1065 Instructions for Form 1065

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2022

Instructions for Form 1065

Department of the Treasury
Internal Revenue Service

U.S. Return of Partnership Income

DRAFT AS OF
December 8, 2022

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

How To Get Forms and Publications . . . . . . . .
General Instructions . . . . . . . . . . . . . . . . . . . .
Purpose of Form . . . . . . . . . . . . . . . . . . .
Definitions . . . . . . . . . . . . . . . . . . . . . . . .
Who Must File . . . . . . . . . . . . . . . . . . . . .
Termination of the Partnership . . . . . . . . .
Electronic Filing . . . . . . . . . . . . . . . . . . . .
When To File . . . . . . . . . . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . . . . . . . . . .
Penalties . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Methods . . . . . . . . . . . . . . . .
Accounting Periods . . . . . . . . . . . . . . . . .
Rounding Off to Whole Dollars . . . . . . . . .
Recordkeeping . . . . . . . . . . . . . . . . . . . .
Administrative Adjustment Request (AAR) .
Amended Return . . . . . . . . . . . . . . . . . . .
Assembling the Return . . . . . . . . . . . . . . .
Entity Classification Election . . . . . . . . . . .
Elections Made by the Partnership . . . . . .
Elections Made by Each Partner . . . . . . . .
Partner's Dealings With Partnership . . . . .
Contributions to the Partnership . . . . . . . .
Dispositions of Contributed Property . . . . .
Recognition of Precontribution Gain on
Certain Partnership Distributions . . . . . .
Unrealized Receivables and Inventory Items
At-Risk Limitations . . . . . . . . . . . . . . . . . .
Passive Activity Limitations . . . . . . . . . . . .
Specific Instructions . . . . . . . . . . . . . . . . . . . .
Income . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . . . . . . . . . .
Schedule B. Other Information . . . . . . . . .
Schedules K and K-1. Partners' Distributive
Share Items . . . . . . . . . . . . . . . . . . . . .
Specific Instructions (Schedule K-1 Only) .
Part I. Information About the Partnership . .
Part II. Information About the Partner . . . . .
Specific Instructions (Schedules K and K-1,
Part III, Except as Noted) . . . . . . . . . . .
Flowchart To Help Determine if Items Are
Qualified Business Income . . . . . . . . . .
Analysis of Net Income (Loss) per Return . .
Schedule L. Balance Sheets per Books . . .

Dec 8, 2022

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Contents

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Schedule M-1. Reconciliation of Income
(Loss) per Books With Analysis of Net
Income (Loss) per Return . . . . . . . . . . . . .
Schedule M-2. Analysis of Partners' Capital
Accounts . . . . . . . . . . . . . . . . . . . . . . . . .
Codes for Principal Business Activity and Principal
Product or Service . . . . . . . . . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Future Developments

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For the latest information about developments related to Form 1065
and its instructions, such as legislation enacted after they were
published, go to IRS.gov/Form1065.

What's New
2022 legislation. The following changes in law under Public Law
117-169 (the Inflation Reduction Act of 2022) and new Internal
Revenue Code sections may affect partnerships with fiscal years,
corporate partners, or certain impacted activities.
• Advanced manufacturing investment credit for qualified
investment in an advanced manufacturing facility placed in service
after 2022. Section 48D.
• Excise tax on repurchase of corporate stock by certain
corporations which make repurchases after 2022. Section 4501.
• Excise tax on drug manufacturers under certain circumstances.
Section 5000D.
• Increase in energy credit for solar and wind facilities placed in
service in connection with low-income communities, effective
January 1, 2023. Section 48(e).
• Extension of incentives for biodiesel, renewable diesel, and
alternative fuels for productions after 2021. See Form 8864 and its
instructions. Sections 40A, 6426, and 6427.
• Credit for sustainable aviation fuel sold after 2022. Section 40B.
• Credit for clean hydrogen produced after 2022. Section 45V.
• Deduction for qualified retrofit for energy efficient commercial
buildings in tax years beginning after 2022. Section 179D(f).
• Credit for clean vehicles placed in service after 2022. Section
30D.
• Credit for qualified commercial clean vehicles for vehicles
acquired after 2022. Section 45W.
• Advanced manufacturing production credit for certain
components produced and sold after 2022. See Form 7207 and its
instructions. Section 45X.
• Credit against payroll taxes for small businesses for increase in
research for tax years beginning after 2022. Section 41(h).
Schedule K, line 16. International Transactions. See
information under Line 16. International Transactions regarding a
filing exception for Schedules K-2 and K-3 (Form 1065).
Schedule M-1. Reconciliation of Income (Loss) per Books With
Analysis of Net Income (Loss) per Return. The title of the
Schedule M-1 has been changed to Reconciliation of Income (Loss)
per Books With Analysis of Net Income (Loss) per Return. There
weren't any changes to the Schedule M-1 line items. This change
clarifies that Schedule M-1, line 9, is not the taxable income of the
partnership. Instead, Schedule M-1, line 9, agrees with the Analysis
of Net Income (Loss) per Return, line 1. The Analysis of Net Income
(Loss) per Return, line 1, is a summary of various items reported on
the Schedule K and is used for reconciliation purposes.

Cat. No. 11392V

Payroll credit for COVID-related paid sick leave or family
leave. Under the Families First Coronavirus Response Act
(FFCRA), as amended, and the American Rescue Plan Act of 2021
(the ARP), an eligible employer can take a credit against payroll
taxes owed for amounts paid for qualified sick leave or family leave if
incurred during the allowed period, which starts on April 1, 2020,
and ends September 30, 2021. There is no double tax benefit
allowed and the amounts claimed are reportable as income on
line 7. See Line 7. Other Income (Loss), later.

Domestic partnerships treated as aggregates for purposes of
sections 951, 951A, and 956(a). Final regulations announced in
Treasury Decision 9960 treat domestic partnerships as aggregates
of their partners for purposes of sections 951, 951A, and 956(a), and
any provision that specifically applies by reference to any of those
sections, for tax years of foreign corporations beginning on or after
January 25, 2022, and for tax years of U.S. persons in which or with
which such tax years of foreign corporations end. Domestic
partnerships may apply the final regulations to tax years of foreign
corporations beginning after December 31, 2017, and to tax years of
the domestic partnership in which or with which such tax years of the
foreign corporations end, provided certain consistency requirements
are met. See What's New in 2022 Partnership Instructions for
Schedules K-2 and K-3 (Form 1065).

DRAFT AS OF
December 8, 2022

Temporary allowance of 100% business meals. A partnership is
allowed a 100% deduction for certain business meals paid or
incurred after 2020 and before 2023. See Travel, meals, and
entertainment, later.
Box 20, code AG. Gross receipts for section 448(c)(2).
Partnerships and partners must determine whether they are subject
to certain accounting methods and to section 163(j) based on their
gross receipts. For tax years ending after December 30, 2020,
partnerships with current year gross receipts greater than $5 million
are required to report their current year gross receipts to partners.
For tax years ending after December 30, 2021, a partnership that
has current year gross receipts greater than $5 million will be
required to report gross receipts to partners for the 3 immediately
preceding tax years as well as gross receipts for the current year.
Partnerships whose current year gross receipts are less than or
equal to $5 million may also use this code to report gross receipts.

IRA partner disclosure. For IRA partners, the partnership reports
the EIN of the IRA's custodian in item E on the partner's
Schedule K-1 (Form 1065). If the partnership reports unrelated
business taxable income to an IRA partner on line 20, code V, the
partnership must report the IRA's EIN on line 20, code AH. See
Items E and F and Other information (code AH), later.

Reminders

Schedules K-2 and K-3 (Form 1065). Schedules K-2 and K-3
replaced prior lines 16 and 20 for certain international codes on
Schedules K and K-1. They were designed to provide greater clarity
for partners on how to compute their U.S. income tax liability with
respect to items of international tax relevance, including claiming
deductions and credits.

Photographs of Missing Children

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

Schedules K and K-1 (Form 1065). Line 21 replaced line 16p for
foreign taxes paid or accrued with respect to basis adjustments and
income reconciliation.
Note. Foreign taxes paid or accrued must also be reported on
Schedules K-2 and K-3 for foreign tax credit purposes.

How To Get Tax Help

Section 743(b) adjustment. Code U on line 20c of Schedules K
and K-1 is used to report the total remaining section 743(b)
adjustment for applicable partners. This was reported in previous
years on line 20, code AH.

If you have questions about a tax issue; need help preparing your
tax return; or want to download free publications, forms, or
instructions, go to IRS.gov to find resources that can help you right
away.

Section 1061 reporting. Section 1061 recharacterizes certain
long-term capital gains of a partner that holds one or more
applicable partnership interests as short-term capital gains. An
applicable partnership interest is an interest in a partnership that is
transferred to or held by a taxpayer, directly or indirectly, in
connection with the performance of substantial services by the
taxpayer or any other related person, in an applicable trade or
business. See Pub 541, Partnerships, for pass-through entity and
owner-taxpayer filing and reporting requirements.

Online tax information in other languages. You can find
information on IRS.gov/MyLanguage if English isn’t your native
language.
Free Over-the-Phone Interpreter (OPI) Service. The IRS is
committed to serving our multilingual customers by offering OPI
services. The OPI Service is a federally funded program and is
available at Taxpayer Assistance Centers (TACs), other IRS offices,
and every VITA/TCE return site. The OPI Service is accessible in
more than 350 languages.

Paycheck Protection Program (PPP) loans. Partnerships report
certain information related to PPP loans. The forgiveness of a PPP
loan creates tax-exempt income which affects each partner’s basis
in the partnership. A partnership can treat tax-exempt income
resulting from the forgiveness of a PPP loan as received or accrued
(1) as, and to the extent that, eligible expenses are paid or incurred;
(2) when the partnership applies for forgiveness of the PPP loan; or
(3) when forgiveness of the PPP loan is granted. See Schedule B,
Question 6; Schedules K and K-1, lines 11 and 18b; Schedule M-1;
and Schedule M-3, later, for PPP reporting instructions. For
additional details about the timing of tax-exempt income related to
PPP loans, see Rev. Proc. 2021-48, 2021-49 I.R.B. 835.

!

CAUTION

Accessibility Helpline available for taxpayers with disabilities.
Taxpayers who need information about accessibility services can
call 833-690-0598. The Accessibility Helpline can answer questions
related to current and future accessibility products and services
available in alternative media formats (for example, braille, large
print, audio, etc.). The Accessibility Helpline does not have access
to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.

The Taxpayer Advocate Service (TAS) Is Here
To Help You
What Is TAS?

PPP loans that aren't properly forgiven because of a
taxpayer's misrepresentation or omission are considered
taxable income to the taxpayer.

TAS is an independent organization within the IRS that helps
taxpayers and protects taxpayer rights. Their job is to ensure that
every taxpayer is treated fairly and that you know and understand
your rights under the Taxpayer Bill of Rights.

Tax shelter election. Final regulations issued January 5, 2021,
under section 448 permit a taxpayer to make an annual election to
use its allocations made in the immediately preceding tax year,
instead of using the current tax year’s allocation, to determine
whether the taxpayer is a syndicate under section 448(d)(3) for the
current tax year. See Tax shelter election, later.
-2-

Instructions for Form 1065 (2022)

How Can You Learn About Your Taxpayer Rights?

General Instructions

The Taxpayer Bill of Rights describes 10 basic rights that all
taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what these
rights mean to you and how they apply. These are your rights. Know
them. Use them.

Purpose of Form

Form 1065 is an information return used to report the income, gains,
losses, deductions, credits, and other information from the operation
of a partnership. Generally, a partnership doesn't pay tax on its
income but passes through any profits or losses to its partners.
Partners must include partnership items on their tax or information
returns.

What Can TAS Do for You?

DRAFT AS OF
December 8, 2022

TAS can help you resolve problems that you can’t resolve with the
IRS. And their service is free. If you qualify for their assistance, you
will be assigned to one advocate who will work with you throughout
the process and will do everything possible to resolve your issue.
TAS can help you if:
• Your problem is causing financial difficulty for you, your family, or
your business;
• You face (or your business is facing) an immediate threat of
adverse action; or
• You’ve tried repeatedly to contact the IRS but no one has
responded, or the IRS hasn’t responded by the date promised.

Definitions

Centralized Partnership Audit Regime

The Bipartisan Budget Act of 2015 (BBA) created a new centralized
partnership audit regime effective for partnership tax years
beginning after 2017. The new audit regime replaces the
consolidated audit proceedings under the Tax Equity and Fiscal
Responsibility Act (TEFRA). The new audit regime applies to all
partnerships unless the partnership is an eligible partnership and
elects out by making a valid election using Schedule B-2 (Form
1065).
Electing out of the centralized partnership audit regime.
See Electing Out of the Centralized Partnership Audit Regime, later.

How Can You Reach TAS?
TAS has offices in every state, the District of Columbia, and Puerto
Rico. Your local advocate's number is in your local directory and at
TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at
877-777-4778.

Adjustment year. An adjustment year is a tax year in which:
• In the case of an adjustment pursuant to the decision of a court in
a proceeding brought under section 6234, such decision becomes
final;
• In the case of an administrative adjustment request (AAR) under
section 6227, such AAR is filed; or
• In any other case, a notice of final partnership adjustment is
mailed under section 6231 or, if the partnership waives the
restrictions under section 6232(b) (regarding limitations on
assessments), the waiver is executed by the IRS.

How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect many
taxpayers. If you know of one of these broad issues, report it to them
at IRS.gov/SAMS.

TAS for Tax Professionals

Reviewed year. A reviewed year is a partnership’s tax year to
which a partnership adjustment relates.

TAS can provide a variety of information for tax professionals,
including tax law updates and guidance, TAS programs, and ways to
let TAS know about systemic problems you’ve seen in your practice.

Partnership

A partnership is the relationship between two or more persons who
join to carry on a trade or business, with each person contributing
money, property, labor, or skill and each expecting to share in the
profits and losses of the business whether or not a formal
partnership agreement is made.

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

The term “partnership” includes a limited partnership, syndicate,
group, pool, joint venture, or other unincorporated organization,
through or by which any business, financial operation, or venture is
carried on, that isn't, within the meaning of regulations under section
7701, a corporation, trust, estate, or sole proprietorship.
A joint undertaking merely to share expenses isn't a partnership.
Mere co-ownership of property that is maintained and leased or
rented isn't a partnership. However, if the co-owners provide
services to the tenants, a partnership exists.
Business owned and operated by spouses. Generally, if you
and your spouse jointly own and operate an unincorporated
business and share in the profits and losses, you are partners in a
partnership and you must file Form 1065.
Exception—Qualified joint venture. If you and your spouse
materially participate as the only members of a jointly owned and
operated business, and you file a joint return for the tax year, you
can make an election to be treated as a qualified joint venture
instead of a partnership. By making the election, you will not be
required to file Form 1065 for any year the election is in effect and
will instead report the income and deductions directly on your joint
return.
A qualified joint venture conducts a trade or business where the
only members of the joint venture are a married couple who file a
joint return; both spouses materially participate in the trade or
business (because mere joint ownership of property isn’t enough);

Tax forms and publications. The partnership can download or
print all of the forms and publications it may need on IRS.gov/
FormsPubs. Otherwise, the partnership can go to IRS.gov/
OrderForms to place an order and have forms mailed to the
partnership. The IRS will process your order for forms and
publications as soon as possible.

Instructions for Form 1065 (2022)

-3-

Limited Partnership

both spouses elect not to be treated as a partnership; and the
business is co-owned by both spouses and isn't held in the name of
a state law entity such as a partnership or limited liability company.
To make this election, you must divide all items of income, gain,
loss, deduction, and credit between you and your spouse in
accordance with your respective interests in the venture. Each of
you must file a separate Schedule C (Form 1040), Profit or Loss
From Business, or Schedule F (Form 1040), Profit or Loss From
Farming. On each line of your separate Schedule C or F (Form
1040), you must enter your share of the applicable income,
deduction, or loss. Each of you must also file a separate
Schedule SE (Form 1040), Self-Employment Tax, to pay
self-employment tax, as applicable.
If you and your spouse make the election for your rental real
estate business, you each must report your share of income and
deductions on Schedule E (Form 1040), Supplemental Income and
Loss. Rental real estate income isn’t generally included in net
earnings from self-employment subject to self-employment tax and
is generally subject to the passive loss limitation rules. Electing
qualified joint venture status doesn't alter the application of the
self-employment tax or the passive loss limitation rules.
To make the qualified joint venture election for 2022, jointly file
the 2022 Form 1040 or 1040-SR with the required schedules. This
generally doesn't increase the total tax on the return, but it does give
each spouse credit for social security earnings on which retirement
benefits are based, provided neither spouse exceeds the social
security tax limitation.
Once made, the election cannot be revoked without IRS consent.
If you and your spouse filed a Form 1065 for the year prior to the
election, you don't need to amend that return or file a final Form
1065 for the year the election takes effect.
For more information on qualified joint ventures, go to IRS.gov/
QJV.

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

Limited Liability Partnership

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

DRAFT AS OF
December 8, 2022
Limited Liability Company

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

TIP Form 8832 is classified as a partnership for federal income
tax purposes.

Nonrecourse Loans

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

Section 721(c) Partnership

A partnership (domestic or foreign) is a section 721(c) partnership if
there is a contribution of section 721(c) property to the partnership
and, after the contribution (and all transactions related to the
contribution), (1) a related foreign person with respect to the U.S.
transferor is a direct or indirect partner in the partnership; and (2) the
U.S. transferor and related persons own 80% or more of the
interests in partnership capital, profits, deductions, or losses. See
Regulations section 1.721(c)-1(b)(14).

Foreign Partnership

A foreign partnership is a partnership that isn't created or organized
in the United States or under the law of the United States or of any
state. In certain instances, a partnership created or organized in the
United States can be treated as a foreign partnership. See, for
example, Regulations sections 1.958-1(d)(1) and 1.958-1(d)(4)(ii).

U.S. Transferor

In addition, if a domestic section 721(c) partnership is formed
after January 17, 2017, and the gain deferral method is applied, then
a U.S. transferor must treat the section 721(c) partnership as a
foreign partnership and file a Form 8865, Return of U.S. Persons
With Respect to Certain Foreign Partnerships, with respect to the
partnership. See Form 8865 and its instructions. See also
Regulations section 1.721(c)-6(b)(4).

A U.S. transferor is a U.S. person other than a domestic partnership.
See Regulations section 1.721(c)-1(b)(18).

Section 721(c) Property

Section 721(c) property is property (other than excluded property)
with built-in gain that is contributed to a partnership by a U.S.
transferor, including pursuant to a contribution described in
Regulations section 1.721(c)-2(d) (partnership look-through rule).
See Regulations section 1.721(c)-1(b)(15).

General Partner

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

Gain Deferral Contribution

General Partnership

A gain deferral contribution is a contribution of section 721(c)
property to a section 721(c) partnership with respect to which the
recognition of gain is deferred under the gain deferral method. See
Regulations section 1.721(c)-1(b)(7).

A general partnership is composed only of general partners.

Limited Partner

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

Gain Deferral Method

The gain deferral method is the method described in Regulations
section 1.721(c)-3(b) applied to avoid the immediate recognition of
gain upon a contribution of section 721(c) property to a section
721(c) partnership under Regulations section 1.721(c)-2(b).

Who Must File

However, whether a partner qualifies as a limited partner for
purposes of self-employment tax depends upon whether the partner
meets the definition of a limited partner under section 1402(a)(13).
See Self-Employment, later.

Domestic Partnerships

Except as provided below, every domestic partnership must file
Form 1065, unless it neither receives income nor incurs any

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Instructions for Form 1065 (2022)

• The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i);
• All required Forms 1042, Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons, and 1042-S, Foreign Person's
U.S. Source Income Subject to Withholding, were filed by the
partnership or another withholding agent as required by Regulations
sections 1.1461-1(b) and (c); and
• The tax liability of each partner for amounts reportable under
Regulations sections 1.1461-1(b) and (c) has been fully satisfied by
the withholding of tax at the source.
A foreign partnership filing Form 1065 solely to make an election
(such as an election to amortize organization expenses) need only
provide its name, address, and employer identification number (EIN)
on page 1 of the form and attach a statement citing “Regulations
section 1.6031(a)-1(b)(5)” and identifying the election being made. A
foreign partnership filing Form 1065 solely to make an election must
obtain an EIN if it doesn't already have one.

expenditures treated as deductions or credits for federal income tax
purposes.
Note. To be certified as a qualified opportunity fund (QOF), the
partnership must file Form 1065 and attach Form 8996, Qualified
Opportunity Fund, even if the partnership had no income or
expenses to report. See Schedule B, question 25, and the
Instructions for Form 8996.
Entities formed as LLCs that are classified as partnerships for
federal income tax purposes have the same filing requirements as
domestic partnerships.

DRAFT AS OF
December 8, 2022

A religious or apostolic organization exempt from income tax
under section 501(d) must file Form 1065 to report its taxable
income, which must be allocated to its members as a dividend,
whether distributed or not. Such an organization must figure its
taxable income on an attached statement to Form 1065 in the same
manner as a corporation. The organization may use Form 1120,
U.S. Corporation Income Tax Return, for this purpose. Enter the
organization's taxable income, if any, on Form 1065, Schedule K,
line 6a, and each member's distributive share in box 6a of
Schedule K-1 (Form 1065). Net operating losses aren't deductible
by the members but may be carried back or forward by the
organization under the rules of section 172. The religious or
apostolic organization must also make its annual information return
available for public inspection. For this purpose, “annual information
return” includes an exact copy of Form 1065 and all accompanying
schedules and attached statements, except Schedules K-1. For
more details, see Regulations section 301.6104(d)-1.

Termination of the Partnership

A partnership terminates when all its operations are discontinued
and no part of any business, financial operation, or venture is
continued by any of its partners in a partnership.

The partnership’s tax year ends on the date of termination which
is the date the partnership winds up its affairs. Special rules apply in
the case of a merger, consolidation, or division of a partnership. See
Regulations sections 1.708-1(c) and (d) for details. Also see
IRS.gov/newsroom/questions-and-answers-about-technicalterminations-internal-revenue-code-irc-sec-708.

Electronic Filing

A qualifying syndicate, pool, joint venture, or similar organization
may elect under section 761(a) not to be treated as a partnership for
federal income tax purposes and will not be required to file Form
1065 except for the year of election. For details, see section 761(a)
and Regulations section 1.761-2.

Certain partnerships with more than 100 partners are required to file
Form 1065, Schedules K-1, and related forms and schedules
electronically. For tax years beginning after July 1, 2019, a religious
or apostolic organization exempt from income tax under section
501(d) must file Form 1065 electronically. Other partnerships
generally have the option to file electronically.

Real estate mortgage investment conduits (REMICs) must file
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC)
Income Tax Return.

See Rev. Proc. 2012-17, available at IRS.gov/pub/irs-irbs/
irb12-10.pdf, for the requirements for furnishing substitute
Schedule K-1 in electronic format.

Certain publicly traded partnerships (PTPs) treated as
corporations under section 7704 must file Form 1120.

Foreign Partnerships

The option to file electronically doesn't apply to certain returns,
including:
• Bankruptcy returns, and
• Returns with pre-computed penalty and interest.

Generally, a foreign partnership that has gross income that is (or is
treated as) effectively connected with the conduct of a trade or
business within the United States (effectively connected income) or
has gross income derived from sources in the United States (U.S.
source income) must file Form 1065, even if its principal place of
business is outside the United States or all its members are foreign
persons. A foreign partnership required to file a return must
generally report all of its foreign and U.S. partnership items.

For more details on electronic filing using the Modernized
e-file system, see:
• Pub. 3112, IRS e-file Application and Participation;
• Pub. 4163, Modernized e-File (MeF) Information for Authorized
IRS e-file Providers for Business Returns;
• Pub. 4164, Modernized e-File (MeF) Guide for Software
Developers and Transmitters;
• Form 8453-PE, U.S. Partnership Declaration for an IRS e-file
Return; and
• Form 8879-PE, IRS e-file Signature Authorization for Form 1065.

A foreign partnership with U.S. source income isn't required to file
Form 1065 if it qualifies for either of the following two exceptions.
Exception for foreign partnerships with U.S. partners. A return
isn't required if:
• The partnership had no effectively connected income during its
tax year;
• The partnership had U.S. source income of $20,000 or less
during its tax year;
• Less than 1% of any partnership item of income, gain, loss,
deduction, or credit was allocable in the aggregate to direct U.S.
partners at any time during its tax year; and
• The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i).

For More Information on Filing Electronically
• Call the e-Help Desk at 866-255-0654.
• Visit IRS.gov/Filing.

Electronic Filing Waiver

The IRS may waive the electronic filing rules if the partnership
demonstrates that a hardship would result if it were required to file its
return electronically. A partnership interested in requesting a waiver
of the mandatory electronic filing requirement must file a written
request, and request one in the manner prescribed by the Ogden
Submission Processing Center.

Exception for foreign partnerships with no U.S. partners and
no effectively connected income. A foreign partnership with U.S.
source income is not required to file a return if it meets the following
requirements:
• The partnership had no effectively connected income during its
tax year;
• The partnership had no U.S. partners at any time during its tax
year;

Instructions for Form 1065 (2022)

All written requests for waivers should be mailed to:

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Where To File
File Form 1065 at the applicable IRS address listed below. If Schedule M-3 is filed, Form 1065 must be filed at the Ogden Internal Revenue
Service Center as shown below.
If the partnership's principal business,
office, or agency is located in:

And the total assets at the end of the tax Use the following address:
year (Form 1065, page 1, item F) are:

DRAFT AS OF
December 8, 2022

Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maine,
Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Vermont, Virginia,
West Virginia, Wisconsin

Less than $10 million and Schedule M-3
isn't filed

Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999-0011

Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maine,
Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Vermont, Virginia,
West Virginia, Wisconsin

$10 million or more or
less than $10 million and
Schedule M-3 is filed

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0011

Any amount

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0011

Any amount

Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409

Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,
Louisiana, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico,
North Dakota, Oklahoma, Oregon, South
Dakota, Texas, Utah, Washington, Wyoming
A foreign country or U.S. possession

Extension of Time To File

Internal Revenue Service
Ogden Submission Processing Center
Attn: Form 1065 e-file Waiver Request
Mail Stop 1057
Ogden, UT 84201

File Form 7004, Application for Automatic Extension of Time To File
Certain Business Income Tax, Information, and Other Returns, to
request an extension of time to file. File Form 7004 by the regular
due date of the partnership return. Form 7004 can be electronically
filed. See the Instructions for Form 7004.

Waiver requests can also be faxed to 877-477-0575.

Period Covered

Contact the e-Help Desk at 866-255-0654 for questions
regarding the waiver procedures or process.

The 2022 Form 1065 is an information return for calendar year 2022
and fiscal years that begin in 2022 and end in 2023. For a fiscal year
or a short tax year, fill in the tax year space at the top of Form 1065
and each Schedule K-1 and Schedules K-2 and K-3, if applicable.

When To File

Generally, a domestic partnership must file Form 1065 by the 15th
day of the 3rd month following the date its tax year ended as shown
at the top of Form 1065. For calendar year partnerships, the due
date is March 15.

The 2022 Form 1065 may also be used if:
1. The partnership has a tax year of less than 12 months that
begins and ends in 2023, and
2. The 2023 Form 1065 isn't available by the time the
partnership is required to file its return.

If the due date falls on a Saturday, Sunday, or legal holiday in the
District of Columbia or the state in which you file your return, a return
filed by the next day that isn't a Saturday, Sunday, or legal holiday
will be treated as timely. Calendar year partnerships may therefore
timely file their return for the 2022 partnership year by March 15,
2023.

However, the partnership must show its 2023 tax year on the
2022 Form 1065 and incorporate any tax law changes that are
effective for tax years beginning after 2022.

Who Must Sign

Private Delivery Services (PDSs)

Partnerships can use certain PDSs designated by the IRS to meet
the “timely mailing as timely filing/paying” rule for tax returns. Go to
IRS.gov/PDS for the current list of designated services. The PDS
can tell you how to get written proof of the mail date.

Any Partner or LLC Member

Form 1065 isn't considered to be a return unless it is signed by a
partner or LLC member. When a return is made for a partnership by
a receiver, trustee, or assignee, the fiduciary must sign the return,
instead of the partner or LLC member. Returns and forms signed by
a receiver or trustee in bankruptcy on behalf of a partnership must
be accompanied by a copy of the order or instructions of the court
authorizing signing of the return or form.
Signatures required when filing an AAR. When filing an AAR,
Form 1065 must be signed by the partnership representative (PR)

For the IRS mailing address to use if you are using a PDS, go to
IRS.gov/PDSStreetAddresses.

!

CAUTION

A PDS can’t deliver items to P.O. boxes. You must use the
U.S. Postal Service to mail any item to an IRS P.O. box
address.
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Instructions for Form 1065 (2022)

increased to $580 or, if greater, 10% of the aggregate amount of
items required to be reported. There is no limit to the amount of the
penalty in the case of intentional disregard.

(or the designated individual (DI) if the PR is an entity) for the
reviewed year.

Paid Preparer's Information

Trust Fund Recovery Penalty

If a partner, member, or employee of the partnership completes
Form 1065, the paid preparer's space should remain blank. Only
paid preparers with a valid preparer tax identification number (PTIN)
should complete this section.

This penalty may apply if certain excise, income, social security, and
Medicare taxes that must be collected or withheld aren't collected or
withheld, or these taxes are not paid. These taxes are generally
reported on:
• Form 720, Quarterly Federal Excise Tax Return;
• Form 941, Employer's QUARTERLY Federal Tax Return;
• Form 943, Employer's Annual Federal Tax Return for Agricultural
Employees;
• Form 944, Employer's ANNUAL Federal Tax Return; and
• Form 945, Annual Return of Withheld Federal Income Tax.

DRAFT AS OF
December 8, 2022

Generally, anyone who is paid to prepare the partnership return
must do the following.
• Sign the return in the space provided for the preparer's signature.
• Fill in the other blanks in the “Paid Preparer Use Only” area of the
return. A paid preparer cannot use a social security number (SSN) in
the “Paid Preparer Use Only” box. The paid preparer must use a
PTIN.
• Give the partnership a copy of the return in addition to the copy to
be filed with the IRS.

The trust fund recovery penalty may be imposed on all persons
who are determined by the IRS to have been responsible for
collecting, accounting for, or paying over these taxes, and who
acted willfully in not doing so. The penalty is equal to the unpaid trust
fund tax. See the Instructions for Form 720; Pub. 15 (Circular E),
Employer's Tax Guide; Pub. 51 (Circular A), Agricultural Employer's
Tax Guide; or Pub. 15-T, Federal Income Tax Withholding Methods,
for more details, including the definition of a responsible person.

A paid preparer may sign original or amended returns by

TIP rubber stamp, mechanical device, or computer software
program.

Paid Preparer Authorization

Accounting Methods

If the partnership wants to allow the paid preparer to discuss its
2022 Form 1065 with the IRS, check the “Yes” box in the signature
area of the return. The authorization applies only to the individual
whose signature appears in the “Paid Preparer Use Only” section of
its return. It doesn't apply to the firm, if any, shown in the section.

An accounting method is a set of rules used to determine when and
how income and expenditures are reported. The method of
accounting used must be reconcilable with the partnership's books
and records. In all cases, the method used must clearly reflect
income. Generally, the following rules apply. For more information,
see Pub. 538, Accounting Periods and Methods.

If the “Yes” box is checked, the partnership is authorizing the IRS
to call the paid preparer to answer any questions that may arise
during the processing of its return. The partnership is also
authorizing the paid preparer to:
• Give the IRS any information that is missing from its return,
• Call the IRS for information about the processing of its return, and
• Respond to certain IRS notices about math errors and return
preparation.

Permissible overall methods of accounting include:

• Cash,
• Accrual, or
• Any other method authorized by the Internal Revenue Code.
Generally, a partnership may use the cash method of accounting
unless it’s required to maintain inventories, has a C corporation as a
partner, or is a tax shelter (as defined in section 448(d)(3)).
However, for tax years beginning after 2017, any partnership
qualifying as a small business taxpayer (defined below) may use the
cash method.

The partnership isn't authorizing the paid preparer to bind the
partnership to anything or otherwise represent the partnership
before the IRS. If the partnership wants to expand the paid
preparer's authorization, see Pub. 947, Practice Before the IRS and
Power of Attorney.
The authorization cannot be revoked. However, the authorization
will automatically end no later than the due date (excluding
extensions) for filing the 2023 return.

Tax shelter election. A taxpayer that is a tax shelter, as defined in
section 448(d)(3), is not permitted to use the cash method pursuant
to section 448(a)(3), and is also not permitted to use the small
business taxpayer exemptions contained in sections 163(j)(3)
(limitation on business interest), 263A(i) (uniform capitalization),
460(e)(1)(B) (percentage of completion method), and 471(c)
(general inventory method). Under section 448(d)(3), a taxpayer that
is a syndicate is considered a tax shelter. For purposes of section
448(d)(3), a syndicate is a partnership or other entity (other than a C
corporation) if more than 35% of the losses of such entity during the
tax year are allocated to limited partners or limited entrepreneurs.
The final regulations under section 448 permit a taxpayer to
make an annual election to use its allocations made in the
immediately preceding tax year, instead of using the current tax
year's allocation, to determine whether the taxpayer is a syndicate
under section 448(d)(3) for the current tax year. The election is
made on the timely filed original return (including extensions) for the
tax year for which it is made. The election is valid only for the tax
year for which it is made, and once made, cannot be revoked. See
Regulations section 1.448-2(b)(2)(iii)(B)(2) for guidance on the time
and manner of making the annual election and effective dates.

Penalties
Late Filing of Return

A penalty is assessed against the partnership if it is required to file a
partnership return and it (a) fails to file the return by the due date,
including extensions; or (b) files a return that fails to show all the
information required, unless such failure is due to reasonable cause.
The penalty is $220 for each month or part of a month (for a
maximum of 12 months) the failure continues, multiplied by the total
number of persons who were partners in the partnership during any
part of the partnership's tax year for which the return is due. If the
partnership receives a notice about a penalty after it files the return,
the partnership may send the IRS an explanation and the IRS will
determine if the explanation meets reasonable-cause criteria. Do
not attach an explanation when filing the return.

Failure To Furnish Information Timely

For each failure to furnish Schedule K-1 (and K-3, if applicable) to a
partner when due and each failure to include on Schedule K-1 (and
K-3, if applicable) all the information required to be shown (or the
inclusion of incorrect information), a $290 penalty may be imposed
for each Schedule K-1 (and K-3, if applicable) for which a failure
occurs. The maximum penalty is $3,532,500 for all such failures
during a calendar year. If the requirement to report correct
information is intentionally disregarded, each $290 penalty is

Instructions for Form 1065 (2022)

Small business taxpayer. For tax years beginning after 2017, a
small business taxpayer (defined below) can adopt or change its
accounting method to account for inventories (i) in the same manner
as materials and supplies that are nonincidental; or (ii) to conform to
the taxpayer's treatment of inventories in an applicable financial
statement (as defined in section 451(b)(3)), or, if the taxpayer
doesn't have an applicable financial statement, the method of
accounting used in the taxpayer's books and records prepared in
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method. To make the election, the partnership must file a statement
describing the election, the first tax year the election is to be
effective, and, in the case of an election for traders in securities or
commodities, the trade or business for which the election is made.
Except for new taxpayers, the statement must be filed by the due
date (not including extensions) of the return for the tax year
immediately preceding the election year and attached to that return
or, if applicable, to a request for an extension of time to file that
return. For more details, see Rev. Proc. 99-17, 1999-7 I.R.B. 52, as
superseded in part by Rev. Proc. 99-49; and sections 475(e) and (f).

accordance with the taxpayer's accounting procedures. See section
471(c)(1), and Change in accounting method, later.
For tax years beginning after 2017, a small business taxpayer
(defined below) can adopt or change its accounting method to not
capitalize costs to property produced or acquired for resale under
section 263A. See section 263A(i), and Change in accounting
method and Limitations on Deductions, later.
Small business taxpayer defined. For 2022, a small business
taxpayer is a taxpayer that (a) has average annual gross receipts of
$27 million or less for the prior 3 tax years, and (b) isn't a tax shelter
(as defined in section 448(d)(3)).

DRAFT AS OF
December 8, 2022

Change in accounting method. Generally, the partnership must
get IRS consent to change its method of accounting used to report
income or expense (for income or expense as a whole or for any
material item). To do so, the partnership must generally file Form
3115, Application for Change in Accounting Method, during the tax
year for which the change is requested. See the Instructions for
Form 3115 and Pub. 538 for more information and exceptions.
Section 481(a) adjustment. The partnership may have to make
an adjustment to prevent amounts of income or expenses from
being omitted or duplicated. This is called a section 481(a)
adjustment. The section 481(a) adjustment period is generally 1
year for a net negative adjustment and 4 years for a net positive
adjustment. However, in some instances, a partnership can elect to
modify the section 481(a) adjustment period. The partnership must
complete the appropriate lines of Form 3115 to make the election.
See the Instructions for Form 3115.
Include any net positive section 481(a) adjustment on page 1 of
Form 1065, line 7. If the net section 481(a) adjustment is negative,
report it on page 1, line 20.
There are some instances when the partnership can obtain
automatic consent from the IRS to change to certain accounting
methods. See the Instructions for Form 3115.

Accrual method. Generally, under the accrual method, an amount
is includible in income when:
1. All the events have occurred that fix the right to receive
income, which is the earliest date:
• Payment is earned through the required performance,
• Payment is due to the taxpayer,
• Payment is received by the taxpayer, or
• When the income is reported as revenue in an applicable
financial statement (AFS); and
2. When the amount can be determined with reasonable
accuracy.
See Regulations sections 1.451-1(a) and 1.451-3(c) for details.
Generally, an accrual basis taxpayer can deduct accrued
expenses in the tax year in which:
• All events that establish the liability have occurred,
• The amount of the liability can be figured with reasonable
accuracy, and
• Economic performance takes place with respect to the expense.
For property and service liabilities, for example, economic
performance occurs as the property or service is provided. There
are special economic performance rules for certain items, including
recurring expenses. See section 461(h) and the related regulations
for the rules for determining when economic performance takes
place.

Accounting Periods

A partnership is generally required to have one of the following tax
years.
1. The tax year of a majority of its partners (majority tax year).
2. If there is no majority tax year, then the tax year common to
all of the partnership's principal partners (partners with an interest of
5% or more in the partnership profits or capital).
3. If there is neither a majority tax year nor a tax year common
to all principal partners, then the tax year that results in the least
aggregate deferral of income.
Note. In determining the tax year of a partnership under (1), (2), or
(3) above, the tax years of certain tax-exempt and foreign partners
are disregarded. See Regulations section 1.706-1(b) for more
details.
4. Some other tax year if:
• The partnership can establish that there is a business purpose for
the tax year; or
• The partnership elects under section 444 to have a tax year other
than a required tax year by filing Form 8716, Election To Have a Tax
Year Other Than a Required Tax Year. For a partnership to have this
election in effect, it must make the payments required by section
7519 and file Form 8752, Required Payment or Refund Under
Section 7519.
A section 444 election ends if a partnership changes its
accounting period to its required tax year or some other permitted
year or it is penalized for willfully failing to comply with the
requirements of section 7519. If the termination results in a short tax
year, enter at the top of the first page of Form 1065 for the short tax
year, “SECTION 444 ELECTION TERMINATED”; or
• The partnership elects to use a 52-53-week tax year that ends
with reference to either its required tax year or a tax year elected
under section 444.

Nonaccrual-experience method. Accrual method partnerships
aren't required to accrue certain amounts to be received from the
performance of services that, on the basis of their experience, will
not be collected if:
• The services are in the field of health, law, engineering,
architecture, accounting, actuarial science, performing arts, or
consulting; or
• The partnership's average annual gross receipts don’t exceed
$27 million for all prior tax years. For more details, see section
448(d)(5).
This provision doesn't apply to any amount if interest is required
to be paid on the amount or if there is any penalty for failure to timely
pay the amount. For information, see section 448(d)(5) and
Regulations section 1.448-2. For reporting requirements, see the
instructions for line 1a, later.
Percentage of completion method. Long-term contracts (except
for certain real property construction contracts) must generally be
accounted for using the percentage of completion method described
in section 460. See section 460 and the underlying regulations for
rules on long-term contracts.
Mark-to-market accounting method. Dealers in securities must
use the mark-to-market accounting method described in section
475. Under this method, any security that is inventory to the dealer
must be included in inventory at its fair market value (FMV). Any
security that isn't inventory and that is held at the close of the tax
year is treated as sold at its FMV on the last business day of the tax
year, and any gain or loss must be taken into account in determining
gross income. The gain or loss taken into account is generally
treated as ordinary gain or loss. For details, including exceptions,
see section 475, the related regulations, and Rev. Rul. 97-39,
1997-39 I.R.B. 4.
Dealers in commodities and traders in securities and
commodities can elect to use the mark-to-market accounting

Change of tax year. To change its tax year or to adopt or retain
a tax year other than its required tax year, the partnership must file
Form 1128, Application To Adopt, Change, or Retain a Tax Year,
unless the partnership is making an election under section 444.
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Instructions for Form 1065 (2022)

Ogden Service Center
Ogden, UT 84201-0011

The tax year of a common trust fund must be the calendar

TIP year.

Payments can be made by check or electronically. If making an
electronic payment, choose the payment description “BBA AAR
Imputed Underpayment” from the list of payment types.
If the partnership has an imputed underpayment, the partnership
may elect to have its partners take the adjustments into account
instead of paying the imputed underpayment. See the Instructions
for Form 8082 for information on how to make the election.

Rounding Off to Whole Dollars

The partnership may enter decimal points and cents when
completing its return. However, it should round off cents to whole
dollars on its return, forms, and schedules to make completing its
return easier. The partnership must either round off all amounts on
the return to whole dollars, or use cents for all amounts. To round,
drop amounts under 50 cents and increase amounts from 50 to 99
cents to the next dollar. For example, $8.40 rounds to $8 and $8.50
rounds to $9.

DRAFT AS OF
December 8, 2022
Amended Return

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

If two or more amounts are added to figure the amount to enter
on a line, include cents when adding the amounts and round off only
the total.

Recordkeeping

Electronically filed amended returns. If the amended return will
be filed electronically, complete Form 1065 and check box G(5) to
indicate that you are filing an amended return. Attach a statement
that identifies the line number of each amended item, the corrected
amount or other treatment of the item, and an explanation of the
reason(s) for each change. If the income, deductions, credits, or
other information provided to any partner on Schedule K-1 or
Schedule K-3, as applicable, is incorrect, file an amended
Schedule K-1 or K-3 for that partner with the amended Form 1065.
Also give a copy of the amended Schedule K-1 or K-3 to that
partner. Check the “Amended K-1” or “Amended K-3” box at the top
of the Schedule K-1 or K-3 to indicate that it is an amended
Schedule K-1 or K-3.

The partnership must keep its records as long as they may be
needed for the administration of any provision of the Internal
Revenue Code. The partnership must usually keep records that
support an item of income, deduction, or credit on the partnership
return for 3 years from the date the return is due or is filed,
whichever is later. These records must usually be kept for 3 years
from the date each partner's return is due or is filed, whichever is
later. It must also keep records that verify the partnership's basis in
property for as long as they are needed to figure the basis of the
original or replacement property.

The partnership should also keep copies of all returns it has filed.
They help in preparing future returns and in making computations
when filing an amended return.

Partner amended return filed as part of modification of the imputed underpayment during a BBA examination. Section
6225(c)(2) allows a BBA partnership under examination to request
specific types of modifications of any imputed underpayment
proposed by the IRS. One type of modification that may be
requested is when one or more partners, including
partnership-partners, file amended returns for the tax years of the
partners which include the end of the reviewed year of the BBA
partnership under examination and for any tax year with respect to
which tax attributes are affected. See File an Administrative
Adjustment Request under Bipartisan Budget Act of 2015 (BBA).
A modification amended return filing must meet a number of
requirements. Therefore, a partnership-partner filing a modification
amended return must refer to Form 8982, Affidavit for Partner
Modification Amended Return Under IRC 6225(c)(2)(A) or Partner
Alternative Procedure Under IRC 6225(c)(2)(B). The instructions for
Form 8982, Section A, explain the modification of amended returns,
requirements for payment and submission, and the requirement to
provide Form 8982, Section A, to the PR of the BBA partnership.
See Filing Instructions for Partner Modification Amended Returns
and Paying the Amount You Owe in the instructions for Form 8982.
Partnership-partners who are filing amended returns
electronically as part of the modification will report the applicable
payment of tax and interest and any penalties on Form 1065,
page 1, line 25. A payment made with an amended Form 1065
should detail the amount of the payment to be applied separately to
tax, interest, and penalties. The partnership should consider all
guidance issued by the IRS when figuring the amount due. In
general, the partnership should figure its amount due in accordance
with Regulations sections 301.6225-2(d)(2)(vi)(A) and
301.6226-3(e)(4)(iii).

Administrative Adjustment Request
(AAR)

A partnership that is subject to the BBA centralized partnership audit
regime must file an AAR to request an administrative adjustment in
the amount or other treatment of one or more partnership-related
items.
BBA partnerships filing an AAR should not file amended tax
returns or amended Schedules K-1 and/or K-3. For an exception
where a BBA partnership is itself a partner in a BBA partnership and
is filing an amended return, see Partner amended return filed as part
of modification of the imputed underpayment during a BBA
examination, later.

Electronically filed AARs. If the AAR will be filed electronically,
complete Form 1065 with the corrected amounts and check box
G(5). In addition, complete Form 8082, Notice of Inconsistent
Treatment or Administrative Adjustment Request (AAR). See the
Instructions for Form 8082 for detailed instructions. For AARs filed
on paper, see Paper-filed amended returns and AARs, later.
AARs for which payment is made. A partnership filing an AAR
that has not made a valid election out of the BBA centralized
partnership audit regime, and that does not elect to have its partners
take adjustments into account, and that has adjustments that result
in an imputed underpayment, should report the imputed
underpayment and any interest and penalties on Form 1065, page 1,
line 25. See the Instructions for Form 8082 for information on how to
figure a BBA imputed underpayment and what to do when an
adjustment requested by an AAR doesn't result in an imputed
underpayment. See section 6233 for information about interest and
penalties on the imputed underpayment. Include the following
information on your payment.
• Name of partnership.
• Form 1065.
• Tax identification number.
• Tax year.
• BBA AAR Imputed Underpayment.
• Checks must be payable to “United States Treasury.”
Mail payment to:

Instructions for Form 1065 (2022)

Paper-filed amended returns and AARs. If the amended return
or AAR will not be filed electronically, complete Form 1065-X,
Amended Return or Administrative Adjustment Request (AAR), to
file the amended return or AAR. See Form 1065-X and its separate
instructions for information on completing and filing the form.

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• Apply for an online payment agreement (IRS.gov/OPA) to meet
your tax obligation in monthly installments if you can’t pay your taxes
in full today. Once you complete the online process, you will receive
immediate notification of whether your agreement has been
approved.
• Use the Offer in Compromise Pre-Qualifier to see if you can settle
your tax debt for less than the full amount you owe.

When a partnership's federal return is amended or changed

TIP for any reason, it may affect the partnership's state tax

return. For more information, contact the state tax agency
for the state in which the partnership return was filed.

What if You Can’t Pay Now?

Go to IRS.gov/Payments for more information about your options.

DRAFT AS OF
December 8, 2022

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

Use this to—

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

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

720—Quarterly Federal Excise Tax Return

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

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

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

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

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

944—Employer's ANNUAL Federal Tax Return

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

945—Annual Return of Withheld Federal Income Tax

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

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

Report tax withheld on payments or distributions made to nonresident alien individuals, foreign
partnerships, or foreign corporations to the extent these payments or distributions constitute gross
income from sources within the United States that isn't effectively connected with a U.S. trade or
business. A domestic partnership must also withhold tax on a foreign partner's distributive share of
such income, including amounts that are not actually distributed. Withholding on amounts not
previously distributed to a foreign partner must generally be made and paid over by the earlier of:
• The date on which Schedules K-1 and K-3 are sent to that partner, or
• The 15th day of the 3rd month after the end of the partnership's tax year.
These forms are also used to report tax withheld on distributions of effectively connected taxable
income made by PTPs and certain transfers of interests in PTPs. For more details, see instructions to
Forms 1042 and 1042-S and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

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

Transmit paper Forms 1042-S to the IRS.

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

Use Form 1065-X to correct a previously filed partnership return or to make an AAR for a previously
filed return.

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

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

1095-C and 1094-C—Employer-Provided Health Insurance Offer and Used by certain employers to report information about the health care coverage the employer offered
Coverage; and Transmittal of Forms 1095-C
with regard to each full-time employee.
1096—Annual Summary and Transmittal of U.S. Information Returns Transmit paper Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G to the IRS.
1097-BTC—Bond Tax Credit

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

1098—Mortgage Interest Statement

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

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

Report the following.
• Acquisitions or abandonments of secured property.
Important. Every partnership must file Forms 1099-MISC or
• Proceeds from broker and barter exchange transactions.
1099-NEC if, in the course of its trade or business, it makes payments • Cancellation of debts.
of rents, commissions, or other fixed or determinable income (see
• Interest income.
section 6041) totaling $600 or more to any one person during the
• Payment card and third-party network transactions.
calendar year.
• Payments of long-term care and accelerated death benefits.
• Acquisition of a life insurance contract, or interest therein, in a reportable policy sale.
• Miscellaneous income.
• Nonemployee compensation
• Original issue discount.
• Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance
contracts, etc.
• Proceeds from real estate transactions.
• Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.

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Instructions for Form 1065 (2022)

Form, Return, or Statement

Use this to—

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

A partnership may have to file Form 5471 if it:
• Controls a foreign corporation,
• Acquires or owns 10% or more of the total combined voting power or value of shares of all classes
of stock, or
• Disposes of sufficient stock to reduce its interest to less than 10% of the total combined voting
power or value of shares of all classes of stock.

5713—International Boycott Report

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

8275—Disclosure Statement

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

8275-R—Regulation Disclosure Statement

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

8288, 8288-A, and 8288-C—U.S. Withholding Tax Return for
Certain Dispositions by Foreign Persons; Statement of Withholding
on Dispositions by Foreign Persons; and Statement of Withholding
Under Section 1446(f)(4) on Dispositions by Foreign Persons on
Partnership Interest

Report and send withheld tax on the sale of U.S. real property or the transfer of certain partnership
interests by a foreign person. See sections 1445 and 1446(f), and the related regulations, for
additional information.

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

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

DRAFT AS OF
December 8, 2022

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

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

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

Report an ownership interest in, make elections for, and compute inclusions with respect to passive
foreign investment companies and qualified electing funds.

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

Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain
long-term contracts that are accounted for under either the percentage of completion-capitalized cost
method or the percentage of completion method. Partnerships that are not closely held use this form.
Closely held partnerships should see the instructions for Schedule K, Line 20c. Other Items and
Amounts, and Look-back interest completed long-term contracts (code J), later, for details on the Form
8697 information they must provide to their partners.

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

Use Forms 8804 and 8805 to figure and report the withholding tax on foreign partners' allocable shares
of effectively connected taxable income (ECTI). Form 8804 must also be filed to report effectively
connected gross income allocable to foreign partners even if the partnership has no ECTI on which to
withhold. Use Form 8813 to send installment payments of withheld tax based on ECTI allocable to
foreign partners.
Exception. PTPs do not file these forms. They must instead withhold tax on distributions to foreign
partners and report and send payments using Forms 1042 and 1042-S. See Regulations section
1.1446-4 for more information.

8832—Entity Classification Election

See Entity Classification Election, later.

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

Report the information required under section 6038 (reporting with respect to controlled foreign
partnerships), section 6038B (reporting of transfers to foreign partnerships), section 6046A (reporting
of acquisitions, dispositions, and changes in foreign partnership interests), or section 721(c) (reporting
related to the application of the gain deferral method). See Form 8865 and its instructions for more
details.

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

Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain
property placed in service after September 13, 1995, depreciated under the income forecast method.
Partnerships that are not closely held use this form. Closely held partnerships should see the
instructions for Schedule K, line 20c, Look-back interest income forecast method (code K), later, for
details on the Form 8866 information they must provide to their partners.

8876—Excise Tax on Structured Settlement Factoring Transactions

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

Instructions for Form 1065 (2022)

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Form, Return, or Statement

Use this to—

8886—Reportable Transaction Disclosure Statement

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

DRAFT AS OF
December 8, 2022

See Regulations section 1.6011-4; the Instructions for Form 8886; and the instructions for Schedule K,
Line 20c. Other Items and Amounts, and Other information (code AH), later, for more information.

8918—Material Advisor Disclosure Statement

Material advisors to any reportable transaction must disclose certain information about the reportable
transaction by filing a Form 8918 with the IRS. See Form 8918 and its instructions for more details.

8925—Report of Employer-Owned Life Insurance Contracts

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

8990—Limitation on Business Interest Expense Under Section 163(j)

Business interest expense may be limited. See section 163(j) and Form 8990 and its instructions. Also
see Schedule B, questions 23 and 24, and the related instructions.

8994—Employer Credit for Paid Family and Medical Leave

Report if the partnership has a credit for paid family and medical leave. See the Instructions for Form
8994 for more information.

8996—Qualified Opportunity Fund

Certify that the requirements to be a qualified opportunity fund investing in qualified opportunity zone
property, as defined in section 1400Z-2 have been fulfilled. Entities attaching Form 8996 must also
complete Form 1065, Schedule B, question 25. For more information, see the Instructions for Form
8996.

Assembling the Return

choose to be classified either as a partnership or an association
taxable as a corporation. A domestic eligible entity with at least two
members that doesn't file Form 8832 is classified under the default
rules as a partnership. However, a foreign eligible entity with at least
two members is classified under the default rules as a partnership
only if the entity doesn't provide limited liability to at least one
member. File Form 8832 only if the entity doesn't want to be
classified under these default rules or if it wants to change its
classification.

When submitting Form 1065, organize the pages of the return in the
following order.
• Pages 1–5.
• Schedule F (Form 1040), Profit or Loss From Farming (if
required).
• Form 8825, Rental Real Estate Income and Expenses of a
Partnership or an S Corporation (if required).
• Schedule D (Form 1065), Capital Gains and Losses (if required).
• Form 4797, Sales of Business Property (if required).
• Form 8949, Sales and Other Dispositions of Capital Assets (if
required).
• Form 8996, Qualified Opportunity Fund (if required).
• Form 1125-A, Cost of Goods Sold (if required).
• Form 8941, Credit For Small Employer Health Insurance
Premiums (if required).
• Form 6252, Installment Sale Income (if required).
• Form 8997, Initial and Annual Statement of Qualified Opportunity
Fund (QOF) Investments (if required).
• Form 8938, Statement of Specified Foreign Financial Assets (if
required).
• Any other schedules in alphabetical order, including Schedules
K-2, K-3, and K-1 (Form 1065).
• Any other forms in numerical order.

!

Attach a copy of Form 8832 to the partnership's Form 1065
for the tax year of the election.

CAUTION

Elections Made by the Partnership

Generally, the partnership decides how to figure income from its
operations. For example, it chooses the accounting method and
depreciation methods it will use. The partnership also makes
elections under the following sections.
1. Section 179 (election to expense certain property).
2. Section 614 (definition of property—mines, wells, and other
natural deposits). This election must be made before the partners
figure their individual depletion allowances under section 613A(c)(7)
(D).
3. Section 1033 (involuntary conversions).
4. Section 754 (manner of electing optional adjustment to basis
of partnership property).
Under section 754, a partnership may elect to adjust the basis of
partnership property when property is distributed or when a
partnership interest is transferred. If the election is made regarding a
transfer of a partnership interest (section 743(b)) and the assets of
the partnership constitute a trade or business for purposes of
section 1060(c), then the value of any goodwill transferred must be
determined in the manner provided in Regulations section 1.1060-1.
Once an election is made under section 754, it applies both to all
distributions and to all transfers made during the tax year and in all
subsequent tax years unless the election is revoked.

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

Entity Classification Election

Use Form 8832, Entity Classification Election, to make a change in
classification. Except for certain business entities always classified
as a corporation, a business entity with at least two members may
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Instructions for Form 1065 (2022)

section 613A(c)(7)(D)) must be reported on Schedule K and the
transferee partner's Schedule K-1. Report the adjustments on an
attached statement to Schedule K, line 20c, code U. See the
instructions for Schedule K, line 20. Identify the partnership item
being adjusted and the amount of the adjustment. If the adjustments
are to partnership items from more than one trade or business,
report the adjustments separately for each activity.

This election must be made in a statement that is filed with the
partnership's timely filed return (including any extension) for the tax
year during which the distribution or transfer occurs. See Proposed
Regulations section 1.754-1(b)(1). The statement must include:
• The name and address of the partnership, and
• A declaration that the partnership elects under section 754 to
apply the provisions of section 734(b) and section 743(b).
The partnership can get an automatic 12-month extension to
make the section 754 election, provided corrective action is taken
within 12 months of the original deadline for making the election. For
details, see Regulations section 301.9100-2.
See section 754 and the related regulations for more information.
If there is a distribution of property consisting of an interest in
another partnership, see section 734(b).
The partnership is required to attach a statement for any section
743(b) basis adjustments. See below for details.
To revoke a section 754 election, the partnership must file the
revocation request using Form 15254, Request for Section 754
Revocation. See the instructions for Form 15254 for more
information.
5. Section 743(e) (electing investment partnership).
6. Regulations section 1.1411-10(g) (section 1411 election
regarding controlled foreign corporations (CFCs) and qualified
electing fund (QEF)).
A domestic partnership that directly or indirectly owns stock of a
CFC (within the meaning of section 953(c)(1)(B) or section 957(a))
or a passive foreign investment company (PFIC) (within the meaning
of section 1297(a)) that the domestic partnership treats as a QEF
under section 1293 may make the election provided in Regulations
section 1.1411-10(g). The election must be made no later than the
first tax year beginning after 2013 during which the partnership (i)
includes an amount in gross income for chapter 1 purposes under
section 951(a) or section 1293(a)(1)(A) for the CFC or QEF, and (ii)
has a direct or indirect owner that is subject to tax under section
1411 or would have been if the election were made. This election
must be made on an entity-by-entity basis, and applies only to the
particular CFCs and QEFs for which an election is made. In general,
for purposes of section 1411, if an election is in effect for a CFC or
QEF, the amounts included in income under section 951 and section
1293 derived from the CFC or QEF are included in net investment
income, and distributions described in section 959(d) or section
1293(c) are excluded from net investment income. An election that
is made under Regulations section 1.1411-10(g) cannot be revoked.
For more information regarding this election, see Regulations
section 1.1411-10(g).
The election must be made in a statement that is filed with the
partnership’s original or amended return for the tax year in which the
election is made. An election can be made on an amended return
only if the tax year for which the election is made, and all tax years
affected by the election, aren't closed by the period of limitations on
assessments under section 6501. The statement must include:
• The name and EIN of the partnership making the election;
• A declaration that the partnership elects under Regulations
section 1.1411-10(g) to apply the rules in Regulations section
1.1411-10(g) to the CFCs and QEFs identified in the statement; and
• The following information for each CFC and QEF for which an
election is made: (i) the name of the CFC or QEF; and (ii) either the
EIN of the CFC or QEF, or, if an EIN isn’t available, the reference ID
number of the CFC or QEF.
7. Section 41(h) (payroll tax credit election).

Electing Out of the Centralized Partnership
Audit Regime

DRAFT AS OF
December 8, 2022

A partnership can elect out of the centralized partnership audit
regime for a tax year if the partnership is an eligible partnership that
year. See Question 30 under Schedule B, later.

Elections Made by Each Partner

Elections under the following sections are made by each partner
separately on the partner's tax return.
1. Section 59(e) (election to deduct ratably certain qualified
expenditures such as intangible drilling costs, mining exploration
expenses, or research and experimental expenditures).
2. Section 108 (income from discharge of indebtedness).
3. Section 617 (deduction and recapture of certain mining
exploration expenditures paid or incurred).
4. Section 901 (foreign tax credit).

Partner's Dealings With Partnership

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

Contributions to the Partnership

Generally, no gain (loss) is recognized to the partnership or any of
the partners when property is contributed to the partnership in
exchange for an interest in the partnership. This rule doesn't apply to
any gain realized on a transfer of property to a partnership that
would be treated as an investment company (within the meaning of
section 351(e)) if the partnership were incorporated. If, as a result of
a transfer of property to a partnership, there is a direct or indirect
transfer of money or other property to the transferring partner, the
partner may have to recognize gain on the exchange.
The basis to the partnership of property contributed by a partner
is the adjusted basis in the hands of the partner at the time it was
contributed, plus any gain recognized (under section 721(b)) by the
partner at that time. See section 723 for more information.
See Regulations sections 1.721(c)-1(b)(7) and 1.721(c)-3(b) for
more information on a gain deferral contribution of section 721(c)
property to a section 721(c) partnership. Also see Section 721(c)
Partnership, Section 721(c) Property, and Gain Deferral Method
under Definitions, earlier.

Dispositions of Contributed Property

Generally, if the partnership disposes of property contributed to the
partnership by a partner, income, gain, loss, and deductions from
that property must be allocated among the partners to take into
account the difference between the property's basis and its FMV at
the time of the contribution. However, if the adjusted basis of the
contributed property exceeds its FMV at the time of the contribution,
the built-in loss can only be taken into account by the contributing
partner. For all other partners, the basis of the property in the hands
of the partnership is treated as equal to its FMV at the time of the
contribution (see section 704(c)(1)(C)).

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

If the basis of partnership property has been adjusted for a
transferee partner under section 743(b), the partnership must adjust
the transferee's distributive share of the items of partnership income,
deduction, gain, or loss in accordance with Regulations sections
1.743-1(j)(3) and (4). These adjustments (other than adjustments to
depletable oil and gas property allocable to the partner under

Instructions for Form 1065 (2022)

For property contributed to the partnership, the contributing
partner must recognize gain or loss on a distribution of the property
to another partner within 7 years of being contributed. The gain or
loss is equal to the amount that the contributing partner should have
recognized if the property had been sold for its FMV when
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the production of income, the partner may be subject to the at-risk
rules.
1. Holding, producing, or distributing motion picture films or
videotapes.
2. Farming.
3. Leasing section 1245 property, including personal property
and certain other tangible property that's depreciable or amortizable.
4. Exploring for, or exploiting, oil and gas.
5. Exploring for, or exploiting, geothermal deposits (for wells
started after September 1978).
6. Any other activity not included in items 1 through 5, above,
that's carried on as a trade or business or for the production of
income.

distributed, because of the difference between the property's basis
and its FMV at the time of contribution.
See section 704(c) for details and other rules on dispositions of
contributed property. See section 724 for the character of any gain
or loss recognized on the disposition of unrealized receivables,
inventory items, or capital loss property contributed to the
partnership by a partner.
See Regulations sections 1.721(c)-4 and 1.721(c)-5 for more
information on certain dispositions of contributed 721(c) property to
which the gain deferral method applies. Also see Section 721(c)
Partnership, Section 721(c) Property, and Gain Deferral Method
under Definitions, earlier.

DRAFT AS OF
December 8, 2022

Recognition of Precontribution Gain
on Certain Partnership Distributions

Aggregation of activities. Activities described in (6) above that
constitute a trade or business are treated as one activity if:
• You actively participate in the management of the trade or
business, or
• The trade or business is carried on by a partnership or S
corporation and 65% or more of its losses for the tax year are
allocable to persons who actively participate in the management of
the trade or business.
Similar rules apply to activities described in items 1 through 5 above.
For more information, see Pub. 925.
If you aggregate your activities under these rules for section 465
purposes, check the appropriate box in item K below the name and
address block on page 1 of Form 1065.

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

At-risk activity reporting requirements. If the partnership items
of income, loss, or deduction reported on Schedule K-1 are from
more than one activity covered by the at-risk rules, the partnership
should report on an attachment to Schedule K-1 information relating
to each activity as is required by Item K. Partner's Share of
Liabilities, later. Additional information needed to enable the partner
to compute the profit or loss from each at-risk activity and the
amount at risk may be required to be separately reported pursuant
to the Instructions for Form 6198 and Pub. 925.

For more details and exceptions, see Pub. 541.

Unrealized Receivables and Inventory
Items

Generally, if a partner sells or exchanges a partnership interest
where unrealized receivables or inventory items are involved, the
transferor partner must notify the partnership, in writing, within 30
days of the exchange. The partnership must then file Form 8308,
Report of a Sale or Exchange of Certain Partnership Interests.

Passive Activity Limitations

In general, section 469 limits the amount of losses, deductions, and
credits that partners can claim from passive activities. The passive
activity limitations don't apply to the partnership. Instead, they apply
to each partner's share of any income or loss and credit attributable
to a passive activity. Because the treatment of each partner's share
of partnership income or loss and credit depends on the nature of
the activity that generated it, the partnership must report income or
loss and credits separately for each activity.

If a partnership distributes unrealized receivables or substantially
appreciated inventory items in exchange for all or part of a partner's
interest in other partnership property (including money), treat the
transaction as a sale or exchange between the partner and the
partnership. Treat the partnership gain (loss) as ordinary business
income (loss). The income (loss) is specially allocated only to
partners other than the distributee partner.

The following instructions and the instructions for Schedules K
and K-1, later, explain the applicable passive activity limitation rules
and specify the type of information the partnership must provide to
its partners for each activity. If the partnership had more than one
activity, it must report information for each activity on an attached
statement to Schedules K and K-1.

If a partnership gives other property (including money) for all or
part of that partner's interest in the partnership's unrealized
receivables or substantially appreciated inventory items, treat the
transaction as a sale or exchange of the property.
See Rev. Rul. 84-102, 1984-2 C.B. 119, for information on the tax
consequences that result when a new partner joins a partnership
that has liabilities and unrealized receivables. Also see Pub. 541 for
more information on unrealized receivables and inventory items.

Generally, passive activities include (a) activities that involve the
conduct of a trade or business if the partner doesn't materially
participate in the activity, and (b) all rental activities (defined later)
regardless of the partner's participation. For exceptions, see
Activities That Are Not Passive Activities, later. The level of each
partner's participation in an activity must be determined by the
partner.

At-Risk Limitations

In general, section 465 limits the amount of deductible losses
partners can claim from certain activities. The at-risk limitations don't
apply to the partnership, but instead apply to each partner's share of
net losses attributable to each activity. Because the treatment of
each partner's share of partnership losses depends on the nature of
the activity that generated it, the partnership must report the items of
income, loss, and deduction separately for each activity. The at-risk
limitation applies to individuals, estates, trusts, and certain closely
held C corporations. See Pub. 925, Passive Activity and At-Risk
Rules, for additional information.

The passive activity rules provide that losses and credits from
passive activities can generally be applied only against income and
tax from passive activities. Thus, passive losses and credits cannot
be applied against income from salaries, wages, professional fees,
or a business in which the partner materially participates; against
portfolio income (defined later); or against the tax related to any of
these types of income.

Activities covered by the at-risk rules. If the partnership is
involved in one of the following activities as a trade or business or for

Special provisions apply to certain activities. First, the passive
activity limitations must be applied separately for a net loss from
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Instructions for Form 1065 (2022)

3. Involves research or experimental expenditures deductible
under section 174 (or that would be if you chose to deduct rather
than capitalize them).

passive activities held through a PTP. Second, special rules require
that net income from certain activities that would otherwise be
treated as passive income must be recharacterized as nonpassive
income for purposes of the passive activity limitations.

If the partner doesn't materially participate in the activity, a trade
or business activity conducted through a partnership is generally a
passive activity of the partner.

To allow each partner to correctly apply the passive activity
limitations, the partnership must report income or loss and credits
separately by activity for each of the following.
• Trade or business activities.
• Rental real estate activities.
• Rental activities other than real estate.
• Portfolio income.

Each partner must determine if the partner materially participated
in an activity. As a result, while the partnership's ordinary business
income (loss) is reported on page 1 of Form 1065, the specific
income and deductions from each separate trade or business
activity must be reported on attached statements to Form 1065.
Similarly, while each partner's distributive share of the partnership's
ordinary business income (loss) is reported in box 1 of
Schedule K-1, each partner's distributive share of the income and
deductions from each trade or business activity must be reported on
attached statements to each Schedule K-1. See Passive Activity
Reporting Requirements, later, for more information.

DRAFT AS OF
December 8, 2022

Activities That Are Not Passive Activities

The following are not passive activities.
1. Trade or business activities in which the partner materially
participated for the tax year.
2. Any rental real estate activity in which the partner materially
participated if the partner met both of the following conditions for the
tax year.
a. More than half of the personal services the partner performed
in trades or businesses were performed in real property trades or
businesses in which the partner materially participated.
b. The partner performed more than 750 hours of services in
real property trades or businesses in which the partner materially
participated.

Rental Activities

Generally, except as noted below, if the gross income from an
activity consists of amounts paid principally for the use of real or
personal tangible property held by the partnership, the activity is a
rental activity.

There are several exceptions to this general rule. Under these
exceptions, an activity involving the use of real or personal tangible
property isn't a rental activity if any of the following apply.
• The average period of customer use (defined below) for such
property is 7 days or less.
• The average period of customer use for such property is 30 days
or less and significant personal services (defined below) are
provided by or on behalf of the partnership.
• Extraordinary personal services (defined below) are provided by
or on behalf of the partnership.
• The rental of such property is treated as incidental to a nonrental
activity of the partnership under Temporary Regulations section
1.469-1T(e)(3)(vi) and Regulations section 1.469-1(e)(3)(vi)(D).
• The partnership customarily makes the property available during
defined business hours for nonexclusive use by various customers.
• The partnership provides property for use in a nonrental activity of
a partnership or joint venture in its capacity as an owner of an
interest in such partnership or joint venture. Whether the partnership
provides property used in an activity of another partnership or of a
joint venture in the partnership's capacity as an owner of an interest
in the partnership or joint venture is determined on the basis of all
the facts and circumstances.

Note. For a partner that is a closely held C corporation (defined in
section 465(a)(1)(B)), the above conditions are treated as met if
more than 50% of the corporation's gross receipts are 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 the partner elects to treat all interests in
rental real estate as one activity.
If the partner is married filing jointly, either the partner or the
partner’s spouse must separately meet both of the above conditions,
without taking into account services performed by the other spouse.
A real property trade or business is any real property
development, redevelopment, construction, reconstruction,
acquisition, conversion, rental, operation, management, leasing, or
brokerage trade or business. Services the partner performed as an
employee aren't treated as performed in a real property trade or
business unless the partner owned more than 5% of the stock (or
more than 5% of the capital or profits interest) in the employer.
3. An interest in an oil or gas well drilled or operated under a
working interest if at any time during the tax year the partner held the
working interest directly or through an entity that didn't limit the
partner's liability (for example, an interest as a general partner). This
exception applies regardless of whether the partner materially
participated for the tax year.
4. The rental of a dwelling unit used by a partner 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. An activity of trading personal property for the account of
owners of interests in the activity. For purposes of this rule, personal
property means property that is actively traded, such as stocks,
bonds, and other securities. See Temporary Regulations section
1.469-1T(e)(6).

In addition, a guaranteed payment described in section 707(c) is
never income from a rental activity.
Average period of customer use. Figure the average period of
customer use for a class of property by dividing the total number of
days in all rental periods by the number of rentals during the tax
year. If the activity involves renting more than one class of property,
multiply the average period of customer use of each class by the
ratio of the gross rental income from that class to the activity's total
gross rental income. The activity's average period of customer use
equals the sum of these class-by-class average periods weighted by
gross income. See Regulations section 1.469-1(e)(3)(iii).
Significant personal services. Personal services include only
services performed by individuals. To determine if personal services
are significant personal services, consider all the relevant facts and
circumstances. Relevant facts and circumstances include:
• How often the services are provided,
• The type and amount of labor required to perform the services,
and
• The value of the services in relation to the amount charged for
use of the property.
The following services aren't considered in determining whether
personal services are significant.
• Services necessary to permit the lawful use of the rental property.

Trade or Business Activities

A trade or business activity is an activity (other than a rental activity
or an activity treated as incidental to an activity of holding property
for investment) that:
1. Involves the conduct of a trade or business (within the
meaning of section 162),
2. Is conducted in anticipation of starting a trade or business, or

Instructions for Form 1065 (2022)

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• Services performed in connection with improvements or repairs to
the rental property that extend the useful life of the property
substantially beyond the average rental period.
• Services provided in connection with the use of any improved real
property that are similar to those commonly provided in connection
with long-term rentals of high-grade commercial or residential
property. Examples include cleaning and maintenance of common
areas, routine repairs, trash collection, elevator service, and security
at entrances.

See the instructions for Line 3. Other Net Rental Income (Loss),
later, for reporting other net rental income (loss) other than rental
real estate.

Portfolio Income

Generally, portfolio income includes all gross income, other than
income derived in the ordinary course of a trade or business, that is
attributable to interest; dividends; royalties; income from a real
estate investment trust (REIT), a regulated investment company
(RIC), a real estate mortgage investment conduit (REMIC), a
common trust fund, a CFC, a QEF, or a cooperative; income from
the disposition of property that produces income of a type defined as
portfolio income; and income from the disposition of property held
for investment. See Self-Charged Interest, later, for an exception.

DRAFT AS OF
December 8, 2022

Extraordinary personal services. Services provided in
connection with making rental property available for customer use
are extraordinary personal services only if the services are
performed by individuals and the customers' use of the rental
property is incidental to their receipt of the services.
For example, a patient's use of a hospital room is generally
incidental to the care received from the hospital's medical staff.
Similarly, a student's use of a dormitory room in a boarding school is
incidental to the personal services provided by the school's teaching
staff.

Solely for purposes of the preceding paragraph, gross income
derived in the ordinary course of a trade or business includes (and
portfolio income, therefore, doesn't include) the following types of
income.
• Interest income on loans and investments made in the ordinary
course of a trade or business of lending money.
• Interest on accounts receivable arising from the performance of
services or the sale of property in the ordinary course of a trade or
business of performing such services or selling such property, but
only if credit is customarily offered to customers of the business.
• Income from investments made in the ordinary course of a trade
or business of furnishing insurance or annuity contracts or reinsuring
risks underwritten by insurance companies.
• Income or gain derived in the ordinary course of an activity of
trading or dealing in any property if such activity constitutes a trade
or business (unless the dealer held the property for investment at
any time before such income or gain is recognized).
• Royalties derived by the taxpayer in the ordinary course of a trade
or business of licensing intangible property.
• Amounts included in the gross income of a patron of a
cooperative by reason of any payment or allocation to the patron
based on patronage as a result of a trade or business of the patron.
• Other income identified by the IRS as income derived by the
taxpayer in the ordinary course of a trade or business.

Rental activity incidental to a nonrental activity. An activity isn't
a rental activity if the rental of the property is incidental to a nonrental
activity, such as the activity of holding property for investment, a
trade or business activity, or the activity of dealing in property.
Rental of property is incidental to an activity of holding property
for investment if both of the following apply.
• The main purpose for holding the property is to realize a gain from
the appreciation of the property.
• The gross rental income from such property for the tax year is
less than 2% of the smaller of the property's unadjusted basis or its
FMV.
Rental of property is incidental to a trade or business activity if all
of the following apply.
• The partnership owns an interest in the trade or business at all
times during the year.
• The rental property was mainly used in the trade or business
activity during the tax year or during at least 2 of the 5 preceding tax
years.
• The gross rental income from the property for the tax year is less
than 2% of the smaller of the property's unadjusted basis or its FMV.
The sale or exchange of property that is also rented during the
tax year (in which the gain or loss is recognized) is treated as
incidental to the activity of dealing in property if, at the time of the
sale or exchange, the property was held primarily for sale to
customers in the ordinary course of the partnership's trade or
business.
See Temporary Regulations section 1.469-1T(e)(3) and
Regulations section 1.469-1(e)(3) for more information on the
definition of rental activities for purposes of the passive activity
limitations.

See Temporary Regulations section 1.469-2T(c)(3) for more
information on portfolio income.
Report portfolio income and related deductions on Schedule K
rather than on page 1 of Form 1065.

Self-Charged Interest
Certain self-charged interest income and deductions may be treated
as passive activity gross income and passive activity deductions if
the loan proceeds are used in a passive activity. Generally,
self-charged interest income and deductions result from loans
between the partnership and its partners and also includes loans
between the partnership and another partnership if each owner in
the borrowing entity has the same proportional ownership interest in
the lending entity.

Reporting of rental activities. In reporting the partnership's
income or losses and credits from rental activities, the partnership
must separately report rental real estate activities and rental
activities other than rental real estate activities.
Partners who actively participate in a rental real estate activity
may be able to deduct part or all of their rental real estate losses
(and the deduction equivalent of rental real estate credits) against
income (or tax) from nonpassive activities. The combined amount of
rental real estate losses and the deduction equivalent of rental real
estate credits from all sources (including rental real estate activities
not held through the partnership) that may be claimed is limited to
$25,000. This $25,000 amount is generally reduced for high-income
partners.
Report rental real estate activity income (loss) on Form 8825 and
line 2 of Schedule K and in box 2 of Schedule K-1, rather than on
page 1 of Form 1065. Report credits related to rental real estate
activities on lines 15c and 15d of Schedule K (box 15, codes E and
F, of Schedule K-1) and low-income housing credits on lines 15a
and 15b of Schedule K (box 15, codes C and D, of Schedule K-1).

The self-charged interest rules don't apply to a partner's interest
in a partnership if the partnership makes an election under
Regulations section 1.469-7(g) to avoid the application of these
rules. To make the election, the partnership must attach to its
original or amended partnership return a statement that includes the
name, address, and EIN of the partnership and a declaration that the
election is being made under Regulations section 1.469-7(g). The
election will apply to the tax year in which it was made and all
subsequent tax years. Once made, the election may only be
revoked with the consent of the IRS.
For more details on the self-charged interest rules, see
Regulations section 1.469-7.

Grouping Activities

Generally, one or more trade or business or rental activities may be
treated as a single activity if the activities make up an appropriate
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Instructions for Form 1065 (2022)

activity deductions (current year deductions and prior year
unallowed losses).

economic unit for measurement of gain or loss under the passive
activity rules. Whether activities make up an appropriate economic
unit depends on all the relevant facts and circumstances. The
factors given the greatest weight in determining whether activities
make up an appropriate economic unit are:
• Similarities and differences in types of trades or businesses,
• The extent of common control,
• The extent of common ownership,
• Geographical location, and
• Reliance between or among the activities.

Any net passive income recharacterized as nonpassive income is
treated as investment income for purposes of figuring investment
interest expense limitations if it is from (a) an activity of renting
substantially nondepreciable property from an equity-financed
lending activity, or (b) an activity related to an interest in a
pass-through entity that licenses intangible property.

DRAFT AS OF
December 8, 2022
The amount of income from the activities in the first three
paragraphs, below, that any partner will be required to
recharacterize as nonpassive income may be limited under
Temporary Regulations section 1.469-2T(f)(8). Because the
partnership will not have information regarding all of a partner's
activities, it must identify all partnership activities meeting the
definitions under Certain nondepreciable rental property activities
and Passive equity-financed lending activities below as activities
that may be subject to recharacterization.

Example. The partnership has a significant ownership interest
in a bakery and a movie theater in Baltimore and a bakery and a
movie theater in Philadelphia. Depending on the relevant facts and
circumstances, there may be more than one reasonable method for
grouping the partnership's activities. For instance, the following
groupings may or may not be permissible.
• A single activity.
• A movie theater activity and a bakery activity.
• A Baltimore activity and a Philadelphia activity.
• Four separate activities.
Once the partnership chooses a grouping under these rules, it
must continue using that grouping in later tax years unless a material
change in the facts and circumstances makes it clearly
inappropriate.
The IRS may regroup the partnership's activities if the
partnership's grouping fails to reflect one or more appropriate
economic units and one of the primary purposes of the grouping is to
avoid the passive activity limitations.

Income from the following six sources is subject to
recharacterization.

Significant participation passive activities. A significant
participation passive activity is any trade or business activity in
which the partner participated for more than 100 hours during the tax
year but didn't materially participate. Because each partner must
determine the partner's level of participation, the partnership will not
be able to identify significant participation passive activities.
Certain nondepreciable rental property activities. Net passive
income from a rental activity is nonpassive income if less than 30%
of the unadjusted basis of the property used or held for use by
customers in the activity is subject to depreciation under section
167.

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

Passive equity-financed lending activities. If the partnership
has net income from a passive equity-financed lending activity, the
smaller of the net passive income or the equity-financed interest
income from the activity is nonpassive income.
Rental of property incidental to a development activity. Net
rental activity income is the excess of passive activity gross income
from renting or disposing of property over passive activity
deductions (current year deductions and prior year unallowed
losses) that are reasonably allocable to the rented property. Net
rental activity income is nonpassive income for a partner if all of the
following apply.
• The partnership recognizes gain from the sale, exchange, or
other disposition of the rental property during the tax year.
• The use of the item of property in the rental activity started less
than 12 months before the date of disposition. The use of an item of
rental property begins on the first day that (a) the partnership owns
an interest in the property, (b) substantially all of the property is
either rented or held out for rent and ready to be rented, and (c) no
significant value-enhancing services remain to be performed.
• The partner materially or significantly participated for any tax year
in an activity that involved performing services to enhance the value
of the property (or any other item of property if the basis of the
property disposed of is determined in whole or in part by reference
to the basis of that item of property).
Because the partnership cannot determine a partner's level of
participation, the partnership must identify net income from property
described earlier under Rental Activities (without regard to the
partner's level of participation) as income that may be subject to
recharacterization.

Activities conducted through other partnerships. Once a
partnership determines its activities under these rules, the
partnership as a partner can use these rules to group those activities
with:
• Each other,
• Activities conducted directly by the partnership, or
• Activities conducted through other partnerships.
A partner cannot treat as separate activities those activities
grouped together by a partnership.
If you group your activities under these rules for section 469
purposes, check the appropriate box in item K below the name and
address block on page 1 of Form 1065.

Rental of property to a nonpassive activity. If a taxpayer rents
property to a trade or business activity in which the taxpayer
materially participates, the taxpayer's net rental activity income from
the property is nonpassive income.

Recharacterization of Passive Income

Acquisition of an interest in a pass-through entity that licenses intangible property. Generally, net royalty income from
intangible property is nonpassive income if the taxpayer acquired an
interest in the pass-through entity after the pass-through entity
created the intangible property or performed substantial services or

Under Temporary Regulations section 1.469-2T(f) and Regulations
section 1.469-2(f), net passive income from certain passive activities
must be treated as nonpassive income. Net passive income is the
excess of an activity's passive activity gross income over its passive

Instructions for Form 1065 (2022)

-17-

b. Guaranteed payments to a partner for services under section
707(c).
c. Guaranteed payments for use of capital.
d. If section 736(a)(2) payments are made for unrealized
receivables or for goodwill, the amount of the payments and the
activities to which the payments are attributable.
e. If section 736(b) payments are made, the amount of the
payments and the activities to which the payments are attributable.
9. Identify the ratable portion of any section 481 adjustment
(whether a net positive or a net negative adjustment) allocable to
each partnership activity.
10. Identify the amount of gross income from each oil or gas
property of the partnership.
11. Identify any gross income from sources specifically excluded
from passive activity gross income, including:
a. Income from intangible property if the partner is an individual
whose personal efforts significantly contributed to the creation of the
property;
b. Income from state, local, or foreign income tax refunds; and
c. Income from a covenant not to compete if the partner is an
individual who contributed the covenant to the partnership.
12. Identify any deductions that aren't passive activity
deductions.
13. If the partnership makes a full or partial disposition of its
interest in another entity, identify the gain (loss) allocable to each
activity conducted through the entity, and the gain allocable to a
passive activity that would have been recharacterized as
nonpassive gain had the partnership disposed of its interest in
property used in the activity (because the property was substantially
appreciated at the time of the disposition, and the gain represented
more than 10% of the partner's total gain from the disposition).
14. Identify the following items from activities that may be subject
to the recharacterization rules. See Recharacterization of Passive
Income, earlier.
a. Net income from an activity of renting substantially
nondepreciable property.
b. The smaller of equity-financed interest income or net passive
income from an equity-financed lending activity.
c. Net rental activity income from property developed (by the
partner or the partnership), rented, and sold within 12 months after
the rental of the property commenced.
d. Net rental activity income from the rental of property by the
partnership to a trade or business activity in which the partner had
an interest (either directly or indirectly).
e. Net royalty income from intangible property if the partner
acquired the partner's interest in the partnership after the
partnership created the intangible property or performed substantial
services, or incurred substantial costs in developing or marketing the
intangible property.
15. Identify separately the credits from each activity conducted
by or through the partnership.
16. Identify the partner's distributive share of the partnership's
self-charged interest income or expense (see Self-Charged Interest,
earlier).
a. Loans between a partner and the partnership. Identify
the lending or borrowing partner's share of the self-charged interest
income or expense. If the partner made the loan to the partnership,
also identify the activity in which the loan proceeds were used. If the
proceeds were used in more than one activity, allocate the interest
to each activity based on the amount of the proceeds used in each
activity.
b. Loans between the partnership and another partnership
or an S corporation. If the partnership's partners have the same
proportional ownership interest in the partnership and the other
partnership or S corporation, identify each partner's share of the
interest income or expense from the loan. If the partnership was the
borrower, also identify the activity in which the loan proceeds were

incurred substantial costs in developing or marketing the intangible
property. Net royalty income is the excess of passive activity gross
income from licensing or transferring any right in intangible property
over passive activity deductions (current year deductions and prior
year unallowed losses) that are reasonably allocable to the
intangible property.
See Temporary Regulations section 1.469-2T(f)(7)(iii) for
exceptions to this rule.

DRAFT AS OF
December 8, 2022

Passive Activity Reporting Requirements

To allow partners to correctly apply the passive activity loss and
credit limitation rules, the partnership must do the following.
1. If the partnership carries on more than one activity, provide
an attached statement for each activity conducted through the
partnership that identifies the type of activity conducted (trade or
business, rental real estate, or rental activity other than rental real
estate). See Grouping Activities, earlier.
2. On the attached statement for each activity, provide a
statement, using the same box numbers as shown on Schedule K-1,
detailing the net income (loss), credits, and all items required to be
separately stated under section 702(a) from each trade or business
activity, from each rental real estate activity, from each rental activity
other than a rental real estate activity, and from investments. If the
partnership grouped separate activities, the attachments must
identify each group. The attached group activity description must be
sufficient for a partner to determine if its other activities qualify to be
grouped with any groups provided by the partnership.
3. Identify the net income (loss) and credits from each oil or gas
well drilled or operated under a working interest that any partner
(other than a partner whose only interest in the partnership during
the year is as a limited partner) holds through the partnership.
Further, if any partner had an interest as a general partner in the
partnership during less than the entire year, the partnership must
identify both the disqualified deductions from each well that the
partner must treat as passive activity deductions, and the ratable
portion of the gross income from each well that the partner must
treat as passive activity gross income.
4. Identify the net income (loss) and the partner's share of
partnership interest expense from each activity of renting a dwelling
unit that any partner uses for personal purposes during the year for
more than the greater of 14 days or 10% of the number of days that
the residence is rented at fair rental value.
5. Identify the net income (loss) and the partner's share of
partnership interest expense from each activity of trading personal
property conducted through the partnership.
6. For any gain (loss) from the disposition of an interest in an
activity or of an interest in property used in an activity (including
dispositions before 1987 from which gain is being recognized after
1986):
a. Identify the activity in which the property was used at the time
of disposition;
b. If the property was used in more than one activity during the
12 months preceding the disposition, identify the activities in which
the property was used and the adjusted basis allocated to each
activity; and
c. For gains only, if the property was substantially appreciated
at the time of the disposition and the applicable holding period
specified in Regulations section 1.469-2(c)(2)(iii)(A) wasn't satisfied,
identify the amount of the nonpassive gain and indicate whether the
gain is investment income under Regulations section 1.469-2(c)(2)
(iii)(F).
7. Specify the amount of gross portfolio income, the interest
expense properly allocable to portfolio income, and expenses other
than interest expense that are clearly and directly allocable to
portfolio income.
8. Identify separately any of the following types of payments to
partners.
a. Payments to a partner for services other than in the partner's
capacity as a partner under section 707(a).

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Instructions for Form 1065 (2022)

If a syndicate, pool, joint venture, or similar group files Form
1065, it must attach a copy of the agreement and all amendments to
the return, unless a copy has previously been filed.

used. If the loan proceeds were used in more than one activity,
allocate the interest to each activity based on the amount of the
proceeds used in each activity.

A foreign partnership required to file a return must generally

Net Investment Income Tax Reporting
Requirements

TIP report all of its foreign and U.S. partnership items. For rules

regarding whether a foreign partnership must file Form
1065, see Who Must File, earlier.

The information described in this section should be given directly to
the partner and should not be reported by the partnership to the IRS.

DRAFT AS OF
December 8, 2022
Name and Address

To allow partners to correctly figure the net investment income
tax where a partner disposes of an interest in the partnership during
the tax year, the partnership may be required to provide the partner
with certain information. The net investment income tax is a tax
imposed on an individual’s, trust’s, or estate’s net investment
income. Net investment income includes the net gains or losses
from the sale of an interest in the partnership. A partner who is
actively involved in one or more of the partnership’s or lower-tier
pass-through entities’ trades or businesses (other than trading in
financial instruments or commodities) can reduce the amount of the
gain or loss from the sale of the partnership or lower-tier
pass-through entity interest included in its net investment income.
However, to figure its net investment income, the active partner
needs certain information from the partnership.

Enter the legal name of the partnership, address, and EIN on the
appropriate lines. If the partnership has changed its name, check
box G(3). Include the suite, room, or other unit number after the
street address. If the Post Office doesn't deliver mail to the street
address and the partnership has a P.O. box, show the box number
instead.
If the partnership receives its mail in care of a third party (such as
an accountant or an attorney), enter “C/O” on the street address line,
followed by the third party’s name and street address or P.O. box.
If the partnership's address is outside the United States or its
possessions or territories, enter the information on the line for “City
or town, state or province, country, and ZIP or foreign postal code” in
the following order: city, province or state, and the foreign country.
Follow the foreign country's practice in placing the postal code in the
address. Do not abbreviate the country name.

Generally, the partnership must provide certain information to the
partner if the partnership knows, or has reason to know, the
following.
1. The partner disposed of an interest in the partnership.
2. The partner materially participates (within the meaning of the
passive activity loss rules (section 469)) in one or more of the trades
or businesses (within the meaning of section 162) of the partnership
or a lower-tier pass-through entity (other than trading in financial
instruments or commodities).
3. The partner doesn't qualify for the optional simplified
reporting method for figuring its net investment income associated
with the disposition of the interest. For more information, see the
instructions for Form 8960, line 5c.

If the partnership has changed its address since it last filed a
return (including a change to an “in care of” address), check box
G(4) for “Address change.”
If the partnership changes its mailing address or the

TIP responsible party after filing its return, it can notify the IRS

by filing Form 8822-B, Change of Address or Responsible
Party—Business.

Partnerships With Adjustments in the Current
Year That Did Not Result in an Imputed
Underpayment

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

If a partnership has an adjustment from a BBA audit which does not
result in an imputed underpayment, the partnership should not take
the adjustment into account until the adjustment year (see
Definitions, earlier). With its Form 1065 for the adjustment year, the
partnership should provide a statement describing the adjustments,
including the line numbers to which the adjustments relate, and
incorporate those adjustments into its adjustment year return. If
there is a reallocation adjustment being reported on the adjustment
year return, ensure the statement identifies the partner receiving the
reallocation adjustment. If there is an adjustment to a separately
stated item or to a credit, the partnership must adjust that item or
that credit in the adjustment year. See Examples 1 and 2 in
Regulations 301.6225-3.

Specific Instructions

Items A and C

These instructions follow the line numbers on the first page of Form
1065. The accompanying schedules are discussed separately.
Specific instructions for most of the lines are provided. Lines that
aren't discussed are self-explanatory.

Enter the applicable activity name and the code number from the list,
Codes for Principal Business Activity and Principal Product or
Service, near the end of the instructions.
For example, if, as its principal business activity, the partnership
(a) purchases raw materials, (b) subcontracts out for labor to make a
finished product from the raw materials, and (c) retains title to the
goods, the partnership is considered to be a manufacturer and must
enter “Manufacturer” in item A and enter in item C one of the codes
(311110 through 339900) listed under “Manufacturing” on the list,
Codes for Principal Business Activity and Principal Product or
Service, near the end of the instructions. For nonstore retailers,
select the PBA code by the primary product that your establishment
sells. For example, establishments primarily selling prescription and
non-prescription drugs, select PBA code 456110 Pharmacies &
Drug Retailers.

Fill in all applicable lines and schedules.
Enter any items specially allocated to the partners in the
appropriate box of the applicable partner's Schedule K-1. Enter the
total amount on the appropriate line of Schedule K. Do not enter
separately stated amounts on the numbered lines on Form 1065,
page 1 of Form 1125-A, or Schedule D (Form 1065).
File all five pages of Form 1065. However, if the answer to
question 4 of Schedule B is “Yes,” Schedules L, M-1, and M-2 on
page 5 are optional. Also attach a Schedule K-1 to Form 1065 for
each partner.
File only one Form 1065 for each partnership. Mark “Duplicate
Copy” on any copy you give to a partner.

Instructions for Form 1065 (2022)

-19-

Income

Item D. Employer Identification Number (EIN)

Show the correct EIN in item D. If the partnership doesn't have an
EIN, it must apply for one in one of the following ways.
• Online—Go to IRS.gov/EIN. The EIN is issued immediately once
the application information is validated.
• By mailing or faxing Form SS-4, Application for Employer
Identification Number.

Report only trade or business activity income on lines 1a
through 8. Do not report rental activity income or portfolio
CAUTION income on these lines. See Passive Activity Limitations,
earlier, for definitions of rental activity income and portfolio income.
Rental activity income and portfolio income are reported on
Schedules K and K-1. Rental real estate activities are also reported
on Form 8825.

!

An LLC must determine which type of federal tax entity it will be
(partnership, corporation, or disregarded entity (DE)) before
applying for an EIN (see Form 8832 for details). If the partnership
has not received its EIN by the time the return is due, enter “Applied
for” and the application date in the space for the EIN. For more
details, see the Instructions for Form SS-4.

DRAFT AS OF
December 8, 2022

Tax-exempt income. Do not include any tax-exempt income on
lines 1a through 8. A partnership that receives any tax-exempt
income other than interest, or holds any property or engages in any
activity that produces tax-exempt income, reports this income on
line 18b of Schedule K and in box 18 of Schedule K-1 using code B.
Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other RIC,
on line 18a of Schedule K and in box 18 of Schedule K-1 using code
A.
See Deductions, after the instructions for lines 1a through 8 and
before the instructions for lines 9 through 21, for information on how
to report expenses related to tax-exempt income.

Note. The online application process isn't yet available for
partnerships with addresses in foreign countries. If you are located
outside the United States, please call 267-941-1099.

Item F. Total Assets

You aren't required to complete item F if the answer to question 4 of
Schedule B is “Yes.”

If you are required to complete this item, enter the partnership's
total assets at the end of the tax year, as determined by the
accounting method regularly used in keeping the partnership's
books and records. If there were no assets at the end of the tax year,
enter -0-.

Line 1a. Gross Receipts or Sales

Enter on line 1a gross receipts or sales from all trade or business
operations, except for amounts that must be reported on lines 4
through 7. If a cost offset method under section 451(b) or (c) is used,
the resulting gross income is reported on line 1a.

Item J. Schedule C and Schedule M-3

Special rules apply to certain income, as discussed below. For
example, don't include gross receipts from farming on line 1a.
Instead, show the net profit (loss) from farming on line 5. Also, don't
include on line 1a rental activity income or portfolio income.

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

In general, advance payments are reported in the year of receipt.
For exceptions to this general rule for partnerships that use the
accrual method of accounting, see the following.
• To report income from long-term contracts, see section 460.
• For permissible methods that allow a limited deferral of advance
payments beyond the current tax year, see section 451(c) and
Regulations section 1.451-8.
• For information on adopting or changing to a permissible method
for reporting advance payment for goods and services by an accrual
method partnership, see the Instructions for Form 3115.
Installment sales. Generally, the installment method cannot be
used for dealer dispositions of property. A “dealer disposition” is any
disposition of:
1. Personal property by a person who regularly sells or
otherwise disposes of personal property of the same type on the
installment plan, or
2. Real property held for sale to customers in the ordinary
course of the taxpayer's trade or business.

A partnership filing Form 1065 that isn't required to file
Schedule M-3 may voluntarily file Schedule M-3 instead of
Schedule M-1.
Any partnership that files Schedule M-3 must also complete and
file Schedule C, Additional Information for Schedule M-3 Filers. See
Eased requirements next.
Eased requirements. Partnerships that (a) are required to file
Schedule M-3 and have less than $50 million in total assets at
tax-year-end, or (b) aren't required to file Schedule M-3 and
voluntarily file Schedule M-3, must either (i) complete Schedule M-3
entirely, or (ii) complete Schedule M-3 through Part I and complete
Schedule M-1 instead of completing Parts II and III of Schedule M-3.
In addition, partnerships that meet the requirements of (a) and (b)
above aren't required to file Schedule C (Form 1065) or Form
8916-A.
See the instructions for Schedule C and Schedule M-3 for more
information.

Exception. These restrictions on using the installment method
don't apply to dispositions of property used or produced in a farming
business or sales of timeshares and residential lots. However, if the
partnership elects to report dealer dispositions of timeshares and
residential lots on the installment method, each partner's tax liability
must be increased by the partner's distributive share of the interest
payable under section 453(l)(3).
Include on line 1a the gross profit on collections from installment
sales for any of the following.
• Dealer dispositions of property before March 1, 1986.
• Dispositions of property used or produced in the trade or
business of farming.
• Certain dispositions of timeshares and residential lots reported
under the installment method.
Attach a statement showing the following information for the
current year and the 3 preceding years.
• Gross sales.
• Cost of goods sold.
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Instructions for Form 1065 (2022)

•
•
•
•

are reported separately on line 19 of Form 8825 or line 3c of
Schedule K and in box 3 of Schedule K-1, generally as a part of the
net income (loss) from the rental activity.

Gross profits.
Percentage of gross profits to gross sales.
Amount collected.
Gross profit on the amount collected.

A partnership that is a partner in another partnership must
include on Form 4797 its share of ordinary gains (losses) from sales,
exchanges, or involuntary conversions (other than casualties or
thefts) of the other partnership's trade or business assets.

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

Partnerships should not use Form 4797 to report the sale or other
disposition of property if a section 179 expense deduction was
previously passed through to any of its partners for that property.
Instead, report it in box 20 of Schedule K-1 using code L. See the
instructions for Dispositions of property with section 179 deductions
(code L), later, for details.

DRAFT AS OF
December 8, 2022

Line 2. Cost of Goods Sold

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

Line 7. Other Income (Loss)

Line 4. Ordinary Income (Loss) From Other
Partnerships, Estates, and Trusts

Enter any other trade or business income (loss) not included on lines
1a through 6. List the type and amount of income on an attached
statement. Examples of other income include the following.
1. Interest income derived in the ordinary course of the
partnership's trade or business, such as interest charged on
receivable balances.
2. Recoveries of bad debts deducted in prior years under the
specific charge-off method.
3. Taxable income from insurance proceeds.
4. Any amount included in income from line 2 of Form 6478,
Biofuel Producer Credit, if applicable.
5. Any amount included in income from line 9 of Form 8864,
Biodiesel, Renewable Diesel, and Sustainable Aviation Fuels Credit,
if applicable.
6. The recapture amount under section 280F if the business
use of listed property drops to 50% or less. To figure the recapture
amount, complete Part IV of Form 4797.
7. All section 481 income adjustments resulting from changes in
accounting methods. Show the computation of the section 481
adjustments on an attached statement.
8. Part or all of the proceeds received from certain
employer-owned life insurance contracts issued after August 17,
2006. Partnerships that own one or more employer-owned life
insurance contracts issued after that date must file Form 8925,
Report of Employer-Owned Life Insurance Contracts. See section
101(j) for details.
9. The amount of payroll tax credit taken by an employer for
qualified paid sick leave and qualified paid family leave under the
FFCRA and the ARP. See Form 941, lines 11b, 11d, 13c, and 13e;
Form 944, lines 8b, 8d, 10d, and 10f; or Form 943, lines 12b, 12d,
14d, and 14f. The partnership must include the full amount (both the
refundable and nonrefundable portions) of the credit for qualified
sick and family leave wages in its gross income for the tax year that
includes the last day of any calendar quarter with respect to which a
credit is allowed.

Enter the ordinary income (loss) shown on Schedule K-1 (Form
1065) or Schedule K-1 (Form 1041), or other ordinary income (loss)
from a foreign partnership, estate, or trust. Show the partnership's,
estate's, or trust's name, address, and EIN on a separate statement
attached to this return. If the amount entered is from more than one
source, identify the amount from each source.

Do not include portfolio income or rental activity income (loss)
from other partnerships, estates, or trusts on this line. Instead, report
these amounts on Schedules K and K-1, or on line 20a of Form 8825
if the amount is from a rental real estate activity.
Ordinary income (loss) from another partnership that is a PTP
isn't reported on this line. Instead, report the amount separately on
line 11 of Schedule K and in box 11 of Schedule K-1 using code I.
Treat shares of other items separately reported on Schedule K-1
issued by the other entity as if the items were realized or incurred by
this partnership.
If there is a loss from another partnership, the amount of the loss
that may be claimed is subject to the basis limitations as
appropriate.
If the tax year of your partnership doesn't coincide with the tax
year of the other partnership, estate, or trust, include the ordinary
income (loss) from the other entity in the tax year in which the other
entity's tax year ends.

Line 5. Net Farm Profit (Loss)

Enter the partnership's net farm profit (loss) from Schedule F (Form
1040). Attach Schedule F (Form 1040) to Form 1065. Do not include
on this line any farm profit (loss) from other partnerships. Report
those amounts on line 4. In figuring the partnership's net farm profit
(loss), don't include any section 179 expense deduction; this amount
must be separately stated.
Also report the partnership's fishing income on this line.
For a special rule concerning the method of accounting for a
farming partnership with a corporate partner and for other tax
information on farms, see Pub. 225, Farmer's Tax Guide.

Note. A credit is available only if the leave was taken sometime
after March 31, 2020, and before October 1, 2021, and only after the
qualified leave wages were paid, which might under certain
circumstances not occur until a quarter after September 30, 2021,
including quarters during 2022. Accordingly, all lines related to
qualified sick and family leave wages remain on the employment tax
returns for 2022.
10. The amount of any COBRA premium assistance credit
allowed to employers under section 6432(e), as amended by the
ARP. See Notices 2021-31 and 2021-46.

Because the partner, and not the partnership, makes the

TIP election to deduct the expenses of raising any plant with a

preproductive period of more than 2 years, farm
partnerships that aren't required to use an accrual method should
not capitalize such expenses. Instead, state them separately on an
attached statement to Schedule K, line 13d, and in box 13 of
Schedule K-1 using code P. See section 263A(d) for more
information.

Do not include items requiring separate computations that must
be reported on Schedules K and K-1. See the instructions for
Schedules K and K-1, later.

Line 6. Net Gain (Loss) From Form 4797

Do not report portfolio or rental activity income (loss) on this line.

Include only ordinary gains or losses from the sale,
exchange, or involuntary conversion of assets used in a
CAUTION trade or business activity. Ordinary gains or losses from the
sale, exchange, or involuntary conversion of rental activity assets

!

Instructions for Form 1065 (2022)

-21-

•
•
•
•

Deductions

!

Insurance.
Compensation paid to officers attributable to services.
Rework labor.
Contributions to pension, stock bonus, and certain profit-sharing,
annuity, or deferred compensation plans.
Regulations section 1.263A-1(e)(3) specifies other indirect costs
that relate to production or resale activities that must be capitalized
and those that may be currently deductible.
Interest expense paid or incurred during the production period of
designated property must be capitalized and is governed by special
rules. For more details, see Regulations sections 1.263A-8 through
1.263A-15.
For more details on the uniform capitalization rules, see
Regulations sections 1.263A-1 through 1.263A-3.

Report only trade or business activity deductions on lines 9
through 20.

CAUTION

Do not report the following expenses on lines 9 through 20.

• Rental activity expenses. Report these expenses on Form 8825

or line 3b of Schedule K.
• Deductions allocable to portfolio income. Report these
deductions on line 13d of Schedule K and in box 13 of Schedule K-1
using code I or L.
• Nondeductible expenses (for example, expenses connected with
the production of tax-exempt income). Report nondeductible
expenses on line 18c of Schedule K and in box 18 of Schedule K-1
using code C.
• Qualified expenditures to which an election under section 59(e)
may apply. The instructions for line 13c of Schedule K and for
Schedule K-1, box 13, code J, explain how to report these amounts.
• Items the partnership must state separately that require separate
computations by the partners. Examples include expenses incurred
for the production of income instead of in a trade or business,
charitable contributions, foreign taxes paid or accrued, intangible
drilling and development costs, soil and water conservation
expenditures, amortizable basis of reforestation expenditures, and
exploration expenditures. The distributive shares of these expenses
are reported separately to each partner on Schedule K-1.

DRAFT AS OF
December 8, 2022

Transactions between related taxpayers. Generally, an accrual
basis partnership can deduct business expenses and interest owed
to a related party (including any partner) only in the tax year of the
partnership that includes the day on which the payment is includible
in the income of the related party. See section 267 for details.
Business interest. Business interest expense is limited for tax
years beginning after 2017. See section 163(j) for limitations on
deductions for business interest, and section 163(j)(4) for rules
specific to partnerships.

Business startup and organizational costs. Generally, a
partnership can elect to deduct a limited amount of startup or
organizational costs paid or incurred. Any costs not deducted must
be amortized as explained below. See sections 195(b) and 709(b).
Time for making an election. The partnership generally elects
to deduct startup or organizational costs by claiming the deduction
on its return filed by the due date (including extensions) for the tax
year in which the active trade or business begins. However, for
startup or organizational costs paid or incurred before September 9,
2008, the partnership may be required to attach a statement to its
return to elect to deduct such costs. See Temporary Regulations
sections 1.195-1T and 1.709-1T (as in effect on July 7, 2008) for
details. Also, see Regulations sections 1.195-1 and 1.709-1. If the
partnership timely filed its return for the year without making an
election, it can still make an election by filing an amended return
within 6 months of the due date of the return (excluding extensions).
Clearly indicate the election on the amended return and enter “Filed
pursuant to section 301.9100-2” at the top of the amended return.
File the amended return at the same address the partnership filed its
original return. The election applies when figuring income for the
current tax year and all subsequent years.
The partnership can choose to forgo the above elections by
clearly electing to capitalize its startup or organizational costs on its
return filed by the due date (including extensions) for the tax year in
which the active trade or business begins.
The election to either amortize or capitalize startup or
organizational costs is irrevocable and applies to all startup and
organizational costs that are related to the trade or business.
Amortization. Any costs not deducted under the above rules
must be amortized ratably over a 180-month period, beginning with
the month the partnership begins business. See the Instructions for
Form 4562 for details.
Report the deductible amount of these costs and any
amortization on line 20. For amortization that began during the tax
year, complete and attach Form 4562, Depreciation and
Amortization.

Limitations on Deductions
Section 263A uniform capitalization rules. The uniform
capitalization rules of section 263A generally require partnerships to
capitalize certain costs incurred in connection with the following.
• The production of real property and tangible personal property
held in inventory or held for sale in the ordinary course of business.
• Real property or personal property (tangible and intangible)
acquired for resale.
• The production of real property and tangible personal property by
a partnership for use in its trade or business or in an activity
engaged in for profit.
Tangible personal property produced by a partnership includes a
film, sound recording, videotape, book, or similar property.
The costs required to be capitalized under section 263A aren't
deductible until the property to which the costs relate is sold, used,
or otherwise disposed of by the partnership.
Exceptions. For tax years beginning after 2017, a small
business taxpayer, defined earlier, can adopt or change its method
of accounting to not capitalize costs under section 263A. See
section 263A(i) and Accounting Methods, earlier.
Section 263A doesn't apply to the following.
• Timber.
• Most property produced under a long-term contract.
• Certain property produced in a farming business. See the note at
the end of the instructions for line 5, earlier.
• Geological and geophysical costs amortized under section
167(h).
• Certain plants bearing fruits and nuts under section 168(k)(5).
The partnership must report the following costs separately to the
partners for purposes of determinations under section 59(e).
• Research and experimental costs under section 174.
• Intangible drilling costs for oil, gas, and geothermal property.
• Mining exploration and development costs.
Indirect costs. Partnerships subject to the uniform capitalization
rules are required to capitalize not only direct costs but an allocable
part of most indirect costs (including taxes) that benefit the assets
produced or acquired for resale, or are incurred because of the
performance of production or resale activities.
For inventory, indirect costs that must be capitalized include the
following.
• Administration expenses.
• Taxes.
• Depreciation.

Syndication costs. Costs for issuing and marketing interests in
the partnership, such as commissions, professional fees, and
printing costs, must be capitalized. They cannot be depreciated or
amortized. See the instructions for line 10, later, for the treatment of
syndication fees paid to a partner.
Reducing certain expenses for which credits are allowable.
The partnership may need to reduce the otherwise allowable
deductions for expenses used to figure certain credits. The following
are examples of such credits. (Do not reduce the amount of the
-22-

Instructions for Form 1065 (2022)

Do not include any payments and credits that should be
capitalized. For example, although payments or credits to a partner
for services rendered in syndicating a partnership may be
guaranteed payments, they aren't deductible on line 10. They are
capital expenditures. However, they should be reported as
guaranteed payments on the applicable line of Schedule K, line 4b,
and in box 4b of Schedule K-1.

allowable deduction for any portion of the credit that was passed
through to the partnership from another pass-through entity.)
1. Work opportunity credit.
2. Credit for increasing research activities.
3. Disabled access credit.
4. Empowerment zone employment credit, if applicable.
5. Indian employment credit, if applicable.
6. Credit for employer social security and Medicare taxes paid
on certain employee tips.
7. Orphan drug credit.
8. Credit for small employer pension plan startup costs and
auto-enrollment.
9. Credit for employer-provided childcare facilities and services.
10. Low sulfur diesel fuel production credit.
11. Mine rescue team training credit, if applicable.
12. Credit for employer differential wage payments.
13. Credit for small employer health insurance premiums.
14. Employer credit for paid family and medical leave (Form
8994).
15. Employee retention credit for employers affected by qualified
disasters (Form 5884-A).

Do not include distributive shares of partnership profits.

DRAFT AS OF
December 8, 2022
Report the guaranteed payments to the appropriate partners
using the applicable box 4 of Schedule K-1.

Line 11. Repairs and Maintenance

Enter the cost of repairs and maintenance not claimed elsewhere on
the return, such as labor and supplies, that are not payments for
improvements to the partnership’s property. Amounts are paid for
improvements if they are for betterments to the property, for
restorations of the property (such as the replacements of major
components or substantial structural parts), or if they adapt the
property to a new or different use. Improvements must be
capitalized. See Regulations section 1.263(a)-3.
The partnership can deduct repair and maintenance expenses
only to the extent they relate to a trade or business activity. See
Regulations section 1.162-4. The partnership may elect to capitalize
certain repair and maintenance costs consistent with its books and
records. See Regulations section 1.263(a)-3(n) for information on
how to make the election.

Note. Wages taken into account in determining the credits for
qualified sick and family leave or the employee retention credit on
Form 941 cannot be taken into account in determining the employer
credit for paid family and medical leave on Form 8994. See the
Instructions for Form 8994.
If the partnership has any of the credits listed above, figure each
current year credit before figuring the deductions for expenses on
which the credit is based.

Line 12. Bad Debts

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

!

Line 9. Salaries and Wages

CAUTION

Enter the salaries and wages paid or incurred for the tax year,
reduced by the amount of the following credit(s).
• Work Opportunity Credit (Form 5884).
• Empowerment Zone Employment Credit (Form 8844), if
applicable.
• Indian Employment Credit (Form 8845), if applicable.
• Mine Rescue Team Training Credit (Form 8923), if applicable.
• Credit for Employer Differential Wage Payments (Form 8932).
• Employee Retention Credit for Employers Affected by Qualified
Disasters (Form 5884-A).
• Nonrefundable and refundable portions of the employee retention
credit claimed on the partnership’s employment tax return(s).

Cash method partnerships cannot take a bad debt
deduction unless the amount was previously included in
income.

Line 13. Rent

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

Do not reduce the amount of the allowable deduction for any
portion of the credit that was passed through to the partnership from
another pass-through entity. See the instructions for the credit form
for more information.

The lease term began:

And the vehicle's FMV on the first day of
the lease exceeded:

Automobiles other than trucks and vans

Do not include salaries and wages reported elsewhere on the
return, such as amounts included in cost of goods sold, elective
contributions to a section 401(k) cash or deferred arrangement, or
amounts contributed under a salary reduction SEP agreement or a
SIMPLE IRA plan.

During calendar year 2022

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

$56,000

During calendar year 2021

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

$51,000

Line 10. Guaranteed Payments to Partners

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

After 12/31/2017 but before 1/1/2021

$50,000
$19,000

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

$18,500

During calendar year 2022

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

$56,000

During calendar year 2021

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

$51,000

Trucks and vans

Deduct payments or credits to a partner for services or for the use of
capital if the payments or credits are determined without regard to
partnership income and are allocable to a trade or business activity.
Also include on line 10 amounts paid during the tax year for
insurance that constitutes medical care for a partner, a partner's
spouse, a partner's dependents, or a partner's children under age 27
who aren't dependents.

After 12/31/2017 but before 1/1/2021

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

$50,000

After 12/31/13 and before 1/1/18

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

$19,500

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

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

$19,000

The inclusion amount for lease terms beginning in 2023 will be published in the
Internal Revenue Bulletin in early 2023.

For information on how to treat the partnership's contribution to a
partner's health savings account (HSA), see Notice 2005-8, 2005-4
I.R.B. 368.

Instructions for Form 1065 (2022)

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

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

After 12/31/12 and before 1/1/18

-23-

• Debt required to be allocated to the production of designated
property. Designated property includes real property, personal
property that has a class life of 20 years or more, and other tangible
property requiring more than 2 years (1 year in the case of property
with a cost of more than $1 million) to produce or construct. Interest
allocable to designated property produced by a partnership for its
own use or for sale must be capitalized. In addition, a partnership
must also capitalize to the basis of the designated property any
interest on debt allocable to an asset used to produce designated
property. A partner may have to capitalize interest that the partner
incurs during the tax year for the partnership's production
expenditures. Similarly, interest incurred by a partnership may have
to be capitalized by a partner for the partner's own production
expenditures. The information required by the partner to properly
capitalize interest for this purpose must be provided by the
partnership on an attached statement for box 20 of Schedule K-1
using code R. See section 263A(f) and Regulations sections
1.263A-8 through 1.263A-15.

See Pub. 463, Travel, Gift, and Car Expenses, for instructions on
figuring the inclusion amount.

Line 14. Taxes and Licenses

Enter taxes and licenses paid or incurred in the trade or business
activities of the partnership if not reflected elsewhere on the return.
Federal import duties and federal excise and stamp taxes are
deductible only if paid or incurred in carrying on the trade or
business of the partnership. Foreign taxes are included on line 14
only if they are deductible and not creditable taxes under sections
901 and 903. See Schedule K-2, Part II, Section 2, line 45, column
(g).

DRAFT AS OF
December 8, 2022
Do not deduct the following taxes on line 14.

• Taxes not imposed on the partnership.
• Federal income taxes or taxes reported elsewhere on the return.
• Creditable foreign taxes under sections 901 and 903. Report

these taxes separately on Schedule K, line 21, and in box 21 of
Schedule K-1.
• Taxes allocable to a rental activity. Report taxes allocable to
rental real estate activity on Form 8825. Report taxes allocable to a
rental activity other than a rental real estate activity on line 3b of
Schedule K.
• Taxes paid or incurred for the production or collection of income,
or for the management, conservation, or maintenance of property
held to produce income. Report these taxes separately on line 13d
of Schedule K and in box 13 of Schedule K-1 using code W.

Special rules apply to the following.

• Allocating interest expense among activities so that the limitations

on passive activity losses, investment interest, and personal interest
can be properly figured. Generally, interest expense is allocated in
the same manner as debt is allocated. Debt is allocated by tracing
disbursements of the debt proceeds to specific expenditures.
Temporary Regulations section 1.163-8T gives rules for tracing debt
proceeds to expenditures. Also see Proposed Regulations 1.163-14
for a special rule for allocating interest expense with respect to
pass-through entities.
• Interest paid by a partnership to a partner for the use of capital,
which should be entered on line 10 as guaranteed payments.
• Prepaid interest, which can generally only be deducted over the
term of the debt. See section 461(g) and Regulations sections
1.163-7, 1.446-2, and 1.1273-2(g) for details.
• Interest that is allocable to unborrowed policy cash values of life
insurance, endowment, or annuity contracts issued after June 8,
1997, when the partnership is a policyholder or beneficiary. See
section 264(f). Attach a statement showing the computation of the
deduction.

See section 263A(a) for rules on capitalization of allocable costs
(including taxes) for any property.

• Taxes, including state or local sales taxes, that are paid or
incurred in connection with an acquisition or disposition of property
(these taxes must be treated as a part of the cost of the acquired
property or, in the case of a disposition, as a reduction in the amount
realized on the disposition).
• Taxes assessed against local benefits that increase the value of
the property assessed (such as for paving, etc.).
See section 164(d) for information on apportionment of taxes on
real property between seller and purchaser.

Limitation on deduction. Business interest expense deduction is
generally limited to the sum of business interest income, 30% of the
adjusted taxable income (ATI), and floor plan financing interest. This
limitation generally applies at the partnership level. See section
163(j)(4) for additional information about the application of the
business interest expense limitation to partnerships. See Form
8990, Limitation on Business Interest Expense Under Section 163(j),
and its instructions for more information. Business interest expense
includes any interest expense properly allocable to a trade or
business. A small business taxpayer that isn't a tax shelter (as
defined in section 448(d)(3)) and that meets the gross receipts test
isn't required to limit business interest expense under section 163(j).
A taxpayer meets the gross receipts test if the taxpayer has average
annual gross receipts of $27 million or less for the 3 prior tax years
under the gross receipts test of section 448(c). Gross receipts
include the aggregate gross receipts from all persons treated as a
single employer such as a controlled group of corporations,
commonly controlled partnerships or proprietorships, and affiliated
service groups. If the partnership fails to meet the gross receipts
test, Form 8990 is generally required. Also see Schedule B,
questions 23 and 24.

Do not reduce your deduction for social security and
Medicare taxes by the nonrefundable and refundable
CAUTION portions of the FFCRA and ARP credits for qualified sick
and family leave wages claimed on the partnership's employment
tax returns. Instead, report the credits as income on line 7.

!

Line 15. Interest

Include only interest incurred in the trade or business activities of the
partnership that isn't claimed elsewhere on the return.
Do not include interest expense on the following.

• Debt used to purchase rental property or debt used in a rental

activity. Interest allocable to a rental real estate activity is reported
on Form 8825 and is used in arriving at net income (loss) from rental
real estate activities on line 2 of Schedule K and in box 2 of
Schedule K-1. Interest allocable to a rental activity other than a
rental real estate activity is included on line 3b of Schedule K and is
used in arriving at net income (loss) from a rental activity (other than
a rental real estate activity). This net amount is reported on line 3c of
Schedule K and in box 3 of Schedule K-1.
• Debt used to buy property held for investment. Interest that is
clearly and directly allocable to interest, dividend, royalty, or annuity
income not derived in the ordinary course of a trade or business is
reported on line 13b of Schedule K and in box 13 of Schedule K-1
using code H. See the instructions for line 13b of Schedule K;
box 13, code H, of Schedule K-1; and Form 4952, Investment
Interest Expense Deduction, for more information on investment
property.
• Debt proceeds allocated to distributions made to partners during
the tax year. Instead, report such interest on line 13d of Schedule K
and in box 13 of Schedule K-1 using code W. To determine the
amount to allocate to distributions to partners, see Notice 89-35,
1989-1 C.B. 675.

Line 16. Depreciation

On line 16a, enter only the depreciation claimed on assets used in a
trade or business activity. Enter on line 16b the depreciation
included elsewhere on the return (for example, on page 1, line 2)
that is attributable to assets used in trade or business activities. See
the Instructions for Form 4562, or Pub. 946, How To Depreciate
Property, to figure the amount of depreciation to enter on this line.
Complete and attach Form 4562 only if the partnership placed
property in service during the tax year or claims depreciation on any
car or other listed property.

-24-

Instructions for Form 1065 (2022)

Line 20. Other Deductions

Do not include any section 179 expense deduction on this line.
This amount isn't deducted by the partnership. Instead, it is passed
through to the partners in box 12 of Schedule K-1. Generally, the
basis of a partnership's section 179 property must be reduced to
reflect the amount of section 179 expense elected by the
partnership. This reduction must be made in the basis of partnership
property even if the limitations of section 179(b) and Regulations
section 1.179-2 prevent a partner from deducting all or a portion of
the amount of the section 179 expense allocated by the partnership.

Enter the total allowable trade or business deductions that aren't
deductible elsewhere on page 1 of Form 1065. Attach a statement
listing by type and amount each deduction included on this line.
Examples of other deductions include the following.
• Amortization. See the Instructions for Form 4562 for more
information. Complete and attach Form 4562 if the partnership is
claiming amortization of costs that began during the tax year.
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the business.
• Utilities.
• Certain business startup and organizational costs. See
Limitations on Deductions, earlier, for more details.
• Deduction for certain energy efficient commercial building
property. See section 179D; and Notice 2006-52, 2006-26 I.R.B.
1175, as amplified and clarified by Notice 2008-40, 2008-14 I.R.B.
725, and modified by Notice 2012-26, 2012-17 I.R.B. 847. Attach
Form 7205, Energy Efficient Commercial Building Deduction.
• Any net negative section 481(a) adjustment.

DRAFT AS OF
December 8, 2022

Line 17. Depletion

If the partnership claims a deduction for timber depletion, complete
and attach Form T (Timber), Forest Activities Schedule.

Do not deduct depletion for oil and gas properties. Each
partner figures depletion on oil and gas properties. See the
CAUTION instructions for Schedule K-1, box 20, Depletion information
oil and gas (code T), for the information on oil and gas depletion that
must be supplied to the partners by the partnership.

!

Line 18. Retirement Plans, etc.

Also see Special Rules, later.

Do not deduct payments for partners to retirement or deferred
compensation plans including IRAs, qualified plans, and simplified
employee pension (SEP) and SIMPLE IRA plans on this line. These
amounts are reported in box 13 of Schedule K-1, using code R, and
are deducted by the partners on their own returns.

Do not deduct the following on line 20.

• Items that must be reported separately on Schedules K and K-1.
• Fines or similar penalties. Generally, no deduction is allowed for

fines or similar penalties paid to or at the direction of a government
or governmental entity for violating any law except amounts that
constitute restitution (including remediation of property), amounts
paid to come into compliance with the law, amounts paid or incurred
as the result of orders or agreements in which no government or
governmental entity is a party, and amounts paid or incurred for
taxes due to the extent the amount would have been allowed as a
deduction if timely paid. No deduction is allowed unless the amounts
are specifically identified in the order or agreement and the taxpayer
establishes that the amounts were paid for that purpose. Also, any
amount paid or incurred as reimbursement to the government for the
costs of any investigation or litigation are not eligible for the
exceptions and are nondeductible. See section 162(f). Report
nondeductible amounts on Schedule K, line 18c.
• Expenses allocable to tax-exempt income. Report these
expenses on Schedule K, line 18c.
• Net operating losses. Only individuals and corporations may
claim a net operating loss deduction.
• Amounts paid or incurred to participate or intervene in any
political campaign on behalf of a candidate for public office, or to
influence the general public regarding legislative matters, elections,
or referendums. Report these expenses on Schedule K, line 18c.
• Lobbying expenses. Generally, lobbying expenses are not
deductible. These expenses include amounts paid or incurred in
connection with influencing federal, state, or local legislation (but not
amounts paid or incurred before December 22, 2017, in connection
with local legislation); or amounts paid or incurred in connection with
any communication with certain federal executive branch officials in
an attempt to influence the official actions or positions of the officials.
See Regulations section 1.162-29 for the definition of “influencing
legislation.” Dues and other similar amounts paid to certain
tax-exempt organizations may not be deductible. If certain in-house
lobbying expenditures don't exceed $2,000, they are deductible.
See section 162(e)(4)(B).
• Amounts paid or incurred for any settlement or payout related to
sexual harassment or sexual abuse that is subject to a
nondisclosure agreement, as well as any attorney’s fees related to
the settlement or payout. See section 162(q).

Enter the deductible contributions not claimed elsewhere on the
return made by the partnership for its common-law employees under
a qualified pension, profit-sharing, annuity, or SEP or SIMPLE IRA
plan, and under any other deferred compensation plan.
If the partnership contributes to an IRA for employees, include
the contribution in salaries and wages on page 1, line 9, or Form
1125-A, line 3, and not on line 18.
Employers who maintain a pension, profit-sharing, or other
funded deferred compensation plan (other than a SEP or SIMPLE
IRA), whether or not the plan is qualified under the Internal Revenue
Code and whether or not a deduction is claimed for the current year,
must generally file the applicable form listed below.
• Form 5500, Annual Return/Report of Employee Benefit Plan.
• Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan (generally filed instead of Form 5500 if there
are under 100 participants at the beginning of the plan year).
Form 5500 and Form 5500-SF must be filed electronically

TIP under the computerized ERISA Filing Acceptance System

(EFAST2). For more information, see the EFAST2 website
at EFAST.dol.gov.

• Form 5500-EZ, Annual Return of A One-Participant (Owners/
Partners and Their Spouses) Retirement Plan or A Foreign Plan. File
this form for a plan that only covers one or more partners (or
partners and their spouses) or a foreign plan that is required to file
an annual return and does not file the annual return electronically on
Form 5500-SF.

Line 19. Employee Benefit Programs

Enter the partnership's contributions to employee benefit programs
not claimed elsewhere on the return (for example, insurance, health,
and welfare programs) that aren't part of a pension, profit-sharing,
etc., plan included on line 18.
Do not include amounts paid during the tax year for insurance
that constitutes medical care for a partner, a partner's spouse, a
partner's dependents, or a partner's children under age 27 who
aren't dependents. Instead, include these amounts on line 10 as
guaranteed payments on the applicable line of Schedule K, line 4,
and the applicable line of box 4 of Schedule K-1, of each partner on
whose behalf the amounts were paid. Also report these amounts on
Schedule K, line 13d, and in box 13 of Schedule K-1, using code M,
of each partner on whose behalf the amounts were paid.

Instructions for Form 1065 (2022)

Special Rules
Travel, meals, and entertainment. Subject to limitations and
restrictions discussed below, a partnership can deduct ordinary and
necessary travel and non-entertainment-related meal expenses paid
or incurred in its trade or business. Generally, entertainment
expenses, membership dues, and facilities used in connection with
these activities cannot be deducted. Also, special rules apply to
-25-

payment. Checks must be made payable to “United States
Treasury” and mailed to Ogden Service Center, Ogden, UT
84201-0011. Payments can be made by check or electronically. If
making an electronic payment, choose the payment description
“BBA AAR Imputed Underpayment” from the list of payment types.

deductions for gifts, luxury water travel, and convention expenses.
See section 274 and Pub. 463 for details.
Travel. The partnership cannot deduct travel expenses of any
individual accompanying a partner or partnership employee,
including a spouse or dependent of the partner or employee, unless:
• That individual is an employee of the partnership, and
• The travel is for a bona fide business purpose and would
otherwise be deductible by that individual.
Meals. Generally, the partnership can deduct only 50% of the
amount otherwise allowable for non-entertainment meal expenses
paid or incurred in its trade or business. However, the partnership
can deduct 100% of business meals if the meals are food and
beverages provided by a restaurant, and paid or incurred after
December 31, 2020, and before January 1, 2023.
Entertainment-related meals are generally disallowed. In addition
(subject to exceptions under section 274(k)(2)):
• Meals must not be lavish or extravagant, and
• A partner or employee of the partnership must be present at the
meal.
See section 274(n)(3) for a special rule that applies to expenses
for meals consumed by individuals subject to the hours of service
limits of the Department of Transportation.
Membership dues. The partnership may deduct amounts paid
or incurred for membership dues in civic or public service
organizations, professional organizations (such as bar and medical
associations), business leagues, trade associations, chambers of
commerce, boards of trade, and real estate boards. However, no
deduction is allowed if a principal purpose of the organization is to
entertain, or provide entertainment facilities for, members or their
guests. In addition, the partnership may not deduct membership
dues in any club organized for business, pleasure, recreation, or
other social purpose. This includes country clubs, golf and athletic
clubs, airline and hotel clubs, and clubs operated to provide meals
under conditions favorable to business discussion.
Entertainment facilities. The partnership cannot deduct an
expense paid or incurred for a facility (such as a yacht or hunting
lodge) used for an activity usually considered entertainment,
amusement, or recreation.
Amounts treated as compensation. Generally, the partnership
may be able to deduct otherwise nondeductible entertainment,
amusement, or recreation expenses if the amounts are treated as
compensation to the recipient and reported on Form W-2 for an
employee or on Form 1099-NEC for an independent contractor.

Line 26. Other taxes. In a few instances, payments other than
those listed above may have to be made with Form 1065. Enter the
amount on this line and attach a statement identifying the purpose of
the payment.

DRAFT AS OF
December 8, 2022

Line 28. Payment. Enter any prepayments related to lines 23–26
above.

Schedule B. Other Information

Question 1

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

Maximum Percentage Owned for Purposes of
Questions 2 and 3

To determine the maximum percentage owned in the partnership's
profit, loss, or capital for the purposes of questions 2a, 2b, and 3b,
determine separately the partner's percentage of interest in profit,
loss, and capital at the end of the partnership's tax year. This
determination must be based on the partnership agreement and it
must be made using the constructive ownership rules described
below. The maximum percentage is the highest of these three
percentages (determined at the end of the tax year).
See Item J. Partner's Profit, Loss, and Capital, later, for more
information on ownership percentages.

Questions 2 and 3
Constructive ownership of the partnership. For purposes of
question 2, except for foreign governments within the meaning of
section 892, in determining an ownership interest in the profit, loss,
or capital of the partnership, the constructive ownership rules of
section 267(c) (excluding section 267(c)(3)) apply to ownership of
interests in the partnership as well as corporate stock. An interest in
the partnership that is owned directly or indirectly by or for another
entity (corporation, partnership, estate, trust, or tax-exempt
organization) is considered to be owned proportionately by the
owners (shareholders, partners, or beneficiaries) of the owning
entity.
Also, under section 267(c), an individual is considered to own an
interest owned directly or indirectly by or for the individual’s family.
The family of an individual includes only that individual's spouse,
brothers, sisters, ancestors, and lineal descendants. An interest will
be attributed from an individual under the family attribution rules only
if the person to whom the interest is attributed owns a direct interest
in the partnership or an indirect interest under section 267(c)(1) or
(5). For purposes of these instructions, an individual will not be
considered to own, under section 267(c)(2), an interest in the
partnership owned, directly or indirectly, by a family member of the
individual unless the individual also owns an interest in the
partnership either directly or indirectly through a corporation,
partnership, or trust.
For purposes of question 2, “foreign government” has the same
meaning as it does under section 892. In determining a foreign
government's ownership interest in the profit, loss, or capital of the
partnership, the constructive ownership rules of Regulations section
1.892-5T(c)(1)(i) apply to ownership of interests in the partnership
as well as corporate stock. An interest in the partnership that is
owned directly or indirectly by an integral part or controlled entity of
a foreign sovereign (within the meaning of Regulations section
1.892-2T(a)) is considered to be owned proportionately by such
foreign sovereign.
Constructive ownership examples for questions 2 and 3 are
included below. For the purposes of questions 2 and 3, add an
owner's direct percentage ownership and indirect percentage

Reforestation expenditures. If the partnership made an election
to deduct a portion of its reforestation expenditures on line 13d of
Schedule K, it must amortize over an 84-month period the portion of
these expenditures in excess of the amount deducted on
Schedule K (see section 194). Deduct on line 20 only the
amortization of these excess reforestation expenditures. See
Reforestation expense deduction (code S), later.

Tax and Payment
Line 23. Interest due under the look-back method for completed long-term contracts. For partnerships that aren't closely held,
attach Form 8697 and a check or money order for the full amount,
made payable to "United States Treasury." Write the partnership's
EIN, daytime phone number, and "Form 8697 Interest'' on the check
or money order.
Line 24. Interest due under the look-back method for property
depreciated under the income forecast method. For
partnerships that aren’t closely held, attach Form 8866 and a check
or money order for the full amount, made payable to “United States
Treasury.” Write the partnership’s EIN, daytime phone number, and
“Form 8866 Interest” on the check or money order.
Line 25. BBA AAR imputed underpayment. Use this line if the
partnership is filing an AAR electronically and chooses to pay the
imputed underpayment. For instructions on how to figure the
imputed underpayment, see the Instructions for Form 8082. Write
the name of the partnership, tax identification number, tax year,
"Form 1065," and "BBA AAR Imputed Underpayment" on the
-26-

Instructions for Form 1065 (2022)

“Total assets” is defined as the amount that would be reported in
item F on page 1 of Form 1065.

ownership in an entity to determine if the owner owns, directly or
indirectly, 50% or more of the entity.
Example for question 2a. Corporation A owns, directly, an
interest of 50% in the profit, loss, or capital of Partnership B.
Corporation A also owns, directly, an interest of 15% in the profit,
loss, or capital of Partnership C. Partnership B owns, directly, an
interest of 70% in the profit, loss, or capital of Partnership C.
Therefore, Corporation A owns, directly or indirectly, an interest of
50% in the profit, loss, or capital of Partnership C (15% directly and
35% indirectly through Partnership B). On Partnership C's Form
1065, it must answer “Yes” to question 2a of Schedule B. See
Example 1 in the instructions attached to Schedule B-1 (Form 1065)
for guidance on providing the rest of the information required of
entities answering “Yes” to this question.
Example for question 2b. A owns, directly, 50% of the profit,
loss, or capital of Partnership X. B, the daughter of A, doesn't own,
directly, any interest in X and doesn't own, indirectly, any interest in
X through any entity (corporation, partnership, trust, or estate).
Because family attribution rules apply only when an individual (in this
example, B) owns a direct interest in the partnership or an indirect
interest through another entity, A's interest in Partnership X isn't
attributable to B. On Partnership X's Form 1065, it must answer
“Yes” to question 2b of Schedule B. See Example 2 in the
instructions attached to Schedule B-1 (Form 1065) for guidance on
providing the rest of the information required of entities answering
“Yes” to this question.

Question 5

Answer “Yes” if interests in the partnership are traded on an
established securities market or are readily tradable on a secondary
market (or its substantial equivalent).

Question 6

DRAFT AS OF
December 8, 2022

Generally, the partnership will have income if debt is canceled or
forgiven. Amounts related to forgiven PPP loans are disregarded for
purposes of this question. The determination of the existence and
amount of cancellation of debt income is determined at the
partnership level. Partnership cancellation of indebtedness income
is separately stated on Schedule K and Schedule K-1. The extent to
which such income is taxable is usually determined by each
individual partner under rules found in section 108. For more
information, see Pub. 334, Tax Guide for Small Business.

Question 7

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

Constructive ownership of other entities by the partnership.
For purposes of determining the partnership's constructive
ownership of other entities, the constructive ownership rules of
section 267(c) (excluding section 267(c)(3)) apply to ownership of
interests in partnerships and trusts as well as corporate stock.
Generally, if an entity (a corporation, partnership, or trust) is owned,
directly or indirectly, by or for another entity (corporation,
partnership, estate, or trust), the owned entity is considered to be
owned proportionally by or for the owners (shareholders, partners,
or beneficiaries) of the owning entity.
Question 3a. List each corporation in which the partnership, at
the end of the tax year, owns, directly, 20% or more, or owns,
directly or indirectly, 50% or more of the total voting power of all
classes of stock entitled to vote. Indicate the name, EIN, country of
incorporation, and percentage interest owned, directly or indirectly,
in the total voting power. List the parent corporation of an affiliated
group filing a consolidated tax return rather than the subsidiary
members except for subsidiary members in which an interest is
owned, directly or indirectly, independent of the interest owned,
directly or indirectly, in the parent corporation. If a corporation is
owned through a DE, list the information for the corporation rather
than the DE.
Question 3b. List each partnership in which the partnership, at
the end of the tax year, owns, directly, an interest of 20% or more, or
owns, directly or indirectly, an interest of 50% or more in the profit,
loss, or capital of the partnership. List each trust in which the
partnership, at the end of the tax year, owns, directly, an interest of
20% or more, or owns, directly or indirectly, an interest of 50% or
more in the trust beneficial interest. For each partnership or trust
listed, indicate the name, EIN, type of entity (partnership or trust),
and country of origin. If the listed entity is a partnership, enter in
column (v) the maximum of percentage interests owned, directly or
indirectly, in the profit, loss, or capital of the partnership at the end of
the partnership's tax year. If the entity is a trust, enter in column (v)
the percentage of the partnership's beneficial interest in the trust
owned, directly or indirectly, at the end of the tax year. List a
partnership or trust owned through a DE rather than the DE.

Question 8

Answer “Yes” if either (1) or (2) below applies to the partnership.
Otherwise, check the “No” box.
1. At any time during calendar year 2022, the partnership had
an interest in or signature or other authority over a bank account,
securities account, or other financial account in a foreign country
(see FinCEN Form 114, Report of Foreign Bank and Financial
Accounts (FBAR)); and
• The combined value of the accounts was more than $10,000 at
any time during the calendar year; and
• The accounts were not with a U.S. military banking facility
operated by a U.S. financial institution.
2. The partnership owns more than 50% of the stock in any
corporation that would answer “Yes” based on item (1) above.
If the “Yes” box is checked for the question, do the following.

• Enter the name of the foreign country or countries. Attach a

separate sheet if more space is needed.
• File FinCEN Form 114 electronically at the FinCEN website,
bsaefiling.fincen.treas.gov/main.html.

Question 9

The partnership may be required to file Form 3520, Annual Return
To Report Transactions With Foreign Trusts and Receipt of Certain
Foreign Gifts, if any of the following apply.
• It directly or indirectly transferred property or money to a foreign
trust. For this purpose, any U.S. person who created a foreign trust
is considered a transferor.
• It is treated as the owner of any part of the assets of a foreign
trust under the grantor trust rules.
• It received a distribution, a loan of cash or other marketable
securities, or uncompensated use of trust property from a foreign
trust, or a foreign trust holds an outstanding qualified obligation of
the partnership.
For more information, see the Instructions for Form 3520.

Question 4

An owner of a foreign trust must ensure that the trust files an
annual information return on Form 3520-A, Annual Information
Return of Foreign Trust With a U.S. Owner.

Answer “Yes” if the partnership meets all four of the requirements
shown on the form. Total receipts is defined as the sum of gross
receipts or sales (page 1, line 1a); all other income (page 1, lines 4
through 7); income reported on Schedule K, lines 3a, 5, 6a, and 7;
income or net gain reported on Schedule K, lines 8, 9a, 10, and 11;
and income or net gain reported on Form 8825, lines 2, 19, and 20a.

Instructions for Form 1065 (2022)

Questions 10a, 10b, and 10c
You must check “Yes” or “No” for each question.

TIP
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• The computation of the adjustment,
• The class of property distributed (ordinary income property or

Question 10a. Answer “Yes” if the partnership is making, or has
made (and has not revoked), a section 754 election. For information
about the election, see item 4 under Elections Made by the
Partnership, earlier.

capital gain property), and
• The partnership properties to which the adjustment has been
allocated.

Question 10b. Answer “Yes” if the partnership made an optional
basis adjustment under section 743(b) or 734(b) for the tax year. If
the partnership has made a section 754 election (and it has not been
revoked) and either of the following transactions occurs, the
partnership must make a basis adjustment under section 734(b) or
743(b).
Section 743(b) basis adjustment. A section 743(b) basis
adjustment is required if there is a transfer of an interest in the
partnership by a sale or exchange, or in the death of a partner. See
question 10c if the partnership has a substantial built-in loss
immediately after such a transfer. The basis adjustment affects only
the transferee's basis in partnership property. The partnership must
attach a statement to the return for the tax year in which the transfer
occurred. The statement must include:
• The name of the transferee partner,
• The EIN or SSN of the transferee partner,
• The computation of the adjustment, and
• The identity of the partnership properties to which the adjustment
has been allocated.
For details, see section 743 and Regulations section 1.743-1. For
details on allocating the basis adjustment to partnership properties,
see section 755 and Regulations section 1.755-1.
Section 734(b) basis adjustment. A section 734(b) basis
adjustment is required if there is a distribution of property to a
partner, whether or not in liquidation of the partner's entire interest in
the partnership. See question 10c if there is a substantial built-in
loss related to the distribution. The basis adjustment affects each
partner's basis in the partnership property. The partnership must
attach a statement to the return for the tax year in which the
distribution occurred. The statement must include:
• The computation of the adjustment,
• The class of property distributed (ordinary income property or
capital gain property), and
• The partnership properties to which the adjustment has been
allocated.
For details, see section 734 and Regulations section 1.734-1. For
details on allocating the basis adjustment to partnership properties,
see section 755 and Regulations section 1.755-1.

Question 11

Check the box if the partnership engaged in a like-kind exchange
during the current or immediately preceding tax year and received
replacement property that it distributed during the current tax year.
For purposes of this question, the partnership is considered to have
distributed replacement property if the partnership contributed such
property to any entity other than a DE. The distribution of its
ownership interest in a DE is considered a distribution of the
underlying property.

DRAFT AS OF
December 8, 2022
Question 12

If a partnership distributed property to its partners to be jointly
owned, whether such distribution is direct or through the formation of
an intermediate entity, the question must be answered “Yes.” For
purposes of question 12, an “undivided interest in partnership
property” means property that was owned by the partnership either
directly or through a DE and which was distributed to partners as
fractional ownership interests. A tenancy-in-common interest is a
type of undivided ownership interest in property which provides each
owner the right to transfer property to a third party without destroying
the tenancy in common. Partners may agree to partition property
held as tenants in common or may seek a court order to partition the
property (usually dividing the property into fractional interests in
accordance with each partner's ownership interest in the
partnership).
Example. Partnership P is a partnership that files Form 1065.
Partnership P holds title to land held for investment. Partnership P
converts its title to the land to fractional interests in the name of the
partners and distributes such interests to its partners. Partnership P
must answer “Yes” to question 12.

Question 13

Enter the number of Forms 8858, Information Return of U.S.
Persons With Respect To Foreign Disregarded Entities (FDEs) and
Foreign Branches (FBs), that are attached to the return. Form 8858
and its schedules are used by certain U.S. persons (including
domestic partnerships) that own an FDE or FB directly (or, in certain
cases, indirectly or constructively) to satisfy the reporting
requirements of sections 6011, 6012, 6031, and 6038, and the
related regulations. See Form 8858 (and its separate instructions)
for information on completing the form and the information that the
partnership may need to provide to certain partners for them to
complete their Forms 8858 relating to that FDE or FB.

Question 10c. Answer “Yes” if the partnership had to make a basis
reduction under section 743(b) because of a substantial built-in loss
(as defined in section 743(d)) or under section 734(b) because of a
substantial basis reduction (as defined in section 734(d)). Section
743(d)(1) provides that, for purposes of section 743, a partnership
has a substantial built-in loss resulting from a transfer of a
partnership interest if the partnership's adjusted basis in the
partnership's property exceeds by more than $250,000 the FMV of
the property or the transferee partner would be allocated a loss of
more than $250,000 if the partnership assets were sold for cash
equal to their FMV immediately after such transfer. Under section
734(d), there is a substantial basis reduction resulting from a
distribution if the sum of the following amounts exceeds $250,000.
• The amount of loss recognized by the distributee partner on a
distribution in liquidation of the partner's interest in the partnership
(see section 731(a)(2)).
• The excess of the basis of the distributed property to the
distributee partner (determined under section 732) over the adjusted
basis of the distributed property to the partnership immediately
before the distribution (as adjusted by section 732(d)).
Section 743(b) basis adjustment. For a section 743(b) basis
adjustment, attach a statement that includes:
• The name of the transferee partner,
• The EIN or SSN of the transferee partner,
• The computation of the adjustment, and
• The identity of the partnership properties to which the adjustment
has been allocated.
Section 734(b) basis adjustment. For a section 734(b) basis
adjustment, attach a statement that includes:

Question 14

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

Questions 16a and 16b

If the partnership made any payment in 2022 that would require the
partnership to file any Form(s) 1099, check the “Yes” box for
question 16a and answer question 16b. Otherwise, check the “No”
box for question 16a and skip question 16b. See Am I Required to
File a Form 1099 or Other Information Return for more information.

Question 20

For tax years beginning after 2015, domestic partnerships that are
formed or availed of to hold specified foreign financial assets
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Instructions for Form 1065 (2022)

for the 3 prior tax years is determined by adding the gross receipts
for the 3 prior tax years and dividing the total by 3. Gross receipts
include the aggregate gross receipts from all persons treated as a
single employer, such as a controlled group of corporations,
commonly controlled partnerships, or proprietorships, and affiliated
service groups. See section 448(c) and the Instructions for Form
8990 for additional information.

(“specified domestic entities”) must file Form 8938, Statement of
Specified Foreign Financial Assets, with its Form 1065 for the tax
year. Form 8938 must be filed each year the value of the
partnership’s specified foreign financial assets meets or exceeds the
reporting threshold. For more information on domestic partnerships
that are specified domestic entities and the types of foreign financial
assets that must be reported, see the Instructions for Form 8938.
A domestic partnership required to file Form 8938 with its Form
1065 for the tax year should check “Yes” to question 20 on
Schedule B of Form 1065.

Question 25

DRAFT AS OF
December 8, 2022

To be certified as a qualified opportunity fund, the partnership must
file Form 1065 and attach Form 8996, even if the partnership had no
income or expenses to report. If the partnership is attaching Form
8996, check the "Yes" box for question 26. On the line following the
dollar sign, enter the amount from Form 8996, line 15.

Question 22

Section 267A disallows a deduction for certain interest or royalty
paid or accrued pursuant to a hybrid arrangement, to the extent that,
under the foreign tax law, there is not a corresponding income
inclusion (including long-term deferral). Report on line 22 the total
amount of interest and royalty paid or accrued by the partnership for
which the partnership knows, or has reason to know, that one or
more partners' distributive share of deductions is disallowed under
section 267A. For additional information, see FAQs at IRS.gov/
businesses/partnerships/FAQs-for-Form-1065-Schedule-B-OtherInformation-Question-22.

Question 26

Provide the number of foreign partners subject to section 864(c)(8)
as a result of transferring all or a portion of an interest in the
partnership if the partnership is engaged in a U.S. trade or business.
Section 864(c)(8) provides that gain or loss of a foreign transferor
from the transfer of a partnership interest is treated as effectively
connected with the conduct of a trade or business within the United
States to the extent that the transferor would have had effectively
connected gain or loss if the partnership sold all of its assets at FMV
on the date of transfer. For purposes of section 864(c)(8), a transfer
of a partnership interest means a sale, exchange, or other
disposition, and includes a distribution from a partnership to a
partner to the extent that gain or loss is recognized on the
distribution, as well as a transfer treated as a sale or exchange
under section 707(a)(2)(B). Section 864(c)(8) applies to foreign
partners that directly or indirectly transfer an interest in a partnership
that is engaged in a U.S. trade or business. The partnership should
include in its response any transfer for which it has received
notification or otherwise knows about. If the partnership is a PTP as
defined in section 469(k)(2) and has properly answered “Yes” to
question 5 on Form 1065, Schedule B, then it is not required to
answer the question.

Question 23

The limitation on business interest expense applies to every
taxpayer with a trade or business, unless the taxpayer meets certain
specified exceptions. A partnership may elect out of the limitation for
certain businesses otherwise subject to the business interest
expense limitation.
Certain real property trades or businesses and farming
businesses qualify to make an election not to limit business interest
expense. This is an irrevocable election. If you make this election,
you are required to use the alternative depreciation system to
depreciate certain property. Also, you are not entitled to the special
depreciation allowance for that property. For a partnership with more
than one qualifying business, the election is made with respect to
each business. Check “Yes” if the partnership has an election in
effect to exclude a real property trade or business or a farming
business from section 163(j). For more information, see section
163(j) and the Instructions for Form 8990.

If a partnership had any foreign partners subject to section 864(c)
(8), the partnership must complete Schedule K-3 (Form 1065), Part
XIII, for each foreign partner subject to section 864(c)(8) on a
transfer or distribution. The partnership may also be required to
withhold under section 1446(f)(4) on future distributions that it
makes to the transferee partner if that partner failed to withhold on
the transfer under section 1446(f)(1). See Pub. 515, Withholding of
Tax on Nonresident Aliens and Foreign Entities, for more
information.

Question 24

Generally, a taxpayer with a trade or business must file Form 8990
to claim a deduction for business interest. Business interest
expense is interest that is properly allocable to a non-excepted trade
or business or that is floor plan financing interest. In addition, Form
8990 must be filed by any taxpayer that owns an interest in a
partnership with current year, or prior year carryover, excess
business interest expense allocated from the partnership. A
pass-through entity allocating excess taxable income or excess
business interest income to its owners (that is, a pass-through entity
that isn't a small business taxpayer) must file Form 8990, regardless
of whether it has any interest expense.

Question 27

Answer "Yes" if at any time during the tax year there were transfers
between the partnership and its partners subject to the disclosure
requirements of Regulations section 1.707-8. For certain transfers
that are presumed to be sales, the partnership or the partners must
comply with the disclosure requirements in Regulations section
1.707-8. Generally, disclosure is required when:
1. Certain transfers to a partner are made within 2 years of a
transfer of property by the partner to the partnership;
2. Certain debt is incurred by a partner within 2 years of the
earlier of (a) a written agreement to transfer, or (b) a transfer of the
property that secures the debt, if the debt is treated as a qualified
liability; or
3. Transfers from a partnership to a partner occur which are the
equivalent to those listed in (1) or (2) above.

Exclusions from filing. A taxpayer isn't required to file Form 8990
if the taxpayer is a small business taxpayer and doesn't have excess
business interest expense from a partnership. A taxpayer is also not
required to file Form 8990 if the taxpayer only has business interest
expense from the following excepted trades or businesses.
• The trade or business of providing services as an employee.
• An electing real property trade or business.
• An electing farming business.
• Certain utility businesses.

The disclosure must be made on the transferor partner's return
using Form 8275, Disclosure Statement, or on an attached
statement providing the same information. When more than one
partner transfers property to a partnership under a plan, the
disclosure may be made by the partnership rather than by each
partner.

Small business taxpayer. A small business taxpayer isn't subject
to the business interest expense limitation and isn't required to file
Form 8990. A small business taxpayer is a taxpayer that (a) isn't a
tax shelter (as defined in section 448(d)(3)); and (b) meets the gross
receipts test of section 448(c), discussed next.
Gross receipts test. A taxpayer meets the gross receipts test if
the taxpayer has average annual gross receipts of $27 million or less
for the 3 prior tax years. A taxpayer's average annual gross receipts

Instructions for Form 1065 (2022)

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Question 28

were domestic entities, and estates of deceased partners. The
determination as to whether the partnership has 100 or fewer
partners is made by adding the number of Schedules K-1 required to
be issued by the partnership for the tax year to the number of
Schedules K-1 required to be issued by any partner that is an S
corporation to its shareholders for the tax year of the S corporation
ending with or within the partnership tax year. A partnership isn't
eligible to elect out of the centralized partnership audit regime if it is
required to issue a Schedule K-1 to any of the following partners.
• A partnership.
• A trust.
• A foreign entity that would not be treated as a C corporation if it
were a domestic entity.
• A DE described in Regulations section 301.7701-2(c)(2)(i).
• An estate of an individual other than a deceased partner.
• Any person that holds an interest in the partnership on behalf of
another person.

Section 7874 applies in certain cases in which a foreign corporation
directly or indirectly acquires substantially all of the properties
constituting a trade or business of a domestic partnership. Check
“Yes” if, since December 22, 2017, a foreign corporation directly or
indirectly acquired substantially all of the properties constituting a
trade or business of your partnership (and you are a domestic
partnership), and the ownership with respect to the acquisition was
greater than 50% (by vote or value). If “Yes” is checked, list the
ownership percentage by both vote and value.

DRAFT AS OF
December 8, 2022

The information must be reported even if you conclude that
section 7874 does not apply.

Section 7874 generally applies when the following three
requirements are met.
1. Pursuant to a plan or series of related transactions, a foreign
corporation must acquire directly or indirectly substantially all of the
properties constituting a trade or business of a domestic
partnership.
2. After the acquisition, the ownership percentage (by vote or
value) must be at least 60%.
3. After the acquisition, the expanded affiliate that includes the
foreign acquiring corporation must not have substantial business
activities in the foreign country in which the foreign acquiring
corporation is created or organized.

Designated Partnership Representative (PR)

Section 6223 provides that unless the partnership has made a valid
election out of the centralized partnership audit regime, each
partnership must designate, in the manner prescribed by the
Secretary, a partner or other person with a substantial presence in
the United States as the PR who shall have the sole authority to act
on behalf of the partnership. On Form 1065, provide the name,
address, and phone number of the PR. If an entity is designated as
the PR, the partnership must also appoint an individual to act on the
entity's behalf (a designated individual (DI)). To be a DI, the
appointed person must also have a substantial presence in the
United States.

When section 7874 applies, the tax treatment of the acquisition
depends on the ownership percentage. If the ownership is at least
80%, the foreign acquiring corporation is treated as a domestic
corporation for all purposes of the Internal Revenue Code. See
section 7874(b). If the ownership is at least 60% but less than 80%,
the foreign acquiring corporation is considered a foreign corporation
but the domestic partnership and certain other persons are subject
to special rules that reduce the tax benefits of the acquisition. See
section 7874(a)(1).

How to designate. A designation of a PR must be made for each
respective year on the partnership’s Form 1065. The partnership
can revoke a designation of a PR or DI, and the PR or DI can resign,
by submitting Form 8979, Partnership Representative Revocation,
Designation, and Resignation Form.

The Tax Cuts and Jobs Act of 2017 provides additional special
rules for certain cases in which section 7874 applies. See sections
59A(d)(4) and 965(l).

!

CAUTION

Ownership percentage. The ownership percentage is the
percentage described in section 7874(a)(2)(B)(ii). See the
regulations under section 7874 for rules regarding the computation
of the ownership percentage.
In general, the ownership percentage measures the percentage
of stock of the foreign acquiring corporation that is held by partners
of the domestic partnership by reason of holding a capital or profits
interest in the domestic partnership, with certain adjustments (for
example, disregarding certain stock of the foreign acquiring
corporation attributable to passive assets or assets of other
domestic entities that were recently acquired by the foreign
acquiring corporation). The ownership percentage is measured
separately by vote and value.

See the Instructions for Form 8979 for information
concerning how and when Form 8979 can be submitted to
the IRS.

PR authority. Under section 6223, the partnership and all its
partners (and any other person whose tax liability is determined in
whole or in part by taking into account directly or indirectly
adjustments determined under the centralized partnership audit
regime) are bound by the actions of the PR in dealings with the IRS.
A designation for a partnership tax year remains in effect until the
designation is terminated by (a) a valid resignation of the PR or DI,
(b) a valid revocation of the PR (with designation of successor PR),
or (c) a determination by the IRS that the designation isn't in effect.
Substantial presence. In order for either a PR or a DI to have
substantial presence, they must make themselves available to meet
in person with the IRS in the United States at a reasonable time and
place as determined by the IRS, and must have a street address in
the United States, a U.S. taxpayer identification number (TIN), and a
telephone number with a U.S. area code.

Multiple reportable acquisitions. If there are multiple
acquisitions that must be reported, list on the lines for question 28
the ownership percentage by vote and value for the most recent
acquisition. Attach a statement reporting the ownership percentage
by vote and value for the other acquisitions.

Schedules K and K-1. Partners'
Distributive Share Items

Question 29

Purpose of Schedules

Reserved for future use.

Although the partnership isn't subject to income tax, the partners are
liable for tax on their shares of the partnership income, whether or
not distributed, and must include their shares on their tax returns.

Question 30

Answer "Yes" if an eligible partnership chooses to elect out of the
centralized partnership audit regime for the tax year and enter the
total from Schedule B-2, Part III, line 3. If making the election, attach
a completed Schedule B-2 to Form 1065. An election out of the
centralized partnership audit regime can only be made on a timely
filed return (including extensions). A partnership is an eligible
partnership for the tax year if it has 100 or fewer eligible partners in
that year. Eligible partners are individuals, C corporations, S
corporations, foreign entities that would be C corporations if they

Schedule K. Schedule K is a summary schedule of all the partners'
shares of the partnership's income, credits, deductions, etc. All
partnerships must complete Schedule K. Rental activity income
(loss) and portfolio income aren't reported on page 1 of Form 1065.
These amounts aren't combined with trade or business activity
income (loss) reported on page 1. Schedule K is used to report the
totals of these and other amounts reported on page 1.
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Instructions for Form 1065 (2022)

Special rules on the allocation of income, gain, loss, and
deductions generally apply if a partner contributes property to the
partnership and the FMV of that property at the time of contribution
differs from the contributing partner's adjusted tax basis. Under
these rules, the partnership must use a reasonable method of
making allocations of income, gain, loss, and deductions from the
property so that the contributing partner receives the tax burdens
and benefits of any built-in gain or loss (that is, precontribution
appreciation or diminution of value of the contributed property). See
Regulations section 1.704-3 for details on how to make these
allocations, including a description of specific allocation methods
that are generally reasonable.

Schedule K-1. Schedule K-1 shows each partner's separate
share. Attach a copy of each Schedule K-1 to the Form 1065 filed
with the IRS. Keep a copy with a copy of the partnership return as a
part of the partnership's records and furnish a copy to each partner.
If the partner is a DE, furnish the Schedule K-1 to the DE partner. If a
partnership interest is held by a nominee on behalf of another
person, the partnership may be required to furnish Schedule K-1 to
the nominee. See Temporary Regulations sections 1.6031(b)-1T
and 1.6031(c)-1T for more information.
Give each partner a copy of either the Partner's Instructions for
Schedule K-1 (Form 1065) or specific instructions for each item
reported on the partner's Schedule K-1.

DRAFT AS OF
December 8, 2022

See Dispositions of Contributed Property, earlier, for special
rules on the allocation of income, gain, loss, and deductions on the
disposition of property contributed to the partnership by a partner.

Note. Schedules K-2 and K-3 replace prior lines 16 and 20 for
certain international codes on Schedules K and K-1.

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

Substitute Forms

The partnership doesn't need IRS approval to use a substitute
Schedule K-1 if it is an exact copy of the IRS schedule. The boxes
must use the same numbers and titles and must be in the same
order and format as on the comparable IRS Schedule K-1. The
substitute schedule must include the OMB number. The partnership
must provide each partner with the Partner's Instructions for
Schedule K-1 (Form 1065) or other prepared specific instructions for
each item reported on the partner's Schedule K-1.

Specific Instructions (Schedule K-1
Only)

The partnership must request IRS approval to use other
substitute Schedules K-1. To request approval, write to:

General Information

Internal Revenue Service
Attention: Substitute Forms Program
1111 Constitution Ave. NW, Room 6554
Washington, DC 20224
[email protected]

Generally, the partnership is required to prepare and give a
Schedule K-1 to each person who was a partner in the partnership at
any time during the year. Schedule K-1 must be provided to each
partner on or before the day on which the partnership return is
required to be filed.
However, a foreign partnership that has one or more U.S.
partners must file Form 1065. But if it meets each of the following
four requirements, it isn't required to file or provide Schedules K-1
for foreign partners (unless the foreign partner is a pass-through
entity through which a U.S. person holds an interest in the foreign
partnership).
• The partnership had no gross income effectively connected with
the conduct of a trade or business within the United States during its
tax year.
• The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i).
• All required Forms 1042 and 1042-S were filed by the partnership
or another withholding agent as required by Regulations sections
1.1461-1(b) and (c).
• The tax liability for each foreign partner for amounts reportable
under Regulations sections 1.1461-1(b) and (c) has been fully
satisfied by the withholding of tax at the source.

Each partner's information must be on a separate sheet of paper.
Therefore, separate all continuously printed substitutes before you
file them with the IRS.
The partnership may be subject to a penalty if it files Schedules
K-1 that don't conform to the specifications discussed in Pub. 1167,
General Rules and Specifications for Substitute Forms and
Schedules.

How Income Is Shared Among Partners

Allocate shares of income, gain, loss, deduction, or credit among the
partners according to the partnership agreement for sharing income
or loss generally. Partners may agree to allocate specific items in a
ratio different from the ratio for sharing income or loss. For instance,
if the net income exclusive of specially allocated items is divided
evenly among three partners but some special items are allocated
50% to one, 30% to another, and 20% to the third partner, report the
specially allocated items on the appropriate line of the applicable
partner's Schedule K-1 and the total on the appropriate line of
Schedule K, instead of on the numbered lines on page 1 of Form
1065, Form 1125-A, or Schedule D.

Generally, any person who holds an interest in a partnership as a
nominee for another person must furnish to the partnership the
name, address, etc., of the other person.
If a married couple each had an interest in the partnership,
prepare a separate Schedule K-1 for each of them.

If a partner's interest changed during the year (such as the
entrance of a new partner, the exit of a partner, an increase to a
partner's interest through an additional capital contribution, or a
decrease in a partner's interest through a distribution), see section
706(d) and Regulations section 1.706-4 before determining each
partner's distributive share of any item of income, gain, loss, and
deduction, and other items. Partnership items are allocated to a
partner only for the part of the year in which that person is a member
of the partnership. Generally, for each change in a partner’s interest,
the partnership will either allocate its items using a proration method
or a closing-of-the-books method. Special rules apply to certain
partnerships, certain variations, and certain items. See Regulations
section 1.706-4 for additional rules and procedures for making
elections. In addition, special rules in section 706(d)(2) apply to
certain items of partnerships that report their income on the cash
basis, and special rules in section 706(d)(3) apply to tiered
partnerships.

Instructions for Form 1065 (2022)

How To Complete Schedule K-1
In order to enable accurate scanning and processing of
Schedule(s) K-1, please use a 10-point Helvetica Light
CAUTION Standard font for all entries on Schedules K-1 if the entries
are typed or made using a computer.

!

If the return is for a fiscal year or a short tax year, fill in the tax
year space at the top of each Schedule K-1. On each Schedule K-1,
enter the information about the partnership and the partner in Parts I
and II (items A through N). In Part III, enter the partner's distributive
share of each item of income, deduction, and credit and any other
information the partner needs to file the partner's tax return,
including information needed to prepare state and local tax returns.
-31-

If the partner in the partnership is an entity, such as
single-member LLC, that is a DE for federal income tax purposes,
enter the TIN of the beneficial owner of the DE partner in item E
rather than the TIN of the DE partner. The beneficial owner is the
taxpayer who owns the DE partner. In item F, enter the name and
address of the beneficial owner of the DE partner. See the
instructions for item H2 below.

Codes. In box 11 and boxes 13 through 15, and 17 through 20,
identify each item by entering a code in the column to the left of the
entry space for the dollar amount. These codes are identified in
these instructions and on the List of Codes in the Partner’s
Instructions for Schedule K-1 (Form 1065).
Attached statements. When attaching statements to
Schedule K-1 to report additional information to the partner, indicate
there is a statement for the following.
• If an amount can be input on Schedule K-1 but additional
information is required, enter an asterisk (*) after the code in the
column to the left of the entry space.
• For items that can't be reported as a single dollar amount, enter
the code and an asterisk (*) in the column to the left and enter
“STMT” in the right column to indicate that the information is
provided on an attached statement.
• If the partnership has more coded items than the number of entry
boxes (for example, box 11, boxes 13 through 15, or boxes 17
through 20), don't enter a code or dollar amount in the last entry box.
Instead, enter an asterisk (*) in the left column and enter “STMT” in
the entry space to the right.
More than one attached statement can be placed on the same
sheet of paper. The information included in the statement should be
identified in alphanumeric order by box number followed by the letter
code (if any), description, and dollar amount for each item. For
example: “Box 13, code J—Work opportunity credit—$1,000.” This
can be followed with any additional information the partner needs to
determine the proper tax treatment of the item.

Note. If the partner is an LLC or a trust, the partnership should
inquire as to whether the LLC is a DE for federal income tax
purposes. If the LLC or trust is a DE, the partnership must verify that
the partner's TIN is the TIN used by the partner's beneficial owner in
filing its federal income tax return.

DRAFT AS OF
December 8, 2022

Truncating recipient's TIN on Schedule K-1. The partnership
can truncate a partner's identifying number on the Schedule K-1 the
partnership sends to the partner. Truncation isn't allowed on the
Schedule K-1 the partnership files with the IRS. Also, the partnership
cannot truncate its own identification number on any form.
To truncate, where allowed, replace the first five digits of the
nine-digit number with asterisks (*) or Xs (for example, an SSN
xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For more
information, see Regulations section 301.6109-4.
Foreign address. If the partner has a foreign address, enter the
information in the following order: city or town, state or province,
country, and ZIP or foreign postal code. Follow the country's
practice for entering the postal code. Do not abbreviate the country
name.

Section 721(c) partnerships. When the gain deferral method, as
described in Regulations section 1.721(c)-3, is being applied, a
partnership that is a section 721(c) partnership will attach to the
Schedule K-1 provided to a U.S. transferor the information required
under Regulations sections 1.721(c)-6(b)(2) and (3). A partnership
that is a section 721(c) partnership will also attach to its Form 1065 a
Schedule K-1 for each partner that is a related foreign person with
respect to the U.S. transferor. For an indirect partner that is a related
foreign person with respect to the U.S. transferor, the Schedule K-1
will only include relevant information with respect to section 721(c)
property. See Regulations section 1.721(c)-1 for definitions.

Item G

Complete item G on all Schedules K-1. If a partner holds interests as
both a general and limited partner, check both boxes and attach a
statement for each activity that shows the amounts allocable to the
partner's interest as a limited partner.

Item H1. Domestic/Foreign Partner

Check the foreign partner box if the partner is a nonresident alien
individual, foreign partnership, foreign corporation, foreign estate,
foreign trust, or foreign government. Otherwise, check the domestic
partner box.

Part I. Information About the
Partnership

Item H2. Disregarded Entity (DE)

If the partner is a DE, check the box and provide the name and TIN
of the DE partner. The partnership should make reasonable
attempts to obtain the DE’s TIN. If after making reasonable attempts
to obtain the DE’s TIN such TIN is unavailable or unknown to the
partnership, the partnership may report the DE’s TIN as unknown. If
the DE does not have a TIN, enter “None” in the space for the DE’s
TIN. For more information about DE reporting, see IRS.gov/formspubs/clarifications-for-disregarded-entity-reporting-andsection-743b-reporting.

On each Schedule K-1, enter the name, address, and identifying
number of the partnership.
Item C. If the partnership is filing its return electronically, enter
"e-file." Otherwise, enter the name of the IRS Service Center where
the partnership will file its return. See Where To File, earlier.

Part II. Information About the Partner

Complete a Schedule K-1 for each partner. On each Schedule K-1,
enter the partner's name, address, identifying number, and
distributive share items. See special rules below for partners that are
DEs.

Item I1. What Type of Entity Is This Partner?

State whether the partner is an individual, a corporation, an estate, a
trust, a partnership, a DE, an exempt organization, a foreign
government, or a nominee (custodian). If the partner is an LLC and
has elected to be treated as other than a DE under Regulations
section 301.7701-3 for federal income tax purposes, the partnership
must enter the LLC's classification for federal income tax purposes
(that is, a corporation or partnership). If any legal owner of the
partnership is a DE for federal income tax purposes, report the
beneficial owner’s entity type in item I1. If the partner is a nominee,
use one of the following codes after the word “nominee” to indicate
the type of entity the nominee represents: I—Individual;
C—Corporation; F—Estate or Trust; P—Partnership;
DE—Disregarded Entity; E—Exempt Organization; IRA—Individual
Retirement Arrangement; or FGOV—Foreign Government. If the
partner is a nominee that acts on behalf of more than one person,
use code M—Multiple.

Items E and F

For an individual partner, enter the partner's SSN or individual
taxpayer identification number (ITIN) rather than the TIN of the DE
partner. For all other partners, enter the partner's EIN.
However, if a partner is an IRA, enter the identifying number of
the custodian of the IRA. Do not enter the identification number of
the person for whom the IRA is maintained. If the partnership reports
unrelated business taxable income to such IRA partner, include the
IRA partner's unique EIN on line 20, code AH, along with the amount
of such income.
Foreign partners without a U.S. identifying number should be
notified by the partnership of the necessity of obtaining a U.S.
identifying number. Certain aliens who aren't eligible to obtain SSNs
can apply for an ITIN on Form W-7, Application for IRS Individual
Taxpayer Identification Number.
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Instructions for Form 1065 (2022)

Item J. Partner's Profit, Loss, and Capital

1245 property, farming, or oil and gas property), give each partner
their share of the total pre-1976 losses from that activity for which
there existed a corresponding amount of nonrecourse liability at the
end of each year in which the losses occurred. See Form 6198,
At-Risk Limitations, and related instructions for more information.

On each line, enter the partner's percentage share of the
partnership's profit, loss, and capital as of the beginning and end of
the partnership's tax year, as determined under the partnership
agreement. If a partner's interest commences after the beginning of
the partnership's tax year, enter in the Beginning column the
percentages that existed for the partner immediately after
admission. If a partner's interest terminates before the end of the
partnership's tax year, enter in the Ending column the percentages
that existed immediately before termination.

Qualified nonrecourse financing secured by real property used in
an activity of holding real property that is subject to the at-risk rules
is treated as an amount at risk. Qualified nonrecourse financing
generally includes financing for which no one is personally liable for
repayment that is borrowed for use in an activity of holding real
property and that is loaned or guaranteed by a federal, state, or local
government or that is borrowed from a qualified person. Qualified
persons include any person actively and regularly engaged in the
business of lending money, such as a bank or savings and loan
association. Qualified persons generally don't include related parties
(unless the nonrecourse financing is commercially reasonable and
on substantially the same terms as loans involving unrelated
persons), the seller of the property, or a person who receives a fee
for the partnership's investment in the real property. See section
465(b)(6) for more information on qualified nonrecourse financing.

DRAFT AS OF
December 8, 2022

On the line for Capital, enter the percentage share of the capital
that the partner would receive if the partnership was liquidated by
the distribution of undivided interests in partnership assets and
liabilities. If the partner's capital account is negative or zero, express
the percentage ownership of capital as zero.

The partner's percentage share of each category must be
expressed as a percentage. The percentage must not be negative.
The total percentage interest in each category must total 100% for
all partners. To determine whether the total beginning and ending
percentages are 100%, do not include the beginning percentage for
a partner that wasn't a partner at the beginning of the partnership's
tax year or the ending percentage for a partner that left the
partnership before the end of the partnership's tax year. If the
partnership agreement doesn't express the partner's share of profit,
loss, and capital as fixed percentages, the partnership may use a
reasonable method in arriving at each percentage for purposes of
completing the items required by item J, as long as such method is
consistent with the partnership agreement and is applied
consistently from year to year. Maintain records to support the share
of profits, share of losses, and share of capital reported for each
partner.

The partner as well as the partnership must meet the qualified
nonrecourse rules. Therefore, the partnership must enter on an
attached statement any other information the partner needs to
determine if the qualified nonrecourse rules are also met at the
partner level.

If a partnership (upper-tier) owns a direct interest in other
partnerships (lower-tier), then Regulations section 1.752-4(a)
requires that the upper-tier partnership allocates to its partners its
share of the lower-tier partnership's liabilities (except for any liability
of the lower-tier partnership that is owed to the upper-tier
partnership). Allocate those lower-tier partnership liabilities to each
partner based on whether that liability is a recourse or nonrecourse
liability to the partner under the regulations under section 752. The
characterization of a liability may change as it moves from a
lower-tier partnership to an upper-tier partnership. If Schedule K-1
(Form 1065) includes lower-tier partnership liabilities, check the box
in item K. If the total liabilities on all Schedules K-1 (Form 1065) do
not equal the total liabilities on Schedule L, attach a reconciliation.

Check the box in this item if there was a sale or exchange of all or
part of a partnership interest to a new or pre-existing partner during
the year, regardless of whether the partner recognized gain or loss
on the transaction(s).

Item K. Partner's Share of Liabilities

Enter each partner's share of nonrecourse liabilities,
partnership-level qualified nonrecourse financing, and other
recourse liabilities at the end of the year.

Item L. Partner's Capital Account Analysis

You aren’t required to complete item L if the answer to question 4 of
Schedule B is “Yes.” If you are required to complete this item, also
see the instructions for Schedule M-2, later.

Nonrecourse liabilities are those liabilities of the partnership for
which no partner (or related person) bears the economic risk of loss.
The extent to which a partner bears the economic risk of loss is
determined under the rules of Regulations section 1.752-2. Do not
include partnership-level qualified nonrecourse financing (defined
below) on the line for nonrecourse liabilities.

Tax basis method. Figure each partner's capital account for the
partnership's tax year using the transactional approach, discussed
below, for the tax basis method.
How to report partnership events or transactions. If you are
uncertain how to report a partnership event or transaction, you
should account for the event or transaction in a manner generally
consistent with figuring the partner's adjusted tax basis in its
partnership interest (without regard to partnership liabilities), taking
into account the rules and principles of sections 705, 722, 733, and
742 and by reporting the amount on the line for other increase
(decrease). The partner's ending capital account as reported using
the tax basis method in item L might not equal the partner's adjusted
tax basis in its partnership interest. Generally, this is because a
partner's adjusted tax basis in its partnership interest includes the
partner's share of partnership liabilities, as well as partner-specific
adjustments. Each partner is responsible for maintaining a record of
the adjusted tax basis in its partnership interest.
Beginning capital account. Enter the partner's ending capital
account as determined for last year on the line for beginning capital
account. If a partner joined the partnership through a contribution to
the partnership this year, enter zero as the partner's beginning
capital account.
Capital contributed during the year. On the line for capital
contributed during the year, enter the amount of cash plus the
adjusted tax basis of all property contributed by the partner to the
partnership during the year. The amount you enter on this line
should be reduced by any liabilities assumed by the partnership in
connection with, or liabilities to which the property is subject

If the partner terminated their interest in the partnership during
the year, enter the share that existed immediately before the total
disposition. In all other cases, enter it as of the end of the year.
If the partnership is engaged in two or more different types of
at-risk activities, or a combination of at-risk activities and any other
activity, attach a statement showing the partner's share of
nonrecourse liabilities, partnership-level qualified nonrecourse
financing, and other recourse liabilities for each activity. See Pub.
925 to determine if the partnership is engaged in more than one
at-risk activity.
The at-risk rules of section 465 generally apply to any activity
carried on by the partnership as a trade or business or for the
production of income. These rules generally limit the amount of loss
and other deductions a partner can claim from any partnership
activity to the amount for which that partner is considered at risk.
However, for partners who acquired their partnership interests
before 1987, the at-risk rules don't apply to losses from an activity of
holding real property the partnership placed in service before 1987.
The activity of holding mineral property doesn't qualify for this
exception. Identify on an attached statement to Schedule K-1 the
amount of any losses that aren't subject to the at-risk rules.
If a partnership is engaged in an activity subject to the limitations
of section 465(c)(1) (such as films or videotapes, leasing section

Instructions for Form 1065 (2022)

-33-

Exception. If a partner contributes more than 10 properties with
either a built-in gain or built-in loss on any date during the tax year,
the partnership isn't required to provide the required information
separately for each property contributed for that date. Instead, the
partnership can report the (a) number of properties contributed on
that date, (b) total amount of built-in gain, and (c) total amount of
built-in loss. Do not net the built-in gains and built-in losses; instead,
show the total built-in gain and total built-in loss for all properties
contributed on that date.

immediately before, the contribution. This amount might be
negative.
Current year net income (loss). On the line for current year
net income (loss), enter the partner's distributive share of
partnership income and gain (including tax-exempt income) as
figured for tax purposes for the year, minus the partner's distributive
share of partnership loss and deductions (including nondeductible,
noncapital expenditures) as figured for tax purposes for the year.
Other increase (decrease). On the line for other increase
(decrease), enter the sum of all other increases or decreases that
affected the partner's capital account for tax purposes during the
year and attach a statement explaining each adjustment. For
example, if a new partner acquired its interest in the partnership from
another partner in a purchase, exchange, gift, or inheritance, enter
an amount for the transferee under other increase that is equal to the
transferor partner's ending capital account with respect to the
interest transferred immediately before the transfer figured using the
tax basis method. Other examples of increases include the
following.
• The partner's distributive share of the excess of the tax
deductions for depletion (other than oil and gas depletion) over the
adjusted tax basis of the property subject to depletion.
• The partner's share of any increase to the adjusted tax basis of
partnership property under section 734(b).
If a transferor partner disposed of its interest in the partnership by
sale, exchange, or gift, or as the result of death, enter the transferor
partner's ending capital account with respect to the interest
transferred immediately before the transfer figured using the tax
basis method. Other examples of decreases include the following.
• The partner's distributive share of tax deductions for depletion of
any partnership oil and gas property, but not exceeding the partner's
share of the adjusted tax basis of that property.
• The partner's share of any decrease to the adjusted tax basis of
partnership property under section 734(b).

DRAFT AS OF
December 8, 2022

A property's built-in gain is the amount by which the FMV of the
property exceeds its adjusted tax basis at the time the property is
contributed to the partnership. A property's built-in loss is the
amount by which the FMV of the property is less than its adjusted
tax basis at the time the property is contributed to the partnership.
Partnerships are required to keep track of this information (see
Regulations section 1.704-3). This information is also needed for
purposes of allocating partnership items to partners because
income, gain, loss, and deductions related to property contributed to
the partnership by a partner must be shared among the partners so
as to take account of the variation between the basis of the property
to the partnership and its FMV at the time of contribution. If the
partnership distributes any property (other than built-in gain
property) to a partner that has contributed built-in gain property to
the partnership within the last 7 years, it will need this information for
the attached statement required in the instructions for line 19b of
Schedule K for distributions subject to section 737 (code B). If the
partnership distributes contributed property with a built-in gain or
loss to any partner other than the partner that contributed the
property and the date of the distribution is within 7 years of the date
the property was contributed to the partnership, it will need this
information for the attached statement required by the instructions
for line 20c of Schedule K for the precontribution gain (loss) (code
W).

Item N. Partner's Share of Net Unrecognized
Section 704(c) Gain or (Loss)

Note. Section 743(b) basis adjustments are not taken into account
in calculating a partner's capital account under the tax basis method.
Withdrawals and distributions. On the line for withdrawals and
distributions, enter the amount of cash plus the adjusted tax basis of
all property distributed by the partnership to the partner during the
year. The amount you enter on this line should be reduced by any
liabilities assumed by the partner in connection with, or liabilities to
which the property is subject immediately before, the distribution.
This amount might be negative.
Ending capital account. The sum of the amounts shown on the
lines in item L above the line for ending capital account must equal
the amount reported on the line for ending capital account. A
partner's ending capital account determined under the tax basis
method may be negative if the sum of a partner's losses and
distributions exceeds the sum of the partner's contributions and
share of income.

For item N, the partnership should report the partner's share of net
unrecognized section 704(c) gains or losses, both at the beginning
and at the end of the partnership's tax year. Solely for purposes of
completing item N, the section 704(c) gain or loss is the partner's
share of the net (net means aggregate or sum) of all unrecognized
section 704(c) gain or loss in partnership property, including section
704(c) gain or loss arising from revaluations of partnership property.
See Notice 2019-66 for more information.

Specific Instructions (Schedules K
and K-1, Part III, Except as Noted)

These instructions refer to the lines on Schedule K and the boxes on
Schedule K-1.

Publicly traded partnerships (PTPs). In the case of a sale or
exchange of an interest in a PTP, you may determine a transferee
partner's beginning capital account by adjusting the partner's
beginning capital account to reflect the transferee partner's
purchase price of the interest rather than entering the transferor
partner's ending capital account. In making the adjustments, you
may use information required to be reported to you under
Regulations section 1.6031(c)-1T, and publicly available trading
price information.

Special Allocations

An item is specially allocated if it is allocated to a partner in a ratio
different from the ratio for sharing income or loss generally.
Report specially allocated ordinary gain (loss) on Schedule K,
line 11, and in box 11 of Schedule K-1. Report other specially
allocated items in the applicable boxes of the partner's
Schedule K-1, with the total amount on the applicable line of
Schedule K. See How Income Is Shared Among Partners, earlier.
Example. A partnership has a long-term capital gain that is
specially allocated to a partner and a net long-term capital gain
reported on line 15 of Schedule D (Form 1065) that must be
reported on line 9a of Schedule K. Because specially allocated
gains or losses aren't reported on Schedule D, the partnership must
report both the net long-term capital gain from Schedule D and the
specially allocated gain on line 9a of Schedule K. Box 9a of the
Schedule K-1 for the partner must include both the specially
allocated gain and the partner's distributive share of the net
long-term capital gain from Schedule D.

Item M. Did the Partner Contribute Property
With a Built-in Gain or Loss?

Check the appropriate box to indicate whether the partner
contributed property with a built-in gain or loss during the tax year. If
the “Yes” box is checked, attach a statement that contains the
following information.
• A description of each property the partner contributed.
• The date the property was contributed.
• The amount of the property's built-in gain or loss.

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Instructions for Form 1065 (2022)

• Payments the partnership must capitalize. See the instructions for
Form 1065, line 10.

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

Generally, amounts reported on line 4a as guaranteed payment
for services and line 4b as guaranteed payment for the use of capital
aren't considered to be related to a passive activity. For example,
guaranteed payments for personal services paid to a partner would
not be passive activity income. Likewise, guaranteed payments for
capital are treated as interest for purposes of section 469 and are
generally not passive activity income.

Enter the amount from page 1, line 22. Enter the income (loss)
without reference to (a) the basis of the partners' interests in the
partnership, (b) the partners' at-risk limitations, or (c) the passive
activity limitations. These limitations, if applicable, are determined at
the partner level.

DRAFT AS OF
December 8, 2022

Line 1 should not include rental activity income (loss) or portfolio
income (loss).

A partnership must treat and report a transfer of partnership

TIP property to a partner in satisfaction of a guaranteed payment

Schedule K-1. Enter each partner's distributive share of ordinary
business income (loss) in box 1 of Schedule K-1. Identify on
statements attached to Schedule K-1 any additional information the
partner needs to correctly apply the passive activity limitations. For
example, if the partnership has more than one trade or business
activity, identify on an attached statement to Schedule K-1 the
amount from each separate activity. See Passive Activity Reporting
Requirements, earlier.

as a sale or exchange, and not a distribution. See Rev. Rul.
2007-40, 2007-25 I.R.B. 1426, for more details.

Schedule K-1. Enter each partner's guaranteed payments for
services in box 4a and guaranteed payments for use of capital in
box 4b of Schedule K-1. Report each partner's total guaranteed
payments in box 4c of Schedule K-1.

Portfolio Income

Line 2. Net Rental Real Estate Income (Loss)

See Portfolio Income, earlier, for a definition of portfolio income.

Enter the net income (loss) from rental real estate activities of the
partnership from Form 8825. Attach this form to Form 1065.

Do not reduce portfolio income by deductions allocated to it.
Report such deductions (other than interest expense) on line 13d of
Schedule K. Report each partner's distributive share of deductions
(other than interest) allocable to portfolio income in box 13 of
Schedule K-1 using code I or L.

Schedule K-1. Enter each partner's distributive share of net rental
real estate income (loss) in box 2 of Schedule K-1. Identify on
statements attached to Schedule K-1 any additional information the
partner needs to correctly apply the passive activity limitations. For
example, if the partnership has more than one rental real estate
activity, identify the amount attributable to each activity. Also, for
example, identify certain items from any rental real estate activities
that may be subject to the recharacterization rules. See Passive
Activity Reporting Requirements, earlier.

Interest expense allocable to portfolio income is generally
investment interest expense reported on line 13b of Schedule K.
Report each partner's distributive share of interest expense
allocable to portfolio income in box 13 of Schedule K-1 using code
H.

Line 3. Other Net Rental Income (Loss)

Line 5. Interest Income

Enter on line 3a gross income from rental activities other than those
reported on Form 8825. Include on line 3a gain (loss) from line 17 of
Form 4797 that is attributable to the sale, exchange, or involuntary
conversion of an asset used in a rental activity other than a rental
real estate activity.

Enter only taxable portfolio interest on this line. Taxable interest is
interest from all sources except interest exempt from tax and interest
on tax-free covenant bonds. Include interest income from the credit
to holders of tax credit bonds. See the instructions for Other credits
(code P) under Line 15f. Other Credits, later, and the Instructions for
Form 8912 for details.

Enter on line 3b the deductible expenses of the activity. Attach a
statement of these expenses to Form 1065.

Schedule K-1. Enter each partner's distributive share of interest
income in box 5 of Schedule K-1. If the partnership is reporting
interest income from clean renewable energy bonds, attach a
statement to Schedule K-1 that shows each partner's distributive
share of interest income from this credit. Partners need this
information to properly adjust the basis of their interest in the
partnership.

Enter on line 3c the net income (loss).
See Rental Activities, earlier, and Pub. 925 for more information
on rental activities.
Schedule K-1. Enter each partner's distributive share of net
income (loss) from rental activities other than rental real estate
activities in box 3 of Schedule K-1. Identify on statements attached
to Schedule K-1 any additional information the partner needs to
correctly apply the passive activity limitations. For example, if the
partnership has more than one rental activity reported in box 3,
identify on an attached statement to Schedule K-1 the amount from
each activity. See Passive Activity Reporting Requirements, earlier.

Line 6a. Ordinary Dividends
Enter only taxable ordinary dividends on line 6a, including any
qualified dividends reported on line 6b. Do not include any dividend
equivalents reported on line 6c, or, to the extent attributable to
previously taxed earnings and profits (PTEP) in annual PTEP
accounts of the partnership, any distributions received by the
partnership from foreign corporations.

Line 4. Guaranteed Payments to Partners

Note. The amount determined by the partnership based on its
annual PTEP accounts in determining the amount on line 6a does
not include the amount by which distributions are attributable to
PTEP in annual PTEP accounts of a direct or indirect partner.

Guaranteed payments are payments made by a partnership to a
partner that are determined without regard to the partnership's
income. Some examples of guaranteed payments to partners
include:
• Payments for salaries, health insurance, and interest deducted by
the partnership and reported on Form 1065, page 1, line 10; Form
8825; or Schedule K, line 3b;
• Compensation deferred under a section 409A nonqualified
deferred compensation plan that doesn't meet the requirements of
section 409A reported on line 20c of Schedule K; and

Instructions for Form 1065 (2022)

Schedule K-1. Enter each partner's distributive share of ordinary
dividends in box 6a of Schedule K-1.

-35-

Line 6b. Qualified Dividends

!

Enter qualified dividends on line 6b. Except as provided below,
qualified dividends are dividends received from domestic
corporations and qualified foreign corporations. Do not include any
distributions received by the partnership from foreign corporations to
the extent that they are attributable to PTEP in annual PTEP
accounts of the partnership.

CAUTION

If any amounts from line 6b are from foreign sources, see
the instructions for Schedules K-2 and K-3 for additional
information.

Line 6c. Dividend Equivalents
Information on dividend equivalents, as described in section 871(m),
is provided for persons that are not U.S. persons, who are generally
required to treat dividend equivalents as U.S.-source dividends, and
domestic partnerships with partners who may need this information.
Enter the amount of dividend equivalents as defined in section
871(m). See Regulations section 1.871-15 for additional information.
For purposes of line 6c, include all amounts that would be included
as a dividend equivalent if the amount were paid to a person subject
to tax under section 871 or 881, even if the partner is a U.S. person.

DRAFT AS OF
December 8, 2022

Note. The amount determined by the partnership based on its
annual PTEP accounts in determining the amount on line 6b does
not include the amount by which distributions are attributable to
PTEP in annual PTEP accounts of a direct or indirect partner.

Exceptions. The following dividends aren't qualified dividends.
• Dividends the partnership received on any share of stock held for
less than 61 days during the 121-day period that began 60 days
before the ex-dividend date. When determining the number of days
the partnership held the stock, don't count certain days during which
the partnership's risk of loss was diminished. The ex-dividend date
is the first date following the declaration of a dividend on which the
purchaser of a stock isn't entitled to receive the next dividend
payment. When counting the number of days the partnership held
the stock, include the day the partnership disposed of the stock but
not the day the partnership acquired it.
• Dividends attributable to periods totaling more than 366 days that
the partnership received on any share of preferred stock held for
less than 91 days during the 181-day period that began 90 days
before the ex-dividend date. When determining the number of days
the partnership held the stock, do not count certain days during
which the partnership's risk of loss was diminished. Preferred
dividends attributable to periods totaling less than 367 days are
subject to the 61-day holding period rule above.
• Dividends that relate to payments that the partnership is obligated
to make because of short sales or positions in substantially similar or
related property.
• Dividends paid by a RIC that aren't treated as qualified dividend
income under section 854.
• Dividends paid by a REIT that aren't treated as qualified dividend
income under section 857(c).
• Dividends from a corporation which first became a surrogate
foreign corporation (as defined in section 7874(a)(2)(B) after
December 22, 2017) other than a foreign corporation that is treated
as a domestic corporation under section 7874(b). See section 1(h)
(11)(C)(iii)(II).
See Pub. 550 for more details.

Line 7. Royalties

Enter the royalties received by the partnership.

Schedule K-1. Enter each partner's distributive share of royalties
in box 7 of Schedule K-1.

Line 8. Net Short-Term Capital Gain (Loss)
Enter the gain (loss) that is portfolio income (loss) from Schedule D
(Form 1065), line 7.
Schedule K-1. Enter each partner's distributive share of net
short-term capital gain (loss) in box 8 of Schedule K-1.

Line 9a. Net Long-Term Capital Gain (Loss)
Enter the gain or loss that is portfolio income (loss) from Schedule D
(Form 1065), line 15.
Schedule K-1. Enter each partner's distributive share of net
long-term capital gain (loss) in box 9a of Schedule K-1.
If any gain or loss from line 7 or 15 of Schedule D is from the
disposition of nondepreciable personal property used in a
CAUTION trade or business, it may not be treated as portfolio income.
Instead, report it on line 11 of Schedule K and report each partner's
distributive share in box 11 of Schedule K-1 using code I.

!

Qualified foreign corporation. A foreign corporation is a qualified
foreign corporation if it is:
1. Incorporated in a possession of the United States, or
2. Eligible for benefits of a comprehensive income tax treaty
with the United States that the Secretary determines is satisfactory
for this purpose and that includes an exchange of information
program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.

Line 9b. Collectibles (28%) Gain (Loss)
Figure the amount attributable to collectibles from the amount
reported on Schedule D (Form 1065), line 15. A collectibles gain
(loss) is any long-term gain or deductible long-term loss from the
sale or exchange of a collectible that is a capital asset.
Collectibles include works of art, rugs, antiques, metal (such as
gold, silver, or platinum bullion), gems, stamps, coins, alcoholic
beverages, and certain other tangible property.

If the foreign corporation doesn't meet either (1) or (2) above,
then it may be treated as a qualified foreign corporation for any
dividend paid by the corporation if the stock associated with the
dividend paid is readily tradable on an established securities market
in the United States.
However, qualified dividends don't include dividends paid by an
entity that was a PFIC (defined in section 1297) in either the tax year
of the distribution or the preceding tax year.
See Notice 2004-71, 2004-45 I.R.B. 793, for more details.

Also, include gain (but not loss) from the sale or exchange of an
interest in a partnership or trust held for more than 1 year and
attributable to unrealized appreciation of collectibles. For details,
see Regulations section 1.1(h)-1. Also attach the statement required
under Regulations section 1.1(h)-1(e).
Schedule K-1. Report each partner's distributive share of the
collectibles (28%) gain (loss) in box 9b of Schedule K-1.

Schedule K-1. Enter each partner's distributive share of qualified
dividends in box 6b of Schedule K-1.
Attach a statement to the Schedule K-1 identifying the dividends
included in box 6a or box 6b that are eligible for the deduction for
dividends received under section 243(a), (b), or (c); section 245; or
section 245A; or are hybrid dividends as defined in section 245A(e)
(4).

Line 9c. Unrecaptured Section 1250 Gain
The three types of unrecaptured section 1250 gain must be reported
separately on an attached statement to Form 1065.
From the sale or exchange of the partnership's business assets. Figure this amount in Part III of Form 4797 for each section
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Instructions for Form 1065 (2022)

gain (loss) from each separate activity. See Passive Activity
Reporting Requirements, earlier.

1250 property (except property for which gain is reported using the
installment method on Form 6252) for which you had an entry in Part
I of Form 4797. Subtract line 26g of Form 4797 from the smaller of
line 22 or line 24. Figure the total of these amounts for all section
1250 properties. Generally, the result is the partnership's
unrecaptured section 1250 gain. However, if the partnership is
reporting gain on the installment method for a section 1250 property
held more than 1 year, see the next paragraph.
The total unrecaptured section 1250 gain for an installment sale
of section 1250 property held more than 1 year is figured in a
manner similar to that used in the preceding paragraph. However,
the total unrecaptured section 1250 gain must be allocated to the
installment payments received from the sale. To do so, the
partnership must generally treat the gain allocable to each
installment payment as unrecaptured section 1250 gain until all such
gain has been used in full. Figure the unrecaptured section 1250
gain for installment payments received during the tax year as the
smaller of (a) the amount from line 26 or line 37 of Form 6252
(whichever applies), or (b) the total unrecaptured section 1250 gain
for the sale reduced by all gain reported in prior years (excluding
section 1250 ordinary income recapture).

!

CAUTION

If any amounts from line 10 are from foreign sources, see
the instructions for Schedules K-2 and K-3 for additional
information.

Line 11. Other Income (Loss)

DRAFT AS OF
December 8, 2022

Enter any other item of income or loss not included on lines 1
through 10. On the line to the left of the entry space for line 11,
identify the type of income. If there is more than one type of income,
attach a statement to Form 1065 that separately identifies each type
and amount of income for each of the following categories. The
codes needed for Schedule K-1 reporting are provided for each
category.

Other portfolio income (loss) (code A). Portfolio income not
reported on lines 5 through 10.
Report and identify other portfolio income or loss on an attached
statement for line 11.
For example, income reported to the partnership from a REMIC,
in which the partnership is a residual interest holder, would be
reported on an attached statement for line 11. If the partnership
holds a residual interest in a REMIC, report on the attached
statement for box 11 of Schedule K-1 the partner's share of the
following.
• Taxable income (net loss) from the REMIC (line 1b of Schedules
Q (Form 1066)).
• Excess inclusion (line 2c of Schedules Q (Form 1066)).
• Section 212 expenses (line 3b of Schedules Q (Form 1066)). Do
not report these section 212 expense deductions related to portfolio
income on Schedules K and K-1.
Because Schedule Q (Form 1066) is a quarterly statement, the
partnership must follow the Schedule Q instructions to figure the
amounts to report to partners for the partnership's tax year.

If the partnership chose not to treat all of the gain from
payments received after May 6, 1997, and before August
CAUTION 24, 1999, as unrecaptured section 1250 gain, use only the
amount the partnership chose to treat as unrecaptured section 1250
gain for those payments to reduce the total unrecaptured section
1250 gain remaining to be reported for the sale. See Regulations
section 1.453-12.

!

From the sale or exchange of an interest in a partnership.
Also report as a separate amount any gain from the sale or
exchange of an interest in a partnership attributable to unrecaptured
section 1250 gain. See Regulations section 1.1(h)-1 and attach the
statement required under Regulations section 1.1(h)-1(e).
From an estate, trust, REIT, or RIC. If the partnership received a
Schedule K-1 or Form 1099-DIV from an estate, a trust, a REIT, or a
RIC reporting “unrecaptured section 1250 gain,” do not add it to the
partnership's own unrecaptured section 1250 gain. Instead, report it
as a separate amount. For example, if the partnership received a
Form 1099-DIV from a REIT with unrecaptured section 1250 gain,
report it as “Unrecaptured section 1250 gain from a REIT.”

Involuntary conversions (code B). Net gain (loss) from
involuntary conversions due to casualty or theft. The amount for this
line is shown on Form 4684, Casualties and Thefts, line 38a, 38b, or
39.
Each partner's share must be entered on Schedule K-1. Give
each partner a schedule that shows the amounts to be reported on
the partner's Form 4684, 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, notify
the partner. The partnership should not complete Form 4684 for this
type of casualty or theft. Instead, each partner will complete their
own Form 4684.

Schedule K-1. Report each partner's distributive share of
unrecaptured section 1250 gain from the sale or exchange of the
business assets in box 9c of Schedule K-1. If the partnership is
reporting unrecaptured section 1250 gain from an estate, a trust, a
REIT, or a RIC, or from the partnership's sale or exchange of an
interest in another partnership (as explained above), enter “STMT”
in box 9c and an asterisk (*) in the left column of the box, and attach
a statement that separately identifies the amount of unrecaptured
section 1250 gain from the following.
• The sale or exchange of the partnership's business assets.
• The sale or exchange of an interest in another partnership.
• An estate, a trust, a REIT, or a RIC.

!

CAUTION

Section 1256 contracts and straddles (code C). Report any net
gain or loss from section 1256 contracts from Form 6781, Gains and
Losses From Section 1256 Contracts and Straddles.
Mining exploration costs recapture (code D). Provide the
information partners need to recapture certain mining exploration
expenditures. See Regulations section 1.617-3.

If any amounts from line 9c are from foreign sources, see
the instructions for Schedules K-2 and K-3 for additional
information.

Cancellation of debt (code E). If cancellation of debt is reported
to the partnership on Form 1099-C, report each partner's distributive
share in box 11 using code E. Amounts related to forgiven PPP
loans are disregarded for purposes of this question.

Line 10. Net Section 1231 Gain (Loss)

Include the amount of income the partnership must

Enter the net section 1231 gain (loss) from Form 4797, line 7.

TIP recognize for a transfer of a partnership interest in

satisfaction of a partnership debt when the debt relieved
exceeds the FMV of the partnership interest. See section 108(e)(8)
for more information.

Do not include net gain or loss from involuntary conversions due
to casualty or theft. Report net gain or loss from involuntary
conversions due to casualty or theft on line 11 of Schedule K
(box 11, code B, of Schedule K-1). See the instructions for line 11 on
how to report net gain (loss) due to a casualty or theft.

Section 743(b) positive income adjustments (code F). For
partnerships other than PTPs, report the partner's share of net
positive income resulting from all section 743(b) adjustments. For
purposes of code F, net positive income from all section 743(b)
adjustments means the excess of all section 743(b) adjustments

Schedule K-1. Report each partner's distributive share of net
section 1231 gain (loss) in box 10 of Schedule K-1. If the partnership
has more than one rental, trade, or business activity, identify on an
attached statement to Schedule K-1 the amount of section 1231

Instructions for Form 1065 (2022)

-37-

• Any gain or loss from line 7 or 15 of Schedule D (Form 1065) that
isn't portfolio income (for example, gain or loss from the disposition
of nondepreciable personal property used in a trade or business).
• Gain from the sale or exchange of qualified small business (QSB)
stock (as defined in the Instructions for Schedule D) that is eligible
for the section 1202 exclusion. The section 1202 exclusion applies
only to QSB stock held by the partnership for more than 5 years.
Corporate partners aren't eligible for the section 1202 exclusion.
Additional limitations apply at the partner level. Report each
partner's share of section 1202 gain on Schedule K-1. Each partner
will determine if they qualify for the section 1202 exclusion. Report
on an attached statement to Schedule K-1 for each sale or
exchange (a) the name of the corporation that issued the QSB stock,
(b) the partner's share of the partnership's adjusted basis and sales
price of the QSB stock, and (c) the dates the QSB stock was bought
and sold.
• Gain eligible for section 1045 rollover (replacement stock
purchased by the partnership). Include only gain from the sale or
exchange of QSB stock (as defined in the Instructions for
Schedule D) that was deferred by the partnership under section
1045 and reported on Form 8949 and/or Schedule D. See the
Instructions for Schedule D, and the Instructions for Form 8949 for
more details. The partnership makes the election for section 1045
rollover on a timely filed (including extensions) return for the year in
which the sale occurred. Corporate partners aren't eligible for the
section 1045 rollover. Additional limitations apply at the partner
level. Each partner will determine if they qualify for the rollover.
Report on an attached statement to Schedule K-1 for each sale or
exchange (a) the name of the corporation that issued the QSB stock,
(b) the partner's share of the partnership's adjusted basis and sales
price of the QSB stock, (c) the dates the QSB stock was bought and
sold, (d) the partner's distributive share of gain from the sale of the
QSB stock, and (e) the partner's distributive share of the gain that
was deferred by the partnership under section 1045. Only report
these amounts on Schedule K-1; don’t include on line 11 of
Schedule K.
• Gain eligible for section 1045 rollover (replacement stock not
purchased by the partnership). Include only gain from the sale or
exchange of QSB stock (as defined in the Instructions for
Schedule D) the partnership held for more than 6 months but that
wasn't deferred by the partnership under section 1045. See the
Instructions for Schedule D for more details. A partner (other than a
corporation) may be eligible to defer their distributive share of this
gain under section 1045 if the partner purchases other QSB stock
during the 60-day period that began on the date the QSB stock was
sold by the partnership. Additional limitations apply at the partner
level. Report on an attached statement to Schedule K-1 for each
sale or exchange (a) the name of the corporation that issued the
QSB stock, (b) the partner's share of the partnership's adjusted
basis and sales price of the QSB stock, (c) the dates the QSB stock
was bought and sold, and (d) the partner's distributive share of gain
from the sale of the QSB stock.
For more information, see Regulations section 1.1045-1. Only
report these amounts on Schedule K-1; don’t include on line 11 of
Schedule K.
Distribution of replacement QSB stock to a partner that
reduces the interest of another partner in replacement QSB
stock. A partner must recognize gain upon a distribution of
replacement QSB stock to another partner that reduces the partner's
share of the replacement QSB stock held by a partnership. The
amount of gain that the partner must recognize is based on the
amount of gain that the partner would recognize upon a sale of the
distributed replacement QSB stock for its FMV on the date of the
distribution, not to exceed the amount that the partner previously
deferred under section 1045 related to the distributed replacement
QSB stock. If the partnership distributed a partner's share of
replacement QSB stock to another partner, the partnership must
give the partner whose share of the replacement QSB stock is
reduced (a) the name of the corporation that issued the replacement
QSB stock, (b) the date the replacement QSB stock was distributed
to another partner or partners, and (c) the partner's share of the
partnership's adjusted basis and FMV of the replacement QSB stock
on such date.

allocated to the partner that increase the partner's taxable income
over all section 743(b) adjustments that decrease the partner's
taxable income. Attach a statement to line 20, code U, showing each
section 743(b) basis adjustment making up the total and identify the
assets to which it relates. The partnership may group these 743(b)
basis adjustments by asset category or description in cases where
multiple assets are affected. See the instructions for line 20, code U.
Reserved for future use (code G).

DRAFT AS OF
December 8, 2022

Section 951(a) income inclusions (code H). If the partnership is
a domestic partnership, enter any section 951(a) income inclusions
of the domestic partnership. A domestic partnership may only have
section 951(a) income inclusions with respect to a foreign
corporation and a tax year of the foreign corporation that begins
before January 25, 2022, if the domestic partnership (i) does not
apply Regulations section 1.958-1(d)(1) through (3) to such tax year
to be treated as not owning stock of the foreign corporation within
the meaning of section 958(a) for purposes of section 951, and (ii) is
a U.S. shareholder of the foreign corporation during such tax year. A
domestic partnership does not have section 951(a) income
inclusions with respect to a foreign corporation for tax years of the
foreign corporation that begin on or after January 25, 2022, under
Regulations section 1.958-1(d)(1). Additionally, if the partnership,
domestic or foreign, has a distributive share of section 951(a)
income inclusions of a lower-tier partnership, enter the partnership's
distributive share of the section 951(a) income inclusions. If the
partnership does not have a section 951(a) income inclusion with
respect to a foreign corporation stock of which it owns within the
meaning of section 958(a) and without regard to Regulations section
1.958-1(d), see Schedule K-2, Part VI, for reporting of information
with respect to section 951(a) income inclusions of certain partners
with respect to the foreign corporation. Attach a statement to the
Schedule K-1 identifying the section 951(a) income inclusions
attributable to the sale or exchange by a CFC of stock in another
foreign corporation described in section 964(e)(4) or attributable to
hybrid dividends of tiered corporations under section 245A(e)(2).

Other income (loss) (code I). Include any other type of income,
such as the following.
• The partner's distributive share of the partnership's 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). On an
attached statement, show (a) the gain or loss attributable to the sale
or exchange of the qualified preferred stock, (b) the date the stock
was acquired by the partnership, and (c) the date the stock was sold
or exchanged by the partnership. See Rev. Proc. 2008-64, 2008-47
I.R.B. 1195, for more information.
• Recoveries of tax benefit items (section 111).
• Gambling gains and losses subject to the limitations in section
165(d). Indicate on an attached statement whether or not the
partnership is in the trade or business of gambling.
• Disposition of an interest in oil, gas, geothermal, or other mineral
properties. Report the following information on an attached
statement to Schedule K-1.
(a) Description of the property.
(b) The partner's share of the amount realized on the sale,
exchange, or involuntary conversion of each property (FMV of the
property for any other disposition, such as a distribution).
(c) The partner's share of the partnership's adjusted basis in the
property (except for oil or gas properties).
(d) Total intangible drilling costs, development costs, and mining
exploration costs (section 59(e) expenditures) passed through to the
partner for the property.
See Regulations section 1.1254-5 for more information.
• Gains from the disposition of farm recapture property (see Form
4797) and other items to which section 1252 applies.
• Any income, gain, or loss to the partnership under section 751(b).
When a partnership makes a distribution and the partnership holds
section 751 property, if any partner has any gain or loss under
section 751(b), the partnership must report the net of all such gains
or losses.
• Specially allocated ordinary gain (loss).
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Instructions for Form 1065 (2022)

rules apply in addition to the filing requirements for Form 8283,
Noncash Charitable Contributions, described below.

Schedule K-1. Enter each partner's distributive share of the other
income categories listed earlier in box 11 of Schedule K-1. Enter the
applicable code A, B, C, D, E, F, H, or I (as shown earlier).
If you are reporting each partner's distributive share of only one
type of income under code I, enter the code with an asterisk (I*) and
the dollar amount in the entry space in box 11 and attach a
statement that shows “Box 11, Code I” and the type of income. If you
are reporting multiple types of income under code I, enter the code
with an asterisk (I*) and enter “STMT” in the entry space in box 11
and attach a statement that shows “Box 11, Code I” and the dollar
amount of each type of income.
If the partnership has more than one trade or business or rental
activity (for codes B through F, H, and I), identify on an attached
statement to Schedule K-1 the amount from each separate activity.
See Passive Activity Reporting Requirements, earlier.

Cash contributions of any amount must be supported by a dated
bank record or receipt.
Enter charitable contributions made during the tax year. Attach a
statement to Form 1065 that separately identifies the partnership's
contributions for each of the following categories. See Limits on
Deductions in Pub. 526, Charitable Contributions, for information on
adjusted gross income (AGI) limitations on deductions for charitable
contributions.

DRAFT AS OF
December 8, 2022

The codes needed for Schedule K-1 reporting are provided for
each category.

Cash contributions (60%) (code A). Enter cash contributions
subject to the 60% AGI limitation. Don’t include in the amount
reported using code A the cash contributions reported using code G.

Deductions
Line 12. Section 179 Deduction

Cash contributions (30%) (code B). Enter cash contributions
subject to the 30% AGI limitation.

A partnership can elect to expense part or all of the cost of certain
property the partnership purchased during the tax year for use in its
trade or business (including certain rental activities, if the renting of
the property is the partnership’s trade or business). See Pub. 946 for
a definition of what kind of property qualifies for the section 179
expense deduction and the Instructions for Form 4562 for limitations
on the amount of the section 179 expense deduction.

Noncash contributions (50%) (code C). Enter noncash
contributions subject to the 50% AGI limitation.
Qualified conservation contributions. The AGI limit for
qualified conservation contributions under section 170(h) is 50%.
The carryover period is 15 years. See section 170(b) and Notice
2007-50, 2007-25 I.R.B. 1430, for details. Report qualified
conservation contributions with a 50% AGI limitation in box 13 of
Schedule K-1 using code C. Do not include in the amount reported
using code C the conservation contributions of property used in
agriculture or livestock production reported on Schedule K-1 using
code G.
Charitable contributions of food inventory. Attach a
statement to Schedule K-1 that shows the following.
• The partner's distributive share of the amount of the charitable
contributions made under section 170(e)(3) for qualified inventory
that was donated to charitable organizations for the care of the ill,
needy, and infants. The food must meet all the quality and labeling
standards imposed by federal, state, and local laws and regulations.
The amount of the charitable contribution for donated food inventory
is the lesser of (a) the basis of the donated food plus one-half of the
appreciation (gain if the donated food was sold at FMV on the date
of the gift), or (b) twice the amount of basis of the donated food. A
partnership that doesn't account for inventories and isn't required to
capitalize indirect costs under section 263A may elect to treat the
basis of the donated food as equal to 25% of the FMV of the food.
See section 170(e)(3)(C) for more details.
• The partner's distributive share of the net income for the tax year
from the partnership's trades or businesses that made the
contribution of food inventory.

Complete Part I of Form 4562 to figure the partnership's section
179 expense deduction. The partnership doesn't take the deduction
itself but instead passes it through to the partners. Attach Form 4562
to Form 1065 and show the total section 179 expense deduction on
Schedule K, line 12.
The partnership must reduce the basis of the asset by the
amount of the section 179 expense elected by the partnership, even
if a portion of that amount cannot be passed through to its partners
that year and must be carried forward because of limitations at the
partnership level. Do not reduce the partnership's basis in section
179 property to reflect any portion of the section 179 expense that is
allocable to a partner that is a trust or estate.
Identify on an attached statement to Schedules K and K-1 the
cost of section 179 property placed in service during the year that is
a qualified enterprise zone property. See the Instructions for Form
4562 for more details.
See the instructions for line 20c of Schedule K for sales or other
dispositions of property for which a section 179 deduction has
passed through to partners and for the recapture rules if the
business use of the property dropped to 50% or less.
Schedule K-1. Report each partner's distributive share of the
section 179 expense deduction in box 12 of Schedule K-1. If the
partnership has more than one trade or business activity, identify on
an attached statement to Schedule K-1 the amount of section 179
deduction from each separate activity. See Passive Activity
Reporting Requirements, earlier.
Do not complete box 12 of Schedule K-1 for any partner that is
an estate or a trust; estates and trusts aren't eligible for the section
179 expense deduction.

Don’t include the amount of food inventory contributions in
the amount reported in box 13 using code C. These
CAUTION contributions must be reported separately on an attached
statement because partners must separately determine the
limitations on the deduction.

!

Noncash contributions (30%) (code D). Enter noncash
contributions subject to the 30% AGI limitation.

Line 13a. Contributions

Capital gain property to a 50% limit organization (30%) (code
E). Enter capital gain property contributions subject to the 30% AGI
limitation.

No deduction is allowed for any contribution of $250 or more unless
the partnership obtains a written acknowledgment from the
charitable organization that shows the amount of cash contributed,
describes any property contributed, and gives an estimate of the
value of any goods or services provided in return for the contribution.
The acknowledgment must be obtained by the due date (including
extensions) of the partnership return or, if earlier, the date the
partnership files its return. Do not attach the acknowledgment to the
partnership return, but keep it with the partnership's records. These

Contributions of property. See Contributions of Property in Pub.
526, and Pub. 561, Determining the Value of Donated Property, for
information on noncash contributions and contributions of capital
gain property. If the deduction claimed for noncash contributions
exceeds $500, complete Form 8283 and attach it to Form 1065.
If the partnership made a qualified conservation contribution
under section 170(h), also include the FMV of the underlying

Instructions for Form 1065 (2022)

Capital gain property (20%) (code F). Enter capital gain
property contributions subject to the 20% AGI limitation.

-39-

•
•
•
•

property before and after the donation, as well as the type of legal
interest contributed, and describe the conservation purpose
furthered by the donation. Give a copy of this information to each
partner.
Nondeductible contributions. Certain contributions made to an
organization conducting lobbying activities are not deductible. See
section 170(f)(9) for more details. Also, see Contributions You Can’t
Deduct in Pub. 526 for more examples of nondeductible
contributions.

Circulation expenditures.
Research and experimental expenditures.
Intangible drilling and development costs.
Mining exploration and development costs.

If a partner makes the election, these items aren't treated as
alternative minimum tax (AMT) tax preference items. Because the
partners are generally allowed to make this election, the partnership
cannot deduct these amounts or include them as AMT items on
Schedule K-1. Instead, the partnership passes through the
information the partners need to figure their separate deductions. On
line 13c(1), enter the type of expenditures claimed on line 13c(2).
Enter on line 13c(2) the qualified expenditures paid or incurred
during the tax year for which an election under section 59(e) may
apply. Enter this amount for all partners whether or not any partner
makes an election under section 59(e).

DRAFT AS OF
December 8, 2022

Contributions (100%) (code G). Use code G to report the
contributions below and, on an attached statement, provide the
following information.
Qualified conservation contributions of property used in
agriculture or livestock production. Enter qualified conservation
contributions of property used in agriculture or livestock production.
The contribution must be subject to a restriction that the property
remain available for such production. See section 170(b)(1)(E)(iv)
for details.
If the partnership is a qualified farmer or rancher (as defined in
section 170(b)(1)(E)(v)), show each partner's distributive share of
qualified conservation contributions of property used in agriculture or
livestock production. Partners will have to separately determine
whether they qualify for the 50% or 100% AGI limitation for these
contributions. Do not include the amounts reported on the attached
statement using code G in the amount reported on Schedule K-1 for
qualified conservation contributions using code C.

On an attached statement, identify the property for which the
expenditures were paid or incurred. If the expenditures were for
intangible drilling costs or development costs for oil and gas
properties, identify the month(s) in which the expenditures were paid
or incurred. If there is more than one type of expenditure or more
than one property, provide the amounts (and the months paid or
incurred if required) for each type of expenditure separately for each
property.

Schedule K-1. Report each partner's distributive share of section
59(e) expenditures in box 13 of Schedule K-1 using code J. Identify
the following on an attached statement: (a) the type of expenditure;
(b) the property for which the expenditures are paid or incurred; and
(c) for oil and gas properties only, the month in which intangible
drilling costs and development costs were paid or incurred. If there
is more than one type of expenditure or the expenditures are for
more than one property, provide each partner's distributive share of
the amounts (and the months paid or incurred for oil and gas
properties) for each type of expenditure separately for each
property.

Schedule K-1. Report each partner's distributive share of
charitable contributions in box 13 of Schedule K-1 using codes A
through F for each of the contribution categories shown above. For
code G items, report them by entering code G with an asterisk (G*)
and entering "STMT" in the dollar amount entry space for box 13 and
attach a statement that shows "Box 13, Code G" and the dollar
amount of each type of deduction. The partnership must attach a
copy of its Form 8283 to the Schedule K-1 of each partner receiving
a distributive share of the contribution deduction shown in Section A
or Section B of its Form 8283.

Line 13d. Other Deductions

Line 13b. Investment Interest Expense (Code H)

Enter deductions not included on lines 12, 13a, 13b, 13c(2), and 21.
On the line to the left of the entry space for this line, identify the type
of deduction. If there is more than one type of deduction, attach a
statement to Form 1065 that separately identifies the type and
amount of each deduction for the following categories. The codes
needed for Schedule K-1 reporting are provided for each category.

Include on this line the interest properly allocable to debt on property
held for investment purposes. Property held for investment includes
property that produces income (unless derived in the ordinary
course of a trade or business) from interest, dividends, annuities, or
royalties; and gains from the disposition of property that produces
those types of income or is held for investment.

Deductions—royalty income (code I). Enter deductions related
to royalty income.
Schedule K-1. Report each partner’s distributive share of
deductions related to royalty income.

Investment interest expense doesn't include interest expense
allocable to a passive activity.
Investment income and investment expenses other than interest
are reported on lines 20a and 20b, respectively. This information is
needed by partners to determine the investment interest expense
limitation (see Form 4952 for details).

Excess business interest expense (code K). If the partnership
is required to file Form 8990, it may determine it has excess
business interest expense. If so, enter the amount from Form 8990,
Part II, line 32, for excess business interest expense.
Schedule K-1. Provide the information the partners need to
figure excess business interest expense. In box 13, report the
partner’s distributive share of excess business interest expense. If
the partnership reports excess business interest expense, the
partner is required to file Form 8990. The partner will enter the
amount on Form 8990, Schedule A, line 43(c). See the Instructions
for Form 8990 for additional information.

Schedule K-1. Report each partner's distributive share of
investment interest expense in box 13 of Schedule K-1 using code
H.

Lines 13c(1) and 13c(2). Section 59(e)(2)
Expenditures (Code J)

Deductions—portfolio income (other) (code L). Enter any other
deductions related to portfolio income.
No deduction is allowed under section 212 for expenses
allocable to a convention, seminar, or similar meeting. Because
these expenses aren't deductible by partners, the partnership
doesn't report these expenses on line 13d of Schedule K. The
expenses are nondeductible and are reported as such on line 18c of
Schedule K and in box 18 of Schedule K-1 using code C.
Schedule K-1. In box 13, report the partner's distributive share
of deductions related to portfolio income that are reported on

Generally, section 59(e) allows each partner to make an election to
deduct their distributive share of the partnership's otherwise
deductible qualified expenditures ratably over 10 years (3 years for
circulation expenditures). The deduction is taken beginning with the
tax year in which the expenditures were made (or for intangible
drilling and development costs, over the 60-month period beginning
with the month in which such costs were paid or incurred).
The term “qualified expenditures” includes only the following
types of expenditures paid or incurred during the tax year.
-40-

Instructions for Form 1065 (2022)

• Any penalty on early withdrawal of savings not reported on
line 13b because the partnership withdrew its time savings deposit
before its maturity.
• Soil and water conservation expenditures, and endangered
species recovery expenditures (section 175).
• Expenditures paid or incurred for the removal of architectural and
transportation barriers to the elderly and disabled that the
partnership has elected to treat as a current expense. See section
190.
• Film, television, and theatrical production expenses. The
partnership can elect to deduct certain costs of a qualified film,
television, or live theatrical production commencing before January
1, 2026 (after December 31, 2015, and before January 1, 2026, for a
live theatrical production), limited to $15 million of the aggregate
production cost of the production. There is a higher dollar limitation
for productions in certain areas. Provide a description of the film,
television, or theatrical production on an attached statement. If the
partnership makes the election for more than one film, television, or
theatrical production, attach a statement to Schedule K-1 that shows
each partner's distributive share of the qualified expenditures
separately for each production. The deduction is subject to
recapture under section 1245 if the election is voluntarily revoked or
the production fails to meet the requirements for the deduction. See
section 181 and the related regulations for details.
• Interest expense allocated to debt-financed distributions. See
Notice 89-35, 1989-1 C.B. 675, or Pub. 535 for more information.
• Interest paid or accrued on debt properly allocable to each
general partner's share of a working interest in any oil or gas
property (if the partner's liability isn't limited). General partners that
didn't materially participate in the oil or gas activity treat this interest
as investment interest; for other general partners, it is trade or
business interest.
• Contributions to a capital construction fund. See Pub. 595.
• Deductions—portfolio (formerly deductible by individuals under
section 67 subject to the 2% AGI floor). For partners other than
individuals, amounts that are clearly and directly allocable to
portfolio income (other than investment interest expense and section
212 expenses from a REMIC) can be deducted on those partners’
income tax returns.
Schedule K-1. Enter each partner's distributive share of the
deduction categories listed earlier in box 13 of Schedule K-1 or
provide the information required on an attached statement for the
deduction. Enter the applicable code I, K, L, M, N, O, P, R, S, V, or
W (as shown earlier).
If you are reporting only one type of deduction under code W,
enter code W with an asterisk (W*) and the dollar amount in the
entry space in box 13 and attach a statement that shows the box
number, code, and type of deduction. If you are reporting multiple
types of deductions under code W, enter the code with an asterisk
(W*), enter “STMT” in the dollar amount entry space in box 13, and
attach a statement that shows the box number, code, and dollar
amount of each type of deduction.
If the partnership has more than one trade or business activity,
identify on an attached statement to Schedule K-1 the amount for
each separate activity. See Passive Activity Reporting
Requirements, earlier.

line 13d of Schedule K using code I (for deductions related to royalty
income) or L (for other deductions related to portfolio income).
Amounts paid for medical insurance (code M). Enter amounts
paid during the tax year for insurance that constitutes medical care
for the partner (including the partner's spouse, dependents, and
children under age 27 who aren't dependents).
Educational assistance benefits (code N). Enter amounts paid
during the tax year for educational assistance benefits paid to a
partner.

DRAFT AS OF
December 8, 2022

Dependent care benefits (code O). Enter amounts paid during
the tax year for dependent care benefits paid on behalf of each
partner.

Preproductive period expenses (code P). If the partnership is
required to use an accrual method of accounting under section 447
or is prohibited from using the cash method under 448(a)(3), it must
capitalize these expenses. If the partnership is permitted to use the
cash method, enter the amount of preproductive period expenses
that qualify under section 263A(d). An election not to capitalize
these expenses must be made at the partner level. See Uniform
Capitalization Rules in Pub. 225.
Reserved for future use (code Q).

Pensions and IRAs (code R). Enter the payments for a partner to
an IRA, a qualified plan, or a SEP or SIMPLE IRA plan. If a qualified
plan is a defined benefit plan, a partner's distributive share of
payments is determined in the same manner as the partner’s
distributive share of partnership taxable income. For a defined
benefit plan, attach to the Schedule K-1 for each partner a statement
showing the amount of benefit accrued for the tax year.
Reforestation expense deduction (code S). The partnership
can elect to deduct a limited amount of its reforestation expenditures
paid or incurred during the tax year. The amount the partnership can
elect to deduct is limited to $10,000 for each qualified timber
property. See section 194(c) for a definition of reforestation
expenditures and qualified timber property. The partnership must
amortize over 84 months any amount not deducted. See the
instructions for line 20, earlier. See Notice 2006-47, 2006-20 I.R.B.
892, for details on making the election.
Schedule K-1. Enter the partner's distributive share of the
allowable reforestation expenses in box 13 of Schedule K-1 using
code S and attach a statement that provides a description of the
qualified timber property. If the partnership is electing to deduct
amounts from more than one qualified timber property, provide a
description and the amount for each property.
Codes T through U. These codes are reserved for future use.
Section 743(b) negative income adjustments (code V). For
partnerships other than PTPs, report the partner’s share of net
negative income resulting from all section 743(b) adjustments. For
purposes of code V, net negative income from all section 743(b)
adjustments means the excess of all section 743(b) adjustments
allocated to the partner that decrease partner taxable income over
all section 743(b) adjustments that increase partner taxable income.
Attach a statement on line 20, code U, showing each section 743(b)
basis adjustment making up the total and identify the assets to which
it relates. The partnership may group these 743(b) basis
adjustments by asset category or description in cases where
multiple assets are affected. See the instructions for line 20, code U.

Reserved for future use (code X).

Self-Employment
If the partnership is an options dealer or a commodities

Other deductions (code W). Include any other deductions, such
as the following.
• Amounts paid by the partnership that would be allowed as
itemized deductions on any of the partners' income tax returns if
they were paid directly by a partner for the same purpose. These
amounts include, but aren't limited to, expenses under section 212
for the production of income other than from the partnership's trade
or business. However, do not enter expenses related to portfolio
income or investment interest expense reported on line 13b of
Schedule K on this line.

Instructions for Form 1065 (2022)

TIP dealer, see section 1402(i) before completing lines 14a,

14b, and 14c, to determine the amount of any adjustment
that may have to be made to the amounts shown on the Worksheet
for Figuring Net Earnings (Loss) From Self-Employment. If the
partnership is engaged solely in the operation of a group investment
program, earnings from the operation generally aren't
self-employment earnings for either general or limited partners.
General partners. General partners' net earnings (loss) from
self-employment do not include the following.

-41-

Worksheet for Figuring Net Earnings (Loss) From Self-Employment
1a Ordinary business income (loss) (Schedule K, line 1)

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

b Net income (loss) from certain rental real estate activities (see instructions)
c Other net rental income (loss) (Schedule K, line 3c)

1a

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

1b

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

1c

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

. . . . . .

1d

DRAFT AS OF
December 8, 2022
e Combine lines 1a through 1d

2

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

Net gain from Form 4797, Part II, line 17, included on line 1a, above

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

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

1e
2

. . . . .

3a

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

3b

c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each general partner's share
of line 3c in box 14 of Schedule K-1 using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4a Guaranteed payments to partners (Schedule K, line 4c) derived from a trade or business as defined in section
1402(c) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4a

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

4b

c Subtract line 4b from line 4a. Include each general partner's share and each limited partner's share of line 4c in box 14 of Schedule K-1
using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 14a

• Dividends on any shares of stock and interest on any bonds,
debentures, notes, etc., unless the dividends or interest are received
in the course of a trade or business, such as a dealer in stocks or
securities or interest on notes or accounts receivable.
• Rentals from real estate, except rentals of real estate held for sale
to customers in the course of a trade or business as a real estate
dealer or payments for rooms or space when significant services are
provided.
• Royalty income, except royalty income received in the course of a
trade or business.
See the Instructions for Schedule SE (Form 1040) for more
information.

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

3c

4c
5

in Part II of Schedule SE (Form 1040). Enter each individual
partner's distributive share in box 14 of Schedule K-1 using code B.

Line 14c. Gross Nonfarm Income (Code C)
Enter on line 14c the partnership's gross nonfarm income from
self-employment. Individual partners need this amount to figure net
earnings from self-employment under the nonfarm optional method
in Part II of Schedule SE (Form 1040). Enter each individual
partner's share in box 14 of Schedule K-1 using code C.

Worksheet Instructions

Limited partners. Generally, a limited partner's share of
partnership income (loss) isn't included in net earnings (loss) from
self-employment. Limited partners treat as self-employment
earnings only guaranteed payments for services they actually
rendered to, or on behalf of, the partnership to the extent that those
payments are payment for those services.
However, whether a partner qualifies as a limited partner for
purposes of self-employment tax depends upon whether the partner
meets the definition of a limited partner under section 1402(a)(13).

Line 1b. Include on line 1b any part of the net income (loss) from
rental real estate activities from Schedule K, line 2, that is from:
1. Rentals of real estate held for sale to customers in the course
of a trade or business as a real estate dealer, or
2. Rentals for which services were rendered to the occupants
(other than services usually or customarily rendered for the rental of
space for occupancy only). The supplying of maid service is such a
service, but the furnishing of heat and light; the cleaning of public
entrances, exits, stairways, and lobbies; and trash collection, etc.,
aren't considered services rendered to the occupants.

Line 14a. Net Earnings (Loss) From
Self-Employment (Code A)

Line 3c. The distributive share of limited partners is not earnings
from self-employment and is not reported on this line.

Use the Worksheet for Figuring Net Earnings (Loss) From
Self-Employment in these instructions.

Lines 3b and 4b. Allocate the amounts on these lines in the same
way Form 1065, page 1, line 22, is allocated to these particular
partners.

Schedule K. Enter on line 14a the amount from line 5 of the
worksheet.
Schedule K-1. Do not complete this line for any partner that is an
estate, a trust, a corporation, an exempt organization, or an IRA.
Enter in box 14 of Schedule K-1 each individual general partner's
share of the combined amounts shown on lines 3c and 4c of the
worksheet; and each individual limited partner’s share of the amount
shown on line 4c of the worksheet, using code A.

Line 4a. Include in the amount on line 4a any guaranteed
payments to partners reported on Schedule K, line 4c, and in box 4c
of Schedule K-1, and derived from a trade or business as defined in
section 1402(c). Also include other ordinary business income and
expense items (other than expense items subject to separate
limitations at the partner level, such as the section 179 expense
deduction) reported on Schedules K and K-1 that are used to figure
self-employment earnings under section 1402.

Line 14b. Gross Farming or Fishing Income (Code
B)

Line 4c. Guaranteed payments to general partners and limited
partners for services provided to the partnership are net earnings
from self-employment and are reported on this line.

Enter on line 14b the partnership's gross farming or fishing income
from self-employment. Individual partners need this amount to figure
net earnings from self-employment under the farm optional method
-42-

Instructions for Form 1065 (2022)

Credits

!

Do not attach Form 3800, General Business Credit, to Form
TIP 1065.

CAUTION

Qualified rehabilitation expenditures for property not related
to rental real estate activities must be reported in box 20
using code D.

Low-Income Housing Credit

Line 15d. Other Rental Real Estate Credits (Code
F)

Section 42 provides a credit that can be claimed by owners of
low-income residential rental buildings. To qualify for this credit, the
partnership must file Form 8609, Low-Income Housing Credit
Allocation and Certification, separately with the IRS. Do not attach
Form 8609 to Form 1065. Complete and attach Form 8609-A,
Annual Statement for Low-Income Housing Credit, and Form 8586,
Low-Income Housing Credit, to Form 1065.

Enter on line 15d any other credit (other than credits reported on
lines 15a through 15c) related to rental real estate activities. On the
dotted line to the left of the entry space for line 15d, identify the type
of credit. If there is more than one type of credit, attach a statement
to Form 1065 that identifies the type and amount for each credit.
These credits may include any type of credit listed in the instructions
for line 15f.

DRAFT AS OF
December 8, 2022

Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of other rental real estate credits using code F. If
you are reporting each partner's distributive share of only one type of
rental real estate credit under code F, enter the code with an asterisk
(F*) and the dollar amount in the entry space in box 15 and attach a
statement that shows “Box 15, Code F” and type of credit. If you are
reporting multiple types of rental real estate credits under code F,
enter the code with an asterisk (F*) and enter “STMT” in the entry
space in box 15 and attach a statement that shows “Box 15, Code F”
and the types and dollar amounts of the credits. If the partnership
has credits from more than one rental real estate activity, identify on
the attached statement the amount of each type of credit for each
separate activity. See Passive Activity Reporting Requirements,
earlier.

Line 15a. Low-Income Housing Credit (Section
42(j)(5)) (Code C)

Enter on line 15a the total low-income housing credit for property
which a partnership is to be treated under section 42(j)(5) as the
taxpayer to which the low-income housing credit was allowed.

If the partnership invested in another partnership to which the
provisions of section 42(j)(5) apply, report on line 15a the credit
reported to the partnership in box 15 of Schedule K-1 (Form 1065),
code C.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the low-income housing credit reported on
line 15a of Schedule K. Use code C to report credits attributable to
buildings placed in service after 2007. If the partnership has credits
from more than one rental activity, identify on an attached statement
to Schedule K-1 the amount for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Line 15e. Other Rental Credits (Code G)
Enter on line 15e any other credit (other than credits reported on
lines 15a through 15d) related to rental activities. On the dotted line
to the left of the entry space for line 15e, identify the type of credit. If
there is more than one type of credit, attach a statement to Form
1065 that identifies the type and amount for each credit. These
credits may include any type of credit listed in the instructions for
line 15f.

Line 15b. Low-Income Housing Credit (Other)
(Code D)
Enter on line 15b any low-income housing credit not reported on
line 15a. This includes any credit reported to the partnership in
box 15 of Schedule K-1 using code D.

Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of other rental credits using code G. If you are
reporting each partner's distributive share of only one type of rental
credit under code G, enter the code with an asterisk (G*) and the
dollar amount in the entry space in box 15 and attach a statement
that shows “Box 15, Code G” and type of credit. If you are reporting
multiple types of rental credits under code G, enter the code with an
asterisk (G*) and enter “STMT” in the entry space in box 15 and
attach a statement that shows “Box 15, Code G” and the types and
dollar amounts of the credits. If the partnership has credits from
more than one rental activity, identify on the attached statement the
amount of each type of credit for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the low-income housing credit reported on
line 15b of Schedule K. Use code D to report credits attributable to
buildings placed in service after 2007. If the partnership has credits
from more than one rental activity, identify on an attached statement
to Schedule K-1 the amount for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Line 15c. Qualified Rehabilitation Expenditures
(Rental Real Estate) (Code E)

Line 15f. Other Credits

Enter on line 15c the total qualified rehabilitation expenditures
related to rental real estate activities of the partnership. See the
Instructions for Form 3468 for details on qualified rehabilitation
expenditures.

Enter on line 15f any other credit, except credits or expenditures
shown or listed for lines 15a through 15e. If any of these credits are
attributable to rental activities, enter the amount on line 15d or 15e.
On the dotted line to the left of the entry space for line 15f, identify
the type of credit. If there is more than one type of credit or if there
are any credits subject to recapture, attach a statement to Form
1065 that separately identifies each type and amount of credit and
credit recapture information for the following categories. The codes
needed for box 15 of Schedule K-1 are provided in the headings of
the following categories.

Schedule K-1. Report each partner's distributive share of qualified
rehabilitation expenditures related to rental real estate activities in
box 15 of Schedule K-1 using code E. Attach a statement to
Schedule K-1 that provides the information and the partner's
distributive share of the amounts the partner will need to complete
lines 11b through 11g of Form 3468. See the Instructions for Form
3468 for details. If the partnership has expenditures from more than
one rental real estate activity, identify on an attached statement to
Schedule K-1 the amount for each separate activity. See Passive
Activity Reporting Requirements, earlier.

Instructions for Form 1065 (2022)

Undistributed capital gains credit (code H). This credit
represents taxes paid on undistributed capital gains by a RIC or a
REIT. As a shareholder of a RIC or a REIT, the partnership will
receive notice of the amount of tax paid on undistributed capital

-43-

•
•
•
•

gains on Form 2439, Notice to Shareholder of Undistributed
Long-Term Capital Gains.

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 (Form 8912). The amount of
this credit (excluding any credits from other partnerships, estates,
and trusts) must also be reported as interest income on line 5 of
Schedule K.
• New clean renewable energy bond credit (Form 8912). The
amount of this credit (excluding any credits from other partnerships,
estates, and trusts) must also be reported as interest income on
line 5 of Schedule K. In addition, the amount of this credit must also
be reported as a cash distribution on line 19a of Schedule K.
• Qualified energy conservation bond credit (Form 8912). The
amount of this credit (excluding any credits from other partnerships,
estates, and trusts) must also be reported as interest income on
line 5 of Schedule K. In addition, the amount of this credit must also
be reported as a cash distribution on line 19a of Schedule K.
• Qualified zone academy bond credit (Form 8912). The amount of
this credit (excluding any credits from other partnerships, estates,
and trusts) must also be reported as interest income on line 5 of
Schedule K. In addition, the amount of this credit must also be
reported as a cash distribution on line 19a of Schedule K.
• Qualified school construction bond credit (Form 8912). The
amount of this credit (excluding any credits from other partnerships,
estates, and trusts) must also be reported as interest income on
line 5 of Schedule K. In addition, the amount of this credit must also
be reported as a cash distribution on line 19a of Schedule K.
• Build America bond credit (Form 8912). The amount of this credit
(excluding any credits from other partnerships, estates, and trusts)
must also be reported as interest income on line 5 of Schedule K. In
addition, the amount of this credit must also be reported as a cash
distribution on line 19a of Schedule K.
• Mine rescue team training credit (Form 8923).
• Credit for employer differential wage payments (Form 8932).
• Carbon oxide sequestration credit (Form 8933, Part IV, line 10).
• Carbon oxide sequestration credit recapture (Form 8933, Part IV,
line 12). Enter as a negative number.
• Qualified plug-in electric motor vehicle credit (including qualified
two-wheeled plug-in electric vehicles and new clean vehicles).
• Credit for small employer health insurance premiums (Form
8941).
• Employee retention credit for employers affected by qualified
disasters (Form 5884-A).
• Employer credit for paid family and medical leave (Form 8994).
• Qualified commercial clean vehicle credit for vehicles acquired
after 2022.

Biofuel producer credit (code I). Complete Form 6478, if
applicable, to figure the credit. Attach it to Form 1065. Include any
amount shown on line 2 of Form 6478 in the partnership's income on
line 7. See section 40(f) for an election the partnership can make to
not have the credit apply.
Work opportunity credit (code J). Complete Form 5884 to figure
the credit. Attach it to Form 1065.

DRAFT AS OF
December 8, 2022

Disabled access credit (code K). Complete Form 8826 to figure
the credit. Attach it to Form 1065.
Empowerment zone employment credit (code L). Complete
Form 8844 to figure the credit. Attach it to Form 1065.

Credit for increasing research activities (code M). Complete
Form 6765 to figure the credit. Attach it to Form 1065.

Note. The partnership should provide the information necessary for
the partner to determine whether the partnership is an eligible small
business under section 38(c)(5)(A). If the partner and the
partnership meet the requirements of section 38(c)(5)(A), the
research credit may be treated as a specified credit.
Credit for employer social security and Medicare taxes paid
on certain employee tips (code N). Complete Form 8846 to
figure the credit. Attach it to Form 1065.
Backup withholding (code O). This credit is for backup
withholding on dividends, interest, and other types of income of the
partnership.

Other credits (code P). Attach a statement to Form 1065 that
identifies the types and amounts of any other credits not reported
elsewhere, such as the following.
• New markets credit. Complete Form 8874 to figure the credit.
Attach it to Form 1065.
• Qualified railroad track maintenance credit. Complete Form 8900
to figure the credit, and attach it to Form 1065.
• Unused investment credit from the qualifying advanced coal
project credit, qualifying gasification project credit, or qualifying
advanced energy project credit allocated from cooperatives.
• Unused investment credit from the rehabilitation credit or energy
credit allocated from cooperatives.
• Renewable electricity production credit. See Rev. Proc. 2007-65,
as modified by Announcement 2009-69 and Announcement
2007-112, for a safe harbor method for allocating the credit for wind
energy production. Complete Form 8835 to figure the credit. Attach
a statement to Form 1065 and Schedule K-1 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. Attach Form 8835 to Form 1065.
• Indian employment credit. Complete Form 8845 to figure the
credit, and attach it to Form 1065.
• Orphan drug credit. Complete Form 8820 to figure the credit, and
attach it to Form 1065.
• Credit for small employer pension plan startup costs and
auto-enrollment. Complete Form 8881 to figure the credit, and
attach it to Form 1065.
• Credit for employer-provided childcare facilities and services.
Complete Form 8882 to figure the credit, and attach it to Form 1065.
• Biodiesel and renewable diesel fuels credit. Complete Form
8864, if applicable, to figure the credit, and attach it to Form 1065. If
this credit includes the small agri-biodiesel producer credit, identify
on a statement attached to Schedule K-1 (a) each partner's
distributive share of the small agri-biodiesel producer credit included
in the total credit allocated to the partner, (b) the number of gallons
for which the partnership claimed the small agri-biodiesel producer
credit, and (c) the partnership's productive capacity for
agri-biodiesel.
• Low sulfur diesel fuel production credit. Complete Form 8896 to
figure the credit, and attach it to Form 1065.
• Credit for oil and gas production from marginal wells (Form 8904).
• Distilled spirits credit (Form 8906).

Schedule K-1. Enter in box 15 of Schedule K-1 each partner's
distributive share of the credits listed above. See additional
Schedule K-1 reporting information provided in the instructions
above. Enter the applicable code, H through P, in the column to the
left of the dollar amount entry space.
If you are reporting each partner's distributive share of only one
type of credit under code P, enter the code with an asterisk (P*) and
the dollar amount in the entry space in box 15 and attach a
statement that shows “Box 15, Code P” and type of credit. If you are
reporting multiple types of credits under code P, enter the code with
an asterisk (P*) and enter “STMT” in the entry space in box 15 and
attach a statement that shows “Box 15, Code P” and the types and
dollar amounts of the credits. If the partnership has credits from
more than one activity, identify on an attached statement to
Schedule K-1 the amount of each type of credit for each separate
activity. See Passive Activity Reporting Requirements, earlier.

International Transactions
Line 16. International Transactions
If the partnership had items of international tax relevance, see the
instructions for Schedule K-2 (Form 1065) to determine if you need
to attach Schedule K-2. If you satisfy an exception to filing
Schedule K-2, you may attach a statement to the Form 1065 that
states “Qualified for exception to filing Schedule K-2.”
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Instructions for Form 1065 (2022)

Alternative Minimum Tax (AMT) Items

line 17a. If the AMT deduction is more than the regular tax
deduction, enter the difference as a negative amount. Depreciation
capitalized to inventory must also be refigured using the AMT rules.
Include on this line the current year adjustment to income, if any,
resulting from the difference.

Lines 17a through 17f must be completed for all partners.
Enter items of income and deductions that are adjustments or tax
preference items for the AMT. See Form 6251, Alternative Minimum
Tax—Individuals; or Schedule I (Form 1041), Alternative Minimum
Tax—Estates and Trusts, to determine the amounts to enter and for
other information.

Line 17b. Adjusted Gain or Loss (Code B)
If the partnership disposed of any tangible property placed in service
after 1986 (or after July 31, 1986, if an election was made to use the
General Depreciation System), or if it disposed of a certified
pollution control facility placed in service after 1986, refigure the gain
or loss from the disposition using the adjusted basis for the AMT.
The property's adjusted basis for the AMT is its cost or other basis
minus all depreciation or amortization deductions allowed or
allowable for the AMT during the current tax year and previous tax
years. Enter on this line the difference between the regular tax gain
(loss) and the AMT gain (loss). If the AMT gain is less than the
regular tax gain, or the AMT loss is more than the regular tax loss, or
there is an AMT loss and a regular tax gain, enter the difference as a
negative amount.

DRAFT AS OF
December 8, 2022

Do not include as a tax preference item any qualified
expenditures to which an election under section 59(e) may apply.
Instead, report these expenditures on line 13c(2). Because these
expenditures are subject to an election by each partner, the
partnership cannot figure the amount of any tax preference related
to them. Instead, the partnership must pass through to each partner
in box 13, code J, of Schedule K-1 the information needed to figure
the deduction.

Schedule K-1. Report each partner's distributive share of amounts
reported on lines 17a through 17f (concerning AMT) in box 17 of
Schedule K-1 using codes A through F, respectively. If the
partnership is reporting items of income or deduction for oil, gas,
and geothermal properties, you may be required to identify these
items on a statement attached to Schedule K-1 (see the instructions
for Oil, Gas, and Geothermal Properties Gross Income and
Deductions, later, for details). Also see the requirement for an
attached statement in the instructions for line 17f.

If any part of the adjustment is allocable to net short-term capital
gain (loss), net long-term capital gain (loss), or net section 1231 gain
(loss), attach a statement that identifies the amount of the
adjustment allocable to each type of gain or loss.

Line 17a. Post-1986 Depreciation Adjustment
(Code A)

For a net long-term capital gain (loss), also identify the amount of
the adjustment that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also identify the amount of
adjustment that is unrecaptured section 1250 gain.

Figure the adjustment for line 17a based only on tangible property
placed in service after 1986 (and tangible property placed in service
after July 31, 1986, and before 1987 for which the partnership
elected to use the General Depreciation System). Do not make an
adjustment for motion picture films, videotapes, sound recordings,
certain public utility property (as defined in section 168(f)(2)),
property depreciated under the unit-of-production method (or any
other method not expressed in a term of years), qualified Indian
reservation property, property eligible for a special depreciation
allowance, qualified revitalization expenditures, or the section 179
expense deduction.

Line 17c. Depletion (Other Than Oil and Gas)
(Code C)
Do not include any depletion on oil and gas wells. The partners must
figure their oil and gas depletion deductions and preference items
separately under section 613A.
Refigure the depletion deduction under section 611 for mines,
wells (other than oil and gas wells), and other natural deposits for
the AMT. Percentage depletion is limited to 50% of the taxable
income from the property as figured under section 613(a), using only
income and deductions for the AMT. Also, the deduction is limited to
the property's adjusted basis at the end of the year as figured for the
AMT. Figure this limit separately for each property. When refiguring
the property's adjusted basis, take into account any AMT
adjustments made this year or in previous years that affect basis
(other than the current year's depletion).

For property placed in service before 1999, refigure depreciation
for the AMT as follows (using the same convention used for the
regular tax).
• For section 1250 property (generally, residential rental and
nonresidential real property), use the straight line method over 40
years.
• For tangible property (other than section 1250 property)
depreciated using the straight line method for the regular tax, use
the straight line method over the property's class life. Use 12 years if
the property has no class life.
• For any other tangible property, use the 150% declining balance
method, switching to the straight line method the first tax year it
gives a larger deduction, over the property's AMT class life. Use 12
years if the property has no class life.

Enter the difference between the regular tax and AMT deduction.
If the AMT deduction is greater, enter the difference as a negative
amount.

Oil, Gas, and Geothermal Properties—Gross
Income and Deductions

See Pub. 946 for a table of class lives.

TIP

Generally, the amounts to be entered on lines 17d and 17e are only
the income and deductions for oil, gas, and geothermal properties
that are used to figure the partnership's ordinary income (loss)
(line 22 of Form 1065).

For property (except section 1250 property) placed in service
after 1998, refigure depreciation for the AMT only for property
depreciated for the regular tax using the 200% declining balance
method. For the AMT, use the 150% declining balance method,
switching to the straight line method the first tax year it gives a larger
deduction, and the same convention and recovery period used for
the regular tax. For section 1250 property, refigure depreciation for
the AMT using the straight line method, and the same convention
and recovery period used for regular tax.

If there are any items of income or deductions for oil, gas, and
geothermal properties included in the amounts that are required to
be passed through separately to the partners on Schedule K-1
(items not reported in box 1 of Schedule K-1), give each partner a
statement that shows, for the box in which the income or deduction
is included, the amount of income or deductions included in the total
amount for that box. Do not include any of these direct pass-through
amounts on line 17d or 17e.

Figure the adjustment by subtracting the AMT deduction for
depreciation from the regular tax deduction and enter the result on

Instructions for Form 1065 (2022)

-45-

• Which section(s) of Rev. Proc. 2021-48 the partnership is
applying: 3.01(1), (2), and/or (3).
• The amount of tax-exempt income from forgiveness of the PPP
loan that the partnership is treating as received or accrued during
the year.
• Whether forgiveness of the PPP loan has been granted as of the
date the return is filed.
A partnership that did not report tax-exempt income from a PPP
loan on its 2020 return may file an amended return or AAR to apply
the applicable provisions of Rev. Proc. 2021-48. A partnership that
reported tax-exempt income from a PPP loan on its 2020 return, the
timing of which corresponds to section 3.01(1), (2), or (3) of Rev.
Proc. 2021-48, does not need to file an amended return or AAR
solely to attach the statement that is described in the preceding
paragraph.
As explained in section 3.03 of Rev. Proc. 2021-48, if a
partnership treats tax-exempt income resulting from a PPP loan as
received or accrued prior to when forgiveness of the PPP loan is
granted, and the amount of forgiveness granted is less than the
amount of tax-exempt income that was previously treated as
received or accrued, the partnership must make appropriate
required adjustments on an amended return or AAR, as applicable,
for the tax year in which the partnership treated the tax-exempt
income as received or accrued. The partnership should attach a
statement to that amended return or AAR that includes the following
information.
• The partnership’s name, address, and EIN.
• A statement that the partnership is making adjustments in
accordance with section 3.03 of Rev. Proc. 2021-48.
• The tax year in which tax-exempt income was originally reported,
the amount of tax-exempt income that was originally reported in that
tax year, and the amount of tax-exempt income being adjusted on
the amended return or AAR, as applicable.

Figure the amounts for lines 17d and 17e separately for oil and
gas properties that aren't geothermal deposits and for all properties
that are geothermal deposits.
Give each partner a statement that shows the separate amounts
included in the computation of the amounts on lines 17d and 17e of
Schedule K.

Line 17d. Oil, Gas, and Geothermal
Properties—Gross Income (Code D)

DRAFT AS OF
December 8, 2022

Enter the total amount of gross income (within the meaning of
section 613(a)) from all oil, gas, and geothermal properties received
or accrued during the tax year and included on page 1 of Form
1065.

Line 17e. Oil, Gas, and Geothermal
Properties—Deductions (Code E)

Enter any deductions allowed for the AMT that are allocable to oil,
gas, and geothermal properties.

Line 17f. Other AMT Items (Code F)
Attach a statement to Form 1065 and Schedule K-1 that shows other
items not shown on lines 17a through 17e that are adjustments or
tax preference items or that the partner needs to complete Form
6251, Form 4626, or Schedule I (Form 1041). See these forms and
their instructions to determine the amount to enter.
Other AMT items include the following.

• Accelerated depreciation of real property under pre-1987 rules.
• Accelerated depreciation of leased personal property under

Line 18c. Nondeductible Expenses

pre-1987 rules.
• Long-term contracts entered into after February 28, 1986. Except
for certain home construction contracts, the taxable income from
these contracts must be figured using the percentage of completion
method of accounting for the AMT.
• Losses from tax shelter farm activities. No loss from any tax
shelter farm activity is allowed for the AMT.
• Any information needed by certain corporate partners to figure
corporate AMT for tax years beginning after 2022, under section 55.

Enter on line 18c nondeductible expenses paid or incurred by the
partnership.
Do not include separately stated deductions shown elsewhere on
Schedules K and K-1, capital expenditures, or items the deduction
for which is deferred to a later tax year.
Schedule K-1. Report in box 18 of Schedule K-1 each partner's
distributive share of amounts reported on lines 18a, 18b, and 18c of
Schedule K (concerning items affecting partners' bases) using
codes A through C, respectively. Attach a statement to
Schedule K-1 for the amounts included on line 18b that are exempt
by reason of section 892, and describe the nature of the income.

Schedule K-1. If you are reporting each partner's distributive share
of only one type of AMT item under code F, enter the code with an
asterisk (F*) and the dollar amount in the entry space in box 17 and
attach a statement that shows the type of AMT item. If you are
reporting multiple types of AMT items under code F, enter the code
with an asterisk (F*) and enter “STMT” in the entry space in box 17
and attach a statement that shows the dollar amount of each type of
AMT item.

Line 19a. Distributions of Cash and Marketable
Securities (Code A)

Other Information

If the amount on line 19a includes marketable securities treated as
money, state separately on an attached statement to Schedules K
and K-1 (a) the partnership's adjusted basis of those securities
immediately before the distribution, and (b) the FMV of those
securities on the date of distribution (excluding the distributee
partner's share of the gain on the securities distributed to that
partner).

Line 18a. Tax-Exempt Interest Income
Enter on line 18a tax-exempt interest income, including any
exempt-interest dividends received from a mutual fund or other RIC.

Line 18b. Other Tax-Exempt Income

Line 19b. Distributions of Other Property

Enter on line 18b all income of the partnership exempt from tax other
than tax-exempt interest.

Enter on line 19b the total distributions to each partner of property
not included on line 19a. In box 19 of Schedule K-1, distributions of
section 737 property will be reported separately from other property.
The codes used when reporting amounts from line 19b in box 19 of
Schedule K-1 appear in the headings for the categories.

PPP loan forgiveness reporting. Report tax-exempt income
resulting from the forgiveness of a PPP loan on this line. Attach a
statement to Form 1065 for each tax year in which the partnership is
applying the provisions of Rev. Proc. 2021-48, section 3.01(1), (2),
or (3). The statement should include the following information for
each PPP loan.
• The partnership’s name, address, and EIN.

Distributions subject to section 737 (code B). 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
-46-

Instructions for Form 1065 (2022)

Line 20c. Other Items and Amounts

partner other than the previously contributed built-in gain property,
attach a statement to the distributee partner's Schedule K-1 that
provides the following information.
• The FMV of the distributed property (other than money).
• The amount of money received in the distribution.
• The net precontribution gain of the partner. This is the net gain (if
any) that would have been recognized by the distributee partner
under section 704(c)(1)(B) if all the following property had been
distributed by the partnership to another partner. This property
includes all property contributed by the distributee partner during the
7 years prior to the distribution and that is still held by the
partnership at the time of the distribution (see section 737).
For more information, see Recognition of Precontribution Gain on
Certain Partnership Distributions, earlier.

Report the following information on a statement attached to Form
1065. On Schedule K-1, enter the appropriate code in box 20 for
each information item followed by an asterisk in the left-hand column
of the entry space (for example, “C*”). In the right-hand column,
enter “STMT.” The codes are provided in the headings of the
following information categories.

DRAFT AS OF
December 8, 2022

Fuel tax credit information (code C). 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 fuel, type of use, and
the applicable credit per gallon. See Form 4136, Credit for Federal
Tax Paid on Fuels, for details.
Qualified rehabilitation expenditures (other than rental real estate) (code D). Enter total qualified rehabilitation expenditures from
activities other than rental real estate activities. See the Instructions
for Form 3468 for details on qualified rehabilitation expenditures.

Other property (code C). Include all distributions of property not
included on line 19a that aren't section 737 property. In figuring the
amount of the distribution, use the adjusted basis of the property to
the partnership immediately before the distribution. In addition,
attach a statement showing the adjusted basis and FMV of each
property distributed.

Note. Report qualified rehabilitation expenditures related to rental
real estate activities on line 15c.
Schedule K-1. Report each partner's distributive share of
qualified rehabilitation expenditures related to activities other than
rental real estate activities in box 20 of Schedule K-1 using code D.
Attach a statement to Schedule K-1 that provides the information
and the partner's distributive share of the amounts the partner will
need to complete lines 11b through 11g of Form 3468. See the
Instructions for Form 3468 for details. If the partnership has
expenditures from more than one activity, identify on a statement
attached to Schedule K-1 the amount for each separate activity. See
Passive Activity Reporting Requirements, earlier.

Schedule K-1. Report in box 19 each partner's distributive share of
the amount on line 19a using code A. If a statement is attached,
enter an asterisk after the code (A*) and “STMT” in the entry space,
and attach the required statement. For line 19b, report distributions
subject to section 737 in box 19 using code B with an asterisk (B*)
and “STMT” in the entry space, and attach the required statement.
For distributions of other property, report each partner's distributive
share of the amount in box 19 using code C with an asterisk (C*) and
“STMT” in the entry space, and attach the required statement.

Lines 20a and 20b. Investment Income and
Expenses (Codes A and B)

Basis of energy property (code E). See the Instructions for Form
3468 for details on basis of energy property. In box 20 of
Schedule K-1, enter code E followed by an asterisk (E*) and enter
“STMT” in the entry space for the dollar amount. Attach a statement
to Schedule K-1 that provides the information and the partner's
distributive share of the amounts the partner will need to figure the
amounts to report on lines 12a–12c, 12e, 12f, 12h, 12i, 12k, 12l,
12q, 12r, 12t, 12u, 12w, 12y, 12z, and 12bb–12hh of Form 3468.
See the Instructions for Form 3468 for details.

Enter on line 20a the investment income included on lines 5, 6a, 7,
and 11 of Schedule K. Do not include other portfolio gains or losses
on this line.
Investment income includes gross income from property held for
investment, the excess of net gain attributable to the disposition of
property held for investment over net capital gain from the
disposition of property held for investment, any net capital gain from
the disposition of property held for investment that each partner
elects to include in investment income under section 163(d)(4)(B)
(iii), and any qualified dividend income that the partner elects to
include in investment income. Generally, investment income and
investment expenses don't include any income or expenses from a
passive activity. See Regulations section 1.469-2(f)(10) for
exceptions.

Recapture of low-income housing credit (codes F and G). If
recapture of part or all of the low-income housing credit is required
because (a) the prior year qualified basis of a building decreased, or
(b) the partnership disposed of a building or part of its interest in a
building, see Form 8611, Recapture of Low-Income Housing Credit.
Complete lines 1 through 7 of Form 8611 to determine the amount of
credit to recapture. Use code F on Schedule K-1 to report recapture
of the low-income housing credit from a section 42(j)(5) partnership.
Use code G to report recapture of any other low-income housing
credit. See the instructions for lines 15a and 15b, earlier, for more
information.

Property subject to a net lease isn't treated as investment
property because it is subject to the passive loss rules. Do not
reduce investment income by losses from passive activities.

If a partner's ownership interest in a building decreased

TIP because of a transaction at the partner level, the partnership

must provide the necessary information to the partner to
enable the partner to figure the recapture.

Enter investment expenses on line 20b. Investment expenses are
deductible expenses (other than interest) directly connected with the
production of investment income. See the Instructions for Form 4952
for more information.

The disposal of a building or an interest therein will generate
a credit recapture unless it is reasonably expected that the
CAUTION building will continue to be operated as a qualified
low-income building for the remainder of the building's compliance
period.

!

Schedule K-1. Report each partner's distributive share of amounts
reported on lines 20a and 20b (investment income and expenses) in
box 20 of Schedule K-1 using codes A and B, respectively.
If there are other items of investment income or expense
included in the amounts that are required to be passed through
separately to the partners on Schedule K-1, such as net short-term
capital gain or loss, net long-term capital gain or loss, and other
portfolio gains or losses, give each partner a statement identifying
these amounts.

Instructions for Form 1065 (2022)

See Form 8586, Form 8611, and section 42 for more information.
Recapture of investment credit (code H). Complete and attach
Form 4255, Recapture of Investment Credit, when investment credit
property is disposed of, or it no longer qualifies for the credit, before
the end of the recapture period or the useful life applicable to the
property. State the type of property at the top of Form 4255, and
complete lines 2, 3, 4, 10, and 11, whether or not any partner is
subject to recapture of the credit.

-47-

partners dropped to 50% or less (for a reason other than
disposition), the partnership must provide all the following
information.
• The partner's distributive share of the original basis and
depreciation allowed or allowable (not including the section 179
deduction).
• The partner's distributive share of the section 179 deduction (if
any) passed through for the property and the partnership's tax
year(s) in which the amount was passed through.
See Regulations section 1.179-1(e) for details.

Attach to each Schedule K-1 a separate statement providing the
information the partnership is required to show on Form 4255, but
list only the partner's distributive share of the cost of the property
subject to recapture. Also indicate the lines of Form 4255 on which
the partners should report these amounts.
Recapture of other credits (code I). On an attached statement to
Schedule K-1, provide any information partners will need to report
recapture of credits (other than recapture of low-income housing
and investment credit reported on Schedule K-1 using codes F, G,
and H). Examples of credits reported using code I when subject to
recapture include the following.
• The new markets credit. See Form 8874 and Form 8874-B,
Notice of Recapture Event for New Markets Credit, for details.
• The Indian employment credit. See section 45A(d) for details.
• The credit for employer-provided childcare facilities and services.
See section 45F(d).
• The alternative motor vehicle credit. See section 30B(h)(8).
• The alternative fuel vehicle refueling property credit. See section
30C(e)(5).
• The new qualified plug-in electric drive motor vehicle credit. See
section 30D(f)(5).

DRAFT AS OF
December 8, 2022

Business interest expense (code N). The partnership must
determine the amount of deductible business interest expense
included on other lines on the Schedule K. Attach a statement to
Schedule K providing the allocation of the deductible business
interest expense included on other lines of Schedule K. Excess
business interest expense is not deductible business interest
expense; therefore, do not include it in this reported amount for tax
years beginning after November 12, 2020.
Schedule K-1. For tax years beginning after November 12, 2020,
enter the partner's amount of deductible business interest expense
for inclusion in the separate loss class for computing any basis
limitation (defined in section 704(d) and Regulations section
1.163(j)-6(h)). Also attach a statement to Schedule K-1 providing the
allocation of the business interest expense already deducted by the
partnership on other lines of Schedule K-1 by line number. Do not
include excess business interest expense reported in box 13, code
K.

Look-back interest—completed long-term contracts (code J).
If the partnership is closely held (defined in section 460(b)(4)(C))
and it entered into any long-term contracts after February 28, 1986,
that are accounted for under either the percentage of
completion-capitalized cost method or the percentage of completion
method, it must attach a statement to Form 1065 showing the
information required in items (a) and (b) of the instructions for lines 1
and 3 of Part II of Form 8697. It must also report the amounts for Part
II, lines 1 and 3, to its partners. See the Instructions for Form 8697
for more information.

Section 453(l)(3) information (code O). Supply any information
needed by a partner to figure the interest due under section 453(l)
(3). If the partnership elected to report the dispositions of certain
timeshares and residential lots on the installment method, each
partner's tax liability must be increased by the partner's distributive
share of the interest on tax attributable to the installment payments
received during the tax year.

Look-back interest—income forecast method (code K). If the
partnership is closely held (defined in section 460(b)(4)(C)) and it
depreciated certain property placed in service after September 13,
1995, under the income forecast method, it must attach to Form
1065 the information specified in the instructions for Form 8866,
line 2, for the 3rd and 10th tax years beginning after the tax year the
property was placed in service. It must also report the line 2 amounts
to its partners. See the Instructions for Form 8866 for more details.

Section 453A(c) information (code P). Supply any information
needed by a partner to figure the interest due under section 453A(c).
This information must include the following from each Form 6252
where the selling price, including mortgages and other debts, is
greater than $150,000.
1. Description of property.
2. Date acquired.
3. Date property sold.
4. Selling price, including mortgages and other debts (not
including interest, whether stated or unstated), less mortgages,
debts, and other liabilities the buyer assumed or took the property
subject to.
5. Gross profit.
6. Gross profit percentage.
7. Contract price less (4) above, plus payments received during
the year, not including interest, whether stated or unstated.
8. Payments received in prior years, not including interest
whether stated or unstated. If this is the initial year of the sale, add
as an additional part of the payments received during the year the
amount of the liabilities assumed that exceeds the combination of
the property's adjusted basis, commissions, and other costs related
to the sale, and any income recapture relating to the transaction on
Form 4797. This excess is considered a current year payment other
than cash.
9. Installment sale income.
10. Character of the income—capital or ordinary.
11. Partner's share of the deferred obligation. See computation
below.

Dispositions of property with section 179 deductions (code L).
This represents gain or loss on the sale, exchange, or other
disposition of property for which a section 179 deduction has been
passed through to partners. The partnership must provide all the
following information related to such dispositions (see the
instructions for line 6, earlier).
• Description of the property.
• Date the property was acquired and placed in service.
• Date of the sale or other disposition of the property.
• The partner's share of the gross sales price or amount realized.
• The partner's share of the cost or other basis plus expense of
sale (reduced as explained in the instructions for Form 4797,
line 21).
• The partner's share of the depreciation allowed or allowable,
determined as described in the instructions for Form 4797, line 22,
but excluding the section 179 deduction.
• The partner's share of the section 179 deduction (if any) passed
through for the property and the partnership's tax year(s) in which
the amount was passed through.
• If the disposition is due to a casualty or theft, a statement
indicating so, and any additional information needed by the partner.
• For an installment sale, any information the partner needs to
complete Form 6252. The partnership must also separately report
the partner's share of all payments received for the property in future
tax years. (Installment payments received for sales made in prior tax
years should be reported in the same manner used in prior tax
years.) See the instructions for Form 6252 for details.

Schedule K-1 deferred obligation computation. For each
Form 6252 where line 5 is greater than $150,000, figure the
Schedule K-1 deferred obligation as follows.
• Item 4 from the list above, less the sum of items 7 and 8. This
equals the Schedule K deferred obligation.

Recapture of section 179 deduction (code M). This amount
represents recapture of the section 179 deduction if business use of
the property dropped to 50% or less before the end of the recapture
period. If the business use of any property (placed in service after
1986) for which a section 179 deduction was passed through to
-48-

Instructions for Form 1065 (2022)

• Multiply the Schedule K deferred obligation by each partner’s
profit percentage. This equals each partner’s share of the deferred
obligation.
If an obligation arising from the disposition of property to which
section 453A applies is outstanding at the close of the year, each
partner's tax liability must be increased by the tax due under section
453A(c) on the partner's distributive share of the tax deferred under
the installment method.

• The character of the gain or loss that would have resulted if the
partnership had sold the section 704(c) property to the distributee
partner.
Enter code W in box 20 of Schedule K-1 with an asterisk (W*)
and enter “STMT,” and attach the required statement.
Reserved for future use (code X).
Net investment income (code Y). Use code Y to report any
information that may be relevant for partners to figure their net
investment income tax when the information isn't otherwise
identifiable elsewhere on Schedule K-1. Attach a statement that
shows a description and dollar amount of each relevant item.
Examples of items reported using code Y may include the
following.
• Net rental real estate income reported on Form 1065,
Schedule K, line 2, and other net rental income reported on Form
1065, Schedule K, line 3c, derived from a section 212 for-profit
activity (and not from a section 162 trade or business).
• Gains and losses from dispositions of assets attributable to a
section 212 for-profit activity (and not from a section 162 trade or
business).
• Gain reported on the installment sale basis (or attributable to a
private annuity) that is attributable to the disposition of property held
in a trade or business.
• Gain or loss from the disposition of a partnership interest, but only
if such partnership was engaged, directly or indirectly, in one or
more trades or businesses, and at least one of those trades or
businesses wasn't trading in financial instruments or commodities.
• The partner’s distributive share of interest income, or interest
expense, which is attributable to a loan between the partnership and
the partner (self-charged interest).
• If the partnership received a Schedule K-1 (Form 1065), the detail
and amounts reported to the partnership on code Y.
• If the partnership received a Schedule K-1 (Form 1041), the
amount of the adjustment reported.
• Guaranteed payments (reported on Form 1065, Schedule K,
line 4b) unrelated to services, such as for the use of capital or
attributable to section 736(a)(2) payments for unrealized receivables
or goodwill.
• In the case of a common trust fund, any items of income or loss
that may be taken into account in figuring the participant’s net
investment income (other than qualified dividends, and short-term
and long-term capital gains).
In addition, Regulations section 1.1411-10 provides special rules
for stock of CFCs and PFICs owned by the partnership. If the
partnership owns directly or indirectly stock of a CFC or PFIC, then
additional reporting may be required under code Y.
CFCs and QEFs. In the case of stock of CFCs and QEFs directly
or indirectly owned by the partnership, the partnership must provide
the name and EIN (if one has been issued) for each CFC and QEF
the stock of which is owned by the partnership for which an election
under Regulations section 1.1411-10(g) is not in effect and for
which the partnership isn't engaged in a trade or business described
in section 1411(c)(2). For each of these entities, the partnership
must provide the following information on an entity-by-entity basis
(to the extent such information isn't otherwise identifiable elsewhere
on Schedule K-3).
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
• Section 959(d) distributions subject to section 1411.
• Section 1293(c) distributions subject to section 1411.
• Amount of gain or loss derived from dispositions of the stock of
CFCs and QEFs that is taken into account for section 1411
purposes.
• Amounts that are derived from the disposition of the stock of
CFCs and QEFs and included in income as a dividend under section
1248 for section 1411 purposes.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the partnership for which an election under Regulations
section 1.1411-10(g) is in effect, the partnership must provide the
following information (to the extent such information isn't otherwise

DRAFT AS OF
December 8, 2022

Section 1260(b) information (code Q). Supply any information
needed by a partner to figure the interest due under section 1260(b).
If the partnership had gain from certain constructive ownership
transactions, each partner's tax liability must be increased by the
partner's distributive share of interest due on any deferral of gain
recognition. See section 1260(b) for details, including how to figure
the interest.

Interest allocable to production expenditures (code R). Supply
any information needed by a partner to properly capitalize interest as
required by section 263A(f). See Section 263A uniform capitalization
rules, earlier, for more information.
CCF nonqualified withdrawal (code S). Report nonqualified
withdrawals by the partnership from a capital construction fund to
partners. See Pub. 595.

Depletion information—oil and gas (code T). Report gross
income and other information relating to oil and gas well properties
to partners to allow them to figure the depletion deduction for oil and
gas well properties. Allocate to each partner a proportionate share of
the adjusted basis of each partnership oil or gas property. See
section 613A(c)(7)(D) for details.
The partnership cannot deduct depletion on oil and gas wells.
Each partner must determine the allowable amount to report on their
return. See Pub. 535 for more information.
Section 743(b) basis adjustment (code U). Report the total
section 743(b) adjustment net of any cost recovery as a single
amount for all asset categories for each partner. In addition, attach a
statement to the Schedule K-1 for this code showing the amount of
each remaining section 743(b) basis, net of cost recovery by asset
category. A reasonable grouping by asset category may be used,
but such grouping should not be less detailed than the asset
categories listed on the Form 1065, Schedule L, balance sheet. See
IRS.gov/forms-pubs/clarifications-for-disregarded-entity-reportingand-section-743b-reporting for more information.
Unrelated business taxable income (code V). Report any
information a partner that is a tax-exempt organization may need to
figure its share of unrelated business taxable income under section
512(a)(1) (but excluding any modifications required by paragraphs
(8) through (15) of section 512(b)). Partners are required to notify
the partnership of their tax-exempt status. See Form 990-T, Exempt
Organization Business Income Tax Return; and Pub. 598, Tax on
Unrelated Business Income of Exempt Organizations, for more
information.
If the partner is an IRA, include the IRA partner's unique EIN on
line 20, code AH.
Precontribution gain (loss) (code W). If the partnership
distributed any section 704(c) property to any partner other than the
contributing partner, and the date of the distribution was within 7
years of the date the section 704(c) property was contributed to the
partnership, the distribution must be treated as if it were a sale by
the contributing partner taking place on the date of the distribution.
Section 704(c) property is property that had an FMV that was either
greater or less than the contributing partner's adjusted basis at the
time the property was contributed to the partnership. See
Dispositions of Contributed Property, earlier, for more information. If
the partnership made such a distribution during its tax year, attach a
statement to the contributing partner's Schedule K-1 that provides
the following information.
• The amount of the gain or loss that would have been allocated to
the contributing partner if the partnership had sold the section 704(c)
property at its FMV at the time of the distribution. See section 704(c)
(1)(B) for details.

Instructions for Form 1065 (2022)

-49-

are aggregated. The partnership must also report all QBI information
reported to it by any entity in which the partnership has an ownership
interest.

identifiable elsewhere on Schedule K-3) on either an aggregate
basis or an entity-by-entity basis.
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the partnership with respect to which the partnership is
engaged in a trade or business described in section 1411(c)(2), the
partnership must provide the following information (to the extent
such information isn't otherwise identifiable elsewhere on
Schedule K-3) on either an aggregate or an entity-by-entity basis, or
the partnership may aggregate this information with other income
derived by the partnership that is net investment income under
section 1411(c)(1)(A)(ii).
• Section 951(a) inclusions.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.
Section 1296 mark-to-market PFICs. In the case of stock of
PFICs directly or indirectly owned by the partnership for which an
election under section 1296 is in effect, the partnership must provide
the following information (to the extent such information isn't
otherwise identifiable elsewhere on Schedule K-3) on either an
aggregate basis or an entity-by-entity basis (except as provided
below).
• Amounts included in income under section 1296(a)(1).
• Amounts deducted from income under section 1296(a)(2).
In the case of PFIC stock owned directly or indirectly by the
partnership for which an election under section 1296 is in effect and
with respect to which the partnership is engaged in a trade or
business described in section 1411(c)(2), the partnership may
aggregate this information with other income derived by the
partnership that is net investment income under section 1411(c)(1)
(A)(ii).
Section 1291 funds. In the case of stock of PFICs directly or
indirectly owned by the partnership with respect to which direct or
indirect partners are subject to section 1291, the partnership must
provide the following information (to the extent such information isn't
otherwise identifiable elsewhere on Schedule K-3) on an
entity-by-entity basis.
• Excess distributions made by a PFIC for which a partner is
subject to section 1291.
• Gains derived from the disposition of stock of a PFIC for which a
partner is subject to section 1291.

Note. The partnership must report each partner’s share of qualified
items of income, gain, deduction, and loss from a PTP so that
partners can determine their qualified PTP income. However, the
W-2 wages and UBIA of qualified property from the PTP should not
be reported because partners cannot use that information in figuring
their QBI deduction.
Partnerships should use Statement A—QBI Pass-Through Entity
Reporting, later, or a substantially similar statement, to report
information for each partner’s distributive share from each trade or
business, including QBI items, W-2 wages, UBIA of qualified
property, qualified PTP items, and qualified REIT dividends by
attaching the completed statement(s) to each partner’s
Schedule K-1. The partnership should also use Statement A to
report each partner’s distributive share of QBI items, W-2 wages,
UBIA of qualified property, qualified PTP items, and qualified REIT
dividends reported to the partnership by another entity.
Partnerships should use Statement B—QBI Pass-Through Entity
Aggregation Election(s), later, or a substantially similar statement, to
report aggregated trades or businesses and provide supporting
information to partners on each Schedule K-1.
Partnerships should use Statement C—QBI Pass-Through Entity
Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives, later, or a substantially similar statement, to report the
distributive share of QBI and W-2 wages allocable to qualified
payments from a specified agricultural or horticultural cooperative for
each trade or business. This statement should also be used to report
each partner’s share of section 199A(g) deduction reported to the
partnership by the specified cooperative.
Determining the partnership’s qualified trades or
businesses. The partnership’s qualified trades or businesses
include its section 162 trades or businesses, except for SSTBs, or
the trade or business of providing services as an employee. A
section 162 trade or business generally includes any activity if the
partnership’s primary purpose for engaging in the activity is for
income or profit and the partnership is involved in the activity with
continuity and regularity. For more information on what qualifies as a
trade or business for purposes of section 199A, see the Instructions
for Form 8995, Qualified Business Income Deduction Simplified
Computation, or the Instructions for Form 8995-A, Qualified
Business Income Deduction.
Rental real estate. Rental real estate may constitute a trade or
business for purposes of the QBI deduction if the rental real estate:
• Rises to the level of a trade or business under section 162,
• Satisfies the requirements for the rental real estate safe harbor in
Rev. Proc. 2019-38, or
• Meets the self-rental exception (that is, the rental or licensing of
property to a commonly controlled trade or business conducted by
an individual or relevant pass-through entity) described in
Regulations section 1.199A-1(b)(14).
The determination of whether rental real estate constitutes a
trade or business for purposes of the QBI deduction is made by the
partnership. The partnership must first make this determination and
then only include the distributive share of rental real estate items of
income, gain, loss, and deduction from a trade or business on the
statement provided to partners. Rental real estate that does not
meet any of the three conditions noted above does not constitute a
trade or business for purposes of the QBI deduction and must not be
included in the QBI information provided to partners.
SSTBs excluded from qualified trades or businesses.
SSTBs are generally excluded from the definition of a qualified trade
or business. An SSTB is any trade or business providing services in
the field of health, law, accounting, actuarial science, performing
arts, consulting, athletics, financial services, brokerage services,
investing and investment management, trading or dealing in
securities, partnership interests, or commodities, or any other trade
or business where the principal asset is the reputation or skill of one
or more of its employees or owners. The term “any trade or business
where the principal asset is the reputation or skill of one or more of

DRAFT AS OF
December 8, 2022

Section 199A information (code Z). The qualified business
income (QBI) deduction may be taken by eligible taxpayers,
including individuals and some trusts and estates. The deduction is
determined at the partner level. Partnerships are required to report
information necessary for their partners to figure the deduction. Use
code Z with an asterisk (Z*) on each partner’s Schedule K-1 and
enter “STMT” in the entry space to indicate that the information is
provided on an attached statement that separately identifies the
partner’s distributive share of:
1. Qualified items of income, gain, deduction, and loss;
2. W-2 wages;
3. Unadjusted basis immediately after acquisition (UBIA) of
qualified property;
4. Qualified PTP items; and
5. Qualified REIT dividends.
The partnership must make an initial determination of which
items are qualified items of income, gain, deduction, and loss at its
level and report to each partner its distributive share of all items that
may be qualified items at the partner level. These items must be
separately stated where necessary for the partner to figure the
deduction. See Determining the partnership’s QBI or qualified PTP
items, later. The partner must then determine whether each item is
includible in QBI.
In addition, the partnership must also report whether any of its
trades or businesses are specified service trades or businesses
(SSTBs) and identify on the statement any trades or businesses that
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Instructions for Form 1065 (2022)

its employees or owners” means any trade or business that consists
of (i) a trade or business in which a person receives fees,
compensation, or other income from endorsing products or services;
(ii) a trade or business in which a person licenses or receives fees,
compensation, or other income for the use of an individual’s image,
likeness, name, signature, voice, or trademark, or any other symbols
associated with the individual’s identity; or (iii) receiving fees,
compensation, or other income for appearing at an event or on
radio, television, or another media format.
Partnerships must separately report QBI information for all trades
or businesses engaged in by the partnership, including SSTBs, but
must identify which trades or businesses are SSTBs.
Aggregation of trades or businesses. A partnership engaged
in more than one trade or business may choose to aggregate
multiple trades or businesses into a single trade or business for
purposes of section 199A if it meets the following requirements.
1. The same person, or group of persons, either directly or
through attribution, owns 50% or more of each trade or business for
a majority of the tax year, including the last day of the tax year, and
all trades or businesses use the same tax year-end.
2. None of the trades or businesses are SSTBs.
3. The trades or businesses to be aggregated meet at least two
of the following three factors.

or businesses, it must attach a copy of the RPE’s aggregation to
each Schedule K-1. The partnership cannot break apart the
aggregation of another RPE, but it may add trades or businesses to
the aggregation, assuming the requirements above are satisfied.
Determining the partnership’s QBI or qualified PTP items.
The partnership’s items of QBI include qualified items of income,
gain, deduction, and loss from the partnership’s trades or
businesses that are effectively connected with the conduct of a trade
or business within the United States. This may include, but is not
limited to, items such as ordinary business income or losses, section
1231 gains or (losses), section 179 deductions, and interest from
debt-financed distributions.
QBI may also include rental income/losses or royalty income, if
the activity rises to the level of a trade or business; and gambling
gains or losses, but only if the partnership is engaged in the trade or
business of gambling. Whether an activity rises to the level of a trade
or business must be determined at the entity level and, once made,
is binding on partners.
Qualified PTP items include the partnership’s share of qualified
items of income, gain, deduction, and loss from an interest in a PTP
and may also include gain or loss recognized on the disposition of
the partner’s partnership interest that is not treated as a capital gain
or loss. If the reporting partnership is itself a PTP, the PTP should
report all qualified items of income, gain, deduction, and loss
separately for each trade or business engaged in by the PTP.
QBI and qualified PTP items don’t include the following.
• Items that aren’t properly includible in income.
• Items that are treated as capital gain or loss under any provision
of the Internal Revenue Code.
• Dividends or dividend equivalents, including qualified REIT
dividends.
• Interest income (unless received in connection with the trade or
business).
• Wage income.
• Income that is not effectively connected with the conduct of
business within the United States (go to IRS.gov/ECI for more
information).
• Commodities transactions, or foreign currency gains or losses
described in section 954(c)(1)(C) or (D).
• Income, loss, or deductions from notional principal contracts
under section 954(c)(1)(F).
• Annuities (unless received in connection with the trade or
business).
• Guaranteed payments described in section 707(c) received by
the entity for services rendered to a partnership.
• Payments described in section 707(a) received by the entity for
services rendered to a partnership.
QBI flowchart. Partnerships may use this flowchart to determine
if an item of income, gain, deduction, or loss is includible in QBI
reportable to partners.

DRAFT AS OF
December 8, 2022

• They provide products, property, or services that are the same or
that are customarily offered together.
• They share facilities or share significant centralized business
elements, such as personnel, accounting, legal, manufacturing,
purchasing, human resources, or information technology resources.
• They are operated in coordination with, or reliance upon, one or
more of the businesses in the aggregated group.
If the partnership chooses to aggregate multiple trades or
businesses, it must report the aggregation on Statement B, or a
substantially similar statement, and attach it to each Schedule K-1.
The statement must provide the information necessary to identify
each separate trade or business included in each aggregation, a
description of the aggregated trades or businesses, and an
explanation of the factors met that allow the aggregation in
accordance with Regulations section 1.199A-4. The aggregation
statement must be completed each year to show the partnership's
trade or business aggregations. Failure to disclose the aggregations
may cause them to be disaggregated.
The partnership's aggregations must be reported consistently for
all subsequent years, unless there is a change in facts and
circumstances that changes or disqualifies the aggregation. The
partnership must provide a written explanation for any changes to
prior year aggregations that describes the change in facts and
circumstances.
If the partnership directly or indirectly owns an interest in another
relevant pass-through entity (RPE) that aggregates multiple trades

Instructions for Form 1065 (2022)

-51-

Flowchart To Help Determine if Items Are Qualified Business Income
Questions

Yes

No

1. Is the item effectively connected with the conduct of a trade or business within the United States?

Continue to next question.

Stop. This item is not QBI.

2. Is the item attributable to a trade or business (this may include section 1231 gain/(loss), section 179
deductions, interest from debt-financed distributions, etc.)? Examples of an item not considered attributable
to the trade or business at the entity level include gambling income/(loss) where the entity is not engaged in
the trade or business of gambling, income/(loss) from vacation properties when the entity is not in that trade
or business, activities not engaged in for profit, etc.

Continue to next question.

Stop. This item is not QBI.

3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or is it a
dividend or dividend equivalent?

Stop. This item is not QBI.

Continue to next question.

4. Is the item interest income other than interest income properly allocable to a trade or business? (Note that
interest income attributable to an investment of working capital, reserves, or similar accounts is not properly
allocable to a trade or business.)

Stop. This item is not QBI.

Continue to next question.

5. Is the item an annuity, other than an annuity received in connection with the trade or business?

Stop. This item is not QBI.

Continue to next question.

6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss described in
section 954(c)(1)(C) or (D)?

Stop. This item is not QBI.

Continue to next question.

7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)?

Stop. This item is not QBI.

Continue to next question.

8. Is the item of income or loss from a qualified PTP?

This item is a qualified PTP
item. Report this item as
qualified PTP income or
loss, subject to
partner-specific
determinations, and check
the PTP box.

This item is QBI. Report this
item as QBI subject to
partner-specific
determinations.

DRAFT AS OF
December 8, 2022
property from a PTP are not allowed in figuring the W-2 wage and
UBIA limitations.
The W-2 wages are amounts paid to employees described in
sections 6051(a)(3) and (8). If the partnership conducts more than
one trade or business, it must allocate the W-2 wages among its
trades or businesses. See Rev. Proc. 2019-11, 2019-09 I.R.B. 742,
for more information.
The unadjusted basis of qualified property is figured by adding
the unadjusted basis of all qualified assets immediately after
acquisition. Qualified property includes all tangible property subject
to depreciation under section 167, for which the depreciable period
hasn’t ended, that is held and used by the trade or business during
the tax year and held on the last day of the tax year. The depreciable
period ends on the later of 10 years after the property is placed in
service or the last day of the full year for the applicable recovery
period under section 168.
Qualified REIT dividends. The partnership must report the
distributive share of any qualified REIT dividends to each partner on
Statement A, or a substantially similar statement, attached to
Schedule K-1. Qualified REIT dividends don’t have to be separately
reported by trades or businesses and can be reported as a single
amount to partners. Qualified REIT dividends include any dividend
the partnership receives on REIT stock held for more than 45 days
(taking into account the principles of sections 246(c)(3) and (4))
during the 91-day period beginning on the date that is 45 days
before the date on which such stock becomes ex-dividend with
respect to such dividend, for which the payment is not obligated to
someone else, is not a capital gain dividend under section 857(b)(3),
and is not a qualified dividend under section 1(h)(11), plus any
Section 199A dividends received from a RIC that are permitted to be
treated as qualified REIT dividends under Regulations section
1.199A-3(d).
Fiscal year partnerships. For purposes of determining the QBI
or qualified PTP items, UBIA of qualified property, and the aggregate
amount of qualified REIT dividends, fiscal year-end partnerships
include all items from the tax (fiscal) year.
For purposes of determining W-2 wages, fiscal year-end
partnerships include amounts paid to employees under sections
6051(a)(3) and (8) for the calendar year ended with or within the
partnership’s tax year. If the partnership conducts more than one
trade or business, it must allocate W-2 wages among its trades or
businesses. See Rev. Proc. 2019-11 for more information.

Specific instructions for Statement A—QBI Pass-Through Entity Reporting.
QBI or qualified PTP items. The partnership (including PTPs)
must first determine if it is engaged in one or more trades or
businesses. It must then determine if any of its trades or businesses
are SSTBs. It must also determine whether it has qualified PTP
items from an interest in a PTP. It must indicate the status in the
appropriate checkboxes for each trade or business (or aggregated
trade or business) reported.
Note. SSTBs and PTPs cannot be aggregated with any other trade
or business. So, if the aggregation box is checked, the SSTB and
PTP boxes for that specific aggregated trade or business should not
be checked.
Next, the partnership must report to each partner their distributive
share of all items that are QBI or qualified PTP items for each trade
or business the partnership owns directly or indirectly. Use the QBI
flowchart above to determine if an item is reportable as a QBI item or
qualified PTP item subject to partner-specific determinations.
The descriptions on the statement generally match the
descriptions reported on Schedule K-1. So the amounts should
reflect each trade’s or business’s portion of the qualified items of
income, gain, deduction, or loss reported in the applicable box of the
partner’s Schedule K-1. For example, the amount reported on the
“Ordinary business income (loss)” line of this statement should
reflect the attributable portion of qualified items of income, gain,
deduction, and loss for each trade or business included in the
“Ordinary business income (loss)” reported in box 1 of the partner’s
Schedule K-1. Each item included under “Other income (loss)” and
“Other deductions” must be stated separately, identifying the nature
and amount of each item.
W-2 wages and UBIA of qualified property. The partnership
must determine the W-2 wages and UBIA of qualified property
properly allocable to QBI for each qualified trade or business and
report the distributive share to each partner on Statement A, or a
substantially similar statement, attached to Schedule K-1. This
includes the pro rata share of W-2 wages and UBIA of qualified
property reported to the partnership from any qualified trades or
businesses of an RPE the partnership owns directly or indirectly.
However, partnerships that own a direct or indirect interest in a PTP
may not include any amounts for W-2 wages or UBIA of qualified
property from the PTP, as the W-2 wages and UBIA of qualified

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Instructions for Form 1065 (2022)

Statement A—QBI Pass-Through Entity Reporting
Partnership’s name:

Partnership’s EIN:

Partner’s name:

Partner’s identifying number:

Trade or Business 1

Trade or Business 2

Trade or Business 3

DRAFT AS OF
December 8, 2022

Partner’s share of:

PTP

PTP

PTP

Aggregated

Aggregated

Aggregated

SSTB

SSTB

SSTB

QBI or qualified PTP items subject to partner-specific determinations:

Ordinary business income (loss) . . . . . . . . . . . . . . . .
Rental income (loss) . . . . . . . . . . . . . . . . . . . . . .
Royalty income (loss)

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

Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . .
Other income (loss)

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

Section 179 deduction . . . . . . . . . . . . . . . . . . . . .
Other deductions

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

W-2 wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UBIA of qualified property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualified REIT dividends . . . . .

disclose the aggregations may cause them to be disaggregated.
The partnership’s aggregations must be reported consistently for all
subsequent years, unless there is a change in facts and
circumstances that changes or disqualifies the aggregation. The
partnership must provide a written explanation for any changes to
prior year aggregations that describes the change in facts and
circumstances.
If the partnership holds a direct or indirect interest in an RPE that
aggregates multiple trades or businesses, the partnership must also
include a copy of the RPE’s aggregations with each partner’s
Schedule K-1. The partnership cannot break apart the aggregation
of another RPE, but it may add trades or businesses to the
aggregation, assuming the aggregation requirements are satisfied.

Specific instructions for Statement B—QBI Pass-Through Entity Aggregation Election(s). If the partnership elects to aggregate
more than one trade or business that meets all the requirements to
aggregate, the partnership must report the aggregation to partners
on Statement B, or a substantially similar statement, and attach it to
each Schedule K-1. The partnership must indicate trades or
businesses that were aggregated by checking the appropriate box
on Statement A for each aggregated trade or business. The
partnership must also provide a description of the aggregated trade
or business and an explanation of the factors met that allow the
aggregation.
The aggregation statement must be completed each year to
show the partnership’s trade or business aggregations. Failure to

Statement B—QBI Pass-Through Entity Aggregation Election(s)
Partnership’s name:

Partnership’s EIN:

Trade or business aggregation 1*
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section
1.199A-4. In addition, if the partnership holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach
a copy of the RPE's aggregations.

Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, or
disposed of, or having ceased operations. If yes, explain.

* If the partnership has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.

cooperative, the partnership must provide the share of QBI items
and W-2 wages allocable to qualified payments from each trade or
business to each of its partners on Statement C, or a substantially
similar statement, and attach it to each Schedule K-1 so each
partner can figure their patron reduction under section 199A(b)(7).

Specific instructions for Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives.
QBI items and W-2 wages allocable to qualified payments. If
the partnership is a patron of a specified agricultural or horticultural

Instructions for Form 1065 (2022)

-53-

QBI items and W-2 wages allocable to qualified payments
include QBI items included on Statement A that are allocable to the
qualified payments reported to the partnership on Form 1099-PATR
from the cooperative.
Section 199A(g) deduction. The partnership must report to its
partners their share of any section 199A(g) deduction passed

through from the cooperative, as reported on Form 1099-PATR.
Section 199A(g) deductions do not have to be reported separately
by trades or businesses and can be reported as a single amount to
partners.

Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives

DRAFT AS OF
December 8, 2022
Partnership’s EIN:

Partnership’s name:
Partner’s name:

Partner’s identifying number:

Trade or Business

Partner’s share of:

Trade or Business

Trade or Business

PTP

PTP

PTP

Aggregated

Aggregated

Aggregated

SSTB

SSTB

SSTB

QBI items allocable to qualified payments subject to partner-specific determinations:
Ordinary business income (loss) . . . . . . . . . . . . . . . .

Rental income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Royalty income (loss)

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

Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . . .
Other income (loss)

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

Section 179 deduction . . . . . . . . . . . . . . . . . . . . . .
Other deductions

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

W-2 wages allocable to qualified payments . . . . . . . . . . . . . . . . . . . . .
Section 199A(g) deduction . . . . . . . . . . . . . . . . .

applying section 704(c) (consisting of $5 depreciation from property
X and $5 remedial depreciation from property Y).

Section 704(c) information (code AA). For partnerships other
than PTPs, if a partner’s taxable income or loss on any line item on
Schedule K-1 (Form 1065) includes an allocation of any income or
deduction item determined by applying section 704(c), include the
sum of such income and deduction items here.

Required reporting for the sale or exchange of an interest in a
partnership (codes AB, AC, and AD). When a sale or exchange
of a partnership interest occurs and the partnership holds section
751 property such as unrealized receivables defined in section
751(c), property subject to unrecaptured section 1250 gain,
inventory items defined in section 751(d), or collectibles, the
partnership must report to the transferor partner their share of the
gain or loss figured for the following categories of assets.
Section 751 gain (loss) (code AB). Section 751 “hot assets”
(unrealized receivables and inventory items).
Section 1(h)(5) gain (loss) (code AC). Section 1(h)(5)
collectible assets.
Deemed section 1250 unrecaptured gain (code AD). Section
1(h)(6) unrecaptured section 1250 gain assets (depreciable real
property) are section 751 property per Regulations section
1.751-1(c)(4)(v).

Example 1—Single section 704(c) allocation. Partnership P
has two partners, A and B. A and B share all items of income, loss,
and deduction equally, except for items required to be allocated
under section 704(c). A contributes property X with an FMV of $100
and a tax basis of $60. X is depreciable over 10 years. B contributes
$100. The traditional method is used to allocate section 704(c) items
pertaining to X. In the first year, the partnership has $10 of section
704(b) book depreciation, which is allocated equally to A and B for
book purposes ($5 each). However, P only has $6 of tax
depreciation. The partnership has no other income or deductions
during the tax year. Under the traditional method, P allocates $1 to A
and $5 to B for tax purposes. Assuming this is the only item where
taxable income is affected by section 704(c) allocations during the
current year, the partnership would report deductions of $1 for A and
$5 for B in box 20, code AA, of Schedule K-1.

Excess taxable income (code AE). If the partnership is required
to file Form 8990, it may determine it has excess taxable income. If
so, enter the amount from Form 8990, Part II, line 36, for excess
taxable income.
Schedule K-1. Enter the partner’s amount of excess taxable
income. The partner will enter the amount on Form 8990,
Schedule A, line 43(f), if the partner is required to file Form 8990.

Example 2—Multiple section 704(c) allocations. The facts
are the same as in Example 1, except in addition to the facts in that
example, A also contributes property Y with an FMV of $100 and a
remaining tax basis of $0. If Y were newly placed in service, its
depreciable life would be 10 years straight line. The partnership
adopts the remedial method with respect to property Y. In the first
year, P has $10 of section 704(b) book depreciation, which is
allocated equally to A and B for book purposes ($5 each). However,
P has $0 of tax depreciation with respect to property Y. Under the
remedial method, for tax purposes, P allocates $5 of remedial
income to A and $5 of a remedial depreciation deduction to B with
respect to property Y. In this case, the partnership would report in
box 20, code AA, of Schedule K-1 that A has $4 of taxable income,
determined by applying section 704(c) ($1 of depreciation
deductions from property X and $5 of remedial income from property
Y) and that B has $10 of deductions for tax purposes, determined by

Excess business interest income (code AF). If the partnership is
required to file Form 8990, it may determine it has excess business
interest income. If so, enter the amount from Form 8990, Part II,
line 37, for excess business interest income.
Schedule K-1. Enter the partner’s amount of excess business
interest income. The partner will enter the amount on Form 8990,
Schedule A, line 43(g), if the partner is required to file Form 8990.
Gross receipts for section 448(c) (code AG). Regulations
section 1.163(j)-2(d)(2)(iii) requires that partners in a partnership
include a share of partnership gross receipts in proportion to their
share of gross income under section 703 (unless the partnership is
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Instructions for Form 1065 (2022)

excess taxable income, and excess business interest income, if any,
that is attributable to income effectively connected with a U.S. trade
or business. Provide, on Schedule K-1, the information needed to
complete Form 8990, Schedule A, for a partner that is a foreign
corporation or nonresident alien or is a partnership (domestic or
foreign) in which you know, or have a reason to know, that one or
more of the partners is a foreign corporation or nonresident alien.
• The partner's distributive share of any conservation reserve
program payments made to the partnership.
• If the partnership is involved in a farming or fishing business,
report the gross income and gains as well as the losses and
deductions attributable to such business activities. See section
1301.
• If a partnership is a trader in securities, commodities, or both, and
has properly elected under section 475(f) to mark to market the
securities, the commodities, or both, the partnership should report
ordinary gain or loss from the securities or commodities (or both
securities and commodities) trading activities separately from any
other ordinary gain or loss.
• If the partnership is a section 721(c) partnership, line 20c must
include the amounts relating to any remedial items made under the
remedial allocation method (described in Regulations section
1.704-3(d) and Regulations section 1.704-3(d)(5)(iii)) with respect to
section 721(c) property. Enter a separate code AH in box 20 of
Schedule K-1 for each amount for items allocated to the partner. For
the U.S. transferor, enter a separate code AH, if any, for the total
remedial income allocated to the U.S. transferor, total gain
recognized due to an acceleration event, and/or total gain
recognized due to a section 367 transfer reflected on Schedule G
(Form 8865), Part II, columns (c), (d), and (e), respectively. For all
other partners of the section 721(c) partnership, enter a separate
code AH for the total amount of remedial items allocated to such
partner relating to section 721(c) property. See Regulations sections
1.721(c)-3 and 1.721(c)-6.
• Excess business loss limitation. To enable partners to figure their
excess business loss limitation under section 461(l), attach a
statement to each partner's Schedule K-1 showing the partner's
distributive share of the aggregate business activity gross income or
gain, and the aggregate business activity deductions, from all of the
partnership's trades or businesses.
• Section 1061 information. The partnership will furnish to the
partners any information needed to figure their capital gains with
respect to an applicable partnership interest. See Section 1061
Reporting Guidance FAQs.
• Partner’s share of the adjusted basis of noncash and capital gain
property contributions and share of the excess of the FMV over the
adjusted basis of noncash and capital gain property contributions.
• For IRA partners with an amount reported in box 20, code V,
include code AH with the IRA partner's unique EIN (not the
custodian's EIN).
• Any other information the partners need to prepare their tax
returns, including information needed to prepare state and local tax
returns.

treated as one person under the aggregation rules of section
448(c)). Partnerships with current year gross receipts (defined in
Regulations section 1.448-1T(f)(2)(iv)) greater than $5 million are
required to report to partners their distributive share of their current
year gross receipts, as well as their distributive share of gross
receipts for the 3 immediately preceding tax years. If a partnership
and a partner are treated as a single employer under section 448(c)
aggregation rules, and the partnership has current year gross
receipts greater than $5 million, then the partnership should also
report its current year total gross receipts, as well as its total gross
receipts for the 3 immediately preceding tax years, to that partner.
See IRS.gov/newsroom/faqs-regarding-the-aggregation-rulesunder-section-448c2–that-apply-to-the-section-163j-small-businessexemption. Partnerships whose current year gross receipts are less
than or equal to $5 million may also use this code to report gross
receipts.

DRAFT AS OF
December 8, 2022

Other information (code AH). Report the following to each
partner.
• Any information a partner that is a PTP may need to determine if it
meets the 90% qualifying income test of section 7704(c)(2). Partners
are required to notify the partnership of their status as a PTP.
• If the partnership participates in a transaction that must be
disclosed on Form 8886, both the partnership and its partners may
be required to file Form 8886. The partnership must determine if any
of its partners are required to disclose the transaction and provide
those partners with information they will need to file Form 8886. This
determination is based on the category(s) under which a transaction
qualified for disclosures. See Form 8886 and its instructions for
details.
• Compensation to partners deferred under a section 409A
nonqualified deferred compensation plan that doesn't meet the
requirements of section 409A. Include in this amount any earnings
on these deferrals. This amount must also be included on line 4 of
Schedule K, Guaranteed payments. For details, see the regulations
under section 409A. These regulations don't provide guidance on
the application of section 409A to arrangements between
partnerships and partners. For interim guidance on such
arrangements, see Q&A-7 in Notice 2005-1, 2005-2 I.R.B. 274, and
the information provided in T.D. 9321. Also see Notice 2006-79,
2006-43 I.R.B. 763; Notice 2007-86, 2007-46 I.R.B. 990; and Notice
2008-113, 2008-51 I.R.B. 1305, for additional information on
transitional and relief rules.
• Noncash charitable contributions. If the partnership made a
noncash charitable contribution, report the partner’s share of the
partnership’s adjusted basis of the property for basis limitation
purposes.
• Any income or gain reported on lines 1 through 11 of Schedule K
that qualifies as inversion gain, if the partnership is an expatriated
entity or is a partner in an expatriated entity. For details, see section
7874. Attach a statement to Form 1065 that shows the amount of
each type of income or gain included in the inversion gain. The
partnership must report each partner's distributive share of the
inversion gain in box 20 of Schedule K-1 using code AH. Attach a
statement to Schedule K-1 that shows the partner's distributive
share of the amount of each type of income or gain included in the
inversion gain.
• Qualifying advanced coal project property. Attach a statement to
Schedule K-1 showing the partner's distributive share of the
amounts that the partner will use when figuring the amounts to report
on lines 5a through 5c of the partner's Form 3468. See the
Instructions for Form 3468 for details.
• Qualifying gasification project property. Attach a statement to
Schedule K-1 showing the partner's distributive share of the
amounts that the partner will use when figuring the amounts to report
on lines 6a and 6b of the partner's Form 3468. See the Instructions
for Form 3468 for details.
• Qualifying advanced energy project credit. Attach a statement to
Schedule K-1 showing the partner's distributive share of the
amounts that the partner will use when figuring the amount to report
on line 7 of the partner's Form 3468. See the Instructions for Form
3468 for details.
• Form 8990, Schedule A, requires certain foreign partners to
report their allocable share of excess business interest expense,

Instructions for Form 1065 (2022)

Line 21. Total Foreign Taxes Paid or Accrued
Enter in U.S. dollars the total creditable foreign taxes (described in
section 901 or section 903) that were paid or accrued by the
partnership (according to its method of accounting for such taxes).
Enter the amount paid or accrued on line 21. Translate these
amounts into U.S. dollars by using the applicable exchange rate
(see Pub. 514, Foreign Tax Credit for Individuals).
The information on line 21 is solely for purposes of computing
basis. A partnership must complete Schedules K-2 and K-3 to
provide the information necessary for the partner to claim a foreign
tax credit.

Line 22. More Than One At-Risk Activity
If the partnership conducted more than one at-risk activity, the
partnership is required to provide certain information separately for
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national, state, or municipal authorities, as of the beginning and end
of the tax year, instead of completing Schedule L. However,
statements filed under this procedure must contain sufficient
information to enable the IRS to reconstruct a balance sheet similar
to that contained on Form 1065 without contacting the partnership
during processing.

each at-risk activity to its partners. This information is reported on an
attached statement to Schedule K-1. Check the box to indicate there
is more than one at-risk activity for which a statement is attached.
See At-risk activity reporting requirements, earlier, for details. Also
see Notice 2019-66 for certain at-risk reporting.

Line 23. More Than One Passive Activity

All amounts on the balance sheet should be reported in U.S.
dollars. If the partnership's books and records are kept in a foreign
currency, the balance sheet should be translated in accordance with
U.S. generally accepted accounting principles (GAAP).

DRAFT AS OF
December 8, 2022

If the partnership conducted more than one activity (determined for
purposes of the passive activity loss and credit limitations), the
partnership is required to provide information separately for each
activity to its partners. This information is reported on an attached
statement to Schedule K-1. Check the box to indicate there is more
than one passive activity for which a statement is attached. See
Passive Activity Reporting Requirements, earlier, for details.

Exception. If the partnership or any qualified business unit of the
partnership uses the U.S. dollar approximate separate transactions
method, Schedule L should reflect the tax balance sheet prepared
and translated into U.S. dollars according to Regulations section
1.985-3(d), and not a U.S. GAAP balance sheet.

Analysis of Net Income (Loss) per
Return

Partnerships Required To File Schedule M-3

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

For each type of partner shown, enter the portion of the amount
shown on line 1 that was allocated to that type of partner. Foreign
government partners are treated as corporate partners pursuant to
section 892(a)(3). Report all amounts for LLC members on the line
for limited partners. The sum of the amounts shown on line 2 must
equal the amount shown on line 1. In addition, the amount on line 1
of Analysis of Net Income (Loss) must equal the amount on line 9 of
Schedule M-1 (if the partnership is required to complete
Schedule M-1). If the partnership files Schedule M-3, the amount on
line 1 of Analysis of Net Income (Loss) must equal the amount in
column (d) of Schedule M-3, Part II, line 26.

Line 5. Tax-Exempt Securities

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

In classifying partners who are individuals as “active” or
“passive,” the partnership should apply the rules below. In applying
these rules, a partnership should classify each partner to the best of
its knowledge and belief. It is assumed that in most cases the level
of a particular partner's participation in an activity will be apparent.
1. If the partnership's principal activity is a trade or business,
classify a general partner as “active” if the partner materially
participated in all partnership trade or business activities; otherwise,
classify a general partner as “passive.”
2. If the partnership's principal activity consists of a working
interest in an oil or gas well, classify a general partner as “active.”
3. If the partnership's principal activity is a rental real estate
activity, classify a general partner as “active” if the partner actively
participated in all of the partnership's rental real estate activities;
otherwise, classify a general partner as “passive.”
4. Classify as “passive” all partners in a partnership whose
principal activity is a rental activity other than a rental real estate
activity.
5. If the partnership's principal activity is a portfolio activity,
classify all partners as “active.”
6. Classify as “passive” all limited partners in a partnership
whose principal activity is a trade or business or rental activity.

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

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

Line 14. Total Assets

Generally, total assets at the beginning of the year (Schedule L,
line 14, column (b)) must equal total assets at the close of the prior
tax year (Schedule L, line 14, column (d)). If total assets at the
beginning of the year don't equal total assets at the close of the prior
year, attach a statement explaining the difference.
For purposes of measuring total assets at the end of the year, the
partnership's assets may not be netted against or reduced by
partnership liabilities. In addition, asset amounts may not be
reported as a negative number. If the partnership has an interest in
another partnership and uses a tax-basis method for Schedule L, it
must show as an asset the adjusted basis of its interest in the other
partnership and separately show as a liability its share of the other
partnership's liabilities (which are included in the computation of its
adjusted basis). See the Partner's Instructions for Schedule K-1 for
details on how to figure the adjusted basis of a partnership interest.
If Schedule L is non-tax-basis, investment in a partnership may be
shown as appropriate under the non-tax-basis accounting method of
the partnership including, if required by the non-tax-basis accounting
method of the partnership, the equity method of accounting for
investments, but must be shown as a non-negative amount.

Schedule L. Balance Sheets per
Books
Schedules L, M-1, and M-2 aren't required to be completed

TIP if the partnership answered “Yes” to question 4 of
Schedule B.

The balance sheets should agree with the partnership's books
and records. Attach a statement explaining any differences. There
are additional requirements for completing Schedule L for
partnerships that are required to file Schedule M-3 (see the
Instructions for Schedule M-3 (Form 1065) for details).

Example. Partnership A prepares a tax-basis Schedule L and is
a general partner in Partnership B, a general partnership.
Partnership A's adjusted basis in Partnership B at the end of the
year is $16 million. Partnership A's share of Partnership B's liabilities
is $20 million, which is included in the $16 million adjusted basis
amount. On its Schedule L, Partnership A must report $16 million on
line 8 as the amount of its investment asset in Partnership B and

Partnerships reporting to the Interstate Commerce Commission
(ICC) or to any national, state, municipal, or other public officer may
send copies of their balance sheets prescribed by the ICC or
-56-

Instructions for Form 1065 (2022)

Line 6

report on line 20 its $20 million share of Partnership B's liabilities.
These amounts cannot be netted on Schedule L.

Include tax-exempt income from forgiven PPP loans on line 6 if it
was included on line 1 of Schedule M-1.

Line 18. All Nonrecourse Loans

Line 7

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

Report on this line deductions included on Schedule K, lines 1
through 13d, and 21, not charged against the partnership's book
income this year. Describe each such item of deduction. Attach a
statement if necessary.

DRAFT AS OF
December 8, 2022

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

Line 9

This line 9 should reconcile to the Analysis of Net Income (Loss) per
Return, line 1.

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

Schedule M-2. Analysis of Partners'
Capital Accounts

Line 20. Other Liabilities

Show what caused changes during the tax year in the partners' tax
basis capital accounts.

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

Line 1. Balance at Beginning of Year

The balance at the beginning of the year should equal the total of the
amounts reported as the partners’ beginning tax basis capital
accounts in item L of all the partners’ Schedules K-1. If not, the
partnership should attach an explanation of the difference.
Generally, the balance at the beginning of the year should equal the
adjusted tax basis of the partnership’s assets at the beginning of the
year reduced by the partnership’s liabilities at the beginning of the
year. If the partnership’s balance sheet (Schedule L) is reported on
the tax basis and if the aggregate of the partners’ beginning and
ending capital accounts differs from the amounts reported on
Schedule L, attach a statement reconciling any differences. No such
reconciliation is required if Schedule L is not reported on the tax
basis.

Schedule M-1. Reconciliation of
Income (Loss) per Books With
Analysis of Net Income (Loss) per
Return
Schedule M-3 may be required instead of Schedule M-1.

TIP See Item J. Schedule C and Schedule M-3, earlier. See the
Instructions for Schedule M-3 for more information.

Line 2

Report on this line income included on Schedule K, lines 1, 2, 3c, 5,
6a, 7, 8, 9a, 10, and 11, not recorded on the partnership's books this
year. Describe each such item of income. Attach a statement if
necessary.

Line 2. Capital Contributed During Year

Include on line 2a the amount of money contributed by each partner
to the partnership, as reflected on the partnership's books and
records. Include on line 2b the adjusted tax basis of property net of
liabilities contributed by each partner to the partnership, as reflected
on the partnership’s books and records.

Line 3. Guaranteed Payments

Include on this line guaranteed payments shown on Schedule K,
lines 4a and 4b (other than amounts paid for insurance that
constitutes medical care for a partner, a partner's spouse, a
partner's dependents, and a partner's children under age 27 who
aren't dependents).

Line 3. Net Income (Loss)

Enter on Schedule M-2, line 3, the amount from the Analysis of Net
Income (Loss), line 1. Generally, this is the same as the amount
entered on line 9 of Schedule M-1 (if the partnership is required to
complete Schedule M-1) or, if the partnership files Schedule M-3,
the amount in column (d) of Schedule M-3, Part II, line 26. Because
section 743(b) basis adjustments and income from guaranteed
payments are not included in the partners' tax-basis capital
accounts, certain adjustments may be necessary. If adjustments to
income under section 743(b) are taken into account in calculating
net income (loss), remove the effects of those adjustments (for
example, by adding or subtracting the income, gain, loss, or
deduction resulting from those adjustments on line 4 or line 7 in
accordance with the instructions for those lines). If net income
includes income from guaranteed payments made to partners,
remove such income on line 7.

Line 4b. Travel and Entertainment

Include the following on this line.
• Entertainment expenses, including entertainment-related meals
and facilities, not deductible under section 274(a).
• Non-entertainment-related meal expenses not deductible under
section 274(n).
• The part of business gifts over $25. See section 274(b).
• Expenses of an individual allocable to conventions on cruise
ships over $2,000. See section 274(h)(2).
• Employee achievement awards of nontangible property or
tangible property over $400 ($1,600 if part of a qualified plan). See
section 274(j).
• The part of the cost of luxury water travel expenses not
deductible under section 274(m). See section 274(m)(1)(A).
• Expenses for travel as a form of education. See section 274(m)
(2).
• Nondeductible club dues. See section 274(a)(3).
• Qualified transportation fringes under section 274(a)(4).
• Transportation and commuting expenses under section 274(l).
• Other nondeductible travel and entertainment expenses.

Instructions for Form 1065 (2022)

Line 4. Other Increases (Itemize)

Enter on line 4 the sum of all other increases to the partners' tax
basis capital accounts during the year not reflected on lines 2 and 3.
Also, if the aggregate net negative income from all section 743(b)
adjustments reported on Schedule K, line 13(d), “Other deductions,”
was included as a decrease to income in arriving at net income
(loss) on line 3, report those amounts as an increase on line 4. For
these purposes, “net negative income from all section 743(b)
adjustments” means the excess of all section 743(b) adjustments to
income allocated to the partner that decrease partner taxable
-57-

income over all section 743(b) adjustments to income that increase
partner taxable income.

Also, if the aggregate net positive income from all section 743(b)
adjustments reported on Schedule K, line 11, “Other income (loss),”
was included as an increase to income in arriving at net income
(loss) on line 3, report that amount as a decrease on line 7. For
these purposes, “net positive income from all section 743(b)
adjustments” means the excess of all section 743(b) adjustments to
income allocated to the partner that increase the partner's taxable
income over all section 743(b) adjustments to income that decrease
the partner's taxable income. Likewise, if line 3 includes income from
guaranteed payments reported on Schedule K, line 4c, include that
amount as a decrease on line 7.

Line 6. Distributions
Line 6a. Cash. Enter the amount of money distributed to each
partner by the partnership. For purposes of line 6a, “money” includes
marketable securities, as described in section 731(c).
Line 6b. Property. Enter the sum of the adjusted tax bases of
property net of liabilities distributed to each partner by the
partnership as reflected on the partnership's books and records.
Include withdrawals from inventory for the personal use of a partner.

DRAFT AS OF
December 8, 2022
Line 9. Balance at End of Year

Line 7. Other Decreases (Itemize)

The balance at the end of the year should equal the total of the
amounts reported as the partners’ ending capital accounts in item L
of all the partners’ Schedules K-1.

Enter on line 7 the sum of all other decreases to the partners'
tax-basis capital accounts during the year not reflected on line 6.

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Instructions for Form 1065 (2022)

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States.
You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect
the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may
become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required
by section 6103.

DRAFT AS OF
December 8, 2022

Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of November
2021, for taxpayers filing 2021 Forms 1065, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1066,
1120-REIT, 1120-RIC, and 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time burden is
broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses incurred by
taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and photocopying
costs, and tax preparation software costs. While these estimates don't include burden associated with post-filing activities, IRS operational
data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience
lower-than-average burden, with taxpayer burden varying considerably by taxpayer type. For instance, the estimated average time burden for
all business entities is 279 hours, with an average cost of $5,130 per return. This average includes all associated forms and schedules, across
all preparation methods and taxpayer activities.
The average burden for partnerships filing Forms 1065 and related attachments is about 290 hours and $5,900; the average burden for
corporations filing Form 1120 and associated forms is about 335 hours and $7,700; and the average burden for Forms 1066, 1120-REIT,
1120-RIC, and 1120-S, and all related attachments is 245 hours and $3,500. Within each of these estimates, there is significant variation in
taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type
of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these estimates.

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

Total Number of Returns
(millions)

Average Time (hours)

Average Cost

Average Monetized
Burden
$7,900

All Partnerships

4.8

85

$3,900

Small

4.5

75

$2,800

$5,300

Large*

0.3

245

$20,600

$45,900

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

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

Total Number of Returns
(millions)

Average Time (hours)

Average Cost

Average Monetized
Burden

All Taxable Corporations

2.1

140

$6,100

$15,100

Small

2.0

90

$3,100

$6,400

Large*

0.1

895

$49,700

$142,600

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

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

Total Number of Returns
(millions)

Average Time (hours)

Average Cost

Average Monetized
Burden
$6,400

All Pass-Through Corporations

5.4

80

$3,100

Small

5.3

80

$2,800

$5,800

Large*

0.1

330

$24,500

$58,500

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

Comments and Suggestions. We welcome your comments about this publication and your suggestions for future editions. You can send
us comments through IRS.gov/FormComments. Or, you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

Instructions for Form 1065 (2022)

-59-

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we
revise our tax forms, instructions, and publications. Don’t send the tax form to this address. Instead, see Where To File, earlier, near the
beginning of the instructions.

DRAFT AS OF
December 8, 2022

-60-

Instructions for Form 1065 (2022)

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

Agriculture, Forestry, Fishing
and Hunting

Activity Codes are based on the North American Industry
Classification System.
Using the list of activities and codes below, determine
from which activity the business derives the largest
percentage of its “total receipts.” Total receipts is defined
as the sum of gross receipts or sales (page 1, line 1a); all
other income (page 1, lines 4 through 7); income reported
on Schedule K, lines 3a, 5, 6a, and 7; income or net gain
reported on Schedule K, lines 8, 9a, 10, and 11; and
income or net gain reported on Form 8825, lines 2, 19, and
20a. If the business purchases raw materials and supplies
painting, wallcovering, flooring, tile,
& finish carpentry)
Other Specialty Trade Contractors
(including site preparation)

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

327900

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

423500

Metal & Mineral (except
Petroleum)
423600 Household Appliances & Electrical
& Electronic Goods
423700 Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, & Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone, &
Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries
424300 Apparel, Piece Goods, & Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum Products
424800 Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco Products & Electronic
Cigarettes
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Trade Agents & Brokers
425120 Wholesale Trade Agents & Brokers

DRAFT AS OF
December 8, 2022

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

Mining
211120
211130
212110
212200
212310
212320
212390
213110

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

Utilities
221100
221210
221300
221500

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

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

238900

Manufacturing

Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery Product
Mfg
311400 Fruit & Vegetable Preserving &
Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering & Processing
311710 Seafood Product Preparation &
Packaging
311800 Bakeries, Tortilla & Dry Pasta Mfg
311900 Other Food Mfg (including coffee,
tea, flavorings & seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel Contractors
315250 Cut & Sew Apparel Mfg (except
Contractors)
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product Manufacturing
316110 Leather & Hide Tanning &
Finishing
316210 Footwear Mfg (including rubber &
plastics)
316990 Other Leather & Allied Product Mfg
Wood Product Manufacturing
321110 Sawmills & Wood Preservation
321210 Veneer, Plywood, & Engineered
Wood Product Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard Mills
322200 Converted Paper Product Mfg
Printing and Related Support Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries (including
integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal Products
Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine Mfg
325500 Paint, Coating, & Adhesive Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product Mfg
327400 Lime & Gypsum Product Mfg

Wholesale Trade
Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies

-61-

Retail Trade
Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441222 Boat Dealers
441227 Motorcycle, ATV, & All Other Motor
Vehicle Dealers
441300 Automotive Parts, Accessories, &
Tire Retailers
Building Material and Garden Equipment
and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Retailers
444140 Hardware Retailers
444180 Other Building Material Dealers
444200 Lawn & Garden Equipment &
Supplies Retailers
Food and Beverage Retailers
445110 Supermarkets & Other Grocery
Retailers (except Convenience)
445131 Convenience Retailers
445132 Vending Machine Operators
445230 Fruit & Vegetable Retailers
445240 Meat Retailers
445250 Fish & Seafood Retailers
445291 Baked Goods Retailers
445292 Confectionery & Nut Retailers
445298 All Other Specialty Food Retailers
445320 Beer, Wine, & Liquor Retailers
Furniture and Home Furnishings Retailers
449110 Furniture Retailers
449121 Floor Covering Retailers
449122 Window Treatment Retailers
449129 All Other Home Furnishings
Retailers
Electronics and Appliance Retailers
449210 Electronics & Appliance Retailers
(including computers)
General Merchandise Retailers
455110 Department Stores
455210 Warehouse Clubs, Supercenters,
& Other General Merch Retailers
Health and Personal Care Retailers
456110 Pharmacies & Drug Retailers
456120 Cosmetics, Beauty Supplies, &
Perfume Retailers

Codes for Principal Business Activity and Principal Product or Service (Continued)
456130
456190

Optical Goods Retailers
Other Health & Personal Care
Retailers
Gasoline Stations & Fuel Dealers
457100 Gasoline Stations (including
convenience stores with gas)
457210 Fuel Dealers (including Heating oil
& Liquefied Petroleum)
Clothing and Accessories Retailers
458110 Clothing & Clothing Accessories
Retailers
458210 Shoe Retailers
458310 Jewelry Retailers
458320 Luggage & Leather Goods
Retailers
Sporting, Hobby, Book, Musical
Instruments, & Miscellaneous Retailers
459110 Sporting Goods Retailers
459120 Hobby, Toy, & Game Retailers
459130 Sewing, Needlework, & Piece
Goods Retailers
459140 Musical Instrument & Supplies
Retailers
459210 Book Retailers & News Dealers
(including newsstands)
459310 Florists
459410 Office Supplies & Stationery
Retailers
459420 Gift, Novelty, & Souvenir Retailers
459510 Used Merchandise Retailers
459910 Pet & Pet Supplies Retailers
459920 Art Dealers
459930 Manufactured (Mobile) Home
Dealers
459990 All Other Miscellaneous Retailers
(including tobacco, candle, &
trophy retailers)
Nonstore Retailers
Nonstore retailers sell all types of
merchandise using such methods
as Internet, mail-order catalogs,
interactive television, or direct
sales. These types of Retailers
should select the PBA associated
with their primary line of products
sold. For example, establishments
primarily selling prescription and
non-prescription drugs, select PBA
code 456110 Pharmacies & Drug
Retailers.

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

531190

Information
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Publishing Industries
513110 Newspaper Publishers
513120 Periodical Publishers
513130 Book Publishers
513140 Directory & Mailing List Publishers
513190 Other Publishers
513210 Software Publishers
Broadcasting & Content Providers &
Telecommunications
516100 Radio & Television Broadcasting
Stations
516210 Media Streaming, Social Networks,
& Other Content Providers
517000 Telecommunications (including
Wired, Wireless, Satellite, Cable &
Other Program Distribution,
Resellers, Agents, Other
Telecommunications, & Internet
Service Providers)
Data Processing, Web Search Portals, &
Other Information Services
518210 Computing Infrastructure
Providers, Data Processing, Web
Hosting, & Related Services
519200 Web Search Portals, Libraries,
Archives, & Other Info. Services

Lessors of Other Real Estate
Property (including equity REITs)
531210 Offices of Real Estate Agents &
Brokers
531310 Real Estate Property Managers
531320 Offices of Real Estate Appraisers
531390 Other Activities Related to Real
Estate
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532281 Formal Wear & Costume Rental
532282 Video Tape & Disc Rental
532283 Home Health Equipment Rental
532284 Recreational Goods Rental
532289 All Other Consumer Goods Rental
532310 General Rental Centers
532400 Commercial & Industrial Machinery
& Equipment Rental & Leasing
Lessors of Nonfinancial Intangible Assets
(except copyrighted works)
533110 Lessors of Nonfinancial Intangible
Assets (except copyrighted works)

561420
561430

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

DRAFT AS OF
December 8, 2022

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

Finance and Insurance
Depository Credit Intermediation
522110 Commercial Banking
522130 Credit Unions
522180 Savings Institutions & Other
Depository Credit Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers & originators)
522299 Intl, Secondary Market, & Other
Nondepos. Credit Intermediation
Activities Related to Credit Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, & money
transmitting)
Securities, Commodity Contracts, and
Other Financial Investments and Related
Activities
523150 Investment Banking & Securities
Intermediation
523160 Commodity Contracts
Intermediation
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment advice)
Insurance Carriers and Related Activities
524110 Direct Life, Health, & Medical
Insurance Carriers
524120 Direct Insurance (except Life,
Health, & Medical) Carriers
524210 Insurance Agencies & Brokerages
524290 Other Insurance Related Activities
(including third-party administration
of insurance & pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee Benefit
Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles (including
mortgage REITs & closed-end
investment funds)

Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential Buildings &
Dwellings (including equity REITs)
531120 Lessors of Nonresidential
Buildings (except Miniwarehouses)
(including equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including equity
REITs)

Professional, Scientific, and
Technical Services

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

Management of Companies
(Holding Companies)
551111
551112

Offices of Bank Holding
Companies
Offices of Other Holding
Companies

Administrative and Support and
Waste Management and
Remediation Services
Administrative and Support Services
561110 Office Administrative Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation Services

-62-

Educational Services
611000

Educational Services (including
schools, colleges, & universities)

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

Arts, Entertainment, and
Recreation
Performing Arts, Spectator Sports, and
Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including sports
clubs & racetracks)
711300 Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for Artists,
Athletes, Entertainers, & Other
Public Figures
711510 Independent Artists, Writers, &
Performers

Codes for Principal Business Activity and Principal Product or Service (Continued)
Museums, Historical Sites, and Similar
Institutions
712100 Museums, Historical Sites, &
Similar Institutions
Amusement, Gambling, and Recreation
Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement & Recreation
Industries (including golf courses,
skiing facilities, marinas, fitness
centers, & bowling centers)

721310

Rooming & Boarding Houses,
Dormitories, & Workers’ Camps
Food Services and Drinking Places
722300 Special Food Services (including
food service contractors &
caterers)
722410 Drinking Places (Alcoholic
Beverages)
722511 Full-Service Restaurants
722513 Limited Service Restaurants
722514 Cafeterias, Grill Buffets, & Buffets
722515 Snack & Non-alcoholic Beverage
Bars

811210

Electronic & Precision Equipment
Repair & Maintenance
811310 Commercial & Industrial Machinery
& Equipment (except Automotive &
Electronic) Repair & Maintenance
811410 Home & Garden Equipment &
Appliance Repair & Maintenance
811420 Reupholstery & Furniture Repair
811430 Footwear & Leather Goods Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care Services
(including diet & weight reducing
centers)
812210 Funeral Homes & Funeral Services
812220 Cemeteries & Crematories
812310 Coin-Operated Laundries &
Drycleaners

812320

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

DRAFT AS OF
December 8, 2022

Accommodation and Food
Services

Accommodation
721110 Hotels (except Casino Hotels) &
Motels
721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler Accommodation
721210 RV (Recreational Vehicle) Parks &
Recreational Camps

Other Services

Repair and Maintenance
811110 Automotive Mechanical &
Electrical Repair & Maintenance
811120 Automotive Body, Paint, Interior, &
Glass Repair
811190 Other Automotive Repair &
Maintenance (including oil change
& lubrication shops & car washes)

-63-

Other
999999

Unclassified Establishments
(unable to classify)

Index
A
Accounting methods 7
Change in accounting method 8
Mark-to-market accounting method 8
Nonaccrual-experience method 8, 21
Percentage of completion method 8
Accounting periods 8
Adjusting deductions for certain
credits 22
Administrative adjustment request 9
Allocation of partnership items:
Contributed property 31
Liabilities 33
Nonrecourse liabilities 33
Partnership agreement 31
Special allocations 34
Alternative minimum tax 45
Adjusted gain (loss) 45
Depletion (other than oil and gas) 45
Depreciation adjustment on property
placed in service after 1986 45
Oil, gas, and geothermal properties 45
Amended return 9
Analysis of net income (loss) per
Return 56
Analysis of partner's capital account 33
Analysis of partners' capital accounts 57
Assembling the return 12
At-risk activities 33
Attached statements 32

Reforestation expenditures 26
Rent 23
Repairs and maintenance 23
Retirement plans 25
Salaries and wages 23, 35
Taxes and licenses 24
Transactions between related
taxpayers 22
Travel 25
Wages 23
Definitions 3
Depreciation 24
Dispositions of contributed property 13
Distributions:
Recognition of precontribution gain 14
Dividends 35, 36

O
Ordinary business income (loss) 35

P

DRAFT AS OF
December 8, 2022

B
Balance sheets per books 56
Bipartisan Budget Act of 2015 (BBA) 3
Business start-up expenses 22

C
Capital gain:
Net long-term 36
Net short-term 36
Change of address 19
Charitable contribution 39
Codes:
Partner 32
Principal business activity 61
Schedule K-1 reporting 32
Collectibles (28%) gain (loss) 36
Consolidated audit procedures 3
Contributions to the partnership 13
Cost of goods sold 21
Credits 43
Low-income housing 43
Rehabilitation 43
Rental activities 43

D
Deductions:
Bad debts 23
Depletion 25
Depreciation 24
Employee benefit programs 25
Entertainment facilities 26
Guaranteed payments 23
How to report 22
Interest 24
Limitations 22
Meals and entertainment 25
Membership dues 26

E

Elections:
By each partner 13
By the partnership 12
Electronic filing 5
Entity classification election 12
Extensions 6

Paid preparer authorization 7
Partner contributing property with a
built-in gain or loss 34
Passive activity limitations:
Grouping activities 16
Passive activities defined 14
Recharacterization of passive income 17
Rental activities 15
Reporting requirements 18
Trade or business activities 15
Penalties 7
Failure to furnish information timely 7
Late filing 7
Trust fund recovery 7
Period covered 6
Portfolio income 16, 35
Private delivery services 6
Publicly traded partnerships 5, 15, 21

Q

F
Foreign accounts 27
Foreign partners, withholding 28
Foreign partnership 4
Foreign trusts, transactions 27
Forms:
How to get 3
That may be required 10
Future Developments 1

G
General partner 4
General partnership 4
Guaranteed payments 35, 57

I
Inclusion amount 23
Income:
Gross receipts or sales 20
Tax-exempt income 20
Trade or business 20
Installment sales 20
Interest income 35
Interest on production expenditures 24
Investment:
Income and expenses 47
Interest expense 40

L
Limited liability company 4
Limited liability partnership 4
Limited partner 4
Limited partnership 4

N
Net section 1231 gain (loss) 37
Nondeductible expenses 46
Nonrecourse liabilities 33
Nonrecourse loans 4, 33
(See also Nonrecourse liabilities)
Notice of inconsistent treatment 9

-64-

Qualified Business Income Deduction 50

R
Recapture:
Investment credit 47
Low-income housing credit 47
Mining exploration costs 37
Section 179 deduction 48
Reconciliation of income (loss) per books
with income (loss) per return 57
Recordkeeping 9
Reforestation costs 41
Rental activities 15
Rounding off to whole dollars 9
Royalties 36

S
Sale of partnership interests 14
Sale of small business stock:
Exclusion 38
Rollover 38
Schedule:
B 26
K 30, 34
K-1 30, 34
L 56
M-1 57
M-2 57
M-3 57
Section 179 expense deduction 39
Recapture 48
Section 481(a) adjustment 8
Section 59(e) expenditures 13, 22, 40
Self-charged interest 16
Self-employment 41
Signatures:
General partner or LLC member
manager 6
Paid preparer 7
Special allocations 34
Substitute forms 31
Syndication costs 22

T

U

W

Tax shelter:
Registration 27
Tax-exempt income 46
Termination of partnership 5
Travel and entertainment 25, 57

Uniform capitalization rules 22
Unrealized receivables and inventory:
Sale of partnership interests 14
Unrecaptured section 1250 gain 36
Unrelated business taxable income 49

When to file 6
Where to file 6
Who must file 4

DRAFT AS OF
December 8, 2022

-65-