Department of the Treasury 2008 Internal Revenue Service

Partner’s Instructions for

Schedule K-1 (Form

1065-B)

Partner’s Share of Income (Loss) From an Electing Large Partnership

(For Partner’s Use Only)

Section references are to the Internal rental real estate, and other rental defined in section 751(c)) or inventory

Revenue Code unless otherwise noted. activities are separately reported for each items (as defined in section 751(d)).

activity in box 9. General Instructions The written notice to the partnership

must include the names and addresses of Income, etc., from other activities

(investment and portfolio income and both parties to the exchange, the Purpose of Schedule K-1 deductions) are reported in boxes 2, 3, identifying numbers of the transferor and

The partnership uses Schedule K-1 to 4b, and 6 for both limited and general (if known) of the transferee, and the

exchange date. report your share of the partnership’s partners.

income, deductions, credits, etc. Keep it An exception to this rule is made for for your records. Do not file it with your Errors sales or exchanges of publicly traded tax return. The partnership has filed a partnership interests for which a broker is You must report partnership items shown copy with the IRS. required to file Form 1099-B, Proceeds on your Schedule K-1 (and any attached You are liable for tax on your share of From Broker and Barter Exchange schedules) the same way that the Transactions. the partnership income, whether or not partnership treated the items on its return. distributed. Include your share on your tax If you believe the partnership has made If a partner is required to notify the return if a return is required. Use these an error on your Schedule K-1, notify the partnership of a section 751(a) exchange instructions to help you report the items partnership. Do not change any items on but fails to do so, a $50 penalty may be shown on Schedule K-1 on your tax your copy of Schedule K-1. Generally, an imposed for each such failure. However, return. adjustment to correct an error will take no penalty will be imposed if the partner

The amount of loss and deduction that effect for the tax year in which the can show that the failure was due to

you can claim on your tax return may be partnership actually makes the reasonable cause and not willful neglect.

less than the amount reported on adjustment. However, if the error involves

Schedule K-1. It is the partner’s a change to your distributive share of a Nominee Reporting

responsibility to consider and apply any partnership item, the partnership should Any person who holds, directly or applicable limitations. See Limitations on file an amended partnership return and indirectly, an interest in a partnership as a Losses, Deductions, and Credits send you a corrected Schedule K-1. nominee for another person must furnish beginning on page 2 for more information. If the treatment on your original or a written statement to the partnership by

amended return is inconsistent with the the last day of the month following the Electing Large partnership’s treatment, you may be end of the partnership’s tax year. This

Partnerships (ELPs) subject to the accuracy-related penalty. statement must include the name,

This penalty is in addition to any tax that address, and identifying number of the This partnership has elected simplified nominee and such other person, results from making your amount or reporting requirements intended to make treatment of the item consistent with that description of the partnership interest held it simpler for you to report your share of shown on the partnership’s return. Any as nominee for that person, and other partnership income, credits, deductions, deficiency that results from making the information required by Temporary etc. Generally, income, capital gains, amounts consistent may be assessed Regulations section 1.6031(c)-1T. A credits, and deductions are combined at immediately. nominee who fails to furnish this the partnership level so that the number statement must furnish to the person for of partnership items separately reported whom the nominee holds the partnership to partners is reduced. Most limitations Sale or Exchange of interest a copy of Schedule K-1 and and elections affecting partnership Partnership Interest related information within 30 days of income are made by the electing large receiving it from the partnership. partnership. Generally, a partner who sells or

exchanges a partnership interest in a A nominee who fails to furnish when For limited partners, income and other section 751(a) exchange must notify the due all the information required by items from the partnership’s trade or partnership, in writing, within 30 days of Temporary Regulations section business and rental activities are treated the exchange (or, if earlier, by January 15 1.6031(c)-1T, or who furnishes incorrect as being from a trade or business that is a of the calendar year following the information, is subject to a $50 penalty for single passive activity. These items are calendar year in which the exchange each statement for which a failure occurs. reported in boxes 1, 4a, and 5, with most occurred). A “section 751(a) exchange” is The maximum penalty is $100,000 for all credits being reported in boxes 7 and 8. any sale or exchange of a partnership such failures during a calendar year. If the

General partners must make their own interest in which any money or other nominee intentionally disregards the

determinations as to whether the activities property received by the partner in requirement to report correct information,

are passive for them. Therefore, exchange for that partner’s interest is each $50 penalty increases to $100 or, if

partnership items from trade or business, attributable to unrealized receivables (as greater, 10% of the aggregate amount of

Cat. No. 26141W
items required to be reported, and the Note. Additional basis adjustments may Elections $100,000 maximum does not apply. apply to partners claiming deductions for Generally, the partnership decides how to depletion. See chapter 9 of Pub. 535 for figure taxable income from its operations. details. International Boycotts However, two elections are made by you

Every partnership that had operations in, separately on your income tax return and At-Risk Limitations

or related to, a boycotting country, not by the partnership. These elections Generally, if you have (a) a loss or other company, or a national of a country must are made under the following code deduction from any activity carried on as file Form 5713, International Boycott sections. a trade or business or for the production Report. • Section 108(b)(5) (income from the of income by the partnership and (b) discharge of indebtedness). amounts in the activity for which you are If the partnership cooperated with an • Section 901 (foreign tax credit). not at risk, you will have to complete international boycott, it must provide you Form 6198, At-Risk Limitations, to figure with a copy of its Form 5713. As a Change of Tax Year your allowable loss. general or limited partner, you must file If the partnership attaches a statement to your own Form 5713 to report the The at-risk rules generally limit the Schedule K-1 indicating that it has partnership’s activities and any other amount of loss and other deductions that changed its tax year and that you can boycott operations that you may have. you can claim to the amount you could elect to report your distributive share of You may lose certain tax benefits if the actually lose in the activity. However, if the income attributable to that change partnership participated in, or cooperated you acquired your partnership interest ratably over 4 tax years, see Rev. Proc. with, an international boycott. See Form before 1987, the at-risk rules do not apply 2003-79, 2003-45 I.R.B. 1036, for details 5713 and its instructions for more to losses from an activity of holding real on making the election. To make the information. property placed in service before 1987 by election, you must file Form 8082, Notice the partnership. The activity of holding of Inconsistent Treatment or mineral property does not qualify for this Definitions Administrative Adjustment Request, with exception. The partnership should identify your income tax return for each of the 4 on an attachment to Schedule K-1 the General Partner tax years. File Form 8082 for this purpose amount of any losses that are not subject in accordance with Rev. Proc. 2003-79 A general partner is a partner who is to the at-risk limitations. instead of the Form 8082 instructions. personally liable for partnership debts. Generally, you are not at risk for

Additional Information amounts such as the following. Limited Partner • Nonrecourse loans used to finance the A For more information on the treatment of limited partner is a partner in a activity, to acquire property used in the partnership formed under a state limited partnership income, deductions, credits, activity, or to acquire your interest in the partnership law, whose personal liability etc., see the following: activity, that are not secured by your own • Pub. 541, Partnerships; for partnership debts is limited to the property (other than the property used in amount of money or other property that • Pub. 535, Business Expenses; and the activity). See the instructions for the partner contributed or is required to • Pub. 925, Passive Activity and At-Risk Partner’s Share of Liabilities on page 6 for contribute to the partnership. Some Rules. the exception for qualified nonrecourse members of other entities, such as To get forms and publications, see the financing secured by real property. domestic or foreign business trusts or instructions for your tax return. • Cash, property, or borrowed amounts limited liability companies that are used in the activity (or contributed to the classified as partnerships, may be treated Limitations on Losses, activity, or used to acquire your interest in as limited partners for certain purposes. the activity) that are protected against For example, see Temporary Regulations Deductions, and Credits loss by a guarantee, stop-loss agreement, section 1.469-5T(e)(3), which treats all There are three separate potential or other similar arrangement (excluding members with limited liability as limited limitations on the amount of partnership casualty insurance and insurance against partners for purposes of section 469(h)(2) losses that you can deduct on your return. tort liability). (relating to the passive activity loss These limitations and the order in which • Amounts borrowed for use in the limitation rules). you must apply them are as follows: the activity from a person who has an interest basis rules, the at-risk limitations, and the in the activity, other than as a creditor, or Disqualified Person passive activity limitations. Each of these who is related, under section 465(b)(3), to If you are a partner in a partnership limitations is discussed separately below. a person (other than you) having such an holding oil and gas properties, you are a interest. Basis Rules “disqualified person” if: You should get a separate statement Generally, you cannot claim your share of • You are an oil or natural gas retailer of income, expenses, etc., for each a partnership loss (including a capital described in section 613A(d)(2) or crude activity from the partnership. loss) to the extent that it is greater than oil refiner described in section 613A(d)(4) the adjusted basis of your partnership Passive Activity Limitations or interest at the end of the partnership’s tax Section 469 provides rules that limit the • Your average daily production of year. Any losses and deductions not deduction of certain losses and credits. domestic crude oil and natural gas allowed this year because of the basis These rules apply to partners who: exceeds 500 barrels for your tax year in limit can be carried forward indefinitely • Are individuals, estates, trusts, closely which the partnership’s tax year ends. and deducted in a later year subject to the held corporations (other than S See section 776(b) for more details. basis limit for that year. corporations), or personal service

Note. Disqualified persons must report The partnership is not responsible for corporations and

items of income, gain, loss, deduction, keeping the information needed to figure • Have a passive activity loss or credit for

and credit attributable to partnership oil the basis of your partnership interest. You the tax year.

and gas properties as if the special rules can figure the adjusted basis of your Individuals, estates, and trusts. If you for ELPs did not apply. partnership interest by adding items that have a passive activity loss or credit, use increase your basis and then subtracting Form 8582, Passive Activity Loss Nonrecourse Loans items that decrease your basis. Limitations, to figure your allowable

Nonrecourse loans are those liabilities of Use the worksheet on page 3 to figure passive losses and Form 8582-CR,

the partnership for which no partner bears the basis of your interest in the Passive Activity Credit Limitations, to

the economic risk of loss. partnership. figure your allowable passive credits.

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 If the publicly traded partnership In addition, the partnership is required 2. Rental real estate activities in which

(PTP) box on Schedule K-1 is to provide each general partner and you materially participated if you were a CAUTION checked, do not report passive disqualified person the information “real estate professional” for the tax year.

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income (loss) from the partnership on necessary to comply with the passive You were a real estate professional only if

Form 8582. See page 5 for the special activity rules of section 469. Items of you met both of the following conditions.

rules for PTPs. income, gain, loss, credit, etc., must be a. More than half of the personal separately reported to general partners Corporations. Use Form 8810, services you performed in trades or

Corporate Passive Activity Loss and for each trade or business, rental real businesses were performed in real

Credit Limitations. See the instructions for estate, and other rental activity. property trades or businesses in which

more information. you materially participated and Except for the PTP discussion on

page 5, the following information b. You performed more than 750 For limited partners of an ELP, all CAUTION on passive activity limitations hours of services in real property trades !

income, loss, deductions, and credits applies only to general partners. or businesses in which you materially from trade or business and rental participated. activities generally are reported as being Generally, passive activities include: from a trade or business that is a single Note. For a closely held C corporation 1. Trade or business activities in passive activity. which you did not materially participate (defined in section 465(a)(1)(B)), the

above conditions are treated as met if However, the determination of and

more than 50% of the corporation’s gross whether an activity is a passive activity 2. Activities that meet the definition of

receipts were from real property trades or must be made by any partner who is rental activities under Temporary

Regulations section 1.469-1T(e)(3) and businesses in which the corporation either a:

Regulations section 1.469-1(e)(3). materially participated. • General partner or

• Limited partner who is a disqualified For purposes of this rule, each interest

person (as defined on page 2) with Passive activities do not include the in rental real estate is a separate activity,

respect to items of income, gain, loss, following. unless you elect to treat all interests in

deduction, and credit attributable to 1. Trade or business activities in rental real estate as one activity. For

partnership oil and gas properties. which you materially participated. details on making this election, see the

Instructions for Schedule E (Form 1040).

Worksheet for Adjusting the Basis of a Partner’s If you are married filing jointly, either

you or your spouse must separately meet Interest in the Partnership Keep for Your Records

both of the above conditions, without

taking into account services performed by 1. Your adjusted basis at the end of the prior year. Do not enter less the other spouse. than zero. Enter -0- if this is your first tax year. .............. 1. A real property trade or business is

Increases: any real property development,

redevelopment, construction, 2. Money and your adjusted basis in property contributed to the reconstruction, acquisition, conversion, partnership less the associated liabilities (but not less than zero). 2.

rental, operation, management, leasing, 3. Your increased share of or assumption of partnership liabilities. or brokerage trade or business. Services (Subtract your share of liabilities shown on your 2007 Schedule K-1 you performed as an employee are not from your share of liabilities shown on your 2008 Schedule K-1 and treated as performed in a real property add the amount of any partnership liabilities you assumed during trade or business unless you owned more the tax year.) .................................... 3. than 5% of the stock (or more than 5% of

4. Your share of the partnership’s income or gain (including the capital or profits interest) in the

tax-exempt income) reduced by any amount included in interest employer.

income with respect to the credit to holders of clean renewable 3. Working interests in oil or gas energy bonds, gulf tax credit bonds, or Midwestern tax credit bonds 4. wells.

5. Any gain recognized this year on contributions of property. Do not 4. The rental of a dwelling unit any

include gain from transfer of liabilities .................... 5. partner used for personal purposes during

the year for more than the greater of 14 Decreases: days or 10% of the number of days that

6. Withdrawals and distributions of money and the adjusted basis of the residence was rented at fair rental

property distributed to you from the partnership. Do not include the value.

amount of property distributions included in the partner’s income 5. Activities of trading personal (taxable income) .................................. 6. property for the account of owners of

Caution. A distribution may be taxable if the amount exceeds your interests in the activities.

adjusted basis of your partnership interest immediately before the

distribution. Material participation. You must

determine if you (a) materially participated 7. Your share of the partnership’s nondeductible expenses that are in each trade or business activity held not capital expenditures ............................. 7. through the partnership and (b) were a

8. Your share of the partnership’s losses and deductions (including real estate professional (defined above),

capital losses) ................................... 8. in each rental real estate activity held

through the partnership. All 9. Your adjusted basis in the partnership at end of this tax year. (Add determinations of material participation lines 1 through 5 and subtract lines 6 through 8 from the total. If are made based on your participation zero or less, enter -0-.) ............................. 9. during the partnership’s tax year. Caution. The deduction for your share of the partnership’s losses

and deductions is limited to your adjusted basis in your partnership Material participation standards for

interest. If you entered zero on line 9 and the amount computed for partners who are individuals are listed

line 9 was less than zero, a portion of your share of the partnership below. Special rules apply to certain

losses and deductions may not be deductible (see Basis Rules on retired or disabled farmers and to the

page 2 for more information.) surviving spouses of farmers. See the

Instructions for Form 8582 for details.

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Corporations should refer to the avoid the passive loss or credit qualifying estates), trusts, and

Instructions for Form 8810 for the material limitations. corporations cannot actively participate.

participation standards that apply to them. 2. You do the work in your capacity as You are not considered to actively an investor and you are not directly participate in a rental real estate activity if Individuals (other than limited involved in the day-to-day operations of partners). at any time during the tax year your If you are an individual (either the activity. Examples of work done as an a general partner or a limited partner who interest (including your spouse’s interest) investor that would not count toward owned a general partnership interest at all in the activity was less than 10% (by material participation include: value) of all interests in the activity. times during the tax year), you materially a. Studying and reviewing financial participated in an activity only if one or Active participation is a less stringent more of the following apply. statements or reports on operations of the requirement than material participation. activity. 1. You participated in the activity for You may be treated as actively b. Preparing or compiling summaries more than 500 hours during the tax year. participating if you participated, for or analyses of the finances or operations example, in making management 2. Your participation in the activity for of the activity for your own use. decisions or arranging for others to the tax year constituted substantially all c. Monitoring the finances or provide services (such as repairs) in a the participation in the activity of all operations of the activity in a significant and bona fide sense. individuals (including individuals who are nonmanagerial capacity. Management decisions that can count as not owners of interests in the activity for

the tax year). active participation include approving new Effect of determination. Income tenants, deciding rental terms, approving 3. You participated in the activity for (loss), deductions, and credits from an capital or repair expenditures, and other more than 100 hours during the tax year, activity are nonpassive if you determine similar decisions. and your participation in the activity for that:

the tax year was not less than the An estate is a qualifying estate if the • You materially participated in a trade or participation in the activity of any other decedent would have satisfied the active business activity of the partnership or individual (including individuals who were participation requirement for the activity • You were a real estate professional in a

not owners of interests in the activity) for for the tax year the decedent died. A rental real estate activity of the the tax year. qualifying estate is treated as actively partnership.

4. The activity was a significant participating for tax years ending less

participation activity for the tax year, and If you determine that you did not than 2 years after the date of the

materially participate in a trade or decedent’s death. you participated in all significant

participation activities (including activities business activity of the partnership or if The maximum special allowance that

outside the partnership) during the year you have income (loss), deductions, or single individuals and married individuals for more than 500 hours. A significant credits from a rental activity of the filing a joint return can qualify for is

participation activity is any trade or partnership (other than a rental real $25,000. The maximum is $12,500 for

business activity in which you participated estate activity in which you materially married individuals who file separate participated as a real estate professional), for more than 100 hours during the tax returns and who live apart all times during

year and in which you did not materially the amounts from that activity are the year. The maximum special allowance

participate under any of the material passive. Report passive income (losses), for which an estate can qualify is $25,000 participation tests (other than this test 4). deductions, and credits as follows. reduced by the special allowance for

5. You materially participated in the 1. If you have an overall gain (the which the surviving spouse qualifies.

activity for any 5 tax years (whether or not excess of income over deductions and If your modified adjusted gross income consecutive) during the 10 tax years that losses, including any prior year unallowed (defined below) is $100,000 or less immediately precede the tax year. loss) from a passive activity, report the ($50,000 or less if married filing income, deductions, and losses from the 6. The activity was a personal service separately), your loss is deductible up to activity as indicated in the instructions for activity and you materially participated in the amount of the maximum special the boxes in which those items were the activity for any 3 tax years (whether or allowance referred to in the preceding reported. not consecutive) preceding the tax year. paragraph. If your modified adjusted A personal service activity involves the 2. If you have an overall loss (the gross income is more than $100,000 excess of deductions and losses, performance of personal services in the (more than $50,000 if married filing including any prior year unallowed loss, fields of health, law, engineering, separately), the special allowance is over income) or credits from a passive architecture, accounting, actuarial limited to 50% of the difference between activity, report the income, deductions, science, performing arts, consulting, or $150,000 ($75,000 if married filing losses, and credits from all passive any other trade or business in which separately) and your modified adjusted capital is not a material income-producing activities using the Instructions for Form gross income. When modified adjusted 8582 or Form 8582-CR (or Form 8810), to factor. gross income is $150,000 or more see if your deductions, losses, and credits 7. Based on all the facts and ($75,000 or more if married filing are limited under the passive activity circumstances, you participated in the separately), there is no special allowance. rules. activity on a regular, continuous, and Modified adjusted gross income is your substantial basis during the tax year. adjusted gross income figured without Special allowance for rental real estate taking into account the following. Work counted toward material activities. If you actively participated in • Any passive activity loss. a rental real estate activity, you may be participation. Generally, any work that • Any rental real estate loss allowed able to deduct up to $25,000 of the loss you or your spouse do in connection with under section 469(c)(7) to real estate from the activity from nonpassive income. an activity held through a partnership professionals (as defined previously). This “special allowance” is an exception (where you own your partnership interest • Any overall loss from a publicly traded to the general rule disallowing losses in at the time the work is done) is counted partnership. excess of income from passive activities. toward material participation. However, • Any taxable social security or The special allowance is not available if work in connection with the activity is not equivalent railroad retirement benefits. you were married, filed a separate return counted toward material participation if • Any deductible contributions to an IRA for the year, and did not live apart from either of the following applies. or certain other qualified retirement plans your spouse at all times during the year. 1. The work is not the sort of work that under section 219.

owners of the activity would usually do Only individuals and qualifying estates • The domestic production activities

and one of the principal purposes of the can actively participate in a rental real deduction.

work that you or your spouse does is to estate activity. Estates (other than • The student loan interest deduction.

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• The tuition and fees deduction. applied against passive income from the Example. You have a Schedule E loss

• The deduction for one-half of of $12,000 (current year losses plus prior same PTP in later years. If the partner’s

self-employment taxes. year unallowed losses) and a Schedule D entire interest in the PTP is completely

• The exclusion from income of interest gain of $7,200. Report the $7,200 gain on disposed of, any unused losses are

from Series EE and I U.S. Savings Bonds the appropriate line of Schedule D. On allowed in full in the year of disposition.

used to pay higher education expenses. Schedule E (Form 1040), line 28, report

• The exclusion of amounts received $7,200 of the losses as a passive loss in If you have an overall gain from a PTP,

under an employer’s adoption assistance column (f). Carry forward to 2009 the the net gain is nonpassive income. In

program. addition, the nonpassive income is unallowed loss of $4,800 ($12,000 − included in investment income to figure $7,200). Commercial revitalization your investment interest expense deduction. The special $25,000 If you have unallowed losses from

allowance for the commercial deduction. more than one activity of the PTP or from

revitalization deduction from rental real the same activity of the PTP that must be Do not report passive income, gains, estate activities is not subject to the active reported on different forms, you must or losses from a PTP on Form 8582. participation rules or modified adjusted allocate the unallowed losses on a pro Instead, use the following rules to figure gross income limits discussed above. See rata basis to figure the amount allowed and report on the proper form or schedule Code Q. Commercial Revitalization from each activity or on each form. your income, gains, and losses from Deduction on page 11. passive activities that you held through To allocate and keep a record of Special rules for certain other each PTP you owned during the tax year. the unallowed losses, use activities. If you have net income (loss), 1. Combine any current year income, Worksheets 5, 6, and 7 of Form

TIP

deductions, or credits from any activity to gains (losses), and any prior year 8582. List each activity of the PTP in which special rules apply, the partnership unallowed losses to see if you have an Worksheet 5. Enter the overall loss from will identify the activity and all amounts overall gain (loss) from the PTP. Include each activity in column (a). Complete relating to it on Schedule K-1 or on an only the same types of income and losses column (b) of Worksheet 5 according to attachment. you would include in your net income or its instructions. Multiply the total

If you have net income subject to loss from a non-PTP passive activity. See unallowed loss from the PTP by each

recharacterization under Temporary Pub. 925 for more details. ratio in column (b) and enter the result in

Regulations section 1.469-2T(f) and column (c) of Worksheet 5. Then, 2. If you have an overall gain, the net Regulations section 1.469-2(f), report gain portion (total gain minus total losses) complete Worksheet 6 if all the loss from

such amounts according to the the same activity is to be reported on one is nonpassive income. On the form or Instructions for Form 8582 (or Form form or schedule. Use Worksheet 7 schedule you normally use, report the net 8810). instead of Worksheet 6 if you have more gain portion as nonpassive income and than one loss to be reported on different If you have net income (loss), the remaining income and the total losses forms or schedules for the same activity. deductions, or credits from any of the as passive income and loss. To the left of Enter the net loss plus any prior year following activities, treat such amounts as the entry space, enter “From PTP.” It is unallowed losses in column (a) of nonpassive and report them as instructed important to identify the nonpassive Worksheet 6 (or Worksheet 7 if in these instructions. income because the nonpassive portion is applicable). The losses in column (c) of • Working interests in oil and gas wells. included in modified adjusted gross Worksheet 6 (column (e) of Worksheet 7) • The rental of a dwelling unit any partner income for purposes of figuring on Form are the allowed losses to report on the used for personal purposes during the 8582 the “special allowance” for active forms or schedules. Report both these year for more than the greater of 14 days participation in a non-PTP rental real losses and any income from the PTP on or 10% of the number of days that the estate activity. In addition, the nonpassive the forms and schedules you normally residence was rented at fair rental value. income is included in investment income use. • Trading personal property for the when figuring your investment interest 4. If you have an overall loss and you account of owners of interests in the expense deduction on Form 4952, disposed of your entire interest in the PTP activity. Investment Interest Expense Deduction. to an unrelated person in a fully taxable Self-charged interest. The partnership Example. If you have Schedule E transaction during the year, your losses must report any “self-charged” interest income of $8,000, and a Form 4797 prior (including prior year unallowed losses) income or expense that resulted from year unallowed loss of $3,500 from the allocable to the activity for the year are loans between you and the partnership passive activities of a particular PTP, you not limited by the passive loss rules. A (or between the partnership and another have a $4,500 overall gain ($8,000 − fully taxable transaction is one in which partnership in which you have an $3,500). On Schedule E (Form 1040), line you recognize all your realized gain interest). If there was more than one 28, report the $4,500 net gain as (loss). Report the income and losses on activity, the partnership will provide a nonpassive income in column (j). In the forms and schedules you normally statement allocating the interest income column (g), report the remaining use.

or expense with respect to each activity. Schedule E gain of $3,500 ($8,000 − The self-charged interest rules do not $4,500). On the appropriate line of Form Note. For rules on the disposition of an apply to your partnership interest if the 4797, report the prior year unallowed loss entire interest reported using the partnership made an election under of $3,500. Be sure to enter “From PTP” to installment method, see the Instructions

Regulations section 1.469-7(g) to avoid the left of each entry space. for Form 8582.

the application of these rules. See the 3. If you have an overall loss (but did Instructions for Form 8582 for more not dispose of your entire interest in the information. PTP to an unrelated person in a fully

Publicly traded partnerships. The taxable transaction during the year), the Specific Instructions

passive activity limitations are applied losses are allowed to the extent of the

separately for items (other than the income, and the excess loss is carried Publicly Traded low-income housing credit and the forward to use in a future year when you

have income to offset it. Report as a Partnership (PTP) rehabilitation credit) from each publicly

traded partnership (PTP). Thus, a net If the “publicly traded partnership” box is passive loss on the schedule or form you

passive loss from a PTP may not be checked, you are a partner in a publicly normally use the portion of the loss equal

deducted from other passive income. traded partnership (PTP) and must follow to the income. Report the income as

Instead, a passive loss from a PTP is the rules under passive income on the form or schedule Publicly traded

suspended and carried forward to be you normally use. partnerships discussed above.

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Partner’s Share of Boxes 1 Through 9 Box 2. Taxable Income (Loss)

From Other Activities Liabilities The amounts shown in boxes 1 through 9

reflect your share of income, loss, This amount is not subject to the passive The partnership will show your share of deductions, credits, etc., from the activity limitations. Report the amount as the partnership’s nonrecourse liabilities, partnership. These amounts do not take follows.

partnership-level qualified nonrecourse into consideration the following • If the amount is income, report it on financing, and other liabilities as of the limitations. Schedule E (Form 1040), line 28, column end of the partnership’s tax year. If you (j). • The adjusted basis of your partnership terminated your interest in the partnership interest. • If the amount is a loss, report it on during the tax year, the amounts should Schedule A (Form 1040), line 28. • The amount for which you are at risk. reflect the share that existed immediately • The passive activity limitations. Note. If the amount of interest included before the total disposition. A partner’s in box 2 includes interest from the credit For information on these provisions, “other liability” is any partnership liability to holders of clean renewable energy see Limitations on Losses, Deductions, for which a partner is personally liable. bonds, gulf tax credit bonds, or and Credits beginning on page 2. Use the total of the three amounts for Midwestern tax credit bonds, the

computing the adjusted basis of your For individuals, the following partnership will attach a statement to

partnership interest. instructions explain how to report the Schedule K-1 showing your distributive amounts shown in the boxes. For all other share of interest income from these Generally, you can use only the entities, report the amounts in the boxes credits. No adjustment to your basis in the amounts shown next to “Qualified as instructed on your income tax return. partnership is permitted with respect to nonrecourse financing” and “Other” to The line numbers in these instructions the above bond credits under section figure your amount at risk. Do not include are references to forms in use for 54(l)(3)(B). Because the basis in your any amounts that are not at risk if such calendar year 2008. If you file your tax partnership interest is increased by your amounts are included in either of these return on a calendar year basis, but your share of the interest income from these categories. partnership files a return for a fiscal year, credits, you must reduce your bases by

If your partnership is engaged in two or the same amount to offset the increase. enter the amounts shown in the boxes on

more different types of activities subject to See Line 4 of the your tax return for the year in which the Worksheet for Adjusting

the at-risk provisions, or a combination of partnership’s fiscal year ends. For the Basis of a Partner’s Interest in the

at-risk activities and any other activity, the example, if the partnership’s tax year Partnership on page 3.

partnership should give you a statement ends on June 30, 2009, report the showing your share of nonrecourse Box 3. Qualified Dividends amounts in the boxes on your 2009 liabilities, partnership-level qualified Report this amount on lines 9a and 9b of income tax return.

nonrecourse financing, and other Form 1040. If you have losses, deductions, or liabilities for each activity. Note. Qualified dividends are excluded credits from a prior year that were not Qualified nonrecourse financing. from investment income, but you can deductible or usable because of certain

Qualified nonrecourse financing generally elect to include part or all of these limitations, such as the basis rules or the

includes financing for which no one is amounts in investment income. See the at-risk limitations, take them into account

personally liable for repayment that is instructions for line 4g of Form 4952, in determining your net income, loss, or borrowed for use in an activity of holding Investment Interest Expense Deduction, credits for this year. However, except for real property and that is loaned or for important information on making this passive activity losses and credits, do not guaranteed by a federal, state, or local election. combine the prior-year amounts with any government or borrowed from a amounts shown on this Schedule K-1 to Box 4a. Net Capital Gain or “qualified” person. Qualified nonrecourse get a net figure to report on any financing secured by real property used in (Loss) From Passive Activities supporting schedules, statements, or an activity of holding real property that is forms attached to your return. Instead, Limited partners only. The net capital subject to the at-risk rules is treated as an report the amounts separately on the gain (loss) reported in box 4a, is treated amount at risk. attached schedule, statement, or form on as being from a trade or business that is a

Qualified persons. Qualified persons a year-by-year basis. single passive activity. If a net capital gain

include any persons actively and regularly For amounts other than those shown is reported in box 4a, report the gain on

engaged in the business of lending Schedule D (Form 1040), line 12, column on Schedule K-1, enter each item on a

money, such as a bank or savings and (f). separate line of Part II of Schedule E

loan association. Qualified persons (Form 1040). If a loss is reported in box 4a, report it generally do not include related parties following the Form 8582 instructions to Box 1. Taxable Income (Loss) (unless the nonrecourse financing is figure how much of the loss can be commercially reasonable and on From Passive Activities reported on Schedule D (Form 1040), line substantially the same terms as loans 12, column (f). However, if the PTP box is Limited partners only. Any amount involving unrelated persons), the seller of checked, report the loss following the reported in box 1 is treated as being from the property, or a person who receives a rules for Publicly traded partnerships. a trade or business that is a single fee for the partnership’s investment in the passive activity. Report this amount as Box 4b. Net Capital Gain or real property. follows. (Loss) From Other Activities See Pub. 925 for more information on • If income is reported in box 1, report Net capital gain or (loss) from other qualified nonrecourse financing. the income on Schedule E (Form 1040), activities is not subject to the passive line 28, column (g). However, if the PTP Both the partnership and you must activity limitations. Report the gain or box is checked, report the income meet the qualified nonrecourse rules on (loss) on Schedule D (Form 1040), line following the rules for Publicly traded this debt before you can include the 12, column (f). partnerships on page 5. amount shown next to “Qualified

nonrecourse financing” in your at-risk • If a loss is reported in box 1, follow the Box 5. Net Passive AMT Instructions for Form 8582 to figure how computation. Adjustment much of the loss can be reported on

See Limitations on Losses, Schedule E (Form 1040), line 28, column Limited partners only. Use this amount

Deductions, and Credits beginning on (f). However, if the PTP box is checked, (as well as your adjustments and tax

page 2 for more information on the at-risk report the loss following the rules for preference items from other sources) to

limitations. Publicly traded partnerships. prepare your Form 6251, Alternative

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Minimum Tax— Individuals; Form 4626, Report Code A1 income or (loss) from activities. Generally, the income or

Alternative Minimum Tax—Corporations; partnership trade or business activities in (loss) reported in box 9, Code B1, is a

or Schedule I (Form 1041), Alternative which you did not materially participate as passive activity amount for all general

Minimum Tax—Estates and Trusts. The follows. partners. However, the income or (loss) in

adjustment is treated as being from a box 9 is not from a passive activity if you 1. Report any income on Schedule E trade or business that is a single passive were a (Form 1040), line 28, column (g). real estate professional and you

activity. However, if the PTP box on Schedule K-1 materially participated in the activity.

Individuals should enter the amount on is checked, report the income following Use the following instructions to

line 19 of Form 6251, where it is taken the rules for Publicly traded partnerships. determine where to enter the Code B1

into account with adjustments and 2. Report a loss following the amount.

preferences from other passive activities. Instructions for Form 8582 to figure how 1. If you have a loss from a passive much of the loss can be reported on activity in box 9, Code B1, and you meet Box 6. Net Other AMT Schedule E (Form 1040), line 28, column all of the following conditions, enter the Adjustment (f). However, if the PTP box is checked, loss on Schedule E (Form 1040), line 28, report the loss following the rules for Individual general and limited partners column (f). Publicly traded partnerships. should enter this amount on line 16 of a. You actively participated in the Form 6251. Code A2. General partner’s net capital partnership rental real estate activities.

gain or (loss) from trade or business See Special allowance for rental real Box 7. General Credits activities. estate activities on page 4. If you did not materially Limited partners only. Enter this amount participate in the trade or business b. Rental real estate activities with

from box 7 on line 1z of Form 3800, activity, the net capital gain or (loss) is a active participation were your only General Business Credit. Because passive activity amount. If the amount is passive activities. general credits are treated as being from either (a) a loss that is not from a passive c. You have no prior year unallowed a trade or business that is a single activity or losses from these activities. (b) a gain, report it on Schedule passive activity, you must also include the D (Form 1040), line 12, column (f). d. Your total loss from the rental real

box 7 amount on line 3 of Form 3800. estate activities was not more than If the amount is a loss from a passive $25,000 (not more than $12,500 if Box 8. Low-Income Housing activity, report it following the Instructions married filing separately and you lived Credit for Form 8582 to figure how much of the apart from your spouse all year). loss can be reported on Schedule D Limited partners only. Enter the amount e. If you are a married person filing (Form 1040), line 12, column (f). reported in box 8 of Schedule K-1 on line separately, you lived apart from your However, if the PTP box is checked, 4 of Form 8586, Low-Income Housing spouse all year. report the loss following the rules for Credit. If an amount is reported in box 8, f. You have no current or prior year Publicly traded partnerships. all of the low-income housing credit is for unallowed credits from a passive activity.

buildings placed in service before January Code A3. General partner’s 28% rate g. Your modified adjusted gross

1, 2008. If any of the low-income housing gain (loss) from trade or business income was not more than $100,000 (not

credit is for buildings placed in service activities. If you did not materially more than $50,000 if married filing

after December 31, 2007, the partnership participate in the trade or business separately and you lived apart from your

will enter “STMT” in box 8 and attach a activity, the 28% rate gain or (loss) is a spouse all year).

statement which lists separately the passive activity amount. If the amount is 2. If you have a (loss) from a passive

amount of the credit for buildings placed either (a) a loss that is not from a passive activity in box 9 and you do not meet all

in service prior to January 1, 2008 activity or (b) a gain, include it on line 4 of the conditions in 1 above, report the loss

(reported on line 4 of Form 8586), and the the 28% Rate Gain Worksheet on page following the Instructions for Form 8582 to

amount for buildings placed in service D-8 of the Instructions for Schedule D figure how much of the loss you can

after December 31, 2007 (reported on line (Form 1040). report on Schedule E (Form 1040), line

11 of Form 8586). See the instructions for 28, column (f). However, if the PTP box is If the amount is a loss from a passive Form 8586 for more information. checked, report the loss following the activity, report it following the Instructions rules for Publicly traded partnerships. Box 9. Other for Form 8582 to figure how much of the 3. If you were a real estate loss can be included on line 4 of the 28%

Rate Gain Worksheet professional and you materially Codes A Through C on page D-8 of the participated in the activity, report box 9 Instructions for Schedule D (Form 1040). General partners in an ELP must However, if the PTP box is checked, income or (loss) on Schedule E (Form separately account for any items 1040), line 28, column (h) or (j). report the loss following the rules for attributable to passive loss limitation Publicly traded partnerships 4. If you have income from a passive . activities to the extent necessary to activity in box 9, Code B1, enter the comply with the section 469 passive loss Code A4. General partner’s general income on Schedule E (Form 1040), line rules. Therefore, the partnership is credits from trade or business 28, column (g). However, if the PTP box required to report income or (loss), capital activities. Report the general credits on is checked, report the income following gain or (loss), 28% rate gain or (loss), line 1z of Form 3800. If you did not the rules for Publicly traded partnerships. credits, and the alternative minimum tax materially participate in the trade or

adjustment separately for all trade or business activity, you must also include Code B2. General partner’s net capital

business activities, rental real estate the general credits on line 3 of Form gain or (loss) from rental real estate

activities, and rental activities other than 3800. activities (for the entire year). The net

rental real estate. Code A5. General partner’s alternative capital gain or (loss) from a rental real

minimum tax adjustment from trade or estate activity is a passive activity amount Code A1. General partner’s taxable business activities. Generally, an AMT unless you were a real estate income (loss) from trade or business adjustment must be reported on line 16 of professional and you materially activities. Report Code A1 income Form 6251. However, if the AMT participated in the activity. If the amount is (loss) from partnership trade or business adjustment is from a passive activity, it either (a) a loss that is not from a passive activities in which you materially must be taken into account on line 19 with activity or (b) a gain, report it on Schedule participated on Schedule E (Form 1040), adjustments and preferences from other D (Form 1040), line 12, column (f). line 28, column (h) or (j). See the passive activities. instructions to determine whether you If the amount is a loss from a passive

materially participated in a trade or Code B1. General partner’s taxable activity, report it following the Instructions

business activity. income (loss) from rental real estate for Form 8582 to figure how much of the

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loss can be reported on Schedule D, line (loss) following the rules for Publicly Code E. Limited Partner’s 28%

12, column (f). However, if the PTP box is traded partnerships. Rate Gain or (Loss) From Other checked, report the loss following the Activities

rules for Publicly traded partnerships Code C2. General partner’s net capital . The 28% gain or (loss) from other gain or (loss) from other rental Code B3. General partner’s 28% rate activities is not subject to the passive activities. The net capital gain (loss) gain or (loss) from rental real estate activity limitations. Include it on line 4 of from other rental activities is a passive activities. The 28% rate gain or (loss) the 28% Rate Gain Worksheet on page activity amount for all general partners. from a rental real estate activity is a D-8 of the Instructions for Schedule D Report the gain on Schedule D (Form passive activity amount unless you were (Form 1040). 1040), line 12, column (f). Report a loss a real estate professional and you

materially participated in the activity. If the following the Instructions for Form 8582 to Code F. Guaranteed Payments

amount is either (a) a loss that is not from figure how much of the loss can be Generally, these amounts are not passive reported on Schedule D (Form 1040), line a passive activity or (b) a gain, include it income. Report them on Schedule E 12, column (f). However, if the PTP box is on line 4 of the 28% Rate Gain (Form 1040), line 28, column (j) (for checked, report the loss following the Worksheet on page D-8 of the example, guaranteed payments for

Instructions for Schedule D (Form 1040). rules for Publicly traded partnerships. personal services).

If the amount is a loss from a passive Code C3. General partner’s 28% rate Code G. Income From Discharge of

activity, report it following the Instructions gain or (loss) from other rental Indebtedness

for Form 8582 to figure how much of the activities. The 28% rate gain or (loss) The amount reported under Code G is loss can be included on line 4 of the 28% from other rental activities is a passive excluded from your gross income to the Rate Gain Worksheet on page D-8 of the activity amount for all general partners. If extent provided in section 108 if the Instructions for Schedule D (Form 1040). the amount is a gain, include it on line 4 discharge: However, if the PTP box is checked, of the 28% Rate Gain Worksheet on page • Occurred in a title 11 case relating to report the loss following the rules for D-8 of the Instructions for Schedule D bankruptcy, Publicly traded partnerships. (Form 1040). Report a loss following the • Occurred when you were insolvent,

Code B4. General partner’s general Instructions for Form 8582 to figure how • Involved qualified farm indebtedness,

credits from rental real estate much of the loss can be included on line 4 as defined in section 108(g), or

activities. Report the general credits on of the 28% Rate Gain Worksheet on page • Involved qualified real property

line 1z of Form 3800. Unless you were a D-8 of the Instructions for Schedule D business indebtedness, as defined in

real estate professional and materially (Form 1040). However, if the PTP box is section 108(c)(3), unless the partner is a

participated in the rental real estate checked, report the loss following the C corporation.

activity, you must also include the general rules for Publicly traded partnerships. This amount is applied, instead, to credits on line 3 of Form 3800. Code C4. General partner’s general reduce certain tax attributes. File Form

Code B5. General partner’s 982, Reduction of Tax Attributes Due to credits from other rental activities.

low-income housing credit from rental Discharge of Indebtedness, to explain Report the general credits on line 1z of real estate activities. Report the why any amount received from the Form 3800. Because general credits from low-income housing credit on Part I, line discharge of indebtedness should be other rental activities are passive activity 4, of Form 8586 for buildings placed in excluded and to report your reduction of credits for all general partners, you must service before January 1, 2008, and on tax attributes. also include the general credits on line 3 Part II, line 11, for buildings placed in of Form 3800. For a discharge of indebtedness not service after December 31, 2007. Unless described above, you must include this

you were a real estate professional and Code C5. General partner’s alternative amount in income on Schedule E (Form materially participated in the rental real minimum tax adjustment from other 1040), line 28, column (g) or (j). estate activity, the low-income housing rental activities. An AMT adjustment credit is a passive activity credit. Code H. Tax-Exempt Interest must be reported on line 16 of Form Income Code B6. General partner’s 6251. However, if the AMT adjustment is

rehabilitation credit from rental real from a passive activity, it must be taken Report on your income tax return, as an

estate activities. Report the into account on line 19 with adjustments item of information, your share of the

rehabilitation credit on line 10m of Form and preferences from other passive tax-exempt interest received or accrued

3468, Investment Credit. Unless you were activities instead of being reported on line by the partnership during the year.

a 16. Individual partners must include this real estate professional and materially

participated in the rental real estate amount on Form 1040, line 8b. Increase

activity, the credit is a passive activity Code D. Limited Partner’s 28% the adjusted basis of your interest in the

partnership by this amount. credit, and you must also file Form 3800. Rate Gain or (Loss) From Passive

Code B7. General partner’s alternative Activities Code I. Limited Partner’s

minimum tax adjustment from rental Rehabilitation Credit From Rental Limited partners only. The 28% rate real estate activities. An AMT gain or (loss) is treated as being from a Real Estate Activities

adjustment must be reported on line 16 of trade or business that is a single passive Limited partners only. Report this Form 6251. However, if the AMT activity. If a gain is reported, include it on amount on line 10m of Form 3468. adjustment is from a passive activity, it line 4 of the 28% Rate Gain Worksheet Because the credit is treated as being must be taken into account on line 19 with on page D-8 of the Instructions for from a single passive activity, you must other passive activities instead of being Schedule D (Form 1040). also file Form 3800. reported on line 16. Codes J1 and J2. Self-Employment Code C1. General partner’s taxable If a loss is reported, report the loss

income or (loss) from other rental Code J1. Net earnings or (loss) from following the Instructions for Form 8582 to

activities. Income (loss) reported in box figure how much of the loss can be self-employment. Enter this amount on

9, Code C1, is a passive activity amount Schedule SE (Form 1040), line 2, Section included on line 4 of the 28% Rate Gain

for all general partners. Report a loss A or B, whichever is applicable. General Worksheet on page D-8 of the

following the Instructions for Form 8582. partners should reduce this amount by Instructions for Schedule D (Form 1040).

Report income on Schedule E (Form unreimbursed partnership expenses However, if the PTP box is checked,

1040), line 28, column (g). However, if the claimed. General partners who are report the loss following the rules for

PTP box is checked, report the income Publicly traded partnerships. disqualified persons also should reduce

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this amount by depletion claimed on oil Code K5. Interest expense allocated Code M3. Unrelated business taxable

and gas properties. If this amount is a and apportioned at the partner level. income. The partnership must give you

loss, enter only the deductible amount on Include this amount on line 4b of the any information you need to figure

Schedule SE. For purposes of applicable Forms 1116. unrelated business taxable income under

self-employment tax, no income from an Code K6. Other expenses allocated section 512(a)(1) (but excluding any

ELP is treated as farming or fishing and apportioned at the partner level. modifications required by paragraphs (8)

income. Include this amount on line 2 of the through (15) of section 512(b)) for a

Code J2. Gross nonfarm income. applicable Forms 1116. partner that is a tax-exempt organization.

Individual partners use this amount to Note. For Codes K5 and K6, do not Reminder. A partner is required to notify figure net earnings from self-employment include any expenses allocated and the partnership of its tax-exempt status. under the nonfarm optional method on apportioned to U.S. source income on Schedule SE (Form 1040), Section B, Code M4. Health insurance. Include any line of Part I of Form 1116. Part II. any amounts paid during the tax year for Codes K7(a) Through Codes K7(c). insurance that constitutes medical care Codes K1 Through K9. Foreign Tax Deductions allocated and apportioned for you, your spouse, and your Credit Information at partnership level to foreign source dependents on line 29 of your 2008 Form

Use the information reported under income. The following codes report the 1040. You may be allowed to deduct such

Codes K1 through K9 to figure your expenses allocated and apportioned by amounts, even if you do not itemize the partnership to foreign source foreign tax credit. For more information, deductions. If you do itemize deductions, categories of income. Include these see Form 1116, Foreign Tax Credit enter on line 1 of Schedule A (Form 1040) amounts on line 2 of the applicable Forms (Individual, Estate, or Trust) and its any amounts not deducted on line 29 of 1116 (that is, the Forms 1116 for each instructions; Form 1118, Foreign Tax Form 1040.

Credit—Corporations, and its category of income provided to you).

• Code K7(a). Deductions allocated Code M5. Distributions of money (cash instructions; and Pub. 514, Foreign Tax and apportioned at partnership level to and marketable securities). This Credit for Individuals. See page 4 of the passive category foreign source amount includes the distributions the Instructions for Form 1116 for detailed

income. partnership made to you of cash and instructions for reporting foreign tax • Code K7(b). Deductions allocated certain marketable securities. The information from partnerships. and apportioned at partnership level to marketable securities are included at their

Note. The line references in this section general category foreign source fair market value (FMV) on the date of of the Form 1116 instructions do not income. distribution (minus your share of the apply to the Schedule K-1 of Form • Code K7(c). Deductions allocated partnership’s gain on the securities 1065-B. and apportioned at partnership level to distributed to you). If this amount exceeds

Code K1. Name of foreign country or other foreign source income. the adjusted basis of your partnership

U.S. possession. Include on Form interest immediately before the Code K8(a). Total foreign taxes paid. 1116, Part I, item g. For each country distribution, the excess is treated as gain Include this amount in Part II of Form reported, the partnership must give you from the sale or exchange of your 1116. the amount and a description of your partnership interest. Generally, this gain Code K8(b). Total foreign taxes share of the following items for Codes K2 is treated as gain from the sale of a accrued. Include this amount in Part II of through K9. For each country or capital asset and should be reported on Form 1116. possession being reported, a separate the Schedule D for your return. However,

column in Part I and a separate line in Code K9. Reduction in taxes available the gain may be ordinary income. For

Part II is needed on Form 1116. for credit. Enter this amount on line 12 details, see Pub. 541.

Code K2. Gross income from all of Form 1116. The partnership must separately sources. Enter this amount on line 3e of Code L. Oil and Gas Activities identify both of the following. Form 1116. Generally, oil and gas income, • The FMV of the marketable securities

Code K3. Gross income sourced at deductions, credits, and other items are when distributed (minus your share of the partner level. Although all this income included in your distributive share of gain on the securities distributed to you). reported has been apportioned to foreign income or loss from passive loss • The partnership’s adjusted basis of source categories of income, you must limitation activities, general credits, and those securities immediately before the nevertheless determine whether the the alternative minimum tax adjustment. distribution.

income being reported is U.S. source However, distributive shares of all oil Decrease the adjusted basis of your income or foreign source income. See the

Instructions for Form 1116 for the rules to and gas income, deductions, credits, and interest in the partnership (but not below other items are separately reported to zero) by the amount of cash distributed to source the income reported to you. Enter partners who are disqualified persons in you and the partnership’s adjusted basis only foreign source income on lines 1a accordance with the regular partnership of the distributed securities. Advances or and 3d of Form 1116. A separate Form rules, here or on an attached schedule. drawings of money or property against 1116 or 1118 is required for each foreign Note. A partner must notify the ELP of your distributive share are treated as source category of income. Do not its status as a “disqualified person”. current distributions made on the last day include income that you determined to be

U.S. source income. of the partnership’s tax year. Codes M1 Through M9. Codes K4(a) Through K4(c). Foreign Miscellaneous Your basis in the distributed

gross income sourced at partnership marketable securities (other than in Code M1. Other tax-exempt income. level. The following types of income liquidation of your interest) is the smaller

have already been sourced for you by the of: Increase the adjusted basis of your

partnership. Include these amounts on interest in the partnership by this amount, • The partnership’s adjusted basis in the but do not include it in income on your lines 1a and 3d of the applicable Form securities immediately before the

1116 (that is, the Form 1116 for each distribution increased by any gain income tax return.

category of income provided to you). Code M2. Nondeductible expenses. recognized on the distribution of the

• Code K4(a). Passive category Decrease the adjusted basis of your securities or

foreign source income. interest in the partnership by this amount. • The adjusted basis of your partnership

• Code K4(b). General category The nondeductible expenses paid or interest reduced by any cash distributed

foreign source income. incurred by the partnership are not in the same transaction and increased by

• Code K4(c). Other foreign source deductible on your income tax return, but any gain recognized on the distribution of

income. they do affect your basis. the securities.

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 If you received the securities in • You must have held an interest in the Replacement stock has not been

liquidation of your partnership interest, partnership when the partnership purchased by the partnership. The

your basis in the marketable securities is acquired the QSB stock and at all times partnership must also provide you with:

equal to the adjusted basis of your thereafter until the partnership disposed • The name of the corporation that

partnership interest reduced by any cash of the QSB stock. issued the qualified small business (QSB)

distributed in the same transaction and • Your distributive share of the eligible stock,

increased by any gain recognized on the section 1202 gain cannot exceed the • Your share of the partnership’s

distribution of the securities. amount that would have been allocated to adjusted basis of the QSB stock,

you based on your interest in the • Your share of the partnership’s sales If, within 7 years of a distribution to you partnership at the time the QSB stock price of the QSB stock, of marketable securities, you contributed was acquired. • The dates the QSB stock was bought appreciated property (other than those and sold, and securities) to the partnership and the FMV See the Instructions for Schedule D

of those securities exceeded the adjusted (Form 1040) for details on how to report • Your distributive share of the gain from

the sale of the QSB stock. basis of your partnership interest the gain and the amount of the allowable

immediately before the distribution exclusion. Corporate partners are not eligible for

(reduced by any cash received in the the section 1045 rollover. To qualify for Code M8. Gain eligible for section 1045 distribution), you may have to recognize the section 1045 rollover: rollover–stock replaced. This gain is gain on the appreciated property. See • You must have held an interest in the eligible for the section 1045 rollover. section 737 for details. partnership during the entire period in Replacement stock has been purchased which the partnership held the QSB stock Code M6. Distributions of property by the partnership. The partnership must (more than 6 months prior to the sale), other than money. Box 9, Code M6, also provide you with: • Your distributive share of the gain shows the partnership’s adjusted basis of • The name of the corporation that eligible for the section 1045 rollover property other than money immediately issued the qualified small business (QSB) cannot exceed the amount that would before the property was distributed to stock, have been allocated to you based on your you. In addition, the partnership should • Your share of the partnership’s interest in the partnership at the time the attach a statement showing the cost basis adjusted basis of the QSB stock, stock was acquired, and and FMV of each property distributed. • Your share of the partnership’s sales • You must purchase other QSB stock Decrease the adjusted basis of your price of the QSB stock, (as defined in the Instructions for interest in the partnership by the amount • The dates the QSB stock was bought Schedule D (Form 1040)) during the of your basis in the distributed property. and sold, 60-day period that began on the date the Your basis in the distributed property • Your distributive share of gain from the QSB stock was sold by the partnership. (other than in liquidation of your interest) sale of the QSB stock, and

is the smaller of: • Your distributive share of the gain that See the Instructions for Schedule D

• The partnership’s adjusted basis was deferred by the partnership under (Form 1040) for details on how to report

immediately before the distribution or section 1045. the gain and the amount of the allowable

• The adjusted basis of your partnership postponed gain. Corporate partners are not eligible for interest reduced by any cash distributed Making the section 1045 election. the section 1045 rollover. To qualify for in the same transaction. the section 1045 rollover: You make a section 1045 election on a

 If you received the property in • You must have held an interest in the timely filed return for the tax year during

which the partnership’s tax year ends. liquidation of your interest, your basis in partnership during the entire period in

the distributed property is equal to the which the partnership held the QSB stock Attach to your Schedule D (Form 1040) a

adjusted basis of your partnership interest (more than 6 months prior to the sale) statement that includes the following

information for each amount of gain that reduced by any cash distributed in the and

same transaction. • Your distributive share of the gain you do not recognize under section 1045:

eligible for the section 1045 rollover • The name of the corporation that If you contributed appreciated property cannot exceed the amount that would issued the QSB stock. to the partnership within 7 years of a have been allocated to you based on your • The name and EIN of the selling distribution of other property to you, and partnership. interest in the partnership at the time the the FMV of the other property exceeded QSB stock was acquired. • The dates the QSB stock was the adjusted basis of your partnership purchased and sold. interest immediately before the See the Instructions for Schedule D • The amount of gain that is not distribution (reduced by any cash (Form 1040) for details on how to report recognized under section 1045. received in the distribution), you may the gain and the amount of the allowable • If a partner purchases QSB stock, the have to recognize gain on the appreciated postponed gain. name of the corporation that issued the property. See section 737 for details. Opting out of partnership election. replacement QSB stock, the date the

Code M7. Gain eligible for section 1202 You can opt out of the partnership’s stock was purchased, and the cost of the

exclusion. This gain from the sale or section 1045 election and either (1) stock.

exchange of qualified small business recognize the gain or (2) elect to • If a partner treats the partner’s interest

(QSB) stock (as defined in the purchase different replacement QSB in QSB stock that is purchased by a Instructions for Schedule D) is eligible for stock, either directly or through ownership purchasing partnership as the partner’s

the partial section 1202 exclusion. The of a partnership that acquired replacement QSB stock, the name and

partnership must also provide you with: replacement QSB stock. You satisfy the EIN of the purchasing partnership, the • The name of the corporation that requirement to purchase replacement name of the corporation that issued the

issued the QSB stock, QSB stock if you own an interest in a QSB stock, the partner’s share of the cost • Your share of the partnership’s partnership that purchases QSB stock of the QSB stock that was purchased by adjusted basis of the QSB stock, during the 60-day period. You also must the partnership, the computation of the • Your share of the partnership’s sales notify the partnership, in writing, if you opt partner’s adjustment to basis with respect price of the QSB stock, and out of the partnership’s section 1045 to that QSB stock, and the date the stock • The dates the QSB stock was bought election. If you recognize gain, you must was purchased by the partnership.

and sold. notify the partnership, in writing, of the Distribution of replacement QSB stock amount of gain that you are recognizing. Corporate partners are not eligible for to a partner that reduces another

the section 1202 exclusion. The following Code M9. Gain eligible for section 1045 partner’s interest in replacement QSB

additional limitations apply at the partner rollover–stock not replaced. This gain stock. You must recognize gain upon a

level. is eligible for the section 1045 rollover. distribution of replacement QSB stock to

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another partner that reduces your share distributive share of foreign trading gross Code S2. Qualified Production

of the replacement QSB stock held by a receipts from this partnership to Activities Income (QPAI) partnership. The amount of gain that you determine if you met the $5 million or less Report the QPAI reported to you by the must recognize is based on the amount of exception discussed above for purposes partnership (in box 9 using code S2) on gain that you would recognize upon the of qualifying for an extraterritorial income line 7 of Form 8903. sale of the distributed replacement QSB exclusion from other sources.

stock for its fair market value on the date Code S3. Employer’s W-2 Wages Note. Upon request, the partnership of the distribution, but not to exceed the Report the portion of W-2 wages reported should furnish you a copy of the amount you previously deferred under to you by the partnership (in box 9 using partnership’s Form 8873 if there is a section 1045 with respect to the code S3) on line 15 of Form 8903. reduction for international boycott distributed replacement QSB stock. If the operations, illegal bribes, kickbacks, etc. partnership distributed your share of Code T. Section 409A Income

replacement QSB stock to another This is compensation to partners deferred partner, the partnership should give you Code P. Inversion Gain under a section 409A nonqualified (a) the name of the corporation that The partnership must provide a statement deferred compensation plan that does not issued the replacement QSB stock, (b) showing the amounts of each type of meet the requirements of section 409A. the date the replacement QSB stock was income or gain that is included in This amount is also reported in box 9 distributed to another partner or partners, inversion gain. The partnership has using Code F. This amount is subject to and (c) your share of the partnership’s included inversion gain in income interest and additional tax to be reported adjusted basis and fair market value of elsewhere on Schedule K-1. Inversion on line 61 of Form 1040. See the

the replacement QSB stock on such date. gain is also reported under Code P instructions for line 61 of Form 1040 for

For more information, see Regulations because your taxable income and details.

section 1.1045-1. alternative minimum taxable income

cannot be less than the inversion gain. Code U. Other Information

Code N. Unrecaptured Section Also, your inversion gain (a) is not taken The partnership will use Code U to report 1250 Gain into account in figuring the amount of net the following to partners.

Report this gain on line 11 of the operating loss (NOL) for the tax year or • The recapture of any credit (other than

Unrecaptured Section 1250 Gain the amount of NOL that can be carried the low-income housing credit or

Worksheet on page D-9 of the over to each tax year, (b) may limit the investment credit) is reported to you as a

Instructions for Schedule D (Form 1040). amount of your credits, and (c) is treated separately stated item. See the

Do not report the gain on line 5 as stated as income from sources within the U.S. instructions for the specific form identified

on the worksheet. for the foreign tax credit. See section with the credit for more information on

7874 for details. reporting the recapture. Codes O1 and O2. Extraterritorial • Any information a partner that is a Income Exclusion Code Q. Commercial Revitalization publicly traded partnership may need to

Partnership did not claim the Deduction determine if it meets the 90% qualifying

exclusion. If the partnership reports Follow the Instructions for Form 8582 for income test of section 7704(c)(2).

your distributive share of foreign trading commercial revitalization deductions from Partners are required to notify the

gross receipts (Code O1) and the partnership of their status as a publicly rental real estate activities to figure how extraterritorial income exclusion (Code much of the deduction can be reported on traded partnership.

O2), the partnership was not entitled to Schedule E (Form 1040), line 28, column • The partnership will report any

claim the exclusion because it did not information you need to complete a (f). meet the foreign economic process disclosure statement for reportable

requirements. You may still qualify for Codes R1 and R2. Interest transactions in which the partnership

your distributive share of this exclusion if Deduction Limitation for Corporate participates. If the partnership participates

the partnership’s foreign trading gross in a transaction that must be disclosed on Partners receipts for the tax year were $5 million or Form 8886, Reportable Transaction

less. A corporate partner is required to treat its Disclosure Statement, both you and the distributive share of interest income, To qualify for this exclusion, your partnership may be required to file Form interest expense, and partnership 8886 for the transaction. The foreign trading gross receipts from all liabilities as income, expense, and determination of whether you are required sources for the tax year also must have liabilities of the corporation for purposes to disclose a transaction of the been $5 million or less. of the interest deduction limitation under partnership is based on the category(s) Limited partners who qualify for the section 163(j). The corporation’s under which the transaction qualifies for exclusion. Report the extraterritorial distributive share of interest income is disclosure and is determined by the exclusion amount (Code O2) as a reported in box 9 using code R1. Its partnership. See the Instructions for Form deduction reducing the amount reported distributive share of interest expense is 8886 for details. in box 1 (see the box 1 instructions on reported using code R2. The amounts • Conservation reserve program page 6). reported using code R1 and R2 are for payments. Individuals who received social General partners who qualify for the information only, and are included in security retirement or disability benefits, exclusion. Report the Code O2 amount amounts reported elsewhere on Schedule and are partners in a farm partnership in accordance with the instructions for box K-1. The corporation’s distributive share that receives conservation reserve

9, Code A1, B1, or C1, whichever applies. of partnership liabilities is shown in the program payments, do not pay See Form 8873, Extraterritorial Income first column of Schedule K-1. self-employment tax on their share of the Exclusion, for more information. conservation reserve payments. The Code S1. Domestic Production Partnership claimed the exclusion. If partnership will report your share of the

the partnership reports your distributive conservation reserve program payments Activities Information

share of foreign trading gross receipts in box 9 using code U. See Schedule SE The partnership must attach a statement

(Code O1) but not the amount of the (Form 1040) for information on excluding to Schedule K-1 that provides the

extraterritorial income exclusion, the the payments from your calculation of information you need to figure the

partnership met the foreign economic self-employment tax. domestic production activities deduction.

process requirements and claimed the Use Form 8903, Domestic Production • Gain or loss attributable to the sale or

exclusion when figuring your distributive exchange of qualified preferred stock of Activities Deduction, to figure this

share of partnership income. You also the Federal National Mortgage deduction. See the Instructions for Form

may need to know the amount of your Association (Fannie Mae) and the Federal 8903 for details.

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Home Loan Mortgage Corporation defined below), report the gain or loss on the gain or loss in accordance with the

(Freddie Mac). The partnership will report line 5 or line 12 of Schedule D (Form Instructions for Form 4797 and Rev. Proc.

on an attached statement the amount of 1040) in accordance with the instructions 2008-64, 2008-47 I.R.B. 1195.

gain or loss attributable to the sale or for Schedule D. If a partner is a financial • Any other information you may need to

exchange of the qualified preferred stock, institution referred to in section 582(c)(2) file with your return not shown elsewhere

the date the stock was acquired by the or a depositary institution holding on Schedule K-1. The partnership must

partnership, and the date the stock was company (as defined in section 3(w)(1) of give you a description and the amount of

sold or exchanged by the partnership. If the Federal Deposit Insurance Act), report your share for each of these items.

the partner is not a financial institution (as

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