When working on a Form 1065 with LLC members and you receive the following error message:
"Form 1065 p4-5: Recourse liabilities. The program will not allocate recourse debt to Limited Liability Company Members. Either reclassify the debt as nonrecourse or enter a special allocation code to indicate how the amount should be allocated."
There are two ways to resolve this error:
- Reclassify the debt as nonrecourse, or
- Enter a special allocation code to allocate the recourse debt.
Please refer to the IRS instructions for Form 1065 and the Schedule K-1 for determining if you need to keep this amount as recourse or if you need to classify it as nonrecourse.