1065 Schedule K-1 Instruction Form 1065 Schedule K-1

2016

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

Department of the Treasury
Internal Revenue Service

Partner's Share of Income, Deductions, Credits, etc.
(For Partner's Use Only)
Section references are to the Internal Revenue Code
unless otherwise noted.

Future Developments
For the latest information about
developments related to Schedule K-1 (Form
1065) and the Partner's Instructions for
Schedule K-1 (Form 1065), such as
legislation enacted after they were
published, go to www.irs.gov/form1065.

General Instructions
Purpose of Schedule K-1

The partnership uses Schedule K-1 to report
your share of the partnership's income,
deductions, credits, etc. Keep it for your
records. Do not file it with your tax return
unless you are specifically required to do so.
(See the instructions for Code O. Backup
withholding, later.) The partnership files a
copy of Schedule K-1 (Form 1065) with the
IRS.
For your protection, Schedule K-1 may
show only the last four digits of your
identifying number (social security number
(SSN), etc.). However, the partnership has
reported your complete identifying number to
the IRS.
Although the partnership generally isn't
subject to income tax, you may be liable for
tax on your share of the partnership income,
whether or not distributed. Include your
share on your tax return if a return is
required. Use these instructions to help you
report the items shown on Schedule K-1 on
your tax return.
The amount of loss and deduction you
may claim on your tax return may be less
than the amount reported on Schedule K-1. It
is the partner's responsibility to consider and
apply any applicable limitations. See
Limitations on Losses, Deductions, and
Credits, later, for more information.

Inconsistent Treatment of
Items

Generally, you must report partnership items
shown on your Schedule K-1 (and any
attached statements) the same way that the
partnership treated the items on its return.
This rule doesn't apply if your partnership is
within the “small partnership exception” and
doesn't elect to have the tax treatment of
partnership items determined at the
partnership level.
Dec 29, 2016

If the treatment on your original or
amended return is inconsistent with the
partnership's treatment, or if the partnership
was required to but has not filed a return, you
must file Form 8082, Notice of Inconsistent
Treatment or Administrative Adjustment
Request (AAR), with your original or
amended return to identify and explain any
inconsistency (or to note that a partnership
return has not been filed).
If you are required to file Form 8082 but
do not do so, you may be subject to the
accuracy-related penalty. This penalty is in
addition to any tax that results from making
your amount or treatment of the item
consistent with that shown on the
partnership's return. Any deficiency that
results from making the amounts consistent
may be assessed immediately.

Errors

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

Sale or Exchange of
Partnership Interest

Generally, a partner who sells or exchanges
a partnership interest in a section 751(a)
exchange must notify the partnership, in
writing, within 30 days of the exchange (or, if
earlier, by January 15 of the calendar year
following the calendar year in which the
exchange occurred). A “section 751(a)
exchange” is any sale or exchange of a
partnership interest in which any money or
other property received by the partner in
exchange for that partner's interest is
attributable to unrealized receivables (as
defined in section 751(c)) or inventory items
(as defined in section 751(d)).
The written notice to the partnership must
include the names and addresses of both
parties to the exchange, the identifying
numbers of the transferor and (if known) of
the transferee, and the exchange date.
An exception to this rule is made for sales
or exchanges of publicly traded partnership
interests for which a broker is required to file
Cat. No. 11396N

Form 1099-B, Proceeds From Broker and
Barter Exchange Transactions.
If a partner is required to notify the
partnership of a section 751(a) exchange but
fails to do so, the partner will be subject to a
penalty for each such failure. However, no
penalty will be imposed if the partner can
show that the failure was due to reasonable
cause and not willful neglect.
Gain or loss from the disposition of

TIP your partnership interest is generally

net investment income under section
1411 and may be subject to the net
investment income tax. See Form 8960, Net
Investment Income Tax—Individuals,
Estates, and Trusts, and its instructions for
information about how to report and figure
the tax due.

Nominee Reporting

Any person who holds, directly or indirectly,
an interest in a partnership as a nominee for
another person must furnish a written
statement to the partnership by the last day
of the month following the end of the
partnership's tax year. This statement must
include the name, address, and identifying
number of the nominee and such other
person, description of the partnership
interest held as nominee for that person, and
other information required by Temporary
Regulations section 1.6031(c)-1T. A
nominee that fails to furnish this statement
must furnish to the person for whom the
nominee holds the partnership interest a
copy of Schedule K-1 and related
information within 30 days of receiving it from
the partnership.
A nominee who fails to furnish all the
information required by Temporary
Regulations section 1.6031(c)-1T when due,
or who furnishes incorrect information, is
subject to a $260 penalty for each failure.
The maximum penalty is $3,193,000 for all
such failures during a calendar year. If the
nominee intentionally disregards the
requirement to report correct information,
each $260 penalty increases to $530 or, if
greater, 10% of the aggregate amount of
items required to be reported, and there is no
limit to the amount of the penalty.

International Boycotts

Every partnership that had operations in, or
related to, a boycotting country, company, or
a national of a boycotting country must file
Form 5713, International Boycott Report.

If the partnership cooperated with an
international boycott, it must give you a copy
of its Form 5713. You must file your own
Form 5713 to report the partnership's
activities and any other boycott operations
that you may have. You may lose certain tax
benefits if the partnership participated in, or
cooperated with, an international boycott.
See Form 5713 and its instructions for more
information.

Definitions
General Partner

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

Limited Partner

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

Nonrecourse Loans

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

Elections

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

Additional Information

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

Limitations on Losses,
Deductions, and Credits

There are potential limitations on partnership
losses that you can deduct on your return.
These limitations and the order in which you

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

Keep for Your Records

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

1.

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

2.

3. Your increased share of or assumption of partnership liabilities. (Subtract your
share of liabilities shown in item K of your 2015 Schedule K-1 from your share of
liabilities shown in item K of your 2016 Schedule K-1 and add the amount of any
partnership liabilities you assumed during the tax year (but not less than
zero)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

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

4.

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

5.

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

6.

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

7.

Caution: A distribution may be taxable if the amount exceeds your adjusted
basis of your partnership interest immediately before the distribution.
8. Your decreased share of partnership liabilities and any decrease in your
individual liabilities because they were assumed by the partnership. (Subtract
your share of liabilities shown in item K of your 2016 Schedule K-1 from your
share of liabilities shown in item K of your 2015 Schedule K-1 and add the
amount of your individual liabilities that the partnership assumed during the tax
year (but not less than zero)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.

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

9.

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

10.

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

11.

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

12.

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

must apply them are as follows: the basis
rules, the at-risk limitations, and the passive
activity limitations. These limitations are
discussed below.

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

Other limitations may apply to specific
deductions (for example, the section 179
expense deduction). Generally, specific
limitations apply before the basis, at-risk,
and passive loss limitations.

Use the worksheet above to figure the
basis of your interest in the partnership.
For more details on the basis rules, see
Pub. 541, Partnerships.

At-Risk Limitations

Basis Rules

Generally, you may not claim your share of a
partnership loss (including a capital loss) to
the extent that it is greater than the adjusted
basis of your partnership interest at the end
of the partnership's tax year. Any losses and
deductions not allowed this year because of
the basis limit can be carried forward
indefinitely and deducted in a later year
subject to the basis limit for that year.
The partnership isn't responsible for
keeping the information needed to figure the
basis of your partnership interest. Although
the partnership does provide an analysis of
the changes to your capital account in item L
of Schedule K-1, that information is based on
the partnership's books and records and
cannot be used to figure your basis.
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Generally, if you have (a) a loss or other
deduction from any activity carried on as a
trade or business or for the production of
income by the partnership, and (b) amounts
in the activity for which you are not at risk,
you will have to complete Form 6198,
At-Risk Limitations, to figure your allowable
loss.
The at-risk rules generally limit the
amount of loss and other deductions that you
can claim to the amount you could actually
lose in the activity. These losses and
deductions include a loss on the disposition
of assets and the section 179 expense
deduction. However, if you acquired your
partnership interest before 1987, the at-risk
rules do not apply to losses from an activity

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

of holding real property placed in service
before 1987 by the partnership. The activity
of holding mineral property doesn't qualify for
this exception. The partnership should
identify on a statement attached to
Schedule K-1 any losses that are not subject
to the at-risk limitations.
Generally, you are not at risk for amounts
such as the following.
Nonrecourse loans used to finance the
activity, to acquire property used in the
activity, or to acquire your interest in the
activity, that are not secured by your own
property (other than the property used in the
activity). See the instructions for item K, later,
for the exception for qualified nonrecourse
financing secured by real property.
Cash, property, or borrowed amounts
used in the activity (or contributed to the
activity, or used to acquire your interest in
the activity) that are protected against loss
by a guarantee, stop-loss agreement, or
other similar arrangement (excluding
casualty insurance and insurance against
tort liability).
Amounts borrowed for use in the activity
from a person who has an interest in the
activity, other than as a creditor, or who is
related, under section 465(b)(3), to a person
(other than you) having such an interest.
You should get a separate statement of
income, expenses, and other items for each
activity from the partnership.

Passive Activity Limitations

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

For a closely held C corporation

TIP (defined in section 465(a)(1)(B)), the

above conditions are treated as met
if more than 50% of the corporation's gross
receipts were from real property trades or
businesses in which the corporation
materially participated.

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

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

-3-

disabled farmers and to the surviving
spouses of farmers. See the Instructions for
Form 8582 for details.
Corporations should refer to the
Instructions for Form 8810 for the material
participation standards that apply to them.
Individuals (other than limited
partners). If you are an individual (either a
general partner or a limited partner who
owned a general partnership interest at all
times during the tax year), you materially
participated in an activity only if one or more
of the following apply.
1. You participated in the activity for
more than 500 hours during the tax year.
2. Your participation in the activity for
the tax year constituted substantially all the
participation in the activity of all individuals
(including individuals who are not owners of
interests in the activity).
3. You participated in the activity for
more than 100 hours during the tax year, and
your participation in the activity for the tax
year wasn't less than the participation in the
activity of any other individual (including
individuals who were not owners of interests
in the activity) for the tax year.
4. The activity was a significant
participation activity for the tax year, and you
participated in all significant participation
activities (including activities outside the
partnership) during the year for more than
500 hours. A significant participation activity
is any trade or business activity in which you
participated for more than 100 hours during
the year and in which you didn't materially
participate under any of the material
participation tests (other than this test).
5. You materially participated in the
activity for any 5 tax years (whether or not
consecutive) during the 10 tax years that
immediately precede the tax year.
6. The activity was a personal service
activity and you materially participated in the
activity for any 3 tax years (whether or not
consecutive) preceding the tax year. A
personal service activity involves the
performance of personal services in the
fields of health, law, engineering,
architecture, accounting, actuarial science,
performing arts, consulting, or any other
trade or business in which capital isn't a
material income-producing factor.
7. Based on all the facts and
circumstances, you participated in the
activity on a regular, continuous, and
substantial basis during the tax year.
Limited partners. If you are a limited
partner, you do not materially participate in
an activity unless you meet one of the tests
in paragraph 1, 5, or 6 above.
Work counted toward material
participation. Generally, any work that you
or your spouse does in connection with an
activity held through a partnership (where
you own your partnership interest at the time
the work is done) is counted toward material
participation. However, work in connection

with the activity isn't counted toward material
participation if either of the following applies.
1. The work isn't the type of work that
owners of the activity would usually do and
one of the principal purposes of the work that
you or your spouse does is to avoid the
passive loss or credit limitations.
2. You do the work in your capacity as
an investor and you are not directly involved
in the day-to-day operations of the activity.
Examples of work done as an investor that
would not count toward material participation
include:
a. Studying and reviewing financial
statements or reports on operations of the
activity,
b. Preparing or compiling summaries or
analyses of the finances or operations of the
activity for your own use, and
c. Monitoring the finances or operations
of the activity in a non-managerial capacity.
Effect of determination. Income (loss),
deductions, and credits from an activity are
nonpassive if you determine that:
You materially participated in a trade or
business activity of the partnership, or
You were a real estate professional
(defined earlier) in a rental real estate activity
of the partnership.
If you determine that you didn't materially
participate in a trade or business activity of
the partnership or if you have income (loss),
deductions, or credits from a rental activity of
the partnership (other than a rental real
estate activity in which you materially
participated as a real estate professional),
the amounts from that activity are passive.
Report passive income (losses), deductions,
and credits as follows.
1. If you have an overall gain (the
excess of income over deductions and
losses, including any prior year unallowed
loss) from a passive activity, report the
income, deductions, and losses from the
activity as indicated in these instructions.
2. If you have an overall loss (the
excess of deductions and losses, including
any prior year unallowed loss, over income)
or credits from a passive activity, report the
income, deductions, losses, and credits from
all passive activities using the Instructions for
Form 8582 or Form 8582-CR (or Form
8810), to see if your deductions, losses, and
credits are limited under the passive activity
rules.
Publicly traded partnerships. The
passive activity limitations are applied
separately for items (other than the
low-income housing credit and the
rehabilitation credit) from each publicly
traded partnership (PTP). Thus, a net
passive loss from a PTP may not be
deducted from other passive income.
Instead, a passive loss from a PTP is
suspended and carried forward to be applied
against passive income from the same PTP
in later years. If the partner's entire interest in
the PTP is completely disposed of, any

unused losses are allowed in full in the year
of disposition.
If you have an overall gain from a PTP,
the net gain is nonpassive income. In
addition, the nonpassive income is included
in investment income to figure your
investment interest expense deduction.
Do not report passive income, gains, or
losses from a PTP on Form 8582. Instead,
use the following rules to figure and report on
the proper form or schedule your income,
gains, and losses from passive activities that
you held through each PTP you owned
during the tax year.
1. Combine any current year income,
gains and losses, and any prior year
unallowed losses to see if you have an
overall gain or loss from the PTP. Include
only the same types of income and losses
you would include in your net income or loss
from a non-PTP passive activity. See Pub.
925, Passive Activity and At-Risk Rules, for
more details.
2. If you have an overall gain, the net
gain portion (total gain minus total losses) is
nonpassive income. On the form or schedule
you normally use, report the net gain portion
as nonpassive income and the remaining
income and the total losses as passive
income and loss. To the left of the entry
space, enter “From PTP.” It is important to
identify the nonpassive income because the
nonpassive portion is included in modified
adjusted gross income for purposes of
figuring on Form 8582 the “special
allowance” for active participation in a
non-PTP rental real estate activity. In
addition, the nonpassive income is included
in investment income when figuring your
investment interest expense deduction on
Form 4952, Investment Interest Expense
Deduction.
Example. If you have Schedule E (Form
1040) income of $8,000, and a Form 4797,
Sales of Business Property, prior year
unallowed loss of $3,500 from the passive
activities of a particular PTP, you have a
$4,500 overall gain ($8,000 − $3,500). On
Schedule E (Form 1040), line 28, report the
$4,500 net gain as nonpassive income in
column (j). In column (g), report the
remaining Schedule E (Form 1040) gain of
$3,500 ($8,000 − $4,500). On the
appropriate line of Form 4797, report the
prior year unallowed loss of $3,500. Be sure
to enter “From PTP” to the left of each entry
space.
3. If you have an overall loss (but didn't
dispose of your entire interest in the PTP to
an unrelated person in a fully taxable
transaction during the year), the losses are
allowed to the extent of the income, and the
excess loss is carried forward to use in a
future year when you have income to offset
it. Report as a passive loss on the schedule
or form you normally use the portion of the
loss equal to the income. Report the income
as passive income on the form or schedule
you normally use.

-4-

Example. You have a Schedule E (Form
1040) loss of $12,000 (current year losses
plus prior year unallowed losses) and a Form
4797 gain of $7,200. Report the $7,200 gain
on the appropriate line of Form 4797. On
Schedule E (Form 1040), line 28, report
$7,200 of the losses as a passive loss in
column (f). Carry forward to 2017 the
unallowed loss of $4,800 ($12,000 −
$7,200).
If you have unallowed losses from more
than one activity of the PTP or from the same
activity of the PTP that must be reported on
different forms, you must allocate the
unallowed losses on a pro rata basis to figure
the amount allowed from each activity or on
each form.
To allocate and keep a record of the

TIP unallowed losses, use Worksheets

5, 6, and 7 of Form 8582. List each
activity of the PTP in Worksheet 5. Enter the
overall loss from each activity in column (a).
Complete column (b) of Worksheet 5
according to its instructions. Multiply the total
unallowed loss from the PTP by each ratio in
column (b) and enter the result in column (c)
of Worksheet 5. Then, complete Worksheet
6 if all the loss from the same activity is to be
reported on one form or schedule. Use
Worksheet 7 instead of Worksheet 6 if you
have more than one loss to be reported on
different forms or schedules for the same
activity. Enter the net loss plus any prior year
unallowed losses in column (a) of Worksheet
6 (or Worksheet 7, if applicable). The losses
in column (c) of Worksheet 6 (column (e) of
Worksheet 7) are the allowed losses to
report on the forms or schedules. Report
both these losses and any income from the
PTP on the forms and schedules you
normally use.
4. If you have an overall loss and you
disposed of your entire interest in the PTP to
an unrelated person in a fully taxable
transaction during the year, your losses
(including prior year unallowed losses)
allocable to the activity for the year are not
limited by the passive loss rules. A fully
taxable transaction is one in which you
recognize all your realized gain or loss.
Report the income and losses on the forms
and schedules you normally use.
For rules on the disposition of an

TIP entire interest reported using the

installment method, see the
Instructions for Form 8582.

Special allowance for a rental real estate
activity. If you actively participated in a
rental real estate activity, you may be able to
deduct up to $25,000 of the loss from the
activity from nonpassive income. This
“special allowance” is an exception to the
general rule disallowing losses in excess of
income from passive activities. The special
allowance isn't available if you were married,
file a separate return for the year, and didn't
live apart from your spouse at all times
during the year.

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

Only individuals, qualifying estates, and
qualifying revocable trusts that made a
section 645 election can actively participate
in a rental real estate activity. Estates (other
than qualifying estates), trusts (other than
qualifying revocable trusts that made a
section 645 election), and corporations
cannot actively participate. Limited partners
cannot actively participate unless future
regulations provide an exception.
You are not considered to actively
participate in a rental real estate activity if, at
any time during the tax year, your interest
(including your spouse's interest) in the
activity was less than 10% (by value) of all
interests in the activity.
Active participation is a less stringent
requirement than material participation. You
may be treated as actively participating if you
participated, for example, in making
management decisions or arranging for
others to provide services (such as repairs)
in a significant and bona fide sense.
Management decisions that can count as
active participation include approving new
tenants, deciding rental terms, approving
capital or repair expenditures, and other
similar decisions.
An estate is a qualifying estate if the
decedent would have satisfied the active
participation requirement for the activity for
the tax year the decedent died. A qualifying
estate is treated as actively participating for
tax years ending less than 2 years after the
date of the decedent's death.
Modified adjusted gross income
limitation. The maximum special
allowance that single individuals and married
individuals filing a joint return can qualify for
is $25,000. The maximum is $12,500 for
married individuals who file separate returns
and who lived apart at all times during the
year. The maximum special allowance for
which an estate can qualify is $25,000
reduced by the special allowance for which
the surviving spouse qualifies.
If your modified adjusted gross income
(defined below) is $100,000 or less ($50,000
or less if married filing separately), your loss
is deductible up to the maximum special
allowance referred to in the preceding
paragraph. If your modified adjusted gross
income is more than $100,000 (more than
$50,000 if married filing separately), the
special allowance is limited to 50% of the
difference between $150,000 ($75,000 if
married filing separately) and your modified
adjusted gross income. When modified
adjusted gross income is $150,000 or more
($75,000 or more if married filing separately),
there is no special allowance.
Modified adjusted gross income is your
adjusted gross income figured without taking
into account the following amounts, if
applicable.
Any passive activity loss.
Any rental real estate loss allowed under
section 469(c)(7) to real estate professionals
(defined earlier).
Any overall loss from a publicly traded
partnership.

Any taxable social security or equivalent
railroad retirement benefits.
Any deductible contributions to an IRA or
certain other qualified retirement plans under
section 219.
The domestic production activities
deduction.
The student loan interest deduction.
The tuition and fees deduction.
The deductible part of self-employment
taxes.
The exclusion from income of interest
from Series EE or I U.S. Savings Bonds used
to pay higher education expenses.
The exclusion of amounts received under
an employer's adoption assistance program.
Commercial revitalization deduction.
The special $25,000 allowance for the
commercial revitalization deduction from
rental real estate activities isn't subject to the
active participation rules or modified
adjusted gross income limits discussed
earlier. See the instructions for box 13, code
Q, for more information.
Special rules for certain other activities.
If you have net income (loss), deductions, or
credits from any activity to which special
rules apply, the partnership will identify the
activity and all amounts relating to it on
Schedule K-1 or on an attached statement.
If you have net income subject to
recharacterization under Temporary
Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f), report such
amounts according to the Instructions for
Form 8582 (or Form 8810).
If you have net income (loss), deductions,
or credits from any of the following activities,
treat such amounts as nonpassive and report
them as indicated in these instructions.
1. Working interests in oil and gas wells
if you are a general partner.
2. The rental of a dwelling unit any
partner used for personal purposes during
the year for more than the greater of 14 days
or 10% of the number of days that the
residence was rented at fair rental value.
3. Trading personal property for the
account of owners of interests in the activity.
Self-charged interest. The partnership will
report any “self-charged” interest income or
expense that resulted from loans between
you and the partnership (or between the
partnership and another partnership or S
corporation if both entities have the same
owners with the same proportional
ownership interest in each entity). If there
was more than one activity, the partnership
will provide a statement allocating the
interest income or expense with respect to
each activity. The self-charged interest rules
do not apply to your partnership interest if the
partnership made an election under
Regulations section 1.469-7(g) to avoid the
application of these rules. See the
Instructions for Form 8582 for details.

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

-5-

Specific Instructions
Part I. Information About
the Partnership
Item D

If the box in item D is checked, you are a
partner in a publicly traded partnership and
must follow the rules discussed, earlier,
under Publicly traded partnerships.

Part II. Information About
the Partner
Item E

For your protection, this form may show only
the last four digits of your social security
number (SSN), individual taxpayer
identification number (ITIN), or employer
identification number (EIN). However, the
partnership has reported your complete
identification number to the IRS.

Item J

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

Item K

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

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

Item M

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

information on distributions subject to
section 737, see the instructions for box 19,
Code B.

Part III. Partner's Share of
Current Year Income,
Deductions, Credits, and
Other Items

The amounts shown in boxes 1 through 20
reflect your share of income, loss,
deductions, credits, and other items from
partnership business or rental activities
without reference to limitations on losses or
adjustments that may be required of you
because of:
1. The adjusted basis of your
partnership interest,
2. The amount for which you are at risk,
3. The passive activity limitations, or
4. Any other limitations that must be
taken into account at the partner level in
figuring taxable income (for example, the
section 179 expense limitation).
For information on these provisions, see
Limitations on Losses, Deductions, and
Credits, earlier.
If you are an individual and the passive
activity rules do not apply to the amounts
shown on your Schedule K-1, take the
amounts shown and enter them on the lines
on your tax return as indicated in the
summarized reporting information shown on
page 2 of the Schedule K-1. If the passive
activity rules do apply, report the amounts
shown as indicated in these instructions.
If you are not an individual, report the
amounts in each box as instructed on your
tax return.
The line numbers in the summarized
reporting information on page 2 of
Schedule K-1 are references to forms in use
for calendar year 2016. If you file your tax
return on a calendar year basis, but your
partnership files a return for a fiscal year,
report the amounts on your tax return for the
year in which the partnership's fiscal year
ends. For example, if the partnership's tax
year ends in February 2017, report the
amounts on your 2017 tax return.
If you have losses, deductions, or credits
from a prior year that were not deductible or
usable because of certain limitations, such
as the basis rules or the at-risk limitations,
take them into account in determining your
net income, loss, or credits for this year.
However, except for passive activity losses
and credits, do not combine the prior year
amounts with any amounts shown on this
Schedule K-1 to get a net figure to report on
any supporting schedules, statements, or
forms attached to your return. Instead, report
the amounts on the attached schedule,
statement, or form on a year-by-year basis.

If the partnership reports a section 743(b)
adjustment to partnership items, report these
adjustments as separate items on Form
-6-

1040 in accordance with the reporting
instructions for the partnership item being
adjusted. A section 743(b) adjustment
increases or decreases your share of
income, deduction, gain, or loss for a
partnership item. For example, if the
partnership reports a section 743(b)
adjustment to depreciation for property used
in its trade or business, report the adjustment
on line 28 of Schedule E (Form 1040) in
accordance with the instructions for box 1 of
Schedule K-1.
If you have amounts other than

TIP those shown on Schedule K-1 to

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

Income (Loss)
Box 1. Ordinary Business
Income (Loss)

The amount reported in box 1 is your share
of the ordinary income (loss) from trade or
business activities of the partnership.
Generally, where you report this amount on
Form 1040 depends on whether the amount
is from an activity that is a passive activity to
you. If you are an individual partner filing a
2016 Form 1040, find your situation below
and report your box 1 income (loss) as
instructed, after applying the basis and
at-risk limitations on losses. If the partnership
had more than one trade or business activity,
it will attach a statement identifying the
income or loss from each activity.
1. Report box 1 income (loss) from
partnership trade or business activities in
which you materially participated on
Schedule E (Form 1040), line 28, column (h)
or (j).
2. Report box 1 income (loss) from
partnership trade or business activities in
which you didn't materially participate, as
follows.
a. If income is reported in box 1, report
the income on Schedule E (Form 1040),
line 28, column (g). However, if the box in
item D is checked, report the income
following the rules for Publicly traded
partnerships, earlier.

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

b. If a loss is reported in box 1, follow
the Instructions for Form 8582 to figure how
much of the loss can be reported on
Schedule E (Form 1040), line 28, column (f).
However, if the box in item D is checked,
report the loss following the rules for Publicly
traded partnerships, earlier.

Box 2. Net Rental Real Estate
Income (Loss)

Generally, the income (loss) reported in
box 2 is a passive activity amount for all
partners. However, the income (loss) in
box 2 isn't from a passive activity if you were
a real estate professional (defined earlier)
and you materially participated in the activity.
If the partnership had more than one rental
real estate activity, it will attach a statement
identifying the income or loss from each
activity.
If you are filing a 2016 Form 1040, use
the following instructions to determine where
to report a box 2 amount.
1. If you have a loss from a passive
activity in box 2 and you meet all the
following conditions, report the loss on
Schedule E (Form 1040), line 28, column (f).
a. You actively participated in the
partnership rental real estate activities. See
Special allowance for a rental real estate
activity, earlier.
b. Rental real estate activities with
active participation were your only passive
activities.
c. You have no prior year unallowed
losses from these activities.
d. Your total loss from the rental real
estate activities wasn't more than $25,000
(not more than $12,500 if married filing
separately and you lived apart from your
spouse all year).
e. If you are a married person filing
separately, you lived apart from your spouse
all year.
f. You have no current or prior year
unallowed credits from a passive activity.
g. Your modified adjusted gross income
wasn't more than $100,000 (not more than
$50,000 if married filing separately and you
lived apart from your spouse all year).
h. Your interest in the rental real estate
activity wasn't held as a limited partner.
2. If you have a loss from a passive
activity in box 2 and you do not meet all the
conditions in (1) above, follow the
Instructions for Form 8582 to figure how
much of the loss you can report on
Schedule E (Form 1040), line 28, column (f).
However, if the box in item D is checked,
report the loss following the rules for Publicly
traded partnerships, earlier.
3. If you were a real estate professional
and you materially participated in the activity,
report box 2 income (loss) on Schedule E
(Form 1040), line 28, column (h) or (j).
4. If you have income from a passive
activity in box 2, report the income on
Schedule E (Form 1040), line 28, column (g).
However, if the box in item D is checked,

report the income following the rules for
Publicly traded partnerships, earlier.

Box 3. Other Net Rental Income
(Loss)

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

Box 4. Guaranteed Payments

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

Portfolio Income

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

Box 5. Interest Income

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

Box 6a. Ordinary Dividends

Report ordinary dividends on line 9a of Form
1040.

Box 6b. Qualified Dividends

Report any qualified dividends on line 9b of
Form 1040.
Qualified dividends are excluded

TIP from investment income, but you

may elect to include part or all of
these amounts in investment income. See
the instructions for line 4g of Form 4952,

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

-7-

Investment Interest Expense Deduction, for
important information on making this
election.

!

CAUTION

If you have any foreign source
qualified dividends, see the
instructions for box 16, later.
In the case of a corporate partner,

TIP the partnership will attach a

statement to the Schedule K-1
explaining what part of the dividends
included in boxes 6a and 6b is eligible for the
“dividends received by corporations
deduction” under section 243(a), (b), or (c).

Box 7. Royalties

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

Box 8. Net Short-Term Capital
Gain (Loss)

Report the net short-term capital gain (loss)
on Schedule D (Form 1040), line 5.

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

!

CAUTION

If you have any foreign source net
long-term capital gain (loss), see the
instructions for box 16, later.

Box 9b. Collectibles (28%) Gain
(Loss)

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

!

CAUTION

If you have any foreign source
collectibles (28%) gain (loss), see
the instructions for box 16, later.

Box 9c. Unrecaptured Section
1250 Gain

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

!

CAUTION

If you have any foreign source
unrecaptured section 1250 gain, see
the instructions for box 16, later.

Box 10. Net Section 1231 Gain
(Loss)

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

!

CAUTION

If you have any foreign source net
section 1231 gain (loss), see the
instructions for box 16, later.

Box 11. Other Income (Loss)
Code A. Other portfolio income (loss).
The partnership will report portfolio income
other than interest, ordinary dividend,
royalty, and capital gain (loss) income, and
attach a statement to tell you what kind of
portfolio income is reported.
If the partnership held a residual interest
in a real estate mortgage investment conduit
(REMIC), it will report on the statement your
share of REMIC taxable income (net loss)
that you report on Schedule E (Form 1040),
line 38, column (d). The statement will also
report your share of any “excess inclusion”
that you report on Schedule E (Form 1040),
line 38, column (c), and your share of section
212 expenses that you report on Schedule E
(Form 1040), line 38, column (e). If you
itemize your deductions on Schedule A
(Form 1040), you may also deduct these
section 212 expenses as a miscellaneous
deduction subject to the 2% limit on
Schedule A (Form 1040), line 23.
Code B. Involuntary conversions. This is
your net gain (loss) from involuntary
conversions due to casualty or theft. The
partnership will give you a statement that
shows the amounts to be reported on Form
4684, Casualties and Thefts, line 34,
columns (b)(i), (b)(ii), and (c).

If there was a gain (loss) from a casualty
or theft to property not used in a trade or
business or for income-producing purposes,
the partnership will provide you with the
information you need to complete Form
4684.
Code C. Section 1256 contracts and
straddles. The partnership will report any
net gain or loss from section 1256 contracts.
Report this amount on Form 6781, Gains and
Losses From Section 1256 Contracts and
Straddles.
Code D. Mining exploration costs recapture. The partnership will give you a
statement that shows the information needed
to recapture certain mining exploration costs
(section 617). See Pub. 535 for details.
Code E. Cancellation of debt. Generally,
this cancellation of debt (COD) amount is
included in your gross income (Form 1040,
line 21). Under section 108(b)(5), you may
elect to apply any portion of the COD amount
excluded from gross income to the reduction
of the basis of depreciable property. See
Form 982 for more details.
Code F. Other income (loss). Amounts
with code F are other items of income, gain,
or loss not included in boxes 1 through 10 or
reported in box 11 using codes A through E.
The partnership should give you a
description and the amount of your share for
each of these items.
Report loss items that are passive activity
amounts to you following the Instructions for
Form 8582. However, if the box in item D is
checked, report the loss following the rules
for Publicly traded partnerships, earlier.
Code F items may include the following.
Gain or loss attributable to the sale or
exchange of qualified preferred stock of the
Federal National Mortgage Association
(Fannie Mae) and the Federal Home Loan
Mortgage Corporation (Freddie Mac). The
partnership will report on an attached
statement the amount of gain or loss
attributable to the sale or exchange of the
qualified preferred stock, the date the stock
was acquired by the partnership, and the
date the stock was sold or exchanged by the
partnership. If the partner is not a financial
institution, report the gain or loss on line 5 or
line 12 of Schedule D (Form 1040) in
accordance with the Instructions for
Schedule D and Instructions for Form 8949.
If a partner is a financial institution referred to
in section 582(c)(2) or a depositary institution
holding company (as defined in section 3(w)
(1) of the Federal Deposit Insurance Act),
report the gain or loss in accordance with the
Instructions for Form 4797, and Rev. Proc.
2008-64, 2008-47 I.R.B. 1195.
Partnership gains from the disposition of
farm recapture property (see the instructions
for line 27 of Form 4797) and other items to
which section 1252 applies.
Income from recoveries of tax benefit
items. A tax benefit item is an amount you
deducted in a prior tax year that reduced
your income tax. Report this amount on
line 21 of Form 1040 to the extent it reduced
your tax in the prior tax year.
-8-

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

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

1. You must have held an interest in the
partnership when the partnership acquired
the QSB stock and at all times thereafter until
the partnership disposed of the QSB stock.
2. Your share of the eligible section
1202 gain cannot exceed the amount that
would have been allocated to you based on
your interest in the partnership at the time the
QSB stock was acquired.
See the Instructions for Schedule D
(Form 1040) and the Instructions for Form
8949 for details on how to report the gain
and the amount of the allowable exclusion.
Gain eligible for section 1045 rollover.
Replacement stock purchased by the
partnership. The partnership should give
you (a) the name of the corporation that
issued the qualified small business (QSB)
stock, (b) your share of the partnership's
adjusted basis and sales price of the QSB
stock, (c) the dates the QSB stock was
bought and sold, (d) your share of gain from
the sale of the QSB stock, and (e) your
share of the gain that was deferred by the
partnership under section 1045. Corporate
partners are not eligible for the section 1045
rollover. To qualify for the section 1045
rollover:
1. You must have held an interest in the
partnership during the entire period in which
the partnership held the QSB stock (more
than 6 months prior to the sale), and
2. Your share of the gain eligible for the
section 1045 rollover cannot exceed the
amount that would have been allocated to
you based on your interest in the partnership
at the time the QSB stock was acquired.
See the Instructions for Schedule D
(Form 1040) and the Instructions for Form
8949 for details on how to report the gain
and the amount of the allowable postponed
gain.
Opting out of partnership election. You
can opt out of the partnership's section 1045
election and either (1) recognize the gain or
(2) elect to purchase different replacement
QSB stock, either directly or through
ownership of a different partnership that
acquired replacement QSB stock. You
satisfy the requirement to purchase
replacement QSB stock if you own an
interest in a partnership that purchases QSB
stock during the 60-day period. You also
must notify the partnership, in writing, if you
opt out of the partnership's section 1045
election. If you recognize gain, you must
notify the partnership, in writing, of the
amount of the gain that you are recognizing.
Replacement stock not purchased by the
partnership. The partnership should give
you (a) the name of the corporation that
issued the qualified small business (QSB)
stock, (b) your share of the partnership's
adjusted basis and sales price of the QSB
stock, (c) the dates the QSB stock was
bought and sold, and (d) your share of gain
from the sale of the QSB stock. Corporate
partners are not eligible for the section 1045

rollover. To qualify for the section 1045
rollover:
1. You must have held an interest in the
partnership during the entire period in which
the partnership held the QSB stock,
2. Your share of the gain eligible for the
section 1045 rollover cannot exceed the
amount that would have been allocated to
you based on your interest in the partnership
at the time the QSB stock was acquired, and
3. You must purchase other QSB stock
(as defined in the Instructions for Schedule D
(Form 1040)) during the 60-day period that
began on the date the QSB stock was sold
by the partnership.
See the Instructions for Schedule D
(Form 1040) and the Instructions for Form
8949 for details on how to report the gain
and the amount of the allowable postponed
gain.
Making the section 1045 election.
You make a section 1045 election on a
timely filed return for the tax year during
which the partnership's tax year ends. See
the Instructions for Form 8949 and the
Instructions for Schedule D (Form 1040) for
more information. Attach to your Schedule D
(Form 1040) a statement that includes the
following information for each amount of gain
that you do not recognize under section
1045.
The name of the corporation that issued
the QSB stock.
The name and EIN of the selling
partnership.
The dates the QSB stock was purchased
and sold.
The amount of gain that isn't recognized
under section 1045.
If a partner purchases QSB stock, the
name of the corporation that issued the
replacement QSB stock, the date the stock
was purchased, and the cost of the stock.
If a partner treats the partner's interest in
QSB stock that is purchased by a purchasing
partnership as the partner's replacement
QSB stock, the name and EIN of the
purchasing partnership, the name of the
corporation that issued the replacement QSB
stock, the partner's share of the cost of the
QSB stock that was purchased by the
partnership, the computation of the partner's
adjustment to basis with respect to that QSB
stock, and the date the stock was purchased
by the partnership.
Distribution of replacement qualified
small business (QSB) stock to a partner
that reduces another partner's interest in
replacement QSB stock. You must
recognize gain upon a distribution of
replacement QSB stock to another partner
that reduces your share of the replacement
QSB stock held by a partnership. The
amount of gain that you must recognize is
based on the amount of gain that you would
recognize upon a sale of the distributed
replacement QSB stock for its fair market
value on the date of the distribution, but not
to exceed the amount you previously
deferred under section 1045 with respect to

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

-9-

the distributed replacement QSB stock. If the
partnership distributed your share of
replacement QSB stock to another partner,
the partnership should give you (a) the name
of the corporation that issued the
replacement QSB stock, (b) the date the
replacement QSB stock was distributed to
another partner or partners, and (c) your
share of the partnership's adjusted basis and
fair market value of the replacement QSB
stock on such date.
For more information, see Regulations
section 1.1045-1.

Deductions
Box 12. Section 179 Deduction

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

Box 13. Other Deductions
Contributions. Codes A through G. The
partnership will give you a statement that
shows charitable contributions subject to the
100%, 50%, 30%, and 20% adjusted gross
income limitations. For more details, see
Pub. 526, Charitable Contributions, and the
Instructions for Schedule A (Form 1040). If
your contributions are subject to more than
one of the AGI limitations, see Worksheet 2.
Applying the Deduction Limits in Pub. 526.
Charitable contribution deductions are
not taken into account in figuring your
passive activity loss for the year. Do not
include them on Form 8582.
Code A. Cash contributions (50%).
Report this amount, subject to the 50% AGI
limitation, on line 16 of Schedule A (Form
1040).
Code B. Cash contributions (30%).
Report this amount, subject to the 30% AGI
limitation, on line 16 of Schedule A (Form
1040).
Code C. Noncash contributions (50%). If
property other than cash is contributed, and
if the claimed deduction for one item or
group of similar items of property exceeds
$5,000, the partnership must give you a copy
of Form 8283, Noncash Charitable
Contributions, to attach to your tax return. Do
not deduct the amount shown on Form 8283.
It is the partnership's contribution. Instead,
deduct the amount identified by code C,
box 13, subject to the 50% AGI limitation, on
line 17 of Schedule A (Form 1040).

If the partnership provides you with
information that the contribution was
property other than cash and doesn't give
you a Form 8283, see the Instructions for
Form 8283 for filing requirements. Do not file
Form 8283 unless the total claimed
deduction for all contributed items of
property exceeds $500.
Food inventory contributions. The
partnership will report on an attached
statement your share of qualified food
inventory contributions. The food inventory
contribution isn't included in the amount
reported in box 13 using code C. The
partnership will also report your share of the
partnership's net income from the business
activities that made the food inventory
contribution(s). Your deduction for food
inventory contributions cannot exceed 15%
of your aggregate net income for the tax year
from the business activities from which the
food inventory contribution was made
(including your share of net income from
partnership or S corporation businesses that
made food inventory contributions). Amounts
that exceed the 15% limitation may be
carried over for up to 5 years. Report the
deduction, subject to the 50% AGI limitation,
on line 17 of Schedule A (Form 1040).
Code D. Noncash contributions (30%).
Report this amount, subject to the 30% AGI
limitation, on line 17 of Schedule A (Form
1040).
Code E. Capital gain property to a 50%
organization (30%). Report this amount,
subject to the 30% AGI limitation, on line 17
of Schedule A (Form 1040). See Special
30% Limit for Capital Gain Property in Pub.
526.
Code F. Capital gain property (20%).
Report this amount, subject to the 20% AGI
limitation, on line 17 of Schedule A (Form
1040).
Code G. Contributions (100%). The
partnership will report your share of qualified
conservation contributions of property used
in agriculture or livestock production. This
contribution isn't included in the amount
reported in box 13 using code C. If you are a
farmer or rancher, you qualify for a 100%
AGI limitation for this contribution. Otherwise,
your deduction for this contribution is subject
to a 50% AGI limitation. Report this
deduction on line 17 of Schedule A (Form
1040). See Pub. 526 for more information on
qualified conservation contributions.
Code H. Investment interest expense.
Include this amount on Form 4952, line 1. If
the partnership has investment income or
other investment expense, it will report your
share of these items in box 20 using codes A
and B. Include investment income and
expenses from other sources to figure how
much of your total investment interest is
deductible. You will also need this
information to figure your investment interest
expense deduction.
If the partnership paid or accrued interest
on debts properly allocable to investment

property, the amount of interest you are
allowed to deduct may be limited.
For more information on the special
provisions that apply to investment interest
expense, see Form 4952 and Pub. 550,
Investment Income and Expenses.
Code I. Deductions—royalty income.
Include deductions allocable to royalties on
Schedule E (Form 1040), line 19. For this
type of expense, enter “From Schedule K-1
(Form 1065).”
These deductions are not taken into
account in figuring your passive activity loss
for the year. Do not enter them on Form
8582.
Code J. Section 59(e)(2) expenditures.
On an attached statement, the partnership
will show the type and the amount of
qualified expenditures for which you may
make a section 59(e) election. The
statement will also identify the property for
which the expenditures were paid or
incurred. If there is more than one type of
expenditure, the amount of each type will
also be listed.
If you deduct these expenditures in full in
the current year, they are treated as
adjustments or tax preference items for
purposes of alternative minimum tax.
However, you may elect to amortize these
expenditures over the number of years in the
applicable period rather than deduct the full
amount in the current year. If you make this
election, these items are not treated as
adjustments or tax preference items.
Under the election, you can deduct
circulation expenditures ratably over a 3-year
period. Research and experimental
expenditures and mining exploration and
development costs can be amortized over a
10-year period. Intangible drilling and
development costs can be amortized over a
60-month period. The amortization period
begins with the month in which such costs
were paid or incurred.
Make the election on Form 4562. If you
make the election, report the current year
amortization of section 59(e) expenditures
from Part VI of Form 4562 on line 28 of
Schedule E (Form 1040). If you do not make
the election, report the section 59(e)(2)
expenditures on line 28 of Schedule E (Form
1040) and figure the resulting adjustment or
tax preference item (see Form 6251,
Alternative Minimum Tax—Individuals).
Whether you deduct the expenditures or
elect to amortize them, report the amount on
a separate line in column (h) of line 28 if you
materially participated in the partnership
activity. If you didn't materially participate,
follow the Instructions for Form 8582 to figure
how much of the deduction can be reported
in column (f).
Code K. Deductions—portfolio (2%
floor). Amounts entered with code K are
deductions that are clearly and directly
allocable to portfolio income (other than
investment interest expense and section 212
expenses from a REMIC). Generally, you
should report these amounts on Schedule A
-10-

(Form 1040), line 23. See the instructions for
Schedule A (Form 1040), lines 23 and 28, for
details.
These deductions are not taken into
account in figuring your passive activity loss
for the year. Do not enter them on Form
8582.
Code L. Deductions—portfolio (other).
Generally, you should report these amounts
on Schedule A (Form 1040), line 28. See the
instructions for Schedule A, lines 23 and 28,
for details. These deductions are not taken
into account in figuring your passive activity
loss for the year. Do not enter them on Form
8582.
Code M. Amounts paid for medical insurance. Any amounts paid during the tax year
for insurance that constitutes medical care
for you, your spouse, your dependents, and
your children under age 27 who are not
dependents. On line 29 of Form 1040, you
may be allowed to deduct such amounts,
even if you do not itemize deductions. If you
do itemize deductions, enter on line 1 of
Schedule A (Form 1040) any amounts not
deducted on line 29 of Form 1040.
Code N. Educational assistance benefits.
Deduct your educational assistance benefits
on a separate line of Schedule E (Form
1040), line 28, up to the $5,250 limitation. If
your benefits exceed $5,250, you may be
able to use the excess amount on Form 8863
to figure the education credits.
Code O. Dependent care benefits. The
partnership will report the dependent care
benefits you received. You must use Form
2441, Part III, to figure the amount, if any, of
the benefits you may exclude from your
income.
Code P. Preproductive period expenses.
You may be able to deduct these expenses
currently or you may need to capitalize them
under section 263A. See Pub. 225, Farmer's
Tax Guide, and Regulations section
1.263A-4 for details.
Code Q. Commercial revitalization deduction from rental real estate activities.
Follow the Instructions for Form 8582 to
figure how much of the deduction can be
reported on Schedule E (Form 1040),
line 28, column (f).
Code R. Pensions and IRAs. Payments
made on your behalf to an IRA, qualified
plan, simplified employee pension (SEP), or
a SIMPLE IRA plan. See the Form 1040
instructions for line 32 to figure your IRA
deduction. Enter payments made to a
qualified plan, SEP, or SIMPLE IRA plan on
Form 1040, line 28. If the payments to a
qualified plan were to a defined benefit plan,
the partnership should give you a statement
showing the amount of the benefit accrued
for the current tax year.
Code S. Reforestation expense deduction. The partnership will provide a
statement that describes the qualified timber
property for these reforestation expenses.
The expense deduction is limited to $10,000
($5,000 if married filing separately) for each

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

qualified timber property, including your
share of the partnership's expense and any
reforestation expenses you separately paid
or incurred during the tax year.
If you didn't materially participate in the
activity, use Form 8582 to figure the amount
to report on Schedule E (Form 1040), line 28.
If you materially participated in the
reforestation activity, report the deduction on
line 28, column (h), of Schedule E (Form
1040).
Code T. Domestic production activities
information. The partnership will provide
you with a statement with information that
you must use to figure the domestic
production activities deduction. Use Form
8903, Domestic Production Activities
Deduction, to figure this deduction. See the
Instructions for Form 8903 for details.
Code U. Qualified production activities
income (QPAI). Report the QPAI reported
to you by the partnership (in box 13 of
Schedule K-1) in the applicable column of
Form 8903, line 7.
Code V. Employer's Form W-2 wages.
Report the portion of Form W-2 wages
reported to you by the partnership (in box 13
of Schedule K-1) on line 17 of Form 8903.
Code W. Other deductions. Amounts with
this code may include the following.
Itemized deductions that Form 1040 filers
report on Schedule A (Form 1040).
Soil and water conservation expenditures
and endangered species recovery
expenditures. See section 175 for limitations
on the amount you are allowed to deduct.
Expenditures for the removal of
architectural and transportation barriers to
the elderly and disabled that the partnership
elected to treat as a current expense. The
deductions are limited by section 190(c) to
$15,000 per year from all sources.
Interest expense allocated to
debt-financed distributions. The manner in
which you report such interest expense
depends on your use of the distributed debt
proceeds. If the proceeds were used in a
trade or business activity, report the interest
on line 28 of Schedule E (Form 1040). In
column (a), enter the name of the partnership
and “interest expense.” If you materially
participated in the trade or business activity,
enter the interest expense in column (h). If
you didn't materially participate in the
activity, follow the Instructions for Form 8582
to figure the interest expense you can report
in column (f). See the definition of material
participation, earlier. If the proceeds were
used in an investment activity, report the
interest on Form 4952. If the proceeds are
used for personal purposes, the interest is
generally not deductible.
Interest paid or accrued on debt properly
allocable to your share of a working interest
in any oil or gas property (if your liability isn't
limited). If you didn't materially participate in
the oil or gas activity, this interest is
investment interest reportable as described
earlier, under Code H. Investment interest
expense; otherwise, it is trade or business
interest. If you didn't materially participate in

the oil or gas activity, this interest is
investment interest expense and should be
reported on Form 4952. If you materially
participated in the activity, report the interest
on line 28 of Schedule E (Form 1040). On a
separate line, enter “interest expense” and
the name of the partnership in column (a)
and the amount in column (h).
Contributions to a capital construction
fund (CCF). The deduction for a CCF
investment isn't taken on Schedule E (Form
1040). Instead, you subtract the deduction
from the amount that would normally be
entered as taxable income on line 43 (Form
1040). In the margin to the left of line 43,
enter "CCF" and the amount of the
deduction.
Penalty on early withdrawal of savings.
Report this amount on Form 1040, line 30.
Film, television, and live theatrical
production expenses. The partnership will
provide a statement that describes the film,
television, or live theatrical production
generating these expenses. Generally, if the
aggregate cost of the production exceeds
$15 million, you are not entitled to the
deduction. The limitation is $20 million for
productions in certain areas (see section 181
for details). If you didn't materially participate
in the activity, use Form 8582 to determine
the amount that can be reported on
Schedule E (Form 1040), line 28, column (f).
If you materially participated in the
production activity, report the deduction on
Schedule E (Form 1040), line 28, column (h).
Current year section 108(i) original issue
discount (OID) deduction. The partnership
will provide your share of the partnership's
OID deduction deferred under section 108(i)
(2)(A)(i) that is allowable as a deduction in
the current tax year under section 108(i)(2)
(A)(ii) or section 108(i)(5)(D)(i) or (ii).
The partnership will give you a
description and the amount of your share for
each of these items.

Box 14. Self-Employment
Earnings (Loss)

If you and your spouse are both partners,
each of you must complete and file your own
Schedule SE (Form 1040), Self-Employment
Tax, to report your partnership net earnings
(loss) from self-employment.
Code A. Net earnings (loss) from
self-employment. If you are a general
partner, reduce this amount before entering it
on Schedule SE (Form 1040) by any section
179 expense deduction claimed,
unreimbursed partnership expenses
claimed, and depletion claimed on oil and
gas properties. Do not reduce net earnings
from self-employment by any separately
stated deduction for health insurance
expenses.
If the amount on this line is a loss, enter
only the deductible amount on Schedule SE
(Form 1040). See Limitations on Losses,
Deductions, and Credits, earlier.
If your partnership is an options dealer or
a commodities dealer, see section 1402(i).

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

-11-

If your partnership is an investment club,
see Rev. Rul. 75-525, 1975-2 C.B. 350.
Code B. Gross farming or fishing income. If you are an individual partner, enter
the amount from this line, as an item of
information, on Schedule E (Form 1040),
line 42. Also use this amount to figure net
earnings from self-employment under the
farm optional method on Schedule SE (Form
1040), Section B, Part II.
Code C. Gross nonfarm income. If you
are an individual partner, use this amount to
figure net earnings from self-employment
under the nonfarm optional method on
Schedule SE (Form 1040), Section B, Part II.

Box 15. Credits

If you have credits that are passive activity
credits to you, you must complete Form
8582-CR (or Form 8810 for corporations) in
addition to the credit forms identified below.
See Passive Activity Limitations, earlier, and
the Instructions for Form 8582-CR (or Form
8810) for details.
Generally, you are not required to

TIP complete the source credit form or

attach it to Form 3800 if you are a
taxpayer that isn't a partnership or S
corporation, and your only source for a credit
listed in Form 3800, Part III, is from a
partnership, S corporation, estate, trust, or
cooperative. (Instead, you can report this
credit directly on Form 3800, Part III, and
enter the EIN of the partnership in column (b)
of Part III.) The following exceptions apply.
You are claiming the investment credit
(Form 3468) or the biodiesel and renewable
diesel fuels credit (Form 8864) in Part III with
box A or B checked.
The taxpayer is an estate or trust and the
source credit can be allocated to
beneficiaries. For more details, see the
Instructions for Form 1041, U.S. Income Tax
Return for Estates and Trusts, Schedule K-1,
box 13.
The taxpayer is a cooperative and the
source credit can or must be allocated to
patrons. For more details, see the
Instructions for Form 1120-C, U.S. Income
Tax Return for Cooperative Associations,
Schedule J, line 5c.
Codes A, B, C, and D. Low-income housing credit. If section 42(j)(5) applies, the
partnership will report your share of the
low-income housing credit using code A or
code C, depending on the date the building
was placed in service. If section 42(j)(5)
doesn't apply, your share of the credit will be
reported using code B or code D, depending
on the date the building was placed in
service. Any allowable low-income housing
credit reported using code A or code B is
reported on line 4 of Form 8586, Low-Income
Housing Credit, or line 1d of Form 3800 (see
TIP, earlier). Any allowable low-income
housing credit reported using code C or
code D is reported on line 11 of Form 8586
or line 4d of Form 3800.

Keep a separate record of the
low-income housing credit from each
separate source so that you can correctly
figure any recapture of low-income housing
credit that may result from the disposition of
all or part of your partnership interest. For
more information on recapture, see the
Instructions for Form 8611, Recapture of
Low-Income Housing Credit.
Code E. Qualified rehabilitation expenditures (rental real estate). The partnership
will report your share of the qualified
rehabilitation expenditures and other
information you need to complete Form 3468
related to rental real estate activities using
code E. Your share of qualified rehabilitation
expenditures from property not related to
rental real estate activities will be reported in
box 20 using code D. See the Instructions for
Form 3468 for details. If the partnership is
reporting expenditures from more than one
activity, the attached statement will
separately identify the expenditures from
each activity.
Combine the expenditures (for Form
3468 reporting) from box 15, code E and
box 20, code D. The expenditures related to
rental real estate activities (box 15, code E)
are reported on Schedule K-1 separately
from other qualified rehabilitation
expenditures (box 20, code D) because they
are subject to different passive activity
limitation rules. See the Instructions for Form
8582-CR for details.
Code F. Other rental real estate credits.
The partnership will identify the type of credit
and any other information you need to figure
these credits from rental real estate activities
(other than the low-income housing credit
and qualified rehabilitation expenditures).
These credits may be limited by the passive
activity limitations. If the credits are from
more than one activity, the partnership will
identify the credits from each activity on an
attached statement. See Passive Activity
Limitations, earlier, and the Instructions for
Form 8582-CR for details.
Code G. Other rental credits. The
partnership will identify the type of credit and
any other information you need to figure
these rental credits. These credits may be
limited by the passive activity limitations. If
the credits are from more than one activity,
the partnership will identify the credits from
each activity on an attached statement. See
Passive Activity Limitations, earlier, and the
Instructions for Form 8582-CR for details.
Code H. Undistributed capital gains credit. Code H represents taxes paid on
undistributed capital gains by a regulated
investment company or real estate
investment trust. Report these taxes on
line 73 of Form 1040, check box “a” for Form
2439, and enter “Form 1065.”
Code I. Biofuel producer credit. Report
this amount on line 3 of Form 6478, Biofuel
Producer Credit, or line 4c of Form 3800,
Part III (see TIP, earlier).
Code J. Work opportunity credit. Report
this amount on line 3 of Form 5884, Work

Opportunity Credit, or line 4b of Form 3800,
Part III (see TIP, earlier).
Code K. Disabled access credit. Report
this amount on line 7 of Form 8826, Disabled
Access Credit, or line 1e of Form 3800, Part
III (see TIP, earlier).
Code L. Empowerment zone employment
credit. Report this amount on line 3 of Form
8844, Empowerment Zone Employment
Credit, or line 3 of Form 3800, Part III (see
TIP, earlier).
Code M. Credit for increasing research
activities. Report this amount on line 37 of
Form 6765, Credit for Increasing Research
Activities, or in Part III of Form 3800 (see TIP,
earlier) as follows.
The partnership will provide information
necessary to determine if it is an eligible
small business under section 38(c)(5)(C). If
you and the partnership are eligible small
businesses, report the credit on line 4i. For
more information, see the Instructions for
Form 3800.
All others, report the credit on line 1c.
Code N. Credit for employer social security and Medicare taxes. Report this
amount on line 5 of Form 8846, Credit for
Employer Social Security and Medicare
Taxes Paid on Certain Employee Tips, or
line 4f of Form 3800, Part III (see TIP,
earlier).
Code O. Backup withholding. This is your
share of the credit for backup withholding on
dividends, interest income, and other types
of income. Include this amount in the total
you enter on Form 1040, line 64, and attach
a copy of the Schedule K-1 to your tax
return. Instead of attaching a copy of the
Schedule K-1 to the tax return, you can
include a statement with the return that
provides the partnership's name, address,
EIN, and backup withholding amount.
Code P. Other credits. On a statement
attached to Schedule K-1, the partnership
will identify the type of credit and any other
information you need to figure credits other
than those reported with codes A through O.
Most credits identified by code P will be
reported on Form 3800 (see TIP, earlier).
Credits that may be reported with code P
include the following.
New markets credit (Form 8874).
Qualified railroad track maintenance
credit (Form 8900).
Unused investment credit from the
qualifying advanced coal project credit,
qualifying gasification project credit, or
qualifying advanced energy project credit
allocated from cooperatives (Form 3468,
line 9).
Unused investment credit from the
rehabilitation credit or energy credit allocated
from cooperatives (Form 3468, line 13).
Renewable electricity, refined coal, and
Indian coal production credit. The
partnership will provide a statement showing
the allocation of the credit for production
during the 4-year period beginning on the
date the facility was placed in service and for
production after that period.
-12-

Indian employment credit (Form 8845).
Orphan drug credit (Form 8820).
Enhanced oil recovery credit (Form 8830).
Credit for small employer pension plan
startup costs (Form 8881).
Credit for employer-provided childcare
facilities and services (Form 8882).
Biodiesel and renewable diesel fuels
credit. If this credit includes the small
agri-biodiesel producer credit, the
partnership will provide additional
information on an attached statement. If no
statement is attached, report this amount on
line 9 of Form 8864. If a statement is
attached, see the instructions for Form 8864,
line 9.
Low sulfur diesel fuel production credit
(Form 8896).
General credits from an electing large
partnership. Report these credits on Form
3800, Part III, line 1bb.
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).
Clean renewable energy bond credit.
Report this amount on Form 8912.
New clean renewable energy bond credit.
Report this amount on Form 8912.
Qualified energy conservation bond
credit. Report this amount on Form 8912.
Qualified zone academy bond credit.
Report this amount on Form 8912.
Qualified school construction bond credit.
Report this amount on Form 8912.
Build America bond credit. Report this
amount on Form 8912.
Mine rescue team training credit (Form
8923).
Agricultural chemicals security credit
(Form 8931).
Credit for employer differential wage
payments (Form 8932).
Carbon dioxide sequestration credit (Form
8933).
Qualified plug-in electric drive motor
vehicle credit (Form 8936).
Credit for small employer health insurance
premiums (Form 8941).

Box 16. Foreign
Transactions
Codes A through N. Use the information
identified by codes A through N, code Q, and
any attached statements to figure your
foreign tax credit.
Taxpayers filing Form 1116—If you
have any qualified dividends, capital
CAUTION gains (including any capital gain
distributions), capital losses, collectibles
gain, collectibles losses, unrecaptured
section 1250 gain, net section 1231 gain, or
net section 1231 losses, you may have to
make certain adjustments to those amounts
before taking them into account on Form
1116.

!

For details, see Form 1116, Foreign Tax
Credit, and its instructions; Form 1118,

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

Foreign Tax Credit—Corporations, and its
instructions; and Pub. 514, Foreign Tax
Credit for Individuals.
Codes O and P. Extraterritorial income
exclusion.
1. Partnership did not claim the
exclusion. If the partnership reports your
share of foreign trading gross receipts (code
O) and the extraterritorial income exclusion
(code P), the partnership wasn't entitled to
claim the exclusion because it didn't meet
the foreign economic process requirements.
You may still qualify for your share of this
exclusion if the partnership's foreign trading
gross receipts for the tax year were $5
million or less. To qualify for this exclusion,
your foreign trading gross receipts from all
sources for the tax year also must have been
$5 million or less. If you qualify for the
exclusion, report the exclusion amount in
accordance with the instructions for Income
(Loss), earlier, for box 1, 2, or 3, whichever
applies. See Form 8873, Extraterritorial
Income Exclusion, for details.
2. Partnership claimed the exclusion. If
the partnership reports your share of foreign
trading gross receipts but not the amount of
the extraterritorial income exclusion, the
partnership met the foreign economic
process requirements and claimed the
exclusion when figuring your share of
partnership income. You also may need to
know the amount of your share of foreign
trading gross receipts from this partnership
to determine if you met the $5 million or less
exception discussed above for purposes of
qualifying for an extraterritorial income
exclusion from other sources.
Upon request, the partnership

TIP should furnish you a copy of the

partnership's Form 8873 if there is a
reduction for international boycott
operations, illegal bribes, kickbacks, and
other payments.
Code Q. Other foreign transactions. On
a statement attached to Schedule K-1, the
partnership will report any other information
on foreign transactions that you may need
using code Q.
The partnership will 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 regarding an entity that
took into account related income from the
arrangement. The statement will also
indicate whether the partnership has taken
into account any related income from any
such splitter arrangement. See section 909
and the related regulations for rules
regarding splitter arrangements.

Box 17. Alternative
Minimum Tax (AMT) Items

Use the information reported in box 17 (as
well as your adjustments and tax preference

items from other sources) to prepare your
Form 6251, Alternative Minimum
Tax—Individuals; Form 4626, Alternative
Minimum Tax—Corporations; or Schedule I
(Form 1041), Alternative Minimum
Tax—Estates and Trusts.
A partner that is a corporation
TIP subject to alternative minimum tax
must notify the partnership of its
status.
Code A. This amount is your share of the
partnership's post-1986 depreciation
adjustment. If you are an individual partner,
report this amount on line 18 of Form 6251.
Code B. This amount is your share of the
partnership's adjusted gain or loss. If you are
an individual partner, report this amount on
line 17 of Form 6251.
Code C. This amount is your share of the
partnership's depletion adjustment. If you are
an individual partner, report this amount on
line 9 of Form 6251.
Codes D and E. Oil, gas, & geothermal
properties—gross income and deductions. The amounts reported on these lines
include only the gross income (code D) from,
and deductions (code E) allocable to, oil,
gas, and geothermal properties included in
box 1 of Schedule K-1. The partnership
should have attached a statement that
shows any income from or deductions
allocable to such properties that are included
in boxes 2 through 13, 18, and 20 of
Schedule K-1. Use the amounts reported
and the amounts on the attached statement
to help you figure the net amount to enter on
line 26 of Form 6251.
Code F. Other AMT items. Enter the
information on the statement attached by the
partnership on the applicable lines of Form
6251, Form 4626, or Schedule I (Form
1041).

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

TIP statement for the amount included

under code B that is exempt by
reason of section 892 and describe the
nature of the income.

Code C. Nondeductible expenses. The
nondeductible expenses paid or incurred by

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

-13-

the partnership are not deductible on your
tax return. Decrease the adjusted basis of
your interest in the partnership by this
amount.

Box 19. Distributions
Code A. Cash and marketable securities.
Code A shows the distributions the
partnership made to you of cash and certain
marketable securities. The marketable
securities are included at their fair market
value (FMV) on the date of distribution
(minus your share of the partnership's gain
on the securities distributed to you). If the
amount shown as code A exceeds the
adjusted basis of your partnership interest
immediately before the distribution, the
excess is treated as gain from the sale or
exchange of your partnership interest.
Generally, this gain is treated as gain from
the sale of a capital asset and should be
reported on Form 8949 and the Schedule D
for your return. However, if you receive cash
or property in exchange for any part of a
partnership interest, the amount of the
distribution attributable to your share of the
partnership's unrealized receivable or
inventory items results in ordinary income
(see Regulations section 1.751-1(a) and
Sale or Exchange of Partnership Interest,
earlier). For details, see Pub. 541.
The partnership will separately identify
both of the following.
The FMV of the marketable securities
when distributed (minus your share of the
gain on the securities distributed to you).
The partnership's adjusted basis of those
securities immediately before the
distribution.
Decrease the adjusted basis of your
interest in the partnership (but not below
zero) by the amount of cash distributed to
you and the partnership's adjusted basis of
the distributed securities. Advances or
drawings of money or property against your
share are treated as current distributions
made on the last day of the partnership's tax
year.
Your basis in the distributed marketable
securities (other than in liquidation of your
interest) is the smaller of:
The partnership's adjusted basis in the
securities immediately before the distribution
increased by any gain recognized on the
distribution of the securities, or
The adjusted basis of your partnership
interest reduced by any cash distributed in
the same transaction and increased by any
gain recognized on the distribution of the
securities.
If you received the securities in liquidation
of your partnership interest, your basis in the
marketable securities is equal to the
adjusted basis of your partnership interest
reduced by any cash distributed in the same
transaction and increased by any gain
recognized on the distribution of the
securities.
Code B. Distribution subject to section
737. If a partner contributed section 704(c)

built-in gain property within the last 7 years
and the partnership made a distribution of
property to that partner other than the
previously contributed built-in gain property,
the partner may be required to recognize
gain under section 737. This gain is in
addition to any gain recognized under
section 731 on the distribution.
When this occurs, the partnership will
enter code B in box 19 of the contributing
partner's Schedule K-1 and attach a
statement that provides the information the
partner needs to figure the recognized gain
under section 737. The partnership is
required to provide the following information.
The fair market value (FMV) of the
distributed property (other than money).
The amount of money received in the
distribution.
The net precontribution gain of the
partner.
Using the information from the attached
statement, complete the worksheet below to
figure your recognized gain under section
737.
Computation of Section 737 Gain
1. Enter the FMV of the distributed
property (other than
money)
. . . . . . . . . . .
2. Enter your adjusted basis in the
partnership immediately before
the distribution. See Basis
Rules, earlier . . . . . . . .
3. Enter the amount of money
received in the distribution .
4. Subtract line 3 from line 2. If zero
or less, enter -0- . . . . . . .

$

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

The type of gain (section 1231 gain,
capital gain) generated is determined by the
type of gain you would have recognized if
you sold the property rather than contributing
it to the partnership. Accordingly, report the
amount from line 7, above, on Form 4797 or
Form 8949 and the Schedule D of your tax
return.
Code C. Other property. Code C shows
the partnership's adjusted basis of property
other than money immediately before the
property was distributed to you. In addition,
the partnership should report the adjusted
basis and FMV of each property distributed.
Decrease the adjusted basis of your interest
in the partnership by the amount of your
basis in the distributed property. Your basis
in the distributed property (other than in
liquidation of your interest) is the smaller of:
The partnership's adjusted basis
immediately before the distribution, or
The adjusted basis of your partnership
interest reduced by any cash distributed in
the same transaction.

If you received the property in liquidation
of your interest, your basis in the distributed
property is equal to the adjusted basis of
your partnership interest reduced by any
cash distributed in the same transaction.
If you receive cash or property in
exchange for any part of a partnership
interest, the amount of the distribution
attributable to your share of the partnership's
unrealized receivable or inventory items
results in ordinary income (see Regulations
section 1.751-1(a) and Sale or Exchange of
Partnership Interest, earlier).

from the disposition of all or part of your
partnership interest. For details, see Form
8611.

Box 20. Other Information

Code I. Recapture of other credits. On a
statement attached to Schedule K-1, the
partnership will report any information you
need to figure the recapture of the new
markets credit (see Form 8874 and Form
8874-B, Notice of Recapture Event for New
Markets Credit); Indian employment credit
(see section 45A(d)); any credit for
employer-provided childcare facilities and
services (see Form 8882); alternative motor
vehicle credit (see section 30B(h)(8));
alternative fuel vehicle refueling property
credit (see section 30C(e)(5)); or the new
qualified plug-in electric drive motor vehicles
credit (see section 30D(f)(5)).

Code A. Investment income. Report this
amount on line 4a of Form 4952.
Code B. Investment expenses. Report
this amount on line 5 of Form 4952.
Code C. Fuel tax credit information. The
partnership will report the number of gallons
of each fuel sold or used during the tax year
for a nontaxable use qualifying for the credit
for taxes paid on fuels, type of use, and the
applicable credit per gallon. Use this
information to complete Form 4136, Credit
for Federal Tax Paid on Fuels.
Code D. Qualified rehabilitation expenditures (other than rental real estate). The
partnership will report your share of qualified
rehabilitation expenditures and other
information you need to complete Form 3468
for property not related to rental real estate
activities in box 20 using code D. Your share
of qualified rehabilitation expenditures
related to rental real estate activities is
reported in box 15 using code E. See the
Instructions for Form 3468 for details. If the
partnership is reporting expenditures from
more than one activity, the attached
statement will separately identify the
expenditures from each activity.
Combine the expenditures (for Form
3468 reporting) from box 15, code E and
box 20, code D. The expenditures related to
rental real estate activities (box 15, code E)
are reported on Schedule K-1 separately
from other qualified rehabilitation
expenditures (box 20, code D) because they
are subject to different passive activity
limitation rules. See the Instructions for Form
8582-CR for details.
Code E. Basis of energy property. If the
partnership provides an attached statement
for code E, use the information on the
statement to complete lines 12a–d, 12f, 12g,
12i, 12j, 12l, 12m, 12o, and 12q–t of Form
3468.
Codes F and G. Recapture of low-income
housing credit. A section 42(j)(5)
partnership will report recapture of a
low-income housing credit with code F. All
other partnerships will report recapture of a
low-income housing credit with code G.
Keep a separate record of recapture from
each of these sources so that you will be
able to correctly figure any recapture of
low-income housing credit that may result
-14-

Code H. Recapture of investment credit.
The partnership will provide any information
you need to figure your recapture tax on
Form 4255, Recapture of Investment Credit.
See the Form 3468 on which you took the
original credit for other information you need
to complete Form 4255.
You may also need Form 4255 if you
disposed of more than one-third of your
interest in a partnership.

Code J. Look-back interest—completed
long-term contracts. The partnership will
report any information you need to figure the
interest due or to be refunded under the
look-back method of section 460(b)(2) on
certain long-term contracts. Use Form 8697,
Interest Computation Under the Look-Back
Method for Completed Long-Term
Contracts, to report any such interest.
Code K. Look-back interest—income
forecast method. The partnership will
report any information you need to figure the
interest due or to be refunded under the
look-back method of section 167(g)(2) for
certain property placed in service after
September 13, 1995, and depreciated under
the income forecast method. Use Form
8866, Interest Computation Under the
Look-Back Method for Property Depreciated
Under the Income Forecast Method, to
report any such interest.
Code L. Dispositions of property with
section 179 deductions. The partnership
will report your share of gain or loss on the
sale, exchange, or other disposition of
property for which a section 179 expense
deduction was passed through to partners
with code L. If the partnership passed
through a section 179 expense deduction for
the property, you must report the gain or loss
and any recapture of the section 179
expense deduction for the property on your
income tax return (see the Instructions for
Form 4797 for details). The partnership will
provide all the following information.
1. Description of the property.
2. Date the property was acquired and
placed in service.
3. Date of the sale or other disposition of
the property.

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

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

disposition of certain timeshares and
residential lots on the installment method. If
you are an individual, report the interest on
Form 1040, line 62. Check box c and enter
“453(l)(3)” and the amount of the interest in
the space to the left of line 62.
Code P. Section 453A(c) information.
The partnership will report any information
you need to figure the interest due under
section 453A(c) with respect to certain
installment sales. If you are an individual,
report the interest on Form 1040, line 62.
Check box c and enter “453A(c)” and the
amount of the interest in the space to the left
of line 62. See the Form 6252 instructions for
more information. Also see section 453A(c)
for details on how to figure the interest.
Code Q. Section 1260(b) information.
The partnership will report any information
you need to figure the interest due under
section 1260(b). If the partnership had gain
from certain constructive ownership
transactions, your tax liability must be
increased by the interest charge on any
deferral of gain recognition under section
1260(b). Report the interest on Form 1040,
line 62. Enter “1260(b)” and the amount of
the interest in the space to the left of line 62.
See section 1260(b) for details, including
how to figure the interest.
Code R. Interest allocable to production
expenditures. The partnership will report
any information you need relating to interest
you are required to capitalize under section
263A for production expenditures. See
Regulations sections 1.263A-8 through
1.263A-15 for details.
Code S. CCF nonqualified withdrawals.
The partnership will report your share of
nonqualified withdrawals from a capital
construction fund (CCF). These withdrawals
are taxed separately from your other gross
income at the highest marginal ordinary
income or capital gains tax rate. Attach a
statement to your federal income tax return
to show your computation of both the tax and
interest for a nonqualified withdrawal.
Include the tax and interest on Form 1040,
line 62. In the space to the left of line 62,
enter the amount of tax and interest and
“CCF.”
Code T. Depletion information—oil and
gas. This is your share of gross income
from the property, share of production for the
tax year, and other information needed to
figure your depletion deduction for oil and
gas wells. The partnership should also
allocate to you a share of the adjusted basis
of each partnership oil or gas property. See
Pub. 535 for details on how to figure your
depletion deduction.
Code U. Reserved.
Code V. Unrelated business taxable income. The partnership will report any
information you need to figure unrelated
business taxable income under section
512(a)(1) (but excluding any modifications
required by paragraphs (8) through (15) of
section 512(b)) for a partner that is a
tax-exempt organization.

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

-15-

A partner is required to notify the

TIP partnership of its tax-exempt status.
Code W. Precontribution gain (loss). If
the partnership distributed any property with
precontribution gain or loss to any partner
other than the contributing partner, and the
date of the distribution was within 7 years of
the date the property was contributed to the
partnership, the contributing partner must
recognize a gain or loss under section 704(c)
(1)(B). If the partnership made such a
distribution during its tax year, it will enter
code W in box 20 of the contributing
partner's Schedule K-1 and attach a
statement providing the amount of the
partner's precontribution gain (loss) and
identifying the character of the gain or loss
(for example, capital gain (loss) or section
1231 gain (loss)). Report the precontribution
gain or loss on Form 8949/Schedule D or
Form 4797 in accordance with the
information provided by the partnership.
Code X. Section 108(i) information. If the
partnership made a section 108(i) election or
allocates any section 108(i) items to its
partners, it will provide a statement
identifying your share of:
The deferred section 108(i) cancellation of
debt (COD) income that has not been
included in income in the current or prior tax
years,
The partnership's original issue discount
(OID) deduction deferred under section
108(i)(2)(A)(i) that has not been deducted in
the current or prior tax years,
The deferred section 752 amount that is
treated as a distribution of money under
section 752 in the current tax year, and
The deferred section 752 amount
remaining as of the end of the current tax
year.
Code Y. Net investment income. The
partnership may use this code Y to report
information you may need to determine your
net investment income tax under section
1411, including information regarding
income from controlled foreign corporations
(CFCs) and passive foreign investment
companies (PFICs) the stock of which is
owned by the partnership. Any information
that isn't provided elsewhere on
Schedule K-1 (or an attachment to
Schedule K-1) is provided using code Y. For
CFCs and PFICs that you treat as qualified
electing funds (QEFs), the information that is
relevant to you will depend on whether you,
the partnership, or a lower-tier entity has
made an election under Regulations section
1.1411-10(g) with respect to the CFC or
QEF. For example, if the partnership made
an election under Regulations section
1.1411-10(g) for a CFC the stock of which is
owned by the partnership, and the relevant
income and deduction items derived from
that CFC are reported elsewhere on the
Schedule K-1, then you will not need the
information provided in code Y to complete
your Form 8960.
If you are an individual who is a U.S.
citizen or resident, or a domestic trust or

estate, follow the Instructions for Form 8960
to figure and report your net investment
income and adjusted gross income or
modified adjusted gross income. Corporate
partners are not subject to the net investment
income tax. See Regulations sections
1.1411-1 through -10 for details.
Code Z. Other information. The
partnership will report the following:
1. Any information a publicly traded
partnership needs to determine whether it
meets the 90% qualifying income test of
section 7704(c)(2).
A partner is required to notify the

TIP partnership of its status as a publicly
traded partnership.

2. Any information you need to
complete a disclosure statement for
reportable transactions in which the
partnership participates. If the partnership
participates in a transaction that must be
disclosed on Form 8886, Reportable
Transaction Disclosure Statement, both you
and the partnership may be required to file
Form 8886 for the transaction. The
determination of whether you are required to
disclose a transaction of the partnership is
based on the category(s) under which the
transaction qualifies for disclosure and is
determined by you and the partnership. You
may have to pay a penalty if you are required
to file Form 8886 and do not do so. See the
Instructions for Form 8886 for details.
3. Interest and additional tax on
compensation deferred under a section
409A nonqualified deferred compensation
plan that doesn't meet the requirements of
section 409A. See section 409A(a)(1)(B) to
figure the interest and additional tax on this
income. Report this interest and tax on
line 62 of Form 1040. This income is
included in the amount in box 4, Guaranteed
Payments.
4. Inversion gain. The partnership will
provide a statement showing the amounts of
each type of income or gain that is included
in inversion gain. The partnership has

included inversion gain in income elsewhere
on Schedule K-1. Inversion gain is also
reported under code Z because your taxable
income and alternative minimum taxable
income cannot be less than the inversion
gain. Also, your inversion gain (a) isn't taken
into account in figuring the net operating loss
(NOL) for the tax year or the NOL that can be
carried over to each tax year, (b) may limit
your credits, and (c) is treated as income
from sources within the United States for the
foreign tax credit. See section 7874 for
details.
5. Qualifying advanced coal project
property. Use the amounts the partnership
provides you to figure the amounts to report
on Form 3468, lines 5a through 5c.
6. Qualifying gasification project
property. Use the amounts the partnership
provides you to figure the amounts to report
on Form 3468, lines 6a and 6b.
7. Qualifying advanced energy project
property. Use the amount the partnership
provides you to figure the amount to report
on Form 3468, line 7.
8. The information needed to complete
Schedule P (Form 1120-F), List of Foreign
Partner Interests in Partnerships. When
required, the partnership will make this report
on an attached statement to partners that are
a corporation (identified as a foreign partner
under Regulations section 1.1446-1(c)(3)) or
partners that are a partnership (domestic or
foreign) if the reporting partnership knows, or
has reason to know, that one or more of the
partners is a foreign corporation. If the
partnership allocates effectively connected
income to the partner, the statement will
contain the information needed to complete
lines 1 through 10, 13, 14, 15b, 17a, 17b,
and 18 of Schedule P (Form 1120-F). If the
partnership doesn't allocate effectively
connected income to the partner, the
statement will contain the information
needed to complete lines 13, 14, and 18 of
Schedule P (Form 1120-F).
9. Conservation reserve program
payments. Individuals who received social

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security retirement or disability benefits, and
are partners in farm partnerships that receive
conservation reserve program payments, do
not pay self-employment tax on their portion
of the payments. The partnership will report
your portion of the conservation reserve
program payments in box 20 using code Z.
See Schedule SE (Form 1040) for
information on excluding the payment from
your calculation of self-employment tax.
10. Acceleration of AMT credit
(corporations only). If a corporate partner
has made an election to accelerate the AMT
credit in lieu of bonus depreciation, it is
required to notify the partnership in writing of
this election. See Rev. Proc. 2009-16,
2009-6 I.R.B. 449, and Rev. Proc. 2009-33,
2009-29 I.R.B. 150, for more information
about the written notification that the electing
corporate partner must provide the
partnership. The partnership is required to
refigure the electing corporate partner's
share of depreciation on any eligible
qualified property or extension property to
eliminate bonus depreciation and use the
straight line depreciation method for such
property. The partnership will attach a
statement to Schedule K-1 that lists each
partnership item that includes bonus
depreciation and shows the electing
corporate partner's adjustment for each item
that results from the refigured depreciation
and elimination of the bonus depreciation.
The partner must adjust the amount shown
on Schedule K-1 for these partnership items
by the amount of the corresponding
adjustment. See section 168(k)(4) for more
information.
11. Any information you may need to
comply with the limitation on excess farm
losses of certain taxpayers under section
461(j).
12. Any other information you may need
to file your return not shown elsewhere on
Schedule K-1.
The partnership should give you a
description and the amount of your share for
each of these items.

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