Schedule K-1--Partner's Share of Income, Deductions, Credits, etc.

2010

Department of the Treasury
Internal Revenue Service

Partner’s Instructions for
Schedule K-1 (Form 1065)
Partner’s Share of Income, Deductions, Credits, etc.
(For Partner’s Use Only)
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
Purpose of Schedule K-1
The partnership uses Schedule K-1 to report
your share of the partnership’s income,
deductions, credits, etc. Keep it for your
records. Do not file it with your tax return.
The partnership has filed a copy with the
IRS.
Although the partnership generally is not
subject to income tax, you are liable for tax
on your share of the partnership income,
whether or not distributed. Include your
share on your tax return if a return is
required. Use these instructions to help you
report the items shown on Schedule K-1 on
your tax return.
The amount of loss and deduction you
may claim on your tax return may be less
than the amount reported on Schedule K-1.
It is the partner’s responsibility to consider
and apply any applicable limitations. See
Limitations on Losses, Deductions, and
Credits beginning on page 2 for more
information.

Inconsistent Treatment of
Items
Generally, you must report partnership items
shown on your Schedule K-1 (and any
attached schedules) the same way that the
partnership treated the items on its return.
This rule does not apply if your partnership
is within the “small partnership exception”
and does not elect to have the tax treatment
of partnership items determined at the
partnership level.
If the treatment on your original or
amended return is inconsistent with the
partnership’s treatment, or if the partnership
was required to but has not filed a return,
you must file Form 8082, Notice of
Inconsistent Treatment or Administrative
Adjustment Request (AAR), with your
original or amended return to identify and
explain any inconsistency (or to note that a
partnership return has not been filed).
If you are required to file Form 8082 but
do not do so, you may be subject to the
accuracy-related penalty. This penalty is in
addition to any tax that results from making
your amount or treatment of the item
consistent with that shown on the
partnership’s return. Any deficiency that
results from making the amounts consistent
may be assessed immediately.

Errors
If you believe the partnership has made an
error on your Schedule K-1, notify the
partnership and ask for a corrected
Schedule K-1. Do not change any items on
your copy of Schedule K-1. Be sure that the
partnership sends a copy of the corrected
Schedule K-1 to the IRS. If you are a partner
in a partnership that does not meet the small
partnership exception and you report any
partnership item on your return in a manner
different from the way the partnership
reported it, you must file Form 8082.

Sale or Exchange of
Partnership Interest
Generally, a partner who sells or exchanges
a partnership interest in a section 751(a)
exchange must notify the partnership, in
writing, within 30 days of the exchange (or, if
earlier, by January 15 of the calendar year
following the calendar year in which the
exchange occurred). A “section 751(a)
exchange” is any sale or exchange of a
partnership interest in which any money or
other property received by the partner in
exchange for that partner’s interest is
attributable to unrealized receivables (as
defined in section 751(c)) or inventory items
(as defined in section 751(d)).
The written notice to the partnership
must include the names and addresses of
both parties to the exchange, the identifying
numbers of the transferor and (if known) of
the transferee, and the exchange date.
An exception to this rule is made for
sales or exchanges of publicly traded
partnership interests for which a broker is
required to file Form 1099-B, Proceeds
From Broker and Barter Exchange
Transactions.
If a partner is required to notify the
partnership of a section 751(a) exchange
but fails to do so, a $50 penalty may be
imposed for each such failure for a
notification required to be filed before 2011.
For notifications required to be filed after
2010, the penalty is $100 for each such
failure. However, no penalty will be imposed
if the partner can show that the failure was
due to reasonable cause and not willful
neglect.

Nominee Reporting
Any person who holds, directly or indirectly,
an interest in a partnership as a nominee for
another person must furnish a written
statement to the partnership by the last day
of the month following the end of the
partnership’s tax year. This statement must
include the name, address, and identifying
Cat. No. 11396N

number of the nominee and such other
person, description of the partnership
interest held as nominee for that person,
and other information required by
Temporary Regulations section
1.6031(c)-1T. A nominee that fails to furnish
this statement must furnish to the person for
whom the nominee holds the partnership
interest a copy of Schedule K-1 and related
information within 30 days of receiving it
from the partnership.
A nominee who fails to furnish all the
information required by Temporary
Regulations section 1.6031(c)-1T when due,
or who furnishes incorrect information, is
subject to a $50 penalty for each statement
required to be filed before 2011 for which a
failure occurs. The maximum penalty is
$100,000 for all such failures during a
calendar year. If the nominee intentionally
disregards the requirement to report correct
information, each $50 penalty increases to
$100 or, if greater, 10% of the aggregate
amount of items required to be reported,
and the $100,000 maximum does not apply.
For statements required to be made after
2010, the nominee is subject to a $100
penalty for each statement for which a
failure occurs. The maximum penalty is
$1,500,000 for all such failures during a
calendar year. If the nominee intentionally
disregards the requirement to report correct
information, each $100 penalty increases to
$250 or, if greater, 10% of the aggregate
amount of items required to be reported,
and the $1,500,000 maximum does not
apply.

International Boycotts
Every partnership that had operations in, or
related to, a boycotting country, company, or
a national of a country must file Form 5713,
International Boycott Report.
If the partnership cooperated with an
international boycott, it must give you a copy
of its Form 5713. You must file your own
Form 5713 to report the partnership’s
activities and any other boycott operations
that you may have. You may lose certain tax
benefits if the partnership participated in, or
cooperated with, an international boycott.
See Form 5713 and its instructions for more
information.

Definitions
General Partner
A general partner is a partner who is
personally liable for partnership debts.

Limited Partner
A limited partner is a partner in a partnership
formed under a state limited partnership law,

whose personal liability for partnership debts
is limited to the amount of money or other
property that the partner contributed or is
required to contribute to the partnership.
Some members of other entities, such as
domestic or foreign business trusts or
limited liability companies that are classified
as partnerships, may be treated as limited
partners for certain purposes. See, for
example, Temporary Regulations section
1.469-5T(e)(3), which treats all members
with limited liability as limited partners for
purposes of section 469(h)(2).

Nonrecourse Loans
Nonrecourse loans are those liabilities of the
partnership for which no partner bears the
economic risk of loss.

Elections
Generally, the partnership decides how to
figure taxable income from its operations.
However, certain elections are made by you
separately on your income tax return and
not by the partnership. These elections are
made under the following code sections.
• Section 59(e) (deduction of certain
qualified expenditures ratably over the
period of time specified in that section). For
details, see the instructions for code J in box
13.
• Section 108(b)(5) (election related to
reduction of tax attributes due to exclusion
from gross income of discharge of
indebtedness). This does not include the
section 108(i) election (election to defer and
ratably include income arising from certain
discharge of indebtedness).
• Section 263A(d) (preproductive
expenses). See the instructions for code P
in box 13.
• Section 617 (deduction and recapture of
certain mining exploration expenditures).
• Section 901 (foreign tax credit).

Additional Information
For more information on the treatment of
partnership income, deductions, credits,
etc., see Pub. 535, Business Expenses.
To get forms and publications, see the
instructions for your tax return or visit the
IRS website at IRS.gov.

Limitations on Losses,
Deductions, and Credits
There are potential limitations on
partnership losses that you can deduct on
your return. These limitations and the order
in which you must apply them are as
follows: the basis rules, the at-risk
limitations, and the passive activity
limitations. These limitations are discussed
below.
Other limitations may apply to specific
deductions (for example, the section 179
expense deduction). Generally, specific
limitations apply before the basis, at-risk,
and passive loss limitations.

Basis Rules
Generally, you may not claim your share of
a partnership loss (including a capital loss)
to the extent that it is greater than the
adjusted basis of your partnership interest at
the end of the partnership’s tax year. Any
losses and deductions not allowed this year
because of the basis limit can be carried

forward indefinitely and deducted in a later
year subject to the basis limit for that year.

Use the worksheet below to figure the
basis of your interest in the partnership.

The partnership is not responsible for
keeping the information needed to figure the
basis of your partnership interest. Although
the partnership does provide an analysis of
the changes to your capital account in item
L of Schedule K-1, that information is based
on the partnership’s books and records and
cannot be used to figure your basis.

For more details on the basis rules, see
Pub. 541, Partnerships.

You can figure the adjusted basis of your
partnership interest by adding items that
increase your basis and then subtracting
items that decrease your basis.

Worksheet for Adjusting the Basis of a Partner’s
Interest in the Partnership

At-Risk Limitations
Generally, if you have (a) a loss or other
deduction from any activity carried on as a
trade or business or for the production of
income by the partnership and (b) amounts
in the activity for which you are not at risk,
you will have to complete Form 6198,
At-Risk Limitations, to figure your allowable
loss.

Keep for Your Records

1. Your adjusted basis at the end of the prior year. Do not enter less than
zero. Enter -0- if this is your first tax year . . . . . . . . . . . . . . . . . . . .

1.

Increases:
2. Money and your adjusted basis in property contributed to the
partnership less the associated liabilities (but not less than zero) . . . . .

2.

3. Your increased share of or assumption of partnership liabilities.
(Subtract your share of liabilities shown in item K of your 2009 Schedule
K-1 from your share of liabilities shown in item K of your 2010 Schedule
K-1 and add the amount of any partnership liabilities you assumed
during the tax year (but not less than zero)) . . . . . . . . . . . . . . . . . . .

3.

4. Your share of the partnership’s income or gain (including tax-exempt
income) reduced by any amount included in interest income with
respect to the credit to holders of clean renewable energy bonds and
Midwestern tax credit bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

5. Any gain recognized this year on contributions of property. Do not
include gain from transfer of liabilities . . . . . . . . . . . . . . . . . . . . . . .

5.

6. Your share of the excess of the deductions for depletion (other than oil
and gas depletion) over the basis of the property subject to depletion . .

6.

Decreases:
7. Withdrawals and distributions of money and the adjusted basis of
property distributed to you from the partnership. Do not include the
amount of property distributions included in the partner’s income
(taxable income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

Caution: A distribution may be taxable if the amount exceeds your
adjusted basis of your partnership interest immediately before the
distribution.
8. Your decreased share of partnership liabilities and any decrease in your
individual liabilities because they were assumed by the partnership.
(Subtract your share of liabilities shown in item K of your 2010 Schedule
K-1 from your share of liabilities shown in item K of your 2009 Schedule
K-1 and add the amount of your individual liabilities that the partnership
assumed during the tax year (but not less than zero)) . . . . . . . . . . . .

8.

9. Your share of the partnership’s nondeductible expenses that are not
capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.

10. Your share of the partnership’s losses and deductions (including capital
losses). However, include your share of the partnership’s section 179
expense deduction for this year even if you cannot deduct all of it
because of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.

11. The amount of your deduction for depletion of any partnership oil and
gas property, not to exceed your allocable share of the adjusted basis
of that property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11.

12. Your adjusted basis in the partnership at the end of this tax year. (Add
lines 1 through 6 and subtract lines 7 through 11 from the total. If zero
or less, enter -0-.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12.

Caution: The deduction for your share of the partnership’s losses and
deductions is limited to your adjusted basis in your partnership interest.
If you entered zero on line 12 and the amount figured for line 12 was
less than zero, a portion of your share of the partnership losses and
deductions may not be deductible. (See Basis Rules above for more
information.)

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Partner’s Instructions for Schedule K-1 (Form 1065)

The at-risk rules generally limit the
amount of loss and other deductions that
you can claim to the amount you could
actually lose in the activity. These losses
and deductions include a loss on the
disposition of assets and the section 179
expense deduction. However, if you
acquired your partnership interest before
1987, the at-risk rules do not apply to losses
from an activity of holding real property
placed in service before 1987 by the
partnership. The activity of holding mineral
property does not qualify for this exception.
The partnership should identify on an
attachment to Schedule K-1 any losses that
are not subject to the at-risk limitations.
Generally, you are not at risk for amounts
such as the following.
• Nonrecourse loans used to finance the
activity, to acquire property used in the
activity, or to acquire your interest in the
activity, that are not secured by your own
property (other than the property used in the
activity). See the instructions for item K on
page 5 for the exception for qualified
nonrecourse financing secured by real
property.
• Cash, property, or borrowed amounts
used in the activity (or contributed to the
activity, or used to acquire your interest in
the activity) that are protected against loss
by a guarantee, stop-loss agreement, or
other similar arrangement (excluding
casualty insurance and insurance against
tort liability).
• Amounts borrowed for use in the activity
from a person who has an interest in the
activity, other than as a creditor, or who is
related, under section 465(b)(3), to a person
(other than you) having such an interest.
You should get a separate statement of
income, expenses, etc., for each activity
from the partnership.

Passive Activity Limitations
Section 469 provides rules that limit the
deduction of certain losses and credits.
These rules apply to partners who:
• Are individuals, estates, trusts, closely
held corporations, or personal service
corporations and
• Have a passive activity loss or credit for
the tax year.
Generally, passive activities include the
following.
1. Trade or business activities in which
you did not materially participate and
2. Activities that meet the definition of
rental activities under Temporary
Regulations section 1.469-1T(e)(3) and
Regulations section 1.469-1(e)(3).
Passive activities do not include:
1. Trade or business activities in which
you materially participated.
2. Rental real estate activities in which
you materially participated if you were a real
estate professional for the tax year. You
were a real estate professional only if you
met both of the following conditions.
a. More than half of the personal
services you performed in trades or
businesses were performed in real property
trades or businesses in which you materially
participated and
b. You performed more than 750 hours
of services in real property trades or
businesses in which you materially
participated.

Note. For a closely held C corporation
(defined in section 465(a)(1)(B)), the above
conditions are treated as met if more than
50% of the corporation’s gross receipts were
from real property trades or businesses in
which the corporation materially
participated.
For purposes of this rule, each interest in
rental real estate is a separate activity,
unless you elect to treat all interests in rental
real estate as one activity. For details on
making this election, see the Instructions for
Schedule E (Form 1040).
If you are married filing jointly, either you
or your spouse must separately meet both
of the above conditions, without taking into
account services performed by the other
spouse.
A real property trade or business is any
real property development, redevelopment,
construction, reconstruction, acquisition,
conversion, rental, operation, management,
leasing, or brokerage trade or business.
Services you performed as an employee are
not treated as performed in a real property
trade or business unless you owned more
than 5% of the stock (or more than 5% of
the capital or profits interest) in the
employer.
3. Working interests in oil or gas wells if
you were a general partner.
4. The rental of a dwelling unit any
partner used for personal purposes during
the year for more than the greater of 14
days or 10% of the number of days that the
residence was rented at fair rental value.
5. Activities of trading personal property
for the account of owners of interests in the
activities.
If you are an individual, an estate, or a
trust, and you have a passive activity loss or
credit, use Form 8582, Passive Activity Loss
Limitations, to figure your allowable passive
losses and Form 8582-CR, Passive Activity
Credit Limitations, to figure your allowable
passive credits. For a corporation, use Form
8810, Corporate Passive Activity Loss and
Credit Limitations. See the instructions for
these forms for details.
If the partnership had more than one
activity, it will attach a statement to your
Schedule K-1 that identifies each activity
(trade or business activity, rental real estate
activity, rental activity other than rental real
estate, etc.) and specifies the income (loss),
deductions, and credits from each activity.
Material participation. You must
determine if you materially participated (a) in
each trade or business activity held through
the partnership and (b) if you were a real
estate professional (defined above), in each
rental real estate activity held through the
partnership. All determinations of material
participation are based on your participation
during the partnership’s tax year.
Material participation standards for
partners who are individuals are listed
below. Special rules apply to certain retired
or disabled farmers and to the surviving
spouses of farmers. See the Instructions for
Form 8582 for details.
Corporations should refer to the
Instructions for Form 8810 for the material
participation standards that apply to them.
Individuals (other than limited
partners). If you are an individual (either a
general partner or a limited partner who

Partner’s Instructions for Schedule K-1 (Form 1065)

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owned a general partnership interest at all
times during the tax year), you materially
participated in an activity only if one or more
of the following apply.
1. You participated in the activity for
more than 500 hours during the tax year.
2. Your participation in the activity for
the tax year constituted substantially all the
participation in the activity of all individuals
(including individuals who are not owners of
interests in the activity).
3. You participated in the activity for
more than 100 hours during the tax year,
and your participation in the activity for the
tax year was not less than the participation
in the activity of any other individual
(including individuals who were not owners
of interests in the activity) for the tax year.
4. The activity was a significant
participation activity for the tax year, and
you participated in all significant
participation activities (including activities
outside the partnership) during the year for
more than 500 hours. A significant
participation activity is any trade or business
activity in which you participated for more
than 100 hours during the year and in which
you did not materially participate under any
of the material participation tests (other than
this test).
5. You materially participated in the
activity for any 5 tax years (whether or not
consecutive) during the 10 tax years that
immediately precede the tax year.
6. The activity was a personal service
activity and you materially participated in the
activity for any 3 tax years (whether or not
consecutive) preceding the tax year. A
personal service activity involves the
performance of personal services in the
fields of health, law, engineering,
architecture, accounting, actuarial science,
performing arts, consulting, or any other
trade or business in which capital is not a
material income-producing factor.
7. Based on all the facts and
circumstances, you participated in the
activity on a regular, continuous, and
substantial basis during the tax year.
Limited partners. If you are a limited
partner, you do not materially participate in
an activity unless you meet one of the tests
in paragraphs 1, 5, or 6 above.
Work counted toward material
participation. Generally, any work that you
or your spouse does in connection with an
activity held through a partnership (where
you own your partnership interest at the time
the work is done) is counted toward material
participation. However, work in connection
with the activity is not counted toward
material participation if either of the following
applies.
1. The work is not the type of work that
owners of the activity would usually do and
one of the principal purposes of the work
that you or your spouse does is to avoid the
passive loss or credit limitations.
2. You do the work in your capacity as
an investor and you are not directly involved
in the day-to-day operations of the activity.
Examples of work done as an investor that
would not count toward material
participation include:
a. Studying and reviewing financial
statements or reports on operations of the
activity,

b. Preparing or compiling summaries or
analyses of the finances or operations of the
activity for your own use, and
c. Monitoring the finances or operations
of the activity in a non-managerial capacity.
Effect of determination. Income (loss),
deductions, and credits from an activity are
nonpassive if you determine that:
• You materially participated in a trade or
business activity of the partnership or
• You were a real estate professional
(defined earlier) in a rental real estate
activity of the partnership.
If you determine that you did not
materially participate in a trade or business
activity of the partnership or if you have
income (loss), deductions, or credits from a
rental activity of the partnership (other than
a rental real estate activity in which you
materially participated as a real estate
professional), the amounts from that activity
are passive. Report passive income
(losses), deductions, and credits as follows.
1. If you have an overall gain (the
excess of income over deductions and
losses, including any prior year unallowed
loss) from a passive activity, report the
income, deductions, and losses from the
activity as indicated in these instructions.
2. If you have an overall loss (the
excess of deductions and losses, including
any prior year unallowed loss, over income)
or credits from a passive activity, report the
income, deductions, losses, and credits from
all passive activities using the Instructions
for Form 8582 or Form 8582-CR (or Form
8810), to see if your deductions, losses, and
credits are limited under the passive activity
rules.
Publicly traded partnerships. The
passive activity limitations are applied
separately for items (other than the
low-income housing credit and the
rehabilitation credit) from each publicly
traded partnership (PTP). Thus, a net
passive loss from a PTP may not be
deducted from other passive income.
Instead, a passive loss from a PTP is
suspended and carried forward to be
applied against passive income from the
same PTP in later years. If the partner’s
entire interest in the PTP is completely
disposed of, any unused losses are allowed
in full in the year of disposition.
If you have an overall gain from a PTP,
the net gain is nonpassive income. In
addition, the nonpassive income is included
in investment income to figure your
investment interest expense deduction.
Do not report passive income, gains, or
losses from a PTP on Form 8582. Instead,
use the following rules to figure and report
on the proper form or schedule your income,
gains, and losses from passive activities that
you held through each PTP you owned
during the tax year.
1. Combine any current year income,
gains and losses, and any prior year
unallowed losses to see if you have an
overall gain or loss from the PTP. Include
only the same types of income and losses
you would include in your net income or loss
from a non-PTP passive activity. See Pub.
925, Passive Activity and At-Risk Rules, for
more details.
2. If you have an overall gain, the net
gain portion (total gain minus total losses) is

nonpassive income. On the form or
schedule you normally use, report the net
gain portion as nonpassive income and the
remaining income and the total losses as
passive income and loss. To the left of the
entry space, enter “From PTP.” It is
important to identify the nonpassive income
because the nonpassive portion is included
in modified adjusted gross income for
purposes of figuring on Form 8582 the
“special allowance” for active participation in
a non-PTP rental real estate activity. In
addition, the nonpassive income is included
in investment income when figuring your
investment interest expense deduction on
Form 4952.
Example. If you have Schedule E (Form
1040) income of $8,000, and a Form 4797
prior year unallowed loss of $3,500 from the
passive activities of a particular PTP, you
have a $4,500 overall gain ($8,000 −
$3,500). On Schedule E (Form 1040), line
28, report the $4,500 net gain as
nonpassive income in column (j). In column
(g), report the remaining Schedule E (Form
1040) gain of $3,500 ($8,000 − $4,500). On
the appropriate line of Form 4797, report the
prior year unallowed loss of $3,500. Be sure
to enter “From PTP” to the left of each entry
space.
3. If you have an overall loss (but did not
dispose of your entire interest in the PTP to
an unrelated person in a fully taxable
transaction during the year), the losses are
allowed to the extent of the income, and the
excess loss is carried forward to use in a
future year when you have income to offset
it. Report as a passive loss on the schedule
or form you normally use the portion of the
loss equal to the income. Report the income
as passive income on the form or schedule
you normally use.
Example. You have a Schedule E (Form
1040) loss of $12,000 (current year losses
plus prior year unallowed losses) and a
Form 4797 gain of $7,200. Report the
$7,200 gain on the appropriate line of Form
4797. On Schedule E (Form 1040), line 28,
report $7,200 of the losses as a passive loss
in column (f). Carry forward to 2011 the
unallowed loss of $4,800 ($12,000 −
$7,200).
If you have unallowed losses from more
than one activity of the PTP or from the
same activity of the PTP that must be
reported on different forms, you must
allocate the unallowed losses on a pro rata
basis to figure the amount allowed from
each activity or on each form.
To allocate and keep a record of the
unallowed losses, use Worksheets 5,
6, and 7 of Form 8582. List each
activity of the PTP in Worksheet 5. Enter the
overall loss from each activity in column (a).
Complete column (b) of Worksheet 5
according to its instructions. Multiply the
total unallowed loss from the PTP by each
ratio in column (b) and enter the result in
column (c) of Worksheet 5. Then, complete
Worksheet 6 if all the loss from the same
activity is to be reported on one form or
schedule. Use Worksheet 7 instead of
Worksheet 6 if you have more than one loss
to be reported on different forms or
schedules for the same activity. Enter the
net loss plus any prior year unallowed
losses in column (a) of Worksheet 6 (or
Worksheet 7 if applicable). The losses in
TIP

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column (c) of Worksheet 6 (column (e) of
Worksheet 7) are the allowed losses to
report on the forms or schedules. Report
both these losses and any income from the
PTP on the forms and schedules you
normally use.
4. If you have an overall loss and you
disposed of your entire interest in the PTP to
an unrelated person in a fully taxable
transaction during the year, your losses
(including prior year unallowed losses)
allocable to the activity for the year are not
limited by the passive loss rules. A fully
taxable transaction is one in which you
recognize all your realized gain or loss.
Report the income and losses on the forms
and schedules you normally use.
Note. For rules on the disposition of an
entire interest reported using the installment
method, see the Instructions for Form 8582.
Special allowance for a rental real estate
activity. If you actively participated in a
rental real estate activity, you may be able
to deduct up to $25,000 of the loss from the
activity from nonpassive income. This
“special allowance” is an exception to the
general rule disallowing losses in excess of
income from passive activities. The special
allowance is not available if you were
married, file a separate return for the year,
and did not live apart from your spouse at all
times during the year.
Only individuals, qualifying estates, and
qualifying revocable trusts that made a
section 645 election can actively participate
in a rental real estate activity. Estates (other
than qualifying estates), trusts (other than
qualifying revocable trusts that made a
section 645 election), and corporations
cannot actively participate. Limited partners
cannot actively participate unless future
regulations provide an exception.
You are not considered to actively
participate in a rental real estate activity if, at
any time during the tax year, your interest
(including your spouse’s interest) in the
activity was less than 10% (by value) of all
interests in the activity.
Active participation is a less stringent
requirement than material participation. You
may be treated as actively participating if
you participated, for example, in making
management decisions or arranging for
others to provide services (such as repairs)
in a significant and bona fide sense.
Management decisions that can count as
active participation include approving new
tenants, deciding rental terms, approving
capital or repair expenditures, and other
similar decisions.
An estate is a qualifying estate if the
decedent would have satisfied the active
participation requirement for the activity for
the tax year the decedent died. A qualifying
estate is treated as actively participating for
tax years ending less than 2 years after the
date of the decedent’s death.
Modified adjusted gross income
limitation. The maximum special
allowance that single individuals and
married individuals filing a joint return can
qualify for is $25,000. The maximum is
$12,500 for married individuals who file
separate returns and who lived apart at all
times during the year. The maximum special
allowance for which an estate can qualify is
$25,000 reduced by the special allowance
for which the surviving spouse qualifies.

Partner’s Instructions for Schedule K-1 (Form 1065)

If your modified adjusted gross income
(defined below) is $100,000 or less ($50,000
or less if married filing separately), your loss
is deductible up to the maximum special
allowance referred to in the preceding
paragraph. If your modified adjusted gross
income is more than $100,000 (more than
$50,000 if married filing separately), the
special allowance is limited to 50% of the
difference between $150,000 ($75,000 if
married filing separately) and your modified
adjusted gross income. When modified
adjusted gross income is $150,000 or more
($75,000 or more if married filing
separately), there is no special allowance.
Modified adjusted gross income is your
adjusted gross income figured without taking
into account the following amounts, if
applicable:
• Any passive activity loss.
• Any rental real estate loss allowed under
section 469(c)(7) to real estate professionals
(defined on page 3).
• Any overall loss from a publicly-traded
partnership.
• Any taxable social security or equivalent
railroad retirement benefits.
• Any deductible contributions to an IRA or
certain other qualified retirement plans
under section 219.
• The domestic production activities
deduction.
• The student loan interest deduction.
• The tuition and fees deduction.
• The deduction for one-half of
self-employment taxes.
• The exclusion from income of interest
from Series EE or I U.S. Savings Bonds
used to pay higher education expenses.
• The exclusion of amounts received under
an employer’s adoption assistance program.
Commercial revitalization deduction.
The special $25,000 allowance for the
commercial revitalization deduction from
rental real estate activities is not subject to
the active participation rules or modified
adjusted gross income limits discussed
above. See the instructions for box 13, code
Q, for more information.
Special rules for certain other activities.
If you have net income (loss), deductions, or
credits from any activity to which special
rules apply, the partnership will identify the
activity and all amounts relating to it on
Schedule K-1 or on an attachment.
If you have net income subject to
recharacterization under Temporary
Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f), report such
amounts according to the Instructions for
Form 8582 (or Form 8810).
If you have net income (loss),
deductions, or credits from any of the
following activities, treat such amounts as
nonpassive and report them as indicated in
these instructions.
1. Working interests in oil and gas wells
if you are a general partner.
2. The rental of a dwelling unit any
partner used for personal purposes during
the year for more than the greater of 14
days or 10% of the number of days that the
residence was rented at fair rental value.
3. Trading personal property for the
account of owners of interests in the activity.
Self-charged interest. The partnership will
report any “self-charged” interest income or
expense that resulted from loans between

you and the partnership (or between the
partnership and another partnership or S
corporation if both entities have the same
owners with the same proportional
ownership interest in each entity). If there
was more than one activity, the partnership
will provide a statement allocating the
interest income or expense with respect to
each activity. The self-charged interest rules
do not apply to your partnership interest if
the partnership made an election under
Regulations section 1.469-7(g) to avoid the
application of these rules. See the
Instructions for Form 8582 for details.

Specific Instructions
Part I. Information About
the Partnership
Item D
If the box in item D is checked, you are a
partner in a publicly traded partnership and
must follow the rules discussed on page 4
under Publicly traded partnerships.

Part II. Information About
the Partner
Item J
Generally, the amounts reported in item J
are based on the partnership agreement. If
your interest commenced after the
beginning of the partnership’s tax year, the
partnership will have entered, in the
Beginning column, the percentages that
existed for you immediately after admission.
If your interest terminated before the end of
the partnership’s tax year, the partnership
will have entered, in the Ending column, the
percentages that existed immediately before
termination.
The ending percentage share shown on
the Capital line is the portion of the capital
you would receive if the partnership was
liquidated at the end of its tax year by the
distribution of undivided interests in the
partnership’s assets and liabilities. If your
capital account is negative or zero, the
partnership will have entered zero on this
line.

Item K
Item K should show your share of the
partnership’s nonrecourse liabilities,
partnership-level qualified nonrecourse
financing, and other recourse liabilities as of
the end of the partnership’s tax year. If you
terminated your interest in the partnership
during the tax year, item K should show the
share that existed immediately before the
total disposition. A partner’s “recourse
liability” is any partnership liability for which
a partner is personally liable.
Use the total of the three amounts for
computing the adjusted basis of your
partnership interest.
Generally, you may use only the
amounts shown next to “Qualified
nonrecourse financing” and “Recourse” to
figure your amount at risk. Do not include
any amounts that are not at risk if such

Partner’s Instructions for Schedule K-1 (Form 1065)

-5-

amounts are included in either of these
categories.
If your partnership is engaged in two or
more different types of activities subject to
the at-risk provisions, or a combination of
at-risk activities and any other activity, the
partnership should give you a statement
showing your share of nonrecourse
liabilities, partnership-level qualified
nonrecourse financing, and other recourse
liabilities for each activity.
Qualified nonrecourse financing secured
by real property used in an activity of
holding real property that is subject to the
at-risk rules is treated as an amount at risk.
Qualified nonrecourse financing generally
includes financing for which no one is
personally liable for repayment that is
borrowed for use in an activity of holding
real property and that is loaned or
guaranteed by a federal, state, or local
government or borrowed from a “qualified”
person.
Qualified persons include any persons
actively and regularly engaged in the
business of lending money, such as a bank
or savings and loan association. Qualified
persons generally do not include related
parties (unless the nonrecourse financing is
commercially reasonable and on
substantially the same terms as loans
involving unrelated persons), the seller of
the property, or a person who receives a fee
for the partnership’s investment in the real
property.
See Pub. 925 for more information on
qualified nonrecourse financing.
Both the partnership and you must meet
the qualified nonrecourse rules on this debt
before you can include the amount shown
next to “Qualified nonrecourse financing” in
your at-risk computation.
See Limitations on Losses, Deductions,
and Credits beginning on page 2 for more
information on the at-risk limitations.

Item M
If you have contributed property with a
built-in gain or loss during the tax year, the
partnership will check the “Yes” box. Also,
the partnership will attach a statement
showing the property contributed, the date
of the contribution, and the amount of any
built-in gain or loss. A built-in gain or loss is
the difference between the fair market value
of the property and your adjusted basis in
the property at the time it was contributed to
the partnership. If you contributed more than
10 properties on a single date during the tax
year, the statement may instead show the
number of properties contributed on that
date, the total amount of built-in gain, and
the total amount of built-in loss.
The partnership is providing this for your
information. Contributions of property with a
built-in gain or loss could affect a partner’s
tax liability (in matters concerning
precontribution gain or loss, and
distributions subject to section 737), and
may also affect how the partnership
allocated certain items on your Schedule
K-1. For information on precontribution gain
or loss, see the instructions for box 20,
Code W. For information on distributions
subject to section 737 see the instructions
for box 19, Code B.

Part III. Partner’s Share of
Current Year Income,
Deductions, Credits, and
Other Items
The amounts shown in boxes 1 through 20
reflect your share of income, loss,
deductions, credits, etc., from partnership
business or rental activities without
reference to limitations on losses or
adjustments that may be required of you
because of:
1. The adjusted basis of your
partnership interest,
2. The amount for which you are at risk,
3. The passive activity limitations, or
4. Any other limitations that must be
taken into account at the partner level in
figuring taxable income (for example, the
section 179 expense limitation).
For information on these provisions, see
Limitations on Losses, Deductions, and
Credits beginning on page 2.
If you are an individual and the passive
activity rules do not apply to the amounts
shown on your Schedule K-1, take the
amounts shown and enter them on the lines
on your tax return as indicated in the
summarized reporting information shown on
page 2 of the Schedule K-1. If the passive
activity rules do apply, report the amounts
shown as indicated in these instructions.
If you are not an individual, report the
amounts in each box as instructed on your
tax return.
The line numbers in the summarized
reporting information on page 2 of Schedule
K-1 are references to forms in use for
calendar year 2010. If you file your tax
return on a calendar year basis, but your
partnership files a return for a fiscal year,
report the amounts on your tax return for the
year in which the partnership’s fiscal year
ends. For example, if the partnership’s tax
year ends in February 2011, report the
amounts on your 2011 tax return.
If you have losses, deductions, or credits
from a prior year that were not deductible or
usable because of certain limitations, such
as the basis rules or the at-risk limitations,
take them into account in determining your
net income, loss, or credits for this year.
However, except for passive activity losses
and credits, do not combine the prior-year
amounts with any amounts shown on this
Schedule K-1 to get a net figure to report on
any supporting schedules, statements, or
forms attached to your return. Instead,
report the amounts on the attached
schedule, statement, or form on a
year-by-year basis.
If the partnership reports a section 743(b)
adjustment to partnership items, report
these adjustments as separate items on
Form 1040 in accordance with the reporting
instructions for the partnership item being
adjusted. A section 743(b) adjustment
increases or decreases your distributive
share of income, deduction, gain, or loss for
a partnership item. For example, if the
partnership reports a section 743(b)
adjustment to depreciation for property used
in its trade or business, report the
adjustment on line 28 of Schedule E (Form

1040) in accordance with the instructions for
box 1 of Schedule K-1.
If you have amounts other than
those shown on Schedule K-1 to
CAUTION
report on Schedule E (Form 1040),
enter each item separately on line 28 of
Schedule E (Form 1040).
Codes. In box 11 and boxes 13 through
20, the partnership will identify each item by
entering a code in the column to the left of
the dollar amount entry space. These codes
are identified on page 2 of Schedule K-1
and in these instructions.
Attached statements. The partnership will
enter an asterisk (*) after the code, if any, in
the column to the left of the dollar amount
entry space for each item for which it has
attached a statement providing additional
information. For those informational items
that cannot be reported as a single dollar
amount, the partnership will enter an
asterisk in the left column and enter “STMT”
in the dollar amount entry space to indicate
the information is provided on an attached
statement.

!

Income (Loss)
Box 1. Ordinary Business
Income (Loss)
The amount reported in box 1 is your share
of the ordinary income (loss) from trade or
business activities of the partnership.
Generally, where you report this amount on
Form 1040 depends on whether the amount
is from an activity that is a passive activity to
you. If you are an individual partner filing a
2010 Form 1040, find your situation below
and report your box 1 income (loss) as
instructed, after applying the basis and
at-risk limitations on losses. If the
partnership had more than one trade or
business activity, it will attach a statement
identifying the income or loss from each
activity.
1. Report box 1 income (loss) from
partnership trade or business activities in
which you materially participated on
Schedule E (Form 1040), line 28, column (h)
or (j).
2. Report box 1 income (loss) from
partnership trade or business activities in
which you did not materially participate, as
follows.
a. If income is reported in box 1, report
the income on Schedule E (Form 1040), line
28, column (g). However, if the box in item D
is checked, report the income following the
rules for Publicly traded partnerships on
page 4.
b. If a loss is reported in box 1, follow
the Instructions for Form 8582 to figure how
much of the loss can be reported on
Schedule E (Form 1040), line 28, column (f).
However, if the box in item D is checked,
report the loss following the rules for
Publicly traded partnerships on page 4.

Box 2. Net Rental Real Estate
Income (Loss)
Generally, the income (loss) reported in box
2 is a passive activity amount for all
partners. However, the income (loss) in box
2 is not from a passive activity if you were a
real estate professional (defined on page 3)
and you materially participated in the

-6-

activity. If the partnership had more than
one rental real estate activity, it will attach a
statement identifying the income or loss
from each activity.
If you are filing a 2010 Form 1040, use
the following instructions to determine where
to report a box 2 amount.
1. If you have a loss from a passive
activity in box 2 and you meet all the
following conditions, report the loss on
Schedule E (Form 1040), line 28, column (f).
a. You actively participated in the
partnership rental real estate activities. See
Special allowance for a rental real estate
activity on page 4.
b. Rental real estate activities with
active participation were your only passive
activities.
c. You have no prior year unallowed
losses from these activities.
d. Your total loss from the rental real
estate activities was not more than $25,000
(not more than $12,500 if married filing
separately and you lived apart from your
spouse all year).
e. If you are a married person filing
separately, you lived apart from your spouse
all year.
f. You have no current or prior year
unallowed credits from a passive activity.
g. Your modified adjusted gross income
was not more than $100,000 (not more than
$50,000 if married filing separately and you
lived apart from your spouse all year).
h. Your interest in the rental real estate
activity was not held as a limited partner.
2. If you have a loss from a passive
activity in box 2 and you do not meet all the
conditions in 1 above, follow the Instructions
for Form 8582 to figure how much of the
loss you can report on Schedule E (Form
1040), line 28, column (f). However, if the
box in item D is checked, report the loss
following the rules for Publicly traded
partnerships on page 4.
3. If you were a real estate professional
and you materially participated in the
activity, report box 2 income (loss) on
Schedule E (Form 1040), line 28, column (h)
or (j).
4. If you have income from a passive
activity in box 2, report the income on
Schedule E (Form 1040), line 28, column
(g). However, if the box in item D is
checked, report the income following the
rules for Publicly traded partnerships on
page 4.

Box 3. Other Net Rental Income
(Loss)
The amount in box 3 is a passive activity
amount for all partners. If the partnership
had more than one rental activity, it will
attach a statement identifying the income or
loss from each activity. Report the income or
loss as follows.
1. If box 3 is a loss, follow the
Instructions for Form 8582 to figure how
much of the loss can be reported on
Schedule E (Form 1040), line 28, column (f).
However, if the box in item D is checked,
report the loss following the rules for
Publicly traded partnerships on page 4.
2. If income is reported in box 3, report
the income on Schedule E (Form 1040), line
28, column (g). However, if the box in item D
is checked, report the income following the

Partner’s Instructions for Schedule K-1 (Form 1065)

rules for Publicly traded partnerships on
page 4.

Box 4. Guaranteed Payments
Generally, amounts on this line are not
passive income, and you should report them
on Schedule E (Form 1040), line 28, column
(j) (for example, guaranteed payments for
personal services).

Portfolio Income
Portfolio income or loss (shown in boxes 5
through 9b and in box 11, code A) is not
subject to the passive activity limitations.
Portfolio income includes income (not
derived in the ordinary course of a trade or
business) from interest, ordinary dividends,
annuities or royalties, and gain or loss on
the sale of property that produces such
income or is held for investment.

Box 5. Interest Income
Report interest income on line 8a of Form
1040. If the amount of interest income
included in box 5 includes interest from the
credit for holders of clean renewable energy
bonds or Midwestern tax credit bonds, the
partnership will attach a statement to
Schedule K-1 showing your distributive
share of interest income from these credits.
Because the basis of your interest in the
partnership has been increased by your
distributive share of the interest income from
these credits, you must reduce your basis
by the same amount. See line 4 of the
Worksheet for Adjusting the Basis of a
Partner’s Interest in the Partnership on page
2.

Box 6a. Ordinary Dividends
Report ordinary dividends on line 9a of Form
1040.

Box 6b. Qualified Dividends
Report any qualified dividends on line 9b of
Form 1040.
Note. Qualified dividends are excluded
from investment income, but you may elect
to include part or all of these amounts in
investment income. See the instructions for
line 4g of Form 4952, Investment Interest
Expense Deduction, for important
information on making this election.

Box 7. Royalties
Report royalties on Schedule E (Form
1040), line 4.

Box 8. Net Short-Term Capital
Gain (Loss)
Report the net short-term capital gain (loss)
on Schedule D (Form 1040), line 5.

Box 9a. Net Long-Term Capital
Gain (Loss)
Report the net long-term capital gain (loss)
on Schedule D (Form 1040), line 12.

Box 9b. Collectibles (28%) Gain
(Loss)
Report collectibles gain or loss on line 4 of
the 28% Rate Gain Worksheet — Line 18 in
the Instructions for Schedule D (Form 1040).

Box 9c. Unrecaptured Section
1250 Gain
There are three types of unrecaptured
section 1250 gain. Report your share of this
unrecaptured gain on the Unrecaptured
Section 1250 Gain Worksheet — Line 19 in
the Instructions for Schedule D (Form 1040)
as follows.
• Report unrecaptured section 1250 gain
from the sale or exchange of the
partnership’s business assets on line 5.
• Report unrecaptured section 1250 gain
from the sale or exchange of an interest in a
partnership on line 10.
• Report unrecaptured section 1250 gain
from an estate, trust, regulated investment
company (RIC), or real estate investment
trust (REIT) on line 11.
If the partnership reports only
unrecaptured section 1250 gain from the
sale or exchange of its business assets, it
will enter a dollar amount in box 9c. If it
reports the other two types of unrecaptured
gain, it will provide an attached statement
that shows the amount for each type of
unrecaptured section 1250 gain.

Box 10. Net Section 1231 Gain
(Loss)
The amount in box 10 is generally passive if
it is from a:
• Rental activity or
• Trade or business activity in which you
did not materially participate.
However, an amount from a rental real
estate activity is not from a passive activity if
you were a real estate professional (defined
on page 3) and you materially participated in
the activity.
If the amount is either (a) a loss that is
not from a passive activity or (b) a gain,
report it on line 2, column (g), of Form 4797,
Sales of Business Property. Do not
complete columns (b) through (f) on line 2 of
Form 4797. Instead, enter “From Schedule
K-1 (Form 1065)” across these columns.
If the amount is a loss from a passive
activity, see Passive Loss Limitations in the
Instructions for Form 4797. Report the loss
following the Instructions for Form 8582 to
figure how much of the loss is allowed on
Form 4797. However, if the box in item D is
checked, report the loss following the rules
for Publicly traded partnerships on page 4. If
the partnership had net section 1231 gain
(loss) from more than one activity, it will
attach a statement that will identify the
section 1231 gain (loss) from each activity.

Box 11. Other Income (Loss)
Code A. Other portfolio income (loss).
The partnership will report portfolio income
other than interest, ordinary dividend,
royalty, and capital gain (loss) income, and
attach a statement to tell you what kind of
portfolio income is reported.
If the partnership held a residual interest
in a real estate mortgage investment conduit
(REMIC), it will report on the statement your
share of REMIC taxable income (net loss)
that you report on Schedule E (Form 1040),
line 38, column (d). The statement will also
report your share of any “excess inclusion”
that you report on Schedule E (Form 1040),
line 38, column (c), and your share of
section 212 expenses that you report on
Schedule E (Form 1040), line 38, column

Partner’s Instructions for Schedule K-1 (Form 1065)

-7-

(e). If you itemize your deductions on
Schedule A (Form 1040), you may also
deduct these section 212 expenses as a
miscellaneous deduction subject to the 2%
limit on Schedule A (Form 1040), line 23.
Code B. Involuntary conversions. This is
your net gain (loss) from involuntary
conversions due to casualty or theft. The
partnership will give you a schedule that
shows the amounts to be reported on Form
4684, Casualties and Thefts, line 37,
columns (b)(i), (b)(ii), and (c).
If there was a gain (loss) from a casualty
or theft to property not used in a trade or
business or for income-producing purposes,
the partnership will provide you with the
information you need to complete Form
4684.
Code C. Section 1256 contracts and
straddles. The partnership will report any
net gain or loss from section 1256 contracts.
Report this amount on Form 6781, Gains
and Losses From Section 1256 Contracts
and Straddles.
Code D. Mining exploration costs
recapture. The partnership will give you a
schedule that shows the information needed
to recapture certain mining exploration costs
(section 617). See Pub. 535 for details.
Code E. Cancellation of debt. Generally,
this amount is included in your gross income
(Form 1040, line 21). Under section
108(b)(5), you may elect to apply any
portion of this cancellation of debt to the
reduction of the basis of depreciable
property. See Form 982 for more details.
Code F. Other income (loss). Amounts
with code F are other items of income, gain,
or loss not included in boxes 1 through 10 or
reported in box 11 using codes A through E.
The partnership should give you a
description and the amount of your share for
each of these items.
Report loss items that are passive
activity amounts to you following the
Instructions for Form 8582. However, if the
box in item D is checked, report the loss
following the rules for Publicly traded
partnerships on page 4.
Code F items may include the following.
• Gain or loss attributable to the sale or
exchange of qualified preferred stock of the
Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). The
partnership will report on an attached
statement the amount of gain or loss
attributable to the sale or exchange of the
qualified preferred stock, the date the stock
was acquired by the partnership, and the
date the stock was sold or exchanged by the
partnership. If the partner is not a financial
institution (as defined below), report the gain
or loss on line 5 or line 12 of Schedule D
(Form 1040) in accordance with the
Instructions for Schedule D. If a partner is a
financial institution referred to in section
582(c)(2) or a depositary institution holding
company (as defined in section 3(w)(1) of
the Federal Deposit Insurance Act), report
the gain or loss in accordance with the
Instructions for Form 4797 and Rev. Proc.
2008-64, 2008-47 I.R.B. 1195.
• Partnership gains from the disposition of
farm recapture property (see the instructions
for line 27 of Form 4797) and other items to
which section 1252 applies.

• Income from recoveries of tax benefit
items. A tax benefit item is an amount you
deducted in a prior tax year that reduced
your income tax. Report this amount on line
21 of Form 1040 to the extent it reduced
your tax.
• Gambling gains and losses.
1. If the partnership was not engaged in
the trade or business of gambling, (a) report
gambling winnings on Form 1040, line 21
and (b) deduct gambling losses to the extent
of winnings on Schedule A (Form 1040), line
28.
2. If the partnership was engaged in the
trade or business of gambling, (a) report
gambling winnings on line 28 of Schedule E
(Form 1040) and (b) deduct gambling losses
(to the extent of winnings) on line 28 of
Schedule E (Form 1040), column (h).
• Gain (loss) from the disposition of an
interest in oil, gas, geothermal, or other
mineral properties. The partnership will
attach a statement that provides a
description of the property, your share of the
amount realized from the disposition, your
share of the partnership’s adjusted basis in
the property (for other than oil or gas
properties), and your share of the total
intangible drilling costs, development costs,
and mining exploration costs (section 59(e)
expenditures) passed through for the
property. You must figure your gain or loss
from the disposition by increasing your
share of the adjusted basis by the intangible
drilling costs, development costs, or mine
exploration costs for the property that you
capitalized (that is, costs that you did not
elect to deduct under section 59(e)). Report
a loss in Part I of Form 4797. Report a gain
in Part III of Form 4797 in accordance with
the instructions for line 28. See Regulations
section 1.1254-5 for details.
• Any income, gain, or loss to the
partnership under section 751(b) (certain
distributions treated as sales or exchanges).
Report this amount on Form 4797, line 10.
• Specially allocated ordinary gain (loss).
Report this amount on Form 4797, line 10.
• Net short-term capital gain (loss) and net
long-term capital gain (loss) from Schedule
D (Form 1065) that is not portfolio income.
An example is gain or loss from the
disposition of nondepreciable personal
property used in a trade or business activity
of the partnership. Report total net
short-term gain (loss) on Schedule D (Form
1040), line 5. Report the total net long-term
gain (loss) on Schedule D (Form 1040), line
12.
• Current year section 108(i) cancellation of
debt (COD) income. The partnership will
provide your distributive share of the
deferred COD income amount that you must
include in income in the current tax year
under section 108(i)(1) or section
108(i)(5)(D)(i) or (ii).
• Gain from the sale or exchange of
qualified small business (QSB) stock (as
defined in the Instructions for Schedule D
(Form 1065)) that is eligible for the partial
section 1202 exclusion. The partnership
should also give you (a) the name of the
corporation that issued the QSB stock, (b)
your distributive share of the partnership’s
adjusted basis and sales price of the QSB
stock, and (c) the dates the QSB stock was
bought and sold. Corporate partners are not
eligible for the section 1202 exclusion. The

following additional limitations apply at the
partner level.
1. You must have held an interest in the
partnership when the partnership acquired
the QSB stock and at all times thereafter
until the partnership disposed of the QSB
stock.
2. Your distributive share of the eligible
section 1202 gain cannot exceed the
amount that would have been allocated to
you based on your interest in the
partnership at the time the QSB stock was
acquired.
See the Instructions for Schedule D
(Form 1040) for details on how to report the
gain and the amount of the allowable
exclusion.
• Gain eligible for section 1045 rollover.
Replacement stock purchased by the
partnership. The partnership should give
you (a) the name of the corporation that
issued the qualified small business (QSB)
stock, (b) your share of the partnership’s
adjusted basis and sales price of the QSB
stock, (c) the dates the QSB stock was
bought and sold, (d) your distributive share
of gain from the sale of the QSB stock, and
(e) your distributive share of the gain that
was deferred by the partnership under
section 1045. Corporate partners are not
eligible for the section 1045 rollover. To
qualify for the section 1045 rollover:
1. You must have held an interest in the
partnership during the entire period in which
the partnership held the QSB stock (more
than 6 months prior to the sale) and
2. Your distributive share of the gain
eligible for the section 1045 rollover cannot
exceed the amount that would have been
allocated to you based on your interest in
the partnership at the time the QSB stock
was acquired.
See the Instructions for Schedule D
(Form 1040) for details on how to report the
gain and the amount of the allowable
postponed gain.
Opting out of partnership election. You
can opt out of the partnership’s section 1045
election and either (1) recognize the gain or
(2) elect to purchase different replacement
QSB stock, either directly or through
ownership of a partnership that acquired
replacement QSB stock. You satisfy the
requirement to purchase replacement QSB
stock if you own an interest in a partnership
that purchases QSB stock during the 60-day
period. You also must notify the partnership,
in writing, if you opt out of the partnership’s
section 1045 election. If you recognize gain,
you must notify the partnership, in writing, of
the amount of the gain that you are
recognizing.
Replacement stock not purchased by the
partnership. The partnership should give
you (a) the name of the corporation that
issued the qualified small business (QSB)
stock, (b) your share of the partnership’s
adjusted basis and sales price of the QSB
stock, (c) the dates the QSB stock was
bought and sold, and (d) your distributive
share of gain from the sale of the QSB
stock. Corporate partners are not eligible for
the section 1045 rollover. To qualify for the
section 1045 rollover:
1. You must have held an interest in the
partnership during the entire period in which

-8-

the partnership held the QSB stock (more
than 6 months prior to the sale),
2. Your distributive share of the gain
eligible for the section 1045 rollover cannot
exceed the amount that would have been
allocated to you based on your interest in
the partnership at the time the QSB stock
was acquired, and
3. You must purchase other QSB stock
(as defined in the Instructions for Schedule
D (Form 1040)) during the 60-day period
that began on the date the QSB stock was
sold by the partnership.
See the Instructions for Schedule D
(Form 1040) for details on how to report the
gain and the amount of the allowable
postponed gain.
Making the section 1045 election.
You make a section 1045 election on a
timely filed return for the tax year during
which the partnership’s tax year ends.
Attach to your Schedule D (Form 1040) a
statement that includes the following
information for each amount of gain that you
do not recognize under section 1045.
• The name of the corporation that issued
the QSB stock.
• The name and EIN of the selling
partnership.
• The dates the QSB stock was purchased
and sold.
• The amount of gain that is not recognized
under section 1045.
• If a partner purchases QSB stock, the
name of the corporation that issued the
replacement QSB stock, the date the stock
was purchased, and the cost of the stock.
• If a partner treats the partner’s interest in
QSB stock that is purchased by a
purchasing partnership as the partner’s
replacement QSB stock, the name and EIN
of the purchasing partnership, the name of
the corporation that issued the QSB stock,
the partner’s share of the cost of the QSB
stock that was purchased by the
partnership, the computation of the partner’s
adjustment to basis with respect to that QSB
stock, and the date the stock was purchased
by the partnership.
Distribution of replacement qualified
small business (QSB) stock to a partner
that reduces another partner’s interest in
replacement QSB stock. You must
recognize gain upon a distribution of
replacement QSB stock to another partner
that reduces your share of the replacement
QSB stock held by a partnership. The
amount of gain that you must recognize is
based on the amount of gain that you would
recognize upon a sale of the distributed
replacement QSB for its fair market value on
the date of the distribution, but not to exceed
the amount you previously deferred under
section 1045 with respect to the distributed
replacement QSB stock. If the partnership
distributed your share of replacement QSB
stock to another partner, the partnership
should give you (a) the name of the
corporation that issued the replacement
QSB stock, (b) the date the replacement
QSB stock was distributed to another
partner or partners, and (c) your share of
the partnership’s adjusted basis and fair
market value of the replacement QSB stock
on such date.
For more information see Regulations
section 1.1045-1.

Partner’s Instructions for Schedule K-1 (Form 1065)

Deductions
Box 12. Section 179 Deduction
Use this amount, along with the total cost of
section 179 property placed in service
during the year from other sources, to
complete Part I of Form 4562, Depreciation
and Amortization. The partnership will report
on an attached statement your allowable
share of the cost of any qualified enterprise
zone, qualified section 179 Recovery
Assistance, qualified section 179 disaster
assistance, or qualified real property it
placed in service during the tax year. Report
the amount from line 12 of Form 4562
allocable to a passive activity using the
Instructions for Form 8582. If the amount is
not a passive activity deduction, report it on
Schedule E (Form 1040), line 28, column (i).
However, if the box in item D is checked,
report this amount following the rules for
Publicly traded partnerships on page 4.

Box 13. Other Deductions
Contributions. Codes A through G. The
partnership will give you a schedule that
shows charitable contributions subject to the
100%, 50%, 30%, and 20% adjusted gross
income limitations. For more details, see
Pub. 526, Charitable Contributions, and the
Instructions for Schedule A (Form 1040). If
your contributions are subject to more than
one of the AGI limitations, see Worksheet 2.
Applying the Deduction Limits in Pub. 526.
Charitable contribution deductions are
not taken into account in figuring your
passive activity loss for the year. Do not
enter them on Form 8582.
Code A. Cash contributions (50%).
Report this amount, subject to the 50% AGI
limitation, on line 16 of Schedule A (Form
1040).
Code B. Cash contributions (30%).
Report this amount, subject to the 30% AGI
limitation, on line 16 of Schedule A (Form
1040).
Code C. Noncash contributions (50%). If
property other than cash is contributed, and
if the claimed deduction for one item or
group of similar items of property exceeds
$5,000, the partnership must give you a
copy of Form 8283, Noncash Charitable
Contributions, to attach to your tax return.
Do not deduct the amount shown on Form
8283. It is the partnership’s contribution.
Instead, deduct the amount identified by
code C, box 13, subject to the 50% AGI
limitation, on line 17 of Schedule A (Form
1040).
If the partnership provides you with
information that the contribution was
property other than cash and does not give
you a Form 8283, see the Instructions for
Form 8283 for filing requirements. Do not
file Form 8283 unless the total claimed
deduction for all contributed items of
property exceeds $500.
Food inventory contributions. The
partnership will report on an attached
statement your distributive share of qualified
food inventory contributions. The food
inventory contribution is not included in the
amount reported in box 13 using code C.
The partnership will also report your
distributive share of the partnership’s net
income from the business activities that

made the food inventory contribution(s).
Your deduction for food inventory
contributions cannot exceed 10% of your
aggregate net income for the tax year from
the business activities from which the food
inventory contribution was made (including
your share of net income from partnership or
S corporation businesses that made food
inventory contributions). Report the
deduction, subject to the 50% AGI limitation,
on line 17 of Schedule A (Form 1040).
Code D. Noncash contributions (30%).
Report this amount, subject to the 30% AGI
limitation, on line 17 of Schedule A (Form
1040).
Code E. Capital gain property to a 50%
organization (30%). Report this amount,
subject to the 30% AGI limitation, on line 17
of Schedule A (Form 1040). See Special
30% Limit for Capital Gain Property in Pub.
526.
Code F. Capital gain property (20%).
Report this amount, subject to the 20% AGI
limitation, on line 17 of Schedule A (Form
1040).
Code G. Contributions (100%). The
partnership will report your distributive share
of qualified conservation contributions of
property used in agriculture or livestock
production. This contribution is not included
in the amount reported in box 13 using code
C. If you are a farmer or rancher, you qualify
for a 100% AGI limitation for this
contribution. Otherwise, your deduction for
this contribution is subject to a 50% AGI
limitation. Report this deduction on line 17 of
Schedule A (Form 1040). See Pub. 526 for
more information on qualified conservation
contributions.
Code H. Investment interest expense.
Enter this amount on Form 4952, line 1. If
the partnership has investment income or
other investment expense, it will report your
share of these items in box 20 using codes
A and B. Include investment income and
expenses from other sources to figure how
much of your total investment interest is
deductible. You will also need this
information to figure your investment interest
expense deduction.
If the partnership paid or accrued interest
on debts properly allocable to investment
property, the amount of interest you are
allowed to deduct may be limited.
For more information on the special
provisions that apply to investment interest
expense, see Form 4952 and Pub. 550.
Code I. Deductions — royalty income.
Enter deductions allocable to royalties on
Schedule E (Form 1040), line 18. For this
type of expense, enter “From Schedule K-1
(Form 1065).”
These deductions are not taken into
account in figuring your passive activity loss
for the year. Do not enter them on Form
8582.
Code J. Section 59(e)(2) expenditures.
On an attached statement, the partnership
will show the type and the amount of
qualified expenditures for which you may
make a section 59(e) election. The
statement will also identify the property for
which the expenditures were paid or
incurred. If there is more than one type of
expenditure, the amount of each type will
also be listed.

Partner’s Instructions for Schedule K-1 (Form 1065)

-9-

If you deduct these expenditures in full in
the current year, they are treated as
adjustments or tax preference items for
purposes of alternative minimum tax.
However, you may elect to amortize these
expenditures over the number of years in
the applicable period rather than deduct the
full amount in the current year. If you make
this election, these items are not treated as
adjustments or tax preference items.
Under the election, you can deduct
circulation expenditures ratably over a
3-year period. Research and experimental
expenditures and mining exploration and
development costs can be amortized over a
10-year period. Intangible drilling and
development costs can be amortized over a
60-month period. The amortization period
begins with the month in which such costs
were paid or incurred.
Make the election on Form 4562. If you
make the election, report the current year
amortization of section 59(e) expenditures
from Part VI of Form 4562 on line 28 of
Schedule E (Form 1040). If you do not make
the election, report the section 59(e)(2)
expenditures on line 28 of Schedule E
(Form 1040) and figure the resulting
adjustment or tax preference item (see Form
6251, Alternative Minimum
Tax — Individuals). Whether you deduct the
expenditures or elect to amortize them,
report the amount on a separate line in
column (h) of line 28 if you materially
participated in the partnership activity. If you
did not materially participate, follow the
Instructions for Form 8582 to figure how
much of the deduction can be reported in
column (f).
Code K. Deductions — portfolio (2%
floor). Amounts entered with code K are
deductions that are clearly and directly
allocable to portfolio income (other than
investment interest expense and section
212 expenses from a REMIC). Generally,
you should report these amounts on
Schedule A (Form 1040), line 23. See the
instructions for Schedule A (Form 1040),
lines 23 and 28, for details.
These deductions are not taken into
account in figuring your passive activity loss
for the year. Do not enter them on Form
8582.
Code L. Deductions — portfolio (other).
Generally, you should report these amounts
on Schedule A (Form 1040), line 28. See
the instructions for Schedule A, lines 23 and
28, for details. These deductions are not
taken into account in figuring your passive
activity loss for the year. Do not enter them
on Form 8582.
Code M. Amounts paid for medical
insurance. Any amounts paid during the
tax year for insurance that constitutes
medical care for you, your spouse, your
dependents, and any children under age 27
who are not dependents. On line 29 of Form
1040, you may be allowed to deduct such
amounts, even if you do not itemize
deductions. If you do itemize deductions,
enter on line 1 of Schedule A (Form 1040)
any amounts not deducted on line 29 of
Form 1040.
Code N. Educational assistance benefits.
Deduct your educational assistance benefits
on a separate line of Schedule E (Form
1040), line 28, up to the $5,250 limitation. If
your benefits exceed $5,250, you may be

able to use the excess amount on Form
8863 to figure the education credits.
Code O. Dependent care benefits. The
partnership will report the dependent care
benefits you received. You must use Form
2441, Part III, to figure the amount, if any, of
the benefits you may exclude from your
income.
Code P. Preproductive period expenses.
You may be able to deduct these expenses
currently or you may need to capitalize them
under section 263A. See Pub. 225, Farmer’s
Tax Guide, and Regulations section
1.263A-4 for details.
Code Q. Commercial revitalization
deduction from rental real estate
activities. Follow the Instructions for Form
8582 to figure how much of the deduction
can be reported on Schedule E (Form
1040), line 28, column (f).
Code R. Pensions and IRAs. Payments
made on your behalf to an IRA, qualified
plan, simplified employee pension (SEP), or
a SIMPLE IRA plan. See Form 1040
instructions for line 32 to figure your IRA
deduction. Enter payments made to a
qualified plan, SEP, or SIMPLE IRA plan on
Form 1040, line 28. If the payments to a
qualified plan were to a defined benefit plan,
the partnership should give you a statement
showing the amount of the benefit accrued
for the current tax year.
Code S. Reforestation expense
deduction. The partnership will provide a
statement that describes the qualified timber
property for these reforestation expenses.
The expense deduction is limited to $10,000
($5,000 if married filing separately) for each
qualified timber property, including your
distributive share of the partnership’s
expense and any reforestation expenses
you separately paid or incurred during the
tax year.
If you did not materially participate in the
activity, use Form 8582 to figure the amount
to report on Schedule E (Form 1040), line
28. If you materially participated in the
reforestation activity, report the deduction on
line 28, column (h), of Schedule E (Form
1040).
Code T. Domestic production activities
information. The partnership will provide
you with a statement with information that
you must use to figure the domestic
production activities deduction. Use Form
8903, Domestic Production Activities
Deduction, to figure this deduction. See the
Instructions for Form 8903 for details.
Code U. Qualified production activities
income (QPAI). Report the QPAI reported
to you by the partnership (in box 13 of
Schedule K-1) in the applicable column of
Form 8903, line 7.
Code V. Employer’s Form W-2 wages.
Report the portion of Form W-2 wages
reported to you by the partnership (in box 13
of Schedule K-1) on line 17 of Form 8903.
Code W. Other deductions. Amounts with
this code may include:
• Itemized deductions that Form 1040 filers
report on Schedule A (Form 1040).
• Soil and water conservation expenditures
and endangered species recovery
expenditures. See section 175 for limitations
on the amount you are allowed to deduct.
• Expenditures for the removal of
architectural and transportation barriers to
the elderly and disabled that the partnership

elected to treat as a current expense. The
deductions are limited by section 190(c) to
$15,000 per year from all sources.
• Interest expense allocated to
debt-financed distributions. The manner in
which you report such interest expense
depends on your use of the distributed debt
proceeds. If the proceeds were used in a
trade or business activity, report the interest
on line 28 of Schedule E (Form 1040). In
column (a) enter the name of the
partnership and “interest expense.” If you
materially participated in the trade or
business activity, enter the interest expense
in column (h). If you did not materially
participate in the activity, follow the
Instructions for Form 8582 to figure the
interest expense you can report in column
(f). See page 3 for a definition of material
participation. If the proceeds were used in
an investment activity, report the interest on
Form 4952. If the proceeds are used for
personal purposes, the interest is generally
not deductible.
• Interest paid or accrued on debt properly
allocable to your share of a working interest
in any oil or gas property (if your liability is
not limited). If you did not materially
participate in the oil or gas activity, this
interest is investment interest reportable as
described on page 9; otherwise, it is trade or
business interest. If you did not materially
participate in the oil or gas activity, this
interest is investment interest expense and
should be reported on Form 4952. If you
materially participated in the activity, report
the interest on line 28 of Schedule E (Form
1040). On a separate line, enter “interest
expense” and the name of the partnership in
column (a) and the amount in column (h).
• Contributions to a capital construction
fund (CCF). The deduction for a CCF
investment is not taken on Schedule E
(Form 1040). Instead, you subtract the
deduction from the amount that would
normally be entered as taxable income on
line 43 (Form 1040). In the margin to the left
of line 43, enter ‘‘CCF’’ and the amount of
the deduction.
• Penalty on early withdrawal of savings.
Report this amount on Form 1040, line 30.
• Film and television production expenses.
The partnership will provide a statement that
describes the film or television production
generating these expenses. Generally, if the
aggregate cost of the production exceeds
$15 million, you are not entitled to the
deduction. The limitation is $20 million for
productions in certain areas (see section
181 for details). If you did not materially
participate in the activity, use Form 8582 to
determine the amount that can be reported
on Schedule E (Form 1040), line 28, column
(f). If you materially participated in the
production activity, report the deduction on
Schedule E (Form 1040), line 28, column
(h).
• Current year section 108(i) original issue
discount (OID) deduction. The partnership
will provide your distributive share of the
partnership’s OID deduction deferred under
section 108(i)(2)(A)(i) that is allowable as a
deduction in the current tax year under
section 108(i)(2)(A)(ii) or section
108(i)(5)(D)(i) or (ii).
The partnership will give you a
description and the amount of your share for
each of these items.

-10-

Box 14. Self-Employment
Earnings (Loss)
If you and your spouse are both partners,
each of you must complete and file your
own Schedule SE (Form 1040),
Self-Employment Tax, to report your
partnership net earnings (loss) from
self-employment.
Code A. Net earnings (loss) from
self-employment. If you are a general
partner, reduce this amount before entering
it on Schedule SE (Form 1040) by any
section 179 expense deduction claimed,
unreimbursed partnership expenses
claimed, and depletion claimed on oil and
gas properties. Do not reduce net earnings
from self-employment by any separately
stated deduction for health insurance
expenses.
If the amount on this line is a loss, enter
only the deductible amount on Schedule SE
(Form 1040). See Limitations on Losses,
Deductions, and Credits beginning on page
2.
If your partnership is an options dealer or
a commodities dealer, see section 1402(i).
If your partnership is an investment club,
see Rev. Rul. 75-525, 1975-2 C.B. 350.
Code B. Gross farming or fishing
income. If you are an individual partner,
enter the amount from this line, as an item
of information, on Schedule E (Form 1040),
line 42. Also use this amount to figure net
earnings from self-employment under the
farm optional method on Schedule SE
(Form 1040), Section B, Part II.
Code C. Gross non-farm income. If you
are an individual partner, use this amount to
figure net earnings from self-employment
under the nonfarm optional method on
Schedule SE (Form 1040), Section B, Part
II.

Box 15. Credits
If you have general business credits, the
partnership will provide the information
necessary for you to determine if it is an
eligible small business under section
38(c)(5)(C). If you and the partnership meet
the requirements of section 38(c)(5)(C) your
general business credits may be treated as
eligible small business credits. See the
instructions for Form 3800 for more
information.
If you have credits that are passive
activity credits to you, you must complete
Form 8582-CR (or Form 8810 for
corporations) in addition to the credit forms
identified below. See Passive Activity
Limitations on page 3 and the Instructions
for Form 8582-CR (or Form 8810) for
details.
In general, partners whose only
source for credits listed only on page
1 of Form 3800 are from
pass-through entities are not required to
complete the source credit form or attach it
to Form 3800. Instead, you can report this
credit directly on Form 3800. However,
when applicable, all partners must complete
and attach the following credit forms to Form
3800.
• Form 3468, Investment Credit (line 1a of
Form 3800).
TIP

Partner’s Instructions for Schedule K-1 (Form 1065)

• Form 8864, Biodiesel and Renewable

Diesel Fuels Credit (line 1l of Form 3800).
Codes A, B, C, and D. Low-income
housing credit. If section 42(j)(5) applies,
the partnership will report your share of the
low-income housing credit using code A or
code C, depending on the date the building
was placed in service. If section 42(j)(5)
does not apply, your share of the credit will
be reported using code B or code D,
depending on the date the building was
placed in service. Any allowable low-income
housing credit reported using code A or
code B is reported on line 4 of Form 8586,
Low-Income Housing Credit, or line 1d of
Form 3800 (see TIP above). Any allowable
low-income housing credit reported using
code C or code D is reported on line 11 of
Form 8586.
Keep a separate record of the
low-income housing credit from each
separate source so that you can correctly
figure any recapture of low-income housing
credit that may result from the disposition of
all or part of your partnership interest. For
more information on recapture, see the
instructions for Form 8611, Recapture of
Low-Income Housing Credit.
Code E. Qualified rehabilitation
expenditures (rental real estate). The
partnership will report your share of the
qualified rehabilitation expenditures and
other information you need to complete
Form 3468 related to rental real estate
activities using code E. Your share of
qualified rehabilitation expenditures from
property not related to rental real estate
activities will be reported in box 20 using
code D. See the Instructions for Form 3468
for details. If the partnership is reporting
expenditures from more than one activity,
the attached statement will separately
identify the expenditures from each activity.
Combine the expenditures (for Form
3468 reporting) from box 15, code E and
box 20, code D. The expenditures related to
rental real estate activities (box 15, code E)
are reported on Schedule K-1 separately
from other qualified rehabilitation
expenditures (box 20, code D) because they
are subject to different passive activity
limitation rules. See the Instructions for
Form 8582-CR for details.
Code F. Other rental real estate credits.
The partnership will identify the type of
credit and any other information you need to
figure these credits from rental real estate
activities (other than the low-income housing
credit and qualified rehabilitation
expenditures). These credits may be limited
by the passive activity limitations. If the
credits are from more than one activity, the
partnership will identify the credits from each
activity on an attached statement. See
Passive Activity Limitations on page 3 and
the Instructions for Form 8582-CR for
details.
Code G. Other rental credits. The
partnership will identify the type of credit and
any other information you need to figure
these rental credits. These credits may be
limited by the passive activity limitations. If
the credits are from more than one activity,
the partnership will identify the credits from
each activity on an attached statement. See
Passive Activity Limitations on page 3 and
the Instructions for Form 8582-CR for
details.

Code H. Undistributed capital gains
credit. Code H represents taxes paid on
undistributed capital gains by a regulated
investment company or real estate
investment trust. Report these taxes on line
71 of Form 1040, check box “a” for Form
2439, and enter “Form 1065.”
Code I. Alcohol and cellulosic biofuel
fuels credit. If this credit includes the small
ethanol producer credit, the partnership will
provide additional information on an
attached statement. If no statement is
attached, report this amount on line 8 of
Form 6478, Alcohol and Cellulosic Biofuel
Fuels Credit. If a statement is attached, see
the instructions for Form 6478, line 8.
Code J. Work opportunity credit. Report
this amount on line 3 of Form 5884, Work
Opportunity Credit.
Code K. Disabled access credit. Report
this amount on line 7 of Form 8826,
Disabled Access Credit, or line 1e of Form
3800 (see TIP above).
Code L. Empowerment zone and renewal
community employment credit. Report
this amount on line 3 of Form 8844,
Empowerment Zone and Renewal
Community Employment Credit.
Code M. Credit for increasing research
activities. Report this amount on line 37 of
Form 6765, Credit for Increasing Research
Activities, or line 1c of Form 3800 (see TIP
above).
Code N. Credit for employer social
security and Medicare taxes. Report this
amount on line 5 of Form 8846, Credit for
Employer Social Security and Medicare
Taxes Paid on Certain Employee Tips.
Code O. Backup withholding. This is your
share of the credit for backup withholding on
dividends, interest income, and other types
of income. Include this amount in the total
you enter on Form 1040, line 61 and attach
a copy of the Schedule K-1 to your tax
return.
Code P. Other credits. On an attachment
to Schedule K-1, the partnership will identify
the type of credit and any other information
you need to figure credits other than those
reported with codes A through O. Most
credits identified by code P will be reported
on Form 3800 (see TIP above).
Credits that may be reported with code P
include the following:
• New markets credit (Form 8874).
• Nonconventional source fuel credit (Form
8907).
• Qualified railroad track maintenance
credit (Form 8900).
• Unused investment credit from the
qualifying advanced coal project credit,
qualifying gasification project credit,
qualifying advanced energy project credit, or
qualifying therapeutic discovery project
credit allocated from cooperatives (Form
3468, line 9).
• Unused investment credit from the
rehabilitation credit or energy credit
allocated from cooperatives (Form 3468,
line 13).
• Renewable electricity, refined coal, and
Indian coal production credit. The
partnership will provide a statement showing
separately the amount of credit from Part I
and Part II of Form 8835.
• Indian employment credit (Form 8845).
• Orphan drug credit (Form 8820).

Partner’s Instructions for Schedule K-1 (Form 1065)

-11-

• Credit for small employer pension plan
startup costs (Form 8881).

• Credit for employer-provided childcare
facilities and services (Form 8882).

• Biodiesel and renewable diesel fuels

credit. If this credit includes the small
agri-biodiesel producer credit, the
partnership will provide additional
information on an attached statement. If no
statement is attached, report this amount on
line 9 of Form 8864. If a statement is
attached, see the instructions for Form
8864, line 9.
• Low sulfur diesel fuel production credit
(Form 8896).
• General credits from an electing large
partnership. Report these credits on Form
3800, line 1bb.
• Distilled spirits credit (Form 8906).
• Energy efficient home credit (Form 8908).
• Energy efficient appliance credit (Form
8909).
• Alternative motor vehicle credit (Form
8910).
• Alternative fuel vehicle refueling property
credit (Form 8911).
• Clean renewable energy bond credit.
Report this amount on Form 8912.
• Midwestern tax credit bond credit. Report
this amount on Form 8912.
• New clean renewable energy bond credit.
Report this amount on Form 8912.
• Qualified energy conservation bond
credit. Report this amount on Form 8912.
• Qualified forestry conservation bond
credit. Report this amount on Form 8912.
• Qualified zone academy bond credit.
Report this amount on Form 8912.
• Qualified school construction bond credit.
Report this amount on Form 8912.
• Build America bond credit. Report this
amount on Form 8912.
• Mine rescue team training credit (Form
8923).
• Agricultural chemicals security credit
(Form 8931).
• Credit for employer differential wage
payments (Form 8932).
• Carbon dioxide sequestration credit (Form
8933).
• Qualified plug-in electric drive motor
vehicle credit (Form 8936).
• Qualified plug-in electric vehicle credit
(Part I of Form 8834).
• Credit for small employer health
insurance premiums (Form 8941).
• New hire retention credit (Form 5884-B).

Box 16. Foreign
Transactions
Codes A through N. Use the information
identified by codes A through N, code Q,
and any attached schedules to figure your
foreign tax credit. For details, see Form
1116, Foreign Tax Credit, and its
instructions; Form 1118, Foreign Tax
Credit — Corporations, and its instructions;
and Pub. 514, Foreign Tax Credit for
Individuals.
Codes O and P. Extraterritorial income
exclusion.
1. Partnership did not claim the
exclusion. If the partnership reports your
distributive share of foreign trading gross
receipts (code O) and the extraterritorial
income exclusion (code P), the partnership
was not entitled to claim the exclusion

because it did not meet the foreign
economic process requirements. You may
still qualify for your distributive share of this
exclusion if the partnership’s foreign trading
gross receipts for the tax year were $5
million or less. To qualify for this exclusion,
your foreign trading gross receipts from all
sources for the tax year also must have
been $5 million or less. If you qualify for the
exclusion, report the exclusion amount in
accordance with the instructions for Income
(Loss) on page 6 for box 1, 2, or 3,
whichever applies. See Form 8873,
Extraterritorial Income Exclusion, for details.
2. Partnership claimed the exclusion. If
the partnership reports your distributive
share of foreign trading gross receipts but
not the amount of the extraterritorial income
exclusion, the partnership met the foreign
economic process requirements and
claimed the exclusion when figuring your
distributive share of partnership income.
You also may need to know the amount of
your distributive share of foreign trading
gross receipts from this partnership to
determine if you met the $5 million or less
exception discussed above for purposes of
qualifying for an extraterritorial income
exclusion from other sources.
Note. Upon request, the partnership should
furnish you a copy of the partnership’s Form
8873 if there is a reduction for international
boycott operations, illegal bribes, kickbacks,
etc.
Code Q. Other foreign transactions. On
an attachment to Schedule K-1, the
partnership will report any other information
on foreign transactions that you may need
using code Q.

Box 17. Alternative
Minimum Tax (AMT) Items
Use the information reported in box 17 (as
well as your adjustments and tax preference
items from other sources) to prepare your
Form 6251, Alternative Minimum
Tax — Individuals; Form 4626, Alternative
Minimum Tax — Corporations; or Schedule I
(Form 1041), Alternative Minimum
Tax — Estates and Trusts.
Note. A partner that is a corporation
subject to alternative minimum tax must
notify the partnership of its status.
Code A. This amount is your share of the
partnership’s post-1986 depreciation
adjustment. If you are an individual partner,
report this amount on line 18 of Form 6251.
Code B. This amount is your share of the
partnership’s adjusted gain or loss. If you
are an individual partner, report this amount
on line 17 of Form 6251.
Code C. This amount is your share of the
partnership’s depletion adjustment. If you
are an individual partner, report this amount
on line 9 of Form 6251.
Codes D and E. Oil, gas, & geothermal
properties — gross income and
deductions. The amounts reported on
these lines include only the gross income
(code D) from, and deductions (code E)
allocable to, oil, gas, and geothermal
properties included in box 1 of Schedule
K-1. The partnership should have attached a
schedule that shows any income from or
deductions allocable to such properties that
are included in boxes 2 through 13, 18, and

20 of Schedule K-1. Use the amounts
reported and the amounts on the attached
schedule to help you figure the net amount
to enter on line 26 of Form 6251.
Code F. Other AMT items. Enter the
information on the statement attached by
the partnership on the applicable lines of
Form 6251, Form 4626, or Schedule I (Form
1041).

Box 18. Tax-Exempt
Income and Nondeductible
Expenses
Code A. Tax-exempt interest income.
Report on your return, as an item of
information, your share of the tax-exempt
interest received or accrued by the
partnership during the year. Individual
partners include this amount on Form 1040,
line 8b. Increase the adjusted basis of your
interest in the partnership by this amount.
Code B. Other tax-exempt income.
Increase the adjusted basis of your interest
in the partnership by the amount shown, but
do not include it in income on your tax
return.
Code C. Nondeductible expenses. The
nondeductible expenses paid or incurred by
the partnership are not deductible on your
tax return. Decrease the adjusted basis of
your interest in the partnership by this
amount.

Box 19. Distributions
Code A. Cash and marketable securities.
Code A shows the distributions the
partnership made to you of cash and certain
marketable securities. The marketable
securities are included at their fair market
value (FMV) on the date of distribution
(minus your share of the partnership’s gain
on the securities distributed to you). If the
amount shown as code A exceeds the
adjusted basis of your partnership interest
immediately before the distribution, the
excess is treated as gain from the sale or
exchange of your partnership interest.
Generally, this gain is treated as gain from
the sale of a capital asset and should be
reported on the Schedule D for your return.
However, if you receive cash or property in
exchange for any part of a partnership
interest, the amount of the distribution
attributable to your share of the
partnership’s unrealized receivable or
inventory items results in ordinary income
(see Regulations section 1.751-1(a) and
Sale or Exchange of Partnership Interest on
page 1). For details, see Pub. 541.
The partnership will separately identify
both of the following.
• The FMV of the marketable securities
when distributed (minus your share of the
gain on the securities distributed to you).
• The partnership’s adjusted basis of those
securities immediately before the
distribution.
Decrease the adjusted basis of your
interest in the partnership (but not below
zero) by the amount of cash distributed to
you and the partnership’s adjusted basis of
the distributed securities. Advances or
drawings of money or property against your
distributive share are treated as current

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distributions made on the last day of the
partnership’s tax year.
Your basis in the distributed marketable
securities (other than in liquidation of your
interest) is the smaller of:
• The partnership’s adjusted basis in the
securities immediately before the distribution
increased by any gain recognized on the
distribution of the securities or
• The adjusted basis of your partnership
interest reduced by any cash distributed in
the same transaction and increased by any
gain recognized on the distribution of the
securities.
If you received the securities in
liquidation of your partnership interest, your
basis in the marketable securities is equal to
the adjusted basis of your partnership
interest reduced by any cash distributed in
the same transaction and increased by any
gain recognized on the distribution of the
securities.
Code B. Distribution subject to section
737. If a partner contributed section 704(c)
built-in gain property within the last 7 years
and the partnership made a distribution of
property to that partner other than the
previously contributed built-in gain property,
the partner may be required to recognize
gain under section 737. This gain is in
addition to any gain recognized under
section 731 on the distribution.
When this occurs, the partnership will
enter code B in box 19 of the contributing
partner’s Schedule K-1 and attach a
statement that provides the information the
partner needs to compute the recognized
gain under section 737. The partnership is
required to provide the following information.
• The fair market value (FMV) of the
distributed property (other than money).
• The amount of money received in the
distribution.
• The net precontribution gain of the
partner.
Using the information from the attached
statement, complete the worksheet below to
compute your recognized gain under section
737.
Computation of Section 737 Gain
1. Enter the FMV of the distributed
property (other than money) . .
2. Enter your adjusted basis in the
partnership immediately before
the distribution. See Basis Rules
on page 2 . . . . . . . . . . . . . .
3. Enter the amount of money
received in the distribution . . .
4. Subtract line 3 from line 2. If zero
or less, enter -0- . . . . . . . . . .

$

5. Subtract line 4 from line 1 . . . .
6. Enter your net precontribution
gain . . . . . . . . . . . . . . . . . .
7. Section 737 gain. Enter the
lesser of the amount on line 5 or
line 6 . . . . . . . . . . . . . . . . .

The type of gain (section 1231 gain,
capital gain) generated is determined by the
type of gain you would have recognized if
you sold the property rather than
contributing it to the partnership.
Accordingly, report the amount from line 7
above on Form 4797 or Schedule D of your
tax return.
Code C. Other property. Code C shows
the partnership’s adjusted basis of property

Partner’s Instructions for Schedule K-1 (Form 1065)

other than money immediately before the
property was distributed to you. In addition,
the partnership should report the adjusted
basis and FMV of each property distributed.
Decrease the adjusted basis of your interest
in the partnership by the amount of your
basis in the distributed property. Your basis
in the distributed property (other than in
liquidation of your interest) is the smaller of:
• The partnership’s adjusted basis
immediately before the distribution or
• The adjusted basis of your partnership
interest reduced by any cash distributed in
the same transaction.
If you received the property in liquidation
of your interest, your basis in the distributed
property is equal to the adjusted basis of
your partnership interest reduced by any
cash distributed in the same transaction.
If you receive cash or property in
exchange for any part of a partnership
interest, the amount of the distribution
attributable to your share of the
partnership’s unrealized receivable or
inventory items results in ordinary income
(see Regulations section 1.751-1(a) and
Sale or Exchange of Partnership Interest on
page 1).

Box 20. Other Information
Code A. Investment income. Report this
amount on line 4a of Form 4952.
Code B. Investment expenses. Report
this amount on line 5 of Form 4952.
Code C. Fuel tax credit information. The
partnership will report the number of gallons
of each fuel sold or used during the tax year
for a nontaxable use qualifying for the credit
for taxes paid on fuels, type of use, and the
applicable credit per gallon. Use this
information to complete Form 4136, Credit
for Federal Tax Paid on Fuels.
Code D. Qualified rehabilitation
expenditures (other than rental real
estate). The partnership will report your
share of qualified rehabilitation expenditures
and other information you need to complete
Form 3468 for property not related to rental
real estate activities in box 20 using code D.
Your share of qualified rehabilitation
expenditures related to rental real estate
activities is reported in box 15 using code E.
See the Instructions for Form 3468 for
details. If the partnership is reporting
expenditures from more than one activity,
the attached statement will separately
identify the expenditures from each activity.
Combine the expenditures (for Form
3468 reporting) from box 15, code E and
box 20, code D. The expenditures related to
rental real estate activities (box 15, code E)
are reported on Schedule K-1 separately
from other qualified rehabilitation
expenditures (box 20, code D) because they
are subject to different passive activity
limitation rules. See the Instructions for
Form 8582-CR for details.
Code E. Basis of energy property. If the
partnership provides an attached statement
for code E, use the information on the
statement to complete lines 12a-d, 12f, 12g,
12i, 12j, 12l, 12m, 12o, and 12q-s of Form
3468.
Codes F and G. Recapture of low-income
housing credit. A section 42(j)(5)
partnership will report recapture of a

low-income housing credit with code F. All
other partnerships will report recapture of a
low-income housing credit with code G.
Keep a separate record of recapture from
each of these sources so that you will be
able to correctly figure any recapture of
low-income housing credit that may result
from the disposition of all or part of your
partnership interest. For details, see Form
8611.
Code H. Recapture of investment credit.
The partnership will provide any information
you need to figure your recapture tax on
Form 4255, Recapture of Investment Credit.
See the Form 3468 on which you took the
original credit for other information you need
to complete Form 4255.
You may also need Form 4255 if you
disposed of more than one-third of your
interest in a partnership.
Code I. Recapture of other credits. On
an attachment to Schedule K-1, the
partnership will report any information you
need to figure the recapture of the new
markets credit (see Form 8874); qualified
plug-in electric and electric vehicle credit
(see Form 8834); Indian employment credit
(see section 45A(d)); any credit for
employer-provided childcare facilities and
services (see Form 8882); alternative motor
vehicle credit (see section 30B(h)(8));
alternative fuel vehicle refueling property
credit (see section 30C(e)(5)); or the new
qualified plug-in electric drive motor vehicles
credit (see section 30D(f)(5)).
Code J. Look-back interest — completed
long-term contracts. The partnership will
report any information you need to figure the
interest due or to be refunded under the
look-back method of section 460(b)(2) on
certain long-term contracts. Use Form 8697,
Interest Computation Under the Look-Back
Method for Completed Long-Term
Contracts, to report any such interest.
Code K. Look-back interest — income
forecast method. The partnership will
report any information you need to figure the
interest due or to be refunded under the
look-back method of section 167(g)(2) for
certain property placed in service after
September 13, 1995, and depreciated under
the income forecast method. Use Form
8866, Interest Computation Under the
Look-Back Method for Property Depreciated
Under the Income Forecast Method, to
report any such interest.
Code L. Dispositions of property with
section 179 deductions. The partnership
will report your distributive share of gain or
loss on the sale, exchange, or other
disposition of property for which a section
179 expense deduction was passed through
to partners with code L. If the partnership
passed through a section 179 expense
deduction for the property, you must report
the gain or loss and any recapture of the
section 179 expense deduction for the
property on your income tax return (see the
Instructions for Form 4797 for details). The
partnership will provide all the following
information.
1. Description of the property.
2. Date the property was acquired and
placed in service.
3. Date of the sale or other disposition of
the property.
4. Your distributive share of the gross
sales price or amount realized.

Partner’s Instructions for Schedule K-1 (Form 1065)

-13-

5. Your distributive share of the cost or
other basis plus the expense of sale.
6. Your distributive share of the
depreciation allowed or allowable.
7. Your distributive share of the section
179 expense deduction (if any) passed
through for the property and the
partnership’s tax year(s) in which the
amount was passed through. To figure the
amount of depreciation allowed or allowable
for Form 4797, line 22, add to the amount
from item 6 above the amount of your
distributive share of the section 179
expense deduction, reduced by any unused
carryover of the deduction for this property.
This amount may be different than the
amount of section 179 expense you
deducted for the property if your interest in
the partnership has changed.
8. If the disposition is due to a casualty
or theft, a statement providing the
information you need to complete Form
4684.
9. If the sale was an installment sale
made during the partnership’s tax year, any
information you need to complete Form
6252, Installment Sale Income. The
partnership will separately report your share
of all payments received for the property in
the following tax years. See the instructions
for Form 6252 for details.
Code M. Recapture of section 179
deduction. The partnership will report your
distributive share of any recapture of section
179 expense deduction if business use of
any property for which the section 179
expense deduction was passed through to
partners dropped to 50% or less. If this
occurs, the partnership must provide the
following information.
1. Your distributive share of the
depreciation allowed or allowable (not
including the section 179 expense
deduction).
2. Your distributive share of the section
179 expense deduction (if any) passed
through for the property and the
partnership’s tax year(s) in which the
amount was passed through. Reduce this
amount by the portion, if any, of your
unused (carryover) section 179 expense
deduction for this property.
Code N. Interest expense for corporate
partners. The partnership will report each
corporate partner’s distributive share of the
partnership’s interest expense. This amount
is reported elsewhere on Schedule K-1 and
the total amount is reported here for
information only. Your distributive share of
interest income is reported in box 5 and your
share of the partnership’s liabilities is
reported in Part II, item K. A corporate
partner’s distributive share of interest
income, interest expense, and partnership
liabilities are treated as income, expense,
and liabilities of the corporation for purposes
of the limitation on the deduction for interest
under section 163(j).
Code O. Section 453(l)(3) information.
The partnership will report any information
you need to figure the interest due under
section 453(l)(3) with respect to the
disposition of certain timeshares and
residential lots on the installment method. If
you are an individual, report the interest on
Form 1040, line 60. Enter “453(l)(3)” and the
amount of the interest on the dotted line to
the left of line 60.

Code P. Section 453A(c) information.
The partnership will report any information
you need to figure the interest due under
section 453A(c) with respect to certain
installment sales. If you are an individual,
report the interest on Form 1040, line 60.
Enter “453A(c)” and the amount of the
interest on the dotted line to the left of line
60. See the instructions for Form 6252 for
more information. Also see section 453A(c)
for details on how to figure the interest.
Code Q. Section 1260(b) information.
The partnership will report any information
you need to figure the interest due under
section 1260(b). If the partnership had gain
from certain constructive ownership
transactions, your tax liability must be
increased by the interest charge on any
deferral of gain recognition under section
1260(b). Report the interest on Form 1040,
line 60. Enter “1260(b)” and the amount of
the interest on the dotted line to the left of
line 60. See section 1260(b) for details,
including how to figure the interest.
Code R. Interest allocable to production
expenditures. The partnership will report
any information you need relating to interest
you are required to capitalize under section
263A for production expenditures. See
Regulations sections 1.263A-8 through
1.263A-15 for details.
Code S. CCF nonqualified withdrawals.
The partnership will report your share of
nonqualified withdrawals from a capital
construction fund (CCF). These withdrawals
are taxed separately from your other gross
income at the highest marginal ordinary
income or capital gains tax rate. Attach a
statement to your federal income tax return
to show your computation of both the tax
and interest for a nonqualified withdrawal.
Include the tax and interest on Form 1040,
line 60. On the dotted line to the left of line
60, enter the amount of tax and interest and
“CCF.”
Code T. Depletion information — oil and
gas. This is your share of gross income
from the property, share of production for
the tax year, etc., needed to figure your
depletion deduction for oil and gas wells.
The partnership should also allocate to you
a share of the adjusted basis of each
partnership oil or gas property. See Pub.
535 for details on how to figure your
depletion deduction.
Code U. Amortization of reforestation
costs. The partnership will provide a
statement identifying your share of the
amortizable basis of reforestation
expenditures paid or incurred before
October 23, 2004. The partnership will
separately report your share of the
amortizable basis of reforestation
expenditures for 2003 and 2004. Your
amortizable basis of reforestation
expenditures for each tax year from all
properties is limited to $10,000 ($5,000 if
married filing separately), including your
distributive share of the partnership’s
expenditures and any qualified reforestation
expenditures you separately paid or
incurred. To figure your allowable
amortization, see section 194 and Pub. 535.
Follow the Instructions for Form 8582 to
report a deduction allocable to a passive
activity. If you materially participated in the
reforestation activity, report the deduction on
line 28, column (h), of Schedule E (Form
1040).

Code V. Unrelated business taxable
income. The partnership will report any
information you need to figure unrelated
business taxable income under section
512(a)(1) (but excluding any modifications
required by paragraphs (8) through (15) of
section 512(b)) for a partner that is a
tax-exempt organization.
Note. A partner is required to notify the
partnership of its tax-exempt status.
Code W. Precontribution gain (loss). If
the partnership distributed any contributed
property to any partner other than the
contributing partner, and the date of the
distribution was within 7 years of the date
the property was contributed to the
partnership, the contributing partner must
recognize a gain or loss under section
704(c)(1)(B). If the partnership made such a
distribution during its tax year, it will enter
code W in box 20 of the contributing
partner’s Schedule K-1 and attach a
statement providing the amount of the
partner’s precontribution gain (loss) and
identifying the character of the gain or loss
(for example, capital gain (loss) or section
1231 gain (loss)). Report the precontribution
gain or loss on Schedule D or Form 4797 in
accordance with the information provided by
the partnership.
Code X. Section 108(i) information. If the
partnership made a section 108(i) election
or allocates any section 108(i) items to its
partners, it will provide a statement
identifying your distributive share of the
following:
• The deferred section 108(i) cancellation of
debt (COD) income that has not been
included in income in the current or prior tax
years,
• The partnership’s original issue discount
(OID) deduction deferred under section
108(i)(2)(A)(i) that has not been deducted in
the current or prior tax years,
• The deferred section 752 amount that is
treated as a distribution of money under
section 752 in the current tax year, and
• The deferred section 752 amount
remaining as of the end of the current tax
year.
Code Y. Other information. The
partnership will report:
1. Any information a publicly traded
partnership needs to determine whether it
meets the 90% qualifying income test of
section 7704(c)(2).
Note. A partner is required to notify the
partnership of its status as a publicly traded
partnership.
2. Any information you need to complete
a disclosure statement for reportable
transactions in which the partnership
participates. If the partnership participates in
a transaction that must be disclosed on
Form 8886, Reportable Transaction
Disclosure Statement, both you and the
partnership may be required to file Form
8886 for the transaction. The determination
of whether you are required to disclose a
transaction of the partnership is based on
the category(s) under which the transaction
qualifies for disclosure and is determined by
the partnership. You may have to pay a
penalty if you are required to file Form 8886
and do not do so. See the Instructions for
Form 8886 for details.
3. Interest and additional tax on
compensation deferred under a section

-14-

409A nonqualified deferred compensation
plan that does not meet the requirements of
section 409A. See section 409A(a)(1)(B) to
figure the interest and additional tax on this
income. Report this interest and tax on line
60 of Form 1040. This income is included in
the amount in box 4, Guaranteed Payments.
4. Inversion gain. The partnership will
provide a statement showing the amounts of
each type of income or gain that is included
in inversion gain. The partnership has
included inversion gain in income elsewhere
on Schedule K-1. Inversion gain is also
reported under code Y because your taxable
income and alternative minimum taxable
income cannot be less than the inversion
gain. Also, your inversion gain (a) is not
taken into account in figuring the net
operating loss (NOL) for the tax year or the
NOL that can be carried over to each tax
year, (b) may limit your credits, and (c) is
treated as income from sources within the
U.S. for the foreign tax credit. See section
7874 for details.
5. Qualified timber gain (corporate
partners only). Report the partner’s
distributive share of qualified timber gain on
the applicable line of your corporate tax
return. See section 1201(b) and the
instructions for your corporate tax return for
more information.
6. Qualifying advanced coal project
property. Use the amounts the partnership
provides you to figure the amounts to report
on Form 3468, lines 5a through 5c.
7. Qualifying gasification project
property. Use the amounts the partnership
provides you to figure the amounts to report
on Form 3468, lines 6a and 6b.
8. Qualifying advanced energy project
property. Use the amount the partnership
provides you to figure the amount to report
on Form 3468, line 7.
9. Qualifying therapeutic discovery
project property. Use the amount the
partnership provides you to figure the
amount to report on Form 3468, line 8.
10. The information needed to complete
Schedule P (Form 1120-F), List of Foreign
Partner Interests in Partnerships. When
required, the partnership will make this
report on an attached statement to partners
that are a corporation (identified as a foreign
partner under Regulations section
1.1446-1(c)(3)) or partners that are a
partnership (domestic or foreign) if the
reporting partnership knows, or has reason
to know, that one or more of the partners is
a foreign corporation. If the partnership
allocates effectively connected income to
the partner, the statement will contain the
information needed to complete lines 1
through 9, 12, 13, 14b, 16a, 16b, and 17 of
Schedule P (Form 1120-F). If the
partnership does not allocate effectively
connected income to the partner, the
statement will contain the information
needed to complete lines 12, 13, and 17 of
Schedule P (Form 1120-F).
11. Conservation reserve program
payments. Individuals who received social
security retirement or disability benefits, and
are partners in farm partnerships that
receive conservation reserve program
payments, do not pay self-employment tax
on their portion of the payments. The
partnership will report your portion of the
conservation reserve program payments in
box 20 using code Y. See Schedule SE
(Form 1040) for information on excluding the

Partner’s Instructions for Schedule K-1 (Form 1065)

payment from your calculation of
self-employment tax.
12. Acceleration of AMT and research
credits (corporations only). If a corporate
partner has made an election to accelerate
the AMT and research credits in lieu of
bonus depreciation, it is required to notify
the partnership in writing of this election.
See Rev. Proc. 2009-16, 2009-6 I.R.B. 449
and Rev. Proc. 2009-33, 2009-29 I.R.B. 150
for more information about the written
notification that the electing corporate
partner must provide the partnership. The
partnership is required to recompute the
electing corporate partner’s distributive
share of depreciation on any eligible
qualified property or extension property to
eliminate bonus depreciation and use the
straight line depreciation method for such
property. The partnership will attach a
statement to Schedule K-1 that lists each

partnership item that includes bonus
depreciation and shows the electing
corporate partner’s adjustment for each item
that results from the recomputed
depreciation and elimination of the bonus
depreciation. The partner must reduce the
amount shown on Schedule K-1 for these
partnership items by the amount of the
corresponding adjustment. See section
168(k)(4) for more information.
13. Any information you may need to
comply with the limitation on excess farm
losses of certain taxpayers under section
461(j).
14. Eligible small business credits.
General business credits (credits reported
under box 15, box 20 using codes D and E,
and box 20 using code Y for items 6 through
9), that are determined after 2009 and
attributable to an eligible small business

Partner’s Instructions for Schedule K-1 (Form 1065)

-15-

may be used to offset tentative minimum tax
and qualify for a 5-year carryback. An
eligible small business is a business with
average annual gross receipts for the three
preceding tax years of $50 million or less.
To qualify for the eligible small business
credit, both you and the partnership must
meet the gross receipts test of section
38(c)(5)(C). The partnership will provide the
information you need to determine if it is an
eligible small business. For more
information on eligible small business
credits, see Form 3800.
15. Any other information you may need
to file your return not shown elsewhere on
Schedule K-1.
The partnership should give you a
description and the amount of your share for
each of these items.