You are going to have to show a 'deemed dividend' in the amount of 55.91 on the books. Then you are going to have to allocate the the credit for tax paid in the amount of 19.57 between your members.

First, we have to bring the amount of the 'deemed dividend on the books, without disturbing the cash balances. To do that, enter a Long-term capital gain dividend on 12/30 for Harris in the amount of 55.91. To enter a long-term capital gain dividend, you first go to Investments!Stock Dividend. Then enter long-term capital gain dividend as the distribution type.

On the same date, enter a negative return of capital for Harris for 55.91. Both entries should use the suspense a/c, which should balance out, after the entries are made. Returns of capital are done like dividends, first going to Investments!Stock Dividend, and then entering Return of capital as the distribution type. Again, the return of capital should be a negative figure.


Then, assuming your suspense a/c is again zero at the end of the year, you are going to have to figure how much of the $19.57 tax credit is applicable for each member. You could just allocate that amount on a spreadsheet, in proportion to the units owned on 12/31/05. Another way, assuming you didn't make any charitable contributions during the year, would be to enter a charitable contribution of 19.57 on 12/30. Do not enter anything for any of the stocks shown, and do NOT choose to allocate equally. Run a member tax allocations report as of 12/31/05, and note how much of the 19.57 contribution went to each member. Then delete the contribution entry and perform another tax allocation report, as of 12/31. Note - you are doing this contribution exercise only to determine the amount of the tax credit due each member. When you are through, you have to delete the entry and do the tax allocation report again. Or, as stated above, simply use a spreadsheet to determine the amount due each member.

You can generate your tax return and k-1s the way you ordinarily would. You will have to make some manual entries. On the Schedule K [Page 3 of 1065], enter 19.57 in the amount column on line 15 f.On the dotted line to the left of the amount, enter 'H'.

On each member's k1, enter the computed share fo the 19.57 in . Enter 'H' in the small box to the left of the amount. Do this on both the IRS copy and the partner's copy.

You should tell your partners, that they should enter the amount shown in of their k1, on line 70 of their 1040.Check box 'a' for Form 2439, and add the words 'Form 1065'.

That should be it. Let me know if you have any questions.


Rip