US K1 Partnerships

by **Hereford345** on Fri Dec 10, 2010 2:40 pm

I am preparing a UK tax return for a US citizen resident in the UK. They have income and gains from US investment partnerships which are reported on Form K-1 for US taxation purposes. How do I report the K-1 form information on a UK tax return? I don't seem to be able to find any guidance on this matter.
Thank you in anticipation of your help

by **taxationweb@britishamericantax.com** on Fri Dec 10, 2010 3:02 pm

First, you have to know what kind of entity generated the Partnership K1. LP? LLP? LLC? or Partnership?

If partnership, it's all flow-through. So, the box that says, "interest" would flow through as interest, "dividend" would flow through as a dividend, etc. There's some right jolly obscure stuff that you might want to post in a follow-up so we can tell you how to deal with thos. You would allow a tax credit for any US tax paid on the income, if permitted to do so by the US/UK treaty.

If an LLC, it's debateable whether it's an opaque entity or a flow-through. A recent case determined it was flow-through, but the HMRC manual and/or technical guidance on the treaty (someone else can provide the reference) says it's opaque. If you choose to treat it as opaque, only the distributions (midway down the lower left hand side of page one) are income. They are treated as dividends, with the 10% notional credit but no allowance for US tax paid.

If it's an LP or LLP, it's also debateable whether it's an opaque entity or a flow-through. In this case, there is no guidance that I am aware of. I'd feel very comfortable treating it as flow-through.

--liz@BritishAmericanTax.com

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by **Hereford345** on Fri Dec 10, 2010 3:09 pm

Thanks for your response.

They are L.P partnerships so we'll treat as flow through.

by **Michael I. Atlas, CA** on Fri Dec 10, 2010 7:22 pm

I would be curious to learn why "Liz" stated:

"If partnership, it's all flow-through. .....
If it's an LP or LLP, it's also debateable whether it's an opaque entity or a flow-through. "

There seems to be a contradiction in thestatement. A LP or LLP is a partnership. ????????

by **taxationweb@britishamericantax.com** on Sat Dec 11, 2010 8:31 pm

Mike, It's debateable because the UK's defintion of LP and LLP won't necessarily precisely match the US defintion of the same. It all depends on what kind of HMRC agent is examining the return.

by **maths** on Sat Dec 11, 2010 9:44 pm

HMRC view a partnership set up under the Uniform Partnership Act or the Uniform Partnership Act as transparent.

LLC are treated as opaque although Swift v HMRC (2010) held a Delaware LLC to be transparent (HMRC are appealing).

LLP are treated as transparent.

by **Michael I. Atlas, CA** on Sun Dec 12, 2010 5:28 pm

Thanks to you both for clarification.

by **maths** on Sun Dec 12, 2010 5:41 pm

No problem.

I have to say this is a mind-blowing area and one I find of great difficulty!!

by **Michael I. Atlas, CA** on Sun Dec 12, 2010 5:55 pm

I can well understand. Over here, we have had lots of problems in connection with issues relating to US LLCs because they are treated as corporations (or, as you put it "opaque") for Canadian tax purposes, whereas generally transparent for US tax purposes.

Certain changes to the Canada-US Tax Convention that were the result of the recent Fifth Protocol attempt to cure many of those problems in connection with inbound situations (i.e. US residents using them as vehicles for Canadian activities and investments).

However, the changes in the treaty have no bearing on Canadians who (usually foolishly and without proper advice) use them as vehicles to invest in the US, and there are a myriad of potential problems and double tax issues that can arise in such cases.

by **anon123** on Wed Aug 17, 2011 4:49 pm

On the same issue, I have an LP so am treating this as transparent as above. But my question is, what should you do about converting income and gains from $ to sterling? I am particularly concerned about the disclosure of gains on the UK return. According to the investment manager in USA the information is not available to allow us to calculate gain in sterling. My only option seems to be to convert US gains from K-1 to sterling on date of disposal is this going to be a problem for HMRC??