Department of the Treasury 2005 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.

General Instructions Income, etc., from other activities identifying numbers of the transferor and

(investment and portfolio income and (if known) of the transferee, and the

deductions) are reported in boxes 2, 3, exchange date. Purpose of Schedule K-1 4b, and 6 for both limited and general An exception to this rule is made for The partnership uses Schedule K-1 to partners. sales or exchanges of publicly traded report your share of the partnership’s partnership interests for which a broker is income, deductions, credits, etc. Keep it Errors required to file Form 1099-B, Proceeds for your records. Do not file it with your You must report partnership items shown From Broker and Barter Exchange tax return. The partnership has filed a on your Schedule K-1 (and any attached Transactions.

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

you can claim on your tax return may be a change to your distributive share of a Any person who holds, directly or

less than the amount reported on partnership item, the partnership should indirectly, an interest in a partnership as a

Schedule K-1. It is the partner’s file an amended partnership return and nominee for another person must furnish

responsibility to consider and apply any send you a corrected Schedule K-1. a written statement to the partnership by

applicable limitations. See Limitations on the last day of the month following the If the treatment on your original or Losses, Deductions, and Credits end of the partnership’s tax year. This amended return is inconsistent with the beginning on page 2 for more information. statement must include the name, partnership’s treatment, you may be address, and identifying number of the subject to the accuracy-related penalty. Electing Large nominee and such other person, This penalty is in addition to any tax that description of the partnership interest held Partnerships (ELPs) results from making your amount or as nominee for that person, and other treatment of the item consistent with that This partnership has elected simplified information required by Temporary shown on the partnership’s return. Any reporting requirements intended to make Regulations section 1.6031(c)-1T. A deficiency that results from making the it simpler for you to report your share of nominee who fails to furnish this amounts consistent may be assessed partnership income, credits, deductions, statement must furnish to the person for immediately. etc. Generally, income, capital gains, whom the nominee holds the partnership credits, and deductions are combined at interest a copy of Schedule K-1 and the partnership level so that the number Sale or Exchange of related information within 30 days of of partnership items separately reported Partnership Interest receiving it from the partnership. to partners is reduced. Most limitations Generally, a partner who sells or A nominee who fails to furnish when and elections affecting partnership exchanges a partnership interest in a due all the information required by income are made by the electing large section 751(a) exchange must notify the Temporary Regulations section partnership (ELP). partnership, in writing, within 30 days of 1.6031(c)-1T, or who furnishes incorrect

For limited partners, income and other the exchange (or, if earlier, by January 15 information, is subject to a $50 penalty for

items from the partnership’s trade or of the calendar year following the each statement for which a failure occurs.

business and rental activities are treated calendar year in which the exchange The maximum penalty is $100,000 for all

as being from a trade or business that is a occurred). A “section 751(a) exchange” is such failures during a calendar year. If the

single passive activity. These items are any sale or exchange of a partnership nominee intentionally disregards the

reported in boxes 1, 4a, and 5, with most interest in which any money or other requirement to report correct information,

credits being reported in boxes 7 and 8. property received by the partner in each $50 penalty increases to $100 or, if

exchange for that partner’s interest is greater, 10% of the aggregate amount of General partners must make their own attributable to unrealized receivables (as items required to be reported, and the determinations as to whether the activities defined in section 751(c)) or inventory $100,000 maximum does not apply. are passive for them. Therefore, items (as defined in section 751(d)). partnership items from trade or business,

rental real estate, and other rental The written notice to the partnership International Boycotts

activities are separately reported for each must include the names and addresses of Every partnership that had operations in,

activity in box 9. both parties to the exchange, the or related to, a boycotting country,

Cat. No. 26141W
company, or a national of a country must you can claim to the amount you could Change of Tax Year file Form 5713, International Boycott actually lose in the activity. However, if If the partnership attaches a statement to Report. you acquired your partnership interest Schedule K-1 indicating that it has before 1987, the at-risk rules do not apply If the partnership cooperated with an changed its tax year and that you can to losses from an activity of holding real international boycott, it must provide you elect to report your distributive share of

with a copy of its Form 5713. As a property placed in service before 1987 by the income attributable to that change the partnership. The activity of holding general or limited partner, you must file ratably over 4 tax years, see Rev. Proc. mineral property does not qualify for this your own Form 5713 to report the 2003-79, 2003-45 I.R.B. 1036, for details exception. The partnership should identify partnership’s activities and any other on making the election. To make the on an attachment to Schedule K-1 the boycott operations that you may have. election, you must file Form 8082, Notice amount of any losses that are not subject You may lose certain tax benefits if the of Inconsistent Treatment or to the at-risk limitations. partnership participated in, or cooperated Administrative Adjustment Request, with

with, an international boycott. See Form your income tax return for each of the 4 Generally, you are not at risk for 5713 and its instructions for more tax years. File Form 8082 for this purpose amounts such as the following. information. in accordance with Rev. Proc. 2003-79 • Nonrecourse loans used to finance the

instead of the Form 8082 instructions. activity, to acquire property used in the Definitions activity, or to acquire your interest in the

Additional Information activity, that are not secured by your own General Partner property (other than the property used in For more information on the treatment of

A general partner is a partner who is the activity). See the instructions for partnership income, deductions, credits, personally liable for partnership debts. Partner’s Share of Liabilities on page 5 for etc., see the following: the exception for qualified nonrecourse • Pub. 541, Partnerships; Limited Partner financing secured by real property. • Pub. 535, Business Expenses; and A limited partner is a partner in a • Cash, property, or borrowed amounts • Pub. 925, Passive Activity and At-Risk partnership formed under a state limited Rules. used in the activity (or contributed to the

partnership law, whose personal liability activity, or used to acquire your interest in To get forms and publications, see the for partnership debts is limited to the the activity) that are protected against instructions for your tax return. amount of money or other property that loss by a guarantee, stop-loss agreement,

the partner contributed or is required to or other similar arrangement (excluding

contribute to the partnership. Some Limitations on Losses, casualty insurance and insurance against

members of other entities, such as Deductions, and Credits tort liability).

domestic or foreign business trusts or • Amounts borrowed for use in the There are three separate potential limited liability companies that are activity from a person who has an interest limitations on the amount of partnership classified as partnerships, may be treated in the activity, other than as a creditor, or losses that you can deduct on your return. as limited partners for certain purposes. who is related, under section 465(b)(3), to These limitations and the order in which For example, see Temporary Regulations a person (other than you) having such an you must apply them are as follows: the section 1.469-5T(e)(3), which treats all interest.

members with limited liability as limited basis rules, the at-risk limitations, and the

passive activity limitations. Each of these You should get a separate statement partners for purposes of section 469(h)(2) limitations is discussed separately below. of income, expenses, etc., for each (relating to the passive activity loss activity from the partnership. limitation rules). Basis Rules

Disqualified Person Generally, you cannot claim your share of Passive Activity Limitations

a partnership loss (including a capital Section 469 provides rules that limit the If you are a partner in a partnership loss) to the extent that it is greater than deduction of certain losses and credits. holding oil and gas properties, you are a the adjusted basis of your partnership These rules apply to partners who: “disqualified person” if: interest at the end of the partnership’s tax • Are individuals, estates, trusts, closely • You are an oil or natural gas retailer year. Any losses and deductions not held corporations, or personal service described in section 613A(d)(2) or crude allowed this year because of the basis corporations and oil refiner described in section 613A(d)(4) limit can be carried forward indefinitely • Have a passive activity loss or credit for

or and deducted in a later year subject to the the tax year. • Your average daily production of basis limit for that year. Individuals, estates, and trusts. If you domestic crude oil and natural gas The partnership is not responsible for have a passive activity loss or credit, use exceeds 500 barrels for your tax year in

which the partnership’s tax year ends. keeping the information needed to figure Form 8582, Passive Activity Loss

See section 776(b) for more details. the basis of your partnership interest. You Limitations, to figure your allowable

can figure the adjusted basis of your passive losses and Form 8582-CR, Note. Disqualified persons must report partnership interest by adding items that Passive Activity Credit Limitations, to items of income, gain, loss, deduction, increase your basis and then subtracting figure your allowable passive credits. and credit attributable to partnership oil items that decrease your basis. and gas properties as if the special rules Corporations. Use Form 8810,

for ELPs did not apply. Use the worksheet on page 3 to figure Corporate Passive Activity Loss and the basis of your interest in the Credit Limitations. See the instructions for

Nonrecourse Loans partnership. more information.

Nonrecourse loans are those liabilities of Note. Additional basis adjustments may If the publicly traded partnership the partnership for which no partner bears apply to partners claiming deductions for (PTP) box on Schedule K-1 is the economic risk of loss. depletion. See Pub. 541 for more details. CAUTION checked, do not report passive

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At-Risk Limitations income (loss) from the partnership on Elections Form 8582. See page 5 for the special Generally, the partnership decides how to Generally, if you have (a) a loss or other rules for PTPs. deduction from any activity carried on as figure taxable income from its operations. a trade or business or for the production For limited partners of an ELP, all However, two elections are made by you of income by the partnership and (b) income, loss, deductions, and credits separately on your income tax return and amounts in the activity for which you are from trade or business and rental not by the partnership. These elections not at risk, you will have to complete activities generally are reported as being are made under the following code Form 6198, At-Risk Limitations, to figure from a trade or business that is a single sections. your allowable loss. passive activity. • Section 108(b)(5) (income from the

discharge of indebtedness). The at-risk rules generally limit the However, the determination of

• Section 901 (foreign tax credit). amount of loss and other deductions that whether an activity is a passive activity

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must be made by any partner who is Passive activities do not include: details on making this election, see the

either a: 1. Trade or business activities in Instructions for Schedule E (Form 1040).

• General partner or which you materially participated. If you are married filing jointly, either • Limited partner who is a disqualified 2. Rental real estate activities in which you or your spouse must separately meet person (as defined on page 2) with you materially participated if you were a both of the above conditions, without respect to items of income, gain, loss, taking into account services performed by “real estate professional” for the tax year. deduction, and credit attributable to You were a the other spouse. real estate professional only if partnership oil and gas properties. you met both of the following conditions. A real property trade or business is In addition, the partnership is required any real property development, a. More than half of the personal to provide each general partner and redevelopment, construction, services you performed in trades or disqualified person the information reconstruction, acquisition, conversion, businesses were performed in real necessary to comply with the passive rental, operation, management, leasing, property trades or businesses in which activity rules of section 469. Items of or brokerage trade or business. Services you materially participated and income, gain, loss, credit, etc., must be you performed as an employee are not separately reported to general partners b. You performed more than 750 treated as performed in a real property for each trade or business, rental real hours of services in real property trades trade or business unless you owned more estate, and other rental activity. or businesses in which you materially than 5% of the stock (or more than 5% of participated. the capital or profits interest) in the Except for the PTP discussion on employer. page 5, the following information Note. For a closely held C corporation 3. Working interests in oil or gas CAUTION on passive activity limitations (defined in section 465(a)(1)(B)), the

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wells. applies only to general partners. above conditions are treated as met if 4. The rental of a dwelling unit any Generally, passive activities include: more than 50% of the corporation’s gross partner used for personal purposes during receipts were from real property trades or 1. Trade or business activities in the year for more than the greater of 14 businesses in which the corporation which you did not materially participate days or 10% of the number of days that materially participated. and the residence was rented at fair rental

2. Activities that meet the definition of For purposes of this rule, each interest value.

rental activities under Temporary in rental real estate is a separate activity, 5. Activities of trading personal

Regulations section 1.469-1T(e)(3) and unless you elect to treat all interests in property for the account of owners of

Regulations section 1.469-1(e)(3). rental real estate as one activity. For interests in the activities.

Material participation. You must

Worksheet for Adjusting the Basis of a Partner’s Interest in the Partnership determine if you (a) materially participated

(Keep for your records.) in each trade or business activity held

through the partnership and (b) were a

real estate professional (defined above), 1. Your adjusted basis at the end of the prior year. Do not enter less in each rental real estate activity held than zero. Enter -0- if this is your first tax year. ............. 1. through the partnership. All

Increases: determinations of material participation

are made based on your participation 2. Money and your adjusted basis in property contributed to the during the partnership’s tax year. partnership less the associated liabilities (but not less than zero). 2.

Material participation standards for 3. Your increased share of or assumption of partnership liabilities. partners who are individuals are listed (Subtract your share of liabilities shown on your 2004 Schedule below. Special rules apply to certain K-1 from your share of liabilities shown on your 2005 Schedule K-1 retired or disabled farmers and to the

and add the amount of any partnership liabilities you assumed surviving spouses of farmers. See the during the tax year.) ............................... 3. Instructions for Form 8582 for details.

4. Your share of the partnership’s income or gain (including Corporations should refer to the

tax-exempt income) ............................... 4. Instructions for Form 8810 for the material

participation standards that apply to them. 5. Any gain recognized this year on contributions of property. Do not

include gain from transfer of liabilities .................... 5. Individuals (other than limited

partners). If you are an individual (either Decreases: a general partner or a limited partner who

owned a general partnership interest at all 6. Withdrawals and distributions of money and the adjusted basis of times during the tax year), you materially property distributed to you from the partnership. Do not include the participated in an activity only if one or amount of property distributions included in the partner’s income more of the following apply. (taxable income) ................................. 6.

1. You participated in the activity for Caution. A distribution may be taxable if the amount exceeds your more than 500 hours during the tax year. adjusted basis of your partnership interest immediately before the 2. Your participation in the activity for distribution. the tax year constituted substantially all

7. Your share of the partnership’s nondeductible expenses that are the participation in the activity of all

not capital expenditures ............................. 7. individuals (including individuals who are

not owners of interests in the activity for 8. Your share of the partnership’s losses and deductions (including the tax year). capital losses) ................................... 8. 3. You participated in the activity for

more than 100 hours during the tax year, 9. Your adjusted basis in the partnership at end of this tax year. (Add and your participation in the activity for lines 1 through 5 and subtract lines 6 through 8 from the total. If the tax year was not less than the zero or less, enter -0-.) ............................. 9. participation in the activity of any other

Caution. The deduction for your share of the partnership’s losses individual (including individuals who were

and deductions is limited to your adjusted basis in your partnership not owners of interests in the activity) for

interest. If you entered zero on line 9 and the amount computed for the tax year.

line 9 was less than zero, a portion of your share of the partnership 4. The activity was a significant losses and deductions may not be deductible (See Basis Rules on participation activity for the tax year, and page 2 for more information.) you participated in all significant

participation activities (including activities

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outside the partnership) during the year the amounts from that activity are If your modified adjusted gross income

for more than 500 hours. A significant passive. Report passive income (losses), (defined below) is $100,000 or less

participation activity is any trade or deductions, and credits as follows. ($50,000 or less if married filing

business activity in which you participated separately), your loss is deductible up to 1. If you have an overall gain (the for more than 100 hours during the tax the amount of the maximum special excess of income over deductions and

year and in which you did not materially allowance referred to in the preceding losses, including any prior year unallowed participate under any of the material paragraph. If your modified adjusted loss) from a passive activity, report the participation tests (other than this test 4). gross income is more than $100,000 income, deductions, and losses from the 5. You materially participated in the (more than $50,000 if married filing activity as indicated in the instructions for activity for any 5 tax years (whether or not separately), the special allowance is the boxes in which those items were

consecutive) during the 10 tax years that limited to 50% of the difference between reported. immediately precede the tax year. $150,000 ($75,000 if married filing 2. If you have an overall loss (the 6. The activity was a personal service separately) and your modified adjusted excess of deductions and losses, activity and you materially participated in gross income. When modified adjusted including any prior year unallowed loss, the activity for any 3 tax years (whether or gross income is $150,000 or more over income) or credits from a passive not consecutive) preceding the tax year. ($75,000 or more if married filing activity, report the income, deductions, A personal service activity involves the separately), there is no special allowance. losses, and credits from all passive performance of personal services in the activities using the Instructions for Form Modified adjusted gross income is your fields of health, law, engineering, 8582 or Form 8582-CR (or Form 8810), to adjusted gross income figured without architecture, accounting, actuarial see if your deductions, losses, and credits taking into account: science, performing arts, consulting, or are limited under the passive activity • Any passive activity loss. any other trade or business in which rules. • Any rental real estate loss allowed capital is not a material income-producing

Special allowance for rental real estate under section 469(c)(7) to real estate factor. professionals (as defined previously). 7. Based on all the facts and activities. If you actively participated in a • Any taxable social security or circumstances, you participated in the rental real estate activity, you may be equivalent railroad retirement benefits. activity on a regular, continuous, and able to deduct up to $25,000 of the loss

substantial basis during the tax year. from the activity from nonpassive income. • Any deductible contributions to an IRA

or certain other qualified retirement plans This “special allowance” is an exception Work counted toward material under section 219. to the general rule disallowing losses in participation. Generally, any work that • The student loan interest deduction. excess of income from passive activities. you or your spouse do in connection with • The tuition and fees deduction. The special allowance is not available if an activity held through a partnership • The deduction for one-half of you were married, filed a separate return (where you own your partnership interest self-employment taxes. for the year, and did not live apart from at the time the work is done) is counted • The exclusion from income of interest your spouse at all times during the year. toward material participation. However, from Series EE and I U.S. Savings Bonds Only individuals and qualifying estates work in connection with the activity is not used to pay higher education expenses. can actively participate in a rental real counted toward material participation if • The exclusion of amounts received estate activity. Estates (other than either of the following applies. under an employer’s adoption assistance qualifying estates), trusts, and program. 1. The work is not the sort of work that corporations cannot actively participate. owners of the activity would usually do You are not considered to actively Commercial revitalization

and one of the principal purposes of the deduction. The special $25,000 participate in a rental real estate activity if work that you or your spouse does is to allowance for the commercial at any time during the tax year your avoid the passive loss or credit revitalization deduction from rental real interest (including your spouse’s interest) limitations. estate activities is not subject to the active in the activity was less than 10% (by 2. You do the work in your capacity as participation rules or modified adjusted value) of all interests in the activity. an investor and you are not directly gross income limits discussed above. See Active participation is a less stringent involved in the day-to-day operations of Code R—Commercial Revitalization requirement than material participation. the activity. Examples of work done as an Deduction on page 10. investor that would not count toward You may be treated as actively

material participation include: participating if you participated, for Special rules for certain other

example, in making management activities. If you have net income (loss), a. Studying and reviewing financial decisions or arranging for others to deductions, or credits from any activity to statements or reports on operations of the provide services (such as repairs) in a which special rules apply, the partnership activity. significant and bona fide sense. will identify the activity and all amounts b. Preparing or compiling summaries Management decisions that can count as relating to it on Schedule K-1 or on an or analyses of the finances or operations active participation include approving new attachment. of the activity for your own use. tenants, deciding rental terms, approving c. Monitoring the finances or If you have net income subject to capital or repair expenditures, and other operations of the activity in a recharacterization under Temporary similar decisions. nonmanagerial capacity. Regulations section 1.469-2T(f) and An estate is a qualifying estate if the Regulations section 1.469-2(f), report Effect of determination. Income decedent would have satisfied the active such amounts according to the (loss), deductions, and credits from an participation requirement for the activity Instructions for Form 8582 (or Form activity are nonpassive if you determine for the tax year the decedent died. A 8810). that: qualifying estate is treated as actively • You materially participated in a trade or participating for tax years ending less If you have net income (loss), business activity of the partnership or than 2 years after the date of the deductions, or credits from any of the • You were a real estate professional in a decedent’s death. following activities, treat such amounts as rental real estate activity of the The maximum special allowance that nonpassive and report them as instructed partnership. single individuals and married individuals in these instructions.

If you determine that you did not filing a joint return can qualify for is 1. Working interests in oil and gas

materially participate in a trade or $25,000. The maximum is $12,500 for wells.

business activity of the partnership or if married individuals who file separate 2. The rental of a dwelling unit any

you have income (loss), deductions, or returns and who live apart all times during partner used for personal purposes during

credits from a rental activity of the the year. The maximum special allowance the year for more than the greater of 14

partnership (other than a rental real for which an estate can qualify is $25,000 days or 10% of the number of days that

estate activity in which you materially reduced by the special allowance for the residence was rented at fair rental

participated as a real estate professional), which the surviving spouse qualifies. value.

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3. Trading personal property for the Example. If you have Schedule E not limited by the passive loss rules. A

account of owners of interests in the income of $8,000, and a Form 4797 prior fully taxable transaction is one in which

activity. year unallowed loss of $3,500 from the you recognize all your realized gain

passive activities of a particular PTP, you (loss). Report the income and losses on

Self-charged interest. The partnership have a $4,500 overall gain ($8,000 − the forms and schedules you normally

must report any “self-charged” interest $3,500). On Schedule E (Form 1040), line use.

income or expense that resulted from 28, report the $4,500 net gain as

nonpassive income in column (j). In Note. For rules on the disposition of an loans between you and the partnership column (g), report the remaining entire interest reported using the (or between the partnership and another Schedule E gain of $3,500 ($8,000 − installment method, see the Instructions partnership in which you have an $4,500). On the appropriate line of Form for Form 8582. interest). If there was more than one

activity, the partnership will provide a 4797, report the prior year unallowed loss

statement allocating the interest income of $3,500. Be sure to enter “From PTP” to

or expense with respect to each activity. the left of each entry space.

3. If you have an overall loss (but did Specific Instructions The self-charged interest rules do not

apply to your partnership interest if the not dispose of your entire interest in the

partnership made an election under PTP to an unrelated person in a fully Publicly Traded

Regulations section 1.469-7(g) to avoid taxable transaction during the year), the Partnership (PTP) the application of these rules. See the losses are allowed to the extent of the

income, and the excess loss is carried If the “publicly traded partnership” box is Instructions for Form 8582 for more

forward to use in a future year when you checked, you are a partner in a publicly information.

have income to offset it. Report as a traded partnership (PTP) and must follow

Publicly traded partnerships (PTPs). passive loss on the schedule or form you the rules under Publicly traded

The passive activity limitations are normally use the portion of the loss equal partnerships discussed above.

applied separately for items (other than to the income. Report the income as the low-income housing credit and the passive income on the form or schedule Partner’s Share of

rehabilitation credit) from each publicly you normally use. traded partnership (PTP). Thus, a net Liabilities

Example. You have a Schedule E loss passive loss from a PTP may not be The partnership will show your share of of $12,000 (current year losses plus prior deducted from other passive income. the partnership’s nonrecourse liabilities, year unallowed losses) and a Schedule D Instead, a passive loss from a PTP is partnership-level qualified nonrecourse gain of $7,200. Report the $7,200 gain on suspended and carried forward to be financing, and other liabilities as of the the appropriate line of Schedule D. On applied against passive income from the end of the partnership’s tax year. If you Schedule E (Form 1040), line 28, report same PTP in later years. If the partner’s terminated your interest in the partnership $7,200 of the losses as a passive loss in entire interest in the PTP is completely during the tax year, the amounts should column (f). Carry forward to 2006 the disposed of, any unused losses are reflect the share that existed immediately unallowed loss of $4,800 ($12,000 − allowed in full in the year of disposition. before the total disposition. A partner’s $7,200). “other liability” is any partnership liability If you have an overall gain from a PTP, If you have unallowed losses from for which a partner is personally liable. the net gain is nonpassive income. In more than one activity of the PTP or from Use the total of the three amounts for addition, the nonpassive income is the same activity of the PTP that must be computing the adjusted basis of your included in investment income to figure reported on different forms, you must partnership interest. your investment interest expense allocate the unallowed losses on a pro

deduction. rata basis to figure the amount allowed Generally, you can use only the

from each activity or on each form. amounts shown next to “Qualified Do not report passive income, gains, nonrecourse financing” and “Other” to or losses from a PTP on Form 8582. To allocate and keep a record of compute your amount at risk. Do not Instead, use the following rules to figure the unallowed losses, use include any amounts that are not at risk if and report on the proper form or schedule Worksheets 5, 6, and 7 of Form such amounts are included in either of

TIP

your income, gains, and losses from 8582. List each activity of the PTP in these categories. passive activities that you held through Worksheet 5. Enter the overall loss from If your partnership is engaged in two or each PTP you owned during the tax year. each activity in column (a). Complete more different types of activities subject to 1. Combine any current year income, column (b) of Worksheet 5 according to the at-risk provisions, or a combination of gains (losses), and any prior year its instructions. Multiply the total at-risk activities and any other activity, the unallowed losses to see if you have an unallowed loss from the PTP by each partnership should give you a statement overall gain (loss) from the PTP. Include ratio in column (b) and enter the result in showing your share of nonrecourse only the same types of income and losses column (c) of Worksheet 5. Then, liabilities, partnership-level qualified you would include in your net income or complete Worksheet 6 if all the loss from nonrecourse financing, and other loss from a non-PTP passive activity. See the same activity is to be reported on one liabilities for each activity. Pub. 925 for more details. form or schedule. Use Worksheet 7 Qualified nonrecourse financing. 2. If you have an overall gain, the net instead of Worksheet 6 if you have more Qualified nonrecourse financing generally gain portion (total gain minus total losses) than one loss to be reported on different includes financing for which no one is is nonpassive income. On the form or forms or schedules for the same activity.

Enter the net loss plus any prior year personally liable for repayment that is schedule you normally use, report the net borrowed for use in an activity of holding gain portion as nonpassive income and unallowed losses in column (a) of

Worksheet 6 (or Worksheet 7 if real property and that is loaned or the remaining income and the total losses guaranteed by a federal, state, or local as passive income and loss. To the left of applicable). The losses in column (c) of

Worksheet 6 (column (e) of Worksheet 7) government or borrowed from a the entry space, enter “From PTP.” It is “qualified” person. Qualified nonrecourse important to identify the nonpassive are the allowed losses to report on the financing secured by real property used in income because the nonpassive portion is forms or schedules. Report both these an activity of holding real property that is included in modified adjusted gross losses and any income from the PTP on subject to the at-risk rules is treated as an income for purposes of figuring on Form the forms and schedules you normally amount at risk. 8582 the “special allowance” for active use.

participation in a non-PTP rental real 4. If you have an overall loss and you Qualified persons. Qualified persons

estate activity. In addition, the nonpassive disposed of your entire interest in the PTP include any persons actively and regularly

income is included in investment income to an unrelated person in a fully taxable engaged in the business of lending

when figuring your investment interest transaction during the year, your losses money, such as a bank or savings and

expense deduction on Form 4952, (including prior year unallowed losses) loan association. Qualified persons

Investment Interest Expense Deduction. allocable to the activity for the year are generally do not include related parties

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(unless the nonrecourse financing is amounts in the boxes on your 2006 If a loss is reported in box 4a, report it

commercially reasonable and on income tax return. following the Form 8582 instructions to

substantially the same terms as loans figure how much of the loss can be If you have losses, deductions, or involving unrelated persons), the seller of reported on Schedule D (Form 1040), line credits from a prior year that were not the property, or a person who receives a 12, column (f). However, if the PTP box is deductible or usable because of certain fee for the partnership’s investment in the checked, report the loss following the limitations, such as the basis rules or the real property. rules for Publicly traded partnerships . at-risk limitations, take them into account See Pub. 925 for more information on in determining your net income, loss, or Box 4b. Net Capital Gain or qualified nonrecourse financing. credits for this year. However, except for (Loss) From Other Activities Both the partnership and you must passive activity losses and credits, do not Net capital gain or (loss) from other meet the qualified nonrecourse rules on combine the prior-year amounts with any activities is not subject to the passive this debt before you can include the amounts shown on this Schedule K-1 to activity limitations. Report the gain or amount shown next to “Qualified get a net figure to report on any (loss) on Schedule D (Form 1040), line nonrecourse financing” in your at-risk supporting schedules, statements, or 12, column (f). computation. forms attached to your return. Instead,

report the amounts separately on the Box 5. Net Passive AMT See Limitations on Losses,

Deductions, and Credits attached schedule, statement, or form on Adjustment beginning on a year-by-year basis. page 2 for more information on the at-risk Limited partners only. Use this amount

limitations. For amounts other than those shown (as well as your adjustments and tax on Schedule K-1, enter each item on a preference items from other sources) to Tax Shelter Registration separate line of Part II of Schedule E prepare your Form 6251, Alternative

Number (Form 1040). Minimum Tax— Individuals; Form 4626,

Alternative Minimum Tax—Corporations; A partnership that is a Box 1. Taxable Income (Loss) or Schedule I of Form 1041, U.S. Income registration-required tax shelter or has From Passive Activities Tax Return for Estates and Trusts. The

invested in a registration-required tax Limited partners only. Any amount adjustment is treated as being from a shelter, should have entered a tax shelter reported in box 1 is treated as being from trade or business that is a single passive registration number in this box. If you a trade or business that is a single activity. claim or report any income, loss, passive activity. Report this amount as Individuals should enter the amount on deduction, or credit from a tax shelter, follows. line 18 of Form 6251, where it is taken you must attach Form 8271, Investor • If income is reported in box 1, report into account with adjustments and Reporting of Tax Shelter Registration the income on Schedule E (Form 1040), preferences from other passive activities. Number, to your tax return. line 28, column (g). However, if the PTP A partnership that has invested in a tax box is checked, report the income Box 6. Net Other AMT

shelter must provide you with a copy of its following the rules for Publicly traded Adjustment

Form 8271 with your Schedule K-1. Use partnerships on page 5. Individual general and limited partners the information on this Form 8271 to • If a loss is reported in box 1, follow the should enter this amount on line 15 of

complete your Form 8271. If the Instructions for Form 8582 to figure how Form 6251.

partnership itself is a registration-required much of the loss can be reported on tax shelter, use the information on Schedule E (Form 1040), line 28, column Box 7. General Credits

Schedule K-1 (that is, name of the (f). However, if the PTP box is checked, Limited partners only. Enter this amount

partnership, partnership identifying report the loss following the rules for from box 7 on line 1y of Form 3800, number, and tax shelter registration Publicly traded partnerships. General Business Credit. Because

number) to complete your Form 8271. general credits are treated as being from Box 2. Taxable Income (Loss) a trade or business that is a single

Boxes 1 Through 9 From Other Activities passive activity, you must also include the

The amounts shown in boxes 1 through 9 This amount is not subject to the passive box 7 amount on line 3 of Form 3800.

reflect your share of income, loss, activity limitations. Report the amount as Box 8. Low-Income Housing deductions, credits, etc., from the follows. Credit partnership. These amounts do not take • If the amount is income, report it on

Schedule E (Form 1040), line 28, column Limited partners only. Enter this amount into consideration the following

limitations. (j). on line 4 of Form 8586, Low-Income

• If the amount is a loss, report it on Housing Credit. This credit is treated as 1. The adjusted basis of your Schedule A (Form 1040), line 27. being from a single passive activity. partnership interest,

2. The amount for which you are at Box 3. Qualified Dividends Box 9. Other

risk, or

3. The passive activity limitations. Report this amount on lines 9a and 9b of Codes A Through C Form 1040. General partners in an ELP must For information on these provisions, Note. Qualified dividends are excluded separately account for any items see Limitations on Losses, Deductions, from investment income, but you can attributable to passive loss limitation and Credits beginning on page 2. elect to include part or all of these activities to the extent necessary to For individuals, the following amounts in investment income. See the comply with the section 469 passive loss

instructions explain how to report the instructions for line 4g of Form 4952, rules. Therefore, the partnership is

amounts shown in the boxes. For all other Investment Interest Expense Deduction, required to report income or (loss), capital

entities, report the amounts in the boxes for important information on making this gain or (loss), 28% rate gain or (loss), as instructed on your income tax return. election. credits, and the alternative minimum tax

The line numbers in these instructions adjustment separately for all trade or Box 4a. Net Capital Gain or are references to forms in use for business activities, rental real estate

calendar year 2005. If you file your tax (Loss) From Passive Activities activities, and rental activities other than

rental real estate. return on a calendar year basis, but your Limited partners only. The net capital

partnership files a return for a fiscal year, gain (loss) reported in box 4a, is treated Code A1. General partner’s taxable

enter the amounts shown in the boxes on as being from a trade or business that is a income (loss) from trade or business

your tax return for the year in which the single passive activity. If a net capital gain activities. Report Code A1 income (loss)

partnership’s fiscal year ends. For is reported in box 4a, report the gain on from partnership trade or business

example, if the partnership’s tax year Schedule D (Form 1040), line 12, column activities in which you materially

ends on June 30, 2006, report the (f). participated on Schedule E (Form 1040),

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line 28, column (h) or (j). See the Form 6251. However, if the AMT activity or (b) a gain, report it on Schedule

instructions to determine whether you adjustment is from a passive activity, it D (Form 1040), line 12, column (f).

materially participated in a trade or must be taken into account on line 18 with If the amount is a loss from a passive business activity. adjustments and preferences from other activity, report it following the Instructions Report Code A1 income or (loss) from passive activities. for Form 8582 to figure how much of the partnership trade or business activities in Code B1. General partner’s taxable loss can be reported on Schedule D, line which you did not materially participate as 12, column (f). However, if the PTP box is income (loss) from rental real estate follows. activities. Generally, the income or checked, report the loss following the

1. Report any income on Schedule E rules for Publicly traded partnerships . (loss) reported in box 9, Code B1, is a (Form 1040), line 28, column (g). passive activity amount for all general Code B3. General partner’s 28% rate However, if the PTP box on Schedule K-1 partners. However, the income or (loss) in gain or (loss) from rental real estate is checked, report the income following box 9 is not from a passive activity if you activities. The 28% rate gain or (loss) the rules for Publicly traded partnerships. were a real estate professional and you from a rental real estate activity is a 2. Report a loss following the materially participated in the activity. passive activity amount unless you were Instructions for Form 8582 to figure how a real estate professional and you much of the loss can be reported on Use the following instructions to materially participated in the activity. If the Schedule E (Form 1040), line 28, column determine where to enter the Code B1 amount is either: (a) a loss that is not amount. (f). However, if the PTP box is checked, from a passive activity; or (b) a gain, report the loss following the rules for 1. If you have a loss from a passive include it on line 4 of the 28% Rate Gain

Publicly traded partnerships. activity in box 9, Code B1, and you meet Worksheet on page D-7 of the all of the following conditions, enter the Instructions for Schedule D (Form 1040). Code A2. General partner’s net capital loss on Schedule E (Form 1040), line 28, gain or (loss) from trade or business If the amount is a loss from a passive column (f). activities. If you did not materially activity, report it following the Instructions

participate in the trade or business a. You actively participated in the for Form 8582 to figure how much of the partnership rental real estate activities. activity, the net capital gain or (loss) is a loss can be included on line 4 of the 28%

passive activity amount. If the amount is See Special allowance for rental real Rate Gain Worksheet on page D-7 of the estate activities on page 4. either: Instructions for Schedule D (Form 1040). (a) a loss that is not from a passive

activity; or b. Rental real estate activities with However, if the PTP box is checked, (b) a gain, report it on

Schedule D (Form 1040), line 12, column active participation were your only report the loss following the rules for passive activities. Publicly traded partnerships. (f). c. You have no prior year unallowed If the amount is a loss from a passive Code B4. General partner’s general losses from these activities. activity, report it following the Instructions credits from rental real estate d. Your total loss from the rental real for Form 8582 to figure how much of the activities. Report the general credits on estate activities was not more than loss can be reported on Schedule D line 1y of Form 3800. Unless you were a $25,000 (not more than $12,500 if (Form 1040), line 12, column (f). real estate professional and materially married filing separately and you lived However, if the PTP box is checked, participated in the rental real estate apart from your spouse all year). report the loss following the rules for activity, you must also include the general

Publicly traded partnerships e. If you are a married person filing credits on line 3 of Form 3800. . separately, you lived apart from your Code A3. General partner’s 28% rate Code B5. General partner’s spouse all year. gain (loss) from trade or business low-income housing credit from rental f. You have no current or prior year activities. If you did not materially real estate activities. Report the unallowed credits from a passive activity. participate in the trade or business low-income housing credit on line 4 of g. Your modified adjusted gross activity, the 28% rate gain or (loss) is a Form 8586. Unless you were a real estate income was not more than $100,000 (not passive activity amount. If the amount is professional and materially participated in more than $50,000 if married filing either: (a) a loss that is not from a passive the rental real estate activity, the separately and you lived apart from your activity, or (b) a gain, include it on line 4 low-income housing credit is a passive spouse all year). of the 28% Rate Gain Worksheet on page activity credit. 2. If you have a (loss) from a passive D-7 of the Instructions for Schedule D Code B6. General partner’s activity in box 9 and you do not meet all (Form 1040). rehabilitation credit from rental real the conditions in 1 above, report the loss If the amount is a loss from a passive estate activities. Report the following the Instructions for Form 8582 to activity, report it following the Instructions rehabilitation credit on line 1e of Form figure how much of the loss you can for Form 8582 to figure how much of the 3468, Investment Credit. Unless you were report on Schedule E (Form 1040), line loss can be included on line 4 of the 28% a real estate professional and materially 28, column (f). However, if the PTP box is Rate Gain Worksheet on page D-7 of the participated in the rental real estate checked, report the loss following the Instructions for Schedule D (Form 1040). activity, the credit is a passive activity rules for Publicly traded partnerships. However, if the PTP box is checked, credit, and you must also file Form 3800. 3. If you were a real estate report the loss following the rules for professional and you materially Code B7. General partner’s alternative Publicly traded partnerships. participated in the activity, report box 9 minimum tax adjustment from rental Code A4. General partner’s general income or (loss) on Schedule E (Form real estate activities. An AMT

credits from trade or business 1040), line 28, column (h) or (j). adjustment must be reported on line 15 of activities. Report the general credits on 4. If you have income from a passive Form 6251. However, if the AMT

line 1y of Form 3800. If you did not activity in box 9, Code B1, enter the adjustment is from a passive activity, it materially participate in the trade or income on Schedule E (Form 1040), line must be taken into account on line 18 with

business activity, you must also include 28, column (g). However, if the PTP box other passive activities instead of being the general credits on line 3 of Form is checked, report the income following reported on line 15.

3800. the rules for Publicly traded partnerships. Code C1. General partner’s taxable Code A5. General partner’s income or (loss) from other rental nonconventional source fuel credit Code B2. General partner’s net capital activities. Income (loss) reported in box from trade or business activities. gain or (loss) from rental real estate 9, Code C1, is a passive activity amount Report this amount on line 13 of Form activities (for the entire year). The net for all general partners. Report a loss 8907, Nonconventional Source Fuel capital gain or (loss) from a rental real following the Instructions for Form 8582. Credit. estate activity is a passive activity amount Report income on Schedule E (Form

Code A6. General partner’s alternative unless you were a real estate 1040), line 28, column (g). However, if the

minimum tax adjustment from trade or professional and you materially PTP box for is checked, report the income

business activities. Generally, an AMT (loss) following the rules for participated in the activity. If the amount is Publicly

adjustment must be reported on line 15 of either: (a) a loss that is not from a passive traded partnerships.

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Code C2. General partner’s net capital Code F. Guaranteed Payments loss, enter only the deductible amount on gain or (loss) from other rental Generally, these amounts are not passive Schedule SE. For purposes of

activities. The net capital gain (loss) self-employment tax, no income from an income. Report them on Schedule E from other rental activities is a passive ELP is treated as farming or fishing (Form 1040), line 28, column (j) (for activity amount for all general partners. income. example, guaranteed payments for Report the gain on Schedule D (Form personal services). Code K2. Gross nonfarm income. 1040), line 12, column (f). Report a loss Individual partners use this amount to following the Instructions for Form 8582 to Code G. Income From Discharge of figure net earnings from self-employment figure how much of the loss can be Indebtedness under the nonfarm optional method on reported on Schedule D (Form 1040), line The amount reported under Code G is Schedule SE (Form 1040), Section B, 12, column (f). However, if the PTP box is excluded from your gross income to the Part II. checked, report the loss following the extent provided in section 108 if the rules for Publicly traded partnerships. discharge: Codes L1 Through L9. Foreign Tax

Code C3. General partner’s 28% rate 1. Occurred in a title 11 case relating Credit Information

gain or (loss) from other rental to bankruptcy, Use the information reported under activities. The 28% rate gain or (loss) 2. Occurred when you were insolvent, Codes L1 through L9 to figure your from other rental activities is a passive 3. Involved qualified farm foreign tax credit. For more information, activity amount for all general partners. If indebtedness, as defined in section see Form 1116, Foreign Tax Credit the amount is a gain, include it on line 4 108(g), or (Individual, Estate, Trust, or Nonresident of the 28% Rate Gain Worksheet on page 4. Involved qualified real property Alien Individual) and its instructions; Form D-7 of the Instructions for Schedule D business indebtedness, as defined in 1118, Foreign Tax Credit—Corporations, (Form 1040). Report a loss following the section 108(c)(3), unless the partner is a and its instructions; and Pub. 514,

Instructions for Form 8582 to figure how C corporation. Foreign Tax Credit for Individuals. See much of the loss can be included on line 4 page 5 of the Instructions for Form 1116 of the 28% Rate Gain Worksheet on page This amount is applied, instead, to for detailed instructions for reporting D-7 of the Instructions for Schedule D reduce certain tax attributes. File Form foreign tax information from partnerships. (Form 1040). However, if the PTP box is 982, Reduction of Tax Attributes Due to Note. The line references in this section checked, report the loss following the Discharge of Indebtedness, to explain of the Form 1116 instructions do not rules for Publicly traded partnerships. why any amount received from the apply to the Schedule K-1 of Form Code C4. General partner’s general discharge of indebtedness should be 1065-B. excluded and to report your reduction of credits from other rental activities. tax attributes. Code L1. Name of foreign country or Report the general credits on line 1y of U.S. possession. Include on Form 1116, Form 3800. Because general credits from For a discharge of indebtedness not Part I, item l. For each country reported, other rental activities are passive activity described above, you must include this the partnership must give you the amount credits for all general partners, you must amount in income on Schedule E (Form and a description of your share of the also include the general credits on line 3 1040), line 28, column (g) or (j). following items for Codes L2 through L9. of Form 3800. Code H. Tax-Exempt Interest For each country or possession being Code C5. General partner’s alternative Income reported, a separate column in Part I and minimum tax adjustment from other a separate line in Part II is needed on Report on your income tax return, as an rental activities. An AMT adjustment Form 1116. item of information, your share of the must be reported on line 15 of Form tax-exempt interest received or accrued Code L2. Gross income from all 6251. However, if the AMT adjustment is by the partnership during the year. sources. Enter this amount on line 3e of from a passive activity, it must be taken Individual partners must include this Form 1116. into account on line 18 with adjustments

and preferences from other passive amount on Form 1040, line 8b. Increase Code L3. Gross income sourced at the adjusted basis of your interest in the activities instead of being reported on line partner level. Although all this income partnership by this amount. 15. reported has been apportioned to foreign

Code I. Limited Partner’s source categories of income, you must Code D. Limited Partner’s 28% Rehabilitation Credit From Rental nevertheless determine whether the Rate Gain or (Loss) From Passive Real Estate Activities income being reported is U.S. source Activities income or foreign source income. See the Limited partners only. Report this Instructions for Form 1116 for the rules to Limited partners only. The 28% rate amount on line 1e of Form 3468. Because source the income reported to you. Enter gain or (loss) is treated as being from a the credit is treated as being from a single only foreign source income on lines 1 and trade or business that is a single passive

activity. If a gain is reported, include it on passive activity, you must also file Form 3d of Form(s) 1116. A separate Form 3800. 1116 or 1118 is required for each foreign line 4 of the 28% Rate Gain Worksheet Code J. Limited Partner’s source category of income. Do not on page D-7 of the Instructions for Nonconventional Source Fuel include income that you determined to be Schedule D (Form 1040).

Credit U.S. source income. If a loss is reported, report the loss Limited partners only. The Codes L4(a) Through L4(c). Foreign following the Instructions for Form 8582 to nonconventional source fuel credit is gross income sourced at partnership figure how much of the loss can be treated as being from a single passive level. The following types of income have included on line 4 of the 28% Rate Gain

Worksheet activity. Report this amount on line 13 of already been sourced for you by the on page D-7 of the Form 8907. partnership. Include these amounts on Instructions for Schedule D (Form 1040).

However, if the PTP box is checked, lines 1 and 3d of the applicable Forms Codes K1 and K2. 1116 (that is, the Forms 1116 for each report the loss following the rules for Self-Employment category of income provided to you). Publicly traded partnerships.

Code K1. Net earnings or (loss) from • Code L4(a). Passive foreign source Code E. Limited Partner’s 28% income. self-employment. Enter this amount on Rate Gain or (Loss) From Other • Code L4(b). Listed foreign Schedule SE (Form 1040), line 2, Section Activities categories of income. A or B, whichever is applicable. General • Code L4(c). General limitation The 28% gain or (loss) from other partners should reduce this amount by foreign source income. activities is not subject to the passive unreimbursed partnership expenses

activity limitations. Include it on line 4 of claimed. General partners who are Code L5. Interest expense allocated

the 28% Rate Gain Worksheet on page disqualified persons also should reduce and apportioned at the partner level.

D-7 of the Instructions for Schedule D this amount by depletion claimed on oil Include this amount on line 4b of the

(Form 1040). and gas properties. If this amount is a applicable Forms 1116.

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Code L6. Other expenses allocated Reminder. A partner is required to notify and the FMV of those securities

and apportioned at the partner level. the partnership of its tax-exempt status. exceeded the adjusted basis of your

Include this amount on line 2 of the Code N4. Health insurance. partnership interest immediately before Include any applicable Forms 1116. the distribution (reduced by any cash amounts paid during the tax year for Note. For Codes L5 and L6, do not received in the distribution), you may insurance that constitutes medical care

include any expenses allocated and have to recognize gain on the appreciated for you, your spouse, and your apportioned to U.S. source income on property. For property contributed after dependents on line 29 of your 2005 Form any line of Part I of Form 1116. June 8, 1997, the 5-year period is 1040. You may be allowed to deduct such generally extended to 7 years. See Codes L7(a) Through Codes L7(c). amounts, even if you do not itemize section 737 for details. Deductions allocated and apportioned deductions. If you do itemize deductions,

enter on line 1 of Schedule A (Form 1040) Code N6. Distributions of property at partnership level to foreign source any amounts not deducted on line 29 of other than money. Box 9, Code N6, income. The following codes report the Form 1040. shows the partnership’s adjusted basis of expenses allocated and apportioned by property other than money immediately the partnership to foreign source Code N5. Distributions of money (cash before the property was distributed to categories of income. Include these and marketable securities). This you. In addition, the partnership should amounts on line 2 of the applicable Forms amount includes the distributions the attach a statement showing the cost basis 1116 (that is, the Forms 1116 for each partnership made to you of cash and and FMV of each property distributed. category of income provided to you). certain marketable securities. The Decrease the adjusted basis of your • Code L7(a). Deductions allocated marketable securities are included at their interest in the partnership by the amount and apportioned at partnership level to fair market value (FMV) on the date of passive foreign source income. of your basis in the distributed property. distribution (minus your share of the Your basis in the distributed property • Code L7(b). Deductions allocated partnership’s gain on the securities (other than in liquidation of your interest) and apportioned at partnership level to distributed to you). If this amount exceeds is the smaller of: listed foreign categories of income. the adjusted basis of your partnership • The partnership’s adjusted basis • Code L7(c). Deductions allocated interest immediately before the immediately before the distribution or and apportioned at partnership level to distribution, the excess is treated as gain general limitation foreign source • The adjusted basis of your partnership from the sale or exchange of your interest reduced by any cash distributed income. partnership interest. Generally, this gain in the same transaction. Code L8(a). Total foreign taxes paid. is treated as gain from the sale of a

capital asset and should be reported on If you received the property in Include this amount in Part II of Form

the Schedule D for your return. However, liquidation of your interest, your basis in 1116.

the gain may be ordinary income. For the distributed property is equal to the Code L8(b). Total foreign taxes details, see Pub. 541. adjusted basis of your partnership interest accrued. Include this amount in Part II of reduced by any cash distributed in the Form 1116. The partnership must separately same transaction.

Code L9. Reduction in taxes available identify both of the following. If you contributed appreciated property for credit. Enter this amount on line 12 • The FMV of the marketable securities to the partnership within five years of a of Form 1116. when distributed (minus your share of the distribution of other property to you, and gain on the securities distributed to you). Code M. Oil and Gas Activities the FMV of the other property exceeded • The partnership’s adjusted basis of the adjusted basis of your partnership Generally, oil and gas income, those securities immediately before the interest immediately before the deductions, credits, and other items are distribution. distribution (reduced by any cash included in your distributive share of Decrease the adjusted basis of your received in the distribution), you may income or loss from passive loss interest in the partnership (but not below have to recognize gain on the appreciated limitation activities, general credits, and zero) by the amount of cash distributed to property. For property contributed after the alternative minimum tax adjustment. you and the partnership’s adjusted basis June 8, 1997, the 5-year period is However, distributive shares of all oil of the distributed securities. Advances or generally extended to 7 years. See and gas income, deductions, credits, and drawings of money or property against section 737 for details. other items are separately reported to your distributive share are treated as Code N7. Gain eligible for section 1202 partners who are disqualified persons in current distributions made on the last day exclusion. This gain from the sale or accordance with the regular partnership of the partnership’s tax year. exchange of qualified small business rules, here or on an attached schedule. Your basis in the distributed stock (as defined in the Instructions for Note. A partner must notify the ELP of its marketable securities (other than in Schedule D) is eligible for the partial status as a “disqualified person”. liquidation of your interest) is the smaller section 1202 exclusion. The partnership

Codes N1 Through N9. of: must also provide you with: • The partnership’s adjusted basis in the • The name of the corporation that Miscellaneous securities immediately before the issued the stock,

Code N1. Other tax-exempt income. distribution increased by any gain • Your share of the partnership’s

Increase the adjusted basis of your recognized on the distribution of the adjusted basis,

interest in the partnership by this amount, securities or • Your share of the partnership’s sales

but do not include it in income on your • The adjusted basis of your partnership price of the stock, and

income tax return. interest reduced by any cash distributed • The dates the stock was bought and

Code N2. Nondeductible expenses. in the same transaction and increased by sold.

any gain recognized on the distribution of Decrease the adjusted basis of your Corporate partners are not eligible for the securities. interest in the partnership by this amount. the section 1202 exclusion. The following

The nondeductible expenses paid or If you received the securities in additional limitations apply at the partner

incurred by the partnership are not liquidation of your partnership interest, level.

deductible on your income tax return, but your basis in the marketable securities is 1. You must have held an interest in they do affect your basis. equal to the adjusted basis of your the partnership when the partnership

Code N3. Unrelated business taxable partnership interest reduced by any cash acquired the qualified small business distributed in the same transaction and income. The partnership must give you stock and at all times thereafter until the increased by any gain recognized on the any information you need to figure partnership disposed of the qualified distribution of the securities. unrelated business taxable income under small business stock.

section 512(a)(1) (but excluding any If, within five years of a distribution to 2. Your distributive share of the

modifications required by paragraphs (8) you of marketable securities, you eligible section 1202 gain cannot exceed

through (15) of section 512(b)) for a contributed appreciated property (other the amount that would have been

partner that is a tax-exempt organization. than those securities) to the partnership allocated to you based on your interest in

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the partnership at the time the stock was the gain and the amount of the allowable into account in figuring the amount of net

acquired. postponed gain. operating loss (NOL) for the tax year or

the amount of NOL that can be carried See the Instructions for Schedule D Code O. Unrecaptured Section over to each tax year, (b) may limit the (Form 1040) for details on how to report 1250 Gain amount of your credits, and (c) is treated

the gain and the amount of the allowable Report this gain on line 11 of the as income from sources within the U.S.

exclusion. Unrecaptured Section 1250 Gain for the foreign tax credit. See section Code N8. Gain eligible for section 1045 Worksheet on page D-8 of the 7874 for details.

rollover–stock replaced. This gain is Instructions for Schedule D (Form 1040).

Do not report the gain on line 5 as stated Code R. Commercial Revitalization eligible for the section 1045 rollover. in the worksheet instructions. Deduction Replacement stock has been purchased

by the partnership. The partnership must Follow the instructions on Form 8582 for Codes P1 and P2. Extraterritorial also provide you with: commercial revitalization deductions from Income Exclusion • The name of the corporation that rental real estate activities to figure how

issued the stock, a. Partnership did not claim the much of the deduction can be reported on

• Your share of the partnership’s exclusion. If the partnership reports your Schedule E (Form 1040), line 28, column

adjusted basis, distributive share of foreign trading gross (f).

• Your share of the partnership’s sales receipts (Code P1) and the extraterritorial Code S1. Domestic Production price of the stock, and income exclusion (Code P2), the Activities Information • The dates the stock was bought and partnership was not entitled to claim the

exclusion because it did not meet the The partnership must attach a statement sold.

foreign economic process requirements. to Schedule K-1 that provides the Corporate partners are not eligible for You may still qualify for your distributive information you need to figure the the section 1045 rollover. To qualify for domestic production activities deduction. share of this exclusion if the partnership’s the section 1045 rollover: foreign trading gross receipts for the tax Use Form 8903, Domestic Production 1. You must have held an interest in Activities Deduction, to figure this year were $5 million or less. the partnership during the entire period in deduction. See the instructions for Form

which the partnership held the qualified To qualify for this exclusion, your 8903 for details. foreign trading gross receipts from all small business stock (more than 6

months prior to the sale) and sources for the tax year also must have Code S2. Qualified Production

2. Your distributive share of the gain been $5 million or less. Activities Income (QPAI)

eligible for the section 1045 rollover Limited partners who qualify for the Report the QPAI reported to you by the

cannot exceed the amount that would exclusion must report the extraterritorial partnership (in box 9 using code S2) on

have been allocated to you based on your exclusion amount (Code P2) as a line 7 of Form 8903.

interest in the partnership at the time the deduction reducing the amount reported Code S3. Employer’s W-2 Wages stock was acquired. in box 1 (see the box 1 instructions on

page 6). Report the portion of W-2 wages reported

See the Instructions for Schedule D to you by the partnership (in box 9 using General partners who qualify for the (Form 1040) for details on how to report code S3) on line 13 of Form 8903. exclusion must report the Code P2 the gain and the amount of the allowable amount in accordance with the Code T. Section 409A Income postponed gain. instructions for box 9, Code A1, B1, or This is compensation to partners deferred Code N9. Gain eligible for section 1045 C1, whichever applies. See Form 8873, under a section 409A nonqualified rollover–stock not replaced. This gain Extraterritorial Income Exclusion, for more deferred compensation plan that does not is eligible for the section 1045 rollover. information. meet the requirements of section 409A. Replacement stock has not been b. Partnership claimed the exclusion. If This amount is also reported in box 9 purchased by the partnership. The the partnership reports your distributive using Code F. This amount is subject to a partnership must also provide you with: share of foreign trading gross receipts substantial additional tax to be reported • The name of the corporation that (Code P1) but not the amount of the on line 63 of Form 1040. See the issued the stock, extraterritorial income exclusion, the instructions for line 63 of Form 1040 for • Your share of the partnership’s partnership met the foreign economic details. adjusted basis, process requirements and claimed the • Your share of the partnership’s sales Disclosure of Reportable exclusion when figuring your distributive price of the stock, and share of partnership income. You also Transactions • The dates the stock was bought and may need to know the amount of your The partnership will report any sold. distributive share of foreign trading gross information you need to complete a Corporate partners are not eligible for receipts from this partnership to disclosure statement for reportable the section 1045 rollover. To qualify for determine if you met the $5 million or less transactions in which the partnership the section 1045 rollover: exception discussed above for purposes participates. If the partnership participates

1. You must have held an interest in of qualifying for an extraterritorial income in a transaction that must be disclosed on

the partnership during the entire period in exclusion from other sources. Form 8886, Reportable Transaction

which the partnership held the qualified Note. Upon request, the partnership Disclosure Statement, both you and the

small business stock (more than 6 should furnish you a copy of the partnership may be required to file Form

months prior to the sale), partnership’s Form 8873 if there is a 8886 for the transaction. The

2. Your distributive share of the gain reduction for international boycott determination of whether you are required

eligible for the section 1045 rollover operations, illegal bribes, kickbacks, etc. to disclose a transaction of the

cannot exceed the amount that would partnership is based on the category(s)

have been allocated to you based on your Code Q. Inversion Gain under which the transaction qualifies for

interest in the partnership at the time the The partnership must provide a statement disclosure and is determined by the

stock was acquired, and showing the amounts of each type of partnership. See the Instructions for Form

3. You must purchase other qualified income or gain that is included in 8886 for details.

small business stock (as defined in the inversion gain. The partnership has Other Instructions for Schedule D (Form 1040)) included inversion gain in income Any other information you may need to during the 60-day period that began on elsewhere on Schedule K-1. Inversion file with your return not shown elsewhere the date the stock was sold by the gain is also reported under Code Q on Schedule K-1. The partnership must partnership. because your taxable income and give you a description and the amount of alternative minimum taxable income

See the your share for each of these items. Instructions for Schedule D cannot be less than the inversion gain. (Form 1040) for details on how to report Also, your inversion gain (a) is not taken

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