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
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.

2 Instructions for Form 1065 (2023)
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) 3
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

4 Instructions for Form 1065 (2023)
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-technicalterminations-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 

Instructions for Form 1065 (2023) 5
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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6 Instructions for Form 1065 (2023)
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

Instructions for Form 1065 (2023) 7
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).

8 Instructions for Form 1065 (2023)
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 

Instructions for Form 1065 (2023) 9
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.

10 Instructions for Form 1065 (2023)
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.

Instructions for Form 1065 (2023) 11
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

!

12 Instructions for Form 1065 (2023)
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 

Instructions for Form 1065 (2023) 13
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.

14 Instructions for Form 1065 (2023)
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

Instructions for Form 1065 (2023) 15
• 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.

16 Instructions for Form 1065 (2023)
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.

Instructions for Form 1065 (2023) 17
Acquisition of an interest in a pass-through entity that licenses 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 

18 Instructions for Form 1065 (2023)
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 TIP

Instructions for Form 1065 (2023) 19
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

!

20 Instructions for Form 1065 (2023)
• 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.

CAUTION

!

Instructions for Form 1065 (2023) 21
• 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.

22 Instructions for Form 1065 (2023)
• 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.

CAUTION

!

Instructions for Form 1065 (2023) 23
• 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 

CAUTION

!

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.

CAUTION

!

24 Instructions for Form 1065 (2023)
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 

Instructions for Form 1065 (2023) 25
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 completed 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 

26 Instructions for Form 1065 (2023)
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

Instructions for Form 1065 (2023) 27
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.

28 Instructions for Form 1065 (2023)
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-ScheduleB-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.

Instructions for Form 1065 (2023) 29
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.

30 Instructions for Form 1065 (2023)
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

substituteforms@irs.gov

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 

Instructions for Form 1065 (2023) 31
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

!

32 Instructions for Form 1065 (2023)
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-743breporting.

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 

Instructions for Form 1065 (2023) 33
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 

34 Instructions for Form 1065 (2023)
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

Instructions for Form 1065 (2023) 35
• 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).

36 Instructions for Form 1065 (2023)
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 assets. Figure this amount in Form 4797, Part III, for each section 

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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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Instructions for Form 1065 (2023) 37
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 

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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 distribution 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 purchased 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 

38 Instructions for Form 1065 (2023)
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 exclusion (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.

Instructions for Form 1065 (2023) 39
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

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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.

40 Instructions for Form 1065 (2023)
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 

Instructions for Form 1065 (2023) 41
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

42 Instructions for Form 1065 (2023)
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

Instructions for Form 1065 (2023) 43
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.

44 Instructions for Form 1065 (2023)
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 energy 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 allocated 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 credit (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 eligibility (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 

Instructions for Form 1065 (2023) 45
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

46 Instructions for Form 1065 (2023)
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.

Instructions for Form 1065 (2023) 47
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 

48 Instructions for Form 1065 (2023)
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 estate) (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

CAUTION

!

Instructions for Form 1065 (2023) 49
• 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-reportingand-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.

50 Instructions for Form 1065 (2023)
• 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 restoration 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.

Instructions for Form 1065 (2023) 51
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.

52 Instructions for Form 1065 (2023)
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. 

Instructions for Form 1065 (2023) 53
Specific instructions for Statement A—QBI Pass-Through Entity 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 ................................

54 Instructions for Form 1065 (2023)
Specific instructions for Statement B—QBI Pass-Through Entity 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 Entity Reporting—Patrons of Specified Agricultural and Horticultural 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) 55
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. 

56 Instructions for Form 1065 (2023)
See IRS.gov/newsroom/faqs-regarding-the-aggregation-rules-undersection-448c2–that-apply-to-the-section-163j-small-businessexemption. 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 gasification 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

!

Instructions for Form 1065 (2023) 57
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.

58 Instructions for Form 1065 (2023)
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 

Instructions for Form 1065 (2023) 59
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.

60 Instructions for Form 1065 (2023)
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) 61
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.

62 Instructions for Form 1065 (2023)
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
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
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
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

66
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