A recent thread on the Yahoo Message Boards brought up an interesting issue about commodities exchange traded funds (ETFs): are investors being taxed for income they never actually saw?

For example, one person says that they made an actual profit of $4,335 and no interest. But on the K-1 form, a profit of $6,963 and interest of $207 was listed. What’s going on?

Blame it on the fact that taxes are just really, really confusing.

Some commodities ETFs are operated as partnerships, which means that it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return.

On the IRS’s website a form called Partner’s Instructions for Schedule K-1 (Form 1065) can be found.

The K-1 basically gives allocation for any gains or losses within the fund.

While we don’t know what the K-1 looks like for those posting on the Yahoo Message Board, we can take a look at an example.

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