Department of the Treasury 2002 Internal Revenue Service

Partner’s Instructions for

Schedule K-1 (Form

1065-B)

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

(For Partner’s Use Only)

Section references are to the Internal Revenue Code unless otherwise noted.

for each activity in box 9. Income, etc., The written notice to the partnership General Instructions from other activities (investment and must include the names and addresses of

portfolio income and deductions) are both parties to the exchange, the

Purpose of Schedule K-1 reported in boxes 2, 4, and 6 for both identifying numbers of the transferor and

The partnership uses Schedule K-1 to limited and general partners. (if known) of the transferee, and the

exchange date. report your share of the partnership’s

income, credits, deductions, etc. Keep it Errors An exception to this rule is made for for your records. Do not file it with You must report partnership items shown sales or exchanges of publicly traded your tax return. The partnership has filed on your Schedule K-1 (and any attached partnership interests for which a broker is a copy with the IRS. schedules) the same way that the required to file Form 1099-B, Proceeds

You are liable for tax on your share of partnership treated the items on its return. From Broker and Barter Exchange

the partnership income, whether or not If you believe the partnership has made Transactions.

distributed. Include your share on your tax an error on your Schedule K-1, notify the return if a return is required. Use these If a partner is required to notify the partnership. Do not change any items on instructions to help you report the items partnership of a section 751(a) exchange your copy of Schedule K-1. Generally, an shown on Schedule K-1 on your tax but fails to do so, a $50 penalty may be adjustment to correct an error will take imposed for each such failure. However, return. effect for the tax year in which the no penalty will be imposed if the partner The amount of loss and deduction that partnership actually makes the can show that the failure was due to you may claim on your tax return may be adjustment. However, if the error involves reasonable cause and not willful neglect. less than the amount reported on a change to your distributive share of a

Schedule K-1. It is the partner’s partnership item, the partnership should

responsibility to consider and apply file an amended partnership return and Nominee Reporting

any applicable limitations. See send you a corrected Schedule K-1. Any person who holds, directly or Limitations on Losses, Deductions, indirectly, an interest in a partnership as a If the treatment on your original or and Credits beginning on page 2 for nominee for another person must furnish amended return is inconsistent with the more information. a written statement to the partnership by partnership’s treatment, you may be the last day of the month following the subject to the accuracy-related penalty. Electing Large end of the partnership’s tax year. This This penalty is in addition to any tax that statement must include the name, Partnerships results from making your amount or address, and identifying number of the treatment of the item consistent with that This partnership has elected simplified nominee and such other person, shown on the partnership’s return. Any reporting requirements intended to make description of the partnership interest held deficiency that results from making the it simpler for you to report your share of as nominee for that person, and other amounts consistent may be assessed partnership income, credits, deductions, information required by Temporary immediately. etc. Generally, income, capital gains, Regulations section 1.6031(c)-1T. A credits, and deductions are combined at nominee that fails to furnish this

the partnership level so that the number Sale or Exchange of statement must furnish to the person for of partnership items separately reported Partnership Interest whom the nominee holds the partnership to partners is reduced. Most limitations interest a copy of Schedule K-1 and and elections affecting partnership Generally, a partner who sells or related information within 30 days of income are made by the electing large exchanges a partnership interest in a receiving it from the partnership. partnership. For limited partners, income section 751(a) exchange must notify the

and other items from the partnership’s partnership, in writing, within 30 days of A nominee who fails to furnish when

trade or business and rental activities are the exchange (or, if earlier, by January 15 due all the information required by

treated as being from a trade or business of the calendar year following the Temporary Regulations section

that is a single passive activity. These calendar year in which the exchange 1.6031(c)-1T, or who furnishes incorrect

items are reported in boxes 1, 3, and 5, occurred). A “section 751(a) exchange” is information, is subject to a $50 penalty for

with most credits being reported in boxes any sale or exchange of a partnership each statement for which a failure occurs.

7 and 8. General partners must make interest in which any money or other The maximum penalty is $100,000 for all

their own determinations as to whether property received by the partner in such failures during a calendar year. If the

the activities are passive for them. exchange for that partner’s interest is nominee intentionally disregards the

Therefore, partnership items from trade or attributable to unrealized receivables (as requirement to report correct information,

business, rental real estate, and other defined in section 751(c)) or inventory each $50 penalty increases to $100 or, if

rental activities are separately reported items (as defined in section 751(d)). greater, 10% of the aggregate amount of

Cat. No. 26141W
items required to be reported, and the separately on your income tax return and not at risk, you will have to complete

$100,000 maximum does not apply. not by the partnership. These elections Form 6198, At-Risk Limitations, to figure

are made under the following code your allowable loss.

International Boycotts sections: The at-risk rules generally limit the • Section 108(b)(5) (income from the Every partnership that had operations in, amount of loss and other deductions that discharge of indebtedness). or related to, a boycotting country, you can claim to the amount you could • Section 901 (foreign tax credit). company, or a national of a country must actually lose in the activity. However, if file Form 5713, International Boycott Additional Information you acquired your partnership interest Report. before 1987, the at-risk rules do not apply For more information on the treatment of If the partnership cooperated with an to losses from an activity of holding real partnership income, credits, deductions, international boycott, it must give you a property placed in service before 1987 by etc., see Pub. 541, Partnerships; Pub. copy of its Form 5713. You must file your the partnership. The activity of holding

own Form 5713 to report the partnership’s 535, Business Expenses; and Pub. 925, mineral property does not qualify for this Passive Activity and At-Risk Rules. activities and any other boycott exception. The partnership should identify

operations that you may have. You may To get forms and publications, see the on an attachment to Schedule K-1 the

lose certain tax benefits if the partnership instructions for your tax return. amount of any losses that are not subject

participated in, or cooperated with, an to the at-risk limitations.

international boycott. See Form 5713 and Limitations on Losses, Generally, you are not at risk for the instructions for more information. Deductions, and Credits amounts such as the following:

There are three separate potential • Nonrecourse loans used to finance the Definitions activity, to acquire property used in the limitations on the amount of partnership activity, or to acquire your interest in the General Partner losses that you may deduct on your activity, that are not secured by your own return. These limitations and the order in A general partner is a partner who is which you must apply them are as property (other than the property used in personally liable for partnership debts. the activity). See the instructions for follows: the basis rules, the at-risk Partner’s Share of Liabilities on page 5 Limited Partner limitations, and the passive activity for the exception for qualified A limited partner is a partner in a limitations. Each of these limitations is

nonrecourse financing secured by real discussed separately below. partnership formed under a state limited property. partnership law, whose personal liability Basis Rules • Cash, property, or borrowed amounts for partnership debts is limited to the Generally, you may not claim your share used in the activity (or contributed to the amount of money or other property that of a partnership loss (including a capital activity, or used to acquire your interest in the partner contributed or is required to loss) to the extent that it is greater than the activity) that are protected against contribute to the partnership. Some the adjusted basis of your partnership loss by a guarantee, stop-loss agreement, members of other entities, such as interest at the end of the partnership’s tax or other similar arrangement (excluding domestic or foreign business trusts or year. casualty insurance and insurance against limited liability companies that are tort liability). classified as partnerships, may be treated The partnership is not responsible for • Amounts borrowed for use in the as limited partners for certain purposes. keeping the information needed to figure activity from a person who has an interest See, for example, Temporary Regulations the basis of your partnership interest. You in the activity, other than as a creditor, or section 1.469-5T(e)(3), which treats all can figure the adjusted basis of your who is related, under section 465(b)(3), to members with limited liability as limited partnership interest by adding items that a person (other than you) having such an partners for purposes of section 469(h)(2) increase your basis and then subtracting interest. (concerning the passive loss limitation items that decrease your basis. To help you complete Form 6198, the rules). Items that increase your basis are: partnership should specify on an

Disqualified Person • Money and your adjusted basis in attachment to Schedule K-1 your share of property contributed to the partnership. If you are a partner in a partnership the total pre-1976 losses from a section • Your share of the increase in the holding oil and gas properties, you are a 465(c)(1) activity for which there existed a partnership’s liabilities (or your individual disqualified person if: corresponding amount of nonrecourse liabilities caused by your assumption of • You are an oil or natural gas retailer liability at the end of the year in which the partnership liabilities). described in section 613A(d)(2) or crude losses occurred. Also, you should get a • Your share of the partnership’s income oil refiner described in section 613A(d)(4) separate statement of income, expenses, (including tax-exempt income). or etc., for each activity from the partnership. Items that decrease your basis (but • Your average daily production of

domestic crude oil and natural gas not below zero) are: Passive Activity Limitations • Money and the adjusted basis of exceeds 500 barrels for your tax year in Section 469 provides rules that limit the property distributed to you. which the partnership’s tax year ends. deduction of certain losses and credits. • Your share of the decrease in the See section 776(b) for more details. These rules apply to partners who: partnership’s liabilities (or your individual Disqualified persons must report items • Are individuals, estates, trusts, closely liabilities assumed by the partnership). of income, gain, loss, deduction, and held corporations, or personal service • Your share of the partnership’s losses credit attributable to partnership oil and corporations and (including capital losses). gas properties as if the special rules for • Your share of the partnership’s • Have a passive activity loss or credit for electing large partnerships did not apply. nondeductible expenses. the tax year.

Nonrecourse Loans Additional basis adjustments may If you have a passive activity loss or

apply to partners claiming deductions for credit, use Form 8582, Passive Activity Nonrecourse loans are those liabilities of depletion. See Pub. 541 for more details. Loss Limitations, to figure your allowable the partnership for which no partner bears passive losses and Form 8582-CR, the economic risk of loss. At-Risk Limitations Passive Activity Credit Limitations, to

Generally, if you have (a) a loss or other figure your allowable passive credits. For Elections deduction from any activity carried on as a corporation, use Form 8810, Corporate

Generally, the partnership decides how to a trade or business or for the production Passive Activity Loss and Credit

figure taxable income from its operations. of income by the partnership, and (b) Limitations. See the instructions for these

However, two elections are made by you amounts in the activity for which you are forms for more information.

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 If the publicly traded partnership unless you elect to treat all interests in not owners of interests in the activity) for

box on Schedule K-1 is checked, rental real estate as one activity. For the tax year. CAUTION do not report passive income details on making this election, see the 4. The activity was a significant

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(loss) from the partnership on Form 8582. Instructions for Schedule E (Form 1040). participation activity for the tax year, and

See page 4 for the special rules for you participated in all significant If you are married filing jointly, either publicly traded partnerships. participation activities (including activities you or your spouse must separately meet

both of the above conditions, without outside the partnership) during the year For limited partners of an electing for more than 500 hours. A significant large partnership, all income, loss, taking into account services performed by participation activity is any trade or deductions, and credits from trade or the other spouse. business activity in which you participated business and rental activities generally A real property trade or business is for more than 100 hours during the tax are reported as being from a trade or any real property development, year and in which you did not materially business that is a single passive activity. redevelopment, construction, participate under any of the material However, the determination of whether an reconstruction, acquisition, conversion, participation tests (other than this test 4). activity is a passive activity must be made rental, operation, management, leasing, 5. You materially participated in the by any partner who is either a: or brokerage trade or business. Services activity for any 5 tax years (whether or not • General partner or you performed as an employee are not consecutive) during the 10 tax years that • Limited partner who is a disqualified treated as performed in a real property immediately precede the tax year. person (as defined on page 2) with trade or business unless you owned more 6. The activity was a personal service respect to items of income, gain, loss, than 5% of the stock (or more than 5% of activity and you materially participated in deduction, and credit attributable to the capital or profits interest) in the the activity for any 3 tax years (whether or partnership oil and gas properties. employer. not consecutive) preceding the tax year. In addition, the partnership is required 3. Working interests in oil or gas A personal service activity involves the to provide each general partner and wells. performance of personal services in the disqualified person the information 4. The rental of a dwelling unit any fields of health, law, engineering, necessary to comply with the passive partner used for personal purposes during architecture, accounting, actuarial activity rules of section 469. Items of the year for more than the greater of 14 science, performing arts, consulting, or income, gain, loss, credit, etc., must be days or 10% of the number of days that any other trade or business in which separately reported to general partners the residence was rented at fair rental capital is not a material income-producing for each trade or business, rental real value. factor. estate, and other rental activity. 5. Activities of trading personal 7. Based on all the facts and property for the account of owners of Note: Except for the publicly traded circumstances, you participated in the interests in the activities. partnership discussion on page 4, the activity on a regular, continuous, and following information on passive activity Material participation. You must substantial basis during the tax year. limitations applies only to general determine if you materially participated (a) partners. Limited partners who are Work counted toward material in each trade or business activity held disqualified persons should see Pub. 925 participation. Generally, any work that through the partnership and (b) if you for a complete discussion of the passive you or your spouse do in connection with were a real estate professional (defined activity rules. an activity held through a partnership above), in each rental real estate activity

Generally, passive activities include: (where you own your partnership interest held through the partnership. All at the time the work is done) is counted 1. Trade or business activities in determinations of material toward material participation. However, which you did not materially participate participation are made based on your work in connection with the activity is not and participation during the partnership’s counted toward material participation if 2. Activities that meet the definition of tax year. either of the following applies. rental activities under Temporary Material participation standards for 1. The work is not the sort of work that Regulations section 1.469-1T(e)(3) and partners who are individuals are listed owners of the activity would usually do Regulations section 1.469-1(e)(3). below. Special rules apply to certain and one of the principal purposes of the retired or disabled farmers and to the Passive activities do not include: work that you or your spouse does is to surviving spouses of farmers. See the 1. Trade or business activities in avoid the passive loss or credit Instructions for Form 8582 for details.

which you materially participated. limitations. Corporations should refer to the 2. Rental real estate activities in which 2. You do the work in your capacity as Instructions for Form 8810 for the material you materially participated if you were a an investor and you are not directly participation standards that apply to them. real estate professional for the tax year. involved in the day-to-day operations of

You were a real estate professional only Individuals (other than limited the activity. Examples of work done as an partners). If you are an individual (either if you met both of the following conditions: investor that would not count toward

a general partner or a limited partner who material participation include: a. More than half of the personal owned a general partnership interest at all services you performed in trades or a. Studying and reviewing financial times during the tax year), you materially businesses were performed in real statements or reports on operations of the participated in an activity only if one or property trades or businesses in which activity. more of the following apply: you materially participated and b. Preparing or compiling summaries

b. You performed more than 750 1. You participated in the activity for or analyses of the finances or operations

hours of services in real property trades more than 500 hours during the tax year. of the activity for your own use.

or businesses in which you materially 2. Your participation in the activity for c. Monitoring the finances or

participated. the tax year constituted substantially all operations of the activity in a the participation in the activity of all nonmanagerial capacity. Note: For a closely held C corporation individuals (including individuals who are (defined in section 465(a)(1)(B)), the not owners of interests in the activity for Effect of determination. If you above conditions are treated as met if the tax year). determine that you materially participated more than 50% of the corporation’s gross 3. You participated in the activity for in (a) a trade or business activity of the receipts were from real property trades or more than 100 hours during the tax year, partnership or (b) if you were a real estate businesses in which the corporation and your participation in the activity for professional (defined above) in a rental materially participated. the tax year was not less than the real estate activity of the partnership,

For purposes of this rule, each interest participation in the activity of any other report the income (loss), deductions, and

in rental real estate is a separate activity, individual (including individuals who were credits from that activity as indicated in

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the instructions for the boxes in which participating for tax years ending less such amounts according to the

those items were reported. than 2 years after the date of the Instructions for Form 8582 (or Form

decedent’s death. 8810). If you determine that you did not

materially participate in a trade or The maximum special allowance that If you have net income (loss), business activity of the partnership or if single individuals and married individuals deductions, or credits from any of the you have income (loss), deductions, or filing a joint return can qualify for is following activities, treat such amounts as credits from a rental activity of the $25,000. The maximum is $12,500 for nonpassive and report them as instructed partnership (other than a rental real married individuals who file separate in these instructions:

estate activity in which you materially returns and who lived apart all times 1. Working interests in oil and gas participated as a real estate professional), during the year. The maximum special wells. the amounts from that activity are allowance for which an estate can qualify 2. The rental of a dwelling unit any passive. Report passive income (losses), is $25,000 reduced by the special partner used for personal purposes during deductions, and credits as follows: allowance for which the surviving spouse the year for more than the greater of 14 1. If you have an overall gain (the qualifies. days or 10% of the number of days that excess of income over deductions and If your modified adjusted gross income the residence was rented at fair rental

losses, including any prior year unallowed (defined below) is $100,000 or less value.

loss) from a passive activity, report the ($50,000 or less if married filing 3. Trading personal property for the income, deductions, and losses from the separately), your loss is deductible up to account of owners of interests in the

activity as indicated in the instructions for the amount of the maximum special activity. the boxes in which those items were allowance referred to in the preceding reported. paragraph. If your modified adjusted Self-charged interest. The partnership

2. If you have an overall loss (the gross income is more than $100,000 will report any “self-charged” interest excess of deductions and losses, (more than $50,000 if married filing income or expense that resulted from

including any prior year unallowed loss, separately), the special allowance is loans between you and the partnership over income) or credits from a passive (or between the partnership and another limited to 50% of the difference between

activity, report the income, deductions, $150,000 ($75,000 if married filing partnership in which you have an

losses, and credits from all passive separately) and your modified adjusted interest). If there was more than one

activities using the Instructions for Form gross income. When modified adjusted activity, the partnership will provide a 8582 or Form 8582-CR (or Form 8810), to gross income is $150,000 or more statement allocating the interest income see if your deductions, losses, and credits or expense with respect to each activity. ($75,000 or more if married filing are limited under the passive activity separately), there is no special allowance. The self-charged interest rules do not

rules. apply to your partnership interest if the Modified adjusted gross income is partnership made an election under Special allowance for rental real estate your adjusted gross income figured Regulations section 1.469-7(g) to avoid activities. If you actively participated in a without taking into account: the application of these rules. See the rental real estate activity, you may be • Any passive activity loss. Instructions for Form 8582 for more able to deduct up to $25,000 of the loss • Any rental real estate loss allowed information. from the activity from nonpassive income. under section 469(c)(7) to real estate

This “special allowance” is an exception professionals (as defined on page 3). Publicly traded partnerships. The

to the general rule disallowing losses in • Any taxable social security or passive activity limitations are applied

excess of income from passive activities. equivalent railroad retirement benefits. separately for items (other than the

The special allowance is not available if • Any deductible contributions to an IRA low-income housing credit and the

you were married, file a separate return or certain other qualified retirement plans rehabilitation credit) from each publicly

under section 219. traded partnership (PTP). Thus, a net for the year, and did not live apart from

your spouse at all times during the year. • The student loan interest deduction. passive loss from a PTP may not be

• The tuition and fees deduction. deducted from other passive income. Only individuals and qualifying estates • The deduction for one-half of Instead, a passive loss from a PTP is can actively participate in a rental real self-employment taxes. suspended and carried forward to be estate activity. Estates (other than • The exclusion from income of interest applied against passive income from the qualifying estates), trusts, and from Series EE and I U.S. Savings Bonds same PTP in later years. If the partner’s corporations cannot actively participate. used to pay higher education expenses. entire interest in the PTP is completely You are not considered to actively • The exclusion of amounts received disposed of, any unused losses are participate in a rental real estate activity if under an employer’s adoption assistance allowed in full in the year of disposition. at any time during the tax year your program. If you have an overall gain from a PTP, interest (including your spouse’s interest)

in the activity was less than 10% (by Commercial revitalization the net gain is nonpassive income. In

value) of all interests in the activity. deduction. The special $25,000 addition, the nonpassive income is

allowance for the commercial included in investment income to figure Active participation is a less stringent revitalization deduction from rental real your investment interest expense requirement than material participation. estate activities is not subject to the active deduction. You may be treated as actively participation rules or modified adjusted participating if you participated, for Do not report passive income, gains, gross income limits discussed above. See example, in making management or losses from a PTP on Form 8582. Code R—Commercial Revitalization decisions or arranging for others to Instead, use the following rules to figure Deduction on page 10. provide services (such as repairs) in a and report on the proper form or schedule

significant and bona fide sense. your income, gains, and losses from Special rules for certain other

Management decisions that can count as passive activities that you held through activities. If you have net income (loss),

active participation include approving new each PTP you owned during the tax year: deductions, or credits from any activity to

tenants, deciding rental terms, approving which special rules apply, the partnership 1. Combine any current year income, capital or repair expenditures, and other will identify the activity and all amounts gains and losses, and any prior year similar decisions. relating to it on Schedule K-1 or on an unallowed losses to see if you have an attachment. An estate is a qualifying estate if the overall gain or loss from the PTP. Include

decedent would have satisfied the active If you have net income subject to only the same types of income and losses

participation requirement for the activity recharacterization under Temporary you would include in your net income or

for the tax year the decedent died. A Regulations section 1.469-2T(f) and loss from a non-PTP passive activity. See

qualifying estate is treated as actively Regulations section 1.469-2(f), report Pub. 925 for more details.

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2. If you have an overall gain, the net complete Worksheet 6 if all the loss from partnership should give you a statement

gain portion (total gain minus total losses) the same activity is to be reported on one showing your share of nonrecourse

is nonpassive income. On the form or form or schedule. Use Worksheet 7 liabilities, partnership-level qualified

schedule you normally use, report the net instead of Worksheet 6 if you have more nonrecourse financing, and other

gain portion as nonpassive income and than one loss to be reported on different liabilities for each activity.

the remaining income and the total losses forms or schedules for the same activity. Qualified nonrecourse financing as passive income and loss. To the left of Enter the net loss plus any prior year secured by real property used in an the entry space, write “From PTP.” It is unallowed losses in column (a) of activity of holding real property that is important to identify the nonpassive Worksheet 6 (or Worksheet 7 if subject to the at-risk rules is treated as an income because the nonpassive portion is applicable). The losses in column (c) of amount at risk. Qualified nonrecourse

included in modified adjusted gross Worksheet 6 (column (e) of Worksheet 7) financing generally includes financing for income for purposes of figuring on Form are the allowed losses to report on the which no one is personally liable for 8582 the “special allowance” for active forms or schedules. Report both these repayment that is borrowed for use in an participation in a non-PTP rental real losses and any income from the PTP on activity of holding real property and that is estate activity. In addition, the nonpassive the forms and schedules you normally loaned or guaranteed by a Federal, state, use. income is included in investment income or local government or borrowed from a when figuring your investment interest 4. If you have an overall loss and you “qualified” person. expense deduction on Form 4952, disposed of your entire interest in the PTP Qualified persons include any persons Investment Interest Expense Deduction. to an unrelated person in a fully taxable actively and regularly engaged in the transaction during the year, your losses Example. If you have Schedule E business of lending money, such as a (including prior year unallowed losses) income of $8,000, and a Form 4797 prior bank or savings and loan association. allocable to the activity for the year are year unallowed loss of $3,500 from the Qualified persons generally do not not limited by the passive loss rules. A passive activities of a particular PTP, you include related parties (unless the fully taxable transaction is one in which have a $4,500 overall gain ($8,000 − nonrecourse financing is commercially you recognize all your realized gain or $3,500). On Schedule E, Part II, report reasonable and on substantially the same loss. Report the income and losses on the the $4,500 net gain as nonpassive terms as loans involving unrelated forms and schedules you normally use. income in column (k). In column (h), persons), the seller of the property, or a report the remaining Schedule E gain of Note: For rules on the disposition of an person who receives a fee for the $3,500 ($8,000 − $4,500). On the entire interest reported using the partnership’s investment in the real

appropriate line of Form 4797, report the property. installment method, see the Instructions prior year unallowed loss of $3,500. Be for Form 8582. See Pub. 925 for more information on sure to write “From PTP” to the left of qualified nonrecourse financing. each entry space. Both the partnership and you must 3. If you have an overall loss (but did meet the qualified nonrecourse rules on not dispose of your entire interest in the Specific Instructions this debt before you can include the PTP to an unrelated person in a fully amount shown next to “Qualified taxable transaction during the year), the Publicly Traded nonrecourse financing” in your at-risk losses are allowed to the extent of the Partnership computation. income, and the excess loss is carried

See Limitations on Losses, forward to use in a future year when you If the “publicly traded partnership” box is have income to offset it. Report as a Deductions, and Credits beginning on checked, you are a partner in a publicly passive loss on the schedule or form you page 2 for more information on the at-risk traded partnership and must follow the normally use the portion of the loss equal limitations. rules starting on page 4 under Publicly to the income. Report the income as traded partnerships. passive income on the form or schedule Tax Shelter Registration

you normally use. Partner’s Share of Number

Example. You have a Schedule E loss Liabilities If the partnership is a registration-required of $12,000 (current year losses plus prior tax shelter or has invested in a year unallowed losses) and a Schedule D The partnership will show your share of registration-required tax shelter, it should gain of $7,200. Report the $7,200 gain on the partnership’s nonrecourse liabilities, have entered a tax shelter registration the appropriate line of Schedule D. On partnership-level qualified nonrecourse number in this box. If you claim or report Schedule E, Part II, report $7,200 of the financing, and other liabilities as of the any income, loss, deduction, or credit losses as a passive loss in column (g). end of the partnership’s tax year. If you from a tax shelter, you must attach Form Carry forward to 2003 the unallowed loss terminated your interest in the partnership 8271, Investor Reporting of Tax Shelter of $4,800 ($12,000 − $7,200). during the tax year, the amounts should Registration Number, to your tax return. If reflect the share that existed immediately If you have unallowed losses from the partnership has invested in a tax more than one activity of the PTP or from before the total disposition. A partner’s shelter, it must give you a copy of its “other liability” is any partnership liability the same activity of the PTP that must be Form 8271 with your Schedule K-1. Use for which a partner is personally liable. reported on different forms, you must the information on this Form 8271 to

allocate the unallowed losses on a pro Use the total of the three amounts for complete your Form 8271. rata basis to figure the amount allowed computing the adjusted basis of your If the partnership itself is a from each activity or on each form. partnership interest. registration-required tax shelter, use the

Generally, you may use only the information on Schedule K-1 (name of the To allocate and keep a record of amounts shown next to “Qualified partnership, partnership identifying the unallowed losses, use

Worksheets 5, 6, and 7 of Form nonrecourse financing” and “Other” to number, and tax shelter registration

TIP

compute your amount at risk. Do not number) to complete your Form 8271. 8582. List each activity of the PTP in

Worksheet 5. Enter the overall loss from include any amounts that are not at risk if

each activity in column (a). Complete such amounts are included in either of Boxes 1 Through 9 these categories. column (b) of Worksheet 5 according to The amounts shown in boxes 1 through 9

its instructions. Multiply the total If your partnership is engaged in two or reflect your share of income, loss, credits,

unallowed loss from the PTP by each more different types of activities subject to deductions, etc., from the partnership.

ratio in column (b) and enter the result in the at-risk provisions, or a combination of These amounts do not take into

column (c) of Worksheet 5. Then at-risk activities and any other activity, the consideration the following limitations:

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1. The adjusted basis of your Box 2—Taxable Income (Loss) Box 8—Low-Income Housing partnership interest, From Other Activities Credit

2. The amount for which you are at The amount reported in box 2 is your Limited partners only. Enter the amount risk, or share of the income from other activities. from box 8 on line 5 of Form 8586, 3. The passive activity limitations. It is not subject to the passive activity Low-Income Housing Credit. This credit is

For information on these provisions, limitations. Report the amount in box 2 as for property placed in service after 1989

see Limitations on Losses, follows: and is treated as being from a single

Deductions, and Credits beginning on • passive activity. If the amount in box 2 is income, report

page 2. it on Schedule E, Part II, column (k). Box 9—Other • If the amount in box 2 is a loss, report it If you are an individual, the following

instructions will tell you how to report the on Schedule E, Part II, column (i). Codes A Through C

amounts shown in the boxes. If you are General partners in an electing large not an individual, report the amounts in Box 3—Net Capital Gain (Loss) partnership must separately account for the boxes as instructed on your tax From Passive Activities any items attributable to passive loss return. Limited partners only. The net capital limitation activities to the extent

gain (loss) reported in box 3 is treated as necessary to comply with the section 469 The line numbers in these instructions passive loss rules. Therefore, the are references to forms in use for being from a trade or business that is a partnership is required to report income calendar year 2002. If you file your tax single passive activity. If a net capital gain (loss), capital gain (loss), 28% rate gain return on a calendar year basis, but your is reported in box 3, report the gain on

Schedule D (Form 1040), line 12, column (loss), credits, and the alternative partnership files a return for a fiscal year, minimum tax adjustment separately for all enter the amounts shown in the boxes on (f). If a loss is reported in box 3, report the trade or business activities, rental real your tax return for the year in which the loss following the Form 8582 instructions estate activities, and rental activities other partnership’s fiscal year ends. For to figure how much of the loss can be than rental real estate. example, if the partnership’s tax year reported on Schedule D, line 12, column

ends in February 2003, report the (f). However, if the publicly traded Code A1—General partner’s taxable

amounts in the boxes on your 2003 tax partnership box is checked, report the income (loss) from trade or business

return. loss following the rules for Publicly activities. Report Code A1 income (loss) traded partnerships starting on page 4. from partnership trade or business If you have losses, deductions, or activities in which you materially credits from a prior year that were not Box 4—Net Capital Gain (Loss) participated on Schedule E, Part II, deductible or usable because of certain From Other Activities column (i) or (k). See the instructions limitations, such as the basis rules or the beginning on page 3 to determine Net capital gain (loss) from other activities at-risk limitations, take them into account whether you materially participated in a is not subject to the passive activity in determining your net income, loss, or trade or business activity. limitations. Report the gain (loss) on credits for this year. However, except for

passive activity losses and credits, do not Schedule D (Form 1040), line 12, column Report Code A1 income (loss) from

combine the prior-year amounts with any (f). partnership trade or business activities in

amounts shown on this Schedule K-1 to which you did not materially participate as

get a net figure to report on any Box 5—Net Passive AMT follows:

supporting schedules, statements, or Adjustment 1. Report income on Schedule E, Part

forms attached to your return. Instead, II, column (h). However, if the publicly Limited partners only. Use the amount report the amounts separately on the traded partnership box on Schedule K-1 reported in box 5 (as well as your attached schedule, statement, or form on is checked, report the income following adjustments and tax preference items a year-by-year basis. the rules for Publicly traded from other sources) to prepare your Form partnerships starting on page 4. If you have amounts other than those 6251, Alternative Minimum Tax— 2. Report a loss following the shown on Schedule K-1 to report on Individuals; Form 4626, Alternative Instructions for Form 8582 to figure how Schedule E (Form 1040), enter each item Minimum Tax—Corporations; or much of the loss can be reported on on a separate line of Part II of Schedule Schedule I of Form 1041, U.S. Income Schedule E, Part II, column (g). However, E. Tax Return for Estates and Trusts. The if the publicly traded partnership box is adjustment is treated as being from a checked, report the loss following the Box 1—Taxable Income (Loss) trade or business that is a single passive rules for Publicly traded partnerships From Passive Activities activity. starting on page 4.

Limited partners only. The amount Individuals should enter the amount on Code A2—General partner’s net reported in box 1 is treated as being from line 18 of Form 6251, where it is taken capital gain (loss) from trade or a trade or business that is a single into account with adjustments and business activities. If you did not passive activity. Report this amount as preferences from other passive activities. materially participate in the trade or follows:

business activity, the net capital gain • If income is reported in box 1, report Box 6—Net Other AMT (loss) is a passive activity amount. If the the income on Schedule E (Form 1040), Adjustment Part II, column (h). However, if the amount is either (a) a loss that is not from

Individual general and limited partners a passive activity or (b) a gain, report it on publicly traded partnership box is should enter the amount from box 6 on Schedule D (Form 1040), line 12, column checked, report the income following the line 15 of Form 6251. (f). If the amount is a loss from a passive rules for Publicly traded partnerships activity, report it following the Instructions starting on page 4. Box 7—General Credits for Form 8582 to figure how much of the • If a loss is reported in box 1, follow the loss can be reported on Schedule D, line Instructions for Form 8582 to figure how Limited partners only. Enter the amount 12, column (f). However, if the publicly much of the loss can be reported on from box 7 on line 1r of Form 3800, traded partnership box is checked, report Schedule E, Part II, column (g). However, General Business Credit. Because the loss following the rules for Publicly if the publicly traded partnership box is general credits are treated as being from traded partnerships starting on page 4. checked, report the loss following the a trade or business that is a single

rules for Publicly traded partnerships Code A3—General partner’s 28% rate passive activity, you must also include the

starting on page 4. box 7 amount on line 3 of Form 3800. gain (loss) from trade or business

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activities. If you did not materially b. Rental real estate activities with figure how much of the loss can be

participate in the trade or business active participation were your only reported on Schedule D, line 12, column

activity, the 28% rate gain (loss) is a passive activities. (g). However, if the publicly traded

passive activity amount. If the amount is c. You have no prior year unallowed partnership box is checked, report the

either (a) a loss that is not from a passive losses from these activities. loss following the rules for Publicly

activity or (b) a gain, report it on Schedule d. Your total loss from the rental real traded partnerships starting on page 4.

D (Form 1040), line 12, column (g). If the estate activities was not more than Code B4—General partner’s general amount is a loss from a passive activity, $25,000 (not more than $12,500 if credits from rental real estate

report it following the Instructions for married filing separately and you lived activities. Report the general credits on Form 8582 to figure how much of the loss apart from your spouse all year). line 1r of Form 3800. Unless you were a can be reported on Schedule D, line 12, e. If you are a married person filing real estate professional and materially column (g). However, if the publicly separately, you lived apart from your participated in the rental real estate traded partnership box is checked, report spouse all year. activity, you must also include the general the loss following the rules for Publicly f. You have no current or prior year credits on line 3 of Form 3800.

traded partnerships unallowed credits from a passive activity. starting on page 4. Code B5—General partner’s g. Your modified adjusted gross Code A4—General partner’s general low-income housing credit (for income was not more than $100,000 (not credits from trade or business more than $50,000 if married filing property placed in service after 1989)

activities. Report the general credits on from rental real estate activities. separately and you lived apart from your Report the low-income housing credit for line 1r of Form 3800. If you did not spouse all year). materially participate in the trade or property placed in service after 1989 on 2. If you have a loss from a passive business activity, you must also include line 5 of Form 8586. Unless you were a activity in box 9 and you do not meet all

the general credits on line 3 of Form real estate professional and materially the conditions in 1 above, report the loss 3800. participated in the rental real estate following the Instructions for Form 8582 to activity, the low-income housing credit is figure how much of the loss you can Code A5—General partner’s a passive activity credit. report on Schedule E (Form 1040), Part nonconventional source fuel credit II, column (g). However, if the publicly Code B6—General partner’s from trade or business activities. traded partnership box is checked, report rehabilitation credit from rental real Report the credit for producing fuel from a the loss following the rules for Publicly estate activities. Report the nonconventional source on line 53 of traded partnerships starting on page 4. rehabilitation credit on line 1e of Form Form 1040 or line 6c of Schedule J, Form 3. If you were a real estate 3468, Investment Credit. Unless you were 1120. If you did not materially participate professional and you materially a real estate professional and materially in the trade or business activity, the participated in the activity, report box 9 participated in the rental real estate nonconventional source fuel credit is a income (loss) on Schedule E (Form activity, the credit is a passive activity passive activity credit. If the credit is from 1040), Part II, column (i) or (k). credit, and you must also file Form 3800. a passive activity, complete Form 4. If you have income from a passive Code B7—General partner’s 8582-CR (or Form 8810 for corporations) activity in box 9, Code B1, enter the alternative minimum tax adjustment to figure how much of the credit is income on Schedule E, Part II, column from rental real estate activities. An allowable. Enter the allowable amount on (h). However, if the publicly traded AMT adjustment must be reported on line line 53 of Form 1040 or line 6c of partnership box is checked, report the 15 of Form 6251. However, if the AMT Schedule J, Form 1120. income following the rules for Publicly adjustment is from a passive activity, it

Code A6—General partner’s traded partnerships starting on page 4. must be taken into account on line 18 with

alternative minimum tax adjustment other passive activities instead of being Code B2—General partner’s net from trade or business activities. An reported on line 15. capital gain (loss) from rental real AMT adjustment must be reported on line Code C1—General partner’s taxable estate activities. The net capital gain 15 of Form 6251. However, if the AMT income (loss) from other rental (loss) from a rental real estate activity is a adjustment is from a passive activity, it activities. Income (loss) reported in box passive activity amount unless you were must be taken into account on line 18 with 9, Code C1, is a passive activity amount a real estate professional (defined on adjustments and preferences from other for all general partners. Report a loss page 3) and you materially participated in passive activities instead of being following the Instructions for Form 8582. the activity. If the amount is either (a) a reported on line 15. loss that is not from a passive activity or Report income on Schedule E (Form

1040), Part II, column (h). However, if the Code B1—General partner’s taxable (b) a gain, report it on Schedule D (Form box for publicly traded partnerships is income (loss) from rental real estate 1040), line 12, column (f). If the amount is checked, report the income (loss) activities. Generally, the income (loss) a loss from a passive activity, report it

following the Instructions for Form 8582 to following the rules for Publicly traded reported in box 9, Code B1, is a passive partnerships starting on page 4. activity amount for all general partners. figure how much of the loss can be

However, the income (loss) in box 9 is not reported on Schedule D, line 12, column Code C2—General partner’s net

from a passive activity if you were a real (f). However, if the publicly traded capital gain (loss) from other rental

estate professional (defined on page 3) partnership box is checked, report the activities. The net capital gain (loss)

and you materially participated in the loss following the rules for Publicly from other rental activities is a passive

activity. traded partnerships starting on page 4. activity amount for all general partners.

Code B3—General partner’s 28% rate Report the gain on Schedule D (Form Use the following instructions to 1040), line 12, column (f). Report a loss gain (loss) from rental real estate determine where to enter the Code B1 following the Instructions for Form 8582 to activities. The 28% rate gain (loss) from amount: figure how much of the loss can be a rental real estate activity is a passive 1. If you have a loss from a passive reported on Schedule D, line 12, column activity amount unless you were a real activity in box 9, Code B1, and you meet (f). However, if the publicly traded estate professional (defined on page 3) all of the following conditions, enter the partnership box is checked, report the and you materially participated in the loss on Schedule E (Form 1040), Part II, loss following the rules for Publicly activity. If the amount is either (a) a loss column (g): traded partnerships starting on page 4. that is not from a passive activity or (b) a

a. You actively participated in the gain, report it on Schedule D (Form Code C3—General partner’s 28% rate

partnership rental real estate activities. 1040), line 12, column (g). If the amount gain (loss) from other rental activities.

See Special allowance for rental real is a loss from a passive activity, report it The 28% rate gain (loss) from other rental

estate activities on page 4. following the Instructions for Form 8582 to activities is a passive activity amount for

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all general partners. Report a gain on 4. Involved qualified real property Codes L1 Through L9—Foreign

Schedule D (Form 1040), line 12, column business indebtedness, as defined in Tax Credit Information

(g). Report a loss following the section 108(c)(3), unless the partner is a Use the information reported under Instructions for Form 8582 to figure how C corporation. Codes L1 through L9 to figure your much of the loss can be reported on This amount is applied, instead, to foreign tax credit. For more information, Schedule D, line 12, column (g). reduce certain tax attributes. File Form see Form 1116, Foreign Tax Credit However, if the publicly traded 982, Reduction of Tax Attributes Due to (Individual, Estate, Trust, or Nonresident partnership box is checked, report the Discharge of Indebtedness, to explain Alien Individual) and its instructions; loss following the rules for Publicly why any amount received from the Form 1118, Foreign Tax Credit— traded partnerships starting on page 4. discharge of indebtedness should be Corporations, and its instructions; and

Code C4—General partner’s general excluded and to report your reduction of Pub. 514, Foreign Tax Credit for

credits from other rental activities. tax attributes. Individuals. See page 5 of the Instructions

Report the general credits on line 1r of for Form 1116 for detailed instructions for

Form 3800. Because general credits from For a discharge of indebtedness not reporting foreign tax information from

other rental activities are passive activity described above, you must include this partnerships. Note: The line references in

credits for all general partners, you must amount in income on Schedule E, Part II, this section of the Form 1116 instructions

also include the general credits on line 3 column (h) or (k). do not apply to the Schedule K-1 of Form

of Form 3800. 1065-B. Code H—Tax-Exempt Interest Code C5—General partner’s Code L1—Name of foreign country or Income alternative minimum tax adjustment U.S. possession. Include on Form 1116, You must report on your return, as an from other rental activities. An AMT Part I, item l. For each country reported, item of information, your share of the adjustment must be reported on line 15 of the partnership must give you the amount tax-exempt interest received or accrued Form 6251. However, if the AMT and a description of your share of the by the partnership during the year. adjustment is from a passive activity, it following items for Codes L2 through L9.

must be taken into account on line 18 with For each country or possession being Individual partners must include this

amount on Form 1040, line 8b. Increase adjustments and preferences from other reported, a separate column in Part I and the adjusted basis of your interest in the passive activities instead of being a separate line in Part II is needed on partnership by this amount. reported on line 15. Form 1116.

Code D—Limited Partner’s 28% Code I—Limited Partner’s Code L2—Gross income from all

sources. Enter this amount on line 3e of Rate Gain (Loss) From Passive Rehabilitation Credit From Rental Form 1116. Activities Real Estate Activities

Code L3—Gross income sourced at Limited partners only. Report the Limited partners only. The 28% rate partner level. Although all this income gain (loss) is treated as being from a rehabilitation credit on line 1e of Form reported has been apportioned to foreign 3468. Because the credit is treated as trade or business that is a single passive source categories of income, you must being from a single passive activity, you activity. If a gain is reported, report it on nevertheless determine whether the

Schedule D (Form 1040), line 12, column must also file Form 3800. income being reported is U.S. source (g). If a loss is reported, report the loss Code J—Limited Partner’s income or foreign source income. See following the Instructions for Form 8582 to page 5 of the Instructions for Form 1116 Nonconventional Source Fuel figure how much of the loss can be for the rules to source the income Credit reported on Schedule D, line 12, column reported to you. Enter only foreign source (g). However, if the publicly traded Limited partners only. The income on lines 1 and 3d of Form(s) partnership box is checked, report the nonconventional source fuel credit is 1116. A separate Form 1116 or 1118 is loss following the rules for Publicly treated as being from a single passive required for each foreign source category traded partnerships starting on page 4. activity. Complete Form 8582-CR (or of income. Do not include income that you

Code E—Limited Partner’s 28% Form 8810 for corporations) to figure how determined to be U.S. source income.

much of the credit is allowable. Enter the Rate Gain (Loss) From Other Codes L4(a) Through L4(c)—Foreign allowable amount on line 53 of Form 1040

Activities gross income sourced at partnership or line 6c of Schedule J, Form 1120. level. The following types of income have The 28% gain (loss) from other activities Codes K1 and K2— already been sourced for you by the is not subject to the passive activity partnership. Include these amounts on limitations. Report the gain (loss) on Self-Employment lines 1 and 3d of the applicable Forms Schedule D (Form 1040), line 12, column Code K1—Net earnings (loss) from 1116 (i.e., the Forms 1116 for each (g). self-employment. Enter this amount on category of income provided to you).

Code F—Guaranteed Payments Schedule SE (Form 1040), line 2, Section • Code L4(a)—Passive foreign source

A or B, whichever is applicable. General income. Generally, these amounts are not passive partners should reduce this amount by • Code L4(b)—Listed foreign income, and you should report them on unreimbursed partnership expenses categories of income. Schedule E (Form 1040), Part II, column claimed. General partners who are • Code L4(c)—General limitation (k) (for example, guaranteed payments disqualified persons also should reduce foreign source income. for personal services). this amount by depletion claimed on oil Code L5—Interest expense allocated Code G—Income From Discharge and gas properties. If this amount is a and apportioned at the partner level. of Indebtedness loss, enter only the deductible amount on Include this amount on line 4b of the Schedule SE. For purposes of The amount reported under Code G is applicable Forms 1116. Do not include self-employment tax, no income from an excluded from your gross income to the any interest expense allocated and electing large partnership is treated as extent provided in section 108 if the apportioned to U.S. source income. farming or fishing income. discharge: Code L6—Other expenses allocated

1. Occurred in a title 11 case relating Code K2—Gross nonfarm income. If and apportioned at the partner level.

to bankruptcy, you are an individual partner, use this Include this amount on line 2 of the

2. Occurred when you were insolvent, amount to figure net earnings from applicable Forms 1116. Do not include

3. Involved qualified farm self-employment under the nonfarm any expenses allocated and apportioned

indebtedness, as defined in section optional method on Schedule SE (Form to U.S. source income on any line of Part

108(g), or 1040), Section B, Part II. I of Form 1116.

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Codes L7(a) Through Codes L7(c)— for you, your spouse, and your partnership interest immediately before

Deductions allocated and apportioned dependents. On line 30 of your 2002 the distribution (reduced by any cash

at partnership level to foreign source Form 1040, you may be allowed to deduct received in the distribution), you may

income. The following codes report the up to 70% of such amounts, even if you have to recognize gain on the appreciated

expenses allocated and apportioned by do not itemize deductions. If you do property. For property contributed after

the partnership to foreign source itemize deductions, enter on line 1 of June 8, 1997, the 5-year period is

categories of income. Include these Schedule A (Form 1040) any amounts not generally extended to 7 years. See

amounts on line 2 of the applicable Forms deducted on line 30 of Form 1040. section 737 for details.

1116 (i.e., the Forms 1116 for each Code N5—Distributions of money Code N6—Distributions of property category of income provided to you). (cash and marketable securities). Box other than money. Box 9, Code N6, • Code L7(a)—Deductions allocated 9, Code N5, shows the distributions the shows the partnership’s adjusted basis of and apportioned at partnership level to partnership made to you of cash and property other than money immediately passive foreign source income. certain marketable securities. The before the property was distributed to • Code L7(b)—Deductions allocated marketable securities are included at their you. In addition, the partnership will and apportioned at partnership level to fair market value on the date of attach a statement showing the cost basis listed foreign categories of income. distribution (minus your share of the and fair market value of each property • Code L7(c)—Deductions allocated partnership’s gain on the securities distributed. Decrease the adjusted basis and apportioned at partnership level to distributed to you). If the amount shown of your interest in the partnership by the general limitation foreign source here exceeds the adjusted basis of your amount of your basis in the distributed income. partnership interest immediately before property. Your basis in the distributed Code L8(a)—Total foreign taxes paid. the distribution, the excess is treated as property (other than in liquidation of your Include this amount in Part II of Form gain from the sale or exchange of your interest) is the smaller of: 1116. partnership interest. Generally, this gain • The partnership’s adjusted basis Code L8(b)—Total foreign taxes is treated as gain from the sale of a immediately before the distribution, or accrued. Include this amount in Part II of capital asset and should be reported on • The adjusted basis of your partnership Form 1116. the Schedule D for your return. However, interest reduced by any cash distributed the gain may be ordinary income. For Code L9—Reduction in taxes available in the same transaction. details, see Pub. 541. for credit. Enter this amount on line 12 If you received the property in

of Form 1116. The partnership will separately identify liquidation of your interest, your basis in

both of the following: the distributed property is equal to the Code M—Oil and Gas Activities • The fair market value of the marketable adjusted basis of your partnership interest

Generally, oil and gas income, securities when distributed (minus your reduced by any cash distributed in the

deductions, credits, and other items are share of the gain on the securities same transaction.

included in your distributive share of distributed to you). If you contributed appreciated property income or loss from passive loss • The partnership’s adjusted basis of

limitation activities, general credits, and to the partnership within 5 years of a those securities immediately before the

the alternative minimum tax adjustment. distribution of other property to you, and distribution.

However, distributive shares of all oil and Decrease the adjusted basis of your the fair market value of the other property

gas income, deductions, credits, and exceeded the adjusted basis of your interest in the partnership (but not below

other items are separately reported to partnership interest immediately before zero) by the amount of cash distributed to

partners who are disqualified persons the distribution (reduced by any cash you and the partnership’s adjusted basis received in the distribution), you may (defined on page 2) in accordance with of the distributed securities. Advances or

the regular partnership rules, here or on have to recognize gain on the appreciated drawings of money or property against

an attached schedule. property. For property contributed after your distributive share are treated as June 8, 1997, the 5-year period is A partner must notify the partnership of current distributions made on the last day generally extended to 7 years. See of the partnership’s tax year. its status as a disqualified person. section 737 for details. Your basis in the distributed Codes N1 Through N9— marketable securities (other than in Code N7—Gain eligible for section Miscellaneous liquidation of your interest) is the smaller 1202 exclusion. This gain from the sale

Code N1—Other tax-exempt income. of: or exchange of qualified small business

Increase the adjusted basis of your • The partnership’s adjusted basis in the stock (as defined in the Instructions for

interest in the partnership by the amount securities immediately before the Schedule D) is eligible for the 50%

shown in box 9, Code N1, but do not distribution increased by any gain section 1202 exclusion. The partnership

include it in income on your tax return. recognized on the distribution of the should also give you the name of the

securities or corporation that issued the stock, your Code N2—Nondeductible expenses. • The adjusted basis of your partnership share of the partnership’s adjusted basis The nondeductible expenses paid or interest reduced by any cash distributed and sales price of the stock, and the incurred by the partnership are not in the same transaction and increased by dates the stock was bought and sold. deductible on your tax return. Decrease any gain recognized on the distribution of Corporate partners are not eligible for the the adjusted basis of your interest in the the securities. section 1202 exclusion. The following partnership by this amount. If you received the securities in additional limitations apply at the partner Code N3—Unrelated business taxable liquidation of your partnership interest, level: income. The partnership will give you your basis in the marketable securities is 1. You must have held an interest in any information you need to figure equal to the adjusted basis of your the partnership when the partnership unrelated business taxable income under partnership interest reduced by any cash acquired the qualified small business section 512(a)(1) (but excluding any distributed in the same transaction and stock and at all times thereafter until the modifications required by paragraphs (8) increased by any gain recognized on the partnership disposed of the qualified through (15) of section 512(b)) for a distribution of the securities. small business stock. partner that is a tax-exempt organization. If, within 5 years of a distribution to you 2. Your distributive share of the Reminder: A partner is required to notify of marketable securities, you contributed eligible section 1202 gain cannot exceed the partnership of its tax-exempt status. appreciated property (other than those the amount that would have been

Code N4—Health insurance. Any securities) to the partnership and the fair allocated to you based on your interest in

amounts paid during the tax year for market value of those securities the partnership at the time the stock was

insurance that constitutes medical care exceeded the adjusted basis of your acquired.

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See the Instructions for Schedule D interest in the partnership at the time the share of foreign trading gross receipts

(Form 1040) for details on how to report stock was acquired, and (Code P1) but not the amount of the

the gain and the amount of the allowable 3. You must purchase other qualified extraterritorial income exclusion, the

exclusion. small business stock (as defined in the partnership met the foreign economic

Code N8—Gain eligible for section Instructions for Schedule D (Form 1040)) process requirements and claimed the

1045 rollover–stock replaced. This during the 60-day period that began on exclusion when figuring your distributive

gain is eligible for the section 1045 the date the stock was sold by the share of partnership income. You also

partnership. may need to know the amount of your rollover. Replacement stock has been

purchased by the partnership. The distributive share of foreign trading gross See the Instructions for Schedule D

partnership should also give you the receipts from this partnership to (Form 1040) for details on how to report name of the corporation that issued the determine if you met the $5 million or less the gain and the amount of the allowable stock, your share of the partnership’s exception discussed above for purposes postponed gain. adjusted basis and sales price of the of qualifying for an extraterritorial income

stock, and the dates the stock was bought Code O—Unrecaptured Section exclusion from other sources.

and sold. Corporate partners are not 1250 Gain Note: Upon request, the partnership

eligible for the section 1045 rollover. To Report this gain on line 11 of the should furnish you a copy of the

qualify for the section 1045 rollover: Unrecaptured Section 1250 Gain partnership’s Form 8873 if there is a

1. You must have held an interest in Worksheet on page D-7 of the reduction for international boycott

Instructions for Schedule D (Form 1040). operations, illegal bribes, kickbacks, etc. the partnership during the entire period in

which the partnership held the qualified Do not report the gain on line 5 as stated Code Q—Qualified 5-year Gain small business stock (more than 6 in the worksheet instructions.

Report the qualified 5-year gain on line 5 months prior to the sale), and Codes P1 and P2—Extraterritorial of the Qualified 5-year Gain Worksheet 2. Your distributive share of the gain Income Exclusion for Schedule D (Form 1040), line 29. eligible for the section 1045 rollover

cannot exceed the amount that would a. Partnership did not claim the Code R—Commercial

have been allocated to you based on your exclusion. If the partnership reports your Revitalization Deduction

interest in the partnership at the time the distributive share of foreign trading gross Follow the instructions on Form 8582 for stock was acquired. receipts (Code P1) and the extraterritorial commercial revitalization deductions from income exclusion (Code P2), the See the Instructions for Schedule D rental real estate activities to figure how partnership was not entitled to claim the (Form 1040) for details on how to report much of the deduction can be reported on exclusion because it did not meet the the gain and the amount of the allowable Schedule E, Part II, column (g). foreign economic process requirements. postponed gain. You may qualify for your distributive share Tax Shelter Disclosure Statement

Code N9—Gain eligible for section of this exclusion because the Any information you need to complete a 1045 rollover–stock not replaced. This partnership’s foreign trading gross tax shelter disclosure statement for each gain is eligible for the section 1045 receipts for the tax year were $5 million or reportable transaction in which the rollover. Replacement stock has not been less. To qualify for this exclusion, your partnership participates. As a partner, you purchased by the partnership. The foreign trading gross receipts from all are an indirect participant in any tax partnership should also give you the sources for the tax year also must have shelter transaction entered into by the name of the corporation that issued the been $5 million or less. See Form 8873, partnership. You are required to file a tax stock, your share of the partnership’s Extraterritorial Income Exclusion, for more shelter disclosure statement for each of adjusted basis and sales price of the information. If you qualify for the these transactions with your income tax stock, and the dates the stock was bought exclusion, limited partners must report the return. See your income tax return and sold. Corporate partners are not extraterritorial exclusion amount (Code instructions (Schedule E instructions for eligible for the section 1045 rollover. To P2) as a deduction reducing the amount Form 1040) for more information. qualify for the section 1045 rollover: reported in box 1 (see the box 1 Other 1. You must have held an interest in instructions on page 6). General partners

the partnership during the entire period in who qualify for the exclusion must report Any other information you may need to

which the partnership held the qualified the Code P2 amount in accordance with file with your return not shown elsewhere

small business stock (more than 6 the instructions for box 9, Code A1, B1, or on Schedule K-1. The partnership should

months prior to the sale), C1, whichever applies. give you a description and the amount of

2. Your distributive share of the gain your share for each of these items. b. Partnership claimed the exclusion. If

eligible for the section 1045 rollover the partnership reports your distributive cannot exceed the amount that would

have been allocated to you based on your

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