I have an equity interest in my employer that is structured as an S Corp. Last year I was allocated a large net unrecognized gain on my K-1.
I'm finding conflicting information on whether this should be subject to NIIT taxes. My CPA said NIIT does apply, but there are a lot of online sources that say S Corp gains where you are an active participant are excluded from NIIT.
I tried to read the IRS guidance on this myself and its hella confusing. Does anyone know what is correct here?
Posted by nofunatall2
3 Comments
Unrecognized gain?
Investment income earned within the S-Corp passed through to you is generally subject to NIIT. If you sold your stock in the Corp that’s different.
Edit; wait a sec…. S-Corp and 704c?
If the gains are unrecognized, a taxable event has not occurred. If there are recognized gains, whether they are subject to NII Tax depends on the nature of the asset sold. Gains from the sales of stocks would be subject to the tax regardless of your participation level.
that is a partnership k1, not an S corp k1
If it’s not in one of the “main” boxes, box 1 through 21, it’s not an item of income to you.
Box N is a recordkeeping box, not a taxable income box – get a new tax preparer.