K-1 Self Employment Earnings

[Penman2006]

I just received a K-1 for one of my DB plan clients. I looked at line 14 "Self Employment Earnings" and I was surprised to see two entries, one coded "A" with a value of about $200,000 and one coded "C" with a value of about $800,000. Which one do I use, or both?

[Belgarath]

While I always recommend checking with the CPA, a code "C" is a qualified rehabilitation expense. So, I would use only the $200,000.

[Penman2006]

Thanks for responding Belgarath. I agree that I need to speak with the CPA. I looked at code C for line 14 in the K-1 instructions and it says "Gross non-farm income". What do you mean "rehabilitation expense"? Also, since I wrote my intial posting, I read 2004 IRS Pub. 533 and it specifically says that earnings subject to self-employment tax is from box 14 code A so I think I agree with you that the correct number to use is the 200,000. Nonetheless I am going to speak with the client and the CPA.

[Belgarath]

I beg your pardon. The "window" in which I was viewing the instructions cut off the page, so that what I was really looking at was Code C in Box 15 instead. I'm now not sure what the appropriate amount to use is. Like you, I lean toward the 200,000, but I'm by no means certain!

[Penman2006]

I'll let you know what I find out. Thanks.