2017

Instructions for Form 1065-B

U.S. Return of Income for Electing Large Partnerships

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code 

unless otherwise noted.

Contents Page

What's New .................. 1

Reminders ................... 2

Photographs of Missing Children .... 2

The Taxpayer Advocate Service Is 

Here To Help You ........... 2

How To Get Forms and 

Publications ............... 2

General Instructions ............. 2

Purpose of Form ............ 2

Electing Large Partnership 

(ELP) Status ............ 2

Definitions ................ 2

Termination of the 

Partnership ............. 3

Electronic Filing ............ 3

When To File .............. 3

Where To File .............. 3

Who Must Sign ............. 3

Interest and Penalties ......... 4

Accounting Methods ......... 4

Accounting Periods .......... 5

Rounding Off to Whole 

Dollars ................ 5

Recordkeeping ............. 5

Administrative Adjustment 

Requests ............... 5

Other Forms, Returns, And 

Statements That May Be 

Required ............... 6

Assembling the Return ........ 7

Overview ................. 8

Separately Stated Items ....... 8

Limitations ................ 8

Elections Made by the 

Partnership ............. 8

Effect of Section 743(b) 

Basis Adjustment on 

Partnership Items ......... 9

Elections Made by Each 

Partner ................ 9

Partner's Dealings With 

Partnership ............. 9

Contributions to the 

Partnership ............. 9

Dispositions of Contributed 

Property ............... 9

Recognition of 

Precontribution Gain on 

Certain Partnership 

Distributions ............. 9

Unrealized Receivables and 

Inventory Items .......... 10

Activities of ELPs .......... 10

Special Reporting 

Requirements ........... 11

Extraterritorial Income 

Exclusion ............. 13

Contents Page

Specific Instructions ............ 14

Part I. Taxable Income or 

Loss From Passive Loss 

Limitation Activities ....... 14

Part II. Taxable Income or 

Loss From Other 

Activities .............. 20

Schedule B. Other 

Information ............ 22

Schedule D. Capital Gains 

and Losses ............ 22

Schedules K and K-1. 

Partners' Shares of 

Income, Credits, 

Deductions, etc. ......... 26

Specific Instructions for 

Schedules K and K-1 ...... 26

Analysis of Net Income 

(Loss) ................ 36

Schedule L. Balance Sheets 

per Books ............. 37

Schedule M-1. 

Reconciliation of Income 

(Loss) per Books With 

Income (Loss) per Return ... 37

Schedule M-2. Analysis of 

Partners' Capital 

Accounts .............. 38

Codes for Principal Business 

Activity and Principal Product 

or Service ............... 40

Index ..................... 43

Future Developments

For the latest information about 

developments related to Form 1065-B, its 

schedules, and its instructions, such as 

legislation enacted after they were 

published, go to IRS.gov/Form1065b.

What's New

Electing large partnerships. Public Law 

114-74, Title XI, section 1101(b), repealed 

the electing large partnership rules for 

partnership tax years beginning after 2017. 

Form 1065-B and its instructions will be 

obsolete after 2017.

Who must sign. The partnership return 

must be signed by a partner. Beginning in 

2017, any partner of a partnership or a 

member of a limited liability company may 

sign the return.

Principle Business Activity Codes.The 

Principal Business Activity Codes, located at 

the end of these instructions, have been 

updated and revised to reflect updates to the 

North American Industry Classification 

System (NAICS).

Foreign partnerships with wholly 

owned domestic disregarded entities 

(DEs). For tax years beginning on or after 

January 1, 2017, and ending on or after 

December 13, 2017, if a foreign partnership 

wholly owns a domestic DE, the domestic 

DE is treated as a domestic corporation 

separate from its owner (the foreign 

partnership) for the limited purposes of the 

requirements that apply to certain 

foreign-owned domestic corporations under 

section 6038A. See the Instructions for Form 

5472 for additional information about 

reporting required by the domestic DE.

Address change for filing returns. The 

filing address for partnerships located in 

some states has changed. See Where To 

File, later.

Form 8975. Certain U.S. persons that are 

the ultimate parent entity of a U.S. 

multinational enterprise group with annual 

revenue for the preceding reporting period of 

$850 million or more are required to file Form 

8975. Form 8975 and its Schedules A (Form 

8975) must be filed with the income tax 

return of the ultimate parent entity of a U.S. 

multinational enterprise group for the tax 

year in or within which the reporting period 

covered by Form 8975 ends. The first 

required reporting period for an ultimate 

parent entity is the 12-month reporting period 

that begins on or after the first day of a tax 

year of the ultimate parent entity that begins 

on or after June 30, 2016. For more 

information, see Form 8975, Schedule A 

(Form 8975), and the instructions for Form 

8975 and Schedule A (Form 8975).

Disaster relief. The 10% taxable income 

limitation on charitable contributions has 

been temporarily suspended for certain cash 

contributions for relief efforts in certain 

disaster areas. See Temporary suspension 

of 10% limitation.

Eligible employers in certain disaster 

areas can use Form 5884-A, Credits for 

Affected Disaster Area Employers, to report 

the employee retention credit. For more 

information on these and other disaster relief 

provisions, see Pub. 976.

Film, television, and live theatrical 

productions. Qualified film, television, or 

live theatrical productions acquired and 

placed in service after September 27, 2017 

(for which a deduction would have been 

allowable under section 181 without regard 

to the dollar limitation or termination of the 

section), are eligible for the special 

depreciation allowance under section 168(k). 

See the Instructions for Form 4562.

The expiration date for the election to 

deduct certain costs of qualified film, 

television, and live theatrical productions has 

been extended through 2017.

Entertainment expenses, membership 

dues, and facilities. No deduction is 

allowed for certain entertainment expenses, 

Mar 07, 2018 Cat. No. 25982P
membership dues, and facilities used in 

connection with these activities for amounts 

incurred or paid after December 31, 2017. 

See Travel, meals, and entertainment, later.

Capital assets. For dispositions after 

2017, certain patents, inventions, models, or 

designs; secret formulas or processes; or 

similar property are not capital assets. See 

What Are Capital Assets, later.

Reminders

New due date for partnerships. For tax 

years beginning after 2015, the due date for 

a domestic partnership to file its Form 1065 

has changed to the 15th day of the 3rd 

month following the date its tax year ended.

Photographs of Missing 

Children

The IRS is a proud partner with the National 

Center for Missing & Exploited Children® 

(NCMEC). Photographs of missing children 

selected by the Center may appear in 

instructions on pages that would otherwise 

be blank. You can help bring these children 

home by looking at the photographs and 

calling 1-800-THE-LOST (1-800-843-5678) if 

you recognize a child.

The Taxpayer Advocate 

Service Is Here To Help 

You

What is the Taxpayer Advocate Service? 

The Taxpayer Advocate Service (TAS) is an 

independent organization within the IRS 

that helps taxpayers and protects taxpayer 

rights. Our job is to ensure that every 

taxpayer is treated fairly and that you know 

and understand your rights under the 

Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You? We can help you resolve 

problems that you can’t resolve with the IRS. 

And our service is free. If you qualify for our 

assistance, you will be assigned to one 

advocate who will work with you throughout 

the process and will do everything possible 

to resolve your issue.

How Can You Reach Us? We have offices 

in every state, the District of Columbia, and 

Puerto Rico. Your local advocate's number is 

in your local directory and at 

TaxpayerAdvocate.irs.gov. You can also call 

us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights? The Taxpayer Bill of Rights 

describes 10 basic rights that all taxpayers 

have when dealing with the IRS. Our Tax 

Toolkit at TaxpayerAdvocate.irs.gov can 

help you understand what these rights mean 

to you and how they apply. These are your 

rights. Know them. Use them.

How Else Does the Taxpayer Advocate 

Service Help Taxpayers? The TAS works 

to resolve large-scale problems that affect 

many taxpayers. If you know of one of these 

broad issues, please report it to us at 

IRS.gov/SAMS.

How To Get Forms and 

Publications

Internet. You can access the IRS website at 

IRS.gov 24 hours a day, 7 days a week to:

E-file your return — find out about 

commercial tax preparation and e-file 

services available free to eligible taxpayers;

Download forms, including talking tax 

forms, instructions, and publications;

Use the online Internal Revenue Code, 

regulations, or other official guidance;

Get information on starting and operating 

a small business;

Order IRS products online;

Research your tax questions online;

Search publications online by topic or 

keyword;

View Internal Revenue Bulletins (IRBs) 

published in the last few years; and

Sign up to receive local and national tax 

news by email.

Tax forms and publications. The 

partnership can download or print all of the 

forms and publications it may need on 

IRS.gov/FormsPubs. Otherwise, the 

partnership can:

Go to IRS.gov/OrderForms to order and 

have forms mailed to the partnership.

The partnership should receive its order 

within 10 business days.

General Instructions

Purpose of Form

Form 1065-B is an information return used to 

report the income, gains, losses, deductions, 

and other information from the operation of 

an electing large partnership (as defined in 

section 775). An electing large partnership 

(ELP) may be required to pay certain taxes, 

such as recapture of the investment credit 

under section 50, but generally it passes 

through any profits or losses to its partners. 

Partners must include these ELP items on 

their income tax or information returns.

A regular partnership is required to 

separately report to each partner the 

partner's distributive share of any item of 

income, gain, loss, deduction, or credit that if 

separately taken into account by any partner 

would result in an income tax liability for that 

partner different from that which would result 

if the item was not taken into account 

separately. Unlike a regular partnership, an 

ELP combines most items at the partnership 

level and passes through net amounts to 

partners. These ELP rules override the 

regular partnership tax rules to the extent 

they are inconsistent with the regular 

partnership tax rules.

Electing Large Partnership 

(ELP) Status

A partnership chooses ELP status by filing 

Form 1065-B instead of Form 1065. The 

election applies to the tax year for which it 

was made and all later tax years. This 

election cannot be revoked without IRS 

consent.

To make the election, the partnership 

must have had 100 or more partners during 

the preceding tax year. Thus, a partnership 

cannot make the election for its first tax year. 

The number of partners is determined by 

counting only persons directly holding 

partnership interests, including persons 

holding through nominees. Service partners 

are not counted as partners for this purpose. 

Service partners are those partners who 

perform substantial services in connection 

with the partnership's activities or who have 

performed such services in the past.

Service partnerships are not eligible to 

make the election if substantially all of the 

partners are:

Individuals performing substantial 

services in connection with the partnership's 

activities,

Personal service corporations with the 

owner-employees performing the services,

Retired partners who had performed the 

services, and

Spouses of partners performing or who 

had performed the services.

In addition, commodity partnerships are 

not eligible to make the election. Commodity 

partnerships have as their principal activity 

the buying and selling of commodities (other 

than inventory described in section 1221(a)

(1)) or options, futures, or forwards relating 

to commodities.

Once a partnership has made an election 

by filing Form 1065-B, this treatment on the 

return will bind the partnership and all of its 

partners. The IRS, however, is not bound by 

the treatment on the return. To the extent 

provided in future regulations, a partnership 

may cease to be treated as an ELP for a tax 

year in which the number of its partners falls 

below 100.

Definitions

Partnership

A partnership is the relationship between two 

or more persons who join to carry on a trade 

or business, with each person contributing 

money, property, labor, or skill and each 

expecting to share in the profits and losses 

of the business whether or not a formal 

partnership agreement is made.

The term “partnership” includes a limited 

partnership, syndicate, group, pool, joint 

venture, or other unincorporated 

organization, through or by which any 

business, financial operation, or venture is 

carried on, that is not, within the meaning of 

the regulations under section 7701, a 

corporation, trust, estate, or sole 

proprietorship.

Foreign Partnership

A foreign partnership is a partnership that is 

not created or organized in the United States 

or under the law of the United States or of 

any state. See Notice 2010-41 for 

information on when a domestic partnership 

will be classified as foreign.

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General Partner

A general partner is a partner who is 

personally liable for partnership debts.

General Partnership

A general partnership is composed only of 

general partners.

Limited Partner

A limited partner is a partner in a partnership 

formed under a state limited partnership law, 

whose personal liability for partnership debts 

is limited to the amount of money or other 

property that the partner contributed or is 

required to contribute to the partnership. 

Some members of other entities, such as 

domestic or foreign business trusts or limited 

liability companies that are classified as 

partnerships, may be treated as limited 

partners for certain purposes.

Limited Partnership

A limited partnership is formed under a state 

limited partnership law and composed of at 

least one general partner and one or more 

limited partners.

Limited Liability Partnership 

(LLP)

An LLP is formed under a state limited 

liability partnership law. Generally, a partner 

in an LLP is not personally liable for the 

debts of the LLP or any other partner, nor is 

a partner liable for the acts or omissions of 

any other partner, solely by reason of being a 

partner.

Limited Liability Company 

(LLC)

An LLC is an entity formed under state law 

by filing articles of organization as an LLC. 

Unlike a partnership, none of the members of 

an LLC is personally liable for its debts. An 

LLC may be classified for federal income tax 

purposes as a partnership, a corporation, or 

an entity disregarded as an entity separate 

from its owner by applying the rules in 

Regulations section 301.7701-3. See Form 

8832, Entity Classification Election, for more 

details.

Note. A domestic LLC with at least two 

members that does not file Form 8832 is 

classified as a partnership for federal income 

tax purposes.

Nonrecourse Loans

Nonrecourse loans are those liabilities of the 

partnership for which no partner or related 

person bears the economic risk of loss.

Termination of the 

Partnership

An ELP terminates when all its operations 

are discontinued and no part of any 

business, financial operation, or venture is 

continued by any of its partners in a 

partnership. Unlike other partnerships, an 

ELP does not terminate on the sale or 

exchange of 50% or more of the partnership 

interests within a 12-month period. The 

ELP's tax year ends on the date of 

termination which is the date the ELP winds 

up its affairs.

Special rules apply in the case of a 

merger, consolidation, or division of a 

partnership. See Regulations section 

1.708-1 for details.

Electronic Filing

Generally, ELPs are required to file 

electronically. However, the requirement to 

file electronically does not apply to certain 

returns, including:

Bankruptcy returns, and

Returns with prefigured penalty and 

interest.

See Rev. Proc. 2012-17 for the 

requirements for furnishing substitute 

Schedule K-1, Partner's Share of Income, 

Deductions, Credits, etc., electronically.

For more details on electronic filing using the Modernized e-file system, see: 

Publication 3112, IRS e-file Application 

and Participation;

Publication 4163, Modernized e-File 

(MeF) Information for Authorized IRS e-file 

Providers for Business Returns;

Publication 4164, Modernized e-File 

(MeF) Guide for Software Developers and 

Transmitters;

Form 8453-B, U.S. Electing Large 

Partnership Declaration for an IRS e-file 

Return; and

Form 8879-B, IRS e-file Signature 

Authorization for Form 1065-B.

For More Information on 

Filing Electronically

Call the e-help Desk at 1-866-255-0654, 

or

Visit IRS.gov/Filing.

Electronic Filing Waiver

The IRS may waive the electronic filing rules 

if the partnership demonstrates that a 

hardship would result if it were required to file 

its return electronically. A partnership 

interested in requesting a waiver of the 

mandatory electronic filing requirement must 

file a written request, and request one in the 

manner prescribed by the Ogden 

Submission Processing Center (OSPC).

All written requests for waivers should be 

mailed to:

Internal Revenue Service

Ogden Submission Processing Center

e-file Team, Mail Stop 1057

Ogden, UT 84201

Attn: Form 1065 e-File Waiver Request

Waiver requests can also be faxed to 

1-877-477-0575.

Contact the e-help Desk at 

1-866-255-0654 for questions regarding the 

waiver procedures process.

When To File

Generally, a domestic partnership must file 

Form 1065-B by the 15th day of the 3rd 

month following the date its tax year ended 

as shown at the top of Form 1065-B. For 

calendar year partnerships, the due date is 

March 15, 2018.

If the due date falls on a Saturday, 

Sunday, or legal holiday, file by the next day 

that is not a Saturday, Sunday, or legal 

holiday.

Unlike regular partnerships, an ELP 

is required to furnish Schedules K-1 

to its partners by the first March 15 

following the close of the partnership's tax 

year.

Private Delivery Services

The partnership can use certain private 

delivery services (PDS) designated by the 

IRS to meet the “timely mailing as timely 

filing” rule for Form 1065-B. Go to IRS.gov/

PDS for the current list of designated 

services.

The PDS can tell you how to get written 

proof of the mailing date.

For the IRS mailing address to use if 

you’re using PDS, go to IRS.gov/

PDSstreetAddresses.

Private delivery services can’t deliver 

items to P.O. boxes. You must use 

the U.S. Postal Service to mail any 

item to an IRS P.O. box address.

Extension of Time To File

If you need more time to file a partnership 

return, file Form 7004 to request an 

extension of time to file. File Form 7004 by 

the regular due date of the partnership 

return. Form 7004 can be electronically filed. 

See the Instructions for Form 7004.

Period Covered

Form 1065-B is an information return for 

calendar year 2017 and fiscal years 

beginning in 2017 and ending in 2018. If the 

return is for a fiscal year, fill in the tax year 

space at the top of the form.

If the ELP has a tax year less than 12 

months that begins and ends in 2018, see 

Partnerships Filing a 2018 Short Tax Period 

Return in the Instructions for Form 1065. The 

partnership cannot use Form 1065-B to file a 

2018 short period return. Form 1065 must be 

used instead.

Where To File

If the partnership's principal business, office, 

or agency is located in the United States, 

then file the return at: Department of the 

Treasury, Internal Revenue Service Center, 

Ogden, UT 84201-0007.

If the partnership's principal business, 

office, or agency is located in a foreign 

country or U.S. possession, then file the 

return at: Internal Revenue Service Center, 

P.O. Box 409101, Ogden, UT 84409.

Who Must Sign

General Partner or LLC Member 

Manager

Form 1065-B is not considered to be a return 

unless it is signed. A partner or LLC member 

CAUTION

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CAUTION

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must sign the return. When a return is made 

for a partnership by a receiver, trustee, or 

assignee, the fiduciary must sign the return, 

instead of the partner or LLC member. 

Returns and forms signed by a receiver or 

trustee in bankruptcy on behalf of a 

partnership must be accompanied by a copy 

of the order or instructions of the court 

authorizing signing of the return or form.

Paid Preparer's Information

If a partner or an employee of the ELP 

completes Form 1065-B, the paid preparer's 

space should remain blank. In addition, 

anyone who prepares Form 1065-B but does 

not charge the partnership should not 

complete this section.

Generally, anyone who is paid to prepare 

the partnership return must do the following.

Sign the return in the space provided for 

the preparer's signature.

Fill in the other blanks in the “Paid 

Preparer Use Only” area of the return (a paid 

preparer cannot use a social security number 

in the “Paid Preparer Use Only” box. The 

paid preparer must use a preparer tax 

identification number (PTIN)).

Give the ELP a copy of the return in 

addition to the copy to be filed with the IRS.

Note. A paid preparer may sign original 

returns or amended returns by rubber stamp, 

mechanical device, or computer software 

program.

Paid Preparer Authorization

If the ELP wants to allow the paid preparer to 

discuss its 2017 Form 1065-B with the IRS, 

check the “Yes” box in the signature area of 

the return. The authorization applies only to 

the individual whose signature appears in the 

“Paid Preparer Use Only” section of its 

return. It does not apply to the firm, if any, 

shown in the section.

If the “Yes” box is checked, the ELP is 

authorizing the IRS to call the paid preparer 

to answer any questions that may arise 

during the processing of its return. The ELP 

is also authorizing the paid preparer to:

Give the IRS any information that is 

missing from its return,

Call the IRS for information about the 

processing of its return, and

Respond to certain IRS notices about 

math errors and return preparation.

The ELP is not authorizing the paid 

preparer to receive any refund check, bind 

the ELP to anything, or otherwise represent 

the ELP before the IRS. If the ELP wants to 

expand the paid preparer's authorization, 

see Pub. 947, Practice Before the IRS and 

Power of Attorney.

The authorization cannot be revoked. 

However, the authorization will automatically 

end no later than the due date (excluding 

extensions) for filing the 2018 return.

Interest and Penalties

Interest

Interest is charged on taxes not paid by the 

due date, even if an extension of time to file 

is granted. Interest is also charged from the 

due date (including extensions) to the date of 

payment on the failure to file penalty, the 

accuracy-related penalty, the reportable 

transaction underpayment penalty, and the 

fraud penalty. The interest charged is figured 

at a rate determined under section 6621.

Late Filing of Return

A penalty is assessed against the 

partnership if it is required to file a 

partnership return and it (a) fails to file the 

return by the due date, including extensions; 

or (b) files a return that fails to show all the 

information required, unless such failure is 

due to reasonable cause.

If the ELP receives a notice about a 

penalty after it files the return, the ELP may 

send the IRS an explanation and the Service 

will determine if the explanation meets 

reasonable-cause criteria. Do not attach an 

explanation when filing the return.

The penalty is $200 for each month or 

part of a month (for a maximum of 12 

months) the failure continues, multiplied by 

the total number of persons who were 

partners in the partnership during any part of 

the partnership's tax year for which the return 

is due.

If tax is due (regardless of when the 

return was required to be filed), the penalty is 

the amount stated above plus 5% of the 

unpaid tax for each month or part of a month 

the return is late, up to a maximum of 25% of 

the unpaid tax. If the return is more than 60 

days late, the minimum penalty is $210 or 

the balance of the tax due on the return, 

whichever is smaller.

Late Payment of Tax

An ELP that does not pay the tax shown on 

the return when due generally may have to 

pay an addition to tax equal to 1

2 of 1% for 

each month or part of a month the tax is not 

paid, up to a maximum of 25% of the unpaid 

tax. The addition to tax will not be imposed if 

the partnership can show that the failure to 

pay on time was due to reasonable cause 

and not willful neglect.

Failure To Furnish Information 

Timely

For each failure to furnish Schedule K-1 to a 

partner when due and each failure to include 

on Schedule K-1 all the information required 

to be shown (or the inclusion of incorrect 

information), a $260 penalty may be 

imposed with respect to each Schedule K-1 

for which a failure occurs. The maximum 

penalty is $3,218,500 for all such failures 

during a calendar year.

If the requirement to report correct 

information is intentionally disregarded, each 

$260 penalty is increased to $530 or, if 

greater, 10% of the aggregate amount of 

items required to be reported. There is no 

limit to the amount of penalty.

Trust Fund Recovery Penalty

This penalty may apply if certain excise, 

income, social security, and Medicare taxes 

that must be collected or withheld are not 

collected or withheld, or these taxes are not 

paid. These taxes are generally reported on:

Form 720, Quarterly Federal Excise Tax 

Return;

Form 941, Employer's QUARTERLY 

Federal Tax Return;

Form 943, Employer's Annual Federal Tax 

Return for Agricultural Employees;

Form 944, Employer's ANNUAL Federal 

Tax Return; or

Form 945, Annual Return of Withheld 

Federal Income Tax.

The trust fund recovery penalty may be 

imposed on all persons who are determined 

by the IRS to have been responsible for 

collecting, accounting for, or paying over 

these taxes, and who acted willfully in not 

doing so. The penalty is equal to the unpaid 

trust fund tax. See the Instructions for Form 

720; Pub. 15 (Circular E), Employer's Tax 

Guide; or Pub. 51 (Circular A), Agricultural 

Employer's Tax Guide, for more details, 

including the definition of a responsible 

person.

Accounting Methods

An accounting method is a set of rules used 

to determine when and how income and 

expenditures are reported. Figure ordinary 

income using the method of accounting 

regularly used in keeping the ELP's books 

and records. In all cases, the method used 

must clearly reflect income. Generally, 

permissible methods include:

Cash,

Accrual, or

Any other method authorized by the 

Internal Revenue Code.

Generally, a partnership may not use the 

cash method of accounting if (a) it has at 

least one corporate partner, it has average 

annual gross receipts of more than $5 

million, and it is not a farming business; or 

(b) it is a tax shelter (as defined in section 

448(d)(3)). See section 448 for details.

Accrual method. If inventories are 

required, an accrual method of accounting 

must be used for sales and purchases of 

merchandise. However, qualifying taxpayers 

and eligible businesses of qualifying small 

business taxpayers are excepted from using 

an accrual method and may account for 

inventoriable items as materials and supplies 

that are not incidental. For more details, see 

Form 1125-A and its instructions.

Under the accrual method, an amount is 

includible in income when:

1. All the events have occurred that fix 

the right to receive the income, which is the 

earliest of the date:

a. Payment is earned through the 

required performance,

b. Payment is due to the taxpayer, or

c. Payment is received by the taxpayer, 

and

2. The amount can be determined with 

reasonable accuracy.

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See Regulations section 1.451-1(a) for 

details.

Generally, an accrual basis taxpayer can 

deduct accrued expenses in the tax year in 

which:

All events that determine the liability have 

occurred,

The amount of the liability can be figured 

with reasonable accuracy, and

Economic performance takes place with 

respect to the expense.

For property and service liabilities, for 

example, economic performance occurs as 

the property or service is provided. There are 

special economic performance rules for 

certain items, including recurring expenses. 

See section 461(h) and the related 

regulations for the rules for determining 

when economic performance takes place.

Nonaccrual-experience method. Accrual 

method partnerships are not required to 

accrue certain amounts to be received from 

the performance of services that, on the 

basis of their experience, will not be 

collected if:

The services are in the fields of health, 

law, engineering, architecture, accounting, 

actuarial science, performing arts, or 

consulting; or

The partnership's average annual gross 

receipts for the 3 prior tax years does not 

exceed $5 million.

This provision does not apply to any 

amount if interest is required to be paid on 

the amount or if there is any penalty for 

failure to timely pay the amount. For 

information, see section 448(d)(5) and 

Regulations section 1.448-2. For reporting 

requirements, see the instructions for line 1a.

Percentage of completion method. 

Long-term contracts (except for certain real 

property construction contracts) must 

generally be accounted for using the 

percentage of completion method described 

in section 460. See section 460 and the 

underlying regulations for rules on long-term 

contracts.

Mark-to-market accounting. Dealers in 

securities must use the mark-to-market 

accounting method described in section 475. 

Under this method, any security that is 

inventory to the dealer must be included in 

inventory at its fair market value (FMV). Any 

security that is not inventory and that is held 

at the close of the tax year is treated as sold 

at its FMV on the last business day of the tax 

year, and any gain or loss must be taken into 

account in determining gross income. The 

gain or loss taken into account is generally 

treated as ordinary gain or loss. For details, 

including exceptions, see section 475, the 

related regulations, and Rev. Rul. 97-39, 

1997-39 I.R.B. 4.

Traders in securities can elect to use the 

mark-to-market accounting method. To 

make the election, the ELP must file a 

statement describing the election and the 

first tax year the election is to be effective. 

The statement must be filed by the due date 

(not including extensions) of the return for 

the tax year immediately preceding the 

election year and attached to that return, or if 

applicable, to a request for an extension of 

time to file that return. For more details, see 

Rev. Proc. 99-17, 1999-7 I.R.B. 52, as 

superseded in part by Rev. Proc. 99-49, and 

section 475(f)(1).

Change in accounting method. Generally, 

the ELP must get IRS consent to change its 

method of accounting used to report income 

(for income as a whole or for any material 

item). To do so, the ELP generally must file 

Form 3115, Application for Change in 

Accounting Method. See the Instructions for 

Form 3115 for more information and 

exceptions. Also see Rev. Proc. 2016-29, 

2016-21 I.R.B. 880 (or any successor); Rev. 

Proc. 2017-30, 2017-18 I.R.B. 1131; and 

Pub. 538.

Section 481(a) adjustment. The ELP 

may have to make an adjustment to prevent 

amounts of income or expenses from being 

duplicated or omitted. This is called a section 

481(a) adjustment. The section 481(a) 

adjustment period is generally 1 year for a 

net negative adjustment and 4 years for a net 

positive adjustment. However, in some 

instances, a partnership can elect to modify 

the section 481(a) adjustment period. The 

partnership must complete the appropriate 

lines of Form 3115 to make the election. See 

the Instructions for Form 3115.

Include any net positive section 481(a) 

adjustment on Form 1065-B, Part I, line 10. If 

the net section 481(a) adjustment is 

negative, report it on Form 1065-B, Part I, 

line 23.

There are some instances when the ELP 

can obtain automatic consent from the IRS to 

change to certain accounting methods. See 

Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as 

modified, or its successor.

Accounting Periods

An ELP is generally required to have one of 

the following tax years.

1. The tax year of a majority of its 

partners (majority tax year).

2. If there is no majority tax year, then 

the tax year common to all of the ELP's 

principal partners (partners with an interest 

of 5% or more in the partnership profits or 

capital).

3. If there is neither a majority tax year 

nor a tax year common to all principal 

partners, then the tax year that results in the 

least aggregate deferral of income.

Note. In determining the tax year of a 

partnership under (1), (2), or (3) above, the 

tax years of certain tax-exempt and foreign 

partners are disregarded. See Regulations 

section 1.706-1(b) for more details.

4. Some other tax year, if:

a. The ELP can establish that there is a 

business purpose for the tax year; or

b. The ELP elects under section 444 to 

have a tax year other than a required tax 

year by filing Form 8716, Election To Have a 

Tax Year Other Than a Required Tax Year. 

For a partnership to have this election in 

effect, it must make the payments required 

by section 7519 and file Form 8752, 

Required Payment or Refund Under Section 

7519.

A section 444 election ends if a 

partnership changes its accounting period to 

its required tax year or some other permitted 

year or it is penalized for willfully failing to 

comply with the requirements of section 

7519. If the termination results in a short tax 

year, type or legibly print at the top of the first 

page of Form 1065-B for the short tax year, 

“SECTION 444 ELECTION TERMINATED”; 

or

c. The partnership elects to use a 

52-53-week tax year that ends with reference 

to either its required tax year or a tax year 

elected under section 444.

Change of tax year. To change its tax year 

or to adopt or retain a tax year other than its 

required tax year, the ELP must file Form 

1128, Application To Adopt, Change, or 

Retain a Tax Year, unless the partnership is 

making an election under section 444.

Note. The tax year of a common trust fund 

must be the calendar year.

Rounding Off to Whole 

Dollars

The partnership can round off cents to whole 

dollars on its return and schedules. If the 

partnership does round to whole dollars, it 

must round all amounts. To round, drop 

amounts under 50 cents and increase 

amounts from 50 to 99 cents to the next 

dollar (for example, $1.39 becomes $1 and 

$2.50 becomes $3).

If two or more amounts must be added to 

figure the amount to enter on a line, include 

cents when adding the amounts and round 

off only the total.

Recordkeeping

The ELP must keep its records as long as 

they may be needed for the administration of 

any provision of the Internal Revenue Code. 

The ELP usually must keep records that 

support an item of income, deduction, or 

credit on the partnership return for 3 years 

from the date the return is due or is filed, 

whichever is later. It also must keep records 

that verify its basis in property for as long as 

they are needed to figure the basis of the 

original or replacement property.

The ELP should also keep copies of all 

returns it has filed. They help in preparing 

future returns and in making computations 

when filing an amended return.

Administrative Adjustment 

Requests

The procedures to follow when filing an 

amended partnership return depend on 

whether the amended return is filed 

electronically or on paper. The rules for 

determining when a return must be filed 

-5-
electronically (see Electronic Filing, earlier) 

also apply to amended returns.

Electronically filed amended returns. To 

correct an error on a Form 1065-B already 

filed, file Form 8082, Notice of Inconsistent 

Treatment or Administrative Adjustment 

Request (AAR). Generally, an adjustment to 

a partnership item requested on Form 8082 

will flow through to the partners and be taken 

into account in determining the amount of the 

same item for the partnership tax year in 

which the IRS allows the adjustment. If the 

income, deductions, credits, or other 

information provided to any partner on 

Schedule K-1 are incorrect under section 

704 in the partner's distributive share of any 

partnership item shown on Form 1065-B, file 

an amended Schedule K-1 (Form 1065-B) 

for that partner with the Form 8082. Also give 

a copy of the amended Schedule K-1 to that 

partner. See the Form 8082 instructions for 

details on how to file the amended Form 

1065-B.

Paper filed amended returns. Use Form 

1065X, Amended Return or Administrative 

Adjustment Request (AAR), to file the 

amended return or administrative adjustment 

request. See Form 1065X, and its separate 

instructions, for information on completing 

and filing the form.

A change to the partnership's federal 

return may affect its state return. This 

includes changes made as a result of an IRS 

examination. For more information, contact 

the state tax agency for the state in which the 

partnership return was filed.

Other Forms, Returns, And Statements That May Be Required

Form, Return, or Statement Use this to—

 W-2 and W-3—Wage and Tax Statement; and Transmittal of Wage 

and Tax Statements

Report wages, tips, other compensation, and withheld income, social security, and Medicare taxes for 

employees.

 720—Quarterly Federal Excise Tax Return Report and pay environmental taxes, communications and air transportation taxes, fuel taxes, 

manufacturers taxes, ship passenger tax, and certain other excise taxes. Also, see Trust Fund 

Recovery Penalty, earlier.

 940—Employer's Annual Federal Unemployment (FUTA) Tax Return Report and pay FUTA tax.

 941—Employer's QUARTERLY Federal Tax Return Report quarterly income tax withheld on wages and employer and employee social security and 

Medicare taxes. Also, see Trust Fund Recovery Penalty, earlier.

 943—Employer's Annual Federal Tax Return for Agricultural 

Employees

Report income tax withheld and employer and employee social security and Medicare taxes on 

farmworkers. Also, see Trust Fund Recovery Penalty, earlier.

 944—Employer's ANNUAL Federal Tax Return File annual Form 944 instead of filing quarterly Forms 941 if the IRS notified you in writing.

 945—Annual Return of Withheld Federal Income Tax Report income tax withheld from nonpayroll payments, including pensions, annuities, individual 

retirement accounts (IRAs), gambling winnings, and backup withholding. Also, see Trust Fund 

Recovery Penalty, earlier.

 1042 and 1042-S—Annual Withholding Tax Return for U.S. Source 

Income of Foreign Persons; and Foreign Person's U.S. Source 

Income Subject to Withholding

Report and send withheld tax on payments or distributions made to nonresident alien individuals, 

foreign partnerships, or foreign corporations to the extent these payments or distributions constitute 

gross income from sources within the United States that is not effectively connected with a U.S. trade 

or business. A domestic partnership must also withhold tax on a foreign partner's distributive share of 

such income, including amounts that are not actually distributed. Withholding on amounts not 

previously distributed to a foreign partner must be made and paid over by the earlier of: 

The date on which Schedule K-1 is sent to that partner, or

The 15th day of the 3rd month after the end of the partnership's tax year.

For more details, see sections 1441 and 1442 and Pub. 515, Withholding of Tax on Nonresident Aliens 

and Foreign Entities. 

 1042-T—Annual Summary and Transmittal of Forms 1042-S Transmit paper Forms 1042-S to the IRS.

 1065X—Amended Return or Administrative Adjustment Request 

(AAR)

Use Form 1065X to correct a previously filed partnership return or to make an Administrative 

Adjustment Request for a previously filed return.

 1095-B and 1094-B—Health Coverage and Transmittal of Forms 

1095-B

Required to be filed by certain health insurance issuers who provide minimum essential coverage to 

report information on the primary insured and other individuals covered under the plan.

 1095-C and 1094-C—Employer-Provided Health Insurance Offer 

and Coverage and Transmittal of Forms 1095-C

Used by certain employers to report information about the health care coverage the employer offered 

with regard to each full-time employee.

 1096—Annual Summary and Transmittal of U.S. Information Returns Transmit paper Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G to the IRS.

 1097-BTC—Bond Tax Credit Report tax credits to bond holders and tax credits passed to another person.

 1098—Mortgage Interest Statement Report the receipt from any individual of $600 or more of mortgage interest (including certain points) in 

the course of the partnership's trade or business.

 1099-A, B, C, INT, K, LTC, MISC, OID, R, S, and SA

Important. Every partnership must file Forms 1099-MISC if, in the 

course of its trade or business, it makes payments of rents, 

commissions, or other fixed or determinable income (see section 

6041) totaling $600 or more to any one person during the calendar 

year.

Report the following.

Acquisitions or abandonments of secured property.

Proceeds from broker and barter exchange transactions.

Cancellation of debts.

Interest income.

Payment card and third-party network transactions.

Payments of long-term care and accelerated death benefits.

Miscellaneous income.

Original issue discount.

Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance 

contracts, etc. 

Proceeds from real estate transactions.

Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.

-6-
Form, Return, or Statement Use this to—

 5471—Information Return of U.S. Persons With Respect To Certain 

Foreign Corporations

Report information with respect to certain foreign corporations. A domestic partnership may have to file 

Form 5471 if it:

Controls a foreign corporation,

Acquires or owns 10% or more in value of the outstanding stock of a foreign corporation, or

Disposes of sufficient stock to reduce its interest to less than 10% in value of the outstanding stock 

of a foreign corporation; or

Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30 

days or more during any tax year of the foreign corporation, and it owned that stock on the last day of 

that year.

 5713—International Boycott Report Report operations in, or related to, a “boycotting” country, company, or national of a country and to 

figure the loss of certain tax benefits. The partnership must give each partner a copy of the Form 5713 

filed by the partnership if there has been participation in, or cooperation with, an international boycott.

 8275—Disclosure Statement Disclose items or positions, except those contrary to a regulation, that are not otherwise adequately 

disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty 

imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for 

disclosures relating to preparer penalties for understatements due to unrealistic positions or disregard 

of rules.

 8275-R—Regulation Disclosure Statement Disclose any item on a tax return for which a position has been taken that is contrary to Treasury 

regulations.

 8288 and 8288-A—U.S. Withholding Tax Return for Dispositions by 

Foreign Persons of U.S. Real Property Interests; and Statement of 

Withholding on Dispositions by Foreign Persons of U.S. Real 

Property Interests

Report and send withheld tax on the sale of U.S. real property by a foreign person. See section 1445 

and the related regulations for additional information.

 8300—Report of Cash Payments Over $10,000 Received in a Trade 

or Business

Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of 

related transactions.

 8308—Report of a Sale or Exchange of Certain Partnership Interests Report the sale or exchange by a partner of all or part of a partnership interest where any money or 

other property received in exchange for the interest is attributable to unrealized receivables or 

inventory items.

 8594—Asset Acquisition Statement Under Section 1060 Report a sale of assets if goodwill or going concern value attaches, or could attach, to such assets. 

Both the seller and buyer of a group of assets that makes up a trade or business must use this form.

 8621—Information Return by a Shareholder of a Passive Foreign 

Investment Company or Qualified Electing Fund

Report ownership interest in a passive foreign investment company or qualified electing fund.

 8697—Interest Computation Under the Look-Back Method for 

Completed Long-Term Contracts

Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain 

long-term contracts that are accounted for under either the percentage of completion-capitalized cost 

method or the percentage of completion method. 

 8804, 8805, and 8813—Annual Return for Partnership Withholding 

Tax (Section 1446); Foreign Partner's Information Statement of 

Section 1446 Withholding Tax; and Partnership Withholding Tax 

Payment Voucher (Section 1446)

Figure and report the withholding tax on the distributive shares of any effectively connected gross 

income for foreign partners. This is done on Forms 8804 and 8805. Use Form 8813 to send installment 

payments of withheld tax based on effectively connected taxable income allocable to foreign partners.

 Exception. Publicly traded partnerships do not file these forms. They must instead withhold tax on 

distributions to foreign partners and report and send payments using Forms 1042 and 1042-S. See 

Regulations section 1.1446-4 for more information.

 8832—Entity Classification Election See Entity Classification Election, later.

 8865—Return of U.S. Person With Respect to Certain Foreign 

Partnerships

Report the information required under section 6038 (reporting with respect to controlled foreign 

partnerships), section 6038B (reporting of transfers to foreign partnerships), or section 6046A 

(reporting of acquisitions, dispositions, and changes in foreign partnership interests). See Form 8865 

and its instructions for more details.

 8866—Interest Computation Under the Look-Back Method for 

Property Depreciated Under the Income Forecast Method

Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain 

property placed in service after September 13, 1995, depreciated under the income forecast method.

 8876—Excise Tax on Structured Settlement Factoring Transactions Report and pay the 40% excise tax imposed under section 5891.

 8886—Reportable Transaction Disclosure Statement Disclose information for each reportable transaction in which the partnership participated. Form 8886 

must be filed for each tax year the partnership participated in the reportable transaction. The 

partnership may have to pay a penalty if it is required to file Form 8886 and does not do so. The 

following are reportable transactions.

Any listed transaction, which is a transaction that is the same as or substantially similar to one of 

the types of transactions that the IRS has determined to be a tax avoidance transaction and identified 

by notice, regulation, or other published guidance as a listed transaction. 

Any transaction offered under conditions of confidentiality for which the partnership (or a related 

party) paid an advisor a fee of at least $50,000 ($250,000 for partnerships if all partners are 

corporations).

Certain transactions for which the partnership (or a related party) has contractual protection against 

disallowance of the tax benefits.

Certain transactions resulting in a loss of at least $2 million in any single tax year or $4 million in 

any combination of tax years (if all partners are corporations, see Regulations section 1.6011-4(b)(5)(i)

(B)).

Any transaction of interest, which is a transaction that is the same as, or substantially similar to, 

one of the types of transactions identified by the IRS by notice, regulation, or other published 

guidance. See Notice 2009-55, 2009-31 I.R.B. 170.

See Regulations section 1.6011-4, the Instructions for Form 8886, and the instructions for line 15 of 

Schedule K for more information.

 8918—Material Advisor Disclosure Statement Material advisors to any reportable transaction must disclose certain information about the reportable 

transaction by filing Form 8918 with the IRS.

 8925—Report of Employer-Owned Life Insurance Contracts Report the number of employees covered by employer-owned life insurance contracts issued after 

August 17, 2006, and the total amount of employer-owned life insurance in force on those employees 

at the end of the tax year.

 8938—Statement of Specified Foreign Financial Assets Report the ownership of specified foreign financial assets if the total value of those assets is more than 

the applicable reporting threshold.

 Statement of section 743(b) basis adjustments Report the adjustment of bases under section 743(b). If the partnership is required to adjust the bases 

of partnership properties under section 743(b) because of a section 754 election or because of a 

substantial built-in loss as defined in section 743(d) on the sale or exchange of a partnership interest or 

on the death of a partner, the partnership must attach a statement to its return for the year of the 

transfer. The statement must list:

1. The name and identifying number of the transferee partner,

2. The computation of the adjustment, and

3. The partnership properties to which the adjustment has been allocated.

Assembling the Return

When submitting Form 1065-B, organize the 

pages of the return in the following order.

Pages 1–5.

Schedule F (Form 1040), Profit or Loss 

From Farming (if required).

Form 8825, Rental Real Estate Income 

and Expenses of a Partnership or an S 

Corporation (if required).

Form 1125-A, Cost of Goods Sold (if 

required).

Form 8941, Credit for Small Employer 

Health Insurance Premiums (if required).

Any other schedules in alphabetical order.

Any other forms in numerical order.

-7-
Complete every applicable entry space 

on Form 1065-B and Schedule K-1. Do not 

enter “See attached” instead of completing 

the entry spaces. Penalties may be 

assessed if the partnership files an 

incomplete return. If you need more space 

on the forms or schedules, attach separate 

sheets and place them at the end of the 

return using the same size and format as on 

the printed forms. Show the totals on the 

printed forms. Also be sure to put the 

partnership's name and EIN on each 

supporting statement or attachment.

Overview

The taxable income of an ELP is figured in 

the same manner as that of an individual, 

except that the items described below are 

separately stated and certain modifications 

are made. These modifications include not 

allowing the deduction for personal 

exemptions, the net operating loss 

deduction, and certain itemized deductions. 

Other itemized deductions are modified.

The netting of capital gains and losses 

occurs at the partnership level. Such net 

capital gain (loss) is treated as long-term 

capital gain (loss). Any excess of net 

short-term capital gain over net long-term 

capital loss is consolidated with the 

partnership's other taxable income and is not 

separately reported.

General credits are separately reported to 

partners as a single item. They are taken into 

account by partners as a current year 

general business credit. General credits are 

those credits that are not separately 

reported. The refundable credit for federal 

tax paid on fuels and the refund or credit for 

tax paid on undistributed capital gains of a 

regulated investment company (RIC) or a 

real estate investment trust (REIT) are taken 

by the partnership and thus are not 

separately reported to partners. The 

partnership also recaptures the investment 

credit under section 50 and low-income 

housing credit under section 42(j).

Separately Stated Items

Partners must take into account separately 

(under section 772(a)) their distributive 

shares of the following items (whether or not 

they are actually distributed).

Taxable income (loss) from passive loss 

limitation activities.

Taxable income (loss) from other activities 

(for example, portfolio income (loss)).

Net capital gain (loss) allocable to passive 

loss limitation activities.

Net capital gain (loss) allocable to other 

activities.

28% rate gain (loss) allocable to passive 

loss limitation activities.

28% rate gain (loss) allocable to other 

activities.

Qualified dividends.

Tax-exempt interest income.

Extraterritorial income exclusion and 

foreign trading gross receipts.

Net alternative minimum tax (AMT) 

adjustment separately figured for passive 

loss limitation activities.

Net AMT adjustment separately figured 

for other activities.

General credits.

Low-income housing credit.

Rehabilitation credit from rental real 

estate activities.

Creditable foreign taxes and foreign 

source items.

Other items of income, gain, loss, 

deduction, or credit, to the extent the IRS 

determines separate treatment is 

appropriate. Examples of such items include 

the domestic production activity deduction 

and gains on sales of qualified small 

business stock (information required for a 

section 1202 exclusion or section 1045 

rollover).

Note. For ELPs, the term “passive loss 

limitation activities” includes trade or 

business, rental real estate, and other rental 

activities. Partnership items from passive 

loss limitation activities allocated to limited 

partners are treated as being from passive 

activities and subject to the passive activity 

limitations. However, general partners may 

have materially or actively participated in 

some or all of these passive loss limitation 

activities. Each general partner must 

determine if any partnership items from 

these activities are subject to the passive 

activity limitations. To allow each general 

partner to correctly apply the passive activity 

limitations, the partnership must report 

income or loss and credits separately for 

each trade or business activity, rental real 

estate activity, rental activity other than rental 

real estate, and other activities (for example, 

portfolio income). See the discussion on 

Passive Loss Limitation Activities, later.

The character of any item separately 

stated to the partners is based on its 

character to the partnership. The items are 

treated as incurred by the partnership, 

similar to the character rule for other 

partnerships under section 702(b).

Limitations

Most limitations and other provisions 

affecting taxable income or credit are applied 

at the partnership level except for:

Section 68—Overall itemized deduction 

limitation,

Sections 49 and 465—At-risk limitations, 

and

Section 469—Passive loss limitations.

Miscellaneous itemized deductions. The 

limitation on miscellaneous itemized 

deductions is applied at the partnership 

level. However, instead of the 2% floor, 70% 

of the partnership's total miscellaneous 

itemized deductions are disallowed.

Charitable contributions. Another 

limitation that is applied at the partnership 

level is the deduction for charitable 

contributions. The deduction is limited to 

10% of the partnership's taxable income 

(before the charitable contribution 

deduction).

Entity Classification Election

Use Form 8832, Entity Classification 

Election, to make a change in classification. 

Except for certain business entities always 

classified as a corporation, a business entity 

with at least two members may choose to be 

classified either as a partnership or an 

association taxable as a corporation. A 

domestic eligible entity with at least two 

members that does not file Form 8832 is 

classified under the default rules as a 

partnership. However, a foreign eligible 

entity with at least two members is classified 

under the default rules as a partnership only 

if at least one member does not have limited 

liability. File Form 8832 only if the entity does 

not want to be classified under these default 

rules or if it wants to change its classification.

Attach a copy of Form 8832 to the 

partnership's federal tax return for 

the tax year of the election.

Elections Made by the 

Partnership

All elections, other than the exceptions listed 

under Elections Made by Each Partner, later, 

affecting the computation of taxable income 

or any credit are made by the ELP. For 

example, it chooses the accounting method 

and depreciation methods it will use. The 

ELP also makes elections under the 

following sections.

1. Section 179 (election to expense 

certain property).

2. Section 1033 (involuntary 

conversions).

3. Section 754 (manner of electing 

optional adjustment to basis of partnership 

property).

There are no changes to the optional 

basis adjustment provisions as a result of the 

ELP rules. Under section 754, a partnership 

can elect to adjust the basis of partnership 

property when property is distributed or 

when a partnership interest is transferred. 

Once an election is made under section 754, 

it applies both to all distributions and to all 

transfers made during the tax year and in all 

subsequent tax years unless the election is 

revoked.

This election must be made in a 

statement that is filed with the ELP's timely 

filed return (including any extension) for the 

tax year during which the distribution or 

transfer occurs. The statement must include:

The name and address of the ELPs,

A declaration that the ELP elects under 

section 754 to apply the provisions of section 

734(b) and section 743(b).

The ELP can get an automatic 12-month 

extension to make the section 754 election 

provided corrective action is taken within 12 

months of the original deadline for making 

the election. For details, see Regulations 

section 301.9100-2.

See section 754 and the related 

regulations for more information.

CAUTION

!

-8-
If there is a distribution of property 

consisting of an interest in another 

partnership, see section 734(b).

The partnership is required to attach a 

statement for any section 743(b) basis 

adjustments.

To revoke a section 754 election, the 

partnership must file the revocation request 

at the same IRS Submission Processing 

Center in which the partnership return is 

filed. See Regulations section 1.754-1(c).

4. Regulations section 1.1411-10(g) 

(section 1411 election with respect to CFCs 

and QEFs).

A domestic partnership that directly or 

indirectly owns stock of a controlled foreign 

corporation (CFC) (within the meaning of 

section 953(c)(1)(B) or section 957(a)) or a 

passive foreign investment company (within 

the meaning of section 1297(a)) that the 

domestic partnership treats as a qualified 

electing fund (QEF) under section 1293 may 

make the election provided in Regulations 

section 1.1411-10(g). The election must be 

made no later than the first tax year 

beginning after 2013 during which the 

partnership: (i) includes an amount in gross 

income for chapter 1 purposes under section 

951(a) or section 1293(a) for the CFC or 

QEF, and (ii) has a direct or indirect owner 

that is subject to tax under section 1411 or 

would have been if the election were made. 

This election must be made on an 

entity-by-entity basis, and applies only to the 

particular CFCs and QEFs for which an 

election is made. In general, for purposes of 

section 1411, if an election is in effect for a 

CFC or QEF, the amounts included in 

income under section 951 and section 1293 

derived from the CFC or QEF are included in 

net investment income, and distributions 

described in section 959(d) or section 

1293(c) are excluded from net investment 

income. An election that is made under 

Regulations section 1.1411-10(g) cannot be 

revoked. For more information regarding this 

election, see Regulations section 

1.1411-10(g).

The election must be made in a statement 

that is filed with the partnership's original or 

amended return for the tax year in which the 

election is made. An election can be made 

on an amended return only if the tax year for 

which the election is made, and all tax years 

affected by the election, are not closed by 

the period of limitations on assessments 

under section 6501. The statement must 

include:

The name and EIN of the partnership 

making the election;

A declaration that the partnership elects 

under Regulations section 1.1411-10(g) to 

apply the rules in Regulations section 

1.1411-10(g) to the CFCs and QEFs 

identified in the statement; and

The following information for each CFC 

and QEF for which an election is made: (i) 

the name of the CFC or QEF; and (ii) either 

the EIN of the CFC or QEF, or, if the CFC or 

QEF does not have an EIN, the reference ID 

number of the CFC or QEF.

In addition, for each CFC or QEF held by 

the partnership for which an election under 

Regulations section 1.1411-10(g) has 

already been made by the partnership, the 

statement should include: (i) the name of the 

CFC or QEF; and (ii) either the EIN of the 

CFC or QEF, or, if the CFC or QEF does not 

have an EIN, the reference ID number of the 

CFC or QEF.

5. Section 41(h) (payroll tax credit 

election).

Effect of Section 743(b) 

Basis Adjustment on 

Partnership Items

If the basis of partnership property has been 

adjusted for a transferee partner under 

section 743(b), the partnership must adjust 

the transferee's distributive share of the 

items of partnership income, deduction, gain, 

or loss in accordance with Regulations 

section 1.743-1(j)(3) and (4). These 

adjustments must be reported on 

Schedule K and the transferee partner's 

Schedule K-1. Report the adjustments on an 

attached statement to Schedule K-1 using 

the codes for Other Income or Other 

Deductions. Identify the partnership item 

being adjusted and the amount of the 

adjustment. If the adjustments are to 

partnership items from more than one trade 

or business, report the adjustments 

separately for each activity. Section 743(b) 

adjustments do not affect the transferee's 

capital account.

Elections Made by Each 

Partner

Elections under the following sections are 

made by each partner separately on the 

partner's tax return.

1. Section 108 (income from discharge 

of indebtedness). If an ELP has income from 

the discharge of any indebtedness, this is 

reported separately to each partner.

2. Section 901 (foreign tax credit).

Partner's Dealings With 

Partnership

If a partner engages in a transaction with his 

or her partnership, other than in his or her 

capacity as a partner, the partner is treated 

as not being a member of the partnership for 

that transaction. Special rules apply to sales 

or exchanges of property between 

partnerships and certain persons, as 

explained in Pub. 541, Partnerships.

Contributions to the 

Partnership

Generally, no gain or (loss) is recognized to 

the partnership or any of the partners when 

property is contributed to the partnership in 

exchange for an interest in the partnership. 

This rule does not apply to any gain realized 

on a transfer of property to a partnership that 

would be treated as an investment company 

(within the meaning of section 351(e)) if the 

partnership were incorporated. If, as a result 

of a transfer of property to a partnership, 

there is a direct or indirect transfer of money 

or other property to the transferring partner, 

the partner may have to recognize gain on 

the exchange.

The basis to the ELP of property 

contributed by a partner is the adjusted basis 

in the hands of the partner at the time it was 

contributed, plus any gain recognized (under 

section 721(b)) by the partner at that time. 

See section 723 for more information.

Dispositions of 

Contributed Property

Generally, if the ELP disposes of property 

contributed to the partnership by a partner, 

income, gain, loss, and deductions from that 

property must be allocated among the 

partners to take into account the difference 

between the property's basis and its FMV at 

the time of the contribution. However, if the 

adjusted basis of the contributed property 

exceeds its FMV at the time of the 

contribution, the built-in loss can only be 

taken into account by the contributing 

partner. For all other partners, the basis of 

the property in the hands of the partnership 

is treated as equal to its FMV at the time of 

the contribution (see section 704(c)(1)(C)).

For property contributed to the ELP, the 

contributing partner must recognize gain or 

loss on a distribution of the property to 

another partner within 7 years of its being 

contributed. The gain or loss is equal to the 

amount that the contributing partner should 

have recognized if the property had been 

sold for its FMV when distributed, because of 

the difference between the property's basis 

and its FMV at the time of contribution.

See section 704(c) for details and other 

rules on dispositions of contributed property. 

See section 724 for the character of any gain 

or (loss) recognized on the disposition of 

unrealized receivables, inventory items, or 

capital loss property contributed to the ELP 

by a partner.

Recognition of 

Precontribution Gain on 

Certain Partnership 

Distributions

A partner who contributes appreciated 

property to the ELP must include in income 

any precontribution gain to the extent the 

FMV of other property (other than money) 

distributed to the partner by the ELP exceeds 

the adjusted basis of his or her partnership 

interest just before the distribution. 

Precontribution gain is the net gain, if any, 

that would have been recognized under 

section 704(c)(1)(B) if the ELP had 

distributed to another partner all the property 

that had been contributed to the partnership 

by the distributee partner within 7 years of 

the distribution and that was held by the ELP 

just before the distribution.

Appropriate basis adjustments are to be 

made to the adjusted basis of the distributee 

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partner's interest in the partnership and the 

partnership's basis in the contributed 

property to reflect the gain recognized by the 

partner.

For more details and exceptions, see 

Pub. 541.

Unrealized Receivables 

and Inventory Items

Generally, if a partner sells or exchanges a 

partnership interest and unrealized 

receivables or inventory items are involved, 

the transferor partner must notify the 

partnership, in writing, within 30 days of the 

exchange. The ELP must then file Form 

8308, Report of a Sale or Exchange of 

Certain Partnership Interests.

If a partnership distributes unrealized 

receivables or substantially appreciated 

inventory items in exchange for all or part of 

a partner's interest in other partnership 

property (including money), treat the 

transaction as a sale or exchange between 

the partner and the partnership. Treat the 

partnership gain or (loss) as ordinary income 

or (loss). The income or (loss) is specially 

allocated only to partners other than the 

distributee partner.

If a partnership gives other property 

(including money) for all or part of that 

partner's interest in the partnership's 

unrealized receivables or substantially 

appreciated inventory items, treat the 

transaction as a sale or exchange of the 

property.

See Rev. Rul. 84-102, 1984-2 C.B. 119, 

for information on the tax consequences that 

result when a new partner joins a partnership 

that has liabilities and unrealized 

receivables. Also see Pub. 541 for more 

information on unrealized receivables and 

inventory items.

Activities of ELPs

The activities of an ELP are reported as 

either:

Passive loss limitation activities, including 

trade or business, real estate rental, and 

other rental activities; or

Other activities, including portfolio or 

investment activities.

Passive Loss Limitation 

Activities

The term “passive loss limitation activity” 

means any activity involving the conduct of a 

trade or business (including any activity 

treated as a trade or business under section 

469(c)(5) or (6)), or any rental activity.

A limited partner's share of an ELP's 

taxable income or loss from these activities 

is treated as income or loss from the conduct 

of a single passive trade or business activity. 

Thus, an ELP does not have to report items 

from multiple activities separately to limited 

partners.

However, if a partner holds an interest in 

an ELP other than as a limited partner, the 

distributive share of items from each activity 

is accounted for separately under the 

passive activity rules of section 469. Thus, 

for example, passive loss limitation activity 

income or loss is not treated as passive 

income with respect to the general 

partnership interest of a partner who 

materially participates in the partnership's 

trade or business activities. For general 

partners, the partnership does have to report 

items for each activity separately.

Trade or Business Activities

A trade or business activity is an activity 

(other than a rental activity or an activity 

treated as incidental to an activity of holding 

property for investment) that:

Involves the conduct of a trade or 

business (within the meaning of section 

162),

Is conducted in anticipation of starting a 

trade or business, or

Involves research or experimental 

expenditures deductible under section 174 

(or that would be if you chose to deduct 

rather than capitalize them).

Rental Activities

Generally, except as noted below, if the 

gross income from an activity consists of 

amounts paid principally for the use of real or 

personal tangible property held by the ELP, 

the activity is a rental activity.

There are several exceptions to this 

general rule. Under these exceptions, an 

activity involving the use of real or personal 

tangible property is not a rental activity if any 

of the following apply.

The average period of customer use 

(defined below) for such property is 7 days or 

less.

The average period of customer use for 

such property is 30 days or less and 

significant personal services (defined below) 

are provided by or on behalf of the 

partnership.

Extraordinary personal services (defined 

below) are provided by or on behalf of the 

ELP.

The rental of such property is treated as 

incidental to a nonrental activity of the ELP 

under Temporary Regulations section 

1.469-1T(e)(3)(vi) and Regulations section 

1.469-1(e)(3)(vi)(D).

The ELP customarily makes the property 

available during defined business hours for 

nonexclusive use by various customers.

The ELP provides property for use in a 

nonrental activity of a partnership or joint 

venture in its capacity as an owner of an 

interest in such partnership or joint venture. 

Whether the ELP provides property used in 

an activity of another partnership or of a joint 

venture in the partnership's capacity as an 

owner of an interest in the partnership or joint 

venture is determined on the basis of all the 

facts and circumstances.

In addition, a guaranteed payment 

described in section 707(c) is never income 

from a rental activity.

Average period of customer use. Figure 

the average period of customer use for a 

class of property by dividing the total number 

of days in all rental periods by the number of 

rentals during the tax year. If the activity 

involves renting more than one class of 

property, multiply the average period of 

customer use of each class by the ratio of 

the gross rental income from that class to the 

activity's total gross rental income. The 

activity's average period of customer use 

equals the sum of these class-by-class 

average periods weighted by gross income. 

See Regulations section 1.469-1(e)(3)(iii).

Significant personal services. Personal 

services include only services performed by 

individuals. To determine if personal services 

are significant personal services, consider all 

the relevant facts and circumstances. 

Relevant facts and circumstances include:

How often the services are provided,

The type and amount of labor required to 

perform the services, and

The value of the services in relation to the 

amount charged for use of the property.

The following services are not considered 

in determining whether personal services are 

significant.

Services necessary to permit the lawful 

use of the rental property.

Services performed in connection with 

improvements or repairs to the rental 

property that extend the useful life of the 

property substantially beyond the average 

rental period.

Services provided in connection with the 

use of any improved real property that are 

similar to those commonly provided in 

connection with long-term rentals of 

high-grade commercial or residential 

property. Examples include cleaning and 

maintenance of common areas, routine 

repairs, trash collection, elevator service, 

and security at entrances.

Extraordinary personal services. 

Services provided in connection with making 

rental property available for customer use 

are extraordinary personal services only if 

the services are performed by individuals 

and the customers' use of the rental property 

is incidental to their receipt of the services.

For example, a patient's use of a hospital 

room generally is incidental to the care 

received from the hospital's medical staff. 

Similarly, a student's use of a dormitory room 

in a boarding school is incidental to the 

personal services provided by the school's 

teaching staff.

Rental activity incidental to a nonrental 

activity. An activity is not a rental activity if 

the rental of the property is incidental to a 

nonrental activity, such as the activity of 

holding property for investment, a trade or 

business activity, or the activity of dealing in 

property.

Rental of property is incidental to an 

activity of holding property for investment if 

both of the following apply.

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The main purpose for holding the property 

is to realize a gain from the appreciation of 

the property.

The gross rental income from such 

property for the tax year is less than 2% of 

the smaller of the property's unadjusted 

basis or its FMV.

Rental of property is incidental to a trade 

or business activity if all of the following 

apply.

The partnership owns an interest in the 

trade or business at all times during the year.

The rental property was mainly used in 

the trade or business activity during the tax 

year or during at least 2 of the 5 preceding 

tax years.

The gross rental income from the property 

for the tax year is less than 2% of the smaller 

of the property's unadjusted basis or its 

FMV.

The sale or exchange of property that is 

both rented and sold or exchanged during 

the tax year (where the gain or loss is 

recognized) is treated as incidental to the 

activity of dealing in property if, at the time of 

the sale or exchange, the property was held 

primarily for sale to customers in the ordinary 

course of the partnership's trade or business.

See Temporary Regulations section 

1.469-1T(e)(3) and Regulations section 

1.469-1(e)(3) for more information on the 

definition of rental activities for purposes of 

the passive activity limitations.

In reporting the ELP's income or losses 

and credits from rental activities, the ELP 

must separately report rental real estate 

activities and rental activities other than 

rental real estate activities.

Partners who actively participate in a 

rental real estate activity may be able to 

deduct part or all of their rental real estate 

losses (and the deduction equivalent of 

rental real estate credits) against income (or 

tax) from nonpassive activities. The 

combined amount of rental real estate losses 

and the deduction equivalent of rental real 

estate credits from all sources (including 

rental real estate activities not held through 

the ELP) that can be claimed is limited to 

$25,000. This $25,000 amount is generally 

reduced for high-income partners.

Self-Charged Interest

Certain self-charged interest income and 

expense may be treated as passive activity 

gross income and passive activity 

deductions if the loan proceeds are used in a 

passive activity. Generally, self-charged 

interest income and deductions result from 

loans between the ELP and its partners. It 

also includes loans between the ELP and 

another partnership if each owner in the 

borrowing entity has the same proportional 

ownership interest in the lending entity. The 

ELP can elect not to apply these rules to 

self-charged interest income.

The self-charged interest rules do not 

apply to a partner's interest in an ELP if the 

ELP makes an election under Regulations 

section 1.469-7(g) to avoid the application of 

these rules. To make the election, the ELP 

must attach to its original or amended 

partnership return a statement that includes 

the name, address, and EIN of the ELP and 

a declaration that the election is being made 

under Regulations section 1.469-7(g). The 

election will apply to the tax year in which it 

was made and all subsequent tax years. 

Once made, the election may only be 

revoked with the consent of the IRS. For 

more details on the self-charged interest 

rules, see Regulations section 1.469-7.

Other Activities

The term “other activities” means activities 

other than passive loss limitation activities. 

This is income or expenses connected with 

property held for investment, that is, portfolio 

income. Generally, portfolio income includes 

all gross income, other than income derived 

in the ordinary course of a trade or business, 

that is attributable to interest; dividends; 

royalties; income from a REIT, a RIC, a real 

estate mortgage investment conduit, a 

common trust fund, a CFC, a QEF, or a 

cooperative; income from the disposition of 

property that produces income of a type 

defined as portfolio income; and income 

from the disposition of property held for 

investment. Portfolio income is reported 

separately and is reduced by portfolio 

deductions, allocable investment interest 

expense, and nonbusiness deductions. See 

Self-Charged Interest, earlier, for an 

exception.

Special Reporting 

Requirements

General Partners

Passive Activity Reporting 

Requirements

To allow general partners to correctly apply 

the passive activity loss and credit limitation 

rules, the ELP must do the following.

1. If the ELP carries on more than one 

activity, provide a statement for each activity 

conducted through the partnership that 

identifies the type of activity conducted 

(trade or business, rental real estate, rental 

activity other than rental real estate, or 

investment). See Grouping Activities, 

discussed later.

2. On the statement for each activity, 

provide a statement detailing the net income 

or (loss), credits, and all items required to be 

separately stated under section 772(a) from 

each trade or business activity, from each 

rental real estate activity, from each rental 

activity other than a rental real estate activity, 

and from investments.

3. Identify the net income or (loss) and 

credits from each oil or gas well drilled or 

operated under a working interest that any 

partner (other than a partner whose only 

interest in the partnership during the year is 

as a limited partner) holds through the 

partnership. Further, if any partner had an 

interest as a general partner in the 

partnership during less than the entire year, 

the partnership must identify both the 

disqualified deductions from each well that 

the partner must treat as passive activity 

deductions, and the ratable portion of the 

gross income from each well that the partner 

must treat as passive activity gross income.

4. Identify the net income or (loss) and 

the partner's share of partnership interest 

expense from each activity of renting a 

dwelling unit that any partner uses for 

personal purposes during the year for more 

than the greater of 14 days or 10% of the 

number of days that the residence is rented 

at fair rental value.

5. Identify the net income or (loss) and 

the partner's share of partnership interest 

expense from each activity of trading 

personal property conducted through the 

partnership. For this purpose, personal 

property means property that is actively 

traded such as stocks, bonds, and other 

securities. See Temporary Regulations 

section 1.469-1T(e)(6).

6. For any gain or (loss) from the 

disposition of an interest in an activity or of 

an interest in property used in an activity 

(including dispositions before 1987 from 

which gain is being recognized after 1986), 

do the following.

a. Identify the activity in which the 

property was used at the time of disposition.

b. If the property was used in more than 

one activity during the 12 months preceding 

the disposition, identify the activities in which 

the property was used and the adjusted 

basis allocated to each activity.

c. For gains only, if the property was 

substantially appreciated at the time of the 

disposition and the applicable holding period 

specified in Regulations section 1.469-2(c)

(2)(iii)(A) was not satisfied, identify the 

amount of the nonpassive gain and indicate 

whether the gain is investment income under 

Regulations section 1.469-2(c)(2)(iii)(F).

7. Specify the amount of gross portfolio 

income, the interest expense properly 

allocable to portfolio income, and expenses 

other than interest expense that are clearly 

and directly allocable to portfolio income.

8. Identify separately any of the 

following types of payments to partners.

a. Payments to a partner for services 

other than in the partner's capacity as a 

partner under section 707(a).

b. Guaranteed payments to a partner for 

services under section 707(c).

c. Guaranteed payments for use of 

capital.

d. If section 736(a)(2) payments are 

made for unrealized receivables or for 

goodwill, the amount of the payments and 

the activities to which the payments are 

attributable.

e. If section 736(b) payments are made, 

the amount of the payments and the 

activities to which the payments are 

attributable.

9. Identify the ratable portion of any 

section 481 adjustment (whether a net 

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positive or a net negative adjustment) 

allocable to each partnership activity.

10. Identify the amount of gross income 

from each oil or gas property of the 

partnership.

11. Identify any gross income from 

sources specifically excluded from passive 

activity gross income, including the following.

a. Income from intangible property if the 

partner is an individual whose personal 

efforts significantly contributed to the 

creation of the property.

b. Income from state, local, or foreign 

income tax refunds.

c. Income from a covenant not to 

compete if the partner is an individual who 

contributed the covenant to the partnership.

12. Identify any deductions that are not 

passive activity deductions.

13. If the partnership makes a full or 

partial disposition of its interest in another 

entity, identify the gain (loss) allocable to 

each activity conducted through the entity, 

and the gain allocable to a passive activity 

that would have been recharacterized as 

nonpassive gain had the partnership 

disposed of its interest in property used in 

the activity (because the property was 

substantially appreciated at the time of the 

disposition, and the gain represented more 

than 10% of the partner's total gain from the 

disposition).

14. Identify the following items from 

activities that may be subject to the 

recharacterization rules under Temporary 

Regulations section 1.469-2T(f) and 

Regulations section 1.469-2(f).

a. Net income from an activity of renting 

substantially nondepreciable property.

b. The smaller of equity-financed 

interest income or net passive income from 

an equity-financed lending activity.

c. Net rental activity income from 

property developed (by the partner or the 

partnership), rented, and sold within 12 

months after the rental of the property 

commenced.

d. Net rental activity income from the 

rental of property by the partnership to a 

trade or business activity in which the partner 

had an interest (either directly or indirectly).

e. Net royalty income from intangible 

property if the partner acquired the partner's 

interest in the partnership after the 

partnership created the intangible property or 

performed substantial services, or incurred 

substantial costs in developing or marketing 

the intangible property.

15. Identify separately the credits from 

each activity conducted by or through the 

partnership.

16. Identify the partner's distributive 

share of the partnership's self-charged 

interest income or expense (see 

Self-Charged Interest, discussed earlier).

a. Loans between a partner and the 

partnership. Identify the lending or 

borrowing partner's share of the self-charged 

interest income or expense. If the partner 

made the loan to the ELP, also identify the 

activity in which the loan proceeds were 

used. If the proceeds were used in more than 

one activity, allocate the interest to each 

activity based on the amount of the proceeds 

used in each activity.

b. Loans between the partnership 

and another partnership or an S 

corporation. If the partnership's partners 

have the same proportional ownership 

interest in the partnership and the other 

partnership or S corporation, identify each 

partner's share of the interest income or 

expense from the loan. If the ELP was the 

borrower, also identify the activity in which 

the loan proceeds were used. If the loan 

proceeds were used in more than one 

activity, allocate the interest to each activity 

based on the amount of the proceeds used 

in each activity.

For more information on passive 

activities, see Pub. 925, Passive Activity and 

At-Risk Rules.

Net Investment Income Tax 

Reporting Requirements

Note. The information described in this 

section should be given directly to the 

partner and should not be reported by the 

partnership to the IRS.

To allow partners to correctly figure the 

net investment income tax where a partner 

disposes of an interest in the partnership 

during the tax year, the partnership may be 

required to provide the partner with certain 

information. The net investment income tax 

is a tax imposed on an individual’s, trust’s, or 

estate's net investment income. Net 

investment income includes the net gains or 

losses from the sale of an interest in the 

partnership. A partner who is actively 

involved in one or more of the partnership or 

lower tier pass-through entities' trades or 

businesses (other than trading in financial 

instruments or commodities) can reduce the 

amount of the gain or loss from the sale of 

the partnership interest or lower tier 

pass-through entity included in its net 

investment income. However, to figure its net 

investment income, the active partner needs 

certain information from the partnership.

Generally, the partnership must provide 

certain information to the partner if the 

partnership knows, or has reason to know, 

the following.

1. The partner disposed of an interest in 

the partnership.

2. The partner materially participates 

(within the meaning of the passive activity 

loss rules (section 469)) in one or more of 

the trades or businesses (within the meaning 

of section 162) of the partnership or a lower 

tier pass-through entity (other than trading in 

financial instruments or commodities).

3. The partner does not qualify for the 

optional simplified reporting method for 

figuring its net investment income associated 

with the disposition of the interest. For more 

information, see the instructions for Form 

8960, line 5c.

Information to be provided to partner. 

Generally, the partnership must provide the 

partner with its distributive share of the net 

gain and loss from the deemed sale for FMV 

of the partnership's property, other than 

property that relates to the trades or 

businesses in which the partner materially 

participates, as determined under the 

passive activity loss rules applicable to the 

transfer of an interest in a pass-through 

entity. For more information, see the 

instructions for Form 8960, line 5c.

Note. If a partner, who qualifies for the 

optional simplified reporting method, prefers 

to determine net gain or loss under the 

general calculation, the partnership may, but 

is not obligated to, provide the information to 

the partner at that partner's request.

Grouping Activities

Generally, one or more trade or business 

activities or rental activities may be treated 

as a single activity if the activities make up 

an appropriate economic unit for the 

measurement of gain or loss under the 

passive activity rules. Whether activities 

make up an appropriate economic unit 

depends on all the relevant facts and 

circumstances. The factors given the 

greatest weight in determining whether 

activities make up an appropriate economic 

unit are:

Similarities and differences in types of 

trades or businesses,

The extent of common control,

The extent of common ownership,

Geographical location, and

Reliance between or among the activities.

Example. The ELP has a significant 

ownership interest in a bakery and a movie 

theater in Baltimore and a bakery and a 

movie theater in Philadelphia. Depending on 

the relevant facts and circumstances, there 

may be more than one reasonable method 

for grouping the ELP's activities. For 

instance, the following groupings may or may 

not be permissible.

A single activity.

A movie theater activity and a bakery 

activity.

A Baltimore activity and a Philadelphia 

activity.

Four separate activities.

Once the ELP chooses a grouping under 

these rules, it must continue using that 

grouping in later tax years unless a material 

change in the facts and circumstances 

makes it clearly inappropriate. The IRS may 

regroup the ELP's activities if the 

partnership's grouping fails to reflect one or 

more appropriate economic units and one of 

the primary purposes of the grouping is to 

avoid the passive activity limitations.

Limitation on grouping certain activities. 

The following activities may not be grouped 

together.

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1. A rental activity with a trade or 

business activity unless the activities being 

grouped together make up an appropriate 

economic unit, and

a. The rental activity is insubstantial 

relative to the trade or business activity or 

vice versa, or

b. Each owner of the trade or business 

activity has the same proportionate 

ownership interest in the rental activity. If so, 

the portion of the rental activity involving the 

rental of property to be used in the trade or 

business activity may be grouped with the 

trade or business activity.

2. An activity involving the rental of real 

property with an activity involving the rental 

of personal property (except personal 

property provided in connection with the real 

property or vice versa).

3. Any activity with another activity in a 

different type of business and in which the 

ELP holds an interest as a limited partner or 

as a limited entrepreneur (as defined in 

section 461(j)(4)) if that other activity 

engages in holding, producing, or distributing 

motion picture films or videotapes; farming; 

leasing section 1245 property; or exploring 

for or exploiting oil and gas resources or 

geothermal deposits.

Activities conducted through other partnerships. Once a partnership determines 

its activities under these rules, the 

partnership as a partner can use these rules 

to group those activities with:

Each other,

Activities conducted directly by the 

partnership, or

Activities conducted through other 

partnerships.

A partner cannot treat as separate 

activities those activities grouped together by 

a partnership.

Tax-Exempt Partners

A tax-exempt partner is subject to tax on its 

distributive share of partnership income to 

the extent that the partnership activity is an 

unrelated business for the partner. 

Therefore, partnership items must be 

separately reported to tax-exempt partners 

to allow them to figure income from an 

unrelated business.

Publicly Traded Partnerships 

(PTPs)

For ELPs, the requirement that the passive 

loss rules be separately applied to each PTP 

continues to apply.

Partnerships Holding Residual 

Interests in Real Estate 

Mortgage Investment Conduits 

(REMICs)

For purposes of the excise tax on 

partnerships holding residual interests in 

REMICs, all interests in an ELP are treated 

as held by disqualified organizations. 

Therefore, an ELP holding a residual interest 

in a REMIC is subject to an annual tax equal 

to 35% of the excess inclusions. The amount 

that is subject to tax is excluded from 

partnership income. To report and pay this 

tax, file Form 8831, Excise Taxes on Excess 

Inclusions of REMIC Residual Interests.

Partnerships Holding Oil and 

Gas Properties

Partnerships holding oil and gas properties 

generally follow the same simplified reporting 

rules as other ELPs. However, certain 

partners are treated as disqualified persons, 

and special rules apply.

Figuring depletion. Depletion is generally 

figured at the partnership level. The 

1,000-barrel-per-day limitation on depletion 

does not apply. Depletion is also figured 

without regard to the 

65-percent-of-taxable-income limitation and 

the depletion basis adjustment. The 

depletion deduction is figured with the 

assumptions that the partnership is the 

taxpayer and that it qualifies for the 

percentage depletion deduction. This 

deduction is reported to partners (other than 

disqualified persons) as part of their share of 

the taxable income (loss) from passive loss 

limitation activities.

Disqualified persons. Two categories of 

taxpayers are defined as disqualified 

persons.

Certain retailers and refiners who do not 

qualify for the section 613A percentage 

depletion deduction. See section 613A(d)(2) 

and (4).

Any other person whose average daily 

production of domestic crude oil and natural 

gas exceeds 500 barrels for its tax year in 

which the partnership's tax year ends. See 

section 776(b) for more details.

A disqualified person must notify the 

partnership of its status as such.

Reporting to disqualified persons. An 

ELP reports information related to oil and gas 

activities to a disqualified person in box 9 of 

Schedule K-1 (Form 1065-B) providing the 

same information as required for other 

partnerships. This information may be 

provided in an attached statement if 

additional space is required. However, the 

simplified rules do apply to a disqualified 

person's share of items not related to oil and 

gas activities.

Other reporting requirements. Unlike 

other partnerships, the election to deduct 

intangible drilling and development costs 

(IDCs) is made at the partnership level, and 

the partnership can pass through a full 

deduction of IDCs to its partners who are not 

disqualified persons. Also, an ELP (and not 

the partners) makes the section 59(e) 

election to capitalize and amortize certain 

specific IDCs for its partners who are not 

disqualified persons. However, partners who 

are disqualified persons are permitted to 

make their own separate section 59(e) 

election.

A single AMT adjustment (under either 

corporate or noncorporate rules) is made 

and reported to partners who are not 

disqualified persons. This separately 

reported item is affected by the limitation on 

the repeal of the tax preference for excess 

IDCs. For purposes of figuring this limitation, 

the partnership is treated as the taxpayer. 

Thus, the limitation on repeal of the IDC 

preference is applied at the partnership level 

and is based on the cumulative reduction in 

the partnership's alternative minimum 

taxable income resulting from repeal of that 

preference.

Finally, in making partnership-level 

computations, any item of income, gain, loss, 

deduction, or credit attributable to a 

disqualified person is disregarded. For 

example, in figuring the partnership's net 

income from oil and gas for purposes of 

determining the IDC preference to be 

reported to partners as part of the AMT 

adjustment, disqualified persons' distributive 

shares of the partnership's net income from 

oil and gas are not taken into account.

Extraterritorial Income 

Exclusion

See Form 8873, Extraterritorial Income 

Exclusion, to determine whether the 

partnership qualifies for the exclusion and to 

figure the amount of the exclusion. If the 

partnership's foreign trading gross receipts 

do not exceed $5 million and the partnership 

does not meet the foreign economic process 

requirements for the exclusion, it must report 

certain information to its partners. See the 

instructions below on how to report the 

exclusion on the partnership's return and the 

information it must report to its partners.

If applicable, the ELP must report the 

extraterritorial income exclusion on its return 

as follows.

1. If the ELP met the foreign economic 

process requirements explained in the 

Instructions for Form 8873, it can report the 

exclusion as a non-separately stated item on 

whichever of the following lines apply to that 

activity.

Form 1065-B, Part I, line 5.

Form 1065-B, Part I, line 23.

Form 8825, line 15.

In addition, the ELP must report, as an 

item of information using Code O1 in box 9 of 

Schedule K-1, the partner's distributive share 

of foreign trading gross receipts from Form 

8873, line 15.

2. If the foreign trading gross receipts of 

the partnership for the tax year are $5 million 

or less and the partnership did not meet the 

foreign economic process requirements, it 

cannot report the extraterritorial income 

exclusion as a non-separately stated item on 

its return. Instead, the partnership must 

report the following separately stated items 

to the partners.

Foreign trading gross receipts (Code 

O1). Using Code O1, enter in box 9 of 

Schedule K-1 the partner's distributive share 

of foreign trading gross receipts from the 

partnership's Form 8873, line 15.

Extraterritorial income exclusion 

(Code O2). Using Code O2, enter in box 9 

of Schedule K-1 the partner's distributive 

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share of the extraterritorial income exclusion 

from the partnership's Form 8873. For 

general partners only, identify the activity to 

which the exclusion relates. If the partnership 

is required to complete more than one Form 

8873, combine the exclusions from line 52 

and report a single exclusion amount in 

box 9.

Note. Upon request of a partner, the ELP 

should furnish a copy of the partnership's 

Form 8873 if that partner has a reduction for 

international boycott operations, illegal 

bribes, kickbacks, etc.

Specific Instructions

These instructions follow the line numbers on 

Form 1065-B. The accompanying schedules 

are discussed separately. Specific 

instructions for most of the lines are provided 

on the following pages. Lines that are not 

discussed in the instructions are 

self-explanatory.

Fill in all applicable lines and schedules.

Enter any items specially allocated to the 

partners in the appropriate box of the 

applicable partner's Schedule K-1. Enter the 

total amount on the appropriate line of 

Schedule K. Do not enter separately stated 

amounts on the numbered lines on Form 

1065-B, Parts I or II, on Form 1125-A, on 

Schedule D, or Form 8949.

File only one Form 1065-B for each 

partnership. Mark “Duplicate Copy” on any 

copy you give to a partner.

Name, Address, and Employer 

Identification Number

Name. Enter the legal name of the ELP as it 

appears in the partnership agreement.

If the ELP has changed its name, check 

box G(2).

Address. Enter the address of the principal 

place of business or the principal office of the 

ELP. Include the suite, room, or other unit 

number after the street address. If the Post 

Office does not deliver mail to the street 

address and the partnership has a P.O. box, 

show the box number instead.

If the ELP receives its mail in care of a 

third party (such as an accountant or an 

attorney), enter on the street address line 

“C/O” followed by the third party's name and 

street address or P.O. box.

If the ELP's address is outside the United 

States or its possessions or territories, enter 

the information on the line for “City or town, 

state or province, country, and ZIP or foreign 

postal code” in the following order: city, 

province or state, and the name of the 

foreign country. Follow the foreign country's 

practice in placing the postal code in the 

address. Do not abbreviate the country 

name.

If the ELP has had a change of address 

(including a change to an “in care of” 

address), check box G(3). If the partnership 

changes its mailing address or responsible 

party after filing its return, it can notify the 

IRS by filing Form 8822-B, Change of 

Address or Responsible Party — Business.

Items A and C

Enter the applicable activity name and the 

code number from the list, Codes for 

Principal Business Activity and Principal 

Product or Service, near the end of the 

instructions.

For example, if, as its principal business 

activity, the ELP (a) purchases raw 

materials, (b) subcontracts out for labor to 

make a finished product from the raw 

materials, and (c) retains title to the goods, 

the ELP is considered to be a manufacturer 

and must enter “Manufacturer” in item A and 

enter in item C one of the codes (311110 

through 339900) listed under 

“Manufacturing” on the list, Codes for 

Principal Business Activity and Principal 

Product or Service, near the end of the 

instructions.

Item F. Total Assets

Enter the ELP's total assets at the end of the 

tax year, as determined by the accounting 

method regularly used in keeping the ELP's 

books and records. If there were no assets at 

the end of the tax year, enter “0.”

Item J. Schedule M-3 (Form 

1065)

A partnership must file Schedule M-3 (Form 

1065), Net Income (Loss) Reconciliation for 

Certain Partnerships, instead of 

Schedule M-1, if any of the following apply.

1. The amount of total assets at the end 

of the tax year reported on Schedule L, 

line 14, column (d), is $10 million or more.

2. The amount of adjusted total assets 

for the tax year is $10 million or more. 

Adjusted total assets is defined in the 

Instructions for Schedule M-3.

3. The amount of total receipts for the 

tax year is $35 million or more.

4. An entity that is a reportable entity 

partner with respect to the partnership owns 

or is deemed to own, directly or indirectly, an 

interest of 50% or more in the partnership's 

capital, profit, or loss on any day during the 

tax year of the partnership. Reportable entity 

partner is defined in the Instructions for 

Schedule M-3.

A partnership filing Form 1065-B that is 

not required to file Schedule M-3 may 

voluntarily file Schedule M-3 instead of 

Schedule M-1.

If you are filing Schedule M-3, check box 

J at the top of page 1 of Form 1065-B to 

indicate that Schedule M-3 is attached. See 

Eased requirements below.

Eased requirements. Partnerships that 

(a) are required to file Schedule M-3 and 

have less than $50 million in total assets at 

tax-year-end, or (b) are not required to file 

Schedule M-3 and voluntarily file 

Schedule M-3, must either: (i) complete 

Schedule M-3 entirely; or (ii) complete 

Schedule M-3 through Part l and complete 

Schedule M-1 instead of completing Parts ll 

and lll of Schedule M-3. See IRS.gov/

Businessess/Corporations/Schedule-M-3-

for-Large-Business-&-International-(LB&l) 

for more information.

In addition, partnerships that meet the 

requirements of (a) and (b) above are not 

required to file Form 8916-A.

See the Instructions for Schedule M-3 for 

more information.

Part I. Taxable Income or 

Loss From Passive Loss 

Limitation Activities

Report only amounts from passive loss 

limitation activities in Part I. See the earlier 

discussion of Passive Loss Limitation 

Activities. Do not report any tax-exempt 

interest income or income from the 

discharge of any indebtedness on lines 1a 

through 10. These amounts are accounted 

for separately by each partner and are 

reported in box 9 of Schedule K-1 (Form 

1065-B). Income from discharge of 

indebtedness is also reported on line 8 of 

Schedule K, and tax-exempt interest income 

is reported on line 9 of Schedule K.

Income

Election to defer income from canceled 

debt. If the ELP elected to defer 

cancellations of debt (COD) income under 

section 108(i), the exclusions for COD under 

section 108(a)(1)(A), (B), (C), and (D) do not 

apply to the income from the COD for the tax 

year of the election and any later year. If the 

ELP issued a debt instrument with original 

issue discount (OID) that is subject to section 

108(i)(2) because of an election under 

section 108(i) to defer COD income, the 

deduction for all or a portion of the OID that 

accrues prior to the first tax year the COD is 

includible in income is deferred until the COD 

is includible in income. The amount of OID 

deferred is limited to the amount of COD 

income subject to the section 108(i) election. 

See section 108(i); Rev. Proc. 2009-37, 

2009-36 I.R.B. 309; and Regulations section 

1.108(i)-2 for more information.

Special rule for filers of Form 8865. Filers 

of Form 8865, Return of U.S. Persons With 

Regard to Certain Foreign Partnerships, had 

to file Form 1065 or Form 1065-B to make 

the section 108(i) election. These foreign 

partnerships also have an annual reporting 

requirement on Form 1065 or Form 1065-B 

for each tax year after the election until all 

items deferred under section 108(i) have 

been recognized. See Rev. Proc. 2009-37, 

2009-36 I.R.B. 309, and Regulations section 

1.108(i)-2 for details.

Section 108(i) election and reporting by 

tiered partnerships. A partnership that 

receives a Schedule K-1 from another 

partnership containing information relating to 

a section 108(i) election must report on the 

Schedule K-1 to its partners certain 

information relative to the section 108(i) 

election. See Rev. Proc. 2009-37, 2009-36 

-14-
I.R.B. 309, and Regulations section 

1.108(i)-2 for details.

Line 1a. Gross Receipts or Sales

Enter the gross receipts or sales from all 

trade or business operations except those 

that must be reported on lines 6 through 10. 

For example, do not include gross receipts 

from farming on this line. Instead, show the 

net profit (loss) from farming on line 7. Also, 

do not include rental activity income or 

portfolio income.

Advance payment. In general, advance 

payments are reported in the year of receipt. 

To report income from long-term contracts, 

see section 460. For special rules for 

reporting certain advance payments for 

goods and long-term contracts, see 

Regulations section 1.451-5. For permissible 

methods for reporting advance payments for 

services and most goods by an accrual 

method partnership, see Rev. Proc. 2004-34, 

2004-22 I.R.B. 991, as clarified and modified 

by Rev. Proc. 2011-18, and modified by Rev. 

Proc. 2011-14, and clarified and modified by 

Rev. Proc. 2013-29, 2013-33 I.R.B. 141.

Installment sales. Generally, the 

installment method cannot be used for 

dealer dispositions of property. A “dealer 

disposition” is any disposition of:

Personal property by a person who 

regularly sells or otherwise disposes of 

personal property of the same type on the 

installment plan, or

Real property held for sale to customers in 

the ordinary course of the taxpayer's trade or 

business.

Exception. These restrictions on using 

the installment method do not apply to 

dispositions of property used or produced in 

a farming business. See section 453(l) for 

details and exceptions.

For sales of timeshares and residential 

lots reported under the installment method, 

the ELP's income tax is increased by the 

interest payable under section 453(l)(3). In 

determining the amount of interest payable, 

the partnership is treated as subject to tax at 

a 39.6% rate. To report this addition to the 

tax, see the instructions for line 26.

Enter on line 1a the gross profit on 

collections from installment sales for any of 

the following.

Dealer dispositions of property before

March 1, 1986.

Dispositions of property used or produced 

in the trade or business of farming.

Dispositions of timeshares and residential 

lots reported under the installment method.

Attach a statement showing the following 

information for the current year and the 3 

preceding years.

Gross sales.

Cost of goods sold.

Gross profits.

Percentage of gross profits to gross sales.

Amount collected.

Gross profit on amount collected.

Nonaccrual-experience method. 

Partnerships that qualify to use the 

nonaccrual-experience method (described 

earlier) should attach a statement showing 

total gross receipts, the amount not accrued 

as a result of the application of section 

448(d)(5), and the net amount accrued. 

Enter the net amount on line 1a.

Line 2. Cost of Goods Sold

If the partnership has a cost of goods sold 

deduction, complete and attach Form 

1125-A. Enter on Form 1065-B, page 1, 

line 2, the amount from Form 1125-A, line 8.

See Form 1125-A and its instructions.

Line 4. Net Rental Real Estate 

Income (Loss)

Enter the net income or (loss) from rental real 

estate activities of the partnership from Form 

8825. Attach this form to Form 1065-B. If the 

amount entered is from more than one 

activity, attach a statement identifying the 

amount from each activity.

Line 5. Net Income (Loss) From 

Other Rental Activities

Enter the net income from rental activities 

other than rental real estate activities. See 

Rental Activities, earlier, and Pub. 925 for the 

definition of rental activities. Include on this 

line the gain or (loss) from line 17 of Form 

4797 that is attributable to the sale, 

exchange, or involuntary conversion of an 

asset used in a rental activity other than a 

rental real estate activity. If the amount 

entered is from more than one activity, attach 

a statement identifying the amount from each 

activity.

Line 6. Ordinary Income (Loss) 

From Other Partnerships, Estates, 

and Trusts

Enter the ordinary income or (loss) shown on 

Schedule K-1 (Form 1065, 1065-B, or 1041) 

or other ordinary income (loss) from a foreign 

partnership, estate, or trust. Be sure to show 

the partnership's, estate's, or trust's name, 

address, and EIN on a separate statement 

attached to this return. If the amount entered 

is from more than one source, identify the 

amount from each source.

Do not include rental activity income or 

(loss) from other partnerships, estates, or 

trusts on this line. Instead, report these 

amounts on line 20a of Form 8825 or line 5 

of Form 1065-B, Part I.

Ordinary income or (loss) from another 

PTP is not reported on this line. Instead, 

report the amount separately on an 

attachment to line 15 of Schedule K and in 

box 9 of Schedule K-1.

Treat shares of other items separately 

reported on Schedule K-1 issued by the 

other entity as if the items were realized or 

incurred by this partnership.

If there is a loss from another partnership, 

the amount of the loss that may be claimed is 

subject to the at-risk and basis limitations as 

appropriate.

If the tax year of your PTP does not 

coincide with the tax year of the other 

partnership, estate, or trust, include the 

ordinary income or (loss) from the other 

entity in the tax year in which the other 

entity's tax year ends.

Line 7. Net Farm Profit (Loss)

Enter the partnership's net farm profit (loss) 

from Schedule F (Form 1040), Profit or Loss 

From Farming. Attach Schedule F (Form 

1040) to Form 1065-B. In figuring the 

partnership's net farm profit (loss), include 

any section 179 expense deduction. Do not 

include on this line any farm profit or (loss) 

from other partnerships. Report those 

amounts on line 6.

For a special rule concerning the method 

of accounting for a farming partnership with a 

corporate partner and for other tax 

information on farms, see Pub. 225, Farmer's 

Tax Guide.

Line 9. Net Gain (Loss) From Form 

4797

Include only the ordinary gains or (losses) 

from the sale, exchange, or involuntary 

conversion of assets used in a trade or 

business activity. Ordinary gains or losses 

from the sale, exchange, or involuntary 

conversion of rental activity assets are not 

reported on line 9. Instead, report them on 

line 19 of Form 8825 or line 5 of Form 

1065-B, Part I.

An ELP that is a partner in another 

partnership must include on Form 4797, 

Sales of Business Property, its share of 

ordinary gains or (losses) from sales, 

exchanges, or involuntary conversions (other 

than casualties or thefts) of the other 

partnership's trade or business assets.

Line 10. Other Income (Loss)

Enter trade or business income or (loss) that 

is not included on lines 1a through 9. 

Examples of such income include the 

following.

Interest income derived in the ordinary 

course of the partnership's trade or business, 

such as interest charged on receivable 

balances.

Recoveries of bad debts deducted in prior 

years under the specific charge-off method.

Taxable income from insurance proceeds.

Any amount included in income from 

line 2 of Form 6478, Biofuel Producer Credit.

Any amount included in income from 

line 8 of Form 8864, Biodiesel and 

Renewable Diesel Fuels Credit.

All section 481 income adjustments 

resulting from changes in accounting 

-15-
methods. Show the computation of the 

section 481 adjustments on an attached 

statement.

The recapture amount for section 280F if 

the business use of listed property drops to 

50% or less. To figure the recapture amount, 

the partnership must complete Part IV of 

Form 4797.

Part or all of the proceeds received from 

certain employer-owned life insurance 

contracts issued after August 17, 2006. 

Partnerships that own one or more 

employer-owned life insurance contracts 

issued after this date must file Form 8925, 

Report of Employer-Owned Life Insurance 

Contracts. See section 101(j) for details.

Do not include items requiring separate 

computations that must be reported on 

Schedules K and K-1. See the instructions 

for Schedules K and K-1.

Do not report portfolio or rental activity 

income (loss) on this line.

Deductions

Report only trade or business activity 

deductions on lines 12 through 24.

Do not report the following expenses on lines 

12 through 24.

Rental activity expenses. Report these 

expenses on Form 8825 or on an attached 

statement for line 5 of Form 1065-B, Part I.

Deductions allocable to portfolio income. 

Report these deductions on page 2, Part II.

Nondeductible expenses (for example, 

expenses connected with the production of 

tax-exempt income). Report nondeductible 

expenses on an attached statement for 

line 15 of Schedule K and in box 9 of 

Schedule K-1.

Items the ELP must state separately that 

require separate computations by the 

partners. An example is foreign taxes paid. 

The distributive share of this expense is 

reported separately to each partner on 

Schedule K-1, box 9.

Limitations on Deductions

Section 263A uniform capitalization 

rules. The uniform capitalization rules of 

section 263A require partnerships to 

capitalize or include in inventory costs, 

certain costs incurred in connection with the 

following.

The production of real property and 

tangible personal property held in inventory 

or held for sale in the ordinary course of 

business. Tangible personal property 

produced by a partnership includes a film, 

sound recording, videotape, book, or similar 

property.

Real property or personal property 

(tangible and intangible) acquired for resale.

The production of real property and 

tangible personal property by a partnership 

for use in its trade or business or in an 

activity engaged in for profit.

The costs required to be capitalized 

under section 263A are not deductible until 

CAUTION

!

the property to which the costs relate is sold, 

used, or otherwise disposed of by the ELP.

Exceptions. Section 263A does not 

apply to the following.

Inventoriable items accounted for in the 

same manner as materials and supplies that 

are not incidental. See Form 1125-A and its 

instructions for details.

Personal property acquired for resale if 

the partnership's average annual gross 

receipts for the 3 prior tax years were $10 

million or less.

Timber.

Most property produced under a 

long-term contract.

Certain property produced in a farming 

business.

Geological and geophysical costs 

amortized under section 167(h).

Research and experimental costs under 

section 174.

Intangible drilling costs for oil, gas, and 

geothermal property.

Mining exploration and development 

costs.

Certain plants bearing fruits and nuts 

under section 168(k)(5).

Indirect costs. ELPs subject to the uniform 

capitalization rules are required to capitalize 

not only direct costs but an allocable part of 

most indirect costs (including taxes) that 

benefit the assets produced or acquired for 

resale, or are incurred by reason of the 

performance of production or resale 

activities.

For inventory, some of the indirect costs 

that must be capitalized are the following.

Administration expenses.

Taxes.

Depreciation.

Insurance.

Compensation paid to officers attributable 

to services.

Rework labor.

Contributions to pension, stock bonus, 

and certain profit-sharing, annuity, or 

deferred compensation plans.

Regulations section 1.263A-1(e)(3) 

specifies other indirect costs that relate to 

production or resale activities that must be 

capitalized and those that may be currently 

deductible.

Interest expense paid or incurred during 

the production period of designated property 

must be capitalized and is governed by 

special rules. For more details, see 

Regulations sections 1.263A-8 through 

1.263A-15.

For more details on the uniform 

capitalization rules, see Regulations sections 

1.263A-1 through 1.263A-3.

Transactions between related taxpayers.

Generally, an accrual basis partnership can 

deduct business expenses and interest 

owed to a related party (including any 

partner) only in the tax year of the 

partnership that includes the day on which 

the payment is includible in the income of the 

related party. See section 267 for details.

Business start-up and organizational 

costs. Generally, a partnership can elect to 

deduct a limited amount of start-up or 

organizational costs paid or incurred. Any 

costs not deducted must be amortized as 

explained below. See sections 195(b) and 

709(b).

Time for making an election. The 

partnership generally elects to deduct 

start-up or organizational costs by claiming 

the deduction on its income tax return filed 

by the due date (including extensions) for the 

tax year in which the active trade or business 

begins. However, for start-up or 

organizational costs paid or incurred before 

September 9, 2008, the partnership may be 

required to attach a statement to its return to 

elect to deduct such costs. See Temporary 

Regulations sections 1.195-1T and 1.709-1T 

(as in effect on July 7, 2008) for details. Also, 

see Regulations sections 1.195-1 and 

1.709-1. If the partnership timely filed its 

return for the year without making an 

election, it can still make an election by filing 

an amended return within 6 months of the 

due date of the return (excluding 

extensions). Clearly indicate the election on 

the amended return and write “Filed pursuant 

to section 301.9100-2” at the top of the 

amended return. File the amended return at 

the same address the partnership filed its 

original return. The election applies when 

figuring income for the current tax year and 

all subsequent years.

The partnership can choose to forgo the 

elections above by clearly electing to 

capitalize its start-up or organizational costs 

on its tax return filed by the due date 

(including extensions) for the tax year in 

which the active trade or business begins.

The election to either amortize or 

capitalize start-up or organizational costs is 

irrevocable and applies to all start-up and 

organizational costs that are related to the 

trade or business.

Amortization. Any costs not deducted 

under the above rules must be amortized 

ratably over a 180-month period, beginning 

with the month the partnership begins 

business. See the Instructions for Form 4562 

for details.

Report the deductible amount of these 

costs and any amortization on line 23 in Part 

I. For amortization that begins during the tax 

year, complete and attach Form 4562.

Syndication costs. Costs for issuing and 

marketing interests in the partnership, such 

as commissions, professional fees, and 

printing costs, must be capitalized. They 

cannot be depreciated or amortized. See the 

instructions for line 13 for the treatment of 

syndication fees paid to a partner.

Reducing certain expenses for which 

credits are allowable. The partnership 

may need to reduce the otherwise allowable 

deductions for expenses used to figure the 

credit. Do not reduce the amount of the 

allowable deduction for any portion of the 

credit that was passed through to the ELP 

from another pass-through entity.

-16-
1. Work opportunity credit.

2. Credit for increasing research 

activities.

3. Disabled access credit.

4. Empowerment zone employment 

credit.

5. Indian employment credit.

6. Credit for employer social security 

and Medicare taxes paid on certain 

employee tips.

7. Orphan drug credit.

8. Credit for small employer pension 

plan startup costs.

9. Credit for employer-provided 

childcare facilities and services.

10. Low sulfur diesel fuel production 

credit.

11. Mine rescue team training credit.

12. Credit for employer differential wage 

payments.

13. Credit for small employer health 

insurance premiums.

If the ELP has any of these credits, be 

sure to figure each current year credit before 

figuring the deductions for expenses on 

which the credit is based.

Film, television, and theatrical production expenses. The partnership can elect to 

deduct certain costs of qualified film, 

television, or live theatrical productions 

commencing before January 1, 2018 (after 

December 31, 2015, and before January 1, 

2018, for a live theatrical production). The 

deduction is subject to recapture under 

section 1245 if the election is voluntarily 

revoked or the production fails to meet the 

requirements for the deduction. See section 

181 and the related regulations.

Reforestation expenditures. For qualified 

reforestation expenditures paid or incurred 

after October 22, 2004, the ELP can elect to 

deduct up to $10,000 for each qualifying 

timber property. If the partnership makes this 

election, it must amortize over 84 months 

any amount not deducted. See Notice 

2006-47, 2006-20 I.R.B. 892, for details on 

making this election. Provide a description of 

the qualified timber property on an attached 

statement to Form 1065-B. If the partnership 

is electing to deduct amounts for more than 

one qualified timber property, provide a 

description and the amount for each property 

on the statement.

Report the deductible amount of these 

expenditures and any amortization deduction 

on line 23. For amortization that begins 

during the tax year, complete and attach 

Form 4562. See section 194 and Pub. 535 

for more information

Line 12. Salaries and Wages

Enter the salaries and wages paid or 

incurred for the tax year, reduced by the 

amount of the following credit(s).

Work Opportunity Credit (Form 5884).

Empowerment Zone Employment Credit 

(Form 8844).

Indian Employment Credit (Form 8845).

Mine Rescue Team Training Credit (Form 

8923).

Credit for Employer Differential Wage 

Payments (Form 8932).

Do not reduce the amount of the 

allowable deduction for any portion of the 

credit that was passed through to the ELP 

from another pass-through entity. See the 

instructions for this form for more 

information.

Do not include salaries and wages 

reported elsewhere on the return, such as 

amounts included in cost of goods sold, 

elective contributions to a section 401(k) 

cash or deferred arrangement, or amounts 

contributed under a salary reduction 

simplified employee plan (SEP) agreement 

or a SIMPLE IRA plan.

Line 13. Guaranteed Payments to 

Partners

Deduct payments or credits to a partner for 

services or for the use of capital if the 

payments or credits are determined without 

regard to partnership income and are 

allocable to a trade or business activity. Also, 

include amounts paid during the tax year for 

insurance that constitutes medical care for a 

partner, a partner's spouse, a partner's 

dependents, or a partner's children under 

age 27 who are not dependents.

For information on how to treat the ELP's 

contribution to a partner's Health Savings 

Account (HSA), see Notice 2005-8, 2005-4 

I.R.B. 368.

Do not include any payments and credits 

that should be capitalized. For example, 

although payments or credits to a partner for 

services rendered in syndicating a 

partnership may be guaranteed payments, 

they are not deductible as an expense. 

Instead, they should be charged to a capital 

account. They are capital expenditures. 

However, they should be separately reported 

on Schedule K, line 7; and Schedule K-1, 

box 9.

Do not include distributive shares of 

partnership profits.

Report the guaranteed payments to the 

appropriate partners on Schedule K-1, box 9.

Line 14. Repairs and Maintenance

Enter the costs of incidental repairs and 

maintenance that do not add to the value of 

the property or appreciably prolong its life, 

but only to the extent that such costs relate 

to a trade or business activity and are not 

claimed elsewhere on the return. See 

Regulations section 1.162-4. The 

partnership may elect to capitalize certain 

repair and maintenance costs consistent with 

its books and records. See Regulations 

section 1.263(a)-3(n) for information on how 

to make the election.

The cost of new buildings, machinery, or 

permanent improvements that increase the 

value of the property aren't deductible as 

repairs and maintenance expense. These 

expenses must be capitalized and 

depreciated or amortized. However, 

amounts paid for routine maintenance on 

property, including buildings, may be 

deductible. See Regulations section 

1.263(a)-3(i).

Line 15. Bad Debts

Enter the total debts that became worthless 

in whole or in part during the year, but only to 

the extent such debts relate to a trade or 

business activity. Report deductible 

nonbusiness bad debts as a short-term 

capital loss on Form 8949.

Cash method ELPs cannot take a 

bad debt deduction unless the 

amount was previously included in 

income.

Line 16. Rent

Enter rent paid on business property used in 

a trade or business activity. Do not deduct 

rent for a dwelling unit occupied by any 

partner for personal use.

If the ELP rented or leased a vehicle, 

enter the total annual rent or lease expense 

paid or incurred in the trade or business 

activities of the partnership. Also complete 

Part V of Form 4562, Depreciation and 

Amortization. If the ELP leased a vehicle for 

a term of 30 days or more, the deduction for 

vehicle lease expense may have to be 

reduced by an amount called the inclusion 

amount. The ELP may have an inclusion 

amount if:

The lease term began:

And the 

vehicle's 

FMV on the 

first day of 

the lease 

exceeded:

Automobiles other than trucks 

and vans

After 12/31/12 and before 

1/1/18 .............. $19,000

After 12/31/09 but before 1/1/13 ... $18,500

Trucks and vans

After 12/31/13 and before 

1/1/18 .............. $19,500

After 12/31/09 and before 

1/1/14 .............. $19,000

 The inclusion amount for lease terms beginning in 

2018 will be published in the Internal Revenue 

Bulletin in early 2018. 

See Pub. 463 for instructions on figuring the 

inclusion amount.

CAUTION

!

-17-
Line 17. Taxes and Licenses

Enter taxes and licenses paid or incurred in 

the trade or business activities of the 

partnership if not reflected elsewhere on the 

return. Federal import duties and federal 

excise and stamp taxes are deductible only if 

paid or incurred in carrying on the trade or 

business of the partnership.

Do not deduct the following taxes on 

line 17.

Taxes not imposed on the partnership.

Federal income taxes or taxes reported 

elsewhere on the return.

Section 901 foreign taxes. Report these 

taxes separately on Schedule K, line 14g; 

and Schedule K-1, box 9.

Taxes allocable to a rental activity. Report 

these taxes on Form 8825. Report taxes 

allocable to a rental activity other than a 

rental real estate activity on Form 1065-B on 

an attachment to Part I, line 5.

Taxes allocable to portfolio income. 

Report these taxes on Form 1065-B in Part 

II, line 8 or 11.

Taxes paid or incurred for the production 

or collection of income, or for the 

management, conservation, or maintenance 

of property held to produce income. Also 

report these taxes on Form 1065-B in Part II, 

line 8 or 11.

See section 263A(a) for rules on 

capitalization of allocable costs (including 

taxes) for any property.

Taxes, including state or local sales taxes, 

that are paid or incurred in connection with 

an acquisition or disposition of property. 

These taxes must be treated as a part of the 

cost of the acquired property or, in the case 

of a disposition, as a reduction in the amount 

realized on the disposition.

Taxes assessed against local benefits 

that increase the value of the property 

assessed (such as for paving, etc.).

See section 164(d) for information on 

apportionment of taxes on real property 

between seller and purchaser.

Line 18. Interest

Include only interest incurred in the trade or 

business activities of the ELP that is not 

claimed elsewhere on the return.

Do not deduct interest expense on the 

following.

Debt required to be allocated to the 

production of designated property. 

Designated property includes real property, 

personal property that has a class life of 20 

years or more, and other tangible property 

requiring more than 2 years (1 year in the 

case of property with a cost of more than $1 

million) to produce or construct. Interest that 

is allocable to designated property produced 

by a partnership for its own use or for sale 

must be capitalized. In addition, a 

partnership must also capitalize any interest 

on debt that is allocable to an asset used to 

produce designated property. See section 

263A(f) and Regulations sections 1.263A-8 

through 1.263A-15.

Debt used to purchase rental property or 

debt used in a rental activity. Interest 

allocable to a rental real estate activity is 

reported on Form 8825 and is used in 

arriving at net income or (loss) from rental 

real estate activities on line 4. Interest 

allocable to a rental activity other than a 

rental real estate activity is used in arriving at 

net income or (loss) from a rental activity 

(other than a rental real estate activity). This 

net amount is reported on line 5.

Debt used to buy property held for 

investment. Do not include interest expense 

that is clearly and directly allocable to 

interest, dividend, royalty, or annuity income 

not derived in the ordinary course of a trade 

or business. Interest paid or incurred on debt 

used to purchase or carry investment 

property is reported on line 7 of Part II. See 

the Instructions for Form 4952, Investment 

Interest Expense Deduction, for more 

information on investment property.

Temporary Regulations section 1.163-8T 

gives rules for allocating interest expense 

among activities so that the limitations on 

passive activity losses, investment interest, 

and personal interest can be properly 

figured. Generally, interest expense is 

allocated in the same manner that debt is 

allocated. Debt is allocated by tracing 

disbursements of the debt proceeds to 

specific expenditures, as provided in the 

regulations.

Interest paid by an ELP to a partner for 

the use of capital should be entered on 

line 13 as guaranteed payments.

Prepaid interest can only be deducted 

over the period to which the prepayment 

applies.

Note. Additional limitations on interest 

deductions apply when the ELP is a 

policyholder or beneficiary with respect to a 

life insurance, endowment, or annuity 

contract issued after June 8, 1997. For 

details, see section 264. Attach a statement 

showing the computation of the deduction 

disallowed under section 264.

Line 19. Depreciation and Section 

179 Expense Deduction

Enter only the depreciation (including section 

179 expense deduction) claimed on assets 

used in a trade or business activity. Enter on 

line 19b the depreciation (including section 

179 expense deduction) included elsewhere 

on the return (for example, on page 1, line 2) 

that is attributable to assets used in trade or 

business activities. See the Instructions for 

Form 4562, or Pub. 946, How To Depreciate 

Property, to figure the amount of 

depreciation (including section 179 expense 

deduction) to enter on this line.

Complete and attach Form 4562 only if 

the ELP placed property in service during the 

tax year or claims depreciation on any car or 

other listed property.

Line 20. Depletion

An ELP figures the deduction for oil and gas 

depletion at the partnership level. The 

deduction is figured under the assumptions 

that the partnership is the taxpayer and that it 

qualifies for the percentage depletion 

deduction. In figuring the depletion 

deduction, the 1,000-barrel-per-day 

limitation and the 

65-percent-of-taxable-income limitation do 

not apply.

The amount of the depletion deduction is 

generally reported to each partner as a 

component of that partner's distributive 

share of taxable income or loss from passive 

loss limitation activities. However, the ELP 

must report information related to oil and gas 

activities to a partner who is a disqualified 

person in the same manner that it reports the 

information under the regular partnership tax 

law. See Partnerships Holding Oil and Gas 

Properties, earlier, for more details.

If the ELP claims a deduction for timber 

depletion, complete and attach Form T 

(Timber), Forest Activities Schedule.

Line 21. Retirement Plans, etc.

Enter the deductible contributions not 

claimed elsewhere on the return made by the 

partnership for its common-law employees 

under a qualified pension, profit-sharing, 

annuity, or SEP or SIMPLE IRA plan, and 

under any other deferred compensation plan.

If the ELP contributes to an IRA for 

employees, include the contribution in 

salaries and wages on Part I, line 12, or Form 

1125-A, line 3, and not on line 21.

Employers who maintain a pension, 

profit-sharing, or other funded deferred 

compensation plan (other than a SEP or 

SIMPLE IRA), whether or not the plan is 

qualified under the Internal Revenue Code 

and whether or not a deduction is claimed for 

the current year, generally must file the 

applicable form listed below.

Form 5500, Annual Return/Report of 

Employee Benefit Plan. File this form for a 

plan that is not a one-participant plan.

Form 5500-EZ, Annual Return of 

One-Participant (Owners and Their 

Spouses) Retirement Plan. File this form for 

a plan that only covers one or more partners 

(or partners and their spouses).

Penalties may be assessed for failure to 

file these forms on time.

Note. Form 5500 and its schedules must be 

filed electronically using the Employee 

Retirement Income Security Act (ERISA) 

filing acceptance system (EFAST2). For 

more information, see the EFAST2 website 

at www.efast.dol.gov.

-18-
Line 22. Employee Benefit 

Programs

Enter the ELP's contributions to employee 

benefit programs not claimed elsewhere on 

the return (for example, insurance, health, 

and welfare programs) that are not part of a 

pension, profit-sharing, etc., plan included on 

line 21.

Do not include amounts paid during the 

tax year for insurance that constitutes 

medical care for a partner, a partner's 

spouse, a partner's dependents, or a 

partner's children under age 27 who are not 

dependents. Instead, include these amounts 

on line 13 as guaranteed payments and on 

Schedule K, line 7, and Schedule K-1, box 9, 

of each partner on whose behalf the 

amounts were paid.

Line 23. Other Deductions

Enter the total allowable trade or business 

deductions that are not deductible elsewhere 

in Part I of Form 1065-B. Attach a statement 

listing by type and amount each deduction 

included on this line. Examples of other 

deductions include the following.

Amortization. See the Instructions for 

Form 4562 for more information. Complete 

and attach Form 4562 if the partnership is 

claiming amortization of costs that began 

during the tax year.

Insurance premiums.

Legal and professional fees.

Supplies used and consumed in the 

business.

Utilities.

Certain business start-up expenditures 

and organizational expenditures that the 

partnership has elected to amortize or 

deduct. See Limitations on Deductions, 

earlier, for more details.

Film, television, and theatrical production 

expenses. See Limitations on Deductions, 

earlier, for details.

Reforestation expense deduction. See 

Limitations on Deductions, earlier, for details.

Endangered species recovery 

expenditures that were paid or incurred after 

December 31, 2008. See section 175 for 

details.

Deduction for certain energy efficient 

commercial building property placed in 

service before 2018. See section 179D; 

Notice 2006-52, 2006-26 I.R.B. 1175; and 

Notice 2008-40, 2008-14 I.R.B. 725 as 

modified by Notice 2012-26.

Any net negative 481(a) adjustment.

Include on line 23 the deduction taken for 

amortization. Complete and attach Form 

4562 if the ELP is claiming amortization of 

costs that begins during the tax year. The 

election to deduct intangible drilling costs 

under section 263(c) is made at the 

partnership level. An ELP also has the 

responsibility with respect to its partners who 

are not disqualified persons for making an 

election under section 59(e) to capitalize and 

amortize certain specified intangible drilling 

costs. However, disqualified persons make 

their own separate section 59(e) elections. 

See Partnerships Holding Oil and Gas 

Properties, earlier, for more information. See 

Pub. 535 for more information on 

amortization.

Also, see Special Rules below for limits 

on certain other deductions.

Do not deduct the following on line 23.

Items that must be reported separately on 

Schedules K and K-1.

Qualified expenditures to which an 

election under section 59(e) may apply.

Certain fines or penalties paid to a 

government for violating any law. Report 

these expenses on Schedule K, line 15. See 

section 162(f) for exceptions that apply to 

amounts paid or incurred after December 21, 

2017.

Expenses allocable to tax-exempt 

income. Report these expenses on 

Schedule K, line 15.

Any amount that is allocable to a class of 

exempt income. See section 265(b) for 

exceptions.

Net operating losses. Only individuals and 

corporations may claim a net operating loss 

deduction.

Amounts paid or incurred to participate or 

intervene in any political campaign on behalf 

of a candidate for public office, or to 

influence the general public regarding 

legislative matters, elections, or 

referendums.

Expenses paid or incurred to influence 

federal or state legislation (or amounts paid 

or incurred on or after December 22, 2017, 

to influence local legislation), or to influence 

the actions or positions of certain federal 

executive branch officials. However, certain 

in-house lobbying expenditures that do not 

exceed $2,000 are deductible. See section 

162(e) for more details.

Amounts paid or incurred after December 

22, 2017, for any settlement or payout 

related to sexual harassment or sexual 

abuse that is subject to a nondisclosure 

agreement, as well as any attorney's fees 

related to the settlement or payout. See 

section 162(q).

Special Rules

Commercial revitalization deduction. If 

the ELP constructed, purchased, or 

substantially rehabilitated a qualified building 

in a renewal community, it may have 

qualified for either (a) a deduction of 50% of 

qualified capital expenditures in the year the 

building was placed in service, or (b) 

amortization of 100% of the qualified capital 

expenditures over a 120-month period 

beginning with the month the building was 

placed in service. If the partnership elected 

to amortize these expenditures, complete 

and attach Form 4562. To qualify, the 

building must be nonresidential (as defined 

in section 168(e)(2)) and placed in service by 

the partnership. The partnership must be the 

original user of the building unless it is 

substantially rehabilitated. The amount of the 

qualified expenditures cannot exceed the 

lesser of $10 million or the amount allocated 

to the building by the commercial 

revitalization agency of the state in which the 

building is located. Any remaining 

expenditures are depreciated over the 

regular depreciation recovery period. See 

section 1400I for details.

Note. The commercial revitalization 

deduction is not available for buildings 

placed in service after 2009.

Rental real estate. Do not report this 

deduction on line 23 if the building is placed 

in service as rental real estate. A commercial 

revitalization deduction for rental real estate 

is not deducted by the partnership but is 

passed through to the partners. Report this 

deduction on an attachment to line 15 of 

Schedule K and in box 9 of Schedule K-1 

using Code Q.

Travel, meals, and entertainment. 

Subject to limitations and restrictions 

discussed below, a partnership can deduct 

ordinary and necessary travel, meals, and 

entertainment expenses paid or incurred in 

its trade or business. Also, special rules 

apply to deductions for gifts, skybox rentals, 

luxury water travel, convention expenses, 

and entertainment tickets. See section 274 

and Pub. 463 for more details.

Note. No deduction is allowed for certain 

entertainment expenses, membership dues, 

and facilities used in connection with these 

activities for amounts paid or incurred after 

December 31, 2017. See section 274, as 

amended by P.L. 115-97, section 13304.

Travel. The partnership cannot deduct 

travel expenses of any individual 

accompanying a partner or partnership 

employee, including a spouse or dependent 

of the partner or employee, unless:

That individual is an employee of the 

partnership, and

His or her travel is for a bona fide 

business purpose and would otherwise be 

deductible by that individual.

Meals and entertainment. Generally, 

the partnership can deduct only 50% of the 

amount otherwise allowable for meals and 

entertainment expenses paid or incurred in 

its trade or business. In addition (subject to 

exceptions under section 274(k)(2)):

Meals must not be lavish or extravagant;

A bona fide business discussion must 

occur during, immediately before, or 

immediately after the meal; and

A partner or employee of the partnership 

must be present at the meal.

See section 274(n)(3) for a special rule 

that applies to expenses for meals 

consumed by individuals subject to the hours 

of service limits of the Department of 

Transportation.

Membership dues. The ELP can deduct 

amounts paid or incurred for membership 

dues in civic or public service organizations, 

professional organizations, business 

leagues, trade associations, chambers of 

commerce, boards of trade, and real estate 

-19-
boards. However, no deduction is allowed if 

a principal purpose of the organization is to 

entertain, or provide entertainment facilities 

for, members or their guests. In addition, the 

partnership cannot deduct membership dues 

in any club organized for business, pleasure, 

recreation, or other social purpose. This 

includes country clubs, golf and athletic 

clubs, airline and hotel clubs, and clubs 

operated to provide meals under conditions 

favorable to business discussion.

Entertainment facilities. The ELP 

cannot deduct an expense paid or incurred 

for a facility (such as a yacht or hunting 

lodge) used for an activity usually considered 

entertainment, amusement, or recreation.

Generally, the ELP may be able to deduct 

otherwise nondeductible meals, travel, and 

entertainment expenses if the amounts are 

treated as compensation to the recipient and 

reported on Form W-2 for an employee or on 

Form 1099-MISC for an independent 

contractor.

Line 26. Tax

Net recapture taxes. Recapture of the 

low-income housing credit under section 

42(j) and investment credit under section 50 

is imposed at the partnership level, and the 

amount of recapture is determined by 

assuming that the credit was fully utilized to 

reduce tax. The recapture of the qualifying 

therapeutic discovery project grant, under 

section 48D, is also imposed at the 

partnership level. Credit recapture does not 

result from any transfer of an interest in an 

ELP. Report partnership level recapture of 

low-income housing credit, investment 

credit, and qualifying therapeutic discovery 

project grant as follows.

1. Complete Form 4255 for recapture of 

investment credit and qualifying therapeutic 

discovery project grant and Form 8611 for 

recapture of low-income housing credit.

2. Apply any current year credit to 

reduce the recapture, as described in the 

instructions for Form 4255 and Form 8611.

3. Report any remaining recapture from 

the appropriate line of Form 4255 or Form 

8611, depending on the type of credit or 

grant being recaptured, on line 26 and check 

the appropriate box. The partnership is liable 

to pay any remaining recapture amount.

Report recapture of any other credit as a 

separately stated item in box 9 of 

Schedule K-1 using Code V.

Interest on deferred tax attributable to installment sales of certain timeshares and 

residential lots. For sales of timeshares 

and residential lots reported under the 

installment method, the ELP's income tax is 

increased by the interest payable under 

section 453(l)(3). In determining the amount 

of interest payable, the partnership is treated 

as subject to tax at a 39.6% rate. Report this 

amount on line 26 with the notation “Section 

453(l)(3) interest.” Attach a statement 

showing the computation.

Interest on tax deferred under the installment method for certain nondealer installment obligations. If an obligation 

arising from the disposition of property to 

which section 453A applies is outstanding at 

the close of the year, the ELP must include 

the interest due under section 453A(c). In 

determining the amount of interest payable, 

the partnership is treated as subject to tax at 

a 39.6% rate. Report this amount on line 26 

with the notation “Section 453A(c) interest.” 

Attach a statement showing the computation.

Interest due under the look-back method 

for completed long-term contracts. If the 

ELP owes this interest, attach Form 8697, 

Interest Computation Under the Look-Back 

Method for Completed Long-Term 

Contracts. Include the amount in the total for 

line 26. To the left of the total on line 26, 

enter the amount owed and “From Form 

8697.”

Interest due under the look-back method 

for property depreciated under the income forecast method. If the ELP owes 

this interest, attach Form 8866, Interest 

Computation Under the Look-Back Method 

for Property Depreciated Under the Income 

Forecast Method. Include the amount in the 

total for line 26. To the left of the total on 

line 26, enter the amount owed and “From 

Form 8866.”

Line 27

Enter the total amounts from line 2 of Form 

2439, Notice to Shareholder of Undistributed 

Long-Term Capital Gains, and line 17 of 

Form 4136, Credit for Federal Tax Paid on 

Fuels. The credit for tax paid on 

undistributed capital gains of a RIC or a REIT 

and the refundable credit for fuel used for 

certain purposes are allowed to the ELP. 

They are not separately reported to partners.

Line 28

You can e-file Form 1065-B and e-pay the 

balance due in a single step by authorizing 

an electronic funds withdrawal from your 

bank account when filing.

Electronic deposit requirement. ELPs 

must use electronic funds transfer to make 

all federal tax deposits (such as deposits of 

employment tax, excise tax, and income 

tax). Forms 8109 and 8109-B, Federal Tax 

Deposit Coupon, cannot be used. Generally, 

electronic fund transfers are made using the 

Electronic Federal Tax Payment System 

(EFTPS). If you do not want to use EFTPS, 

you can arrange for your tax professional, 

financial institution, payroll service, or other 

trusted third party to make deposits on your 

behalf.

To get more information about EFTPS or 

to enroll in EFTPS, visit EFTPS.gov or call 

1-800-555-4477. Also see Publication 966, 

Electronic Federal Tax Payment System: A 

Guide To Getting Started.

Payments

What if You Cannot Pay in Full?

If the ELP cannot pay the full amount of tax 

owed, it can apply for an installment 

agreement online. The ELP can apply for an 

installment agreement online if:

It cannot pay the full amount on page 1, 

line 28;

The total amount owed is $25,000 or less; 

and

It can pay the liability in full in 24 months.

To apply using the Online Payment 

Agreement Application, go to IRS.gov, click 

on “Pay,” then click on “Payment Plan.”

Under an installment agreement, the ELP 

can pay what is owed in monthly 

installments. There are certain conditions the 

ELP must meet to enter into and maintain an 

installment agreement, such as paying the 

liability within 24 months and making all 

required deposits and timely filing tax returns 

during the length of the agreement.

If the ELP's installment agreement is 

accepted, it will be charged a fee and it will 

be subject to penalties and interest on the 

amount of tax not paid by the due date of the 

return.

Part II. Taxable Income or 

Loss From Other Activities

Report in Part II only income or (loss) and 

deductions from activities not included in 

Part I (for example, portfolio income and 

deductions). See Other Activities, earlier, for 

a definition of portfolio income.

Line 1

Enter only taxable interest (not from passive 

loss limitation activities) on line 1.

Include interest income from the credit to 

holders of tax credit bonds. See the 

Instructions for Form 8912 for details.

Schedule K-1. Enter each partner's 

distributive share of interest income in box 5 

of Schedule K-1. If the partnership is 

reporting interest income from clean 

renewable energy bonds, attach a statement 

to Schedule K-1 that shows each partner's 

distributive share of interest income from this 

credit. Partners need this information to 

properly adjust the basis of their interest in 

the partnership.

Lines 2a Through 2c

Enter only taxable ordinary dividends on 

line 2a. On line 2b, enter all qualified 

dividends from line 2a.

Qualified dividends. Except as provided 

below, qualified dividends are dividends 

received after December 31, 2002, from 

domestic corporations and qualified foreign 

corporations.

Exceptions. The following dividends are 

not qualified dividends.

-20-
Dividends the ELP received on any share 

of stock held for less than 61 days during the 

121-day period that began 60 days before 

the ex-dividend date. When determining the 

number of days the partnership held the 

stock, it cannot count certain days during 

which the partnership's risk of loss was 

diminished. The ex-dividend date is the first 

date following the declaration of a dividend 

on which the purchaser of a stock is not 

entitled to receive the next dividend 

payment. When counting the number of days 

the ELP held the stock, include the day the 

ELP disposed of the stock but not the day 

the ELP acquired it.

Dividends attributable to periods totaling 

more than 366 days that the partnership 

received on any share of preferred stock 

held for less than 91 days during the 181-day 

period that began 90 days before the 

ex-dividend date. When determining the 

number of days the partnership held the 

stock, do not count certain days during which 

the partnership's risk of loss was diminished. 

Preferred dividends attributable to periods 

totaling less than 367 days are subject to the 

61-day holding period rule above.

Dividends that relate to payments that the 

partnership is obligated to make with respect 

to short sales or positions in substantially 

similar or related property.

Dividends paid by a RIC that are not 

treated as qualified dividend income under 

section 854.

Dividends paid by a REIT that are not 

treated as qualified dividend income under 

section 857(c).

See Pub. 550 for more details.

Qualified foreign corporation. A 

foreign corporation is a qualified foreign 

corporation if it is:

1. Incorporated in a possession of the 

United States, or

2. Eligible for benefits of a 

comprehensive income tax treaty with the 

United States that the Secretary determines 

is satisfactory for this purpose and that 

includes an exchange of information 

program. See Notice 2011-64, 2011-2 C.B. 

231, for details.

If the foreign corporation does not meet 

either (1) or (2) above, then it can be treated 

as a qualified foreign corporation for any 

dividend paid by the corporation if the stock 

associated with the dividend paid is readily 

tradable on an established securities market 

in the United States.

However, qualified dividends do not 

include dividends paid by a passive foreign 

investment company (defined in section 

1297).

Report the qualified dividend on line 3 of 

Schedule K. See Pub. 550 and Notice 

2006-3, 2006-3 I.R.B. 306, for more details.

Line 5

Report and identify other income or (loss) on 

an attachment for line 5.

Line 7

Investment interest is interest paid or 

accrued on debt properly allocable to 

property held for investment. Property held 

for investment includes property that 

produces income (unless derived in the 

ordinary course of a trade or business) from 

interest, dividends, annuities, or royalties, 

and gains from the disposition of property 

that produces those types of income or is 

held for investment. Investment interest does 

not include interest expense allocable to 

passive loss limitation activities.

To figure the deductible amount of 

investment interest, complete Form 4952. 

Enter the amount from line 8 of Form 4952.

Line 8

Include state and local income taxes paid by 

the ELP that would be allowed as itemized 

deductions on any partner's income tax 

returns if they were paid directly by the 

partner for the same purpose.

Line 9

Enter contributions or gifts actually paid 

during the tax year to or for the use of 

charitable and governmental organizations 

described in section 170(c). The total 

amount claimed may not be more than 10% 

of the ELP's taxable income (total income 

minus deductions) figured without regard to 

the deduction for charitable contributions. 

The deduction for certain contributions of 

ordinary income and capital gain property is 

reduced under section 170(e).

Temporary suspension of 10% limitation. 

An ELP can elect to deduct qualified cash 

contributions made for relief efforts in certain 

disaster areas without regard to the general 

10% limitation. To qualify for suspension of 

the 10% limitation:

The contributions must be made in cash 

to an organization described in section 

170(b)(1)(A), except for contributions to a 

section 509(a)(3) organization or a donor 

advised fund (as defined in section 4966(d)

(2)); and

The partnership must obtain from such 

organization contemporaneous written 

acknowledgment that the contribution was 

used (or is to be used) for relief efforts. See 

Pub. 976 for more information on disaster 

area relief.

Substantiation requirements. Generally, 

no deduction is allowed for any contribution 

of $250 or more unless the partnership 

obtains a written acknowledgment from the 

charitable organization that shows the 

amount of cash contributed, describes any 

property contributed, and gives an estimate 

of the value of any goods or services 

provided in return for the contribution. The 

acknowledgment must be obtained by the 

due date (including extensions) of the ELP's 

return or, if earlier, the date the partnership 

files its return. Do not attach the 

acknowledgment to the tax return, but keep it 

with the partnership's records. These rules 

apply in addition to the filing requirements for 

Form 8283, Noncash Charitable 

Contributions, discussed below.

Contributions of property. If the deduction 

claimed for noncash contributions exceeds 

$500, complete Form 8283 and attach to 

Form 1065-B. See Pub. 526, Charitable 

Contributions, and Form 8283 for more 

information.

If the ELP made a qualified conservation 

contribution under section 170(h), include 

the FMV of the underlying property before 

and after the donation, as well as the type of 

legal interest contributed, and describe the 

conservation purpose furthered by the 

donation.

Conservation contributions of 

agricultural or livestock production 

property. Generally, conservation 

contributions of property used in (or available 

for) agricultural or livestock production made 

by an ELP that is a qualified farmer or 

rancher (as defined in section 170(b)(1)(E)

(v)) are not subject to the 10% taxable 

income limit. Instead, the deduction for these 

contributions is allowed to the extent it does 

not exceed the excess of the partnership's 

taxable income over the amount of allowable 

charitable contributions. The carryover 

period for conservation contributions of 

agricultural or livestock production property 

exceeding the taxable income limitation is 15 

tax years.

Charitable contributions of food 

inventory. The deduction for the charitable 

contribution made under section 170(e)(3) of 

qualified food inventory that was donated for 

the care of the ill, needy, and infants (see 

section 170(e)(3)(C)). To qualify for the 

deduction, the food must meet all the quality 

and labeling standards imposed by federal, 

state, and local laws and regulations. The 

amount of the charitable contribution for 

donated food inventory is the lesser of (a) 

the basis of the donated food plus one-half of 

the appreciation (gain if the donated food 

was sold at FMV on the date of the gift), or 

(b) twice the amount of basis of the donated 

food. A partnership that does not account for 

inventories and is not required to capitalize 

indirect costs under section 263A may elect 

to treat the basis of the donated food as 

equal to 25% of the FMV of the food.

The ELP's deduction for food inventory 

contributions cannot exceed 10% of the 

ELP's aggregate net income for the tax year 

from the business activities from which the 

food inventory contribution was made 

(including your share of net income from 

another partnership or S corporation 

businesses that made food inventory 

contributions that were passed through to 

the ELP as a partner or shareholder).

Contributions of used vehicles. 

Special rules apply to contributions of used 

motor vehicles, boats, or airplanes with a 

claimed value of more than $500. See 

section 170(f)(12).

Reduced deduction for contributions 

of certain property. For a charitable 

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contribution of property, the ELP must 

reduce the contribution by the sum of:

The ordinary income and short-term 

capital gain that would have resulted if the 

property were sold at its FMV; and

For certain contributions, the long-term 

capital gain that would have resulted if the 

property were sold at its FMV.

The reduction for the long-term capital 

gain applies to:

Contributions of tangible personal 

property for use by an exempt organization 

for a purpose or function unrelated to the 

basis for its exemption,

Contributions of any property to or for the 

use of certain private foundations except for 

stock for which market quotations are readily 

available (section 170(e)(5)), and

Any patent or certain other intellectual 

property contributed after June 3, 2004. See 

section 170(e)(1)(B). However, the 

partnership can deduct certain qualified 

donee income from this property. See 

section 170(m).

Nondeductible contributions. Certain 

contributions made to an organization 

conducting lobbying activities are not 

deductible. See section 170(f)(9) for more 

details.

Lines 10a and 10b

Enter on line 10a miscellaneous itemized 

deductions as defined in section 67(b). 

These deductions include expenses for the 

production or collection of income under 

section 212, such as investment advisory 

fees, subscriptions to investment advisory 

publications, and the cost of safe deposit 

boxes. Multiply line 10a by 30% (0.30) and 

enter the result on line 10b. The remaining 

70% of the amount on line 10a is not allowed 

as a deduction to the partnership or its 

partners.

Line 11

Other allowable deductions include items 

such as:

Real estate taxes and personal property 

taxes on investment property,

Casualty and theft losses on 

income-producing property, and

Any penalty on the early withdrawal of 

savings.

Attach a statement for line 11 listing the 

type and amount of each allowable 

deduction for which there is no separate line 

in Part II of Form 1065-B.

Schedule B. Other 

Information

Question 1

Check box 1f for any other type of entity and 

state the type.

Question 3

The partnership must answer “Yes” if during 

the tax year:

It owned an interest in another partnership 

(foreign or domestic), or

It was the “tax owner” of a foreign 

disregarded entity (FDE) under Regulations 

sections 301.7701-2 and 301.7701-3. The 

tax owner of an FDE is the person that is 

treated as owning the assets and liabilities of 

the FDE for purposes of U.S. income tax law.

If the partnership answered “Yes” to this 

question, it must do the following.

1. Show each partnership's name, EIN 

(if any), and the country under whose laws 

the partnership was organized, on an 

attached statement, if the partnership directly 

or indirectly owned at least a 10% interest in 

any other foreign or domestic partnership 

(other than any partnership for which a Form 

8865 is attached to the tax return).

2. Complete and attach Form 8858, 

Information Return of U.S. Persons With 

Respect To Foreign Disregarded Entities, for 

each FDE. For more information, see the 

Instructions for Form 8858.

Note. Clearly indicate whether each entity in 

the attached statement is a partnership or a 

disregarded entity.

Question 4. Foreign Partners

Answer “Yes” if the ELP had any foreign 

partners (for purposes of section 1446) at 

any time during the tax year. Otherwise, 

answer “No.”

If the ELP had gross income effectively 

connected with a trade or business in the 

United States and foreign partners, it may be 

required to withhold tax under section 1446 

on income allocable to foreign partners 

(without regard to distributions) and file 

Forms 8804, 8805, and 8813. See 

Regulations sections 1.1446-1 through 7 for 

more information.

Question 5

Answer “Yes” if interests in the partnership 

are traded on an established securities 

market or are readily tradable on a 

secondary market (or its substantial 

equivalent).

Question 6

Answer “Yes” if the ELP filed, or is required 

to file, a return under section 6111 to provide 

information on any reportable transaction by 

a material advisor. Use Form 8918, Material 

Advisor Disclosure Statement, to provide the 

information. See the Instructions for Form 

8918.

Question 7. Foreign Accounts

Answer “Yes” if either (1) or (2) below applies 

to the ELP. Otherwise, check the “No” box.

1. At any time during the 2017 calendar 

year, the ELP had an interest in or signature 

or other authority over a bank account, 

securities account, or other financial account 

in a foreign country (see FinCEN Form 114, 

Report of Foreign Bank and Financial 

Accounts (FBAR));

The combined value of the accounts was 

more than $10,000 at any time during the 

calendar year; and

The accounts were not with a U.S. military 

banking facility operated by a U.S. financial 

institution.

2. The ELP owns more than 50% of the 

stock in any corporation that would answer 

the question “Yes” based on item (1) above.

If you checked the “Yes” box for the 

question:

Enter the name of the foreign country or 

countries. Attach a separate statement if 

more space is needed.

File FinCEN Form 114 electronically at the 

FinCEN website, bsaefiling.fincen.treas.gov/

main.html.

Question 8

The ELP may be required to file Form 3520, 

Annual Return To Report Transactions With 

Foreign Trusts and Receipt of Certain 

Foreign Gifts, if the following apply.

It directly or indirectly transferred property 

or money to a foreign trust. For this purpose, 

any U.S. person who created a foreign trust 

is considered a transferor.

It is treated as the owner of any part of the 

assets of a foreign trust under the grantor 

trust rules.

It received a distribution from a foreign 

trust.

For more information, see the Instructions 

for Form 3520.

Note. An owner of a foreign trust must 

ensure that the trust files an annual 

information return on Form 3520-A, Annual 

Information Return of Foreign Trust With a 

U.S. Owner.

Schedule D. Capital Gains 

and Losses

Purpose of Schedule

Use the Schedule D to report the following.

Certain transactions the ELP does not 

have to report on Form 8949.

The overall capital gains and losses from 

transactions listed on Form 8949.

Capital gains from installment sales from 

Form 6252, Installment Sale Income.

Capital gains and losses from like-kind 

exchanges from Form 8824, Like-Kind 

Exchanges (and section 1043 

conflict-of-interest sales).

Partnership's share of net capital gains 

and losses, including specially allocated 

capital gains and losses, from partnerships, 

estates, and trusts.

Do not report on Schedule D capital gains 

(losses) specially allocated to any partners. 

Enter specially allocated capital gains 

(losses) directly on line 4a or 4b of 

Schedule K, or on an attached statement for 

line 15 of Schedule K and in box 3, 4, or 9 of 

Schedule K-1, whichever applies. See How 

Income Is Shared Among Partners, later.

Note. For more information, see Pub. 544, 

Sales and Other Dispositions of Assets, and 

the Instructions for Form 8949. Do not report 

on Schedule D gains or losses from the sale 

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or exchange of qualified preferred stock of 

the Federal National Mortgage Association 

(Fannie Mae) or the Federal Home Loan 

Mortgage Corporation (Freddie Mac). 

Instead, each partner's distributive share of 

such gains and losses must be reported as a 

separately stated item in box 9 of 

Schedule K-1 using Code V. See item 21, 

Other information (Code V), later, for more 

information.

What Are Capital Assets?

Each item of property the ELP held (whether 

or not connected with its trade or business) 

is a capital asset except the following.

Stock in trade or other property included 

in inventory or held mainly for sale to 

customers.

Accounts or notes receivable acquired in 

the ordinary course of the trade or business 

for services rendered or from the sale of 

stock in trade or other property held mainly 

for sale to customers.

Depreciable or real property used in the 

trade or business, even if it is fully 

depreciated.

Certain copyrights; literary, musical, or 

artistic compositions; letters or memoranda; 

or similar property. See section 1221(a)(3).

U.S. Government publications, including 

the Congressional Record, that the 

partnership received from the Government, 

other than by purchase at the normal sales 

price, or that the partnership got from 

another taxpayer who had received it in a 

similar way, if the partnership's basis is 

determined by reference to the previous 

owner.

Certain commodities derivative financial 

instruments held by a dealer. See section 

1221(a)(6).

For dispositions after 2017, certain 

patents, inventions, models, or designs 

(whether or not patented); secret formulas or 

processes; or similar property. See section 

1221(a)(3), as revised by Public Law 115-97, 

section 13314.

Certain hedging transactions entered into 

in the normal course of the trade or business. 

See section 1221(a)(7).

Supplies regularly used in the trade or 

business.

Overview of Large Partnership 

Provisions

For ELPs, capital gains and losses generally 

are netted at the partnership level. A partner 

in a large partnership takes into account 

separately his distributive share of the 

partnership's net capital gain or net capital 

loss. Such net capital gain (loss) is treated as 

long-term capital gain (loss). The 28% rate 

gain (loss) is treated in the same manner.

Any excess of net short-term capital gain 

over net long-term capital loss is not 

separately stated. Instead, it is consolidated 

with the partnership's other taxable income.

A partner's distributive share is divided 

between passive loss limitation activities and 

other activities. Capital gain (loss) is 

allocated to passive loss limitation activities 

to the extent that it is from sales and 

exchanges of property used in connection 

with a trade or business or rental activity. 

Any excess is allocated to other activities 

(that is, portfolio income).

Section 1231 gains are also netted at the 

partnership level. The net gain is generally 

treated as long-term capital gain. The net 

loss is treated as an ordinary loss and is 

included in figuring the partnership's taxable 

income.

Items for Special Treatment

Use Form 4797, Sales of Business 

Property, to report (a) sales or exchanges of 

property used in a trade or business; (b) 

sales or exchanges of depreciable or 

amortizable property; (c) sales or other 

dispositions of securities or commodities 

held in connection with a trading business, if 

the partnership made a mark-to-market 

election; (d) involuntary conversions (other 

than from casualties or thefts); and (e) the 

disposition of noncapital assets (other than 

inventory or property held primarily for sale to 

customers in the ordinary course of a trade 

or business).

Use Form 4684, Casualties and Thefts, to 

report involuntary conversions of property 

due to a casualty or theft.

Gains and losses from section 1256 

contracts and straddles are reported on 

Form 6781, Gains and Losses From Section 

1256 Contracts and Straddles.

An exchange of business or investment 

property for property of a like kind is reported 

on Form 8824, Like-Kind Exchanges.

Transactions by a securities dealer. See 

section 1236.

See Pub. 550, Investment Income and 

Expenses, for information on bonds and 

other debt instruments.

For certain real estate subdivided for sale 

that may be considered a capital asset, see 

section 1237.

Gain on the sale of depreciable property 

to a more-than-50%-owned entity, or to a 

trust in which the partnership is a beneficiary, 

is treated as ordinary gain.

For liquidating distributions from a 

corporation, see Pub. 550.

See section 1248 for gain on the sale or 

exchange of stock in certain foreign 

corporations.

For gain or loss on options to buy or sell, 

including closing transactions, see Pub. 550.

Gain or loss from a short sale of property. 

See Pub. 550 for details.

For undistributed capital gains from a RIC 

or a REIT, the partnership will receive 

information on Form 2439, Notice to 

Shareholder of Undistributed Long-Term 

Capital Gains.

Net asset value (NAV) method for money 

market funds. Report capital gain or loss 

determined under the NAV method with 

respect to shares in a money market fund on 

Form 8949, Part I, with box C checked. Enter 

the name of each fund followed by “(NAV)” in 

column (a). Enter the net gain or loss in 

column (h). Leave all other columns blank. 

See the Instructions for Form 8949.

See section 84 for the transfer of property 

to a political organization if the FMV of the 

property exceeds the partnership's adjusted 

basis in such property.

Any loss on the disposition of converted 

wetland or highly erodible cropland that is 

first used for farming after March 1, 1986, is 

reported as a long-term capital loss on Form 

8949/Schedule D, but any gain on such a 

disposition is reported as ordinary income on 

Form 4797. See section 1257 for details.

See Rev. Rul. 84-111, 1984-2 C.B. 88, for 

the transfer of partnership assets and 

liabilities to a newly formed corporation in 

exchange for all of its stock.

See section 897 for the disposition of 

foreign investment in a U.S. real property 

interest.

Any loss from a sale or exchange of 

property between the partnership and certain 

related persons is not allowed, except for 

distributions in a complete liquidation of a 

corporation. See sections 267 and 707(b) for 

details.

Any loss from securities that are capital 

assets that become worthless during the 

year is treated as a loss from the sale or 

exchange of a capital asset on the last day of 

the tax year.

Nonrecognition of gain on sale of stock to 

an employee stock ownership plan (ESOP) 

or an eligible cooperative. See section 1042 

and Temporary Regulations section 

1.1042-1T for rules under which the 

partnership can elect not to recognize gain 

from the sale of certain stock to an ESOP or 

an eligible cooperative.

A nonbusiness bad debt must be treated 

as a short-term capital loss and can be 

deducted only in the year the debt becomes 

totally worthless. See Pub. 550 for more 

details.

Any loss from a wash sale of stock or 

securities (including contracts or options to 

acquire or sell stock or securities) cannot be 

deducted unless the partnership is a dealer 

in stock or securities and the loss was 

sustained in a transaction made in the 

ordinary course of the partnership's trade or 

business. A wash sale occurs if the 

partnership acquires (by purchase or 

exchange), or has a contract or option to 

acquire, substantially identical stock or 

securities within 30 days before or after the 

date of the sale or exchange. See section 

1091. Report a wash sale transaction on 

Form 8949, Part l or II (with the appropriate 

box checked), depending on how long the 

ELP owned the stock or securities. Enter “W” 

in column (f) and enter as a positive number 

in column (g) the amount of the loss not 

allowed. Complete all remaining columns. 

See the Instructions for Form 8949.

Gain from installment sales. If the 

partnership sold property at a gain and it will 

receive a payment in a tax year after the year 

of sale, it generally must report the sale on 

the installment method unless it elects not to. 

However, the installment method cannot be 

used to report sales of stock or securities 

traded on an established securities market. 

Use Form 6252 to report the sale on the 

installment method. Also use Form 6252 to 

report any payment received during the tax 

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year from a sale made in an earlier year that 

was reported on the installment method.

If the ELP wants to elect out of the 

installment method, it must report the full 

amount of the gain on a timely filed return 

(including extensions). If the partnership filed 

Form 1065-B on time, the election can be 

made on an amended return filed no later 

than 6 months after the due date (excluding 

extensions) of the original return. Write “See 

attached Form 8082 for AAR per IRC section 

6251; Filed pursuant to section 301.9100-2” 

in the top margin of the amended return, and 

file it at the same address the original return 

was filed. See Administrative Adjustment 

Requests, earlier.

A sale or other disposition of an interest in 

a partnership owning unrealized receivables 

or inventory items may result in ordinary gain 

or loss. See Pub. 541, Partnerships, for more 

details.

Certain constructive ownership 

transactions. Gain in excess of the gain that 

would have been recognized if the 

partnership had held a financial asset 

directly during the term of a derivative 

contract must be treated as ordinary income. 

See section 1260 for details.

Gain on disposition of market discount 

bonds. In general, a capital gain from the 

disposition of a market discount bond is 

treated as interest income to the extent of 

accrued market discount as of the date of 

disposition. See sections 1276 through 1278 

and Pub. 550 for more information on market 

discount. See the Instructions for Form 8949 

for detailed information about how to report 

the disposition of a market discount bond.

Contingent payment debt instruments. 

Any gain recognized on the sale, exchange, 

or retirement of a contingent payment debt 

instrument subject to the noncontingent 

bond method is treated as interest income 

rather than as capital gain. In certain 

situations, all or a portion of a loss 

recognized on the sale, exchange, or 

retirement of a contingent payment debt 

instrument subject to the noncontingent 

bond method may be treated as an ordinary 

loss rather than as a capital loss. See 

Regulations section 1.1275-4(b) and Pub. 

550 for more information on contingent 

payment debt instruments subject to the 

noncontingent bond method.

Constructive sale treatment for certain 

appreciated positions. Generally, the ELP 

must recognize gain (but not loss) on the 

date it enters into a constructive sale of any 

appreciated position in stock, a partnership 

interest, or certain debt instruments as if the 

position were disposed of at FMV on that 

date.

The ELP is treated as making a 

constructive sale of an appreciated position 

when it (or a related person, in some cases) 

does one of the following.

Enters into a short sale of the same or 

substantially identical property (that is, a 

“short sale against the box”).

Enters into an offsetting notional principal 

contract relating to the same or substantially 

identical property.

Enters into a futures or forward contract to 

deliver the same or substantially identical 

property.

Acquires the same or substantially 

identical property (if the appreciated position 

is a short sale, offsetting notional principal 

contract, or a futures or forward contract).

Exception. Generally, constructive sale 

treatment does not apply if:

The partnership closed the transaction 

before the end of the 30th day after the end 

of the year in which it was entered into,

The partnership held the appreciated 

position to which the transaction relates 

throughout the 60-day period starting on the 

date the transaction was closed, and

At no time during that 60-day period was 

the partnership's risk of loss reduced by 

holding certain other positions.

For details and other exceptions to these 

rules, see Pub. 550.

Special rules for traders in securities.

Traders in securities are engaged in the 

business of buying and selling securities for 

their own account. To be engaged in 

business as a trader in securities, the ELP 

must meet all the following conditions.

The ELP must seek to profit from daily 

market movements in the prices of securities 

and not from dividends, interest, or capital 

appreciation.

The ELP's trading activity must be 

substantial.

The ELP must carry on the activity with 

continuity and regularity.

The following facts and circumstances 

should be considered in determining if an 

ELP's activity is a business.

Typical holding periods for securities 

bought and sold.

The frequency and dollar amount of the 

ELP's trades during the year.

The extent to which the partners pursue 

the activity to produce income for a 

livelihood.

The amount of time devoted to the 

activity.

Like an investor, a trader must report 

each sale of securities (taking into account 

commissions and any other costs of 

acquiring or disposing of the securities) on 

Form 8949/Schedule D or an attached 

statement containing all the same 

information for each sale in a similar format. 

However, if a trader made the 

mark-to-market election, each transaction is 

reported in Part II of Form 4797 instead of 

Form 8949/Schedule D. Regardless of 

whether a trader reports its gains and losses 

on Form 8949/Schedule D or Form 4797, the 

gain or loss from the disposition of securities 

is not taken into account when figuring net 

earnings from self-employment on 

Schedules K and K-1. See section 1402(i) 

for an exception that applies to section 1256 

contracts.

The limitation on investment interest 

expense that applies to investors does not 

apply to interest paid or incurred in a trading 

business. A trader reports interest expense 

and other expenses (excluding commissions 

and other costs of acquiring or disposing of 

securities) from a trading business in Part I of 

Form 1065-B.

A trader also can hold securities for 

investment. The rules for investors generally 

will apply to those securities. Allocate 

interest and other expenses between the 

partnership's trading business and its 

investment securities. Investment interest 

expense is reported on line 7 of Part II, Form 

1065-B.

Rollover of gain from qualified stock. If 

the partnership sold qualified small business 

stock (defined later) it held for more than 6 

months, it can postpone gain if it purchased 

other qualified small business stock during 

the 60-day period that began on the date of 

the sale. The partnership must recognize 

gain to the extent the sale proceeds exceed 

the cost of the replacement stock. Reduce 

the basis of the replacement stock by any 

postponed gain.

If the partnership chooses to postpone 

gain, report the sale on Form 8949, Part I or 

II (with the appropriate box checked), as it 

would be reported if the election was not 

made. Then enter “R” in column (f). Enter the 

amount of the postponed gain as a negative 

number (in parentheses) in column (g). See 

the Instructions for Form 8949.

Attach a statement to Form 1065-B that 

(a) identifies the replacement qualified small 

business stock, (b) shows the computation of 

the adjustment to the partnership's basis in 

the replacement stock for the amount of any 

postponed gain under section 1045, and (c) 

shows the dates on which the replacement 

stock was acquired by the ELP.

The ELP also must separately state 

the amount of the gain rolled over on 

qualified stock under section 1045 

on an attachment to Form 1065-B, 

Schedule K, line 15. Each partner must 

determine if he or she qualifies for the 

rollover at the partner level or if he or she 

wants to opt out of the section 1045 election. 

Also, the partnership must separately state 

on that line any gain that would qualify for the 

section 1045 rollover at the partner level 

instead of the partnership level (because a 

partner was entitled to purchase 

replacement stock) and any gain on qualified 

stock that could qualify for an exclusion 

under section 1202.

To be qualified small business stock, the 

stock must meet all of the following tests.

It must be stock in a C corporation (that is, 

not S corporation stock).

It must have been originally issued after 

August 10, 1993.

As of the date the stock was issued, the 

corporation was a qualified small business. A 

qualified small business is a domestic C 

corporation with total gross assets of $50 

million or less (a) at all times after August 9, 

1993, and before the stock was issued; and 

(b) immediately after the stock was issued. 

Gross assets include those of any 

CAUTION

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predecessor of the corporation. All 

corporations that are members of the same 

parent-subsidiary controlled group are 

treated as one corporation.

The partnership must have acquired the 

stock at its original issue (either directly or 

through an underwriter), either in exchange 

for money or other property or as pay for 

services (other than as an underwriter) to the 

corporation. In certain cases, the partnership 

can meet the test if it acquired the stock from 

another person who met this test (such as by 

gift or inheritance) or through a conversion or 

exchange of qualified small business stock 

held by the partnership.

During substantially all the time the 

partnership held the stock:

1. The corporation was a C corporation;

2. At least 80% of the value of the 

corporation's assets were used in the active 

conduct of one or more qualified businesses 

(defined below); and

3. The issuing corporation was not a 

foreign corporation, domestic international 

sales corporation (DISC), former DISC, 

interest charge domestic international sales 

corporation (IC-DISC), former IC-DISC, 

corporation that has made (or that has a 

subsidiary that has made) a section 936 

election, RIC, REIT, REMIC, financial asset 

securitization investment trust (FASIT), or 

cooperative.

Note. A specialized small business 

investment company (SSBIC) is treated as 

having met test (2) above.

A qualified business is any business other 

than the following.

One involving services performed in the 

fields of health, law, engineering, 

architecture, accounting, actuarial science, 

performing arts, consulting, athletics, 

financial services, or brokerage services.

One whose principal asset is the 

reputation or skill of one or more employees.

Any banking, insurance, financing, 

leasing, investing, or similar business.

Any farming business (including raising or 

harvesting of trees).

Any business involving the production of 

products for which percentage depletion can 

be claimed.

Any business of operating a hotel, motel, 

restaurant, or similar business.

Rollover of gain from empowerment 

zone assets. If the partnership sold a 

qualified empowerment zone asset it held for 

more than 1 year, it may be able to elect to 

postpone part or all of the gain. For details, 

see section 1397B.

Exclusion of gain from DC Zone assets. 

If the ELP sold or exchanged a District of 

Columbia Enterprise Zone (DC Zone) asset 

that it held for more than 5 years, it may be 

able to exclude the qualified capital gain. The 

DC Zone asset must have been acquired 

after 1997, but before 2012, to qualify as an 

asset for which the partnership may be able 

to take the exclusion. The sale or exchange 

of DC Zone capital assets include the 

following.

Stock in a domestic corporation that was 

a DC Zone business.

Interest in a partnership that was a DC 

Zone business.

Report the sale or exchange of property 

used in the partnership's DC Zone business 

on Form 4797.

Gains not qualified for exclusion. The 

following gains do not qualify for the 

exclusion of gain from DC Zone assets.

Gain on the sale of an interest in a 

partnership which is a DC Zone business 

attributable to unrecaptured section 1250 

gain. See the instructions for line 15 of 

Schedule K for information on how to report 

unrecaptured section 1250 gain.

Gain on the sale of an interest in a 

partnership or S corporation, which is a DC 

Zone business, attributable to real property 

or an intangible asset which is not an integral 

part of the DC Zone business.

Gain from a related-party transaction. See 

Sales and Exchanges Between Related 

Persons in Pub. 544.

See section 1400B for more details on 

DC Zone assets and special rules.

How to report. Report the sale or 

exchange of DC Zone assets on Form 8949, 

Part II (with the appropriate box checked), as 

it would be reported if the exclusion was not 

taken. Enter “X” in column (f) and enter the 

amount of the exclusion as a negative 

number (in parentheses) in column (g). See 

the Instructions for Form 8949.

Undistributed long-term gains from a 

regulated investment company (RIC) or 

real estate investment trust (REIT). 

Report the partnership's share of long-term 

gains from Form 2439, Notice to 

Shareholder of Undistributed Long-Term 

Capital Gains, on Form 8949, Part II (with 

box F checked). Enter “From Form 2439” in 

column (a). Enter the gain in column (h). 

Leave all other columns blank. See the 

Instructions for Form 8949.

Specific Instructions

Complete all necessary pages of Form(s) 

8949 before completing line 1b, 2, 3, 8b, 9, 

or 10 of Schedule D.

Rounding Off to Whole Dollars

Cents can be rounded to whole dollars on 

the Schedule D. If cents are rounded to 

whole dollars, all amounts must be rounded. 

To round, drop cent amounts under 50 and 

increase cent amounts over 49 to the next 

dollar. For example, $1.49 becomes $1 and 

$1.50 becomes $2.

If two or more amounts have to be added 

to figure the amount to enter on a line, 

include cents when adding the amounts and 

round only the total.

Lines 1a and 8a—Transaction Not 

Reported on Form 8949

The ELP can report on line 1a (for short-term 

transactions) or line 8a (for long-term 

transactions) the aggregate totals from any 

transactions (except sales of collectibles) for 

which:

The ELP received a Form 1099-B (or 

substitute statement) that shows basis was 

reported to the IRS and does not show any 

adjustment in box 1f or box 1g; and

The ELP does not need to make any 

adjustments to the basis or type of gain or 

loss (short term or long term) reported on 

Form 1099-B (or substitute statement), or to 

its gain or loss. See How To Complete Form 

8949, Columns (f) and (g) in the Form 8949 

instructions for details about possible 

adjustments to the partnership's gain or loss.

If the ELP chooses to report these 

transactions on lines 1a and 8a, do not 

report them on Form 8949.

Figure gain or loss on each line. Subtract 

the cost or other basis in column (e) from the 

proceeds (sales price) in column (d). Enter 

the gain or loss in column (h). Enter negative 

amounts in parentheses.

Example 1—basis reported to the IRS. 

The ELP received a Form 1099-B reporting 

the sale of stock held for 3 years and 

showing proceeds (in box 1d) of $6,000 and 

cost or other basis (in box 1e) of $2,000. Box 

3 is checked, meaning that basis was 

reported to the IRS. The ELP does not need 

to make any adjustments to the amounts 

reported on Form 1099-B or enter any 

codes. This was its only 2017 transaction. 

Instead of reporting this transaction on Form 

8949, the ELP can enter $6,000 on 

Schedule D, line 8a, column (d); $2,000 in 

column (e); and $4,000 ($6,000 – $2,000) in 

column (h).

If the ELP had a second transaction that 

was the same except that the proceeds were 

$5,000 and the basis was $3,000, combine 

the two transactions. Enter $11,000 ($6,000 

+ $5,000) on Schedule D, line 8a, column 

(d); $5,000 ($2,000 + $3,000) in column (e); 

and $6,000 ($11,000 – $5,000) in column 

(h).

Example 2—basis not reported to the 

IRS. The ELP received a Form 1099-B 

showing proceeds (in box 1d) of $6,000 and 

cost or other basis (in box 1e) of $2,000. Box 

3 is not checked, meaning that basis was not 

reported to the IRS. Do not report this 

transaction on line 1a or line 8a. Instead, 

report the transaction on Form 8949. 

Complete all necessary pages of Form 8949 

before completing line 1b, 2, 3, 8b, 9, or 10 

of Schedule D.

Example 3—adjustment. The ELP 

received a Form 1099-B showing proceeds 

(in box 1d) of $6,000 and cost or other basis 

(in box 1e) of $2,000. Box 3 is checked, 

meaning that basis was reported to the IRS. 

However, the basis shown in box 1e is 

incorrect. Do not report this transaction on 

line 1a or line 8a. Instead, report the 

transaction on Form 8949. See the 

instructions for Form 8949, columns (f), (g), 

and (h). Complete all necessary pages of 

Form 8949 before completing line 1b, 2, 3, 

8b, 9, or 10 of Schedule D.

-25-
Lines 1b, 2, 3, 8b, 9, and 10, 

Column (h)—Transactions 

Reported on Form 8949

Figure gain or loss on each line. First, 

subtract cost or other basis (column (e)) from 

proceeds/sales price (column (d)). Then 

combine the result with any adjustments in 

column (g). Enter the gain or loss in column 

(h). Enter negative amounts in parentheses.

Example 1—gain. Column (d) is $6,000 

and column (e) is $2,000. Enter $4,000 in 

column (h).

Example 2—loss. Column (d) is $6,000 

and column (e) is $8,000. Enter ($2,000) in 

column (h).

Example 3—adjustment. Column (d) is 

$6,000, column (e) is $2,000, and column (g) 

is ($1,000). Enter $3,000 ($6,000 – $2,000 – 

$1,000) in column (h).

Line 14—Capital Gains and Losses 

From Other Partnerships, Estates, 

and Trusts

See the Schedule K-1 or other information 

supplied to the ELP by the other partnership, 

estate, or trust.

Part IV—Net Capital Gain (Loss) 

From Passive Loss Limitation 

Activities

Line 21. Redetermine the amount on line 18 

by taking into account only gains and losses 

from passive loss limitation activities.

Schedules K and K-1. 

Partners' Shares of 

Income, Credits, 

Deductions, etc.

Purpose of Schedules

The partners are liable for tax on their shares 

of the partnership income, whether or not 

distributed, and must include their shares on 

their tax returns.

Schedule K (page 4 of Form 1065-B) is a 

summary schedule of all the partners' shares 

of the partnership's income, credits, 

deductions, etc.

Schedule K-1 (Form 1065-B) shows each 

partner's separate share. Attach a copy of 

each Schedule K-1 to the Form 1065-B filed 

with the IRS. Keep a copy with a copy of the 

partnership return as a part of the 

partnership's records and furnish a copy to 

each partner. If a partnership interest is held 

by a nominee on behalf of another person, 

the partnership may be required to furnish 

Schedule K-1 to the nominee. See 

Temporary Regulations sections 

1.6031(b)-1T and 1.6031(c)-1T for more 

information.

Give each partner a copy of either the 

Partner's Instructions for Schedule K-1 (Form 

1065-B) or specific instructions for each item 

reported on the partner's Schedule K-1 

(Form 1065-B).

Substitute Forms

The ELP does not need IRS approval to use 

a substitute Schedule K-1 if it is an exact 

copy of the IRS schedule. The boxes must 

use the same numbers and titles and must 

be in the same order and format as on the 

comparable IRS Schedule K-1. The 

substitute schedule must include the OMB 

number. The partnership must provide each 

partner with the Partner's Instructions for 

Schedule K-1 (Form 1065-B) or other 

prepared specific instructions for each item 

reported on the partner's Schedule K-1.

The ELP must request IRS approval to 

use other substitute Schedules K-1. To 

request approval, write to Internal Revenue 

Service, Attn: Substitute Forms Program, 

5000 Ellin Road, C6-440, Lanham, MD 

20706.

Each partner's information must be on a 

separate sheet of paper. Therefore, separate 

all continuously printed substitutes before 

you file them with the IRS.

The ELP may be subject to a penalty if it 

files Schedules K-1 that do not conform to 

the specifications discussed in Pub. 1167, 

General Rules and Specifications for 

Substitute Forms and Schedules.

How Income Is Shared Among 

Partners

Generally, allocate shares of income, gain, 

loss, deduction, or credit among the partners 

according to the partnership agreement for 

sharing income or loss. However, partners 

can agree to allocate specific items in a ratio 

different from the ratio for sharing income or 

loss.

In determining the amounts required to be 

separately taken into account by a partner, 

those provisions of the large partnership 

rules governing computation of taxable 

income are applied separately with respect 

to that partner by taking into account that 

partner's distributive share of the 

partnership's items of income, gain, loss, 

deduction, or credit. This rule permits 

partnerships to make otherwise valid special 

allocations of partnership items to partners.

Report the specially allocated items in the 

appropriate box of the applicable partner's 

Schedule K-1 and the total on the 

appropriate line of Schedule K, instead of on 

Parts I or II of Form 1065-B, Form 1125-A, or 

Schedules D. For example, specially 

allocated net capital gain from passive 

activities is entered in box 4a of 

Schedule K-1, and the total is entered on 

line 4a of Schedule K, along with any net 

capital gain from line 21 of Schedule D.

If a partner's interest changed during the 

year (such as the entrance of a new partner, 

the exit of a partner, an increase to a 

partner’s interest through an additional 

capital contribution, or a decrease in a 

partner’s interest through a distribution), see 

section 706(d) and Regulations section 

1.706-4 before determining each partner's 

distributive share of any item of income, 

gain, loss, deduction, and other items. 

Partnership items are allocated to a partner 

only for the part of the year in which that 

person is a member of the partnership. 

Generally, for each change in a partner’s 

interest, the partnership will either allocate its 

items using a pro-ration method or a 

closing-of-the-books method. Special rules 

apply to certain partnerships, certain 

variations, and certain items. See 

Regulations section 1.706-4 for additional 

rules and procedures for making elections. In 

addition, special rules in section 706(d)(2) 

apply to certain items of partnerships that 

report their income on the cash basis and 

special rules in section 706(d)(3) apply to 

tiered partnerships.

Special rules on the allocation of income, 

gain, loss, and deductions generally apply if 

a partner contributes property to the 

partnership and the FMV of that property at 

the time of contribution differs from the 

contributing partner's adjusted tax basis. 

Under these rules, the ELP must use a 

reasonable method of making allocations of 

income, gain, loss, and deductions from the 

property so that the contributing partner 

receives the tax burdens and benefits of any 

built-in gain or loss (for example, 

precontribution appreciation or diminution of 

value of the contributed property). See 

Regulations section 1.704-3 for details on 

how to make these allocations, including a 

description of specific allocation methods 

that are generally reasonable.

See Dispositions of Contributed Property, 

earlier, for special rules on the allocation of 

income, gain, loss, and deductions on the 

disposition of property contributed to the 

partnership by a partner.

If the partnership agreement does not 

provide for the partner's share of income, 

gain, loss, deduction, or credit, or if the 

allocation under the agreement does not 

have substantial economic effect, the 

partner's share is determined according to 

the partner's interest in the partnership. See 

Regulations section 1.704-1 for more 

information.

Specific Instructions for 

Schedules K and K-1

Generally, the ELP is required to prepare 

and give a Schedule K-1 to each person who 

was a partner in the partnership at any time 

during the year.

However, if a foreign partnership meets 

each of the following four requirements, it is 

not required to file or provide Schedule K-1 

for foreign partners (unless the foreign 

partner is a pass-through entity through 

which a U.S. person holds an interest in the 

foreign partnership).

The partnership had no gross income 

effectively connected with the conduct of a 

trade or business within the United States 

during its tax year.

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All required Forms 1042 and 1042-S were 

filed by the partnership or another 

withholding agent as required by Regulations 

sections 1.1461-1(b) and (c) .

The tax liability of each partner for 

amounts reportable under Regulations 

sections 1.1461-1(b) and (c) have been fully 

satisfied by the withholding of tax at the 

source.

The partnership is not a withholding 

foreign partnership as defined in Temporary 

Regulations section 1.1441-5(c)(2)(i).

Generally, any person who holds an 

interest in a partnership as a nominee for 

another person must furnish to the 

partnership the name, address, etc., of the 

other person.

On each Schedule K-1, enter the names, 

addresses, and identifying numbers of the 

partner and partnership and the partner's 

distributive share of each item.

For an individual partner, enter the 

partner's social security number (SSN) or 

individual taxpayer identification number 

(ITIN). For all other partners, enter the 

partner's EIN. However, if a partner is an 

IRA, enter the identifying number of the 

custodian of the IRA. Do not enter the SSN 

of the person for whom the IRA is 

maintained.

Foreign partners without a U.S. taxpayer 

identifying number should be notified by the 

partnership of the necessity of obtaining a 

U.S. identifying number. Certain aliens who 

are not eligible to obtain an SSN can apply 

for an ITIN on Form W-7, Application for IRS 

Individual Taxpayer Identification Number.

Truncating recipient's taxpayer identification number on Schedule K-1. The 

partnership can truncate a partner's taxpayer 

identifying number on the Schedule K-1 the 

partnership sends to the partner. Truncation 

is not allowed on the Schedule K-1 the 

partnership files with the IRS. Also, the 

partnership cannot truncate its own taxpayer 

identification number on any form.

To truncate, where allowed, replace the 

first five digits of the nine-digit number with 

asterisks (*) or Xs (for example, an SSN 

xxx-xx-xxxx would appear as ***-**-xxxx or 

XXX-XX-xxxx). For more information, see 

Regulations section 301.6109-4.

If a married couple each had an interest in 

the ELP, prepare a separate Schedule K-1 

for each of them. If a married couple held an 

interest together, prepare one Schedule K-1 

if the two of them are considered to be one 

partner.

Use the codes listed under the 

instructions for Box 9 Codes (Schedule K-1), 

later, to report various items. If more space is 

needed, include the information in an 

attachment to box 9.

Partner's Share of Liabilities 

(Schedule K-1)

Enter each partner's share of:

Nonrecourse liabilities,

Partnership-level qualified nonrecourse 

financing, and

Other liabilities.

“Nonrecourse liabilities” are those 

liabilities of the partnership for which no 

partner bears the economic risk of loss. The 

extent to which a partner bears the economic 

risk of loss is determined under the rules of 

Regulations section 1.752-2. Do not include 

partnership-level qualified nonrecourse 

financing (defined below) on the line for 

nonrecourse liabilities.

If the partner terminated his or her interest 

in the partnership during the year, enter the 

share that existed immediately before the 

total disposition. In all other cases, enter it as 

of the end of the year.

If the ELP is engaged in two or more 

different types of at-risk activities, or a 

combination of at-risk activities and any other 

activity, attach a statement showing the 

partner's share of nonrecourse liabilities, 

partnership-level qualified nonrecourse 

financing, and other liabilities for each 

activity. See Pub. 925, Passive Activity and 

At-Risk Rules, to determine if the partnership 

is engaged in more than one at-risk activity.

The at-risk rules of section 465 generally 

apply to any activity carried on by the ELP as 

a trade or business or for the production of 

income. These rules generally limit the 

amount of loss and other deductions a 

partner can claim from any partnership 

activity to the amount for which that partner 

is considered at risk. However, for partners 

who acquired their partnership interests 

before 1987, the at-risk rules do not apply to 

losses from an activity of holding real 

property the partnership placed in service 

before 1987. The activity of holding mineral 

property does not qualify for this exception. 

Identify on an attachment to Schedule K-1 

the amount of any losses that are not subject 

to the at-risk rules.

If the ELP is engaged in an activity 

subject to the limitations of section 465(c)(1) 

(such as films or videotapes, leasing section 

1245 property, farming, or oil and gas 

property), give each partner his or her share 

of the total pre-1976 losses from that activity 

for which there existed a corresponding 

amount of nonrecourse liability at the end of 

each year in which the losses occurred. See 

Form 6198, At-Risk Limitations, and related 

instructions for more information.

Qualified nonrecourse financing secured 

by real property used in an activity of holding 

real property that is subject to the at-risk 

rules is treated as an amount at risk. 

“Qualified nonrecourse financing” generally 

includes financing for which no one is 

personally liable for repayment that is 

borrowed for use in an activity of holding real 

property and that is loaned or guaranteed by 

a federal, state, or local government or that is 

borrowed from a “qualified” person. Qualified 

persons include any person actively and 

regularly engaged in the business of lending 

money, such as a bank or savings and loan 

association. Qualified persons generally do 

not include related parties (unless the 

nonrecourse financing is commercially 

reasonable and on substantially the same 

terms as loans involving unrelated persons), 

the seller of the property, or a person who 

receives a fee for the partnership's 

investment in the real property. See section 

465 for more information on qualified 

nonrecourse financing.

The partner as well as the partnership 

must meet the qualified nonrecourse rules. 

Therefore, the ELP must enter on an 

attached statement any other information the 

partner needs to determine if the qualified 

nonrecourse rules are also met at the partner 

level.

Note. The following line numbers 

correspond with Schedule K. However, each 

line instruction also provides reporting 

information for Schedule K-1. Letter codes 

are listed under Box 9 Codes (Schedule K-1) 

for entries in box 9 of Schedule K-1.

Line 1. Taxable Income (Loss) 

From Passive Loss Limitation 

Activities

Enter the amount from Form 1065-B, page 1, 

line 25, on Schedule K, line 1a. Enter the 

income or (loss) without reference to (a) the 

basis of the partners' interests in the 

partnership, (b) the partners' at-risk 

limitations, or (c) the passive activity 

limitations. These limitations, if applicable, 

are determined at the partner level.

Allocate the income (loss) from passive 

loss limitation activities (line 1a of 

Schedule K) to interests held as a general 

partner as follows.

Step 1. Allocate the amount reported on 

line 1a to the following categories.

Trade or business activities.

Rental real estate activities.

Other rental activities.

Step 2. Report on lines 1b(1), 1b(2), and 

1b(3) of Schedule K that portion of each 

amount from Step 1 that will be allocated to 

interests held as a general partner (the 

combined distributive shares and any 

separate allocations for all general partner 

interests).

General partners in an ELP must 

separately account for any items attributable 

to passive loss limitation activities to the 

extent necessary to comply with the passive 

activity rules.

Because general partners must comply 

with the passive activity rules, report the 

information on lines 1b(1), 1b(2), and 1b(3) 

of Schedule K separately for each activity of 

the partnership using Codes A1, B1, and C1 

in box 9 of Schedule K-1. The remaining 

amount on line 1d of Schedule K is reported 

in box 1 of Schedule K-1 for limited partners 

(including interests held as a limited partner 

by general partners).

-27-
Line 2. Taxable Income (Loss) 

From Other Activities

On Schedule K, line 2, enter the amount from 

Form 1065-B, Part II, line 13. Report 

amounts for both general and limited 

partners in box 2 of Schedule K-1.

Line 3. Qualified Dividends

Enter the qualified dividends from other 

activities from Form 1065-B, Part II, line 2b. 

Report amounts for both general and limited 

partners in box 3 of Schedule K-1.

Line 4a. Net Capital Gain (Loss) 

From Passive Loss Limitation 

Activities

Enter the net capital gain or (loss) from 

passive loss limitation activities from 

Schedule D (Form 1065-B), line 21. Report 

the amount allocated to interests held as a 

limited partner in box 4a of Schedule K-1.

Because general partners must comply 

with the passive activity rules, report the 

line 4a amount allocated to interests held as 

a general partner separately for each activity 

using Codes A2, B2, and C2 in box 9 of 

Schedule K-1.

Line 4b. Net Capital Gain (Loss) 

From Other Activities

Enter the net capital gain (loss) from other 

activities from Schedule D (Form 1065-B), 

line 24. Report this amount to all partners in 

box 4b of Schedule K-1.

Lines 5 and 6

For an ELP, the AMT adjustments and 

preferences are combined at the partnership 

level. The partnership figures net AMT 

adjustments separately for passive loss 

limitation activities and other activities.

In determining a partner's alternative 

minimum taxable income, a partner's 

distributive share of any net AMT adjustment 

is taken into account instead of making 

separate AMT adjustments for different 

partnership items. The net AMT adjustment 

is determined by using the adjustments and 

preferences applicable to individuals for 

partners other than corporations, and by 

using the adjustments and preferences 

applicable to corporations for corporate 

partners. See Form 6251, Alternative 

Minimum Tax—Individuals, and Form 4626, 

Alternative Minimum Tax—Corporations, to 

figure the partnership's AMT adjustments 

and preferences.

The net passive AMT adjustment is 

reported on line 5 of Schedule K and in box 5 

of Schedule K-1 for interests held as a 

limited partner. Because general partners 

must comply with the passive activity rules, 

report the amounts allocated to interests 

held as a general partner separately for each 

activity in box 9 using Codes A5, B7, and C5.

The net other AMT adjustment is reported 

on line 6 of Schedule K and in box 6 of 

Schedule K-1 for all partners.

Line 7. Guaranteed Payments 

to Partners

Guaranteed payments to partners include:

Payments for salaries, health insurance, 

and interest deducted by the partnership and 

reported on Form 1065-B, Part I, line 13; on 

a statement attached to line 5, Part I; or on 

Form 8825;

Compensation deferred under a section 

409A nonqualified deferred compensation 

plan that does not meet the requirements of 

section 409A reported on line 15 of 

Schedule K; and

Payments the partnership must capitalize. 

See the instructions for Part I, line 13.

Report guaranteed payments to the 

partners receiving them in box 9 of 

Schedule K-1 using Code F.

The transfer of property to a partner 

as part or all of a guaranteed 

payment is a sale or exchange of 

property and must be reported on 

Schedule D of the Form 1065-B. See Rev. 

Rul. 2007-40, 2007-25 I.R.B. 1426, for 

details.

Line 8. Income From Discharge 

of Indebtedness

Do not include on line 8 any income 

from discharge of indebtedness for 

which the ELP has made the election 

to defer income from the cancellation of the 

debt. See Election to defer income from 

canceled debt, earlier.

Income from the discharge of indebtedness 

is separately reported to each partner. In 

addition, the section 108 rules governing the 

income are the same as for other 

partnerships.

Enter the income from discharge of 

indebtedness on line 8 of Schedule K and in 

box 9 of Schedule K-1 for each partner using 

Code G.

Note. Include the amount of income the ELP 

must recognize for a transfer of a partnership 

interest, after October 21, 2004, in 

satisfaction of a partnership debt when the 

debt relieved exceeds the FMV of the 

partnership interest. See section 108(e)(8) 

for more information.

Line 9. Tax-Exempt Interest 

Income

Enter tax-exempt interest income, including 

any exempt-interest dividends received from 

a mutual fund or other RIC. Individuals must 

report this amount on line 8b of Form 1040. 

The adjusted basis of the partner's interest is 

increased by the amount shown on this line 

under section 705(a)(1)(B). Report this 

amount to partners in box 9 of Schedule K-1 

using Code H.

Line 10. General Credits

The term “general credits” means any credit, 

other than the low-income housing credit, the 

rehabilitation credit from rental real estate 

activities, and the foreign tax credit.

TIP

CAUTION

!

General credits are separately reported to 

partners as a single item. A partner's 

distributive share of general credits is taken 

into account as a current year general 

business credit. The tax liability limit for the 

general business credit is applied at the 

partner level.

Combine the following credits, if 

applicable, and report them under “general 

credits” on line 10.

Credit for backup withholding on 

dividends, interest, and other types of 

income.

Qualified railroad track maintenance 

credit (Form 8900).

Investment credit (other than rehabilitation 

credits from rental real estate activities) 

(Form 3468).

Work opportunity credit (Form 5884).

Biofuel producer credit (Form 6478).

Credit for increasing research activities 

(Form 6765).

Disabled access credit (Form 8826).

Renewable electricity, refined coal, and 

Indian coal production credit (Form 8835).

Empowerment zone employment credit 

(Form 8844).

Indian employment credit (Form 8845).

Credit for employer social security and 

Medicare taxes paid on certain employee 

tips (Form 8846).

Orphan drug credit (Form 8820).

Enhanced oil recovery credit (Form 8830).

Biodiesel and renewable diesel fuels 

credit (Form 8864).

New markets credit (Form 8874).

Credit for small employer pension plan 

startup costs (Form 8881).

Credit for employer-provided childcare 

facilities and services (Form 8882).

Low sulfur diesel fuel production credit 

(Form 8896).

General credits from other ELPs.

Distilled spirits credit (Form 8906).

Energy efficient home credit (Form 8908).

Alternative motor vehicle credit (Form 

8910).

Alternative fuel vehicle refueling property 

credit (Form 8911).

Credit to holders of tax credit bonds (Form 

8912).

Mine rescue team training credit (Form 

8923).

Credit for employer differential wage 

payments (Form 8932).

Carbon dioxide sequestration credit (Form 

8933).

Qualified plug-in electric drive motor 

vehicle credit (Form 8936).

Credit for small employer health insurance 

premiums (Form 8941).

Employee retention credit (Form 5884-A).

Exception. The refundable credit for federal 

tax paid on fuels and the refund or credit for 

tax paid on undistributed capital gains of a 

RIC or a REIT are claimed by the 

partnership. Therefore, they are not 

separately reported to partners.

General credits are reported as a single 

figure on line 10 of Schedule K and are 

reported in box 7 of Schedule K-1 for limited 

partners. However, for general partners, 

-28-
credits allocable to passive loss limitation 

activities must be separately stated for each 

trade or business activity, rental real estate 

activity, and rental activity other than rental 

real estate. Provide this information to 

general partners in box 9 of Schedule K-1 

using Codes A4, B4, and C4 so they can 

comply with section 469. Also, if general 

business credits are included on the 

Schedule K-1, provide the partners the 

information needed to show that the ELP 

meets the requirements of section 38(c)(5)

(C).

Line 11. Low-Income Housing 

Credit

Section 42 provides a credit that can be 

claimed by owners of low-income residential 

rental buildings. To qualify for this credit, the 

ELP must file Form 8609, Low-Income 

Housing Credit Allocation and Certification, 

separately with the IRS. Do not attach Form 

8609 to Form 1065-B. Complete and attach 

Form 8609-A, Annual Statement for 

Low-Income Housing Credit, and Form 8586, 

Low-Income Housing Credit, to Form 

1065-B.

Report this credit for buildings placed in 

service before 2008 on line 11. If part or all of 

the credit is for buildings placed in service 

after 2007, enter “STMT” on line 11 and 

attach a statement showing separately the 

amount of the credit for buildings placed in 

service after 2007, and the amount of the 

credit for buildings placed in service before 

2008.

Schedule K-1. For limited partners, if all of 

the low-income housing credit is for buildings 

placed in service before 2008, report each 

limited partner's distributive share of the 

credit in box 8. If part or all of the credit is for 

buildings placed in service after 2007, enter 

“STMT” in box 8 and attach a statement that 

separately provides each limited partner's 

distributive share of the credit for buildings 

placed in service before 2008, and the credit 

for buildings placed in service after 2007.

For general partners, enter code B5 in 

box 9 and attach a statement showing 

separately each partner's distributive share 

of the credit for buildings placed in service 

before 2008, and the credit for buildings 

placed in service after 2007. Also, credits 

allocable to passive loss limitation activities 

must be separately stated for each rental real 

estate activity so general partners can 

comply with the passive activity limitation 

requirements of section 469.

Line 12. Rehabilitation Credit 

From Rental Real Estate 

Activities

Report the rehabilitation credit from rental 

real estate activities on line 12. Complete the 

lines on Form 3468, Investment Credit, that 

apply to the rehabilitation credit and attach it 

to Form 1065-B.

For limited partners, report the 

rehabilitation credit from rental real estate 

activities reported on line 12 in box 9 of 

Schedule K-1 using Code I. However, for 

general partners, credits allocable to passive 

loss limitation activities must be separately 

stated for each rental real estate activity. For 

general partners, report the rehabilitation 

credit reported on line 12 in box 9 of 

Schedule K-1 using Code B6 so general 

partners can comply with section 469.

Note. Any rehabilitation credits from an 

activity other than a rental real estate activity 

are included in general credits reported on 

line 10 of Schedule K.

Line 13. Net Earnings From 

Self-Employment

General partners. General partners' net 

earnings (loss) from self-employment do not 

include the following.

Dividends on any shares of stock and 

interest on any bonds, debentures, notes, 

etc., unless the dividend or interest income is 

received in the course of a trade or business, 

such as a dealer in stocks or securities or 

interest on notes or accounts receivable.

Rentals from real estate, except rentals of 

real estate held for sale to customers in the 

course of a trade or business as a real estate 

dealer or payments for rooms or space when 

significant services are provided.

Royalty income, except royalty income 

received in the course of a trade or business.

See the Instructions for Schedule SE 

(Form 1040), Self-Employment Tax, for more 

information.

Limited partners. Generally, a limited 

partner's share of partnership income (loss) 

is not included in net earnings (loss) from 

self-employment. Limited partners treat as 

self-employment earnings only guaranteed 

payments for services they actually rendered 

to, or on behalf of, the partnership to the 

extent that those payments are payment for 

those services.

Schedule K. Enter on line 13a the amount 

from line 5 of the worksheet below. On 

line 13b, enter the amount of gross nonfarm 

income from self-employment.

Note. For purposes of self-employment tax, 

no income from an ELP is treated as fishing 

or farming income.

Schedules K-1. Do not complete box 9 for 

any partner that is an estate, trust, 

corporation, exempt organization, or IRA.

Worksheet for Figuring Net Earnings (Loss) From Self-Employment

1a Income (loss) from Schedule K, line 1b(1) .............................. 1a

b Certain rental real estate activity income (loss) from Schedule K, line 1b(2) (see instructions) ... 1b

c Other rental activity income (loss) from Schedule K, line 1b(3) .................... 1c

d Net loss from Form 4797, Part II, line 17, included on lines 1a through 1c above. Enter as a positive 

amount .................................................

1d

e Combine lines 1a through 1d ..................................... 1e

2  Net gain from Form 4797, Part II, line 17, included on lines 1a through 1c above .......... 2 

3a Subtract line 2 from line 1e. If line 1e is a loss, increase the loss on line 1e by the amount on 

line 2 ..................................................

3a

b Part of line 3a allocated to estates, trusts, corporations, exempt organizations, and IRAs ..... 3b

c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each individual general 

partner's share in box 9 of Schedule K-1 ............................................... 3c

4a Guaranteed payments to partners (Schedule K, line 7) derived from a trade or business as defined in 

section 1402(c) (see instructions) ................................... 4a

b Part of line 4a allocated to individual limited partners for other than services and to estates, trusts, 

corporations, exempt organizations, and IRAs ............................ 4b

c Subtract line 4b from line 4a. Include each individual general partner's share and each individual limited partner's share in box 9 of 

Schedule K-1 ............................................................. 4c

5  Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 13a .......... 5 

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Using Code J1, enter in box 9 of 

Schedule K-1 each individual general 

partner's share of the amount shown on 

line 5 of the worksheet below and each 

individual limited partner's share of the 

amount shown on line 4c of the worksheet. 

Using Code J2, enter the partner's share of 

gross nonfarm income in box 9.

Worksheet Instructions

Line 1b. Include on line 1b any part of the 

net income (loss) from rental real estate 

activities from Schedule K, line 1b(2), that is 

from:

1. Rentals of real estate held for sale to 

customers in the course of a trade or 

business as a real estate dealer; or

2. Rentals for which services were 

rendered to the occupants (other than 

services usually or customarily rendered for 

the rental of space for occupancy only). The 

supplying of maid service is such a service; 

but the furnishing of heat and light, the 

cleaning of public entrances, exits, stairways 

and lobbies, trash collection, etc., are not 

considered services rendered to the 

occupants.

Line 4a. Include any guaranteed payments 

to partners reported on Schedule K, line 7, 

and derived from a trade or business as 

defined in section 1402(c). Also, include 

other ordinary income and expense items 

reported on Schedules K and K-1 that are 

used to figure self-employment earnings 

under section 1402.

Line 14. Foreign Tax Credit 

Information

Lines 14a through 14h must be completed if 

the partnership has foreign income, 

deductions, or losses, or has paid or accrued 

foreign taxes. See Pub. 514, Foreign Tax 

Credit for Individuals, for more information.

Line 14a. Name of Foreign Country 

or U.S. Possession

Enter the name of the foreign country or U.S. 

possession from which the partnership had 

income or to which the partnership paid or 

accrued taxes. If the ELP received income 

from, or paid or accrued taxes to, more than 

one foreign country or U.S. possession, 

enter “See attached” and attach a statement 

for each country for lines 14a through 14h.

RIC pass-through amounts. Aggregate all 

income passed through from RICs and 

report the total on a single line. Enter “RIC” 

on line 14a and report the total on line 14b. 

Note that the totals are being reported on a 

single line because it is not necessary to 

report the RIC pass-through amounts on a 

per-country basis.

Using Code K1, enter this information in 

box 9 of Schedule K-1 or on an attached 

statement.

Line 14b. Gross Income From All 

Sources

Enter the partnership's gross income from all 

sources (both U.S. and foreign).

Using Code K2, enter this information in 

box 9 of Schedule K-1 or on an attached 

statement.

Line 14c. Gross Income Sourced at 

Partner Level

Enter the total gross income of the ELP that 

is required to be sourced at the partner level. 

This includes income from the sale of most 

personal property other than inventory, 

depreciable property, and certain intangible 

property. See Pub. 514 and section 865 for 

details.

You must attach a statement to Form 

1065-B showing the following 

information.

The amount of this gross income (without 

regard to its source) in each category 

identified in the instructions for line 14d, 

including each of the listed categories.

Specifically identify gains on the sale of 

personal property other than inventory, 

depreciable property, and certain intangible 

property on which a foreign tax of 10% or 

more was paid or accrued. Also list losses on 

the sale of such property if the foreign 

country would have imposed a 10% or higher 

tax had the sale resulted in a gain. See 

Determining the Source of Income From the 

Sales or Exchanges of Certain Personal 

Property in Pub. 514 and section 865.

Using Code K3, enter this information in 

box 9 of Schedule K-1 or on an attached 

statement.

Line 14d. Foreign Gross Income 

Sourced at Partnership Level

Separately report gross income from sources 

outside the United States by category of 

income as follows. For partnership and 

corporate partners only, attach a statement 

identifying the total amount of foreign gross 

income in each category of income 

attributable to foreign branches. See Pub. 

514 for information on the categories of 

income.

You must attach a statement to Form 

1065-B that specifies foreign source 

qualified dividends and foreign 

source capital gains (losses) within each 

separate limitation category.

Line 14d(1). Passive category foreign 

source income.

This category includes the following 

income.

Passive income.

Dividends from a DISC or a former DISC.

Distributions from a former foreign sales 

corporation (FSC).

See line 14d(3) for exceptions.

CAUTION

!

CAUTION

!

Passive income does not include 

export financing interest.

Using Code K4(a), enter this information 

in box 9 of Schedule K-1 or on an attached 

statement.

Line 14d(2). General category foreign 

source income. Include all foreign income 

sourced at the partnership level that is not 

passive category income. See line 14d(3) for 

exceptions.

Using Code K4(b), enter this information 

in box 9 of Schedule K-1 or on an attached 

statement.

Line 14d(3). Other category foreign source 

income. Attach a statement listing section 

901(j) income and income re-sourced by 

treaty.

Using Code K4(c), enter this information 

in box 9 of Schedule K-1 or on an attached 

statement.

Line 14e. Deductions Allocated 

and Apportioned at Partner Level

Enter on line 14e(1) the partnership's total 

interest expense (including interest 

equivalents under Temporary Regulations 

section 1.861-9T(b)). Do not include interest 

directly allocable under Temporary 

Regulations section 1.861-10T to income 

from a specific property. This type of interest 

is allocated and apportioned at the 

partnership level and is included on lines 

14f(1) through (3).

Using Code K5, enter the total interest 

expense in box 9 of Schedule K-1 or on an 

attached statement.

On line 14e(2), enter the total of all other 

deductions or losses that are required to be 

allocated at the partner level. For example, 

include on line 14e(2) research and 

experimental expenditures (see Regulations 

section 1.861-17(f)). Using Code K6, enter 

this information in box 9 of Schedule K-1 or 

on an attached statement.

Line 14f. Deductions Allocated and 

Apportioned at Partnership Level 

to Foreign Source Income

Separately report partnership deductions 

that are allocated and apportioned at the 

partnership level to (1) passive category 

foreign source income, (2) general category 

foreign source income, and (3) the other 

category of foreign source income. See the 

instructions for line 14d, earlier, for a 

description of categories (1)–(3). Also, see 

Pub. 514 for more information.

Note. Creditable foreign expenditures 

generally must be allocated in accordance 

with each partner's interest in the 

partnership. See Treasury Decision 9292, 

2006-47 I.R.B. 914, for details.

For partnership and corporate partners 

only, attach a statement identifying the total 

CAUTION

!

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amount of deductions apportioned to each 

category of income shown in the instructions 

for line 14d that are attributable to foreign 

branches.

Using Code K7(a) for passive category 

foreign source income, Code K7(b) for 

general category foreign source income, and 

Code K7(c) for the other category of foreign 

source income, enter this information in 

box 9 of Schedule K-1 or on an attached 

statement.

Line 14g. Total Foreign Taxes

Enter in U.S. dollars the total foreign taxes 

(described in section 901 or section 903) that 

were paid or accrued by the partnership 

(according to its method of accounting for 

such taxes). Translate these amounts into 

U.S. dollars by using the applicable 

exchange rate (see Pub. 514).

Line 14g. Foreign taxes paid. If the 

partnership uses the cash method of 

accounting, enter foreign taxes paid during 

the year on line 14g and check the “Paid” 

box. Report each partner's distributive share 

in box 9 of Schedule K-1 using Code K8(a).

Line 14g. Foreign taxes accrued. If the 

partnership uses the accrual method of 

accounting, enter foreign taxes accrued on 

line 14g and check the “Accrued” box. 

Report each partner's distributive share in 

box 9 of Schedule K-1 using Code K8(b).

A partnership reporting foreign taxes 

using the cash method can make an 

irrevocable election to report the taxes using 

the accrual method for the year of the 

election and all future years. Make this 

election by reporting all foreign taxes using 

the accrual method on line 14g (see 

Regulations section 1.905-1).

Attach a statement reporting the following 

information.

1. The total amount of foreign taxes 

(including foreign taxes on income sourced 

at the partner level) relating to each category 

of income (see instructions for line 14d).

2. The dates on which the taxes were 

paid or accrued, the exchange rates used, 

and the amounts in both foreign currency 

and U.S. dollars for:

Taxes withheld at source on interest,

Taxes withheld at source on dividends,

Taxes withheld at source on rents and 

royalties, and

Other foreign taxes paid or accrued.

Splitter arrangements under section 909. 

Attach a statement that separately identifies 

any arrangement, along with the taxes paid 

or accrued in connection with the 

arrangement, in which the partnership 

participates that would qualify as a splitter 

arrangement under section 909 if one or 

more partners are covered persons with 

respect to an entity that took into account 

related income from the arrangement. Also 

indicate whether the partnership has taken 

into account any related income from any 

such splitter arrangement (see section 909 

and the related regulations).

Line 14h. Reduction in Taxes 

Available for Credit

Attach a statement showing the total 

reductions in taxes available for credit.

Separately show the reductions for the 

following.

Taxes on foreign mineral income (section 

901(e)).

Taxes on foreign oil and gas extraction 

income and foreign oil-related income 

(section 907(a)).

Taxes attributable to boycott operations 

(section 908).

Failure to timely file (or furnish all of the 

information required on) Forms 5471 and 

8865.

Foreign income taxes paid or accrued 

during the current tax year that have been 

suspended under section 909.

Any other items (specify).

Using Code K9 for reduction in taxes 

available for credit, enter this information in 

box 9 of Schedule K-1 or on an attached 

statement.

Line 15

Attach a statement listing other items and 

amounts required to be reported separately 

to partners. Enter each partner's share in 

box 9 or on an attached statement to 

Schedule K-1. Examples of items to report 

include the following.

1. Any information a partnership must 

separately report to its disqualified partners 

regarding its oil and gas activities. See 

Partnerships Holding Oil and Gas Properties, 

earlier, for more information. Enter this 

information as Code L in box 9 of 

Schedule K-1 or on an attached statement.

2. Other tax-exempt income. On the 

statement for line 15, enter all income of the 

partnership exempt from tax other than 

tax-exempt interest income (for example, life 

insurance proceeds). The adjusted basis of 

the partner's interest is increased by the 

amount shown on this line under section 

705(a)(1)(B). Enter this amount as Code M1 

in box 9 of Schedule K-1.

3. Nondeductible expenses. Enter 

nondeductible expenses paid or incurred by 

the partnership. Do not include capital 

expenditures or items the deduction for 

which is deferred to a later tax year. The 

adjusted basis of the partner's interest is 

decreased by the amount shown on this line 

under section 705(a)(2)(B). Enter this 

amount as Code M2 in box 9 of 

Schedule K-1.

4. Unrelated business taxable income. 

Any information a partner that is a 

tax-exempt organization may need to figure 

that partner's share of unrelated business 

taxable income under section 512(a)(1) (but 

excluding any modifications required by 

paragraphs (8) through (15) of section 

512(b)). Partners are required to notify the 

partnership of their tax-exempt status. See 

the Instructions for Form 990-T, Exempt 

Organization Business Income Tax Return, 

and Pub. 598, Tax on Unrelated Business 

Income of Exempt Organizations, for more 

information. Enter this amount as Code M3 in 

box 9 of Schedule K-1.

5. Amounts paid during the tax year for 

health insurance coverage, for a partner 

(including that partner's spouse, 

dependents, and any children under age 27 

who are not dependents). See chapter 6 of 

Pub. 535 for more information. Enter this 

amount as Code M4 in box 9 of 

Schedule K-1.

6. Distributions of money (cash and 

marketable securities). Enter the total 

distributions to each partner of cash and 

marketable securities that are treated as 

money under section 731(c)(1). Generally, 

marketable securities are valued at FMV on 

the date of distribution. However, the value 

of marketable securities does not include the 

distributee partner's share of the gain on the 

securities distributed to that partner. See 

section 731(c)(3)(B) for details. If this 

amount includes marketable securities 

treated as money, state separately on an 

attachment (a) the partnership's adjusted 

basis of those securities immediately before 

the distribution, and (b) the FMV of those 

securities on the date of distribution 

28% Rate Gain Worksheet—Line 15 Keep for Your Records

1. Enter the total of all collectibles gain or (loss) from items reported on lines 8a 

through 14, column (h), of Schedule D (Form 1065-B). ............... 1.

2. If Schedule D, line 7, is a (loss), enter here. Otherwise, enter -0-. ......... 2.

3. Combine lines 1 and 2. If zero or less, enter -0-. .................... 3.

4. Redetermine the amount on line 3 by taking into account 28% rate gain and 

losses from passive loss limitation activities. Report the amount allocated to 

interests held as a limited partner in box 9 of Schedule K-1 using Code D. Report 

amounts allocated to general partners using Codes A3, B3, and C3, in box 9 of 

Schedule K-1. ......................................... 4.

5. Subtract line 4 from line 3. Report the amount to all partners in box 9 of 

Schedule K-1 using Code E. ................................ 5.

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(excluding the distributee partner's share of 

the gain on the securities distributed to that 

partner). Also include the amount of the 

credit for the following bonds that are treated 

as distributions under sections 54A(g) and 

54AA(f)(2). These bonds include new clean 

renewable energy bonds, qualified energy 

conservation bonds, qualified zone academy 

bonds, and build America bonds. These 

credit amounts are included in the credit to 

holders of these tax credit bonds that is 

included in the ELP's general credit. See the 

Instructions for Form 8912 for more 

information. Enter this information as Code 

M5 in box 9 of Schedule K-1 or on an 

attached statement.

7. Distributions of property other than 

money. Enter the total distributions of 

property other than money. In figuring the 

amount of the distribution, use the adjusted 

basis of the property to the partnership 

immediately before the distribution. On an 

attachment also include the adjusted basis 

and FMV of each property distributed. Enter 

this information as Code M6 in box 9 of 

Schedule K-1 or on an attached statement.

8. Gain from the sale or exchange of 

qualified small business (QSB) stock (as 

defined in the instructions for Schedule D) 

that is eligible for the section 1202 exclusion. 

The section 1202 exclusion applies only to 

QSB stock issued after August 10, 1993, and 

held by the partnership for more than 5 

years. Corporate partners are not eligible for 

the section 1202 exclusion. Additional 

limitations apply at the partner level. Report 

each partner's share of section 1202 gain 

using Code M7 in box 9 of Schedule K-1. 

Each partner will determine if he or she 

qualifies for the section 1202 exclusion. 

Report with Code M7 on an attachment to 

Schedule K-1 for each sale or exchange (a) 

the name of the corporation that issued the 

QSB stock, (b) the partner's share of the 

partnership's adjusted basis and sales price 

of the QSB stock, and (c) the dates the QSB 

stock was bought and sold.

9. Gain eligible for section 1045 rollover 

(replacement stock purchased by the 

partnership). Include only gain from the sale 

or exchange of QSB stock (as defined in the 

instructions for Schedule D) that was 

deferred by the partnership under section 

1045 and reported on Schedule D. See the 

instructions for Schedule D for more details. 

The partnership makes the election for a 

section 1045 rollover on a timely filed 

(including extensions) return for the year in 

which the sale occurred. Corporate partners 

are not eligible for the section 1045 rollover. 

Additional limitations apply at the partner 

level. Each partner will determine if he or she 

qualifies for the rollover. Report with Code 

M8 on an attachment to Schedule K-1 for 

each sale or exchange (a) the name of the 

corporation that issued the QSB stock, (b) 

the partner's share of the partnership's 

adjusted basis and sales price of the QSB 

stock, (c) the dates the stock was bought 

and sold, (d) the partner's distributive share 

of gain from the sale of the QSB stock, and 

(e) the partner's distributive share of the gain 

that was deferred by the partnership under 

section 1045.

Distribution of replacement QSB stock to 

a partner that reduces another partner's 

interest in replacement QSB stock. A 

partner must recognize gain upon a 

distribution of replacement QSB stock to 

another partner that reduces the partner's 

share of the replacement QSB stock held by 

a partnership. The amount of gain that the 

partner must recognize is based on the 

amount of gain that the partner would 

recognize upon a sale of the distributed 

replacement QSB stock for its FMV on the 

date of the distribution, not to exceed the 

amount that the partner previously deferred 

under section 1045 with respect to the 

distributed replacement QSB stock. If the 

partnership distributed a partner's share of 

replacement QSB stock to another partner, 

the partnership should give the partner 

whose share of the replacement QSB stock 

is reduced (a) the name of the corporation 

that issued the replacement QSB stock, (b) 

the date the replacement QSB stock was 

distributed to another partner or partners, 

and (c) the partner's share of the 

partnership's adjusted basis and FMV of the 

replacement QSB stock on such date. Use 

Code M8 to report this information, and 

include this information on the relevant 

attachment prepared for Code M8.

10. Gain eligible for section 1045 rollover 

(replacement stock not purchased by the 

partnership). Include only gain from the sale 

or exchange of QSB stock (as defined in the 

instructions for Schedule D) the partnership 

held for more than 6 months but that was not 

deferred by the partnership under section 

1045. See the instructions for Schedule D for 

more details. A partner (other than a 

corporation) may be eligible to defer his or 

her distributive share of this gain under 

section 1045 if he or she purchases other 

QSB stock during the 60-day period that 

began on the date the QSB stock was sold 

by the partnership. Additional limitations 

apply at the partner level. Report with Code 

M9 on an attachment to Schedule K-1 for 

each sale or exchange (a) the name of the 

corporation that issued the QSB stock, (b) 

the partner's share of the partnership's 

adjusted basis and sales price of the QSB 

stock, (c) the dates the QSB stock was 

bought and sold, and (d) the partner's 

distributive share of gain from the sale of the 

QSB stock. For more information, see 

Regulations section 1.1045-1.

11. Unrecaptured section 1250 gain. Use 

the worksheet, earlier, to figure the 

unrecaptured section 1250 gain.

12. 28% rate gain (loss). Use the 

worksheet, earlier, to figure the 28% rate 

gain (loss) (that is, collectibles gain or loss). 

A collectibles gain or loss is any long-term 

gain or deductible long-term loss from the 

sale or exchange of a collectible that is a 

capital asset. Collectibles include works of 

art, rugs, antiques, metals (such as gold, 

silver, and platinum bullion), gems, stamps, 

coins, alcoholic beverages, and certain other 

tangible property. Also include on the 

worksheet any gain (but not loss) from the 

sale or exchange of an interest in a 

partnership or trust held more than 1 year 

and attributable to unrealized appreciation of 

collectibles. For details, see Regulations 

section 1.1(h)-1. Also attach the statement 

required under Regulations section 

1.1(h)-1(e).

13. Any information needed by a partner 

to figure the interest due under section 

1260(b). If any portion of a constructive 

ownership transaction was open in any prior 

year, each partner's tax liability must be 

increased by the partner's pro rata share of 

interest due on any deferral of gain 

recognition. See section 1260(b) for details, 

including how to figure the interest.

14. Extraterritorial income exclusion. See 

the instructions under Extraterritorial Income 

Exclusion, earlier, for the information and 

codes that are required to be reported in 

box 9 of Schedule K-1.

15. Any income or gain reported on lines 

1 through 4 of Schedule K that qualifies as 

inversion gain, if the partnership is an 

expatriated entity or is a partner in an 

expatriated entity. For details, see section 

7874. Attach a statement to Form 1065-B 

that shows the amount of each type of 

income or gain included in the inversion gain. 

The partnership must report each partner's 

distributive share of the inversion gain in 

box 9 of Schedule K-1 using Code P. Attach 

a statement to Schedule K-1 that shows the 

partner's distributive share of the amount of 

each type of income or gain included in the 

inversion gain.

16. Commercial revitalization deduction 

from rental real estate activities. Enter this 

amount as Code Q in box 9 of Schedule K-1. 

If the deduction is for a nonrental building, it 

is deducted by the partnership on line 23 of 

Form 1065-B. See the instructions under 

Line 23. Other Deductions, earlier, for more 

information.

17. For corporate partners only, enter the 

following information in box 9 for purposes of 

the interest deduction limitations under 

section 163(j). Using Code R1, enter the 

corporate partner's distributive share of 

interest income reported in Parts I and II of 

the return. Using Code R2, enter the 

corporate partner's distributive share of 

interest expense reported in Parts I and II of 

the return.

18. Domestic production activities 

deduction (Codes S1, S2, and S3).

The partnership does not figure the 

domestic production activities deduction, but 

must provide its partners with the information 

they need to figure the deduction on Form 

8903, Domestic Production Activities 

Deduction. If the partnership meets certain 

requirements (explained below), it can 

choose to figure qualified production 

activities income (QPAI) and Form W-2 

wages (W-2 wages) at the partnership level 

and report these amounts on Schedule K-1 

for its qualified partners using Codes S2 and 

S3. See QPAI and Form W-2 wages figured 

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at partnership level (Codes S2 and S3), later, 

for details.

If the partnership does not figure QPAI 

and W-2 wages at the partnership level or it 

has partners that are required to figure QPAI 

and W-2 wages at the partner level, it must 

report on Schedule K-1, using Code S1, the 

partner's distributive share of the information 

listed under QPAI and Form W-2 wages 

figured at partner level (Code S1) next.

QPAI and Form W-2 wages figured at 

partner level (Code S1). If the partnership 

does not figure QPAI and W-2 wages at the 

partnership level, attach a statement to 

Schedule K-1 providing each partner's 

distributive share of the following information 

for Code S1 of box 9. Identify any amounts 

from oil-related production activities and list 

them separately.

Domestic production gross receipts 

(DPGR).

Gross receipts from all sources.

Cost of goods sold allocable to DPGR.

Cost of goods sold from all sources.

Total deductions, expenses, and losses 

directly allocable to DPGR.

Total deductions, expenses, and losses 

directly allocable to a non-DPGR class of 

income.

Other deductions, expenses, and losses 

not directly allocable to DPGR or another 

class of income.

W-2 wages properly allocable to DPGR.

Any other information a partner needs to 

use the section 861 method to allocate and 

apportion cost of goods sold and deductions 

between DPGR and other receipts.

See Form 8903 and its instructions for more 

details. If the partnership chooses to figure 

QPAI and Form W-2 wages at the 

partnership level, see the instructions below.

QPAI and Form W-2 wages figured at 

partnership level (Codes S2 and S3). 

Eligible partnerships can choose to figure 

QPAI and W-2 wages at the partnership level 

and report each qualified partner's 

distributive share of QPAI (using Code S2) 

and W-2 wages (using Code S3) on 

Schedule K-1. See the special rules for 

non-qualifying partners of an eligible section 

861 partnership below.

Generally, the ELP must allocate QPAI to 

its partners in the same proportion as gross 

income and allocate W-2 wages in the same 

proportion as wage expense. For information 

on figuring QPAI and W-2 wages at the 

partnership level, see Rev. Proc. 2007-34, 

2007-23 I.R.B. 1345, available at IRS.gov/

pub/irs-irbs/irb07-23.pdf, and the Instructions 

for Form 8903. See the eligibility 

requirements and reporting rules for each 

type of eligible partnership below. Qualifying 

in-kind partnerships and expanded affiliated 

group partnerships (defined in Regulations 

section 1.199-3(i)(7) and (8)) are not eligible 

to figure QPAI and W-2 wages at the 

partnership level.

QPAI from oil-related activities. 

Partnerships figuring QPAI at the partnership 

level must report the total amount of QPAI 

(including QPAI from oil-related activities) 

using Code S2 and attach a statement for 

Code S2 to separately report the amount of 

oil-related QPAI (if any).

a. Eligible section 861 partnership. 

An eligible section 861 partnership is a 

partnership that satisfies each of the 

following requirements for its current tax 

year.

i. It has at least 100 partners on any 

day during the partnership's tax year.

ii. At least 70% of the partnership is 

owned, at all times during its tax year, by 

qualifying partners. A “qualifying partner” is a 

partner that, on each day during the 

partnership's tax year that the partner owns 

an interest in the partnership (a) is not a 

general partner or a managing member of a 

partnership organized as an LLC; (b) does 

not materially participate in the activities of 

the partnership; (c) does not own, alone or 

combined with the interests of all related 

persons, 5% or more of the profits or capital 

interests in the partnership; or (d) is not an 

ineligible partnership (qualifying in-kind 

partnerships and expanded affiliated group 

partnerships defined in Regulations section 

1.199-3(i)(7) and (8)).

iii. It has DPGR.

An eligible section 861 partnership must 

use the section 861 method of cost 

allocation to figure QPAI and W-2 wages 

(see the Instructions for Form 8903 for 

details). The partnership cannot allocate 

QPAI and W-2 wages figured at the 

partnership level to non-qualifying partners 

(qualifying partners are defined as part of the 

definition of an eligible section 861 

partnership above). Instead, it must attach a 

statement to the Schedule K-1 for each 

non-qualifying partner that provides the 

partner's distributive share of the items listed 

under QPAI and Form W-2 wages figured at 

partner level (Code S1), earlier. The 

partnership items allocated to non-qualifying 

partners must be excluded for purposes of 

figuring QPAI and W-2 wages at the 

partnership level.

b. Eligible widely held pass-through 

partnership. An eligible widely held 

pass-through partnership is a partnership 

that satisfies each of the following 

requirements for the current tax year.

i. It has average annual gross receipts 

for the 3 tax years preceding the current tax 

year of $100 million or less, or has total 

assets at the end of the current tax year of 

$10 million or less.

ii. It has total cost of goods sold and 

deductions that, together, are $100 million or 

less.

iii. It has DPGR.

iv. On every day during the current tax 

year, all of its partners are individuals, 

estates, or trusts described or treated as 

described in section 1361(c)(2).

v. On every day during the current tax 

year, no partner owns, alone or combined 

with the ownership interests of all related 

persons, more than 10% of the profits or 

capital interests in the partnership.

An eligible widely held pass-through 

partnership must use the simplified 

deduction method of cost allocation to figure 

QPAI and W-2 wages (see the Instructions 

for Form 8903 for details).

c. Eligible small pass-through 

partnership. An eligible small pass-through 

partnership is a partnership that satisfies 

each of the following requirements for the 

current tax year.

i. The partnership satisfies one of the 

following: (a) It has average annual gross 

receipts for the 3 tax years preceding the 

current tax year of $5 million or less; (b) it is 

engaged in the trade or business of farming 

and is not required to use the accrual 

method of accounting; or (c) it is eligible to 

use the cash method of accounting under 

Rev. Proc. 2002-28, 2002-18 I.R.B. 815 (that 

is, it has average annual gross receipts of 

$10 million or less and is not excluded from 

using the cash method under section 448).

ii. It has total costs of goods sold and 

deductions that, together, are $5 million or 

less.

iii. It has DPGR.

iv. It does not have a partner that is an 

ineligible partnership (qualifying in-kind 

partnerships and expanded affiliated group 

partnerships defined in Regulations section 

1.199-3(i)(7) and (8)).

An eligible small pass-through 

partnership must use the small business 

simplified overall method to figure QPAI and 

W-2 wages (see the Instructions for Form 

8903 for details).

Note. If a partnership satisfies the 

requirements for more than one type of 

eligible partnership, it may choose any one 

of the allocation methods for which it 

qualifies to figure QPAI and W-2 wages. See 

Rev. Proc. 2007-34 for more information on 

the eligibility requirements and rules for 

figuring QPAI and W-2 wages at the 

partnership level.

19. Compensation to partners deferred 

under a section 409A nonqualified deferred 

compensation plan that does not meet the 

requirements of section 409A. Include in this 

amount any earnings on these deferrals. 

Enter this amount in box 9 of Schedule K-1 

using Code T. This amount must also be 

included on line 7 of Schedule K, 

Guaranteed Payments to Partners. If the 

section 409A deferred compensation was 

part of a transaction in which the partner was 

not acting as a member of the partnership 

(under section 707(a)), report the income 

and section 409A deferred compensation 

information on Form 1099-MISC.

20. Net investment income (Code U). 

Use Code U to report any information that 

may be relevant for partners to figure their 

net investment income tax when the 

information is not otherwise identifiable 

elsewhere on Schedule K-1. Attach a 

statement that shows “Box 9, Code U” and a 

description and dollar amount of each 

relevant item.

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Examples of items reported using Code U 

may include the following.

Taxable income (loss) from rental real 

estate activities reported on Form 1065-B, 

Schedule K, line 1b(2), and taxable income 

(loss) from other rental activities reported on 

Form 1065-B, Schedule K, line 1b(3), 

derived from a section 212 for-profit activity 

(and not from a section 162 trade or 

business).

Gains and losses from dispositions of 

assets attributable to a section 212 for-profit 

activity (and not from a section 162 trade or 

business).

Gain reported on the installment sale 

basis (or attributable to a private annuity) that 

is attributable to the disposition of property 

held in a trade or business.

Gain or loss from the disposition of a 

partnership interest, but only if such 

partnership was engaged, directly or 

indirectly, in one or more trades or 

businesses, and at least one of those trades 

or businesses was not trading in financial 

instruments or commodities.

The partner's distributive share of interest 

income, or interest expense, which is 

attributable to a loan between the 

partnership and the partner (self-charged 

interest).

If the partnership received a Form 1065-B, 

Schedule K-1, the detail and amounts 

reported to the partnership using Code U.

If the partnership received a Form 1065, 

Schedule K-1, the detail and amounts 

reported to the partnership using Code Y.

If the partnership received a Form 1041, 

Schedule K-1, the amount of the adjustment 

reported.

Guaranteed payments (reported on Form 

1065-B, Schedule K, line 7, unrelated to 

services, such as for the use of capital or 

attributable to section 736(a)(2) payments for 

unrealized receivables or goodwill).

Deductions included in Part ll that are not 

deductible for net investment income tax 

purposes, for example:

a. Charitable contributions included on 

line 9, or

b. Other deductions included on 

line 10b or 11.

In addition, Regulations section 

1.1411-10 provides special rules with 

respect to stock of CFCs and PFICs owned 

by the partnership. If the partnership owns, 

directly or indirectly, stock of a CFC or PFIC, 

then additional reporting may be required 

under Code U.

CFCs and QEFs. In the case of stock of 

CFCs and QEFs directly or indirectly owned 

by the partnership, the partnership must 

provide the name and EIN (if one has been 

issued) for each CFC and QEF the stock of 

which is owned by the partnership for which 

an election under Regulations section 

1.1411-10(g) is not in effect. For each of 

these entities, the partnership must provide 

the following information on an 

entity-by-entity basis (to the extent such 

information is not otherwise identifiable 

elsewhere on Schedule K-1).

Section 951(a) inclusions.

Section 1293(a)(1)(A) inclusions.

Section 1293(a)(1)(B) inclusions.

Section 959(d) distributions subject to 

section 1411.

Section 1293(c) distributions subject to 

section 1411.

Amount of gain or loss derived with 

respect to the disposition of the stock of 

CFCs and QEFs that is taken into account 

for section 1411 purposes.

Amounts that are derived with respect to 

the disposition of the stock of CFCs and 

QEFs and included in income as a dividend 

under section 1248 for section 1411 

purposes.

In the case of stock of CFCs and QEFs 

directly or indirectly owned by the 

partnership for which an election under 

Regulations section 1.1411-10(g) is in effect, 

the partnership must provide the following 

information (to the extent such information is 

not otherwise identifiable elsewhere on 

Schedule K-1) on either an aggregate basis 

or an entity-by-entity basis.

Section 951(a) inclusions.

Section 1293(a)(1)(A) inclusions.

Section 1293(a)(1)(B) inclusions.

Section 1296 mark-to-market PFICs. In 

the case of stock of PFICs directly or 

indirectly owned by the partnership for which 

an election under section 1296 is in effect, 

the partnership must provide the following 

information (to the extent such information is 

not otherwise identifiable elsewhere on 

Schedule K-1) on either an aggregate basis 

or an entity-by-entity basis.

Amounts included in income under 

section 1296(a)(1).

Amounts deducted from income under 

section 1296(a)(2).

Section 1291 funds. In the case of stock of 

PFICs directly or indirectly owned by the 

partnership with respect to which direct or 

indirect partners are subject to section 1291, 

the partnership must provide the following 

information (to the extent such information is 

not otherwise identifiable elsewhere on 

Schedule K-1), on an entity-by-entity basis.

Excess distributions made by a PFIC with 

respect to which a partner is subject to 

section 1291.

Gains derived with respect to the 

disposition of stock of a PFIC with respect to 

which a partner is subject to section 1291.

21. Other information (Code V). Use 

Code V to report the following items.

Recapture of credits. Report the recapture 

of any credit (other than partnership level 

low-income housing credit or investment 

credit) as a separately stated item. See the 

instructions under Line 26. Tax, earlier, for 

reporting partnership-level recapture of the 

low-income housing credit and investment 

credit.

Any information a partner that is a PTP 

may need to determine if it meets the 90% 

qualifying income test of section 7704(c)(2). 

Partners are required to notify the 

partnership of their status as a PTP.

If the partnership participates in a 

transaction that must be disclosed on Form 

8886, both the partnership and its partners 

may be required to file Form 8886. The 

partnership must determine if any of its 

partners are required to disclose the 

transaction and provide those partners with 

information they will need to file Form 8886. 

This determination is based on the 

category(s) under which a transaction 

qualified for disclosure. See the Instructions 

for Form 8886 for details.

The partner's distributive share of any 

conservation reserve program payments 

made to the partnership.

The partner's distributive share of the 

partnership's gain or loss attributable to the 

sale or exchange of qualified preferred stock 

of Fannie Mae and Freddie Mac. On an 

attached statement, show (a) the gain or 

loss attributable to the sale or exchange of 

the qualified preferred stock, (b) the date the 

stock was acquired by the partnership, and 

(c) the date the stock was sold or exchanged 

by the partnership. See Rev. Proc. 2008-64, 

2008-47 I.R.B. 1195, for more information.

Section 108(i) information. Report the 

following. 

a. For the deferred COD income, report 

the partner's deferred amount that has not 

been included in income in the current or 

prior tax years.

b. For the deferred OID deduction, 

report the partner's share of the partnership's 

OID deduction deferred under section 108(i)

(2)(A)(i) that has not been deducted in the 

current or prior tax years.

c. For the section 752(b) distribution, 

report the partner's share of the deferred 

section 752 amount that is treated as a 

distribution of money to the partner under 

section 752 in the current tax year.

d. For the deferred section 752(b) 

distribution, report the partner's deferred 

section 752 amount remaining as of the end 

of the current tax year.

e. For previously deferred COD, report 

the partner's deferred amount that is 

includible in the current year. See section 

108(i) for events that will cause previously 

deferred income to be reportable, and a 

special rule for allocating deferred income to 

the partners. For more information, see 

Election to defer income from canceled debt, 

earlier.

f. For the current OID deduction, report 

the partner's share of any OID deduction 

previously deferred under section 108(i)(2) 

that is allowed as a deduction in the current 

year. The aggregate amount of OID that is 

deferred is generally allowed as a deduction 

ratably over the 5-year period the deferred 

COD income is includible in income under 

section 108(i). For more information, see 

Election to defer income from canceled debt, 

earlier.

Special rule for filers of Form 8865. Filers 

of Form 8865, Return of U.S. Persons With 

Respect to Certain Foreign Partnerships, 

cannot report a section 108(i) OID deduction 

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on Form 8865, in accordance with the 

section 108(i) election, unless the foreign 

partnership filed a U.S. partnership return 

and made this election. A foreign partnership 

must file Form 1065 or Form 1065-B to make 

the section 108(i) election. These foreign 

partnerships also have an annual reporting 

requirement on Form 1065 or Form 1065-B 

for each tax year after the election until all 

items deferred under section 108(i) have 

been recognized. See Rev. Proc. 2009-37, 

2009-36 I.R.B. 309, and Regulations section 

1.108(i)-2 for details.

The information needed to complete 

Schedule P (Form 1120-F), List of Foreign 

Partner Interests in Partnerships, on an 

attached statement for a partner that is (a) a 

corporation (identified as a foreign partner 

under Regulations section 1.1446-1(c)(3)); 

or (b) a partnership (domestic or foreign) if 

you know, or have reason to know, that one 

or more of the partners is a foreign 

corporation. If the partnership allocates 

effectively connected income to the partner, 

provide the information needed to complete 

lines 1 through 10, 13, 14, 15b, 17a, 17b, 

and 18 of Schedule P (Form 1120-F). If the 

partnership does not allocate effectively 

connected income to the partner, provide the 

information needed to complete lines 13, 14, 

and 18 of Schedule P (Form 1120-F). The 

information must be provided in a format 

which references the specific line numbers of 

Schedule P for which the information is 

provided. For more information, see the 

Instructions for Schedule P (Form 1120-F).

Exceptions.The statement is not required in 

the following situations.

1. The direct or indirect foreign corporate 

partner provides the partnership with a valid 

Form W-8BEN (within the meaning of 

Regulations section 1.1446-2(b)(2)(iii)) on 

which the corporation claims an exemption 

from U.S. tax by operation of an income tax 

treaty or reciprocal agreement on the 

grounds that none of the income is 

attributable to a permanent establishment of 

the partner.

2. The partnership does not allocate any 

effectively connected income to the partner 

(foreign corporation or partnership) and the 

partnership receives a written statement from 

the partner (corporation or partnership) 

indicating that the information is not needed 

to determine its (or its direct or indirect 

partner(s)) U.S. federal income tax liabilities.

The partner's share of the credit for each 

separate bond credit that was reported on 

the partnership's Form 8912. Report the 

following separately: clean renewable energy 

bond credit, new clean renewable energy 

bond credit, qualified energy conservation 

bond credit, qualified forestry conservation 

bond credit, qualified zone academy bond 

credit, qualified school construction bond 

credit, and build America bond credit.

If the partnership has deductions 

attributable to a farming business and 

receives an applicable subsidy, report the 

aggregate gross income or gain and the 

aggregate deductions from the farming 

business and any information the partners 

need to comply with the limitation on excess 

farm losses of certain taxpayers under 

section 461(j).

Mark-to-market trader. If a partnership is a 

trader in securities and has properly elected 

under section 475(f)(1) to mark to market the 

securities, the partnership should report 

ordinary gain or loss from the securities 

trading activities separately from any other 

ordinary income.

Any other information a partner may need 

to file his or her return that is not shown 

elsewhere on Schedule K-1. Enter this 

information on an attachment to 

Schedule K-1.

Instructions for the 

Unrecaptured Section 

1250 Gain Worksheet

Lines 1 through 3. If the partnership had 

more than one property described on line 1, 

complete lines 1 through 3 for each property 

on a separate worksheet. Enter the total of 

the line 3 amounts for all properties on line 3 

and go to line 4.

Line 4. The total unrecaptured section 1250 

gain for an installment sale of property held 

more than 1 year is figured for the year of 

sale in a manner similar to that used to figure 

line 3 of the worksheet. However, the 

unrecaptured section 1250 gain must be 

allocated to the installment payments 

received from the sale. To do so, the 

partnership generally must treat the gain 

allocable to each installment payment as 

unrecaptured section 1250 gain until all such 

gain has been used in full. Figure the 

unrecaptured section 1250 gain for 

installment payments received during the tax 

year as the smaller of (a) the amount from 

line 26 or line 37 of Form 6252 (whichever 

applies), or (b) the total unrecaptured section 

1250 gain for the sale reduced by all gain 

reported in prior years (excluding section 

1250 ordinary income recapture). However, 

if the partnership chose not to treat all of the 

gain from payments received after May 6, 

1997, and before August 24, 1999, as 

unrecaptured section 1250 gain, use only the 

amount the partnership chose to treat as 

unrecaptured section 1250 gain for those 

payments to reduce the total unrecaptured 

section 1250 gain remaining to be reported 

for the sale.

Box 9 Codes 

(Schedule K-1)

The following codes should be used to 

describe the information located in box 9.

Code A1—General partner's taxable 

income (loss) from trade or business 

activities.

Code A2—General partner's net capital 

gain (loss) from trade or business activities.

Code A3—General partner's 28% rate 

gain (loss) from trade or business activities.

Code A4—General partner's general 

credits from trade or business activities.

Code A5—General partner's alternative 

minimum tax adjustment from trade or 

business activities.

Code B1—General partner's taxable 

income (loss) from rental real estate 

activities.

Code B2—General partner's net capital 

gain (loss) from rental real estate activities 

(for the entire year).

Code B3—General partner's 28% rate 

gain (loss) from rental real estate activities.

Code B4—General partner's general 

credits from rental real estate activities.

Code B5—General partner's low-income 

housing credit from rental real estate 

activities.

Code B6—General partner's rehabilitation 

credit from rental real estate activities.

Code B7—General partner's alternative 

minimum tax adjustment from rental real 

estate activities.

Code C1—General partner's taxable 

income (loss) from other rental activities.

Code C2—General partner's net capital 

gain (loss) from other rental activities.

Code C3—General partner's 28% rate 

gain (loss) from other rental activities.

Code C4—General partner's general 

credits from other rental activities.

Code C5—General partner's alternative 

minimum tax adjustment from other rental 

activities.

Code D—Limited partner's 28% rate gain 

(loss) from passive activities.

Code E—Limited partner's 28% rate gain 

(loss) from other activities.

Code F—Guaranteed payments.

Code G—Income from discharge of 

indebtedness.

Code H—Tax-exempt interest income.

Code I—Limited partner's rehabilitation 

credit from rental real estate activities.

Code J1—Net earnings (loss) from 

self-employment.

Code J2—Gross nonfarm income.

Code K1—Name of foreign country or 

U.S. possession.

Code K2—Gross income from all sources.

Code K3—Gross income sourced at 

partner level.

Code K4(a)—Passive category foreign 

source income.

Code K4(b)—General category foreign 

source income.

Code K4(c)—Other category foreign 

source income.

Code K5—Interest expense allocated and 

apportioned at the partner level.

Code K6—Other expenses allocated and 

apportioned at the partner level.

Code K7(a)—Deductions allocated and 

apportioned at partnership level to passive 

category foreign source income.

Code K7(b)—Deductions allocated and 

apportioned at partnership level to general 

category foreign source income.

Code K7(c)—Deductions allocated and 

apportioned at partnership level to the other 

category of foreign source income.

Code K8(a)—Total foreign taxes paid.

Code K8(b)—Total foreign taxes accrued.

Code K9—Reduction in taxes available 

for credit.

Code L—Oil and gas activities.

Code M1—Other tax-exempt income.

Code M2—Nondeductible expenses.

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Code M3—Unrelated business taxable 

income.

Code M4—Health insurance.

Code M5—Distributions of money (cash 

and marketable securities).

Code M6—Distributions of property other 

than money.

Code M7—Gain eligible for section 1202 

exclusion.

Code M8—Gain eligible for section 1045 

rollover-stock replaced.

Code M9—Gain eligible for section 1045 

rollover-stock not replaced.

Code N—Unrecaptured section 1250 

gain.

Code O1—Foreign trading gross receipts.

Code O2—Extraterritorial income 

exclusion.

Code P—Inversion gain.

Code Q—Commercial revitalization 

deduction.

Code R1—Corporate partner's interest 

income.

Code R2—Corporate partner's interest 

expense.

Code S1—Domestic production activities 

information.

Code S2—Qualified production activities 

income.

Code S3—Employer's W-2 wages.

Code T—Section 409A nonqualified 

deferred compensation.

Code U—Net investment income.

Code V—Other information.

Analysis of Net Income 

(Loss)

For each type of partner shown, enter the 

portion of the amount shown on line 1 that 

was allocated to that type of partner. Report 

all amounts for LLC members on the line for 

limited partners. The sum of the amounts 

shown on line 2 must equal the amount 

shown on line 1 of Analysis of Income (Loss). 

In addition, the amount on line 1 must equal 

the amount on line 9, Schedule M-1. If the 

partnership files Schedule M-3, the amount 

on line 1 must equal the amount in column 

(d) of line 26, Part II of Schedule M-3.

In classifying partners who are individuals 

as “active” or “passive,” the partnership 

should apply the rules below. In applying 

these rules, a partnership should classify 

each partner to the best of its knowledge and 

belief. It is assumed that in most cases the 

level of a particular partner's participation in 

an activity will be apparent.

1. If the partnership's principal activity is 

a trade or business, classify a general 

partner as “active” if the partner materially 

participated in all partnership trade or 

Unrecaptured Section 1250 Gain Worksheet—Line 15

TIP

If any of the following apply, the partnership does not have to complete all of the worksheet. Instead, 

follow the instructions below.

• Go to line 4 if the partnership's only unrecaptured section 1250 gain is from an installment sale of trade or business 

property held more than 1 year that the partnership is reporting on Form 6252.

• Go to line 5 if the partnership's only unrecaptured section 1250 gain is from a Schedule K-1 reporting such gain 

from another partnership.

• Go to line 10 if the partnership's only unrecaptured section 1250 gain is from the sale or exchange of an interest in 

another partnership.

• Go to line 11 if the partnership's only unrecaptured section 1250 gain is from a Schedule K-1, Form 1099-DIV, or 

Form 2439 reporting such gain from an estate, trust, real estate investment trust, or regulated investment company 

(including a mutual fund).

1. If the partnership had a section 1250 property in Part III of Form 4797 for which there 

was an entry in Part I of Form 4797 (but not on Form 6252), enter the smaller of line 22 

or line 24 of Form 4797 for that property. If the partnership had more than one such 

property, see instructions .......................................... 1.

2. Enter the amount from Form 4797, line 26g, for the property for which the partnership 

made an entry on line 1 ........................................... 2.

3. Subtract line 2 from line 1 .......................................... 3.

4. Enter the total unrecaptured section 1250 gain included on line 26 or line 37 of 

Form(s) 6252 from installment sales of trade or business property held more than 1 

year. See instructions ............................................ 4.

5. Enter the total of any amounts reported to the partnership on Schedules K-1 from 

another partnership as “unrecaptured section 1250 gain” ................... 5.

6. Add lines 3 through 5 ............................................. 6.

7. Enter the smaller of line 6 or the gain, if any, from Form 4797, 

line 7 ........................................ 7.

8. Enter the amount, if any, from Form 4797, line 8 .......... 8.

9. Subtract line 8 from line 7. If zero or less, enter -0- ........................ 9.

10. Enter the gain from the sale or exchange of an interest in another partnership 

attributable to unrecaptured section 1250 gain. See Regulations section 1.1(h)-1 and 

attach the statement required under Regulations section 1.1(h)-1(e) ........... 10.

11. Enter the total of any amounts reported to the partnership on Schedule K-1, Form 

1099-DIV, or Form 2439 as “Unrecaptured section 1250 gain” from an estate, trust, 

real estate investment trust, or mutual fund (or other regulated investment 

company) ..................................................... 11.

12. Add lines 9 through 11. This is the partnership's “unrecaptured section 1250 gain.” 

Report each partner's distributive share with Code N in box 9 of Schedule K-1 .... 12.

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business activities; otherwise, classify a 

general partner as “passive.”

2. If the partnership's principal activity 

consists of a working interest in an oil or gas 

well, classify a general partner as “active.”

3. If the partnership's principal activity is 

a rental real estate activity, classify a general 

partner as “active” if the partner actively 

participated in all of the partnership's rental 

real estate activities; otherwise, classify a 

general partner as “passive.”

4. Classify as “passive” all partners in a 

partnership whose principal activity is a 

rental activity other than a rental real estate 

activity.

5. If the partnership's principal activity is 

a portfolio activity, classify all partners as 

“active.”

6. Classify as “passive” all limited 

partners and LLC members in a partnership 

whose principal activity is a trade or business 

or rental activity.

7. If the partnership cannot make a 

reasonable determination whether a 

partner's participation in a trade or business 

activity is material or whether a partner's 

participation in a rental real estate activity is 

active, classify the partner as “passive.”

Schedule L. Balance 

Sheets per Books

The balance sheets should agree with the 

ELP's books and records. Attach a statement 

explaining any differences.

Partnerships reporting to the Interstate 

Commerce Commission (ICC) or to any 

national, state, municipal, or other public 

officer can send copies of their balance 

sheets prescribed by the ICC or national, 

state, or municipal authorities, as of the 

beginning and end of the tax year, instead of 

completing Schedule L. However, 

statements filed under this procedure must 

contain sufficient information to enable the 

IRS to reconstruct a balance sheet similar to 

that contained on Form 1065-B without 

contacting the partnership during 

processing.

All amounts on the balance sheet should 

be reported in U.S. dollars. If the 

partnership's books and records are kept in a 

foreign currency, the balance sheet should 

be translated in accordance with U.S. 

generally accepted accounting principles 

(GAAP).

Exception. If the partnership or any 

qualified business unit of the partnership 

uses the United States dollar approximate 

separate transactions method, Schedule L 

should reflect the tax balance sheet 

prepared and translated into U.S. dollars 

according to Regulations section 1.985-3(d), 

and not a U.S. GAAP balance sheet.

Partnerships Required To File 

Schedule M-3

For partnerships required to file 

Schedule M-3, the amounts reported on 

Schedule L must be the same as the 

amounts from financial statements used to 

complete Schedule M-3. If the partnership 

prepares non-tax-basis financial statements, 

Schedule M-3 and Schedule L must report 

non-tax-basis financial statement amounts. If 

the partnership does not prepare 

non-tax-basis financial statements, 

Schedule L must be based on the 

partnership's books and records and may 

show tax-basis balance sheet amounts if the 

partnership books and records reflect only 

tax-basis amounts.

Line 5. Tax-Exempt Securities

Include on this line:

1. State and local government 

obligations, the interest on which is 

excludable from gross income under section 

103(a); and

2. Stock in a mutual fund or other RIC 

that distributed exempt-interest dividends 

during the tax year of the partnership.

Line 7a. Loans to Partners (or 

Persons Related to Partners)

Include on this line loans to partners or 

persons related to partners. Persons are 

related if they have a relationship specified in 

sections 267(b) or 707(b). Amounts included 

here should not be included elsewhere on 

lines 1 through 13.

Line 14. Total Assets

Generally, total assets at the beginning of the 

year (Schedule L, line 14, column (b)) must 

equal total assets at the close of the prior tax 

year (Schedule L, line 14, column (d)). If total 

assets at the beginning of the year do not 

equal total assets at the close of the prior 

year, attach a statement explaining the 

difference.

For purposes of measuring total assets at 

the end of the year, the partnership's assets 

may not be netted against or reduced by 

partnership liabilities. In addition, asset 

amounts may not be reported as a negative 

number. If the partnership has an interest in 

another partnership and uses a tax-basis 

method for Schedule L, it must show as an 

asset the adjusted basis of its interest in the 

other partnership and separately show as a 

liability its share of the other partnership's 

liabilities (which are included in the 

computation of its adjusted basis). See the 

Partner's Instructions for Schedule K-1 (Form 

1065-B) for details on how to figure the 

adjusted basis of a partnership interest. If 

Schedule L is non-tax-basis, investment in a 

partnership may be shown as appropriate 

under the non-tax-basis accounting method 

of the partnership including, if required by the 

non-tax-basis accounting method of the 

partnership, the equity method of accounting 

for investments, but must be shown as a 

non-negative amount.

Example. Partnership A prepares a 

tax-basis Schedule L and is a general 

partner in Partnership B, a general 

partnership. Partnership A's adjusted basis 

in Partnership B at the end of the tax year is 

$16 million. Partnership A's share of 

Partnership B's liabilities is $20 million, which 

is included in the $16 million adjusted basis 

amount. On its Schedule L, Partnership A 

must report $16 million on line 8 as the 

amount of its investment asset in Partnership 

B and report on line 21 its $20 million share 

of Partnership B's liabilities. These amounts 

cannot be netted on Schedule L.

Line 18. All Nonrecourse Loans

Nonrecourse loans are those liabilities of the 

partnership for which no partner bears the 

economic risk of loss. If the partnership's 

nonrecourse liabilities include its share of the 

liabilities of another partnership, the 

partnership's share of those liabilities must 

be reflected on line 18.

Line 19a. Loans From Partners 

(or Persons Related to 

Partners)

Include on this line loans from partners or 

persons related to partners. Persons are 

related to partners if they have a relationship 

specified in section 267(b) or 707(b). 

Amounts included here should not be 

included elsewhere on lines 15 through 21.

Line 20. Other Liabilities

A partnership that is a partner in a tiered 

partnership must include as a liability on 

line 20 the partner's share of the tiered 

partnership's liabilities to the extent they are 

recourse liabilities to the partner.

Schedule M-1. 

Reconciliation of Income 

(Loss) per Books With 

Income (Loss) per Return

Note. Schedule M-3 may be required 

instead of Schedule M-1. See Item J. 

Schedule M-3 (Form 1065), earlier. See the 

Instructions for Schedule M-3 for more 

information.

Line 2

Report on this line income included on 

Schedule K, lines 1c, 1d, 2, 3, 4a, 4b, and 8 

not recorded on the partnership's books this 

year. Describe each such item of income. 

Attach a statement if necessary.

Line 3. Guaranteed Payments

Include on this line guaranteed payments 

shown on Schedule K, line 7.

Line 4b. Travel and 

Entertainment

Include on this line the following.

Meal and entertainment expenses not 

deductible under section 274(n).

Expenses for the use of an entertainment 

facility. See section 274(a)(1)(B).

The part of business gifts over $25. See 

section 274(b).

Expenses of an individual allocable to 

conventions on cruise ships over $2,000. 

See section 274(h)(2).

-37-
Employee achievement awards over 

$400. See section 274(j)(2)(A).

The part of the cost of entertainment 

tickets that exceeds face value (also subject 

to 50% limit). See section 274(I)(1)(A).

The part of the cost of skyboxes that 

exceeds the face value of nonluxury box seat 

tickets. See section 274(I)(2).

The part of the cost of luxury water travel 

expenses not deductible under section 

274(m)(1)(A).

Expenses for travel as a form of 

education. See section 274(m)(2).

Nondeductible club dues. See section 

274(a)(3).

Other travel and entertainment expenses 

not allowed as a deduction.

Schedule M-2. Analysis of 

Partners' Capital Accounts

Show what caused the changes during the 

tax year in the partners' capital accounts as 

reflected on the partnership's books and 

records.

The partnership may use the tax-basis 

amount or apply the rules in Regulations 

section 1.704-1(b)(2)(iv) to determine the 

partners' capital accounts in Schedule M-2. If 

the beginning and ending capital accounts 

reported under these rules differ from the 

amounts reported on Schedule L, attach a 

statement reconciling any differences.

Line 2. Capital Contributed 

During Year

Include on line 2a the amount of money 

contributed and on line 2b the amount of 

property contributed by each partner to the 

partnership as reflected on the partnership's 

books and records.

Line 3. Net Income (Loss) per 

Books

Enter on line 3 the net income (loss) shown 

on the partnership books used in maintaining 

the partners' capital accounts for purposes of 

Schedule K-1.

Line 6. Distributions

Line 6a. Cash. Enter on line 6a the amount 

of money distributed to each partner by the 

partnership. For purposes of line 6a, 

"money" includes marketable securities, as 

described in section 731(c).

Line 6b. Property. Enter on line 6b the 

amount of property distributed to each 

partner by the partnership as reflected on the 

partnership's books and records. Include 

withdrawals from inventory for the personal 

use of a partner.

-38-
Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States. 

You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect 

the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form 

displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may 

become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required 

by section 6103.

Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of December 

2017 for taxpayers filing 2017 Forms 1065, 1065-B, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120S, 1120-SF, 1120-FSC, 1120-L, 

1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time 

burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses 

incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and 

photocopying costs, and tax preparation software costs. While these estimates do not include burden associated with post-filing activities, IRS 

operational data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden.

Reported time and cost burdens are national averages and do not necessarily reflect a “typical” case. Most taxpayers experience lower 

than average burden, with taxpayer burden varying considerably by taxpayer type. For instance, the estimated average time burden for all 

taxpayers filing Forms 1065, 1066, or 1120 and related forms is 275 hours, with an average cost of $4,700 per return. This average includes 

all associated forms and schedules, across all preparation methods and taxpayer activities.

The average burden for taxpayers filing Forms 1065, 1065-B, 1066, and related attachments is about 388 hours and $13,000; the average 

burden for taxpayers filing Form 1120 and associated forms is about 610 hours and $26,233; and the average for Forms 1120-REIT, 

1120-RIC, 1120S, and all related attachments is 363 hours and $12,467. Within each of these estimates there is significant variation in 

taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type 

of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these estimates.

Table 1—Taxpayer Burden for Entities Taxed as Partnerships

Forms 1065, 1065-B, 1066, and all attachments

Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer

All Partnerships 3.9 290 $5,700

Small 3.7 270 $4,400

Large* 0.2 610 $29,000

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through 

corporations. A small business is any business that does not meet the definition of a large business.

Table 2—Taxpayer Burden for Entities Taxed as Taxable Corporations

Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments

Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer

All Taxable Corporations 2.1 315 $6,300

Small 2.0 280 $4,000

Large* 0.1 1,250 $68,900

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through 

corporations. A small business is any business that does not meet the definition of a large business. 

Table 3—Taxpayer Burden for Entities Taxed as Pass-Through Corporations

Forms 1120-REIT, 1120-RIC, 1120S, and all attachments

Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer

All Pass-Through Corporations 4.9 245 $3,500

Small 4.8 240 $3,100

Large* 0.1 610 $30,800

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through 

corporations. A small business is any business that does not meet the definition of a large business. 

Comments. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we 

would be happy to hear from you. You can send us comments from IRS.gov/formspubs. Click on “More Information” and then on “Give us 

feedback.” Or you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, 

DC 20224. Do not send the tax form to this address. Instead, see Where To File, earlier, near the beginning of the instructions.

-39-
Codes for Principal Business 

Activity and Principal Product or 

Service

This list of Principal Business Activities and their associated 

codes is designed to classify an enterprise by the type of 

activity in which it is engaged to facilitate the administration 

of the Internal Revenue Code. These Principal Business 

Activity Codes are based on the North American Industry 

Classification System.

Using the list of activities and codes below, determine 

from which activity the business derives the largest 

percentage of its “total receipts.” Total receipts is defined 

as the sum of gross receipts or sales (Part I, line 1a); all 

other income from Part I, lines 5, 6, 7, 9, and 10; Part II, 

lines 1, 2a, 3, and 5; income or net gain from Schedule D, 

lines 5 and 11; and income or net gain reported on Form 

8825, lines 2, 19, and 20a. If the business purchases raw 

materials and supplies them to a subcontractor to produce 

the finished product, but retains title to the product, the 

business is considered a manufacturer and must use one of 

the manufacturing codes (311110–339900).

Once the Principal Business Activity is determined, 

enter the six-digit code from the list below on page 1, item 

C. Also enter a brief description of the business activity in 

item A and the principal product or service of the business 

in item B.

Agriculture, Forestry, Fishing 

and Hunting

Crop Production

111100 Oilseed & Grain Farming

111210 Vegetable & Melon Farming 

(including potatoes & yams)

111300 Fruit & Tree Nut Farming

111400 Greenhouse, Nursery, & 

Floriculture Production

111900 Other Crop Farming (including 

tobacco, cotton, sugarcane, hay, 

peanut, sugar beet & all other crop 

farming)

Animal Production

112111 Beef Cattle Ranching & Farming

112112 Cattle Feedlots

112120 Dairy Cattle & Milk Production

112210 Hog & Pig Farming

112300 Poultry & Egg Production

112400 Sheep & Goat Farming

112510 Aquaculture (including shellfish & 

finfish farms & hatcheries)

112900 Other Animal Production

Forestry and Logging

113110 Timber Tract Operations

113210 Forest Nurseries & Gathering of 

Forest Products

113310 Logging

Fishing, Hunting and Trapping

114110 Fishing

114210 Hunting & Trapping

Support Activities for Agriculture and 

Forestry

115110 Support Activities for Crop 

Production (including cotton 

ginning, soil preparation, planting, 

& cultivating)

115210 Support Activities for Animal 

Production

115310 Support Activities For Forestry

Mining

211120 Crude Petroleum Extraction

211130 Natural Gas Extraction

212110 Coal Mining

212200 Metal Ore Mining

212310 Stone Mining & Quarrying

212320 Sand, Gravel, Clay, & Ceramic & 

Refractory Minerals Mining & 

Quarrying

212390 Other Nonmetallic Mineral Mining 

& Quarrying

213110 Support Activities for Mining

Utilities

221100 Electric Power Generation, 

Transmission & Distribution

221210 Natural Gas Distribution

221300 Water, Sewage & Other Systems

221500 Combination Gas & Electric

Construction

Construction of Buildings

236110 Residential Building Construction

236200 Nonresidential Building 

Construction

Heavy and Civil Engineering Construction

237100 Utility System Construction

237210 Land Subdivision

237310 Highway, Street, & Bridge 

Construction

237990 Other Heavy & Civil Engineering 

Construction

Specialty Trade Contractors

238100 Foundation, Structure, & Building 

Exterior Contractors (including 

framing carpentry, masonry, glass, 

roofing, & siding)

238210 Electrical Contractors

238220 Plumbing, Heating, & 

Air-Conditioning Contractors

238290 Other Building Equipment 

Contractors

238300 Building Finishing Contractors 

(including drywall, insulation, 

painting, wallcovering, flooring, tile, 

& finish carpentry)

238900 Other Specialty Trade Contractors 

(including site preparation)

Manufacturing

Food Manufacturing

311110 Animal Food Mfg

311200 Grain & Oilseed Milling

311300 Sugar & Confectionery Product 

Mfg

311400 Fruit & Vegetable Preserving & 

Specialty Food Mfg

311500 Dairy Product Mfg

311610 Animal Slaughtering and 

Processing

311710 Seafood Product Preparation & 

Packaging

311800 Bakeries, Tortilla & Dry Pasta Mfg

311900 Other Food Mfg (including coffee, 

tea, flavorings & seasonings)

Beverage and Tobacco Product 

Manufacturing

312110 Soft Drink & Ice Mfg

312120 Breweries

312130 Wineries

312140 Distilleries

312200 Tobacco Manufacturing

Textile Mills and Textile Product Mills

313000 Textile Mills

314000 Textile Product Mills

Apparel Manufacturing

315100 Apparel Knitting Mills

315210 Cut & Sew Apparel Contractors

315220 Men's & Boys' Cut & Sew Apparel 

Mfg

315240 Women's, Girls' & Infants' Sew 

Apparel Mfg

315280 Other Cut & Sew Apparel Mfg

315990 Apparel Accessories & Other 

Apparel Mfg

Leather and Allied Product Manufacturing

316110 Leather & Hide Tanning & 

Finishing

316210 Footwear Mfg (including rubber & 

plastics)

316990 Other Leather & Allied Product Mfg

Wood Product Manufacturing

321110 Sawmills & Wood Preservation

321210 Veneer, Plywood, & Engineered 

Wood Product Mfg

321900 Other Wood Product Mfg

Paper Manufacturing

322100 Pulp, Paper, & Paperboard Mills

322200 Converted Paper Product Mfg

Printing and Related Support Activities

323100 Printing & Related Support 

Activities

Petroleum and Coal Products 

Manufacturing

324110 Petroleum Refineries (including 

integrated)

324120 Asphalt Paving, Roofing, & 

Saturated Materials Mfg

324190 Other Petroleum & Coal Products 

Mfg

Chemical Manufacturing

325100 Basic Chemical Mfg

325200 Resin, Synthetic Rubber, & 

Artificial & Synthetic Fibers & 

Filaments Mfg

325300 Pesticide, Fertilizer, & Other 

Agricultural Chemical Mfg

325410 Pharmaceutical & Medicine Mfg

325500 Paint, Coating, & Adhesive Mfg

325600 Soap, Cleaning Compound, & 

Toilet Preparation Mfg

325900 Other Chemical Product & 

Preparation Mfg

Plastics and Rubber Products 

Manufacturing

326100 Plastics Product Mfg

326200 Rubber Product Mfg

Nonmetallic Mineral Product 

Manufacturing

327100 Clay Product & Refractory Mfg

327210 Glass & Glass Product Mfg

327300 Cement & Concrete Product Mfg

327400 Lime & Gypsum Product Mfg

327900 Other Nonmetallic Mineral Product 

Mfg

Primary Metal Manufacturing

331110 Iron & Steel Mills & Ferroalloy Mfg

331200 Steel Product Mfg from Purchased 

Steel

331310 Alumina & Aluminum Production & 

Processing

331400 Nonferrous Metal (except 

Aluminum) Production & 

Processing

331500 Foundries

Fabricated Metal Product Manufacturing

332110 Forging & Stamping

332210 Cutlery & Handtool Mfg

332300 Architectural & Structural Metals 

Mfg

332400 Boiler, Tank, & Shipping Container 

Mfg

332510 Hardware Mfg

332610 Spring & Wire Product Mfg

332700 Machine Shops; Turned Product; & 

Screw, Nut, & Bolt Mfg

332810 Coating, Engraving, Heat Treating, 

& Allied Activities

332900 Other Fabricated Metal Product 

Mfg

Machinery Manufacturing

333100 Agriculture, Construction, & Mining 

Machinery Mfg

333200 Industrial Machinery Mfg

333310 Commercial & Service Industry 

Machinery Mfg

333410 Ventilation, Heating, 

Air-Conditioning, & Commercial 

Refrigeration Equipment Mfg

333510 Metalworking Machinery Mfg

333610 Engine, Turbine & Power 

Transmission Equipment Mfg

333900 Other General Purpose Machinery 

Mfg

Computer and Electronic Product 

Manufacturing

334110 Computer & Peripheral Equipment 

Mfg

334200 Communications Equipment Mfg

334310 Audio & Video Equipment Mfg

334410 Semiconductor & Other Electronic 

Component Mfg

334500 Navigational, Measuring, 

Electromedical, & Control 

Instruments Mfg

334610 Manufacturing & Reproducing 

Magnetic & Optical Media

Electrical Equipment, Appliance, and 

Component Manufacturing

335100 Electric Lighting Equipment Mfg

335200 Major Household Appliance Mfg

335310 Electrical Equipment Mfg

335900 Other Electrical Equipment & 

Component Mfg

Transportation Equipment Manufacturing

336100 Motor Vehicle Mfg

336210 Motor Vehicle Body & Trailer Mfg

336300 Motor Vehicle Parts Mfg

336410 Aerospace Product & Parts Mfg

336510 Railroad Rolling Stock Mfg

336610 Ship & Boat Building

336990 Other Transportation Equipment 

Mfg

Furniture and Related Product 

Manufacturing

337000 Furniture & Related Product 

Manufacturing

Miscellaneous Manufacturing

339110 Medical Equipment & Supplies Mfg

339900 Other Miscellaneous 

Manufacturing

Wholesale Trade

Merchant Wholesalers, Durable Goods

423100 Motor Vehicle & Motor Vehicle 

Parts & Supplies

423200 Furniture & Home Furnishings

423300 Lumber & Other Construction 

Materials

423400 Professional & Commercial 

Equipment & Supplies

423500 Metal & Mineral (except 

Petroleum)

423600 Household Appliances & Electrical 

& Electronic Goods

423700 Hardware, & Plumbing & Heating 

Equipment & Supplies

423800 Machinery, Equipment, & Supplies

423910 Sporting & Recreational Goods & 

Supplies

423920 Toy & Hobby Goods & Supplies

423930 Recyclable Materials

423940 Jewelry, Watch, Precious Stone, & 

Precious Metals

423990 Other Miscellaneous Durable 

Goods

Merchant Wholesalers, Nondurable 

Goods

424100 Paper & Paper Products

424210 Drugs & Druggists' Sundries

424300 Apparel, Piece Goods, & Notions

424400 Grocery & Related Products

424500 Farm Product Raw Materials

424600 Chemical & Allied Products

424700 Petroleum & Petroleum Products

424800 Beer, Wine, & Distilled Alcoholic 

Beverages

424910 Farm Supplies

424920 Book, Periodical, & Newspapers

424930 Flower, Nursery Stock, & Florists' 

Supplies

424940 Tobacco & Tobacco Products

424950 Paint, Varnish, & Supplies

424990 Other Miscellaneous Nondurable 

Goods

Wholesale Electronic Markets and Agents 

and Brokers

425110 Business to Business Electronic 

Markets

425120 Wholesale Trade Agents & Brokers

Retail Trade

Motor Vehicle and Parts Dealers

441110 New Car Dealers

441120 Used Car Dealers

441210 Recreational Vehicle Dealers

441222 Boat Dealers

441228 Motorcycle, ATV, & All Other Motor 

Vehicle Dealers

441300 Automotive Parts, Accessories, & 

Tire Stores

Furniture and Home Furnishings Stores

442110 Furniture Stores

442210 Floor Covering Stores

442291 Window Treatment Stores

442299 All Other Home Furnishings Stores

Electronics and Appliance Stores

443141 Household Appliance Stores

443142 Electronic Stores (including Audio, 

Video, Computer, & Camera 

Stores)

Building Material and Garden Equipment 

and Supplies Dealers

444110 Home Centers

444120 Paint & Wallpaper Stores

444130 Hardware Stores

444190 Other Building Material Dealers

444200 Lawn & Garden Equipment & 

Supplies Stores

Food and Beverage Stores

445110 Supermarkets and Other Grocery 

(except Convenience) Stores

445120 Convenience Stores

445210 Meat Markets

445220 Fish & Seafood Markets

445230 Fruit & Vegetable Markets

445291 Baked Goods Stores

445292 Confectionery & Nut Stores

445299 All Other Specialty Food Stores

445310 Beer, Wine, & Liquor Stores

Health and Personal Care Stores

446110 Pharmacies & Drug Stores

446120 Cosmetics, Beauty Supplies, & 

Perfume Stores

446130 Optical Goods Stores

446190 Other Health & Personal Care 

Stores

-40-
Codes for Principal Business Activity and Principal Product or Service (Continued)

Gasoline Stations

447100 Gasoline Stations (including 

convenience stores with gas)

Clothing and Clothing Accessories Stores

448110 Men's Clothing Stores

448120 Women's Clothing Stores

448130 Children's & Infants' Clothing 

Stores

448140 Family Clothing Stores

448150 Clothing Accessories Stores

448190 Other Clothing Stores

448210 Shoe Stores

448310 Jewelry Stores

448320 Luggage & Leather Goods Stores

Sporting Goods, Hobby, Book, and Music 

Stores

451110 Sporting Goods Stores

451120 Hobby, Toy, & Game Stores

451130 Sewing, Needlework, & Piece 

Goods Stores

451140 Musical Instrument & Supplies 

Stores

451211 Book Stores

451212 News Dealers & Newsstands

General Merchandise Stores

452200 Department Stores

452300 General Merchandise Stores, incl. 

Warehouse Clubs and 

Supercenters

Miscellaneous Store Retailers

453110 Florists

453210 Office Supplies & Stationery Stores

453220 Gift, Novelty, & Souvenir Stores

453310 Used Merchandise Stores

453910 Pet & Pet Supplies Stores

453920 Art Dealers

453930 Manufactured (Mobile) Home 

Dealers

453990 All Other Miscellaneous Store 

Retailers (including tobacco, 

candle, & trophy shops)

Nonstore Retailers

454110 Electronic Shopping & Mail-Order 

Houses

454210 Vending Machine Operators

454310 Fuel Dealers (including Heating Oil 

and Liquefied Petroleum)

454390 Other Direct Selling 

Establishments (including 

door-to-door retailing, frozen food 

plan providers, party plan 

merchandisers, & coffee-break 

service providers)

Transportation and 

Warehousing

Air, Rail, and Water Transportation

481000 Air Transportation

482110 Rail Transportation

483000 Water Transportation

Truck Transportation

484110 General Freight Trucking, Local

484120 General Freight Trucking, 

Long-distance

484200 Specialized Freight Trucking

Transit and Ground Passenger 

Transportation

485110 Urban Transit Systems

485210 Interurban & Rural Bus 

Transportation

485310 Taxi Service

485320 Limousine Service

485410 School & Employee Bus 

Transportation

485510 Charter Bus Industry

485990 Other Transit & Ground Passenger 

Transportation

Pipeline Transportation

486000 Pipeline Transportation

Scenic & Sightseeing Transportation

487000 Scenic & Sightseeing 

Transportation

Support Activities for Transportation

488100 Support Activities for Air 

Transportation

488210 Support Activities for Rail 

Transportation

488300 Support Activities for Water 

Transportation

488410 Motor Vehicle Towing

488490 Other Support Activities for Road 

Transportation

488510 Freight Transportation 

Arrangement

488990 Other Support Activities for 

Transportation

Couriers and Messengers

492110 Couriers

492210 Local Messengers & Local Delivery

Warehousing and Storage

493100 Warehousing & Storage (except 

lessors of miniwarehouses & 

self-storage units)

Information

Publishing Industries (except Internet)

511110 Newspaper Publishers

511120 Periodical Publishers

511130 Book Publishers

511140 Directory & Mailing List Publishers

511190 Other Publishers

511210 Software Publishers

Motion Picture and Sound Recording 

Industries

512100 Motion Picture & Video Industries 

(except video rental)

512200 Sound Recording Industries

Broadcasting (except Internet)

515100 Radio & Television Broadcasting

515210 Cable & Other Subscription 

Programming

Telecommunications

517000 Telecommunications (including 

paging, cellular, satellite, cable & 

other program distribution, 

resellers, other 

telecommunications, & internet 

service providers)

Data Processing Services

518210 Data Processing, Hosting, & 

Related Services

Other Information Services

519100 Other Information Services 

(including news syndicates, 

libraries, internet publishing & 

broadcasting)

Finance and Insurance

Depository Credit Intermediation

522110 Commercial Banking

522120 Savings Institutions

522130 Credit Unions

522190 Other Depository Credit 

Intermediation

Nondepository Credit Intermediation

522210 Credit Card Issuing

522220 Sales Financing

522291 Consumer Lending

522292 Real Estate Credit (including 

mortgage bankers & originators)

522293 International Trade Financing

522294 Secondary Market Financing

522298 All Other Nondepository Credit 

Intermediation

Activities Related to Credit Intermediation

522300 Activities Related to Credit 

Intermediation (including loan 

brokers, check clearing, & money 

transmitting)

Securities, Commodity Contracts, and 

Other Financial Investments and Related 

Activities

523110 Investment Banking & Securities 

Dealing

523120 Securities Brokerage

523130 Commodity Contracts Dealing

523140 Commodity Contracts Brokerage

523210 Securities & Commodity 

Exchanges

523900 Other Financial Investment 

Activities (including portfolio 

management & investment advice)

Insurance Carriers and Related Activities

524140 Direct Life, Health, & Medical 

Insurance & Reinsurance Carriers

524150 Direct Insurance & Reinsurance 

(except Life, Health & Medical) 

Carriers

524210 Insurance Agencies & Brokerages

524290 Other Insurance Related Activities 

(including third-party administration 

of insurance and pension funds)

Funds, Trusts, and Other Financial 

Vehicles

525100 Insurance & Employee Benefit 

Funds

525910 Open-End Investment Funds 

(Form 1120-RIC)

525920 Trusts, Estates, & Agency 

Accounts

525990 Other Financial Vehicles (including 

mortgage REITs & closed-end 

investment funds)

“Offices of Bank Holding Companies” and 

“Offices of Other Holding Companies” are 

located under Management of Companies 

(Holding Companies) below.

Real Estate and Rental and 

Leasing

Real Estate

531110 Lessors of Residential Buildings & 

Dwellings (including equity REITs)

531120 Lessors of Nonresidential 

Buildings (except Miniwarehouses) 

(including equity REITs)

531130 Lessors of Miniwarehouses & 

Self-Storage Units (including equity 

REITs)

531190 Lessors of Other Real Estate 

Property (including equity REITs)

531210 Offices of Real Estate Agents & 

Brokers

531310 Real Estate Property Managers

531320 Offices of Real Estate Appraisers

531390 Other Activities Related to Real 

Estate

Rental and Leasing Services

532100 Automotive Equipment Rental & 

Leasing

532210 Consumer Electronics & 

Appliances Rental

532228 Formal Wear & Costume Rental

532282 Video Tape & Disc Rental

532283 Home Health Equipment Rental

532284 Recreational Goods Rental

532289 All Other Consumer Goods Rental

532310 General Rental Centers

532400 Commercial & Industrial Machinery 

& Equipment Rental & Leasing

Lessors of Nonfinancial Intangible Assets 

(except copyrighted works)

533110 Lessors of Nonfinancial Intangible 

Assets (except copyrighted works)

Professional, Scientific, and 

Technical Services

Legal Services

541110 Offices of Lawyers

541190 Other Legal Services

Accounting, Tax Preparation, 

Bookkeeping, and Payroll Services

541211 Offices of Certified Public 

Accountants

541213 Tax Preparation Services

541214 Payroll Services

541219 Other Accounting Services

Architectural, Engineering, and Related 

Services

541310 Architectural Services

541320 Landscape Architecture Services

541330 Engineering Services

541340 Drafting Services

541350 Building Inspection Services

541360 Geophysical Surveying & Mapping 

Services

541370 Surveying & Mapping (except 

Geophysical) Services

541380 Testing Laboratories

Specialized Design Services

541400 Specialized Design Services 

(including interior, industrial, 

graphic, & fashion design)

Computer Systems Design and Related 

Services

541511 Custom Computer Programming 

Services

541512 Computer Systems Design 

Services

541513 Computer Facilities Management 

Services

541519 Other Computer Related Services

Other Professional, Scientific, and 

Technical Services

541600 Management, Scientific, & 

Technical Consulting Services

541700 Scientific Research & 

Development Services

541800 Advertising & Related Services

541910 Marketing Research & Public 

Opinion Polling

541920 Photographic Services

541930 Translation & Interpretation 

Services

541940 Veterinary Services

541990 All Other Professional, Scientific, & 

Technical Services

Management of Companies 

(Holding Companies)

551111 Offices of Bank Holding 

Companies

551112 Offices of Other Holding 

Companies

Administrative and Support and 

Waste Management and 

Remediation Services

Administrative and Support Services

561110 Office Administrative Services

561210 Facilities Support Services

561300 Employment Services

561410 Document Preparation Services

561420 Telephone Call Centers

561430 Business Service Centers 

(including private mail centers & 

copy shops)

561440 Collection Agencies

561450 Credit Bureaus

561490 Other Business Support Services 

(including repossession services, 

court reporting, & stenotype 

services)

561500 Travel Arrangement & Reservation 

Services

561600 Investigation & Security Services

561710 Exterminating & Pest Control 

Services

561720 Janitorial Services

561730 Landscaping Services

561740 Carpet & Upholstery Cleaning 

Services

561790 Other Services to Buildings & 

Dwellings

561900 Other Support Services (including 

packaging & labeling services, & 

convention & trade show 

organizers)

Waste Management and Remediation 

Services

562000 Waste Management & 

Remediation Services

Educational Services

611000 Educational Services (including 

schools, colleges, & universities)

Health Care and Social 

Assistance

Offices of Physicians and Dentists

621111 Offices of Physicians (except 

mental health specialists)

621112 Offices of Physicians, Mental 

Health Specialists

621210 Offices of Dentists

Offices of Other Health Practitioners

621310 Offices of Chiropractors

621320 Offices of Optometrists

621330 Offices of Mental Health 

Practitioners (except Physicians)

621340 Offices of Physical, Occupational & 

Speech Therapists, & Audiologists

621391 Offices of Podiatrists

621399 Offices of All Other Miscellaneous 

Health Practitioners

Outpatient Care Centers

621410 Family Planning Centers

621420 Outpatient Mental Health & 

Substance Abuse Centers

621491 HMO Medical Centers

621492 Kidney Dialysis Centers

621493 Freestanding Ambulatory Surgical 

& Emergency Centers

621498 All Other Outpatient Care Centers

Medical and Diagnostic Laboratories

621510 Medical & Diagnostic Laboratories

Home Health Care Services

621610 Home Health Care Services

Other Ambulatory Health Care Services

621900 Other Ambulatory Health Care 

Services (including ambulance 

services & blood & organ banks)

Hospitals

622000 Hospitals

Nursing and Residential Care Facilities

623000 Nursing & Residential Care 

Facilities

Social Assistance

624100 Individual & Family Services

624200 Community Food & Housing, & 

Emergency & Other Relief 

Services

624310 Vocational Rehabilitation Services

624410 Child Day Care Services

Arts, Entertainment, and 

Recreation

Performing Arts, Spectator Sports, and 

Related Industries

711100 Performing Arts Companies

711210 Spectator Sports (including sports 

clubs & racetracks)

-41-
Codes for Principal Business Activity and Principal Product or Service (Continued)

711300 Promoters of Performing Arts, 

Sports, & Similar Events

711410 Agents & Managers for Artists, 

Athletes, Entertainers, & Other 

Public Figures

711510 Independent Artists, Writers, & 

Performers

Museums, Historical Sites, and Similar 

Institutions

712100 Museums, Historical Sites, & 

Similar Institutions

Amusement, Gambling, and Recreation 

Industries

713100 Amusement Parks & Arcades

713200 Gambling Industries

713900 Other Amusement & Recreation 

Industries (including golf courses, 

skiing facilities, marinas, fitness 

centers, & bowling centers)

Accommodation and Food 

Services

Accommodation

721110 Hotels (except Casino Hotels) & 

Motels

721120 Casino Hotels

721191 Bed & Breakfast Inns

721199 All Other Traveler Accommodation

721210 RV (Recreational Vehicle) Parks & 

Recreational Camps

721310 Rooming & Boarding Houses, 

Dormitories, & Workers’ Camps

Food Services and Drinking Places

722300 Special Food Services (including 

food service contractors & 

caterers)

722410 Drinking Places (Alcoholic 

Beverages)

722511 Full Service Restaurants

722513 Limited Service Restaurants

722514 Cafeterias & Buffets

722515 Snack & Nonalcoholic Beverage 

Bars

Other Services

Repair and Maintenance

811110 Automotive Mechanical & 

Electrical Repair & Maintenance

811120 Automotive Body, Paint, Interior, & 

Glass Repair

811190 Other Automotive Repair & 

Maintenance (including oil change 

& lubrication shops & car washes)

811210 Electronic & Precision Equipment 

Repair & Maintenance

811310 Commercial & Industrial Machinery 

& Equipment (except Automotive & 

Electronic) Repair & Maintenance

811410 Home & Garden Equipment & 

Appliance Repair & Maintenance

811420 Reupholstery & Furniture Repair

811430 Footwear & Leather Goods Repair

811490 Other Personal & Household 

Goods Repair & Maintenance

Personal and Laundry Services

812111 Barber Shops

812112 Beauty Salons

812113 Nail Salons

812190 Other Personal Care Services 

(including diet & weight reducing 

centers)

812210 Funeral Homes & Funeral Services

812220 Cemeteries & Crematories

812310 Coin-Operated Laundries & 

Drycleaners

812320 Drycleaning & Laundry Services 

(except Coin-Operated)

812330 Linen & Uniform Supply

812910 Pet Care (except Veterinary) 

Services

812920 Photofinishing

812930 Parking Lots & Garages

812990 All Other Personal Services

Religious, Grantmaking, Civic, 

Professional, and Similar Organizations

813000 Religious, Grantmaking, Civic, 

Professional, & Similar 

Organizations (including 

condominium and homeowners 

associations)

-42-
Index

A

Accounting Methods 4

Accounting methods:

Accrual method 4

Change in accounting 

method 5

Mark-to-Market Accounting 

Method 5

Traders in securities or 

commodities, and 

dealers in 

commodities 5

Accounting Periods 5

Activities of Electing Large 

Partnerships (ELPs) 10

Administrative Adjustment 

Requests:

Form 8082 5

Analysis of Net Income 

(Loss) 36

Assembling the Return 7

At-risk activities 27

C

Capital Assets 23

Capital Gains and Losses 22

Charitable Contributions 21

Codes:

Principal Business 

Activity 40

Schedule K-1, Box 9 35

Contributions to the 

Partnership 9

D

Deductions 16

Bad Debts 17

Depletion 18

Depreciation 18

Employee Benefit 

Programs 19

Guaranteed Payments to 

Partners 17

Interest 18

Limitations 16

Other Deductions 19

Rent 17

Repairs and Maintenance 17

Retirement Plans, etc. 18

Salaries and Wages 17

Section 179 Expense 18

Section 263A uniform 

capitalization rules 16

Special Rules:

Entertainment 

facilities 20

Meals and 

entertainment 19

Membership dues 19

Travel 19

Taxes and Licenses 18

Definitions 2

Depreciation 18

Discharge of Indebtedness 28

Dispositions of Contributed 

Property 9

Distributions 38

E

Elections:

By each partner 9

By the partnership 8

Electronic Filing 3

Extension 3

Extraterritorial income 

exclusion 13

Extraterritorial Income 

Exclusion 32

F

Foreign Accounts 22

Foreign Disregarded Entity 22

Foreign Partners 22

Foreign Partnership 2

Foreign Tax Credit 30

Forms and Publications, How to 

Get 2

Future Development 1

G

General Credits 28

General Partner 3

General Partnership 3

Guaranteed Payments to 

Partners 17, 37

I

Inclusion Amount 17

Income:

Gross Receipts or Sales 15

Net Farm Profit (Loss) 15

Net Gain (Loss) From Form 

4797 15

Net Income (Loss) From 

Rental Real Estate 

Activities 15

Ordinary Income (Loss) From 

Other Partnerships, 

Estates, and Trusts 15

Other Income (Loss) 15

Interest charged 4

Interest Income 12, 20

Inversion Gain 32

Investment Interest 21

Items for Special Treatment 23

Constructive sale 

treatment 24

Rollover of Gain from 

Qualified Stock 24

Special Rules for Traders in 

Securities 24

L

Limitations on Deductions 16

Limited Liability Company 3

Limited Liability Partnership 3

Limited Partner 3

Limited Partnership 3

Loans from partners or related to 

partners 37

Loans to partners 37

M

Miscellaneous Itemized 

Deductions 22

N

Net Earnings From 

Self-Employment 29

Nonrecourse Loans 3, 37

O

Ordinary dividends 20

Overview of Large Partnership 

Provisions 8, 23

P

Paid Preparer's Information 4

Paid Preparer Authorization 4

Partner's Share of Liabilities 

(Schedule K-1) 27

Partnership Holding:

Oil and Gas Properties 13

Residual Interests in Real 

Estate Mortgage 

Investment Conduits 

(REMICs) 13

Passive Activity Reporting 

Requirements 11

Passive Loss Limitation 

Activities 10

Penalties:

Failure To Furnish 

Information Timely 4

Late Filing of Return 4

Late Payment of Tax 4

Trust Fund Recovery 

Penalty 4

Private Delivery Services 3

Publicly Traded Partnerships 13

Q

Qualified dividends 20

R

Recordkeeping 5

Reminders 2

Rental Activities 10

S

Schedule D–Capital Gains and 

Losses 22

Specific Instructions 25

Schedule K and K-1, Partner's 

Shares of Income, Credits, 

Deductions, etc. 26

Schedule L, Balance Sheets per 

Books 37

Schedule M-1, Reconciliation of 

Income (Loss) 37

Schedule M-2, Analysis of 

Partners' Capital 

Accounts 38

Section 108(i) 14, 34

Section 179 Expense 

Deduction 18

Section 263A uniform 

capitalization rules 16

Self-charged interest 11

Separately Stated Items 8

Substitute Forms 26

Syndication Costs 16

T

Tax 20

Tax-Exempt Interest Income 28

Tax-Exempt Partners 13

Tax-Exempt Securities 37

Termination of the Partnership 3

Trade or Business Activities 10

Transactions Between Related 

Taxpayers 16

Travel and Entertainment 37

U

Unrealized Receivables and 

Inventory Items 10

Unrecaptured section 1250 

gain 32, 35

W

What's New 1

When To File 3

Where To File 3

Who Must Sign 3

-43-