Department of the Treasury

2010

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 activities are separately reported for each The written notice to the partnership

Revenue Code unless otherwise noted. activity in box 9. must include the names and addresses of

both parties to the exchange, the General Instructions Income, etc., from other activities identifying numbers of the transferor and (investment and portfolio income and (if known) of the transferee, and the deductions) are reported in boxes 2, 3, Purpose of Schedule K-1 exchange date. 4b, and 6 for both limited and general The partnership uses Schedule K-1 to An exception to this rule is made for partners.

report your share of the partnership’s sales or exchanges of publicly traded

income, deductions, credits, etc. Keep it partnership interests for which a broker is

for your records. Do not file it with your Errors required to file Form 1099-B, Proceeds

tax return. The partnership has filed a You must report partnership items shown From Broker and Barter Exchange

copy with the IRS. on your Schedule K-1 (and any attached Transactions.

schedules) the same way that the If a partner is required to notify the You are liable for tax on your share of partnership treated the items on its return. partnership of a section 751(a) exchange the partnership income, whether or not If you believe the partnership has made but fails to do so, a $50 penalty may be distributed. Include your share on your tax an error on your Schedule K-1, notify the imposed for each such failure required to return if a return is required. Use these partnership. Do not change any items on be filed before 2011. For notifications instructions to help you report the items your copy of Schedule K-1. Generally, an required to be filed after 2010, the penalty shown on Schedule K-1 on your tax adjustment to correct an error will take is $100 for each such failure. However, return. effect for the tax year in which the no penalty will be imposed if the partner The amount of loss and deduction that partnership actually makes the can show that the failure was due to

you can claim on your tax return may be adjustment. However, if the error involves reasonable cause and not willful neglect. less than the amount reported on a change to your distributive share of a

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

partnership’s treatment, you may be the last day of the month following the Electing Large subject to the accuracy-related penalty. end of the partnership’s tax year. This

Partnerships (ELPs) This penalty is in addition to any tax that statement must include the name,

results from making your amount or address, and identifying number of the This partnership has elected simplified treatment of the item consistent with that nominee and such other person, reporting requirements intended to make shown on the partnership’s return. Any description of the partnership interest held it simpler for you to report your share of deficiency that results from making the as nominee for that person, and other partnership income, credits, deductions, amounts consistent may be assessed information required by Temporary etc. Generally, income, capital gains, immediately. Regulations section 1.6031(c)-1T. A credits, and deductions are combined at 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 Sale or Exchange of whom the nominee holds the partnership to partners is reduced. Most limitations Partnership Interest interest a copy of Schedule K-1 and and elections affecting partnership

Generally, a partner who sells or related information within 30 days of income are made by the electing large receiving it from the partnership. partnership. exchanges a partnership interest in a

section 751(a) exchange must notify the A nominee who fails to furnish when For limited partners, income and other partnership, in writing, within 30 days of due all the information required by items from the partnership’s trade or the exchange (or, if earlier, by January 15 Temporary Regulations section business and rental activities are treated of the calendar year following the 1.6031(c)-1T, or who furnishes incorrect as being from a trade or business that is a calendar year in which the exchange information, is subject to a $50 penalty for single passive activity. These items are occurred). A “section 751(a) exchange” is each statement required to be filed before reported in boxes 1, 4a, and 5, with most any sale or exchange of a partnership 2011 for which a failure occurs. The credits being reported in boxes 7 and 8. interest in which any money or other maximum penalty is $100,000 for all such

General partners must make their own property received by the partner in failures during a calendar year. If the

determinations as to whether the activities exchange for that partner’s interest is nominee intentionally disregards the

are passive for them. Therefore, attributable to unrealized receivables (as requirement to report correct information,

partnership items from trade or business, defined in section 751(c)) or inventory each $50 penalty increases to $100 or, if

rental real estate, and other rental items (as defined in section 751(d)). greater, 10% of the aggregate amount of

Cat. No. 26141W
items required to be reported, and the Note. Disqualified persons must report Note. Additional basis adjustments may

$100,000 maximum does not apply. items of income, gain, loss, deduction, apply to partners claiming deductions for

and credit attributable to partnership oil depletion. See chapter 9 of Pub. 535 for For statements required to be made and gas properties as if the special rules details. after 2010, the nominee is subject to a for ELPs did not apply. $100 penalty for each statement for which At-Risk Limitations a failure occurs. The maximum penalty is Nonrecourse Loans Generally, if you have (a) a loss or other $1,500,000 for all such failures during a Nonrecourse loans are those liabilities of deduction from any activity carried on as calendar year. If the nominee intentionally the partnership for which no partner bears a trade or business or for the production disregards the requirement to report the economic risk of loss. of income by the partnership and (b) correct information, each $100 penalty amounts in the activity for which you are increases to $250 or, if greater, 10% of Elections not at risk, you will have to complete the aggregate amount of items required to Form 6198, At-Risk Limitations, to figure be reported, and the $1,500,000 Generally, the partnership decides how to your allowable loss. maximum does not apply. figure taxable income from its operations.

However, two elections are made by you The at-risk rules generally limit the

separately on your income tax return and amount of loss and other deductions that International Boycotts not by the partnership. These elections you can claim to the amount you could Every partnership that had operations in, are made under the following code actually lose in the activity. However, if or related to, a boycotting country, sections. you acquired your partnership interest company, or a national of a country must • Section 108(b)(5) (election related to before 1987, the at-risk rules do not apply file Form 5713, International Boycott to losses from an activity of holding real reduction of tax attributes due to Report. exclusion from gross income of discharge property placed in service before 1987 by

If the partnership cooperated with an of indebtedness). This does not include the partnership. The activity of holding

international boycott, it must provide you the section 108(i) election (election to mineral property does not qualify for this

with a copy of its Form 5713. As a defer and ratably include income arising exception. The partnership should identify

general or limited partner, you must file from certain discharge of indebtedness). on an attachment to Schedule K-1 the

your own Form 5713 to report the • Section 901 (foreign tax credit). amount of any losses that are not subject

partnership’s activities and any other to the at-risk limitations.

boycott operations that you may have. Additional Information Generally, you are not at risk for You may lose certain tax benefits if the amounts such as the following. For more information on the treatment of partnership participated in, or cooperated • Nonrecourse loans used to finance the partnership income, deductions, credits, with, an international boycott. See Form activity, to acquire property used in the etc., see the following: 5713 and its instructions for more activity, or to acquire your interest in the • Pub. 541, Partnerships; information. activity, that are not secured by your own • Pub. 535, Business Expenses; and property (other than the property used in • Pub. 925, Passive Activity and At-Risk Definitions Rules. the activity). See the instructions for

Partner’s Share of Liabilities on page 6 for General Partner To get forms and publications, see the the exception for qualified nonrecourse instructions for your tax return or visit the A general partner is a partner who is financing secured by real property. IRS website at IRS.gov. personally liable for partnership debts. • Cash, property, or borrowed amounts

used in the activity (or contributed to the Limited Partner Limitations on Losses, activity, or used to acquire your interest in

A limited partner is a partner in a Deductions, and Credits the activity) that are protected against

partnership formed under a state limited loss by a guarantee, stop-loss agreement, There are three separate potential partnership law, whose personal liability or other similar arrangement (excluding limitations on the amount of partnership for partnership debts is limited to the casualty insurance and insurance against losses that you can deduct on your return. amount of money or other property that tort liability). These limitations and the order in which the partner contributed or is required to • Amounts borrowed for use in the

you must apply them are as follows: the contribute to the partnership. Some activity from a person who has an interest basis rules, the at-risk limitations, and the members of other entities, such as in the activity, other than as a creditor, or

domestic or foreign business trusts or passive activity limitations. Each of these who is related, under section 465(b)(3), to limitations is discussed separately below. limited liability companies that are a person (other than you) having such an

classified as partnerships, may be treated interest. Basis Rules as limited partners for certain purposes. Generally, you cannot claim your share of You should get a separate statement For example, see Temporary Regulations of income, expenses, etc., for each a partnership loss (including a capital section 1.469-5T(e)(3), which treats all activity from the partnership. loss) to the extent that it is greater than members with limited liability as limited

partners for purposes of section 469(h)(2) the adjusted basis of your partnership Passive Activity Limitations interest at the end of the partnership’s tax (relating to the passive activity loss Section 469 provides rules that limit the year. Any losses and deductions not limitation rules). deduction of certain losses and credits. allowed this year because of the basis These rules apply to partners who: Disqualified Person limit can be carried forward indefinitely • Are individuals, estates, trusts, closely and deducted in a later year subject to the If you are a partner in a partnership held corporations (other than S basis limit for that year. holding oil and gas properties, you are a corporations), or personal service “disqualified person” if: The partnership is not responsible for corporations and keeping the information needed to figure • Have a passive activity loss or credit for • You are an oil or natural gas retailer the basis of your partnership interest. You the tax year. described in section 613A(d)(2) or crude can figure the adjusted basis of your oil refiner described in section 613A(d)(4) Individuals, estates, and trusts. If you partnership interest by adding items that or have a passive activity loss or credit, use increase your basis and then subtracting • Your average daily production of Form 8582, Passive Activity Loss items that decrease your basis. domestic crude oil and natural gas Limitations, to figure your allowable

exceeds 500 barrels for your tax year in Use the worksheet on page 3 to figure passive losses and Form 8582-CR,

which the partnership’s tax year ends. the basis of your interest in the Passive Activity Credit Limitations, to

See section 776(b) for more details. partnership. figure your allowable passive credits.

-2- Instructions for Schedule K-1 (1065-B) (2010)
 If the publicly traded partnership must be made by any partner who is Except for the PTP discussion on

(PTP) box on Schedule K-1 is either a: page 5, the following information

checked, do not report passive on passive activity limitations

CAUTION

!

CAUTION

! • General partner or income (loss) from the partnership on applies only to general partners. • Limited partner who is a disqualified Form 8582. See page 5 for the special person (as defined on page 2) with Generally, passive activities include: rules for PTPs.

respect to items of income, gain, loss, 1. Trade or business activities in Corporations. Use Form 8810, deduction, and credit attributable to which you did not materially participate Corporate Passive Activity Loss and partnership oil and gas properties. and Credit Limitations. See the instructions for 2. Activities that meet the definition of more information. In addition, the partnership is required rental activities under Temporary

For limited partners of an ELP, all to provide each general partner and Regulations section 1.469-1T(e)(3) and

income, loss, deductions, and credits disqualified person the information Regulations section 1.469-1(e)(3).

from trade or business and rental necessary to comply with the passive activities generally are reported as being activity rules of section 469. Items of Passive activities do not include the

from a trade or business that is a single following. income, gain, loss, credit, etc., must be passive activity. separately reported to general partners 1. Trade or business activities in

 However, the determination of for each trade or business, rental real which you materially participated.

whether an activity is a passive activity estate, and other rental activity. 2. Rental real estate activities in which

you materially participated if you were a

“real estate professional” for the tax year.

Worksheet for Adjusting the Basis of a Partner’s You were a real estate professional only if

you met both of the following conditions. Interest in the Partnership Keep for Your Records

a. More than half of the personal

services you performed in trades or 1. Your adjusted basis at the end of the prior year. Do not enter less businesses were performed in real than zero. Enter -0- if this is your first tax year ............. . 1. property trades or businesses in which

Increases: you materially participated and

b. You performed more than 750 2. Money and your adjusted basis in property contributed to the hours of services in real property trades partnership less the associated liabilities (but not less than zero) . . 2. or businesses in which you materially

3. Your increased share of or assumption of partnership liabilities. participated.

(Subtract your share of liabilities shown on your 2009 Schedule K-1

from your share of liabilities shown on your 2010 Schedule K-1 and Note. For a closely held C corporation

add the amount of any partnership liabilities you assumed during (defined in section 465(a)(1)(B)), the

the tax year. Do not enter less than zero.) ................ . 3. above conditions are treated as met if

more than 50% of the corporation’s gross 4. Your share of the partnership’s income or gain (including receipts were from real property trades or tax-exempt income) reduced by any amount included in interest businesses in which the corporation income with respect to the credit to holders of clean renewable materially participated. energy bonds, or Midwestern tax credit bonds ............. . 4.

For purposes of this rule, each interest 5. Any gain recognized this year on contributions of property. Do not in rental real estate is a separate activity, include gain from transfer of liabilities ................... . 5. unless you elect to treat all interests in

Decreases: rental real estate as one activity. For

details on making this election, see the 6. Withdrawals and distributions of money and the adjusted basis of Instructions for Schedule E (Form 1040). property distributed to you from the partnership. Do not include the

amount of property distributions included in the partner’s income If you are married filing jointly, either

(taxable income) ................................. . 6. you or your spouse must separately meet

both of the above conditions, without Caution. A distribution may be taxable if the amount exceeds your taking into account services performed by adjusted basis of your partnership interest immediately before the the other spouse. distribution.

A real property trade or business is 7. Your decreased share of partnership liabilities and any decrease in any real property development, your individual liabilities because they were assumed by the redevelopment, construction, partnership. (Subtract your share of liabilities shown on your 2010 reconstruction, acquisition, conversion, Schedule K-1 from your share of liabilities shown on your 2009 rental, operation, management, leasing, Schedule K-1 and add the amount of your individual liabilities that or brokerage trade or business. Services the partnership assumed during the tax year. Do not enter less you performed as an employee are not than zero.) ..................................... . 7. treated as performed in a real property

8. Your share of the partnership’s nondeductible expenses that are trade or business unless you owned more

not capital expenditures ............................ . 8. than 5% of the stock (or more than 5% of

the capital or profits interest) in the 9. Your share of the partnership’s losses and deductions (including employer. capital losses) .................................. . 9.

3. Working interests in oil or gas 10. Your adjusted basis in the partnership at the end of this tax year. wells.

(Add lines 1 through 5 and subtract lines 6 through 9 from the total. 4. The rental of a dwelling unit any If zero or less, enter -0-.) ........................... . 10. partner used for personal purposes during

Caution. The deduction for your share of the partnership’s losses the year for more than the greater of 14

and deductions is limited to your adjusted basis in your partnership days or 10% of the number of days that

interest. If you entered zero on line 10 and the amount computed the residence was rented at fair rental

for line 10 was less than zero, a portion of your share of the value.

partnership losses and deductions may not be deductible (see 5. Activities of trading personal

Basis Rules on page 2 for more information.) property for the account of owners of

interests in the activities.

Instructions for Schedule K-1 (1065-B) (2010) -3-
Material participation. You must Work counted toward material able to deduct up to $25,000 of the loss

determine if you (a) materially participated participation. Generally, any work that from the activity from nonpassive income.

in each trade or business activity held you or your spouse do in connection with This “special allowance” is an exception

through the partnership and (b) were a an activity held through a partnership to the general rule disallowing losses in

real estate professional (defined above), (where you own your partnership interest excess of income from passive activities.

in each rental real estate activity held at the time the work is done) is counted The special allowance is not available if

through the partnership. All toward material participation. However, you were married, filed a separate return

determinations of material participation work in connection with the activity is not for the year, and did not live apart from

are made based on your participation counted toward material participation if your spouse at all times during the year.

during the partnership’s tax year. either of the following applies. Only individuals, qualifying estates, Material participation standards for 1. The work is not the sort of work that and qualifying revocable trusts that made partners who are individuals are listed owners of the activity would usually do a section 645 election can actively below. Special rules apply to certain and one of the principal purposes of the participate in a rental real estate activity. retired or disabled farmers and to the work that you or your spouse does is to Estates (other than qualifying estates), surviving spouses of farmers. See the avoid the passive loss or credit trusts (other than qualifying revocable limitations. Instructions for Form 8582 for details. trusts that made a section 645 election), 2. You do the work in your capacity as Corporations should refer to the and corporations cannot actively an investor and you are not directly Instructions for Form 8810 for the material participate. involved in the day-to-day operations of participation standards that apply to them. the activity. Examples of work done as an You are not considered to actively Individuals (other than limited investor that would not count toward participate in a rental real estate activity if partners). If you are an individual (either material participation include: at any time during the tax year your a general partner or a limited partner who a. Studying and reviewing financial interest (including your spouse’s interest) owned a general partnership interest at all statements or reports on operations of the in the activity was less than 10% (by times during the tax year), you materially activity. value) of all interests in the activity. participated in an activity only if one or b. Preparing or compiling summaries more of the following apply. Active participation is a less stringent or analyses of the finances or operations requirement than material participation. 1. You participated in the activity for of the activity for your own use. You may be treated as actively more than 500 hours during the tax year. c. Monitoring the finances or participating if you participated, for 2. Your participation in the activity for operations of the activity in a example, in making management the tax year constituted substantially all nonmanagerial capacity. decisions or arranging for others to the participation in the activity of all Effect of determination. provide services (such as repairs) in a individuals (including individuals who are Income significant and bona fide sense. not owners of interests in the activity for (loss), deductions, and credits from an Management decisions that can count as the tax year). activity are nonpassive if you determine

that: active participation include approving new 3. You participated in the activity for tenants, deciding rental terms, approving more than 100 hours during the tax year, • You materially participated in a trade or capital or repair expenditures, and other and your participation in the activity for business activity of the partnership or similar decisions. the tax year was not less than the • You were a real estate professional in a

participation in the activity of any other rental real estate activity of the An estate is a qualifying estate if the

individual (including individuals who were partnership. decedent would have satisfied the active

not owners of interests in the activity) for If you determine that you did not participation requirement for the activity

the tax year. materially participate in a trade or for the tax year the decedent died. A

4. The activity was a significant business activity of the partnership or if qualifying estate is treated as actively

participation activity for the tax year, and you have income (loss), deductions, or participating for tax years ending less

you participated in all significant credits from a rental activity of the than 2 years after the date of the

participation activities (including activities partnership (other than a rental real decedent’s death.

outside the partnership) during the year estate activity in which you materially Modified adjusted gross income for more than 500 hours. A significant participated as a real estate professional), limitation. The maximum special participation activity is any trade or the amounts from that activity are allowance that single individuals and business activity in which you participated passive. Report passive income (losses), married individuals filing a joint return can for more than 100 hours during the tax deductions, and credits as follows. qualify for is $25,000. The maximum is year and in which you did not materially 1. If you have an overall gain (the $12,500 for married individuals who file participate under any of the material excess of income over deductions and separate returns and who lived apart all participation tests (other than this test 4). losses, including any prior year unallowed times during the year. The maximum 5. You materially participated in the loss) from a passive activity, report the special allowance for which an estate can activity for any 5 tax years (whether or not income, deductions, and losses from the qualify is $25,000 reduced by the special consecutive) during the 10 tax years that activity as indicated in the instructions for allowance for which the surviving spouse immediately precede the tax year. the boxes in which those items were qualifies. 6. The activity was a personal service reported. activity and you materially participated in If your modified adjusted gross income 2. If you have an overall loss (the the activity for any 3 tax years (whether or (defined below) is $100,000 or less excess of deductions and losses, not consecutive) preceding the tax year. ($50,000 or less if married filing including any prior year unallowed loss, A personal service activity involves the separately), your loss is deductible up to over income) or credits from a passive performance of personal services in the the amount of the maximum special activity, report the income, deductions, fields of health, law, engineering, allowance referred to in the preceding losses, and credits from all passive architecture, accounting, actuarial paragraph. If your modified adjusted activities using the Instructions for Form science, performing arts, consulting, or gross income is more than $100,000 8582 or Form 8582-CR (or Form 8810), to any other trade or business in which (more than $50,000 if married filing see if your deductions, losses, and credits capital is not a material income-producing separately), the special allowance is are limited under the passive activity factor. limited to 50% of the difference between rules.

7. Based on all the facts and $150,000 ($75,000 if married filing

circumstances, you participated in the Special allowance for rental real estate separately) and your modified adjusted

activity on a regular, continuous, and activities. If you actively participated in gross income. When modified adjusted

substantial basis during the tax year. a rental real estate activity, you may be gross income is $150,000 or more

-4- Instructions for Schedule K-1 (1065-B) (2010)
($75,000 or more if married filing activity, the partnership will provide a column (g), report the remaining

separately), there is no special allowance. statement allocating the interest income Schedule E gain of $3,500 ($8,000 −

Modified adjusted gross income is your or expense with respect to each activity. $4,500). On the appropriate line of Form

The self-charged interest rules do not 4797, report the prior year unallowed loss adjusted gross income figured without apply to your partnership interest if the of $3,500. Be sure to enter “From PTP” to taking into account the following amounts, partnership made an election under the left of each entry space. if applicable:

• Any passive activity loss. Regulations section 1.469-7(g) to avoid 3. If you have an overall loss (but did

• Any rental real estate loss allowed the application of these rules. See the not dispose of your entire interest in the

under section 469(c)(7) to real estate Instructions for Form 8582 for more PTP to an unrelated person in a fully information. professionals (as defined previously). taxable transaction during the year), the

• Any overall loss from a publicly traded losses are allowed to the extent of the Publicly traded partnerships. The

partnership. income, and the excess loss is carried passive activity limitations are applied • Any taxable social security or forward to use in a future year when you separately for items (other than the equivalent railroad retirement benefits. have income to offset it. Report as a low-income housing credit and the • Any deductible contributions to an IRA passive loss on the schedule or form you rehabilitation credit) from each publicly or certain other qualified retirement plans normally use the portion of the loss equal traded partnership (PTP). Thus, a net under section 219. to the income. Report the income as passive loss from a PTP may not be • The domestic production activities deducted from other passive income. passive income on the form or schedule

deduction. you normally use. Instead, a passive loss from a PTP is • The student loan interest deduction. suspended and carried forward to be Example. You have a Schedule E loss • The tuition and fees deduction. applied against passive income from the of $12,000 (current year losses plus prior • The deduction for one-half of same PTP in later years. If the partner’s year unallowed losses) and a Schedule D self-employment taxes. entire interest in the PTP is completely gain of $7,200. Report the $7,200 gain on • The exclusion from income of interest disposed of, any unused losses are the appropriate line of Schedule D. On from Series EE and I U.S. Savings Bonds allowed in full in the year of disposition. Schedule E (Form 1040), line 28, report used to pay higher education expenses. $7,200 of the losses as a passive loss in If you have an overall gain from a PTP, • The exclusion of amounts received column (f). Carry forward to 2011 the the net gain is nonpassive income. In under an employer’s adoption assistance unallowed loss of $4,800 ($12,000 − addition, the nonpassive income is program. $7,200). included in investment income to figure Commercial revitalization your investment interest expense If you have unallowed losses from deduction. The special $25,000 deduction. more than one activity of the PTP or from allowance for the commercial the same activity of the PTP that must be revitalization deduction from rental real Do not report passive income, gains, reported on different forms, you must estate activities is not subject to the active or losses from a PTP on Form 8582. allocate the unallowed losses on a pro participation rules or modified adjusted Instead, use the following rules to figure rata basis to figure the amount allowed gross income limits discussed above. See and report on the proper form or schedule from each activity or on each form. Code Q, Commercial Revitalization your income, gains, and losses from

Deduction on page 11. passive activities that you held through To allocate and keep a record of each PTP you owned during the tax year. Special rules for certain other the unallowed losses, use

1. Combine any current year income, Worksheets 5, 6, and 7 of Form

TIP

activities. If you have net income (loss),

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

loss from a non-PTP passive activity. See unallowed loss from the PTP by each If you have net income subject to Pub. 925 for more details. ratio in column (b) and enter the result in recharacterization under Temporary 2. If you have an overall gain, the net column (c) of Worksheet 5. Then, Regulations section 1.469-2T(f) and gain portion (total gain minus total losses) complete Worksheet 6 if all the loss from Regulations section 1.469-2(f), report is nonpassive income. On the form or the same activity is to be reported on one such amounts according to the schedule you normally use, report the net form or schedule. Use Worksheet 7 Instructions for Form 8582 (or Form gain portion as nonpassive income and instead of Worksheet 6 if you have more 8810). the remaining income and the total losses than one loss to be reported on different If you have net income (loss), as passive income and loss. To the left of forms or schedules for the same activity. deductions, or credits from any of the the entry space, enter “From PTP.” It is Enter the net loss plus any prior year following activities, treat such amounts as important to identify the nonpassive unallowed losses in column (a) of nonpassive and report them as instructed income because the nonpassive portion is Worksheet 6 (or Worksheet 7 if in these instructions. included in modified adjusted gross applicable). The losses in column (c) of • Working interests in oil and gas wells. income for purposes of figuring on Form Worksheet 6 (column (e) of Worksheet 7) • The rental of a dwelling unit any partner 8582 the “special allowance” for active are the allowed losses to report on the used for personal purposes during the participation in a non-PTP rental real forms or schedules. Report both these year for more than the greater of 14 days estate activity. In addition, the nonpassive losses and any income from the PTP on or 10% of the number of days that the income is included in investment income the forms and schedules you normally residence was rented at fair rental value. when figuring your investment interest use. • Trading personal property for the expense deduction on Form 4952, 4. If you have an overall loss and you account of owners of interests in the Investment Interest Expense Deduction. disposed of your entire interest in the PTP activity. Example. If you have Schedule E to an unrelated person in a fully taxable

Self-charged interest. The partnership income of $8,000, and a Form 4797 prior transaction during the year, your losses

must report any “self-charged” interest year unallowed loss of $3,500 from the (including prior year unallowed losses)

income or expense that resulted from passive activities of a particular PTP, you allocable to the activity for the year are

loans between you and the partnership have a $4,500 overall gain ($8,000 − not limited by the passive loss rules. A

(or between the partnership and another $3,500). On Schedule E (Form 1040), line fully taxable transaction is one in which

partnership in which you have an 28, report the $4,500 net gain as you recognize all your realized gain

interest). If there was more than one nonpassive income in column (j). In (loss). Report the income and losses on

Instructions for Schedule K-1 (1065-B) (2010) -5-
the forms and schedules you normally commercially reasonable and on Box 1. Taxable Income (Loss)

use. substantially the same terms as loans From Passive Activities involving unrelated persons), the seller of Note. For rules on the disposition of an Limited partners only. Any amount the property, or a person who receives a entire interest reported using the fee for the partnership’s investment in the reported in box 1 is treated as being from

installment method, see the Instructions real property. a trade or business that is a single

for Form 8582. passive activity. Report this amount as See Pub. 925 for more information on follows.

qualified nonrecourse financing. • If income is reported in box 1, report

the income on Schedule E (Form 1040), Specific Instructions Both the partnership and you must

meet the qualified nonrecourse rules on line 28, column (g). However, if the PTP

box is checked, report the income this debt before you can include the Publicly Traded following the rules for Publicly traded amount shown next to “Qualified partnerships on page 5. Partnership (PTP) nonrecourse financing” in your at-risk • If a loss is reported in box 1, follow the computation. If the “publicly traded partnership” box is Instructions for Form 8582 to figure how

checked, you are a partner in a publicly See Limitations on Losses, much of the loss can be reported on

traded partnership (PTP) and must follow Deductions, and Credits beginning on Schedule E (Form 1040), line 28, column

the rules under Publicly traded page 2 for more information on the at-risk (f). However, if the PTP box is checked,

partnerships discussed above. limitations. report the loss following the rules for

Publicly traded partnerships.

Partner’s Share of Boxes 1 Through 9 Box 2. Taxable Income (Loss) Liabilities The amounts shown in boxes 1 through 9 From Other Activities

reflect your share of income, loss, The partnership will show your share of This amount is not subject to the passive deductions, credits, etc., from the the partnership’s nonrecourse liabilities, activity limitations. Report the amount as partnership. These amounts do not take partnership-level qualified nonrecourse follows. into consideration the following financing, and other liabilities as of the • If the amount is income, report it on limitations. end of the partnership’s tax year. If you Schedule E (Form 1040), line 28, column • The adjusted basis of your partnership terminated your interest in the partnership (j). interest. during the tax year, the amounts should • If the amount is a loss, report it on • The amount for which you are at risk. reflect the share that existed immediately Schedule A (Form 1040), line 28. • The passive activity limitations. before the total disposition. A partner’s Note. If the amount of interest included “other liability” is any partnership liability For information on these provisions, in box 2 includes interest from the credit for which a partner is personally liable. see Limitations on Losses, Deductions, to holders of clean renewable energy Use the total of the three amounts for and Credits beginning on page 2. bonds or Midwestern tax credit bonds, the

computing the adjusted basis of your partnership will attach a statement to For individuals, the following partnership interest. Schedule K-1 showing your distributive instructions explain how to report the Generally, you can use only the share of interest income from these amounts shown in the boxes. For all other

amounts shown next to “Qualified credits. Because the basis in your entities, report the amounts in the boxes nonrecourse financing” and “Other” to partnership interest is increased by your as instructed on your income tax return. figure your amount at risk. Do not include share of the interest income from these

any amounts that are not at risk if such The line numbers in these instructions credits, you must reduce your bases by

amounts are included in either of these are references to forms in use for the same amount to offset the increase.

categories. calendar year 2010. If you file your tax See Line 4 of the Worksheet for Adjusting return on a calendar year basis, but your the Basis of a Partner’s Interest in the If your partnership is engaged in two or partnership files a return for a fiscal year, Partnership on page 3. more different types of activities subject to enter the amounts shown in the boxes on the at-risk provisions, or a combination of your tax return for the year in which the Box 3. Qualified Dividends at-risk activities and any other activity, the partnership’s fiscal year ends. For Report this amount on lines 9a and 9b of partnership should give you a statement example, if the partnership’s tax year Form 1040. showing your share of nonrecourse ends on June 30, 2011, report the liabilities, partnership-level qualified Note. Qualified dividends are excluded amounts in the boxes on your 2011 nonrecourse financing, and other from investment income, but you can income tax return. liabilities for each activity. elect to include part or all of these

 If you have losses, deductions, or amounts in investment income. See the Qualified nonrecourse financing. credits from a prior year that were not instructions for line 4g of Form 4952, Qualified nonrecourse financing generally deductible or usable because of certain Investment Interest Expense Deduction, includes financing for which no one is limitations, such as the basis rules or the for important information on making this personally liable for repayment that is at-risk limitations, take them into account election. borrowed for use in an activity of holding in determining your net income, loss, or real property and that is loaned or Box 4a. Net Capital Gain or credits for this year. However, except for guaranteed by a federal, state, or local passive activity losses and credits, do not (Loss) From Passive Activities government or borrowed from a

“qualified” person. Qualified nonrecourse combine the prior-year amounts with any Limited partners only. The net capital

financing secured by real property used in amounts shown on this Schedule K-1 to gain (loss) reported in box 4a, is treated

an activity of holding real property that is get a net figure to report on any as being from a trade or business that is a

subject to the at-risk rules is treated as an supporting schedules, statements, or single passive activity. If a net capital gain forms attached to your return. Instead, amount at risk. is reported in box 4a, report the gain on

Qualified persons. Qualified persons report the amounts separately on the Schedule D (Form 1040), line 12, column attached schedule, statement, or form on (f). include any persons actively and regularly a year-by-year basis. engaged in the business of lending If a loss is reported in box 4a, report it

money, such as a bank or savings and For amounts other than those shown following the Form 8582 instructions to

loan association. Qualified persons on Schedule K-1, enter each item on a figure how much of the loss can be

generally do not include related parties separate line of Part II of Schedule E reported on Schedule D (Form 1040), line

(unless the nonrecourse financing is (Form 1040). 12, column (f). However, if the PTP box is

-6- Instructions for Schedule K-1 (1065-B) (2010)
checked, report the loss following the Box 9. Other for Form 8582 to figure how much of the

rules for Publicly traded partnerships. loss can be included on line 4 of the 28%

Codes A Through C Rate Gain Worksheet on page D-8 of the

Box 4b. Net Capital Gain or General partners in an ELP must Instructions for Schedule D (Form 1040).

(Loss) From Other Activities However, if the PTP box is checked, separately account for any items report the loss following the rules for Net capital gain or (loss) from other attributable to passive loss limitation Publicly traded partnerships. activities is not subject to the passive activities to the extent necessary to

activity limitations. Report the gain or comply with the section 469 passive loss Code A4. General partner’s general (loss) on Schedule D (Form 1040), line rules. Therefore, the partnership is credits from trade or business

12, column (f). required to report income or (loss), capital activities. Report the general credits on gain or (loss), 28% rate gain or (loss), line 1bb of Form 3800. If you did not Box 5. Net Passive AMT credits, and the alternative minimum tax materially participate in the trade or Adjustment adjustment separately for all trade or business activity, you must also include business activities, rental real estate Limited partners only. Use this amount the general credits on line 3 of Form activities, and rental activities other than 3800. (as well as your adjustments and tax rental real estate. preference items from other sources) to Code A5. General partner’s alternative Code A1. General partner’s taxable prepare your Form 6251, Alternative minimum tax adjustment from trade or Minimum Tax— income (loss) from trade or business Individuals; Form 4626, business activities. Generally, an AMT Alternative Minimum Tax—Corporations; activities. Report Code A1 income adjustment must be reported on line 16 of (loss) from partnership trade or business or Schedule I (Form 1041), Alternative Form 6251. However, if the AMT Minimum Tax—Estates and Trusts. The activities in which you materially adjustment is from a passive activity, it participated on Schedule E (Form 1040), adjustment is treated as being from a must be taken into account on line 19 with line 28, column (h) or (j). See the trade or business that is a single passive adjustments and preferences from other instructions to determine whether you activity. passive activities. materially participated in a trade or

Individuals should enter the amount on business activity. Code B1. General partner’s taxable line 19 of Form 6251, where it is taken Report Code A1 income or (loss) from income (loss) from rental real estate into account with adjustments and partnership trade or business activities in activities. Generally, the income or preferences from other passive activities. which you did not materially participate as (loss) reported in box 9, Code B1, is a

passive activity amount for all general follows. Box 6. Net Other AMT partners. However, the income or (loss) in 1. Report any income on Schedule E Adjustment box 9 is not from a passive activity if you (Form 1040), line 28, column (g). Individual general and limited partners were a real estate professional and you However, if the PTP box on Schedule K-1 should enter this amount on line 16 of materially participated in the activity. is checked, report the income following Form 6251. the rules for Publicly traded partnerships. Use the following instructions to

Box 7. General Credits 2. Report a loss following the determine where to enter the Code B1

Instructions for Form 8582 to figure how amount. Limited partners only. Enter this amount much of the loss can be reported on 1. If you have a loss from a passive from box 7 on line 1bb of Form 3800, Schedule E (Form 1040), line 28, column activity in box 9, Code B1, and you meet General Business Credit. Because (f). However, if the PTP box is checked, all of the following conditions, enter the general credits are treated as being from report the loss following the rules for loss on Schedule E (Form 1040), line 28, a trade or business that is a single Publicly traded partnerships. column (f). passive activity, you must also include the

Code A2. General partner’s net capital a. You actively participated in the box 7 amount on line 3 of Form 3800. partnership rental real estate activities. gain or (loss) from trade or business If the partnership is an eligible small See Special allowance for rental real activities. If you did not materially business, the general business credits estate activities on page 4. participate in the trade or business you receive from the partnership may be b. Rental real estate activities with activity, the net capital gain or (loss) is a available to offset tentative minimum tax active participation were your only passive activity amount. If the amount is and qualify for a 5-year carryback. See passive activities. either (a) a loss that is not from a passive the attachment for box 9, code U, to find activity or (b) a gain, report it on Schedule c. You have no prior year unallowed

out if the partnership is an eligible small D (Form 1040), line 12, column (f). losses from these activities.

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

all of the low-income housing credit is for Code A3. General partner’s 28% rate unallowed credits from a passive activity.

buildings placed in service before 2008. If gain (loss) from trade or business g. Your modified adjusted gross

any of the low-income housing credit is activities. If you did not materially income was not more than $100,000 (not

for buildings placed in service after 2007, participate in the trade or business more than $50,000 if married filing activity, the 28% rate gain or (loss) is a separately and you lived apart from your the partnership will enter “STMT” in box 8

and attach a statement which lists passive activity amount. If the amount is spouse all year). either (a) a loss that is not from a passive separately the amount of the credit for 2. If you have a (loss) from a passive activity or (b) a gain, include it on line 4 of buildings placed in service prior to 2008 activity in box 9 and you do not meet all the 28% Rate Gain Worksheet on page (reported on line 4 of Form 8586), and the the conditions in 1 above, report the loss D-8 of the Instructions for Schedule D amount for buildings placed in service following the Instructions for Form 8582 to (Form 1040). after 2007 (reported on line 11 of Form figure how much of the loss you can

8586). See the Instructions for Form 8586 If the amount is a loss from a passive report on Schedule E (Form 1040), line

for more information. activity, report it following the Instructions 28, column (f). However, if the PTP box is

Instructions for Schedule K-1 (1065-B) (2010) -7-
checked, report the loss following the Code B6. General partner’s activities instead of being reported on line

rules for Publicly traded partnerships. rehabilitation credit from rental real 16.

3. If you were a real estate estate activities. Report the

professional and you materially rehabilitation credit on line 11m of Form Code D. Limited Partner’s 28%

3468, Investment Credit. Unless you were Rate Gain or (Loss) From Passive participated in the activity, report box 9

income or (loss) on Schedule E (Form a real estate professional and materially Activities

1040), line 28, column (h) or (j). participated in the rental real estate Limited partners only. The 28% rate

4. If you have income from a passive activity, the credit is a passive activity gain or (loss) is treated as being from a activity in box 9, Code B1, enter the credit, and you must also file Form 3800. trade or business that is a single passive income on Schedule E (Form 1040), line Code B7. General partner’s alternative activity. If a gain is reported, include it on 28, column (g). However, if the PTP box minimum tax adjustment from rental line 4 of the 28% Rate Gain Worksheet is checked, report the income following real estate activities. An AMT on page D-8 of the Instructions for the rules for Publicly traded partnerships. adjustment must be reported on line 16 of Schedule D (Form 1040). Form 6251. However, if the AMT Code B2. General partner’s net capital If a loss is reported, report the loss adjustment is from a passive activity, it gain or (loss) from rental real estate following the Instructions for Form 8582 to must be taken into account on line 19 with

activities (for the entire year). The net figure how much of the loss can be other passive activities instead of being capital gain or (loss) from a rental real included on line 4 of the 28% Rate Gain reported on line 16. estate activity is a passive activity amount Worksheet on page D-8 of the Code C1. General partner’s taxable unless you were a Instructions for Schedule D (Form 1040). real estate

professional income or (loss) from other rental However, if the PTP box is checked, and you materially activities. Income (loss) reported in box participated in the activity. If the amount is report the loss following the rules for

either 9, Code C1, is a passive activity amount Publicly traded partnerships. (a) a loss that is not from a passive for all general partners. Report a loss activity or (b) a gain, report it on Schedule following the Instructions for Form 8582. Code E. Limited Partner’s 28% D (Form 1040), line 12, column (f). Report income on Schedule E (Form Rate Gain or (Loss) From Other

If the amount is a loss from a passive 1040), line 28, column (g). However, if the Activities

activity, report it following the Instructions PTP box is checked, report the income The 28% gain or (loss) from other for Form 8582 to figure how much of the (loss) following the rules for Publicly activities is not subject to the passive loss can be reported on Schedule D, line traded partnerships. activity limitations. Include it on line 4 of 12, column (f). However, if the PTP box is Code C2. General partner’s net capital the 28% Rate Gain Worksheet on page checked, report the loss following the gain or (loss) from other rental D-8 of the Instructions for Schedule D rules for Publicly traded partnerships. activities. The net capital gain (loss) (Form 1040).

Code B3. General partner’s 28% rate from other rental activities is a passive

activity amount for all general partners. Code F. Guaranteed Payments gain or (loss) from rental real estate

activities. The 28% rate gain or (loss) Report the gain on Schedule D (Form Generally, these amounts are not passive

from a rental real estate activity is a 1040), line 12, column (f). Report a loss income. Report them on Schedule E

passive activity amount unless you were following the Instructions for Form 8582 to (Form 1040), line 28, column (j) (for

a figure how much of the loss can be example, guaranteed payments for real estate professional and you

materially participated in the activity. If the reported on Schedule D (Form 1040), line personal services).

12, column (f). However, if the PTP box is amount is either (a) a loss that is not from Code G. Income From Discharge of checked, report the loss following the a passive activity or (b) a gain, include it Indebtedness rules for Publicly traded partnerships. on line 4 of the 28% Rate Gain

Worksheet Code C3. General partner’s 28% rate The amount reported under Code G is on page D-8 of the

gain or (loss) from other rental excluded from your gross income to the Instructions for Schedule D (Form 1040).

activities. The 28% rate gain or (loss) extent provided in section 108 if the If the amount is a loss from a passive discharge: from other rental activities is a passive activity, report it following the Instructions activity amount for all general partners. If • Occurred in a title 11 case relating to for Form 8582 to figure how much of the bankruptcy, the amount is a gain, include it on line 4 loss can be included on line 4 of the 28% of the 28% Rate Gain Worksheet on page • Occurred when you were insolvent, Rate Gain Worksheet on page D-8 of the D-8 of the Instructions for Schedule D • Involved qualified farm indebtedness, Instructions for Schedule D (Form 1040). as defined in section 108(g), or (Form 1040). Report a loss following the However, if the PTP box is checked, • Involved qualified real property Instructions for Form 8582 to figure how report the loss following the rules for much of the loss can be included on line 4 business indebtedness, as defined in Publicly traded partnerships. of the 28% Rate Gain Worksheet on page section 108(c)(3), unless the partner is a

Code B4. General partner’s general D-8 of the Instructions for Schedule D C corporation.

credits from rental real estate (Form 1040). However, if the PTP box is This amount is applied, instead, to activities. Report the general credits on checked, report the loss following the reduce certain tax attributes. File Form

line 1bb of Form 3800. Unless you were a rules for Publicly traded partnerships. 982, Reduction of Tax Attributes Due to

real estate professional and materially Code C4. General partner’s general Discharge of Indebtedness (and Section participated in the rental real estate credits from other rental activities. 1082 Basis Adjustment), to explain why activity, you must also include the general Report the general credits on line 1bb of any amount received from the discharge credits on line 3 of Form 3800. Form 3800. Because general credits from of indebtedness should be excluded and

Code B5. General partner’s other rental activities are passive activity to report your reduction of tax attributes.

credits for all general partners, you must low-income housing credit from rental For a discharge of indebtedness not

real estate activities. Report the also include the general credits on line 3 described above, you must include this of Form 3800. low-income housing credit on line 4 of amount in income on line 21 of Form

Form 8586 for buildings placed in service Code C5. General partner’s alternative 1040.

before 2008, and on line 11 of Form 8586 minimum tax adjustment from other Code H. Tax-Exempt Interest for buildings placed in service after 2007. rental activities. An AMT adjustment

Unless you were a real estate must be reported on line 16 of Form Income

professional and materially participated in 6251. However, if the AMT adjustment is Report on your income tax return, as an

the rental real estate activity, the from a passive activity, it must be taken item of information, your share of the

low-income housing credit is a passive into account on line 19 with adjustments tax-exempt interest received or accrued

activity credit. and preferences from other passive by the partnership during the year.

-8- Instructions for Schedule K-1 (1065-B) (2010)
Individual partners must include this and 3d of Form 1116. A separate Form accordance with the regular partnership

amount on Form 1040, line 8b. Increase 1116 or 1118 is required for each foreign rules, here or on an attached schedule.

the adjusted basis of your interest in the source category of income. Do not Note. A partner must notify the ELP of partnership by this amount. include income that you determined to be its status as a “disqualified person.” U.S. source income. Code I. Limited Partner’s Codes M1 Through M9. Codes K4(a) Through K4(c). Foreign Rehabilitation Credit From Rental Miscellaneous gross income sourced at partnership Real Estate Activities level. The following types of income Code M1. Other tax-exempt income. Limited partners only. Report this have already been sourced for you by the Increase the adjusted basis of your amount on line 11m of Form 3468. partnership. Include these amounts on interest in the partnership by this amount, Because the credit is treated as being lines 1a and 3d of the applicable Form but do not include it in income on your from a single passive activity, you must 1116 (that is, the Form 1116 for each income tax return. also file Form 3800. category of income provided to you). Code M2. Nondeductible expenses. Codes J1 and J2. Self-Employment • Code K4(a). Passive category Decrease the adjusted basis of your foreign source income. interest in the partnership by this amount. Code J1. Net earnings or (loss) from • Code K4(b). General category The nondeductible expenses paid or self-employment. Enter this amount on foreign source income. incurred by the partnership are not Schedule SE (Form 1040), line 2, Section • Code K4(c). Other foreign source deductible on your income tax return, but A or B, whichever is applicable. General income. they do affect your basis. partners should reduce this amount by Code K5. Interest expense allocated unreimbursed partnership expenses Code M3. Unrelated business taxable and apportioned at the partner level. claimed. General partners who are income. The partnership must give you Include this amount on line 4b of the disqualified persons also should reduce any information you need to figure applicable Forms 1116. unrelated business taxable income under this amount by depletion claimed on oil

and gas properties. If this amount is a Code K6. Other expenses allocated section 512(a)(1) (but excluding any and apportioned at the partner level. modifications required by paragraphs (8) loss, enter only the deductible amount on

Schedule SE. For purposes of Include this amount on line 2 of the through (15) of section 512(b)) for a

self-employment tax, no income from an applicable Forms 1116. partner that is a tax-exempt organization.

ELP is treated as farming or fishing Note. For Codes K5 and K6, do not Reminder. A partner is required to notify

income. include any expenses allocated and the partnership of its tax-exempt status.

apportioned to U.S. source income on Code J2. Gross nonfarm income. Code M4. Health insurance. Include any line of Part I of Form 1116. Individual partners use this amount to any amounts paid during the tax year for

figure net earnings from self-employment Codes K7(a) Through Codes K7(c). insurance that constitutes medical care

under the nonfarm optional method on Deductions allocated and apportioned for you, your spouse, your dependents,

Schedule SE (Form 1040), Section B, at partnership level to foreign source and any children under age 27 who are

Part II. income. The following codes report the not dependents on line 29 of your 2010

expenses allocated and apportioned by Form 1040. You may be allowed to Codes K1 Through K9. Foreign Tax the partnership to foreign source deduct such amounts, even if you do not Credit Information categories of income. Include these itemize deductions. If you do itemize Use the information reported under amounts on line 2 of the applicable Forms deductions, enter on line 1 of Schedule A

Codes K1 through K9 to figure your 1116 (that is, the Forms 1116 for each (Form 1040) any amounts not deducted foreign tax credit. For more information, category of income provided to you). on line 29 of Form 1040.

see Form 1116, Foreign Tax Credit • Code K7(a). Deductions allocated Code M5. Distributions of money (cash (Individual, Estate, or Trust) and its and apportioned at partnership level to and marketable securities). This instructions; Form 1118, Foreign Tax passive category foreign source amount includes the distributions the Credit—Corporations, and its income. partnership made to you of cash and instructions; and Pub. 514, Foreign Tax • Code K7(b). Deductions allocated certain marketable securities. The Credit for Individuals. See page 4 of the and apportioned at partnership level to marketable securities are included at their Instructions for Form 1116 for detailed general category foreign source fair market value (FMV) on the date of instructions for reporting foreign tax income. distribution (minus your share of the information from partnerships. • Code K7(c). Deductions allocated partnership’s gain on the securities

Code K1. Name of foreign country or and apportioned at partnership level to distributed to you). If this amount exceeds

U.S. possession. other foreign source income. Include on Form the adjusted basis of your partnership

1116, Part I, item g. For each country Code K8(a). Total foreign taxes paid. interest immediately before the

reported, the partnership must give you Include this amount in Part II of Form distribution, the excess is treated as gain

the amount and a description of your 1116. from the sale or exchange of your

share of the following items for Codes K2 Code K8(b). Total foreign taxes partnership interest. Generally, this gain

through K9. For each country or accrued. Include this amount in Part II of is treated as gain from the sale of a

possession being reported, a separate Form 1116. capital asset and should be reported on

column in Part I and a separate line in the Schedule D for your return. However, Code K9. Reduction in taxes available Part II is needed on Form 1116. the gain may be ordinary income. For for credit. Enter this amount on line 12

Code K2. Gross income from all details, see Pub. 541. of Form 1116.

sources. Enter this amount on line 3e of The partnership must separately

Form 1116. Code L. Oil and Gas Activities identify both of the following.

Code K3. Gross income sourced at Generally, oil and gas income, • The FMV of the marketable securities

partner level. Although all this income deductions, credits, and other items are when distributed (minus your share of the

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

nevertheless determine whether the limitation activities, general credits, and those securities immediately before the

the alternative minimum tax adjustment. distribution. income being reported is U.S. source

income or foreign source income. See the However, distributive shares of all oil Decrease the adjusted basis of your

Instructions for Form 1116 for the rules to and gas income, deductions, credits, and interest in the partnership (but not below

source the income reported to you. Enter other items are separately reported to zero) by the amount of cash distributed to

only foreign source income on lines 1a partners who are disqualified persons in you and the partnership’s adjusted basis

Instructions for Schedule K-1 (1065-B) (2010) -9-
of the distributed securities. Advances or Code M7. Gain eligible for section 1202 Opting out of partnership election.

drawings of money or property against exclusion. This gain from the sale or You can opt out of the partnership’s

your distributive share are treated as exchange of qualified small business section 1045 election and either (1)

current distributions made on the last day (QSB) stock (as defined in the recognize the gain or (2) elect to

of the partnership’s tax year. Instructions for Schedule D) is eligible for purchase different replacement QSB

the partial section 1202 exclusion. The stock, either directly or through ownership Your basis in the distributed partnership must also provide you with: of a partnership that acquired marketable securities (other than in • The name of the corporation that replacement QSB stock. You satisfy the liquidation of your interest) is the smaller issued the QSB stock, requirement to purchase replacement of: • Your share of the partnership’s QSB stock if you own an interest in a • The partnership’s adjusted basis in the adjusted basis of the QSB stock, partnership that purchases QSB stock securities immediately before the • Your share of the partnership’s sales during the 60-day period. You also must distribution increased by any gain price of the QSB stock, and notify the partnership, in writing, if you opt recognized on the distribution of the • The dates the QSB stock was bought out of the partnership’s section 1045 securities or and sold. election. If you recognize gain, you must • The adjusted basis of your partnership notify the partnership, in writing, of the interest reduced by any cash distributed Corporate partners are not eligible for amount of gain that you are recognizing. in the same transaction and increased by the section 1202 exclusion. The following any gain recognized on the distribution of Code M9. Gain eligible for section 1045 additional limitations apply at the partner the securities. rollover–stock not replaced. This gain level. is eligible for the section 1045 rollover. 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 If, within 7 years of a distribution to you • Your share of the partnership’s sales partnership at the time the QSB stock of marketable securities, you contributed price of the QSB stock, was acquired. appreciated property (other than those • The dates the QSB stock was bought securities) to the partnership and the FMV See the Instructions for Schedule D and sold, and

of those securities exceeded the adjusted (Form 1040) for details on how to report • Your distributive share of the gain from basis of your partnership interest the gain and the amount of the allowable the sale of the QSB stock.

immediately before the distribution exclusion. Corporate partners are not eligible for (reduced by any cash received in the Code M8. Gain eligible for section 1045 the section 1045 rollover. To qualify for distribution), you may have to recognize the section 1045 rollover: gain on the appreciated property. See rollover–stock replaced. This gain is • You must have held an interest in the eligible for the section 1045 rollover. section 737 for details.

Replacement stock has been purchased partnership during the entire period in Code M6. Distributions of property which the partnership held the QSB stock by the partnership. The partnership must other than money. Box 9, Code M6, (more than 6 months prior to the sale), also provide you with: shows the partnership’s adjusted basis of • Your distributive share of the gain • The name of the corporation that property other than money immediately eligible for the section 1045 rollover issued the qualified small business (QSB) before the property was distributed to cannot exceed the amount that would stock, you. In addition, the partnership should have been allocated to you based on your • Your share of the partnership’s attach a statement showing the cost basis interest in the partnership at the time the adjusted basis of the QSB stock, and FMV of each property distributed. stock was acquired, and • Your share of the partnership’s sales Decrease the adjusted basis of your • You must purchase other QSB stock price of the QSB stock, interest in the partnership by the amount (as defined in the Instructions for • The dates the QSB stock was bought of your basis in the distributed property. Schedule D (Form 1040)) during the and sold, Your basis in the distributed property 60-day period that began on the date the • Your distributive share of gain from the (other than in liquidation of your interest) QSB stock was sold by the partnership. 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. interest reduced by any cash distributed Corporate partners are not eligible for Making the section 1045 election. in the same transaction. the section 1045 rollover. To qualify for You make a section 1045 election on a the section 1045 rollover: If you received the property in timely filed return for the tax year during • You must have held an interest in the liquidation of your interest, your basis in which the partnership’s tax year ends. partnership during the entire period in the distributed property is equal to the Attach to your Schedule D (Form 1040) a which the partnership held the QSB stock adjusted basis of your partnership interest statement that includes the following (more than 6 months prior to the sale) reduced by any cash distributed in the information for each amount of gain that and same transaction. you do not recognize under section 1045. • Your distributive share of the gain If you contributed appreciated property • The name of the corporation that eligible for the section 1045 rollover to the partnership within 7 years of a issued the QSB stock. cannot exceed the amount that would distribution of other property to you, and • The name and EIN of the selling have been allocated to you based on your the FMV of the other property exceeded partnership. interest in the partnership at the time the the adjusted basis of your partnership QSB stock was acquired. • The dates the QSB stock was

interest immediately before the purchased and sold.

distribution (reduced by any cash See the Instructions for Schedule D • The amount of gain that is not

received in the distribution), you may (Form 1040) for details on how to report recognized under section 1045.

have to recognize gain on the appreciated the gain and the amount of the allowable • If a partner purchases QSB stock, the

property. See section 737 for details. postponed gain. name of the corporation that issued the

-10- Instructions for Schedule K-1 (1065-B) (2010)
replacement QSB stock, the date the Limited partners who qualify for the liabilities as income, expense, and

stock was purchased, and the cost of the exclusion. Report the extraterritorial liabilities of the corporation for purposes

stock. exclusion amount (Code O2) as a of the interest deduction limitation under

• If a partner treats the partner’s interest deduction reducing the amount reported section 163(j). The corporation’s

in QSB stock that is purchased by a in box 1 (see the box 1 instructions on distributive share of interest income is

purchasing partnership as the partner’s page 6). reported in box 9 using code R1. Its

replacement QSB stock, the name and General partners who qualify for the distributive share of interest expense is

EIN of the purchasing partnership, the exclusion. Report the Code O2 amount reported using code R2. The amounts

name of the corporation that issued the reported using code R1 and R2 are for in accordance with the instructions for box

QSB stock, the partner’s share of the cost 9, Code A1, B1, or C1, whichever applies. information only, and are included in

of the QSB stock that was purchased by See Form 8873, Extraterritorial Income amounts reported elsewhere on Schedule

the partnership, the computation of the Exclusion, for more information. K-1. The corporation’s distributive share

partner’s adjustment to basis with respect of partnership liabilities is shown in the Partnership claimed the exclusion. If first column of Schedule K-1. to that QSB stock, and the date the stock the partnership reports your distributive was purchased by the partnership. share of foreign trading gross receipts Code S1. Domestic Production

Distribution of replacement QSB stock (Code O1) but not the amount of the Activities Information

extraterritorial income exclusion, the to a partner that reduces another The partnership must attach a statement partnership met the foreign economic partner’s interest in replacement QSB to Schedule K-1 that provides the process requirements and claimed the stock. You must recognize gain upon a information you need to figure the exclusion when figuring your distributive distribution of replacement QSB stock to domestic production activities deduction.

another partner that reduces your share share of partnership income. You also Use Form 8903, Domestic Production may need to know the amount of your of the replacement QSB stock held by a Activities Deduction, to figure this distributive share of foreign trading gross partnership. The amount of gain that you deduction. See the Instructions for Form receipts from this partnership to must recognize is based on the amount of 8903 for details. determine if you met the $5 million or less gain that you would recognize upon the exception discussed above for purposes Code S2. Qualified Production sale of the distributed replacement QSB of qualifying for an extraterritorial income Activities Income (QPAI) stock for its fair market value on the date

of the distribution, but not to exceed the exclusion from other sources. Report the QPAI reported to you by the

amount you previously deferred under Note. Upon request, the partnership partnership (in box 9 using code S2) on

section 1045 with respect to the should furnish you a copy of the Form 8903, in the applicable column of

distributed replacement QSB stock. If the partnership’s Form 8873 if there is a line 7.

partnership distributed your share of reduction for international boycott Code S3. Employer’s W-2 Wages operations, illegal bribes, kickbacks, etc. replacement QSB stock to another Report the portion of W-2 wages reported partner, the partnership should give you Code P. Inversion Gain to you by the partnership (in box 9 using (a) the name of the corporation that The partnership must provide a statement code S3) on line 17 of Form 8903. issued the replacement QSB stock, (b) showing the amounts of each type of the date the replacement QSB stock was Code T. Section 409A Income

distributed to another partner or partners, income or gain that is included in This is compensation to partners deferred and (c) your share of the partnership’s inversion gain. The partnership has under a section 409A nonqualified adjusted basis and fair market value of included inversion gain in income deferred compensation plan that does not the replacement QSB stock on such date. elsewhere on Schedule K-1. Inversion meet the requirements of section 409A. gain is also reported under Code P This amount is also reported in box 9 For more information, see Regulations because your taxable income and using Code F. This amount is subject to section 1.1045-1. alternative minimum taxable income interest and additional tax to be reported cannot be less than the inversion gain. Code N. Unrecaptured Section on line 60 of Form 1040. See the Also, your inversion gain (a) is not taken instructions for line 60 of Form 1040 for 1250 Gain into account in figuring the amount of net details. Report this gain on line 11 of the operating loss (NOL) for the tax year or

Unrecaptured Section 1250 Gain the amount of NOL that can be carried Code U. Other Information

Worksheet on page D-9 of the over to each tax year, (b) may limit the The partnership will use Code U to report Instructions for Schedule D (Form 1040). amount of your credits, and (c) is treated the following to partners. Do not report the gain on line 5 as stated as income from sources within the U.S. • The recapture of any credit (other than on the worksheet. for the foreign tax credit. See section partnership level low-income housing 7874 for details. credit or investment credit) is reported to Codes O1 and O2. Extraterritorial Code Q. Commercial Revitalization you as a separately stated item. See the Income Exclusion Deduction instructions for the specific form identified

Partnership did not claim the with the credit for more information on Follow the Instructions for Form 8582 for reporting the recapture. exclusion. If the partnership reports commercial revitalization deductions from • Any information a partner that is a your distributive share of foreign trading rental real estate activities to figure how publicly traded partnership may need to gross receipts (Code O1) and the much of the deduction can be reported on determine if it meets the 90% qualifying extraterritorial income exclusion (Code Schedule E (Form 1040), line 28, column O2), the partnership was not entitled to income test of section 7704(c)(2). (f). Partners are required to notify the claim the exclusion because it did not

meet the foreign economic process Note. The commercial revitalization partnership of their status as a publicly deduction is not available for any building traded partnership. requirements. You may still qualify for placed in service after December 31, • Any information you need to complete your distributive share of this exclusion if 2009. a disclosure statement for reportable the partnership’s foreign trading gross transactions in which the partnership receipts for the tax year were $5 million or Codes R1 and R2. Interest participates. If the partnership participates less. Deduction Limitation for Corporate in a transaction that must be disclosed on

To qualify for this exclusion, your Partners Form 8886, Reportable Transaction

foreign trading gross receipts from all A corporate partner is required to treat its Disclosure Statement, both you and the

sources for the tax year also must have distributive share of interest income, partnership may be required to file Form

been $5 million or less. interest expense, and partnership 8886 for the transaction. The

Instructions for Schedule K-1 (1065-B) (2010) -11-
determination of whether you are required has not been included in income in the Schedule P in determining your interest

to disclose a transaction of the current or prior tax years. expense deduction under Regulations

partnership is based on the category(s) 2. The partnership’s original issue section 1.882-5.

under which the transaction qualifies for discount (OID) deduction deferred under • The partner’s share of the credit for

disclosure and is determined by the section 108(i)(2)(A)(i) that has not been each separate bond credit that was

partnership. See the Instructions for Form deducted in the current or prior tax years. reported on the partnership’s Form 8912.

8886 for details. 3. The deferred section 752 amount Do not add these amounts to your

• Conservation reserve program that is treated as a distribution of money income, as they were included in the

payments. Individuals who received social under section 752 in the current tax year. income (loss) reported in box 1 or 2. The

security retirement or disability benefits, 4. The deferred section 752 amount partnership will report the following credits

and are partners in a farm partnership remaining as of the end of the current tax separately: Clean renewable energy bond

that receives conservation reserve year. credit, Midwestern tax credit bond credit,

program payments, do not pay 5. Any income previously deferred as new clean renewable energy bond credit,

self-employment tax on their share of the a result of a section 108(i) election that is qualified energy conservation bond credit,

conservation reserve payments. The includible in the current year. See section qualified forestry conservation bond

partnership will report your share of the 108(i) for events that will cause previously credit, qualified zone academy bond

conservation reserve program payments deferred income to be reportable, and a credit, qualified school construction bond

in box 9 using code U. See Schedule SE special rule for allocating deferred income credit, and build America bond credit.

(Form 1040) for information on excluding to partners. • Excess farm loss limitation. If the

the payments from your calculation of 6. The current year section 108(i) OID partnership has deductions attributable to

self-employment tax. deduction. The partnership will provide a farming activity, it will provide a

• Gain or loss attributable to the sale or your distributive share of the partnership’s statement showing the aggregate gross

exchange of qualified preferred stock of OID deduction deferred under section income or gain and the aggregate

the Federal National Mortgage 108(i)(2)(A)(i) that is allowable as a deductions from the farming activity that

Association (Fannie Mae) and the Federal deduction in the current tax year under you need to figure any excess farm loss

Home Loan Mortgage Corporation section 108(i)(2)(A)(ii) or section limitation. See section 461(j) for details.

(Freddie Mac). The partnership will report 108(i)(5)(D)(i) or (ii). • Eligible small business credits. General

on an attached statement the amount of • The information needed to complete business credits attributable to an eligible

gain or loss attributable to the sale or Schedule P (Form 1120-F), List of small business may be used to offset

exchange of the qualified preferred stock, Foreign Partner Interests in Partnerships. tentative minimum tax and qualify for a

the date the stock was acquired by the When required, the partnership will make 5-year carryback. A partnership is an

partnership, and the date the stock was this report on an attached statement to eligible small business if its average

sold or exchanged by the partnership. If partners that are a corporation (identified annual gross receipts for the three

the partner is not a financial institution (as as a foreign partner under Regulations preceding tax years were $50 million or

defined below), report the gain or loss on section 1.1446-1(c)(3) or partners that are less. The partnership must tell you

line 5 or line 12 of Schedule D (Form a partnership (domestic or foreign) if the whether it qualifies as an eligible small

1040) in accordance with the instructions reporting partnership knows, or has business if it reports any general business

for Schedule D. If a partner is a financial reason to know, that one or more of the credits on Schedule K-1. General

institution referred to in section 582(c)(2) partners is a foreign corporation. If the business credits are reported using one

or a depositary institution holding partnership allocates effectively or more of the following boxes on

company (as defined in section 3(w)(1) of connected income to the partner, the Schedule K-1.

the Federal Deposit Insurance Act), report statement will contain the information • Box 7.

the gain or loss in accordance with the needed to complete lines 1 through 9, 12, • Box 8.

Instructions for Form 4797 and Rev. Proc. 13, 14b, 16a, 16b, and 17 of Schedule P • Box 9 using code A4, B4, B5, B6, C4,

2008-64, 2008-47 I.R.B. 1195. (Form 1120-F). If the partnership does not and I. For more information, see the

• If the partnership made a section 108(i) allocate effectively connected income to Instructions for Form 3800.

election or allocates any section 108(i) the partner, the statement will contain the • Any other information you may need to

items to its partners, it will provide a information needed to complete lines file with your return not shown elsewhere

statement identifying your distributive 12,13, and 17 of Schedule P (Form on Schedule K-1. The partnership must

share of the following. 1120-F), information that might be give you a description and the amount of

1. The deferred section 108(i) relevant for purposes of completing your share for each of these items.

cancellation of debt (COD) income that

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