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2023
Instructions for Form 1065
U.S. Return of Partnership Income
Department of the Treasury
Internal Revenue Service
Section references are to the Internal Revenue Code unless
otherwise noted.
Contents Page
How To Get Forms and Publications ............. 3
General Instructions ......................... 3
Purpose of Form ......................... 3
Definitions ............................. 3
Who Must File .......................... 4
Termination of the Partnership ............... 5
Electronic Filing ......................... 5
When To File ........................... 6
Where To File .......................... 7
Who Must Sign ......................... 6
Penalties .............................. 7
Accounting Methods ..................... 7
Accounting Periods ...................... 8
Rounding Off to Whole Dollars .............. 9
Recordkeeping ......................... 9
Administrative Adjustment Request (AAR) ...... 9
Amended Return ........................ 9
Assembling the Return ................... 12
Entity Classification Election ............... 12
Elections Made by the Partnership .......... 12
Elections Made by Each Partner ............ 13
Partner’s Dealings With Partnership .......... 13
Contributions to the Partnership ............. 13
Dispositions of Contributed Property ......... 13
Recognition of Precontribution Gain on
Certain Partnership Distributions .......... 14
Unrealized Receivables and Inventory Items .... 14
At-Risk Limitations ...................... 14
Passive Activity Limitations ................ 14
Specific Instructions ........................ 19
Income .............................. 20
Deductions ........................... 21
Schedule B. Other Information .............. 26
Schedules K and K-1. Partners' Distributive
Share Items ......................... 31
Specific Instructions (Schedule K-1 Only) ...... 31
Part I. Information About the Partnership ....... 32
Part II. Information About the Partner ......... 32
Specific Instructions (Schedules K and K-1,
Part III, Except as Noted) ................ 35
Flowchart To Help Determine if Items Are
Qualified Business Income .............. 53
Analysis of Net Income (Loss) per Return ...... 58
Schedule L. Balance Sheets per Books ....... 58
Contents Page
Schedule M-1. Reconciliation of Income
(Loss) per Books With Analysis of Net
Income (Loss) per Return ............... 59
Schedule M-2. Analysis of Partners' Capital
Accounts ........................... 59
Codes for Principal Business Activity and Principal
Product or Service ...................... 63
Index ................................... 66
Future Developments
For the latest information about developments related to Form 1065
and its instructions, such as legislation enacted after they were
published, go to IRS.gov/Form1065.
What’s New
Electronically filed returns. Beginning January 1, 2024,
partnerships are required to file Form 1065 and related forms and
schedules electronically if they file 10 or more returns of any type
during the tax year, including information, income tax, employment
tax, and excise tax returns. Certain exceptions apply. See Electronic
Filing, later.
Qualified derivatives dealers (QDDs). Under the new qualified
intermediary agreement (QIA), if the partnership is, or has a branch
that is, a QDD, it must file Form 1065. See Qualified derivatives
dealers (QDDs), later, for more information.
Energy efficient commercial building deduction. Line 20 has
been changed from Other deductions to Energy efficient commercial
building deduction. See Line 20, later.
Elective payment election. Line 29 has been changed from
Amount owed to Elective payment election amount from Form 3800.
See
Line 29, later.
Schedule B. Schedule B has multiple updates. First, question 10
was expanded and now includes 10d. See Questions 10a, 10b, 10c,
and 10d, later, for more information. Second, question 29 was
activated to request information on excise tax on repurchase of
corporate stock. See Question 29, later. Third, a new Question 30
was added to request information on digital assets. Fourth, the
previous question 30 has been renumbered to 31.
Schedule K-1 (Form 1065), item J. The checkbox under
Schedule K-1 (Form 1065), item J, was expanded to a box for sale
and a box for exchange. The instructions differentiate when each
should be checked; see Item J, for more information.
Schedule K-1 (Form 1065), items K2 and K3. Item K was
expanded to include an additional checkbox and each item given a
separate number. The instructions were separated to identify
information pertaining to each item and new instructions are
provided for the new item K3 checkbox to indicate whether the listed
liabilities are subject to guarantees or other payment obligations. For
more information, see Item K1, Item K2, and Item K3, later.
Schedule K, line 11. Line 11, Other income (loss) (code I),
previously included a number of bulleted items. These items have
been assigned individual codes for Schedule K, line 11, and box 11
of Schedule K-1. See Line 11. Other Income (Loss), later, for the
expanded list of codes.
Jan 16, 2024
Cat. No. 11392V
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Schedule K, line 13. There are two major changes to line 13. First,
line 13a, Contributions, has been split into Line 13a. Cash
Contributions and Line 13b. Noncash Contributions. The
subsequent lines have been renumbered accordingly. Second, the
2022 line 13d, Other deductions (code W), included a number of
bulleted items. These items have been assigned individual codes for
Schedule K, line 13, and box 13 of Schedule K-1. See Line 13e.
Other Deductions, later, for the expanded list of codes.
Schedule K, line 15. Line 15f, Other credits (code P), previously
included a number of bulleted items. These items have been
assigned individual codes for Schedule K, line 15, and box 15 of
Schedule K-1. See Line 15f. Other Credits, later, for the expanded
list of codes and new energy credits.
Schedule K, line 20. Line 20c, Other information (code AH),
previously included a number of bulleted items. These items have
been assigned individual codes for Schedule K, line 20, and box 20
of Schedule K-1. See
Line 20c. Other Items and Amounts, later, for
the expanded list of codes.
Schedule K, line 20c, code P. Instructions have been updated for
section 453A information required to be provided to partners.
Schedule K, line 20c, code X. Line 20c, code X, was previously
Reserved and has been activated to report payment obligations
including guarantees and deficit restoration obligations (DROs). See
line 20c,
code X, later.
Reminders
Changes from the Inflation Reduction Act of 2022 (IRA 2022)
and the CHIPS Act of 2022 (CHIPS 2022). The following are
changes from the IRA 2022 (P.L. 117-169) and the CHIPS 2022 (P.L.
117-167).
•
Advanced manufacturing investment credit for qualified
investment in an advanced manufacturing facility placed in service
after 2022. See section 48D and Form 3468 and its instructions for
more information.
•
Increase in energy credit for solar and wind facilities placed in
service in connection with low-income communities, effective
January 1, 2023. See section 48(e) and Form 3468 and its
instructions for more information.
•
Extension of incentives for biodiesel, renewable diesel, alternative
fuels, and sustainable aviation fuels for productions after 2021. See
Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation
Fuels Credit, and its instructions. See sections 40A, 40B, 6426, and
6427.
•
Credit for clean hydrogen produced after 2022. See section 45V
and Form 7210 and its instructions for more information.
•
Credit for clean vehicles placed in service after 2022. See section
30D and Form 8936, Clean Vehicle Credit, and its instructions for
more information.
•
Credit for qualified commercial clean vehicles for vehicles
acquired after 2022. See section 45W and Form 8936 and its
instructions for more information.
•
Advanced manufacturing production credit for certain
components produced and sold after 2022. See Form 7207,
Advanced Manufacturing Production Credit, and its instructions. See
section 45X.
•
Credit against payroll taxes for small businesses for increase in
research for tax years beginning after 2022. See section 41(h) and
Form 6765, Credit for Increasing Research Activities, and its
instructions for more information.
Schedule M-1. Reconciliation of Income (Loss) per Books With
Analysis of Net Income (Loss) per Return. The title of the
Schedule M-1 was changed to Reconciliation of Income (Loss) per
Books With Analysis of Net Income (Loss) per Return. There weren't
any changes to the Schedule M-1 line items. The change clarified
that Schedule M-1, line 9, isn't the taxable income of the partnership.
Instead, Schedule M-1, line 9, agrees with the Analysis of Net
Income (Loss) per Return, line 1. The Analysis of Net Income (Loss)
per Return, line 1, is a summary of various items reported on the
Schedule K and is used for reconciliation purposes.
Domestic partnerships treated as aggregates for purposes of
sections 951, 951A, and 956(a). Final regulations announced in
T.D. 9960 treat domestic partnerships as aggregates of their
partners for purposes of sections 951, 951A, and 956(a), and any
provision that specifically applies by reference to any of those
sections, for tax years of foreign corporations beginning on or after
January 25, 2022, and for tax years of U.S. persons in which or with
which such tax years of foreign corporations end. Domestic
partnerships may apply the final regulations to tax years of foreign
corporations beginning after December 31, 2017, and to tax years of
the domestic partnership in which or with which such tax years of the
foreign corporations end, provided certain consistency requirements
are met.
IRA partner disclosure. For IRA partners, the partnership reports
the employer identification number (EIN) of the IRA's custodian in
item E on the partner's Schedule K-1 (Form 1065). If the partnership
reports unrelated business taxable income (UBTI) to an IRA partner
on line 20, code V, the partnership must report the IRA's EIN on
line 20, code AR. See
Items E and F and IRA disclosure (code AR),
later.
Photographs of Missing Children
The Internal Revenue Service is a proud partner with the National
Center for Missing & Exploited Children® (NCMEC). Photographs of
missing children selected by the Center may appear in instructions
on pages that would otherwise be blank. You can help bring these
children home by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you recognize a child.
How To Get Tax Help
If you have questions about a tax issue; need help preparing your tax
return; or want to download free publications, forms, or instructions,
go to
IRS.gov to find resources that can help you right away.
Online tax information in other languages. You can find
information on IRS.gov/MyLanguage if English isn’t your native
language.
Free Over-the-Phone Interpreter (OPI) Service. The IRS is
committed to serving our multilingual customers by offering OPI
services. The OPI Service is a federally funded program and is
available at Taxpayer Assistance Centers (TACs), other IRS offices,
and every VITA/TCE return site. The OPI Service is accessible in
more than 350 languages.
Accessibility Helpline available for taxpayers with disabilities.
Taxpayers who need information about accessibility services can
call 833-690-0598. The Accessibility Helpline can answer questions
related to current and future accessibility products and services
available in alternative media formats (for example, braille, large
print, audio, etc.). The Accessibility Helpline doesn't have access to
your IRS account. For help with tax law, refunds, or account-related
issues, go to
IRS.gov/LetUsHelp.
The Taxpayer Advocate Service (TAS) Is Here To
Help You
What Is TAS?
TAS is an independent organization within the IRS that helps
taxpayers and protects taxpayer rights. Their job is to ensure that
every taxpayer is treated fairly and that you know and understand
your rights under the Taxpayer Bill of Rights.
How Can You Learn About Your Taxpayer Rights?
The Taxpayer Bill of Rights describes 10 basic rights that all
taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what these rights
mean to you and how they apply. These are your rights. Know them.
Use them.
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What Can TAS Do for You?
TAS can help you resolve problems that you can’t resolve with the
IRS. And their service is free. If you qualify for their assistance, you
will be assigned to one advocate who will work with you throughout
the process and will do everything possible to resolve your issue.
TAS can help you if:
•
Your problem is causing financial difficulty for you, your family, or
your business;
•
You face (or your business is facing) an immediate threat of
adverse action; or
•
You’ve tried repeatedly to contact the IRS but no one has
responded, or the IRS hasn’t responded by the date promised.
How Can You Reach TAS?
TAS has offices in every state, the District of Columbia, and Puerto
Rico. Your local advocate's number is in your local directory and at
TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at
877-777-4778.
How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect many
taxpayers. If you know of one of these broad issues, report it to them
at IRS.gov/SAMS.
TAS for Tax Professionals
TAS can provide a variety of information for tax professionals,
including tax law updates and guidance, TAS programs, and ways to
let TAS know about systemic problems you’ve seen in your practice.
How To Get Forms and Publications
Internet. You can access the IRS website at IRS.gov 24 hours a
day, 7 days a week to:
•
E-file your return—find out about commercial tax preparation and
e-file services available free to eligible taxpayers;
•
Download forms, including talking tax forms, instructions, and
publications;
•
Use the online Internal Revenue Code, regulations, or other
official guidance;
•
Get information on starting and operating a small business;
•
Order IRS products online;
•
Research your tax questions online;
•
Search publications online by topic or keyword;
•
View Internal Revenue Bulletins (IRBs) published in the last few
years; and
•
Sign up to receive local and national tax news by email.
Tax forms and publications. The partnership can download or
print all of the forms and publications it may need on IRS.gov/
FormsPubs. Otherwise, the partnership can go to IRS.gov/
OrderForms to place an order and have forms mailed to the
partnership. The IRS will process your order for forms and
publications as soon as possible.
General Instructions
Purpose of Form
Form 1065 is an information return used to report the income, gains,
losses, deductions, credits, and other information from the operation
of a partnership. Generally, a partnership doesn't pay tax on its
income but passes through any profits or losses to its partners.
Partners must include partnership items on their tax or information
returns.
Definitions
Centralized Partnership Audit Regime
The Bipartisan Budget Act of 2015 (BBA) created a new centralized
partnership audit regime effective for partnership tax years
beginning after 2017. The new audit regime replaces the
consolidated audit proceedings under the Tax Equity and Fiscal
Responsibility Act (TEFRA). The new audit regime applies to all
partnerships unless the partnership is an eligible partnership and
elects out by making a valid election using Schedule B-2 (Form
1065).
Electing out of the centralized partnership audit regime. See
Electing Out of the Centralized Partnership Audit Regime, later.
Adjustment year. An adjustment year is a tax year in which:
•
In the case of an adjustment pursuant to the decision of a court in
a proceeding brought under section 6234, such decision becomes
final;
•
In the case of an administrative adjustment request (AAR) under
section 6227, such AAR is filed; or
•
In any other case, a notice of final partnership adjustment is
mailed under section 6231 or, if the partnership waives the
restrictions under section 6232(b) (regarding limitations on
assessments), the waiver is executed by the IRS.
Reviewed year. A reviewed year is a partnership’s tax year to which
a partnership adjustment relates.
Partnership
A partnership is the relationship between two or more persons who
join to carry on a trade or business, with each person contributing
money, property, labor, or skill and each expecting to share in the
profits and losses of the business whether or not a formal
partnership agreement is made.
The term “partnership” includes a limited partnership, syndicate,
group, pool, joint venture, or other unincorporated organization,
through or by which any business, financial operation, or venture is
carried on, that isn't, within the meaning of regulations under section
7701, a corporation, trust, estate, or sole proprietorship.
A joint undertaking merely to share expenses isn't a partnership.
Mere co-ownership of property that is maintained and leased or
rented isn't a partnership. However, if the co-owners provide
services to the tenants, a partnership exists.
Business owned and operated by spouses. Generally, if you and
your spouse jointly own and operate an unincorporated business
and share in the profits and losses, you're partners in a partnership
and you must file Form 1065.
Exception—qualified joint venture (QJV). If you and your
spouse materially participate as the only members of a jointly owned
and operated business, and you file a joint return for the tax year,
you can make an election to be treated as a QJV instead of a
partnership. By making the election, you won't be required to file
Form 1065 for any year the election is in effect and will instead report
the income and deductions directly on your joint return.
A QJV conducts a trade or business where the only members of
the joint venture are a married couple who file a joint return, both
spouses materially participate in the trade or business (because
mere joint ownership of property isn’t enough), both spouses elect
not to be treated as a partnership, and the business is co-owned by
both spouses and isn't held in the name of a state law entity such as
a partnership or limited liability company (LLC).
To make this election, you must divide all items of income, gain,
loss, deduction, and credit between you and your spouse in
accordance with your respective interests in the venture. Each of you
must file a separate Schedule C (Form 1040), Profit or Loss From
Business; or Schedule F (Form 1040), Profit or Loss From Farming.
On each line of your separate Schedule C or F (Form 1040), you
must enter your share of the applicable income, deduction, or loss.
Each of you must also file a separate Schedule SE (Form 1040),
Self-Employment Tax, to pay self-employment tax, as applicable.
Instructions for Form 1065 (2023)
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If you and your spouse make the election for your rental real
estate business, you each must report your share of income and
deductions on Schedule E (Form 1040), Supplemental Income and
Loss. Rental real estate income isn’t generally included in net
earnings from self-employment subject to self-employment tax and
is generally subject to the passive loss limitation rules. Electing QJV
status doesn't alter the application of the self-employment tax or the
passive loss limitation rules.
To make the QJV election for 2023, jointly file the 2023 Form
1040 or 1040-SR with the required schedules. This generally doesn't
increase the total tax on the return, but it does give each spouse
credit for social security earnings on which retirement benefits are
based, provided neither spouse exceeds the social security wage
base limitation.
Once made, the election can't be revoked without IRS consent. If
you and your spouse filed a Form 1065 for the year prior to the
election, you don't need to amend that return or file a final Form
1065 for the year the election takes effect.
For more information on QJVs, go to IRS.gov/QJV.
Foreign Partnership
A foreign partnership is a partnership that isn't created or organized
in the United States or under the law of the United States or of any
state. In certain instances, a partnership created or organized in the
United States can be treated as a foreign partnership. See, for
example, Regulations section 1.958-1(d)(1).
In addition, if a domestic section 721(c) partnership is formed
after January 17, 2017, and the gain deferral method is applied, then
a U.S. transferor must treat the section 721(c) partnership as a
foreign partnership and file a Form 8865, Return of U.S. Persons
With Respect to Certain Foreign Partnerships, with respect to the
partnership. See Form 8865 and its instructions. See also
Regulations section 1.721(c)-6(b)(4).
General Partner
A general partner is a partner who is personally liable for partnership
debts.
General Partnership
A general partnership is composed only of general partners.
Limited Partner
A limited partner is a partner in a partnership formed under a state
limited partnership law, whose personal liability for partnership debts
is limited to the amount of money or other property that the partner
contributed or is required to contribute to the partnership. Some
members of other entities, such as domestic or foreign business
trusts or LLCs that are classified as partnerships, may be treated as
limited partners for certain purposes.
However, whether a partner qualifies as a limited partner for
purposes of self-employment tax depends on whether the partner
meets the definition of a limited partner under section 1402(a)(13).
See
Self-Employment, later.
Limited Partnership
A limited partnership is formed under a state limited partnership law
and composed of at least one general partner and one or more
limited partners.
Limited Liability Partnership (LLP)
An LLP is formed under a state limited liability partnership law.
Generally, a partner in an LLP isn't personally liable for the debts of
the LLP or any other partner, nor is a partner liable for the acts or
omissions of any other partner solely by reason of being a partner.
Limited Liability Company (LLC)
An LLC is an entity formed under state law by filing articles of
organization as an LLC. Unlike a partnership, none of the members
of an LLC are personally liable for its debts. An LLC may be
classified for federal income tax purposes as a partnership, a
corporation, or an entity disregarded as an entity separate from its
owner by applying the rules in Regulations section 301.7701-3. See
Form 8832, Entity Classification Election, for more details.
A domestic LLC with at least two members that doesn't file
Form 8832 is classified as a partnership for federal income
tax purposes.
Nonrecourse Loans
Nonrecourse loans are those liabilities of the partnership for which
no partner or related person bears the economic risk of loss.
Section 721(c) Partnership
A partnership (domestic or foreign) is a section 721(c) partnership if
there is a contribution of section 721(c) property to the partnership
and, after the contribution (and all transactions related to the
contribution), (a) a related foreign person with respect to the U.S.
transferor is a direct or indirect partner in the partnership; and (b) the
U.S. transferor and related persons own 80% or more of the interests
in partnership capital, profits, deductions, or losses. See Regulations
section 1.721(c)-1(b)(14).
U.S. Transferor
A U.S. transferor is a U.S. person other than a domestic partnership.
See Regulations section 1.721(c)-1(b)(18).
Section 721(c) Property
Section 721(c) property is property (other than excluded property)
with built-in gain that is contributed to a partnership by a U.S.
transferor, including pursuant to a contribution described in
Regulations section 1.721(c)-2(d) (partnership look-through rule).
See Regulations section 1.721(c)-1(b)(15).
Gain Deferral Contribution
A gain deferral contribution is a contribution of section 721(c)
property to a section 721(c) partnership with respect to which the
recognition of gain is deferred under the gain deferral method. See
Regulations section 1.721(c)-1(b)(7).
Gain Deferral Method
The gain deferral method is the method described in Regulations
section 1.721(c)-3(b) applied to avoid the immediate recognition of
gain on a contribution of section 721(c) property to a section 721(c)
partnership under Regulations section 1.721(c)-2(b).
Who Must File
Domestic Partnerships
Except as provided below, every domestic partnership must file
Form 1065, unless it neither receives income nor incurs any
expenditures treated as deductions or credits for federal income tax
purposes.
Note. To be certified as a qualified opportunity fund (QOF), the
partnership must file Form 1065 and attach Form 8996, Qualified
Opportunity Fund, even if the partnership had no income or
expenses to report. See Schedule B, question 25, and the
Instructions for Form 8996.
Entities formed as LLCs that are classified as partnerships for
federal income tax purposes have the same filing requirements as
domestic partnerships.
A religious or apostolic organization exempt from income tax
under section 501(d) must file Form 1065 to report its taxable
income, which must be allocated to its members as a dividend,
whether distributed or not. Such an organization must figure its
taxable income on an attached statement to Form 1065 in the same
manner as a corporation. The organization may use Form 1120, U.S.
Corporation Income Tax Return, for this purpose. Enter the
organization's taxable income, if any, on Form 1065, Schedule K,
TIP
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line 6a, and each member's distributive share in box 6a of
Schedule K-1 (Form 1065). Net operating losses aren't deductible
by the members but may be carried back or forward by the
organization under the rules of section 172. The religious or
apostolic organization must also make its annual information return
available for public inspection. For this purpose, annual information
return includes an exact copy of Form 1065 and all accompanying
schedules and attached statements, except Schedules K-1. For
more details, see Regulations section 301.6104(d)-1.
A qualifying syndicate, pool, joint venture, or similar organization
may elect under section 761(a) not to be treated as a partnership for
federal income tax purposes and won't be required to file Form 1065
except for the year of election. For details, see section 761(a) and
Regulations section 1.761-2.
Real estate mortgage investment conduits (REMICs) must file
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC)
Income Tax Return.
Certain publicly traded partnerships (PTPs) treated as
corporations under section 7704 must file Form 1120.
Note. Notwithstanding the foregoing, a partnership that is, or has a
branch that is, a QDD must file Form 1065. See Qualified derivatives
dealers (QDDs), later.
Foreign Partnerships
Generally, a foreign partnership that has gross income that is (or is
treated as) effectively connected with the conduct of a trade or
business within the United States (effectively connected income) or
has gross income derived from sources in the United States (U.S.
source income) must file Form 1065, even if its principal place of
business is outside the United States or all its members are foreign
persons. A foreign partnership required to file a return must generally
report all of its foreign and U.S. partnership items.
A foreign partnership with U.S. source income isn't required to file
Form 1065 if it qualifies for either of the following two exceptions.
Note. Notwithstanding the foregoing, a partnership that is, or has a
branch that is, a QDD must file Form 1065. See Qualified derivatives
dealers (QDDs), later.
Exception for foreign partnerships with U.S. partners. A return
isn't required if:
•
The partnership had no effectively connected income during its
tax year;
•
The partnership had U.S. source income of $20,000 or less
during its tax year;
•
Less than 1% of any partnership item of income, gain, loss,
deduction, or credit was allocable in the aggregate to direct U.S.
partners at any time during its tax year; and
•
The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i).
Exception for foreign partnerships with no U.S. partners and
no effectively connected income. A foreign partnership with U.S.
source income isn't required to file a return if it meets the following
requirements.
•
The partnership had no effectively connected income during its
tax year.
•
The partnership had no U.S. partners at any time during its tax
year.
•
The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i).
•
All required Forms 1042, Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons, and 1042-S, Foreign Person's
U.S. Source Income Subject to Withholding, were filed by the
partnership or another withholding agent as required by Regulations
sections 1.1461-1(b) and (c).
•
The tax liability of each partner for amounts reportable under
Regulations sections 1.1461-1(b) and (c) has been fully satisfied by
the withholding of tax at the source.
A foreign partnership filing Form 1065 solely to make an election
(such as an election to amortize organization expenses) need only
provide its name, address, and EIN on page 1 of Form 1065 and
attach a statement citing “Regulations section 1.6031(a)-1(b)(5)”
and identifying the election being made. A foreign partnership filing
Form 1065 solely to make an election must obtain an EIN if it doesn't
already have one.
Qualified derivatives dealers (QDDs) A partnership that is, or has
a branch that is, a QDD (QDD partnership) must file Form 1065 even
if it wouldn't be required to file otherwise. A QDD partnership must
attach a statement (QDD statement) to its Form 1065 with certain
required information as provided in section 7.01(C) of the QIA in
Rev. Proc. 2022-43, 2022-52 I.R.B. 570. If the only reason the
partnership is filing Form 1065 is because it's a QDD partnership,
then the only information it must provide on Form 1065 in addition to
the QDD statement is its tax year, name, address, and EIN; and it
must check item G on page 1 of Form 1065. While a partnership is
generally required to use an EIN, if the only reason the partnership is
filing Form 1065 is because it's a QDD partnership and it doesn't
have an EIN, it may use its QI-EIN instead.
Termination of the Partnership
A partnership terminates when all its operations are discontinued
and no part of any business, financial operation, or venture is
continued by any of its partners in a partnership.
The partnership’s tax year ends on the date of termination which
is the date the partnership winds up its affairs. Special rules apply in
the case of a merger, consolidation, or division of a partnership. See
Regulations sections 1.708-1(c) and (d) for details. Also see
IRS.gov/newsroom/questions-and-answers-about-technical-
terminations-internal-revenue-code-irc-sec-708.
Electronic Filing
Beginning January 1, 2024, partnerships are required to file Form
1065 and related forms and schedules electronically if they file 10 or
more returns of any type during the tax year, including information,
income tax, employment tax, and excise tax returns. See
Regulations section 301.6011-3, updated by T.D. 9972.
Partnerships with more than 100 partners are required to file
Form 1065, Schedules K-1, and other related forms and schedules
electronically.
Exclusions From Electronic Filing Requirement
The IRS may waive the electronic filing rules if the partnership
demonstrates that a hardship would result if it were required to file its
return electronically. A partnership interested in requesting a waiver
of the mandatory electronic filing requirement must file a written
request, and request one in the manner prescribed by the Ogden
Submission Processing Center.
All written requests for waivers should be mailed to:
Internal Revenue Service
Ogden Submission Processing Center
Attn: Form 1065 e-file Waiver Request, Stop 1057
Mail Stop 1057
Ogden, UT 84201
Use the following address if using an overnight delivery service.
Internal Revenue Service
Ogden Submission Processing Center
Attn: Form 1065 e-file Waiver Request
1973 N. Rulon White Blvd.
Ogden, UT 84404
Waiver requests can also be faxed to 877-477-0575.
Contact the e-Help Desk at 866-255-0654 for questions
regarding the waiver procedures or process. For more information,
go to Guidance on Waivers for Partnerships Unable to Meet e-file
Requirements.
Religious. If using the technology required to file electronically
conflicts with the religious beliefs of the partners, the partnership is
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exempt from the requirement and may file using paper forms. Enter
“Religious Exemption” at the top of page 1 of Form 1065 filed in
paper form. Also, most filers claiming the religious exemption who
file information returns subject to the general electronic filing
requirements prescribed by Regulations section 301.6011-2 (for
example, Forms 1099 and Forms W-2) have the option to notify the
IRS that they qualify for a religious exemption in advance of filing
returns and other documents. Filers are encouraged to notify the IRS
in advance that they're claiming a religious exemption by filing Form
8508, Application for a Waiver from Electronic Filing of Information
Returns, in accordance with the form's instructions. For additional
information, see
Notice 2024-18.
The requirement to file electronically doesn't apply to certain
returns, including:
•
Bankruptcy returns, and
•
Returns with pre-computed penalty and interest.
See Rev. Proc. 2012-17, available at IRS.gov/pub/irs-irbs/
irb12-10.pdf, for the requirements for furnishing substitute
Schedule K-1 in electronic format.
For more details on electronic filing using the Modernized
e-file system, see:
•
Pub. 3112, IRS e-file Application & Participation;
•
Pub. 4163, Modernized e-file (MeF) Information for Authorized
IRS e-file Providers for Business Returns;
•
Pub. 4164, Modernized e-file (MeF) Guide for Software
Developers and Transmitters;
•
Form 8453-PE, E-file Declaration for Form 1065; and
•
Form 8879-PE, E-file Authorization for Form 1065.
For More Information on Filing Electronically
•
Call the e-Help Desk at 866-255-0654.
•
Go to IRS.gov/Filing.
When To File
Generally, a domestic partnership must file Form 1065 by the 15th
day of the 3rd month following the date its tax year ended as shown
at the top of Form 1065. For calendar year partnerships, the due
date is March 15.
If the due date falls on a Saturday, Sunday, or legal holiday in the
District of Columbia or the state in which you file your return, a return
filed by the next day that isn't a Saturday, Sunday, or legal holiday will
be treated as timely. Calendar year partnerships may therefore
timely file their return for the 2023 partnership year by March 15,
2024.
Private Delivery Services (PDSs)
Partnerships can use certain PDSs designated by the IRS to meet
the “timely mailing as timely filing/paying” rule for tax returns. Go to
IRS.gov/PDS for the current list of designated services. The PDS
can tell you how to get written proof of the mail date.
For the IRS mailing address to use if you're using a PDS, go to
IRS.gov/PDSStreetAddresses.
A PDS can’t deliver items to P.O. boxes. You must use the
U.S. Postal Service to mail any item to an IRS P.O. box
address.
Extension of Time To File
File Form 7004, Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other Returns, to
request an extension of time to file. File Form 7004 by the regular
due date of the partnership return. Form 7004 can be electronically
filed. See the Instructions for Form 7004.
Period Covered
The 2023 Form 1065 is an information return for calendar year 2023
and fiscal years that begin in 2023 and end in 2024. For a fiscal year
or a short tax year, fill in the tax year space at the top of Form 1065
and each Schedule K-1 and Schedules K-2 and K-3, if applicable.
CAUTION
!
The 2023 Form 1065 may also be used if:
•
The partnership has a tax year of less than 12 months that begins
and ends in 2024, and
•
The 2024 Form 1065 isn't available by the time the partnership is
required to file its return.
However, the partnership must show its 2024 tax year on the
2023 Form 1065 and incorporate any tax law changes that are
effective for tax years beginning after 2023.
Who Must Sign
Any Partner or LLC Member
Form 1065 isn't considered to be a return unless it's signed by a
partner or LLC member. When a return is made for a partnership by
a receiver, trustee, or assignee, the fiduciary must sign the return,
instead of the partner or LLC member. Returns and forms signed by
a receiver or trustee in bankruptcy on behalf of a partnership must
be accompanied by a copy of the order or instructions of the court
authorizing signing of the return or form.
Signatures required when filing an AAR. When filing an AAR,
Form 1065 must be signed by the partnership representative (PR)
(or the designated individual (DI) if the PR is an entity) for the
reviewed year.
Paid Preparer’s Information
If a partner, member, or employee of the partnership completes
Form 1065, the paid preparer's space should remain blank. Only
paid preparers with a valid preparer tax identification number (PTIN)
should complete this section.
Generally, anyone who is paid to prepare the partnership return
must do the following.
•
Sign the return in the space provided for the preparer's signature.
•
Fill in the other blanks in the “Paid Preparer Use Only” area of the
return. A paid preparer can't use a social security number (SSN) in
the “Paid Preparer Use Only” box. The paid preparer must use a
PTIN.
•
Give the partnership a copy of the return in addition to the copy to
be filed with the IRS.
A paid preparer may sign original or amended returns by
rubber stamp, mechanical device, or computer software
program.
Paid Preparer Authorization
If the partnership wants to allow the paid preparer to discuss its 2023
Form 1065 with the IRS, check the “Yes” box in the signature area of
the return. The authorization applies only to the individual whose
signature appears in the “Paid Preparer Use Only” section of its
return. It doesn't apply to the firm, if any, shown in the section.
If the “Yes” box is checked, the partnership is authorizing the IRS
to call the paid preparer to answer any questions that may arise
during the processing of its return. The partnership is also
authorizing the paid preparer to:
•
Give the IRS any information that is missing from its return,
•
Call the IRS for information about the processing of its return, and
•
Respond to certain IRS notices about math errors and return
preparation.
The partnership isn't authorizing the paid preparer to bind the
partnership to anything or otherwise represent the partnership
before the IRS. If the partnership wants to expand the paid
preparer's authorization, see Pub. 947, Practice Before the IRS and
Power of Attorney.
The authorization can't be revoked. However, the authorization
will automatically end no later than the due date (excluding
extensions) for filing the 2024 return.
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Penalties
Late Filing of Return
A penalty is assessed against the partnership if it's required to file a
partnership return and it (a) fails to file the return by the due date,
including extensions; or (b) files a return that fails to show all the
information required, unless such failure is due to reasonable cause.
The penalty is $235 for each month or part of a month (for a
maximum of 12 months) the failure continues, multiplied by the total
number of persons who were partners in the partnership during any
part of the partnership's tax year for which the return is due. If the
partnership receives a notice about a penalty after it files the return,
the partnership may send the IRS an explanation and the IRS will
determine if the explanation meets reasonable-cause criteria.
Don’t
attach an explanation when filing the return.
Failure To Furnish Information Timely
For each failure to furnish Schedule K-1 (and K-3, if applicable) to a
partner when due and each failure to include on Schedule K-1 (and
K-3, if applicable) all the information required to be shown (or the
inclusion of incorrect information), a $310 penalty may be imposed
for each Schedule K-1 (and K-3, if applicable) for which a failure
occurs. For all such failures during a calendar year, the maximum
penalty for entities with gross receipts over $5,000,000 is
$3,783,000; and $1,261,000 for entities with gross receipts at or
below $5,000,000. If the requirement to report correct information is
intentionally disregarded, each $310 penalty is increased to $630 or,
if greater, 10% of the aggregate amount of items required to be
reported. There's no limit to the amount of the penalty in the case of
intentional disregard.
Trust Fund Recovery Penalty
This penalty may apply if certain excise, income, social security, and
Medicare taxes that must be collected or withheld aren't collected or
withheld, or these taxes aren't paid. These taxes are generally
reported on:
•
Form 720, Quarterly Federal Excise Tax Return;
•
Form 941, Employer's QUARTERLY Federal Tax Return;
•
Form 943, Employer's Annual Federal Tax Return for Agricultural
Employees;
•
Form 944, Employer's ANNUAL Federal Tax Return; and
•
Form 945, Annual Return of Withheld Federal Income Tax.
The trust fund recovery penalty may be imposed on all persons
who are determined by the IRS to have been responsible for
collecting, accounting for, or paying over these taxes, and who acted
willfully in not doing so. The penalty is equal to the unpaid trust fund
tax. See the Instructions for Form 720; Pub. 15 (Circular E),
Employer's Tax Guide; Pub. 51 (Circular A), Agricultural Employer's
Tax Guide; or Pub. 15-T, Federal Income Tax Withholding Methods,
for more details, including the definition of a
responsible person.
Accounting Methods
An accounting method is a set of rules used to determine when and
how income and expenditures are reported. The method of
accounting used must be reconcilable with the partnership's books
and records. In all cases, the method used must clearly reflect
income. Generally, the following rules apply. For more information,
see Pub. 538, Accounting Periods and Methods.
Permissible overall methods of accounting include:
•
Cash,
•
Accrual, or
•
Any other method authorized by the Internal Revenue Code (the
Code).
Generally, a partnership may use the cash method of accounting
unless it’s required to maintain inventories, has a C corporation as a
partner, or is a tax shelter (as defined in section 448(d)(3)). However,
for tax years beginning after 2017, any partnership qualifying as a
small business taxpayer (defined below) may use the cash method.
Where To File
File Form 1065 at the applicable IRS address listed below. If Schedule M-3 is filed, Form 1065 must be filed at the Ogden Internal Revenue
Service Center as shown below.
If the partnership's principal business,
office, or agency is located in:
And the total assets at the end of the tax
year (Form 1065, page 1, item F) are:
Use the following address:
Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maine,
Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Vermont, Virginia,
West Virginia, Wisconsin
Less than $10 million and Schedule M-3
isn't filed
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999-0011
Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maine,
Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Vermont, Virginia,
West Virginia, Wisconsin
$10 million or more or
less than $10 million and
Schedule M-3 is filed
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0011
Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,
Louisiana, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico,
North Dakota, Oklahoma, Oregon, South
Dakota, Texas, Utah, Washington, Wyoming
Any amount
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0011
A foreign country or U.S. territory
Any amount
Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409
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Tax shelter election. A taxpayer that is a tax shelter, as defined in
section 448(d)(3), isn't permitted to use the cash method pursuant to
section 448(a)(3), and is also not permitted to use the small
business taxpayer exemptions contained in sections 163(j)(3)
(limitation on business interest), 263A(i) (uniform capitalization),
460(e)(1)(B) (percentage of completion method), and 471(c)
(general inventory method). Under section 448(d)(3), a taxpayer that
is a syndicate is considered a tax shelter. For purposes of section
448(d)(3), a syndicate is a partnership or other entity (other than a C
corporation) if more than 35% of the losses of such entity during the
tax year are allocated to limited partners or limited entrepreneurs.
The final regulations under section 448 permit a taxpayer to make
an annual election to use its allocations made in the immediately
preceding tax year, instead of using the current tax year's allocation,
to determine whether the taxpayer is a syndicate under section
448(d)(3) for the current tax year. The election is made on the timely
filed original return (including extensions) for the tax year for which
it's made. The election is valid only for the tax year for which it's
made, and once made, can't be revoked. See Regulations section
1.448-2(b)(2)(iii)(B)(2) for guidance on the time and manner of
making the annual election and effective dates.
Small business taxpayer. For tax years beginning after 2017, a
small business taxpayer (defined below) can adopt or change its
accounting method to account for inventories (a) in the same
manner as materials and supplies that are nonincidental; or (b) to
conform to the taxpayer's treatment of inventories in an applicable
financial statement (as defined in section 451(b)(3)), or, if the
taxpayer doesn't have an applicable financial statement, the method
of accounting used in the taxpayer's books and records prepared in
accordance with the taxpayer's accounting procedures. See section
471(c)(1), and
Change in accounting method, later.
For tax years beginning after 2017, a small business taxpayer
(defined below) can adopt or change its accounting method to not
capitalize costs to property produced or acquired for resale under
section 263A. See section 263A(i), and
Change in accounting
method and Limitations on Deductions, later.
Small business taxpayer defined. For 2023, a small business
taxpayer is a taxpayer that (a) has average annual gross receipts of
$29 million or less for the prior 3 tax years, and (b) isn't a tax shelter
(as defined in section 448(d)(3)).
Accrual method. Generally, under the accrual method, an amount
is includible in income when:
1. All the events have occurred that fix the right to receive
income, which is the earliest date:
a. Payment is earned through the required performance,
b. Payment is due to the taxpayer,
c. Payment is received by the taxpayer, or
d. When the income is reported as revenue in an applicable
financial statement (AFS); and
2. When the amount can be determined with reasonable
accuracy.
See Regulations sections 1.451-1(a) and 1.451-3(c) for details.
Generally, an accrual basis taxpayer can deduct accrued
expenses in the tax year in which:
•
All events that establish the liability have occurred,
•
The amount of the liability can be figured with reasonable
accuracy, and
•
Economic performance takes place with respect to the expense.
For property and service liabilities, for example, economic
performance occurs as the property or service is provided. There
are special economic performance rules for certain items, including
recurring expenses. See section 461(h) and the related regulations
for the rules for determining when economic performance takes
place.
Nonaccrual-experience method. Accrual method partnerships
aren't required to accrue certain amounts to be received from the
performance of services that, on the basis of their experience, won't
be collected if:
•
The services are in the field of health, law, engineering,
architecture, accounting, actuarial science, performing arts, or
consulting; or
•
The partnership's average annual gross receipts don’t exceed
$29 million for all prior tax years. For more details, see section
448(d)(5).
This provision doesn't apply to any amount if interest is required
to be paid on the amount or if there's any penalty for failure to timely
pay the amount. For information, see section 448(d)(5) and
Regulations section 1.448-2. For reporting requirements, see the
instructions for line 1a, later.
Percentage of completion method. Long-term contracts (except
for certain real property construction contracts) must generally be
accounted for using the percentage of completion method described
in section 460. See section 460 and the underlying regulations for
rules on long-term contracts.
Mark-to-market accounting method. Dealers in securities must
use the mark-to-market accounting method described in section
475. Under this method, any security that is inventory to the dealer
must be included in inventory at its fair market value (FMV). Any
security that isn't inventory and that is held at the close of the tax
year is treated as sold at its FMV on the last business day of the tax
year, and any gain or loss must be taken into account in determining
gross income. The gain or loss taken into account is generally
treated as ordinary gain or loss. For details, including exceptions,
see section 475, the related regulations, and Rev. Rul. 97-39,
1997-39 I.R.B. 4.
Dealers in commodities and traders in securities and
commodities can elect to use the mark-to-market accounting
method. To make the election, the partnership must file a statement
describing the election, the first tax year the election is to be
effective, and, in the case of an election for traders in securities or
commodities, the trade or business for which the election is made.
Except for new taxpayers, the statement must be filed by the due
date (not including extensions) of the return for the tax year
immediately preceding the election year and attached to that return
or, if applicable, to a request for an extension of time to file that
return. For more details, see Rev. Proc. 99-17, 1999-7 I.R.B. 52, as
superseded in part by Rev. Proc. 99-49; and sections 475(e) and (f).
Change in accounting method. Generally, the partnership must
get IRS consent to change its method of accounting used to report
income or expense (for income or expense as a whole or for any
material item). To do so, the partnership must generally file Form
3115, Application for Change in Accounting Method, during the tax
year for which the change is requested. See the Instructions for
Form 3115 and Pub. 538 for more information and exceptions.
Section 481(a) adjustment. The partnership may have to make
an adjustment to prevent amounts of income or expenses from being
omitted or duplicated. This is called a section 481(a) adjustment.
The section 481(a) adjustment period is generally 1 year for a net
negative adjustment and 4 years for a net positive adjustment.
However, in some instances, a partnership can elect to modify the
section 481(a) adjustment period. The partnership must complete
the appropriate lines of Form 3115 to make the election. See the
Instructions for Form 3115.
Include any net positive section 481(a) adjustment on page 1 of
Form 1065, line 7. If the net section 481(a) adjustment is negative,
report it on page 1, line 21.
There are some instances when the partnership can obtain
automatic consent from the IRS to change to certain accounting
methods. See the Instructions for Form 3115.
Accounting Periods
A partnership is generally required to have one of the following tax
years.
1. The tax year of a majority of its partners (majority tax year).
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2. If there's no majority tax year, then the tax year common to all
of the partnership's principal partners (partners with an interest of
5% or more in the partnership profits or capital).
3. If there's neither a majority tax year nor a tax year common to
all principal partners, then the tax year that results in the least
aggregate deferral of income.
Note. In determining the tax year of a partnership under (1), (2), or
(3) above, the tax years of certain tax-exempt and foreign partners
are disregarded. See Regulations section 1.706-1(b) for more
details.
4. Some other tax year if one of the following applies.
a. The partnership can establish that there's a business
purpose for the tax year.
b. The partnership elects under section 444 to have a tax year
other than a required tax year by filing Form 8716, Election To Have
a Tax Year Other Than a Required Tax Year. For a partnership to
have this election in effect, it must make the payments required by
section 7519 and file Form 8752, Required Payment or Refund
Under Section 7519.
A section 444 election ends if a partnership changes its
accounting period to its required tax year or some other permitted
year or it's penalized for willfully failing to comply with the
requirements of section 7519. If the termination results in a short tax
year, enter at the top of the first page of Form 1065 for the short tax
year, “SECTION 444 ELECTION TERMINATED.”
c. The partnership elects to use a 52–53-week tax year that
ends with reference to either its required tax year or a tax year
elected under section 444.
Change of tax year. To change its tax year or to adopt or retain a
tax year other than its required tax year, the partnership must file
Form 1128, Application To Adopt, Change, or Retain a Tax Year,
unless the partnership is making an election under section 444.
The tax year of a common trust fund must be the calendar
year.
Rounding Off to Whole Dollars
The partnership may enter decimal points and cents when
completing its return. However, it should round off cents to whole
dollars on its return, forms, and schedules to make completing its
return easier. The partnership must either round off all amounts on
the return to whole dollars, or use cents for all amounts. To round,
drop amounts under 50 cents and increase amounts from 50 to 99
cents to the next dollar. For example, $8.40 rounds to $8 and $8.50
rounds to $9.
If two or more amounts are added to figure the amount to enter
on a line, include cents when adding the amounts and round off only
the total.
Recordkeeping
The partnership must keep its records as long as they may be
needed for the administration of any provision of the Code. The
partnership must usually keep records that support an item of
income, deduction, or credit on the partnership return for 3 years
from the date the return is due or is filed, whichever is later. These
records must usually be kept for 3 years from the date each partner's
return is due or is filed, whichever is later. It must also keep records
that verify the partnership's basis in property for as long as they are
needed to figure the basis of the original or replacement property.
The partnership should also keep copies of all returns it has filed.
They help in preparing future returns and in making computations
when filing an amended return.
Administrative Adjustment Request
(AAR)
A partnership that is subject to the BBA centralized partnership audit
regime must file an AAR to request an administrative adjustment in
TIP
the amount or other treatment of one or more partnership-related
items.
BBA partnerships filing an AAR shouldn't file amended tax
returns or amended Schedules K-1 and/or K-3. For an exception
where a BBA partnership is itself a partner in a BBA partnership and
is filing an amended return, see
Partner amended return filed as part
of modification of the IU during a BBA examination, later.
Electronically filed AARs. If the AAR will be filed electronically,
complete Form 1065 with the corrected amounts and check box
G(5). In addition, complete Form 8082, Notice of Inconsistent
Treatment or Administrative Adjustment Request (AAR). See the
Instructions for Form 8082 for detailed instructions. For AARs filed
on paper, see
Paper-filed amended returns and AARs, later.
AARs for which payment is made. A partnership that hasn't
made a valid election out of the BBA centralized partnership audit
regime, which is filing an AAR and that doesn't elect to have its
partners take adjustments into account, and that has adjustments
that result in an imputed underpayment (IU), should report the IU
and any interest and penalties on Form 1065, page 1, line 26. See
the Instructions for Form 8082 for information on how to figure a BBA
IU and what to do when an adjustment requested by an AAR doesn't
result in an IU. See section 6233 for information about interest and
penalties on the IU. Include the following information on your
payment.
•
Name of partnership.
•
Form 1065.
•
Taxpayer identification number (TIN).
•
Tax year.
•
BBA AAR Imputed Underpayment.
•
Checks must be made payable to “United States Treasury.”
Mail payment to:
Ogden Service Center
Ogden, UT 84201-0011
Payments can be made by check or electronically. If making an
electronic payment, choose the payment description “BBA AAR
Imputed Underpayment” from the list of payment types.
If the partnership has an IU, the partnership may elect to have its
partners take the adjustments into account instead of paying the IU.
See the Instructions for Form 8082 for information on how to make
the election.
Amended Return
The procedures to follow when filing an amended partnership return
depend on whether the amended return is filed electronically or on
paper. The rules for determining when a return must be filed
electronically (see
Electronic Filing, earlier) also apply to amended
returns.
Electronically filed amended returns. If the amended return will
be filed electronically, complete Form 1065 and check box G(5) to
indicate that you're filing an amended return. Attach a statement that
identifies the line number of each amended item, the corrected
amount or other treatment of the item, and an explanation of the
reason(s) for each change. If the income, deductions, credits, or
other information provided to any partner on Schedule K-1 or
Schedule K-3, as applicable, is incorrect, file an amended
Schedule K-1 or K-3 for that partner with the amended Form 1065.
Also give a copy of the amended Schedule K-1 or K-3 to that
partner. Check the “Amended K-1” or “Amended K-3” box at the top
of the Schedule K-1 or K-3 to indicate that it's an amended
Schedule K-1 or K-3.
Partner amended return filed as part of modification of the IU
during a BBA examination. Section 6225(c)(2) allows a BBA
partnership under examination to request specific types of
modifications of any IU proposed by the IRS. One type of
modification that may be requested is when one or more partners,
including partnership-partners, file amended returns for the tax years
of the partners which include the end of the reviewed year of the
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BBA partnership under examination and for any tax year with respect
to which tax attributes are affected. Go to IRS.gov/bbaaar.
A modification amended return filing must meet a number of
requirements. Therefore, a partnership-partner filing a modification
amended return must refer to Form 8982, Affidavit for Partner
Modification Amended Return Under IRC 6225(c)(2)(A) or Partner
Alternative Procedure Under IRC 6225(c)(2)(B). The instructions for
Form 8982, Section A, explain the modification of amended returns,
requirements for payment and submission, and the requirement to
provide Form 8982, Section A, to the PR of the BBA partnership.
See
Filing Instructions for Partner Modification Amended Returns
and Paying the Amount You Owe in the instructions for Form 8982.
Partnership-partners who are filing amended returns
electronically as part of the modification will report the applicable
payment of tax and interest and any penalties on Form 1065,
page 1, line 26. A payment made with an amended Form 1065
should detail the amount of the payment to be applied separately to
tax, interest, and penalties. The partnership should consider all
guidance issued by the IRS when figuring the amount due. In
general, the partnership should figure its amount due in accordance
with Regulations sections 301.6225-2(d)(2)(vi)(A) and
301.6226-3(e)(4)(iii).
Paper-filed amended returns and AARs.
If the amended return or
AAR won't be filed electronically, complete Form 1065-X, Amended
Return or Administrative Adjustment Request (AAR), to file the
amended return or AAR. See Form 1065-X and its separate
instructions for information on completing and filing the form.
When a partnership's federal return is amended or changed
for any reason, it may affect the partnership's state tax
return. For more information, contact the state tax agency for
the state in which the partnership return was filed.
What if You Can’t Pay Now?
Go to IRS.gov/Payments for more information about your options.
•
Apply for an online payment agreement (IRS.gov/OPA) to meet
your tax obligation in monthly installments if you can’t pay your taxes
in full today. Once you complete the online process, you will receive
immediate notification of whether your agreement has been
approved.
•
Use the Offer in Compromise Pre-Qualifier to see if you can settle
your tax debt for less than the full amount you owe.
TIP
Other Forms, Returns, and Statements That May Be Required
Form, Return, or Statement Use this to—
W-2 and W-3—Wage and Tax Statement; and Transmittal of Wage
and Tax Statements
Report wages, tips, other compensation, and withheld income, social security, and Medicare taxes for
employees.
720—Quarterly Federal Excise Tax Return Report and pay environmental excise taxes, communications and air transportation taxes, fuel taxes,
manufacturers taxes, ship passenger tax, and certain other excise taxes. Also see Trust Fund
Recovery Penalty, earlier.
940—Employer's Annual Federal Unemployment (FUTA) Tax Return Report and pay FUTA tax.
941—Employer's QUARTERLY Federal Tax Return Report quarterly income tax withheld on wages and employer and employee social security and
Medicare taxes. Also see Trust Fund Recovery Penalty, earlier.
943—Employer's Annual Federal Tax Return for Agricultural
Employees
Report income tax withheld and employer and employee social security and Medicare taxes on
farmworkers. Also see Trust Fund Recovery Penalty, earlier.
944—Employer's ANNUAL Federal Tax Return File annual Form 944 instead of filing quarterly Forms 941 if the IRS notified you in writing.
945—Annual Return of Withheld Federal Income Tax Report income tax withheld from nonpayroll payments, including pensions, annuities, individual
retirement accounts (IRAs), gambling winnings, and backup withholding. Also see Trust Fund
Recovery Penalty, earlier.
1042 and 1042-S—Annual Withholding Tax Return for U.S. Source
Income of Foreign Persons; and Foreign Person's U.S. Source
Income Subject to Withholding
Report tax withheld on payments or distributions made to nonresident alien individuals, foreign
partnerships, or foreign corporations to the extent these payments or distributions constitute gross
income from sources within the United States that isn't effectively connected with a U.S. trade or
business. A domestic partnership must also withhold tax on a foreign partner's distributive share of
such income, including amounts that aren't actually distributed. Withholding on amounts not previously
distributed to a foreign partner must generally be made and paid over by the earlier of:
•
The date on which Schedules K-1 and K-3 are sent to that partner, or
•
The 15th day of the 3rd month after the end of the partnership's tax year.
These forms are also used to report tax withheld on distributions of effectively connected taxable
income made by PTPs and certain transfers of interests in PTPs. For more details, see the instructions
for Forms 1042 and 1042-S and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign
Entities.
1042-T
—Annual Summary and Transmittal of Forms 1042-S Transmit paper Forms 1042-S to the IRS.
1065-X—Amended Return or Administrative Adjustment Request
(AAR)
Use Form 1065-X to correct a previously filed partnership return or to make an AAR for a previously
filed return.
1095-B and 1094-B—Health Coverage; and Transmittal of Forms
1095-B
Required to be filed by certain health insurance issuers and others who provide minimum essential
coverage to report information on the primary insured and other individuals covered under the plan.
1095-C and 1094-C—Employer-Provided Health Insurance Offer and
Coverage; and Transmittal of Forms 1095-C
Used by certain employers to report information about the health care coverage the employer offered
with regard to each full-time employee.
1096—Annual Summary and Transmittal of U.S. Information Returns Transmit paper Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G to the IRS.
1097-BTC—Bond Tax Credit Report tax credits to bond holders and tax credits passed to another person.
1098—Mortgage Interest Statement Report the receipt from any individual of $600 or more of mortgage interest (including certain points) in
the course of the partnership's trade or business.
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Form, Return, or Statement Use this to—
1099-A, B, C, INT, K, LS, LTC, MISC, NEC, OID, R, S, and SA.
Important. Every partnership must file Forms 1099-MISC or
1099-NEC if, in the course of its trade or business, it makes payments
of rents, commissions, or other fixed or determinable income (see
section 6041) totaling $600 or more to any one person during the
calendar year.
Report the following.
•
Acquisitions or abandonments of secured property.
•
Proceeds from broker and barter exchange transactions.
•
Cancellation of debts.
•
Interest income.
•
Payment card and third-party network transactions.
•
Payments of long-term care and accelerated death benefits.
•
Acquisition of a life insurance contract, or interest therein, in a reportable policy sale.
•
Miscellaneous income.
•
Nonemployee compensation
•
Original issue discount.
•
Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts,
etc.
•
Proceeds from real estate transactions.
•
Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.
5471
—Information Return of U.S. Persons With Respect to Certain
Foreign Corporations
A partnership may have to file Form 5471 if it:
•
Controls a foreign corporation,
•
Acquires or owns 10% or more of the total combined voting power or value of shares of all classes
of stock, or
•
Disposes of sufficient stock to reduce its interest to less than 10% of the total combined voting
power or value of shares of all classes of stock.
5713—International Boycott Report Report operations in, or related to, a boycotting country, company, or national of a country and to figure
the loss of certain tax benefits. The partnership must give each partner a copy of the Form 5713 filed
by the partnership if there has been participation in, or cooperation with, an international boycott.
8275—Disclosure Statement Disclose items or positions, except those contrary to a regulation, that aren't otherwise adequately
disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty
imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for
disclosures relating to preparer penalties for understatements due to unrealistic positions or disregard
of rules.
8275-R—Regulation Disclosure Statement Disclose any item on a tax return for which a position has been taken that is contrary to Treasury
regulations.
8288, 8288-A, and 8288-C—U.S. Withholding Tax Return for Certain
Dispositions by Foreign Persons; Statement of Withholding on
Certain Dispositions by Foreign Persons; and Statement of
Withholding Under Section 1446(f)(4) on Dispositions by Foreign
Persons of Partnership Interests
Report and send withheld tax on the sale of U.S. real property or the transfer of certain partnership
interests by a foreign person. See sections 1445 and 1446(f), and the related regulations, for additional
information.
8300—Report of Cash Payments Over $10,000 Received in a Trade
or Business
Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of
related transactions.
8308—Report of a Sale or Exchange of Certain Partnership Interests Report the sale or exchange by a partner of all or part of a partnership interest where any money or
other property received in exchange for the interest is attributable to unrealized receivables or
inventory items.
8594—Asset Acquisition Statement Under Section 1060 Report a sale of assets if goodwill or going concern value attaches, or could attach, to such assets.
Both the seller and buyer of a group of assets that makes up a trade or business must use this form.
8621—Information Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund
Report an ownership interest in, make elections for, and compute inclusions with respect to passive
foreign investment companies and qualified electing funds.
8697—Interest Computation Under the Look-Back Method for
Completed Long-Term Contracts
Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain
long-term contracts that are accounted for under either the percentage of completion-capitalized cost
method or the percentage of completion method. Partnerships that aren't closely held use this form.
Closely held partnerships should see the instructions for Schedule K,
Line 20c. Other Items and
Amounts, and Look-back interest completed long-term contracts (code J), later, for details on the Form
8697 information they must provide to their partners.
8804, 8805, and 8813—Annual Return for Partnership Withholding
Tax (Section 1446); Foreign Partner's Information Statement of
Section 1446 Withholding Tax; and Partnership Withholding Tax
Payment Voucher (Section 1446)
Use Forms 8804 and 8805 to figure and report the withholding tax on foreign partners' allocable shares
of effectively connected taxable income (ECTI). Form 8804 must also be filed to report effectively
connected gross income allocable to foreign partners even if the partnership has no ECTI on which to
withhold. Use Form 8813 to send installment payments of withheld tax based on ECTI allocable to
foreign partners.
Exception. PTPs don't file these forms. They must instead withhold tax on distributions to foreign
partners and report and send payments using Forms 1042 and 1042-S. See Regulations section
1.1446-4 for more information.
8832—Entity Classification Election See Entity Classification Election, later.
8865—Return of U.S. Persons With Respect to Certain Foreign
Partnerships
Report the information required under section 6038 (reporting with respect to controlled foreign
partnerships), section 6038B (reporting of transfers to foreign partnerships), section 6046A (reporting
of acquisitions, dispositions, and changes in foreign partnership interests), or section 721(c) (reporting
related to the application of the gain deferral method). See Form 8865 and its instructions for more
details.
8866—Interest Computation Under the Look-Back Method for
Property Depreciated Under the Income Forecast Method
Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain
property placed in service after September 13, 1995, depreciated under the income forecast method.
Partnerships that aren't closely held use this form. Closely held partnerships should see the
instructions for Schedule K, line 20c,
Look-back interest income forecast method (code K), later, for
details on the Form 8866 information they must provide to their partners.
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Form, Return, or Statement Use this to—
8876—Excise Tax on Structured Settlement Factoring Transactions Report and pay the 40% excise tax imposed under section 5891.
8886—Reportable Transaction Disclosure Statement Disclose information for each reportable transaction in which the partnership participated. Form 8886
must be filed for each tax year the partnership participated in the reportable transaction. The
partnership may have to pay a penalty if it's required to file Form 8886 and doesn't do so. The following
are reportable transactions.
•
Any listed transaction, which is a transaction that is the same as or substantially similar to one of
the types of transactions that the IRS has determined to be a tax avoidance transaction and identified
by notice, regulation, or other published guidance as a listed transaction.
•
Any transaction offered under conditions of confidentiality for which the partnership (or a related
party) paid an adviser a fee of at least $50,000 ($250,000 for partnerships if all partners are
corporations).
•
Certain transactions for which the partnership (or a related party) has contractual protection against
disallowance of the tax benefits.
•
Certain transactions resulting in a loss of at least $2 million in any single year or $4 million in any
combination of years.
•
Any transaction of interest, which is a transaction that is the same as, or substantially similar to, one
of the types of transactions identified by the IRS by notice, regulation, or other published guidance.
See Notice 2009-55, 2009-31 I.R.B. 170.
See Regulations section 1.6011-4; the Instructions for Form 8886; and the instructions for Schedule K,
Line 20c. Other Items and Amounts, and Reportable transactions (code AW), later, for more
information.
8918
—Material Advisor Disclosure Statement Material advisors to any reportable transaction must disclose certain information about the reportable
transaction by filing a Form 8918 with the IRS. See Form 8918 and its instructions for more details.
8925—Report of Employer-Owned Life Insurance Contracts Report the number of employees covered by employer-owned life insurance contracts issued after
August 17, 2006, and the total amount of employer-owned life insurance in force on those employees
at the end of the tax year.
8990—Limitation on Business Interest Expense Under Section 163(j) Business interest expense may be limited. See section 163(j) and Form 8990 and its instructions. Also
see Schedule B, questions 23 and 24, and the related instructions.
8994—Employer Credit for Paid Family and Medical Leave Report if the partnership has a credit for paid family and medical leave. See the Instructions for Form
8994 for more information.
8996—Qualified Opportunity Fund Certify that the requirements to be a qualified opportunity fund investing in qualified opportunity zone
property, as defined in section 1400Z-2, have been fulfilled. Entities attaching Form 8996 must also
complete Form 1065, Schedule B, question 25. For more information, see the Instructions for Form
8996.
Assembling the Return
When submitting Form 1065, organize the pages of the return in the
following order.
•
Pages 1–6.
•
Schedule F (Form 1040), Profit or Loss From Farming (if
required).
•
Form 8825, Rental Real Estate Income and Expenses of a
Partnership or an S Corporation (if required).
•
Schedule D (Form 1065), Capital Gains and Losses (if required).
•
Form 4797, Sales of Business Property (if required).
•
Form 8949, Sales and Other Dispositions of Capital Assets (if
required).
•
Form 8996, Qualified Opportunity Fund (if required).
•
Form 1125-A, Cost of Goods Sold (if required).
•
Form 8941, Credit For Small Employer Health Insurance
Premiums (if required).
•
Form 3800, General Business Credit (if required).
•
Form 8997, Initial and Annual Statement of Qualified Opportunity
Fund (QOF) Investments (if required).
•
Form 6252, Installment Sale Income (if required).
•
Schedule A (Form 8936), Clean Vehicle Credit Amount (if
required).
•
Schedule K-1 (Form 1065), Partner’s Share of Income,
Deductions, Credits, etc.
•
Form 8938, Statement of Specified Foreign Financial Assets (if
required).
•
Any other forms in numerical order.
Complete every applicable entry space on Form 1065 and
Schedule K-1. Don't enter “See attached” instead of completing the
entry spaces. Penalties may be assessed if the partnership files an
incomplete return. If you need more space on the forms or
schedules, attach separate sheets and place them at the end of the
return using the same size and format as on the printed forms. Show
the totals on the printed forms. Also be sure to put the partnership's
name and EIN on each supporting statement.
Entity Classification Election
Use Form 8832, Entity Classification Election, to make a change in
classification. Except for certain business entities always classified
as a corporation, a business entity with at least two members may
choose to be classified either as a partnership or an association
taxable as a corporation. A domestic eligible entity with at least two
members that doesn't file Form 8832 is classified under the default
rules as a partnership. However, a foreign eligible entity with at least
two members is classified under the default rules as a partnership
only if the entity doesn't provide limited liability to at least one
member. File Form 8832 only if the entity doesn't want to be
classified under these default rules or if it wants to change its
classification.
Attach a copy of Form 8832 to the partnership's Form 1065
for the tax year of the election.
Elections Made by the Partnership
Generally, the partnership decides how to figure income from its
operations. For example, it chooses the accounting method and
depreciation methods it will use. The partnership also makes
elections under the following sections.
1. Section 179 (election to expense certain property).
2. Section 614 (definition of property—mines, wells, and other
natural deposits). This election must be made before the partners
figure their individual depletion allowances under section 613A(c)(7)
(D).
3. Section 1033 (involuntary conversions).
4. Section 754 (manner of electing optional adjustment to basis
of partnership property).
Under section 754, a partnership may elect to adjust the basis of
partnership property when property is distributed or when a
partnership interest is transferred. If the election is made regarding a
CAUTION
!
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transfer of a partnership interest (section 743(b)) and the assets of
the partnership constitute a trade or business for purposes of
section 1060(c), then the value of any goodwill transferred must be
determined in the manner provided in Regulations section 1.1060-1.
Once an election is made under section 754, it applies both to all
distributions and to all transfers made during the tax year and in all
subsequent tax years unless the election is revoked.
This election must be made in a statement that is filed with the
partnership's timely filed return (including any extension) for the tax
year during which the distribution or transfer occurs. See
Regulations section 1.754-1(b)(1). The statement must include:
a. The name and address of the partnership, and
b. A declaration that the partnership elects under section 754 to
apply the provisions of section 734(b) and section 743(b). A
declaration that the partnership elects under section 754 to apply the
provisions of section 734(b) and section 743(b).
The partnership can get an automatic 12-month extension to
make the section 754 election, provided corrective action is taken
within 12 months of the original deadline for making the election. For
details, see Regulations section 301.9100-2.
See section 754 and the related regulations for more information.
If there's a distribution of property consisting of an interest in
another partnership, see section 734(b).
The partnership is required to attach a statement for any section
743(b) basis adjustments. See below for details.
To revoke a section 754 election, the partnership must file the
revocation request using Form 15254, Request for Section 754
Revocation. See the instructions for Form 15254 for more
information.
5. Section 743(e) (electing investment partnership).
6. Regulations section 1.1411-10(g) (section 1411 election
regarding controlled foreign corporations (CFCs) and qualified
electing fund (QEF)).
A domestic partnership that directly or indirectly owns stock of a
CFC (within the meaning of section 953(c)(1)(B) or section 957(a))
or a passive foreign investment company (PFIC) (within the meaning
of section 1297(a)) that the domestic partnership treats as a QEF
under section 1293 may make the election provided in Regulations
section 1.1411-10(g). The election must be made no later than the
first tax year beginning after 2013 during which the partnership:
a. Includes an amount in gross income for chapter 1 purposes
under section 951(a) or section 1293(a)(1)(A) for the CFC or QEF,
and
b. Has a direct or indirect owner that is subject to tax under
section 1411 or would have been if the election were made.
This election must be made on an entity-by-entity basis, and applies
only to the particular CFCs and QEFs for which an election is made.
In general, for purposes of section 1411, if an election is in effect for
a CFC or QEF, the amounts included in income under section 951
and section 1293 derived from the CFC or QEF are included in net
investment income, and distributions described in section 959(d) or
section 1293(c) are excluded from net investment income. An
election that is made under Regulations section 1.1411-10(g) can't
be revoked. For more information regarding this election, see
Regulations section 1.1411-10(g).
The election must be made in a statement that is filed with the
partnership’s original or amended return for the tax year in which the
election is made. An election can be made on an amended return
only if the tax year for which the election is made, and all tax years
affected by the election, aren't closed by the period of limitations on
assessments under section 6501. The statement must include:
a. The name and EIN of the partnership making the election;
b. A declaration that the partnership elects under Regulations
section 1.1411-10(g) to apply the rules in Regulations section
1.1411-10(g) to the CFCs and QEFs identified in the statement; and
c. The following information for each CFC and QEF for which an
election is made: (a) the name of the CFC or QEF; and (b) either the
EIN of the CFC or QEF, or, if an EIN isn’t available, the reference ID
number of the CFC or QEF.
7. Section 41(h) (payroll tax credit election).
Effect of Section 743(b) Basis Adjustment on
Partnership Items
If the basis of partnership property has been adjusted for a
transferee partner under section 743(b), the partnership must adjust
the transferee's distributive share of the items of partnership income,
deduction, gain, or loss in accordance with Regulations sections
1.743-1(j)(3) and (4). These adjustments (other than adjustments to
depletable oil and gas property allocable to the partner under
section 613A(c)(7)(D)) must be reported on Schedule K and the
transferee partner's Schedule K-1. Report the adjustments on an
attached statement to Schedule K, line 20c, code U. See the
instructions for Schedule K, line 20. Identify the partnership item
being adjusted and the amount of the adjustment. If the adjustments
are to partnership items from more than one trade or business,
report the adjustments separately for each activity.
Electing Out of the Centralized Partnership
Audit Regime
A partnership can elect out of the centralized partnership audit
regime for a tax year if the partnership is an eligible partnership that
year. See
Question 31 under Schedule B, later.
Elections Made by Each Partner
Elections under the following sections are made by each partner
separately on the partner's tax return.
•
Section 59(e) (election to deduct ratably certain qualified
expenditures such as intangible drilling costs, mining exploration
expenses, or research and experimental expenditures).
•
Section 108 (income from discharge of indebtedness).
•
Section 617 (deduction and recapture of certain mining
exploration expenditures paid or incurred).
•
Section 901 (foreign tax credit).
Partner’s Dealings With Partnership
If a partner engages in a transaction with the partnership, other than
in the capacity as a partner, the partner is treated as not being a
member of the partnership for that transaction. Special rules apply to
sales or exchanges of property between partnerships and certain
persons, as explained in Pub. 541.
Contributions to the Partnership
Generally, no gain (loss) is recognized to the partnership or any of
the partners when property is contributed to the partnership in
exchange for an interest in the partnership. This rule doesn't apply to
any gain realized on a transfer of property to a partnership that would
be treated as an investment company (within the meaning of section
351(e)) if the partnership were incorporated. If, as a result of a
transfer of property to a partnership, there's a direct or indirect
transfer of money or other property to the transferring partner, the
partner may have to recognize gain on the exchange.
The basis to the partnership of property contributed by a partner
is the adjusted basis in the hands of the partner at the time it was
contributed, plus any gain recognized (under section 721(b)) by the
partner at that time. See section 723 for more information.
See Regulations sections 1.721(c)-1(b)(7) and 1.721(c)-3(b) for
more information on a gain deferral contribution of section 721(c)
property to a section 721(c) partnership. Also see Section 721(c)
Partnership, Section 721(c) Property, and Gain Deferral Method
under Definitions, earlier.
Dispositions of Contributed Property
Generally, if the partnership disposes of property contributed to the
partnership by a partner, income, gain, loss, and deductions from
that property must be allocated among the partners to take into
account the difference between the property's basis and its FMV at
the time of the contribution. However, if the adjusted basis of the
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contributed property exceeds its FMV at the time of the contribution,
the built-in loss can only be taken into account by the contributing
partner. For all other partners, the basis of the property in the hands
of the partnership is treated as equal to its FMV at the time of the
contribution (see section 704(c)(1)(C)).
For property contributed to the partnership, the contributing
partner must recognize gain or loss on a distribution of the property
to another partner within 7 years of being contributed. The gain or
loss is equal to the amount that the contributing partner should have
recognized if the property had been sold for its FMV when
distributed, because of the difference between the property's basis
and its FMV at the time of contribution.
See section 704(c) for details and other rules on dispositions of
contributed property. See section 724 for the character of any gain or
loss recognized on the disposition of unrealized receivables,
inventory items, or capital loss property contributed to the
partnership by a partner.
See Regulations sections 1.721(c)-4 and 1.721(c)-5 for more
information on certain dispositions of contributed 721(c) property to
which the gain deferral method applies. Also see
Section 721(c)
Partnership, Section 721(c) Property, and Gain Deferral Method
under Definitions, earlier.
Recognition of Precontribution Gain
on Certain Partnership Distributions
A partner who contributes appreciated property to the partnership
must include in income any precontribution gain to the extent the
FMV of other property (other than money) distributed to the partner
by the partnership exceeds the adjusted basis of the partner’s
partnership interest just before the distribution. Precontribution gain
is the net gain, if any, that would have been recognized under
section 704(c)(1)(B) if the partnership had distributed to another
partner all the property that had been contributed to the partnership
by the distributee partner within 7 years of the distribution and that
was held by the partnership just before the distribution.
Appropriate basis adjustments are to be made to the adjusted
basis of the distributee partner's interest in the partnership and the
partnership's basis in the contributed property to reflect the gain
recognized by the partner.
For more details and exceptions, see Pub. 541.
Unrealized Receivables and Inventory
Items
Generally, if a partner sells or exchanges a partnership interest
where unrealized receivables or inventory items are involved, the
transferor partner must notify the partnership, in writing, within 30
days of the exchange. The partnership must then file Form 8308,
Report of a Sale or Exchange of Certain Partnership Interests.
If a partnership distributes unrealized receivables or substantially
appreciated inventory items in exchange for all or part of a partner's
interest in other partnership property (including money), treat the
transaction as a sale or exchange between the partner and the
partnership. Treat the partnership gain (loss) as ordinary business
income (loss). The income (loss) is specially allocated only to
partners other than the distributee partner.
If a partnership gives other property (including money) for all or
part of that partner's interest in the partnership's unrealized
receivables or substantially appreciated inventory items, treat the
transaction as a sale or exchange of the property.
See Rev. Rul. 84-102, 1984-2 C.B. 119, for information on the tax
consequences that result when a new partner joins a partnership
that has liabilities and unrealized receivables. Also see Pub. 541 for
more information on unrealized receivables and inventory items.
At-Risk Limitations
In general, section 465 limits the amount of deductible losses
partners can claim from certain activities. The at-risk limitations don't
apply to the partnership, but instead apply to each partner's share of
net losses attributable to each activity. Because the treatment of
each partner's share of partnership losses depends on the nature of
the activity that generated it, the partnership must report the items of
income, loss, and deduction separately for each activity. The at-risk
limitation applies to individuals, estates, trusts, and certain closely
held C corporations. See Pub. 925, Passive Activity and At-Risk
Rules, for additional information.
Activities covered by the at-risk rules. If the partnership is
involved in one of the following activities as a trade or business or for
the production of income, the partner may be subject to the at-risk
rules.
1. Holding, producing, or distributing motion picture films or
videotapes.
2. Farming.
3. Leasing section 1245 property, including personal property
and certain other tangible property that's depreciable or amortizable.
4. Exploring for, or exploiting, oil and gas.
5. Exploring for, or exploiting, geothermal deposits (for wells
started after September 1978).
6. Any other activity not included in items 1 through 5, above,
that's carried on as a trade or business or for the production of
income.
Aggregation of activities. Activities described in (6) above that
constitute a trade or business are treated as one activity if:
•
You actively participate in the management of the trade or
business, or
•
The trade or business is carried on by a partnership or S
corporation and 65% or more of its losses for the tax year are
allocable to persons who actively participate in the management of
the trade or business.
Similar rules apply to activities described in items 1 through 5 above.
For more information, see Pub. 925.
If you aggregate your activities under these rules for section 465
purposes, check the appropriate box in item K below the name and
address block on page 1 of Form 1065.
At-risk activity reporting requirements. If the partnership items
of income, loss, or deduction reported on Schedule K-1 are from
more than one activity covered by the at-risk rules, the partnership
should report on an attachment to Schedule K-1 information relating
to each activity as is required by Item K. Partner's Share of
Liabilities, later. See the Instructions for Form 6198 and Pub. 925 for
additional information needed to help the partner compute the profit
or loss from each at-risk activity and the amount at risk that may be
required to be separately reported.
Passive Activity Limitations
In general, section 469 limits the amount of losses, deductions, and
credits that partners can claim from passive activities. The passive
activity limitations don't apply to the partnership. Instead, they apply
to each partner's share of any income or loss and credit attributable
to a passive activity. Because the treatment of each partner's share
of partnership income or loss and credit depends on the nature of
the activity that generated it, the partnership must report income or
loss and credits separately for each activity.
The following instructions and the instructions for Schedules K
and K-1, later, explain the applicable passive activity limitation rules
and specify the type of information the partnership must provide to
its partners for each activity. If the partnership had more than one
activity, it must report information for each activity on an attached
statement to Schedules K and K-1.
Generally, passive activities include (a) activities that involve the
conduct of a trade or business if the partner doesn't materially
participate in the activity, and (b) all rental activities (defined later)
regardless of the partner's participation. For exceptions, see
Activities That Are Not Passive Activities, later. The level of each
partner's participation in an activity must be determined by the
partner.
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The passive activity rules provide that losses and credits from
passive activities can generally be applied only against income and
tax from passive activities. Thus, passive losses and credits can't be
applied against income from salaries, wages, professional fees, or a
business in which the partner materially participates; against
portfolio income (defined later); or against the tax related to any of
these types of income.
Special provisions apply to certain activities. First, the passive
activity limitations must be applied separately for a net loss from
passive activities held through a
PTP. Second, special rules require
that net income from certain activities that would otherwise be
treated as passive income must be recharacterized as nonpassive
income for purposes of the passive activity limitations.
To allow each partner to correctly apply the passive activity
limitations, the partnership must report income or loss and credits
separately by activity for each of the following.
•
Trade or business activities.
•
Rental real estate activities.
•
Rental activities other than real estate.
•
Portfolio income.
Activities That Aren’t Passive Activities
The following aren't passive activities.
1. Trade or business activities in which the partner materially
participated for the tax year.
2. Any rental real estate activity in which the partner materially
participated if the partner met both of the following conditions for the
tax year.
a. More than half of the personal services the partner
performed in trades or businesses were performed in real property
trades or businesses in which the partner materially participated.
b. The partner performed more than 750 hours of services in
real property trades or businesses in which the partner materially
participated.
Note. For a partner that is a closely held C corporation (defined in
section 465(a)(1)(B)), the above conditions are treated as met if
more than 50% of the corporation's gross receipts are from real
property trades or businesses in which the corporation materially
participated.
For purposes of this rule, each interest in rental real estate is a
separate activity, unless the partner elects to treat all interests in
rental real estate as one activity.
If the partner is married filing jointly, either the partner or the
partner’s spouse must separately meet both of the above conditions,
without taking into account services performed by the other spouse.
A real property trade or business is any real property
development, redevelopment, construction, reconstruction,
acquisition, conversion, rental, operation, management, leasing, or
brokerage trade or business. Services the partner performed as an
employee aren't treated as performed in a real property trade or
business unless the partner owned more than 5% of the stock (or
more than 5% of the capital or profits interest) in the employer.
3. An interest in an oil or gas well drilled or operated under a
working interest if at any time during the tax year the partner held the
working interest directly or through an entity that didn't limit the
partner's liability (for example, an interest as a general partner). This
exception applies regardless of whether the partner materially
participated for the tax year.
4. The rental of a dwelling unit used by a partner for personal
purposes during the year for more than the greater of 14 days or
10% of the number of days that the residence was rented at fair
rental value.
5. An activity of trading personal property for the account of
owners of interests in the activity. For purposes of this rule, personal
property means property that is actively traded, such as stocks,
bonds, and other securities. See Temporary Regulations section
1.469-1T(e)(6).
Trade or Business Activities
A trade or business activity is an activity (other than a rental activity
or an activity treated as incidental to an activity of holding property
for investment) that:
•
Involves the conduct of a trade or business (within the meaning of
section 162),
•
Is conducted in anticipation of starting a trade or business, or
•
Involves research or experimental expenditures deductible under
section 174 (or that would be if you chose to deduct rather than
capitalize them).
If the partner doesn't materially participate in the activity, a trade
or business activity conducted through a partnership is generally a
passive activity of the partner.
Each partner must determine if the partner materially participated
in an activity. As a result, while the partnership's ordinary business
income (loss) is reported on page 1 of Form 1065, the specific
income and deductions from each separate trade or business
activity must be reported on attached statements to Form 1065.
Similarly, while each partner's distributive share of the partnership's
ordinary business income (loss) is reported in box 1 of
Schedule K-1, each partner's distributive share of the income and
deductions from each trade or business activity must be reported on
attached statements to each Schedule K-1. See
Passive Activity
Reporting Requirements, later, for more information.
Rental Activities
Generally, except as noted below, if the gross income from an
activity consists of amounts paid principally for the use of real or
personal tangible property held by the partnership, the activity is a
rental activity.
There are several exceptions to this general rule. Under these
exceptions, an activity involving the use of real or personal tangible
property isn't a rental activity if any of the following apply.
•
The average period of customer use (defined below) for such
property is 7 days or less.
•
The average period of customer use for such property is 30 days
or less and significant personal services (defined below) are
provided by or on behalf of the partnership.
•
Extraordinary personal services (defined below) are provided by
or on behalf of the partnership.
•
The rental of such property is treated as incidental to a nonrental
activity of the partnership under Temporary Regulations section
1.469-1T(e)(3)(vi) and Regulations section 1.469-1(e)(3)(vi)(D).
•
The partnership customarily makes the property available during
defined business hours for nonexclusive use by various customers.
•
The partnership provides property for use in a nonrental activity of
a partnership or joint venture in its capacity as an owner of an
interest in such partnership or joint venture. Whether the partnership
provides property used in an activity of another partnership or of a
joint venture in the partnership's capacity as an owner of an interest
in the partnership or joint venture is determined on the basis of all
the facts and circumstances.
In addition, a guaranteed payment described in section 707(c) is
never income from a rental activity.
Average period of customer use. Figure the average period of
customer use for a class of property by dividing the total number of
days in all rental periods by the number of rentals during the tax year.
If the activity involves renting more than one class of property,
multiply the average period of customer use of each class by the
ratio of the gross rental income from that class to the activity's total
gross rental income. The activity's average period of customer use
equals the sum of these class-by-class average periods weighted by
gross income. See Regulations section 1.469-1(e)(3)(iii).
Significant personal services. Personal services include only
services performed by individuals. To determine if personal services
are significant personal services, consider all the relevant facts and
circumstances. Relevant facts and circumstances include:
•
How often the services are provided,
•
The type and amount of labor required to perform the services,
and
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•
The value of the services in relation to the amount charged for
use of the property.
The following services aren't considered in determining whether
personal services are significant.
•
Services necessary to permit the lawful use of the rental property.
•
Services performed in connection with improvements or repairs to
the rental property that extend the useful life of the property
substantially beyond the average rental period.
•
Services provided in connection with the use of any improved real
property that are similar to those commonly provided in connection
with long-term rentals of high-grade commercial or residential
property. Examples include cleaning and maintenance of common
areas, routine repairs, trash collection, elevator service, and security
at entrances.
Extraordinary personal services. Services provided in
connection with making rental property available for customer use
are extraordinary personal services only if the services are
performed by individuals and the customers' use of the rental
property is incidental to their receipt of the services.
For example, a patient's use of a hospital room is generally
incidental to the care received from the hospital's medical staff.
Similarly, a student's use of a dormitory room in a boarding school is
incidental to the personal services provided by the school's teaching
staff.
Rental activity incidental to a nonrental activity. An activity isn't
a rental activity if the rental of the property is incidental to a nonrental
activity, such as the activity of holding property for investment, a
trade or business activity, or the activity of dealing in property.
Rental of property is incidental to an activity of holding property
for investment if both of the following apply.
•
The main purpose for holding the property is to realize a gain from
the appreciation of the property.
•
The gross rental income from such property for the tax year is
less than 2% of the smaller of the property's unadjusted basis or its
FMV.
Rental of property is incidental to a trade or business activity if all
of the following apply.
•
The partnership owns an interest in the trade or business at all
times during the year.
•
The rental property was mainly used in the trade or business
activity during the tax year or during at least 2 of the 5 preceding tax
years.
•
The gross rental income from the property for the tax year is less
than 2% of the smaller of the property's unadjusted basis or its FMV.
The sale or exchange of property that is also rented during the
tax year (in which the gain or loss is recognized) is treated as
incidental to the activity of dealing in property if, at the time of the
sale or exchange, the property was held primarily for sale to
customers in the ordinary course of the partnership's trade or
business.
See Temporary Regulations section 1.469-1T(e)(3) and
Regulations section 1.469-1(e)(3) for more information on the
definition of rental activities for purposes of the passive activity
limitations.
Reporting of rental activities. In reporting the partnership's
income or losses and credits from rental activities, the partnership
must separately report rental real estate activities and rental
activities other than rental real estate activities.
Partners who actively participate in a rental real estate activity
may be able to deduct part or all of their rental real estate losses
(and the deduction equivalent of rental real estate credits) against
income (or tax) from nonpassive activities. The combined amount of
rental real estate losses and the deduction equivalent of rental real
estate credits from all sources (including rental real estate activities
not held through the partnership) that may be claimed is limited to
$25,000. This $25,000 amount is generally reduced for high-income
partners.
Report rental real estate activity income (loss) on Form 8825 and
Schedule K, line 2, and in box 2 of Schedule K-1, rather than on
page 1 of Form 1065. Report credits related to rental real estate
activities on Schedule K, lines 15c and 15d (box 15, codes E and F,
of Schedule K-1), and low-income housing credits on Schedule K,
lines 15a and 15b (box 15, codes C and D, of Schedule K-1).
See Line 3. Other Net Rental Income (Loss), later, for reporting
other net rental income (loss) other than rental real estate.
Portfolio Income
Generally, portfolio income includes all gross income, other than
income derived in the ordinary course of a trade or business, that is
attributable to interest; dividends; royalties; income from a real
estate investment trust (REIT), a regulated investment company
(RIC), a REMIC, a common trust fund, a CFC, a QEF, or a
cooperative; income from the disposition of property that produces
income of a type defined as portfolio income; and income from the
disposition of property held for investment. See Self-Charged
Interest, later, for an exception.
Solely for purposes of the preceding paragraph, gross income
derived in the ordinary course of a trade or business includes (and
portfolio income, therefore, doesn't include) the following types of
income.
•
Interest income on loans and investments made in the ordinary
course of a trade or business of lending money.
•
Interest on accounts receivable arising from the performance of
services or the sale of property in the ordinary course of a trade or
business of performing such services or selling such property, but
only if credit is customarily offered to customers of the business.
•
Income from investments made in the ordinary course of a trade
or business of furnishing insurance or annuity contracts or reinsuring
risks underwritten by insurance companies.
•
Income or gain derived in the ordinary course of an activity of
trading or dealing in any property if such activity constitutes a trade
or business (unless the dealer held the property for investment at
any time before such income or gain is recognized).
•
Royalties derived by the taxpayer in the ordinary course of a trade
or business of licensing intangible property.
•
Amounts included in the gross income of a patron of a
cooperative by reason of any payment or allocation to the patron
based on patronage as a result of a trade or business of the patron.
•
Other income identified by the IRS as income derived by the
taxpayer in the ordinary course of a trade or business.
See Temporary Regulations section 1.469-2T(c)(3) for more
information on portfolio income.
Report portfolio income and related deductions on Schedule K
rather than on page 1 of Form 1065.
Self-Charged Interest
Certain self-charged interest income and deductions may be treated
as passive activity gross income and passive activity deductions if
the loan proceeds are used in a passive activity. Generally,
self-charged interest income and deductions result from loans
between the partnership and its partners and also includes loans
between the partnership and another partnership if each owner in
the borrowing entity has the same proportional ownership interest in
the lending entity.
The self-charged interest rules don't apply to a partner's interest
in a partnership if the partnership makes an election under
Regulations section 1.469-7(g) to avoid the application of these
rules. To make the election, the partnership must attach to its original
or amended partnership return a statement that includes the name,
address, and EIN of the partnership and a declaration that the
election is being made under Regulations section 1.469-7(g). The
election will apply to the tax year in which it was made and all
subsequent tax years. Once made, the election may only be revoked
with the consent of the IRS.
For more details on the self-charged interest rules, see
Regulations section 1.469-7.
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Grouping Activities
Generally, one or more trade or business or rental activities may be
treated as a single activity if the activities make up an appropriate
economic unit for measurement of gain or loss under the passive
activity rules. Whether activities make up an appropriate economic
unit depends on all the relevant facts and circumstances. The factors
given the greatest weight in determining whether activities make up
an appropriate economic unit are:
•
Similarities and differences in types of trades or businesses,
•
The extent of common control,
•
The extent of common ownership,
•
Geographical location, and
•
Reliance between or among the activities.
Example. The partnership has a significant ownership interest in
a bakery and a movie theater in Baltimore and a bakery and a movie
theater in Philadelphia. Depending on the relevant facts and
circumstances, there may be more than one reasonable method for
grouping the partnership's activities. For instance, the following
groupings may or may not be permissible.
•
A single activity.
•
A movie theater activity and a bakery activity.
•
A Baltimore activity and a Philadelphia activity.
•
Four separate activities.
Once the partnership chooses a grouping under these rules, it
must continue using that grouping in later tax years unless a material
change in the facts and circumstances makes it clearly
inappropriate.
The IRS may regroup the partnership's activities if the
partnership's grouping fails to reflect one or more appropriate
economic units and one of the primary purposes of the grouping is to
avoid the passive activity limitations.
Limitation on grouping certain activities. The following activities
may not be grouped together.
1. A rental activity with a trade or business activity unless the
activities being grouped together make up an appropriate economic
unit and:
a. The rental activity is insubstantial relative to the trade or
business activity or vice versa, or
b. Each owner of the trade or business activity has the same
proportionate ownership interest in the rental activity. If so, the
portion of the rental activity involving the rental of property to be
used in the trade or business activity can be grouped with the trade
or business activity.
2. An activity involving the rental of real property with an activity
involving the rental of personal property (except personal property
provided in connection with the real property or vice versa).
3. Any activity with another activity in a different type of
business and in which the partnership holds an interest as a limited
partner or as a limited entrepreneur (as defined in section 461(k)(4))
if that other activity engages in holding, producing, or distributing
motion picture films or videotapes; farming; leasing section 1245
property; or exploring for or exploiting oil and gas resources or
geothermal deposits.
Activities conducted through other partnerships. Once a
partnership determines its activities under these rules, the
partnership as a partner can use these rules to group those activities
with:
•
Each other,
•
Activities conducted directly by the partnership, or
•
Activities conducted through other partnerships.
A partner can't treat as separate activities those activities
grouped together by a partnership.
If you group your activities under these rules for section 469
purposes, check the appropriate box in item K below the name and
address block on page 1 of Form 1065.
Recharacterization of Passive Income
Under Temporary Regulations section 1.469-2T(f) and Regulations
section 1.469-2(f), net passive income from certain passive activities
must be treated as nonpassive income. Net passive income is the
excess of an activity's passive activity gross income over its passive
activity deductions (current year deductions and prior year
unallowed losses).
Any net passive income recharacterized as nonpassive income is
treated as investment income for purposes of figuring investment
interest expense limitations if it's from (a) an activity of renting
substantially nondepreciable property from an equity-financed
lending activity, or (b) an activity related to an interest in a
pass-through entity that licenses intangible property.
The amount of income from the activities in the first three
paragraphs, below, that any partner will be required to recharacterize
as nonpassive income may be limited under Temporary Regulations
section 1.469-2T(f)(8). Because the partnership won't have
information regarding all of a partner's activities, it must identify all
partnership activities meeting the definitions under
Certain
nondepreciable rental property activities and Passive
equity-financed lending activities below as activities that may be
subject to recharacterization.
Income from the following six sources is subject to
recharacterization.
Significant participation passive activities. A significant
participation passive activity is any trade or business activity in
which the partner participated for more than 100 hours during the tax
year but didn't materially participate. Because each partner must
determine the partner's level of participation, the partnership won't
be able to identify significant participation passive activities.
Certain nondepreciable rental property activities. Net passive
income from a rental activity is nonpassive income if less than 30%
of the unadjusted basis of the property used or held for use by
customers in the activity is subject to depreciation under section
167.
Passive equity-financed lending activities. If the partnership has
net income from a passive equity-financed lending activity, the
smaller of the net passive income or the equity-financed interest
income from the activity is nonpassive income.
Rental of property incidental to a development activity. Net
rental activity income is the excess of passive activity gross income
from renting or disposing of property over passive activity
deductions (current year deductions and prior year unallowed
losses) that are reasonably allocable to the rented property. Net
rental activity income is nonpassive income for a partner if all of the
following apply.
•
The partnership recognizes gain from the sale, exchange, or other
disposition of the rental property during the tax year.
•
The use of the item of property in the rental activity started less
than 12 months before the date of disposition. The use of an item of
rental property begins on the first day that (a) the partnership owns
an interest in the property, (b) substantially all of the property is
either rented or held out for rent and ready to be rented, and (c) no
significant value-enhancing services remain to be performed.
•
The partner materially or significantly participated for any tax year
in an activity that involved performing services to enhance the value
of the property (or any other item of property if the basis of the
property disposed of is determined in whole or in part by reference
to the basis of that item of property).
Because the partnership can't determine a partner's level of
participation, the partnership must identify net income from property
described earlier under Rental Activities (without regard to the
partner's level of participation) as income that may be subject to
recharacterization.
Rental of property to a nonpassive activity. If a taxpayer rents
property to a trade or business activity in which the taxpayer
materially participates, the taxpayer's net rental activity income from
the property is nonpassive income.
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Acquisition of an interest in a pass-through entity that licen-
ses intangible property. Generally, net royalty income from
intangible property is nonpassive income if the taxpayer acquired an
interest in the pass-through entity after the pass-through entity
created the intangible property or performed substantial services or
incurred substantial costs in developing or marketing the intangible
property. Net royalty income is the excess of passive activity gross
income from licensing or transferring any right in intangible property
over passive activity deductions (current year deductions and prior
year unallowed losses) that are reasonably allocable to the
intangible property.
See Temporary Regulations section 1.469-2T(f)(7)(iii) for
exceptions to this rule.
Passive Activity Reporting Requirements
To allow partners to correctly apply the passive activity loss and
credit limitation rules, the partnership must do the following.
1. If the partnership carries on more than one activity, provide
an attached statement for each activity conducted through the
partnership that identifies the type of activity conducted (trade or
business, rental real estate, or rental activity other than rental real
estate). See
Grouping Activities, earlier.
2. On the attached statement for each activity, provide a
statement, using the same box numbers as shown on Schedule K-1,
detailing the net income (loss), credits, and all items required to be
separately stated under section 702(a) from each trade or business
activity, from each rental real estate activity, from each rental activity
other than a rental real estate activity, and from investments. If the
partnership grouped separate activities, the attachments must
identify each group. The attached group activity description must be
sufficient for a partner to determine if its other activities qualify to be
grouped with any groups provided by the partnership.
3. Identify the net income (loss) and credits from each oil or gas
well drilled or operated under a working interest that any partner
(other than a partner whose only interest in the partnership during
the year is as a limited partner) holds through the partnership.
Further, if any partner had an interest as a general partner in the
partnership during less than the entire year, the partnership must
identify both the disqualified deductions from each well that the
partner must treat as passive activity deductions, and the ratable
portion of the gross income from each well that the partner must
treat as passive activity gross income.
4. Identify the net income (loss) and the partner's share of
partnership interest expense from each activity of renting a dwelling
unit that any partner uses for personal purposes during the year for
more than the greater of 14 days or 10% of the number of days that
the residence is rented at fair rental value.
5. Identify the net income (loss) and the partner's share of
partnership interest expense from each activity of trading personal
property conducted through the partnership.
6. For any gain (loss) from the disposition of an interest in an
activity or of an interest in property used in an activity (including
dispositions before 1987 from which gain is being recognized after
1986):
a. Identify the activity in which the property was used at the time
of disposition;
b. If the property was used in more than one activity during the
12 months preceding the disposition, identify the activities in which
the property was used and the adjusted basis allocated to each
activity; and
c. For gains only, if the property was substantially appreciated
at the time of the disposition and the applicable holding period
specified in Regulations section 1.469-2(c)(2)(iii)(A) wasn't satisfied,
identify the amount of the nonpassive gain and indicate whether the
gain is investment income under Regulations section 1.469-2(c)(2)
(iii)(F).
7. Specify the amount of gross portfolio income, the interest
expense properly allocable to portfolio income, and expenses other
than interest expense that are clearly and directly allocable to
portfolio income.
8. Identify separately any of the following types of payments to
partners.
a. Payments to a partner for services other than in the partner's
capacity as a partner under section 707(a).
b. Guaranteed payments to a partner for services under section
707(c).
c. Guaranteed payments for use of capital.
d. If section 736(a)(2) payments are made for unrealized
receivables or for goodwill, the amount of the payments and the
activities to which the payments are attributable.
e. If section 736(b) payments are made, the amount of the
payments and the activities to which the payments are attributable.
9. Identify the ratable portion of any section 481 adjustment
(whether a net positive or a net negative adjustment) allocable to
each partnership activity.
10.
Identify the amount of gross income from each oil or gas
property of the partnership.
11.
Identify any gross income from sources specifically excluded
from passive activity gross income, including:
a. Income from intangible property if the partner is an individual
whose personal efforts significantly contributed to the creation of the
property;
b. Income from state, local, or foreign income tax refunds; and
c. Income from a covenant not to compete if the partner is an
individual who contributed the covenant to the partnership.
12.
Identify any deductions that aren't passive activity
deductions.
13.
If the partnership makes a full or partial disposition of its
interest in another entity, identify the gain (loss) allocable to each
activity conducted through the entity, and the gain allocable to a
passive activity that would have been recharacterized as nonpassive
gain had the partnership disposed of its interest in property used in
the activity (because the property was substantially appreciated at
the time of the disposition, and the gain represented more than 10%
of the partner's total gain from the disposition).
14.
Identify the following items from activities that may be subject
to the recharacterization rules. See Recharacterization of Passive
Income, earlier.
a. Net income from an activity of renting substantially
nondepreciable property.
b. The smaller of equity-financed interest income or net passive
income from an equity-financed lending activity.
c. Net rental activity income from property developed (by the
partner or the partnership), rented, and sold within 12 months after
the rental of the property commenced.
d. Net rental activity income from the rental of property by the
partnership to a trade or business activity in which the partner had
an interest (either directly or indirectly).
e. Net royalty income from intangible property if the partner
acquired the partner's interest in the partnership after the
partnership created the intangible property or performed substantial
services, or incurred substantial costs in developing or marketing the
intangible property.
15.
Identify separately the credits from each activity conducted
by or through the partnership.
16.
Identify the partner's distributive share of the partnership's
self-charged interest income or expense (see Self-Charged Interest,
earlier).
a. Loans between a partner and the partnership. Identify the
lending or borrowing partner's share of the self-charged interest
income or expense. If the partner made the loan to the partnership,
also identify the activity in which the loan proceeds were used. If the
proceeds were used in more than one activity, allocate the interest to
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each activity based on the amount of the proceeds used in each
activity.
b. Loans between the partnership and another partnership or S
corporation. If the partnership's partners have the same proportional
ownership interest in the partnership and the other partnership or S
corporation, identify each partner's share of the interest income or
expense from the loan. If the partnership was the borrower, also
identify the activity in which the loan proceeds were used. If the loan
proceeds were used in more than one activity, allocate the interest to
each activity based on the amount of the proceeds used in each
activity.
Net Investment Income Tax Reporting
Requirements
The information described in this section should be given directly to
the partner and shouldn't be reported by the partnership to the IRS.
To allow partners to correctly figure the net investment income tax
(NIIT) where a partner disposes of an interest in the partnership
during the tax year, the partnership may be required to provide the
partner with certain information. The NIIT is a tax imposed on an
individual’s, trust’s, or estate’s net investment income. Net
investment income includes the net gains or losses from the sale of
an interest in the partnership. A partner who is actively involved in
one or more of the partnership’s or lower-tier pass-through entities’
trades or businesses (other than trading in financial instruments or
commodities) can reduce the amount of the gain or loss from the
sale of the partnership or lower-tier pass-through entity interest
included in its net investment income. However, to figure its net
investment income, the active partner needs certain information from
the partnership.
Generally, the partnership must provide certain information to the
partner if the partnership knows, or has reason to know, the
following.
•
The partner disposed of an interest in the partnership.
•
The partner materially participates (within the meaning of the
passive activity loss rules (section 469)) in one or more of the trades
or businesses (within the meaning of section 162) of the partnership
or a lower-tier pass-through entity (other than trading in financial
instruments or commodities).
•
The partner doesn't qualify for the optional simplified reporting
method for figuring its net investment income associated with the
disposition of the interest. For more information, see the instructions
for Form 8960, line 5c.
Information to be provided to partner. Generally, the partnership
must provide the partner with its distributive share of the net gain
and loss from the deemed sale for FMV of the partnership’s property,
other than property that relates to the trades or businesses in which
the partner materially participates, as determined under the passive
activity loss rules applicable to the transfer of an interest in a
pass-through entity. For more information, see the instructions for
Form 8960, line 5c.
If a partner, who qualifies for the optional simplified reporting
method, prefers to determine net gain or loss under the general
calculation, the partnership may, but isn't obligated to, provide the
information to the partner at that partner’s request.
Specific Instructions
These instructions follow the line numbers on the first page of Form
1065. The accompanying schedules are discussed separately.
Specific instructions for most of the lines are provided. Lines that
aren't discussed are self-explanatory.
Fill in all applicable lines and schedules.
Enter any items specially allocated to the partners in the
appropriate box of the applicable partner's Schedule K-1. Enter the
total amount on the appropriate line of Schedule K. Don't enter
separately stated amounts on the numbered lines on Form 1065;
Form 1125-A, page 1; or Schedule D (Form 1065).
File all six pages of Form 1065. However, if the answer to
Schedule B, question 4, is “Yes,” Schedules L, M-1, and M-2 on
page 6 are optional. Also attach a Schedule K-1 to Form 1065 for
each partner.
File only one Form 1065 for each partnership. Mark “Duplicate
Copy” on any copy you give to a partner.
If a syndicate, pool, joint venture, or similar group files Form
1065, it must attach a copy of the agreement and all amendments to
the return, unless a copy has previously been filed.
A foreign partnership required to file a return must generally
report all of its foreign and U.S. partnership items. For rules
regarding whether a foreign partnership must file Form
1065, see Who Must File, earlier.
Name and Address
Enter the legal name of the partnership, address, and EIN on the
appropriate lines. If the partnership has changed its name, check
box G(3). Include the suite, room, or other unit number after the
street address. If the post office doesn't deliver mail to the street
address and the partnership has a P.O. box, show the box number
instead.
If the partnership receives its mail in care of a third party (such as
an accountant or an attorney), enter “C/O” on the street address line,
followed by the third party’s name and street address or P.O. box.
If the partnership's address is outside the United States or U.S.
territories, enter the information on the line for “City or town, state or
province, country, and ZIP or foreign postal code” in the following
order: city, province or state, and the foreign country. Follow the
foreign country's practice in placing the postal code in the address.
Don't abbreviate the country name.
If the partnership has changed its address since it last filed a
return (including a change to an “in care of” address), check box
G(4) for “Address change.”
If the partnership changes its mailing address or the
responsible party after filing its return, it can notify the IRS by
filing Form 8822-B, Change of Address or Responsible
Party—Business.
Partnerships With Adjustments in the Current
Year That Didn’t Result in an IU
If a partnership has an adjustment from a BBA audit which doesn't
result in an IU, the partnership shouldn't take the adjustment into
account until the adjustment year (see
Definitions, earlier). With its
Form 1065 for the adjustment year, the partnership should provide a
statement describing the adjustments, including the line numbers to
which the adjustments relate, and incorporate those adjustments
into its adjustment year return. If there's a reallocation adjustment
being reported on the adjustment year return, ensure the statement
identifies the partner receiving the reallocation adjustment. If there's
an adjustment to a separately stated item or to a credit, the
partnership must adjust that item or that credit in the adjustment
year. See Examples 1 and 2 in Regulations 301.6225-3.
Items A and C
Enter the applicable activity name and the code number from the list,
Codes for Principal Business Activity and Principal Product or
Service, near the end of these instructions.
For example, if, as its principal business activity, the partnership
(a) purchases raw materials, (b) subcontracts out for labor to make a
finished product from the raw materials, and (c) retains title to the
goods, the partnership is considered to be a manufacturer and must
enter “Manufacturer” in item A and enter in item C one of the codes
(311110 through 339900) listed under “Manufacturing” on the list,
Codes for Principal Business Activity and Principal Product or
Service, near the end of these instructions. For nonstore retailers,
select the Principal Business Activity (PBA) code by the primary
product that your establishment sells. For example, establishments
TIP
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primarily selling prescription and non-prescription drugs, select PBA
code 456110 Pharmacies & Drug Retailers.
Item D. Employer Identification Number (EIN)
Show the correct EIN in item D. If the partnership doesn't have an
EIN, it must apply for one in one of the following ways.
•
Online—Go to IRS.gov/EIN. The EIN is issued immediately once
the application information is validated.
•
By mailing or faxing Form SS-4, Application for Employer
Identification Number.
An LLC must determine which type of federal tax entity it will be
(partnership, corporation, or disregarded entity (DE)) before applying
for an EIN (see Form 8832 for details). If the partnership hasn't
received its EIN by the time the return is due, enter “Applied for” and
the application date in the space for the EIN. For more details, see
the Instructions for Form SS-4.
Note. The online application process isn't yet available for
partnerships with addresses in foreign countries. If you're located
outside the United States, please call 267-941-1099.
Item F. Total Assets
You aren't required to complete item F if the answer to Schedule B,
question 4, is “Yes.”
If you're required to complete this item, enter the partnership's
total assets at the end of the tax year, as determined by the
accounting method regularly used in keeping the partnership's
books and records. If there were no assets at the end of the tax year,
enter zero.
Item J. Schedule C and Schedule M-3
A partnership must file Schedule M-3, Net Income (Loss)
Reconciliation for Certain Partnerships, instead of Schedule M-1, if
any of the following apply.
•
The amount of total assets at the end of the tax year reported on
Schedule L, line 14, column (d), is $10 million or more.
•
The amount of adjusted total assets for the tax year is $10 million
or more. Adjusted total assets is defined in the Instructions for
Schedule M-3.
•
The amount of total receipts (as defined later in the instructions
for Schedule B, question 4) for the tax year is $35 million or more.
•
An entity that is a reportable entity partner of the partnership
owns or is deemed to own, directly or indirectly, an interest of 50% or
more in the partnership's capital, profit, or loss on any day during the
tax year of the partnership. Reportable entity partner is defined in the
Instructions for Schedule M-3.
A partnership filing Form 1065 that isn't required to file
Schedule M-3 may voluntarily file Schedule M-3 instead of
Schedule M-1.
Any partnership that files Schedule M-3 must also complete and
file Schedule C (Form 1065), Additional Information for
Schedule M-3 Filers. See Eased requirements next.
Eased requirements. Partnerships that (a) are required to file
Schedule M-3 and have less than $50 million in total assets at
tax-year-end, or (b) aren't required to file Schedule M-3 and
voluntarily file Schedule M-3, must either (i) complete Schedule M-3
entirely, or (ii) complete Schedule M-3 through Part I and complete
Schedule M-1 instead of completing Parts II and III of Schedule M-3.
In addition, partnerships that meet the requirements of (a) and (b)
above aren't required to file Schedule C (Form 1065) or Form
8916-A.
See the instructions for Schedule C and Schedule M-3 for more
information.
Income
Report only trade or business activity income on lines 1a
through 8. Don't report rental activity income or portfolio
income on these lines. See Passive Activity Limitations,
earlier, for definitions of rental activity income and portfolio income.
Rental activity income and portfolio income are reported on
Schedules K and K-1. Rental real estate activities are also reported
on Form 8825.
Tax-exempt income. Don’t include any tax-exempt income on lines
1a through 8. A partnership that receives any tax-exempt income
other than interest, or holds any property or engages in any activity
that produces tax-exempt income, reports this income on
Schedule K, line 18b, and in box 18 of Schedule K-1 using code B.
Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other RIC,
on Schedule K, line 18a, and in box 18 of Schedule K-1 using code
A.
See Deductions, later, for information on how to report expenses
related to tax-exempt income.
Line 1a. Gross Receipts or Sales
Enter on line 1a gross receipts or sales from all trade or business
operations, except for amounts that must be reported on lines 4
through 7. If a cost offset method under section 451(b) or (c) is used,
the resulting gross income is reported on line 1a.
Special rules apply to certain income, as discussed below. For
example, don't include gross receipts from farming on line 1a.
Instead, show the net profit (loss) from farming on line 5. Also, don't
include on line 1a rental activity income or portfolio income.
In general, advance payments are reported in the year of receipt.
For exceptions to this general rule for partnerships that use the
accrual method of accounting, see the following.
•
To report income from long-term contracts, see section 460.
•
For permissible methods that allow a limited deferral of advance
payments beyond the current tax year, see section 451(c) and
Regulations section 1.451-8.
•
For information on adopting or changing to a permissible method
for reporting advance payment for goods and services by an accrual
method partnership, see the Instructions for Form 3115.
Installment sales. Generally, the installment method can't be used
for dealer dispositions of property. A dealer disposition is any
disposition of:
•
Personal property by a person who regularly sells or otherwise
disposes of personal property of the same type on the installment
plan, or
•
Real property held for sale to customers in the ordinary course of
the taxpayer's trade or business.
Exception. These restrictions on using the installment method
don't apply to dispositions of property used or produced in a farming
business or sales of timeshares and residential lots. However, if the
partnership elects to report dealer dispositions of timeshares and
residential lots on the installment method, each partner's tax liability
must be increased by the partner's distributive share of the interest
payable under section 453(l)(3).
Include on line 1a the gross profit on collections from installment
sales for any of the following.
•
Dealer dispositions of property before March 1, 1986.
•
Dispositions of property used or produced in the trade or
business of farming.
•
Certain dispositions of timeshares and residential lots reported
under the installment method.
Attach a statement showing the following information for the
current year and the 3 preceding years.
•
Gross sales.
•
Cost of goods sold.
•
Gross profits.
•
Percentage of gross profits to gross sales.
•
Amount collected.
CAUTION
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•
Gross profit on the amount collected.
Nonaccrual-experience method. Partnerships that qualify to use
the nonaccrual-experience method (described earlier) should attach
a statement showing total gross receipts, the amount not accrued as
a result of the application of section 448(d)(5), and the net amount
accrued. Include the net amount on line 1a.
Line 2. Cost of Goods Sold
If the partnership has a cost of goods sold deduction, complete and
attach Form 1125-A. Enter on Form 1065, page 1, line 2, the amount
from Form 1125-A, line 8. See Form 1125-A and its instructions.
Line 4. Ordinary Income (Loss) From Other
Partnerships, Estates, and Trusts
Enter the ordinary income (loss) shown on Schedule K-1 (Form
1065) or Schedule K-1 (Form 1041), or other ordinary income (loss)
from a foreign partnership, estate, or trust. Show the partnership's,
estate's, or trust's name, address, and EIN on a separate statement
attached to this return. If the amount entered is from more than one
source, identify the amount from each source.
Don't include portfolio income or rental activity income (loss) from
other partnerships, estates, or trusts on this line. Instead, report
these amounts on Schedules K and K-1, or on Form 8825, line 20a,
if the amount is from a rental real estate activity.
Ordinary income (loss) from another partnership that is a PTP
isn't reported on this line. Instead, report the amount separately on
Schedule K, line 11, and in box 11 of Schedule K-1 using code ZZ.
Treat shares of other items separately reported on Schedule K-1
issued by the other entity as if the items were realized or incurred by
this partnership.
If there's a loss from another partnership, the amount of the loss
that may be claimed is subject to the basis limitations as appropriate.
If the tax year of your partnership doesn't coincide with the tax
year of the other partnership, estate, or trust, include the ordinary
income (loss) from the other entity in the tax year in which the other
entity's tax year ends.
Line 5. Net Farm Profit (Loss)
Enter the partnership's net farm profit (loss) from Schedule F (Form
1040). Attach Schedule F (Form 1040) to Form 1065. Don't include
on this line any farm profit (loss) from other partnerships. Report
those amounts on line 4. In figuring the partnership's net farm profit
(loss), don't include any section 179 expense deduction; this amount
must be separately stated.
Also report the partnership's fishing income on this line.
For a special rule concerning the method of accounting for a
farming partnership with a corporate partner and for other tax
information on farms, see Pub. 225, Farmer's Tax Guide.
Because the partner, and not the partnership, makes the
election to deduct the expenses of raising any plant with a
preproductive period of more than 2 years, farm
partnerships that aren't required to use an accrual method shouldn't
capitalize such expenses. Instead, state them separately on an
attached statement to Schedule K, line 13d, and in box 13 of
Schedule K-1 using code P. See section 263A(d) for more
information.
Line 6. Net Gain (Loss) From Form 4797
Include only ordinary gains or losses from the sale,
exchange, or involuntary conversion of assets used in a
trade or business activity. Ordinary gains or losses from the
sale, exchange, or involuntary conversion of rental activity assets are
reported separately on Form 8825, line 19, or Schedule K, line 3c,
and in box 3 of Schedule K-1, generally as a part of the net income
(loss) from the rental activity.
TIP
CAUTION
!
A partnership that is a partner in another partnership must
include on Form 4797 its share of ordinary gains (losses) from sales,
exchanges, or involuntary conversions (other than casualties or
thefts) of the other partnership's trade or business assets.
Partnerships shouldn't use Form 4797 to report the sale or other
disposition of property if a section 179 expense deduction was
previously passed through to any of its partners for that property.
Instead, report it in box 20 of Schedule K-1 using code L. See
Dispositions of property with section 179 deductions (code L), later,
for details.
Line 7. Other Income (Loss)
Enter any other trade or business income (loss) not included on lines
1a through 6. List the type and amount of income on an attached
statement. Examples of other income include the following.
•
Interest income derived in the ordinary course of the partnership's
trade or business, such as interest charged on receivable balances.
•
Recoveries of bad debts deducted in prior years under the
specific charge-off method.
•
Taxable income from insurance proceeds.
•
Any amount included in income from Form 6478, Biofuel
Producer Credit, line 2, if applicable.
•
Any amount included in income from Form 8864, line 9, if
applicable.
•
The recapture amount under section 280F if the business use of
listed property drops to 50% or less. To figure the recapture amount,
complete Form 4797, Part IV.
•
All section 481 income adjustments resulting from changes in
accounting methods. Show the computation of the section 481
adjustments on an attached statement.
•
Part or all of the proceeds received from certain employer-owned
life insurance contracts issued after August 17, 2006. Partnerships
that own one or more employer-owned life insurance contracts
issued after that date must file Form 8925, Report of
Employer-Owned Life Insurance Contracts. See section 101(j) for
details.
•
The amount of payroll tax credit taken by an employer for qualified
paid sick leave and qualified paid family leave under the Families
First Coronavirus Response Act (FFCRA) and the American Rescue
Plan Act of 2021 (the ARP). See Form 941, lines 11b, 11d, 13c, and
13e; Form 944, lines 8b, 8d, 10d, and 10f; or Form 943, lines 12b,
12d, 14d, and 14f. The partnership must include the full amount
(both the refundable and nonrefundable portions) of the credit for
qualified sick and family leave wages in its gross income for the tax
year that includes the last day of any calendar quarter with respect to
which a credit is allowed.
Note. A credit is available only if the leave was taken sometime after
March 31, 2020, and before October 1, 2021, and only after the
qualified leave wages were paid, which might under certain
circumstances not occur until a quarter after September 30, 2021,
including quarters during 2022. Accordingly, all lines related to
qualified sick and family leave wages remain on the employment tax
returns for 2023.
•
The amount of any COBRA premium assistance credit allowed to
employers under section 6432(e), as amended by the ARP. See
Notices 2021-31 and 2021-46.
Don't include items requiring separate computations that must be
reported on Schedules K and K-1. See the instructions for
Schedules K and K-1, later.
Don't report portfolio or rental activity income (loss) on this line.
Deductions
Report only trade or business activity deductions on lines 9
through 21.
Don't report the following expenses on lines 9 through 21.
•
Rental activity expenses. Report these expenses on Form 8825
or Schedule K, line 3b.
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•
Deductions allocable to portfolio income. Report these
deductions on Schedule K, line 13e, and in box 13 of Schedule K-1
using code I or L.
•
Nondeductible expenses (for example, expenses connected with
the production of tax-exempt income). Report nondeductible
expenses on Schedule K, line 18c, and in box 18 of Schedule K-1
using code C.
•
Qualified expenditures to which an election under section 59(e)
may apply. The instructions for Schedule K, line 13d, and for box 13,
code J, of Schedule K-1 explain how to report these amounts.
•
Items the partnership must state separately that require separate
computations by the partners. Examples include expenses incurred
for the production of income instead of in a trade or business,
charitable contributions, foreign taxes paid or accrued, intangible
drilling and development costs, soil and water conservation
expenditures, amortizable basis of reforestation expenditures, and
exploration expenditures. The distributive shares of these expenses
are reported separately to each partner on Schedule K-1.
Limitations on Deductions
Section 263A uniform capitalization rules. The uniform
capitalization rules of section 263A generally require partnerships to
capitalize certain costs incurred in connection with the following.
•
The production of real property and tangible personal property
held in inventory or held for sale in the ordinary course of business.
•
Real property or personal property (tangible and intangible)
acquired for resale.
•
The production of real property and tangible personal property by
a partnership for use in its trade or business or in an activity
engaged in for profit.
Tangible personal property produced by a partnership includes a
film, sound recording, videotape, book, or similar property.
The costs required to be capitalized under section 263A aren't
deductible until the property to which the costs relate is sold, used,
or otherwise disposed of by the partnership.
Exceptions. For tax years beginning after 2017, a small business
taxpayer, defined earlier, can adopt or change its method of
accounting to not capitalize costs under section 263A. See section
263A(i) and
Accounting Methods, earlier.
Section 263A doesn't apply to the following.
•
Timber.
•
Most property produced under a long-term contract.
•
Certain property produced in a farming business. See the note at
the end of the instructions for line 5, earlier.
•
Geological and geophysical costs amortized under section
167(h).
•
Certain plants bearing fruits and nuts under section 168(k)(5).
The partnership must report the following costs separately to the
partners for purposes of determinations under section 59(e).
•
Research and experimental costs under section 174.
•
Intangible drilling costs for oil, gas, and geothermal property.
•
Mining exploration and development costs.
Indirect costs. Partnerships subject to the uniform capitalization
rules are required to capitalize not only direct costs but an allocable
part of most indirect costs (including taxes) that benefit the assets
produced or acquired for resale, or are incurred because of the
performance of production or resale activities.
For inventory, indirect costs that must be capitalized include the
following.
•
Administration expenses.
•
Taxes.
•
Depreciation.
•
Insurance.
•
Compensation paid to officers attributable to services.
•
Rework labor.
•
Contributions to pension, stock bonus, and certain profit-sharing,
annuity, or deferred compensation plans.
Regulations section 1.263A-1(e)(3) specifies other indirect costs
that relate to production or resale activities that must be capitalized
and those that may be currently deductible.
Interest expense paid or incurred during the production period of
designated property must be capitalized and is governed by special
rules. For more details, see Regulations sections 1.263A-8 through
1.263A-15.
For more details on the uniform capitalization rules, see
Regulations sections 1.263A-1 through 1.263A-3.
Transactions between related taxpayers. Generally, an accrual
basis partnership can deduct business expenses and interest owed
to a related party (including any partner) only in the tax year of the
partnership that includes the day on which the payment is includible
in the income of the related party. See section 267 for details.
Business interest. Business interest expense (BIE) is limited for
tax years beginning after 2017. See section 163(j) for limitations on
deductions for business interest, and section 163(j)(4) for rules
specific to partnerships.
Business startup and organizational costs. Generally, a
partnership can elect to deduct a limited amount of startup or
organizational costs paid or incurred. Any costs not deducted must
be amortized as explained below. See sections 195(b) and 709(b).
Time for making an election. The partnership generally elects
to deduct startup or organizational costs by claiming the deduction
on its return filed by the due date (including extensions) for the tax
year in which the active trade or business begins. However, for
startup or organizational costs paid or incurred before September 9,
2008, the partnership may be required to attach a statement to its
return to elect to deduct such costs. See Temporary Regulations
sections 1.195-1T and 1.709-1T (as in effect on July 7, 2008) for
details. Also, see Regulations sections 1.195-1 and 1.709-1.
If the partnership timely filed its return for the year without making
an election, it can still make an election by filing an amended return
within 6 months of the due date of the return (excluding extensions).
Clearly indicate the election on the amended return and enter “Filed
pursuant to section 301.9100-2” at the top of the amended return.
File the amended return at the same address the partnership filed its
original return. The election applies when figuring income for the
current tax year and all subsequent years.
The partnership can choose to forgo the above elections by
clearly electing to capitalize its startup or organizational costs on its
return filed by the due date (including extensions) for the tax year in
which the active trade or business begins.
The election to either amortize or capitalize startup or
organizational costs is irrevocable and applies to all startup and
organizational costs that are related to the trade or business.
Amortization. Any costs not deducted under the above rules
must be amortized ratably over a 180-month period, beginning with
the month the partnership begins business. See the Instructions for
Form 4562 for details.
Report the deductible amount of these costs and any
amortization on line 21. For amortization that began during the tax
year, complete and attach Form 4562, Depreciation and
Amortization.
Syndication costs. Costs for issuing and marketing interests in the
partnership, such as commissions, professional fees, and printing
costs, must be capitalized. They can't be depreciated or amortized.
See the instructions for line 10, later, for the treatment of syndication
fees paid to a partner.
Reducing certain expenses for which credits are allowable.
The partnership may need to reduce the otherwise allowable
deductions for expenses used to figure certain credits. The following
are examples of such credits. (Don't reduce the amount of the
allowable deduction for any portion of the credit that was passed
through to the partnership from another pass-through entity.)
•
Work opportunity credit.
•
Credit for increasing research activities.
•
Disabled access credit.
•
Empowerment zone employment credit, if applicable.
•
Credit for employer social security and Medicare taxes paid on
certain employee tips.
•
Orphan drug credit.
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•
Credit for small employer pension plan startup costs (including
employer contributions).
•
Credit for employer-provided childcare facilities and services.
•
Low sulfur diesel fuel production credit.
•
Credit for employer differential wage payments.
•
Credit for small employer health insurance premiums.
•
Employer credit for paid family and medical leave (Form 8994).
Note. Wages taken into account in determining the credit for
qualified sick and family leave on Form 941 can't be taken into
account in determining the employer credit for paid family and
medical leave on Form 8994. See the Instructions for Form 8994.
If the partnership has any of the credits listed above, figure each
current year credit before figuring the deductions for expenses on
which the credit is based.
Line 9. Salaries and Wages
Enter the salaries and wages paid or incurred for the tax year,
reduced by the amount of the following credit(s).
•
Work Opportunity Credit (Form 5884).
•
Empowerment Zone Employment Credit (Form 8844), if
applicable.
•
Credit for Employer Differential Wage Payments (Form 8932).
Don't reduce the amount of the allowable deduction for any
portion of the credit that was passed through to the partnership from
another pass-through entity. See the instructions for the credit form
for more information.
Don't include salaries and wages reported elsewhere on the
return, such as amounts included in cost of goods sold, elective
contributions to a section 401(k) cash or deferred arrangement, or
amounts contributed under a salary reduction SEP agreement or a
SIMPLE IRA plan.
Line 10. Guaranteed Payments to Partners
Deduct payments or credits to a partner for services or for the use of
capital if the payments or credits are determined without regard to
partnership income and are allocable to a trade or business activity.
Also include on line 10 amounts paid during the tax year for
insurance that constitutes medical care for a partner, a partner's
spouse, a partner's dependents, or a partner's children under age 27
who aren't dependents.
For information on how to treat the partnership's contribution to a
partner's health savings account (HSA), see Notice 2005-8, 2005-4
I.R.B. 368.
Don't include any payments and credits that should be
capitalized. For example, although payments or credits to a partner
for services rendered in syndicating a partnership may be
guaranteed payments, they aren't deductible on line 10. They are
capital expenditures. However, they should be reported as
guaranteed payments on the applicable line of Schedule K, line 4b,
and in box 4b of Schedule K-1.
Don't include distributive shares of partnership profits.
Report the guaranteed payments to the appropriate partners
using the applicable box 4 of Schedule K-1.
Line 11. Repairs and Maintenance
Enter the cost of repairs and maintenance not claimed elsewhere on
the return, such as labor and supplies, that aren't payments for
improvements to the partnership’s property. Amounts are paid for
improvements if they’re for betterments to the property or for
restorations of the property (such as the replacements of major
components or substantial structural parts), or if they adapt the
property to a new or different use. Improvements must be
capitalized. See Regulations section 1.263(a)-3.
The partnership can deduct repair and maintenance expenses
only to the extent they relate to a trade or business activity. See
Regulations section 1.162-4. The partnership may elect to capitalize
certain repair and maintenance costs consistent with its books and
records. See Regulations section 1.263(a)-3(n) for information on
how to make the election.
Line 12. Bad Debts
Enter the total debts that became worthless in whole or in part during
the year, but only to the extent such debts relate to a trade or
business activity. Report deductible nonbusiness bad debts as a
short-term capital loss on Form 8949.
Cash method partnerships can't take a bad debt deduction
unless the amount was previously included in income.
Line 13. Rent
Enter rent paid on business property used in a trade or business
activity. Don't deduct rent for a dwelling unit occupied by any partner
for personal use.
If the partnership rented or leased a vehicle, enter the total
annual rent or lease expense paid or incurred in the trade or
business activities of the partnership. Also complete Form 4562,
Part V. If the partnership leased a vehicle for a term of 30 days or
more, the deduction for vehicle lease expense may have to be
reduced by an amount called the
inclusion amount. The partnership
may have an inclusion amount if:
The lease term began: And the vehicle's FMV on the first day of
the lease exceeded:
Automobiles other than trucks and vans
During calendar year 2023 .................. $60,000
During calendar year 2022 .................. $56,000
During calendar year 2021 .................. $51,000
After 12/31/2017 but before 1/1/2021 ............ $50,000
After 12/31/12 and before 1/1/18 .............. $19,000
After 12/31/09 but before 1/1/13 ............... $18,500
Trucks and vans
During calendar year 2023 .................. $60,000
During calendar year 2022 .................. $56,000
During calendar year 2021 .................. $51,000
After 12/31/2017 but before 1/1/2021 ............ $50,000
After 12/31/13 and before 1/1/18 .............. $19,500
After 12/31/09 and before 1/1/14 .............. $19,000
The inclusion amount for lease terms beginning in 2024 will be published in the
Internal Revenue Bulletin in early 2024.
See Pub. 463, Travel, Gift, and Car Expenses, for instructions on
figuring the inclusion amount.
Line 14. Taxes and Licenses
Enter taxes and licenses paid or incurred in the trade or business
activities of the partnership if not reflected elsewhere on the return.
Federal import duties and federal excise and stamp taxes are
deductible only if paid or incurred in carrying on the trade or
business of the partnership. Foreign taxes are included on line 14
only if they are taxes not creditable but deductible under sections
901 and 903. See Schedule K-2, Part II, Section 2, line 45, column
(g).
Don't deduct the following taxes on line 14.
•
Taxes not imposed on the partnership.
•
Federal income taxes or taxes reported elsewhere on the return.
•
Creditable foreign taxes under sections 901 and 903. Report
these taxes separately on Schedule K, line 21, and in box 21 of
Schedule K-1.
•
Taxes allocable to a rental activity. Report taxes allocable to rental
real estate activity on Form 8825. Report taxes allocable to a rental
activity other than a rental real estate activity on Schedule K, line 3b.
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Taxes paid or incurred for the production or collection of income,
or for the management, conservation, or maintenance of property
held to produce income. Report these taxes separately on
Schedule K, line 13e, and in box 13 of Schedule K-1 using code ZZ.
See section 263A(a) for rules on capitalization of allocable costs
(including taxes) for any property.
•
Taxes, including state or local sales taxes, that are paid or
incurred in connection with an acquisition or disposition of property
(these taxes must be treated as a part of the cost of the acquired
property or, in the case of a disposition, as a reduction in the amount
realized on the disposition).
•
Taxes assessed against local benefits that increase the value of
the property assessed (such as for paving, etc.).
See section 164(d) for information on apportionment of taxes on
real property between seller and purchaser.
Don't reduce your deduction for social security and
Medicare taxes by the nonrefundable and refundable
portions of the FFCRA and ARP credits for qualified sick and
family leave wages claimed on the partnership's employment tax
returns. Instead, report the credits as income on line 7.
Line 15. Interest
Include only interest incurred in the trade or business activities of the
partnership that isn't claimed elsewhere on the return.
Don't include interest expense on the following.
•
Debt used to purchase rental property or debt used in a rental
activity. Interest allocable to a rental real estate activity is reported on
Form 8825 and is used in arriving at net income (loss) from rental
real estate activities on Schedule K, line 2, and in box 2 of
Schedule K-1. Interest allocable to a rental activity other than a
rental real estate activity is included on Schedule K, line 3b, and is
used in arriving at net income (loss) from a rental activity (other than
a rental real estate activity). This net amount is reported on
Schedule K, line 3c, and in box 3 of Schedule K-1.
•
Debt used to buy property held for investment. Interest that is
clearly and directly allocable to interest, dividend, royalty, or annuity
income not derived in the ordinary course of a trade or business is
reported on Schedule K, line 13c, and in box 13 of Schedule K-1
using code H. See the instructions for Schedule K, line 13c; box 13,
code H, of Schedule K-1; and Form 4952, Investment Interest
Expense Deduction, for more information on investment property.
•
Debt proceeds allocated to distributions made to partners during
the tax year. Instead, report such interest on Schedule K, line 13e,
and in box 13 of Schedule K-1 using code AC.
•
Debt required to be allocated to the production of designated
property. Designated property includes real property, personal
property that has a class life of 20 years or more, and other tangible
property requiring more than 2 years (1 year in the case of property
with a cost of more than $1 million) to produce or construct. Interest
allocable to designated property produced by a partnership for its
own use or for sale must be capitalized. In addition, a partnership
must also capitalize to the basis of the designated property any
interest on debt allocable to an asset used to produce designated
property. A partner may have to capitalize interest that the partner
incurs during the tax year for the partnership's production
expenditures. Similarly, interest incurred by a partnership may have
to be capitalized by a partner for the partner's own production
expenditures. The information required by the partner to properly
capitalize interest for this purpose must be provided by the
partnership on an attached statement for box 20 of Schedule K-1
using code R. See section 263A(f) and Regulations sections
1.263A-8 through 1.263A-15.
Special rules apply to the following.
•
Allocating interest expense among activities so that the limitations
on passive activity losses, investment interest, and personal interest
can be properly figured. Generally, interest expense is allocated in
the same manner as debt is allocated. Debt is allocated by tracing
disbursements of the debt proceeds to specific expenditures.
Temporary Regulations section 1.163-8T gives rules for tracing debt
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proceeds to expenditures. Also see Proposed Regulations 1.163-14
for a special rule for allocating interest expense with respect to
pass-through entities.
•
Interest paid by a partnership to a partner for the use of capital,
which should be entered on line 10 as guaranteed payments.
•
Prepaid interest, which can generally only be deducted over the
term of the debt. See section 461(g) and Regulations sections
1.163-7, 1.446-2, and 1.1273-2(g) for details.
•
Interest that is allocable to unborrowed policy cash values of life
insurance, endowment, or annuity contracts issued after June 8,
1997, when the partnership is a policyholder or beneficiary. See
section 264(f). Attach a statement showing the computation of the
deduction.
Limitation on deduction. Business interest expense deduction is
generally limited to the sum of business interest income, 30% of the
adjusted taxable income (ATI), and floor plan financing interest. This
limitation generally applies at the partnership level. See section
163(j)(4) for additional information about the application of the
business interest expense limitation to partnerships. See Form 8990,
Limitation on Business Interest Expense Under Section 163(j), and
its instructions for more information. BIE includes any interest
expense properly allocable to a trade or business. A small business
taxpayer that isn't a tax shelter (as defined in section 448(d)(3)) and
that meets the gross receipts test isn't required to limit BIE under
section 163(j). A taxpayer meets the gross receipts test if the
taxpayer has average annual gross receipts of $29 million or less for
the 3 prior tax years under the gross receipts test of section 448(c).
Gross receipts include the aggregate gross receipts from all persons
treated as a single employer such as a controlled group of
corporations, commonly controlled partnerships or proprietorships,
and affiliated service groups. If the partnership fails to meet the
gross receipts test, Form 8990 is generally required. Also see
Schedule B, questions 23 and 24.
Line 16. Depreciation
On line 16a, enter only the depreciation claimed on assets used in a
trade or business activity. Enter on line 16b the depreciation
included elsewhere on the return (for example, on page 1, line 2) that
is attributable to assets used in trade or business activities. See the
Instructions for Form 4562, or Pub. 946, How To Depreciate
Property, to figure the amount of depreciation to enter on this line.
Complete and attach Form 4562 only if the partnership placed
property in service during the tax year or claims depreciation on any
car or other listed property.
Don't include any section 179 expense deduction on this line.
This amount isn't deducted by the partnership. Instead, it's passed
through to the partners in box 12 of Schedule K-1. Generally, the
basis of a partnership's section 179 property must be reduced to
reflect the amount of section 179 expense elected by the
partnership. This reduction must be made in the basis of partnership
property even if the limitations of section 179(b) and Regulations
section 1.179-2 prevent a partner from deducting all or a portion of
the amount of the section 179 expense allocated by the partnership.
Line 17. Depletion
If the partnership claims a deduction for timber depletion, complete
and attach Form T (Timber), Forest Activities Schedule.
Don't deduct depletion for oil and gas properties. Each
partner figures depletion on oil and gas properties. See the
instructions for Schedule K-1, box 20, Depletion information
oil and gas (code T), for the information on oil and gas depletion that
must be supplied to the partners by the partnership.
Line 18. Retirement Plans, etc.
Don't deduct payments for partners to retirement or deferred
compensation plans including IRAs, qualified plans, and simplified
employee pension (SEP) and SIMPLE IRA plans on this line. These
amounts are reported in box 13 of Schedule K-1, using code R, and
are deducted by the partners on their own returns.
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Enter the deductible contributions not claimed elsewhere on the
return made by the partnership for its common-law employees under
a qualified pension, profit-sharing, annuity, or SEP or SIMPLE IRA
plan, and under any other deferred compensation plan.
If the partnership contributes to an IRA for employees, include the
contribution in salaries and wages on page 1, line 9, or Form
1125-A, line 3, and not on line 18.
Employers who maintain a pension, profit-sharing, or other
funded deferred compensation plan (other than a SEP or SIMPLE
IRA), whether or not the plan is qualified under the Code and
whether or not a deduction is claimed for the current year, must
generally file the applicable form listed below.
•
Form 5500, Annual Return/Report of Employee Benefit Plan.
•
Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan (generally filed instead of Form 5500 if there
are under 100 participants at the beginning of the plan year).
Form 5500 and Form 5500-SF must be filed electronically
under the computerized ERISA Filing Acceptance System
(EFAST2). For more information, see the EFAST2 website at
EFAST.dol.gov.
•
Form 5500-EZ, Annual Return of A One-Participant (Owners/
Partners and Their Spouses) Retirement Plan or A Foreign Plan. File
this form for a plan that only covers one or more partners (or
partners and their spouses) or a foreign plan that is required to file
an annual return and doesn't file the annual return electronically on
Form 5500-SF.
Line 19. Employee Benefit Programs
Enter the partnership's contributions to employee benefit programs
not claimed elsewhere on the return (for example, insurance, health,
and welfare programs) that aren't part of a pension, profit-sharing,
etc., plan included on line 18.
Don't include amounts paid during the tax year for insurance that
constitutes medical care for a partner, a partner's spouse, a partner's
dependents, or a partner's children under age 27 who aren't
dependents. Instead, include these amounts on line 10 as
guaranteed payments on the applicable line of Schedule K, line 4,
and the applicable line of box 4 of Schedule K-1, of each partner on
whose behalf the amounts were paid. Also report these amounts on
Schedule K, line 13e, and in box 13 of Schedule K-1, using code M,
of each partner on whose behalf the amounts were paid.
Line 20. Energy Efficient Commercial Building
Deduction
Deduction for certain energy efficient commercial building property.
See the Instructions for Form 7205 and section 179D for more
information. Complete and attach Form 7205 if claiming this
deduction.
Line 21. Other Deductions
Enter the total allowable trade or business deductions that aren't
deductible elsewhere on page 1 of Form 1065. Attach a statement
listing by type and amount each deduction included on this line.
Examples of other deductions include the following.
•
Amortization. See the Instructions for Form 4562 for more
information. Complete and attach Form 4562 if the partnership is
claiming amortization of costs that began during the tax year.
•
Insurance premiums.
•
Legal and professional fees.
•
Supplies used and consumed in the business.
•
Utilities.
•
Certain business startup and organizational costs. See
Limitations on Deductions, earlier, for more details.
•
Any net negative section 481(a) adjustment.
Also see Special Rules, later.
Don't deduct the following on line 21.
•
Items that must be reported separately on Schedules K and K-1.
•
Fines or similar penalties. Generally, no deduction is allowed for
fines or similar penalties paid to or at the direction of a government
TIP
or governmental entity for violating any law except amounts that
constitute restitution (including remediation of property), amounts
paid to come into compliance with the law, amounts paid or incurred
as the result of orders or agreements in which no government or
governmental entity is a party, and amounts paid or incurred for
taxes due to the extent the amount would have been allowed as a
deduction if timely paid. No deduction is allowed unless the amounts
are specifically identified in the order or agreement and the taxpayer
establishes that the amounts were paid for that purpose. Also, any
amount paid or incurred as reimbursement to the government for the
costs of any investigation or litigation aren't eligible for the
exceptions and are nondeductible. See section 162(f). Report
nondeductible amounts on Schedule K, line 18c.
•
Expenses allocable to tax-exempt income. Report these
expenses on Schedule K, line 18c.
•
Net operating losses. Only individuals and corporations may
claim a net operating loss deduction.
•
Amounts paid or incurred to participate or intervene in any
political campaign on behalf of a candidate for public office, or to
influence the general public regarding legislative matters, elections,
or referendums. Report these expenses on Schedule K, line 18c.
•
Lobbying expenses. Generally, lobbying expenses aren't
deductible. These expenses include amounts paid or incurred in
connection with influencing federal, state, or local legislation; or
amounts paid or incurred in connection with any communication with
certain federal executive branch officials in an attempt to influence
the official actions or positions of the officials. See Regulations
section 1.162-29 for the definition of “influencing legislation.” Dues
and other similar amounts paid to certain tax-exempt organizations
may not be deductible. If certain in-house lobbying expenditures
don't exceed $2,000, they are deductible. See section 162(e)(4)(B).
•
Amounts paid or incurred for any settlement or payout related to
sexual harassment or sexual abuse that is subject to a
nondisclosure agreement, as well as any attorney’s fees related to
the settlement or payout. See section 162(q).
Special Rules
Travel, meals, and entertainment. Subject to limitations and
restrictions discussed below, a partnership can deduct ordinary and
necessary travel and non-entertainment-related meal expenses paid
or incurred in its trade or business. Generally, entertainment
expenses, membership dues, and facilities used in connection with
these activities can't be deducted. Also, special rules apply to
deductions for gifts, luxury water travel, and convention expenses.
See section 274 and Pub. 463 for details.
Travel. The partnership can't deduct travel expenses of any
individual accompanying a partner or partnership employee,
including a spouse or dependent of the partner or employee, unless:
•
That individual is an employee of the partnership, and
•
The travel is for a bona fide business purpose and would
otherwise be deductible by that individual.
Meals. Generally, the partnership can deduct only 50% of the
amount otherwise allowable for non-entertainment meal expenses
paid or incurred in its trade or business. Entertainment-related meals
are generally disallowed. In addition (subject to exceptions under
section 274(k)(2)):
•
Meals must not be lavish or extravagant, and
•
A partner or employee of the partnership must be present at the
meal.
See section 274(n)(3) for a special rule that applies to expenses
for meals consumed by individuals subject to the hours of service
limits of the Department of Transportation.
Membership dues. The partnership may deduct amounts paid
or incurred for membership dues in civic or public service
organizations, professional organizations (such as bar and medical
associations), business leagues, trade associations, chambers of
commerce, boards of trade, and real estate boards. However, no
deduction is allowed if a principal purpose of the organization is to
entertain, or provide entertainment facilities for, members or their
guests. In addition, the partnership may not deduct membership
dues in any club organized for business, pleasure, recreation, or
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other social purpose. This includes country clubs, golf and athletic
clubs, airline and hotel clubs, and clubs operated to provide meals
under conditions favorable to business discussion.
Entertainment facilities. The partnership can't deduct an
expense paid or incurred for a facility (such as a yacht or hunting
lodge) used for an activity usually considered entertainment,
amusement, or recreation.
Amounts treated as compensation. Generally, the partnership
may be able to deduct otherwise nondeductible entertainment,
amusement, or recreation expenses if the amounts are treated as
compensation to the recipient and reported on Form W-2 for an
employee or on Form 1099-NEC for an independent contractor.
Reforestation expenditures. If the partnership made an election
to deduct a portion of its reforestation expenditures on Schedule K,
line 13e, it must amortize over an 84-month period the portion of
these expenditures in excess of the amount deducted on
Schedule K (see section 194). Deduct on line 21 only the
amortization of these excess reforestation expenditures. See
Reforestation expense deduction (code S), later.
Tax and Payment
Line 24. Interest due under the look-back method for comple-
ted long-term contracts. For partnerships that aren't closely held,
attach Form 8697 and a check or money order for the full amount,
made payable to "United States Treasury." Enter the partnership's
EIN, daytime phone number, and "Form 8697 Interest'' on the check
or money order.
Line 25. Interest due under the look-back method for property
depreciated under the income forecast method. For
partnerships that aren’t closely held, attach Form 8866 and a check
or money order for the full amount, made payable to “United States
Treasury.” Enter the partnership’s EIN, daytime phone number, and
“Form 8866 Interest” on the check or money order.
Line 26. BBA AAR imputed underpayment. Use this line if the
partnership is filing an AAR electronically and chooses to pay the IU.
For instructions on how to figure the IU, see the Instructions for Form
8082. Enter the name of the partnership, TIN, tax year, “Form 1065,”
and “BBA AAR Imputed Underpayment” on the payment. Checks
must be made payable to “United States Treasury” and mailed to
Ogden Service Center, Ogden, UT 84201-0011. Payments can be
made by check or electronically. If making an electronic payment,
choose the payment description “BBA AAR Imputed Underpayment”
from the list of payment types.
Line 27. Other taxes. In a few instances, payments other than
those listed above may have to be made with Form 1065. Enter the
amount on this line and attach a statement identifying the purpose of
the payment.
Line 29. Elective payment election amount from Form 3800.
Report the gross elective payment election amount from Form 3800,
Part III, line 6, column (h).
Line 30. Payment. Enter any prepayments related to lines 24–27
above.
Schedule B. Other Information
Question 1
Check box 1f for any other type of entity and state the type.
Maximum Percentage Owned for Purposes of
Questions 2 and 3
To determine the maximum percentage owned in the partnership's
profit, loss, or capital for the purposes of questions 2a, 2b, and 3b,
determine separately the partner's percentage of interest in profit,
loss, and capital at the end of the partnership's tax year. This
determination must be based on the partnership agreement and it
must be made using the constructive ownership rules described
below. The maximum percentage is the highest of these three
percentages (determined at the end of the tax year).
See Item J. Partner's Profit, Loss, and Capital, later, for more
information on ownership percentages.
Questions 2 and 3
Constructive ownership of the partnership. For purposes of
question 2, except for foreign governments within the meaning of
section 892, in determining an ownership interest in the profit, loss,
or capital of the partnership, the constructive ownership rules of
section 267(c) (excluding section 267(c)(3)) apply to ownership of
interests in the partnership as well as corporate stock. An interest in
the partnership that is owned directly or indirectly by or for another
entity (corporation, partnership, estate, trust, or tax-exempt
organization) is considered to be owned proportionately by the
owners (shareholders, partners, or beneficiaries) of the owning
entity.
Also, under section 267(c), an individual is considered to own an
interest owned directly or indirectly by or for the individual’s family.
The family of an individual includes only that individual's spouse,
brothers, sisters, ancestors, and lineal descendants. An interest will
be attributed from an individual under the family attribution rules only
if the person to whom the interest is attributed owns a direct interest
in the partnership or an indirect interest under section 267(c)(1) or
(5). For purposes of these instructions, an individual won't be
considered to own, under section 267(c)(2), an interest in the
partnership owned, directly or indirectly, by a family member of the
individual unless the individual also owns an interest in the
partnership either directly or indirectly through a corporation,
partnership, or trust.
For purposes of question 2, “foreign government” has the same
meaning as it does under section 892. In determining a foreign
government's ownership interest in the profit, loss, or capital of the
partnership, the constructive ownership rules of Regulations section
1.892-5T(c)(1)(i) apply to ownership of interests in the partnership
as well as corporate stock. An interest in the partnership that is
owned directly or indirectly by an integral part or controlled entity of a
foreign sovereign (within the meaning of Regulations section
1.892-2T(a)) is considered to be owned proportionately by such
foreign sovereign.
Constructive ownership examples for questions 2 and 3 are
included below. For the purposes of questions 2 and 3, add an
owner's direct percentage ownership and indirect percentage
ownership in an entity to determine if the owner owns, directly or
indirectly, 50% or more of the entity.
Example for question 2a. Corporation A owns, directly, an
interest of 50% in the profit, loss, or capital of Partnership B.
Corporation A also owns, directly, an interest of 15% in the profit,
loss, or capital of Partnership C. Partnership B owns, directly, an
interest of 70% in the profit, loss, or capital of Partnership C.
Therefore, Corporation A owns, directly or indirectly, an interest of
50% in the profit, loss, or capital of Partnership C (15% directly and
35% indirectly through Partnership B). On Partnership C's Form
1065, it must answer “Yes” to question 2a of Schedule B. See
Example 1 in the instructions for Schedule B-1 (Form 1065) for
guidance on providing the rest of the information required of entities
answering “Yes” to this question.
Example for question 2b. A owns, directly, 50% of the profit,
loss, or capital of Partnership X. B, the daughter of A, doesn't own,
directly, any interest in X and doesn't own, indirectly, any interest in X
through any entity (corporation, partnership, trust, or estate).
Because family attribution rules apply only when an individual (in this
example, B) owns a direct interest in the partnership or an indirect
interest through another entity, A's interest in Partnership X isn't
attributable to B. On Partnership X's Form 1065, it must answer “Yes”
to question 2b of Schedule B. See
Example 2 in the instructions for
Schedule B-1 (Form 1065) for guidance on providing the rest of the
information required of entities answering “Yes” to this question.
Constructive ownership of other entities by the partnership.
For purposes of determining the partnership's constructive
ownership of other entities, the constructive ownership rules of
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section 267(c) (excluding section 267(c)(3)) apply to ownership of
interests in partnerships and trusts as well as corporate stock.
Generally, if an entity (a corporation, partnership, or trust) is owned,
directly or indirectly, by or for another entity (corporation,
partnership, estate, or trust), the owned entity is considered to be
owned proportionally by or for the owners (shareholders, partners, or
beneficiaries) of the owning entity.
Question 3a. List each corporation in which the partnership, at
the end of the tax year, owns, directly, 20% or more, or owns, directly
or indirectly, 50% or more of the total voting power of all classes of
stock entitled to vote. Indicate the name, EIN, country of
incorporation, and percentage interest owned, directly or indirectly,
in the total voting power. List the parent corporation of an affiliated
group filing a consolidated tax return rather than the subsidiary
members except for subsidiary members in which an interest is
owned, directly or indirectly, independent of the interest owned,
directly or indirectly, in the parent corporation. If a corporation is
owned through a DE, list the information for the corporation rather
than the DE.
Question 3b. List each partnership in which the partnership, at
the end of the tax year, owns, directly, an interest of 20% or more, or
owns, directly or indirectly, an interest of 50% or more in the profit,
loss, or capital of the partnership. List each trust in which the
partnership, at the end of the tax year, owns, directly, an interest of
20% or more, or owns, directly or indirectly, an interest of 50% or
more in the trust beneficial interest. For each partnership or trust
listed, indicate the name, EIN, type of entity (partnership or trust),
and country of origin. If the listed entity is a partnership, enter in
column (v) the maximum of percentage interests owned, directly or
indirectly, in the profit, loss, or capital of the partnership at the end of
the partnership's tax year. If the entity is a trust, enter in column (v)
the percentage of the partnership's beneficial interest in the trust
owned, directly or indirectly, at the end of the tax year. List a
partnership or trust owned through a DE rather than the DE.
Question 4
Answer “Yes” if the partnership meets all four of the requirements
shown on the form. Total receipts is defined as the sum of gross
receipts or sales (page 1, line 1a); all other income (page 1, lines 4
through 7); income reported on Schedule K, lines 3a, 5, 6a, and 7;
income or net gain reported on Schedule K, lines 8, 9a, 10, and 11;
and income or net gain reported on Form 8825, lines 2, 19, and 20a.
“Total assets” is defined as the amount that would be reported in
item F on page 1 of Form 1065.
Question 5
Answer “Yes” if interests in the partnership are traded on an
established securities market or are readily tradable on a secondary
market (or its substantial equivalent).
Question 6
Generally, the partnership will have income if debt is canceled or
forgiven. Amounts related to forgiven Paycheck Protection Program
(PPP) loans are disregarded for purposes of this question. The
determination of the existence and amount of cancellation of debt
income is determined at the partnership level. Partnership
cancellation of indebtedness income is separately stated on
Schedule K and Schedule K-1. The extent to which such income is
taxable is usually determined by each individual partner under rules
found in section 108. For more information, see Pub. 334, Tax Guide
for Small Business.
Question 7
Answer “Yes” if the partnership filed, or is required to file, a return
under section 6111 to provide information on any reportable
transaction by a material advisor. Use Form 8918, Material Advisor
Disclosure Statement, to provide the information. For details, see the
Instructions for Form 8918.
Question 8
Answer “Yes” if either (1) or (2) below applies to the partnership.
Otherwise, check the “No” box.
1. At any time during calendar year 2023, the partnership had
an interest in or signature or other authority over a bank account,
securities account, or other financial account in a foreign country
(see FinCEN Form 114, Report of Foreign Bank and Financial
Accounts (FBAR)); and
a. The combined value of the accounts was more than $10,000
at any time during the calendar year; and
b. The accounts were not with a U.S. military banking facility
operated by a U.S. financial institution.
2. The partnership owns more than 50% of the stock in any
corporation that would answer “Yes” based on item (1) above.
If the “Yes” box is checked for this question, do the following.
•
Enter the name of the foreign country or countries. Attach a
separate sheet if more space is needed.
•
File FinCEN Form 114 electronically at the FinCEN website,
bsaefiling.fincen.treas.gov/main.html.
Question 9
The partnership may be required to file Form 3520, Annual Return To
Report Transactions With Foreign Trusts and Receipt of Certain
Foreign Gifts, if any of the following apply.
•
It directly or indirectly transferred property or money to a foreign
trust. For this purpose, any U.S. person who created a foreign trust is
considered a transferor.
•
It's treated as the owner of any part of the assets of a foreign trust
under the grantor trust rules.
•
It received a distribution, a loan of cash or other marketable
securities, or uncompensated use of trust property from a foreign
trust, or a foreign trust holds an outstanding qualified obligation of
the partnership.
For more information, see the Instructions for Form 3520.
An owner of a foreign trust must ensure that the trust files an
annual information return on Form 3520-A, Annual Information
Return of Foreign Trust With a U.S. Owner.
Questions 10a, 10b, 10c, and 10d
You must check “Yes” or “No” for each question.
Question 10a. Answer “Yes” if the partnership is making, or has
made (and hasn't revoked), a section 754 election. For information
about the election, see item 4 under
Elections Made by the
Partnership, earlier.
Question 10b. Answer “Yes” if either of the following has occurred.
•
The partnership made an optional basis adjustment under section
743(b) or 734(b) for the tax year.
•
The partnership has made a section 754 election (and it hasn't
been revoked) and a basis adjustment under section 743(b) is made
on a sale or exchange of a partnership interest or a transfer of a
partnership interest on the death of a partner. See question 10c if
the partnership has a substantial built-in loss immediately after such
a transfer.
For partnerships other than PTPs, enter the total aggregate
positive amount (in the appropriate space provided) resulting from all
section 743(b) adjustments. Aggregate positive amount from all
section 743(b) adjustments means the increase in the partners'
share of basis in partnership property from all section 743(b)
adjustments allocated to all the partners. Enter the total aggregate
negative amount (in the appropriate space provided) resulting from
all section 743(b) adjustments. Aggregate negative amount from all
section 743(b) adjustments means decrease in the partners' share
of basis in partnership property from all section 743(b) adjustments
allocated to all the partners.
Section 743(b) basis adjustment. The basis adjustment affects
only the transferee's basis in partnership property. The partnership
TIP
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must attach a statement to the return for the tax year in which the
transfer occurred. The statement must include:
•
The name of the transferee partner,
•
The EIN or SSN of the transferee partner,
•
The computation of the adjustment, and
•
The identity of the partnership properties to which the adjustment
has been allocated.
For details, see section 743 and Regulations section 1.743-1. For
details on allocating the basis adjustment to partnership properties,
see section 755 and Regulations section 1.755-1.
Question 10c. Answer “Yes” if the partnership made an optional
basis adjustment under section 734(b) for the tax year. If the
partnership has made a section 754 election (and it hasn't been
revoked), the partnership must make a basis adjustment under
section 734(b). Enter the total aggregate positive amount and the
total aggregate negative amount in the appropriate space provided.
Aggregate positive amount from all section 734(b) adjustments
means the increase in the basis of partnership property from all
section 734(b) adjustments. Enter the total aggregate negative
amount (in the appropriate space provided) resulting from all section
734(b) adjustments. Aggregate negative amount from all section
734(b) adjustments means the decrease in basis of partnership
property from all section 734(b) adjustments.
Section 734(b) basis adjustment. For a section 734(b) basis
adjustment, attach a statement that includes:
•
The computation of the adjustment,
•
The class of property distributed (ordinary income property or
capital gain property), and
•
The partnership properties to which the adjustment has been
allocated.
Question 10d. Answer “Yes” if the partnership had to make a basis
reduction under section 743(b) because of a substantial built-in loss
(as defined in section 743(d)) or under section 734(b) because of a
substantial basis reduction (as defined in section 734(d)).
Enter the total aggregate amount of such section 743(b)
adjustments and/or section 734(b) adjustments for all partners
and/or partnership property made in the tax year in the space
provided as a positive number.
Section 743(d)(1) provides that, for purposes of section 743, a
partnership has a substantial built-in loss resulting from a transfer of
a partnership interest if the partnership's adjusted basis in the
partnership's property exceeds by more than $250,000 the FMV of
the property or the transferee partner would be allocated a loss of
more than $250,000 if the partnership assets were sold for cash
equal to their FMV immediately after such transfer. Under section
734(d), there's a substantial basis reduction resulting from a
distribution if the sum of the following amounts exceeds $250,000.
•
The amount of loss recognized by the distributee partner on a
distribution in liquidation of the partner's interest in the partnership
(see section 731(a)(2)).
•
The excess of the basis of the distributed property to the
distributee partner (determined under section 732) over the adjusted
basis of the distributed property to the partnership immediately
before the distribution (as adjusted by section 732(d)).
Section 734(b) basis adjustment. For section 734(b) basis
adjustment, for partnerships other than PTPs, attach a statement
that includes:
•
The computation of the adjustment,
•
The class of property distributed (ordinary income property or
capital gain property), and
•
The partnership properties to which the adjustment has been
allocated.
Question 11
Check the box if the partnership engaged in a like-kind exchange
during the current or immediately preceding tax year and received
replacement property that it distributed during the current tax year.
For purposes of this question, the partnership is considered to have
distributed replacement property if the partnership contributed such
property to any entity other than a DE. The distribution of its
ownership interest in a DE is considered a distribution of the
underlying property.
Question 12
If a partnership distributed property to its partners to be jointly
owned, whether such distribution is direct or through the formation of
an intermediate entity, the question must be answered “Yes.” For
purposes of question 12, an “undivided interest in partnership
property” means property that was owned by the partnership either
directly or through a DE and which was distributed to partners as
fractional ownership interests. A tenancy-in-common interest is a
type of undivided ownership interest in property which provides each
owner the right to transfer property to a third party without destroying
the tenancy in common. Partners may agree to partition property
held as tenants in common or may seek a court order to partition the
property (usually dividing the property into fractional interests in
accordance with each partner's ownership interest in the
partnership).
Example. Partnership P is a partnership that files Form 1065.
Partnership P holds title to land held for investment. Partnership P
converts its title to the land to fractional interests in the name of the
partners and distributes such interests to its partners. Partnership P
must answer “Yes” to question 12.
Question 13
Enter the number of Forms 8858, Information Return of U.S. Persons
With Respect To Foreign Disregarded Entities (FDEs) and Foreign
Branches (FBs), that are attached to the return. Form 8858 and its
schedules are used by certain U.S. persons (including domestic
partnerships) that own an FDE or FB directly (or, in certain cases,
indirectly or constructively) to satisfy the reporting requirements of
sections 6011, 6012, 6031, and 6038, and the related regulations.
See Form 8858 (and its separate instructions) for information on
completing the form and the information that the partnership may
need to provide to certain partners for them to complete their Forms
8858 relating to that FDE or FB.
Question 14
Answer “Yes” if the partnership had any foreign partners (for
purposes of section 1446(a)) at any time during the tax year.
Otherwise, answer “No.”
If the partnership had gross income effectively connected with a
trade or business in the United States and foreign partners, it may be
required to withhold tax under section 1446(a) on income allocable
to foreign partners (without regard to distributions) and file Forms
8804, 8805, and 8813. See Regulations sections 1.1446-1
through -7 for more information.
Questions 16a and 16b
If the partnership made any payment in 2023 that would require the
partnership to file any Form(s) 1099, check the “Yes” box for
question 16a and answer question 16b. Otherwise, check the “No”
box for question 16a and skip question 16b. See Am I Required to
File a Form 1099 or Other Information Return for more information.
Question 20
For tax years beginning after 2015, domestic partnerships that are
formed or availed of to hold specified foreign financial assets
(“specified domestic entities”) must file Form 8938, Statement of
Specified Foreign Financial Assets, with its Form 1065 for the tax
year. Form 8938 must be filed each year the value of the
partnership’s specified foreign financial assets meets or exceeds the
reporting threshold. For more information on domestic partnerships
that are specified domestic entities and the types of foreign financial
assets that must be reported, see the Instructions for Form 8938.
A domestic partnership required to file Form 8938 with its Form
1065 for the tax year should check “Yes” to this question.
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Question 22
Section 267A disallows a deduction for certain interest or royalty
paid or accrued pursuant to a hybrid arrangement, to the extent that,
under the foreign tax law, there isn't a corresponding income
inclusion (including long-term deferral). In the entry line for question
22, report the total amount of interest and royalty paid or accrued by
the partnership for which the partnership knows, or has reason to
know, that one or more partners' distributive share of deductions is
disallowed under section 267A. For additional information, see FAQs
at
IRS.gov/businesses/partnerships/FAQs-for-Form-1065-Schedule-
B-Other-Information-Question-22.
Question 23
The limitation on BIE applies to every taxpayer with a trade or
business, unless the taxpayer meets certain specified exceptions. A
partnership may elect out of the limitation for certain businesses
otherwise subject to the business interest expense limitation.
Certain real property trades or businesses and farming
businesses qualify to make an election not to limit BIE. This is an
irrevocable election. If you make this election, you're required to use
the alternative depreciation system to depreciate certain property.
Also, you aren’t entitled to the special depreciation allowance for that
property. For a partnership with more than one qualifying business,
the election is made with respect to each business. Check “Yes” if
the partnership has an election in effect to exclude a real property
trade or business or a farming business from section 163(j). For
more information, see section 163(j) and the Instructions for Form
8990.
Question 24
Generally, a taxpayer with a trade or business must file Form 8990 to
claim a deduction for business interest. BIE is interest that is
properly allocable to a non-excepted trade or business or that is floor
plan financing interest. In addition, Form 8990 must be filed by any
taxpayer that owns an interest in a partnership with current year, or
prior year carryover, excess business interest expense (EBIE)
allocated from the partnership. A pass-through entity allocating
excess taxable income or excess business interest income to its
owners (that is, a pass-through entity that isn't a small business
taxpayer) must file Form 8990, regardless of whether it has any
interest expense.
Exclusions from filing. A taxpayer isn't required to file Form 8990
if the taxpayer is a small business taxpayer and doesn't have EBIE
from a partnership. A taxpayer is also not required to file Form 8990
if the taxpayer only has BIE from the following excepted trades or
businesses.
•
The trade or business of providing services as an employee.
•
An electing real property trade or business.
•
An electing farming business.
•
Certain utility businesses.
Small business taxpayer. A small business taxpayer isn't subject
to the business interest expense limitation and isn't required to file
Form 8990. A small business taxpayer is a taxpayer that (a) isn't a
tax shelter (as defined in section 448(d)(3)); and (b) meets the gross
receipts test of section 448(c), discussed next.
Gross receipts test. A taxpayer meets the gross receipts test if
the taxpayer has average annual gross receipts of $29 million or less
for the 3 prior tax years. A taxpayer's average annual gross receipts
for the 3 prior tax years is determined by adding the gross receipts
for the 3 prior tax years and dividing the total by 3. Gross receipts
include the aggregate gross receipts from all persons treated as a
single employer, such as a controlled group of corporations,
commonly controlled partnerships, or proprietorships, and affiliated
service groups. See section 448(c) and the Instructions for Form
8990 for additional information.
Question 25
To be certified as a QOF, the partnership must file Form 1065 and
attach Form 8996, even if the partnership had no income or
expenses to report. If the partnership is attaching Form 8996, check
the "Yes" box for question 25. On the line following the dollar sign,
enter the amount from Form 8996, Part III, line 15.
Question 26
Provide the number of foreign partners subject to section 864(c)(8)
as a result of transferring all or a portion of an interest in the
partnership if the partnership is engaged in a U.S. trade or business.
Section 864(c)(8) provides that gain or loss of a foreign transferor
from the transfer of a partnership interest is treated as effectively
connected with the conduct of a trade or business within the United
States to the extent that the transferor would have had effectively
connected gain or loss if the partnership sold all of its assets at FMV
on the date of transfer. For purposes of section 864(c)(8), a transfer
of a partnership interest means a sale, exchange, or other
disposition, and includes a distribution from a partnership to a
partner to the extent that gain or loss is recognized on the
distribution, as well as a transfer treated as a sale or exchange under
section 707(a)(2)(B). Section 864(c)(8) applies to foreign partners
that directly or indirectly transfer an interest in a partnership that is
engaged in a U.S. trade or business. The partnership should include
in its response any transfer for which it has received notification or
otherwise knows about. If the partnership is a PTP as defined in
section 469(k)(2) and has properly answered “Yes” to question 5 on
Form 1065, Schedule B, then it's not required to answer the
question.
If a partnership had any foreign partners subject to section 864(c)
(8), the partnership must complete Schedule K-3 (Form 1065), Part
XIII, for each foreign partner subject to section 864(c)(8) on a
transfer or distribution. The partnership may also be required to
withhold under section 1446(f)(4) on future distributions that it
makes to the transferee partner if that partner failed to withhold on
the transfer under section 1446(f)(1). See Pub. 515, Withholding of
Tax on Nonresident Aliens and Foreign Entities, for more
information.
Question 27
Answer "Yes" if at any time during the tax year there were transfers
between the partnership and its partners subject to the disclosure
requirements of Regulations section 1.707-8. For certain transfers
that are presumed to be sales, the partnership or the partners must
comply with the disclosure requirements in Regulations section
1.707-8. Generally, disclosure is required when:
1. Certain transfers to a partner are made within 2 years of a
transfer of property by the partner to the partnership;
2. Certain debt is incurred by a partner within 2 years of the
earlier of (a) a written agreement to transfer, or (b) a transfer of the
property that secures the debt, if the debt is treated as a qualified
liability; or
3. Transfers from a partnership to a partner occur which are the
equivalent to those listed in (1) or (2) above.
The disclosure must be made on the transferor partner's return
using Form 8275, Disclosure Statement, or on an attached
statement providing the same information. When more than one
partner transfers property to a partnership under a plan, the
disclosure may be made by the partnership rather than by each
partner.
Question 28
Section 7874 applies in certain cases in which a foreign corporation
directly or indirectly acquires substantially all of the properties
constituting a trade or business of a domestic partnership. Check
“Yes” if, since December 22, 2017, a foreign corporation directly or
indirectly acquired substantially all of the properties constituting a
trade or business of your partnership (and you're a domestic
partnership), and the ownership with respect to the acquisition was
greater than 50% (by vote or value). If “Yes” is checked, list the
ownership percentage by both vote and value.
The information must be reported even if you conclude that
section 7874 doesn't apply.
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Section 7874 generally applies when the following three
requirements are met.
•
Pursuant to a plan or series of related transactions, a foreign
corporation must acquire directly or indirectly substantially all of the
properties constituting a trade or business of a domestic partnership.
•
After the acquisition, the ownership percentage (by vote or value)
must be at least 60%.
•
After the acquisition, the expanded affiliate that includes the
foreign acquiring corporation must not have substantial business
activities in the foreign country in which the foreign acquiring
corporation is created or organized.
When section 7874 applies, the tax treatment of the acquisition
depends on the ownership percentage. If the ownership is at least
80%, the foreign acquiring corporation is treated as a domestic
corporation for all purposes of the Code. See section 7874(b). If the
ownership is at least 60% but less than 80%, the foreign acquiring
corporation is considered a foreign corporation but the domestic
partnership and certain other persons are subject to special rules
that reduce the tax benefits of the acquisition. See section 7874(a)
(1).
The Tax Cuts and Jobs Act of 2017 provides additional special
rules for certain cases in which section 7874 applies. See sections
59A(d)(4) and 965(l).
Ownership percentage. The ownership percentage is the
percentage described in section 7874(a)(2)(B)(ii). See the
regulations under section 7874 for rules regarding the computation
of the ownership percentage.
In general, the ownership percentage measures the percentage
of stock of the foreign acquiring corporation that is held by partners
of the domestic partnership by reason of holding a capital or profits
interest in the domestic partnership, with certain adjustments (for
example, disregarding certain stock of the foreign acquiring
corporation attributable to passive assets or assets of other
domestic entities that were recently acquired by the foreign acquiring
corporation). The ownership percentage is measured separately by
vote and value.
Multiple reportable acquisitions. If there are multiple acquisitions
that must be reported, list on the lines for question 28 the ownership
percentage by vote and value for the most recent acquisition. Attach
a statement reporting the ownership percentage by vote and value
for the other acquisitions.
Question 29
Under section 4501, the partnership may be required to file Form
7208 and pay the stock repurchase excise tax if, during the
partnership's tax year, (a) the partnership is a specified affiliate of an
applicable foreign corporation, or (b) the partnership is an
expatriated entity with respect to a covered surrogate foreign
corporation. Don't complete a Form 7208 until the date specified in
upcoming regulations under section 4501. For additional
information, see section 4501 and Announcement 2023-18.
Question 30
Digital assets are any digital representations of value that are
recorded on a cryptographically secured distributed ledger or any
similar technology. For example, digital assets include non-fungible
tokens (NFTs) and virtual currencies, such as cryptocurrencies and
stablecoins. If a particular asset has the characteristics of a digital
asset, it will be treated as a digital asset for federal income tax
purposes.
Check the “Yes” box if at any time during 2023, the partnership
(a) received (as a reward, award, or payment for property or
services); or (b) sold, exchanged, or otherwise disposed of a digital
asset (or any financial interest in any digital asset).
For example, check “Yes” if at any time during 2023 the
partnership:
•
Received digital assets as payment for property or services
provided;
•
Received digital assets as a result of a reward or award;
•
Received new digital assets as a result of mining, staking, and
similar activities;
•
Received digital assets as a result of a hard fork;
•
Disposed of digital assets in exchange for property or services;
•
Disposed of a digital asset in exchange or trade for another digital
asset;
•
Sold a digital asset; or
•
Otherwise disposed of any other financial interest in a digital
asset.
The partnership has a financial interest in a digital asset if it’s the
owner of record of a digital asset, or has an ownership stake in an
account that holds one or more digital assets, including the rights
and obligations to acquire a financial interest, or it owns a wallet that
holds digital assets.
The following actions or transactions in 2023, alone, generally
don’t require the partnership to check “Yes.”
•
Holding a digital asset in a wallet or account.
•
Transferring a digital asset from one wallet or account it owns or
controls to another wallet or account that it owns or controls.
•
Purchasing digital assets using U.S. or other real currency,
including through the use of electronic platforms such as PayPal and
Venmo.
Don’t leave the question unanswered. You must answer “Yes” or
“No” by checking the appropriate box. For more information, go to
IRS.gov/VirtualCurrencyFAQs.
Question 31
Answer "Yes" if an eligible partnership chooses to elect out of the
centralized partnership audit regime for the tax year and enter the
total from Schedule B-2, Part III, line 3. If making the election, attach
a completed Schedule B-2 to Form 1065. An election out of the
centralized partnership audit regime can only be made on a timely
filed return (including extensions). A partnership is an eligible
partnership for the tax year if it has 100 or fewer eligible partners in
that year. Eligible partners are individuals, C corporations, S
corporations, foreign entities that would be C corporations if they
were domestic entities, and estates of deceased partners. The
determination as to whether the partnership has 100 or fewer
partners is made by adding the number of Schedules K-1 required to
be issued by the partnership for the tax year to the number of
Schedules K-1 required to be issued by any partner that is an S
corporation to its shareholders for the tax year of the S corporation
ending with or within the partnership tax year. A partnership isn't
eligible to elect out of the centralized partnership audit regime if it's
required to issue a Schedule K-1 to any of the following partners.
•
A partnership.
•
A trust.
•
A foreign entity that would not be treated as a C corporation if it
were a domestic entity.
•
A DE described in Regulations section 301.7701-2(c)(2)(i).
•
An estate of an individual other than a deceased partner.
•
Any person that holds an interest in the partnership on behalf of
another person.
Designated Partnership Representative (PR)
Section 6223 provides that unless the partnership has made a valid
election out of the centralized partnership audit regime, each
partnership must designate, in the manner prescribed by the
Secretary, a partner or other person with a substantial presence in
the United States as the PR who shall have the sole authority to act
on behalf of the partnership. On Form 1065, provide the name,
address, and phone number of the PR. If an entity is designated as
the PR, the partnership must also appoint an individual to act on the
entity's behalf (a DI). To be a DI, the appointed person must also
have a substantial presence in the United States.
How to designate. A designation of a PR must be made for each
respective year on the partnership’s Form 1065. The partnership can
revoke a designation of a PR or DI, and the PR or DI can resign, by
submitting Form 8979, Partnership Representative Revocation,
Designation, and Resignation Form.
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See the Instructions for Form 8979 for information
concerning how and when Form 8979 can be submitted to
the IRS.
PR authority. Under section 6223, the partnership and all its
partners (and any other person whose tax liability is determined in
whole or in part by taking into account directly or indirectly
adjustments determined under the centralized partnership audit
regime) are bound by the actions of the PR in dealings with the IRS.
A designation for a partnership tax year remains in effect until the
designation is terminated by (a) a valid resignation of the PR or DI,
(b) a valid revocation of the PR (with designation of successor PR),
or (c) a determination by the IRS that the designation isn't in effect.
Substantial presence. In order for either a PR or a DI to have
substantial presence, they must make themselves available to meet
in person with the IRS in the United States at a reasonable time and
place as determined by the IRS, and must have a street address in
the United States, a U.S. TIN, and a telephone number with a U.S.
area code.
Schedules K and K-1. Partners'
Distributive Share Items
Purpose of Schedules
Although the partnership isn't subject to income tax, the partners are
liable for tax on their shares of the partnership income, whether or
not distributed, and must include their shares on their tax returns.
Schedule K. Schedule K is a summary schedule of all the partners'
shares of the partnership's income, credits, deductions, etc. All
partnerships must complete Schedule K. Rental activity income
(loss) and portfolio income aren't reported on page 1 of Form 1065.
These amounts aren't combined with the trade or business activity
income (loss) reported on page 1. Schedule K is used to report the
totals of these and other amounts reported on page 1.
Schedule K-1. Schedule K-1 shows each partner's separate share.
Attach a copy of each Schedule K-1 to the Form 1065 filed with the
IRS. Keep a copy with a copy of the partnership return as a part of
the partnership's records and furnish a copy to each partner. If the
partner is a DE, furnish the Schedule K-1 to the DE partner. If a
partnership interest is held by a nominee on behalf of another
person, the partnership may be required to furnish Schedule K-1 to
the nominee. See Temporary Regulations sections 1.6031(b)-1T
and 1.6031(c)-1T for more information.
Give each partner a copy of either the Partner's Instructions for
Schedule K-1 (Form 1065) or specific instructions for each item
reported on the partner's Schedule K-1.
Substitute Forms
The partnership doesn't need IRS approval to use a substitute
Schedule K-1 if it's an exact copy of the IRS schedule. The boxes
must use the same numbers and titles and must be in the same
order and format as on the comparable IRS Schedule K-1. The
substitute schedule must include the OMB number. The partnership
must provide each partner with the Partner's Instructions for
Schedule K-1 (Form 1065) or other prepared specific instructions for
each item reported on the partner's Schedule K-1.
The partnership must request IRS approval to use other
substitute Schedules K-1. To request approval, write to:
Internal Revenue Service
Attention: Substitute Forms Program
SE:W:CAR:MP:P:TP:TP
5000 Ellin Road, Mail Stop C6-110
Lanham, MD 20706
substitutef[email protected]
Each partner's information must be on a separate sheet of paper.
Therefore, separate all continuously printed substitutes before you
file them with the IRS.
CAUTION
!
The partnership may be subject to a penalty if it files Schedules
K-1 that don't conform to the specifications discussed in Pub. 1167,
General Rules and Specifications for Substitute Forms and
Schedules.
How Income Is Shared Among Partners
Allocate shares of income, gain, loss, deduction, or credit among the
partners according to the partnership agreement for sharing income
or loss generally. Partners may agree to allocate specific items in a
ratio different from the ratio for sharing income or loss. For instance,
if the net income exclusive of specially allocated items is divided
evenly among three partners but some special items are allocated
50% to one, 30% to another, and 20% to the third partner, report the
specially allocated items on the appropriate line of the applicable
partner's Schedule K-1 and the total on the appropriate line of
Schedule K, instead of on the numbered lines on page 1 of Form
1065, Form 1125-A, or Schedule D.
If a partner's interest changed during the year (such as the
entrance of a new partner, the exit of a partner, an increase to a
partner's interest through an additional capital contribution, or a
decrease in a partner's interest through a distribution), see section
706(d) and Regulations section 1.706-4 before determining each
partner's distributive share of any item of income, gain, loss, and
deduction, and other items. Partnership items are allocated to a
partner only for the part of the year in which that person is a member
of the partnership. Generally, for each change in a partner’s interest,
the partnership will either allocate its items using a proration method
or a closing-of-the-books method. Special rules apply to certain
partnerships, certain variations, and certain items. See Regulations
section 1.706-4 for additional rules and procedures for making
elections. In addition, special rules in section 706(d)(2) apply to
certain items of partnerships that report their income on the cash
basis, and special rules in section 706(d)(3) apply to tiered
partnerships.
Special rules on the allocation of income, gain, loss, and
deductions generally apply if a partner contributes property to the
partnership and the FMV of that property at the time of contribution
differs from the contributing partner's adjusted tax basis. Under
these rules, the partnership must use a reasonable method of
making allocations of income, gain, loss, and deductions from the
property so that the contributing partner receives the tax burdens
and benefits of any built-in gain or loss (that is, precontribution
appreciation or diminution of value of the contributed property). See
Regulations section 1.704-3 for details on how to make these
allocations, including a description of specific allocation methods
that are generally reasonable.
See Dispositions of Contributed Property, earlier, for special rules
on the allocation of income, gain, loss, and deductions on the
disposition of property contributed to the partnership by a partner.
If the partnership agreement doesn't provide for the partner's
share of income, gain, loss, deduction, or credit, or if the allocation
under the agreement doesn't have substantial economic effect, the
partner's share is determined according to the partner's interest in
the partnership. See Regulations section 1.704-1 for more
information.
Specific Instructions (Schedule K-1
Only)
General Information
Generally, the partnership is required to prepare and give a
Schedule K-1 to each person who was a partner in the partnership
at any time during the year. Schedule K-1 must be provided to each
partner on or before the day on which the partnership return is
required to be filed.
However, a foreign partnership that has one or more U.S.
partners must file Form 1065. But if it meets each of the following
four requirements, it isn't required to file or provide Schedules K-1 for
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foreign partners (unless the foreign partner is a pass-through entity
through which a U.S. person holds an interest in the foreign
partnership).
•
The partnership had no gross income effectively connected with
the conduct of a trade or business within the United States during its
tax year.
•
The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i).
•
All required Forms 1042 and 1042-S were filed by the partnership
or another withholding agent as required by Regulations sections
1.1461-1(b) and (c).
•
The tax liability for each foreign partner for amounts reportable
under Regulations sections 1.1461-1(b) and (c) has been fully
satisfied by the withholding of tax at the source.
Generally, any person who holds an interest in a partnership as a
nominee for another person must furnish to the partnership the
name, address, etc., of the other person.
If a married couple each had an interest in the partnership,
prepare a separate Schedule K-1 for each of them.
How To Complete Schedule K-1
In order to enable accurate scanning and processing of
Schedule(s) K-1, please use a 10-point Helvetica Light
Standard font for all entries on Schedules K-1 if the entries
are typed or made using a computer.
If the return is for a fiscal year or a short tax year, fill in the tax
year space at the top of each Schedule K-1. On each Schedule K-1,
enter the information about the partnership and the partner in Parts I
and II (items A through N). In Part III, enter the partner's distributive
share of each item of income, deduction, and credit and any other
information the partner needs to file the partner's tax return,
including information needed to prepare state and local tax returns.
Codes. In box 11 and boxes 13 through 15, and 17 through 20,
identify each item by entering a code in the column to the left of the
entry space for the dollar amount. These codes are identified in
these instructions and on the
List of Codes in the Partner’s
Instructions for Schedule K-1 (Form 1065).
Attached statements. When attaching statements to Schedule K-1
to report additional information to the partner, indicate there's a
statement for the following.
•
If an amount can be input on Schedule K-1 but additional
information is required, enter an asterisk (*) after the code in the
column to the left of the entry space.
•
For items that can't be reported as a single dollar amount, enter
the code and an asterisk (*) in the column to the left and enter
“STMT” in the right column to indicate that the information is
provided on an attached statement.
•
If the partnership has more coded items than the number of entry
boxes (for example, box 11, boxes 13 through 15, or boxes 17
through 20), don't enter a code or dollar amount in the last entry box.
Instead, enter an asterisk (*) in the left column and enter “STMT” in
the entry space to the right.
More than one attached statement can be placed on the same
sheet of paper. The information included in the statement should be
identified in alphanumeric order by box number followed by the letter
code (if any), description, and dollar amount for each item. For
example: “Box 13, code J—Section 59(e)(2) expenditures—$1,000.”
This can be followed with any additional information the partner
needs to determine the proper tax treatment of the item.
Section 721(c) partnerships. When the gain deferral method, as
described in Regulations section 1.721(c)-3, is being applied, a
partnership that is a section 721(c) partnership will attach to the
Schedule K-1 provided to a U.S. transferor the information required
under Regulations sections 1.721(c)-6(b)(2) and (3). A partnership
that is a section 721(c) partnership will also attach to its Form 1065 a
Schedule K-1 for each partner that is a related foreign person with
respect to the U.S. transferor. For an indirect partner that is a related
foreign person with respect to the U.S. transferor, the Schedule K-1
CAUTION
!
will only include relevant information with respect to section 721(c)
property. See Regulations section 1.721(c)-1 for definitions.
Part I. Information About the
Partnership
On each Schedule K-1, enter the name, address, and identifying
number of the partnership.
Item C. If the partnership is filing its return electronically, enter
"e-file." Otherwise, enter the name of the IRS Service Center where
the partnership will file its return. See
Where To File, earlier.
Part II. Information About the Partner
Complete a Schedule K-1 for each partner. On each Schedule K-1,
enter the partner's name, address, identifying number, and
distributive share items. See special rules below for partners that are
DEs.
Items E and F
For an individual partner, enter the partner's SSN or individual
taxpayer identification number (ITIN) rather than the TIN of the DE
partner. For all other partners, enter the partner's EIN.
However, if a partner is an IRA, enter the identifying number of
the custodian of the IRA. Don't enter the identification number of the
person for whom the IRA is maintained. If the partnership reports
UBTI to such IRA partner, include the IRA partner's unique EIN in
box 20, code AR, along with the amount of such income.
Note. For tax year 2023, PTPs aren't required to include the IRA
partner’s unique EIN in box 20, code AR.
Don’t include dashes when entering the EIN in box 20.
Foreign partners without a U.S. identifying number should be
notified by the partnership of the necessity of obtaining a U.S.
identifying number. Certain aliens who aren't eligible to obtain SSNs
can apply for an ITIN on Form W-7, Application for IRS Individual
Taxpayer Identification Number.
If the partner in the partnership is an entity, such as
single-member LLC, that is a DE for federal income tax purposes,
enter the TIN of the beneficial owner of the DE partner in item E
rather than the TIN of the DE partner. The beneficial owner is the
taxpayer who owns the DE partner. In item F, enter the name and
address of the beneficial owner of the DE partner. See the
instructions for item H2 below.
Note. If the partner is an LLC or a trust, the partnership should
inquire as to whether the LLC is a DE for federal income tax
purposes. If the LLC or trust is a DE, the partnership must verify that
the partner's TIN is the TIN used by the partner's beneficial owner in
filing its federal income tax return.
Truncating recipient’s TIN on Schedule K-1. The partnership can
truncate a partner's identifying number on the Schedule K-1 the
partnership sends to the partner. Truncation isn't allowed on the
Schedule K-1 the partnership files with the IRS. Also, the partnership
can't truncate its own identification number on any form.
To truncate, where allowed, replace the first five digits of the
nine-digit number with asterisks (*) or Xs (for example, an SSN
xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For more
information, see Regulations section 301.6109-4.
Foreign address. If the partner has a foreign address, enter the
information in the following order: city or town, state or province,
country, and ZIP or foreign postal code. Follow the country's practice
for entering the postal code. Don't abbreviate the country name.
Item G
Complete item G on all Schedules K-1. If a partner holds interests as
both a general and limited partner, check both boxes and attach a
CAUTION
!
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statement for each activity that shows the amounts allocable to the
partner's interest as a limited partner.
Item H1. Domestic/Foreign Partner
Check the foreign partner box if the partner is a nonresident alien
individual, foreign partnership, foreign corporation, foreign estate,
foreign trust, or foreign government. Otherwise, check the domestic
partner box.
Item H2. Disregarded Entity (DE)
If the partner is a DE, check the box and provide the name and TIN
of the DE partner. The partnership should make reasonable attempts
to obtain the DE’s TIN. If after making reasonable attempts to obtain
the DE’s TIN such TIN is unavailable or unknown to the partnership,
the partnership may report the DE’s TIN as unknown. If the DE
doesn't have a TIN, enter “None” in the space for the DE’s TIN. For
more information about DE reporting, go to IRS.gov/forms-pubs/
clarifications-for-disregarded-entity-reporting-and-section-743b-
reporting.
Item I1. What Type of Entity Is This Partner?
State whether the partner is an individual, a corporation, an estate, a
trust, a partnership, a DE, an exempt organization, a foreign
government, or a nominee (custodian). If the partner is an LLC and
has elected to be treated as other than a DE under Regulations
section 301.7701-3 for federal income tax purposes, the partnership
must enter the LLC's classification for federal income tax purposes
(that is, a corporation or partnership). If any legal owner of the
partnership is a DE for federal income tax purposes, report the
beneficial owner’s entity type in item I1. If the partner is a nominee,
use one of the following codes after the word “nominee” to indicate
the type of entity the nominee represents:
I—Individual;
C—Corporation; F—Estate or Trust; P—Partnership;
DE—Disregarded Entity; E—Exempt Organization; IRA—Individual
Retirement Arrangement; or FGOV—Foreign Government. If the
partner is a nominee that acts on behalf of more than one person,
use code M—Multiple.
Item J. Partner’s Profit, Loss, and Capital
On each line, enter the partner's percentage share of the
partnership's profit, loss, and capital as of the beginning and end of
the partnership's tax year, as determined under the partnership
agreement. If a partner's interest commences after the beginning of
the partnership's tax year, enter in the Beginning column the
percentages that existed for the partner immediately after
admission. If a partner's interest terminates before the end of the
partnership's tax year, enter in the
Ending column the percentages
that existed immediately before termination.
On the line for Capital, enter the percentage share of the capital
that the partner would receive if the partnership was liquidated by
the distribution of undivided interests in partnership assets and
liabilities. If the partner's capital account is negative or zero, express
the percentage ownership of capital as zero.
The partner's percentage share of each category must be
expressed as a percentage. The percentage must not be negative.
The total percentage interest in each category must total 100% for
all partners. To determine whether the total beginning and ending
percentages are 100%, don't include the beginning percentage for a
partner that wasn't a partner at the beginning of the partnership's tax
year or the ending percentage for a partner that left the partnership
before the end of the partnership's tax year. If the partnership
agreement doesn't express the partner's share of profit, loss, and
capital as fixed percentages, the partnership may use a reasonable
method in arriving at each percentage for purposes of completing
the items required by item J, as long as such method is consistent
with the partnership agreement and is applied consistently from year
to year. Maintain records to support the share of profits, share of
losses, and share of capital reported for each partner.
If there is a decrease in the partner's share of profits, losses, or
capital, indicate whether it was due to a sale or an exchange.
Sale box.
Check the Sale box in this item if there was a taxable
sale of all or part of a partnership interest to a new or pre-existing
partner during the year, regardless of whether the partner
recognized gain or loss on the transaction(s). Sale, for the purposes
of this checkbox, means a taxable transaction involving the transfer
of a partnership interest. This will exclude transfers subject to gain
recognition under section 721(b). This will also exclude transactions
where a new partnership interest is issued to a partner in exchange
for property contributed to the partnership, even if some gain is
recognized by the contributing partner.
Exchange box. Check the Exchange box in this item if there was
a nontaxable exchange of all or part of a partnership interest to a
new or pre-existing partner during the year. Exchange, for purposes
of this checkbox, means a nontaxable transaction involving the
transfer of a partnership interest excluding a transfer on the death of
a partner. Exchange also includes a transaction under section
721(a) regardless of whether gain recognition took place.
Item K1. Partner's Share of Liabilities
Enter each partner's share of nonrecourse liabilities,
partnership-level qualified nonrecourse financing, and other
recourse liabilities at the end of the year.
Nonrecourse liabilities are those liabilities of the partnership for
which no partner (or related person) bears the economic risk of loss.
The extent to which a partner bears the economic risk of loss is
determined under the rules of Regulations section 1.752-2. Don't
include partnership-level qualified nonrecourse financing (defined
below) on the line for nonrecourse liabilities.
If the partner terminated their interest in the partnership during
the year, enter the share that existed immediately before the total
disposition. In all other cases, enter it as of the end of the year.
If the partnership is engaged in two or more different types of
at-risk activities, or a combination of at-risk activities and any other
activity, attach a statement showing the partner's share of
nonrecourse liabilities, partnership-level qualified nonrecourse
financing, and other recourse liabilities for each activity. See Pub.
925 to determine if the partnership is engaged in more than one
at-risk activity.
The at-risk rules of section 465 generally apply to any activity
carried on by the partnership as a trade or business or for the
production of income. These rules generally limit the amount of loss
and other deductions a partner can claim from any partnership
activity to the amount for which that partner is considered at risk.
However, for partners who acquired their partnership interests before
1987, the at-risk rules don't apply to losses from an activity of
holding real property the partnership placed in service before 1987.
The activity of holding mineral property doesn't qualify for this
exception. Identify on an attached statement to Schedule K-1 the
amount of any losses that aren't subject to the at-risk rules.
If a partnership is engaged in an activity subject to the limitations
of section 465(c)(1) (such as films or videotapes, leasing section
1245 property, farming, or oil and gas property), give each partner
their share of the total pre-1976 losses from that activity for which
there existed a corresponding amount of nonrecourse liability at the
end of each year in which the losses occurred. See Form 6198,
At-Risk Limitations, and related instructions for more information.
Qualified nonrecourse financing secured by real property used in
an activity of holding real property that is subject to the at-risk rules
is treated as an amount at risk. Qualified nonrecourse financing
generally includes financing for which no one is personally liable for
repayment that is borrowed for use in an activity of holding real
property and that is loaned or guaranteed by a federal, state, or local
government or that is borrowed from a qualified person. Qualified
persons include any person actively and regularly engaged in the
business of lending money, such as a bank or savings and loan
association. Qualified persons generally don't include related parties
(unless the nonrecourse financing is commercially reasonable and
on substantially the same terms as loans involving unrelated
persons), the seller of the property, or a person who receives a fee
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for the partnership's investment in the real property. See section
465(b)(6) for more information on qualified nonrecourse financing.
The partner as well as the partnership must meet the qualified
nonrecourse rules. Therefore, the partnership must enter on an
attached statement any other information the partner needs to
determine if the qualified nonrecourse rules are also met at the
partner level.
Item K2
If a partnership (upper-tier) owns a direct interest in other
partnerships (lower-tier), then Regulations section 1.752-4(a)
requires that the upper-tier partnership allocate to its partners its
share of the lower-tier partnership's liabilities (except for any liability
of the lower-tier partnership that is owed to the upper-tier
partnership). Allocate those lower-tier partnership liabilities to each
partner based on whether that liability is a recourse or nonrecourse
liability to the partner under the regulations under section 752. The
characterization of a liability may change as it moves from a
lower-tier partnership to an upper-tier partnership. If Schedule K-1
(Form 1065) includes lower-tier partnership liabilities, check the box
in item K2. If the total liabilities on all Schedules K-1 (Form 1065)
don't equal the total liabilities on Schedule L, attach a reconciliation.
Item K3. Payment Obligations Including
Guarantees and Deficit Restoration Obligations
(DROs)
Check the box in item K3 if the partner or a related person has
certain payment obligations, including guarantees or DROs, with
respect to any liability in item K1. See the instructions for line 20c,
code X, for additional information. For purposes of item K3, a
payment obligation is defined as an obligation under Regulations
section 1.752-2(b)(1) that is recognized under Regulations sections
1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an
obligation to restore a deficit capital account upon liquidation) and a
related person is defined as a related person as defined in
Regulations section 1.752-4(b).
Item L. Partner's Capital Account Analysis
You aren’t required to complete item L if the answer to question 4 of
Schedule B is “Yes.” If you're required to complete this item, also see
the instructions for Schedule M-2, later.
Tax-basis method. Figure each partner's capital account for the
partnership's tax year using the transactional approach, discussed
below, for the tax-basis method.
How to report partnership events or transactions. If you're
uncertain how to report a partnership event or transaction, you
should account for the event or transaction in a manner generally
consistent with figuring the partner's adjusted tax basis in its
partnership interest (without regard to partnership liabilities), taking
into account the rules and principles of sections 705, 722, 733, and
742 and by reporting the amount on the line for other increase
(decrease). The partner's ending capital account as reported using
the tax-basis method in item L might not equal the partner's adjusted
tax basis in its partnership interest. Generally, this is because a
partner's adjusted tax basis in its partnership interest includes the
partner's share of partnership liabilities, as well as partner-specific
adjustments. Each partner is responsible for maintaining a record of
the adjusted tax basis in its partnership interest.
Beginning capital account. Enter the partner's ending capital
account as determined for last year on the line for beginning capital
account. If a partner joined the partnership through a contribution to
the partnership this year, enter zero as the partner's beginning
capital account.
Capital contributed during the year. On the line for capital
contributed during the year, enter the amount of cash plus the
adjusted tax basis of all property contributed by the partner to the
partnership during the year. The amount you enter on this line
should be reduced by any liabilities assumed by the partnership in
connection with, or liabilities to which the property is subject
immediately before, the contribution. This amount might be negative.
Current year net income (loss).
On the line for current year net
income (loss), enter the partner's distributive share of partnership
income and gain (including tax-exempt income) as figured for tax
purposes for the year, minus the partner's distributive share of
partnership loss and deductions (including nondeductible,
noncapital expenditures) as figured for tax purposes for the year.
Other increase (decrease). On the line for other increase
(decrease), enter the sum of all other increases or decreases that
affected the partner's capital account for tax purposes during the
year and attach a statement explaining each adjustment. For
example, if a new partner acquired its interest in the partnership from
another partner in a purchase, exchange, gift, or inheritance, enter
an amount for the transferee under other increase that is equal to the
transferor partner's ending capital account with respect to the
interest transferred immediately before the transfer figured using the
tax-basis method. Other examples of increases include the
following.
•
The partner's distributive share of the excess of the tax
deductions for depletion (other than oil and gas depletion) over the
adjusted tax basis of the property subject to depletion.
•
The partner's share of any increase to the adjusted tax basis of
partnership property under section 734(b).
If a transferor partner disposed of its interest in the partnership by
sale, exchange, or gift, or as the result of death, enter the transferor
partner's ending capital account with respect to the interest
transferred immediately before the transfer figured using the
tax-basis method. Other examples of decreases include the
following.
•
The partner's distributive share of tax deductions for depletion of
any partnership oil and gas property, but not exceeding the partner's
share of the adjusted tax-basis of that property.
•
The partner's share of any decrease to the adjusted tax basis of
partnership property under section 734(b).
Note. Section 743(b) basis adjustments aren't taken into account in
calculating a partner's capital account under the tax-basis method.
Withdrawals and distributions. On the line for withdrawals and
distributions, enter the amount of cash plus the adjusted tax basis of
all property distributed by the partnership to the partner during the
year. The amount you enter on this line should be reduced by any
liabilities assumed by the partner in connection with, or liabilities to
which the property is subject immediately before, the distribution.
This amount might be negative.
Ending capital account. The sum of the amounts shown on the
lines in item L above the line for ending capital account must equal
the amount reported on the line for ending capital account. A
partner's ending capital account determined under the tax-basis
method may be negative if the sum of a partner's losses and
distributions exceeds the sum of the partner's contributions and
share of income.
Publicly traded partnerships (PTPs). In the case of a sale or
exchange of an interest in a PTP, you may determine a transferee
partner's beginning capital account by adjusting the partner's
beginning capital account to reflect the transferee partner's purchase
price of the interest rather than entering the transferor partner's
ending capital account. In making the adjustments, you may use
information required to be reported to you under Regulations section
1.6031(c)-1T, and publicly available trading price information.
Item M. Did the Partner Contribute Property
With a Built-in Gain or Loss?
Check the appropriate box to indicate whether the partner
contributed property with a built-in gain or loss during the tax year. If
the “Yes” box is checked, attach a statement that contains the
following information.
•
A description of each property the partner contributed.
•
The date the property was contributed.
•
The amount of the property's built-in gain or loss.
Exception. If a partner contributes more than 10 properties with
either a built-in gain or built-in loss on any date during the tax year,
the partnership isn't required to provide the required information
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separately for each property contributed for that date. Instead, the
partnership can report the (a) number of properties contributed on
that date, (b) total amount of built-in gain, and (c) total amount of
built-in loss. Don't net the built-in gains and built-in losses; instead,
show the total built-in gain and total built-in loss for all properties
contributed on that date.
A property's built-in gain is the amount by which the FMV of the
property exceeds its adjusted tax basis at the time the property is
contributed to the partnership. A property's built-in loss is the
amount by which the FMV of the property is less than its adjusted
tax basis at the time the property is contributed to the partnership.
Partnerships are required to keep track of this information; see
Regulations section 1.704-3. This information is also needed for
purposes of allocating partnership items to partners because
income, gain, loss, and deductions related to property contributed to
the partnership by a partner must be shared among the partners so
as to take account of the variation between the basis of the property
to the partnership and its FMV at the time of contribution. If the
partnership distributes any property (other than built-in gain
property) to a partner that has contributed built-in gain property to
the partnership within the last 7 years, it will need this information for
the attached statement required in the instructions for Schedule K,
line 19b, for distributions subject to section 737 (code B). If the
partnership distributes contributed property with a built-in gain or
loss to any partner other than the partner that contributed the
property and the date of the distribution is within 7 years of the date
the property was contributed to the partnership, it will need this
information for the attached statement required by the instructions
for line 20c of Schedule K for the precontribution gain (loss) (code
W).
Item N. Partner's Share of Net Unrecognized
Section 704(c) Gain or (Loss)
For item N, the partnership should report the partner's share of net
unrecognized section 704(c) gains or losses, both at the beginning
and at the end of the partnership's tax year. Solely for purposes of
completing item N, the section 704(c) gain or loss is the partner's
share of the net (net means aggregate or sum) of all unrecognized
section 704(c) gain or loss in partnership property, including section
704(c) gain or loss arising from revaluations of partnership property.
See Notice 2019-66 for more information.
Specific Instructions (Schedules K
and K-1, Part III, Except as Noted)
These instructions refer to the lines on Schedule K and the boxes on
Schedule K-1.
Special Allocations
An item is specially allocated if it's allocated to a partner in a ratio
different from the ratio for sharing income or loss generally.
Report specially allocated ordinary gain (loss) on Schedule K,
line 11, and in box 11 of Schedule K-1. Report other specially
allocated items in the applicable boxes of the partner's
Schedule K-1, with the total amount on the applicable line of
Schedule K. See How Income Is Shared Among Partners, earlier.
Example. A partnership has a long-term capital gain that is
specially allocated to a partner and a net long-term capital gain
reported on Schedule D (Form 1065), line 15, that must be reported
on Schedule K, line 9a. Because specially allocated gains or losses
aren't reported on Schedule D, the partnership must report both the
net long-term capital gain from Schedule D and the specially
allocated gain on Schedule K, line 9a. Box 9a of Schedule K-1 for
the partner must include both the specially allocated gain and the
partner's distributive share of the net long-term capital gain from
Schedule D.
Income (Loss)
Line 1. Ordinary Business Income (Loss)
Enter the amount from page 1, line 23. Enter the income (loss)
without reference to (a) the bases of the partners' interests in the
partnership, (b) the partners' at-risk limitations, or (c) the passive
activity limitations. These limitations, if applicable, are determined at
the partner level.
Line 1 shouldn't include rental activity income (loss) or portfolio
income (loss).
Schedule K-1. Enter each partner's distributive share of ordinary
business income (loss) in box 1 of Schedule K-1. Identify on
statements attached to Schedule K-1 any additional information the
partner needs to correctly apply the passive activity limitations. For
example, if the partnership has more than one trade or business
activity, identify on an attached statement to Schedule K-1 the
amount from each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Line 2. Net Rental Real Estate Income (Loss)
Enter the net income (loss) from rental real estate activities of the
partnership from Form 8825. Attach this form to Form 1065.
Schedule K-1. Enter each partner's distributive share of net rental
real estate income (loss) in box 2 of Schedule K-1. Identify on
statements attached to Schedule K-1 any additional information the
partner needs to correctly apply the passive activity limitations. For
example, if the partnership has more than one rental real estate
activity, identify the amount attributable to each activity. Also, for
example, identify certain items from any rental real estate activities
that may be subject to the recharacterization rules. See
Passive
Activity Reporting Requirements, earlier.
Line 3. Other Net Rental Income (Loss)
Enter on line 3a gross income from rental activities other than those
reported on Form 8825. Include on line 3a gain (loss) from Form
4797, line 17, that is attributable to the sale, exchange, or involuntary
conversion of an asset used in a rental activity other than a rental
real estate activity.
Enter on line 3b the deductible expenses of the activity. Attach a
statement of these expenses to Form 1065.
Enter on line 3c the net income (loss).
See Rental Activities, earlier, and Pub. 925 for more information
on rental activities.
Schedule K-1. Enter each partner's distributive share of net income
(loss) from rental activities other than rental real estate activities in
box 3 of Schedule K-1. Identify on statements attached to
Schedule K-1 any additional information the partner needs to
correctly apply the passive activity limitations. For example, if the
partnership has more than one rental activity reported in box 3,
identify on an attached statement to Schedule K-1 the amount from
each activity. See
Passive Activity Reporting Requirements, earlier.
Line 4. Guaranteed Payments to Partners
Guaranteed payments are payments made by a partnership to a
partner that are determined without regard to the partnership's
income. Some examples of guaranteed payments to partners
include:
•
Payments for salaries, health insurance, and interest deducted by
the partnership and reported on Form 1065, page 1, line 10; Form
8825; or Schedule K, line 3b;
•
Compensation deferred under a section 409A nonqualified
deferred compensation plan that doesn't meet the requirements of
section 409A reported on Schedule K, line 20c, code AI; and
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•
Payments the partnership must capitalize. See the instructions for
Form 1065, line 10.
Generally, amounts reported on line 4a as guaranteed payment
for services and line 4b as guaranteed payment for the use of capital
aren't considered to be related to a passive activity. For example,
guaranteed payments for personal services paid to a partner would
not be passive activity income. Likewise, guaranteed payments for
capital are treated as interest for purposes of section 469 and are
generally not passive activity income.
A partnership must treat and report a transfer of partnership
property to a partner in satisfaction of a guaranteed payment
as a sale or exchange, and not a distribution. See Rev. Rul.
2007-40, 2007-25 I.R.B. 1426, for more details.
Schedule K-1. Enter each partner's guaranteed payments for
services in box 4a and guaranteed payments for use of capital in
box 4b of Schedule K-1. Report each partner's total guaranteed
payments in box 4c of Schedule K-1.
Portfolio Income
See Portfolio Income, earlier, for a definition of portfolio income.
Don't reduce portfolio income by deductions allocated to it.
Report such deductions (other than interest expense) on
Schedule K, line 13e. Report each partner's distributive share of
deductions (other than interest) allocable to portfolio income in
box 13 of Schedule K-1 using code I or L.
Interest expense allocable to portfolio income is generally
investment interest expense reported on Schedule K, line 13c.
Report each partner's distributive share of interest expense allocable
to portfolio income in box 13 of Schedule K-1 using code H.
Line 5. Interest Income
Enter only taxable portfolio interest on this line. Taxable interest is
interest from all sources except interest exempt from tax and interest
on tax-free covenant bonds. Include interest income from the credit
to holders of tax credit bonds. See the instructions for codes AP
through AU under Line 15f. Other Credits, later, and the Instructions
for Form 8912, Credit to Holders of Tax Credit Bonds, for details.
Schedule K-1. Enter each partner's distributive share of interest
income in box 5 of Schedule K-1. If the partnership is reporting
interest income from clean renewable energy bonds, attach a
statement to Schedule K-1 that shows each partner's distributive
share of interest income from this credit. Partners need this
information to properly adjust the bases of their interests in the
partnership.
Line 6a. Ordinary Dividends
Enter only taxable ordinary dividends on line 6a, including any
qualified dividends reported on line 6b. Don't include any dividend
equivalents reported on line 6c, or, to the extent attributable to
previously taxed earnings and profits (PTEP) in annual PTEP
accounts of the partnership, any distributions received by the
partnership from foreign corporations.
Note. The amount determined by the partnership based on its
annual PTEP accounts in determining the amount on line 6a doesn't
include the amount by which distributions are attributable to PTEP in
annual PTEP accounts of a direct or indirect partner.
Schedule K-1. Enter each partner's distributive share of ordinary
dividends in box 6a of Schedule K-1.
TIP
Line 6b. Qualified Dividends
Enter qualified dividends on line 6b. Except as provided below,
qualified dividends are dividends received from domestic
corporations and qualified foreign corporations. Don't include any
distributions received by the partnership from foreign corporations to
the extent that they are attributable to PTEP in annual PTEP
accounts of the partnership.
Note. The amount determined by the partnership based on its
annual PTEP accounts in determining the amount on line 6b doesn't
include the amount by which distributions are attributable to PTEP in
annual PTEP accounts of a direct or indirect partner.
Exceptions. The following dividends aren't qualified dividends.
•
Dividends the partnership received on any share of stock held for
less than 61 days during the 121-day period that began 60 days
before the ex-dividend date. When determining the number of days
the partnership held the stock, don't count certain days during which
the partnership's risk of loss was diminished. The ex-dividend date is
the first date following the declaration of a dividend on which the
purchaser of a stock isn't entitled to receive the next dividend
payment. When counting the number of days the partnership held
the stock, include the day the partnership disposed of the stock but
not the day the partnership acquired it.
•
Dividends attributable to periods totaling more than 366 days that
the partnership received on any share of preferred stock held for less
than 91 days during the 181-day period that began 90 days before
the ex-dividend date. When determining the number of days the
partnership held the stock, don't count certain days during which the
partnership's risk of loss was diminished. Preferred dividends
attributable to periods totaling less than 367 days are subject to the
61-day holding period rule above.
•
Dividends that relate to payments that the partnership is obligated
to make because of short sales or positions in substantially similar or
related property.
•
Dividends paid by a RIC that aren't treated as qualified dividend
income under section 854.
•
Dividends paid by a REIT that aren't treated as qualified dividend
income under section 857(c).
•
Dividends from a corporation which first became a surrogate
foreign corporation (as defined in section 7874(a)(2)(B) after
December 22, 2017) other than a foreign corporation that is treated
as a domestic corporation under section 7874(b). See section 1(h)
(11)(C)(iii)(II).
See Pub. 550 for more details.
Qualified foreign corporation. A foreign corporation is a qualified
foreign corporation if it's:
1. Incorporated in a territory of the United States, or
2. Eligible for benefits of a comprehensive income tax treaty
with the United States that the Secretary determines is satisfactory
for this purpose and that includes an exchange of information
program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.
If the foreign corporation doesn't meet either (1) or (2) above,
then it may be treated as a qualified foreign corporation for any
dividend paid by the corporation if the stock associated with the
dividend paid is readily tradable on an established securities market
in the United States.
However, qualified dividends don't include dividends paid by an
entity that was a PFIC (defined in section 1297) in either the tax year
of the distribution or the preceding tax year.
See Notice 2004-71, 2004-45 I.R.B. 793, for more details.
Schedule K-1. Enter each partner's distributive share of qualified
dividends in box 6b of Schedule K-1.
Attach a statement to the Schedule K-1 identifying the dividends
included in box 6a or box 6b that are eligible for the deduction for
dividends received under section 243(a), (b), or (c); section 245; or
section 245A; or are hybrid dividends as defined in section 245A(e)
(4).
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If any amounts from line 6b are from foreign sources, see the
Partnership Instructions for Schedules K-2 and K-3 for
additional information.
Line 6c. Dividend Equivalents
Information on dividend equivalents, as described in section 871(m),
is provided for persons that aren't U.S. persons, who are generally
required to treat dividend equivalents as U.S. source dividends, and
domestic partnerships with partners who may need this information.
Enter the amount of dividend equivalents as defined in section
871(m). See Regulations section 1.871-15 for additional information.
For purposes of line 6c, include all amounts that would be included
as a dividend equivalent if the amount were paid to a person subject
to tax under section 871 or 881, even if the partner is a U.S. person.
Line 7. Royalties
Enter the royalties received by the partnership.
Schedule K-1. Enter each partner's distributive share of royalties in
box 7 of Schedule K-1.
Line 8. Net Short-Term Capital Gain (Loss)
Enter the gain (loss) that is portfolio income (loss) from Schedule D
(Form 1065), line 7.
Schedule K-1. Enter each partner's distributive share of net
short-term capital gain (loss) in box 8 of Schedule K-1.
Line 9a. Net Long-Term Capital Gain (Loss)
Enter the gain or loss that is portfolio income (loss) from Schedule D
(Form 1065), line 15.
Schedule K-1. Enter each partner's distributive share of net
long-term capital gain (loss) in box 9a of Schedule K-1.
If any gain or loss from Schedule D, line 7 or 15, is from the
disposition of nondepreciable personal property used in a
trade or business, it may not be treated as portfolio income.
Instead, report it on Schedule K, line 11, and report each partner's
distributive share in box 11 of Schedule K-1 using code ZZ.
Line 9b. Collectibles (28%) Gain (Loss)
Figure the amount attributable to collectibles from the amount
reported on Schedule D (Form 1065), line 15. A collectibles gain
(loss) is any long-term gain or deductible long-term loss from the
sale or exchange of a collectible that is a capital asset.
Collectibles include works of art, rugs, antiques, metal (such as
gold, silver, or platinum bullion), gems, stamps, coins, alcoholic
beverages, and certain other tangible property.
Also, include gain (but not loss) from the sale or exchange of an
interest in a partnership or trust held for more than 1 year and
attributable to unrealized appreciation of collectibles. For details, see
Regulations section 1.1(h)-1. Also attach the statement required
under Regulations section 1.1(h)-1(e).
Schedule K-1. Report each partner's distributive share of the
collectibles (28%) gain (loss) in box 9b of Schedule K-1.
Line 9c. Unrecaptured Section 1250 Gain
The three types of unrecaptured section 1250 gain must be reported
separately on an attached statement to Form 1065.
From the sale or exchange of the partnership's business as-
sets. Figure this amount in Form 4797, Part III, for each section
CAUTION
!
CAUTION
!
1250 property (except property for which gain is reported using the
installment method on Form 6252) for which you had an entry in
Form 4797, Part I. Subtract Form 4797, Part III, line 26g, from the
smaller of Form 4797, line 22 or line 24. Figure the total of these
amounts for all section 1250 properties. Generally, the result is the
partnership's unrecaptured section 1250 gain. However, if the
partnership is reporting gain on the installment method for a section
1250 property held more than 1 year, see the next paragraph.
The total unrecaptured section 1250 gain for an installment sale
of section 1250 property held more than 1 year is figured in a
manner similar to that used in the preceding paragraph. However,
the total unrecaptured section 1250 gain must be allocated to the
installment payments received from the sale. To do so, the
partnership must generally treat the gain allocable to each
installment payment as unrecaptured section 1250 gain until all such
gain has been used in full. Figure the unrecaptured section 1250
gain for installment payments received during the tax year as the
smaller of (a) the amount from Form 6252, Part II, line 26, or Part III,
line 37 (whichever applies); or (b) the total unrecaptured section
1250 gain for the sale reduced by all gain reported in prior years
(excluding section 1250 ordinary income recapture).
If the partnership chose not to treat all of the gain from
payments received after May 6, 1997, and before August 24,
1999, as unrecaptured section 1250 gain, use only the
amount the partnership chose to treat as unrecaptured section 1250
gain for those payments to reduce the total unrecaptured section
1250 gain remaining to be reported for the sale. See Regulations
section 1.453-12.
From the sale or exchange of an interest in a partnership. Also
report as a separate amount any gain from the sale or exchange of
an interest in a partnership attributable to unrecaptured section 1250
gain. See Regulations section 1.1(h)-1 and attach the statement
required under Regulations section 1.1(h)-1(e).
From an estate, trust, REIT, or RIC. If the partnership received a
Schedule K-1 or Form 1099-DIV from an estate, a trust, a REIT, or a
RIC reporting unrecaptured section 1250 gain, don't add it to the
partnership's own unrecaptured section 1250 gain. Instead, report it
as a separate amount. For example, if the partnership received a
Form 1099-DIV from a REIT with unrecaptured section 1250 gain,
report it as “Unrecaptured section 1250 gain from a REIT.”
Schedule K-1. Report each partner's distributive share of
unrecaptured section 1250 gain from the sale or exchange of the
business assets in box 9c of Schedule K-1. If the partnership is
reporting unrecaptured section 1250 gain from an estate, a trust, a
REIT, or a RIC, or from the partnership's sale or exchange of an
interest in another partnership (as explained above), enter “STMT” in
box 9c and an asterisk (*) in the left column of the box, and attach a
statement that separately identifies the amount of unrecaptured
section 1250 gain from the following.
•
The sale or exchange of the partnership's business assets.
•
The sale or exchange of an interest in another partnership.
•
An estate, a trust, a REIT, or a RIC.
If any amounts from line 9c are from foreign sources, see the
Partnership Instructions for Schedules K-2 and K-3 for
additional information.
Line 10. Net Section 1231 Gain (Loss)
Enter the net section 1231 gain (loss) from Form 4797, Part I, line 7.
Don't include net gain or loss from involuntary conversions due to
casualty or theft. Report net gain or loss from involuntary
conversions due to casualty or theft on Schedule K, line 11 (box 11,
code B, of Schedule K-1). See the instructions for line 11 on how to
report net gain (loss) due to a casualty or theft.
Schedule K-1. Report each partner's distributive share of net
section 1231 gain (loss) in box 10 of Schedule K-1. If the partnership
has more than one rental, trade, or business activity, identify on an
attached statement to Schedule K-1 the amount of section 1231
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gain (loss) from each separate activity. See Passive Activity
Reporting Requirements, earlier.
If any amounts from line 10 are from foreign sources, see the
Partnership Instructions for Schedules K-2 and K-3 for
additional information.
Line 11. Other Income (Loss)
Enter any other item of income or loss not included on lines 1
through 10. Determine other income (loss) without regard to any
amount reported on line 6c. On the line to the left of the entry space
for line 11, identify the type of income. If there's more than one type
of income, attach a statement to Form 1065 that separately identifies
each type and amount of income for each of the following
categories. The codes needed for Schedule K-1 reporting are
provided for each category.
Other portfolio income (loss) (code A). Portfolio income not
reported on lines 5 through 10.
Report and identify other portfolio income or loss on an attached
statement for line 11.
For example, income reported to the partnership from a REMIC,
in which the partnership is a residual interest holder, would be
reported on an attached statement for line 11. If the partnership
holds a residual interest in a REMIC, report on the attached
statement for box 11 of Schedule K-1 the partner's share of the
following.
•
Taxable income (net loss) from the REMIC (Schedules Q (Form
1066), line 1b).
•
Excess inclusion (Schedules Q (Form 1066), line 2c).
•
Section 212 expenses (Schedules Q (Form 1066), line 3b). Don't
report these section 212 expense deductions related to portfolio
income on Schedules K and K-1.
Because Schedule Q (Form 1066) is a quarterly statement, the
partnership must follow the Schedule Q instructions to figure the
amounts to report to partners for the partnership's tax year.
Involuntary conversions (code B). Net gain (loss) from
involuntary conversions due to casualty or theft. The amount for this
line is shown on Form 4684, Casualties and Thefts, Section B, Part
II, line 38a, 38b, or 39.
Each partner's share must be entered on Schedule K-1. Give
each partner a schedule that shows the amounts to be reported on
the partner's Form 4684, Section B, Part II, line 34, columns (b)(i),
(b)(ii), and (c).
If there was a gain (loss) from a casualty or theft to property not
used in a trade or business or for income-producing purposes, notify
the partner. The partnership shouldn't complete Form 4684 for this
type of casualty or theft. Instead, each partner will complete their
own Form 4684.
Section 1256 contracts and straddles (code C). Report any net
gain or loss from section 1256 contracts from Form 6781, Gains and
Losses From Section 1256 Contracts and Straddles.
Mining exploration costs recapture (code D). Provide the
information partners need to recapture certain mining exploration
expenditures. See Regulations section 1.617-3.
Cancellation of debt (code E). If cancellation of debt is reported
to the partnership on Form 1099-C, report each partner's distributive
share in box 11 using code E. Amounts related to forgiven PPP
loans are disregarded for purposes of this question.
Include the amount of income the partnership must
recognize for a transfer of a partnership interest in
satisfaction of a partnership debt when the debt relieved
exceeds the FMV of the partnership interest. See section 108(e)(8)
for more information.
Section 743(b) positive income adjustments (code F). For
partnerships other than PTPs, report the partner's share of net
positive income resulting from all section 743(b) adjustments. For
CAUTION
!
TIP
purposes of code F, net positive income from all section 743(b)
adjustments means the excess of all section 743(b) adjustments
allocated to the partner that increase the partner's taxable income
over all section 743(b) adjustments that decrease the partner's
taxable income. Attach a statement to line 20, code U, showing each
section 743(b) basis adjustment making up the total and identify the
assets to which it relates. The partnership may group these section
743(b) basis adjustments by asset category or description in cases
where multiple assets are affected. See the instructions for line 20,
code U.
Code G. Reserved for future use.
Section 951(a) income inclusions (code H). If the partnership is
a domestic partnership, enter any section 951(a) income inclusions
of the domestic partnership. A domestic partnership may only have
section 951(a) income inclusions with respect to a foreign
corporation and a tax year of the foreign corporation that begins
before January 25, 2022, if the domestic partnership (a) doesn't
apply Regulations sections 1.958-1(d)(1) through (3) to such tax
year to be treated as not owning stock of the foreign corporation
within the meaning of section 958(a) for purposes of section 951,
and (b) is a U.S. shareholder of the foreign corporation during such
tax year. A domestic partnership doesn't have section 951(a) income
inclusions with respect to a foreign corporation for tax years of the
foreign corporation that begin on or after January 25, 2022, under
Regulations section 1.958-1(d)(1). Additionally, if the partnership,
domestic or foreign, has a distributive share of section 951(a)
income inclusions of a lower-tier partnership, enter the partnership's
distributive share of the section 951(a) income inclusions. If the
partnership doesn't have a section 951(a) income inclusion with
respect to a foreign corporation stock of which it owns within the
meaning of section 958(a) and without regard to Regulations section
1.958-1(d), see Schedule K-2, Part VI, for reporting of information
with respect to section 951(a) income inclusions of certain partners
with respect to the foreign corporation. Attach a statement to the
Schedule K-1 identifying the section 951(a) income inclusions
attributable to the sale or exchange by a CFC of stock in another
foreign corporation described in section 964(e)(4) or attributable to
hybrid dividends of tiered corporations under section 245A(e)(2).
Gain (loss) from disposition of oil, gas, geothermal, or other
mineral properties (section 59(e)) (code I). Disposition of an
interest in oil, gas, geothermal, or other mineral properties. Report
the following information on an attached statement to Schedule K-1.
•
Description of the property.
•
The partner's share of the amount realized on the sale, exchange,
or involuntary conversion of each property (FMV of the property for
any other disposition, such as a distribution).
•
The partner's share of the partnership's adjusted basis in the
property (except for oil or gas properties).
•
Total intangible drilling costs, development costs, and mining
exploration costs (section 59(e) expenditures) passed through to the
partner for the property.
See Regulations section 1.1254-5 for more information.
Recoveries of tax benefit items (code J). Recoveries of tax
benefit items. See section 111.
Gambling gains and losses (code K). Gambling gains and
losses subject to the limitations in section 165(d). Indicate on an
attached statement whether or not the partnership is in the trade or
business of gambling.
Any income, gain, or loss to the partnership from a distribu-
tion under section 751(b) (code L). When a partnership makes a
distribution and the partnership holds section 751 property, if any
partner has any gain or loss under section 751(b), the partnership
must report the net of all such gains or losses.
Gain eligible for section 1045 rollover (replacement stock pur-
chased by partnership) (code M). Include only gain from the sale
or exchange of qualified small business (QSB) stock (as defined in
the Instructions for Schedule D) that was deferred by the partnership
under section 1045 and reported on Form 8949 and/or Schedule D.
See the Instructions for Schedule D, and the Instructions for Form
8949 for more details. The partnership makes the election for section
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1045 rollover on a timely filed (including extensions) return for the
year in which the sale occurred. Corporate partners aren't eligible for
the section 1045 rollover. Additional limitations apply at the partner
level. Each partner will determine if they qualify for the rollover.
Report on an attached statement to Schedule K-1 for each sale or
exchange (a) the name of the corporation that issued the QSB stock,
(b) the partner's share of the partnership's adjusted basis and sales
price of the QSB stock, (c) the dates the QSB stock was bought and
sold, (d) the partner's distributive share of gain from the sale of the
QSB stock, and (e) the partner's distributive share of the gain that
was deferred by the partnership under section 1045. Only report
these amounts on Schedule K-1; don’t include them on Schedule K,
line 11.
Gain eligible for section 1045 rollover (replacement stock not
purchased by the partnership) (code N). Include only gain from
the sale or exchange of QSB stock (as defined in the Instructions for
Schedule D) the partnership held for more than 6 months but that
wasn't deferred by the partnership under section 1045. See the
Instructions for Schedule D for more details. A partner (other than a
corporation) may be eligible to defer their distributive share of this
gain under section 1045 if the partner purchases other QSB stock
during the 60-day period that began on the date the QSB stock was
sold by the partnership. Additional limitations apply at the partner
level. Report on an attached statement to Schedule K-1 for each
sale or exchange (a) the name of the corporation that issued the
QSB stock, (b) the partner's share of the partnership's adjusted
basis and sales price of the QSB stock, (c) the dates the QSB stock
was bought and sold, and (d) the partner's distributive share of gain
from the sale of the QSB stock.
Gain from sale or exchange of QSB stock with section 1202 ex-
clusion (code O). The section 1202 exclusion applies only to QSB
stock held by the partnership for more than 5 years. Corporate
partners aren't eligible for the section 1202 exclusion. Additional
limitations apply at the partner level. Report each partner's share of
section 1202 gain on Schedule K-1. Each partner will determine if
they qualify for the section 1202 exclusion. Report on an attached
statement to Schedule K-1 for each sale or exchange (a) the name
of the corporation that issued the QSB stock, (b) the partner's share
of the partnership's adjusted basis and sales price of the QSB stock,
and (c) the dates the QSB stock was bought and sold.
Gain or loss on disposition of farm recapture property and
other items to which section 1252 applies (code P). Gains from
the disposition of farm recapture property (see Form 4797) and other
items to which section 1252 applies.
Gain or loss on Fannie Mae or Freddie Mac qualified preferred
stock (code Q). The partner's distributive share of the partnership's
gain or loss attributable to the sale or exchange of qualified preferred
stock of the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac).
On an attached statement, show (a) the gain or loss attributable to
the sale or exchange of the qualified preferred stock, (b) the date the
stock was acquired by the partnership, and (c) the date the stock
was sold or exchanged by the partnership. See Rev. Proc. 2008-64,
2008-47 I.R.B. 1195, for more information.
Specially allocated ordinary gain (loss) (code R).
Non-portfolio capital gain (loss) (code S). Any gain or loss from
Schedule D (Form 1065), line 7 or 15, that isn't portfolio income (for
example, gain or loss from the disposition of nondepreciable
personal property used in a trade or business).
Codes T through X. Reserved for future use.
Other (code ZZ). Any other information the partners need to
prepare their tax returns.
Schedule K-1. Enter each partner's distributive share of the other
income categories listed earlier in box 11 of Schedule K-1. Enter the
applicable code provided.
If the partnership has more than one trade or business or rental
activity, identify on an attached statement to Schedule K-1 the
amount from each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Deductions
Line 12. Section 179 Deduction
A partnership can elect to expense part or all of the cost of certain
property the partnership purchased during the tax year for use in its
trade or business (including certain rental activities, if the renting of
the property is the partnership’s trade or business). See Pub. 946 for
a definition of what kind of property qualifies for the section 179
expense deduction and the Instructions for Form 4562 for limitations
on the amount of the section 179 expense deduction.
Complete Part I of Form 4562 to figure the partnership's section
179 expense deduction. The partnership doesn't take the deduction
itself but instead passes it through to the partners. Attach Form 4562
to Form 1065 and show the total section 179 expense deduction on
Schedule K, line 12.
The partnership must reduce the basis of the asset by the
amount of the section 179 expense elected by the partnership, even
if a portion of that amount can't be passed through to its partners
that year and must be carried forward because of limitations at the
partnership level. Don't reduce the partnership's basis in section 179
property to reflect any portion of the section 179 expense that is
allocable to a partner that is a trust or estate.
Identify on an attached statement to Schedules K and K-1 the
cost of section 179 property placed in service during the year that is
a qualified enterprise zone property. See the Instructions for Form
4562 for more details.
See the instructions for Schedule K, line 20c, for sales or other
dispositions of property for which a section 179 deduction has
passed through to partners and for the recapture rules if the
business use of the property dropped to 50% or less.
Schedule K-1. Report each partner's distributive share of the
section 179 expense deduction in box 12 of Schedule K-1. If the
partnership has more than one trade or business activity, identify on
an attached statement to Schedule K-1 the amount of section 179
deduction from each separate activity. See
Passive Activity
Reporting Requirements, earlier.
Don't complete box 12 of Schedule K-1 for any partner that is an
estate or a trust; estates and trusts aren't eligible for the section 179
expense deduction.
Line 13a. Cash Contributions
No deduction is allowed for any contribution of $250 or more unless
the partnership obtains a written acknowledgment from the
charitable organization that shows the amount of cash contributed
and gives an estimate of the value of any goods or services provided
in return for the contribution. The acknowledgment must be obtained
by the due date (including extensions) of the partnership return or, if
earlier, the date the partnership files its return. Don't attach the
acknowledgment to the partnership return, but keep it with the
partnership's records.
Cash contributions of any amount must be supported by a dated
bank record or a written communication from the donee showing the
name of the donee organization, the date of the contribution, and the
amount of the contribution, for example, a receipt.
Enter charitable cash contributions made during the tax year.
Attach a statement to Form 1065 that separately identifies the
partnership's contributions for each applicable code below. See
Limits on Deductions in Pub. 526, Charitable Contributions, for
information on adjusted gross income (AGI) limitations on
deductions for charitable contributions.
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Cash contributions (60%) (code A). Enter cash contributions
subject to the 60% AGI limitation. Don’t include in the amount
reported using code A the cash contributions reported using code G.
Cash contributions (30%) (code B). Enter cash contributions
subject to the 30% AGI limitation.
Schedule K-1. Report each partner's distributive share of cash
charitable contributions in box 13 of Schedule K-1 using code A or
B, as applicable.
Line 13b. Noncash Contributions
No deduction is allowed for any contribution of $250 or more unless
the partnership obtains a written acknowledgment from the
charitable organization that describes the property contributed and
gives an estimate of the value of any goods or services provided in
return for the contribution. The acknowledgment must be obtained
by the due date (including extensions) of the partnership return or, if
earlier, the date the partnership files its return. Don't attach the
acknowledgment to the partnership return but keep it with the
partnership's records. These rules apply in addition to the filing
requirements for Form 8283, Noncash Charitable Contributions,
described below.
Attach a statement to Form 1065 that separately identifies the
partnership's contributions for each of applicable codes C through F.
See Limits on Deductions in Pub. 526 for information on AGI
limitations on deductions for charitable contributions.
Noncash contributions (50%) (code C). Enter noncash
contributions subject to the 50% AGI limitation.
Qualified conservation contributions. The AGI limit for
qualified conservation contributions under section 170(h) is 50%.
The carryover period is 15 years. See section 170(b) and Notice
2007-50, 2007-25 I.R.B. 1430, for details. Report qualified
conservation contributions with a 50% AGI limitation in box 13 of
Schedule K-1 using code C. Don't include in the amount reported
using code C the conservation contributions of property used in
agriculture or livestock production reported on Schedule K-1 using
code G. See
Qualified Conservation Contribution in Pub. 526 and
Disallowance of deduction for certain qualified conservation
contributions by pass-through entities in the Instructions for Form
8283.
Charitable contributions of food inventory. Attach a
statement to Schedule K-1 that shows the following.
•
The partner's distributive share of the amount of the charitable
contributions made under section 170(e)(3) for qualified inventory
that was donated to charitable organizations for the care of the ill,
needy, and infants. The food must meet all the quality and labeling
standards imposed by federal, state, and local laws and regulations.
The amount of the charitable contribution for donated food inventory
is the lesser of (a) the basis of the donated food plus one-half of the
appreciation (gain if the donated food was sold at FMV on the date
of the gift), or (b) twice the amount of basis of the donated food. A
partnership that doesn't account for inventories and isn't required to
capitalize indirect costs under section 263A may elect to treat the
basis of the donated food as equal to 25% of the FMV of the food.
See section 170(e)(3)(C) for more details.
•
The partner's distributive share of the net income for the tax year
from the partnership's trades or businesses that made the
contribution of food inventory.
Don’t include the amount of food inventory contributions in
the amount reported in box 13 using code C. These
contributions must be reported separately on an attached
statement because partners must separately determine the
limitations on the deduction.
Noncash contributions (30%) (code D). Enter noncash
contributions subject to the 30% AGI limitation.
Capital gain property to a 50% limit organization (30%) (code
E). Enter capital gain property contributions subject to the 30% AGI
limitation.
CAUTION
!
Capital gain property (20%) (code F).
Enter capital gain property
contributions subject to the 20% AGI limitation.
Contributions of property. See Contributions of Property in Pub.
526, and Pub. 561, Determining the Value of Donated Property, for
information on noncash contributions and contributions of capital
gain property. If the deduction claimed for noncash contributions
exceeds $500, complete Form 8283 and attach it to Form 1065.
If the partnership made a qualified conservation contribution
under section 170(h), also include the FMV of the underlying
property before and after the donation, as well as the type of legal
interest contributed, and describe the conservation purpose
furthered by the donation. Give a copy of this information to each
partner.
If the partnership made a qualified conservation contribution for
the preservation of a historic structure, there are additional
requirements that may apply to obtain a charitable contribution
deduction. This deduction may be reduced if rehabilitation credits
were claimed for the historic structure. This deduction may be
denied if the partnership doesn't comply with section 170(f)(19). A
$500 filing fee may apply to certain deductions over $10,000. See
the Instructions for Form 8283 and Pub. 526 for details.
A charitable contribution by a partnership (whether directly or as
a distributive share of a contribution of another partnership) isn't
treated as a qualified conservation contribution if the amount of such
contribution exceeds 2.5 times the sum of each partner’s relevant
basis in such partnership. In an attachment to each Schedule K-1
issued to a partner, report the partner’s relevant basis allocable to
the portion of the real property or historic structure on which the
qualified conservation contribution is made. The partnership should
coordinate with each partner in calculating relevant basis. See
Qualified Conservation Contribution in Pub. 526 and Disallowance of
conservation contribution deductions by certain pass-through
entities in the Instructions for Form 8283.
Nondeductible contributions. Certain contributions made to an
organization conducting lobbying activities aren't deductible. See
section 170(f)(9) for more details. Also, see Contributions You Can’t
Deduct in Pub. 526 for more examples of nondeductible
contributions.
Contributions (100%) (code G). Use code G to report the
contributions below and, on an attached statement, provide the
following information.
Qualified conservation contributions of property used in
agriculture or livestock production. Enter qualified conservation
contributions of property used in agriculture or livestock production.
The contribution must be subject to a restriction that the property
remain available for such production. See section 170(b)(1)(E)(iv) for
details.
If the partnership is a qualified farmer or rancher (as defined in
section 170(b)(1)(E)(v)), show each partner's distributive share of
qualified conservation contributions of property used in agriculture or
livestock production. Partners will have to separately determine
whether they qualify for the 50% or 100% AGI limitation for these
contributions. Don't include the amounts reported on the attached
statement using code G in the amount reported on Schedule K-1 for
qualified conservation contributions using code C.
Schedule K-1. Report each partner's distributive share of noncash
charitable contributions in box 13 of Schedule K-1 using codes C
through F for each of the contribution categories shown above. For
code G items, report them by entering code G with an asterisk (G*)
and entering "STMT" in the dollar amount entry space for box 13 and
attach a statement that shows "Box 13, Code G" and the dollar
amount of each type of deduction. The partnership must attach a
copy of its Form 8283 to the Schedule K-1 of each partner receiving
a distributive share of the contribution deduction shown in its Form
8283, Section A or Section B.
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Line 13c. Investment Interest Expense (Code H)
Include on this line the interest properly allocable to debt on property
held for investment purposes. Property held for investment includes
property that produces income (unless derived in the ordinary
course of a trade or business) from interest, dividends, annuities, or
royalties; and gains from the disposition of property that produces
those types of income or is held for investment.
Investment interest expense doesn't include interest expense
allocable to a passive activity.
Investment income and investment expenses other than interest
are reported on lines 20a and 20b, respectively. This information is
needed by partners to determine the investment interest expense
limitation (see Form 4952 for details).
Schedule K-1. Report each partner's distributive share of
investment interest expense in box 13 of Schedule K-1 using code
H.
Lines 13d(1) and 13d(2). Section 59(e)(2)
Expenditures (Code J)
Generally, section 59(e) allows each partner to make an election to
deduct their distributive share of the partnership's otherwise
deductible qualified expenditures ratably over 10 years (3 years for
circulation expenditures). The deduction is taken beginning with the
tax year in which the expenditures were made (or for intangible
drilling and development costs, over the 60-month period beginning
with the month in which such costs were paid or incurred).
The term “qualified expenditures” includes only the following
types of expenditures paid or incurred during the tax year.
•
Circulation expenditures.
•
Research and experimental expenditures.
•
Intangible drilling and development costs.
•
Mining exploration and development costs.
If a partner makes the election, these items aren't treated as
alternative minimum tax (AMT) tax preference items. Because the
partners are generally allowed to make this election, the partnership
can't deduct these amounts or include them as AMT items on
Schedule K-1. Instead, the partnership passes through the
information the partners need to figure their separate deductions. On
line 13d(1), enter the type of expenditures claimed on line 13d(2).
Enter on line 13d(2) the qualified expenditures paid or incurred
during the tax year for which an election under section 59(e) may
apply. Enter this amount for all partners whether or not any partner
makes an election under section 59(e).
On an attached statement, identify the property for which the
expenditures were paid or incurred. If the expenditures were for
intangible drilling costs or development costs for oil and gas
properties, identify the month(s) in which the expenditures were paid
or incurred. If there's more than one type of expenditure or more
than one property, provide the amounts (and the months paid or
incurred if required) for each type of expenditure separately for each
property.
Schedule K-1. Report each partner's distributive share of section
59(e) expenditures in box 13 of Schedule K-1 using code J. Identify
the following on an attached statement: (a) the type of expenditure;
(b) the property for which the expenditures are paid or incurred; and
(c) for oil and gas properties only, the month in which intangible
drilling costs and development costs were paid or incurred. If there's
more than one type of expenditure or the expenditures are for more
than one property, provide each partner's distributive share of the
amounts (and the months paid or incurred for oil and gas properties)
for each type of expenditure separately for each property.
Line 13e. Other Deductions
Enter deductions not included on lines 12, 13a, 13b, 13c, 13d(2),
and 21. On the line to the left of the entry space for this line, identify
the type of deduction. If there's more than one type of deduction,
attach a statement to Form 1065 that separately identifies the type
and amount of each deduction for the following categories. The
codes needed for Schedule K-1 reporting are provided for each
category.
Deductions—royalty income (code I). Enter deductions related
to royalty income.
Schedule K-1. Report each partner’s distributive share of
deductions related to royalty income.
Excess business interest expense (EBIE) (code K). If the
partnership is required to file Form 8990, it may determine it has
EBIE. If so, enter the amount from Form 8990, Part II, line 32, for
EBIE.
Schedule K-1. Provide the information the partners need to
figure EBIE. In box 13, report the partner’s distributive share of EBIE.
If the partnership reports EBIE, the partner is required to file Form
8990. The partner will enter the amount on Form 8990, Schedule A,
line 43, column (c). See the Instructions for Form 8990 for additional
information.
Deductions—portfolio income (other) (code L). Enter any other
deductions related to portfolio income.
No deduction is allowed under section 212 for expenses
allocable to a convention, seminar, or similar meeting. Because
these expenses aren't deductible by partners, the partnership
doesn't report these expenses on Schedule K, line 13e. The
expenses are nondeductible and are reported as such on
Schedule K, line 18c, and in box 18 of Schedule K-1 using code C.
Schedule K-1. In box 13, report the partner's distributive share of
deductions related to portfolio income that are reported on
Schedule K, line 13e, using code I (for deductions related to royalty
income) or L (for other deductions related to portfolio income).
Amounts paid for medical insurance (code M). Enter amounts
paid during the tax year for insurance that constitutes medical care
for the partner (including the partner's spouse, dependents, and
children under age 27 who aren't dependents).
Educational assistance benefits (code N). Enter amounts paid
during the tax year for educational assistance benefits paid to a
partner.
Dependent care benefits (code O). Enter amounts paid during
the tax year for dependent care benefits paid on behalf of each
partner.
Preproductive period expenses (code P). If the partnership is
required to use an accrual method of accounting under section 447
or is prohibited from using the cash method under section 448(a)(3),
it must capitalize these expenses. If the partnership is permitted to
use the cash method, enter the amount of preproductive period
expenses that qualify under section 263A(d). An election not to
capitalize these expenses must be made at the partner level. See
Uniform Capitalization Rules in Pub. 225.
Code Q. Reserved for future use.
Pensions and IRAs (code R). Enter the payments for a partner to
an IRA, a qualified plan, or a SEP or SIMPLE IRA plan. If a qualified
plan is a defined benefit plan, a partner's distributive share of
payments is determined in the same manner as the partner’s
distributive share of partnership taxable income. For a defined
benefit plan, attach to the Schedule K-1 for each partner a statement
showing the amount of benefit accrued for the tax year.
Reforestation expense deduction (code S). The partnership can
elect to deduct a limited amount of its reforestation expenditures
paid or incurred during the tax year. The amount the partnership can
elect to deduct is limited to $10,000 for each qualified timber
property. See section 194(c) for a definition of reforestation
expenditures and qualified timber property. The partnership must
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amortize over 84 months any amount not deducted. See the
instructions for Form 1065, page 1, line 21, earlier. See Notice
2006-47, 2006-20 I.R.B. 892, for details on making the election.
Schedule K-1. Enter the partner's distributive share of the
allowable reforestation expenses in box 13 of Schedule K-1 using
code S and attach a statement that provides a description of the
qualified timber property. If the partnership is electing to deduct
amounts from more than one qualified timber property, provide a
description and the amount for each property.
Codes T through U. Reserved for future use.
Section 743(b) negative income adjustments (code V). For
partnerships other than PTPs, report the partner’s share of net
negative income resulting from all section 743(b) adjustments. For
purposes of code V, net negative income from all section 743(b)
adjustments means the excess of all section 743(b) adjustments
allocated to the partner that decrease partner taxable income over
all section 743(b) adjustments that increase partner taxable income.
Attach a statement for line 20, code U, showing each section 743(b)
basis adjustment making up the total and identify the assets to which
it relates. The partnership may group these section 743(b) basis
adjustments by asset category or description in cases where
multiple assets are affected. See the instructions for line 20, code U.
Soil and water conservation (code W). Enter amounts for soil
and water conservation expenditures, and endangered species
recovery expenditures. See section 175.
Film, television, and theatrical production expenses (code X).
The partnership can elect to deduct certain costs of a qualified film,
television, or live theatrical production commencing before January
1, 2026 (after December 31, 2015, and before January 1, 2026, for a
live theatrical production), limited to $15 million of the aggregate
production cost of the production. There's a higher dollar limitation
for productions in certain areas. Provide a description of the film,
television, or theatrical production on an attached statement. If the
partnership makes the election for more than one film, television, or
theatrical production, attach a statement to Schedule K-1 that shows
each partner's distributive share of the qualified expenditures
separately for each production. The deduction is subject to
recapture under section 1245 if the election is voluntarily revoked or
the production fails to meet the requirements for the deduction. See
section 181 and the related regulations for details.
Expenditures for removal of barriers (code Y). Enter
expenditures paid or incurred for the removal of architectural and
transportation barriers to the elderly and disabled that the
partnership has elected to treat as a current expense. See section
190.
Itemized deductions (code Z). Enter amounts paid by the
partnership that would be allowed as itemized deductions on any of
the partners' income tax returns if they were paid directly by a
partner for the same purpose. These amounts include, but aren't
limited to, expenses under section 212 for the production of income
other than from the partnership's trade or business. However, don't
enter expenses related to portfolio income or investment interest
expense reported on Schedule K, line 13b, on this line.
Contributions to a capital construction fund (CCF) (code AA).
Enter amount of contributions made to a capital construction fund.
See Pub. 595.
Penalty on early withdrawal of savings (code AB). Enter any
penalty on early withdrawal of savings not reported on Schedule K,
line 13c, because the partnership withdrew its time savings deposit
before its maturity.
Interest expense allocated to debt-financed distributions
(code AC). See 2022 Pub. 535, Business Expenses, for more
information.
Interest expense on working interest in oil or gas (code AD).
Enter interest paid or accrued on debt properly allocable to each
general partner's share of a working interest in any oil or gas
property (if the partner's liability isn't limited). General partners that
didn't materially participate in the oil or gas activity treat this interest
as investment interest; for other general partners, it's trade or
business interest.
Deductions—portfolio income (code AE). Enter amount of
deductions related to portfolio income which were formerly
deductible by individuals under section 67 subject to the 2% AGI
floor. For partners other than individuals, amounts that are clearly
and directly allocable to portfolio income (other than investment
interest expense and section 212 expenses from a REMIC) can be
deducted on those partners’ income tax returns.
Codes AF through AJ. Reserved for future use.
Other (code ZZ). Any other information the partners need to
prepare their tax returns.
Schedule K-1. Enter each partner's distributive share of the
deduction categories listed earlier in box 13 of Schedule K-1 or
provide the information required on an attached statement for the
deduction.
If the partnership has more than one trade or business activity,
identify on an attached statement to Schedule K-1 the amount for
each separate activity. See Passive Activity Reporting
Requirements, earlier.
Self-Employment
If the partnership is an options dealer or a commodities
dealer, see section 1402(i) before completing lines 14a, 14b,
and 14c, to determine the amount of any adjustment that
may have to be made to the amounts shown on the Worksheet for
Figuring Net Earnings (Loss) From Self-Employment, later. If the
partnership is engaged solely in the operation of a group investment
program, earnings from the operation generally aren't
self-employment earnings for either general or limited partners.
General partners. General partners' net earnings (loss) from
self-employment don't include the following.
•
Dividends on any shares of stock and interest on any bonds,
debentures, notes, etc., unless the dividends or interest are received
in the course of a trade or business, such as a dealer in stocks or
securities or interest on notes or accounts receivable.
•
Rentals from real estate, except rentals of real estate held for sale
to customers in the course of a trade or business as a real estate
dealer or payments for rooms or space when significant services are
provided.
•
Royalty income, except royalty income received in the course of a
trade or business.
See the Instructions for Schedule SE (Form 1040) for more
information.
Limited partners. Generally, a limited partner's share of
partnership income (loss) isn't included in net earnings (loss) from
self-employment. Limited partners treat as self-employment
earnings only guaranteed payments for services they actually
rendered to, or on behalf of, the partnership to the extent that those
payments are payment for those services.
However, whether a partner qualifies as a limited partner for
purposes of self-employment tax depends on whether the partner
meets the definition of a limited partner under section 1402(a)(13).
Line 14a. Net Earnings (Loss) From
Self-Employment (Code A)
Use the Worksheet for Figuring Net Earnings (Loss) From
Self-Employment in these instructions.
Schedule K. Enter on line 14a the amount from line 5 of the
worksheet.
Schedule K-1. Don't complete this line for any partner that is an
estate, a trust, a corporation, an exempt organization, or an IRA.
Enter in box 14 of Schedule K-1 each individual general partner's
share of the combined amounts shown on the worksheet, lines 3c
TIP
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and 4c; and each individual limited partner’s share of the amount
shown on the worksheet, line 4c, using code A.
Line 14b. Gross Farming or Fishing Income (Code
B)
Enter on line 14b the partnership's gross farming or fishing income
from self-employment. Individual partners need this amount to figure
net earnings from self-employment under the farm optional method
on Schedule SE (Form 1040), Part II. Enter each individual partner's
distributive share in box 14 of Schedule K-1 using code B.
Line 14c. Gross Nonfarm Income (Code C)
Enter on line 14c the partnership's gross nonfarm income from
self-employment. Individual partners need this amount to figure net
earnings from self-employment under the nonfarm optional method
on Schedule SE (Form 1040), Part II. Enter each individual partner's
share in box 14 of Schedule K-1 using code C.
Worksheet Instructions
Line 1b. Include on line 1b any part of the net income (loss) from
rental real estate activities from Schedule K, line 2, that is from:
•
Rentals of real estate held for sale to customers in the course of a
trade or business as a real estate dealer, or
•
Rentals for which services were rendered to the occupants (other
than services usually or customarily rendered for the rental of space
for occupancy only). The supplying of maid service is such a
service, but the furnishing of heat and light; the cleaning of public
entrances, exits, stairways, and lobbies; and trash collection, etc.,
aren't considered services rendered to the occupants.
Line 3c. The distributive share of limited partners isn't earnings
from self-employment and isn't reported on this line.
Lines 3b and 4b. Allocate the amounts on these lines in the same
way Form 1065, page 1, line 23, is allocated to these particular
partners.
Line 4a. Include in the amount on line 4a any guaranteed payments
to partners reported on Schedule K, line 4c, and in box 4c of
Schedule K-1, and derived from a trade or business as defined in
section 1402(c). Also include other ordinary business income and
expense items (other than expense items subject to separate
limitations at the partner level, such as the section 179 expense
deduction) reported on Schedules K and K-1 that are used to figure
self-employment earnings under section 1402.
Line 4c. Guaranteed payments to general partners and limited
partners for services provided to the partnership are net earnings
from self-employment and are reported on this line.
Credits
Zero-Emission Nuclear Power Production Credit
(Code A)
The IRA 2022 created section 45U, the zero-emission nuclear power
production credit, for electricity produced at a qualified nuclear
power facility and sold by the taxpayer to an unrelated person in tax
years beginning after December 31, 2023, and before January 1,
2033. For more information about the zero-emission nuclear power
production credit, see Form 7213, Part II, and the Instructions for
Form 7213.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the zero-emission nuclear power production
credit reported on Schedule K, line 15f, using code A.
Credit for Production From Advanced Nuclear
Power Facilities (Code B)
Section 45J was enacted by section 1306 of the Energy Policy Act of
2005, P.L. 109-58, title XIII, section 1306. The credit is allowed only
for qualifying electricity that the taxpayer produces and sells to an
unrelated person. For more information about the credit for electricity
produced from advanced nuclear power facilities, see Form 7213,
Part I, and the Instructions for Form 7213.
Schedule K-1 Report in box 15 of Schedule K-1 each partner's
distributive share of the credit for electricity produced from advanced
nuclear power facilities reported on Schedule K, line 15f, using code
B.
Low-Income Housing Credit
Section 42 provides a credit that can be claimed by owners of
low-income residential rental buildings. To qualify for this credit, the
partnership must file Form 8609, Low-Income Housing Credit
Allocation and Certification, separately with the IRS. Don't attach
Worksheet for Figuring Net Earnings (Loss) From Self-Employment
1a Ordinary business income (loss) (Schedule K, line 1) ............................. 1a
b Net income (loss) from certain rental real estate activities (see instructions) .................
1b
c Other net rental income (loss) (Schedule K, line 3c) ..............................
1c
d Net loss from Form 4797, Part II, line 17, included on line 1a, above. Enter as a positive amount .......
1d
e Combine lines 1a through 1d ..........................................
1e
2 Net gain from Form 4797, Part II, line 17, included on line 1a, above .....................
2
3a Subtract line 2 from line 1e. If line 1e is a loss, increase the loss on line 1e by the amount on line 2 .....
3a
b Part of line 3a allocated to limited partners, estates, trusts, corporations, exempt organizations,
and IRAs .....................................................
3b
c
Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each general partner's share of
line 3c in box 14 of Schedule K-1 using code A ................................................
3c
4a Guaranteed payments to partners (Schedule K, line 4c) derived from a trade or business as defined in section
1402(c) (see instructions) ............................................
4a
b Part of line 4a allocated to limited partners for other than services and to estates, trusts, corporations, exempt
organizations, and IRAs .............................................
4b
c
Subtract line 4b from line 4a. Include each general partner's share and each limited partner's share of line 4c in box 14 of Schedule K-1
using code A ..................................................................
4c
5 Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 14a ...............
5
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Form 8609 to Form 1065. Complete and attach Form 8609-A,
Annual Statement for Low-Income Housing Credit; and Form 8586,
Low-Income Housing Credit, to Form 1065.
Line 15a. Low-Income Housing Credit (Section
42(j)(5)) (Code C)
Enter on line 15a the total low-income housing credit for property
which a partnership is to be treated under section 42(j)(5) as the
taxpayer to which the low-income housing credit was allowed.
If the partnership invested in another partnership to which the
provisions of section 42(j)(5) apply, report on line 15a the credit
reported to the partnership in box 15 of Schedule K-1 (Form 1065),
code C.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the low-income housing credit reported on
line 15a of Schedule K. Use code C to report credits attributable to
buildings placed in service after 2007. If the partnership has credits
from more than one rental activity, identify on an attached statement
to Schedule K-1 the amount for each separate activity. See
Passive
Activity Reporting Requirements, earlier.
Line 15b. Low-Income Housing Credit (Other)
(Code D)
Enter on line 15b any low-income housing credit not reported on
line 15a. This includes any credit reported to the partnership in
box 15 of Schedule K-1 using code D.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the low-income housing credit reported on
Schedule K, line 15b. Use code D to report credits attributable to
buildings placed in service after 2007. If the partnership has credits
from more than one rental activity, identify on an attached statement
to Schedule K-1 the amount for each separate activity. See
Passive
Activity Reporting Requirements, earlier.
Line 15c. Qualified Rehabilitation Expenditures
(Rental Real Estate) (Code E)
Enter on line 15c the total qualified rehabilitation expenditures
related to rental real estate activities of the partnership. See the
Instructions for Form 3468 for details on qualified rehabilitation
expenditures.
Schedule K-1. Report each partner's distributive share of qualified
rehabilitation expenditures related to rental real estate activities in
box 15 of Schedule K-1 using code E. Attach a statement to
Schedule K-1 that provides the information and the partner's
distributive share of the amounts the partner will need to complete
Form 3468, Part VII, lines 1d through 1k. See the Instructions for
Form 3468 for details. If the partnership has expenditures from more
than one rental real estate activity, identify on an attached statement
to Schedule K-1 the amount for each separate activity. See
Passive
Activity Reporting Requirements, earlier.
Qualified rehabilitation expenditures for property not related
to rental real estate activities must be reported in box 20
using code D.
Line 15d. Other Rental Real Estate Credits (Code
F)
Enter on line 15d any other credit (other than credits reported on
lines 15a through 15c) related to rental real estate activities. On the
dotted line to the left of the entry space for line 15d, identify the type
of credit. If there's more than one type of credit, attach a statement to
Form 1065 that identifies the type and amount for each credit. These
CAUTION
!
credits may include any type of credit listed in the instructions for
line 15f.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of other rental real estate credits using code F. If
you're reporting each partner's distributive share of only one type of
rental real estate credit under code F, enter the code with an asterisk
(F*) and the dollar amount in the entry space in box 15 and attach a
statement that shows “Box 15, Code F” and the type of credit. If
you're reporting multiple types of rental real estate credits under
code F, enter the code with an asterisk (F*) and enter “STMT” in the
entry space in box 15 and attach a statement that shows “Box 15,
Code F” and the types and dollar amounts of the credits. If the
partnership has credits from more than one rental real estate activity,
identify on the attached statement the amount of each type of credit
for each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Line 15e. Other Rental Credits (Code G)
Enter on line 15e any other credit (other than credits reported on
lines 15a through 15d) related to rental activities. On the dotted line
to the left of the entry space for line 15e, identify the type of credit. If
there's more than one type of credit, attach a statement to Form
1065 that identifies the type and amount for each credit. These
credits may include any type of credit listed in the instructions for
line 15f.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of other rental credits using code G. If you're
reporting each partner's distributive share of only one type of rental
credit under code G, enter the code with an asterisk (G*) and the
dollar amount in the entry space in box 15 and attach a statement
that shows “Box 15, Code G” and type of credit. If you're reporting
multiple types of rental credits under code G, enter the code with an
asterisk (G*) and enter “STMT” in the entry space in box 15 and
attach a statement that shows “Box 15, Code G” and the types and
dollar amounts of the credits. If the partnership has credits from
more than one rental activity, identify on the attached statement the
amount of each type of credit for each separate activity. See
Passive
Activity Reporting Requirements, earlier.
Line 15f. Other Credits
Enter on line 15f any other credit, except credits or expenditures
shown or listed for lines 15a through 15e. If any of these credits are
attributable to rental activities, enter the amount on line 15d or 15e.
On the dotted line to the left of the entry space for line 15f, identify
the type of credit. If there's more than one type of credit or if there
are any credits subject to recapture, attach a statement to Form
1065 that separately identifies each type and amount of credit and
credit recapture information for the following categories. The codes
needed for box 15 of Schedule K-1 are provided in the headings of
the following categories.
Undistributed capital gains credit (code H). This credit
represents taxes paid on undistributed capital gains by a RIC or a
REIT. As a shareholder of a RIC or a REIT, the partnership will
receive notice of the amount of tax paid on undistributed capital
gains on Form 2439, Notice to Shareholder of Undistributed
Long-Term Capital Gains.
Biofuel producer credit (code I). Complete Form 6478, if
applicable, to figure the credit. Attach it to Form 1065. Include any
amount shown on Form 6478, line 2, in the partnership's income on
line 7. See section 40(f) for an election the partnership can make to
not have the credit apply.
Work opportunity credit (code J). Complete Form 5884 to figure
the credit. Attach it to Form 1065.
Disabled access credit (code K). Complete Form 8826 to figure
the credit. Attach it to Form 1065.
Empowerment zone employment credit (code L). Complete
Form 8844 to figure the credit. Attach it to Form 1065.
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Credit for increasing research activities (code M). Complete
Form 6765 to figure the credit. Attach it to Form 1065.
Note. The partnership should provide the information necessary for
the partner to determine whether the partnership is an eligible small
business under section 38(c)(5)(A). If the partner and the
partnership meet the requirements of section 38(c)(5)(A), the
research credit may be treated as a specified credit.
Credit for employer social security and Medicare taxes paid on
certain employee tips (code N). Complete Form 8846 to figure
the credit. Attach it to Form 1065.
Backup withholding (code O). This credit is for backup
withholding on dividends, interest, and other types of income of the
partnership.
Unused investment credit from the qualifying advanced coal
project credit or qualifying gasification project credit allocated
from cooperatives (code P). See Form 3468.
Unused investment credit from the qualifying advanced ener-
gy project credit allocated from cooperatives (code Q). See
Form 3468.
Unused investment credit from the advanced manufacturing
investment credit allocated from cooperatives (code R). See
Form 3468.
Code S. Reserved for future use.
Unused investment credit from the energy credit allocated
from cooperatives (code T). See Form 3468.
Unused investment credit from the rehabilitation credit alloca-
ted from cooperatives (code U). See Form 3468.
Advanced manufacturing production credit (code V). See Form
7207.
Codes W and X. Reserved for future use.
Clean hydrogen production credit (code Y). See Form 7210.
Orphan drug credit (code Z). Complete Form 8820 to figure the
credit, and attach it to Form 1065.
Enhanced oil recovery credit (code AA). See Form 8830.
Renewable electricity production credit (code AB). See Rev.
Proc. 2007-65, as modified by Announcement 2009-69 and
Announcement 2007-112, for a safe harbor method for allocating the
credit for wind energy production. Complete Form 8835 to figure the
credit. Attach a statement to Form 1065 and Schedule K-1 showing
the allocation of the credit for production during the 4-year period
beginning on the date the facility was placed in service and for
production after that period. Attach Form 8835 to Form 1065.
Biodiesel, renewable diesel, or sustainable aviation fuels cred-
it (code AC). Complete Form 8864, if applicable, to figure the
credit, and attach it to Form 1065. If this credit includes the small
agri-biodiesel producer credit, identify on a statement attached to
Schedule K-1 (a) each partner's distributive share of the small
agri-biodiesel producer credit included in the total credit allocated to
the partner, (b) the number of gallons for which the partnership
claimed the small agri-biodiesel producer credit, and (c) the
partnership's productive capacity for agri-biodiesel.
New markets credit (code AD). Complete Form 8874 to figure the
credit. Attach it to Form 1065.
Credit for small employer pension plan startup costs (code
AE). Complete Form 8881 to figure the credit, and attach it to Form
1065.
Credit for small employer auto-enrollment (code AF). Complete
Form 8881 to figure the credit, and attach it to Form 1065.
Credit for small employer military spouse retirement plan eligi-
bility (code AG). Complete Form 8881 to figure the credit, and
attach it to Form 1065.
Credit for employer-provided childcare facilities and services
(code AH). Complete Form 8882 to figure the credit, and attach it to
Form 1065.
Low sulfur diesel fuel production credit (code AI). Complete
Form 8896 to figure the credit, and attach it to Form 1065.
Qualified railroad track maintenance credit (code AJ).
Complete Form 8900 to figure the credit, and attach it to Form 1065.
Credit for oil and gas production from marginal wells (code
AK). See Form 8904.
Distilled spirits credit (code AL). See Form 8906.
Energy efficient home credit (code AM). See Form 8908.
Alternative motor vehicle credit (code AN). See Form 8910.
Alternative fuel vehicle refueling property credit (code AO).
See Form 8911.
Clean renewable energy bond credit (code AP). See Form
8912. The amount of this credit (excluding any credits from other
partnerships, estates, and trusts) must also be reported as interest
income on Schedule K, line 5.
New clean renewable energy bond credit (code AQ). See Form
8912. The amount of this credit (excluding any credits from other
partnerships, estates, and trusts) must also be reported as interest
income on Schedule K, line 5. In addition, the amount of this credit
must also be reported as a cash distribution on Schedule K,
line 19a.
Qualified energy conservation bond credit (code AR). See
Form 8912. The amount of this credit (excluding any credits from
other partnerships, estates, and trusts) must also be reported as
interest income on Schedule K, line 5. In addition, the amount of this
credit must also be reported as a cash distribution on Schedule K,
line 19a.
Qualified zone academy bond credit (code AS). See Form
8912. The amount of this credit (excluding any credits from other
partnerships, estates, and trusts) must also be reported as interest
income on Schedule K, line 5. In addition, the amount of this credit
must also be reported as a cash distribution on Schedule K,
line 19a.
Qualified school construction bond credit (code AT). See Form
8912. The amount of this credit (excluding any credits from other
partnerships, estates, and trusts) must also be reported as interest
income on Schedule K, line 5. In addition, the amount of this credit
must also be reported as a cash distribution on Schedule K,
line 19a.
Build America bond credit (code AU). See Form 8912. The
amount of this credit (excluding any credits from other partnerships,
estates, and trusts) must also be reported as interest income on
Schedule K, line 5. In addition, the amount of this credit must also be
reported as a cash distribution on Schedule K, line 19a.
Credit for employer differential wage payments (code AV). See
Form 8932.
Carbon oxide sequestration credit (code AW). See Form 8933,
Part III, Section D, line 20.
Carbon oxide sequestration credit recapture (code AX). See
Form 8933, Part III, Section D, line 22. Enter as a negative number.
New clean vehicle credit (code AY). See Form 8936, Part II.
Qualified commercial clean vehicle credit (code AZ). See Form
8936, Part V.
Credit for small employer health insurance premiums (code
BA). See Form 8941.
Employer credit for paid family and medical leave (code BB).
See Form 8994.
Eligible credits from transferor(s) under section 6418 (code
BC). Enter the total amount of eligible credits received from
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transferor(s) included in column (g) of the partnership's Form 3800,
Part III, line 6. Also, enter the total of the partnership's distributive
share of all eligible credits received from transferor(s) that were
received from another pass-through entity. See required statement
below.
Partnership and S corporation pass-through entities that
transferred eligible credits from an unrelated person for cash
under section 6418 must use Form 3800, Part III and Part V
(if applicable) to report such credits. See the Instructions for Form
3800 for reporting and other requirements.
Schedule K-1. Report each partner's distributive share of all
eligible credits transferred from one or more unrelated transferors
pursuant to a transfer election under section 6418 in box 15 of
Schedule K-1 using code BC. This amount must include the
partner’s distributive share of all eligible credits from transferors that
were received from another pass-through entity. Enter code BC with
an asterisk (BC*) and enter “STMT” in the dollar amount entry space
for box 15. Attach a statement that contains the following
information.
•
The partner’s distributive share amount of the eligible credits
received from transferor(s) reported in column (g) of the
partnership's Form 3800, Part III or Part V (if applicable).
•
The name of the credit form in column (a) of the applicable line of
Part III or Part V (if applicable).
•
Source information for each eligible credit shown on Form 3800,
Part III or V (if applicable), including:
1. IRS-issued registration number for transfers in column (b) of
Part III and Part V, and
2. The transferor’s EIN in column (d) of Part III or column (c) of
Part V.
•
If a partner’s distributive share includes an allocation of eligible
credits purchased by a lower-tier pass-through entity and reported
on Schedule K-1, you must provide the EIN of such transferee
partnership or S corporation and the source information that was
provided to you by such entity.
See the Instructions for Form 3800 for additional details.
Codes BD through BG. Reserved for future use.
Other (code ZZ). Any other information the partners need to
prepare their tax returns.
Schedule K-1. Enter in box 15 of Schedule K-1 each partner's
distributive share of the credits listed above. See additional
Schedule K-1 reporting information provided in the instructions
above.
If the partnership has credits from more than one activity, identify
on an attached statement to Schedule K-1 the amount of each type
of credit for each separate activity. See
Passive Activity Reporting
Requirements, earlier.
International Transactions
Line 16. International Transactions
If the partnership had items of international tax relevance, see the
instructions for Schedule K-2 (Form 1065) to determine if you need
to attach Schedules K-2 and K-3. If you satisfy the domestic filing
exception to filing Schedule K-3, you must provide notification to the
partner either through an attachment to the Schedule K-1, or
separately prior to filing the Form 1065. If you satisfy an exception to
filing Schedule K-2, you may also attach a statement to Form 1065
that states “Qualified for exception to filing Schedule K-2.”
Alternative Minimum Tax (AMT) Items
Lines 17a through 17f must be completed for all partners.
Enter items of income and deductions that are adjustments or tax
preference items for the AMT. See Form 6251, Alternative Minimum
Tax—Individuals; or Schedule I (Form 1041), Alternative Minimum
Tax—Estates and Trusts, to determine the amounts to enter and for
other information.
CAUTION
!
Don't include as a tax preference item any qualified expenditures
to which an election under section 59(e) may apply. Instead, report
these expenditures on Schedule K, line 13d(2). Because these
expenditures are subject to an election by each partner, the
partnership can't figure the amount of any tax preference related to
them. Instead, the partnership must pass through to each partner in
box 13, code J, of Schedule K-1 the information needed to figure the
deduction.
Schedule K-1. Report each partner's distributive share of amounts
reported on lines 17a through 17f (concerning AMT) in box 17 of
Schedule K-1 using codes A through F, respectively. If the
partnership is reporting items of income or deduction for oil, gas,
and geothermal properties, you may be required to identify these
items on a statement attached to Schedule K-1 (see
Oil, Gas, and
Geothermal Properties Gross Income and Deductions, later, for
details). Also see the requirement for an attached statement in the
instructions for line 17f.
Line 17a. Post-1986 Depreciation Adjustment
(Code A)
Figure the adjustment for line 17a based only on tangible property
placed in service after 1986 (and tangible property placed in service
after July 31, 1986, and before 1987 for which the partnership
elected to use the General Depreciation System). Don't make an
adjustment for motion picture films, videotapes, sound recordings,
certain public utility property (as defined in section 168(f)(2)),
property depreciated under the unit-of-production method (or any
other method not expressed in a term of years), qualified Indian
reservation property, property eligible for a special depreciation
allowance, qualified revitalization expenditures, or the section 179
expense deduction.
For property placed in service before 1999, refigure depreciation
for the AMT as follows (using the same convention used for the
regular tax).
•
For section 1250 property (generally, residential rental and
nonresidential real property), use the straight line method over 40
years.
•
For tangible property (other than section 1250 property)
depreciated using the straight line method for the regular tax, use
the straight line method over the property's class life. Use 12 years if
the property has no class life.
•
For any other tangible property, use the 150% declining balance
method, switching to the straight line method the first tax year it
gives a larger deduction, over the property's AMT class life. Use 12
years if the property has no class life.
See Pub. 946 for a table of class lives.
For property (except section 1250 property) placed in service
after 1998, refigure depreciation for the AMT only for property
depreciated for the regular tax using the 200% declining balance
method. For the AMT, use the 150% declining balance method,
switching to the straight line method the first tax year it gives a larger
deduction, and the same convention and recovery period used for
the regular tax. For section 1250 property, refigure depreciation for
the AMT using the straight line method, and the same convention
and recovery period used for regular tax.
Figure the adjustment by subtracting the AMT deduction for
depreciation from the regular tax deduction and enter the result on
line 17a. If the AMT deduction is more than the regular tax
deduction, enter the difference as a negative amount. Depreciation
capitalized to inventory must also be refigured using the AMT rules.
Include on this line the current year adjustment to income, if any,
resulting from the difference.
TIP
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Line 17b. Adjusted Gain or Loss (Code B)
If the partnership disposed of any tangible property placed in service
after 1986 (or after July 31, 1986, if an election was made to use the
General Depreciation System), or if it disposed of a certified
pollution control facility placed in service after 1986, refigure the gain
or loss from the disposition using the adjusted basis for the AMT.
The property's adjusted basis for the AMT is its cost or other basis
minus all depreciation or amortization deductions allowed or
allowable for the AMT during the current tax year and previous tax
years. Enter on this line the difference between the regular tax gain
(loss) and the AMT gain (loss). If the AMT gain is less than the
regular tax gain, or the AMT loss is more than the regular tax loss, or
there's an AMT loss and a regular tax gain, enter the difference as a
negative amount.
If any part of the adjustment is allocable to net short-term capital
gain (loss), net long-term capital gain (loss), or net section 1231 gain
(loss), attach a statement that identifies the amount of the
adjustment allocable to each type of gain or loss.
For a net long-term capital gain (loss), also identify the amount of
the adjustment that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also identify the amount of
adjustment that is unrecaptured section 1250 gain.
Line 17c. Depletion (Other Than Oil and Gas)
(Code C)
Don't include any depletion on oil and gas wells. The partners must
figure their oil and gas depletion deductions and preference items
separately under section 613A.
Refigure the depletion deduction under section 611 for mines,
wells (other than oil and gas wells), and other natural deposits for the
AMT. Percentage depletion is limited to 50% of the taxable income
from the property as figured under section 613(a), using only income
and deductions for the AMT. Also, the deduction is limited to the
property's adjusted basis at the end of the year as figured for the
AMT. Figure this limit separately for each property. When refiguring
the property's adjusted basis, take into account any AMT
adjustments made this year or in previous years that affect basis
(other than the current year's depletion).
Enter the difference between the regular tax and AMT deduction.
If the AMT deduction is greater, enter the difference as a negative
amount.
Oil, Gas, and Geothermal Properties—Gross
Income and Deductions
Generally, the amounts to be entered on lines 17d and 17e are only
the income and deductions for oil, gas, and geothermal properties
that are used to figure the partnership's ordinary income (loss) (Form
1065, line 23).
If there are any items of income or deductions for oil, gas, and
geothermal properties included in the amounts that are required to
be passed through separately to the partners on Schedule K-1
(items not reported in box 1 of Schedule K-1), give each partner a
statement that shows, for the box in which the income or deduction
is included, the amount of income or deductions included in the total
amount for that box. Don't include any of these direct pass-through
amounts on line 17d or 17e.
Figure the amounts for lines 17d and 17e separately for oil and
gas properties that aren't geothermal deposits and for all properties
that are geothermal deposits.
Give each partner a statement that shows the separate amounts
included in the computation of the amounts on lines 17d and 17e of
Schedule K.
Line 17d. Oil, Gas, and Geothermal
Properties—Gross Income (Code D)
Enter the total amount of gross income (within the meaning of
section 613(a)) from all oil, gas, and geothermal properties received
or accrued during the tax year and included on page 1 of Form 1065.
Line 17e. Oil, Gas, and Geothermal
Properties—Deductions (Code E)
Enter any deductions allowed for the AMT that are allocable to oil,
gas, and geothermal properties.
Line 17f. Other AMT Items (Code F)
Attach a statement to Form 1065 and Schedule K-1 that shows other
items not shown on lines 17a through 17e that are adjustments or
tax preference items or that the partner needs to complete Form
6251 or Schedule I (Form 1041). See these forms and their
instructions to determine the amount to enter.
Other AMT items include the following.
•
Accelerated depreciation of real property under pre-1987 rules.
•
Accelerated depreciation of leased personal property under
pre-1987 rules.
•
Long-term contracts entered into after February 28, 1986. Except
for certain home construction contracts, the taxable income from
these contracts must be figured using the percentage of completion
method of accounting for the AMT.
•
Losses from tax shelter farm activities. No loss from any tax
shelter farm activity is allowed for the AMT.
•
Any information needed by certain corporate partners to figure
corporate AMT for tax years beginning after 2022, under section 55.
Schedule K-1. If you're reporting each partner's distributive share
of only one type of AMT item under code F, enter the code with an
asterisk (F*) and the dollar amount in the entry space in box 17 and
attach a statement that shows the type of AMT item. If you're
reporting multiple types of AMT items under code F, enter the code
with an asterisk (F*) and enter “STMT” in the entry space in box 17
and attach a statement that shows the dollar amount of each type of
AMT item.
Other Information
Line 18a. Tax-Exempt Interest Income
Enter on line 18a tax-exempt interest income, including any
exempt-interest dividends received from a mutual fund or other RIC.
Line 18b. Other Tax-Exempt Income
Enter on line 18b all income of the partnership exempt from tax other
than tax-exempt interest.
Tax-exempt income from transfer election. Enter the total
consideration received by the transferor partnership as a result of a
transfer election under section 6418. If the partnership is allocated
tax-exempt income from a pass-through entity (or lower-tier
pass-through entity) making a transfer election to transfer its credits,
include those amounts in code B as well.
Tax-exempt income from elective payment election. Enter the
amount from Form 1065, page 1, line 29. This is the total amount of
credits determined by the partnership for which an elective payment
election is being made.
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PPP loan forgiveness reporting. Report tax-exempt income
resulting from the forgiveness of a PPP loan on this line. Attach a
statement to Form 1065 for each tax year in which the partnership is
applying the provisions of Rev. Proc. 2021-48, section 3.01(1), (2),
or (3). The statement should include the following information for
each PPP loan.
•
The partnership’s name, address, and EIN.
•
Which section(s) of Rev. Proc. 2021-48 the partnership is
applying: 3.01(1), (2), and/or (3).
•
The amount of tax-exempt income from forgiveness of the PPP
loan that the partnership is treating as received or accrued during
the year.
•
Whether forgiveness of the PPP loan has been granted as of the
date the return is filed.
A partnership that did not report tax-exempt income from a PPP
loan on its 2020 return may file an amended return or AAR to apply
the applicable provisions of Rev. Proc. 2021-48. A partnership that
reported tax-exempt income from a PPP loan on its 2020 return, the
timing of which corresponds to section 3.01(1), (2), or (3) of Rev.
Proc. 2021-48, doesn't need to file an amended return or AAR solely
to attach the statement that is described in the preceding paragraph.
As explained in section 3.03 of Rev. Proc. 2021-48, if a
partnership treats tax-exempt income resulting from a PPP loan as
received or accrued prior to when forgiveness of the PPP loan is
granted, and the amount of forgiveness granted is less than the
amount of tax-exempt income that was previously treated as
received or accrued, the partnership must make appropriate
required adjustments on an amended return or AAR, as applicable,
for the tax year in which the partnership treated the tax-exempt
income as received or accrued. The partnership should attach a
statement to that amended return or AAR that includes the following
information.
•
The partnership’s name, address, and EIN.
•
A statement that the partnership is making adjustments in
accordance with section 3.03 of Rev. Proc. 2021-48.
•
The tax year in which tax-exempt income was originally reported,
the amount of tax-exempt income that was originally reported in that
tax year, and the amount of tax-exempt income being adjusted on
the amended return or AAR, as applicable.
Schedule K-1.
Tax-exempt income from transfer election. Include the
partner's distributive share of tax-exempt income allocated by the
transferor partnership related to proceeds received by the
partnership as a result of the partnership making a transfer election
to transfer its credits under section 6418. Also include the partner's
distributive share of allocations made to the transferor partnership
from a pass-through entity for which it was a partner related to the
pass-through entity (or lower-tier pass-through entity) making a
transfer election to transfer its credits.
Tax-exempt income from elective payment election. Include
the partner's distributive share of tax-exempt income as a result of
the partnership making an elective payment election under section
6417. Also include the partner's distributive share of allocations to
the partnership from a pass-through entity (or lower-tier
pass-through entity) that made an elective payment election.
Line 18c. Nondeductible Expenses
Enter on line 18c nondeductible expenses paid or incurred by the
partnership.
Payments made by transferee partnerships to eligible taxpayers
for the purchase of eligible credits as a result of a transfer election
under section 6418 are treated as nondeductible expenses and are
reported on this line 18c. Don't include separately stated deductions
shown elsewhere on Schedules K and K-1, capital expenditures, or
items the deduction for which is deferred to a later tax year.
Schedule K-1. Report in box 18 of Schedule K-1 each partner's
distributive share of amounts reported on lines 18a, 18b, and 18c of
Schedule K (concerning items affecting partners' bases) using
codes A through C, respectively. Attach a statement to Schedule K-1
for the amounts included on line 18b that are exempt by reason of
section 892, and describe the nature of the income.
Line 19a. Distributions of Cash and Marketable
Securities (Code A)
If the amount on line 19a includes marketable securities treated as
money, state separately on an attached statement to Schedules K
and K-1 (a) the partnership's adjusted basis of those securities
immediately before the distribution, and (b) the FMV of those
securities on the date of distribution (excluding the distributee
partner's share of the gain on the securities distributed to that
partner).
Line 19b. Distributions of Other Property
Enter on line 19b the total distributions to each partner of property
not included on line 19a. In box 19 of Schedule K-1, distributions of
section 737 property will be reported separately from other property.
The codes used when reporting amounts from line 19b in box 19 of
Schedule K-1 appear in the headings for the categories.
Distributions subject to section 737 (code B). If a partner
contributed section 704(c) built-in gain property within the last 7
years and the partnership made a distribution of property to that
partner
other than the previously contributed built-in gain property,
attach a statement to the distributee partner's Schedule K-1 that
provides the following information.
•
The FMV of the distributed property (other than money).
•
The amount of money received in the distribution.
•
The net precontribution gain of the partner. This is the net gain (if
any) that would have been recognized by the distributee partner
under section 704(c)(1)(B) if all the following property had been
distributed by the partnership to another partner. This property
includes all property contributed by the distributee partner during the
7 years prior to the distribution and that is still held by the partnership
at the time of the distribution (see section 737).
For more information, see Recognition of Precontribution Gain on
Certain Partnership Distributions, earlier.
Other property (code C). Include all distributions of property not
included on line 19a that aren't section 737 property. In figuring the
amount of the distribution, use the adjusted basis of the property to
the partnership immediately before the distribution. In addition,
attach a statement showing the adjusted basis and FMV of each
property distributed.
Schedule K-1. Report in box 19 each partner's distributive share of
the amount on line 19a using code A. If a statement is attached,
enter an asterisk after the code (A*) and “STMT” in the entry space,
and attach the required statement. For line 19b, report distributions
subject to section 737 in box 19 using code B with an asterisk (B*)
and “STMT” in the entry space, and attach the required statement.
For distributions of other property, report each partner's distributive
share of the amount in box 19 using code C with an asterisk (C*) and
“STMT” in the entry space, and attach the required statement.
Lines 20a and 20b. Investment Income and
Expenses (Codes A and B)
Enter on line 20a the investment income included on Schedule K,
lines 5, 6a, 7, and 11. Don't include other portfolio gains or losses on
this line.
Investment income includes gross income from property held for
investment, the excess of net gain attributable to the disposition of
property held for investment over net capital gain from the
disposition of property held for investment, any net capital gain from
the disposition of property held for investment that each partner
elects to include in investment income under section 163(d)(4)(B)
(iii), and any qualified dividend income that the partner elects to
include in investment income. Generally, investment income and
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investment expenses don't include any income or expenses from a
passive activity. See Regulations section 1.469-2(f)(10) for
exceptions.
Property subject to a net lease isn't treated as investment
property because it's subject to the passive loss rules. Don't reduce
investment income by losses from passive activities.
Enter investment expenses on line 20b. Investment expenses are
deductible expenses (other than interest) directly connected with the
production of investment income. See the instructions for Form 4952
for more information.
Schedule K-1. Report each partner's distributive share of amounts
reported on lines 20a and 20b (investment income and expenses) in
box 20 of Schedule K-1 using codes A and B, respectively.
If there are other items of investment income or expense included
in the amounts that are required to be passed through separately to
the partners on Schedule K-1, such as net short-term capital gain or
loss, net long-term capital gain or loss, and other portfolio gains or
losses, give each partner a statement identifying these amounts.
Line 20c. Other Items and Amounts
Report the following information on a statement attached to Form
1065. On Schedule K-1, enter the appropriate code in box 20 for
each information item followed by an asterisk in the left-hand column
of the entry space (for example, “C*”). In the right-hand column,
enter “STMT.” The codes are provided in the headings of the
following information categories.
Fuel tax credit information (code C). Report the number of
gallons of each fuel sold or used during the tax year for a nontaxable
use qualifying for the credit for taxes paid on fuel, type of use, and
the applicable credit per gallon. See Form 4136, Credit for Federal
Tax Paid on Fuels, for details.
Qualified rehabilitation expenditures (other than rental real es-
tate) (code D). Enter total qualified rehabilitation expenditures from
activities other than rental real estate activities. See the Instructions
for Form 3468 for details on qualified rehabilitation expenditures.
Note. Report qualified rehabilitation expenditures related to rental
real estate activities on line 15c.
Schedule K-1. Report each partner's distributive share of
qualified rehabilitation expenditures related to activities other than
rental real estate activities in box 20 of Schedule K-1 using code D.
Attach a statement to Schedule K-1 that provides the information
and the partner's distributive share of the amounts the partner will
need to complete Form 3468, Part VII, lines 1d through 1j. See the
Instructions for Form 3468 for details. If the partnership has
expenditures from more than one activity, identify on a statement
attached to Schedule K-1 the amount for each separate activity. See
Passive Activity Reporting Requirements, earlier.
Basis of energy property (code E). See the Instructions for Form
3468 for details on basis of energy property. In box 20 of
Schedule K-1, enter code E followed by an asterisk (E*) and enter
“STMT” in the entry space for the dollar amount. Attach a statement
to Schedule K-1 that provides the information and the partner's
distributive share of the amounts the partner will need to figure the
amounts to report on Form 3468, Part VI, lines 1a, 3a, 3e, 5a, 5c, 5f,
5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e, 19a, 21a, 23a,
23e, 25a, 25d, 25g, 25j, and 29a. See the Instructions for Form 3468
for details.
Recapture of low-income housing credit (codes F and G). If
recapture of part or all of the low-income housing credit is required
because (a) the prior year qualified basis of a building decreased, or
(b) the partnership disposed of a building or part of its interest in a
building, see Form 8611, Recapture of Low-Income Housing Credit.
Complete Form 8611, lines 1 through 7, to determine the amount of
credit to recapture. Use code F on Schedule K-1 to report recapture
of the low-income housing credit from a section 42(j)(5) partnership.
Use code G to report recapture of any other low-income housing
credit. See the instructions for lines 15a and 15b, earlier, for more
information.
If a partner's ownership interest in a building decreased
because of a transaction at the partner level, the partnership
must provide the necessary information to the partner to
enable the partner to figure the recapture.
The disposal of a building or an interest therein will generate
a credit recapture unless it's reasonably expected that the
building will continue to be operated as a qualified
low-income building for the remainder of the building's compliance
period.
See Form 8586, Form 8611, and section 42 for more information.
Recapture of investment credit (code H). Complete and attach
Form 4255, Recapture of Investment Credit, when investment credit
property is disposed of, or it no longer qualifies for the credit, before
the end of the recapture period or the useful life applicable to the
property. State the type of property at the top of Form 4255, and
complete lines 2, 3, 4, 10, and 11, whether or not any partner is
subject to recapture of the credit.
Attach to each Schedule K-1 a separate statement providing the
information the partnership is required to show on Form 4255, but list
only the partner's distributive share of the cost of the property
subject to recapture. Also indicate the lines of Form 4255 on which
the partners should report these amounts.
Recapture of other credits (code I). On an attached statement to
Schedule K-1, provide any information partners will need to report
recapture of credits (other than recapture of low-income housing and
investment credit reported on Schedule K-1 using codes F, G, and
H). Examples of credits reported using code I when subject to
recapture include the following.
•
The new markets credit. See Form 8874 and Form 8874-B,
Notice of Recapture Event for New Markets Credit, for details.
•
The credit for employer-provided childcare facilities and services.
See section 45F(d).
•
The alternative motor vehicle credit. See section 30B(h)(8).
•
The alternative fuel vehicle refueling property credit. See section
30C(e)(5).
•
The clean vehicle credit. See section 30D(f)(5).
Look-back interest—completed long-term contracts (code J).
If the partnership is closely held (defined in section 460(b)(4)(C))
and it entered into any long-term contracts after February 28, 1986,
that are accounted for under either the percentage of
completion-capitalized cost method or the percentage of completion
method, it must attach a statement to Form 1065 showing the
information required in items (a) and (b) of the instructions for Form
8697, Part II, lines 1 and 3. It must also report the amounts for Part II,
lines 1 and 3, to its partners. See the Instructions for Form 8697 for
more information.
Look-back interest—income forecast method (code K). If the
partnership is closely held (defined in section 460(b)(4)(C)) and it
depreciated certain property placed in service after September 13,
1995, under the income forecast method, it must attach to Form
1065 the information specified in the instructions for Form 8866,
line 2, for the 3rd and 10th tax years beginning after the tax year the
property was placed in service. It must also report the line 2 amounts
to its partners. See the Instructions for Form 8866 for more details.
Dispositions of property with section 179 deductions (code L).
This represents gain or loss on the sale, exchange, or other
disposition of property for which a section 179 deduction has been
passed through to partners. The partnership must provide all the
following information related to such dispositions (see the
instructions for page 1, line 6, earlier).
•
Description of the property.
•
Date the property was acquired and placed in service.
•
Date of the sale or other disposition of the property.
•
The partner's share of the gross sales price or amount realized.
•
The partner's share of the cost or other basis plus expense of sale
(reduced as explained in the instructions for Form 4797, line 21).
TIP
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•
The partner's share of the depreciation allowed or allowable,
determined as described in the instructions for Form 4797, line 22,
but excluding the section 179 deduction.
•
The partner's share of the section 179 deduction (if any) passed
through for the property and the partnership's tax year(s) in which
the amount was passed through.
•
If the disposition is due to a casualty or theft, a statement
indicating so, and any additional information needed by the partner.
•
For an installment sale, any information the partner needs to
complete Form 6252. The partnership must also separately report
the partner's share of all payments received for the property in future
tax years. (Installment payments received for sales made in prior tax
years should be reported in the same manner used in prior tax
years.) See the instructions for Form 6252 for details.
Recapture of section 179 deduction (code M). This amount
represents recapture of the section 179 deduction if business use of
the property dropped to 50% or less before the end of the recapture
period. If the business use of any property (placed in service after
1986) for which a section 179 deduction was passed through to
partners dropped to 50% or less (for a reason other than
disposition), the partnership must provide all the following
information.
•
The partner's distributive share of the original basis and
depreciation allowed or allowable (not including the section 179
deduction).
•
The partner's distributive share of the section 179 deduction (if
any) passed through for the property and the partnership's tax
year(s) in which the amount was passed through.
See Regulations section 1.179-1(e) for details.
Business interest expense (BIE) (code N). The partnership must
determine the amount of deductible BIE included on other lines on
the Schedule K. Attach a statement to Schedule K providing the
allocation of the deductible BIE included on other lines of
Schedule K. EBIE isn't deductible BIE; therefore, don't include it in
this reported amount for tax years beginning after November 12,
2020.
Schedule K-1. For tax years beginning after November 12, 2020,
enter the partner's amount of deductible BIE for inclusion in the
separate loss class for computing any basis limitation (defined in
section 704(d) and Regulations section 1.163(j)-6(h)). Also attach a
statement to Schedule K-1 providing the allocation of the BIE
already deducted by the partnership on other lines of Schedule K-1
by line number. Don't include EBIE reported in box 13, code K.
Section 453(l)(3) information (code O). Supply any information
needed by a partner to figure the interest due under section 453(l)
(3). If the partnership elected to report the dispositions of certain
timeshares and residential lots on the installment method, each
partner's tax liability must be increased by the partner's distributive
share of the interest on tax attributable to the installment payments
received during the tax year.
Section 453A(c) information (code P). Supply any information
needed by a partner to figure the interest due under section 453A(c);
see Pub. 537, Installment Sales, for additional information. This
information must include the following from each Form 6252 where
the partner’s share of the selling price, including mortgages and
other debts, is greater than $150,000.
•
Description of property.
•
Date acquired.
•
Date property sold.
•
Selling price, including mortgages and other debts, not including
interest, whether stated or unstated.
•
Mortgages, debts, and other liabilities the buyer assumed or took
the property subject to.
•
Gross profit.
•
Contract price.
•
Gross profit percentage.
•
Current year payments and deemed payments received during
the year, not including interest whether stated or unstated.
•
Origination year payments and deemed payments received
during the year, not including interest whether stated or unstated.
•
Prior year payments, not including interest whether stated or
unstated.
•
Installment sale income.
•
Character of the income—capital or ordinary.
See section 453A(c) for information on how to compute the
interest charge on the deferred tax liability. The section 453A interest
charge is reported as additional or other tax. See Interest on
Deferred Tax in Pub. 537 for additional details on how to compute
the section 453A(c) interest.
Section 1260(b) information (code Q). Supply any information
needed by a partner to figure the interest due under section 1260(b).
If the partnership had gain from certain constructive ownership
transactions, each partner's tax liability must be increased by the
partner's distributive share of interest due on any deferral of gain
recognition. See section 1260(b) for details, including how to figure
the interest.
Interest allocable to production expenditures (code R). Supply
any information needed by a partner to properly capitalize interest as
required by section 263A(f). See
Section 263A uniform capitalization
rules, earlier, for more information.
CCF nonqualified withdrawal (code S). Report nonqualified
withdrawals by the partnership from a CCF to partners. See Pub.
595.
Depletion information—oil and gas (code T). Report gross
income and other information relating to oil and gas well properties
to partners to allow them to figure the depletion deduction for oil and
gas well properties. Allocate to each partner a proportionate share of
the adjusted basis of each partnership oil or gas property. See
section 613A(c)(7)(D) for details.
The partnership can't deduct depletion on oil and gas wells. Each
partner must determine the allowable amount to report on their
return. See 2022 Pub. 535 for more information.
Section 743(b) basis adjustment (code U). Report the total
section 743(b) adjustment net of any cost recovery as a single
amount for all asset categories for each partner. In addition, attach a
statement to the Schedule K-1 for this code showing the amount of
each remaining section 743(b) basis, net of cost recovery by asset
category. A reasonable grouping by asset category may be used,
but such grouping shouldn't be less detailed than the asset
categories listed on the Form 1065, Schedule L, balance sheet. See
IRS.gov/forms-pubs/clarifications-for-disregarded-entity-reporting-
and-section-743b-reporting for more information.
Unrelated business taxable income (UBTI) (code V). Report
any information a partner that is a tax-exempt organization may need
to figure its share of UBTI under section 512(a)(1) (but excluding any
modifications required by paragraphs (8) through (15) of section
512(b)). Partners are required to notify the partnership of their
tax-exempt status. See Form 990-T, Exempt Organization Business
Income Tax Return; and Pub. 598, Tax on Unrelated Business
Income of Exempt Organizations, for more information.
If the partner is an IRA, include the IRA partner's unique EIN on
line 20, code AR.
Note. For tax year 2023, PTPs aren’t required to include the IRA
partner’s unique EIN on line 20, code AR.
Precontribution gain (loss) (code W). If the partnership
distributed any section 704(c) property to any partner other than the
contributing partner, and the date of the distribution was within 7
years of the date the section 704(c) property was contributed to the
partnership, the distribution must be treated as if it were a sale by the
contributing partner taking place on the date of the distribution.
Section 704(c) property is property that had an FMV that was either
greater or less than the contributing partner's adjusted basis at the
time the property was contributed to the partnership. See
Dispositions of Contributed Property, earlier, for more information. If
the partnership made such a distribution during its tax year, attach a
statement to the contributing partner's Schedule K-1 that provides
the following information.
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•
The amount of the gain or loss that would have been allocated to
the contributing partner if the partnership had sold the section 704(c)
property at its FMV at the time of the distribution. See section 704(c)
(1)(B) for details.
•
The character of the gain or loss that would have resulted if the
partnership had sold the section 704(c) property to the distributee
partner.
Enter code W in box 20 of Schedule K-1 with an asterisk (W*)
and enter “STMT,” and attach the required statement.
Payment obligations including guarantees and deficit restora-
tion obligations (DROs) (code X). If the box in item K3 is
checked, in box 20 of Schedule K-1, enter code X followed by an
asterisk (X*) and enter “STMT” in the entry for dollar amount. On the
attached statement, provide the aggregate ending balance of the
partner's or related person's payment obligations and identify the
ending balance of each payment obligation that is included in the
aggregate amount. For purposes of box 20, code X, a payment
obligation is defined as an obligation under Regulations section
1.752-2(b)(1) that is recognized under Regulations sections
1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an
obligation to restore a deficit capital account upon liquidation) and a
related person is defined as a related person as defined in
Regulations section 1.752-4(b).
The following examples assume that the described partnership
liabilities are properly allocable to the partner in the examples under
the rules of section 752.
Example 1. In Year 1, a partnership borrows $1,000 (PS Liability
1) from Bank 1 and $1,000 (PS Liability 2) from Bank 2. A partner
guarantees payment of up to $500 of PS Liability 1 if any amount of
the full $1,000 isn't recovered by Bank 1 and lends $200 to the
partnership, and a person related to the partner guarantees payment
of the entire amount of PS Liability 2 of $1,000. The partnership
enters $1,700 as the ending balance of the partner's share of
recourse liabilities on item K1 of the Schedule K-1 for tax Year 1. For
tax Year 1, the partnership would enter $1,500 in box 20 under code
X as the aggregate ending balance of the partner's or related
person's payment obligations. On the attached statement, the
partnership would separately identify each of the partner's or related
person's payment obligations (for example, $500 with respect to the
partner's guarantee of PS Liability 1 and $1,000 with respect to the
related person's guarantee of PS Liability 2).
Example 2. Assume the same facts as in Example 1, except
that, instead of loaning $200 to the partnership, the partner has a
$100 DRO and a $20 negative tax capital account and the
partnership enters $1,520 as the ending balance of the partner's
share of recourse liabilities on item K1 of the Schedule K-1 for tax
Year 1. For tax Year 1, the partnership would enter $1,520 in box 20
under code X as the aggregate ending balance of the partner's or
related person's payment obligations. On the attached statement,
the partnership would separately identify each of the partner's or
related person's payment obligations (for example, $500 with
respect to the partner's guarantee of PS Liability 1, $1,000 with
respect to the related person's guarantee of PS Liability 2, and $20
with respect to the partner's DRO).
Net investment income (code Y). Use code Y to report any
information that may be relevant for partners to figure their NIIT when
the information isn't otherwise identifiable elsewhere on
Schedule K-1. Attach a statement that shows a description and
dollar amount of each relevant item.
Examples of items reported using code Y may include the
following.
•
Net rental real estate income reported on Form 1065,
Schedule K, line 2, and other net rental income reported on Form
1065, Schedule K, line 3c, derived from a section 212 for-profit
activity (and not from a section 162 trade or business).
•
Gains and losses from dispositions of assets attributable to a
section 212 for-profit activity (and not from a section 162 trade or
business).
•
Gain reported on the installment sale basis (or attributable to a
private annuity) that is attributable to the disposition of property held
in a trade or business.
•
Gain or loss from the disposition of a partnership interest, but only
if such partnership was engaged, directly or indirectly, in one or more
trades or businesses, and at least one of those trades or businesses
wasn't trading in financial instruments or commodities.
•
The partner’s distributive share of interest income, or interest
expense, which is attributable to a loan between the partnership and
the partner (self-charged interest).
•
If the partnership received a Schedule K-1 (Form 1065), the detail
and amounts reported to the partnership in box 20 using code Y.
•
If the partnership received a Schedule K-1 (Form 1041), the
amount of the adjustment reported.
•
Guaranteed payments (reported on Form 1065, Schedule K,
line 4b) unrelated to services, such as for the use of capital or
attributable to section 736(a)(2) payments for unrealized receivables
or goodwill.
•
In the case of a common trust fund, any items of income or loss
that may be taken into account in figuring the participant’s net
investment income (other than qualified dividends, and short-term
and long-term capital gains).
•
Gain from a trade or business of trading in securities or
commodities for which the partnership has elected under section
475(f) to mark to market the securities, the commodities, or both.
In addition, Regulations section 1.1411-10 provides special rules
for stock of CFCs and PFICs owned by the partnership. If the
partnership owns directly or indirectly stock of a CFC or PFIC, then
additional reporting may be required under code Y.
CFCs and QEFs. In the case of stock of CFCs and QEFs directly
or indirectly owned by the partnership, the partnership must provide
the name and EIN (if one has been issued) for each CFC and QEF
the stock of which is owned by the partnership for which an election
under Regulations section 1.1411-10(g) isn’t in effect and for which
the partnership isn't engaged in a trade or business described in
section 1411(c)(2). For each of these entities, the partnership must
provide the following information on an entity-by-entity basis (to the
extent such information isn't otherwise identifiable elsewhere on
Schedule K-3).
•
Section 951(a) inclusions.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
•
Section 959(d) distributions subject to section 1411.
•
Section 1293(c) distributions subject to section 1411.
•
Amount of gain or loss derived from dispositions of the stock of
CFCs and QEFs that is taken into account for section 1411
purposes.
•
Amounts that are derived from the disposition of the stock of
CFCs and QEFs and included in income as dividends under section
1248 for section 1411 purposes.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the partnership for which an election under Regulations
section 1.1411-10(g) is in effect, the partnership must provide the
following information (to the extent such information isn't otherwise
identifiable elsewhere on Schedule K-3) on either an aggregate
basis or an entity-by-entity basis.
•
Section 951(a) inclusions.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the partnership with respect to which the partnership is
engaged in a trade or business described in section 1411(c)(2), the
partnership must provide the following information (to the extent
such information isn't otherwise identifiable elsewhere on
Schedule K-3) on either an aggregate or an entity-by-entity basis, or
the partnership may aggregate this information with other income
derived by the partnership that is net investment income under
section 1411(c)(1)(A)(ii).
•
Section 951(a) inclusions.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
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Section 1296 mark-to-market PFICs. In the case of stock of
PFICs directly or indirectly owned by the partnership for which an
election under section 1296 is in effect, the partnership must provide
the following information (to the extent such information isn't
otherwise identifiable elsewhere on Schedule K-3) on either an
aggregate basis or an entity-by-entity basis (except as provided
below).
•
Amounts included in income under section 1296(a)(1).
•
Amounts deducted from income under section 1296(a)(2).
In the case of PFIC stock owned directly or indirectly by the
partnership for which an election under section 1296 is in effect and
with respect to which the partnership is engaged in a trade or
business described in section 1411(c)(2), the partnership may
aggregate this information with other income derived by the
partnership that is net investment income under section 1411(c)(1)
(A)(ii).
Section 1291 funds. In the case of stock of PFICs directly or
indirectly owned by the partnership with respect to which direct or
indirect partners are subject to section 1291, the partnership must
provide the following information (to the extent such information isn't
otherwise identifiable elsewhere on Schedule K-3) on an
entity-by-entity basis.
•
Excess distributions made by a PFIC for which a partner is
subject to section 1291.
•
Gains derived from the disposition of stock of a PFIC for which a
partner is subject to section 1291.
Section 199A information (code Z). The qualified business
income (QBI) deduction may be taken by eligible taxpayers,
including individuals and some trusts and estates. The deduction is
determined at the partner level. Partnerships are required to report
information necessary for their partners to figure the deduction. Use
code Z with an asterisk (Z*) on each partner’s Schedule K-1 and
enter “STMT” in the entry space to indicate that the information is
provided on an attached statement that separately identifies the
partner’s distributive share of:
•
Qualified items of income, gain, deduction, and loss;
•
W-2 wages;
•
Unadjusted basis immediately after acquisition (UBIA) of qualified
property;
•
Qualified PTP items; and
•
Qualified REIT dividends.
The partnership must make an initial determination of which
items are qualified items of income, gain, deduction, and loss at its
level and report to each partner its distributive share of all items that
may be qualified items at the partner level. These items must be
separately stated where necessary for the partner to figure the
deduction. See
Determining the partnership’s QBI or qualified PTP
items, later. The partner must then determine whether each item is
includible in QBI.
In addition, the partnership must also report whether any of its
trades or businesses are specified service trades or businesses
(SSTBs) and identify on the statement any trades or businesses that
are aggregated. The partnership must also report all QBI information
reported to it by any entity in which the partnership has an ownership
interest.
Note. The partnership must report each partner’s share of qualified
items of income, gain, deduction, and loss from a PTP so that
partners can determine their qualified PTP income. However, the
W-2 wages and UBIA of qualified property from the PTP shouldn't be
reported because partners can't use that information in figuring their
QBI deduction.
Partnerships should use Statement A—QBI Pass-Through Entity
Reporting, later, or a substantially similar statement, to report
information for each partner’s distributive share from each trade or
business, including QBI items, W-2 wages, UBIA of qualified
property, qualified PTP items, and qualified REIT dividends by
attaching the completed statement(s) to each partner’s
Schedule K-1. The partnership should also use Statement A to
report each partner’s distributive share of QBI items, W-2 wages,
UBIA of qualified property, qualified PTP items, and qualified REIT
dividends reported to the partnership by another entity.
Partnerships should use Statement B—QBI Pass-Through Entity
Aggregation Election(s), later, or a substantially similar statement, to
report aggregated trades or businesses and provide supporting
information to partners on each Schedule K-1.
Partnerships should use Statement C—QBI Pass-Through Entity
Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives, later, or a substantially similar statement, to report the
distributive share of QBI and W-2 wages allocable to qualified
payments from a specified agricultural or horticultural cooperative for
each trade or business. This statement should also be used to report
each partner’s share of section 199A(g) deduction reported to the
partnership by the specified cooperative.
Determining the partnership’s qualified trades or
businesses. The partnership’s qualified trades or businesses
include its section 162 trades or businesses, except for SSTBs, or
the trade or business of providing services as an employee. A
section 162 trade or business generally includes any activity if the
partnership’s primary purpose for engaging in the activity is for
income or profit and the partnership is involved in the activity with
continuity and regularity. For more information on what qualifies as a
trade or business for purposes of section 199A, see the Instructions
for Form 8995, Qualified Business Income Deduction Simplified
Computation; or the Instructions for Form 8995-A, Qualified
Business Income Deduction.
Rental real estate. Rental real estate may constitute a trade or
business for purposes of the QBI deduction if the rental real estate:
•
Rises to the level of a trade or business under section 162,
•
Satisfies the requirements for the rental real estate safe harbor in
Rev. Proc. 2019-38, or
•
Meets the self-rental exception (that is, the rental or licensing of
property to a commonly controlled trade or business conducted by
an individual or relevant pass-through entity) described in
Regulations section 1.199A-1(b)(14).
The determination of whether rental real estate constitutes a
trade or business for purposes of the QBI deduction is made by the
partnership. The partnership must first make this determination and
then only include the distributive share of rental real estate items of
income, gain, loss, and deduction from a trade or business on the
statement provided to partners. Rental real estate that doesn't meet
any of the three conditions noted above doesn't constitute a trade or
business for purposes of the QBI deduction and must not be
included in the QBI information provided to partners.
SSTBs excluded from qualified trades or businesses. SSTBs
are generally excluded from the definition of a qualified trade or
business. An SSTB is any trade or business providing services in the
field of health, law, accounting, actuarial science, performing arts,
consulting, athletics, financial services, brokerage services,
investing and investment management, trading or dealing in
securities, partnership interests, or commodities, or any other trade
or business where the principal asset is the reputation or skill of one
or more of its employees or owners. The term “any trade or business
where the principal asset is the reputation or skill of one or more of
its employees or owners” means any trade or business that consists
of (a) a trade or business in which a person receives fees,
compensation, or other income from endorsing products or services;
(b) a trade or business in which a person licenses or receives fees,
compensation, or other income for the use of an individual’s image,
likeness, name, signature, voice, or trademark, or any other symbols
associated with the individual’s identity; or (c) receiving fees,
compensation, or other income for appearing at an event or on radio,
television, or another media format.
Partnerships must separately report QBI information for all trades
or businesses engaged in by the partnership, including SSTBs, but
must identify which trades or businesses are SSTBs.
Aggregation of trades or businesses. A partnership engaged
in more than one trade or business may choose to aggregate
multiple trades or businesses into a single trade or business for
purposes of section 199A if it meets the following requirements.
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1. The same person, or group of persons, either directly or
through attribution, owns 50% or more of each trade or business for
a majority of the tax year, including the last day of the tax year, and
all trades or businesses use the same tax year-end.
2. None of the trades or businesses are SSTBs.
3. The trades or businesses to be aggregated meet at least two
of the following three factors.
a. They provide products, property, or services that are the
same or that are customarily offered together.
b. They share facilities or share significant centralized business
elements, such as personnel, accounting, legal, manufacturing,
purchasing, human resources, or information technology resources.
c. They are operated in coordination with, or reliance on, one or
more of the businesses in the aggregated group.
If the partnership chooses to aggregate multiple trades or
businesses, it must report the aggregation on Statement B, or a
substantially similar statement, and attach it to each Schedule K-1.
The statement must provide the information necessary to identify
each separate trade or business included in each aggregation, a
description of the aggregated trades or businesses, and an
explanation of the factors met that allow the aggregation in
accordance with Regulations section 1.199A-4. The aggregation
statement must be completed each year to show the partnership's
trade or business aggregations. Failure to disclose the aggregations
may cause them to be disaggregated.
The partnership's aggregations must be reported consistently for
all subsequent years, unless there's a change in facts and
circumstances that changes or disqualifies the aggregation. The
partnership must provide a written explanation for any changes to
prior year aggregations that describes the change in facts and
circumstances.
If the partnership directly or indirectly owns an interest in another
relevant pass-through entity (RPE) that aggregates multiple trades
or businesses, it must attach a copy of the RPE’s aggregation to
each Schedule K-1. The partnership can't break apart the
aggregation of another RPE, but it may add trades or businesses to
the aggregation, assuming the requirements above are satisfied.
Determining the partnership’s QBI or qualified PTP items.
The partnership’s items of QBI include qualified items of income,
gain, deduction, and loss from the partnership’s trades or
businesses that are effectively connected with the conduct of a trade
or business within the United States. This may include, but isn't
limited to, items such as ordinary business income or losses, section
1231 gains or (losses), section 179 deductions, and interest from
debt-financed distributions.
QBI may also include rental income/losses or royalty income, if
the activity rises to the level of a trade or business; and gambling
gains or losses, but only if the partnership is engaged in the trade or
business of gambling. Whether an activity rises to the level of a trade
or business must be determined at the entity level and, once made,
is binding on partners.
Qualified PTP items include the partnership’s share of qualified
items of income, gain, deduction, and loss from an interest in a PTP
and may also include gain or loss recognized on the disposition of
the partner’s partnership interest that isn't treated as a capital gain or
loss. If the reporting partnership is itself a PTP, the PTP should report
all qualified items of income, gain, deduction, and loss separately for
each trade or business engaged in by the PTP.
QBI and qualified PTP items don’t include the following.
•
Items that aren’t properly includible in income.
•
Items that are treated as capital gain or loss under any provision
of the Code.
•
Dividends or dividend equivalents, including qualified REIT
dividends.
•
Interest income (unless received in connection with the trade or
business).
•
Wage income.
•
Income that isn't effectively connected with the conduct of
business within the United States (go to
IRS.gov/ECI for more
information).
•
Commodities transactions, or foreign currency gains or losses
described in section 954(c)(1)(C) or (D).
•
Income, loss, or deductions from notional principal contracts
under section 954(c)(1)(F).
•
Annuities (unless received in connection with the trade or
business).
•
Guaranteed payments described in section 707(c) received by
the entity for services rendered to a partnership.
•
Payments described in section 707(a) received by the entity for
services rendered to a partnership.
QBI flowchart. Partnerships may use this flowchart to determine
if an item of income, gain, deduction, or loss is includible in QBI
reportable to partners.
Flowchart To Help Determine if Items Are Qualified Business Income
Questions Yes No
1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question. Stop. This item isn't QBI.
2. Is the item attributable to a trade or business (this may include section 1231 gain/(loss), section 179
deductions, interest from debt-financed distributions, etc.)? Examples of an item not considered attributable
to the trade or business at the entity level include gambling income/(loss) where the entity isn't engaged in
the trade or business of gambling, income/(loss) from vacation properties when the entity isn't in that trade or
business, activities not engaged in for profit, etc.
Continue to next question. Stop. This item isn't QBI.
3. Is the item treated as a capital gain or loss under any provision of the Code or is it a dividend or dividend
equivalent?
Stop. This item isn't QBI. Continue to next question.
4. Is the item interest income other than interest income properly allocable to a trade or business? (Note that
interest income attributable to an investment of working capital, reserves, or similar accounts isn't properly
allocable to a trade or business.)
Stop. This item isn't QBI. Continue to next question.
5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn't QBI. Continue to next question.
6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss described in
section 954(c)(1)(C) or (D)?
Stop. This item isn't QBI. Continue to next question.
7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn't QBI. Continue to next question.
8. Is the item of income or loss from a qualified PTP? This item is a qualified PTP
item. Report this item as
qualified PTP income or
loss, subject to
partner-specific
determinations, and check
the PTP box.
This item is QBI. Report this
item as QBI subject to
partner-specific
determinations.
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Specific instructions for Statement A—QBI Pass-Through Enti-
ty Reporting.
QBI or qualified PTP items. The partnership (including PTPs)
must first determine if it's engaged in one or more trades or
businesses. It must then determine if any of its trades or businesses
are SSTBs. It must also determine whether it has qualified PTP
items from an interest in a PTP. It must indicate the status in the
appropriate checkboxes for each trade or business (or aggregated
trade or business) reported.
Note. SSTBs and PTPs can't be aggregated with any other trade or
business. So, if the aggregation box is checked, the SSTB and PTP
boxes for that specific aggregated trade or business shouldn't be
checked.
Next, the partnership must report to each partner their distributive
share of all items that are QBI or qualified PTP items for each trade
or business the partnership owns directly or indirectly. Use the QBI
flowchart above to determine if an item is reportable as a QBI item or
qualified PTP item subject to partner-specific determinations.
The descriptions on the statement generally match the
descriptions reported on Schedule K-1. So the amounts should
reflect each trade’s or business’s portion of the qualified items of
income, gain, deduction, or loss reported in the applicable box of the
partner’s Schedule K-1. For example, the amount reported on the
“Ordinary business income (loss)” line of this statement should
reflect the attributable portion of qualified items of income, gain,
deduction, and loss for each trade or business included in the
“Ordinary business income (loss)” reported in box 1 of the partner’s
Schedule K-1. Each item included under “Other income (loss)” and
“Other deductions” must be stated separately, identifying the nature
and amount of each item.
W-2 wages and UBIA of qualified property. The partnership
must determine the W-2 wages and UBIA of qualified property
properly allocable to QBI for each qualified trade or business and
report the distributive share to each partner on Statement A, or a
substantially similar statement, attached to Schedule K-1. This
includes the pro rata share of W-2 wages and UBIA of qualified
property reported to the partnership from any qualified trades or
businesses of an RPE the partnership owns directly or indirectly.
However, partnerships that own a direct or indirect interest in a PTP
may not include any amounts for W-2 wages or UBIA of qualified
property from the PTP, as the W-2 wages and UBIA of qualified
property from a PTP aren't allowed in figuring the W-2 wage and
UBIA limitations.
The W-2 wages are amounts paid to employees described in
sections 6051(a)(3) and (8). If the partnership conducts more than
one trade or business, it must allocate the W-2 wages among its
trades or businesses. See Rev. Proc. 2019-11, 2019-09 I.R.B. 742,
for more information.
The unadjusted basis of qualified property is figured by adding
the unadjusted basis of all qualified assets immediately after
acquisition. Qualified property includes all tangible property subject
to depreciation under section 167, for which the depreciable period
hasn’t ended, that is held and used by the trade or business during
the tax year and held on the last day of the tax year. The depreciable
period ends on the later of 10 years after the property is placed in
service or the last day of the full year for the applicable recovery
period under section 168.
Qualified REIT dividends. The partnership must report the
distributive share of any qualified REIT dividends to each partner on
Statement A, or a substantially similar statement, attached to
Schedule K-1. Qualified REIT dividends don’t have to be separately
reported by trades or businesses and can be reported as a single
amount to partners. Qualified REIT dividends include any dividend
the partnership receives on REIT stock held for more than 45 days
(taking into account the principles of sections 246(c)(3) and (4))
during the 91-day period beginning on the date that is 45 days
before the date on which such stock becomes ex-dividend with
respect to such dividend, for which the payment isn't obligated to
someone else, isn't a capital gain dividend under section 857(b)(3),
and isn't a qualified dividend under section 1(h)(11), plus any
section 199A dividends received from a RIC that are permitted to be
treated as qualified REIT dividends under Regulations section
1.199A-3(d).
Fiscal year partnerships. For purposes of determining the QBI
or qualified PTP items, UBIA of qualified property, and the aggregate
amount of qualified REIT dividends, fiscal year-end partnerships
include all items from the tax (fiscal) year.
For purposes of determining W-2 wages, fiscal year-end
partnerships include amounts paid to employees under sections
6051(a)(3) and (8) for the calendar year ended with or within the
partnership’s tax year. If the partnership conducts more than one
trade or business, it must allocate W-2 wages among its trades or
businesses. See Rev. Proc. 2019-11 for more information.
Statement A—QBI Pass-Through Entity Reporting
Partnership’s name: Partnership’s EIN:
Partner’s name: Partner’s identifying number:
Partner’s share of:
Trade or Business 1 Trade or Business 2 Trade or Business 3
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
QBI or qualified PTP items subject to partner-specific determinations:
Ordinary business income (loss) ................
Rental income (loss) ......................
Royalty income (loss) .....................
Section 1231 gain (loss) ....................
Other income (loss) ......................
Section 179 deduction .....................
Other deductions .......................
W-2 wages ........................................
UBIA of qualified property ...............................
Qualified REIT dividends ................................
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Specific instructions for Statement B—QBI Pass-Through Enti-
ty Aggregation Election(s). If the partnership elects to aggregate
more than one trade or business that meets all the requirements to
aggregate, the partnership must report the aggregation to partners
on Statement B, or a substantially similar statement, and attach it to
each Schedule K-1. The partnership must indicate trades or
businesses that were aggregated by checking the appropriate box
on Statement A for each aggregated trade or business. The
partnership must also provide a description of the aggregated trade
or business and an explanation of the factors met that allow the
aggregation.
The aggregation statement must be completed each year to
show the partnership’s trade or business aggregations. Failure to
disclose the aggregations may cause them to be disaggregated. The
partnership’s aggregations must be reported consistently for all
subsequent years, unless there's a change in facts and
circumstances that changes or disqualifies the aggregation. The
partnership must provide a written explanation for any changes to
prior year aggregations that describes the change in facts and
circumstances.
If the partnership holds a direct or indirect interest in an RPE that
aggregates multiple trades or businesses, the partnership must also
include a copy of the RPE’s aggregations with each partner’s
Schedule K-1. The partnership can't break apart the aggregation of
another RPE, but it may add trades or businesses to the
aggregation, assuming the aggregation requirements are satisfied.
Statement B—QBI Pass-Through Entity Aggregation Election(s)
Partnership’s name: Partnership’s EIN:
Trade or business aggregation 1*
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section
1.199A-4. In addition, if the partnership holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach
a copy of the RPE's aggregations.
Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, or
disposed of, or having ceased operations. If yes, explain.
* If the partnership has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.
Specific instructions for Statement C—QBI Pass-Through Enti-
ty Reporting—Patrons of Specified Agricultural and Horticul-
tural Cooperatives.
QBI items and W-2 wages allocable to qualified payments. If
the partnership is a patron of a specified agricultural or horticultural
cooperative, the partnership must provide the share of QBI items
and W-2 wages allocable to qualified payments from each trade or
business to each of its partners on Statement C, or a substantially
similar statement, and attach it to each Schedule K-1 so each
partner can figure their patron reduction under section 199A(b)(7).
QBI items and W-2 wages allocable to qualified payments
include QBI items included on Statement A that are allocable to the
qualified payments reported to the partnership on Form 1099-PATR
from the cooperative.
Section 199A(g) deduction. The partnership must report to its
partners their share of any section 199A(g) deduction passed
through from the cooperative, as reported on Form 1099-PATR.
Section 199A(g) deductions don't have to be reported separately by
trades or businesses and can be reported as a single amount to
partners.
Instructions for Form 1065 (2023)
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Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives
Partnership’s name:
Partnership’s EIN:
Partner’s name: Partner’s identifying number:
Partner’s share of:
Trade or Business Trade or Business Trade or Business
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
QBI items allocable to qualified payments subject to partner-specific determinations:
Ordinary business income (loss) ................
Rental income (loss) .......................
Royalty income (loss) ......................
Section 1231 gain (loss) .....................
Other income (loss) .......................
Section 179 deduction ......................
Other deductions ........................
W-2 wages allocable to qualified payments .....................
Section 199A(g) deduction ...............................
Section 704(c) information (code AA). For partnerships other
than PTPs, if a partner’s taxable income or loss on any line item on
Schedule K-1 (Form 1065) includes an allocation of any income or
deduction item determined by applying section 704(c), include the
sum of such income and deduction items here.
Example 1—single section 704(c) allocation. Partnership P
has two partners, A and B. A and B share all items of income, loss,
and deduction equally, except for items required to be allocated
under section 704(c). A contributes property X with an FMV of $100
and a tax basis of $60. X is depreciable over 10 years. B contributes
$100. The traditional method is used to allocate section 704(c) items
pertaining to X. In the first year, the partnership has $10 of section
704(b) book depreciation, which is allocated equally to A and B for
book purposes ($5 each). However, P only has $6 of tax
depreciation. The partnership has no other income or deductions
during the tax year. Under the traditional method, P allocates $1 to A
and $5 to B for tax purposes. Assuming this is the only item where
taxable income is affected by section 704(c) allocations during the
current year, the partnership would report deductions of $1 for A and
$5 for B in box 20, code AA, of Schedule K-1.
Example 2—multiple section 704(c) allocations. The facts
are the same as in Example 1, except in addition to the facts in that
example, A also contributes property Y with an FMV of $100 and a
remaining tax basis of $0. If Y were newly placed in service, its
depreciable life would be 10 years straight line. The partnership
adopts the remedial method with respect to property Y. In the first
year, P has $10 of section 704(b) book depreciation, which is
allocated equally to A and B for book purposes ($5 each). However,
P has $0 of tax depreciation with respect to property Y. Under the
remedial method, for tax purposes, P allocates $5 of remedial
income to A and $5 of a remedial depreciation deduction to B with
respect to property Y. In this case, the partnership would report in
box 20, code AA, of Schedule K-1 that A has $4 of taxable income,
determined by applying section 704(c) ($1 of depreciation
deductions from property X and $5 of remedial income from property
Y) and that B has $10 of deductions for tax purposes, determined by
applying section 704(c) (consisting of $5 depreciation from property
X and $5 remedial depreciation from property Y).
Required reporting for the sale or exchange of an interest in a
partnership (codes AB, AC, and AD). When a sale or exchange
of a partnership interest occurs and the partnership holds section
751 property such as unrealized receivables defined in section
751(c), property subject to unrecaptured section 1250 gain,
inventory items defined in section 751(d), or collectibles, the
partnership must report to the transferor partner their share of the
gain or loss figured for the following categories of assets. If there
was an exchange described in section 751(a), this information must
also be reported on Form 8308.
Section 751 gain (loss) (code AB). Section 751 “hot assets”
(unrealized receivables and inventory items).
Section 1(h)(5) gain (code AC). Section 1(h)(5) collectible
assets.
Deemed section 1250 unrecaptured gain (code AD). Section
1(h)(6) unrecaptured section 1250 gain assets (depreciable real
property) are section 751 property per Regulations section
1.751-1(c)(4)(v).
Excess taxable income (code AE). If the partnership is required
to file Form 8990, it may determine it has excess taxable income. If
so, enter the amount from Form 8990, Part II, line 36, for excess
taxable income.
Schedule K-1. Enter the partner’s amount of excess taxable
income. The partner will enter the amount on Form 8990,
Schedule A, line 43, column (f), if the partner is required to file Form
8990.
Excess business interest income (code AF). If the partnership is
required to file Form 8990, it may determine it has excess business
interest income. If so, enter the amount from Form 8990, Part II,
line 37, for excess business interest income.
Schedule K-1. Enter the partner’s amount of excess business
interest income. The partner will enter the amount on Form 8990,
Schedule A, line 43, column (g), if the partner is required to file Form
8990.
Gross receipts for section 448(c) (code AG). Regulations
section 1.163(j)-2(d)(2)(iii) requires that partners in a partnership
include a share of partnership gross receipts in proportion to their
share of gross income under section 703 (unless the partnership is
treated as one person under the aggregation rules of section
448(c)). Partnerships with current year gross receipts (defined in
Regulations section 1.448-1T(f)(2)(iv)) greater than $5 million are
required to report to partners their distributive shares of their current
year gross receipts, as well as their distributive shares of gross
receipts for the 3 immediately preceding tax years. If a partnership
and a partner are treated as a single employer under the section
448(c) aggregation rules, and the partnership has current year gross
receipts greater than $5 million, then the partnership should also
report its current year total gross receipts, as well as its total gross
receipts for the 3 immediately preceding tax years, to that partner.
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See IRS.gov/newsroom/faqs-regarding-the-aggregation-rules-under-
section-448c2–that-apply-to-the-section-163j-small-business-
exemption. Partnerships whose current year gross receipts are less
than or equal to $5 million may also use this code to report gross
receipts.
Noncash charitable contributions (code AH). If the partnership
made a noncash charitable contribution, report the partner’s share of
the partnership’s adjusted basis of the property for basis limitation
purposes.
Interest and tax on deferred compensation to partners (code
AI). Interest and additional tax on deferred compensation under a
section 409A nonqualified deferred compensation plan that doesn't
meet the requirements of section 409A. Include in this amount any
earnings on these deferrals. This amount must also be included on
Schedule K, line 4. For details, see the regulations under section
409A. These regulations don't provide guidance on the application
of section 409A to arrangements between partnerships and
partners. For interim guidance on such arrangements, see Q&A-7 in
Notice 2005-1, 2005-2 I.R.B. 274, and the information provided in
T.D. 9321. Also see Notice 2006-79, 2006-43 I.R.B. 763; Notice
2007-86, 2007-46 I.R.B. 990; and Notice 2008-113, 2008-51 I.R.B.
1305, for additional information on transitional and relief rules.
Excess business loss limitation (code AJ). To enable partners
to figure their excess business loss limitation under section 461(l),
attach a statement to each partner's Schedule K-1 showing the
partner's distributive share of the aggregate business activity gross
income or gain, and the aggregate business activity deductions,
from all of the partnership's trades or businesses.
Gain from mark-to-market election (code AK). If a partnership is
a trader in securities, commodities, or both, and has properly elected
under section 475(f) to mark-to-market the securities, the
commodities, or both, the partnership should report ordinary gain or
loss from the securities or commodities (or both securities and
commodities) trading activities separately from any other ordinary
gain or loss. Gain from the mark-to-market election is relevant for
partners to figure the NIIT. See the instructions regarding net
investment income (code Y), earlier.
Section 721(c) partnership (code AL). If the partnership is a
section 721(c) partnership, line 20c must include the amounts
relating to any remedial items made under the remedial allocation
method (described in Regulations sections 1.704-3(d) and
1.704-3(d)(5)(iii)) with respect to section 721(c) property. Enter a
separate code AL in box 20 of Schedule K-1 for each amount for
items allocated to the partner. For the U.S. transferor, enter a
separate code AL, if any, for the total remedial income allocated to
the U.S. transferor, total gain recognized due to an acceleration
event, and/or total gain recognized due to a section 367 transfer
reflected on Schedule G (Form 8865), Part II, columns (c), (d), and
(e), respectively. For all other partners of the section 721(c)
partnership, enter a separate code AL for the total amount of
remedial items allocated to such partner relating to section 721(c)
property. See Regulations sections 1.721(c)-3 and 1.721(c)-6.
Section 1061 information (code AM). The partnership will furnish
to the partners any information needed to figure their capital gains
with respect to an applicable partnership interest. Go to Section
1061 Reporting Guidance FAQs.
Farming and fishing business (code AN). If the partnership is
involved in a farming or fishing business, report the gross income
and gains as well as the losses and deductions attributable to such
business activities. See section 1301.
PTP information (code AO). Any information a partner that is a
PTP may need to determine if it meets the 90% qualifying income
test of section 7704(c)(2). A partner is required to notify the
partnership of their status as a PTP.
Inversion gain (code AP). Any income or gain reported on
Schedule K, lines 1 through 11, that qualifies as inversion gain, if the
partnership is an expatriated entity or is a partner in an expatriated
entity. For details, see section 7874. Attach a statement to Form
1065 that shows the amount of each type of income or gain included
in the inversion gain. The partnership must report each partner's
distributive share of the inversion gain in box 20 of Schedule K-1
using code AP. Attach a statement to Schedule K-1 that shows the
partner's distributive share of the amount of each type of income or
gain included in the inversion gain.
Conservation reserve program payments (code AQ). The
partner's distributive share of any conservation reserve program
payments made to the partnership.
IRA disclosure (code AR). For IRA partners with an amount
reported in box 20, code V, include code AR with the IRA partner's
unique EIN (not the custodian's EIN).
Enter the EIN without any dashes.
Qualifying advanced coal project property and qualifying gasi-
fication project property (code AS). Attach a statement to
Schedule K-1 showing the partner's distributive share of the
amounts that the partner will use when figuring the amounts to report
on their Form 3468, Part II. See the Instructions for Form 3468 for
details.
Qualifying advanced energy project property (code AT). Attach
a statement to Schedule K-1 showing the partner's distributive share
of the amounts that the partner will use when figuring the amounts to
report on their Form 3468, Part III. See the Instructions for Form
3468 for details.
Advanced manufacturing investment property (code AU).
Attach a statement to Schedule K-1 showing the partner's
distributive share of the amounts that the partner will use when
figuring the amount to report on their Form 3468, Part IV. See the
Instructions for Form 3468 for details.
Code AV. Reserved for future use.
Reportable transactions (code AW). If the partnership
participates in a transaction that must be disclosed on Form 8886,
both the partnership and its partners may be required to file Form
8886. The partnership must determine if any of its partners are
required to disclose the transaction and provide those partners with
information they will need to file Form 8886. This determination is
based on the category(ies) under which a transaction qualified for
disclosures. See Form 8886 and its instructions for details.
Code AX. Reserved for future use.
Foreign partners, Form 8990, Schedule A (code AY). Form
8990, Schedule A, requires certain foreign partners to report their
allocable share of EBIE, excess taxable income, and excess
business interest income, if any, that is attributable to income
effectively connected with a U.S. trade or business. Provide on
Schedule K-1 the information needed to complete Form 8990,
Schedule A, for a partner that is a foreign corporation or nonresident
alien or is a partnership (domestic or foreign) in which you know, or
have reason to know, that one or more of the partners is a foreign
corporation or nonresident alien.
Code AZ. Reserved for future use.
Codes BA through BD. Reserved for future use.
Other (code ZZ). Any other information the partners need to
prepare their tax returns, including information needed to prepare
state and local tax returns.
Instructions regarding the corporate alternative minimum tax
(CAMT) will be issued as a Recent Development article.
Line 21. Total Foreign Taxes Paid or Accrued
Enter in U.S. dollars the total creditable foreign taxes (described in
section 901 or section 903) that were paid or accrued by the
partnership (according to its method of accounting for such taxes).
Enter the amount paid or accrued on line 21. Translate these
amounts into U.S. dollars by using the applicable exchange rate (see
Pub. 514, Foreign Tax Credit for Individuals).
CAUTION
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The information on line 21 is solely for purposes of computing
basis. A partnership must complete Schedules K-2 and K-3 to
provide the information necessary for the partner to claim a foreign
tax credit.
Line 22. More Than One At-Risk Activity
If the partnership conducted more than one at-risk activity, the
partnership is required to provide certain information separately for
each at-risk activity to its partners. This information is reported on an
attached statement to Schedule K-1. Check the box to indicate
there's more than one at-risk activity for which a statement is
attached. See At-risk activity reporting requirements, earlier, for
details. Also see Notice 2019-66 for certain at-risk reporting.
Line 23. More Than One Passive Activity
If the partnership conducted more than one activity (determined for
purposes of the passive activity loss and credit limitations), the
partnership is required to provide information separately for each
activity to its partners. This information is reported on an attached
statement to Schedule K-1. Check the box to indicate there's more
than one passive activity for which a statement is attached. See
Passive Activity Reporting Requirements, earlier, for details.
Analysis of Net Income (Loss) per
Return
For each type of partner shown on line 2, enter the portion of the
amount shown on line 1 that was allocated to that type of partner.
Foreign government partners are treated as corporate partners
pursuant to section 892(a)(3). Report all amounts for LLC members
on the line for limited partners. The sum of the amounts shown on
line 2 must equal the amount shown on line 1. In addition, the
amount on Analysis of Net Income (Loss) per Return, line 1, must
equal the amount on Schedule M-1, line 9 (if the partnership is
required to complete Schedule M-1). If the partnership files
Schedule M-3, the amount on Analysis of Net Income (Loss) per
Return, line 1, must equal the amount in column (d) of
Schedule M-3, Part II, line 26.
In classifying partners who are individuals as active or passive,
the partnership should apply the rules below. In applying these rules,
a partnership should classify each partner to the best of its
knowledge and belief. It's assumed that in most cases the level of a
particular partner's participation in an activity will be apparent.
•
If the partnership's principal activity is a trade or business, classify
a general partner as active if the partner materially participated in all
partnership trade or business activities; otherwise, classify a general
partner as passive.
•
If the partnership's principal activity consists of a working interest
in an oil or gas well, classify a general partner as active.
•
If the partnership's principal activity is a rental real estate activity,
classify a general partner as active if the partner actively participated
in all of the partnership's rental real estate activities; otherwise,
classify a general partner as passive.
•
Classify as passive all partners in a partnership whose principal
activity is a rental activity other than a rental real estate activity.
•
If the partnership's principal activity is a portfolio activity, classify
all partners as active.
•
Classify as passive all limited partners in a partnership whose
principal activity is a trade or business or rental activity.
Schedule L. Balance Sheets per
Books
Schedules L, M-1, and M-2 aren't required to be completed
if the partnership answered “Yes” to question 4 of
Schedule B.
TIP
The balance sheets should agree with the partnership's books
and records. Attach a statement explaining any differences. There
are additional requirements for completing Schedule L for
partnerships that are required to file Schedule M-3 (see the
Instructions for Schedule M-3 (Form 1065) for details).
Partnerships reporting to the Interstate Commerce Commission
(ICC) or to any national, state, municipal, or other public officer may
send copies of their balance sheets prescribed by the ICC or
national, state, or municipal authorities, as of the beginning and end
of the tax year, instead of completing Schedule L. However,
statements filed under this procedure must contain sufficient
information to enable the IRS to reconstruct a balance sheet similar
to that contained on Form 1065 without contacting the partnership
during processing.
All amounts on the balance sheet should be reported in U.S.
dollars. If the partnership's books and records are kept in a foreign
currency, the balance sheet should be translated in accordance with
U.S. generally accepted accounting principles (GAAP).
Exception. If the partnership or any qualified business unit of the
partnership uses the U.S. dollar approximate separate transactions
method, Schedule L should reflect the tax balance sheet prepared
and translated into U.S. dollars according to Regulations section
1.985-3(d), and not a U.S. GAAP balance sheet.
Partnerships Required To File Schedule M-3
For partnerships required to file Schedule M-3, the amounts
reported on Schedule L must be amounts from financial statements
used to complete Schedule M-3. If the partnership prepares
non-tax-basis financial statements, Schedule M-3 and Schedule L
must report non-tax-basis financial statement amounts. If the
partnership doesn't prepare non-tax-basis financial statements,
Schedule L must be based on the partnership's books and records
and may show tax-basis balance sheet amounts if the partnership's
books and records reflect only tax-basis amounts.
Line 5. Tax-Exempt Securities
Include on this line:
•
State and local government obligations, the interest on which is
excludable from gross income under section 103(a); and
•
Stock in a mutual fund or other RIC that distributed
exempt-interest dividends during the tax year of the partnership.
Line 7a. Loans to Partners (or Persons Related
to Partners)
Include on this line loans to partners or persons related to partners.
Persons are related if they have a relationship specified in section
267(b) or 707(b). Amounts included here shouldn't be included
elsewhere on lines 1 through 13.
Line 14. Total Assets
Generally, total assets at the beginning of the year (Schedule L,
line 14, column (b)) must equal total assets at the close of the prior
tax year (Schedule L, line 14, column (d)). If total assets at the
beginning of the year don't equal total assets at the close of the prior
year, attach a statement explaining the difference.
For purposes of measuring total assets at the end of the year, the
partnership's assets may not be netted against or reduced by
partnership liabilities. In addition, asset amounts may not be
reported as a negative number. If the partnership has an interest in
another partnership and uses a tax-basis method for Schedule L, it
must show as an asset the adjusted basis of its interest in the other
partnership and separately show as a liability its share of the other
partnership's liabilities (which are included in the computation of its
adjusted basis). See the Partner's Instructions for Schedule K-1 for
details on how to figure the adjusted basis of a partnership interest.
If Schedule L is non-tax-basis, investment in a partnership may be
shown as appropriate under the non-tax-basis accounting method of
the partnership including, if required by the non-tax-basis accounting
method of the partnership, the equity method of accounting for
investments, but must be shown as a non-negative amount.
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Example. Partnership A prepares a tax-basis Schedule L and is
a general partner in Partnership B, a general partnership.
Partnership A's adjusted basis in Partnership B at the end of the year
is $16 million. Partnership A's share of Partnership B's liabilities is
$20 million, which is included in the $16 million adjusted basis
amount. On its Schedule L, Partnership A must report $16 million on
line 8 as the amount of its investment asset in Partnership B and
report on line 20 its $20 million share of Partnership B's liabilities.
These amounts can't be netted on Schedule L.
Line 18. All Nonrecourse Loans
Nonrecourse loans are those liabilities of the partnership for which
no partner bears the economic risk of loss. If the partnership's
nonrecourse liabilities include its share of the liabilities of another
partnership, the partnership's share of those liabilities must be
reflected on line 18.
Line 19a. Loans From Partners (or Persons
Related to Partners)
Include on this line loans from partners or persons related to
partners. Persons are related if they have a relationship specified in
section 267(b) or 707(b). Amounts included here shouldn't be
included elsewhere on lines 15 through 21.
Line 20. Other Liabilities
A partnership that is a partner in a tiered partnership must include as
a liability on line 20 the partner's share of the tiered partnership's
liabilities to the extent they are recourse liabilities to the partner.
Schedule M-1. Reconciliation of
Income (Loss) per Books With
Analysis of Net Income (Loss) per
Return
Schedule M-3 may be required instead of Schedule M-1.
See
Item J. Schedule C and Schedule M-3, earlier. See the
Instructions for Schedule M-3 for more information.
Line 2
Report on this line income included on Schedule K, lines 1, 2, 3c, 5,
6a, 7, 8, 9a, 10, and 11, not recorded on the partnership's books this
year. Describe each such item of income. Attach a statement if
necessary.
Line 3. Guaranteed Payments
Include on this line guaranteed payments shown on Schedule K,
lines 4a and 4b (other than amounts paid for insurance that
constitutes medical care for a partner, a partner's spouse, a partner's
dependents, and a partner's children under age 27 who aren't
dependents).
Line 4b. Travel and Entertainment
Include the following on this line.
•
Entertainment expenses, including entertainment-related meals
and facilities, not deductible under section 274(a).
•
Non-entertainment-related meal expenses not deductible under
section 274(n).
•
The part of business gifts over $25. See section 274(b).
•
Expenses of an individual allocable to conventions on cruise
ships over $2,000. See section 274(h)(2).
•
Employee achievement awards of nontangible property or
tangible property over $400 ($1,600 if part of a qualified plan). See
section 274(j).
•
The part of the cost of luxury water travel expenses not deductible
under section 274(m). See section 274(m)(1)(A).
•
Expenses for travel as a form of education. See section 274(m)
(2).
•
Nondeductible club dues. See section 274(a)(3).
TIP
•
Qualified transportation fringes under section 274(a)(4).
•
Transportation and commuting expenses under section 274(l).
•
Other nondeductible travel and entertainment expenses.
Line 6
Include tax-exempt income from forgiven PPP loans on line 6 if it
was included on line 1 of Schedule M-1.
Line 7
Report on this line deductions included on Schedule K, lines 1
through 13e, and 21, not charged against the partnership's book
income this year. Describe each such item of deduction. Attach a
statement if necessary.
Line 9
This line 9 should reconcile to the Analysis of Net Income (Loss) per
Return, line 1.
Schedule M-2. Analysis of Partners'
Capital Accounts
Show what caused changes during the tax year in the partners'
tax-basis capital accounts.
Line 1. Balance at Beginning of Year
The balance at the beginning of the year should equal the total of the
amounts reported as the partners’ beginning tax-basis capital
accounts in item L of all the partners’ Schedules K-1. If not, the
partnership should attach an explanation of the difference.
Generally, the balance at the beginning of the year should equal the
adjusted tax basis of the partnership’s assets at the beginning of the
year reduced by the partnership’s liabilities at the beginning of the
year. If the partnership’s balance sheet (Schedule L) is reported on
the tax basis and if the aggregate of the partners’ beginning and
ending capital accounts differs from the amounts reported on
Schedule L, attach a statement reconciling any differences. No such
reconciliation is required if Schedule L isn't reported on the tax basis.
Line 2. Capital Contributed During Year
Include on line 2a the amount of money contributed by each partner
to the partnership, as reflected on the partnership's books and
records. Include on line 2b the adjusted tax basis of property net of
liabilities contributed by each partner to the partnership, as reflected
on the partnership’s books and records.
Line 3. Net Income (Loss)
Enter on Schedule M-2, line 3, the amount from the Analysis of Net
Income (Loss) per Return, line 1. Generally, this is the same as the
amount entered on Schedule M-1, line 9, (if the partnership is
required to complete Schedule M-1) or, if the partnership files
Schedule M-3, the amount in column (d) of Schedule M-3, Part II,
line 26. Because section 743(b) basis adjustments and income from
guaranteed payments aren't included in the partners' tax-basis
capital accounts, certain adjustments may be necessary. If
adjustments to income under section 743(b) are taken into account
in calculating net income (loss), remove the effects of those
adjustments (for example, by adding or subtracting the income, gain,
loss, or deduction resulting from those adjustments on line 4 or line 7
in accordance with the instructions for those lines). If net income
includes income from guaranteed payments made to partners,
remove such income on line 7.
Line 4. Other Increases (Itemize)
Enter on line 4 the sum of all other increases to the partners'
tax-basis capital accounts during the year not reflected on lines 2
and 3. Also, if the aggregate net negative income from all section
743(b) adjustments reported on Schedule K, line 13e, was included
as a decrease to income in arriving at net income (loss) on line 3,
report those amounts as an increase on line 4. For these purposes,
“net negative income from all section 743(b) adjustments” means
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the excess of all section 743(b) adjustments to income allocated to
the partner that decrease partner taxable income over all section
743(b) adjustments to income that increase partner taxable income.
Line 6. Distributions
Line 6a. Cash. Enter the amount of money distributed to each
partner by the partnership. For purposes of line 6a, money includes
marketable securities, as described in section 731(c).
Line 6b. Property. Enter the sum of the adjusted tax bases of
property net of liabilities distributed to each partner by the
partnership as reflected on the partnership's books and records.
Include withdrawals from inventory for the personal use of a partner.
Line 7. Other Decreases (Itemize)
Enter on line 7 the sum of all other decreases to the partners'
tax-basis capital accounts during the year not reflected on line 6.
Also, if the aggregate net positive income from all section 743(b)
adjustments reported on Schedule K, line 11, was included as an
increase to income in arriving at net income (loss) on line 3, report
that amount as a decrease on line 7. For these purposes, “net
positive income from all section 743(b) adjustments” means the
excess of all section 743(b) adjustments to income allocated to the
partner that increase the partner's taxable income over all section
743(b) adjustments to income that decrease the partner's taxable
income. Likewise, if line 3 includes income from guaranteed
payments reported on Schedule K, line 4c, include that amount as a
decrease on line 7.
Line 9. Balance at End of Year
The balance at the end of the year should equal the total of the
amounts reported as the partners’ ending capital accounts in item L
of all the partners’ Schedules K-1.
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Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States.
You're required to give us the information. We need it to ensure that you're complying with these laws and to allow us to figure and collect the
right amount of tax.
You aren’t required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a
valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become
material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section
6103.
Estimates of taxpayer burden. The following tables show burden estimates based on current statutory requirements as of December
2023, for taxpayers filing 2023 Forms 1065, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1066,
1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time burden is
broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses incurred by
taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and photocopying
costs, and tax preparation software costs. While these estimates don't include burden associated with post-filing activities, IRS operational
data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience
lower-than-average burden, with taxpayer burden varying considerably by taxpayer type.
The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden for
corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT, 1120-RIC,
and 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates, there's significant variation in taxpayer
activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type of software
or professional preparer used, and the geographic location. Third-party burden hours aren't included in these estimates.
Table 1—Taxpayer Burden for Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns
(millions)
Average Time (hours) Average Cost Average Monetized
Burden
All Partnerships 5.3 60 $5,000 $8,700
Small 4.9 50 $3,200 $5,200
Large* 0.4 200 $27,800 $50,800
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.
Table 2—Taxpayer Burden for Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, and 1120-POL, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns
(millions)
Average Time (hours) Average Cost Average Monetized
Burden
All Taxable Corporations 2.1 105 $6,700 $14,900
Small 2.0 55 $3,600 $6,200
Large* 0.1 830 $53,800 $149,000
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.
Table 3—Taxpayer Burden for Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, and 1120-S, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns
(millions)
Average Time (hours) Average Cost Average Monetized
Burden
All Pass-Through Corporations 5.8 65 $4,400 $7,500
Small 5.7 60 $3,800 $6,400
Large* 0.1 295 $37,700 $71,800
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.
Comments and Suggestions. We welcome your comments about this publication and your suggestions for future editions. You can send
us comments through IRS.gov/FormComments. Or, you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
Instructions for Form 1065 (2023)
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Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we
revise our tax forms, instructions, and publications. Don’t send the tax form to this address. Instead, see Where To File, earlier, near the
beginning of these instructions.
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Codes for Principal Business Activity
and Principal Product or Service
This list of Principal Business Activities and their associated
codes is designed to classify an enterprise by the type of
activity in which it's engaged to facilitate the administration
of the Internal Revenue Code. These Principal Business
Activity Codes are based on the North American Industry
Classification System.
Using the list of activities and codes below, determine
from which activity the business derives the largest
percentage of its “total receipts.” Total receipts is defined as
the sum of gross receipts or sales (page 1, line 1a); all other
income (page 1, lines 4 through 7); income reported on
Schedule K, lines 3a, 5, 6a, and 7; income or net gain
reported on Schedule K, lines 8, 9a, 10, and 11; and
income or net gain reported on Form 8825, lines 2, 19, and
20a. If the business purchases raw materials and supplies
them to a subcontractor to produce the finished product,
but retains title to the product, the business is considered a
manufacturer and must use one of the manufacturing codes
(311110–339900).
Once the Principal Business Activity is determined,
enter the six-digit code from the list below on page 1, item
C. Also enter the business activity in item A and a brief
description of the principal product or service of the
business in item B.
Agriculture, Forestry, Fishing
and Hunting
Crop Production
111100 Oilseed & Grain Farming
111210 Vegetable & Melon Farming
(including potatoes & yams)
111300 Fruit & Tree Nut Farming
111400 Greenhouse, Nursery, &
Floriculture Production
111900 Other Crop Farming (including
tobacco, cotton, sugarcane, hay,
peanut, sugar beet & all other crop
farming)
Animal Production
112111 Beef Cattle Ranching & Farming
112112 Cattle Feedlots
112120 Dairy Cattle & Milk Production
112210 Hog & Pig Farming
112300 Poultry & Egg Production
112400 Sheep & Goat Farming
112510 Aquaculture (including shellfish &
finfish farms & hatcheries)
112900 Other Animal Production
Forestry and Logging
113110 Timber Tract Operations
113210 Forest Nurseries & Gathering of
Forest Products
113310 Logging
Fishing, Hunting and Trapping
114110 Fishing
114210 Hunting & Trapping
Support Activities for Agriculture and
Forestry
115110 Support Activities for Crop
Production (including cotton
ginning, soil preparation, planting,
& cultivating)
115210 Support Activities for Animal
Production (including farriers)
115310 Support Activities For Forestry
Mining
211120 Crude Petroleum Extraction
211130 Natural Gas Extraction
212110 Coal Mining
212200 Metal Ore Mining
212310 Stone Mining & Quarrying
212320 Sand, Gravel, Clay, & Ceramic &
Refractory Minerals Mining &
Quarrying
212390 Other Nonmetallic Mineral Mining
& Quarrying
213110 Support Activities for Mining
Utilities
221100 Electric Power Generation,
Transmission, & Distribution
221210 Natural Gas Distribution
221300 Water, Sewage & Other Systems
221500 Combination Gas & Electric
Construction
Construction of Buildings
236110 Residential Building Construction
236200 Nonresidential Building
Construction
Heavy and Civil Engineering Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil Engineering
Construction
Specialty Trade Contractors
238100 Foundation, Structure, & Building
Exterior Contractors (including
framing carpentry, masonry, glass,
roofing, & siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors
238300 Building Finishing Contractors
(including drywall, insulation,
painting, wallcovering, flooring, tile,
& finish carpentry)
238900 Other Specialty Trade Contractors
(including site preparation)
Manufacturing
Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery Product
Mfg
311400 Fruit & Vegetable Preserving &
Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering & Processing
311710 Seafood Product Preparation &
Packaging
311800 Bakeries, Tortilla & Dry Pasta Mfg
311900 Other Food Mfg (including coffee,
tea, flavorings & seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel Contractors
315250 Cut & Sew Apparel Mfg (except
Contractors)
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product Manufacturing
316110 Leather & Hide Tanning & Finishing
316210 Footwear Mfg (including rubber &
plastics)
316990 Other Leather & Allied Product Mfg
Wood Product Manufacturing
321110 Sawmills & Wood Preservation
321210 Veneer, Plywood, & Engineered
Wood Product Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard Mills
322200 Converted Paper Product Mfg
Printing and Related Support Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries (including
integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal Products
Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine Mfg
325500 Paint, Coating, & Adhesive Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral Product
Mfg
Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy Mfg
331200 Steel Product Mfg from Purchased
Steel
331310 Alumina & Aluminum Production &
Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural Metals
Mfg
332400 Boiler, Tank, & Shipping Container
Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned Product; &
Screw, Nut, & Bolt Mfg
332810 Coating, Engraving, Heat Treating,
& Allied Activities
332900 Other Fabricated Metal Product
Mfg
Machinery Manufacturing
333100 Agriculture, Construction, & Mining
Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service Industry
Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, & Commercial
Refrigeration Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg
333900 Other General Purpose Machinery
Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral Equipment
Mfg
334200 Communications Equipment Mfg
334310 Audio & Video Equipment Mfg
334410 Semiconductor & Other Electronic
Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing & Reproducing
Magnetic & Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment Mfg
335200 Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building
336990 Other Transportation Equipment
Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment & Supplies Mfg
339900 Other Miscellaneous
Manufacturing
Wholesale Trade
Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except Petroleum)
423600 Household Appliances & Electrical
& Electronic Goods
423700 Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, & Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone, &
Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries
424300 Apparel, Piece Goods, & Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum Products
424800 Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco Products & Electronic
Cigarettes
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Trade Agents & Brokers
425120 Wholesale Trade Agents & Brokers
Retail Trade
Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441222 Boat Dealers
441227 Motorcycle, ATV, & All Other Motor
Vehicle Dealers
441300 Automotive Parts, Accessories, &
Tire Retailers
Building Material and Garden Equipment
and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Retailers
444140 Hardware Retailers
444180 Other Building Material Dealers
444200 Lawn & Garden Equipment &
Supplies Retailers
Food and Beverage Retailers
445110 Supermarkets & Other Grocery
Retailers (except Convenience)
445131 Convenience Retailers
445132 Vending Machine Operators
445230 Fruit & Vegetable Retailers
445240 Meat Retailers
445250 Fish & Seafood Retailers
445291 Baked Goods Retailers
445292 Confectionery & Nut Retailers
445298 All Other Specialty Food Retailers
445320 Beer, Wine, & Liquor Retailers
Furniture and Home Furnishings Retailers
449110 Furniture Retailers
449121 Floor Covering Retailers
449122 Window Treatment Retailers
449129 All Other Home Furnishings
Retailers
Electronics and Appliance Retailers
449210 Electronics & Appliance Retailers
(including computers)
General Merchandise Retailers
455110 Department Stores
455210 Warehouse Clubs, Supercenters, &
Other General Merch. Retailers
Health and Personal Care Retailers
456110 Pharmacies & Drug Retailers
456120 Cosmetics, Beauty Supplies, &
Perfume Retailers
456130 Optical Goods Retailers
456190 Other Health & Personal Care
Retailers
Gasoline Stations & Fuel Dealers
457100 Gasoline Stations (including
convenience stores with gas)
63
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Codes for Principal Business Activity and Principal Product or Service (Continued)
457210 Fuel Dealers (including Heating oil
& Liquefied Petroleum)
Clothing and Accessories Retailers
458110 Clothing & Clothing Accessories
Retailers
458210 Shoe Retailers
458310 Jewelry Retailers
458320 Luggage & Leather Goods
Retailers
Sporting, Hobby, Book, Musical
Instruments, & Miscellaneous Retailers
459110 Sporting Goods Retailers
459120 Hobby, Toy, & Game Retailers
459130 Sewing, Needlework, & Piece
Goods Retailers
459140 Musical Instrument & Supplies
Retailers
459210 Book Retailers & News Dealers
(including newsstands)
459310 Florists
459410 Office Supplies & Stationery
Retailers
459420 Gift, Novelty, & Souvenir Retailers
459510 Used Merchandise Retailers
459910 Pet & Pet Supplies Retailers
459920 Art Dealers
459930 Manufactured (Mobile) Home
Dealers
459990 All Other Miscellaneous Retailers
(including tobacco, candle, &
trophy retailers)
Nonstore Retailers
Nonstore retailers sell all types of
merchandise using such methods
as Internet, mail-order catalogs,
interactive television, or direct
sales. These types of Retailers
should select the PBA associated
with their primary line of products
sold. For example, establishments
primarily selling prescription and
non-prescription drugs, select PBA
code
456110 Pharmacies & Drug
Retailers.
Transportation and
Warehousing
Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation
Truck Transportation
484110 General Freight Trucking, Local
484120 General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi and Ridesharing Services
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground Passenger
Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for Road
Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers & Express Delivery
Services
492210 Local Messengers & Local Delivery
Warehousing and Storage
493100 Warehousing & Storage (except
lessors of miniwarehouses &
self-storage units)
Information
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Publishing Industries
513110 Newspaper Publishers
513120 Periodical Publishers
513130 Book Publishers
513140 Directory & Mailing List Publishers
513190 Other Publishers
513210 Software Publishers
Broadcasting & Content Providers &
Telecommunications
516100 Radio & Television Broadcasting
Stations
516210 Media Streaming, Social Networks,
& Other Content Providers
517000 Telecommunications (including
Wired, Wireless, Satellite, Cable &
Other Program Distribution,
Resellers, Agents, Other
Telecommunications, & Internet
Service Providers)
Data Processing, Web Search Portals, &
Other Information Services
518210 Computing Infrastructure
Providers, Data Processing, Web
Hosting, & Related Services
519200 Web Search Portals, Libraries,
Archives, & Other Info. Services
Finance and Insurance
Depository Credit Intermediation
522110 Commercial Banking
522130 Credit Unions
522180 Savings Institutions & Other
Depository Credit Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers & originators)
522299 Intl, Secondary Market, & Other
Nondepos. Credit Intermediation
Activities Related to Credit Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, & money
transmitting)
Securities, Commodity Contracts, and
Other Financial Investments and Related
Activities
523150 Investment Banking & Securities
Intermediation
523160 Commodity Contracts
Intermediation
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment advice)
Insurance Carriers and Related Activities
524110 Direct Life, Health, & Medical
Insurance Carriers
524120 Direct Insurance (except Life,
Health, & Medical) Carriers
524210 Insurance Agencies & Brokerages
524290 Other Insurance Related Activities
(including third-party administration
of insurance & pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee Benefit
Funds
525910 Open-End Investment Funds (Form
1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles (including
mortgage REITs & closed-end
investment funds)
Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential Buildings &
Dwellings (including equity REITs)
531120 Lessors of Nonresidential
Buildings (except Miniwarehouses)
(including equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including equity
REITs)
531190 Lessors of Other Real Estate
Property (including equity REITs)
531210 Offices of Real Estate Agents &
Brokers
531310 Real Estate Property Managers
531320 Offices of Real Estate Appraisers
531390 Other Activities Related to Real
Estate
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532281 Formal Wear & Costume Rental
532282 Video Tape & Disc Rental
532283 Home Health Equipment Rental
532284 Recreational Goods Rental
532289 All Other Consumer Goods Rental
532310 General Rental Centers
532400 Commercial & Industrial Machinery
& Equipment Rental & Leasing
Lessors of Nonfinancial Intangible Assets
(except copyrighted works)
533110 Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
Professional, Scientific, and
Technical Services
Legal Services
541110 Offices of Lawyers
541190 Other Legal Services
Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and Related
Services
541310 Architectural Services
541320 Landscape Architecture Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying & Mapping
Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories & Services
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and Related
Services
541511 Custom Computer Programming
Services
541512 Computer Systems Design
Services
541513 Computer Facilities Management
Services
541519 Other Computer Related Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting Services
541700 Scientific Research & Development
Services
541800 Advertising, Public Relations, &
Related Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional, Scientific, &
Technical Services
Management of Companies
(Holding Companies)
551111 Offices of Bank Holding
Companies
551112 Offices of Other Holding
Companies
Administrative and Support and
Waste Management and
Remediation Services
Administrative and Support Services
561110 Office Administrative Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation Services
561420 Telephone Call Centers
561430 Business Service Centers
(including private mail centers &
copy shops)
561440 Collection Agencies
561450 Credit Bureaus
561490 Other Business Support Services
(including repossession services,
court reporting, & stenotype
services)
561500 Travel Arrangement & Reservation
Services
561600 Investigation & Security Services
561710 Exterminating & Pest Control
Services
561720 Janitorial Services
561730 Landscaping Services
561740 Carpet & Upholstery Cleaning
Services
561790 Other Services to Buildings &
Dwellings
561900 Other Support Services (including
packaging & labeling services, &
convention & trade show
organizers)
Waste Management and Remediation
Services
562000 Waste Management &
Remediation Services
Educational Services
611000 Educational Services (including
schools, colleges, & universities)
Health Care and Social
Assistance
Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
621210 Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except Physicians)
621340 Offices of Physical, Occupational &
Speech Therapists, & Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other Miscellaneous
Health Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory Surgical
& Emergency Centers
621498 All Other Outpatient Care Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic Laboratories
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care Services
621900 Other Ambulatory Health Care
Services (including ambulance
services & blood & organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing, &
Emergency & Other Relief
Services
624310 Vocational Rehabilitation Services
624410 Childcare Services
Arts, Entertainment, and
Recreation
Performing Arts, Spectator Sports, and
Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including sports
clubs & racetracks)
711300 Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for Artists,
Athletes, Entertainers, & Other
Public Figures
711510 Independent Artists, Writers, &
Performers
Museums, Historical Sites, and Similar
Institutions
712100 Museums, Historical Sites, &
Similar Institutions
64
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Codes for Principal Business Activity and Principal Product or Service (Continued)
Amusement, Gambling, and Recreation
Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement & Recreation
Industries (including golf courses,
skiing facilities, marinas, fitness
centers, & bowling centers)
Accommodation and Food
Services
Accommodation
721110 Hotels (except Casino Hotels) &
Motels
721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler Accommodation
721210 RV (Recreational Vehicle) Parks &
Recreational Camps
721310 Rooming & Boarding Houses,
Dormitories, & Workers’ Camps
Food Services and Drinking Places
722300 Special Food Services (including
food service contractors &
caterers)
722410 Drinking Places (Alcoholic
Beverages)
722511 Full-Service Restaurants
722513 Limited Service Restaurants
722514 Cafeterias, Grill Buffets, & Buffets
722515 Snack & Non-alcoholic Beverage
Bars
Other Services
Repair and Maintenance
811110 Automotive Mechanical & Electrical
Repair & Maintenance
811120 Automotive Body, Paint, Interior, &
Glass Repair
811190 Other Automotive Repair &
Maintenance (including oil change
& lubrication shops & car washes)
811210 Electronic & Precision Equipment
Repair & Maintenance
811310 Commercial & Industrial Machinery
& Equipment (except Automotive &
Electronic) Repair & Maintenance
811410 Home & Garden Equipment &
Appliance Repair & Maintenance
811420 Reupholstery & Furniture Repair
811430 Footwear & Leather Goods Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care Services
(including diet & weight reducing
centers)
812210 Funeral Homes & Funeral Services
812220 Cemeteries & Crematories
812310 Coin-Operated Laundries &
Drycleaners
812320 Drycleaning & Laundry Services
(except Coin-Operated)
812330 Linen & Uniform Supply
812910 Pet Care (except Veterinary)
Services
812920 Photofinishing
812930 Parking Lots & Garages
812990 All Other Personal Services
Religious, Grantmaking, Civic,
Professional, and Similar Organizations
813000 Religious, Grantmaking, Civic,
Professional, & Similar
Organizations (including
condominium & homeowners
associations)
Other
999000 Unclassified Establishments
(unable to classify)
65
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Index
A
Accounting methods 7
Change in accounting method 8
Mark-to-market accounting method 8
Nonaccrual-experience method 8, 21
Percentage of completion method 8
Accounting periods 8
Adjusting deductions for certain
credits 22
Administrative adjustment request 9
Allocation of partnership items:
Contributed property 31
Liabilities 33
Nonrecourse liabilities 33
Partnership agreement 31
Special allocations 35
Alternative minimum tax 46
Adjusted gain (loss) 47
Depletion (other than oil and gas) 47
Depreciation adjustment on property
placed in service after 1986 46
Oil, gas, and geothermal properties 47
Amended return 9
Analysis of net income (loss) per
Return 58
Analysis of partner's capital account 34
Analysis of partners' capital accounts 59
Assembling the return 12
At-risk activities 33
Attached statements 32
B
Balance sheets per books 58
Bipartisan Budget Act of 2015 (BBA) 3
Business start-up expenses 22
C
Capital gain:
Net long-term 37
Net short-term 37
Change of address 19
Charitable contribution 39
Codes:
Partner 33
Principal business activity 63
Schedule K-1 reporting 32
Collectibles (28%) gain (loss) 37
Consolidated audit procedures 3
Contributions to the partnership 13
Cost of goods sold 21
Credits 43
Low-income housing 43
Rehabilitation 44
Rental activities 44
D
Deductions:
Bad debts 23
Depletion 24
Depreciation 24
Employee benefit programs 25
Entertainment facilities 26
Guaranteed payments 23
How to report 21
Interest 24
Limitations 22
Meals and entertainment 25
Membership dues 25
Reforestation expenditures 26
Rent 23
Repairs and maintenance 23
Retirement plans 24
Salaries and wages 23, 35
Taxes and licenses 23
Transactions between related
taxpayers 22
Travel 25
Wages 23
Definitions 3
Depreciation 24
Dispositions of contributed property 13
Distributions:
Recognition of precontribution gain 14
Dividends 36
E
Elections:
By each partner 13
By the partnership 12
Electronic filing 5
Entity classification election 12
Extensions 6
F
Foreign accounts 27
Foreign partners, withholding 28
Foreign partnership 4
Foreign trusts, transactions 27
Forms:
How to get 3
That may be required 10
Future Developments 1
G
General partner 4
General partnership 4
Guaranteed payments 35, 59
I
Inclusion amount 23
Income:
Gross receipts or sales 20
Tax-exempt income 20
Trade or business 20
Installment sales 20
Interest income 36
Interest on production expenditures 24
Investment:
Income and expenses 48
Interest expense 41
L
Limited liability company 4
Limited liability partnership 4
Limited partner 4
Limited partnership 4
N
Net section 1231 gain (loss) 37
Nondeductible expenses 48
Nonrecourse liabilities 33
Nonrecourse loans 4, 33
(See also Nonrecourse liabilities)
Notice of inconsistent treatment 9
O
Ordinary business income (loss) 35
P
Paid preparer authorization 6
Partner contributing property with a
built-in gain or loss 34
Passive activity limitations:
Grouping activities 17
Passive activities defined 14
Recharacterization of passive income 17
Rental activities 15
Reporting requirements 18
Trade or business activities 15
Penalties 7
Failure to furnish information timely 7
Late filing 7
Trust fund recovery 7
Period covered 6
Portfolio income 16, 36
Private delivery services 6
Publicly traded partnerships 5, 15, 21
Q
Qualified Business Income Deduction 52
R
Recapture:
Investment credit 49
Low-income housing credit 49
Mining exploration costs 38
Section 179 deduction 50
Reconciliation of income (loss) per books
with income (loss) per return 59
Recordkeeping 9
Reforestation costs 41
Rental activities 15
Rounding off to whole dollars 9
Royalties 37
S
Sale of partnership interests 14
Sale of small business stock:
Exclusion 39
Rollover 38, 39
Schedule:
B 26
K 31, 35
K-1 31, 35
L 58
M-1 59
M-2 59
M-3 59
Section 179 expense deduction 39
Recapture 50
Section 481(a) adjustment 8
Section 59(e) expenditures 13, 22, 41
Self-charged interest 16
Self-employment 42
Signatures:
General partner or LLC member
manager 6
Paid preparer 6
Special allocations 35
Substitute forms 31
Syndication costs 22
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T
Tax shelter:
Registration 27
Tax-exempt income 47
Termination of partnership 5
Travel and entertainment 25, 59
U
Uniform capitalization rules 22
Unrealized receivables and inventory:
Sale of partnership interests 14
Unrecaptured section 1250 gain 37
Unrelated business taxable income 50
W
When to file 6
Where to file 7
Who must file 4
67
