1065-B Instructions for Form 1065-B

2016

Instructions for Form 1065-B

Department of the Treasury
Internal Revenue Service

U.S. Return of Income for Electing Large Partnerships
Section references are to the Internal Revenue Code
unless otherwise noted.

Contents

What's New . . . . . . . . . . . . . . .
Photographs of Missing Children .
The Taxpayer Advocate Service Is
Here To Help You . . . . . . . .
How To Get Forms and
Publications . . . . . . . . . . . .
General Instructions . . . . . . . . . .
Purpose of Form . . . . . . . . .
Electing Large Partnership
(ELP) Status . . . . . . . . .
Definitions . . . . . . . . . . . . .
Termination of the
Partnership . . . . . . . . . .
Electronic Filing . . . . . . . . .
When To File . . . . . . . . . . .
Where To File . . . . . . . . . . .
Who Must Sign . . . . . . . . . .
Interest and Penalties . . . . . .
Accounting Methods . . . . . .
Accounting Periods . . . . . . .
Rounding Off to Whole
Dollars . . . . . . . . . . . . .
Recordkeeping . . . . . . . . . .
Administrative Adjustment
Requests . . . . . . . . . . . .
Other Forms, Returns, And
Statements That May Be
Required . . . . . . . . . . . .
Assembling the Return . . . . .
Overview . . . . . . . . . . . . . .
Separately Stated Items . . . .
Limitations . . . . . . . . . . . . .
Elections Made by the
Partnership . . . . . . . . . .
Effect of Section 743(b)
Basis Adjustment on
Partnership Items . . . . . .
Elections Made by Each
Partner . . . . . . . . . . . . .
Partner's Dealings With
Partnership . . . . . . . . . .
Contributions to the
Partnership . . . . . . . . . .
Dispositions of Contributed
Property . . . . . . . . . . . .
Recognition of
Precontribution Gain on
Certain Partnership
Distributions . . . . . . . . . .
Unrealized Receivables and
Inventory Items . . . . . . . .
Activities of Electing Large
Partnerships (ELPs) . . . . .
Special Reporting
Requirements . . . . . . . . .
Extraterritorial Income
Exclusion . . . . . . . . . . .

Jan 09, 2017

Page

... 1
... 1
... 1
... 1
... 2
... 2
... 2
... 2
.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.

.
.
.
.
.
.
.
.

2
2
3
3
3
3
4
5

... 5
... 5
... 5
.
.
.
.
.

.
.
.
.
.

.
.
.
.
.

6
7
8
8
8

... 8
... 9
... 9
... 9
... 9
... 9

... 9
. . 10
. . 10
. . 11
. . 13

Contents

Page

Specific Instructions . . . . . . . . .
Part I. Taxable Income or
Loss From Passive Loss
Limitation Activities . . . .
Part II. Taxable Income or
Loss From Other
Activities . . . . . . . . . . .
Schedule B. Other
Information . . . . . . . . .
Schedule D. Capital Gains
and Losses . . . . . . . . .
Schedules K and K-1.
Partners' Shares of
Income, Credits,
Deductions, etc. . . . . . .
Specific Instructions for
Schedules K and K-1 . . .
Analysis of Net Income
(Loss) . . . . . . . . . . . . .
Schedule L. Balance Sheets
per Books . . . . . . . . . .
Schedule M-1.
Reconciliation of Income
(Loss) per Books With
Income (Loss) per
Return . . . . . . . . . . . .
Schedule M-2. Analysis of
Partners' Capital
Accounts . . . . . . . . . . .
Codes for Principal Business
Activity and Principal Product
or Service . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . .

. . . 14
. . . 14
. . . 20
. . . 22
. . . 22

. . . 26
. . . 26
. . . 36
. . . 36

. . . 37
. . . 37
. . . 40
. . . 43

Future Developments

For the latest information about
developments related to Form 1065-B, its
schedules, and its instructions, such as
legislation enacted after they were
published, go to www.irs.gov/form1065b.

What's New

New Due Date for Partnerships. For tax
years beginning after 2015, the due date for
a domestic partnership to file its Form 1065
has changed to the 15th day of the 3rd
month following the date its tax year ended.

Photographs of Missing
Children

The Internal Revenue Service is a proud
partner with the National Center for Missing
& Exploited Children® (NCMEC).
Photographs of missing children selected by
the Center may appear in instructions on
pages that would otherwise be blank. You
can help bring these children home by
looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

Cat. No. 25982P

The Taxpayer Advocate
Service Is Here To Help
You
What is the Taxpayer Advocate Service?
The Taxpayer Advocate Service (TAS) is an
independent organization within the Internal
Revenue Service that helps taxpayers and
protects taxpayer rights. Our job is to ensure
that every taxpayer is treated fairly and that
you know and understand your rights under
the Taxpayer Bill of Rights.
What Can the Taxpayer Advocate Service Do For You? We can help you resolve
problems that you can’t resolve with the IRS.
And our service is free. If you qualify for our
assistance, you will be assigned to one
advocate who will work with you throughout
the process and will do everything possible
to resolve your issue.
How Can You Reach Us? We have offices
in every state, the District of Columbia, and
Puerto Rico. Your local advocate's number is
in your local directory and at
www.taxpayeradvocate.irs.gov. You can also
call us at 1-877-777-4778.
How Can You Learn About Your Taxpayer Rights? The Taxpayer Bill of Rights
describes ten basic rights that all taxpayers
have when dealing with the IRS. Our Tax
Toolkit at www.taxpayeradvocate.irs.gov can
help you understand what these rights mean
to you and how they apply. These are your
rights. Know them. Use them.
How Else Does the Taxpayer Advocate
Service Help Taxpayers? The TAS works
to resolve large-scale problems that affect
many taxpayers. If you know of one of these
broad issues, please report it to us at
www.irs.gov/sams.

How To Get Forms and
Publications
Internet. You can access the IRS website at
IRS.gov 24 hours a day, 7 days a week to:
E-file your return. Find out about
commercial tax preparation and e-file
services available free to eligible taxpayers;
Download forms, including talking tax
forms, instructions, and publications;
Use the online Internal Revenue Code,
regulations, or other official guidance;
Get information on starting and operating
a small business;
Order IRS products online;
Research your tax questions online;
Search publications online by topic or
keyword;
View Internal Revenue Bulletins (IRBs)
published in the last few years; and

Sign up to receive local and national tax
news by email.
Tax forms and publications. The
partnership can download or print all of the
forms and publications it may need on
www.irs.gov/formspubs. Otherwise, the
partnership can:
Go to www.irs.gov/orderforms to order
and have forms mailed to the partnership.
The partnership should receive its order
within 10 business days.

General Instructions
Purpose of Form

Form 1065-B is an information return used to
report the income, gains, losses, deductions,
and other information from the operation of
an electing large partnership (as defined in
section 775). An electing large partnership
(ELP) may be required to pay certain taxes,
such as recapture of the investment credit
under section 50, but generally it passes
through any profits or losses to its partners.
Partners must include these ELP items on
their income tax or information returns.
A regular partnership is required to
separately report to each partner the
partner's distributive share of any item of
income, gain, loss, deduction, or credit that if
separately taken into account by any partner
would result in an income tax liability for that
partner different from that which would result
if the item was not taken into account
separately. Unlike a regular partnership, an
ELP combines most items at the partnership
level and passes through net amounts to
partners. These ELP rules override the
regular partnership tax rules to the extent
they are inconsistent with the regular
partnership tax rules.

Electing Large Partnership
(ELP) Status
A partnership chooses electing large
partnership (ELP) status by filing Form
1065-B instead of Form 1065. The election
applies to the tax year for which it was made
and all later tax years. This election cannot
be revoked without IRS consent.

To make the election, the partnership
must have had 100 or more partners during
the preceding tax year. Thus, a partnership
cannot make the election for its first tax year.
The number of partners is determined by
counting only persons directly holding
partnership interests, including persons
holding through nominees. Service partners
are not counted as partners for this purpose.
Service partners are those partners who
perform substantial services in connection
with the partnership's activities or who have
performed such services in the past.
Service partnerships are not eligible to
make the election if substantially all of the
partners are:
Individuals performing substantial
services in connection with the partnership's
activities,

Personal service corporations with the
owner-employees performing the services,
Retired partners who had performed the
services, and
Spouses of partners performing or who
had performed the services.
In addition, commodity partnerships are
not eligible to make the election. Commodity
partnerships have as their principal activity
the buying and selling of commodities (other
than inventory described in section 1221(a)
(1)) or options, futures, or forwards relating
to commodities.
Once a partnership has made an election
by filing Form 1065-B, this treatment on the
return will bind the partnership and all of its
partners. The IRS, however, is not bound by
the treatment on the return. To the extent
provided in future regulations, a partnership
may cease to be treated as an electing large
partnership for a tax year in which the
number of its partners falls below 100.

Definitions
Partnership

A partnership is the relationship between two
or more persons who join to carry on a trade
or business, with each person contributing
money, property, labor, or skill and each
expecting to share in the profits and losses
of the business whether or not a formal
partnership agreement is made.
The term “partnership” includes a limited
partnership, syndicate, group, pool, joint
venture, or other unincorporated
organization, through or by which any
business, financial operation, or venture is
carried on, that is not, within the meaning of
the regulations under section 7701, a
corporation, trust, estate, or sole
proprietorship.

Foreign Partnership

A foreign partnership is a partnership that is
not created or organized in the United States
or under the law of the United States or of
any state. See Notice 2010-41 for
information on when a domestic partnership
will be classified as foreign.

General Partner

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

General Partnership

A general partnership is composed only of
general partners.

Limited Partner

A limited partner is a partner in a partnership
formed under a state limited partnership law,
whose personal liability for partnership debts
is limited to the amount of money or other
property that the partner contributed or is
required to contribute to the partnership.
Some members of other entities, such as
domestic or foreign business trusts or limited
liability companies that are classified as
partnerships, may be treated as limited
partners for certain purposes.
-2-

Limited Partnership

A limited partnership is formed under a state
limited partnership law and composed of at
least one general partner and one or more
limited partners.

Limited Liability Partnership

A limited liability partnership (LLP) is formed
under a state limited liability partnership law.
Generally, a partner in an LLP is not
personally liable for the debts of the LLP or
any other partner, nor is a partner liable for
the acts or omissions of any other partner,
solely by reason of being a partner.

Limited Liability Company

A limited liability company (LLC) is an entity
formed under state law by filing articles of
organization as an LLC. Unlike a partnership,
none of the members of an LLC is personally
liable for its debts. An LLC may be classified
for federal income tax purposes as a
partnership, a corporation, or an entity
disregarded as an entity separate from its
owner by applying the rules in Regulations
section 301.7701-3. See Form 8832, Entity
Classification Election, for more details.
Note. A domestic LLC with at least two
members that does not file Form 8832 is
classified as a partnership for federal income
tax purposes.

Nonrecourse Loans

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

Termination of the
Partnership

An ELP terminates when all its operations
are discontinued and no part of any
business, financial operation, or venture is
continued by any of its partners in a
partnership. Unlike other partnerships, an
ELP does not terminate on the sale or
exchange of 50% or more of the partnership
interests within a 12-month period. The
ELP's tax year ends on the date of
termination which is the date the ELP winds
up its affairs.
Special rules apply in the case of a
merger, consolidation, or division of a
partnership. See Regulations section
1.708-1 for details.

Electronic Filing

Generally, electing large partnerships are
required to file electronically. However, the
requirement to file electronically does not
apply to certain returns, including:
Bankruptcy returns, and
Returns with precomputed penalty and
interest.
See Rev. Proc. 2012-17 for the
requirements for furnishing substitute
Schedule K-1, Partner's Share of Income,
Deductions, Credits, etc., electronically.

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

Publication 3112, IRS e-file Application
and Participation;
Publication 4163, Modernized e-File
(MeF) Information for Authorized IRS e-file
Providers for Business Returns;
Publication 4164, Modernized e-File
(MeF) Guide for Software Developers and
Transmitters;
Form 8453-B, U.S. Electing Large
Partnership Declaration for an IRS e-file
Return; and
Form 8879-B, IRS e-file Signature
Authorization for Form 1065-B.

For More Information on
Filing Electronically
or

Call the e-help Desk at 1-866-255-0654,
Visit www.irs.gov/Filing.

Electronic Filing Waiver

The IRS may waive the electronic filing rules
if the partnership demonstrates that a
hardship would result if it were required to file
its return electronically. A partnership
interested in requesting a waiver of the
mandatory electronic filing requirement must
file a written request, and request one in the
manner prescribed by the Ogden
Submission Processing Center (OSPC).
All written requests for waivers should be
mailed to:
Internal Revenue Service
Ogden Submission Processing Center
e-file Team, Mail Stop 1057
Ogden, UT 84201
Attn: Form 1065 e-File Waiver Request
Waiver requests can also be faxed to
1-877-477-0575.
Contact the e-help Desk at
1-866-255-0654 for questions regarding the
waiver procedures process.

When To File

Generally, a domestic partnership must file
Form 1065-B by the 15th day of the 3rd
month following the date its tax year ended
as shown at the top of Form 1065-B.
If the due date falls on a Saturday,
Sunday, or legal holiday, file by the next day
that is not a Saturday, Sunday, or legal
holiday.
Unlike regular partnerships, an
electing large partnership is required
CAUTION to furnish Schedules K-1 to its
partners by the first March 15 following the
close of the partnership's tax year.

!

Private Delivery Services

The partnership can use certain private
delivery services designated by the IRS to
meet the “timely mailing as timely filing/
paying” rule for Form 1065-B. These private
delivery services include only the following.
DHL Express 9:00, DHL Express 10:30,
DHL Express 12:00, DHL Express
Worldwide, DHL Express Envelope, DHL
Import Express 10:30, DHL Import Express
12:00, and DHL Import Express Worldwide.

FedEx First Overnight, FedEx Priority
Overnight, FedEx Standard Overnight,
FedEx 2 Day, FedEx International Next Flight
Out, FedEx International Priority, FedEx
International First, and FedEx International
Economy.
UPS Next Day Air Early AM, UPS Next
Day Air, UPS Next Day Air Saver, UPS 2nd
Day Air, UPS 2nd Day Air A.M., UPS
Worldwide Express Plus, and UPS
Worldwide Express.
For the IRS mailing address to use if you
are using a private delivery service, go to
IRS.gov and enter “private delivery service”
in the search box.
The private delivery service can tell you
how to get written proof of the mailing date.
Private delivery services cannot
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service to
mail any item to an IRS P.O. box address.

!

Extension of Time To File

If you need more time to file a partnership
return, file Form 7004 to request an
extension of time to file. File Form 7004 by
the regular due date of the partnership
return. Form 7004 can be electronically filed.
See the Instructions for Form 7004.

Period Covered

Form 1065-B is an information return for
calendar year 2016 and fiscal years
beginning in 2016 and ending in 2017. If the
return is for a fiscal year or a short tax year,
fill in the tax year space at the top of the
form.
The 2016 Form may also be used if:
1. The partnership has a tax year of less
than 12 months that begins and ends in
2017, and
2. The 2017 Form 1065-B is not
available by the time the partnership is
required to file its return.
However, the partnership must show its
2017 tax year on the 2016 Form 1065-B and
incorporate any tax law changes that are
effective for tax years beginning after 2016.

Where To File

If the partnership's principal business, office,
or agency is located in the United States,
then file the return at: Department of the
Treasury, Internal Revenue Service Center,
Ogden, UT 84201-0007.
If the partnership's principal business,
office, or agency is located in a foreign
country or U.S. possession, then file the
return at: Internal Revenue Service Center,
P.O. Box 409101, Ogden, UT 84409.

Who Must Sign
General Partner or LLC Member
Manager
Form 1065-B is not considered to be a return
unless it is signed. One general partner or
LLC member manager must sign the return.
-3-

When a return is made for a partnership by a
receiver, trustee, or assignee, the fiduciary
must sign the return, instead of the general
partner or LLC member manager. Returns
and forms signed by a receiver or trustee in
bankruptcy on behalf of a partnership must
be accompanied by a copy of the order or
instructions of the court authorizing signing
of the return or form.

Paid Preparer's Information

If a partner or an employee of the ELP
completes Form 1065-B, the paid preparer's
space should remain blank. In addition,
anyone who prepares Form 1065-B but does
not charge the partnership should not
complete this section.
Generally, anyone who is paid to prepare
the partnership return must do the following.
Sign the return, in the space provided for
the preparer's signature.
Fill in the other blanks in the “Paid
Preparer Use Only” area of the return (a paid
preparer cannot use a social security number
in the “Paid Preparer Use Only” box. The
paid preparer must use a preparer tax
identification number (PTIN)).
Give the ELP a copy of the return in
addition to the copy to be filed with the IRS.
Note. A paid preparer may sign original
returns or amended returns by rubber stamp,
mechanical device, or computer software
program.

Paid Preparer Authorization

If the ELP wants to allow the paid preparer to
discuss its 2016 Form 1065-B with the IRS,
check the “Yes” box in the signature area of
the return. The authorization applies only to
the individual whose signature appears in the
“Paid Preparer Use Only” section of its
return. It does not apply to the firm, if any,
shown in the section.

If the “Yes” box is checked, the ELP is
authorizing the IRS to call the paid preparer
to answer any questions that may arise
during the processing of its return. The ELP
is also authorizing the paid preparer to:
Give the IRS any information that is
missing from its return,
Call the IRS for information about the
processing of its return, and
Respond to certain IRS notices about
math errors and return preparation.
The ELP is not authorizing the paid
preparer to receive any refund check, bind
the ELP to anything, or otherwise represent
the ELP before the IRS. If the ELP wants to
expand the paid preparer's authorization,
see Pub. 947, Practice Before the IRS and
Power of Attorney.
The authorization cannot be revoked.
However, the authorization will automatically
end no later than the due date (excluding
extensions) for filing the 2017 return.

Interest and Penalties
Interest

Interest is charged on taxes not paid by the
due date, even if an extension of time to file

is granted. Interest is also charged from the
due date (including extensions) to the date of
payment on the failure to file penalty, the
accuracy-related penalty, the reportable
transaction underpayment penalty, and the
fraud penalty. The interest charged is figured
at a rate determined under section 6621.

Late Filing of Return

A penalty is assessed against the
partnership if it is required to file a
partnership return and it (a) fails to file the
return by the due date, including extensions,
or (b) files a return that fails to show all the
information required, unless such failure is
due to reasonable cause.
If the ELP receives a notice about a
penalty after it files the return, the ELP may
send the IRS an explanation and the Service
will determine if the explanation meets
reasonable-cause criteria. Do not attach an
explanation when filing the return.
The penalty is $195 for each month or
part of a month (for a maximum of 12
months) the failure continues, multiplied by
the total number of persons who were
partners in the partnership during any part of
the partnership's tax year for which the return
is due.
If tax is due (regardless of when the
return was required to be filed), the penalty is
the amount stated above plus 5% of the
unpaid tax for each month or part of a month
the return is late, up to a maximum of 25% of
the unpaid tax. If the return is more than 60
days late, the minimum penalty is $205 or
the balance of the tax due on the return,
whichever is smaller.

Late Payment of Tax

An ELP that does not pay the tax shown on
the return when due generally may have to
pay an addition to tax equal to 1 2 of 1% for
each month or part of a month the tax is not
paid, up to a maximum of 25% of the unpaid
tax. The addition to tax will not be imposed if
the partnership can show that the failure to
pay on time was due to reasonable cause
and not willful neglect.

Failure To Furnish Information
Timely

For each failure to furnish Schedule K-1 to a
partner when due and each failure to include
on Schedule K-1 all the information required
to be shown (or the inclusion of incorrect
information), a $260 penalty may be
imposed with respect to each Schedule K-1
for which a failure occurs. The maximum
penalty is $3,193,000 for all such failures
during a calendar year.
If the requirement to report correct
information is intentionally disregarded, each
$260 penalty is increased to $530 or, if
greater, 10% of the aggregate amount of
items required to be reported. There is no
limit to the amount of penalty.

Trust Fund Recovery Penalty

This penalty may apply if certain excise,
income, social security, and Medicare taxes

that must be collected or withheld are not
collected or withheld, or these taxes are not
paid. These taxes are generally reported on:
Form 720, Quarterly Federal Excise Tax
Return;
Form 941, Employer's QUARTERLY
Federal Tax Return;
Form 943, Employer's Annual Federal Tax
Return for Agricultural Employees;
Form 944, Employer's Annual Federal Tax
Return; or
Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are determined
by the IRS to have been responsible for
collecting, accounting for, or paying over
these taxes, and who acted willfully in not
doing so. The penalty is equal to the unpaid
trust fund tax. See the Instructions for Form
720; Pub. 15, (Circular E), Employer's Tax
Guide; or Pub. 51, (Circular A), Agricultural
Employer's Tax Guide, for more details,
including the definition of a responsible
person.

Accounting Methods

An accounting method is a set of rules used
to determine when and how income and
expenditures are reported. Figure ordinary
income using the method of accounting
regularly used in keeping the ELP's books
and records. In all cases, the method used
must clearly reflect income. Generally,
permissible methods include:
Cash,
Accrual, or
Any other method authorized by the
Internal Revenue Code.
Generally, a partnership may not use the
cash method of accounting if (a) it has at
least one corporate partner, it has average
annual gross receipts of more than $5 million
and it is not a farming business, or (b) it is a
tax shelter (as defined in section 448(d)(3)).
See section 448 for details.
Accrual method. If inventories are
required, an accrual method of accounting
must be used for sales and purchases of
merchandise. However, qualifying taxpayers
and eligible businesses of qualifying small
business taxpayers are excepted from using
an accrual method and may account for
inventoriable items as materials and supplies
that are not incidental. For more details, see
Form 1125-A and its instructions.
Under the accrual method, an amount is
includible in income when:
1. All the events have occurred that fix
the right to receive the income, which is the
earliest of the date:
a. Payment is earned through the
required performance,
b. Payment is due to the taxpayer, or
c. Payment is received by the taxpayer;
and
2. The amount can be determined with
reasonable accuracy.

-4-

See Regulations section 1.451-1(a) for
details.
Generally, an accrual basis taxpayer can
deduct accrued expenses in the tax year in
which:
All events that determine the liability have
occurred,
The amount of the liability can be figured
with reasonable accuracy, and
Economic performance takes place with
respect to the expense.
For property and service liabilities, for
example, economic performance occurs as
the property or service is provided. There are
special economic performance rules for
certain items, including recurring expenses.
See section 461(h) and the related
regulations for the rules for determining
when economic performance takes place.
Nonaccrual-experience method. Accrual
method partnerships are not required to
accrue certain amounts to be received from
the performance of services that, on the
basis of their experience, will not be
collected, if:
The services are in the fields of health,
law, engineering, architecture, accounting,
actuarial science, performing arts, or
consulting; or
The partnership's average annual gross
receipts for the 3 prior tax years does not
exceed $5 million.
This provision does not apply to any
amount if interest is required to be paid on
the amount or if there is any penalty for
failure to timely pay the amount. For
information, see section 448(d)(5) and
Regulations section 1.448-2. For reporting
requirements, see the instructions for line 1a.
Percentage of completion method.
Long-term contracts (except for certain real
property construction contracts) must
generally be accounted for using the
percentage of completion method described
in section 460. See section 460 and the
underlying regulations for rules on long-term
contracts.
Mark-to-market accounting. Dealers in
securities must use the mark-to-market
accounting method described in section 475.
Under this method, any security that is
inventory to the dealer must be included in
inventory at its fair market value (FMV). Any
security that is not inventory and that is held
at the close of the tax year is treated as sold
at its FMV on the last business day of the tax
year, and any gain or loss must be taken into
account in determining gross income. The
gain or loss taken into account is generally
treated as ordinary gain or loss. For details,
including exceptions, see section 475, the
related regulations, and Rev. Rul. 97-39,
1997-39 I.R.B. 4.
Traders in securities can elect to use the
mark-to-market accounting method. To
make the election, the ELP must file a
statement describing the election and the
first tax year the election is to be effective.
The statement must be filed by the due date
(not including extensions) of the return for

the tax year immediately preceding the
election year and attached to that return, or if
applicable, to a request for an extension of
time to file that return. For more details, see
Rev. Proc. 99-17, 1999-7 I.R.B. 52, as
superseded in part by Rev. Proc. 99-49, and
section 475(f)(1).
Change in accounting method. Generally,
the ELP must get IRS consent to change its
method of accounting used to report income
(for income as a whole or for any material
item). To do so, the ELP generally must file
Form 3115, Application for Change in
Accounting Method. See the Instructions for
Form 3115 for more information and
exceptions. Also see Rev. Proc. 2016-29,
2016-21 I.R.B. 880 (or any successor),
Notice 2017-6, and Pub. 938.
Section 481(a) adjustment. The ELP
may have to make an adjustment to prevent
amounts of income or expenses from being
duplicated or omitted. This is called a section
481(a) adjustment. The section 481(a)
adjustment period is generally 1 year for a
net negative adjustment and 4 years for a net
positive adjustment. However, in some
instances, a partnership can elect to modify
the section 481(a) adjustment period. The
partnership must complete the appropriate
lines of Form 3115 to make the election. See
the Instructions for Form 3115.
Include any net positive section 481(a)
adjustment on Form 1065-B, Part I, line 10. If
the net section 481(a) adjustment is
negative, report it on Form 1065-B, Part I,
line 23.
There are some instances when the ELP
can obtain automatic consent from the IRS to
change to certain accounting methods. See
Rev. Proc. 2015-13, 2015-5 I.R.B. 419, as
modified, or its successor.

Accounting Periods

An ELP is generally required to have one of
the following tax years.
1. The tax year of a majority of its
partners (majority tax year).
2. If there is no majority tax year, then
the tax year common to all of the ELP's
principal partners (partners with an interest
of 5% or more in the partnership profits or
capital).
3. If there is neither a majority tax year
nor a tax year common to all principal
partners, then the tax year that results in the
least aggregate deferral of income.
Note. In determining the tax year of a
partnership under (1), (2), or (3) above, the

tax years of certain tax-exempt and foreign
partners are disregarded. See Regulations
section 1.706-1(b) for more details.
4. Some other tax year, if:
a. The ELP can establish that there is a
business purpose for the tax year; or
b. The ELP elects under section 444 to
have a tax year other than a required tax
year by filing Form 8716, Election To Have a
Tax Year Other Than a Required Tax Year.
For a partnership to have this election in
effect, it must make the payments required
by section 7519 and file Form 8752,
Required Payment or Refund Under Section
7519.
A section 444 election ends if a
partnership changes its accounting period to
its required tax year or some other permitted
year or it is penalized for willfully failing to
comply with the requirements of section
7519. If the termination results in a short tax
year, type or legibly print at the top of the first
page of Form 1065-B for the short tax year,
“SECTION 444 ELECTION TERMINATED”;
or
c. The partnership elects to use a 52-53
week tax year that ends with reference to
either its required tax year or a tax year
elected under section 444.
Change of tax year. To change its tax year
or to adopt or retain a tax year other than its
required tax year, the ELP must file Form
1128, Application To Adopt, Change, or
Retain a Tax Year, unless the partnership is
making an election under section 444.
Note. The tax year of a common trust fund
must be the calendar year.

Rounding Off to Whole
Dollars

The partnership can round off cents to whole
dollars on its return and schedules. If the
partnership does round to whole dollars, it
must round all amounts. To round, drop
amounts under 50 cents and increase
amounts from 50 to 99 cents to the next
dollar (for example, $1.39 becomes $1 and
$2.50 becomes $3).
If two or more amounts must be added to
figure the amount to enter on a line, include
cents when adding the amounts and round
off only the total.

Recordkeeping

The ELP must keep its records as long as
they may be needed for the administration of

-5-

any provision of the Internal Revenue Code.
The ELP usually must keep records that
support an item of income, deduction, or
credit on the partnership return for 3 years
from the date the return is due or is filed,
whichever is later. It also must keep records
that verify its basis in property for as long as
they are needed to figure the basis of the
original or replacement property.
The ELP should also keep copies of all
returns it has filed. They help in preparing
future returns and in making computations
when filing an amended return.

Administrative Adjustment
Requests

The procedures to follow when filing an
amended partnership return depend on
whether the amended return is filed
electronically or on paper. The rules for
determining when a return must be filed
electronically (see Electronic filing, earlier)
also apply to amended returns.

Electronically filed amended returns. To
correct an error on a Form 1065-B already
filed, file Form 8082, Notice of Inconsistent
Treatment or Administrative Adjustment
Request (AAR). Generally, an adjustment to
a partnership item requested on Form 8082
will flow through to the partners and be taken
into account in determining the amount of the
same item for the partnership tax year in
which the IRS allows the adjustment. If the
income, deductions, credits, or other
information provided to any partner on
Schedule K-1 are incorrect under section
704 in the partner's distributive share of any
partnership item shown on Form 1065-B, file
an amended Schedule K-1 (Form 1065-B)
for that partner with the Form 8082. Also give
a copy of the amended Schedule K-1 to that
partner. See the Form 8082 instructions for
details on how to file the amended Form
1065-B.
Paper filed amended returns. Use Form
1065X, Amended Return or Administrative
Adjustment Request (AAR), to file the
amended return or administrative adjustment
request. See Form 1065X, and its separate
instructions, for information on completing
and filing the form.
A change to the partnership's federal
return may affect its state return. This
includes changes made as a result of an IRS
examination. For more information, contact
the state tax agency for the state in which the
partnership return was filed.

Other Forms, Returns, And Statements That May Be Required
Form, Return, or Statement

Use this to—

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

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

720—Quarterly Federal Excise Tax Return

Report and pay environmental taxes, communications and air transportation taxes, fuel taxes,
manufacturers taxes, ship passenger tax, and certain other excise taxes. Also, see Trust Fund
Recovery Penalty, earlier.

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

Report quarterly income tax withheld on wages and employer and employee social security and
Medicare taxes. Also, see Trust Fund Recovery Penalty, earlier.

943—Employer's Annual Federal Tax Return for Agricultural
Employees

Report income tax withheld and employer and employee social security and Medicare taxes on
farmworkers. Also, see Trust Fund Recovery Penalty, earlier.

944—Employer's ANNUAL Federal Tax Return

File annual Form 944 instead of filing quarterly Forms 941 if the IRS notified you in writing.

945—Annual Return of Withheld Federal Income Tax

Report income tax withheld from nonpayroll payments, including pensions, annuities, individual
retirement accounts (IRAs), gambling winnings, and backup withholding. Also, see Trust Fund
Recovery Penalty, earlier.

1042 and 1042-S—Annual Withholding Tax Return for U.S. Source
Income of Foreign Persons; and Foreign Person's U.S. Source
Income Subject to Withholding

Report and send withheld tax on payments or distributions made to nonresident alien individuals,
foreign partnerships, or foreign corporations to the extent these payments or distributions constitute
gross income from sources within the United States that is not effectively connected with a U.S. trade
or business. A domestic partnership must also withhold tax on a foreign partner's distributive share of
such income, including amounts that are not actually distributed. Withholding on amounts not
previously distributed to a foreign partner must be made and paid over by the earlier of:
The date on which Schedule K-1 is sent to that partner, or
The 15th day of the 3rd month after the end of the partnership's tax year.
For more details, see sections 1441 and 1442 and Pub. 515, Withholding of Tax on Nonresident Aliens
and Foreign Entities.

1042-T—Annual Summary and Transmittal of Forms 1042-S

Transmit paper Forms 1042-S to the IRS.

1065X—Amended Return or Administrative Adjustment Request
(AAR)

Use Form 1065X to correct a previously filed partnership return or to make an Administrative
Adjustment Request for a previously filed return.

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

Required to be filed by certain health insurance issuers who provide minimum essential coverage to
report information on the primary insured and other individuals covered under the plan.

1095-C and 1094-C—Employer-Provided Health Insurance Offer
and Coverage and Transmittal of Forms 1095-C

Used by certain employers to report information about the health care coverage the employer offered
with regard to each full-time employee.

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

Report tax credits to bond holders and tax credits passed to another person.

1098—Mortgage Interest Statement

Report the receipt from any individual of $600 or more of mortgage interest (including certain points) in
the course of the partnership's trade or business.

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

Report the following.
Acquisitions or abandonments of secured property.
Proceeds from broker and barter exchange transactions.
Cancellation of debts.
Interest income.
Payment card and third-party network transactions.
Payments of long-term care and accelerated death benefits.
Miscellaneous income.
Original issue discount.
Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance
contracts, etc.
Proceeds from real estate transactions.
Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.

Important. Every partnership must file Forms 1099-MISC if, in the
course of its trade or business, it makes payments of rents,
commissions, or other fixed or determinable income (see section
6041) totaling $600 or more to any one person during the calendar
year.

-6-

Form, Return, or Statement

Use this to—

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

Report information with respect to certain foreign corporations. A domestic partnership may have to file
Form 5471 if it:
Controls a foreign corporation;
Acquires or owns 10% or more in value of the outstanding stock of a foreign corporation; or
Disposes of sufficient stock to reduce its interest to less than 10% in value of the outstanding stock
of a foreign corporation; or
Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30
days or more during any tax year of the foreign corporation, and it owned that stock on the last day of
that year.

5713—International Boycott Report

Report operations in, or related to, a “boycotting” country, company, or national of a country and to
figure the loss of certain tax benefits. The partnership must give each partner a copy of the Form 5713
filed by the partnership if there has been participation in, or cooperation with, an international boycott.

8275—Disclosure Statement

Disclose items or positions, except those contrary to a regulation, that are not otherwise adequately
disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty
imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for
disclosures relating to preparer penalties for understatements due to unrealistic positions or disregard
of rules.

8275-R—Regulation Disclosure Statement

Disclose any item on a tax return for which a position has been taken that is contrary to Treasury
regulations.

8288 and 8288-A—U.S. Withholding Tax Return for Dispositions by
Foreign Persons of U.S. Real Property Interests; and Statement of
Withholding on Dispositions by Foreign Persons of U.S. Real
Property Interests

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

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

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

8308—Report of a Sale or Exchange of Certain Partnership Interests Report the sale or exchange by a partner of all or part of a partnership interest where any money or
other property received in exchange for the interest is attributable to unrealized receivables or
inventory items.
8594—Asset Acquisition Statement Under Section 1060

Report a sale of assets if goodwill or going concern value attaches, or could attach, to such assets.
Both the seller and buyer of a group of assets that makes up a trade or business must use this form.

8621—Information Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund

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

8697—Interest Computation Under the Look-Back Method for
Completed Long-Term Contracts

Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain
long-term contracts that are accounted for under either the percentage of completion-capitalized cost
method or the percentage of completion method.

8804, 8805, and 8813—Annual Return for Partnership Withholding
Tax (Section 1446); Foreign Partner's Information Statement of
Section 1446 Withholding Tax; and Partnership Withholding Tax
Payment Voucher (Section 1446)

Figure and report the withholding tax on the distributive shares of any effectively connected gross
income for foreign partners. This is done on Forms 8804 and 8805. Use Form 8813 to send installment
payments of withheld tax based on effectively connected taxable income allocable to foreign partners.

8832—Entity Classification Election

See Entity Classification Election, later.

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

Report the information required under section 6038 (reporting with respect to controlled foreign
partnerships), section 6038B (reporting of transfers to foreign partnerships), or section 6046A
(reporting of acquisitions, dispositions, and changes in foreign partnership interests). See Form 8865
and its instructions for more details.

8866—Interest Computation Under the Look-Back Method for
Property Depreciated Under the Income Forecast Method

Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain
property placed in service after September 13, 1995, depreciated under the income forecast method.

8876—Excise Tax on Structured Settlement Factoring Transactions

Report and pay the 40% excise tax imposed under section 5891.

8886—Reportable Transaction Disclosure Statement

Disclose information for each reportable transaction in which the partnership participated. Form 8886
must be filed for each tax year the partnership participated in the reportable transaction. The
partnership may have to pay a penalty if it is required to file Form 8886 and does not do so. The
following are reportable transactions.
Any listed transaction, which is a transaction that is the same as or substantially similar to one of
the types of transactions that the IRS has determined to be a tax avoidance transaction and identified
by notice, regulation, or other published guidance as a listed transaction.
Any transaction offered under conditions of confidentiality for which the partnership (or a related
party) paid an advisor a fee of at least $50,000 ($250,000 for partnerships if all partners are
corporations).
Certain transactions for which the partnership (or a related party) has contractual protection against
disallowance of the tax benefits.
Certain transactions resulting in a loss of at least $2 million in any single tax year or $4 million in
any combination of tax years (if all partners are corporations, see Regulations section 1.6011-4(b)(5)(i)
(B)).
Any transaction of interest, which is a transaction that is the same as, or substantially similar to,
one of the types of transactions identified by the IRS by notice, regulation, or other published
guidance. See Notice 2009-55, 2009-31 I.R.B. 170.
See Regulations section 1.6011-4, the Instructions for Form 8886, and the instructions for line 15 of
Schedule K for more information.

8918—Material Advisor Disclosure Statement

Material advisors to any reportable transaction must disclose certain information about the reportable
transaction by filing Form 8918 with the IRS.

8925—Report of Employer-Owned Life Insurance Contracts

Report the number of employees covered by employer-owned life insurance contracts issued after
August 17, 2006, and the total amount of employer-owned life insurance in force on those employees
at the end of the tax year.

8938—Statement of Specified Foreign Financial Assets

Report the ownership of specified foreign financial assets if the total value of those assets is more than
the applicable reporting threshold.

Statement of section 743(b) basis adjustments

Report the adjustment of bases under section 743(b). If the partnership is required to adjust the bases
of partnership properties under section 743(b) because of a section 754 election or because of a
substantial built-in loss as defined in section 743(d) on the sale or exchange of a partnership interest or
on the death of a partner, the partnership must attach a statement to its return for the year of the
transfer. The statement must list:
1. The name and identifying number of the transferee partner,
2. The computation of the adjustment, and
3. The partnership properties to which the adjustment has been allocated.

Assembling the Return

When submitting Form 1065-B, organize the
pages of the return in the following order.
Pages 1–5.

Exception. Publicly traded partnerships do not file these forms. They must instead withhold tax on
distributions to foreign partners and report and send payments using Forms 1042 and 1042-S. See
Regulations section 1.1446-4 for more information.

Schedule F (Form 1040), Profit or Loss
From Farming (if required).
Form 8825, Rental Real Estate Income
and Expenses of a Partnership or an S
Corporation (if required).

-7-

Form 1125-A, Cost of Goods Sold (if
required).
Form 8941, Credit for Small Employer
Health Insurance Premiums (if required).
Any other schedules in alphabetical order.
Any other forms in numerical order.

Complete every applicable entry space
on Form 1065-B and Schedule K-1. Do not
enter “See attached” instead of completing
the entry spaces. Penalties may be
assessed if the partnership files an
incomplete return. If you need more space
on the forms or schedules, attach separate
sheets and place them at the end of the
return using the same size and format as on
the printed forms. Show the totals on the
printed forms. Also be sure to put the
partnership's name and EIN on each
supporting statement or attachment.

Overview

The taxable income of an ELP is figured in
the same manner as that of an individual,
except that the items described below are
separately stated and certain modifications
are made. These modifications include not
allowing the deduction for personal
exemptions, the net operating loss
deduction, and certain itemized deductions.
Other itemized deductions are modified.
The netting of capital gains and losses
occurs at the partnership level. Such net
capital gain (loss) is treated as long-term
capital gain (loss). Any excess of net
short-term capital gain over net long-term
capital loss is consolidated with the
partnership's other taxable income and is not
separately reported.
General credits are separately reported to
partners as a single item. They are taken into
account by partners as a current year
general business credit. General credits are
those credits that are not separately
reported. The refundable credit for federal
tax paid on fuels and the refund or credit for
tax paid on undistributed capital gains of a
regulated investment company (RIC) or a
real estate investment trust (REIT) are taken
by the partnership and thus are not
separately reported to partners. The
partnership also recaptures the investment
credit under section 50 and low-income
housing credit under section 42(j).

Separately Stated Items

Partners must take into account separately
(under section 772(a)) their distributive
shares of the following items (whether or not
they are actually distributed).
Taxable income (loss) from passive loss
limitation activities.
Taxable income (loss) from other activities
(for example, portfolio income (loss)).
Net capital gain (loss) allocable to passive
loss limitation activities.
Net capital gain (loss) allocable to other
activities.
28% rate gain (loss) allocable to passive
loss limitation activities.
28% rate gain (loss) allocable to other
activities.
Qualified dividends.
Tax-exempt interest income.
Extraterritorial income exclusion and
foreign trading gross receipts.
Net alternative minimum tax (AMT)
adjustment separately figured for passive
loss limitation activities.

Net AMT adjustment separately figured
for other activities.
General credits.
Low-income housing credit.
Rehabilitation credit from rental real
estate activities.
Creditable foreign taxes and foreign
source items.
Other items of income, gain, loss,
deduction, or credit, to the extent the IRS
determines separate treatment is
appropriate. Examples of such items include
the domestic production activity deduction
and gains on sales of qualified small
business stock (information required for a
section 1202 exclusion or section 1045
rollover).
Note. For ELPs, the term “passive loss
limitation activities” includes trade or
business, rental real estate, and other rental
activities. Partnership items from passive
loss limitation activities allocated to limited
partners are treated as being from passive
activities and subject to the passive activity
limitations. However, general partners may
have materially or actively participated in
some or all of these passive loss limitation
activities. Each general partner must
determine if any partnership items from
these activities are subject to the passive
activity limitations. To allow each general
partner to correctly apply the passive activity
limitations, the partnership must report
income or loss and credits separately for
each trade or business activity, rental real
estate activity, rental activity other than rental
real estate, and other activities (for example,
portfolio income). See the discussion on
Passive Loss Limitation Activities, later.
The character of any item separately
stated to the partners is based on its
character to the partnership. The items are
treated as incurred by the partnership,
similar to the character rule for other
partnerships under section 702(b).

Limitations

Most limitations and other provisions
affecting taxable income or credit are applied
at the partnership level except for:
Section 68—Overall itemized deduction
limitation,
Sections 49 and 465—At-risk limitations,
and
Section 469—Passive loss limitations.
Miscellaneous itemized deductions. The
limitation on miscellaneous itemized
deductions is applied at the partnership
level. However, instead of the 2% floor, 70%
of the partnership's total miscellaneous
itemized deductions are disallowed.
Charitable contributions. Another
limitation that is applied at the partnership
level is the deduction for charitable
contributions. The deduction is limited to
10% of the partnership's taxable income
(before the charitable contribution
deduction).

-8-

Entity Classification Election

Use Form 8832, Entity Classification
Election, to make a change in classification.
Except for certain business entities always
classified as a corporation, a business entity
with at least two members may choose to be
classified either as a partnership or an
association taxable as a corporation. A
domestic eligible entity with at least two
members that does not file Form 8832 is
classified under the default rules as a
partnership. However, a foreign eligible
entity with at least two members is classified
under the default rules as a partnership only
if at least one member does not have limited
liability. File Form 8832 only if the entity does
not want to be classified under these default
rules or if it wants to change its classification.

!

CAUTION

Attach a copy of Form 8832 to the
partnership's federal tax return for
the tax year of the election.

Elections Made by the
Partnership

All elections, other than the exceptions listed
under Elections Made by Each Partner, later,
affecting the computation of taxable income
or any credit are made by the ELP. For
example, it chooses the accounting method
and depreciation methods it will use. The
ELP also makes elections under the
following sections.
1. Section 179 (election to expense
certain property).
2. Section 1033 (involuntary
conversions).
3. Section 754 (manner of electing
optional adjustment to basis of partnership
property).
There are no changes to the optional
basis adjustment provisions as a result of the
ELP rules. Under section 754, a partnership
can elect to adjust the basis of partnership
property when property is distributed or
when a partnership interest is transferred.
Once an election is made under section 754,
it applies both to all distributions and to all
transfers made during the tax year and in all
subsequent tax years unless the election is
revoked.
This election must be made in a
statement that is filed with the ELP's timely
filed return (including any extension) for the
tax year during which the distribution or
transfer occurs. The statement must include:
The name and address of the ELPs,
A declaration that the ELP elects under
section 754 to apply the provisions of section
734(b) and section 743(b), and
The signature of a partner authorized to
sign the partnership return.
The ELP can get an automatic 12-month
extension to make the section 754 election
provided corrective action is taken within 12
months of the original deadline for making
the election. For details, see Regulations
section 301.9100-2.
See section 754 and the related
regulations for more information.

If there is a distribution of property
consisting of an interest in another
partnership, see section 734(b).
The partnership is required to attach a
statement for any section 743(b) basis
adjustments.
To revoke a section 754 election, the
partnership must file the revocation request
at the same IRS Submission Processing
Center in which the partnership return is
filed. See Regulations section 1.754-1(c).
4. Regulations section 1.1411-10(g)
(section 1411 election with respect to CFCs
and QEFs).
A domestic partnership that directly or
indirectly owns stock of a controlled foreign
corporation (CFC) (within the meaning of
section 953(c)(1)(B) or section 957(a)) or a
passive foreign investment company (within
the meaning of section 1297(a)) that the
domestic partnership treats as a qualified
electing fund (QEF) under section 1293 may
make the election provided in Regulations
section 1.1411-10(g). The election must be
made no later than the first tax year
beginning after 2013 during which the
partnership: (i) includes an amount in gross
income for chapter 1 purposes under section
951(a) or section 1293(a) for the CFC or
QEF, and (ii) has a direct or indirect owner
that is subject to tax under section 1411 or
would have been if the election were made.
This election must be made on an
entity-by-entity basis, and applies only to the
particular CFCs and QEFs for which an
election is made. In general, for purposes of
section 1411, if an election is in effect for a
CFC or QEF, the amounts included in
income under section 951 and section 1293
derived from the CFC or QEF are included in
net investment income, and distributions
described in section 959(d) or section
1293(c) are excluded from net investment
income. An election that is made under
Regulations section 1.1411-10(g) cannot be
revoked. For more information regarding this
election, see Regulations section
1.1411-10(g).
The election must be made in a statement
that is filed with the partnership's original or
amended return for the tax year in which the
election is made. An election can be made
on an amended return only if the tax year for
which the election is made, and all tax years
affected by the election, are not closed by
the period of limitations on assessments
under section 6501. The statement must
include:
The name and EIN of the partnership
making the election;
A declaration that the partnership elects
under Regulations section 1.1411-10(g) to
apply the rules in Regulations section
1.1411-10(g) to the CFCs and QEFs
identified in the statement; and
The following information for each CFC
and QEF for which an election is made: (i)
the name of the CFC or QEF; and (ii) either
the EIN of the CFC or QEF, or, if the CFC or
QEF does not have an EIN, the reference ID
number of the CFC or QEF.

In addition, for each CFC or QEF held by
the partnership for which an election under
Regulations section 1.1411-10(g) has
already been made by the partnership, the
statement should include: (i) the name of the
CFC or QEF, and (ii) either the EIN of the
CFC or QEF, or, if the CFC or QEF does not
have an EIN, the reference ID number of the
CFC or QEF.
5. Section 41(h) (Payroll tax credit
election).

Effect of Section 743(b)
Basis Adjustment on
Partnership Items

If the basis of partnership property has been
adjusted for a transferee partner under
section 743(b), the partnership must adjust
the transferee's distributive share of the
items of partnership income, deduction, gain,
or loss in accordance with Regulations
section 1.743-1(j)(3) and (4). These
adjustments must be reported on
Schedule K and the transferee partner's
Schedule K-1. Report the adjustments on an
attached statement to Schedule K-1 using
the codes for Other Income or Other
Deductions. Identify the partnership item
being adjusted and the amount of the
adjustment. If the adjustments are to
partnership items from more than one trade
or business, report the adjustments
separately for each activity. Section 743(b)
adjustments do not affect the transferee's
capital account.

Elections Made by Each
Partner

Elections under the following sections are
made by each partner separately on the
partner's tax return.
1. Section 108 (income from discharge
of indebtedness). If an ELP has income from
the discharge of any indebtedness, this is
reported separately to each partner.
2. Section 901 (foreign tax credit).

Partner's Dealings With
Partnership

If a partner engages in a transaction with his
or her partnership, other than in his or her
capacity as a partner, the partner is treated
as not being a member of the partnership for
that transaction. Special rules apply to sales
or exchanges of property between
partnerships and certain persons, as
explained in Pub. 541, Partnerships.

Contributions to the
Partnership

Generally, no gain or (loss) is recognized to
the partnership or any of the partners when
property is contributed to the partnership in
exchange for an interest in the partnership.
This rule does not apply to any gain realized
on a transfer of property to a partnership that
would be treated as an investment company
(within the meaning of section 351(e)) if the
-9-

partnership were incorporated. If, as a result
of a transfer of property to a partnership,
there is a direct or indirect transfer of money
or other property to the transferring partner,
the partner may have to recognize gain on
the exchange.
The basis to the ELP of property
contributed by a partner is the adjusted basis
in the hands of the partner at the time it was
contributed, plus any gain recognized (under
section 721(b)) by the partner at that time.
See section 723 for more information.

Dispositions of
Contributed Property

Generally, if the ELP disposes of property
contributed to the partnership by a partner,
income, gain, loss, and deductions from that
property must be allocated among the
partners to take into account the difference
between the property's basis and its FMV at
the time of the contribution. However, if the
adjusted basis of the contributed property
exceeds its FMV at the time of the
contribution, the built-in loss can only be
taken into account by the contributing
partner. For all other partners, the basis of
the property in the hands of the partnership
is treated as equal to its FMV at the time of
the contribution (see section 704(c)(1)(C)).
For property contributed to the ELP, the
contributing partner must recognize gain or
loss on a distribution of the property to
another partner within 7 years of its being
contributed. The gain or loss is equal to the
amount that the contributing partner should
have recognized if the property had been
sold for its FMV when distributed, because of
the difference between the property's basis
and its FMV at the time of contribution.
See section 704(c) for details and other
rules on dispositions of contributed property.
See section 724 for the character of any gain
or (loss) recognized on the disposition of
unrealized receivables, inventory items, or
capital loss property contributed to the ELP
by a partner.

Recognition of
Precontribution Gain on
Certain Partnership
Distributions

A partner who contributes appreciated
property to the ELP must include in income
any precontribution gain to the extent the
FMV of other property (other than money)
distributed to the partner by the ELP exceeds
the adjusted basis of his or her partnership
interest just before the distribution.
Precontribution gain is the net gain, if any,
that would have been recognized under
section 704(c)(1)(B) if the ELP had
distributed to another partner all the property
that had been contributed to the partnership
by the distributee partner within 7 years of
the distribution and that was held by the ELP
just before the distribution.
Appropriate basis adjustments are to be
made to the adjusted basis of the distributee

partner's interest in the partnership and the
partnership's basis in the contributed
property to reflect the gain recognized by the
partner.
For more details and exceptions, see
Pub. 541.

Unrealized Receivables
and Inventory Items

Generally, if a partner sells or exchanges a
partnership interest and unrealized
receivables or inventory items are involved,
the transferor partner must notify the
partnership, in writing, within 30 days of the
exchange. The ELP must then file Form
8308, Report of a Sale or Exchange of
Certain Partnership Interests.
If a partnership distributes unrealized
receivables or substantially appreciated
inventory items in exchange for all or part of
a partner's interest in other partnership
property (including money), treat the
transaction as a sale or exchange between
the partner and the partnership. Treat the
partnership gain or (loss) as ordinary income
or (loss). The income or (loss) is specially
allocated only to partners other than the
distributee partner.
If a partnership gives other property
(including money) for all or part of that
partner's interest in the partnership's
unrealized receivables or substantially
appreciated inventory items, treat the
transaction as a sale or exchange of the
property.
See Rev. Rul. 84-102, 1984-2 C.B. 119,
for information on the tax consequences that
result when a new partner joins a partnership
that has liabilities and unrealized
receivables. Also see Pub. 541 for more
information on unrealized receivables and
inventory items.

Activities of Electing Large
Partnerships (ELPs)

The activities of an ELP are reported as
either:
Passive loss limitation activities, including
trade or business, real estate rental, and
other rental activities; or
Other activities, including portfolio or
investment activities.

Passive Loss Limitation
Activities

The term “passive loss limitation activity”
means any activity involving the conduct of a
trade or business (including any activity
treated as a trade or business under section
469(c)(5) or (6)), or any rental activity.
A limited partner's share of an ELP's
taxable income or loss from these activities
is treated as income or loss from the conduct
of a single passive trade or business activity.
Thus, an ELP does not have to report items
from multiple activities separately to limited
partners.
However, if a partner holds an interest in
an ELP other than as a limited partner, the

distributive share of items from each activity
is accounted for separately under the
passive activity rules of section 469. Thus,
for example, passive loss limitation activity
income or loss is not treated as passive
income with respect to the general
partnership interest of a partner who
materially participates in the partnership's
trade or business activities. For general
partners, the partnership does have to report
items for each activity separately.

Trade or Business Activities
A trade or business activity is an activity
(other than a rental activity or an activity
treated as incidental to an activity of holding
property for investment) that:
Involves the conduct of a trade or
business (within the meaning of section
162),
Is conducted in anticipation of starting a
trade or business, or
Involves research or experimental
expenditures deductible under section 174
(or that would be if you chose to deduct
rather than capitalize them).

Rental Activities
Generally, except as noted below, if the
gross income from an activity consists of
amounts paid principally for the use of real or
personal tangible property held by the ELP,
the activity is a rental activity.
There are several exceptions to this
general rule. Under these exceptions, an
activity involving the use of real or personal
tangible property is not a rental activity if any
of the following apply.
The average period of customer use
(defined below) for such property is 7 days or
less.
The average period of customer use for
such property is 30 days or less and
significant personal services (defined below)
are provided by or on behalf of the
partnership.
Extraordinary personal services (defined
below) are provided by or on behalf of the
ELP.
The rental of such property is treated as
incidental to a nonrental activity of the ELP
under Temporary Regulations section
1.469-1T(e)(3)(vi) and Regulations section
1.469-1(e)(3)(vi)(D).
The ELP customarily makes the property
available during defined business hours for
nonexclusive use by various customers.
The ELP provides property for use in a
nonrental activity of a partnership or joint
venture in its capacity as an owner of an
interest in such partnership or joint venture.
Whether the ELP provides property used in
an activity of another partnership or of a joint
venture in the partnership's capacity as an
owner of an interest in the partnership or joint
venture is determined on the basis of all the
facts and circumstances.
In addition, a guaranteed payment
described in section 707(c) is never income
from a rental activity.
-10-

Average period of customer use. Figure
the average period of customer use for a
class of property by dividing the total number
of days in all rental periods by the number of
rentals during the tax year. If the activity
involves renting more than one class of
property, multiply the average period of
customer use of each class by the ratio of
the gross rental income from that class to the
activity's total gross rental income. The
activity's average period of customer use
equals the sum of these class-by-class
average periods weighted by gross income.
See Regulations section 1.469-1(e)(3)(iii).
Significant personal services. Personal
services include only services performed by
individuals. To determine if personal services
are significant personal services, consider all
the relevant facts and circumstances.
Relevant facts and circumstances include:
How often the services are provided,
The type and amount of labor required to
perform the services, and
The value of the services in relation to the
amount charged for use of the property.
The following services are not considered
in determining whether personal services are
significant.
Services necessary to permit the lawful
use of the rental property.
Services performed in connection with
improvements or repairs to the rental
property that extend the useful life of the
property substantially beyond the average
rental period.
Services provided in connection with the
use of any improved real property that are
similar to those commonly provided in
connection with long-term rentals of
high-grade commercial or residential
property. Examples include cleaning and
maintenance of common areas, routine
repairs, trash collection, elevator service,
and security at entrances.
Extraordinary personal services.
Services provided in connection with making
rental property available for customer use
are extraordinary personal services only if
the services are performed by individuals
and the customers' use of the rental property
is incidental to their receipt of the services.
For example, a patient's use of a hospital
room generally is incidental to the care
received from the hospital's medical staff.
Similarly, a student's use of a dormitory room
in a boarding school is incidental to the
personal services provided by the school's
teaching staff.
Rental activity incidental to a nonrental
activity. An activity is not a rental activity if
the rental of the property is incidental to a
nonrental activity, such as the activity of
holding property for investment, a trade or
business activity, or the activity of dealing in
property.
Rental of property is incidental to an
activity of holding property for investment if
both of the following apply.

The main purpose for holding the property
is to realize a gain from the appreciation of
the property.
The gross rental income from such
property for the tax year is less than 2% of
the smaller of the property's unadjusted
basis or its FMV.
Rental of property is incidental to a trade
or business activity if all of the following
apply.
The partnership owns an interest in the
trade or business at all times during the year.
The rental property was mainly used in
the trade or business activity during the tax
year or during at least 2 of the 5 preceding
tax years.
The gross rental income from the property
for the tax year is less than 2% of the smaller
of the property's unadjusted basis or its
FMV.
The sale or exchange of property that is
both rented and sold or exchanged during
the tax year (where the gain or loss is
recognized) is treated as incidental to the
activity of dealing in property if, at the time of
the sale or exchange, the property was held
primarily for sale to customers in the ordinary
course of the partnership's trade or business.
See Temporary Regulations section
1.469-1T(e)(3) and Regulations section
1.469-1(e)(3) for more information on the
definition of rental activities for purposes of
the passive activity limitations.
In reporting the ELP's income or losses
and credits from rental activities, the ELP
must separately report rental real estate
activities and rental activities other than
rental real estate activities.
Partners who actively participate in a
rental real estate activity may be able to
deduct part or all of their rental real estate
losses (and the deduction equivalent of
rental real estate credits) against income (or
tax) from nonpassive activities. The
combined amount of rental real estate losses
and the deduction equivalent of rental real
estate credits from all sources (including
rental real estate activities not held through
the ELP) that can be claimed is limited to
$25,000. This $25,000 amount is generally
reduced for high-income partners.

Self-Charged Interest
Certain self-charged interest income and
expense may be treated as passive activity
gross income and passive activity
deductions if the loan proceeds are used in a
passive activity. Generally, self-charged
interest income and deductions result from
loans between the ELP and its partners. It
also includes loans between the ELP and
another partnership if each owner in the
borrowing entity has the same proportional
ownership interest in the lending entity. The
ELP can elect not to apply these rules to
self-charged interest income.
The self-charged interest rules do not
apply to a partner's interest in an ELP if the
ELP makes an election under Regulations
section 1.469-7(g) to avoid the application of

these rules. To make the election, the ELP
must attach to its original or amended
partnership return a statement that includes
the name, address, and EIN of the ELP and
a declaration that the election is being made
under Regulations section 1.469-7(g). The
election will apply to the tax year in which it
was made and all subsequent tax years.
Once made, the election may only be
revoked with the consent of the IRS. For
more details on the self-charged interest
rules, see Regulations section 1.469-7.

Other Activities

The term “other activities” means activities
other than passive loss limitation activities.
This is income or expenses connected with
property held for investment, that is, portfolio
income. Generally, portfolio income includes
all gross income, other than income derived
in the ordinary course of a trade or business,
that is attributable to interest; dividends;
royalties; income from a real estate
investment trust, a regulated investment
company, a real estate mortgage investment
conduit, a common trust fund, a controlled
foreign corporation, a qualified electing fund,
or a cooperative; income from the disposition
of property that produces income of a type
defined as portfolio income; and income
from the disposition of property held for
investment. Portfolio income is reported
separately and is reduced by portfolio
deductions, allocable investment interest
expense, and nonbusiness deductions. See
Self-Charged Interest, earlier, for an
exception.

Special Reporting
Requirements
General Partners
Passive Activity Reporting
Requirements
To allow general partners to correctly apply
the passive activity loss and credit limitation
rules, the ELP must do the following.
1. If the ELP carries on more than one
activity, provide a statement for each activity
conducted through the partnership that
identifies the type of activity conducted
(trade or business, rental real estate, rental
activity other than rental real estate, or
investment). See Grouping Activities,
discussed later.
2. On the statement for each activity,
provide a statement detailing the net income
or (loss), credits, and all items required to be
separately stated under section 772(a) from
each trade or business activity, from each
rental real estate activity, from each rental
activity other than a rental real estate activity,
and from investments.
3. Identify the net income or (loss) and
credits from each oil or gas well drilled or
operated under a working interest that any
partner (other than a partner whose only
interest in the partnership during the year is
as a limited partner) holds through the
partnership. Further, if any partner had an
-11-

interest as a general partner in the
partnership during less than the entire year,
the partnership must identify both the
disqualified deductions from each well that
the partner must treat as passive activity
deductions, and the ratable portion of the
gross income from each well that the partner
must treat as passive activity gross income.
4. Identify the net income or (loss) and
the partner's share of partnership interest
expense from each activity of renting a
dwelling unit that any partner uses for
personal purposes during the year for more
than the greater of 14 days or 10% of the
number of days that the residence is rented
at fair rental value.
5. Identify the net income or (loss) and
the partner's share of partnership interest
expense from each activity of trading
personal property conducted through the
partnership. For this purpose, personal
property means property that is actively
traded such as stocks, bonds, and other
securities. See Temporary Regulations
section 1.469-1T(e)(6).
6. For any gain or (loss) from the
disposition of an interest in an activity or of
an interest in property used in an activity
(including dispositions before 1987 from
which gain is being recognized after 1986):
a. Identify the activity in which the
property was used at the time of disposition.
b. If the property was used in more than
one activity during the 12 months preceding
the disposition, identify the activities in which
the property was used and the adjusted
basis allocated to each activity.
c. For gains only, if the property was
substantially appreciated at the time of the
disposition and the applicable holding period
specified in Regulations section 1.469-2(c)
(2)(iii)(A) was not satisfied, identify the
amount of the nonpassive gain and indicate
whether the gain is investment income under
Regulations section 1.469-2(c)(2)(iii)(F).
7. Specify the amount of gross portfolio
income, the interest expense properly
allocable to portfolio income, and expenses
other than interest expense that are clearly
and directly allocable to portfolio income.
8. Identify separately any of the
following types of payments to partners.
a. Payments to a partner for services
other than in the partner's capacity as a
partner under section 707(a).
b. Guaranteed payments to a partner for
services under section 707(c).
c. Guaranteed payments for use of
capital.
d. If section 736(a)(2) payments are
made for unrealized receivables or for
goodwill, the amount of the payments and
the activities to which the payments are
attributable.
e. If section 736(b) payments are made,
the amount of the payments and the
activities to which the payments are
attributable.

9. Identify the ratable portion of any
section 481 adjustment (whether a net
positive or a net negative adjustment)
allocable to each partnership activity.
10. Identify the amount of gross income
from each oil or gas property of the
partnership.
11. Identify any gross income from
sources specifically excluded from passive
activity gross income, including the following.
a. Income from intangible property if the
partner is an individual whose personal
efforts significantly contributed to the
creation of the property.
b. Income from state, local, or foreign
income tax refunds.
c. Income from a covenant not to
compete if the partner is an individual who
contributed the covenant to the partnership.
12. Identify any deductions that are not
passive activity deductions.
13. If the partnership makes a full or
partial disposition of its interest in another
entity, identify the gain (loss) allocable to
each activity conducted through the entity,
and the gain allocable to a passive activity
that would have been recharacterized as
nonpassive gain had the partnership
disposed of its interest in property used in
the activity (because the property was
substantially appreciated at the time of the
disposition, and the gain represented more
than 10% of the partner's total gain from the
disposition).
14. Identify the following items from
activities that may be subject to the
recharacterization rules under Temporary
Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f).
a. Net income from an activity of renting
substantially nondepreciable property.
b. The smaller of equity-financed
interest income or net passive income from
an equity-financed lending activity.
c. Net rental activity income from
property developed (by the partner or the
partnership), rented, and sold within 12
months after the rental of the property
commenced.
d. Net rental activity income from the
rental of property by the partnership to a
trade or business activity in which the partner
had an interest (either directly or indirectly).
e. Net royalty income from intangible
property if the partner acquired the partner's
interest in the partnership after the
partnership created the intangible property or
performed substantial services, or incurred
substantial costs in developing or marketing
the intangible property.
15. Identify separately the credits from
each activity conducted by or through the
partnership.
16. Identify the partner's distributive
share of the partnership's self-charged
interest income or expense (see
Self-Charged Interest, discussed earlier).

a. Loans between a partner and the
partnership. Identify the lending or
borrowing partner's share of the self-charged
interest income or expense. If the partner
made the loan to the ELP, also identify the
activity in which the loan proceeds were
used. If the proceeds were used in more than
one activity, allocate the interest to each
activity based on the amount of the proceeds
used in each activity.
b. Loans between the partnership
and another partnership or an S
corporation. If the partnership's partners
have the same proportional ownership
interest in the partnership and the other
partnership or S corporation, identify each
partner's share of the interest income or
expense from the loan. If the ELP was the
borrower, also identify the activity in which
the loan proceeds were used. If the loan
proceeds were used in more than one
activity, allocate the interest to each activity
based on the amount of the proceeds used
in each activity.
For more information on passive
activities, see Pub. 925, Passive Activity and
At-Risk Rules.

Net Investment Income Tax
Reporting Requirements
Note. The information described in this
section should be given directly to the
partner and should not be reported by the
partnership to the IRS.
To allow partners to correctly figure the
net investment income tax where a partner
disposes of an interest in the partnership
during the tax year, the partnership may be
required to provide the partner with certain
information. The net investment income tax
is a tax imposed on an individual, trust, or
estate's net investment income. Net
investment income includes the net gains or
losses from the sale of an interest in the
partnership. A partner who is actively
involved in one or more of the partnership or
lower tier pass-through entities' trades or
businesses (other than trading in financial
instruments or commodities) can reduce the
amount of the gain or loss from the sale of
the partnership interest or lower tier
pass-through entity included in its net
investment income. However, to figure its net
investment income, the active partner needs
certain information from the partnership.
Generally, the partnership must provide
certain information to the partner if the
partnership knows, or has reason to know,
the following.
1. The partner disposed of an interest in
the partnership.
2. The partner materially participates
(within the meaning of the passive activity
loss rules (section 469)) in one or more of
the trades or businesses (within the meaning
of section 162) of the partnership or a lower
tier pass-through entity (other than trading in
financial instruments or commodities).

-12-

3. The partner does not qualify for the
optional simplified reporting method for
figuring its net investment income associated
with the disposition of the interest. For more
information, see the instructions for Form
8960, line 5c.
Information to be provided to partner.
Generally, the partnership must provide the
partner with its distributive share of the net
gain and loss from the deemed sale for fair
market value of the partnership's property,
other than property that relates to the trades
or businesses in which the partner materially
participates, as determined under the
passive activity loss rules applicable to the
transfer of an interest in a pass-through
entity. For more information, see the
instructions for Form 8960, line 5c.
Note. If a partner, who qualifies for the
optional simplified reporting method, prefers
to determine net gain or loss under the
general calculation, the partnership may, but
is not obligated to, provide the information to
the partner at that partner's request.

Grouping Activities
Generally, one or more trade or business
activities or rental activities may be treated
as a single activity if the activities make up
an appropriate economic unit for the
measurement of gain or loss under the
passive activity rules. Whether activities
make up an appropriate economic unit
depends on all the relevant facts and
circumstances. The factors given the
greatest weight in determining whether
activities make up an appropriate economic
unit are:
Similarities and differences in types of
trades or businesses,
The extent of common control,
The extent of common ownership,
Geographical location, and
Reliance between or among the activities.
Example. The ELP has a significant
ownership interest in a bakery and a movie
theater in Baltimore and a bakery and a
movie theater in Philadelphia. Depending on
the relevant facts and circumstances, there
may be more than one reasonable method
for grouping the ELP's activities. For
instance, the following groupings may or may
not be permissible.
A single activity.
A movie theater activity and a bakery
activity.
A Baltimore activity and a Philadelphia
activity.
Four separate activities.
Once the ELP chooses a grouping under
these rules, it must continue using that
grouping in later tax years unless a material
change in the facts and circumstances
makes it clearly inappropriate. The IRS may
regroup the ELP's activities if the
partnership's grouping fails to reflect one or
more appropriate economic units and one of
the primary purposes of the grouping is to
avoid the passive activity limitations.

Limitation on grouping certain activities.
The following activities may not be grouped
together.
1. A rental activity with a trade or
business activity unless the activities being
grouped together make up an appropriate
economic unit, and
a. The rental activity is insubstantial
relative to the trade or business activity or
vice versa, or
b. Each owner of the trade or business
activity has the same proportionate
ownership interest in the rental activity. If so,
the portion of the rental activity involving the
rental of property to be used in the trade or
business activity may be grouped with the
trade or business activity.
2. An activity involving the rental of real
property with an activity involving the rental
of personal property (except personal
property provided in connection with the real
property or vice versa).
3. Any activity with another activity in a
different type of business and in which the
ELP holds an interest as a limited partner or
as a limited entrepreneur (as defined in
section 461(j)(4)) if that other activity
engages in holding, producing, or distributing
motion picture films or videotapes; farming;
leasing section 1245 property; or exploring
for or exploiting oil and gas resources or
geothermal deposits.
Activities conducted through other partnerships. Once a partnership determines
its activities under these rules, the
partnership as a partner can use these rules
to group those activities with:
Each other,
Activities conducted directly by the
partnership, or
Activities conducted through other
partnerships.
A partner cannot treat as separate
activities those activities grouped together by
a partnership.

Tax-Exempt Partners

A tax-exempt partner is subject to tax on its
distributive share of partnership income to
the extent that the partnership activity is an
unrelated business for the partner.
Therefore, partnership items must be
separately reported to tax-exempt partners
to allow them to figure income from an
unrelated business.

Publicly Traded Partnerships
(PTPs)

For ELPs, the requirement that the passive
loss rules be separately applied to each PTP
continues to apply.

Partnerships Holding Residual
Interests in Real Estate
Mortgage Investment Conduits
(REMICs)
For purposes of the excise tax on
partnerships holding residual interests in
REMICs, all interests in an ELP are treated

as held by disqualified organizations.
Therefore, an ELP holding a residual interest
in a REMIC is subject to an annual tax equal
to 35% of the excess inclusions. The amount
that is subject to tax is excluded from
partnership income. To report and pay this
tax, file Form 8831, Excise Taxes on Excess
Inclusions of REMIC Residual Interests.

Partnerships Holding Oil and
Gas Properties

Partnerships holding oil and gas properties
generally follow the same simplified reporting
rules as other ELPs. However, certain
partners are treated as disqualified persons,
and special rules apply.

Computing depletion. Depletion is
generally figured at the partnership level.
The 1,000-barrel-per-day limitation on
depletion does not apply. Depletion is also
figured without regard to the
65-percent-of-taxable income limitation and
the depletion basis adjustment. The
depletion deduction is figured with the
assumptions that the partnership is the
taxpayer and that it qualifies for the
percentage depletion deduction. This
deduction is reported to partners (other than
disqualified persons) as part of their share of
the taxable income (loss) from passive loss
limitation activities.
Disqualified persons. Two categories of
taxpayers are defined as disqualified
persons.
Certain retailers and refiners who do not
qualify for the section 613A percentage
depletion deduction. See section 613A(d)(2)
and (4).
Any other person whose average daily
production of domestic crude oil and natural
gas exceeds 500 barrels for its tax year in
which the partnership's tax year ends. See
section 776(b) for more details.
A disqualified person must notify the
partnership of its status as such.
Reporting to disqualified persons. An
ELP reports information related to oil and gas
activities to a disqualified person in box 9 of
Schedule K-1 (Form 1065-B) providing the
same information as required for other
partnerships. This information may be
provided in an attached statement if
additional space is required. However, the
simplified rules do apply to a disqualified
person's share of items not related to oil and
gas activities.
Other reporting requirements. Unlike
other partnerships, the election to deduct
intangible drilling and development costs
(IDCs) is made at the partnership level, and
the partnership can pass through a full
deduction of IDCs to its partners who are not
disqualified persons. Also, an ELP (and not
the partners) makes the section 59(e)
election to capitalize and amortize certain
specific IDCs for its partners who are not
disqualified persons. However, partners who
are disqualified persons are permitted to
make their own separate section 59(e)
election.
-13-

A single AMT adjustment (under either
corporate or noncorporate rules) is made
and reported to partners who are not
disqualified persons. This separately
reported item is affected by the limitation on
the repeal of the tax preference for excess
IDCs. For purposes of computing this
limitation, the partnership is treated as the
taxpayer. Thus, the limitation on repeal of the
IDC preference is applied at the partnership
level and is based on the cumulative
reduction in the partnership's alternative
minimum taxable income resulting from
repeal of that preference.
Finally, in making partnership-level
computations, any item of income, gain, loss,
deduction, or credit attributable to a
disqualified person is disregarded. For
example, in computing the partnership's net
income from oil and gas for purposes of
determining the IDC preference to be
reported to partners as part of the AMT
adjustment, disqualified persons' distributive
shares of the partnership's net income from
oil and gas are not taken into account.

Extraterritorial Income
Exclusion

See Form 8873, Extraterritorial Income
Exclusion, to determine whether the
partnership qualifies for the exclusion and to
figure the amount of the exclusion. If the
partnership's foreign trading gross receipts
do not exceed $5 million and the partnership
does not meet the foreign economic process
requirements for the exclusion, it must report
certain information to its partners. See the
instructions below on how to report the
exclusion on the partnership's return and the
information it must report to its partners.

If applicable, the ELP must report the
extraterritorial income exclusion on its return
as follows.
1. If the ELP met the foreign economic
process requirements explained in the
Instructions for Form 8873, it can report the
exclusion as a non-separately stated item on
whichever of the following lines apply to that
activity.
Form 1065-B, Part I, line 5.
Form 1065-B, Part I, line 23.
Form 8825, line 15.
In addition, the ELP must report, as an
item of information using Code O1 in box 9 of
Schedule K-1, the partner's distributive share
of foreign trading gross receipts from Form
8873, line 15.
2. If the foreign trading gross receipts of
the partnership for the tax year are $5 million
or less and the partnership did not meet the
foreign economic process requirements, it
cannot report the extraterritorial income
exclusion as a non-separately stated item on
its return. Instead, the partnership must
report the following separately stated items
to the partners.
Foreign trading gross receipts (Code
O1). Using Code O1, enter in box 9 of
Schedule K-1 the partner's distributive share
of foreign trading gross receipts from the
partnership's Form 8873, line 15.

Extraterritorial income exclusion
(Code O2). Using Code O2, enter in box 9
of Schedule K-1 the partner's distributive
share of the extraterritorial income exclusion
from the partnership's Form 8873. For
general partners only, identify the activity to
which the exclusion relates. If the partnership
is required to complete more than one Form
8873, combine the exclusions from line 52
and report a single exclusion amount in
box 9.
Note. Upon request of a partner, the ELP
should furnish a copy of the partnership's
Form 8873 if that partner has a reduction for
international boycott operations, illegal
bribes, kickbacks, etc.

Specific Instructions
These instructions follow the line numbers on
Form 1065-B. The accompanying schedules
are discussed separately. Specific
instructions for most of the lines are provided
on the following pages. Lines that are not
discussed in the instructions are
self-explanatory.
Fill in all applicable lines and schedules.
Enter any items specially allocated to the
partners in the appropriate box of the
applicable partner's Schedule K-1. Enter the
total amount on the appropriate line of
Schedule K. Do not enter separately stated
amounts on the numbered lines on Form
1065-B, Parts I or II, on Form 1125-A, on
Schedule D, or Form 8949.
File only one Form 1065-B for each
partnership. Mark “Duplicate Copy” on any
copy you give to a partner.

Name, Address, and Employer
Identification Number
Name. Enter the legal name of the ELP as it
appears in the partnership agreement.
If the ELP has changed its name, check
box G(2).
Address. Enter the address of the principal
place of business or the principal office of the
ELP. Include the suite, room, or other unit
number after the street address. If the Post
Office does not deliver mail to the street
address and the partnership has a P.O. box,
show the box number instead.
If the ELP receives its mail in care of a
third party (such as an accountant or an
attorney), enter on the street address line
“C/O” followed by the third party's name and
street address or P.O. box.
If the ELP's address is outside the United
States or its possessions or territories, enter
the information on the line for “City or town,
state or province, country, and ZIP or foreign
postal code” in the following order: city,
province or state, and the name of the
foreign country. Follow the foreign country's
practice in placing the postal code in the
address. Do not abbreviate the country
name.

If the ELP has had a change of address
(including a change to an “in care of”
address), check box G(3). If the partnership
changes its mailing address or responsible
party after filing its return, it can notify the
IRS by filing Form 8822-B, Change of
Address or Responsible Party — Business.

Items A and C

Enter the applicable activity name and the
code number from the list, Codes for
Principal Business Activity and Principal
Product or Service, near the end of the
instructions.
For example, if, as its principal business
activity, the ELP (a) purchases raw
materials, (b) subcontracts out for labor to
make a finished product from the raw
materials, and (c) retains title to the goods,
the ELP is considered to be a manufacturer
and must enter “Manufacturer” in item A and
enter in item C one of the codes (311110
through 339900) listed under
“Manufacturing” on the list, Codes for
Principal Business Activity and Principal
Product or Service, near the end of the
instructions.

Item F. Total Assets

Enter the ELP's total assets at the end of the
tax year, as determined by the accounting
method regularly used in keeping the ELP's
books and records. If there were no assets at
the end of the tax year, enter “0.”

Item J. Schedule M-3 (Form
1065)

A partnership must file Schedule M-3 (Form
1065), Net Income (Loss) Reconciliation for
Certain Partnerships, instead of
Schedule M-1, if any of the following apply.
1. The amount of total assets at the end
of the tax year reported on Schedule L,
line 14, column (d), is $10 million or more.
2. The amount of adjusted total assets
for the tax year is $10 million or more.
Adjusted total assets is defined in the
Instructions for Schedule M-3.
3. The amount of total receipts for the
tax year is $35 million or more.
4. An entity that is a reportable entity
partner with respect to the partnership owns
or is deemed to own, directly or indirectly, an
interest of 50% or more in the partnership's
capital, profit, or loss on any day during the
tax year of the partnership. Reportable entity
partner is defined in the Instructions for
Schedule M-3.

Schedule M-3 and voluntarily file
Schedule M-3, must either: (i) complete
Schedule M-3 entirely; or (ii) complete
Schedule M-3 through Part l and complete
Schedule M-1 instead of completing Parts ll
and lll of Schedule M-3. See www.irs.gov/
Businessess/Corporations/Schedule-M-3for-Large-Business- &-International-(LB &l)
for more information.
In addition, partnerships that meet the
requirements of (a) and (b) above are not
required to file Form 8916-A.
See the Instructions for Schedule M-3 for
more information.

Part I. Taxable Income or
Loss From Passive Loss
Limitation Activities
Report only amounts from passive loss
limitation activities in Part I. See the earlier
discussion of Passive Loss Limitation
Activities. Do not report any tax-exempt
interest income or income from the
discharge of any indebtedness on lines 1a
through 10. These amounts are accounted
for separately by each partner and are
reported in box 9 of Schedule K-1 (Form
1065-B). Income from discharge of
indebtedness is also reported on line 8 of
Schedule K, and tax-exempt interest income
is reported on line 9 of Schedule K.

Income
Election to defer income from canceled
debt. If the ELP elected to defer
cancellations of debt (COD) income under
section 108(i), the exclusions for COD under
section 108(a)(1)(A), (B), (C), and (D) do not
apply to the income from the COD for the tax
year of the election and any later year. If the
ELP issued a debt instrument with original
issue discount (OID) that is subject to section
108(i)(2) because of an election under
section 108(i) to defer COD income, the
deduction for all or a portion of the OID that
accrues prior to the first tax year the COD is
includible in income is deferred until the COD
is includible in income. The amount of OID
deferred is limited to the amount of COD
income subject to the section 108(i) election.
See section 108(i); Rev. Proc. 2009-37,
2009-36 I.R.B. 309; and Regulations section
1.108(i)-2 for more information.

If you are filing Schedule M-3, check box
J at the top of page 1 of Form 1065-B to
indicate that Schedule M-3 is attached. See
Eased requirements below.

Special rule for filers of Form 8865. Filers
of Form 8865, Return of U.S. Persons With
Regard to Certain Foreign Partnerships, had
to file Form 1065 or Form 1065-B to make
the section 108(i) election. These foreign
partnerships also have an annual reporting
requirement on Form 1065 or Form 1065-B
for each tax year after the election until all
items deferred under section 108(i) have
been recognized. See Rev. Proc. 2009-37,
2009-36 I.R.B. 309 and Regulations section
1.108(i)-2 for details.

Eased requirements. Partnerships that
(a) are required to file Schedule M-3 and
have less than $50 million in total assets at
tax-year-end, or (b) are not required to file

Section 108(i) election and reporting by
tiered partnerships. A partnership that
receives a Schedule K-1 from another
partnership containing information relating to

A partnership filing Form 1065-B that is
not required to file Schedule M-3 may
voluntarily file Schedule M-3 instead of
Schedule M-1.

-14-

a section 108(i) election must report on the
Schedule K-1 to its partners certain
information relative to the section 108(i)
election. See Rev. Proc. 2009-37, 2009-36
I.R.B. 309 and Regulations section 1.108(i)-2
for details.

Line 1a. Gross Receipts or Sales
Enter the gross receipts or sales from all
trade or business operations except those
that must be reported on lines 6 through 10.
For example, do not include gross receipts
from farming on this line. Instead, show the
net profit (loss) from farming on line 7. Also,
do not include rental activity income or
portfolio income.
Advance payment. In general, advance
payments are reported in the year of receipt.
To report income from long-term contracts,
see section 460. For special rules for
reporting certain advance payments for
goods and long-term contracts, see
Regulations section 1.451-5. For permissible
methods for reporting advance payments for
services and most goods by an accrual
method partnership, see Rev. Proc. 2004-34,
2004-22 I.R.B. 991, as clarified and modified
by Rev. Proc. 2011-18, and modified by Rev.
Proc. 2011-14, and clarified and modified by
Rev. Proc. 2013-29, 2013-33 I.R.B. 141.
Installment sales. Generally, the
installment method cannot be used for
dealer dispositions of property. A “dealer
disposition” is any disposition of:
Personal property by a person who
regularly sells or otherwise disposes of
personal property of the same type on the
installment plan, or
Real property held for sale to customers in
the ordinary course of the taxpayer's trade or
business.
Exception. These restrictions on using
the installment method do not apply to
dispositions of property used or produced in
a farming business. See section 453(l) for
details and exceptions.
For sales of timeshares and residential
lots reported under the installment method,
the ELP's income tax is increased by the
interest payable under section 453(l)(3). In
determining the amount of interest payable,
the partnership is treated as subject to tax at
a 39.6% rate. To report this addition to the
tax, see the instructions for line 26.
Enter on line 1a the gross profit on
collections from installment sales for any of
the following.
Dealer dispositions of property before
March 1, 1986.
Dispositions of property used or produced
in the trade or business of farming.
Dispositions of timeshares and residential
lots reported under the installment method.
Attach a statement showing the following
information for the current year and the 3
preceding years.
Gross sales.
Cost of goods sold.

Gross profits.
Percentage of gross profits to gross sales.
Amount collected.
Gross profit on amount collected.
Nonaccrual-experience method.
Partnerships that qualify to use the
nonaccrual-experience method (described
earlier) should attach a statement showing
total gross receipts, the amount not accrued
as a result of the application of section
448(d)(5), and the net amount accrued.
Enter the net amount on line 1a.

Line 2. Cost of Goods Sold
If the partnership has a cost of goods sold
deduction, complete and attach Form
1125-A. Enter on Form 1065-B, page 1,
line 2, the amount from Form 1125-A, line 8.
See Form 1125-A and its instructions.

Line 4. Net Rental Real Estate
Income (Loss)
Enter the net income or (loss) from rental real
estate activities of the partnership from Form
8825. Attach this form to Form 1065-B. If the
amount entered is from more than one
activity, attach a statement identifying the
amount from each activity.

Line 5. Net Income (Loss) From
Other Rental Activities
Enter the net income from rental activities
other than rental real estate activities. See
Rental Activities, earlier, and Pub. 925 for the
definition of rental activities. Include on this
line the gain or (loss) from line 17 of Form
4797 that is attributable to the sale,
exchange, or involuntary conversion of an
asset used in a rental activity other than a
rental real estate activity. If the amount
entered is from more than one activity, attach
a statement identifying the amount from each
activity.

Line 6. Ordinary Income (Loss)
From Other Partnerships, Estates,
and Trusts
Enter the ordinary income or (loss) shown on
Schedule K-1 (Form 1065, 1065-B, or 1041)
or other ordinary income (loss) from a foreign
partnership, estate, or trust. Be sure to show
the partnership's, estate's, or trust's name,
address, and EIN on a separate statement
attached to this return. If the amount entered
is from more than one source, identify the
amount from each source.
Do not include rental activity income or
(loss) from other partnerships, estates, or
trusts on this line. Instead, report these
amounts on line 20a of Form 8825 or line 5
of Form 1065-B, Part I.
Ordinary income or (loss) from another
PTP is not reported on this line. Instead,
report the amount separately on an
-15-

attachment to line 15 of Schedule K and in
box 9 of Schedule K-1.
Treat shares of other items separately
reported on Schedule K-1 issued by the
other entity as if the items were realized or
incurred by this partnership.
If there is a loss from another partnership,
the amount of the loss that may be claimed is
subject to the at-risk and basis limitations as
appropriate.
If the tax year of your PTP does not
coincide with the tax year of the other
partnership, estate, or trust, include the
ordinary income or (loss) from the other
entity in the tax year in which the other
entity's tax year ends.

Line 7. Net Farm Profit (Loss)
Enter the partnership's net farm profit (loss)
from Schedule F (Form 1040), Profit or Loss
From Farming. Attach Schedule F (Form
1040) to Form 1065-B. In figuring the
partnership's net farm profit (loss), include
any section 179 expense deduction. Do not
include on this line any farm profit or (loss)
from other partnerships. Report those
amounts on line 6.
For a special rule concerning the method
of accounting for a farming partnership with a
corporate partner and for other tax
information on farms, see Pub. 225, Farmer's
Tax Guide.

Line 9. Net Gain (Loss) From Form
4797
Include only the ordinary gains or (losses)
from the sale, exchange, or involuntary
conversion of assets used in a trade or
business activity. Ordinary gains or losses
from the sale, exchange, or involuntary
conversion of rental activity assets are not
reported on line 9. Instead, report them on
line 19 of Form 8825 or line 5 of Form
1065-B, Part I.
An ELP that is a partner in another
partnership must include on Form 4797,
Sales of Business Property, its share of
ordinary gains or (losses) from sales,
exchanges, or involuntary conversions (other
than casualties or thefts) of the other
partnership's trade or business assets.

Line 10. Other Income (Loss)
Enter trade or business income or (loss) that
is not included on lines 1a through 9.
Examples of such income include the
following.
Interest income derived in the ordinary
course of the partnership's trade or business,
such as interest charged on receivable
balances.
Recoveries of bad debts deducted in prior
years under the specific charge-off method.
Taxable income from insurance proceeds.
Any amount included in income from
line 2 of Form 6478, Biofuel Producer Credit.

Any amount included in income from
line 8 of Form 8864, Biodiesel and
Renewable Diesel Fuels Credit.
All section 481 income adjustments
resulting from changes in accounting
methods. Show the computation of the
section 481 adjustments on an attached
statement.
The recapture amount for section 280F if
the business use of listed property drops to
50% or less. To figure the recapture amount,
the partnership must complete Part IV of
Form 4797.
Part or all of the proceeds received from
certain employer-owned life insurance
contracts issued after August 17, 2006.
Partnerships that own one or more
employer-owned life insurance contracts
issued after this date must file Form 8925,
Report of Employer-Owned Life Insurance
Contracts. See section 101(j) for details.
Do not include items requiring separate
computations that must be reported on
Schedules K and K-1. See the instructions
for Schedules K and K-1.
Do not report portfolio or rental activity
income (loss) on this line.

Deductions

!

Report only trade or business activity
deductions on lines 12 through 24.

CAUTION

Do not report the following expenses on lines
12 through 24.
Rental activity expenses. Report these
expenses on Form 8825 or on an attached
statement for line 5 of Form 1065-B, Part I.
Deductions allocable to portfolio income.
Report these deductions on page 2, Part II.
Nondeductible expenses (for example,
expenses connected with the production of
tax-exempt income). Report nondeductible
expenses on an attached statement for
line 15 of Schedule K and in box 9 of
Schedule K-1.
Items the ELP must state separately that
require separate computations by the
partners. An example is foreign taxes paid.
The distributive share of this expense is
reported separately to each partner on
Schedule K-1, box 9.

Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A require partnerships to
capitalize or include in inventory costs,
certain costs incurred in connection with the
following.
The production of real property and
tangible personal property held in inventory
or held for sale in the ordinary course of
business. Tangible personal property
produced by a partnership includes a film,
sound recording, videotape, book, or similar
property.
Real property or personal property
(tangible and intangible) acquired for resale.
The production of real property and
tangible personal property by a partnership

for use in its trade or business or in an
activity engaged in for profit.
The costs required to be capitalized
under section 263A are not deductible until
the property to which the costs relate is sold,
used, or otherwise disposed of by the ELP.
Exceptions. Section 263A does not
apply to the following.
Inventoriable items accounted for in the
same manner as materials and supplies that
are not incidental. See Form 1125-A and its
instructions for details.
Personal property acquired for resale if
the partnership's average annual gross
receipts for the 3 prior tax years were $10
million or less.
Timber.
Most property produced under a
long-term contract.
Certain property produced in a farming
business.
Geological and geophysical costs
amortized under section 167(h).
Research and experimental costs under
section 174.
Intangible drilling costs for oil, gas, and
geothermal property.
Mining exploration and development
costs.
Certain plants bearing fruits and nuts
under section 168(k)(5).
Indirect costs. ELPs subject to the uniform
capitalization rules are required to capitalize
not only direct costs but an allocable part of
most indirect costs (including taxes) that
benefit the assets produced or acquired for
resale, or are incurred by reason of the
performance of production or resale
activities.
For inventory, some of the indirect costs
that must be capitalized are the following.
Administration expenses.
Taxes.
Depreciation.
Insurance.
Compensation paid to officers attributable
to services.
Rework labor.
Contributions to pension, stock bonus,
and certain profit-sharing, annuity, or
deferred compensation plans.
Regulations section 1.263A-1(e)(3)
specifies other indirect costs that relate to
production or resale activities that must be
capitalized and those that may be currently
deductible.
Interest expense paid or incurred during
the production period of designated property
must be capitalized and is governed by
special rules. For more details, see
Regulations sections 1.263A-8 through
1.263A-15.
For more details on the uniform
capitalization rules, see Regulations sections
1.263A-1 through 1.263A-3.
Transactions between related taxpayers.
Generally, an accrual basis partnership can
deduct business expenses and interest
owed to a related party (including any
partner) only in the tax year of the
-16-

partnership that includes the day on which
the payment is includible in the income of the
related party. See section 267 for details.
Business start-up and organizational
costs. Generally, a partnership can elect to
deduct a limited amount of start-up or
organizational costs paid or incurred. Any
costs not deducted must be amortized as
explained below. See sections 195(b) and
709(b).
Time for making an election. The
partnership generally elects to deduct
start-up or organizational costs by claiming
the deduction on its income tax return filed
by the due date (including extensions) for the
tax year in which the active trade or business
begins. However, for start-up or
organizational costs paid or incurred before
September 9, 2008, the partnership may be
required to attach a statement to its return to
elect to deduct such costs. See Temporary
Regulations sections 1.195-1T and 1.709-1T
(as in effect on July 7, 2008) for details. Also,
see Regulations sections 1.195-1 and
1.709-1. If the partnership timely filed its
return for the year without making an
election, it can still make an election by filing
an amended return within 6 months of the
due date of the return (excluding
extensions). Clearly indicate the election on
the amended return and write “Filed pursuant
to section 301.9100-2” at the top of the
amended return. File the amended return at
the same address the partnership filed its
original return. The election applies when
figuring income for the current tax year and
all subsequent years.
The partnership can choose to forgo the
elections above by clearly electing to
capitalize its start-up or organizational costs
on its tax return filed by the due date
(including extensions) for the tax year in
which the active trade or business begins.
The election to either amortize or
capitalize start-up or organizational costs is
irrevocable and applies to all start-up and
organizational costs that are related to the
trade or business.
Amortization. Any costs not deducted
under the above rules must be amortized
ratably over a 180-month period, beginning
with the month the partnership begins
business. See the Instructions for Form 4562
for details.
Report the deductible amount of these
costs and any amortization on line 23 in Part
I. For amortization that begins during the tax
year, complete and attach Form 4562.
Syndication costs. Costs for issuing and
marketing interests in the partnership, such
as commissions, professional fees, and
printing costs, must be capitalized. They
cannot be depreciated or amortized. See the
instructions for line 13 for the treatment of
syndication fees paid to a partner.
Reducing certain expenses for which
credits are allowable. The partnership
may need to reduce the otherwise allowable
deductions for expenses used to figure the
credit. Do not reduce the amount of the

allowable deduction for any portion of the
credit that was passed through to the ELP
from another pass-through entity.
1. Work opportunity credit.
2. Credit for increasing research
activities.
3. Disabled access credit.
4. Empowerment zone employment
credit.
5. Indian employment credit.
6. Credit for employer social security
and Medicare taxes paid on certain
employee tips.
7. Orphan drug credit.
8. Credit for small employer pension
plan startup costs.
9. Credit for employer-provided
childcare facilities and services.
10. Low sulfur diesel fuel production
credit.
11. Mine rescue team training credit.
12. Credit for employer differential wage
payments.
13. Credit for small employer health
insurance premiums.
If the ELP has any of these credits, be
sure to figure each current year credit before
figuring the deductions for expenses on
which the credit is based.
Film, television, and theatrical production expenses. The partnership can elect to
deduct certain costs of qualified film,
television, or live theatrical productions
commencing before January 1, 2017 (after
December 31, 2015, and before January 1,
2017, for a live theatrical production). The
deduction is subject to recapture under
section 1245 if the election is voluntarily
revoked or the production fails to meet the
requirements for the deduction. See section
181 and the related regulations.
Reforestation expenditures. For qualified
reforestation expenditures paid or incurred
after October 22, 2004, the ELP can elect to
deduct up to $10,000 for each qualifying
timber property. If the partnership makes this
election, it must amortize over 84 months
any amount not deducted. See Notice
2006-47, 2006-20 I.R.B. 892, for details on
making this election. Provide a description of
the qualified timber property on an attached
statement to Form 1065-B. If the partnership
is electing to deduct amounts for more than
one qualified timber property, provide a
description and the amount for each property
on the statement.
Report the deductible amount of these
expenditures and any amortization deduction
on line 23. For amortization that begins
during the tax year, complete and attach
Form 4562. See section 194 and Pub. 535
for more information

Line 12. Salaries and Wages
Enter the salaries and wages paid or
incurred for the tax year, reduced by the

amount of the following credit(s), if
applicable.
Work Opportunity Credit (Form 5884).
Empowerment Zone Employment Credit
(Form 8844).
Indian Employment Credit (Form 8845).
Mine Rescue Team Training Credit (Form
8923).
Credit for Employer Differential Wage
Payments (Form 8932).
Do not reduce the amount of the
allowable deduction for any portion of the
credit that was passed through to the ELP
from another pass-through entity. See the
instructions for this form for more
information.
Do not include salaries and wages
reported elsewhere on the return, such as
amounts included in cost of goods sold,
elective contributions to a section 401(k)
cash or deferred arrangement, or amounts
contributed under a salary reduction
simplified employee plan (SEP) agreement
or a SIMPLE IRA plan.

repair and maintenance costs consistent with
its books and records. See Regulations
section 1.263(a)-3(n) for information on how
to make the election.
The cost of new buildings, machinery, or
permanent improvements that increase the
value of the property are not deductible.
They are chargeable to capital accounts and
can be depreciated or amortized. However,
amounts paid for routine maintenance on
property, including buildings, may be
deductible. See Regulations section
1.263(a)-3(i).

Line 15. Bad Debts
Enter the total debts that became worthless
in whole or in part during the year, but only to
the extent such debts relate to a trade or
business activity. Report deductible
nonbusiness bad debts as a short-term
capital loss on Form 8949.

!

CAUTION

Line 13. Guaranteed Payments to
Partners
Deduct payments or credits to a partner for
services or for the use of capital if the
payments or credits are determined without
regard to partnership income and are
allocable to a trade or business activity. Also,
include amounts paid during the tax year for
insurance that constitutes medical care for a
partner, a partner's spouse, a partner's
dependents, or a partner's children under
age 27 who are not dependents.
For information on how to treat the ELP's
contribution to a partner's Health Savings
Account (HSA), see Notice 2005-8, 2005-4
I.R.B. 368.
Do not include any payments and credits
that should be capitalized. For example,
although payments or credits to a partner for
services rendered in syndicating a
partnership may be guaranteed payments,
they are not deductible as an expense.
Instead, they should be charged to a capital
account. They are capital expenditures.
However, they should be separately reported
on Schedule K, line 7, and Schedule K-1,
box 9.
Do not include distributive shares of
partnership profits.
Report the guaranteed payments to the
appropriate partners on Schedule K-1, box 9.

Line 14. Repairs and Maintenance
Enter the costs of incidental repairs and
maintenance that do not add to the value of
the property or appreciably prolong its life,
but only to the extent that such costs relate
to a trade or business activity and are not
claimed elsewhere on the return. See
Regulations section 1.162-4. The
partnership may elect to capitalize certain
-17-

income.

Cash method ELPs cannot take a
bad debt deduction unless the
amount was previously included in

Line 16. Rent
Enter rent paid on business property used in
a trade or business activity. Do not deduct
rent for a dwelling unit occupied by any
partner for personal use.
If the ELP rented or leased a vehicle,
enter the total annual rent or lease expense
paid or incurred in the trade or business
activities of the partnership. Also complete
Part V of Form 4562, Depreciation and
Amortization. If the ELP leased a vehicle for
a term of 30 days or more, the deduction for
vehicle lease expense may have to be
reduced by an amount called the inclusion
amount. The ELP may have an inclusion
amount if:
And the
vehicle's
FMV on the
first day of
the lease
exceeded:

The lease term began:
Automobiles other than trucks
and vans
After 12/31/12 and before
1/1/17 . . . . . . . . . . .

$19,000

. . .

After 12/31/09 but before 1/1/13

. . .

$18,500

Trucks and vans
After 12/31/13 and before
1/1/17 . . . . . . . . . . .

. . .

$19,500

After 12/31/09 and before
1/1/14 . . . . . . . . . . .

. . .

$19,000

The inclusion amount for lease terms beginning in
2017 will be published in the Internal Revenue
Bulletin in early 2017.

See Pub. 463 for instructions on figuring the
inclusion amount.

Line 17. Taxes and Licenses
Enter taxes and licenses paid or incurred in
the trade or business activities of the
partnership if not reflected elsewhere on the
return. Federal import duties and federal
excise and stamp taxes are deductible only if
paid or incurred in carrying on the trade or
business of the partnership.
Do not deduct the following taxes on
line 17.
Taxes not imposed on the partnership.
Federal income taxes or taxes reported
elsewhere on the return.
Section 901 foreign taxes. Report these
taxes separately on Schedule K, line 14g,
and Schedule K-1, box 9.
Taxes allocable to a rental activity. Report
these taxes on Form 8825. Report taxes
allocable to a rental activity other than a
rental real estate activity on Form 1065-B on
an attachment to Part I, line 5.
Taxes allocable to portfolio income.
Report these taxes on Form 1065-B in Part
II, line 8 or 11.
Taxes paid or incurred for the production
or collection of income, or for the
management, conservation, or maintenance
of property held to produce income. Also
report these taxes on Form 1065-B in Part II,
line 8 or 11.
See section 263A(a) for rules on
capitalization of allocable costs (including
taxes) for any property.
Taxes, including state or local sales taxes,
that are paid or incurred in connection with
an acquisition or disposition of property.
These taxes must be treated as a part of the
cost of the acquired property or, in the case
of a disposition, as a reduction in the amount
realized on the disposition.
Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
See section 164(d) for information on
apportionment of taxes on real property
between seller and purchaser.

Line 18. Interest
Include only interest incurred in the trade or
business activities of the ELP that is not
claimed elsewhere on the return.
Do not deduct interest expense on the
following.
Debt required to be allocated to the
production of designated property.
Designated property includes real property,
personal property that has a class life of 20
years or more, and other tangible property
requiring more than 2 years (1 year in the
case of property with a cost of more than $1
million) to produce or construct. Interest that
is allocable to designated property produced
by a partnership for its own use or for sale
must be capitalized. In addition, a
partnership must also capitalize any interest
on debt that is allocable to an asset used to
produce designated property. See section
263A(f) and Regulations sections 1.263A-8
through 1.263A-15.

Debt used to purchase rental property or
debt used in a rental activity. Interest
allocable to a rental real estate activity is
reported on Form 8825 and is used in
arriving at net income or (loss) from rental
real estate activities on line 4. Interest
allocable to a rental activity other than a
rental real estate activity is used in arriving at
net income or (loss) from a rental activity
(other than a rental real estate activity). This
net amount is reported on line 5.
Debt used to buy property held for
investment. Do not include interest expense
that is clearly and directly allocable to
interest, dividend, royalty, or annuity income
not derived in the ordinary course of a trade
or business. Interest paid or incurred on debt
used to purchase or carry investment
property is reported on line 7 of Part II. See
the Instructions for Form 4952, Investment
Interest Expense Deduction, for more
information on investment property.
Temporary Regulations section 1.163-8T
gives rules for allocating interest expense
among activities so that the limitations on
passive activity losses, investment interest,
and personal interest can be properly
figured. Generally, interest expense is
allocated in the same manner that debt is
allocated. Debt is allocated by tracing
disbursements of the debt proceeds to
specific expenditures, as provided in the
regulations.
Interest paid by an ELP to a partner for
the use of capital should be entered on
line 13 as guaranteed payments.
Prepaid interest can only be deducted
over the period to which the prepayment
applies.
Note. Additional limitations on interest
deductions apply when the ELP is a
policyholder or beneficiary with respect to a
life insurance, endowment, or annuity
contract issued after June 8, 1997. For
details, see section 264. Attach a statement
showing the computation of the deduction
disallowed under section 264.

Line 19. Depreciation and Section
179 Expense Deduction
Enter only the depreciation (including section
179 expense deduction) claimed on assets
used in a trade or business activity. Enter on
line 19b the depreciation (including section
179 expense deduction) included elsewhere
on the return (for example, on page 1, line 2)
that is attributable to assets used in trade or
business activities. See the Instructions for
Form 4562, or Pub. 946, How To Depreciate
Property, to figure the amount of
depreciation (including section 179 expense
deduction) to enter on this line.
Complete and attach Form 4562 only if
the ELP placed property in service during the
tax year or claims depreciation on any car or
other listed property.
-18-

Line 20. Depletion
An ELP figures the deduction for oil and gas
depletion at the partnership level. The
deduction is figured under the assumptions
that the partnership is the taxpayer and that it
qualifies for the percentage depletion
deduction. In computing the depletion
deduction, the 1,000-barrel-per-day
limitation and the
65-percent-of-taxable-income limitation do
not apply.
The amount of the depletion deduction is
generally reported to each partner as a
component of that partner's distributive
share of taxable income or loss from passive
loss limitation activities. However, the ELP
must report information related to oil and gas
activities to a partner who is a disqualified
person in the same manner that it reports the
information under the regular partnership tax
law. See Partnerships Holding Oil and Gas
Properties for more details.
If the ELP claims a deduction for timber
depletion, complete and attach Form T
(Timber), Forest Activities Schedule.

Line 21. Retirement Plans, etc.
Enter the deductible contributions not
claimed elsewhere on the return made by the
partnership for its common-law employees
under a qualified pension, profit-sharing,
annuity, or SEP or SIMPLE IRA plan, and
under any other deferred compensation plan.
If the ELP contributes to an IRA for
employees, include the contribution in
salaries and wages on Part I, line 12, or Form
1125-A, line 3, and not on line 21.
Employers who maintain a pension,
profit-sharing, or other funded deferred
compensation plan (other than a SEP or
SIMPLE IRA), whether or not the plan is
qualified under the Internal Revenue Code
and whether or not a deduction is claimed for
the current year, generally must file the
applicable form listed below.
Form 5500, Annual Return/Report of
Employee Benefit Plan. File this form for a
plan that is not a one-participant plan.
Form 5500-EZ, Annual Return of
One-Participant (Owners and Their
Spouses) Retirement Plan. File this form for
a plan that only covers one or more partners
(or partners and their spouses).
Penalties may be assessed for failure to
file these forms on time.
Note. Form 5500 and its schedules must be
filed electronically using the Employee
Retirement Income Security Act (ERISA)
filing acceptance system (EFAST2). For
more information, see the EFAST2 website
at www.efast.dol.gov.

Line 22. Employee Benefit
Programs
Enter the ELP's contributions to employee
benefit programs not claimed elsewhere on
the return (for example, insurance, health,
and welfare programs) that are not part of a
pension, profit-sharing, etc., plan included on
line 21.
Do not include amounts paid during the
tax year for insurance that constitutes
medical care for a partner, a partner's
spouse, a partner's dependents, or a
partner's children under age 27 who are not
dependents. Instead, include these amounts
on line 13 as guaranteed payments and on
Schedule K, line 7, and Schedule K-1, box 9,
of each partner on whose behalf the
amounts were paid.

Line 23. Other Deductions
Enter the total allowable trade or business
deductions that are not deductible elsewhere
in Part I of Form 1065-B. Attach a statement
listing by type and amount each deduction
included on this line. Examples of other
deductions include the following.
Amortization. See the Instructions for
Form 4562 for more information. Complete
and attach Form 4562 if the partnership is
claiming amortization of costs that began
during the tax year.
Insurance premiums.
Legal and professional fees.
Supplies used and consumed in the
business.
Utilities.
Certain business start-up expenditures
and organizational expenditures that the
partnership has elected to amortize or
deduct. See Limitations on Deductions for
more details.
Film, television, and theatrical production
expenses. See Limitations on Deductions for
details.
Reforestation expense deduction. See
Limitations on Deductions for details.
Endangered species recovery
expenditures that were paid or incurred after
December 31, 2008. See section 175 for
details.
Deduction for certain energy efficient
commercial building property placed in
service before 2017. See section 179D,
Notice 2006-52, 2006-26 I.R.B. 1175, and
Notice 2008-40, 2008-14 I.R.B. 725 and
modified by Notice 2012-26.
Any net negative 481(a) adjustment.
Include on line 23 the deduction taken for
amortization. Complete and attach Form
4562 if the ELP is claiming amortization of
costs that begins during the tax year. The
election to deduct intangible drilling costs
under section 263(c) is made at the
partnership level. An ELP also has the
responsibility with respect to its partners who
are not disqualified persons for making an
election under section 59(e) to capitalize and
amortize certain specified intangible drilling
costs. However, disqualified persons make

their own separate section 59(e) elections.
See Partnerships Holding Oil and Gas
Properties for more information. See Pub.
535 for more information on amortization.
Also, see Special Rules below for limits
on certain other deductions.
Do not deduct the following on line 23.
Items that must be reported separately on
Schedules K and K-1.
Qualified expenditures to which an
election under section 59(e) may apply.
Fines or penalties paid to a government
for violating any law. Report these expenses
on Schedule K, line 15.
Expenses allocable to tax-exempt
income. Report these expenses on
Schedule K, line 15.
Any amount that is allocable to a class of
exempt income. See section 265(b) for
exceptions.
Net operating losses. Only individuals and
corporations may claim a net operating loss
deduction.
Amounts paid or incurred to participate or
intervene in any political campaign on behalf
of a candidate for public office, or to
influence the general public regarding
legislative matters, elections, or
referendums.
Expenses paid or incurred to influence
federal or state legislation, or to influence the
actions or positions of certain federal
executive branch officials. However, certain
in-house lobbying expenditures that do not
exceed $2,000 are deductible. See section
162(e) for more details.

Special Rules
Commercial revitalization deduction. If
the ELP constructed, purchased, or
substantially rehabilitated a qualified building
in a renewal community, it may have
qualified for either (a) a deduction of 50% of
qualified capital expenditures in the year the
building was placed in service, or (b)
amortization of 100% of the qualified capital
expenditures over a 120-month period
beginning with the month the building was
placed in service. If the partnership elected
to amortize these expenditures, complete
and attach Form 4562. To qualify, the
building must be nonresidential (as defined
in section 168(e)(2)) and placed in service by
the partnership. The partnership must be the
original user of the building unless it is
substantially rehabilitated. The amount of the
qualified expenditures cannot exceed the
lesser of $10 million or the amount allocated
to the building by the commercial
revitalization agency of the state in which the
building is located. Any remaining
expenditures are depreciated over the
regular depreciation recovery period. See
section 1400I for details.
Note. The commercial revitalization
deduction is not available for buildings
placed in service after 2009.
Rental real estate. Do not report this
deduction on line 23 if the building is placed
-19-

in service as rental real estate. A commercial
revitalization deduction for rental real estate
is not deducted by the partnership but is
passed through to the partners. Report this
deduction on an attachment to line 15 of
Schedule K and in box 9 of Schedule K-1
using Code Q.
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a partnership can deduct
ordinary and necessary travel, meals, and
entertainment expenses paid or incurred in
its trade or business. Also, special rules
apply to deductions for gifts, skybox rentals,
luxury water travel, convention expenses,
and entertainment tickets. See section 274
and Pub. 463 for more details.
Travel. The partnership cannot deduct
travel expenses of any individual
accompanying a partner or partnership
employee, including a spouse or dependent
of the partner or employee, unless:
That individual is an employee of the
partnership, and
His or her travel is for a bona fide
business purpose and would otherwise be
deductible by that individual.
Meals and entertainment. Generally,
the partnership can deduct only 50% of the
amount otherwise allowable for meals and
entertainment expenses paid or incurred in
its trade or business. In addition (subject to
exceptions under section 274(k)(2)):
Meals must not be lavish or extravagant;
A bona fide business discussion must
occur during, immediately before, or
immediately after the meal; and
A partner or employee of the partnership
must be present at the meal.
See section 274(n)(3) for a special rule
that applies to expenses for meals
consumed by individuals subject to the hours
of service limits of the Department of
Transportation.
Membership dues. The ELP can deduct
amounts paid or incurred for membership
dues in civic or public service organizations,
professional organizations, business
leagues, trade associations, chambers of
commerce, boards of trade, and real estate
boards. However, no deduction is allowed if
a principal purpose of the organization is to
entertain, or provide entertainment facilities
for, members or their guests. In addition, the
partnership cannot deduct membership dues
in any club organized for business, pleasure,
recreation, or other social purpose. This
includes country clubs, golf and athletic
clubs, airline and hotel clubs, and clubs
operated to provide meals under conditions
favorable to business discussion.
Entertainment facilities. The ELP
cannot deduct an expense paid or incurred
for a facility (such as a yacht or hunting
lodge) used for an activity usually considered
entertainment, amusement, or recreation.
Generally, the ELP may be able to deduct
otherwise nondeductible meals, travel, and
entertainment expenses if the amounts are
treated as compensation to the recipient and

reported on Form W-2 for an employee or on
Form 1099-MISC for an independent
contractor.

Line 26. Tax
Net recapture taxes. Recapture of the
low-income housing credit under section
42(j) and investment credit under section 50
is imposed at the partnership level, and the
amount of recapture is determined by
assuming that the credit was fully utilized to
reduce tax. The recapture of the qualifying
therapeutic discovery project grant, under
section 48D, is also imposed at the
partnership level. Credit recapture does not
result from any transfer of an interest in an
ELP. Report partnership level recapture of
low-income housing credit, investment
credit, and qualifying therapeutic discovery
project grant as follows.
1. Complete Form 4255 for recapture of
investment credit and qualifying therapeutic
discovery project grant and Form 8611 for
recapture of low-income housing credit.
2. Apply any current year credit to
reduce the recapture, as described in the
instructions for Form 4255 and Form 8611.
3. Report any remaining recapture from
the appropriate line of Form 4255 or Form
8611, depending on the type of credit or
grant being recaptured, on line 26 and check
the appropriate box. The partnership is liable
to pay any remaining recapture amount.
Report recapture of any other credit as a
separately stated item in box 9 of
Schedule K-1 using Code V.
Interest on deferred tax attributable to installment sales of certain timeshares and
residential lots. For sales of timeshares
and residential lots reported under the
installment method, the ELP's income tax is
increased by the interest payable under
section 453(l)(3). In determining the amount
of interest payable, the partnership is treated
as subject to tax at a 39.6% rate. Report this
amount on line 26 with the notation “Section
453(l)(3) interest.” Attach a statement
showing the computation.
Interest on tax deferred under the installment method for certain nondealer installment obligations. If an obligation
arising from the disposition of property to
which section 453A applies is outstanding at
the close of the year, the ELP must include
the interest due under section 453A(c). In
determining the amount of interest payable,
the partnership is treated as subject to tax at
a 39.6% rate. Report this amount on line 26
with the notation “Section 453A(c) interest.”
Attach a statement showing the computation.
Interest due under the look-back method
for completed long-term contracts. If the
ELP owes this interest, attach Form 8697,
Interest Computation Under the Look-Back
Method for Completed Long-Term
Contracts. Include the amount in the total for
line 26. To the left of the total on line 26,
enter the amount owed and “From Form
8697.”

Interest due under the look-back method
for property depreciated under the income forecast method. If the ELP owes
this interest, attach Form 8866, Interest
Computation Under the Look-Back Method
for Property Depreciated Under the Income
Forecast Method. Include the amount in the
total for line 26. To the left of the total on
line 26, enter the amount owed and “From
Form 8866.”

Line 27
Enter the total amounts from line 2 of Form
2439, Notice to Shareholder of Undistributed
Long-Term Capital Gains, and line 17 of
Form 4136, Credit for Federal Tax Paid on
Fuels. The credit for tax paid on
undistributed capital gains of a RIC or a REIT
and the refundable credit for fuel used for
certain purposes are allowed to the ELP.
They are not separately reported to partners.

Line 28
You can e-file Form 1065-B and e-pay the
balance due in a single step by authorizing
an electronic funds withdrawal from your
bank account when filing.
Electronic deposit requirement. ELPs
must use electronic funds transfer to make
all federal tax deposits (such as deposits of
employment tax, excise tax, and income
tax). Forms 8109 and 8109-B, Federal Tax
Deposit Coupon, cannot be used. Generally,
electronic fund transfers are made using the
Electronic Federal Tax Payment System
(EFTPS). If you do not want to use EFTPS,
you can arrange for your tax professional,
financial institution, payroll service, or other
trusted third party to make deposits on your
behalf.
To get more information about EFTPS or
to enroll in EFTPS, visit www.eftps.gov or
call 1-800-555-4477. Also see Publication
966, Electronic Federal Tax Payment
System: A Guide To Getting Started.

Payments
What If You Cannot Pay in Full?
If the ELP cannot pay the full amount of tax
owed, it can apply for an installment
agreement online. The ELP can apply for an
installment agreement online if:
It cannot pay the full amount on page 1,
line 28;
The total amount owed is $25,000 or less;
and
It can pay the liability in full in 24 months.
To apply using the Online Payment
Agreement Application, go to IRS.gov, click
on “Tools,” then click on “Online Payment
Agreement.”
Under an installment agreement, the ELP
can pay what is owed in monthly
installments. There are certain conditions the
ELP must meet to enter into and maintain an
installment agreement, such as paying the
liability within 24 months and making all
-20-

required deposits and timely filing tax returns
during the length of the agreement.
If the ELP's installment agreement is
accepted, it will be charged a fee and it will
be subject to penalties and interest on the
amount of tax not paid by the due date of the
return.

Part II. Taxable Income or
Loss From Other Activities
Report in Part II only income or (loss) and
deductions from activities not included in
Part I (for example, portfolio income and
deductions). See Other Activities for a
definition of portfolio income.

Line 1

Enter only taxable interest (not from passive
loss limitation activities) on line 1.
Include interest income from the credit to
holders of tax credit bonds. See the
Instructions for Form 8912 for details.
Schedule K-1. Enter each partner's
distributive share of interest income in box 5
of Schedule K-1. If the partnership is
reporting interest income from clean
renewable energy bonds, attach a statement
to Schedule K-1 that shows each partner's
distributive share of interest income from this
credit. Partners need this information to
properly adjust the basis of their interest in
the partnership.

Lines 2a Through 2c

Enter only taxable ordinary dividends on
line 2a. On line 2b enter all qualified
dividends from line 2a.

Qualified dividends. Except as provided
below, qualified dividends are dividends
received after December 31, 2002, from
domestic corporations and qualified foreign
corporations.
Exceptions. The following dividends are
not qualified dividends.
Dividends the ELP received on any share
of stock held for less than 61 days during the
121-day period that began 60 days before
the ex-dividend date. When determining the
number of days the partnership held the
stock, it cannot count certain days during
which the partnership's risk of loss was
diminished. The ex-dividend date is the first
date following the declaration of a dividend
on which the purchaser of a stock is not
entitled to receive the next dividend
payment. When counting the number of days
the ELP held the stock, include the day the
ELP disposed of the stock but not the day
the ELP acquired it.
Dividends attributable to periods totaling
more than 366 days that the partnership
received on any share of preferred stock
held for less than 91 days during the 181-day
period that began 90 days before the
ex-dividend date. When determining the
number of days the partnership held the
stock, do not count certain days during which
the partnership's risk of loss was diminished.

Preferred dividends attributable to periods
totaling less than 367 days are subject to the
61-day holding period rule above.
Dividends that relate to payments that the
partnership is obligated to make with respect
to short sales or positions in substantially
similar or related property.
Dividends paid by a RIC that are not
treated as qualified dividend income under
section 854.
Dividends paid by a REIT that are not
treated as qualified dividend income under
section 857(c).
See Pub. 550 for more details.
Qualified foreign corporation. A
foreign corporation is a qualified foreign
corporation if it is:
1. Incorporated in a possession of the
United States, or
2. Eligible for benefits of a
comprehensive income tax treaty with the
United States that the Secretary determines
is satisfactory for this purpose and that
includes an exchange of information
program. See Notice 2011-64, 2011-2 C.B.
231, for details.
If the foreign corporation does not meet
either (1) or (2), then it can be treated as a
qualified foreign corporation for any dividend
paid by the corporation if the stock
associated with the dividend paid is readily
tradable on an established securities market
in the United States.
However, qualified dividends do not
include dividends paid by a passive foreign
investment company (defined in section
1297).
Report the qualified dividend on line 3 of
Schedule K. See Pub. 550 and Notice
2006-3, 2006-3 I.R.B. 306, for more details.

Line 5

Report and identify other income or (loss) on
an attachment for line 5.

Line 7

Investment interest is interest paid or
accrued on debt properly allocable to
property held for investment. Property held
for investment includes property that
produces income (unless derived in the
ordinary course of a trade or business) from
interest, dividends, annuities, or royalties,
and gains from the disposition of property
that produces those types of income or is
held for investment. Investment interest does
not include interest expense allocable to
passive loss limitation activities.
To figure the deductible amount of
investment interest, complete Form 4952.
Enter the amount from line 8 of Form 4952.

Line 8

Include state and local income taxes paid by
the ELP that would be allowed as itemized
deductions on any partner's income tax
returns if they were paid directly by the
partner for the same purpose.

Line 9

Enter contributions or gifts actually paid
during the tax year to or for the use of
charitable and governmental organizations
described in section 170(c). The total
amount claimed may not be more than 10%
of the ELP's taxable income (total income
minus deductions) figured without regard to
the deduction for charitable contributions.
The deduction for certain contributions of
ordinary income and capital gain property is
reduced under section 170(e).
Substantiation requirements. Generally,
no deduction is allowed for any contribution
of $250 or more unless the partnership
obtains a written acknowledgment from the
charitable organization that shows the
amount of cash contributed, describes any
property contributed, and gives an estimate
of the value of any goods or services
provided in return for the contribution. The
acknowledgment must be obtained by the
due date (including extensions) of the ELP's
return or, if earlier, the date the partnership
files its return. Do not attach the
acknowledgment to the tax return, but keep it
with the partnership's records. These rules
apply in addition to the filing requirements for
Form 8283, Noncash Charitable
Contributions, discussed below.
Contributions of property. If the deduction
claimed for noncash contributions exceeds
$500, complete Form 8283 and attach to
Form 1065-B. See Pub. 526, Charitable
Contributions, and Form 8283 for more
information.
If the ELP made a qualified conservation
contribution under section 170(h), include
the FMV of the underlying property before
and after the donation, as well as the type of
legal interest contributed, and describe the
conservation purpose furthered by the
donation.
Conservation contributions of
agricultural or livestock production
property. Generally, conservation
contributions of property used in (or available
for) agricultural or livestock production made
by an ELP that is a qualified farmer or
rancher (as defined in section 170(b)(1)(E)
(v)) are not subject to the 10% taxable
income limit. Instead, the deduction for these
contributions is allowed to the extent it does
not exceed the excess of the partnership's
taxable income over the amount of allowable
charitable contributions. The carryover
period for conservation contributions of
agricultural or livestock production property
exceeding the taxable income limitation is 15
tax years.
Charitable contributions of food
inventory. The deduction for the charitable
contribution made under section 170(e)(3) of
qualified food inventory that was donated for
the care of the ill, needy, and infants (see
section 170(e)(3)(C)). To qualify for the
deduction, the food must meet all the quality
and labeling standards imposed by federal,
state, and local laws and regulations. The
amount of the charitable contribution for
-21-

donated food inventory is the lesser of (a)
the basis of the donated food plus one-half of
the appreciation (gain if the donated food
were sold at FMV on the date of the gift), or
(b) twice the amount of basis of the donated
food. A partnership that does not account for
inventories and is not required to capitalize
indirect costs under section 263A may elect
to treat the basis of the donated food as
equal to 25% of the fair market value of the
food.
The ELP's deduction for food inventory
contributions cannot exceed 10% of the
ELP's aggregate net income for the tax year
from the business activities from which the
food inventory contribution was made
(including your share of net income from
another partnership or S corporation
businesses that made food inventory
contributions that were passed through to
the ELP as a partner or shareholder).
Contributions of used vehicles.
Special rules apply to contributions of used
motor vehicles, boats, or airplanes with a
claimed value of more than $500. See
section 170(f)(12).
Reduced deduction for contributions
of certain property. For a charitable
contribution of property, the ELP must
reduce the contribution by the sum of:
The ordinary income and short-term
capital gain that would have resulted if the
property were sold at its FMV, and
For certain contributions, the long-term
capital gain that would have resulted if the
property were sold at its FMV.
The reduction for the long-term capital
gain applies to:
Contributions of tangible personal
property for use by an exempt organization
for a purpose or function unrelated to the
basis for its exemption,
Contributions of any property to or for the
use of certain private foundations except for
stock for which market quotations are readily
available (section 170(e)(5)), and
Any patent or certain other intellectual
property contributed after June 3, 2004. See
section 170(e)(1)(B). However, the
partnership can deduct certain qualified
donee income from this property. See
section 170(m).
Nondeductible contributions. Certain
contributions made to an organization
conducting lobbying activities are not
deductible. See section 170(f)(9) for more
details.

Lines 10a and 10b

Enter on line 10a miscellaneous itemized
deductions as defined in section 67(b).
These deductions include expenses for the
production or collection of income under
section 212, such as investment advisory
fees, subscriptions to investment advisory
publications, and the cost of safe deposit
boxes. Multiply line 10a by 30% (.30) and
enter the result on line 10b. The remaining
70% of the amount on line 10a is not allowed
as a deduction to the partnership or its
partners.

Line 11

Other allowable deductions include items
such as:
Real estate taxes and personal property
taxes on investment property,
Casualty and theft losses on
income-producing property, and
Any penalty on the early withdrawal of
savings.
Attach a statement for line 11 listing the
type and amount of each allowable
deduction for which there is no separate line
in Part II of Form 1065-B.

Schedule B. Other
Information
Question 1

Check box 1f for any other type of entity and
state the type.

Question 3

The partnership must answer “Yes” if during
the tax year:
It owned an interest in another partnership
(foreign or domestic), or
It was the “tax owner” of a foreign
disregarded entity (FDE) under Regulations
sections 301.7701-2 and 301.7701-3. The
tax owner of an FDE is the person that is
treated as owning the assets and liabilities of
the FDE for purposes of U.S. income tax law.
If the partnership answered “Yes” to this
question, it must do the following.
1. Show each partnership's name, EIN
(if any), and the country under whose laws
the partnership was organized, on an
attached statement, if the partnership directly
or indirectly owned at least a 10% interest in
any other foreign or domestic partnership
(other than any partnership for which a Form
8865 is attached to the tax return).
2. Complete and attach Form 8858,
Information Return of U.S. Persons With
Respect To Foreign Disregarded Entities, for
each FDE. For more information, see the
Instructions for Form 8858.
Note. Clearly indicate whether each entity in
the attached statement is a partnership or a
disregarded entity.

Question 4. Foreign Partners

Answer “Yes” if the ELP had any foreign
partners (for purposes of section 1446) at
any time during the tax year. Otherwise,
answer “No.”
If the ELP had gross income effectively
connected with a trade or business in the
United States and foreign partners, it may be
required to withhold tax under section 1446
on income allocable to foreign partners
(without regard to distributions) and file
Forms 8804, 8805, and 8813. See
Regulations sections 1.1446-1 through 7 for
more information.

Question 5

Answer “Yes” if interests in the partnership
are traded on an established securities

market or are readily tradable on a
secondary market (or its substantial
equivalent).

Question 6

Answer “Yes” if the ELP filed, or is required
to file, a return under section 6111 to provide
information on any reportable transaction by
a material advisor. Use Form 8918, Material
Advisor Disclosure Statement, to provide the
information. See the Instructions for Form
8918.

Question 7. Foreign Accounts

Answer “Yes” if either (1) or (2) below applies
to the ELP. Otherwise, check the “No” box.
1. At any time during the 2016 calendar
year the ELP had an interest in or signature
or other authority over a bank account,
securities account, or other financial account
in a foreign country (see FinCEN Form 114,
Report of Foreign Bank and Financial
Accounts (FBAR));
The combined value of the accounts was
more than $10,000 at any time during the
calendar year; and
The accounts were not with a U.S. military
banking facility operated by a U.S. financial
institution.
2. The ELP owns more than 50% of the
stock in any corporation that would answer
the question “Yes” based on item (1) above.
If you checked the “Yes” box for the
question:
Enter the name of the foreign country or
countries. Attach a separate statement if
more space is needed.
File FinCEN Form 114 electronically at the
FinCEN website, bsaefiling.fincen.treas.gov/
main.html.

Question 8

The ELP may be required to file Form 3520,
Annual Return To Report Transactions With
Foreign Trusts and Receipt of Certain
Foreign Gifts, if the following apply.
It directly or indirectly transferred property
or money to a foreign trust. For this purpose,
any U.S. person who created a foreign trust
is considered a transferor.
It is treated as the owner of any part of the
assets of a foreign trust under the grantor
trust rules.
It received a distribution from a foreign
trust.
For more information, see the Instructions
for Form 3520.
Note. An owner of a foreign trust must
ensure that the trust files an annual
information return on Form 3520-A, Annual
Information Return of Foreign Trust With a
U.S. Owner.

Schedule D. Capital Gains
and Losses
Purpose of Schedule

Use the Schedule D to report the following.

-22-

Certain transactions the ELP does not
have to report on Form 8949.
The overall capital gains and losses from
transactions listed on Form 8949.
Capital gains from installment sales from
Form 6252, Installment Sale Income.
Capital gains and losses from like-kind
exchange from Form 8824, Like-Kind
Exchanges (and section 1043
conflict-of-interest sales).
Partnership's share of net capital gains
and losses, including specially allocated
capital gains and losses, from partnerships,
estates, and trusts.
Do not report on Schedule D capital gains
(losses) specially allocated to any partners.
Enter specially allocated capital gains
(losses) directly on line 4a or 4b of
Schedule K, or on an attached statement for
line 15 of Schedule K and in box 3, 4, or 9 of
Schedule K-1, whichever applies. See How
Income Is Shared Among Partners, later.
Note. For more information, see Pub. 544,
Sales and Other Dispositions of Assets, and
the Instructions for Form 8949. Do not report
on Schedule D gains or losses from the sale
or exchange of qualified preferred stock of
the Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan
Mortgage Corporation (Freddie Mac).
Instead, each partner's distributive share of
such gains and losses must be reported as a
separately stated item in box 9 of
Schedule K-1 using Code V. See item 21,
Other information (Code V), for more
information.

What are Capital Assets?

Each item of property the ELP held (whether
or not connected with its trade or business)
is a capital asset except the following.
Stock in trade or other property included
in inventory or held mainly for sale to
customers.
Accounts or notes receivable acquired in
the ordinary course of the trade or business
for services rendered or from the sale of
stock in trade or other property held mainly
for sale to customers.
Depreciable or real property used in the
trade or business, even if it is fully
depreciated.
Certain copyrights; literary, musical, or
artistic compositions; letters or memoranda;
or similar property. See section 1221(a)(3).
U.S. Government publications, including
the Congressional Record, that the
partnership received from the Government,
other than by purchase at the normal sales
price, or that the partnership got from
another taxpayer who had received it in a
similar way, if the partnership's basis is
determined by reference to the previous
owner.
Certain commodities derivative financial
instruments held by a dealer. See section
1221(a)(6).
Certain hedging transactions entered into
in the normal course of the trade or business.
See section 1221(a)(7).
Supplies regularly used in the trade or
business.

Overview of Large Partnership
Provisions

For ELPs, capital gains and losses generally
are netted at the partnership level. A partner
in a large partnership takes into account
separately his distributive share of the
partnership's net capital gain or net capital
loss. Such net capital gain (loss) is treated as
long-term capital gain (loss). The 28% rate
gain (loss) is treated in the same manner.
Any excess of net short-term capital gain
over net long-term capital loss is not
separately stated. Instead, it is consolidated
with the partnership's other taxable income.
A partner's distributive share is divided
between passive loss limitation activities and
other activities. Capital gain (loss) is
allocated to passive loss limitation activities
to the extent that it is from sales and
exchanges of property used in connection
with a trade or business or rental activity.
Any excess is allocated to other activities
(that is, portfolio income).
Section 1231 gains are also netted at the
partnership level. The net gain is generally
treated as long-term capital gain. The net
loss is treated as an ordinary loss and is
included in computing the partnership's
taxable income.

Items for Special Treatment

Use Form 4797, Sales of Business
Property, to report (a) sales or exchanges of
property used in a trade or business, (b)
sales or exchanges of depreciable or
amortizable property, (c) sales or other
dispositions of securities or commodities
held in connection with a trading business, if
the partnership made a mark-to-market
election, (d) involuntary conversions (other
than from casualties or thefts), and (e) the
disposition of noncapital assets (other than
inventory or property held primarily for sale to
customers in the ordinary course of a trade
or business).
Use Form 4684, Casualties and Thefts, to
report involuntary conversions of property
due to a casualty or theft.
Gains and losses from section 1256
contracts and straddles are reported on
Form 6781, Gains and Losses From Section
1256 Contracts and Straddles.
An exchange of business or investment
property for property of a like kind is reported
on Form 8824, Like-Kind Exchanges.
Transactions by a securities dealer. See
section 1236.
See Pub. 550, Investment Income and
Expenses, for information on bonds and
other debt instruments.
For certain real estate subdivided for sale
that may be considered a capital asset, see
section 1237.
Gain on the sale of depreciable property
to a more-than-50%-owned entity, or to a
trust in which the partnership is a beneficiary,
is treated as ordinary gain.
For liquidating distributions from a
corporation, see Pub. 550.

See section 1248 for gain on the sale or
exchange of stock in certain foreign
corporations.
For gain or loss on options to buy or sell,
including closing transactions, see Pub. 550.
Gain or loss from a short sale of property.
See Pub. 550 for details.
For undistributed capital gains from a RIC
or a REIT, the partnership will receive
information on Form 2439, Notice to
Shareholder of Undistributed Long-Term
Capital Gains.
Net asset value (NAV) method for money
market funds. Report capital gain or loss
determined under the NAV method with
respect to shares in a money market fund on
Form 8949, Part I, with box C checked. Enter
the name of each fund followed by “(NAV)” in
column (a). Enter the net gain or loss in
column (h). Leave all other columns blank.
See the Instructions for Form 8949.
See section 84 for the transfer of property
to a political organization if the FMV of the
property exceeds the partnership's adjusted
basis in such property.
Any loss on the disposition of converted
wetland or highly erodible cropland that is
first used for farming after March 1, 1986, is
reported as a long-term capital loss on Form
8949/Schedule D, but any gain on such a
disposition is reported as ordinary income on
Form 4797. See section 1257 for details.
See Rev. Rul. 84-111, 1984-2 C.B. 88, for
the transfer of partnership assets and
liabilities to a newly formed corporation in
exchange for all of its stock.
See section 897 for the disposition of
foreign investment in a U.S. real property
interest.
Any loss from a sale or exchange of
property between the partnership and certain
related persons is not allowed, except for
distributions in a complete liquidation of a
corporation. See sections 267 and 707(b) for
details.
Any loss from securities that are capital
assets that become worthless during the
year is treated as a loss from the sale or
exchange of a capital asset on the last day of
the tax year.
Nonrecognition of gain on sale of stock to
an employee stock ownership plan (ESOP)
or an eligible cooperative. See section 1042
and Temporary Regulations section
1.1042-1T for rules under which the
partnership can elect not to recognize gain
from the sale of certain stock to an ESOP or
an eligible cooperative.
A nonbusiness bad debt must be treated
as a short-term capital loss and can be
deducted only in the year the debt becomes
totally worthless. See Pub. 550 for more
details.
Any loss from a wash sale of stock or
securities (including contracts or options to
acquire or sell stock or securities) cannot be
deducted unless the partnership is a dealer
in stock or securities and the loss was
sustained in a transaction made in the
ordinary course of the partnership's trade or
business. A wash sale occurs if the
partnership acquires (by purchase or
exchange), or has a contract or option to
-23-

acquire, substantially identical stock or
securities within 30 days before or after the
date of the sale or exchange. See section
1091. Report a wash sale transaction on
Form 8949, Part l or II (with the appropriate
box checked), depending on how long the
ELP owned the stock or securities. Enter “W”
in column (f) and enter as a positive number
in column (g) the amount of the loss not
allowed. Complete all remaining columns.
See the Instructions for Form 8949.
Gain from installment sales. If the
partnership sold property at a gain and it will
receive a payment in a tax year after the year
of sale, it generally must report the sale on
the installment method unless it elects not to.
However, the installment method cannot be
used to report sales of stock or securities
traded on an established securities market.
Use Form 6252 to report the sale on the
installment method. Also use Form 6252 to
report any payment received during the tax
year from a sale made in an earlier year that
was reported on the installment method.
If the ELP wants to elect out of the
installment method, it must report the full
amount of the gain on a timely filed return
(including extensions). If the partnership filed
Form 1065-B on time, the election can be
made on an amended return filed no later
than 6 months after the due date (excluding
extensions) of the original return. Write “See
attached Form 8082 for AAR per IRC section
6251; Filed pursuant to section 301.9100-2”
in the top margin of the amended return, and
file it at the same address the original return
was filed. See Administrative Adjustment
Requests, earlier.
A sale or other disposition of an interest in
a partnership owning unrealized receivables
or inventory items may result in ordinary gain
or loss. See Pub. 541, Partnerships, for more
details.
Certain constructive ownership
transactions. Gain in excess of the gain that
would have been recognized if the
partnership had held a financial asset
directly during the term of a derivative
contract must be treated as ordinary income.
See section 1260 for details.
Gain on disposition of market discount
bonds. In general, a capital gain from the
disposition of a market discount bond is
treated as interest income to the extent of
accrued market discount as of the date of
disposition. See sections 1276 through 1278
and Pub. 550 for more information on market
discount. See the Instructions for Form 8949
for detailed information about how to report
the disposition of a market discount bond.
Contingent payment debt instruments.
Any gain recognized on the sale, exchange,
or retirement of a contingent payment debt
instrument subject to the noncontingent
bond method is treated as interest income
rather than as capital gain. In certain
situations, all or a portion of a loss
recognized on the sale, exchange, or
retirement of a contingent payment debt
instrument subject to the noncontingent
bond method may be treated as an ordinary
loss rather than as a capital loss. See

Regulations section 1.1275-4(b) and Pub.
550 for more information on contingent
payment debt instruments subject to the
noncontingent bond method.
Constructive sale treatment for certain
appreciated positions. Generally, the ELP
must recognize gain (but not loss) on the
date it enters into a constructive sale of any
appreciated position in stock, a partnership
interest, or certain debt instruments as if the
position were disposed of at FMV on that
date.
The ELP is treated as making a
constructive sale of an appreciated position
when it (or a related person, in some cases)
does one of the following.
Enters into a short sale of the same or
substantially identical property (that is, a
“short sale against the box”).
Enters into an offsetting notional principal
contract relating to the same or substantially
identical property.
Enters into a futures or forward contract to
deliver the same or substantially identical
property.
Acquires the same or substantially
identical property (if the appreciated position
is a short sale, offsetting notional principal
contract, or a futures or forward contract).
Exception. Generally, constructive sale
treatment does not apply if:
The partnership closed the transaction
before the end of the 30th day after the end
of the year in which it was entered into,
The partnership held the appreciated
position to which the transaction relates
throughout the 60-day period starting on the
date the transaction was closed, and
At no time during that 60-day period was
the partnership's risk of loss reduced by
holding certain other positions.
For details and other exceptions to these
rules, see Pub. 550.
Special rules for traders in securities.
Traders in securities are engaged in the
business of buying and selling securities for
their own account. To be engaged in
business as a trader in securities, the ELP
must meet all the following conditions.
The ELP must seek to profit from daily
market movements in the prices of securities
and not from dividends, interest, or capital
appreciation.
The ELP's trading activity must be
substantial.
The ELP must carry on the activity with
continuity and regularity.
The following facts and circumstances
should be considered in determining if an
ELP's activity is a business.
Typical holding periods for securities
bought and sold.
The frequency and dollar amount of the
ELP's trades during the year.
The extent to which the partners pursue
the activity to produce income for a
livelihood.
The amount of time devoted to the
activity.

Like an investor, a trader must report
each sale of securities (taking into account
commissions and any other costs of
acquiring or disposing of the securities) on
Form 8949/Schedule D or an attached
statement containing all the same
information for each sale in a similar format.
However, if a trader made the
mark-to-market election, each transaction is
reported in Part II of Form 4797 instead of
Form 8949/Schedule D. Regardless of
whether a trader reports its gains and losses
on Form 8949/Schedule D or Form 4797, the
gain or loss from the disposition of securities
is not taken into account when figuring net
earnings from self-employment on
Schedules K and K-1. See section 1402(i)
for an exception that applies to section 1256
contracts.
The limitation on investment interest
expense that applies to investors does not
apply to interest paid or incurred in a trading
business. A trader reports interest expense
and other expenses (excluding commissions
and other costs of acquiring or disposing of
securities) from a trading business in Part I of
Form 1065-B.
A trader also can hold securities for
investment. The rules for investors generally
will apply to those securities. Allocate
interest and other expenses between the
partnership's trading business and its
investment securities. Investment interest
expense is reported on line 7 of Part II, Form
1065-B.
Rollover of gain from qualified stock. If
the partnership sold qualified small business
stock (defined later) it held for more than 6
months, it can postpone gain if it purchased
other qualified small business stock during
the 60-day period that began on the date of
the sale. The partnership must recognize
gain to the extent the sale proceeds exceed
the cost of the replacement stock. Reduce
the basis of the replacement stock by any
postponed gain.
If the partnership chooses to postpone
gain, report the sale on Form 8949, Part I or
II (with the appropriate box checked), as it
would be reported if the election was not
made. Then enter “R” in column (f). Enter the
amount of the postponed gain as a negative
number (in parentheses) in column (g). See
the Instructions for Form 8949.
Attach a statement to Form 1065-B that
(a) identifies the replacement qualified small
business stock, (b) shows the computation of
the adjustment to the partnership's basis in
the replacement stock for the amount of any
postponed gain under section 1045, and (c)
shows the dates on which the replacement
stock was acquired by the ELP.
The ELP also must separately state
the amount of the gain rolled over on
CAUTION qualified stock under section 1045
on an attachment to Form 1065-B,
Schedule K, line 15. Each partner must
determine if he or she qualifies for the
rollover at the partner level or if he or she
wants to opt out of the section 1045 election.
Also, the partnership must separately state

!

-24-

on that line any gain that would qualify for the
section 1045 rollover at the partner level
instead of the partnership level (because a
partner was entitled to purchase
replacement stock) and any gain on qualified
stock that could qualify for an exclusion
under section 1202.
To be qualified small business stock, the
stock must meet all of the following tests.
It must be stock in a C corporation (that is,
not S corporation stock).
It must have been originally issued after
August 10, 1993.
As of the date the stock was issued, the
corporation was a qualified small business. A
qualified small business is a domestic C
corporation with total gross assets of $50
million or less (a) at all times after August 9,
1993, and before the stock was issued, and
(b) immediately after the stock was issued.
Gross assets include those of any
predecessor of the corporation. All
corporations that are members of the same
parent-subsidiary controlled group are
treated as one corporation.
The partnership must have acquired the
stock at its original issue (either directly or
through an underwriter), either in exchange
for money or other property or as pay for
services (other than as an underwriter) to the
corporation. In certain cases, the partnership
can meet the test if it acquired the stock from
another person who met this test (such as by
gift or inheritance) or through a conversion or
exchange of qualified small business stock
held by the partnership.
During substantially all the time the
partnership held the stock:
1. The corporation was a C corporation;
2. At least 80% of the value of the
corporation's assets were used in the active
conduct of one or more qualified businesses
(defined below); and
3. The issuing corporation was not a
foreign corporation, domestic international
sales corporation (DISC), former DISC,
interest charge domestic international sales
corporation (IC-DISC), former IC-DISC,
corporation that has made (or that has a
subsidiary that has made) a section 936
election, RIC, REIT, REMIC, financial asset
securitization investment trust (FASIT), or
cooperative.
Note. A specialized small business
investment company (SSBIC) is treated as
having met test (2) above.
A qualified business is any business other
than the following.
One involving services performed in the
fields of health, law, engineering,
architecture, accounting, actuarial science,
performing arts, consulting, athletics,
financial services, or brokerage services.
One whose principal asset is the
reputation or skill of one or more employees.
Any banking, insurance, financing,
leasing, investing, or similar business.
Any farming business (including raising or
harvesting of trees).

Any business involving the production of
products for which percentage depletion can
be claimed.
Any business of operating a hotel, motel,
restaurant, or similar business.
Rollover of gain from empowerment
zone assets. If the partnership sold a
qualified empowerment zone asset it held for
more than 1 year, it may be able to elect to
postpone part or all of the gain. For details,
see section 1397B.
Exclusion of gain from DC Zone assets.
If the ELP sold or exchanged a District of
Columbia Enterprise Zone (DC Zone) asset
that it held for more than 5 years, it may be
able to exclude the qualified capital gain. The
DC Zone asset must have been acquired
after 1997, but before 2012, to qualify as an
asset for which the partnership may be able
to take the exclusion. The sale or exchange
of DC Zone capital assets include the
following.
Stock in a domestic corporation that was
a DC Zone business.
Interest in a partnership that was a DC
Zone business.
Report the sale or exchange of property
used in the partnership's DC Zone business
on Form 4797.
Gains not qualified for exclusion. The
following gains do not qualify for the
exclusion of gain from DC Zone assets.
Gain on the sale of an interest in a
partnership which is a DC Zone business
attributable to unrecaptured section 1250
gain. See the instructions for line 15 of
Schedule K for information on how to report
unrecaptured section 1250 gain.
Gain on the sale of an interest in a
partnership or S corporation, which is a DC
Zone business, attributable to real property
or an intangible asset which is not an integral
part of the DC Zone business.
Gain from a related-party transaction. See
Sales and Exchanges Between Related
Persons in Pub. 544.
See section 1400B for more details on
DC Zone assets and special rules.
How to report. Report the sale or
exchange of DC Zone Assets on Form 8949,
Part II (with the appropriate box checked), as
it would be reported if the exclusion was not
taken. Enter “X” in column (f) and enter the
amount of the exclusion as a negative
number (in parentheses) in column (g). See
the Instructions for Form 8949.
Undistributed long-term gains from a
regulated investment company (RIC) or
real estate investment trust (REIT).
Report the partnership's share of long-term
gains from Form 2439, Notice to
Shareholder of Undistributed Long-Term
Capital Gains, on Form 8949, Part II (with
box F checked). Enter “From Form 2439” in
column (a). Enter the gain in column (h).
Leave all other columns blank. See the
Instructions for Form 8949.

Specific Instructions

Complete all necessary pages of Form(s)
8949 before completing line 1b, 2, 3, 8b, 9,
or 10 of Schedule D.

Rounding Off to Whole Dollars
Cents can be rounded to whole dollars on
the Schedule D. If cents are rounded to
whole dollars, all amounts must be rounded.
To round, drop cent amounts under 50 and
increase cent amounts over 49 to the next
dollar. For example, $1.49 becomes $1 and
$1.50 becomes $2.
If two or more amounts have to be added
to figure the amount to enter on a line,
include cents when adding the amounts and
round only the total.

Lines 1a and 8a—Transaction Not
Reported on Form 8949
The ELP can report on line 1a (for short-term
transactions) or line 8a (for long-term
transactions) the aggregate totals from any
transactions (except sales of collectibles) for
which:
The ELP received a Form 1099-B (or
substitute statement) that shows basis was
reported to the IRS and does not show any
adjustment in box 1f or box 1g; and
The ELP does not need to make any
adjustments to the basis or type of gain or
loss (short term or long term) reported on
Form 1099-B (or substitute statement), or to
its gain or loss. See How To Complete Form
8949, Columns (f) and (g), in the Form 8949
instructions for details about possible
adjustments to the partnership's gain or loss.
If the ELP chooses to report these
transactions on lines 1a and 8a, do not
report them on Form 8949.
Figure gain or loss on each line. Subtract
the cost or other basis in column (e) from the
proceeds (sales price) in column (d). Enter
the gain or loss in column (h). Enter negative
amounts in parentheses.
Example 1—basis reported to the IRS.
The ELP received a Form 1099-B reporting
the sale of stock held for 3 years and
showing proceeds (in box 1d) of $6,000 and
cost or other basis (in box 1e) of $2,000. Box
3 is checked, meaning that basis was
reported to the IRS. The ELP does not need
to make any adjustments to the amounts
reported on Form 1099-B or enter any
codes. This was its only 2016 transaction.
Instead of reporting this transaction on Form
8949, the ELP can enter $6,000 on
Schedule D, line 8a, column (d), $2,000 in
column (e), and $4,000 ($6,000 – $2,000) in
column (h).
If the ELP had a second transaction that
was the same except that the proceeds were
$5,000 and the basis was $3,000, combine
the two transactions. Enter $11,000 ($6,000
+ $5,000) on Schedule D, line 8a, column
(d), $5,000 ($2,000 + $3,000) in column (e),
-25-

and $6,000 ($11,000 – $5,000) in column
(h).
Example 2—basis not reported to the
IRS. The ELP received a Form 1099-B
showing proceeds (in box 1d) of $6,000 and
cost or other basis (in box 1e) of $2,000. Box
3 is not checked, meaning that basis was not
reported to the IRS. Do not report this
transaction on line 1a or line 8a. Instead,
report the transaction on Form 8949.
Complete all necessary pages of Form 8949
before completing line 1b, 2, 3, 8b, 9, or 10
of Schedule D.
Example 3—adjustment. The ELP
received a Form 1099-B showing proceeds
(in box 1d) of $6,000 and cost or other basis
(in box 1e) of $2,000. Box 3 is checked,
meaning that basis was reported to the IRS.
However, the basis shown in box 1e is
incorrect. Do not report this transaction on
line 1a or line 8a. Instead, report the
transaction on Form 8949. See the
instructions for Form 8949, columns (f), (g),
and (h). Complete all necessary pages of
Form 8949 before completing line 1b, 2, 3,
8b, 9, or 10 of Schedule D.

Lines 1b, 2, 3, 8b, 9, and 10,
Column (h)—Transactions
Reported on Form 8949
Figure gain or loss on each line. First,
subtract cost or other basis (column (e)) from
proceeds/sales price (column (d)). Then
combine the result with any adjustments in
column (g). Enter the gain or loss in column
(h). Enter negative amounts in parentheses.
Example 1—gain. Column (d) is $6,000
and column (e) is $2,000. Enter $4,000 in
column (h).
Example 2—loss. Column (d) is $6,000
and column (e) is $8,000. Enter ($2,000) in
column (h).
Example 3—adjustment. Column (d) is
$6,000, column (e) is $2,000, and column (g)
is ($1,000). Enter $3,000 ($6,000 – $2,000 –
$1,000) in column (h).

Line 14—Capital Gains and Losses
From Other Partnerships, Estates,
and Trusts
See the Schedule K-1 or other information
supplied to the ELP by the other partnership,
estate, or trust.

Part IV—Net Capital Gain (Loss)
From Passive Loss Limitation
Activities
Line 21. Redetermine the amount on line 18
by taking into account only gains and losses
from passive loss limitation activities.

Schedules K and K-1.
Partners' Shares of
Income, Credits,
Deductions, etc.
Purpose of Schedules

The partners are liable for tax on their shares
of the partnership income, whether or not
distributed, and must include their shares on
their tax returns.
Schedule K (page 4 of Form 1065-B) is a
summary schedule of all the partners' shares
of the partnership's income, credits,
deductions, etc.
Schedule K-1 (Form 1065-B) shows each
partner's separate share. Attach a copy of
each Schedule K-1 to the Form 1065-B filed
with the IRS. Keep a copy with a copy of the
partnership return as a part of the
partnership's records and furnish a copy to
each partner. If a partnership interest is held
by a nominee on behalf of another person,
the partnership may be required to furnish
Schedule K-1 to the nominee. See
Temporary Regulations sections
1.6031(b)-1T and 1.6031(c)-1T for more
information.
Give each partner a copy of either the
Partner's Instructions for Schedule K-1 (Form
1065-B) or specific instructions for each item
reported on the partner's Schedule K-1
(Form 1065-B).

Substitute Forms

The ELP does not need IRS approval to use
a substitute Schedule K-1 if it is an exact
copy of the IRS schedule. The boxes must
use the same numbers and titles and must
be in the same order and format as on the
comparable IRS Schedule K-1. The
substitute schedule must include the OMB
number. The partnership must provide each
partner with the Partner's Instructions for
Schedule K-1 (Form 1065-B) or other
prepared specific instructions for each item
reported on the partner's Schedule K-1.
The ELP must request IRS approval to
use other substitute Schedules K-1. To
request approval, write to Internal Revenue
Service, Attn: Substitute Forms Program,
5000 Ellin Road, C6-440, Lanham, MD
20706.
Each partner's information must be on a
separate sheet of paper. Therefore, separate
all continuously printed substitutes before
you file them with the IRS.
The ELP may be subject to a penalty if it
files Schedules K-1 that do not conform to
the specifications discussed in Pub. 1167,
General Rules and Specifications for
Substitute Forms and Schedules.

How Income Is Shared Among
Partners

Generally, allocate shares of income, gain,
loss, deduction, or credit among the partners
according to the partnership agreement for
sharing income or loss. However, partners

can agree to allocate specific items in a ratio
different from the ratio for sharing income or
loss.

income, gain, loss, and deductions on the
disposition of property contributed to the
partnership by a partner.

In determining the amounts required to be
separately taken into account by a partner,
those provisions of the large partnership
rules governing computation of taxable
income are applied separately with respect
to that partner by taking into account that
partner's distributive share of the
partnership's items of income, gain, loss,
deduction, or credit. This rule permits
partnerships to make otherwise valid special
allocations of partnership items to partners.

If the partnership agreement does not
provide for the partner's share of income,
gain, loss, deduction, or credit, or if the
allocation under the agreement does not
have substantial economic effect, the
partner's share is determined according to
the partner's interest in the partnership. See
Regulations section 1.704-1 for more
information.

Report the specially allocated items in the
appropriate box of the applicable partner's
Schedule K-1 and the total on the
appropriate line of Schedule K, instead of on
Parts I or II of Form 1065-B, Form 1125-A, or
Schedules D. For example, specially
allocated net capital gain from passive
activities is entered in box 4a of
Schedule K-1, and the total is entered on
line 4a of Schedule K, along with any net
capital gain from line 21 of Schedule D.
If a partner's interest changed during the
year (such as the entrance of a new partner,
the exit of a partner, an increase to a
partner’s interest through an additional
capital contribution, or a decrease in a
partner’s interest through a distribution), see
section 706(d) and Regulations section
1.706-4 before determining each partner's
distributive share of any item of income,
gain, loss, deduction, and other items.
Partnership items are allocated to a partner
only for the part of the year in which that
person is a member of the partnership.
Generally, for each change in a partner’s
interest, the partnership will either allocate its
items using a pro-ration method or a
closing-of-the-books method. Special rules
apply to certain partnerships, certain
variations, and certain items. See
Regulations section 1.706-4 for additional
rules and procedures for making elections. In
addition, special rules in section 706(d)(2)
apply to certain items of partnerships that
report their income on the cash basis and
special rules in section 706(d)(3) apply to
tiered partnerships.
Special rules on the allocation of income,
gain, loss, and deductions generally apply if
a partner contributes property to the
partnership and the FMV of that property at
the time of contribution differs from the
contributing partner's adjusted tax basis.
Under these rules, the ELP must use a
reasonable method of making allocations of
income, gain, loss, and deductions from the
property so that the contributing partner
receives the tax burdens and benefits of any
built-in gain or loss (for example,
precontribution appreciation or diminution of
value of the contributed property). See
Regulations section 1.704-3 for details on
how to make these allocations, including a
description of specific allocation methods
that are generally reasonable.
See Dispositions of Contributed Property,
earlier, for special rules on the allocation of
-26-

Specific Instructions for
Schedules K and K-1
Generally, the ELP is required to prepare
and give a Schedule K-1 to each person who
was a partner in the partnership at any time
during the year.
However, if a foreign partnership meets
each of the following four requirements, it is
not required to file or provide Schedule K-1
for foreign partners (unless the foreign
partner is a pass-through entity through
which a U.S. person holds an interest in the
foreign partnership).
The partnership had no gross income
effectively connected with the conduct of a
trade or business within the United States
during its tax year.
All required Forms 1042 and 1042-S were
filed by the partnership or another
withholding agent as required by Regulations
sections 1.1461-1(b) and (c) and Temporary
Regulations sections 1.1461-1T(b) and
1.1461-1T(c)(1)(i) and (ii).
The tax liability of each partner for
amounts reportable under Regulations
sections 1.1461-1(b) and (c) and Temporary
Regulations sections 1.1461-1T(b) and
1.1461-1T(c)(1)(i) and (ii) have been fully
satisfied by the withholding of tax at the
source.
The partnership is not a withholding
foreign partnership as defined in Temporary
Regulations section 1.1441-5T(c)(2)(i).
Generally, any person who holds an
interest in a partnership as a nominee for
another person must furnish to the
partnership the name, address, etc., of the
other person.
On each Schedule K-1, enter the names,
addresses, and identifying numbers of the
partner and partnership and the partner's
distributive share of each item.
For an individual partner, enter the
partner's social security number (SSN) or
individual taxpayer identification number
(ITIN). For all other partners, enter the
partner's EIN. However, if a partner is an
IRA, enter the identifying number of the
custodian of the IRA. Do not enter the SSN
of the person for whom the IRA is
maintained.
Foreign partners without a U.S. taxpayer
identifying number should be notified by the
partnership of the necessity of obtaining a
U.S. identifying number. Certain aliens who

are not eligible to obtain an SSN can apply
for an ITIN on Form W-7, Application for IRS
Individual Taxpayer Identification Number.
Truncating recipient's taxpayer identification number on Schedule K-1. The
partnership can truncate a partner's taxpayer
identifying number on the Schedule K-1 the
partnership sends to the partner. Truncation
is not allowed on the Schedule K-1 the
partnership files with the IRS. Also, the
partnership cannot truncate its own taxpayer
identification number on any form.
To truncate, where allowed, replace the
first five digits of the nine-digit number with
asterisks (*) or Xs (for example, an SSN
xxx-xx-xxxx would appear as ***-**-xxxx or
XXX-XX-xxxx). For more information, see
Regulations section 301.6109-4.
If a married couple each had an interest in
the ELP, prepare a separate Schedule K-1
for each of them. If a married couple held an
interest together, prepare one Schedule K-1
if the two of them are considered to be one
partner.
Use the codes listed under the
instructions for Box 9 Codes (Schedule K-1)
to report various items. If more space is
needed, include the information in an
attachment to box 9.

Partner's Share of Liabilities
(Schedule K-1)

Enter each partner's share of:
Nonrecourse liabilities,
Partnership-level qualified nonrecourse
financing, and
Other liabilities.
“Nonrecourse liabilities” are those
liabilities of the partnership for which no
partner bears the economic risk of loss. The
extent to which a partner bears the economic
risk of loss is determined under the rules of
Regulations section 1.752-2. Do not include
partnership-level qualified nonrecourse
financing (defined below) on the line for
nonrecourse liabilities.
If the partner terminated his or her interest
in the partnership during the year, enter the
share that existed immediately before the
total disposition. In all other cases, enter it as
of the end of the year.
If the ELP is engaged in two or more
different types of at-risk activities, or a
combination of at-risk activities and any other
activity, attach a statement showing the
partner's share of nonrecourse liabilities,
partnership-level qualified nonrecourse
financing, and other liabilities for each
activity. See Pub. 925, Passive Activity and
At-Risk Rules, to determine if the partnership
is engaged in more than one at-risk activity.
The at-risk rules of section 465 generally
apply to any activity carried on by the ELP as
a trade or business or for the production of
income. These rules generally limit the
amount of loss and other deductions a
partner can claim from any partnership
activity to the amount for which that partner
is considered at risk. However, for partners

who acquired their partnership interests
before 1987, the at-risk rules do not apply to
losses from an activity of holding real
property the partnership placed in service
before 1987. The activity of holding mineral
property does not qualify for this exception.
Identify on an attachment to Schedule K-1
the amount of any losses that are not subject
to the at-risk rules.

Allocate the income (loss) from passive
loss limitation activities (line 1a of
Schedule K) to interests held as a general
partner as follows.

If the ELP is engaged in an activity
subject to the limitations of section 465(c)(1)
(such as films or videotapes, leasing section
1245 property, farming, or oil and gas
property), give each partner his or her share
of the total pre-1976 losses from that activity
for which there existed a corresponding
amount of nonrecourse liability at the end of
each year in which the losses occurred. See
Form 6198, At-Risk Limitations, and related
instructions for more information.

Step 2. Report on lines 1b(1), 1b(2), and
1b(3) of Schedule K that portion of each
amount from Step 1 that will be allocated to
interests held as a general partner (the
combined distributive shares and any
separate allocations for all general partner
interests).

Qualified nonrecourse financing secured
by real property used in an activity of holding
real property that is subject to the at-risk
rules is treated as an amount at risk.
“Qualified nonrecourse financing” generally
includes financing for which no one is
personally liable for repayment that is
borrowed for use in an activity of holding real
property and that is loaned or guaranteed by
a federal, state, or local government or that is
borrowed from a “qualified” person. Qualified
persons include any person actively and
regularly engaged in the business of lending
money, such as a bank or savings and loan
association. Qualified persons generally do
not include related parties (unless the
nonrecourse financing is commercially
reasonable and on substantially the same
terms as loans involving unrelated persons),
the seller of the property, or a person who
receives a fee for the partnership's
investment in the real property. See section
465 for more information on qualified
nonrecourse financing.
The partner as well as the partnership
must meet the qualified nonrecourse rules.
Therefore, the ELP must enter on an
attached statement any other information the
partner needs to determine if the qualified
nonrecourse rules are also met at the partner
level.
Note. The following line numbers
correspond with Schedule K. However, each
line instruction also provides reporting
information for Schedule K-1. Letter codes
are listed under Box 9 Codes (Schedule K-1)
for entries in box 9 of Schedule K-1.

Line 1. Taxable Income (Loss)
From Passive Loss Limitation
Activities

Enter the amount from Form 1065-B, page 1,
line 25, on Schedule K, line 1a. Enter the
income or (loss) without reference to (a) the
basis of the partners' interests in the
partnership, (b) the partners' at-risk
limitations, or (c) the passive activity
limitations. These limitations, if applicable,
are determined at the partner level.
-27-

Step 1. Allocate the amount reported on
line 1a to the following categories.
Trade or business activities.
Rental real estate activities.
Other rental activities.

General partners in an ELP must
separately account for any items attributable
to passive loss limitation activities to the
extent necessary to comply with the passive
activity rules.
Because general partners must comply
with the passive activity rules, report the
information on lines 1b(1), 1b(2), and 1b(3)
of Schedule K separately for each activity of
the partnership using Codes A1, B1, and C1
in box 9 of Schedule K-1. The remaining
amount on line 1d of Schedule K is reported
in box 1 of Schedule K-1 for limited partners
(including interests held as a limited partner
by general partners).

Line 2. Taxable Income (Loss)
From Other Activities

On Schedule K, line 2, enter the amount from
Form 1065-B, Part II, line 13. Report
amounts for both general and limited
partners in box 2 of Schedule K-1.

Line 3. Qualified Dividends

Enter the qualified dividends from other
activities from Form 1065-B, Part II, line 2b.
Report amounts for both general and limited
partners in box 3 of Schedule K-1.

Line 4a. Net Capital Gain (Loss)
From Passive Loss Limitation
Activities

Enter the net capital gain or (loss) from
passive loss limitation activities from
Schedule D (Form 1065-B), line 21. Report
the amount allocated to interests held as a
limited partner in box 4a of Schedule K-1.

Because general partners must comply
with the passive activity rules, report the
line 4a amount allocated to interests held as
a general partner separately for each activity
using Codes A2, B2, and C2 in box 9 of
Schedule K-1.

Line 4b. Net Capital Gain (Loss)
From Other Activities

Enter the net capital gain (loss) from other
activities from Schedule D (Form 1065-B),
line 24. Report this amount to all partners in
box 4b of Schedule K-1.

Lines 5 and 6

For an ELP, the alternative minimum tax
(AMT) adjustments and preferences are

combined at the partnership level. The
partnership figures net AMT adjustments
separately for passive loss limitation
activities and other activities.
In determining a partner's alternative
minimum taxable income, a partner's
distributive share of any net AMT adjustment
is taken into account instead of making
separate AMT adjustments for different
partnership items. The net AMT adjustment
is determined by using the adjustments and
preferences applicable to individuals for
partners other than corporations, and by
using the adjustments and preferences
applicable to corporations for corporate
partners. See Form 6251, Alternative
Minimum Tax—Individuals, and Form 4626,
Alternative Minimum Tax—Corporations, to
figure the partnership's AMT adjustments
and preferences.
The net passive AMT adjustment is
reported on line 5 of Schedule K and in box 5
of Schedule K-1 for interests held as a
limited partner. Because general partners
must comply with the passive activity rules,
report the amounts allocated to interests
held as a general partner separately for each
activity in box 9 using Codes A5, B7, and C5.
The net other AMT adjustment is reported
on line 6 of Schedule K and in box 6 of
Schedule K-1 for all partners.

Line 7. Guaranteed Payments
to Partners

Guaranteed payments to partners include:
Payments for salaries, health insurance,
and interest deducted by the partnership and
reported on Form 1065-B, Part I, line 13; on
a statement attached to line 5, Part I; or on
Form 8825;
Compensation deferred under a section
409A nonqualified deferred compensation
plan that does not meet the requirements of
section 409A reported on line 15 of
Schedule K; and
Payments the partnership must capitalize.
See the instructions for Part I, line 13.
Report guaranteed payments to the
partners receiving them in box 9 of
Schedule K-1 using Code F.
The transfer of property to a partner

TIP as part or all of a guaranteed

payment is a sale or exchange of
property and must be reported on
Schedule D of the Form 1065-B. See Rev.
Rul. 2007-40, 2007-25 I.R.B. 1426, for
details.

Line 8. Income From Discharge
of Indebtedness
Do not include on line 8 any income
from discharge of indebtedness for
CAUTION which the ELP has made the election
to defer income from the cancellation of the
debt. See Election to defer income from
canceled debt, earlier.

!

Income from the discharge of indebtedness
is separately reported to each partner. In
addition, the section 108 rules governing the

income are the same as for other
partnerships.
Enter the income from discharge of
indebtedness on line 8 of Schedule K and in
box 9 of Schedule K-1 for each partner using
Code G.
Note. Include the amount of income the ELP
must recognize for a transfer of a partnership
interest, after October 21, 2004, in
satisfaction of a partnership debt when the
debt relieved exceeds the FMV of the
partnership interest. See section 108(e)(8)
for more information.

Line 9. Tax-Exempt Interest
Income

Enter tax-exempt interest income, including
any exempt-interest dividends received from
a mutual fund or other regulated investment
company. Individuals must report this
amount on line 8b of Form 1040. The
adjusted basis of the partner's interest is
increased by the amount shown on this line
under section 705(a)(1)(B). Report this
amount to partners in box 9 of Schedule K-1
using Code H.

Line 10. General Credits

The term “general credits” means any credit,
other than the low-income housing credit, the
rehabilitation credit from rental real estate
activities, and the foreign tax credit.
General credits are separately reported to
partners as a single item. A partner's
distributive share of general credits is taken
into account as a current year general
business credit. The tax liability limit for the
general business credit is applied at the
partner level.
Combine the following credits and report
them under “general credits” on line 10.
Credit for backup withholding on
dividends, interest, and other types of
income.
Qualified railroad track maintenance
credit (Form 8900).
Investment credit (other than rehabilitation
credits from rental real estate activities)
(Form 3468).
Work opportunity credit (Form 5884).
Biofuel producer credit (Form 6478).
Credit for increasing research activities
(Form 6765).
Disabled access credit (Form 8826).
Renewable electricity, refined coal, and
Indian coal production credit (Form 8835).
Empowerment zone employment credit
(Form 8844).
Indian employment credit (Form 8845).
Credit for employer social security and
Medicare taxes paid on certain employee
tips (Form 8846).
Orphan drug credit (Form 8820).
Enhanced oil recovery credit (Form 8830).
Biodiesel and renewable diesel fuels
credit (Form 8864).
New markets credit (Form 8874).
Credit for small employer pension plan
startup costs (Form 8881).
Credit for employer-provided childcare
facilities and services (Form 8882).
-28-

Low sulfur diesel fuel production credit
(Form 8896).
General credits from other ELPs.
Distilled spirits credit (Form 8906).
Energy efficient home credit (Form 8908).
Alternative motor vehicle credit (Form
8910).
Alternative fuel vehicle refueling property
credit (Form 8911).
Credit to holders of tax credit bonds (Form
8912).
Mine rescue team training credit (Form
8923).
Credit for employer differential wage
payments (Form 8932).
Carbon dioxide sequestration credit (Form
8933).
Qualified plug-in electric drive motor
vehicle credit (Form 8936).
Credit for small employer health insurance
premiums (Form 8941).
Exception. The refundable credit for federal
tax paid on fuels and the refund or credit for
tax paid on undistributed capital gains of a
RIC or a REIT are claimed by the
partnership. Therefore, they are not
separately reported to partners.
General credits are reported as a single
figure on line 10 of Schedule K and are
reported in box 7 of Schedule K-1 for limited
partners. However, for general partners,
credits allocable to passive loss limitation
activities must be separately stated for each
trade or business activity, rental real estate
activity, and rental activity other than rental
real estate. Provide this information to
general partners in box 9 of Schedule K-1
using Codes A4, B4, and C4 so they can
comply with section 469. Also, if general
business credits are included on the
Schedule K-1, provide the partners the
information needed to show that the ELP
meets the requirements of section 38(c)(5)
(C).

Line 11. Low-Income Housing
Credit

Section 42 provides a credit that can be
claimed by owners of low-income residential
rental buildings. To qualify for this credit, the
ELP must file Form 8609, Low-Income
Housing Credit Allocation and Certification,
separately with the IRS. Do not attach Form
8609 to Form 1065-B. Complete and attach
Form 8609-A, Annual Statement for
Low-Income Housing Credit, and Form 8586,
Low-Income Housing Credit, to Form
1065-B.
Report this credit for buildings placed in
service before 2008 on line 11. If part or all of
the credit is for buildings placed in service
after 2007, enter “STMT” on line 11 and
attach a statement showing separately the
amount of the credit for buildings placed in
service after 2007, and the amount of the
credit for buildings placed in service before
2008.
Schedule K-1. For limited partners, if all of
the low-income housing credit is for buildings
placed in service before 2008, report each
limited partner's distributive share of the

credit in box 8. If part or all of the credit is for
buildings placed in service after 2007, enter
“STMT” in box 8 and attach a statement that
separately provides each limited partner's
distributive share of the credit for buildings
placed in service before 2008, and the credit
for buildings placed in service after 2007.
For general partners, enter code B5 in
box 9 and attach a statement showing
separately each partner's distributive share
of the credit for buildings placed in service
before 2008, and the credit for buildings
placed in service after 2007. Also, credits
allocable to passive loss limitation activities
must be separately stated for each rental real
estate activity so general partners can
comply with the passive activity limitation
requirements of section 469.

Line 12. Rehabilitation Credit
From Rental Real Estate
Activities

Report the rehabilitation credit from rental
real estate activities on line 12. Complete the
lines on Form 3468, Investment Credit, that
apply to the rehabilitation credit and attach it
to Form 1065-B.
For limited partners, report the
rehabilitation credit from rental real estate
activities reported on line 12 in box 9 of
Schedule K-1 using Code I. However, for
general partners, credits allocable to passive
loss limitation activities must be separately
stated for each rental real estate activity. For
general partners, report the rehabilitation
credit reported on line 12 in box 9 of
Schedule K-1 using Code B6 so general
partners can comply with section 469.
Note. Any rehabilitation credits from an
activity other than a rental real estate activity
are included in general credits reported on
line 10 of Schedule K.

Line 13. Net Earnings From
Self-Employment
General partners. General partners' net
earnings (loss) from self-employment do not
include the following.
Dividends on any shares of stock and
interest on any bonds, debentures, notes,
etc., unless the dividend or interest income is
received in the course of a trade or business,
such as a dealer in stocks or securities or
interest on notes or accounts receivable.
Rentals from real estate, except rentals of
real estate held for sale to customers in the
course of a trade or business as a real estate
dealer or payments for rooms or space when
significant services are provided.
Royalty income, except royalty income
received in the course of a trade or business.
See the Instructions for Schedule SE
(Form 1040), Self-Employment Tax, for more
information.
Limited partners. Generally, a limited
partner's share of partnership income (loss)
is not included in net earnings (loss) from
self-employment. Limited partners treat as
self-employment earnings only guaranteed
payments for services they actually rendered
to, or on behalf of, the partnership to the
extent that those payments are payment for
those services.
Schedule K. Enter on line 13a the amount
from line 5 of the worksheet below. On
line 13b, enter the amount of gross nonfarm
income from self-employment.
Note. For purposes of self-employment tax,
no income from an ELP is treated as fishing
or farming income.
Schedules K-1. Do not complete box 9 for
any partner that is an estate, trust,
corporation, exempt organization, or IRA.

Using Code J1, enter in box 9 of
Schedule K-1 each individual general
partner's share of the amount shown on
line 5 of the worksheet below and each
individual limited partner's share of the
amount shown on line 4c of the worksheet.
Using Code J2, enter the partner's share of
gross nonfarm income in box 9.

Worksheet Instructions
Line 1b. Include on line 1b any part of the
net income (loss) from rental real estate
activities from Schedule K, line 1b(2), that is
from:
1. Rentals of real estate held for sale to
customers in the course of a trade or
business as a real estate dealer; or
2. Rentals for which services were
rendered to the occupants (other than
services usually or customarily rendered for
the rental of space for occupancy only). The
supplying of maid service is such a service;
but the furnishing of heat and light, the
cleaning of public entrances, exits, stairways
and lobbies, trash collection, etc., are not
considered services rendered to the
occupants.
Line 4a. Include any guaranteed payments
to partners reported on Schedule K, line 7,
and derived from a trade or business as
defined in section 1402(c). Also, include
other ordinary income and expense items
reported on Schedules K and K-1 that are
used to figure self-employment earnings
under section 1402.

Line 14. Foreign Tax Credit
Information

Lines 14a through 14h must be completed if
the partnership has foreign income,
deductions or losses, or has paid, or accrued

Worksheet for Figuring Net Earnings (Loss) From Self-Employment
1a Income (loss) from Schedule K, line 1b(1)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1a

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

1b

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

1c

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

1d

e Combine lines 1a through 1d

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1e

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

2 

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

3a

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

. . . . .

3b

c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each individual general
partner's share in box 9 of Schedule K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4a Guaranteed payments to partners (Schedule K, line 7) derived from a trade or business as defined in
section 1402(c) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4a

b Part of line 4a allocated to individual limited partners for other than services and to estates, trusts,
corporations, exempt organizations, and IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4b

c Subtract line 4b from line 4a. Include each individual general partner's share and each individual limited partner's share in box 9 of
Schedule K-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5  Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 13a

-29-

. . . . . . . . . .

3c

4c
5 

foreign taxes. See Pub. 514, Foreign Tax
Credit for Individuals, for more information.

Line 14d. Foreign Gross Income
Sourced at Partnership Level

Line 14a. Name of Foreign Country
or U.S. Possession

Separately report gross income from sources
outside the United States by category of
income as follows. For partnership and
corporate partners only, attach a statement
identifying the total amount of foreign gross
income in each category of income
attributable to foreign branches. See Pub.
514 for information on the categories of
income.

Enter the name of the foreign country or U.S.
possession from which the partnership had
income or to which the partnership paid or
accrued taxes. If the ELP received income
from, or paid or accrued taxes to, more than
one foreign country or U.S. possession,
enter “See attached” and attach a statement
for each country for lines 14a through 14h.
RIC pass-through amounts. Aggregate all
income passed through from RICs and
report the total on a single line. Enter “RIC”
on line 14a and report the total on line 14b.
Note that the totals are being reported on a
single line because it is not necessary to
report the RIC pass-through amounts on a
per-country basis.
Using Code K1, enter this information in
box 9 of Schedule K-1 or on an attached
statement.

Line 14b. Gross Income From All
Sources
Enter the partnership's gross income from all
sources (both U.S. and foreign).
Using Code K2, enter this information in
box 9 of Schedule K-1 or on an attached
statement.

Line 14c. Gross Income Sourced at
Partner Level
Enter the total gross income of the ELP that
is required to be sourced at the partner level.
This includes income from the sale of most
personal property other than inventory,
depreciable property, and certain intangible
property. See Pub. 514 and section 865 for
details.

!

CAUTION

You must attach a statement to Form
1065-B showing the following
information.

The amount of this gross income (without
regard to its source) in each category
identified in the instructions for line 14d,
including each of the listed categories.
Specifically identify gains on the sale of
personal property other than inventory,
depreciable property, and certain intangible
property on which a foreign tax of 10% or
more was paid or accrued. Also list losses on
the sale of such property if the foreign
country would have imposed a 10% or higher
tax had the sale resulted in a gain. See
Determining the Source of Income From the
Sales or Exchanges of Certain Personal
Property in Pub. 514 and section 865.
Using Code K3, enter this information in
box 9 of Schedule K-1 or on an attached
statement.

You must attach a statement to Form
1065-B that specifies foreign source
CAUTION qualified dividends and foreign
source capital gains (losses) within each
separate limitation category.

!

Line 14d(1). Passive category foreign
source income.
This category includes the following
income.
Passive income.
Dividends from a DISC or a former DISC.
Distributions from a former foreign sales
corporation (FSC).
See line 14d(3) for exceptions.

!

Passive income does not include
export financing interest.

CAUTION

Using Code K4(a), enter this information
in box 9 of Schedule K-1 or on an attached
statement.
Line 14d(2). General category foreign
source income. Include all foreign income
sourced at the partnership level that is not
passive category income. See line 14d(3) for
exceptions.
Using Code K4(b), enter this information
in box 9 of Schedule K-1 or on an attached
statement.
Line 14d(3). Other category foreign source
income. Attach a statement listing section
901(j) income and income re-sourced by
treaty.
Using Code K4(c), enter this information
in box 9 of Schedule K-1 or on an attached
statement.

Line 14e. Deductions Allocated
and Apportioned at Partner Level
Enter on line 14e(1) the partnership's total
interest expense (including interest
equivalents under Temporary Regulations
section 1.861-9T(b)). Do not include interest
directly allocable under Temporary
Regulations section 1.861-10T to income
from a specific property. This type of interest
is allocated and apportioned at the
partnership level and is included on lines
14f(1) through (3).
Using Code K5, enter the total interest
expense in box 9 of Schedule K-1 or on an
attached statement.
On line 14e(2), enter the total of all other
deductions or losses that are required to be
allocated at the partner level. For example,
-30-

include on line 14e(2) research and
experimental expenditures (see Regulations
section 1.861-17(f)). Using Code K6, enter
this information in box 9 of Schedule K-1 or
on an attached statement.

Line 14f. Deductions Allocated and
Apportioned at Partnership Level
to Foreign Source Income
Separately report partnership deductions
that are allocated and apportioned at the
partnership level to (1) passive category
foreign source income, (2) general category
foreign source income, and (3) the other
category of foreign source income. See the
instructions for line 14d, earlier, for a
description of categories (1)–(3). Also, see
Pub. 514 for more information.
Note. Creditable foreign expenditures
generally must be allocated in accordance
with each partner's interest in the
partnership. See Treasury Decision 9292,
2006-47 I.R.B. 914, for details.
For partnership and corporate partners
only, attach a statement identifying the total
amount of deductions apportioned to each
category of income shown in the instructions
for line 14d that are attributable to foreign
branches.
Using Code K7(a) for passive category
foreign source income, Code K7(b) for
general category foreign source income, and
Code K7(c) for the other category of foreign
source income, enter this information in
box 9 of Schedule K-1 or on an attached
statement.

Line 14g. Total Foreign Taxes
Enter in U.S. dollars the total foreign taxes
(described in section 901 or section 903) that
were paid or accrued by the partnership
(according to its method of accounting for
such taxes). Translate these amounts into
U.S. dollars by using the applicable
exchange rate (see Pub. 514).
Line 14g. Foreign taxes paid. If the
partnership uses the cash method of
accounting, enter foreign taxes paid during
the year on line 14g and check the “Paid”
box. Report each partner's distributive share
in box 9 of Schedule K-1 using Code K8(a).
Line 14g. Foreign taxes accrued. If the
partnership uses the accrual method of
accounting, enter foreign taxes accrued on
line 14g and check the “Accrued” box.
Report each partner's distributive share in
box 9 of Schedule K-1 using Code K8(b).
A partnership reporting foreign taxes
using the cash method can make an
irrevocable election to report the taxes using
the accrual method for the year of the
election and all future years. Make this
election by reporting all foreign taxes using
the accrual method on line 14g (see
Regulations section 1.905-1).

Separately show the reductions for the
following.
Taxes on foreign mineral income (section
901(e)).
Taxes on foreign oil and gas extraction
income and foreign oil-related income
(section 907(a)).
Taxes attributable to boycott operations
(section 908).
Failure to timely file (or furnish all of the
information required on) Forms 5471 and
8865.
Foreign income taxes paid or accrued
during the current tax year that have been
suspended under section 909.
Any other items (specify).

as Code L in box 9 of Schedule K-1 or on an
attached statement.
2. Other tax-exempt income. On the
statement for line 15, enter all income of the
partnership exempt from tax other than
tax-exempt interest income (for example, life
insurance proceeds). The adjusted basis of
the partner's interest is increased by the
amount shown on this line under section
705(a)(1)(B). Enter this amount as Code M1
in box 9 of Schedule K-1.
3. Nondeductible expenses. Enter
nondeductible expenses paid or incurred by
the partnership. Do not include capital
expenditures or items the deduction for
which is deferred to a later tax year. The
adjusted basis of the partner's interest is
decreased by the amount shown on this line
under section 705(a)(2)(B). Enter this
amount as Code M2 in box 9 of
Schedule K-1.
4. Unrelated business taxable income.
Any information a partner that is a
tax-exempt organization may need to figure
that partner's share of unrelated business
taxable income under section 512(a)(1) (but
excluding any modifications required by
paragraphs (8) through (15) of section
512(b)). Partners are required to notify the
partnership of their tax-exempt status. See
the Instructions for Form 990-T, Exempt
Organization Business Income Tax Return,
and Pub. 598, Tax on Unrelated Business
Income of Exempt Organizations, for more
information. Enter this amount as Code M3 in
box 9 of Schedule K-1.
5. Amounts paid during the tax year for
health insurance coverage, for a partner
(including that partner's spouse,
dependents, and any children under age 27
who are not dependents). See chapter 6 of
Pub. 535 for more information. Enter this
amount as Code M4 in box 9 of
Schedule K-1.
6. Distributions of money (cash and
marketable securities). Enter the total
distributions to each partner of cash and
marketable securities that are treated as
money under section 731(c)(1). Generally,
marketable securities are valued at FMV on
the date of distribution. However, the value
of marketable securities does not include the

Using Code K9 for reduction in taxes
available for credit, enter this information in
box 9 of Schedule K-1 or on an attached
statement.

28% Rate Gain Worksheet—Line 15

Attach a statement reporting the following
information.
1. The total amount of foreign taxes
(including foreign taxes on income sourced
at the partner level) relating to each category
of income (see instructions for line 14d).
2. The dates on which the taxes were
paid or accrued, the exchange rates used,
and the amounts in both foreign currency
and U.S. dollars, for:
Taxes withheld at source on interest,
Taxes withheld at source on dividends,
Taxes withheld at source on rents and
royalties, and
Other foreign taxes paid or accrued.
Splitter arrangements under section 909.
Attach a statement that separately identifies
any arrangement, along with the taxes paid
or accrued in connection with the
arrangement, in which the partnership
participates that would qualify as a splitter
arrangement under section 909 if one or
more partners are covered persons with
respect to an entity that took into account
related income from the arrangement. Also
indicate whether the partnership has taken
into account any related income from any
such splitter arrangement (see section 909
and the related regulations).

Line 14h. Reduction in Taxes
Available for Credit
Attach a statement showing the total
reductions in taxes available for credit.

Line 15

Attach a statement listing other items and
amounts required to be reported separately
to partners. Enter each partner's share in
box 9 or on an attached statement to
Schedule K-1. Examples of items to report
include the following.
1. Any information a partnership must
separately report to its disqualified partners
regarding its oil and gas activities. See
Partnerships Holding Oil and Gas Properties
for more information. Enter this information

distributee partner's share of the gain on the
securities distributed to that partner. See
section 731(c)(3)(B) for details. If this
amount includes marketable securities
treated as money, state separately on an
attachment (a) the partnership's adjusted
basis of those securities immediately before
the distribution and (b) the FMV of those
securities on the date of distribution
(excluding the distributee partner's share of
the gain on the securities distributed to that
partner). Also include the amount of the
credit for the following bonds that are treated
as distributions under sections 54A(g) and
54AA(f)(2). These bonds include new clean
renewable energy bonds, qualified energy
conservation bonds, qualified zone academy
bonds, and build America bonds. These
credit amounts are included in the credit to
holders of these tax credit bonds that is
included in the ELP's general credit. See the
Instructions for Form 8912 for more
information. Enter this information as Code
M5 in box 9 of Schedule K-1 or on an
attached statement.
7. Distributions of property other than
money. Enter the total distributions of
property other than money. In computing the
amount of the distribution, use the adjusted
basis of the property to the partnership
immediately before the distribution. On an
attachment also include the adjusted basis
and FMV of each property distributed. Enter
this information as Code M6 in box 9 of
Schedule K-1 or on an attached statement.
8. Gain from the sale or exchange of
qualified small business (QSB) stock (as
defined in the instructions for Schedule D)
that is eligible for the section 1202 exclusion.
The section 1202 exclusion applies only to
QSB stock issued after August 10, 1993, and
held by the partnership for more than 5
years. Corporate partners are not eligible for
the section 1202 exclusion. Additional
limitations apply at the partner level. Report
each partner's share of section 1202 gain
using Code M7 in box 9 of Schedule K-1.
Each partner will determine if he or she
qualifies for the section 1202 exclusion.
Report with Code M7 on an attachment to
Schedule K-1 for each sale or exchange (a)
the name of the corporation that issued the
QSB stock, (b) the partner's share of the

Keep for Your Records

1.

Enter the total of all collectibles gain or (loss) from items reported on lines 8a
through 14, column (h) of Schedule D (Form 1065-B). . . . . . . . . . . . . . . . .

1.

2.

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

2.

3.

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

3.

4.

Redetermine the amount on line 3 by taking into account 28% rate gain and
losses from passive loss limitation activities. Report the amount allocated to
interests held as a limited partner in box 9 of Schedule K-1 using Code D. Report
amounts allocated to general partners using Codes A3, B3, and C3, in box 9 of
Schedule K-1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.

Subtract line 4 from line 3. Report the amount to all partners in box 9 of
Schedule K-1 using Code E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

5.

-31-

partnership's adjusted basis and sales price
of the QSB stock, and (c) the dates the QSB
stock was bought and sold.
9. Gain eligible for section 1045 rollover
(replacement stock purchased by the
partnership). Include only gain from the sale
or exchange of QSB stock (as defined in the
instructions for Schedule D) that was
deferred by the partnership under section
1045 and reported on Schedule D. See the
instructions for Schedule D for more details.
The partnership makes the election for a
section 1045 rollover on a timely filed
(including extensions) return for the year in
which the sale occurred. Corporate partners
are not eligible for the section 1045 rollover.
Additional limitations apply at the partner
level. Each partner will determine if he or she
qualifies for the rollover. Report with Code
M8 on an attachment to Schedule K-1 for
each sale or exchange (a) the name of the
corporation that issued the QSB stock, (b)
the partner's share of the partnership's
adjusted basis and sales price of the QSB
stock, (c) the dates the stock was bought
and sold, (d) the partner's distributive share
of gain from the sale of the QSB stock, and
(e) the partner's distributive share of the gain
that was deferred by the partnership under
section 1045.
Distribution of replacement QSB stock to
a partner that reduces another partner's
interest in replacement QSB stock. A
partner must recognize gain upon a
distribution of replacement QSB stock to
another partner that reduces the partner's
share of the replacement QSB stock held by
a partnership. The amount of gain that the
partner must recognize is based on the
amount of gain that the partner would
recognize upon a sale of the distributed
replacement QSB stock for its FMV on the
date of the distribution, not to exceed the
amount that the partner previously deferred
under section 1045 with respect to the
distributed replacement QSB stock. If the
partnership distributed a partner's share of
replacement QSB stock to another partner,
the partnership should give the partner
whose share of the replacement QSB stock
is reduced (a) the name of the corporation
that issued the replacement QSB stock, (b)
the date the replacement QSB stock was
distributed to another partner or partners,
and (c) the partner's share of the
partnership's adjusted basis and FMV of the
replacement QSB stock on such date. Use
Code M8 to report this information, and
include this information on the relevant
attachment prepared for Code M8.
10. Gain eligible for section 1045 rollover
(replacement stock not purchased by the
partnership). Include only gain from the sale
or exchange of QSB stock (as defined in the
instructions for Schedule D) the partnership
held for more than 6 months but that was not
deferred by the partnership under section
1045. See the instructions for Schedule D for
more details. A partner (other than a
corporation) may be eligible to defer his or
her distributive share of this gain under
section 1045 if he or she purchases other

QSB stock during the 60-day period that
began on the date the QSB stock was sold
by the partnership. Additional limitations
apply at the partner level. Report with Code
M9 on an attachment to Schedule K-1 for
each sale or exchange (a) the name of the
corporation that issued the QSB stock, (b)
the partner's share of the partnership's
adjusted basis and sales price of the QSB
stock, (c) the dates the QSB stock was
bought and sold, and (d) the partner's
distributive share of gain from the sale of the
QSB stock. For more information, see
Regulations section 1.1045-1.
11. Unrecaptured section 1250 gain. Use
the worksheet, earlier, to figure the
unrecaptured section 1250 gain.
12. 28% rate gain (loss). Use the
worksheet above to figure the 28% rate gain
(loss) (that is, collectibles gain or loss). A
collectibles gain or loss is any long-term gain
or deductible long-term loss from the sale or
exchange of a collectible that is a capital
asset. Collectibles include works of art, rugs,
antiques, metals (such as gold, silver, and
platinum bullion), gems, stamps, coins,
alcoholic beverages, and certain other
tangible property. Also include on the
worksheet any gain (but not loss) from the
sale or exchange of an interest in a
partnership or trust held more than 1 year
and attributable to unrealized appreciation of
collectibles. For details, see Regulations
section 1.1(h)-1. Also attach the statement
required under Regulations section
1.1(h)-1(e).
13. Any information needed by a partner
to figure the interest due under section
1260(b). If any portion of a constructive
ownership transaction was open in any prior
year, each partner's tax liability must be
increased by the partner's pro rata share of
interest due on any deferral of gain
recognition. See section 1260(b) for details,
including how to figure the interest.
14. Extraterritorial income exclusion. See
the instructions under Extraterritorial Income
Exclusion for the information and codes that
are required to be reported in box 9 of
Schedule K-1.
15. Any income or gain reported on lines
1 through 4 of Schedule K that qualifies as
inversion gain, if the partnership is an
expatriated entity or is a partner in an
expatriated entity. For details, see section
7874. Attach a statement to Form 1065-B
that shows the amount of each type of
income or gain included in the inversion gain.
The partnership must report each partner's
distributive share of the inversion gain in
box 9 of Schedule K-1 using Code P. Attach
a statement to Schedule K-1 that shows the
partner's distributive share of the amount of
each type of income or gain included in the
inversion gain.
16. Commercial revitalization deduction
from rental real estate activities. Enter this
amount as Code Q in box 9 of Schedule K-1.
If the deduction is for a nonrental building, it
is deducted by the partnership on line 23 of

-32-

Form 1065-B. See the instructions under
Line 23. Deductions for more information.
17. For corporate partners only, enter the
following information in box 9 for purposes of
the interest deduction limitations under
section 163(j). Using Code R1, enter the
corporate partner's distributive share of
interest income reported in Parts I and II of
the return. Using Code R2, enter the
corporate partner's distributive share of
interest expense reported in Parts I and II of
the return.
18. Domestic production activities
deduction (Codes S1, S2, and S3).
The partnership does not figure the
domestic production activities deduction, but
must provide its partners with the information
they need to figure the deduction on Form
8903, Domestic Production Activities
Deduction. If the partnership meets certain
requirements (explained below), it can
choose to calculate qualified production
activities income (QPAI) and Form W-2
wages (W-2 wages) at the partnership level
and report these amounts on Schedule K-1
for its qualified partners using Codes S2 and
S3. See QPAI and Form W-2 wages figured
at partnership level (Codes S2 and S3)
below for details.
If the partnership does not figure QPAI
and W-2 wages at the partnership level or it
has partners that are required to figure QPAI
and W-2 wages at the partner level, it must
report on Schedule K-1, using Code S1, the
partner's distributive share of the information
listed under QPAI and Form W-2 wages
figured at partner level (Code S1) next.
QPAI and Form W-2 wages figured at
partner level (Code S1). If the partnership
does not calculate QPAI and W-2 wages at
the partnership level, attach a statement to
Schedule K-1 providing each partner's
distributive share of the following information
for Code S1 of box 9. Identify any amounts
from oil-related production activities and list
them separately.
Domestic production gross receipts
(DPGR).
Gross receipts from all sources.
Cost of goods sold allocable to DPGR.
Cost of goods sold from all sources.
Total deductions, expenses, and losses
directly allocable to DPGR.
Total deductions, expenses, and losses
directly allocable to a non-DPGR class of
income.
Other deductions, expenses, and losses
not directly allocable to DPGR or another
class of income.
W-2 wages properly allocable to DPGR.
Any other information a partner needs to
use the section 861 method to allocate and
apportion cost of goods sold and deductions
between DPGR and other receipts.
See Form 8903 and its instructions for more
details. If the partnership chooses to figure
QPAI and Form W-2 wages at the
partnership level, see the instructions below.
QPAI and Form W-2 wages figured at
partnership level (Codes S2 and S3).
Eligible partnerships can choose to figure

QPAI and W-2 wages at the partnership level
and report each qualified partner's
distributive share of QPAI (using Code S2)
and W-2 wages (using Code S3) on
Schedule K-1. See the special rules for
non-qualifying partners of an eligible section
861 partnership below.
Generally, the ELP must allocate QPAI to
its partners in the same proportion as gross
income and allocate W-2 wages in the same
proportion as wage expense. For information
on figuring QPAI and W-2 wages at the
partnership level, see Rev. Proc. 2007-34,
2007-23 I.R.B. 1345, available at
www.irs.gov/pub/irs-irbs/irb07-23.pdf, and
the Instructions for Form 8903. See the
eligibility requirements and reporting rules for
each type of eligible partnership below.
Qualifying in-kind partnerships and
expanded affiliated group partnerships
(defined in Regulations section 1.199-3(i)(7)
and (8)) are not eligible to figure QPAI and
W-2 wages at the partnership level.
QPAI from oil-related activities.
Partnerships figuring QPAI at the partnership
level must report the total amount of QPAI
(including QPAI from oil-related activities)
using Code S2 and attach a statement for
Code S2 to separately report the amount of
oil-related QPAI (if any).
a. Eligible section 861 partnership.
An eligible section 861 partnership is a
partnership that satisfies each of the
following requirements for its current tax
year.
i. It has at least 100 partners on any
day during the partnership's tax year.
ii. At least 70% of the partnership is
owned, at all times during its tax year, by
qualifying partners. A “qualifying partner” is a
partner that, on each day during the
partnership's tax year that the partner owns
an interest in the partnership (a) is not a
general partner or a managing member of a
partnership organized as an LLC, (b) does
not materially participate in the activities of
the partnership, (c) does not own, alone or
combined with the interests of all related
persons, 5% or more of the profits or capital
interests in the partnership, or (d) is not an
ineligible partnership (qualifying in-kind
partnerships and expanded affiliated group
partnerships defined in Regulations section
1.199-3(i)(7) and (8)).
iii. It has DPGR.
An eligible section 861 partnership must
use the section 861 method of cost
allocation to figure QPAI and W-2 wages
(see the Instructions for Form 8903 for
details). The partnership cannot allocate
QPAI and W-2 wages figured at the
partnership level to non-qualifying partners
(qualifying partners are defined as part of the
definition of an eligible section 861
partnership above). Instead, it must attach a
statement to the Schedule K-1 for each
non-qualifying partner that provides the
partner's distributive share of the items listed
under QPAI and Form W-2 wages figured at
partner level (Code S1) above. The
partnership items allocated to non-qualifying

partners must be excluded for purposes of
figuring QPAI and W-2 wages at the
partnership level.
b. Eligible widely held pass-through
partnership. An eligible widely held
pass-through partnership is a partnership
that satisfies each of the following
requirements for the current tax year.
i. It has average annual gross receipts
for the 3 tax years preceding the current tax
year of $100 million or less, or has total
assets at the end of the current tax year of
$10 million or less.
ii. It has total cost of goods sold and
deductions that, together, are $100 million or
less.
iii. It has DPGR.
iv. On every day during the current tax
year, all of its partners are individuals,
estates, or trusts described or treated as
described in section 1361(c)(2).
v. On every day during the current tax
year, no partner owns, alone or combined
with the ownership interests of all related
persons, more than 10% of the profits or
capital interests in the partnership.
An eligible widely held pass-through
partnership must use the simplified
deduction method of cost allocation to figure
QPAI and W-2 wages (see the Instructions
for Form 8903 for details).
c. Eligible small pass-through
partnership. An eligible small pass-through
partnership is a partnership that satisfies
each of the following requirements for the
current tax year.
i. The partnership satisfies one of the
following: (a) It has average annual gross
receipts for the 3 tax years preceding the
current tax year of $5 million or less, (b) it is
engaged in the trade or business of farming
and is not required to use the accrual
method of accounting, or (c) it is eligible to
use the cash method of accounting under
Rev. Proc. 2002-28, 2002-18 I.R.B. 815 (that
is, it has average annual gross receipts of
$10 million or less and is not excluded from
using the cash method under section 448).
ii. It has total costs of goods sold and
deductions that, together, are $5 million or
less.
iii. It has DPGR.
iv. It does not have a partner that is an
ineligible partnership (qualifying in-kind
partnerships and expanded affiliated group
partnerships defined in Regulations section
1.199-3(i)(7) and (8)).
An eligible small pass-through
partnership must use the small business
simplified overall method to figure QPAI and
W-2 wages (see the Instructions for Form
8903 for details).
Note. If a partnership satisfies the
requirements for more than one type of
eligible partnership, it may choose any one
of the allocation methods for which it
qualifies to figure QPAI and W-2 wages. See
Rev. Proc. 2007-34 for more information on
-33-

the eligibility requirements and rules for
figuring QPAI and W-2 wages at the
partnership level.
19. Compensation to partners deferred
under a section 409A nonqualified deferred
compensation plan that does not meet the
requirements of section 409A. Include in this
amount any earnings on these deferrals.
Enter this amount in box 9 of Schedule K-1
using Code T. This amount must also be
included on line 7 of Schedule K,
Guaranteed Payments to Partners. If the
section 409A deferred compensation was
part of a transaction in which the partner was
not acting as a member of the partnership
(under section 707(a)), report the income
and section 409A deferred compensation
information on Form 1099-MISC.
20. Net investment income (Code U).
Use Code U to report any information that
may be relevant for partners to figure their
net investment income tax when the
information is not otherwise identifiable
elsewhere on Schedule K-1. Attach a
statement that shows “Box 9, Code U” and a
description and dollar amount of each
relevant item.
Examples of items reported using Code U
may include the following.
Taxable income (loss) from rental real
estate activities reported on Form 1065-B,
Schedule K, line 1b(2), and taxable income
(loss) from other rental activities reported on
Form 1065-B, Schedule K, line 1b(3),
derived from a section 212 for-profit activity
(and not from a section 162 trade or
business).
Gains and losses from dispositions of
assets attributable to a section 212 for-profit
activity (and not from a section 162 trade or
business).
Gain reported on the installment sale
basis (or attributable to a private annuity) that
is attributable to the disposition of property
held in a trade or business.
Gain or loss from the disposition of a
partnership interest, but only if such
partnership was engaged, directly or
indirectly, in one or more trades or
businesses, and at least one of those trades
or businesses was not trading in financial
instruments or commodities.
The partner's distributive share of interest
income, or interest expense, which is
attributable to a loan between the
partnership and the partner (self-charged
interest).
If the partnership received a Form 1065-B,
Schedule K-1, the detail and amounts
reported to the partnership using Code U.
If the partnership received a Form 1065,
Schedule K-1, the detail and amounts
reported to the partnership using Code Y.
If the partnership received a Form 1041,
Schedule K-1, the amount of the adjustment
reported.
Guaranteed payments (reported on Form
1065-B, Schedule K, line 7, unrelated to
services, such as for the use of capital or
attributable to section 736(a)(2) payments for
unrealized receivables or goodwill).

Deductions included in Part ll that are not
deductible for net investment income tax
purposes. For example:
a. Charitable contributions included on
line 9, or
b. Other deductions included on
line 10b or 11.
In addition, Regulations section
1.1411-10 provides special rules with
respect to stock of CFCs and PFICs owned
by the partnership. If the partnership owns
directly or indirectly stock of a CFC or PFIC,
then additional reporting may be required
under Code U.
CFCs and QEFs. In the case of stock of
CFCs and QEFs directly or indirectly owned
by the partnership, the partnership must
provide the name and EIN (if one has been
issued) for each CFC and QEF the stock of
which is owned by the partnership for which
an election under Regulations section
1.1411-10(g) is not in effect. For each of
these entities, the partnership must provide
the following information on an
entity-by-entity basis (to the extent such
information is not otherwise identifiable
elsewhere on Schedule K-1).
Section 951(a) inclusions.
Section 1293(a)(1)(A) inclusions.
Section 1293(a)(1)(B) inclusions.
Section 959(d) distributions subject to
section 1411.
Section 1293(c) distributions subject to
section 1411.
Amount of gain or loss derived with
respect to the disposition of the stock of
CFCs and QEFs that is taken into account
for section 1411 purposes.
Amounts that are derived with respect to
the disposition of the stock of CFCs and
QEFs and included in income as a dividend
under section 1248 for section 1411
purposes.
In the case of stock of CFCs and QEFs
directly or indirectly owned by the
partnership for which an election under
Regulations section 1.1411-10(g) is in effect,
the partnership must provide the following
information (to the extent such information is
not otherwise identifiable elsewhere on
Schedule K-1), on either an aggregate basis
or an entity-by-entity basis.
Section 951(a) inclusions.
Section 1293(a)(1)(A) inclusions.
Section 1293(a)(1)(B) inclusions.
Section 1296 mark-to-market PFICs. In
the case of stock of PFICs directly or
indirectly owned by the partnership for which
an election under section 1296 is in effect,
the partnership must provide the following
information (to the extent such information is
not otherwise identifiable elsewhere on
Schedule K-1), on either an aggregate basis
or an entity-by-entity basis.
Amounts included in income under
section 1296(a)(1).
Amounts deducted from income under
section 1296(a)(2).

Section 1291 funds. In the case of stock of
PFICs directly or indirectly owned by the
partnership with respect to which direct or
indirect partners are subject to section 1291,
the partnership must provide the following
information (to the extent such information is
not otherwise identifiable elsewhere on
Schedule K-1), on an entity-by-entity basis.
Excess distributions made by a PFIC with
respect to which a partner is subject to
section 1291.
Gains derived with respect to the
disposition of stock of a PFIC with respect to
which a partner is subject to section 1291.
21. Other information (Code V). Use
Code V to report the following items.
Recapture of credits. Report the recapture
of any credit (other than partnership level
low-income housing credit or investment
credit) as a separately stated item. See the
instructions under Line 26. Tax for reporting
partnership-level recapture of the
low-income housing credit and investment
credit.
Any information a partner that is a PTP
may need to determine if it meets the 90%
qualifying income test of section 7704(c)(2).
Partners are required to notify the
partnership of their status as a PTP.
If the partnership participates in a
transaction that must be disclosed on Form
8886, both the partnership and its partners
may be required to file Form 8886. The
partnership must determine if any of its
partners are required to disclose the
transaction and provide those partners with
information they will need to file Form 8886.
This determination is based on the
category(s) under which a transaction
qualified for disclosure. See the Instructions
for Form 8886 for details.
The partner's distributive share of any
conservation reserve program payments
made to the partnership.
The partner's distributive share of the
partnership's gain or loss attributable to the
sale or exchange of qualified preferred stock
of Fannie Mae and Freddie Mac. On an
attached statement, show (a) the gain or
loss attributable to the sale or exchange of
the qualified preferred stock, (b) the date the
stock was acquired by the partnership, and
(c) the date the stock was sold or exchanged
by the partnership. See Rev. Proc. 2008-64,
2008-47 I.R.B. 1195, for more information.
Section 108(i) information. Report the
following.
a. For the deferred COD income, report
the partner's deferred amount that has not
been included in income in the current or
prior tax years.
b. For the deferred OID deduction,
report the partner's share of the partnership's
OID deduction deferred under section 108(i)
(2)(A)(i) that has not been deducted in the
current or prior tax years.
c. For the section 752(b) distribution,
report the partner's share of the deferred
section 752 amount that is treated as a
distribution of money to the partner under
section 752 in the current tax year.

-34-

d. For the deferred section 752(b)
distribution, report the partner's deferred
section 752 amount remaining as of the end
of the current tax year.
e. For previously deferred COD, report
the partner's deferred amount that is
includible in the current year. See section
108(i) for events that will cause previously
deferred income to be reportable, and a
special rule for allocating deferred income to
the partners. For more information, see
Election to defer income from canceled debt,
earlier.
f. For the current OID deduction, report
the partner's share of any OID deduction
previously deferred under section 108(i)(2)
that is allowed as a deduction in the current
year. The aggregate amount of OID that is
deferred is generally allowed as a deduction
ratably over the 5-year period the deferred
COD income is includible in income under
section 108(i). For more information, see
Election to defer income from canceled debt,
earlier.
Special rule for filers of Form 8865. Filers
of Form 8865, Return of U.S. Persons With
Respect to Certain Foreign Partnerships,
cannot report a section 108(i) OID deduction
on Form 8865, in accordance with the
section 108(i) election, unless the foreign
partnership filed a U.S. partnership return
and made this election. A foreign partnership
must file Form 1065 or Form 1065-B to make
the section 108(i) election. These foreign
partnerships also have an annual reporting
requirement on Form 1065 or Form 1065-B
for each tax year after the election until all
items deferred under section 108(i) have
been recognized. See Rev. Proc. 2009-37,
2009-36 I.R.B. 309, and Regulations section
1.108(i)-2 for details.
The information needed to complete
Schedule P (Form 1120-F), List of Foreign
Partner Interests in Partnerships, on an
attached statement for a partner that is (a) a
corporation (identified as a foreign partner
under Regulations section 1.1446-1(c)(3)) or
(b) a partnership (domestic or foreign) if you
know, or have reason to know, that one or
more of the partners is a foreign corporation.
If the partnership allocates effectively
connected income to the partner, provide the
information needed to complete lines 1
through 10, 13, 14, 15b, 17a, 17b, and 18 of
Schedule P (Form 1120-F). If the partnership
does not allocate effectively connected
income to the partner, provide the
information needed to complete lines 13, 14,
and 18 of Schedule P (Form 1120-F). The
information must be provided in a format
which references the specific line numbers of
Schedule P for which the information is
provided. For more information, see the
Instructions for Schedule P (Form 1120-F).
Exceptions.The statement is not required in
the following situations.
1. The direct or indirect foreign corporate
partner provides the partnership with a valid
Form W-8BEN (within the meaning of
Regulations section 1.1446-2(b)(2)(iii)) on
which the corporation claims an exemption
from U.S. tax by operation of an income tax

treaty or reciprocal agreement on the
grounds that none of the income is
attributable to a permanent establishment of
the partner.
2. The partnership does not allocate any
effectively connected income to the partner
(foreign corporation or partnership) and the
partnership receives a written statement from
the partner (corporation or partnership)
indicating that the information is not needed
to determine its (or its direct or indirect
partner(s)) U.S. federal income tax liabilities.
The partner's share of the credit for each
separate bond credit that was reported on
the partnership's Form 8912. Report the
following separately: clean renewable energy
bond credit, new clean renewable energy
bond credit, qualified energy conservation
bond credit, qualified forestry conservation
bond credit, qualified zone academy bond

credit, qualified school construction bond
credit, and build America bond credit.
If the partnership has deductions
attributable to a farming business and
receives an applicable subsidy, report the
aggregate gross income or gain and the
aggregate deductions from the farming
business and any information the partners
need to comply with the limitation on excess
farm losses of certain taxpayers under
section 461(j).
Mark-to-market trader. If a partnership is a
trader in securities and has properly elected
under section 475(f)(1) to mark to market the
securities, the partnership should report
ordinary gain or loss from the securities
trading activities separately from any other
ordinary income.
Any other information a partner may need
to file his or her return that is not shown
elsewhere on Schedule K-1. Enter this

information on an attachment to
Schedule K-1.

Instructions for the
Unrecaptured Section
1250 Gain Worksheet
Lines 1 through 3. If the partnership had
more than one property described on line 1,
complete lines 1 through 3 for each property
on a separate worksheet. Enter the total of
the line 3 amounts for all properties on line 3
and go to line 4.
Line 4. The total unrecaptured section 1250
gain for an installment sale of property held
more than 1 year is figured for the year of
sale in a manner similar to that used to figure
line 3 of the worksheet. However, the
unrecaptured section 1250 gain must be
allocated to the installment payments

Unrecaptured Section 1250 Gain Worksheet—Line 15
TIP

•
•
•
•

If any of the following apply, the partnership does not have to complete all of the worksheet. Instead,
follow the instructions below.
Go to line 4 if the partnership's only unrecaptured section 1250 gain is from an installment sale of trade or business
property held more than 1 year that the partnership is reporting on Form 6252.
Go to line 5 if the partnership's only unrecaptured section 1250 gain is from a Schedule K-1 reporting such gain
from another partnership.
Go to line 10 if the partnership's only unrecaptured section 1250 gain is from the sale or exchange of an interest in
another partnership.
Go to line 11 if the partnership's only unrecaptured section 1250 gain is from a Schedule K-1, Form 1099-DIV, or
Form 2439 reporting such gain from an estate, trust, real estate investment trust, or regulated investment company
(including a mutual fund).
1. If the partnership had a section 1250 property in Part III of Form 4797 for which there
was an entry in Part I of Form 4797 (but not on Form 6252), enter the smaller of line 22
or line 24 of Form 4797 for that property. If the partnership had more than one such
property, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Enter the amount from Form 4797, line 26g, for the property for which the partnership
made an entry on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Enter the total unrecaptured section 1250 gain included on line 26 or line 37 of
Form(s) 6252 from installment sales of trade or business property held more than 1
year (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Enter the total of any amounts reported to the partnership on Schedules K-1 from
another partnership as “unrecaptured section 1250 gain” . . . . . . . . . . . . . . . . . . .
6. Add lines 3 through 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Enter the smaller of line 6 or the gain, if any, from Form 4797,
line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Enter the amount, if any, from Form 4797, line 8 . . . . . . . . . .

2.
3.
4.
5.
6.

7.

8.
9. Subtract line 8 from line 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . .
10. Enter the gain from the sale or exchange of an interest in another partnership
attributable to unrecaptured section 1250 gain. See Regulations section 1.1(h)-1 and
attach the statement required under Regulations section 1.1(h)-1(e) . . . . . . . . . . .
11. Enter the total of any amounts reported to the partnership on Schedule K-1, Form
1099-DIV, or Form 2439 as “Unrecaptured section 1250 gain” from an estate, trust,
real estate investment trust, or mutual fund (or other regulated investment
company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12. Add lines 9 through 11. This is the partnership's “unrecaptured section 1250 gain.”
Report each partner's distributive share with Code N in box 9 of Schedule K-1 . . . .

-35-

1.

9.
10.

11.
12.

received from the sale. To do so, the
partnership generally must treat the gain
allocable to each installment payment as
unrecaptured section 1250 gain until all such
gain has been used in full. Figure the
unrecaptured section 1250 gain for
installment payments received during the tax
year as the smaller of (a) the amount from
line 26 or line 37 of Form 6252 (whichever
applies), or (b) the total unrecaptured section
1250 gain for the sale reduced by all gain
reported in prior years (excluding section
1250 ordinary income recapture). However,
if the partnership chose not to treat all of the
gain from payments received after May 6,
1997, and before August 24, 1999, as
unrecaptured section 1250 gain, use only the
amount the partnership chose to treat as
unrecaptured section 1250 gain for those
payments to reduce the total unrecaptured
section 1250 gain remaining to be reported
for the sale.

Box 9 Codes
(Schedule K-1)

The following codes should be used to
describe the information located in box 9.
Code A1—General partner's taxable
income (loss) from trade or business
activities.
Code A2—General partner's net capital
gain (loss) from trade or business activities.
Code A3—General partner's 28% rate
gain (loss) from trade or business activities.
Code A4—General partner's general
credits from trade or business activities.
Code A5—General partner's alternative
minimum tax adjustment from trade or
business activities.
Code B1—General partner's taxable
income (loss) from rental real estate
activities.
Code B2—General partner's net capital
gain (loss) from rental real estate activities
(for the entire year).
Code B3—General partner's 28% rate
gain (loss) from rental real estate activities.
Code B4—General partner's general
credits from rental real estate activities.
Code B5—General partner's low-income
housing credit from rental real estate
activities.
Code B6—General partner's rehabilitation
credit from rental real estate activities.
Code B7—General partner's alternative
minimum tax adjustment from rental real
estate activities.
Code C1—General partner's taxable
income (loss) from other rental activities.
Code C2—General partner's net capital
gain (loss) from other rental activities.
Code C3—General partner's 28% rate
gain (loss) from other rental activities.
Code C4—General partner's general
credits from other rental activities.
Code C5—General partner's alternative
minimum tax adjustment from other rental
activities.
Code D—Limited partner's 28% rate gain
(loss) from passive activities.
Code E—Limited partner's 28% rate gain
(loss) from other activities.

Code F—Guaranteed payments.
Code G—Income from discharge of
indebtedness.
Code H—Tax-exempt interest income.
Code I—Limited partner's rehabilitation
credit from rental real estate activities.
Code J1—Net earnings (loss) from
self-employment.
Code J2—Gross nonfarm income.
Code K1—Name of foreign country or
U.S. possession.
Code K2—Gross income from all sources.
Code K3—Gross income sourced at
partner level.
Code K4(a)—Passive category foreign
source income.
Code K4(b)—General category foreign
source income.
Code K4(c)—Other category foreign
source income.
Code K5—Interest expense allocated and
apportioned at the partner level.
Code K6—Other expenses allocated and
apportioned at the partner level.
Code K7(a)—Deductions allocated and
apportioned at partnership level to passive
category foreign source income.
Code K7(b)—Deductions allocated and
apportioned at partnership level to general
category foreign source income.
Code K7(c)—Deductions allocated and
apportioned at partnership level to the other
category of foreign source income.
Code K8(a)—Total foreign taxes paid.
Code K8(b)—Total foreign taxes accrued.
Code K9—Reduction in taxes available
for credit.
Code L—Oil and gas activities.
Code M1—Other tax-exempt income.
Code M2—Nondeductible expenses.
Code M3—Unrelated business taxable
income.
Code M4—Health insurance.
Code M5—Distributions of money (cash
and marketable securities).
Code M6—Distributions of property other
than money.
Code M7—Gain eligible for section 1202
exclusion.
Code M8—Gain eligible for section 1045
rollover-stock replaced.
Code M9—Gain eligible for section 1045
rollover-stock not replaced.
Code N—Unrecaptured section 1250
gain.
Code O1—Foreign trading gross receipts.
Code O2—Extraterritorial income
exclusion.
Code P—Inversion gain.
Code Q—Commercial revitalization
deduction.
Code R1—Corporate partner's interest
income.
Code R2—Corporate partner's interest
expense.
Code S1—Domestic production activities
information.
Code S2—Qualified production activities
income.
Code S3—Employer's W-2 wages.
Code T—Section 409A nonqualified
deferred compensation.
Code U—Net investment income.
-36-

Code V—Other information.

Analysis of Net Income
(Loss)
For each type of partner shown, enter the
portion of the amount shown on line 1 that
was allocated to that type of partner. Report
all amounts for LLC members on the line for
limited partners. The sum of the amounts
shown on line 2 must equal the amount
shown on line 1 of Analysis of Income (Loss).
In addition, the amount on line 1 must equal
the amount on line 9, Schedule M-1. If the
partnership files Schedule M-3, the amount
on line 1 must equal the amount in column
(d) of line 26, Part II of Schedule M-3.
In classifying partners who are individuals
as “active” or “passive,” the partnership
should apply the rules below. In applying
these rules, a partnership should classify
each partner to the best of its knowledge and
belief. It is assumed that in most cases the
level of a particular partner's participation in
an activity will be apparent.
1. If the partnership's principal activity is
a trade or business, classify a general
partner as “active” if the partner materially
participated in all partnership trade or
business activities; otherwise, classify a
general partner as “passive.”
2. If the partnership's principal activity
consists of a working interest in an oil or gas
well, classify a general partner as “active.”
3. If the partnership's principal activity is
a rental real estate activity, classify a general
partner as “active” if the partner actively
participated in all of the partnership's rental
real estate activities; otherwise, classify a
general partner as “passive.”
4. Classify as “passive” all partners in a
partnership whose principal activity is a
rental activity other than a rental real estate
activity.
5. If the partnership's principal activity is
a portfolio activity, classify all partners as
“active.”
6. Classify as “passive” all limited
partners and LLC members in a partnership
whose principal activity is a trade or business
or rental activity.
7. If the partnership cannot make a
reasonable determination whether a
partner's participation in a trade or business
activity is material or whether a partner's
participation in a rental real estate activity is
active, classify the partner as “passive.”

Schedule L. Balance
Sheets per Books

The balance sheets should agree with the
ELP's books and records. Attach a statement
explaining any differences.
Partnerships reporting to the Interstate
Commerce Commission (ICC) or to any
national, state, municipal, or other public
officer can send copies of their balance
sheets prescribed by the ICC or national,

state, or municipal authorities, as of the
beginning and end of the tax year, instead of
completing Schedule L. However,
statements filed under this procedure must
contain sufficient information to enable the
IRS to reconstruct a balance sheet similar to
that contained on Form 1065-B without
contacting the partnership during
processing.
All amounts on the balance sheet should
be reported in U.S. dollars. If the
partnership's books and records are kept in a
foreign currency, the balance sheet should
be translated in accordance with U.S.
generally accepted accounting principles
(GAAP).
Exception. If the partnership or any
qualified business unit of the partnership
uses the United States dollar approximate
separate transactions method, Schedule L
should reflect the tax balance sheet
prepared and translated into U.S. dollars
according to Regulations section 1.985-3(d),
and not a U.S. GAAP balance sheet.

Partnerships Required To File
Schedule M-3

For partnerships required to file
Schedule M-3, the amounts reported on
Schedule L must be the same as the
amounts from financial statements used to
complete Schedule M-3. If the partnership
prepares non-tax-basis financial statements,
Schedule M-3 and Schedule L must report
non-tax-basis financial statement amounts. If
the partnership does not prepare
non-tax-basis financial statements,
Schedule L must be based on the
partnership's books and records and may
show tax-basis balance sheet amounts if the
partnership books and records reflect only
tax-basis amounts.

Line 5. Tax-Exempt Securities

Include on this line:
1. State and local government
obligations, the interest on which is
excludable from gross income under section
103(a); and
2. Stock in a mutual fund or other RIC
that distributed exempt-interest dividends
during the tax year of the partnership.

Line 7a. Loans to Partners (or
Persons Related to Partners)

Include on this line loans to partners or
persons related to partners. Persons are
related if they have a relationship specified in
sections 267(b) or 707(b). Amounts included
here should not be included elsewhere on
lines 1 through 13.

Line 14. Total Assets

For purposes of measuring total assets at
the end of the year, the partnership's assets
may not be netted against or reduced by
partnership liabilities. In addition, asset
amounts may not be reported as a negative
number. If the partnership has an interest in
another partnership and uses a tax-basis
method for Schedule L, it must show as an
asset the adjusted basis of its interest in the
other partnership and separately show as a
liability its share of the other partnership's
liabilities (which are included in the
computation of its adjusted basis). See the
Partner's Instructions for Schedule K-1 (Form
1065-B) for details on how to figure the
adjusted basis of a partnership interest. If
Schedule L is non-tax-basis, investment in a
partnership may be shown as appropriate
under the non-tax-basis accounting method
of the partnership including, if required by the
non-tax-basis accounting method of the
partnership, the equity method of accounting
for investments, but must be shown as a
non-negative amount.
Example. Partnership A prepares a
tax-basis Schedule L and is a general
partner in Partnership B, a general
partnership. Partnership A's adjusted basis
in Partnership B at the end of the tax year is
$16 million. Partnership A's share of
Partnership B's liabilities is $20 million, which
is included in the $16 million adjusted basis
amount. On its Schedule L, Partnership A
must report $16 million on line 8 as the
amount of its investment asset in Partnership
B and report on line 21 its $20 million share
of Partnership B's liabilities. These amounts
cannot be netted on Schedule L.

Line 18. All Nonrecourse Loans

Nonrecourse loans are those liabilities of the
partnership for which no partner bears the
economic risk of loss. If the partnership's
nonrecourse liabilities include its share of the
liabilities of another partnership, the
partnership's share of those liabilities must
be reflected on line 18.

Line 19a. Loans From Partners
(or Persons Related to
Partners)

Include on this line loans from partners or
persons related to partners. Persons are
related to partners if they have a relationship
specified in sections 267(b) or 707(b).
Amounts included here should not be
included elsewhere on lines 15 through 21.

Line 20. Other Liabilities

A partnership that is a partner in a tiered
partnership must include as a liability on
line 20 the partner's share of the tiered
partnership's liabilities to the extent they are
recourse liabilities to the partner.

Generally, total assets at the beginning of the
year (Schedule L, line 14, column (b)) must
equal total assets at the close of the prior tax
year (Schedule L, line 14, column (d)). If total
assets at the beginning of the year do not
equal total assets at the close of the prior
year, attach a statement explaining the
difference.
-37-

Schedule M-1.
Reconciliation of Income
(Loss) per Books With
Income (Loss) per Return
Note. Schedule M-3 may be required
instead of Schedule M-1. See Item J.
Schedule M-3 (Form 1065), earlier. See the
Instructions for Schedule M-3 for more
information.

Line 2

Report on this line income included on
Schedule K, lines 1c, 1d, 2, 3, 4a, 4b, and 8
not recorded on the partnership's books this
year. Describe each such item of income.
Attach a statement if necessary.

Line 3. Guaranteed Payments

Include on this line guaranteed payments
shown on Schedule K, line 7.

Line 4b. Travel and
Entertainment

Include on this line the following.
Meal and entertainment expenses not
deductible under section 274(n).
Expenses for the use of an entertainment
facility. See Code Sec. 274(a)(1)(B).
The part of business gifts over $25. See
Code Sec. 274(b).
Expenses of an individual allocable to
conventions on cruise ships over $2,000.
See Code Sec. 274(h)(2).
Employee achievement awards over
$400. See Code Sec. 274(j)(2)(A).
The part of the cost of entertainment
tickets that exceeds face value (also subject
to 50% limit). See Code Sec. 274(I)(1)(A).
The part of the cost of skyboxes that
exceeds the face value of nonluxury box seat
tickets. See Code Sec. 274(I)(2).
The part of the cost of luxury water travel
expenses not deductible under section
274(m)(1)(A).
Expenses for travel as a form of
education. See Code Sec. 274(m)(2).
Nondeductible club dues. See Code Sec.
274(a)(3).
Other travel and entertainment expenses
not allowed as a deduction.

Schedule M-2. Analysis of
Partners' Capital Accounts
Show what caused the changes during the
tax year in the partners' capital accounts as
reflected on the partnership's books and
records.
The partnership may use the tax-basis
amount or apply the rules in Regulations
section 1.704-1(b)(2)(iv) to determine the
partners' capital accounts in Schedule M-2. If
the beginning and ending capital accounts
reported under these rules differ from the
amounts reported on Schedule L, attach a
statement reconciling any differences.

Line 2. Capital Contributed
During Year

Include on line 2a the amount of money
contributed and on line 2b the amount of
property contributed by each partner to the
partnership as reflected on the partnership's
books and records.

Line 3. Net Income (Loss) per
Books

Enter on line 3 the net income (loss) shown
on the partnership books used in maintaining

the partners' capital accounts for purposes of
Schedule K-1.

Line 6. Distributions
Line 6a. Cash. Enter on line 6a the amount
of money distributed to each partner by the
partnership. For purposes of line 6a,
"money" includes marketable securities, as
described in section 731(c).
Line 6b. Property. Enter on line 6b the
amount of property distributed to each
partner by the partnership as reflected on the

-38-

partnership's books and records. Include
withdrawals from inventory for the personal
use of a partner.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States.
You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect
the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may
become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required
by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of December
2016, for taxpayers filing 2016 Forms 1065, 1065-B, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120S, 1120-SF, 1120-FSC, 1120-L,
1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time
burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses
incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and
photocopying costs, and tax preparation software costs. While these estimates do not include burden associated with post-filing activities, IRS
operational data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and do not necessarily reflect a “typical” case. Most taxpayers experience lower
than average burden, with taxpayer burden varying considerably by taxpayer type. For instance, the estimated average time burden for all
taxpayers filing Forms 1065, 1066, or 1120 and related forms is 275 hours, with an average cost of $4,700 per return. This average includes
all associated forms and schedules, across all preparation methods and taxpayer activities.
The average burden for taxpayers filing Forms 1065, 1065-B, 1066, and related attachments is about 388 hours and $13,000; the average
burden for taxpayers filing Form 1120 and associated forms is about 610 hours and $26,233; and the average for Forms 1120-REIT,
1120-RIC, 1120S, and all related attachments is 363 hours and $12,467. Within each of these estimates there is significant variation in
taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type
of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these estimates.

Table 1—Taxpayer Burden for Entities Taxed as Partnerships
Forms 1065, 1065-B, 1066, and all attachments
Primary Form Filed or Type of Taxpayer

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer

3.9

290

$5,700

Small

3.7

270

$4,400

Large*

0.2

610

$29,000

All Partnerships

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that does not meet the definition of a large business.

Table 2—Taxpayer Burden for Entities Taxed as Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of Taxpayer

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer
$6,300

All Taxable Corporations

2.1

315

Small

2.0

280

$4,000

Large*

0.1

1,250

$68,900

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that does not meet the definition of a large business.

Table 3—Taxpayer Burden for Entities Taxed as Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120S, and all attachments
Primary Form Filed or Type of Taxpayer

Number of Returns (millions)

Average Time per Taxpayer (hours)

Average Cost per Taxpayer

4.9

245

$3,500

Small

4.8

240

$3,100

Large*

0.1

610

$30,800

All Pass-Through Corporations

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that does not meet the definition of a large business.

Comments. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we
would be happy to hear from you. You can send us comments from www.irs.gov/formspubs. Click on “More Information” and then on “Give us
feedback.” Or you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington,
DC 20224. Do not send the tax form to this address. Instead, see Where To File, earlier, near the beginning of the instructions.

-39-

Codes for Principal Business
Activity and Principal Product or
Service
This list of Principal Business Activities and their associated
codes is designed to classify an enterprise by the type of
activity in which it is engaged to facilitate the administration
of the Internal Revenue Code. These Principal Business
Activity Codes are based on the North American Industry
Classification System.

Agriculture, Forestry, Fishing
and Hunting
Crop Production
111100 Oilseed & Grain Farming
111210 Vegetable & Melon Farming
(including potatoes & yams)
111300 Fruit & Tree Nut Farming
111400 Greenhouse, Nursery, &
Floriculture Production
111900 Other Crop Farming (including
tobacco, cotton, sugarcane, hay,
peanut, sugar beet & all other crop
farming)
Animal Production
112111 Beef Cattle Ranching & Farming
112112 Cattle Feedlots
112120 Dairy Cattle & Milk Production
112210 Hog & Pig Farming
112300 Poultry & Egg Production
112400 Sheep & Goat Farming
112510 Aquaculture (including shellfish &
finfish farms & hatcheries)
112900 Other Animal Production
Forestry and Logging
113110 Timber Tract Operations
113210 Forest Nurseries & Gathering of
Forest Products
113310 Logging
Fishing, Hunting and Trapping
114110 Fishing
114210 Hunting & Trapping
Support Activities for Agriculture and
Forestry
115110 Support Activities for Crop
Production (including cotton
ginning, soil preparation, planting,
& cultivating)
115210 Support Activities for Animal
Production
115310 Support Activities For Forestry

Mining
211110
212110
212200
212310
212320
212390
213110

Oil & Gas Extraction
Coal Mining
Metal Ore Mining
Stone Mining & Quarrying
Sand, Gravel, Clay, & Ceramic &
Refractory Minerals Mining &
Quarrying
Other Nonmetallic Mineral Mining
& Quarrying
Support Activities for Mining

Utilities
221100
221210
221300
221500

Electric Power Generation,
Transmission & Distribution
Natural Gas Distribution
Water, Sewage & Other Systems
Combination Gas & Electric

Construction

Construction of Buildings
236110 Residential Building Construction
236200 Nonresidential Building
Construction
Heavy and Civil Engineering Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil Engineering
Construction
Specialty Trade Contractors
238100 Foundation, Structure, & Building
Exterior Contractors (including
framing carpentry, masonry, glass,
roofing, & siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors
238300 Building Finishing Contractors
(including drywall, insulation,
painting, wallcovering, flooring, tile,
& finish carpentry)
238900 Other Specialty Trade Contractors
(including site preparation)

Using the list of activities and codes below, determine
from which activity the business derives the largest
percentage of its “total receipts.” Total receipts is defined
as the sum of gross receipts or sales (Part I, line 1a); all
other income from Part I, lines 5, 6, 7, 9, and 10; Part II,
lines 1, 2a, 3, and 5; income or net gain from Schedule D,
lines 5 and 11; and income or net gain reported on Form
8825, lines 2, 19, and 20a. If the business purchases raw
materials and supplies them to a subcontractor to produce
the finished product, but retains title to the product, the

Manufacturing
Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery Product
Mfg
311400 Fruit & Vegetable Preserving &
Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering and
Processing
311710 Seafood Product Preparation &
Packaging
311800 Bakeries, Tortilla & Dry Pasta Mfg
311900 Other Food Mfg (including coffee,
tea, flavorings & seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel Contractors
315220 Men's & Boys' Cut & Sew Apparel
Mfg
315240 Women's, Girls' & Infants' Sew
Apparel Mfg
315280 Other Cut & Sew Apparel Mfg
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product Manufacturing
316110 Leather & Hide Tanning &
Finishing
316210 Footwear Mfg (including rubber &
plastics)
316990 Other Leather & Allied Product Mfg
Wood Product Manufacturing
321110 Sawmills & Wood Preservation
321210 Veneer, Plywood, & Engineered
Wood Product Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard Mills
322200 Converted Paper Product Mfg
Printing and Related Support Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries (including
integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal Products
Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine Mfg
325500 Paint, Coating, & Adhesive Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral Product
Mfg

business is considered a manufacturer and must use one of
the manufacturing codes (311110–339900).
Once the Principal Business Activity is determined,
enter the six-digit code from the list below on page 1, item
C. Also enter a brief description of the business activity in
item A and the principal product or service of the business
in item B.

Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy Mfg
331200 Steel Product Mfg from Purchased
Steel
331310 Alumina & Aluminum Production &
Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural Metals
Mfg
332400 Boiler, Tank, & Shipping Container
Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned Product; &
Screw, Nut, & Bolt Mfg
332810 Coating, Engraving, Heat Treating,
& Allied Activities
332900 Other Fabricated Metal Product
Mfg
Machinery Manufacturing
333100 Agriculture, Construction, & Mining
Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service Industry
Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, & Commercial
Refrigeration Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg
333900 Other General Purpose Machinery
Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral Equipment
Mfg
334200 Communications Equipment Mfg
334310 Audio & Video Equipment Mfg
334410 Semiconductor & Other Electronic
Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing & Reproducing
Magnetic & Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment Mfg
335200 Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building
336990 Other Transportation Equipment
Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment & Supplies Mfg
339900 Other Miscellaneous
Manufacturing

Wholesale Trade

Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except
Petroleum)

-40-

423600

Household Appliances & Electrical
& Electronic Goods
Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, & Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone, &
Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries
424300 Apparel, Piece Goods, & Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum Products
424800 Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco & Tobacco Products
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Electronic Markets and Agents
and Brokers
425110 Business to Business Electronic
Markets
425120 Wholesale Trade Agents & Brokers
423700

Retail Trade

Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441222 Boat Dealers
441228 Motorcycle, ATV, & All Other Motor
Vehicle Dealers
441300 Automotive Parts, Accessories, &
Tire Stores
Furniture and Home Furnishings Stores
442110 Furniture Stores
442210 Floor Covering Stores
442291 Window Treatment Stores
442299 All Other Home Furnishings Stores
Electronics and Appliance Stores
443141 Household Appliance Stores
443142 Electronic Stores (including Audio,
Video, Computer, & Camera
Stores)
Building Material and Garden Equipment
and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Stores
444130 Hardware Stores
444190 Other Building Material Dealers
444200 Lawn & Garden Equipment &
Supplies Stores
Food and Beverage Stores
445110 Supermarkets and Other Grocery
(except Convenience) Stores
445120 Convenience Stores
445210 Meat Markets
445220 Fish & Seafood Markets
445230 Fruit & Vegetable Markets
445291 Baked Goods Stores
445292 Confectionery & Nut Stores
445299 All Other Specialty Food Stores
445310 Beer, Wine, & Liquor Stores
Health and Personal Care Stores
446110 Pharmacies & Drug Stores
446120 Cosmetics, Beauty Supplies, &
Perfume Stores
446130 Optical Goods Stores
446190 Other Health & Personal Care
Stores

Codes for Principal Business Activity and Principal Product or Service (Continued)
Gasoline Stations
447100 Gasoline Stations (including
convenience stores with gas)
Clothing and Clothing Accessories Stores
448110 Men's Clothing Stores
448120 Women's Clothing Stores
448130 Children's & Infants' Clothing
Stores
448140 Family Clothing Stores
448150 Clothing Accessories Stores
448190 Other Clothing Stores
448210 Shoe Stores
448310 Jewelry Stores
448320 Luggage & Leather Goods Stores
Sporting Goods, Hobby, Book, and Music
Stores
451110 Sporting Goods Stores
451120 Hobby, Toy, & Game Stores
451130 Sewing, Needlework, & Piece
Goods Stores
451140 Musical Instrument & Supplies
Stores
451211 Book Stores
451212 News Dealers & Newsstands
General Merchandise Stores
452110 Department Stores
452900 Other General Merchandise Stores
Miscellaneous Store Retailers
453110 Florists
453210 Office Supplies & Stationery Stores
453220 Gift, Novelty, & Souvenir Stores
453310 Used Merchandise Stores
453910 Pet & Pet Supplies Stores
453920 Art Dealers
453930 Manufactured (Mobile) Home
Dealers
453990 All Other Miscellaneous Store
Retailers (including tobacco,
candle, & trophy shops)
Nonstore Retailers
454110 Electronic Shopping & Mail-Order
Houses
454210 Vending Machine Operators
454310 Fuel Dealers (including Heating Oil
and Liquefied Petroleum)
454390 Other Direct Selling
Establishments (including
door-to-door retailing, frozen food
plan providers, party plan
merchandisers, & coffee-break
service providers)

Transportation and
Warehousing

Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation
Truck Transportation
484110 General Freight Trucking, Local
484120 General Freight Trucking,
Long-distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi Service
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground Passenger
Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for Road
Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers
492210 Local Messengers & Local Delivery

Warehousing and Storage
493100 Warehousing & Storage (except
lessors of miniwarehouses &
self-storage units)

Real Estate and Rental and
Leasing

Information

Publishing Industries (except Internet)
511110 Newspaper Publishers
511120 Periodical Publishers
511130 Book Publishers
511140 Directory & Mailing List Publishers
511190 Other Publishers
511210 Software Publishers
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Broadcasting (except Internet)
515100 Radio & Television Broadcasting
515210 Cable & Other Subscription
Programming
Telecommunications
517000 Telecommunications (including
paging, cellular, satellite, cable &
other program distribution,
resellers, other
telecommunications, & internet
service providers)
Data Processing Services
518210 Data Processing, Hosting, &
Related Services
Other Information Services
519100 Other Information Services
(including news syndicates,
libraries, internet publishing &
broadcasting)

Finance and Insurance

Depository Credit Intermediation
522110 Commercial Banking
522120 Savings Institutions
522130 Credit Unions
522190 Other Depository Credit
Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers & originators)
522293 International Trade Financing
522294 Secondary Market Financing
522298 All Other Nondepository Credit
Intermediation
Activities Related to Credit Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, & money
transmitting)
Securities, Commodity Contracts, and
Other Financial Investments and Related
Activities
523110 Investment Banking & Securities
Dealing
523120 Securities Brokerage
523130 Commodity Contracts Dealing
523140 Commodity Contracts Brokerage
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment advice)
Insurance Carriers and Related Activities
524140 Direct Life, Health, & Medical
Insurance & Reinsurance Carriers
524150 Direct Insurance & Reinsurance
(except Life, Health & Medical)
Carriers
524210 Insurance Agencies & Brokerages
524290 Other Insurance Related Activities
(including third-party administration
of insurance and pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee Benefit
Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles (including
mortgage REITs & closed-end
investment funds)
“Offices of Bank Holding Companies” and
“Offices of Other Holding Companies” are
located under Management of Companies
(Holding Companies) below.

Real Estate
531110 Lessors of Residential Buildings &
Dwellings (including equity REITs)
531120 Lessors of Nonresidential
Buildings (except Miniwarehouses)
(including equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including equity
REITs)
531190 Lessors of Other Real Estate
Property (including equity REITs)
531210 Offices of Real Estate Agents &
Brokers
531310 Real Estate Property Managers
531320 Offices of Real Estate Appraisers
531390 Other Activities Related to Real
Estate
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532220 Formal Wear & Costume Rental
532230 Video Tape & Disc Rental
532290 Other Consumer Goods Rental
532310 General Rental Centers
532400 Commercial & Industrial Machinery
& Equipment Rental & Leasing
Lessors of Nonfinancial Intangible Assets
(except copyrighted works)
533110 Lessors of Nonfinancial Intangible
Assets (except copyrighted works)

Professional, Scientific, and
Technical Services

Legal Services
541110 Offices of Lawyers
541190 Other Legal Services
Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and Related
Services
541310 Architectural Services
541320 Landscape Architecture Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying & Mapping
Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and Related
Services
541511 Custom Computer Programming
Services
541512 Computer Systems Design
Services
541513 Computer Facilities Management
Services
541519 Other Computer Related Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting Services
541700 Scientific Research &
Development Services
541800 Advertising & Related Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional, Scientific, &
Technical Services

Management of Companies
(Holding Companies)
551111
551112

-41-

Offices of Bank Holding
Companies
Offices of Other Holding
Companies

Administrative and Support and
Waste Management and
Remediation Services
Administrative and Support Services
561110 Office Administrative Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation Services
561420 Telephone Call Centers
561430 Business Service Centers
(including private mail centers &
copy shops)
561440 Collection Agencies
561450 Credit Bureaus
561490 Other Business Support Services
(including repossession services,
court reporting, & stenotype
services)
561500 Travel Arrangement & Reservation
Services
561600 Investigation & Security Services
561710 Exterminating & Pest Control
Services
561720 Janitorial Services
561730 Landscaping Services
561740 Carpet & Upholstery Cleaning
Services
561790 Other Services to Buildings &
Dwellings
561900 Other Support Services (including
packaging & labeling services, &
convention & trade show
organizers)
Waste Management and Remediation
Services
562000 Waste Management &
Remediation Services

Educational Services
611000

Educational Services (including
schools, colleges, & universities)

Health Care and Social
Assistance

Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
621210 Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except Physicians)
621340 Offices of Physical, Occupational &
Speech Therapists, & Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other Miscellaneous
Health Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory Surgical
& Emergency Centers
621498 All Other Outpatient Care Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic Laboratories
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care Services
621900 Other Ambulatory Health Care
Services (including ambulance
services & blood & organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing, &
Emergency & Other Relief
Services
624310 Vocational Rehabilitation Services
624410 Child Day Care Services

Arts, Entertainment, and
Recreation

Performing Arts, Spectator Sports, and
Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including sports
clubs & racetracks)

Codes for Principal Business Activity and Principal Product or Service (Continued)
711300

Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for Artists,
Athletes, Entertainers, & Other
Public Figures
711510 Independent Artists, Writers, &
Performers
Museums, Historical Sites, and Similar
Institutions
712100 Museums, Historical Sites, &
Similar Institutions
Amusement, Gambling, and Recreation
Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement & Recreation
Industries (including golf courses,
skiing facilities, marinas, fitness
centers, & bowling centers)

Accommodation and Food
Services

Accommodation
721110 Hotels (except Casino Hotels) &
Motels

721120
721191
721199
721210

Casino Hotels
Bed & Breakfast Inns
All Other Traveler Accommodation
RV (Recreational Vehicle) Parks &
Recreational Camps
721310 Rooming & Boarding Houses
Food Services and Drinking Places
722300 Special Food Services (including
food service contractors &
caterers)
722410 Drinking Places (Alcoholic
Beverages)
722511 Full Service Restaurants
722513 Limited Service Restaurants
722514 Cafeterias & Buffets
722515 Snack & Nonalcoholic Beverage
Bars

Other Services

Repair and Maintenance
811110 Automotive Mechanical &
Electrical Repair & Maintenance
811120 Automotive Body, Paint, Interior, &
Glass Repair

811190

Other Automotive Repair &
Maintenance (including oil change
& lubrication shops & car washes)
811210 Electronic & Precision Equipment
Repair & Maintenance
811310 Commercial & Industrial Machinery
& Equipment (except Automotive &
Electronic) Repair & Maintenance
811410 Home & Garden Equipment &
Appliance Repair & Maintenance
811420 Reupholstery & Furniture Repair
811430 Footwear & Leather Goods Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care Services
(including diet & weight reducing
centers)
812210 Funeral Homes & Funeral Services
812220 Cemeteries & Crematories

-42-

812310

Coin-Operated Laundries &
Drycleaners
812320 Drycleaning & Laundry Services
(except Coin-Operated)
812330 Linen & Uniform Supply
812910 Pet Care (except Veterinary)
Services
812920 Photofinishing
812930 Parking Lots & Garages
812990 All Other Personal Services
Religious, Grantmaking, Civic,
Professional, and Similar Organizations
813000 Religious, Grantmaking, Civic,
Professional, & Similar
Organizations (including
condominium and homeowners
associations)

Index
A
Accounting Methods 4
Accounting methods:
Accrual method 4
Change in accounting
method 5
Mark-to-Market Accounting
Method 4
Traders in securities or
commodities, and
dealers in
commodities 4
Accounting Periods 5
Activities of Electing Large
Partnerships (ELPs) 10
Administrative Adjustment
Requests:
Form 8082 5
Analysis of Net Income
(Loss) 36
Assembling the Return 7
At-risk activities 27
C
Capital Assets 22
Capital Gains and Losses 22
Charitable Contributions 21
Codes:
Principal Business
Activity 40
Schedule K-1, Box 9 36
Contributions to the
Partnership 9
D
Deductions 16
Bad Debts 17
Depletion 18
Depreciation 18
Employee Benefit
Programs 19
Guaranteed Payments to
Partners 17
Interest 18
Limitations 16
Other Deductions 19
Rent 17
Repairs and Maintenance 17
Retirement Plans, etc. 18
Salaries and Wages 17
Section 179 Expense 18
Section 263A uniform
capitalization rules 16
Special Rules:
Entertainment
facilities 19
Meals and
entertainment 19
Membership dues 19

Travel 19
Taxes and Licenses 18
Definitions 2
Depreciation 18
Discharge of Indebtedness 28
Dispositions of Contributed
Property 9
Distributions 38

Items for Special Treatment 23
Constructive sale
treatment 24
Rollover of Gain from
Qualified Stock 24
Special Rules for Traders in
Securities 24
L
Limitations on Deductions 16
Limited Liability Company 2
Limited Liability Partnership 2
Limited Partner 2
Limited Partnership 2
Loans from partners or related to
partners 37
Loans to partners 37

E
Elections:
By each partner 9
By the partnership 8
Electronic Filing 2
Extension 3
Extraterritorial income
exclusion 13
Extraterritorial Income
Exclusion 32

M
Miscellaneous Itemized
Deductions 21

F
Foreign Accounts 22
Foreign Disregarded Entity 22
Foreign Partners 22
Foreign Partnership 2
Foreign Tax Credit 29
Forms and Publications, How to
Get 1
Future Development 1

N
Net Earnings From
Self-Employment 29
Nonrecourse Loans 2, 37
O
Ordinary dividends 20
Overview of Large Partnership
Provisions 8, 23

G
General Credits 28
General Partner 2
General Partnership 2
Guaranteed Payments to
Partners 17, 37
I
Inclusion Amount 17
Income:
Gross Receipts or Sales 15
Net Farm Profit (Loss) 15
Net Gain (Loss) From Form
4797 15
Net Income (Loss) From
Rental Real Estate
Activities 15
Ordinary Income (Loss) From
Other Partnerships,
Estates, and Trusts 15
Other Income (Loss) 15
Interest charged 3
Interest Income 12, 20
Inversion Gain 32
Investment Interest 21

P
Paid Preparer's Information 3
Paid Preparer Authorization 3
Partner's Share of Liabilities
(Schedule K-1) 27
Partnership Holding:
Oil and Gas Properties 13
Residual Interests in Real
Estate Mortgage
Investment Conduits
(REMICs) 13
Passive Activity Reporting
Requirements 11
Passive Loss Limitation
Activities 10
Penalties:
Failure To Furnish
Information Timely 4
Late Filing of Return 4
Late Payment of Tax 4
Trust Fund Recovery
Penalty 4
Private Delivery Services 3
Publicly Traded Partnerships 13

-43-

Q
Qualified dividends 20
R
Recordkeeping 5
Rental Activities 10
S
Schedule D–Capital Gains and
Losses 22
Specific Instructions 25
Schedule K and K-1, Partner's
Shares of Income, Credits,
Deductions, etc. 26
Schedule L, Balance Sheets per
Books 36
Schedule M-1, Reconciliation of
Income (Loss) 37
Schedule M-2, Analysis of
Partners' Capital
Accounts 37
Section 108(i) 14, 34
Section 179 Expense
Deduction 18
Section 263A uniform
capitalization rules 16
Self-charged interest 11
Separately Stated Items 8
Substitute Forms 26
Syndication Costs 16
T
Tax 20
Tax-Exempt Interest Income 28
Tax-Exempt Partners 13
Tax-Exempt Securities 37
Termination of the Partnership 2
Trade or Business Activities 10
Transactions Between Related
Taxpayers 16
Travel and Entertainment 37
U
Unrealized Receivables and
Inventory Items 10
Unrecaptured section 1250
gain 32, 35
W
What's New 1
When To File 3
Where To File 3
Who Must Sign 3