Department of the Treasury

2011

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 income are made by the electing large section 751(a) exchange must notify the

Revenue Code unless otherwise noted. partnership. partnership, in writing, within 30 days of

the exchange (or, if earlier, by January 15 What’s New For limited partners, income and other of the calendar year following the items from the partnership’s trade or • The IRS has created a page on calendar year in which the exchange business and rental activities are treated

IRS.gov for information about Schedule occurred). A “section 751(a) exchange” is as being from a trade or business that is a K-1 (Form 1065-B) and its instructions at any sale or exchange of a partnership single passive activity. These items are www.irs.gov/form1065B interest in which any money or other . Information reported in boxes 1, 4a, and 5, with most about any future developments (such as property received by the partner in credits being reported in boxes 7 and 8. legislation enacted after we release it) exchange for that partner’s interest is General partners must make their own affecting Schedule K-1 (Form 1065-B) attributable to unrealized receivables (as determinations as to whether the activities and its instructions will be posted on that defined in section 751(c)) or inventory are passive for them. Therefore, page. items (as defined in section 751(d)). partnership items from trade or business, • Under the instructions for Box 9, Code The written notice to the partnership rental real estate, and other rental M1, we have added a Note for income must include the names and addresses of activities are separately reported for each exempt under section 892. both parties to the exchange, the activity in box 9. identifying numbers of the transferor and Income, etc., from other activities General Instructions (if known) of the transferee, and the (investment and portfolio income and exchange date. deductions) are reported in boxes 2, 3, An exception to this rule is made for Purpose of Schedule K-1 4b, and 6 for both limited and general sales or exchanges of publicly traded partners. The partnership uses Schedule K-1 to partnership interests for which a broker is report your share of the partnership’s Errors required to file Form 1099-B, Proceeds income, deductions, credits, etc. Keep it From Broker and Barter Exchange for your records. Do not file it with your You must report partnership items shown Transactions.

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

adjustment. However, if the error involves Any person who holds, directly or The amount of loss and deduction that a change to your distributive share of a indirectly, an interest in a partnership as a you can claim on your tax return may be partnership item, the partnership should nominee for another person must furnish less than the amount reported on file an amended partnership return and a written statement to the partnership by Schedule K-1. It is the partner’s send you a corrected Schedule K-1. the last day of the month following the responsibility to consider and apply any end of the partnership’s tax year. This applicable limitations. See Limitations on If the treatment on your original or statement must include the name, Losses, Deductions, and Credits (later) amended return is inconsistent with the address, and identifying number of the for more information. partnership’s treatment, you may be nominee and such other person, subject to the accuracy-related penalty. description of the partnership interest held Electing Large This penalty is in addition to any tax that as nominee for that person, and other results from making your amount or Partnerships (ELPs) information required by Temporary treatment of the item consistent with that

This partnership has elected simplified Regulations section 1.6031(c)-1T. A shown on the partnership’s return. Any nominee who fails to furnish this reporting requirements intended to make deficiency that results from making the statement must furnish to the person for it simpler for you to report your share of amounts consistent may be assessed whom the nominee holds the partnership partnership income, credits, deductions, immediately. interest a copy of Schedule K-1 and etc. Generally, income, capital gains, related information within 30 days of credits, and deductions are combined at Sale or Exchange of receiving it from the partnership. the partnership level so that the number

of partnership items separately reported Partnership Interest A nominee who fails to furnish when

to partners is reduced. Most limitations Generally, a partner who sells or due all the information required by

and elections affecting partnership exchanges a partnership interest in a Temporary Regulations section

Feb 07, 2012 Cat. No. 26141W
1.6031(c)-1T, or who furnishes incorrect related person bears the economic risk of Form 6198, At-Risk Limitations, to figure

information, is subject to a $100 penalty loss. your allowable loss.

for each failure. The maximum penalty is The at-risk rules generally limit the $1,500,000 for all such failures during a Elections amount of loss and other deductions that calendar year. If the nominee intentionally Generally, the partnership decides how to you can claim to the amount you could disregards the requirement to report figure taxable income from its operations. actually lose in the activity. However, if correct information, each $100 penalty However, two elections are made by you you acquired your partnership interest increases to $250 or, if greater, 10% of separately on your income tax return and before 1987, the at-risk rules do not apply the aggregate amount of items required to not by the partnership. These elections to losses from an activity of holding real be reported, and the $1,500,000 are made under the following code property placed in service before 1987 by maximum does not apply. sections. the partnership. The activity of holding • Section 108(b)(5) (election related to mineral property does not qualify for this International Boycotts reduction of tax attributes due to exception. The partnership should identify

Every partnership that had operations in, exclusion from gross income of discharge on an attached statement to Schedule

or related to, a boycotting country, of indebtedness). K-1 the amount of any losses that are not

company, or a national of a country must • Section 901 (foreign tax credit). subject to the at-risk limitations.

file Form 5713, International Boycott Additional Information Generally, you are not at risk for Report. amounts such as the following. For more information on the treatment of If the partnership cooperated with an • Nonrecourse loans used to finance the partnership income, deductions, credits, international boycott, it must provide you activity, to acquire property used in the

with a copy of its Form 5713. As a etc., see the following: activity, or to acquire your interest in the • Pub. 541, Partnerships; general or limited partner, you must file activity, that are not secured by your own • Pub. 535, Business Expenses; and your own Form 5713 to report the property (other than the property used in • Pub. 925, Passive Activity and At-Risk partnership’s activities and any other the activity). See the instructions for Rules. boycott operations that you may have. Partner’s Share of Liabilities, later, for the

You may lose certain tax benefits if the To get forms and publications, see the exception for qualified nonrecourse

partnership participated in, or cooperated instructions for your tax return or visit the financing secured by real property.

with, an international boycott. See Form IRS website at IRS.gov. • Cash, property, or borrowed amounts

5713 and its instructions for more used in the activity (or contributed to the

information. Limitations on Losses, activity, or used to acquire your interest in

the activity) that are protected against Deductions, and Credits Definitions loss by a guarantee, stop-loss agreement, There are three separate potential or other similar arrangement (excluding

General Partner limitations on the amount of partnership casualty insurance and insurance against losses that you can deduct on your return. tort liability). A general partner is a partner who is These limitations and the order in which • Amounts borrowed for use in the personally liable for partnership debts. you must apply them are as follows: the activity from a person who has an interest

Limited Partner basis rules, the at-risk limitations, and the in the activity, other than as a creditor, or

A passive activity limitations. Each of these who is related, under section 465(b)(3), to limited partner is a partner in a limitations is discussed separately below. a person (other than you) having such an partnership formed under a state limited interest. partnership law, whose personal liability Basis Rules

for partnership debts is limited to the Generally, you cannot claim your share of You should get a separate statement amount of money or other property that a partnership loss (including a capital of income, expenses, etc., for each the partner contributed or is required to loss) to the extent that it is greater than activity from the partnership. contribute to the partnership. Some the adjusted basis of your partnership members of other entities, such as interest at the end of the partnership’s tax Passive Activity Limitations

domestic or foreign business trusts or year. Any losses and deductions not Section 469 provides rules that limit the limited liability companies that are allowed this year because of the basis deduction of certain losses and credits.

classified as partnerships, may be treated limit can be carried forward indefinitely These rules apply to partners who: as limited partners for certain purposes. and deducted in a later year subject to the • Are individuals, estates, trusts, closely

basis limit for that year. held corporations (other than S Disqualified Person The partnership is not responsible for corporations), or personal service If you are a partner in a partnership corporations and keeping the information needed to figure holding oil and gas properties, you are a • Have a passive activity loss or credit for the basis of your partnership interest. You “disqualified person” if: the tax year. can figure the adjusted basis of your • You are an oil or natural gas retailer partnership interest by adding items that Individuals, estates, and trusts. If you described in section 613A(d)(2) or crude increase your basis and then subtracting have a passive activity loss or credit, use oil refiner described in section 613A(d)(4) items that decrease your basis. Form 8582, Passive Activity Loss

or Use the worksheet on page 3 to figure Limitations, to figure your allowable • Your average daily production of the basis of your interest in the passive losses and Form 8582-CR, domestic crude oil and natural gas partnership. Passive Activity Credit Limitations, to exceeds 500 barrels for your tax year in Note. Additional basis adjustments may figure your allowable passive credits. which the partnership’s tax year ends. apply to partners claiming deductions for See section 776(b) for more details. If the publicly traded partnership depletion. See chapter 9 of Pub. 535 for (PTP) box on Schedule K-1 is Note. Disqualified persons must report details.

CAUTION

checked, do not report passive

!

items of income, gain, loss, deduction, At-Risk Limitations income (loss) from the partnership on and credit attributable to partnership oil Form 8582. See page 5 for the special and gas properties as if the special rules Generally, if you have (a) a loss or other rules for PTPs. for ELPs did not apply. deduction from any activity carried on as

a trade or business or for the production Corporations. Use Form 8810, Nonrecourse Loans of income by the partnership and (b) Corporate Passive Activity Loss and

Nonrecourse loans are those liabilities of amounts in the activity for which you are Credit Limitations. See the instructions for

the partnership for which no partner or not at risk, you will have to complete more information.

-2- Instructions for Schedule K-1 (1065-B)
For limited partners of an ELP, all In addition, the partnership is required 2. Activities that meet the definition of

income, loss, deductions, and credits to provide each general partner and rental activities under Temporary

from trade or business and rental disqualified person the information Regulations section 1.469-1T(e)(3) and

activities generally are reported as being necessary to comply with the passive Regulations section 1.469-1(e)(3).

activity rules of section 469. Items of from a trade or business that is a single

passive activity. income, gain, loss, credit, etc., must be Passive activities do not include the

separately reported to general partners following. for each trade or business, rental real However, the determination of 1. Trade or business activities in estate, and other rental activity. whether an activity is a passive activity which you materially participated.

must be made by any partner who is Except for the PTP discussion on 2. Rental real estate activities in which

either a: page 5, the following information you materially participated if you were a

CAUTION

on passive activity limitations “real estate professional” for the tax year.

! • General partner or applies only to general partners. You were a real estate professional only if • Limited partner who is a disqualified you met both of the following conditions. person (as defined on page 2) with Generally, passive activities include: a. More than half of the personal respect to items of income, gain, loss, 1. Trade or business activities in services you performed in trades or deduction, and credit attributable to which you did not materially participate businesses were performed in real partnership oil and gas properties. and property trades or businesses in which

you materially participated and

b. You performed more than 750

Worksheet for Adjusting the Basis of a Partner’s hours of services in real property trades Keep for Your or businesses in which you materially Interest in the Partnership Records participated.

If you are married filing jointly, either

you or your spouse must separately meet 1. Your adjusted basis at the end of the prior year. Do not enter less both of the above conditions, without than zero. Enter -0- if this is your first tax year ............. . 1.

taking into account services performed by Increases: the other spouse.

2. Money and your adjusted basis in property contributed to the Note. For a closely held C corporation partnership less the associated liabilities (but not less than zero) . . 2. (defined in section 465(a)(1)(B)), the

3. Your increased share of or assumption of partnership liabilities. above conditions are treated as met if

(Subtract your share of liabilities shown on your 2010 Schedule K-1 more than 50% of the corporation’s gross

from your share of liabilities shown on your 2011Schedule K-1 and receipts were from real property trades or

add the amount of any partnership liabilities you assumed during businesses in which the corporation

the tax year. Do not enter less than zero.) ................ . 3. materially participated.

4. Your share of the partnership’s income or gain (including For purposes of this rule, each interest

tax-exempt income) reduced by any amount included in interest in rental real estate is a separate activity,

income with respect to the credit to holders of clean renewable unless you elect to treat all interests in

energy bonds, or Midwestern tax credit bonds ............. . 4. rental real estate as one activity. For

details on making this election, see the 5. Any gain recognized this year on contributions of property. Do not Instructions for Schedule E (Form 1040). include gain from transfer of liabilities ................... . 5.

A real property trade or business is Decreases: any real property development,

6. Withdrawals and distributions of money and the adjusted basis of redevelopment, construction,

property distributed to you from the partnership. Do not include the reconstruction, acquisition, conversion,

amount of property distributions included in the partner’s income rental, operation, management, leasing,

(taxable income) ................................. . 6. or brokerage trade or business. Services

you performed as an employee are not Caution. A distribution may be taxable if the amount exceeds your treated as performed in a real property adjusted basis of your partnership interest immediately before the trade or business unless you owned more distribution. than 5% of the stock (or more than 5% of

7. Your decreased share of partnership liabilities and any decrease in the capital or profits interest) in the

your individual liabilities because they were assumed by the employer. partnership. (Subtract your share of liabilities shown on your 2011 3. Working interests in oil or gas Schedule K-1 from your share of liabilities shown on your 2010 wells. Schedule K-1 and add the amount of your individual liabilities that 4. The rental of a dwelling unit any the partnership assumed during the tax year. Do not enter less partner used for personal purposes during than zero.) ..................................... . 7. the year for more than the greater of 14

8. Your share of the partnership’s nondeductible expenses that are days or 10% of the number of days that

not capital expenditures ............................ . 8. the residence was rented at fair rental

value. 9. Your share of the partnership’s losses and deductions (including 5. Activities of trading personal capital losses) .................................. . 9. property for the account of owners of

10. Your adjusted basis in the partnership at the end of this tax year. interests in the activities.

(Add lines 1 through 5 and subtract lines 6 through 9 from the total.

If zero or less, enter -0-.) ........................... . 10. Material participation. You must

Caution. The deduction for your share of the partnership’s losses determine if you (a) materially participated

and deductions is limited to your adjusted basis in your partnership in each trade or business activity held

interest. If you entered zero on line 10 and the amount computed through the partnership and (b) were a

for line 10 was less than zero, a portion of your share of the real estate professional (defined earlier),

partnership losses and deductions may not be deductible (see in each rental real estate activity held

Basis Rules above for more information). through the partnership. All

determinations of material participation

Instructions for Schedule K-1 (1065-B) -3-
are made based on your participation work in connection with the activity is not for the year, and did not live apart from

during the partnership’s tax year. counted toward material participation if your spouse at all times during the year.

Material participation standards for either of the following applies. Only individuals, qualifying estates,

partners who are individuals are listed 1. The work is not the sort of work that and qualifying revocable trusts that made

below. Special rules apply to certain owners of the activity would usually do a section 645 election can actively

retired or disabled farmers and to the and one of the principal purposes of the participate in a rental real estate activity.

surviving spouses of farmers. See the work that you or your spouse does is to Estates (other than qualifying estates), avoid the passive loss or credit Instructions for Form 8582 for details. trusts (other than qualifying revocable limitations. Corporations should refer to the trusts that made a section 645 election), 2. You do the work in your capacity as and corporations cannot actively Instructions for Form 8810 for the material an investor and you are not directly participate. participation standards that apply to them. involved in the day-to-day operations of Individuals (other than limited You are not considered to actively the activity. Examples of work done as an partners). participate in a rental real estate activity if If you are an individual (either investor that would not count toward

a general partner or a limited partner who material participation include: at any time during the tax year your

owned a general partnership interest at all interest (including your spouse’s interest) a. Studying and reviewing financial times during the tax year), you materially in the activity was less than 10% (by statements or reports on operations of the participated in an activity only if one or value) of all interests in the activity. activity. more of the following apply. b. Preparing or compiling summaries Active participation is a less stringent

1. You participated in the activity for or analyses of the finances or operations requirement than material participation.

more than 500 hours during the tax year. of the activity for your own use. You may be treated as actively

2. Your participation in the activity for c. Monitoring the finances or participating if you participated, for

the tax year constituted substantially all operations of the activity in a example, in making management

the participation in the activity of all nonmanagerial capacity. decisions or arranging for others to

individuals (including individuals who are provide services (such as repairs) in a Effect of determination. Income not owners of interests in the activity for significant and bona fide sense. (loss), deductions, and credits from an the tax year). Management decisions that can count as activity are nonpassive if you determine 3. You participated in the activity for active participation include approving new

more than 100 hours during the tax year, that: tenants, deciding rental terms, approving • You materially participated in a trade or and your participation in the activity for capital or repair expenditures, and other business activity of the partnership or the tax year was not less than the similar decisions. • 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 participation requirement for the activity the tax year. If you determine that you did not

materially participate in a trade or for the tax year the decedent died. A 4. The activity was a significant qualifying estate is treated as actively participation activity for the tax year, and business activity of the partnership or if participating for tax years ending less you participated in all significant you have income (loss), deductions, or than 2 years after the date of the participation activities (including activities credits from a rental activity of the decedent’s death. outside the partnership) during the year partnership (other than a rental real

for more than 500 hours. A significant estate activity in which you materially Modified adjusted gross income

participation activity is any trade or participated as a real estate professional), limitation. The maximum special

business activity in which you participated the amounts from that activity are allowance that single individuals and

for more than 100 hours during the tax passive. Report passive income (losses), married individuals filing a joint return can

year and in which you did not materially deductions, and credits as follows. qualify for is $25,000. The maximum is

participate under any of the material 1. If you have an overall gain (the $12,500 for married individuals who file

participation tests (other than this test 4). excess of income over deductions and separate returns and who lived apart all

5. You materially participated in the losses, including any prior year unallowed times during the year. The maximum

activity for any 5 tax years (whether or not loss) from a passive activity, report the special allowance for which an estate can

consecutive) during the 10 tax years that qualify is $25,000 reduced by the special income, deductions, and losses from the

immediately precede the tax year. activity as indicated in the instructions for allowance for which the surviving spouse

6. The activity was a personal service qualifies. the boxes in which those items were

activity and you materially participated in reported. If your modified adjusted gross income the activity for any 3 tax years (whether or 2. If you have an overall loss (the (defined below) is $100,000 or less not consecutive) preceding the tax year. excess of deductions and losses, ($50,000 or less if married filing A personal service activity involves the including any prior year unallowed loss, separately), your loss is deductible up to performance of personal services in the over income) or credits from a passive the amount of the maximum special fields of health, law, engineering, activity, report the income, deductions, allowance referred to in the preceding architecture, accounting, actuarial losses, and credits from all passive paragraph. If your modified adjusted science, performing arts, consulting, or activities using the Instructions for Form gross income is more than $100,000 any other trade or business in which 8582 or Form 8582-CR (or Form 8810), to (more than $50,000 if married filing capital is not a material income-producing see if your deductions, losses, and credits separately), the special allowance is factor. are limited under the passive activity limited to 50% of the difference between 7. Based on all the facts and rules. $150,000 ($75,000 if married filing circumstances, you participated in the separately) and your modified adjusted activity on a regular, continuous, and Special allowance for rental real estate gross income. When modified adjusted substantial basis during the tax year. activities. If you actively participated in gross income is $150,000 or more a rental real estate activity, you may be ($75,000 or more if married filing Work counted toward material able to deduct up to $25,000 of the loss separately), there is no special allowance. participation. Generally, any work that from the activity from nonpassive income.

you or your spouse do in connection with This “special allowance” is an exception Modified adjusted gross income is your

an activity held through a partnership to the general rule disallowing losses in adjusted gross income figured without

(where you own your partnership interest excess of income from passive activities. taking into account the following amounts,

at the time the work is done) is counted The special allowance is not available if if applicable:

toward material participation. However, you were married, filed a separate return • Any passive activity loss.

-4- Instructions for Schedule K-1 (1065-B)
• Any rental real estate loss allowed Instructions for Form 8582 for more PTP to an unrelated person in a fully

under section 469(c)(7) to real estate information. taxable transaction during the year), the

professionals (as defined previously). losses are allowed to the extent of the Publicly traded partnerships. The • Any overall loss from a publicly traded income, and the excess loss is carried passive activity limitations are applied partnership. forward to use in a future year when you separately for items (other than the • Any taxable social security or have income to offset it. Report as a low-income housing credit and the equivalent railroad retirement benefits. passive loss on the schedule or form you rehabilitation credit) from each publicly • Any deductible contributions to an IRA normally use the portion of the loss equal traded partnership (PTP). Thus, a net or certain other qualified retirement plans to the income. Report the income as passive loss from a PTP may not be under section 219. passive income on the form or schedule deducted from other passive income. • The domestic production activities you normally use. Instead, a passive loss from a PTP is deduction. suspended and carried forward to be Example. You have a Schedule E loss • The student loan interest deduction. applied against passive income from the of $12,000 (current year losses plus prior • The tuition and fees deduction. same PTP in later years. If the partner’s year unallowed losses) and a Schedule D • The deduction for one-half of entire interest in the PTP is completely gain of $7,200. Report the $7,200 gain on self-employment taxes. disposed of, any unused losses are the appropriate line of Schedule D. On • The exclusion from income of interest allowed in full in the year of disposition. Schedule E (Form 1040), line 28, report from Series EE and I U.S. Savings Bonds $7,200 of the losses as a passive loss in used to pay higher education expenses. If you have an overall gain from a PTP, column (f). Carry forward to 2012 the • The exclusion of amounts received the net gain is nonpassive income. In unallowed loss of $4,800 ($12,000 − under an employer’s adoption assistance addition, the nonpassive income is $7,200). program. 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

the same activity of the PTP that must be allowance for the commercial Do not report passive income, gains, reported on different forms, you must revitalization deduction from rental real or losses from a PTP on Form 8582. estate activities is not subject to the active allocate the unallowed losses on a pro Instead, use the following rules to figure participation rules or modified adjusted rata basis to figure the amount allowed and report on the proper form or schedule gross income limits discussed above. See from each activity or on each form. your income, gains, and losses from Code Q, Commercial Revitalization passive activities that you held through Deduction, later. 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), gains (losses), and any prior year 8582. List each activity of the PTP in deductions, or credits from any activity to

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 only the same types of income and losses column (b) of Worksheet 5 according to relating to it on Schedule K-1 or on an you would include in your net income or attached statement. 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 activity, the partnership will provide a column (g), report the remaining the forms and schedules you normally statement allocating the interest income Schedule E gain of $3,500 ($8,000 − use. 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

apply to your partnership interest if the of $3,500. Be sure to enter “From PTP” to Note. For rules on the disposition of an

partnership made an election under the left of each entry space. entire interest reported using the

Regulations section 1.469-7(g) to avoid 3. If you have an overall loss (but did installment method, see the Instructions

for Form 8582. the application of these rules. See the not dispose of your entire interest in the

Instructions for Schedule K-1 (1065-B) -5-
Both the partnership and you must following the rules for Publicly traded

Specific Instructions meet the qualified nonrecourse rules on partnerships, earlier.

this debt before you can include the • If a loss is reported in box 1, follow the

amount shown next to “Qualified Instructions for Form 8582 to figure how Publicly Traded nonrecourse financing” in your at-risk much of the loss can be reported on

Partnership (PTP) computation. Schedule E (Form 1040), line 28, column

See (f). However, if the PTP box is checked, Limitations on Losses, If the “publicly traded partnership” box is Deductions, and Credits report the loss following the rules for checked, you are a partner in a publicly , earlier, for more Publicly traded partnerships. information on the at-risk limitations. traded partnership (PTP) and must follow

the rules under Publicly traded Box 2. Taxable Income (Loss)

partnerships discussed above. Boxes 1 Through 9 From Other Activities

The amounts shown in boxes 1 through 9 This amount is not subject to the passive Partner’s Share of reflect your share of income, loss, activity limitations. Report the amount as deductions, credits, etc., from the Liabilities follows. partnership. These amounts do not take • If the amount is income, report it on The partnership will show your share of into consideration the following Schedule E (Form 1040), line 28, column the partnership’s nonrecourse liabilities, limitations. (j). partnership-level qualified nonrecourse • The adjusted basis of your partnership • If the amount is a loss, report it on financing, and other liabilities as of the interest. Schedule A (Form 1040), line 28. end of the partnership’s tax year. If you • The amount for which you are at risk. terminated your interest in the partnership Note. If the amount of interest included • The passive activity limitations. during the tax year, the amounts should in box 2 includes interest from the credit For information on these provisions, reflect the share that existed immediately to holders of clean renewable energy see Limitations on Losses, Deductions, before the total disposition. A partner’s bonds or Midwestern tax credit bonds, the and Credits, earlier. “other liability” is any partnership liability partnership will attach a statement to

for which a partner is personally liable. For individuals, the following Schedule K-1 showing your distributive instructions explain how to report the share of interest income from these Use the total of the three amounts for amounts shown in the boxes. For all other credits. Because the basis in your computing the adjusted basis of your entities, report the amounts in the boxes partnership interest is increased by your partnership interest. as instructed on your income tax return. share of the interest income from these

Generally, you can use only the The line numbers in these instructions credits, you must reduce your bases by amounts shown next to “Qualified are references to forms in use for the same amount to offset the increase.

nonrecourse financing” and “Other” to calendar year 2011. If you file your tax See Line 4 of the Worksheet for Adjusting figure your amount at risk. Do not include return on a calendar year basis, but your the Basis of a Partner’s Interest in the

any amounts that are not at risk if such partnership files a return for a fiscal year, Partnership, earlier. amounts are included in either of these enter the amounts shown in the boxes on categories. Box 3. Qualified Dividends your tax return for the year in which the Report this amount on lines 9a and 9b of If your partnership is engaged in two or partnership’s fiscal year ends. For

more different types of activities subject to example, if the partnership’s tax year Form 1040.

the at-risk provisions, or a combination of ends on June 30, 2012, report the Note. Qualified dividends are excluded

at-risk activities and any other activity, the amounts in the boxes on your 2012 from investment income, but you can

partnership should give you a statement income tax return. elect to include part or all of these

showing your share of nonrecourse If you have losses, deductions, or amounts in investment income. See the

liabilities, partnership-level qualified credits from a prior year that were not instructions for line 4g of Form 4952,

nonrecourse financing, and other deductible or usable because of certain Investment Interest Expense Deduction,

liabilities for each activity. limitations, such as the basis rules or the for important information on making this

Qualified nonrecourse financing. at-risk limitations, take them into account election.

Qualified nonrecourse financing generally in determining your net income, loss, or If you have any foreign source includes financing for which no one is credits for this year. However, except for qualified dividends, see the personally liable for repayment that is passive activity losses and credits, do not

CAUTION

instructions for Box 9, Code K.

!

borrowed for use in an activity of holding combine the prior-year amounts with any

real property and that is loaned or amounts shown on this Schedule K-1 to Note. In the case of a corporate partner,

guaranteed by a federal, state, or local get a net figure to report on any the partnership will attach a statement to

government or borrowed from a supporting schedules, statements, or the Schedule K-1 explaining what part of

“qualified” person. Qualified nonrecourse forms attached to your return. Instead, the dividends included in box 3 is eligible

financing secured by real property used in report the amounts separately on the for the “dividends received by

an activity of holding real property that is attached schedule, statement, or form on corporations deduction” under section

subject to the at-risk rules is treated as an a year-by-year basis. 243(a), (b), or (c).

amount at risk. For amounts other than those shown Box 4a. Net Capital Gain or Qualified persons. Qualified persons on Schedule K-1, enter each item on a (Loss) From Passive Activities include any persons actively and regularly separate line of Part II of Schedule E

engaged in the business of lending (Form 1040). Limited partners only. The net capital

money, such as a bank or savings and gain (loss) reported in box 4a, is treated Box 1. Taxable Income (Loss) loan association. Qualified persons as being from a trade or business that is a

generally do not include related parties From Passive Activities single passive activity. If a net capital gain

(unless the nonrecourse financing is Limited partners only. Any amount is reported in box 4a, report the gain on

commercially reasonable and on Schedule D (Form 1040), line 12. reported in box 1 is treated as being from substantially the same terms as loans a trade or business that is a single If a loss is reported in box 4a, report it involving unrelated persons), the seller of passive activity. Report this amount as following the Form 8582 instructions to the property, or a person who receives a follows. figure how much of the loss can be fee for the partnership’s investment in the • If income is reported in box 1, report reported on Schedule D (Form 1040), line real property. the income on Schedule E (Form 1040), 12. However, if the PTP box is checked,

See Pub. 925 for more information on line 28, column (g). However, if the PTP report the loss following the rules for

qualified nonrecourse financing. box is checked, report the income Publicly traded partnerships.

-6- Instructions for Schedule K-1 (1065-B)
If you have any foreign source attributable to passive loss limitation Code A4. General partner’s general

capital gains or losses, see the activities to the extent necessary to credits from trade or business

CAUTION

instructions for Box 9, Code K. comply with the section 469 passive loss activities. Report the general credits on

!

rules. Therefore, the partnership is line 1bb of Form 3800, Part III. If you did Box 4b. Net Capital Gain or required to report income or (loss), capital not materially participate in the trade or

(Loss) From Other Activities gain or (loss), 28% rate gain or (loss), business activity, you must also report the

Net capital gain or (loss) from other credits, and the alternative minimum tax general credits on Form 3800, Part III as

activities is not subject to the passive adjustment separately for all trade or a credit from a passive activity.

activity limitations. Report the gain or business activities, rental real estate Code A5. General partner’s alternative

(loss) on Schedule D (Form 1040), line activities, and rental activities other than minimum tax adjustment from trade or

12. rental real estate. business activities. Generally, an AMT

Code A1. General partner’s taxable adjustment must be reported on line 16 of If you have any foreign source income (loss) from trade or business Form 6251. However, if the AMT capital gains or losses, see the activities. Report Code A1 income adjustment is from a passive activity, it

CAUTION

instructions for Box 9, Code K.

!

(loss) from partnership trade or business must be taken into account on line 19 with

Box 5. Net Passive AMT activities in which you materially adjustments and preferences from other

participated on Schedule E (Form 1040), passive activities. Adjustment line 28, column (h) or (j). See the Code B1. General partner’s taxable Limited partners only. Use this amount instructions to determine whether you income (loss) from rental real estate (as well as your adjustments and tax materially participated in a trade or activities. Generally, the income or preference items from other sources) to business activity. (loss) reported in box 9, Code B1, is a prepare your Form 6251, Alternative passive activity amount for all general Report Code A1 income or (loss) from Minimum Tax— Individuals; Form 4626, partners. However, the income or (loss) in partnership trade or business activities in Alternative Minimum Tax—Corporations; box 9 is not from a passive activity if you which you did not materially participate as or Schedule I (Form 1041), Alternative were a real estate professional and you follows. Minimum Tax—Estates and Trusts. The materially participated in the activity. adjustment is treated as being from a 1. Report any income on Schedule E Use the following instructions to (Form 1040), line 28, column (g). trade or business that is a single passive determine where to enter the Code B1 activity. However, if the PTP box on Schedule K-1 amount. is checked, report the income following Individuals should enter the amount on the rules for Publicly traded partnerships. 1. If you have a loss from a passive line 19 of Form 6251, where it is taken 2. Report a loss following the activity in box 9, Code B1, and you meet into account with adjustments and Instructions for Form 8582 to figure how all of the following conditions, enter the preferences from other passive activities. much of the loss can be reported on loss on Schedule E (Form 1040), line 28,

Box 6. Net Other AMT Schedule E (Form 1040), line 28, column column (f).

Adjustment (f). However, if the PTP box is checked, a. You actively participated in the

report the loss following the rules for partnership rental real estate activities. Individual general and limited partners Publicly traded partnerships See Special allowance for rental real . should enter this amount on line 16 of estate activities, earlier. Form 6251. Code A2. General partner’s net capital b. Rental real estate activities with

Box 7. General Credits gain or (loss) from trade or business active participation were your only

activities. If you did not materially passive activities. Limited partners only. Enter this amount participate in the trade or business c. You have no prior year unallowed from box 7 on line 1bb of Form 3800, Part activity, the net capital gain or (loss) is a losses from these activities. III, General Business Credit. Because passive activity amount. If the amount is d. Your total loss from the rental real general credits are treated as being from either (a) a loss that is not from a passive estate activities was not more than a trade or business that is a single activity or (b) a gain, report it on Schedule $25,000 (not more than $12,500 if passive activity, you must also report the D (Form 1040), line 12. married filing separately and you lived box 7 amount on Form 3800, Part III as a apart from your spouse all year). credit from a passive activity. If the amount is a loss from a passive e. If you are a married person filing activity, report it following the Instructions Box 8. Low-Income Housing separately, you lived apart from your for Form 8582 to figure how much of the Credit spouse all year. loss can be reported on Schedule D f. You have no current or prior year Limited partners only. Enter the amount (Form 1040), line 12. However, if the PTP unallowed credits from a passive activity. reported in box 8 of Schedule K-1 on line box is checked, report the loss following g. Your modified adjusted gross 4 of Form 8586, Low-Income Housing the rules for Publicly traded partnerships. income was not more than $100,000 (not Credit. If an amount is reported in box 8, Code A3. General partner’s 28% rate more than $50,000 if married filing all of the low-income housing credit is for gain (loss) from trade or business separately and you lived apart from your buildings placed in service before 2008. If activities. If you did not materially spouse all year). any of the low-income housing credit is participate in the trade or business for buildings placed in service after 2007, 2. If you have a (loss) from a passive activity, the 28% rate gain or (loss) is a activity in box 9 and you do not meet all the partnership will enter “STMT” in box 8 passive activity amount. If the amount is and attach a statement which lists the conditions in 1 above, report the loss either (a) a loss that is not from a passive separately the amount of the credit for following the Instructions for Form 8582 to activity or (b) a gain, include it on line 4 of buildings placed in service prior to 2008 figure how much of the loss you can the 28% Rate Gain Worksheet in the (reported on line 4 of Form 8586), and the report on Schedule E (Form 1040), line Instructions for Schedule D (Form 1040). amount for buildings placed in service 28, column (f). However, if the PTP box is

after 2007 (reported on line 11 of Form If the amount is a loss from a passive checked, report the loss following the

8586). See the Instructions for Form 8586 activity, report it following the Instructions rules for Publicly traded partnerships.

for more information. 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% professional and you materially Box 9. Other Rate Gain Worksheet in the Instructions participated in the activity, report box 9

for Schedule D (Form 1040). However, if income or (loss) on Schedule E (Form Codes A Through C the PTP box is checked, report the loss 1040), line 28, column (h) or (j).

General partners in an ELP must following the rules for Publicly traded 4. If you have income from a passive

separately account for any items partnerships. activity in box 9, Code B1, enter the

Instructions for Schedule K-1 (1065-B) -7-
income on Schedule E (Form 1040), line Code B7. General partner’s alternative trade or business that is a single passive

28, column (g). However, if the PTP box minimum tax adjustment from rental activity. If a gain is reported, include it on

is checked, report the income following real estate activities. An AMT line 4 of the 28% Rate Gain Worksheet in

the rules for Publicly traded partnerships. adjustment must be reported on line 16 of of the Instructions for Schedule D (Form

Form 6251. However, if the AMT 1040). Code B2. General partner’s net capital adjustment is from a passive activity, it If a loss is reported, report the loss gain or (loss) from rental real estate must be taken into account on line 19 with following the Instructions for Form 8582 to activities (for the entire year). The net other passive activities instead of being figure how much of the loss can be capital gain or (loss) from a rental real reported on line 16. included on line 4 of the 28% Rate Gain estate activity is a passive activity amount Code C1. General partner’s taxable Worksheet in the Instructions for unless you were a real estate income or (loss) from other rental Schedule D (Form 1040). However, if the professional and you materially activities. Income (loss) reported in box PTP box is checked, report the loss participated in the activity. If the amount is 9, Code C1, is a passive activity amount following the rules for Publicly traded either (a) a loss that is not from a passive for all general partners. Report a loss partnerships. activity or (b) a gain, report it on Schedule following the Instructions for Form 8582. D (Form 1040), line 12. Report income on Schedule E (Form Code E. Limited Partner’s 28%

If the amount is a loss from a passive Rate Gain or (Loss) From Other 1040), line 28, column (g). However, if the activity, report it following the Instructions PTP box is checked, report the income Activities

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

Publicly traded partnerships. activities. The net capital gain (loss) Instructions for Schedule D (Form 1040).

Code B3. General partner’s 28% rate from other rental activities is a passive Code F. Guaranteed Payments gain or (loss) from rental real estate activity amount for all general partners. activities. The 28% rate gain or (loss) Generally, these amounts are not passive Report the gain on Schedule D (Form from a rental real estate activity is a income. Report them on Schedule E 1040), line 12. Report a loss following the passive activity amount unless you were (Form 1040), line 28, column (j) (for Instructions for Form 8582 to figure how

a example, guaranteed payments for real estate professional and you much of the loss can be reported on materially participated in the activity. If the personal services). Schedule D (Form 1040), line 12. amount is either (a) a loss that is not from However, if the PTP box is checked, Code G. Income From Discharge of a passive activity or (b) a gain, include it report the loss following the rules for Indebtedness on line 4 of the 28% Rate Gain Publicly traded partnerships. Worksheet The amount reported under Code G is in the Instructions for Code C3. General partner’s 28% rate excluded from your gross income to the Schedule D (Form 1040). gain or (loss) from other rental extent provided in section 108 if the If the amount is a loss from a passive activities. The 28% rate gain or (loss) discharge: activity, report it following the Instructions from other rental activities is a passive • Occurred in a title 11 case relating to for Form 8582 to figure how much of the activity amount for all general partners. If bankruptcy, loss can be included on line 4 of the 28% the amount is a gain, include it on line 4 • Occurred when you were insolvent, Rate Gain Worksheet in the Instructions of the 28% Rate Gain Worksheet in the • Involved qualified farm indebtedness, for Schedule D (Form 1040). However, if Instructions for Schedule D (Form 1040). as defined in section 108(g), or the PTP box is checked, report the loss Report a loss following the Instructions for • Involved qualified real property following the rules for Publicly traded Form 8582 to figure how much of the loss business indebtedness, as defined in partnerships. can be included on line 4 of the 28% Rate section 108(c)(3), unless the partner is a Code B4. General partner’s general Gain Worksheet in the Instructions for C corporation.

credits from rental real estate Schedule D (Form 1040). However, if the This amount is applied, instead, to activities. Report the general credits on PTP box is checked, report the loss reduce certain tax attributes. File Form line 1bb of Form 3800. Unless you were a following the rules for Publicly traded 982, Reduction of Tax Attributes Due to real estate professional partnerships. and materially Discharge of Indebtedness (and Section participated in the rental real estate Code C4. General partner’s general 1082 Basis Adjustment), to explain why activity, you must also report the general credits from other rental activities. any amount received from the discharge credits on Form 3800, Part III as a credit Report the general credits on line 1bb of of indebtedness should be excluded and from a passive activity. Form 3800, Part III. Because general to report your reduction of tax attributes. Code B5. General partner’s credits from other rental activities are For a discharge of indebtedness not passive activity credits for all general low-income housing credit from rental described above, you must include this real estate activities. Report the partners, you must also report the general amount in income on line 21 of Form credits on Form 3800, Part III as a credit low-income housing credit on line 4 of 1040. Form 8586 for buildings placed in service from a passive activity.

before 2008, and on line 11 of Form 8586 Code C5. General partner’s alternative Code H. Tax-Exempt Interest

for buildings placed in service after 2007. minimum tax adjustment from other Income

Unless you were a real estate rental activities. An AMT adjustment Report on your income tax return, as an professional and materially participated in must be reported on line 16 of Form item of information, your share of the the rental real estate activity, the 6251. However, if the AMT adjustment is tax-exempt interest received or accrued low-income housing credit is a passive from a passive activity, it must be taken by the partnership during the year. activity credit. into account on line 19 with adjustments Individual partners must include this

Code B6. General partner’s and preferences from other passive amount on Form 1040, line 8b. Increase

rehabilitation credit from rental real activities instead of being reported on line the adjusted basis of your interest in the

estate activities. Report the 16. partnership by this amount.

rehabilitation credit on line 11m of Form Code D. Limited Partner’s 28% Code I. Limited Partner’s 3468, Investment Credit. Unless you were Rate Gain or (Loss) From Passive Rehabilitation Credit From Rental a real estate professional and materially

participated in the rental real estate Activities Real Estate Activities

activity, the credit is a passive activity Limited partners only. The 28% rate Limited partners only. Report this

credit, and you must also file Form 3800. gain or (loss) is treated as being from a amount on line 11m of Form 3468.

-8- Instructions for Schedule K-1 (1065-B)
Because the credit is treated as being include income that you determined to be Code K9. Reduction in taxes available

from a single passive activity, you must U.S. source income. for credit. Enter this amount on line 12

also file Form 3800. of Form 1116. Codes K4(a) Through K4(c). Foreign

Codes J1 and J2. Self-Employment gross income sourced at partnership Code L. Oil and Gas Activities

level. The following types of income Generally, oil and gas income, Code J1. Net earnings or (loss) from have already been sourced for you by the deductions, credits, and other items are self-employment. Enter this amount on partnership. Include these amounts on included in your distributive share of Schedule SE (Form 1040), line 2, Section lines 1a and 3d of the applicable Form income or loss from passive loss A or B, whichever is applicable. General 1116 (that is, the Form 1116 for each limitation activities, general credits, and partners should reduce this amount by category of income provided to you). the alternative minimum tax adjustment. unreimbursed partnership expenses • Code K4(a). Passive category claimed. General partners who are However, distributive shares of all oil foreign source income. disqualified persons also should reduce and gas income, deductions, credits, and • Code K4(b). General category this amount by depletion claimed on oil other items are separately reported to foreign source income. and gas properties. If this amount is a partners who are disqualified persons in • Code K4(c). Other foreign source loss, enter only the deductible amount on accordance with the regular partnership income.

Schedule SE. For purposes of rules, here or on an attached statement.

self-employment tax, no income from an Code K5. Interest expense allocated Note. A partner must notify the ELP of

ELP is treated as farming or fishing and apportioned at the partner level. its status as a “disqualified person.”

income. Include this amount on line 4b of the

applicable Forms 1116. Codes M1 Through M9. Code J2. Gross nonfarm income. Miscellaneous

Individual partners use this amount to Code K6. Other expenses allocated

and apportioned at the partner level. Code M1. Other tax-exempt income. figure net earnings from self-employment

under the nonfarm optional method on Include this amount on line 2 of the Increase the adjusted basis of your

Schedule SE (Form 1040), Section B, applicable Forms 1116. interest in the partnership by this amount,

Part II. but do not include it in income on your Note. For Codes K5 and K6, do not income tax return. include any expenses allocated and Codes K1 Through K9. Foreign Tax Note. The partnership will attach a apportioned to U.S. source income on Credit Information statement to Schedule K-1 for the amount any line of Part I of Form 1116. Use the information reported under included in Box 9, Code M-1 that is

Codes K1 through K9 to figure your Codes K7(a) Through Codes K7(c). exempt due to section 892 and describe

foreign tax credit.Caution. Taxpayers Deductions allocated and apportioned the nature of the income.

filing Form 1116 - If you have any at partnership level to foreign source Code M2. Nondeductible expenses. qualified dividends, capital gains income. The following codes report the Decrease the adjusted basis of your (including any capital gain distributions) or expenses allocated and apportioned by interest in the partnership by this amount. capital losses, you may have to make the partnership to foreign source The nondeductible expenses paid or certain adjustments to those amounts categories of income. Include these incurred by the partnership are not before taking them into account on Form amounts on line 2 of the applicable Forms deductible on your income tax return, but 1116. For more information, see Form 1116 (that is, the Forms 1116 for each they do affect your basis. 1116, Foreign Tax Credit (Individual, category of income provided to you). Code M3. Unrelated business taxable Estate, or Trust) and its instructions; Form • Code K7(a). Deductions allocated income. The partnership must give you 1118, Foreign Tax Credit—Corporations, and apportioned at partnership level to any information you need to figure and its instructions; and Pub. 514, passive category foreign source unrelated business taxable income under Foreign Tax Credit for Individuals. See income. section 512(a)(1) (but excluding any page 4 of the Instructions for Form 1116 • Code K7(b). Deductions allocated modifications required by paragraphs (8) for detailed instructions for reporting and apportioned at partnership level to through (15) of section 512(b)) for a foreign tax information from partnerships. general category foreign source partner that is a tax-exempt organization. income. Code K1. Name of foreign country or • Code K7(c). Deductions allocated Reminder. A partner is required to notify U.S. possession. Include on Form and apportioned at partnership level to the partnership of its tax-exempt status. 1116, Part I, item g. For each country other foreign source income. Code M4. Health insurance. Include reported, the partnership must give you Code K8(a). Total foreign taxes paid. any amounts paid during the tax year for the amount and a description of your

Include this amount in Part II of Form insurance that constitutes medical care share of the following items for Codes K2

1116. for you, your spouse, your dependents, through K9. For each country or and your children under age 27 who are possession being reported, a separate Code K8(b). Total foreign taxes not dependents on line 29 of your 2011 column in Part I and a separate line in accrued. Include this amount in Part II of Form 1040. You may be allowed to Part II is needed on Form 1116. Form 1116. deduct such amounts, even if you do not Code K2. Gross income from all Note. The partnership will attach a itemize deductions. If you do itemize

sources. Enter this amount on line 3e of statement that separately identifies any deductions, enter on line 1 of Schedule A Form 1116. arrangement, along with the taxes paid or (Form 1040) any amounts not deducted

Code K3. Gross income sourced at accrued in connection with the on line 29 of Form 1040.

partner level. Although all this income arrangement, in which the partnership Code M5. Distributions of money (cash

reported has been apportioned to foreign participates that would qualify as a splitter and marketable securities). This

source categories of income, you must arrangement under Section 909 if one or amount includes the distributions the

nevertheless determine whether the more partners are covered persons with partnership made to you of cash and

income being reported is U.S. source respect to an entity that took into account certain marketable securities. The

income or foreign source income. See the related income from the arrangement. marketable securities are included at their

Instructions for Form 1116 for the rules to The statement will also indicate whether fair market value (FMV) on the date of

source the income reported to you. Enter the partnership has taken into account distribution (minus your share of the

only foreign source income on lines 1a any related income from any such splitter partnership’s gain on the securities

and 3d of Form 1116. A separate Form arrangement. See section 909 and the distributed to you). If this amount exceeds

1116 or 1118 is required for each foreign related regulations for rules regarding the adjusted basis of your partnership

source category of income. Do not splitter arrangements. interest immediately before the

Instructions for Schedule K-1 (1065-B) -9-
distribution, the excess is treated as gain • The partnership’s adjusted basis • Your distributive share of the gain that

from the sale or exchange of your immediately before the distribution or was deferred by the partnership under

partnership interest. Generally, this gain • The adjusted basis of your partnership section 1045.

is treated as gain from the sale of a interest reduced by any cash distributed Corporate partners are not eligible for capital asset and should be reported on in the same transaction. the section 1045 rollover. To qualify for the Schedule D for your return. However, If you received the property in the section 1045 rollover: the gain may be ordinary income. For liquidation of your interest, your basis in • You must have held an interest in the details, see Pub. 541. the distributed property is equal to the partnership during the entire period in

The partnership must separately adjusted basis of your partnership interest which the partnership held the QSB stock

identify both of the following. reduced by any cash distributed in the (more than 6 months prior to the sale)

• The FMV of the marketable securities same transaction. and

when distributed (minus your share of the • Your distributive share of the gain If you contributed appreciated property gain on the securities distributed to you). eligible for the section 1045 rollover to the partnership within 7 years of a • The partnership’s adjusted basis of cannot exceed the amount that would distribution of other property to you, and those securities immediately before the have been allocated to you based on your the FMV of the other property exceeded distribution. interest in the partnership at the time the the adjusted basis of your partnership QSB stock was acquired. Decrease the adjusted basis of your interest immediately before the

interest in the partnership (but not below distribution (reduced by any cash See the Instructions for Schedule D

zero) by the amount of cash distributed to (Form 1040) for details on how to report received in the distribution), you may

you and the partnership’s adjusted basis have to recognize gain on the appreciated the gain and the amount of the allowable

of the distributed securities. Advances or property. See section 737 for details. postponed gain.

drawings of money or property against Code M7. Gain eligible for section 1202 Opting out of partnership election. your distributive share are treated as You can opt out of the partnership’s exclusion. This gain from the sale or current distributions made on the last day section 1045 election and either (1) exchange of qualified small business of the partnership’s tax year. recognize the gain or (2) elect to (QSB) stock (as defined in the

Your basis in the distributed Instructions for Schedule D) is eligible for purchase different replacement QSB

stock, either directly or through ownership marketable securities (other than in the partial section 1202 exclusion. The of a partnership that acquired liquidation of your interest) is the smaller partnership must also provide you with: replacement QSB stock. You satisfy the of: • The name of the corporation that requirement to purchase replacement • The partnership’s adjusted basis in the issued the QSB stock, QSB stock if you own an interest in a securities immediately before the • Your share of the partnership’s partnership that purchases QSB stock distribution increased by any gain adjusted basis of the QSB stock, during the 60-day period. You also must recognized on the distribution of the • Your share of the partnership’s sales notify the partnership, in writing, if you opt securities or price of the QSB stock, and out of the partnership’s section 1045 • The adjusted basis of your partnership • The dates the QSB stock was bought election. If you recognize gain, you must interest reduced by any cash distributed and sold.

notify the partnership, in writing, of the in the same transaction and increased by Corporate partners are not eligible for amount of gain that you are recognizing. any gain recognized on the distribution of the section 1202 exclusion. The following the securities. Code M9. Gain eligible for section 1045 additional limitations apply at the partner rollover–stock not replaced. This gain If you received the securities in level. is eligible for the section 1045 rollover. liquidation of your partnership interest, • You must have held an interest in the Replacement stock has not been your basis in the marketable securities is partnership when the partnership purchased by the partnership. The equal to the adjusted basis of your acquired the QSB stock and at all times partnership must also provide you with: partnership interest reduced by any cash thereafter until the partnership disposed • The name of the corporation that distributed in the same transaction and of the QSB stock. issued the qualified small business (QSB) increased by any gain recognized on the • Your distributive share of the eligible stock, distribution of the securities. section 1202 gain cannot exceed the • Your share of the partnership’s amount that would have been allocated to If, within 7 years of a distribution to you adjusted basis of the QSB stock, you based on your interest in the of marketable securities, you contributed • Your share of the partnership’s sales partnership at the time the QSB stock appreciated property (other than those price of the QSB stock, was acquired. securities) to the partnership and the FMV • The dates the QSB stock was bought

of those securities exceeded the adjusted See the Instructions for Schedule D and sold, and

basis of your partnership interest (Form 1040) for details on how to report • Your distributive share of the gain from

immediately before the distribution the gain and the amount of the allowable the sale of the QSB stock.

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

Code M6. Distributions of property Replacement stock has been purchased partnership during the entire period in

other than money. Box 9, Code M6, by the partnership. The partnership must which the partnership held the QSB stock

shows the partnership’s adjusted basis of also provide you with: (more than 6 months prior to the sale),

property other than money immediately • The name of the corporation that • Your distributive share of the gain

before the property was distributed to issued the qualified small business (QSB) eligible for the section 1045 rollover

you. In addition, the partnership should stock, cannot exceed the amount that would

attach a statement showing the cost basis • Your share of the partnership’s have been allocated to you based on your

and FMV of each property distributed. adjusted basis of the QSB stock, interest in the partnership at the time the

Decrease the adjusted basis of your • Your share of the partnership’s sales stock was acquired, and

interest in the partnership by the amount price of the QSB stock, • You must purchase other QSB stock

of your basis in the distributed property. • The dates the QSB stock was bought (as defined in the Instructions for

Your basis in the distributed property and sold, Schedule D (Form 1040)) during the

(other than in liquidation of your interest) • Your distributive share of gain from the 60-day period that began on the date the

is the smaller of: sale of the QSB stock, and QSB stock was sold by the partnership.

-10- Instructions for Schedule K-1 (1065-B)
See the Instructions for Schedule D Codes O1 and O2. Extraterritorial Code Q. Commercial Revitalization

(Form 1040) for details on how to report Income Exclusion Deduction

the gain and the amount of the allowable Partnership did not claim the Follow the Instructions for Form 8582 for postponed gain. exclusion. If the partnership reports commercial revitalization deductions from

Making the section 1045 election. your distributive share of foreign trading rental real estate activities to figure how

You make a section 1045 election on a gross receipts (Code O1) and the much of the deduction can be reported on

timely filed return for the tax year during extraterritorial income exclusion (Code Schedule E (Form 1040), line 28, column

which the partnership’s tax year ends. O2), the partnership was not entitled to (f).

Attach to your Schedule D (Form 1040) a claim the exclusion because it did not Note. The commercial revitalization statement that includes the following meet the foreign economic process deduction is not available for any building information for each amount of gain that requirements. You may still qualify for placed in service after December 31, you do not recognize under section 1045. your distributive share of this exclusion if 2009. • The name of the corporation that the partnership’s foreign trading gross issued the QSB stock. Codes R1 and R2. Interest receipts for the tax year were $5 million or • The name and EIN of the selling less. Deduction Limitation for Corporate partnership. Partners To qualify for this exclusion, your • The dates the QSB stock was foreign trading gross receipts from all A corporate partner is required to treat its purchased and sold. sources for the tax year also must have distributive share of interest income, • The amount of gain that is not been $5 million or less. interest expense, and partnership recognized under section 1045. liabilities as income, expense, and • If a partner purchases QSB stock, the Limited partners who qualify for the liabilities of the corporation for purposes name of the corporation that issued the exclusion. Report the extraterritorial of the interest deduction limitation under replacement QSB stock, the date the exclusion amount (Code O2) as a section 163(j). The corporation’s stock was purchased, and the cost of the deduction reducing the amount reported distributive share of interest income is stock. in box 1 (see the box 1 instructions, reported in box 9 using code R1. Its • If a partner treats the partner’s interest earlier). distributive share of interest expense is in QSB stock that is purchased by a General partners who qualify for the reported using code R2. The amounts purchasing partnership as the partner’s exclusion. Report the Code O2 amount reported using code R1 and R2 are for replacement QSB stock, the name and in accordance with the instructions for box information only, and are included in EIN of the purchasing partnership, the 9, Code A1, B1, or C1, whichever applies. amounts reported elsewhere on Schedule name of the corporation that issued the See Form 8873, Extraterritorial Income K-1. The corporation’s distributive share QSB stock, the partner’s share of the cost Exclusion, for more information. of partnership liabilities is shown in the of the QSB stock that was purchased by Partnership claimed the exclusion. If first column of Schedule K-1. the partnership, the computation of the the partnership reports your distributive partner’s adjustment to basis with respect Code S1. Domestic Production share of foreign trading gross receipts to that QSB stock, and the date the stock Activities Information (Code O1) but not the amount of the was purchased by the partnership. extraterritorial income exclusion, the The partnership must attach a statement

Distribution of replacement QSB stock partnership met the foreign economic to Schedule K-1 that provides the

to a partner that reduces another process requirements and claimed the information you need to figure the

partner’s interest in replacement QSB exclusion when figuring your distributive domestic production activities deduction.

stock. You must recognize gain upon a share of partnership income. You also Use Form 8903, Domestic Production

distribution of replacement QSB stock to may need to know the amount of your Activities Deduction, to figure this

another partner that reduces your share distributive share of foreign trading gross deduction. See the Instructions for Form

of the replacement QSB stock held by a receipts from this partnership to 8903 for details.

partnership. The amount of gain that you determine if you met the $5 million or less Code S2. Qualified Production must recognize is based on the amount of exception discussed above for purposes Activities Income (QPAI) gain that you would recognize upon the of qualifying for an extraterritorial income sale of the distributed replacement QSB exclusion from other sources. Report the QPAI reported to you by the

stock for its fair market value on the date partnership (in box 9 using code S2) on Note. Upon request, the partnership of the distribution, but not to exceed the Form 8903, in the applicable column of should furnish you a copy of the amount you previously deferred under line 7. partnership’s Form 8873 if there is a section 1045 with respect to the reduction for international boycott Code S3. Employer’s W-2 Wages distributed replacement QSB stock. If the

partnership distributed your share of operations, illegal bribes, kickbacks, etc. Report the portion of W-2 wages reported

replacement QSB stock to another to you by the partnership (in box 9 using Code P. Inversion Gain

partner, the partnership should give you code S3) on line 17 of Form 8903. The partnership must provide a statement (a) the name of the corporation that showing the amounts of each type of Code T. Section 409A Income issued the replacement QSB stock, (b) income or gain that is included in This is compensation to partners deferred the date the replacement QSB stock was inversion gain. The partnership has under a section 409A nonqualified distributed to another partner or partners, included inversion gain in income deferred compensation plan that does not and (c) your share of the partnership’s elsewhere on Schedule K-1. Inversion meet the requirements of section 409A. adjusted basis and fair market value of gain is also reported under Code P This amount is also reported in box 9 the replacement QSB stock on such date. because your taxable income and using Code F. This amount is subject to For more information, see Regulations alternative minimum taxable income interest and additional tax to be reported section 1.1045-1. cannot be less than the inversion gain. on line 60 of Form 1040. See the

Also, your inversion gain (a) is not taken instructions for line 60 of Form 1040 for Code N. Unrecaptured Section into account in figuring the amount of net details. 1250 Gain operating loss (NOL) for the tax year or

Report this gain on line 11 of the the amount of NOL that can be carried Code U. Other Information

Unrecaptured Section 1250 Gain over to each tax year, (b) may limit the The partnership will use Code U to report

Worksheet in the Instructions for amount of your credits, and (c) is treated the following to partners.

Schedule D (Form 1040). Do not report as income from sources within the U.S. • The recapture of any credit (other than

the gain on line 5 as stated on the for the foreign tax credit. See section partnership level low-income housing

worksheet. 7874 for details. credit or investment credit) is reported to

Instructions for Schedule K-1 (1065-B) -11-
you as a separately stated item. See the sold or exchanged by the partnership. If this report on an attached statement to

instructions for the specific form identified the partner is not a financial institution (as partners that are a corporation identified

with the credit for more information on defined below), report the gain or loss on as a foreign partner under Regulations

reporting the recapture. line 5 or line 12 of Schedule D (Form section 1.1446-1(c)(3) or partners that are

• Any information a partner that is a 1040) in accordance with the instructions a partnership (domestic or foreign) if the

publicly traded partnership may need to for Schedule D. If a partner is a financial reporting partnership knows, or has

determine if it meets the 90% qualifying institution referred to in section 582(c)(2) reason to know, that one or more of the

income test of section 7704(c)(2). or a depositary institution holding partners is a foreign corporation. If the

Partners are required to notify the company (as defined in section 3(w)(1) of partnership allocates effectively

partnership of their status as a publicly the Federal Deposit Insurance Act), report connected income to the partner, the

traded partnership. the gain or loss in accordance with the statement will contain the information

• Any information you need to complete Instructions for Form 4797 and Rev. Proc. needed to complete lines 1 through 9, 12,

a disclosure statement for reportable 2008-64, 2008-47 I.R.B. 1195. 13, 14b, 16a, 16b, and 17 of Schedule P

transactions in which the partnership • If the partnership made a section 108(i) (Form 1120-F). If the partnership does not

participates. If the partnership participates election or allocates any section 108(i) allocate effectively connected income to

in a transaction that must be disclosed on items to its partners, it will provide a the partner, the statement will contain the

Form 8886, Reportable Transaction statement identifying your distributive information needed to complete lines

Disclosure Statement, both you and the share of the following. 12,13, and 17 of Schedule P (Form

partnership may be required to file Form 1. The deferred section 108(i) 1120-F), information that might be

8886 for the transaction. The cancellation of debt (COD) income that relevant for purposes of completing

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 expense deduction under Regulations current or prior tax years. 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 each separate bond credit that was section 108(i)(2)(A)(i) that has not been 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 credit, Midwestern tax credit bond credit, year. 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 credit, and build America bond credit. special rule for allocating deferred income (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 statement showing the aggregate gross your distributive share of the partnership’s 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 limitation. See section 461(j) for details. section 108(i)(2)(A)(ii) or section (Freddie Mac). The partnership will report 108(i)(5)(D)(i) or (ii). • Any other information you may need to

on an attached statement the amount of • The information needed to complete file with your return not shown elsewhere

gain or loss attributable to the sale or Schedule P (Form 1120-F), List of on Schedule K-1. The partnership must

exchange of the qualified preferred stock, Foreign Partner Interests in Partnerships. give you a description and the amount of

the date the stock was acquired by the When required, the partnership will make your share for each of these items.

partnership, and the date the stock was

-12- Instructions for Schedule K-1 (1065-B)