Department of the Treasury 2009 Internal Revenue Service

Partner’s Instructions for

Schedule K-1 (Form

1065-B)

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

(For Partner’s Use Only)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cat. No. 26141W
items required to be reported, and the actually lose in the activity. However, if Elections $100,000 maximum does not apply. you acquired your partnership interest Generally, the partnership decides how to before 1987, the at-risk rules do not apply figure taxable income from its operations. to losses from an activity of holding real International Boycotts However, two elections are made by you property placed in service before 1987 by Every partnership that had operations in, separately on your income tax return and the partnership. The activity of holding or related to, a boycotting country, not by the partnership. These elections mineral property does not qualify for this company, or a national of a country must are made under the following code exception. The partnership should identify file Form 5713, International Boycott sections. on an attachment to Schedule K-1 the

Report. • Section 108(b)(5) (income from the amount of any losses that are not subject discharge of indebtedness). to the at-risk limitations. If the partnership cooperated with an • Section 901 (foreign tax credit). international boycott, it must provide you Generally, you are not at risk for

with a copy of its Form 5713. As a amounts such as the following. Additional Information general or limited partner, you must file • Nonrecourse loans used to finance the

your own Form 5713 to report the For more information on the treatment of activity, to acquire property used in the

partnership’s activities and any other partnership income, deductions, credits, activity, or to acquire your interest in the

boycott operations that you may have. etc., see the following: activity, that are not secured by your own

You may lose certain tax benefits if the • Pub. 541, Partnerships; property (other than the property used in

partnership participated in, or cooperated • Pub. 535, Business Expenses; and the activity). See the instructions for

with, an international boycott. See Form • Pub. 925, Passive Activity and At-Risk Partner’s Share of Liabilities on page 6 for Rules. 5713 and its instructions for more the exception for qualified nonrecourse

information. To get forms and publications, see the financing secured by real property.

instructions for your tax return. • Cash, property, or borrowed amounts

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

the activity) that are protected against General Partner Deductions, and Credits loss by a guarantee, stop-loss agreement, A general partner is a partner who is There are three separate potential or other similar arrangement (excluding personally liable for partnership debts. limitations on the amount of partnership casualty insurance and insurance against

losses that you can deduct on your return. tort liability). Limited Partner These limitations and the order in which • Amounts borrowed for use in the

A limited partner is a partner in a you must apply them are as follows: the activity from a person who has an interest

partnership formed under a state limited basis rules, the at-risk limitations, and the in the activity, other than as a creditor, or

partnership law, whose personal liability passive activity limitations. Each of these who is related, under section 465(b)(3), to

for partnership debts is limited to the limitations is discussed separately below. a person (other than you) having such an

amount of money or other property that interest. Basis Rules the partner contributed or is required to You should get a separate statement contribute to the partnership. Some Generally, you cannot claim your share of of income, expenses, etc., for each members of other entities, such as a partnership loss (including a capital activity from the partnership. domestic or foreign business trusts or loss) to the extent that it is greater than

limited liability companies that are the adjusted basis of your partnership Passive Activity Limitations

classified as partnerships, may be treated interest at the end of the partnership’s tax Section 469 provides rules that limit the as limited partners for certain purposes. year. Any losses and deductions not deduction of certain losses and credits.

For example, see Temporary Regulations allowed this year because of the basis These rules apply to partners who: section 1.469-5T(e)(3), which treats all limit can be carried forward indefinitely • Are individuals, estates, trusts, closely members with limited liability as limited and deducted in a later year subject to the held corporations (other than S partners for purposes of section 469(h)(2) basis limit for that year. corporations), or personal service (relating to the passive activity loss The partnership is not responsible for corporations and limitation rules). keeping the information needed to figure • Have a passive activity loss or credit for the basis of your partnership interest. You the tax year. Disqualified Person can figure the adjusted basis of your Individuals, estates, and trusts. If you If you are a partner in a partnership partnership interest by adding items that have a passive activity loss or credit, use holding oil and gas properties, you are a increase your basis and then subtracting Form 8582, Passive Activity Loss “disqualified person” if: items that decrease your basis. Limitations, to figure your allowable Use the worksheet on page 3 to figure passive losses and Form 8582-CR, • You are an oil or natural gas retailer

described in section 613A(d)(2) or crude the basis of your interest in the Passive Activity Credit Limitations, to partnership. oil refiner described in section 613A(d)(4) figure your allowable passive credits.

or Note. Additional basis adjustments may If the publicly traded partnership apply to partners claiming deductions for • Your average daily production of (PTP) box on Schedule K-1 is depletion. See chapter 9 of Pub. 535 for domestic crude oil and natural gas CAUTION checked, do not report passive

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details. exceeds 500 barrels for your tax year in income (loss) from the partnership on which the partnership’s tax year ends. At-Risk Limitations Form 8582. See page 5 for the special See section 776(b) for more details. rules for PTPs. Generally, if you have (a) a loss or other

Note. Disqualified persons must report deduction from any activity carried on as Corporations. Use Form 8810,

items of income, gain, loss, deduction, a trade or business or for the production Corporate Passive Activity Loss and

and credit attributable to partnership oil of income by the partnership and (b) Credit Limitations. See the instructions for

and gas properties as if the special rules amounts in the activity for which you are more information.

for ELPs did not apply. not at risk, you will have to complete For limited partners of an ELP, all Form 6198, At-Risk Limitations, to figure income, loss, deductions, and credits Nonrecourse Loans your allowable loss. from trade or business and rental

Nonrecourse loans are those liabilities of The at-risk rules generally limit the activities generally are reported as being

the partnership for which no partner bears amount of loss and other deductions that from a trade or business that is a single

the economic risk of loss. you can claim to the amount you could passive activity.

-2- Instructions for Schedule K-1 (1065-B) (2009)
 However, the determination of Except for the PTP discussion on 2. Rental real estate activities in which

whether an activity is a passive activity page 5, the following information you materially participated if you were a

must be made by any partner who is CAUTION on passive activity limitations “real estate professional” for the tax year.

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either a: applies only to general partners. You were a real estate professional only if

• General partner or you met both of the following conditions.

• Limited partner who is a disqualified Generally, passive activities include: a. More than half of the personal person (as defined on page 2) with 1. Trade or business activities in services you performed in trades or respect to items of income, gain, loss, which you did not materially participate businesses were performed in real deduction, and credit attributable to and property trades or businesses in which partnership oil and gas properties. 2. Activities that meet the definition of you materially participated and

In addition, the partnership is required rental activities under Temporary b. You performed more than 750

to provide each general partner and Regulations section 1.469-1T(e)(3) and hours of services in real property trades

disqualified person the information Regulations section 1.469-1(e)(3). or businesses in which you materially

necessary to comply with the passive participated.

activity rules of section 469. Items of Passive activities do not include the Note. For a closely held C corporation income, gain, loss, credit, etc., must be following. (defined in section 465(a)(1)(B)), the separately reported to general partners above conditions are treated as met if for each trade or business, rental real 1. Trade or business activities in more than 50% of the corporation’s gross estate, and other rental activity. which you materially participated. receipts were from real property trades or

businesses in which the corporation Worksheet for Adjusting the Basis of a Partner’s materially participated. Interest in the Partnership Keep for Your Records For purposes of this rule, each interest

in rental real estate is a separate activity, 1. Your adjusted basis at the end of the prior year. Do not enter less unless you elect to treat all interests in than zero. Enter -0- if this is your first tax year .............. 1. rental real estate as one activity. For

Increases: details on making this election, see the

Instructions for Schedule E (Form 1040). 2. Money and your adjusted basis in property contributed to the If you are married filing jointly, either partnership less the associated liabilities (but not less than zero) . . 2. you or your spouse must separately meet

3. Your increased share of or assumption of partnership liabilities. both of the above conditions, without

(Subtract your share of liabilities shown on your 2008 Schedule K-1 taking into account services performed by from your share of liabilities shown on your 2009 Schedule K-1 and the other spouse. add the amount of any partnership liabilities you assumed during A real property trade or business is the tax year. Do not enter less than zero.) ................. 3. any real property development,

4. Your share of the partnership’s income or gain (including redevelopment, construction,

tax-exempt income) reduced by any amount included in interest reconstruction, acquisition, conversion,

income with respect to the credit to holders of clean renewable rental, operation, management, leasing, energy bonds, Gulf tax credit bonds, or Midwestern tax credit or brokerage trade or business. Services bonds ......................................... 4. you performed as an employee are not

treated as performed in a real property 5. Any gain recognized this year on contributions of property. Do not

include gain from transfer of liabilities .................... 5. trade or business unless you owned more

than 5% of the stock (or more than 5% of Decreases: the capital or profits interest) in the

6. Withdrawals and distributions of money and the adjusted basis of employer.

property distributed to you from the partnership. Do not include the 3. Working interests in oil or gas

amount of property distributions included in the partner’s income wells.

(taxable income) .................................. 6. 4. The rental of a dwelling unit any

Caution. A distribution may be taxable if the amount exceeds your partner used for personal purposes during

adjusted basis of your partnership interest immediately before the the year for more than the greater of 14

distribution. days or 10% of the number of days that

the residence was rented at fair rental

7. Your decreased share of partnership liabilities and any decrease in value. your individual liabilities because they were assumed by the 5. Activities of trading personal partnership. (Subtract your share of liabilities shown on your 2009 property for the account of owners of Schedule K-1 from your share of liabilities shown on your 2008

Schedule K-1 and add the amount of your individual liabilities that interests in the activities.

the partnership assumed during the tax year. Do not enter less

than zero.) ...................................... 7. Material participation. You must

determine if you (a) materially participated 8. Your share of the partnership’s nondeductible expenses that are in each trade or business activity held not capital expenditures ............................. 8. through the partnership and (b) were a

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

capital losses) ................................... 9. in each rental real estate activity held

through the partnership. All 10. Your adjusted basis in the partnership at end of this tax year. (Add determinations of material participation lines 1 through 5 and subtract lines 6 through 9 from the total. If are made based on your participation zero or less, enter -0-.) ............................. 10. during the partnership’s tax year. Caution. The deduction for your share of the partnership’s losses

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

interest. If you entered zero on line 10 and the amount computed partners who are individuals are listed

for line 10 was less than zero, a portion of your share of the below. Special rules apply to certain

partnership losses and deductions may not be deductible (see retired or disabled farmers and to the

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

Instructions for Form 8582 for details.

Instructions for Schedule K-1 (1065-B) (2009) -3-
Corporations should refer to the avoid the passive loss or credit Estates (other than qualifying estates),

Instructions for Form 8810 for the material limitations. trusts (other than qualifying revocable

participation standards that apply to them. 2. You do the work in your capacity as trusts that made a section 645 election),

an investor and you are not directly and corporations cannot actively Individuals (other than limited involved in the day-to-day operations of participate. partners). If you are an individual (either the activity. Examples of work done as an a general partner or a limited partner who You are not considered to actively investor that would not count toward owned a general partnership interest at all participate in a rental real estate activity if material participation include: times during the tax year), you materially at any time during the tax year your a. Studying and reviewing financial participated in an activity only if one or interest (including your spouse’s interest) statements or reports on operations of the more of the following apply. in the activity was less than 10% (by activity. value) of all interests in the activity. 1. You participated in the activity for b. Preparing or compiling summaries more than 500 hours during the tax year. or analyses of the finances or operations Active participation is a less stringent

2. Your participation in the activity for of the activity for your own use. requirement than material participation.

the tax year constituted substantially all c. Monitoring the finances or You may be treated as actively

the participation in the activity of all operations of the activity in a participating if you participated, for

individuals (including individuals who are nonmanagerial capacity. example, in making management

not owners of interests in the activity for decisions or arranging for others to

the tax year). Effect of determination. Income provide services (such as repairs) in a

3. You participated in the activity for (loss), deductions, and credits from an significant and bona fide sense.

more than 100 hours during the tax year, activity are nonpassive if you determine Management decisions that can count as

and your participation in the activity for that: active participation include approving new

the tax year was not less than the • You materially participated in a trade or tenants, deciding rental terms, approving

participation in the activity of any other business activity of the partnership or capital or repair expenditures, and other

individual (including individuals who were • You were a real estate professional in a similar decisions.

not owners of interests in the activity) for rental real estate activity of the An estate is a qualifying estate if the the tax year. partnership. decedent would have satisfied the active

4. The activity was a significant If you determine that you did not participation requirement for the activity participation activity for the tax year, and materially participate in a trade or for the tax year the decedent died. A you participated in all significant business activity of the partnership or if qualifying estate is treated as actively participation activities (including activities you have income (loss), deductions, or participating for tax years ending less outside the partnership) during the year credits from a rental activity of the than 2 years after the date of the for more than 500 hours. A significant partnership (other than a rental real decedent’s death.

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

7. Based on all the facts and are limited under the passive activity separately), the special allowance is

circumstances, you participated in the rules. limited to 50% of the difference between

activity on a regular, continuous, and $150,000 ($75,000 if married filing

substantial basis during the tax year. Special allowance for rental real estate separately) and your modified adjusted

activities. If you actively participated in gross income. When modified adjusted

Work counted toward material a rental real estate activity, you may be gross income is $150,000 or more

participation. Generally, any work that able to deduct up to $25,000 of the loss ($75,000 or more if married filing

from the activity from nonpassive income. separately), there is no special allowance. you or your spouse do in connection with

an activity held through a partnership This “special allowance” is an exception Modified adjusted gross income is your (where you own your partnership interest to the general rule disallowing losses in adjusted gross income figured without at the time the work is done) is counted excess of income from passive activities. taking into account the following. The special allowance is not available if toward material participation. However, • Any passive activity loss. work in connection with the activity is not you were married, filed a separate return • Any rental real estate loss allowed counted toward material participation if for the year, and did not live apart from under section 469(c)(7) to real estate either of the following applies. your spouse at all times during the year. professionals (as defined previously).

1. The work is not the sort of work that Only individuals, qualifying estates, • Any overall loss from a publicly traded

owners of the activity would usually do and qualifying revocable trusts that made partnership.

and one of the principal purposes of the a section 645 election can actively • Any taxable social security or

work that you or your spouse does is to participate in a rental real estate activity. equivalent railroad retirement benefits.

-4- Instructions for Schedule K-1 (1065-B) (2009)
• Any deductible contributions to an IRA separately for items (other than the losses are allowed to the extent of the

or certain other qualified retirement plans low-income housing credit and the income, and the excess loss is carried

under section 219. rehabilitation credit) from each publicly forward to use in a future year when you

• The domestic production activities traded partnership (PTP). Thus, a net have income to offset it. Report as a

deduction. passive loss from a PTP may not be passive loss on the schedule or form you

• The student loan interest deduction. deducted from other passive income. normally use the portion of the loss equal

• The tuition and fees deduction. Instead, a passive loss from a PTP is to the income. Report the income as • The deduction for one-half of suspended and carried forward to be passive income on the form or schedule

self-employment taxes. applied against passive income from the you normally use. • The exclusion from income of interest same PTP in later years. If the partner’s Example. You have a Schedule E loss from Series EE and I U.S. Savings Bonds entire interest in the PTP is completely of $12,000 (current year losses plus prior used to pay higher education expenses. disposed of, any unused losses are year unallowed losses) and a Schedule D • The exclusion of amounts received allowed in full in the year of disposition. gain of $7,200. Report the $7,200 gain on under an employer’s adoption assistance If you have an overall gain from a PTP, the appropriate line of Schedule D. On program. the net gain is nonpassive income. In Schedule E (Form 1040), line 28, report Commercial revitalization addition, the nonpassive income is $7,200 of the losses as a passive loss in deduction. The special $25,000 included in investment income to figure column (f). Carry forward to 2010 the allowance for the commercial your investment interest expense unallowed loss of $4,800 ($12,000 − revitalization deduction from rental real deduction. $7,200). estate activities is not subject to the active Do not report passive income, gains, If you have unallowed losses from participation rules or modified adjusted or losses from a PTP on Form 8582. more than one activity of the PTP or from gross income limits discussed above. See Instead, use the following rules to figure the same activity of the PTP that must be Code Q. Commercial Revitalization and report on the proper form or schedule reported on different forms, you must Deduction on page 11. your income, gains, and losses from allocate the unallowed losses on a pro Special rules for certain other passive activities that you held through rata basis to figure the amount allowed activities. If you have net income (loss), each PTP you owned during the tax year. from each activity or on each form. deductions, or credits from any activity to 1. Combine any current year income, which special rules apply, the partnership To allocate and keep a record of gains (losses), and any prior year will identify the activity and all amounts the unallowed losses, use unallowed losses to see if you have an relating to it on Schedule K-1 or on an Worksheets 5, 6, and 7 of Form

TIP

overall gain (loss) from the PTP. Include attachment. 8582. List each activity of the PTP in only the same types of income and losses If you have net income subject to you would include in your net income or Worksheet 5. Enter the overall loss from

recharacterization under Temporary each activity in column (a). Complete loss from a non-PTP passive activity. See Regulations section 1.469-2T(f) and column (b) of Worksheet 5 according to Pub. 925 for more details. Regulations section 1.469-2(f), report its instructions. Multiply the total 2. If you have an overall gain, the net such amounts according to the unallowed loss from the PTP by each gain portion (total gain minus total losses) Instructions for Form 8582 (or Form ratio in column (b) and enter the result in is nonpassive income. On the form or 8810). column (c) of Worksheet 5. Then, schedule you normally use, report the net If you have net income (loss), gain portion as nonpassive income and complete Worksheet 6 if all the loss from

deductions, or credits from any of the the same activity is to be reported on one the remaining income and the total losses following activities, treat such amounts as form or schedule. Use Worksheet 7 as passive income and loss. To the left of nonpassive and report them as instructed instead of Worksheet 6 if you have more the entry space, enter “From PTP.” It is in these instructions. than one loss to be reported on different important to identify the nonpassive • Working interests in oil and gas wells. forms or schedules for the same activity. income because the nonpassive portion is • The rental of a dwelling unit any partner Enter the net loss plus any prior year included in modified adjusted gross used for personal purposes during the unallowed losses in column (a) of income for purposes of figuring on Form year for more than the greater of 14 days 8582 the “special allowance” for active Worksheet 6 (or Worksheet 7 if

or 10% of the number of days that the participation in a non-PTP rental real applicable). The losses in column (c) of

residence was rented at fair rental value. estate activity. In addition, the nonpassive Worksheet 6 (column (e) of Worksheet 7)

• Trading personal property for the income is included in investment income are the allowed losses to report on the

account of owners of interests in the when figuring your investment interest forms or schedules. Report both these

activity. expense deduction on Form 4952, losses and any income from the PTP on

Self-charged interest. The partnership Investment Interest Expense Deduction. the forms and schedules you normally

must report any “self-charged” interest use. Example. If you have Schedule E income or expense that resulted from 4. If you have an overall loss and you income of $8,000, and a Form 4797 prior loans between you and the partnership year unallowed loss of $3,500 from the disposed of your entire interest in the PTP

(or between the partnership and another to an unrelated person in a fully taxable passive activities of a particular PTP, you partnership in which you have an have a $4,500 overall gain ($8,000 transaction during the year, your losses − interest). If there was more than one $3,500). On Schedule E (Form 1040), line (including prior year unallowed losses)

activity, the partnership will provide a 28, report the $4,500 net gain as allocable to the activity for the year are

statement allocating the interest income nonpassive income in column (j). In not limited by the passive loss rules. A

or expense with respect to each activity. column (g), report the remaining fully taxable transaction is one in which

The self-charged interest rules do not Schedule E gain of $3,500 ($8,000 − you recognize all your realized gain

apply to your partnership interest if the $4,500). On the appropriate line of Form (loss). Report the income and losses on

partnership made an election under 4797, report the prior year unallowed loss the forms and schedules you normally

Regulations section 1.469-7(g) to avoid of $3,500. Be sure to enter “From PTP” to use.

the application of these rules. See the the left of each entry space. Instructions for Form 8582 for more 3. If you have an overall loss (but did Note. For rules on the disposition of an

information. not dispose of your entire interest in the entire interest reported using the

Publicly traded partnerships. The PTP to an unrelated person in a fully installment method, see the Instructions

passive activity limitations are applied taxable transaction during the year), the for Form 8582.

Instructions for Schedule K-1 (1065-B) (2009) -5-
Both the partnership and you must box is checked, report the income

Specific Instructions meet the qualified nonrecourse rules on following the rules for Publicly traded

this debt before you can include the partnerships on page 5.

amount shown next to “Qualified • If a loss is reported in box 1, follow the Publicly Traded nonrecourse financing” in your at-risk Instructions for Form 8582 to figure how

Partnership (PTP) computation. much of the loss can be reported on

See Schedule E (Form 1040), line 28, column Limitations on Losses, If the “publicly traded partnership” box is Deductions, and Credits (f). However, if the PTP box is checked, checked, you are a partner in a publicly beginning on report the loss following the rules for page 2 for more information on the at-risk traded partnership (PTP) and must follow Publicly traded partnerships. limitations. the rules under Publicly traded

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

For individuals, the following partnership will attach a statement to Use the total of the three amounts for instructions explain how to report the Schedule K-1 showing your distributive computing the adjusted basis of your amounts shown in the boxes. For all other share of interest income from these partnership interest. entities, report the amounts in the boxes credits. Because the basis in your Generally, you can use only the as instructed on your income tax return. partnership interest is increased by your amounts shown next to “Qualified The line numbers in these instructions share of the interest income from these

nonrecourse financing” and “Other” to are references to forms in use for credits, you must reduce your bases by figure your amount at risk. Do not include calendar year 2009. If you file your tax the same amount to offset the increase.

any amounts that are not at risk if such return on a calendar year basis, but your See Line 4 of the Worksheet for Adjusting amounts are included in either of these partnership files a return for a fiscal year, the Basis of a Partner’s Interest in the

categories. enter the amounts shown in the boxes on Partnership on page 3.

If your partnership is engaged in two or your tax return for the year in which the

more different types of activities subject to Box 3. Qualified Dividends partnership’s fiscal year ends. For Report this amount on lines 9a and 9b of the at-risk provisions, or a combination of example, if the partnership’s tax year

at-risk activities and any other activity, the ends on June 30, 2010, report the Form 1040.

partnership should give you a statement amounts in the boxes on your 2010 Note. Qualified dividends are excluded

showing your share of nonrecourse income tax return. from investment income, but you can liabilities, partnership-level qualified If you have losses, deductions, or elect to include part or all of these nonrecourse financing, and other credits from a prior year that were not amounts in investment income. See the

liabilities for each activity. deductible or usable because of certain instructions for line 4g of Form 4952,

Qualified nonrecourse financing. Investment Interest Expense Deduction, limitations, such as the basis rules or the

Qualified nonrecourse financing generally at-risk limitations, take them into account for important information on making this

includes financing for which no one is election. in determining your net income, loss, or

personally liable for repayment that is credits for this year. However, except for Box 4a. Net Capital Gain or borrowed for use in an activity of holding passive activity losses and credits, do not

real property and that is loaned or combine the prior-year amounts with any (Loss) From Passive Activities

guaranteed by a federal, state, or local amounts shown on this Schedule K-1 to Limited partners only. The net capital government or borrowed from a get a net figure to report on any gain (loss) reported in box 4a, is treated “qualified” person. Qualified nonrecourse supporting schedules, statements, or as being from a trade or business that is a financing secured by real property used in forms attached to your return. Instead, single passive activity. If a net capital gain an activity of holding real property that is report the amounts separately on the is reported in box 4a, report the gain on subject to the at-risk rules is treated as an attached schedule, statement, or form on Schedule D (Form 1040), line 12, column amount at risk. a year-by-year basis. (f).

Qualified persons. Qualified persons For amounts other than those shown If a loss is reported in box 4a, report it include any persons actively and regularly on Schedule K-1, enter each item on a following the Form 8582 instructions to engaged in the business of lending separate line of Part II of Schedule E figure how much of the loss can be money, such as a bank or savings and (Form 1040). reported on Schedule D (Form 1040), line loan association. Qualified persons Box 1. Taxable Income (Loss) 12, column (f). However, if the PTP box is generally do not include related parties checked, report the loss following the (unless the nonrecourse financing is From Passive Activities rules for Publicly traded partnerships. commercially reasonable and on Limited partners only. Any amount substantially the same terms as loans Box 4b. Net Capital Gain or reported in box 1 is treated as being from involving unrelated persons), the seller of a trade or business that is a single (Loss) From Other Activities

the property, or a person who receives a passive activity. Report this amount as Net capital gain or (loss) from other fee for the partnership’s investment in the follows. activities is not subject to the passive real property. • If income is reported in box 1, report activity limitations. Report the gain or

See Pub. 925 for more information on the income on Schedule E (Form 1040), (loss) on Schedule D (Form 1040), line

qualified nonrecourse financing. line 28, column (g). However, if the PTP 12, column (f).

-6- Instructions for Schedule K-1 (1065-B) (2009)
Box 5. Net Passive AMT participated on Schedule E (Form 1040), must be taken into account on line 20 with

Adjustment line 28, column (h) or (j). See the adjustments and preferences from other

instructions to determine whether you passive activities. Limited partners only. Use this amount materially participated in a trade or Code B1. General partner’s taxable (as well as your adjustments and tax business activity. income (loss) from rental real estate preference items from other sources) to Report Code A1 income or (loss) from activities. Generally, the income or prepare your Form 6251, Alternative partnership trade or business activities in (loss) reported in box 9, Code B1, is a Minimum Tax— Individuals; Form 4626, which you did not materially participate as passive activity amount for all general Alternative Minimum Tax—Corporations; follows. partners. However, the income or (loss) in or Schedule I (Form 1041), Alternative 1. Report any income on Schedule E box 9 is not from a passive activity if you Minimum Tax—Estates and Trusts. The

(Form 1040), line 28, column (g). were a real estate professional and you adjustment is treated as being from a However, if the PTP box on Schedule K-1 materially participated in the activity. trade or business that is a single passive

activity. is checked, report the income following Use the following instructions to the rules for Publicly traded partnerships. determine where to enter the Code B1 Individuals should enter the amount on 2. Report a loss following the amount. line 20 of Form 6251, where it is taken Instructions for Form 8582 to figure how into account with adjustments and 1. If you have a loss from a passive much of the loss can be reported on preferences from other passive activities. activity in box 9, Code B1, and you meet Schedule E (Form 1040), line 28, column all of the following conditions, enter the Box 6. Net Other AMT (f). However, if the PTP box is checked, loss on Schedule E (Form 1040), line 28, Adjustment report the loss following the rules for column (f). Publicly traded partnerships. Individual general and limited partners a. You actively participated in the

should enter this amount on line 17 of Code A2. General partner’s net capital partnership rental real estate activities.

Form 6251. gain or (loss) from trade or business See Special allowance for rental real

activities. estate activities on page 4. Box 7. General Credits If you did not materially

participate in the trade or business b. Rental real estate activities with

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

passive activity, you must also include the estate activities was not more than

box 7 amount on line 3 of Form 3800. If the amount is a loss from a passive $25,000 (not more than $12,500 if activity, report it following the Instructions Box 8. Low-Income Housing married filing separately and you lived for Form 8582 to figure how much of the apart from your spouse all year). Credit loss can be reported on Schedule D e. If you are a married person filing Limited partners only. (Form 1040), line 12, column (f). Enter the amount separately, you lived apart from your However, if the PTP box is checked, reported in box 8 of Schedule K-1 on line spouse all year. report the loss following the rules for 4 of Form 8586, Low-Income Housing f. You have no current or prior year Credit. If an amount is reported in box 8, Publicly traded partnerships. unallowed credits from a passive activity. all of the low-income housing credit is for Code A3. General partner’s 28% rate g. Your modified adjusted gross buildings placed in service before 2008. If gain (loss) from trade or business income was not more than $100,000 (not any of the low-income housing credit is activities. If you did not materially more than $50,000 if married filing for buildings placed in service after 2007, participate in the trade or business separately and you lived apart from your the partnership will enter “STMT” in box 8 activity, the 28% rate gain or (loss) is a spouse all year). and attach a statement which lists passive activity amount. If the amount is 2. If you have a (loss) from a passive separately the amount of the credit for either (a) a loss that is not from a passive activity in box 9 and you do not meet all buildings placed in service prior to 2008 activity or (b) a gain, include it on line 4 of the conditions in 1 above, report the loss (reported on line 4 of Form 8586), and the the 28% Rate Gain Worksheet on page following the Instructions for Form 8582 to amount for buildings placed in service D-8 of the Instructions for Schedule D figure how much of the loss you can after 2007 (reported on line 11 of Form (Form 1040). report on Schedule E (Form 1040), line 8586). See the instructions for Form 8586 If the amount is a loss from a passive 28, column (f). However, if the PTP box is for more information. activity, report it following the Instructions checked, report the loss following the

rules for Publicly traded partnerships. Box 9. Other for Form 8582 to figure how much of the

loss can be included on line 4 of the 28% 3. If you were a real estate

Codes A Through C Rate Gain Worksheet on page D-8 of the professional and you materially

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

adjustment separately for all trade or business activity, you must also include Code B2. General partner’s net capital business activities, rental real estate the general credits on line 3 of Form gain or (loss) from rental real estate activities, and rental activities other than 3800. activities (for the entire year). The net

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

Code A1. General partner’s taxable minimum tax adjustment from trade or estate activity is a passive activity amount

income (loss) from trade or business business activities. Generally, an AMT unless you were a real estate

activities. Report Code A1 income adjustment must be reported on line 17 of professional and you materially

(loss) from partnership trade or business Form 6251. However, if the AMT participated in the activity. If the amount is

activities in which you materially adjustment is from a passive activity, it either (a) a loss that is not from a passive

Instructions for Schedule K-1 (1065-B) (2009) -7-
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

PTP box is checked, report the income activity, report it following the Instructions The 28% gain or (loss) from other (loss) following the rules for Publicly for Form 8582 to figure how much of the activities is not subject to the passive traded partnerships. loss can be reported on Schedule D, line 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).

amount is either (a) a loss that is not from 12, column (f). However, if the PTP box is Code G. Income From Discharge of a passive activity or (b) a gain, include it checked, report the loss following the

rules for Publicly traded partnerships. Indebtedness on line 4 of the 28% Rate Gain

Worksheet on page D-8 of the The amount reported under Code G is Code C3. General partner’s 28% rate Instructions for Schedule D (Form 1040). excluded from your gross income to the gain or (loss) from other rental extent provided in section 108 if the activities. The 28% rate gain or (loss) If the amount is a loss from a passive discharge: activity, report it following the Instructions from other rental activities is a passive • Occurred in a title 11 case relating to activity amount for all general partners. If for Form 8582 to figure how much of the 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 on page D-8 of the of the 28% Rate Gain Worksheet on page • Involved qualified farm indebtedness, Instructions for Schedule D (Form 1040). D-8 of the Instructions for Schedule D as defined in section 108(g), or However, if the PTP box is checked, (Form 1040). Report a loss following the • Involved qualified real property report the loss following the rules for Instructions for Form 8582 to figure how business indebtedness, as defined in Publicly traded partnerships. much of the loss can be included on line 4 section 108(c)(3), unless the partner is a of the 28% Rate Gain Worksheet on page Code B4. General partner’s general C corporation. D-8 of the Instructions for Schedule D 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 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 include the general credits from other rental activities. any amount received from the discharge credits on line 3 of Form 3800. Report the general credits on line 1bb of of indebtedness should be excluded and Code B5. General partner’s Form 3800. Because general credits from to report your reduction of tax attributes. other rental activities are passive activity low-income housing credit from rental credits for all general partners, you must 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 low-income housing credit on line 4 of

Form 8586 for buildings placed in service of Form 3800. amount in income on line 21 of Form

1040. before 2008, and on line 11 of Form 8586 Code C5. General partner’s alternative

for buildings placed in service after 2007. minimum tax adjustment from other Code H. Tax-Exempt Interest Unless you were a real estate rental activities. An AMT adjustment Income professional and materially participated in must be reported on line 17 of Form Report on your income tax return, as an the rental real estate activity, the 6251. However, if the AMT adjustment is item of information, your share of the low-income housing credit is a passive from a passive activity, it must be taken tax-exempt interest received or accrued activity credit. into account on line 20 with adjustments by the partnership during the year. Code B6. General partner’s and preferences from other passive Individual partners must include this rehabilitation credit from rental real activities instead of being reported on line amount on Form 1040, line 8b. Increase estate activities. Report the 17. the adjusted basis of your interest in the rehabilitation credit on line 10m of Form Code D. Limited Partner’s 28% partnership by this amount. 3468, Investment Credit. Unless you were Rate Gain or (Loss) From Passive a real estate professional and materially Code I. Limited Partner’s Activities participated in the rental real estate Rehabilitation Credit From Rental

activity, the credit is a passive activity Limited partners only. The 28% rate Real Estate Activities

credit, and you must also file Form 3800. gain or (loss) is treated as being from a Limited partners only. Report this Code B7. General partner’s alternative trade or business that is a single passive amount on line 10m of Form 3468.

minimum tax adjustment from rental activity. If a gain is reported, include it on Because the credit is treated as being real estate activities. line 4 of the 28% Rate Gain Worksheet An AMT from a single passive activity, you must adjustment must be reported on line 17 of on page D-8 of the Instructions for also file Form 3800.

Form 6251. However, if the AMT Schedule D (Form 1040).

adjustment is from a passive activity, it Codes J1 and J2. Self-Employment If a loss is reported, report the loss must be taken into account on line 20 with following the Instructions for Form 8582 to Code J1. Net earnings or (loss) from other passive activities instead of being figure how much of the loss can be self-employment. Enter this amount on

reported on line 17. included on line 4 of the 28% Rate Gain Schedule SE (Form 1040), line 2, Section

Code C1. General partner’s taxable Worksheet on page D-8 of the A or B, whichever is applicable. General

income or (loss) from other rental Instructions for Schedule D (Form 1040). partners should reduce this amount by

activities. Income (loss) reported in box However, if the PTP box is checked, unreimbursed partnership expenses

9, Code C1, is a passive activity amount report the loss following the rules for claimed. General partners who are

for all general partners. Report a loss Publicly traded partnerships. disqualified persons also should reduce

-8- Instructions for Schedule K-1 (1065-B) (2009)
this amount by depletion claimed on oil section 512(a)(1) (but excluding any Code K6. Other expenses allocated

and gas properties. If this amount is a modifications required by paragraphs (8) and apportioned at the partner level.

loss, enter only the deductible amount on through (15) of section 512(b)) for a Include this amount on line 2 of the

Schedule SE. For purposes of partner that is a tax-exempt organization. applicable Forms 1116.

self-employment tax, no income from an Note. For Codes K5 and K6, do not Reminder. A partner is required to notify ELP is treated as farming or fishing include any expenses allocated and the partnership of its tax-exempt status. income. apportioned to U.S. source income on Code M4. Health insurance. Include Code J2. Gross nonfarm income. any line of Part I of Form 1116. any amounts paid during the tax year for Individual partners use this amount to Codes K7(a) Through Codes K7(c). insurance that constitutes medical care figure net earnings from self-employment Deductions allocated and apportioned for you, your spouse, and your under the nonfarm optional method on at partnership level to foreign source dependents on line 29 of your 2009 Form Schedule SE (Form 1040), Section B, income. The following codes report the 1040. You may be allowed to deduct such Part II. expenses allocated and apportioned by amounts, even if you do not itemize

Codes K1 Through K9. Foreign Tax the partnership to foreign source deductions. If you do itemize deductions,

Credit Information categories of income. Include these enter on line 1 of Schedule A (Form 1040) amounts on line 2 of the applicable Forms any amounts not deducted on line 29 of Use the information reported under 1116 (that is, the Forms 1116 for each Form 1040. Codes K1 through K9 to figure your category of income provided to you). foreign tax credit. For more information, Code M5. Distributions of money (cash • Code K7(a). Deductions allocated see Form 1116, Foreign Tax Credit and marketable securities). This and apportioned at partnership level to (Individual, Estate, or Trust) and its amount includes the distributions the passive category foreign source instructions; Form 1118, Foreign Tax partnership made to you of cash and income. Credit—Corporations, and its certain marketable securities. The • Code K7(b). Deductions allocated instructions; and Pub. 514, Foreign Tax marketable securities are included at their and apportioned at partnership level to Credit for Individuals. See page 4 of the fair market value (FMV) on the date of general category foreign source Instructions for Form 1116 for detailed distribution (minus your share of the income. instructions for reporting foreign tax partnership’s gain on the securities • Code K7(c). Deductions allocated information from partnerships. distributed to you). If this amount exceeds and apportioned at partnership level to the adjusted basis of your partnership Code K1. Name of foreign country or other foreign source income. interest immediately before the U.S. possession. Include on Form Code K8(a). Total foreign taxes paid. distribution, the excess is treated as gain 1116, Part I, item g. For each country Include this amount in Part II of Form from the sale or exchange of your reported, the partnership must give you 1116. partnership interest. Generally, this gain the amount and a description of your Code K8(b). Total foreign taxes is treated as gain from the sale of a share of the following items for Codes K2 accrued. Include this amount in Part II of capital asset and should be reported on through K9. For each country or Form 1116. the Schedule D for your return. However, possession being reported, a separate

Code K9. Reduction in taxes available the gain may be ordinary income. For column in Part I and a separate line in details, see Pub. 541. Part II is needed on Form 1116. for credit. Enter this amount on line 12

Code K2. Gross income from all of Form 1116. The partnership must separately

sources. Enter this amount on line 3e of identify both of the following. Code L. Oil and Gas Activities

Form 1116. • The FMV of the marketable securities

Generally, oil and gas income, when distributed (minus your share of the Code K3. Gross income sourced at deductions, credits, and other items are gain on the securities distributed to you). partner level. Although all this income included in your distributive share of • The partnership’s adjusted basis of reported has been apportioned to foreign income or loss from passive loss those securities immediately before the source categories of income, you must limitation activities, general credits, and distribution. nevertheless determine whether the the alternative minimum tax adjustment. Decrease the adjusted basis of your income being reported is U.S. source However, distributive shares of all oil income or foreign source income. See the interest in the partnership (but not below and gas income, deductions, credits, and Instructions for Form 1116 for the rules to zero) by the amount of cash distributed to other items are separately reported to source the income reported to you. Enter you and the partnership’s adjusted basis partners who are disqualified persons in only foreign source income on lines 1a of the distributed securities. Advances or

accordance with the regular partnership and 3d of Form 1116. A separate Form drawings of money or property against rules, here or on an attached schedule. 1116 or 1118 is required for each foreign your distributive share are treated as

source category of income. Do not Note. A partner must notify the ELP of current distributions made on the last day

its status as a “disqualified person”. of the partnership’s tax year. include income that you determined to be

U.S. source income. Codes M1 Through M9. Your basis in the distributed

Codes K4(a) Through K4(c). Foreign Miscellaneous marketable securities (other than in

gross income sourced at partnership liquidation of your interest) is the smaller

level. The following types of income Code M1. Other tax-exempt income. of:

have already been sourced for you by the Increase the adjusted basis of your • The partnership’s adjusted basis in the

partnership. Include these amounts on interest in the partnership by this amount, securities immediately before the

lines 1a and 3d of the applicable Form but do not include it in income on your distribution increased by any gain income tax return. 1116 (that is, the Form 1116 for each recognized on the distribution of the

category of income provided to you). Code M2. Nondeductible expenses. securities or

• Code K4(a). Passive category Decrease the adjusted basis of your • The adjusted basis of your partnership

foreign source income. interest in the partnership by this amount. interest reduced by any cash distributed

• Code K4(b). General category The nondeductible expenses paid or in the same transaction and increased by

foreign source income. incurred by the partnership are not any gain recognized on the distribution of

• Code K4(c). Other foreign source deductible on your income tax return, but the securities.

income. they do affect your basis. If you received the securities in

Code K5. Interest expense allocated Code M3. Unrelated business taxable liquidation of your partnership interest,

and apportioned at the partner level. income. The partnership must give you your basis in the marketable securities is

Include this amount on line 4b of the any information you need to figure equal to the adjusted basis of your

applicable Forms 1116. unrelated business taxable income under partnership interest reduced by any cash

Instructions for Schedule K-1 (1065-B) (2009) -9-
distributed in the same transaction and • Your distributive share of the eligible • The name of the corporation that

increased by any gain recognized on the section 1202 gain cannot exceed the issued the qualified small business (QSB)

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

you based on your interest in the • Your share of the partnership’s If, within 7 years of a distribution to you partnership at the time the QSB stock adjusted basis of the QSB stock, of marketable securities, you contributed was acquired. • Your share of the partnership’s sales appreciated property (other than those price of the QSB stock, securities) to the partnership and the FMV See the Instructions for Schedule D • The dates the QSB stock was bought of those securities exceeded the adjusted (Form 1040) for details on how to report and sold, and basis of your partnership interest the gain and the amount of the allowable immediately before the distribution • Your distributive share of the gain from exclusion. the sale of the QSB stock. (reduced by any cash received in the

distribution), you may have to recognize Code M8. Gain eligible for section 1045 Corporate partners are not eligible for

gain on the appreciated property. See rollover–stock replaced. This gain is the section 1045 rollover. To qualify for

section 737 for details. eligible for the section 1045 rollover. the section 1045 rollover:

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

immediately before the distribution or was deferred by the partnership under See the Instructions for Schedule D

• The adjusted basis of your partnership section 1045. (Form 1040) for details on how to report

interest reduced by any cash distributed the gain and the amount of the allowable Corporate partners are not eligible for in the same transaction. postponed gain. the section 1045 rollover. To qualify for Making the section 1045 election. If you received the property in the section 1045 rollover:

liquidation of your interest, your basis in You make a section 1045 election on a • You must have held an interest in the

the distributed property is equal to the timely filed return for the tax year during partnership during the entire period in adjusted basis of your partnership interest which the partnership held the QSB stock which the partnership’s tax year ends.

reduced by any cash distributed in the Attach to your Schedule D (Form 1040) a (more than 6 months prior to the sale)

same transaction. statement that includes the following and information for each amount of gain that If you contributed appreciated property • Your distributive share of the gain you do not recognize under section 1045. eligible for the section 1045 rollover to the partnership within 7 years of a • The name of the corporation that distribution of other property to you, and cannot exceed the amount that would issued the QSB stock. have been allocated to you based on your the FMV of the other property exceeded • The name and EIN of the selling the adjusted basis of your partnership interest in the partnership at the time the

QSB stock was acquired. partnership. interest immediately before the • The dates the QSB stock was distribution (reduced by any cash See the Instructions for Schedule D purchased and sold. received in the distribution), you may (Form 1040) for details on how to report • The amount of gain that is not have to recognize gain on the appreciated the gain and the amount of the allowable recognized under section 1045. property. See section 737 for details. postponed gain. • If a partner purchases QSB stock, the

Code M7. Gain eligible for section 1202 name of the corporation that issued the

exclusion. This gain from the sale or Opting out of partnership election. replacement QSB stock, the date the

exchange of qualified small business You can opt out of the partnership’s stock was purchased, and the cost of the section 1045 election and either (1) (QSB) stock (as defined in the stock.

Instructions for Schedule D) is eligible for recognize the gain or (2) elect to • If a partner treats the partner’s interest

the partial section 1202 exclusion. The purchase different replacement QSB in QSB stock that is purchased by a

partnership must also provide you with: stock, either directly or through ownership purchasing partnership as the partner’s • The name of the corporation that of a partnership that acquired replacement QSB stock, the name and

issued the QSB stock, replacement QSB stock. You satisfy the EIN of the purchasing partnership, the • requirement to purchase replacement Your share of the partnership’s name of the corporation that issued the

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

and sold. out of the partnership’s section 1045 to that QSB stock, and the date the stock election. If you recognize gain, you must was purchased by the partnership. Corporate partners are not eligible for notify the partnership, in writing, of the the section 1202 exclusion. The following Distribution of replacement QSB stock amount of gain that you are recognizing. additional limitations apply at the partner to a partner that reduces another

level. Code M9. Gain eligible for section 1045 partner’s interest in replacement QSB

• You must have held an interest in the rollover–stock not replaced. This gain stock. You must recognize gain upon a

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

acquired the QSB stock and at all times Replacement stock has not been another partner that reduces your share

thereafter until the partnership disposed purchased by the partnership. The of the replacement QSB stock held by a

of the QSB stock. partnership must also provide you with: partnership. The amount of gain that you

-10- Instructions for Schedule K-1 (1065-B) (2009)
must recognize is based on the amount of exception discussed above for purposes Code S2. Qualified Production

gain that you would recognize upon the of qualifying for an extraterritorial income Activities Income (QPAI) 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 of the distribution, but not to exceed the Note. Upon request, the partnership line 7 of Form 8903. amount you previously deferred under should furnish you a copy of the

section 1045 with respect to the partnership’s Form 8873 if there is a Code S3. Employer’s W-2 Wages distributed replacement QSB stock. If the reduction for international boycott Report the portion of W-2 wages reported partnership distributed your share of operations, illegal bribes, kickbacks, etc. to you by the partnership (in box 9 using replacement QSB stock to another code S3) on line 15 of Form 8903. partner, the partnership should give you Code P. Inversion Gain (a) the name of the corporation that Code T. Section 409A Income The partnership must provide a statement issued the replacement QSB stock, (b) This is compensation to partners deferred showing the amounts of each type of the date the replacement QSB stock was under a section 409A nonqualified income or gain that is included in distributed to another partner or partners, deferred compensation plan that does not inversion gain. The partnership has and (c) your share of the partnership’s meet the requirements of section 409A. adjusted basis and fair market value of included inversion gain in income This amount is also reported in box 9 the replacement QSB stock on such date. elsewhere on Schedule K-1. Inversion using Code F. This amount is subject to gain is also reported under Code P For more information, see Regulations interest and additional tax to be reported because your taxable income and section 1.1045-1. on line 60 of Form 1040. See the alternative minimum taxable income instructions for line 60 of Form 1040 for Code N. Unrecaptured Section cannot be less than the inversion gain. details. 1250 Gain Also, your inversion gain (a) is not taken

Report this gain on line 11 of the into account in figuring the amount of net Code U. Other Information

Unrecaptured Section 1250 Gain operating loss (NOL) for the tax year or The partnership will use Code U to report

Worksheet on page D-9 of the the amount of NOL that can be carried the following to partners.

Instructions for Schedule D (Form 1040). over to each tax year, (b) may limit the • The recapture of any credit (other than

Do not report the gain on line 5 as stated amount of your credits, and (c) is treated partnership level low-income housing

on the worksheet. as income from sources within the U.S. credit or investment credit) is reported to

for the foreign tax credit. See section you as a separately stated item. See the Codes O1 and O2. Extraterritorial 7874 for details. instructions for the specific form identified Income Exclusion with the credit for more information on

Partnership did not claim the Code Q. Commercial Revitalization reporting the recapture.

exclusion. If the partnership reports • Any information a partner that is a Deduction your distributive share of foreign trading publicly traded partnership may need to Follow the Instructions for Form 8582 for gross receipts (Code O1) and the determine if it meets the 90% qualifying

extraterritorial income exclusion (Code commercial revitalization deductions from income test of section 7704(c)(2).

O2), the partnership was not entitled to rental real estate activities to figure how Partners are required to notify the

claim the exclusion because it did not much of the deduction can be reported on partnership of their status as a publicly

meet the foreign economic process Schedule E (Form 1040), line 28, column traded partnership.

requirements. You may still qualify for (f). • Any information you need to complete

your distributive share of this exclusion if a disclosure statement for reportable

the partnership’s foreign trading gross Codes R1 and R2. Interest transactions in which the partnership

receipts for the tax year were $5 million or Deduction Limitation for Corporate participates. If the partnership participates

less. Partners in a transaction that must be disclosed on

Form 8886, Reportable Transaction To qualify for this exclusion, your A corporate partner is required to treat its Disclosure Statement, both you and the foreign trading gross receipts from all distributive share of interest income, sources for the tax year also must have partnership may be required to file Form interest expense, and partnership 8886 for the transaction. The been $5 million or less. liabilities as income, expense, and determination of whether you are required Limited partners who qualify for the liabilities of the corporation for purposes to disclose a transaction of the exclusion. Report the extraterritorial of the interest deduction limitation under partnership is based on the category(s) exclusion amount (Code O2) as a section 163(j). The corporation’s under which the transaction qualifies for deduction reducing the amount reported distributive share of interest income is disclosure and is determined by the in box 1 (see the box 1 instructions on reported in box 9 using code R1. Its partnership. See the Instructions for Form page 6). distributive share of interest expense is 8886 for details.

General partners who qualify for the reported using code R2. The amounts • Conservation reserve program exclusion. Report the Code O2 amount reported using code R1 and R2 are for payments. Individuals who received social in accordance with the instructions for box information only, and are included in security retirement or disability benefits, 9, Code A1, B1, or C1, whichever applies. amounts reported elsewhere on Schedule and are partners in a farm partnership See Form 8873, Extraterritorial Income K-1. The corporation’s distributive share that receives conservation reserve

Exclusion, for more information. of partnership liabilities is shown in the program payments, do not pay

Partnership claimed the exclusion. If self-employment tax on their share of the first column of Schedule K-1.

the partnership reports your distributive conservation reserve payments. The

share of foreign trading gross receipts partnership will report your share of the Code S1. Domestic Production (Code O1) but not the amount of the conservation reserve program payments Activities Information extraterritorial income exclusion, the in box 9 using code U. See Schedule SE The partnership must attach a statement partnership met the foreign economic (Form 1040) for information on excluding

process requirements and claimed the the payments from your calculation of to Schedule K-1 that provides the

exclusion when figuring your distributive self-employment tax. information you need to figure the

share of partnership income. You also domestic production activities deduction. • Gain or loss attributable to the sale or

may need to know the amount of your exchange of qualified preferred stock of Use Form 8903, Domestic Production

distributive share of foreign trading gross the Federal National Mortgage Activities Deduction, to figure this

receipts from this partnership to Association (Fannie Mae) and the Federal deduction. See the Instructions for Form

determine if you met the $5 million or less 8903 for details. Home Loan Mortgage Corporation

Instructions for Schedule K-1 (1065-B) (2009) -11-
(Freddie Mac). The partnership will report 4. The deferred section 752 amount needed to complete lines 1 through 9, 12,

on an attached statement the amount of remaining as of the end of the current tax 13, 14b, 16a, 16b, and 17 of Schedule P

gain or loss attributable to the sale or year. (Form 1120-F). If the partnership does not

exchange of the qualified preferred stock, 5. Any income previously deferred as allocate effectively connected income to

the date the stock was acquired by the a result of a section 108(i) election that is the partner, the statement will contain the

partnership, and the date the stock was includible in the current year, See section information needed to complete lines

sold or exchanged by the partnership. If 108(i) for events that will cause previously 12,13, and 17 of Schedule P (Form

the partner is not a financial institution (as deferred income to be reportable, and a 1120-F), information that might be

defined below), report the gain or loss on special rule for allocating deferred income relevant for purposes of completing

line 5 or line 12 of Schedule D (Form to partners. Schedule P in determining your interest

1040) in accordance with the instructions 6. The current year section 108(i) OID expense deduction under Regulations

for Schedule D. If a partner is a financial deduction. The partnership will provide section 1.882-5.

institution referred to in section 582(c)(2) your distributive share of the partnership’s • The partner’s share of the credit for

or a depositary institution holding OID deduction deferred under section each separate bond credit that was

company (as defined in section 3(w)(1) of 108(i)(2)(A)(i) that is allowable as a reported on the partnership’s Form 8912.

the Federal Deposit Insurance Act), report deduction in the current tax year under Do not add these amounts to your

the gain or loss in accordance with the section 108(i)(2)(A)(ii) or section income, as they were included in the

Instructions for Form 4797 and Rev. Proc. 108(i)(5)(D)(i) or (ii). income (loss) reported in box 1 or 2. The

2008-64, 2008-47 I.R.B. 1195. • The information needed to complete partnership will report the following credits

• If the partnership made a section 108(i) Schedule P (Form 1120-F), List of separately: Clean renewable energy bond

election or allocates any section 108(i) Foreign Partner Interests in Partnerships. credit, Gulf tax credit bond credit,

items to its partners, it will provide a When required, the partnership will make Midwestern tax credit bond credit, new

statement identifying your distributive this report on an attached statement to clean renewable energy bond credit,

share of the following. partners that are a corporation (identified qualified energy conservation bond credit,

1. The deferred section 108(i) as a foreign partner under Regulations qualified forestry conservation bond

cancellation of debt (COD) income that section 1.1446-1(c)(3) or partners that are credit, qualified zone academy bond

has not been included in income in the a partnership (domestic or foreign) if the credit, qualified school construction bond

reporting partnership knows, or has credit, and build America bond credit. current or prior tax years.

2. The partnership’s original issue reason to know, that one or more of the • Any other information you may need to

discount (OID) deduction deferred under partners is a foreign corporation. If the file with your return not shown elsewhere

partnership allocates effectively on Schedule K-1. The partnership must section 108(i)(2)(A)(i) that has not been

deducted in the current or prior tax years. connected income to the partner, the give you a description and the amount of

3. The deferred section 752 amount statement will contain the information your share for each of these items.

that is treated as a distribution of money

under section 752 in the current tax year.

-12- Instructions for Schedule K-1 (1065-B) (2009)