My K-1 shows taxable income but I never received a distribution.

This most frequently happens for two reasons:

1. Convertible Note Interest

Under US tax law, the interest that accrues on convertible notes during a period usually must be included in taxable income even when the company does not have an obligation to pay it during the period.

2. Passthrough Income from LLCs & Partnerships

If a fund you that you have invested in invests a passthrough operating portfolio company, that operating company may pass-through taxable income without a corresponding cash distribution. This allocation may in turn flow through to your K-1.

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