Previous postings have covered various aspects of K-1 statements as pertains to partnership-based ETF funds and the like.
I'm trying to understand the logic behind it all. I guess I somewhat understand the concept of an "investement vehicle" (corporation, partnership, etc) which is treated as a "passthrough entity" for tax purposes. The point is if the vehicle does not pay taxes on its own profits, then the owners must do so, whether or not the profits were explicitly paid out. (Otherwise it would be a way to shelter against taxes, indefinitely. It appears to make a lot of sense to have such a rule.)
For example, I received a K-1 for 2008 which essentially says that the ETF fund has some internal trading losses which I personally have not realized yet (except maybe a paper loss on the ETF stock).
Supposedly, I shall enter the K-1 in my 2008 tax filing, and perhaps use the loss against other income/gains.
What I do not understand is what happens when I sell the ETF, and realize whatever paper gain or loss that exists at that point. WIll I get another K-1 that cancels out the original one, now that I have a concrete and quantifiable gain or loss? If not, could I not end up having been taxed for a different gain/loss than what I actually realized in the end? This is the part I do not understand.