedes the percentage entered on Screen 8, Partner Percentages.
3. Using the K-1 allocation percentage override entered in Screen 32, Schedule K-1 Miscellaneous. This percentage supersedes the percentages entered on Screen 8, Partner Percentages and the weighted-average allocations.
4. Using special allocations. The program specially allocates individual Schedule K items to each partner's Schedule K-1. The specially allocated distributions supersede any of the allocations listed above.

• In the Section list, the program displays categories of allocable items as folders. Using the Show only amounts to be allocated check box, you can switch between viewing only items with amounts available for allocation, and viewing all Schedules K-1 and M-1/M-2 items that could be specially allocated in these categories.
• Beginning in TY2004, certain [CTRL]+[E] fields in the Partnership and S-Corp programs (i.e., Other Income, Other Deductions) require the assignment of a K-1 Code to each entry. This is accomplished in Lacerte via a [CTRL+T] list.

  

Use the following to interpret the symbols and colored text in the list:

* Section headings are not allocable items. If you select a section heading, you cannot enter amounts in the Partner Special Allocations Entry area.

To open a special allocations section, click the plus sign (+) next to the section. To view the special allocations amounts or percentages for an item, click the item.

• Before you enter any specially allocated items for the partners, ensure all totals have been entered for the partnership to complete the Schedules K and M-1/M-2 and that these schedules have been verified for accuracy.
• In the Allocation Method List, you can choose from default allocation methods pre-set by the program or from custom allocation methods you create. The program automatically enters the partners, amounts, or percentages in the data entry area based on the allocation method you choose and how the method is defined. You can choose between:
• Amount - The program calculates an allocation percentage based on the amount allocated and the total amount to be allocated. If you choose Amount, you must enter per partner special allocation amounts. Use "-1" for zero if necessary.
• Percentage - The program calculates an allocation amount based on the percent entered in the Allocation % column and the total amount to be allocated. If you choose Percentage, you must enter per partner special allocation percentages.
• End of Year Profit % - The program calculates allocation amounts and percentages based on the end of year profit sharing percentage entered in Screen 8, Partner Percentages, and the total amount to be allocated. If you choose End of Year Profit %, you do not have to enter per partner special allocation amounts.
• End of Year Loss % - The program calculates allocation amounts and percentages based on the end of year loss sharing percentage entered in Screen 8, Partner Percentages, and the total amount to be allocated. If you choose End of Year Loss %, you do not have to enter per partner special allocation amounts.
• At the bottom of the Special Allocations screen, the program lists the partnership total (from Form 1065) to be specially allocated among the partners, the total of the specially allocated distributions already entered for all the partners, and the residual amount remaining of the partnership total to be allocated. Use these totals to reconcile the specially allocated distributions.
• Click the Manage Groups button to create, modify, or delete a custom allocation group specific to the partnership. This function allows you to setup and save allocation schemes that can be used for multiple items throughout the category list. The program lists any custom allocation group you create in the Allocation Method list.
• The program creates a Capital Account Reconciliation worksheet that can be used to reconcile each partner's capital account

How?

To allocate specific dollar amounts:

1. Open the sample client.
2. Open the Special Allocations screen from the Contents tab.
   
3. Open Deductions, Other Deductions, Other Deductions (Sch K) in the Section list, and then select Life Insurance.
   
4. Select Amount in the Allocation Method list.
   
5. Enter the dollar amounts to allocate for each partner in the Allocation Amount column.
   

   The program automatically computes the allocation percentage and inserts this amount in the Allocation % (memo only) field. The program also computes the residual allocation amount and displays it at the bottom of the data entry window.

   Note: Any remaining amounts are residually allocated based on percentages entered in Screen 8, Partner Percentages unless the entire amount is allocated among the partners.

6. Open Income and repeat steps 4 and 5 to distribute the portfolio income per the partnership agreement instructions above.

To allocate amounts based on percentages different from those entered in Screen 8:

1. Open the sample client.
2. Open the Special Allocations screen from the Contents tab.
   
3. Open Deductions in the Section list, then select Section 179 Deduction.
   
4. Select Percentage in the Allocation Method list.
   
5. Enter the allocation percentages for each partner in the Allocation % column.
   

   The program automatically computes the allocation amount and inserts this amount in the Allocation Amount (memo only) field. The program also computes the residual allocation amount and displays it at the bottom of the data entry window.

   Note: Any remaining amounts are residually allocated based on percentages entered in Screen 8, Partner Percentages unless the entire amount is allocated among the partners.

Tips & Shortcuts

You can click the note symbol in the Note column to enter per partner supplemental information rather than opening Screen 30, Supplemental Info. (per partner).

Review

You should have entered the necessary information to specially allocate items for the sample partners' K-1's and produced the following results on the partners' K-1's:

Troubleshooting

Problem: I'm getting a negative amount for an item on a partner's K-1.

Solution: Negative amounts occur when you have over allocated amounts or percentages. Check the residual calculation in Screen 29, Special Allocations for the item.

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