2018 Department of the Treasury

Internal Revenue Service

Instructions for Form 1065

U.S. Return of Partnership Income
Section references are to the Internal Revenue Code Contents Page Question 21. New question 21 asks if
unless otherwise noted. the partnership is a section 721(c)
Specific Instructions
Contents Page (Schedules K and K-1, partnership defined in Regulations section
Part III, Except as Noted) . . . 30 1.721(c)-1T(b)(14).
The Taxpayer Advocate Service
(TAS) Is Here To Help You . .... 3 Analysis of Net Income Question 22. New question 22 is added
How To Get Forms and (Loss) . . . . . . . . . . . . . . . 49 for section 267A that provides that a
Publications . . . . . . . . . . . . . . 3 Schedule L. Balance Sheets deduction for certain interest or royalties paid
General Instructions . . . . . . . . . . . . 3 per Books . . . . . . . . . . . . . 49 or accrued to a related party pursuant to a
Purpose of Form . . . . . . . . . . . 3 Schedule M-1. hybrid transaction, or by or to a hybrid entity,
Reconciliation of Income may be disallowed to the extent the related
Definitions . . . . . . . . . . . . . . . 3 (Loss) per Books With party doesn't include the amount in income
Who Must File . . . . . . . . . . . . . 4 Income (Loss) per or is allowed a deduction with respect to the
Termination of the Return . . . . . . . . . . . . . . . 50 amount. See section 267A for more
Partnership . . . . . . . . . . . . . 5 Schedule M-2. Analysis of information.
Electronic Filing . . . . . . . . . . . . 5 Partners' Capital
When To File . . . . . . . . . . . . . . 5 Accounts . . . . . . . . . . . . . 50 Questions 23 and 24. New question 23
Codes for Principal Business and question 24 are added for section 163(j).
Where To File . . . . . . . . . . . . . 6
Activity and Principal Product For tax years beginning in 2018, every
Who Must Sign . . . . . . . . . . . . 5
or Service . . . . . . . . . . . . . . . 52 taxpayer who deducts business interest is
Penalties . . . . . . . . . . . . . . . . 5 required to file Form 8990, Limitation on
Index . . . . . . . . . . . . . . . . . . . . . 55
Accounting Methods . . . . . . . . . 6 Business Interest Expense Under Section
Accounting Periods . . . . . . . . . . 7 Future Developments 163(j), unless an exception for filing is met.
For more information, see Form 8990 and its
Rounding Off to Whole
For the latest information about
Dollars . . . . . . . . . . . . . . . . 7 instructions.
developments related to Form 1065 and its
Recordkeeping . . . . . . . . . . . . 8 instructions, such as legislation enacted after Question 25. New question 25 is added
Amended Return . . . . . . . . . . . 8 they were published, go to IRS.gov/ for the centralized partnership audit regime
Assembling the Return . . . . . . 11 Form1065. elect out provision under section 6221(b).
Entity Classification Election . . . 11
Question 26. New question 26 is added
Elections Made by the What's New for the qualified opportunity fund. See Form
Partnership . . . . . . . . . . . . 11
Address change for filing returns. The 8996 and its related instructions for more
Elections Made by Each
filing address for partnerships located in information.
Partner . . . . . . . . . . . . . . . 12
Partner's Dealings With certain states has changed. See Where To Designation of partnership representa-
Partnership . . . . . . . . . . . . 12 File, later. tive. On page 3, the tax matters partner
Contributions to the Technical terminations. On page 1, in signature block has been replaced with the
Partnership . . . . . . . . . . . . 12 Item G, the check box for technical designation of partnership representative
Dispositions of Contributed terminations has been removed because (PR), and includes the identity of the
Property . . . . . . . . . . . . . . 12 technical terminations don't apply for designated individual for the PR if the PR is
Recognition of partnership tax years beginning after 2017. an entity.
Precontribution Gain on Changes to Schedule K. New line 6c is
Certain Partnership Tax, payments, and refunds. The
following payments can now be made with added for dividend equivalents.
Distributions . . . . . . . . . . . 12
Unrealized Receivables and Form 1065, and refunds of overpayments Changes have been made to the codes
Inventory Items . . . . . . . . . 12 can be claimed using the new Tax and for lines 11, 13, 16, and 20.
Payment section on page 1 of the form.
Passive Activity Limitations . . . . 12 Qualified business income deduction.
• Interest due under the look-back method
Extraterritorial Income for the completed contract method and the For tax years beginning after 2017,
Exclusion . . . . . . . . . . . . . 17 income forecast method. individuals, estates, and trusts may be
Specific Instructions . . . . . . . . . . . 17 entitled to a deduction of up to 20% of their
• Bipartisan Budget Act of 2015 (BBA)
Income . . . . . . . . . . . . . . . . . 18 Administrative Adjustment Request (AAR) qualified business income from a trade or
Deductions . . . . . . . . . . . . . . 19 imputed underpayment. business, including income from a
pass-through entity (but not from a C
Schedule B. Other • Other taxes.
corporation), plus 20% of qualified real
Information . . . . . . . . . . . . 24 • Refunds of overpayments.
estate investment trust (REIT) dividends and
Schedules K and K-1. • Modification payment made under section
6225(c)(2). qualified publicly traded partnership (PTP)
Partners' Distributive
Share Items . . . . . . . . . . . . 27 income. The deduction is subject to multiple
Changes to Schedule B questions. The limitations such as the type of trade or
Specific Instructions questions relating to the Tax Equity and business, the taxpayer's taxable income, the
(Schedule K-1 Only) . . . . . . 28 Fiscal Responsibility Act of 1982 (TEFRA) amount of W-2 wages paid with respect to
Part I. Information About the have been removed from Schedule B the trade or business, and the unadjusted
Partnership . . . . . . . . . . . . 28 because TEFRA has been repealed and basis immediately after acquisition of
Part II. Information About the replaced by BBA. qualified property held by the trade or
Partner . . . . . . . . . . . . . . . 29 business. The deduction can be taken in
addition to the standard or itemized

Feb 01, 2019 Cat. No. 11392V

deductions. For more information, see please see Opportunity Zones Frequently Bipartisan Budget Act. The Bipartisan
section 199A and Pub. 535, Business Asked Questions on IRS.gov. Budget Act of 2015 (BBA) created a new
Expenses. centralized partnership audit regime effective
Three-year holding period requirement
Small business taxpayers. Effective for for applicable partnership interests. New for partnership tax years beginning after
tax years beginning after 2017, the eligibility section 1061 increases the required 2017.
of small business taxpayers to use the cash long-term capital gains holding period for an Partnership representative. Under the
method has been expanded. See applicable partnership interest from more centralized partnership audit regime,
Accounting Methods, later. than 1 year to more than 3 years. The new partnerships are required to designate a
holding period applies only to applicable partnership representative. The partnership
Treatment of deferred foreign income
partnership interests held in connection with representative will have the sole authority to
upon transition to participation exemp-
the performance of services as defined in act on behalf of the partnership under the
tion system of taxation. U.S. shareholders
section 1061. See section 1061 and Pub. centralized partnership audit regime. The
of specified foreign corporations, as defined
541 for details. designated partnership representative is a
in new section 965(e), may have an inclusion
based on post-1986 deferred foreign income Credit for paid family and medical leave. partner or other person with a substantial
of such corporations determined as of Eligible employers may qualify for a credit for presence in the United States.
November 2, 2017, or December 31, 2017. wages paid in tax years beginning after 2017
Electing out of the centralized
The U.S. shareholders may elect to pay the to qualifying employees on family and
partnership audit regime. A partnership
liability under section 965 on the post-1986 medical leave. See section 45S. Also see
can elect out of the centralized partnership
deferred foreign income in eight installments. Form 8994 and its instructions.
audit regime for a tax year if the partnership
See section 965.
At the time these instructions went to is an eligible partnership that year. A
Inclusion of Global Intangible Low-Taxed ! print, several credits and deductions partnership is an eligible partnership in the
Income (GILTI). New section 951A CAUTION available to partnerships expired tax year if it has 100 or fewer eligible
requires U.S. shareholders of controlled December 31, 2017. To find out if legislation partners. Eligible partners are individuals, C
foreign corporations to determine and extended the credits and deductions and corporations, S corporations, foreign entities
include their GILTI in taxable income every made them available for 2018, go to that would be C corporations if they were
year. Section 951A is effective for tax years IRS.gov/Extenders. domestic entities, and estates of deceased
of foreign corporations beginning after 2017, partners. The determination as to whether
and for tax years of U.S. shareholders in the partnership has 100 or fewer partners is
which or with which such tax years of foreign Reminders made by adding the number of Schedules
corporations end. See section 951A for more Disaster relief. A new item was added in K-1 required to be issued by the partnership
information. 2017 to code G of Schedule K-1 (Form to the number of Schedules K-1 required to
1065), box 13 to report qualified cash be issued by any partner that is an S
Foreign-Derived Intangible Income
contributions for relief efforts in certain corporation to its shareholders for the tax
(FDII). New section 250 allows a domestic
disaster areas. See Cash contributions for year of the S corporation ending with or
corporation a deduction for the eligible
relief efforts in certain disaster areas. within the partnership tax year. A partnership
percentage of FDII and GILTI. Section 250 is
isn't an eligible partnership if it is required to
effective for tax years beginning after 2017. If Eligible employers in certain disaster issue a Schedule K-1 to any of the following
applicable, the partnership must provide the areas can use Form 5884-A, Credits for partners.
necessary information to each domestic Affected Disaster Area Employers, to report
corporate partner for its calculation of FDII
• A partnership.
the employee retention credit. • A trust.
benefit. See section 250 for more
information.
For more information on these and other • A foreign entity that would not be treated
disaster relief provisions, see Pub. 976, as a C corporation were it a domestic entity.
Domestic production activities deduction Disaster Relief. • A disregarded entity described in
(DPAD). The DPAD has been repealed for Regulations section 301.7701–2(c)(2)(i).
Who must sign. The partnership return
tax years beginning after 2017, with limited must be signed by a partner. Beginning in • An estate of an individual other than a
exceptions. See Form 8903 and its deceased partner.
2017, any partner of a partnership or any
instructions for details. member of a limited liability company may • Any person that holds an interest in the
partnership on behalf of another person.
Treatment of gain or loss from sale or ex- sign the return.
See Schedule B-2 and its instructions if
change of interests in partnerships en- Foreign partnerships with wholly-owned electing out of the centralized partnership
gaged in U.S. trade or business. New domestic disregarded entities. For tax audit regime.
section 864(c)(8) provides that gain or loss years beginning on or after January 1, 2017,
from the sale, exchange, or other disposition
of a partnership interest by a nonresident
and ending on or after December 13, 2017, if Photographs of Missing
a foreign partnership wholly owns a domestic
alien or foreign corporation is generally disregarded entity (DE), the domestic DE is Children
effectively connected with the conduct of a treated as a domestic corporation separate The Internal Revenue Service is a proud
trade or business in in the United States to from its owner (the foreign partnership) for partner with the National Center for Missing
the extent that the person would have had the limited purposes of the requirements that & Exploited Children® (NCMEC).
effectively connected gain or loss had the apply to certain foreign-owned domestic Photographs of missing children selected by
partnership sold all of its assets at fair market corporations under section 6038A. See the the Center may appear in instructions on
value. See the instructions for Schedule K, Instructions for Form 5472 for additional pages that would otherwise be blank. You
line 20, code AH for a new reporting information about reporting required by the can help bring these children home by
requirement. domestic DE. looking at the photographs and calling
Special rules for eligible gains invested 1-800-THE-LOST (1-800-843-5678) if you
Entertainment expenses, membership recognize a child.
in Qualified Opportunity Funds. Effective dues, and facilities. No deduction is
December 22, 2017, section 1400Z-2 allowed for certain entertainment expenses,
provides partners investing eligible gains in membership dues, and facilities used in
Qualified Opportunity Funds (QOF) connection with these activities for amounts
tax-favored investments. If the partnership is incurred or paid after 2017. See Travel,
operating as a QOF, see Other Forms, meals, and entertainment, later.
Returns, and Statements That May be
Required, later. For additional information

-2- Instructions for Form 1065 (2018)

The Taxpayer Advocate A qualified joint venture conducts a trade

Service (TAS) Is Here To

General Instructions or business where the only members of the
joint venture are a married couple who file a
Help You joint return; both spouses materially
Purpose of Form participate in the trade or business, as mere
What is the TAS? The Taxpayer Advocate joint ownership of property isn't enough; both
Form 1065 is an information return used to
Service (TAS) is an independent spouses elect not to be treated as a
report the income, gains, losses, deductions,
organization within the Internal Revenue partnership; and the business is co-owned
credits, and other information from the
Service that helps taxpayers and protects by both spouses and isn't held in the name of
operation of a partnership. A partnership
taxpayer rights. Our job is to ensure that a state law entity such as a partnership or
doesn't pay tax on its income but passes
every taxpayer is treated fairly and that you limited liability company.
through any profits or losses to its partners.
know and understand your rights under the
Partners must include partnership items on To make this election, you must divide all
Taxpayer Bill of Rights.
their tax or information returns. items of income, gain, loss, deduction, and
What can the TAS do for you? We can credit between you and your spouse in
help you resolve problems that you can’t Definitions accordance with your respective interests in
resolve with the IRS. And our service is free. the venture. Each of you must file a separate
If you qualify for our assistance, you will be Centralized Partnership Audit Schedule C, C-EZ, or F. On each line of your
assigned to one advocate who will work with Regime separate Schedule C, C-EZ, or F, you must
you throughout the process and will do enter your share of the applicable income,
everything possible to resolve your issue. The Bipartisan Budget Act of 2015 (BBA) deduction, or loss. Each of you also must file
created a new centralized partnership audit a separate Schedule SE to pay
How can you reach us? We have offices regime effective for partnership tax years self-employment tax, as applicable.
in every state, the District of Columbia, and beginning after 2017. The new audit regime
Puerto Rico. Your local advocate's number is replaces the consolidated audit proceedings If you and your spouse make the election
in your local directory and at under TEFRA. The new audit regime applies for your rental real estate business, you each
www.taxpayeradvocate.irs.gov. You can also to all partnerships unless the partnership is must report your share of income and
call us at 1-877-777-4778. an eligible partnership and elects out by deductions on Schedule E. Rental real
making a valid election using Schedule B-2 estate income generally isn't included in net
How can you learn about your taxpayer earnings from self-employment subject to
rights? The Taxpayer Bill of Rights (Form 1065).
self-employment tax and generally is subject
describes 10 basic rights that all taxpayers Partnership to the passive loss limitation rules. Electing
have when dealing with the IRS. Our Tax qualified joint venture status doesn't alter the
Toolkit at www.taxpayeradvocate.irs.gov can A partnership is the relationship between two
or more persons who join to carry on a trade application of the self-employment tax or the
help you understand what these rights mean passive loss limitation rules.
to you and how they apply. These are your or business, with each person contributing
money, property, labor, or skill and each To make the qualified joint venture
rights. Know them. Use them.
expecting to share in the profits and losses election for 2018, jointly file the 2018 Form
How else does the TAS help taxpayers? of the business whether or not a formal 1040, with the required schedules. This
The TAS works to resolve large-scale partnership agreement is made. generally doesn't increase the total tax on
problems that affect many taxpayers. If you the return, but it does give each spouse
know of one of these broad issues, please The term “partnership” includes a limited credit for social security earnings on which
report it to us at IRS.gov/sams. partnership, syndicate, group, pool, joint retirement benefits are based, provided
venture, or other unincorporated neither spouse exceeds the social security
How To Get Forms and organization, through or by which any
business, financial operation, or venture is
tax limitation.
Publications carried on, that isn't, within the meaning of Once made, the election cannot be
revoked without IRS consent. If you and your
regulations under section 7701, a
Internet. You can access the IRS website corporation, trust, estate, or sole spouse filed a Form 1065 for the year prior to
at IRS.gov 24 hours a day, 7 days a week to: proprietorship. the election, you don't need to amend that
• E-file your return. Find out about return or file a final Form 1065 for the year
commercial tax preparation and e-file A joint undertaking merely to share the election takes effect.
services available free to eligible taxpayers; expenses isn't a partnership. Mere For more information on qualified joint
• Download forms, including talking tax co-ownership of property that is maintained ventures, go to IRS.gov and enter “Qualified
forms, instructions, and publications; and leased or rented isn't a partnership. Joint Venture” in the search box.
• Use the online Internal Revenue Code, However, if the co-owners provide services
regulations, or other official guidance; to the tenants, a partnership exists. Foreign Partnership
• Get information on starting and operating Business owned and operated by spou- A foreign partnership is a partnership that
a small business; isn't created or organized in the United
ses. Generally, if you and your spouse
• Order IRS products online; jointly own and operate an unincorporated States or under the law of the United States
• Research your tax questions online; business and share in the profits and losses, or of any state. See Notice 2010-41 for
• Search publications online by topic or you are partners in a partnership and you information on when a domestic partnership
keyword; will be classified as foreign.
must file Form 1065.
• View Internal Revenue Bulletins (IRBs)
published in the last few years; and Exception—Qualified joint venture. If If a domestic section 721(c) partnership is
• Sign up to receive local and national tax you and your spouse materially participate formed on or after January 18, 2017, and the
news by email. as the only members of a jointly owned and gain deferral method is applied, then a U.S.
operated business, and you file a joint return transferor must treat the section 721(c)
Tax forms and publications. The partnership as a foreign partnership and file
partnership can download or print all of the for the tax year, you can make an election to
be treated as a qualified joint venture instead a Form 8865, Return of U.S. Persons With
forms and publications it may need on Respect to Certain Foreign Partnerships,
IRS.gov/formspubs. Otherwise, the of a partnership. By making the election, you
will not be required to file Form 1065 for any with respect to the partnership. See Form
partnership can go to IRS.gov/orderforms to 8865 and its instructions. See also
place an order and have forms mailed to the year the election is in effect and will instead
report the income and deductions directly on Temporary Regulations section
partnership. The partnership should receive 1.721(c)-6T(b)(4).
its order within 10 business days. your joint return.

Instructions for Form 1065 (2018) -3-

General Partner U.S. Transferor A qualifying syndicate, pool, joint venture,
or similar organization may elect under
A general partner is a partner who is A U.S. transferor is a U.S. person other than
section 761(a) not to be treated as a
personally liable for partnership debts. a domestic partnership. See Temporary
partnership for federal income tax purposes
Regulations section 1.721(c)-1T(b)(18).
General Partnership and will not be required to file Form 1065
A general partnership is composed only of Section 721(c) Property except for the year of election. For details,
see section 761(a) and Regulations section
general partners. Section 721(c) property is property (other
1.761-2.
than excluded property) with built-in gain that
Limited Partner is contributed to a partnership by a U.S. Real estate mortgage investment
A limited partner is a partner in a partnership transferor, including pursuant to a conduits (REMICs) must file Form 1066, U.S.
formed under a state limited partnership law, contribution described in Temporary Real Estate Mortgage Investment Conduit
whose personal liability for partnership debts Regulations section 1.721(c)-2T(d) (REMIC) Income Tax Return.
is limited to the amount of money or other (partnership look-through rule). See Certain publicly traded partnerships
property that the partner contributed or is Temporary Regulations section treated as corporations under section 7704
required to contribute to the partnership. 1.721(c)-1T(b)(15). must file Form 1120.
Some members of other entities, such as
domestic or foreign business trusts or limited Gain Deferral Contribution Foreign Partnerships
liability companies that are classified as A gain deferral contribution is a contribution Generally, a foreign partnership that has
partnerships, may be treated as limited of section 721(c) property to a section 721(c) gross income effectively connected with the
partners for certain purposes. partnership with respect to which the conduct of a trade or business within the
recognition of gain is deferred under the gain
Limited Partnership deferral method. See Temporary
United States or has gross income derived
from sources in the United States must file
A limited partnership is formed under a state Regulations section 1.721(c)-1T(b)(7). Form 1065, even if its principal place of
limited partnership law and composed of at
least one general partner and one or more Gain Deferral Method business is outside the United States or all
its members are foreign persons. A foreign
limited partners. The gain deferral method is the method partnership required to file a return generally
described in Temporary Regulations section
Limited Liability Partnership 1.721(c)-3T(b) applied to avoid the
must report all of its foreign and U.S. source
income.
A limited liability partnership (LLP) is formed immediate recognition of gain upon a
under a state limited liability partnership law. contribution of section 721(c) property to a A foreign partnership with U.S. source
Generally, a partner in an LLP isn't section 721(c) partnership under Temporary income isn't required to file Form 1065 if it
personally liable for the debts of the LLP or Regulations section 1.721(c)-2T(b). qualifies for either of the following two
any other partner, nor is a partner liable for exceptions.
the acts or omissions of any other partner, Who Must File Exception for foreign partnerships with
solely by reason of being a partner. U.S. partners. A return isn't required if:
Domestic Partnerships • The partnership had no effectively
Limited Liability Company
Except as provided below, every domestic connected income (ECI) during its tax year;
A limited liability company (LLC) is an entity partnership must file Form 1065, unless it • The partnership had U.S. source income
formed under state law by filing articles of neither receives income nor incurs any of $20,000 or less during its tax year;
organization as an LLC. Unlike a partnership, expenditures treated as deductions or • Less than 1% of any partnership item of
none of the members of an LLC are credits for federal income tax purposes. income, gain, loss, deduction, or credit was
personally liable for its debts. An LLC may allocable in the aggregate to direct U.S.
be classified for federal income tax purposes Entities formed as LLCs that are partners at any time during its tax year; and
as a partnership, a corporation, or an entity classified as partnerships for federal income • The partnership isn't a withholding foreign
disregarded as an entity separate from its tax purposes have the same filing partnership as defined in Regulations section
owner by applying the rules in Regulations requirements as domestic partnerships. 1.1441-5(c)(2)(i).
section 301.7701-3. See Form 8832, Entity
Classification Election, for more details. A religious or apostolic organization Exception for foreign partnerships with
exempt from income tax under section no U.S. partners. A return isn't required if:
A domestic LLC with at least two
501(d) must file Form 1065 to report its • The partnership had no ECI during its tax
TIP members that does not file Form year;
8832 is classified as a partnership taxable income, which must be allocated to
its members as a dividend, whether • The partnership had no U.S. partners at
for federal income tax purposes. any time during its tax year;
distributed or not. Such an organization must
figure its taxable income on an attached • All required Forms 1042 and 1042-S were
Nonrecourse Loans filed by the partnership or another
statement to Form 1065 in the same manner
Nonrecourse loans are those liabilities of the as a corporation. The organization may use withholding agent as required by Regulations
partnership for which no partner or related Form 1120, U.S. Corporation Income Tax section 1.1461-1(b) and (c);
person bears the economic risk of loss. Return, for this purpose. Enter the • The tax liability of each partner for
organization's taxable income, if any, on amounts reportable under Regulations
Section 721(c) Partnership section 1.1461-1(b) and (c) has been fully
line 6a of Schedule K and each member's
A partnership (domestic or foreign) is a distributive share in box 6a of Schedule K-1. satisfied by the withholding of tax at the
section 721(c) partnership if there is a Net operating losses aren't deductible by the source; and
contribution of section 721(c) property to the members but may be carried back or forward • The partnership isn't a withholding foreign
partnership and, after the contribution (and by the organization under the rules of section partnership as defined in Regulations section
all transactions related to the contribution), 172. The religious or apostolic organization 1.1441-5(c)(2)(i).
(1) a related foreign person with respect to also must make its annual information return A foreign partnership filing Form 1065
the U.S. transferor is a direct or indirect available for public inspection. For this solely to make an election (such as an
partner in the partnership and (2) the U.S. purpose, “annual information return” includes election to amortize organization expenses)
transferor and related persons own 80% or an exact copy of Form 1065 and all need only provide its name, address, and
more of the interests in partnership capital, accompanying schedules and attached employer identification number (EIN) on
profits, deductions, or losses. See statements, except Schedules K-1. For more page 1 of the form and attach a statement
Temporary Regulations section details, see Regulations section citing “Regulations section 1.6031(a)-1(b)
1.721(c)-1T(b)(14). 301.6104(d)-1. (5)” and identifying the election being made.

-4- Instructions for Form 1065 (2018)

A foreign partnership filing Form 1065 solely Waiver requests can also be faxed to instead of the partner or LLC member.
to make an election must obtain an EIN if it 1-877-477-0575. Returns and forms signed by a receiver or
doesn't already have one. trustee in bankruptcy on behalf of a
Contact the e-Help Desk at partnership must be accompanied by a copy
1-866-255-0654 for questions regarding the
Termination of the waiver procedures or process.
of the order or instructions of the court
authorizing signing of the return or form.
Partnership
A partnership terminates when all its When To File Paid Preparer's Information
operations are discontinued and no part of Generally, a domestic partnership must file If a partner, member, or employee of the
any business, financial operation, or venture Form 1065 by the 15th day of the 3rd month partnership completes Form 1065, the paid
is continued by any of its partners in a following the date its tax year ended as preparer's space should remain blank. In
partnership. shown at the top of Form 1065. For calendar addition, anyone who prepares Form 1065
The partnership’s tax year ends on the year partnerships, the due date is March 15, but doesn't charge the partnership should
date of termination which is the date the 2019. not complete this section.
partnership winds up its affairs. Special rules Generally, anyone who is paid to prepare
If the due date falls on a Saturday,
apply in the case of a merger, consolidation, the partnership return must do the following.
Sunday, or legal holiday, file by the next day
or division of a partnership. See Regulations • Sign the return in the space provided for
that isn't a Saturday, Sunday, or legal
sections 1.708-1(c) and (d) for details. the preparer's signature.
holiday.
• Fill in the other blanks in the “Paid
Electronic Filing Private Delivery Services Preparer Use Only” area of the return. A paid
Certain partnerships with more than 100 Partnerships can use certain private delivery preparer cannot use a social security number
partners are required to file Form 1065, services designated by the IRS to meet the in the “Paid Preparer Use Only” box. The
Schedules K-1, and related forms and “timely mailing as timely filing/paying” rule for paid preparer must use a preparer tax
schedules electronically. Other partnerships tax returns. Go to IRS.gov/PDS for the identification number (PTIN).
generally have the option to file current list of designated services. The PDS • Give the partnership a copy of the return
electronically. can tell you how to get written proof of the in addition to the copy to be filed with the
mail date. IRS.
See Rev. Proc. 2012-17, at www.irs.gov/
pub/irs-irbs/irb12-10.pdf, for the For the IRS mailing address to use if you A paid preparer may sign original or
requirements for furnishing substitute are using a PDS, go to IRS.gov/ TIP amended returns by rubber stamp,
Schedule K-1 in electronic format. PDSStreetAddresses. mechanical device, or computer
The option to file electronically doesn't software program.
A PDS can’t deliver items to P.O.
apply to certain returns, including:
• Bankruptcy returns, and ! boxes. You must use the U.S. Postal Paid Preparer Authorization
CAUTION Service to mail any item to an IRS
• Returns with pre-computed penalty and P.O. box address.
If the partnership wants to allow the paid
interest. preparer to discuss its 2018 Form 1065 with
the IRS, check the “Yes” box in the signature
For more details on electronic filing us- Extension of Time To File area of the return. The authorization applies
ing the Modernized e-file system, see: File Form 7004 to request an extension of only to the individual whose signature
• Pub. 3112, IRS e-file Application and time to file. File Form 7004 by the regular appears in the “Paid Preparer Use Only”
Participation; due date of the partnership return. Form section of its return. It doesn't apply to the
• Pub. 4163, Modernized e-File (MeF) 7004 can be electronically filed. See the firm, if any, shown in the section.
Information for Authorized IRS e-file Instructions for Form 7004.
Providers for Business Returns; If the “Yes” box is checked, the
• Pub. 4164, Modernized e-File (MeF) Period Covered partnership is authorizing the IRS to call the
Guide for Software Developers And The 2018 Form 1065 is an information return paid preparer to answer any questions that
Transmitters; for calendar year 2018 and fiscal years that may arise during the processing of its return.
• Form 8453-PE, U.S. Partnership begin in 2018 and end in 2019. For a fiscal The partnership is also authorizing the paid
Declaration for an IRS e-file Return; and year or a short tax year, fill in the tax year preparer to:
• Form 8879-PE, IRS e-file Signature space at the top of Form 1065 and each • Give the IRS any information that is
Authorization for Form 1065. Schedule K-1. missing from its return,
For More Information on Filing • Call the IRS for information about the
The 2018 Form 1065 may also be used if: processing of its return, and
Electronically 1. The partnership has a tax year of less • Respond to certain IRS notices about
• Call the e-Help Desk at 1-866-255-0654, than 12 months that begins and ends in math errors and return preparation.
or 2019, and The partnership isn't authorizing the paid
• Visit IRS.gov/filing. 2. The 2019 Form 1065 isn't available preparer to bind the partnership to anything
Electronic Filing Waiver by the time the partnership is required to file or otherwise represent the partnership
its return. before the IRS. If the partnership wants to
The IRS may waive the electronic filing rules expand the paid preparer's authorization,
if the partnership demonstrates that a However, the partnership must show its see Pub. 947, Practice Before the IRS and
hardship would result if it were required to file 2019 tax year on the 2018 Form 1065 and Power of Attorney.
its return electronically. A partnership incorporate any tax law changes that are
interested in requesting a waiver of the effective for tax years beginning after 2018. The authorization cannot be revoked.
mandatory electronic filing requirement must However, the authorization will automatically
file a written request, and request one in the Who Must Sign end no later than the due date (excluding
manner prescribed by the Ogden extensions) for filing the 2018 return.
Submission Processing Center (OSPC). Any Partner or LLC Member
All written requests for waivers should be Form 1065 isn't considered to be a return Penalties
mailed to: Internal Revenue Service, Ogden unless it is signed by a partner or LLC
Submission Processing Center, Mail Stop member. When a return is made for a Late Filing of Return
1057, Ogden, UT 84201, Attn: Form 1065 partnership by a receiver, trustee, or A penalty is assessed against the
e-file Waiver Request. assignee, the fiduciary must sign the return, partnership if it is required to file a

Instructions for Form 1065 (2018) -5-

 • Form 943, Employer's Annual Federal Tax
Where To File Return for Agricultural Employees;
• Form 944, Employer's ANNUAL Federal
File Form 1065 at the applicable IRS address listed below. If Schedule M-3 is filed, Form Tax Return; and
1065 must be filed at the Ogden Internal Revenue Service Center as shown below.
• Form 945, Annual Return of Withheld
Federal Income Tax.
And the total assets at
If the partnership's principal the end of the tax year The trust fund recovery penalty may be
business, office, or agency (Form 1065, page 1, item imposed on all persons who are determined
is located in: F) are: Use the following address: by the IRS to have been responsible for
collecting, accounting for, or paying over
Connecticut, Delaware, District these taxes, and who acted willfully in not
of Columbia, Georgia, Illinois, doing so. The penalty is equal to the unpaid
Indiana, Kentucky, Maine, trust fund tax. See the Instructions for Form
Maryland, Massachusetts, 720; Pub. 15 (Circular E), Employer's Tax
Department of the Treasury
Michigan, New Hampshire, Less than $10 million and Guide; or Pub. 51 (Circular A), Agricultural
Internal Revenue Service Center
New Jersey, New York, North Schedule M-3 isn't filed Employer's Tax Guide, for more details,
Kansas City, MO 64999-0011
Carolina, Ohio, Pennsylvania, including the definition of a responsible
Rhode Island, South Carolina, person.
Tennessee, Vermont, Virginia,
West Virginia, Wisconsin Accounting Methods
Connecticut, Delaware, District An accounting method is a set of rules used
of Columbia, Georgia, Illinois, to determine when and how income and
Indiana, Kentucky, Maine, expenditures are reported. The method of
Maryland, Massachusetts, accounting used must be reconcilable with
$10 million or more or Department of the Treasury the partnership's books and records. In all
Michigan, New Hampshire,
less than $10 million and Internal Revenue Service Center cases, the method used must clearly reflect
New Jersey, New York, North
Schedule M-3 is filed Ogden, UT 84201-0011 income. Generally, the following rules apply.
Carolina, Ohio, Pennsylvania,
Rhode Island, South Carolina, For more information see Pub. 538,
Tennessee, Vermont, Virginia, Accounting Periods and Methods.
West Virginia, Wisconsin Permissible overall methods of
Alabama, Alaska, Arizona, accounting include:
Arkansas, California, • Cash,
Colorado, Florida, Hawaii, • Accrual, or
Idaho, Iowa, Kansas, • Any other method authorized by the
Louisiana, Minnesota, Department of the Treasury Internal Revenue Code.
Mississippi, Missouri, Any amount Internal Revenue Service Center Generally, a partnership may use the
Montana, Nebraska, Nevada, Ogden, UT 84201-0011 cash method of accounting unless it’s
New Mexico, North Dakota, required to maintain inventories, has a C
Oklahoma, Oregon, South corporation as a partner, or is a tax shelter
Dakota, Texas, Utah, (as defined in section 448(d)(3)). However,
Washington, Wyoming for tax years beginning after 2017, any
A foreign country or U.S. Internal Revenue Service partnership qualifying as a small business
possession Any amount P.O. Box 409101 taxpayer (defined below), may use the cash
Ogden, UT 84409 method.
For tax years beginning after 2017, a
small business taxpayer (defined below) can
partnership return and it (a) fails to file the on Schedule K-1 all the information required adopt or change its accounting method to
return by the due date, including extensions, to be shown (or the inclusion of incorrect account for inventories (i) in the same
or (b) files a return that fails to show all the information), a $270 penalty may be manner as materials and supplies that are
information required, unless such failure is imposed for each Schedule K-1 for which a non-incidental, or (ii) to conform to the
due to reasonable cause. The penalty is failure occurs. The maximum penalty is taxpayer's treatment of inventories in an
$210 for each month or part of a month (for a $3,275,500 for all such failures during a applicable financial statement (as defined in
maximum of 12 months) the failure calendar year. If the requirement to report section 451(b)(3)), or, if the taxpayer doesn't
continues, multiplied by the total number of correct information is intentionally have an applicable financial statement, the
persons who were partners in the disregarded, each $270 penalty is increased method of accounting used in the taxpayer's
partnership during any part of the to $540 or, if greater, 10% of the aggregate books and records prepared in accordance
partnership's tax year for which the return is amount of items required to be reported. with the taxpayer's accounting procedures.
due. If the partnership receives a notice There is no limit to the amount of the penalty. See section 471(c)(1), and Change in
about a penalty after it files the return, the accounting method, later.
partnership may send the IRS an explanation Trust Fund Recovery Penalty
and the Service will determine if the This penalty may apply if certain excise, For tax years beginning after 2017, a
explanation meets reasonable-cause criteria. income, social security, and Medicare taxes small business taxpayer (defined below) can
Do not attach an explanation when filing the that must be collected or withheld aren't adopt or change its accounting method to
return. collected or withheld, or these taxes are not not capitalize costs to property produced or
paid. These taxes are generally reported on: acquired for resale under section 263A. See
Failure To Furnish Information • Form 720, Quarterly Federal Excise Tax section 263A(i), and Change in accounting
Timely Return; method and Limitations on Deductions, later.
For each failure to furnish Schedule K-1 to a • Form 941, Employer's QUARTERLY Small business taxpayer. A small
partner when due and each failure to include Federal Tax Return; business taxpayer is a taxpayer that (a) has
average annual gross receipts of $25 million

-6- Instructions for Form 1065 (2018)

or less for the prior 3 tax years and (b) isn't a
tax shelter (as defined in section 448(d)(3)).
market value (FMV). Any security that isn't
inventory and that is held at the close of the
Accounting Periods
A partnership is generally required to have
tax year is treated as sold at its FMV on the
Under the accrual method, an amount is one of the following tax years.
last business day of the tax year, and any
includible in income when: gain or loss must be taken into account in 1. The tax year of a majority of its
1. All the events have occurred that fix determining gross income. The gain or loss partners (majority tax year).
the right to receive the income, which is the taken into account is generally treated as 2. If there is no majority tax year, then
earliest of the date: ordinary gain or loss. For details, including the tax year common to all of the
• Payment is earned through the required exceptions, see section 475, the related partnership's principal partners (partners
performance, regulations, and Rev. Rul. 97-39, 1997-39 with an interest of 5% or more in the
• Payment is due to the taxpayer, or I.R.B. 4. partnership profits or capital).
• Payment is received by the taxpayer; Dealers in commodities and traders in 3. If there is neither a majority tax year
and securities and commodities can elect to use nor a tax year common to all principal
2. The amount can be determined with the mark-to-market accounting method. To partners, then the tax year that results in the
reasonable accuracy. make the election, the partnership must file a least aggregate deferral of income.
statement describing the election, the first
Note. In determining the tax year of a
See Regulations section 1.451-1(a) for tax year the election is to be effective, and, in
partnership under (1), (2), or (3) above, the
details. the case of an election for traders in
tax years of certain tax-exempt and foreign
securities or commodities, the trade or
Generally, an accrual basis taxpayer can partners are disregarded. See Regulations
business for which the election is made.
deduct accrued expenses in the tax year in section 1.706-1(b) for more details.
Except for new taxpayers, the statement
which: must be filed by the due date (not including 4. Some other tax year, if:
• All events that determine the liability have extensions) of the return for the tax year • The partnership can establish that there is
occurred, immediately preceding the election year and a business purpose for the tax year; or
• The amount of the liability can be figured attached to that return or, if applicable, to a • The partnership elects under section 444
with reasonable accuracy, and request for an extension of time to file that to have a tax year other than a required tax
• Economic performance takes place with return. For more details, see Rev. Proc. year by filing Form 8716, Election To Have a
respect to the expense. 99-17, 1999-7 I.R.B. 52, as superseded in Tax Year Other Than a Required Tax Year.
part by Rev. Proc. 99-49, and sections For a partnership to have this election in
For property and service liabilities, for effect, it must make the payments required
475(e) and (f).
example, economic performance occurs as by section 7519 and file Form 8752,
the property or service is provided. There are Change in accounting method. Required Payment or Refund Under Section
special economic performance rules for Generally, the partnership must get IRS 7519.
certain items, including recurring expenses. consent to change its method of accounting
used to report income or expense (for A section 444 election ends if a
See section 461 and the related regulations
income or expense as a whole or for any partnership changes its accounting period to
for the rules for determining when economic
material item). To do so, the partnership its required tax year or some other permitted
performance takes place.
generally must file Form 3115, Application year or it is penalized for willfully failing to
Nonaccrual-experience method. Accrual comply with the requirements of section
for Change in Accounting Method. See the
method partnerships aren't required to 7519. If the termination results in a short tax
Instructions for Form 3115 for more
accrue certain amounts to be received from year, type or legibly print at the top of the first
information and exceptions. Also see Rev.
the performance of services that, on the page of Form 1065 for the short tax year,
Proc. 2018-31, 2018-22 I.R.B. 637 (or any
basis of their experience, will not be “SECTION 444 ELECTION TERMINATED”;
successor guidance), and Pub. 538,
collected if: or
Accounting Periods and Methods.
• The services are in the fields of health, • The partnership elects to use a
law, engineering, architecture, accounting, Section 481(a) adjustment. The 52-53-week tax year that ends with reference
actuarial science, performing arts, or partnership may have to make an adjustment to either its required tax year or a tax year
consulting; or to prevent amounts of income or expenses elected under section 444.
• The partnership's average annual gross from being omitted or duplicated. This is
receipts don’t exceed $25 million for all prior called a section 481(a) adjustment. The Change of tax year. To change its tax
tax years. For more details, see section section 481(a) adjustment period is generally year or to adopt or retain a tax year other
448(d)(5). 1 year for a net negative adjustment and 4 than its required tax year, the partnership
years for a net positive adjustment. However, must file Form 1128, Application To Adopt,
This provision doesn't apply to any Change, or Retain a Tax Year, unless the
amount if interest is required to be paid on in some instances, a partnership can elect to
modify the section 481(a) adjustment period. partnership is making an election under
the amount or if there is any penalty for section 444.
failure to timely pay the amount. For The partnership must complete the
information, see section 448(d)(5) and appropriate lines of Form 3115 to make the The tax year of a common trust fund
Regulations section 1.448-2. For reporting election. See the Instructions for Form 3115. TIP must be the calendar year.
requirements, see the instructions for line 1a. Include any net positive section 481(a)
adjustment on page 1 of Form 1065, line 7. If
Percentage of completion method.
Long-term contracts (except for certain real
the net section 481(a) adjustment is Rounding Off to Whole
negative, report it on page 1, line 20.
property construction contracts) must Dollars
generally be accounted for using the There are some instances when the
The partnership can round off cents to whole
percentage of completion method described partnership can obtain automatic consent
dollars on its return and schedules. If the
in section 460. See section 460 and the from the IRS to change to certain accounting
partnership does round to whole dollars, it
underlying regulations for rules on long-term methods. See Rev. Proc. 2015-13, 2015-5
must round all amounts. To round, drop
contracts. I.R.B. 419, Rev. Proc. 2018-31, 2018-22
amounts under 50 cents and increase
I.R.B. 637, and Rev. Proc. 2018-40, 2018-31
Mark-to-market accounting method. amounts from 50 to 99 cents to the next
I.R.B. 320 (or any successor guidance), and
Dealers in securities must use the dollar. For example, $1.39 becomes $1 and
Pub. 538, Accounting Periods and Methods.
mark-to-market accounting method $2.50 becomes $3.
described in section 475. Under this method,
any security that is inventory to the dealer If two or more amounts must be added to
must be included in inventory at its fair figure the amount to enter on a line, include

Instructions for Form 1065 (2018) -7-

cents when adding the amounts and round one or more partnership-related items rather examination to request specific types of
off only the total. than an amended return. modifications of any imputed underpayment
proposed by the IRS. One type of
AARs filed under the centralized
Recordkeeping partnership audit regime. Partnerships
modification that may be requested is when
one or more partners, including
The partnership must keep its records as filing an AAR that have not made a valid partnership-partners, file amended returns
long as they may be needed for the election out of the BBA centralized for the tax years of the partners which
administration of any provision of the Internal partnership audit regime and have includes the end of the reviewed year of the
Revenue Code. The partnership usually adjustments that result in an imputed BBA partnership under examination and for
must keep records that support an item of underpayment and any interest or penalties any tax year with respect to which tax
income, deduction, or credit on the related to the imputed underpayment should attributes are affected. The BBA partnership
partnership return for 3 years from the date report the imputed underpayment and any will be assigned a unique audit control
the return is due or is filed, whichever is later. interest and penalties on Form 1065, page 1, number that must be shown on the amended
These records usually must be kept for 3 line 25. See the Instructions for Form 8082 return. Modification requires the
years from the date each partner's return is for information on how to figure a BBA partnership-partner to attach a statement
due or is filed, whichever is later. It must also imputed underpayment and what to do when and specify the audit control number, the
keep records that verify the partnership's an adjustment requested by an AAR doesn't BBA partnership name and EIN, and the
basis in property for as long as they are result in an imputed underpayment. See reviewed year(s) under examination for
needed to figure the basis of the original or section 6233 for information about interest which the modification applies.
replacement property. and penalties on the imputed underpayment.
Include the following information on your Partnership-partners who are filing
The partnership should also keep copies
payment: name of the partnership, “Form amended returns electronically as part of the
of all returns it has filed. They help in
1065,” tax identification number, tax year, modification of the imputed underpayment
preparing future returns and in making
and “BBA AAR Imputed Underpayment.” during examination under section 6225(c)(2)
computations when filing an amended return.
Checks must be paid to the “United States will report the applicable payment of tax on
Form 1065, page 1, line 25. A payment made
Amended Return Treasury” and mailed to Ogden Service
Center, Ogden, UT 84201-0011. Payments with an amended Form 1065 should detail
The procedures to follow when filing an can be made by check or electronically. the amount of the payment to be applied
amended partnership return depend on separately to tax, interest, and penalties. The
whether the amended return is filed If the partnership has an imputed partnership should consider all guidance
electronically or on paper. The rules for underpayment, the partnership may elect to issued by the IRS when figuring the amount
determining when a return must be filed have its partners take the adjustments into due. Information to include on the payment is
electronically (see Electronic Filing, earlier) account instead of paying the imputed the name of the partnership, Form 1065, the
also apply to amended returns. underpayment. See the Instructions for Form tax identification number of the
8082 for information on how to make the partnership-partner, the tax year, and
Electronically filed amended returns. If election. "Partner Payment for BBA Modification."
the amended return will be filed
Paper-filed amended returns. If the Checks must be payable to the U.S.
electronically, complete Form 1065 and
amended return will not be filed Treasury and included with the amended
check box G(5) to indicate that you are filing
electronically, complete Form 1065X, return. If making an electronic payment,
an amended return. Attach a statement that
Amended Return or Administrative choose the payment description "Partner
identifies the line number of each amended
Adjustment Request (AAR), to file the Pymnt for BBA Modification" from the list of
item, the corrected amount or treatment of
amended return or administrative adjustment payment types. The payment amount,
the item, and an explanation of the reason(s)
request. See Form 1065X and its separate including interest and penalties, should be
for each change. If the income, deductions,
instructions for information on completing reported on Form 1065, page 1, line 25.
credits, or other information provided to any
and filing the form.
partner on Schedule K-1 is incorrect, file an What if You Can’t Pay Now?
amended Schedule K-1 (Form 1065) for that When a partnership's federal return Go to IRS.gov/Payments for more
partner with the amended Form 1065. Also TIP is amended or changed for any information about your options.
give a copy of the amended Schedule K-1 to reason, it may affect the
that partner. Check the “Amended K-1” box • Apply for an online payment agreement
partnership's state tax return. For more (IRS.gov/OPA) to meet your tax obligation in
at the top of the Schedule K-1 to indicate that information, contact the state tax agency for monthly installments if you can’t pay your
it is an amended Schedule K-1. the state in which the partnership return was taxes in full today. Once you complete the
Exception. A partnership that is subject filed. online process, you will receive immediate
to the BBA centralized partnership audit notification of whether your agreement has
Partner amended return filed as part of been approved.
regime must file Form 8082, Notice of
modification of the imputed underpay- • Use the Offer in Compromise Pre-
Inconsistent Treatment or Administrative
ment during a BBA examination. Section Qualifier to see if you can settle your tax debt
Adjustment Request (AAR), to request an
6225(c)(2) allows a BBA partnership under for less than the full amount you owe.
administrative adjustment in the amount of

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

-8- Instructions for Form 1065 (2018)

Form, Return, or Statement Use this to—
943—Employer's Annual Federal Tax Return for Agricultural Report income tax withheld and employer and employee social security and Medicare taxes on
Employees 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.
965—Inclusion of Deferred Foreign Income Upon Transition to Report deferred foreign income upon transition to a participation exemption system of taxation if the
Participation Exemption System provisions of IRC 965 apply. Attach and submit with Form 1065.

1042 and 1042-S—Annual Withholding Tax Return for U.S. Source Report and send withheld tax on payments or distributions made to nonresident alien individuals,
Income of Foreign Persons; and Foreign Person's U.S. Source foreign partnerships, or foreign corporations to the extent these payments or distributions constitute
Income Subject to Withholding 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 be made and paid over by the earlier of:
• The date on which Schedule K-1 is sent to that partner, or
• The 15th day of the 3rd month after the end of the partnership's tax year.
For more details, see sections 1441 and 1442 and Pub. 515, Withholding of Tax on Nonresident Aliens
and Foreign Entities.

1042-T—Annual Summary and Transmittal of Forms 1042-S Transmit paper Forms 1042-S to the IRS.

1065X—Amended Return or Administrative Adjustment Request Use Form 1065X to correct a previously filed partnership return or to make an Administrative
(AAR) Adjustment Request for a previously filed return.

1095-B and 1094-B—Health Coverage; and Transmittal of Forms Required to be filed by certain health insurance issuers and others who provide minimum essential
1095-B 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, LTC, MISC, OID, R, S, and SA. Report the following.
• Acquisitions or abandonments of secured property.
Important. Every partnership must file Forms 1099-MISC if, in the • Proceeds from broker and barter exchange transactions.
course of its trade or business, it makes payments of rents, • Cancellation of debts.
commissions, or other fixed or determinable income (see section • Interest income.
6041) totaling $600 or more to any one person during the calendar • Payment card and third-party network transactions.
year. • Payments of long-term care and accelerated death benefits.
• Miscellaneous income.
• Original issue discount.
• Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance
contracts, etc.
• Proceeds from real estate transactions.
• Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.
5471—Information Return of U.S. Persons With Respect To Certain A partnership may have to file Form 5471 if it:
Foreign Corporations • Controls a foreign corporation; or
• Acquires or owns 10% or more in value of the outstanding stock of a foreign corporation; or
• Disposes of sufficient stock to reduce its interest to less than 10% in value of the outstanding stock
of a foreign corporation; or
• Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30
days or more during any tax year of the foreign corporation, and it owned that stock on the last day of
that year.

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

8275—Disclosure Statement Disclose items or positions, except those contrary to a regulation, that are not otherwise adequately
disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty
imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for
disclosures relating to preparer penalties for understatements due to unrealistic positions or disregard
of rules.
8275-R—Regulation Disclosure Statement Disclose any item on a tax return for which a position has been taken that is contrary to Treasury
regulations.

8288 and 8288-A—U.S. Withholding Tax Return for Dispositions by Report and send withheld tax on the sale of U.S. real property by a foreign person. See section 1445
Foreign Persons of U.S. Real Property Interests; and Statement of and the related regulations for additional information.
Withholding on Dispositions by Foreign Persons of U.S. Real
Property Interests
8300—Report of Cash Payments Over $10,000 Received in a Trade Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of
or Business related transactions.

Instructions for Form 1065 (2018) -9-

Form, Return, or Statement Use this to—
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 Report ownership interest in a passive foreign investment company or qualified electing fund.
Investment Company or Qualified Electing Fund

8697—Interest Computation Under the Look-Back Method for Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain
Completed Long-Term Contracts 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 line 20c, 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 Figure and report the withholding tax on the distributive shares of any effectively connected gross
Tax (Section 1446); Foreign Partner's Information Statement of income for foreign partners. This is done on Forms 8804 and 8805. Use Form 8813 to send installment
Section 1446 Withholding Tax; and Partnership Withholding Tax payments of withheld tax based on effectively connected taxable income allocable to foreign partners.
Payment Voucher (Section 1446) Exception. Publicly traded partnerships do not file these forms. They must instead withhold tax on
distributions to foreign partners and report and send payments using Forms 1042 and 1042-S. See
Regulations section 1.1446-4 for more information.

8832—Entity Classification Election See Entity Classification Election, later.

8865—Return of U.S. Persons With Respect to Certain Foreign Report the information required under section 6038 (reporting with respect to controlled foreign
Partnerships partnerships), section 6038B (reporting of transfers to foreign partnerships), or section 6046A
(reporting of acquisitions, dispositions, and changes in foreign partnership interests). See Form 8865
and its instructions for more details.

8866—Interest Computation Under the Look-Back Method for Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain
Property Depreciated Under the Income Forecast Method 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 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.

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.

See Regulations section 1.6011-4, the Instructions for Form 8886, and the instructions for line 20c,
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) Figure the amount of business interest that can be deducted and the amount to carry forward.
Business interest expense includes any interest expense properly allocable to a trade or business.
This business interest expense is generally limited to the sum of business interest income. Form 8990
is required unless an exception for filing is met. For more information, see the Instructions for Form
8990 and Notice 2018-28.
8992—U.S. Shareholder Calculation of Global Intangible Low-Taxed Report and attach to Form 1065 if the provisions of section 951A apply. That section requires each
Income (GILTI) person who is a U.S. shareholder of any controlled foreign corporation (CFC) for any tax year to
include in gross income the shareholder’s global intangible low-taxed income (GILTI) for such year.

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 sections 1400Z-1 and 1400Z-2 have been fulfilled. Entities attaching Form
8996 must also complete line 26 of Schedule B (Form 1065). For more information, see the
Instructions for Form 8996.

-10- Instructions for Form 1065 (2018)

Assembling the Return 3. Section 1033 (involuntary
conversions).
951(a) or section 1293(a) for the CFC or
QEF, and (ii) has a direct or indirect owner
When submitting Form 1065, organize the
4. Section 754 (manner of electing that is subject to tax under section 1411 or
pages of the return in the following order.
optional adjustment to basis of partnership would have been if the election were made.
• Pages 1–5. This election must be made on an
• Schedule F (Form 1040), Profit or Loss property).
entity-by-entity basis, and applies only to the
From Farming (if required). Under section 754, a partnership may particular CFCs and QEFs for which an
• Form 8825, Rental Real Estate Income elect to adjust the basis of partnership election is made. In general, for purposes of
and Expenses of a Partnership or an S property when property is distributed or section 1411, if an election is in effect for a
Corporation (if required). when a partnership interest is transferred. If CFC or QEF, the amounts included in
• Form 1125-A, Cost of Goods Sold (if the election is made regarding a transfer of a income under section 951 and section 1293
required). partnership interest (section 743(b)) and the derived from the CFC or QEF are included in
• Form 8941, Credit For Small Employer assets of the partnership constitute a trade net investment income, and distributions
Health Insurance Premiums (if required). or business for purposes of section 1060(c), described in section 959(d) or section
• Any other schedules in alphabetical order. then the value of any goodwill transferred 1293(c) are excluded from net investment
• Any other forms in numerical order. must be determined in the manner provided income. An election that is made under
in Regulations section 1.1060-1. Once an Regulations section 1.1411-10(g) cannot be
Complete every applicable entry space
election is made under section 754, it applies revoked. For more information regarding this
on Form 1065 and Schedule K-1. Do not
both to all distributions and to all transfers election, see Regulations section
enter “See attached” instead of completing
made during the tax year and in all 1.1411-10(g).
the entry spaces. Penalties may be
subsequent tax years unless the election is
assessed if the partnership files an The election must be made in a statement
revoked.
incomplete return. If you need more space that is filed with the partnership’s original or
on the forms or schedules, attach separate This election must be made in a amended return for the tax year in which the
sheets and place them at the end of the statement that is filed with the partnership's election is made. An election can be made
return using the same size and format as on timely filed return (including any extension) on an amended return only if the tax year for
the printed forms. Show the totals on the for the tax year during which the distribution which the election is made, and all tax years
printed forms. Also be sure to put the or transfer occurs. The statement must affected by the election, aren't closed by the
partnership's name and EIN on each include: period of limitations on assessments under
supporting statement. • The name and address of the partnership, section 6501. The statement must include:
and • The name and EIN of the partnership
Entity Classification • A declaration that the partnership elects making the election;
under section 754 to apply the provisions of • A declaration that the partnership elects
Election section 734(b) and section 743(b). under Regulations section 1.1411-10(g) to
Use Form 8832, Entity Classification The partnership can get an automatic apply the rules in Regulations section
Election, to make a change in classification. 12-month extension to make the section 754 1.1411-10(g) to the CFCs and QEFs
Except for certain business entities always election provided corrective action is taken identified in the statement; and
classified as a corporation, a business entity within 12 months of the original deadline for • The following information for each CFC
with at least two members may choose to be making the election. For details, see and QEF for which an election is made: (i)
classified either as a partnership or an Regulations section 301.9100-2. the name of the CFC or QEF; and (ii) either
association taxable as a corporation. A the EIN of the CFC or QEF, or, if the CFC or
See section 754 and the related
domestic eligible entity with at least two QEF doesn't have an EIN, the reference ID
regulations for more information.
members that doesn't file Form 8832 is number of the CFC or QEF.
classified under the default rules as a If there is a distribution of property
consisting of an interest in another In addition, for each CFC or QEF held by
partnership. However, a foreign eligible
partnership, see section 734(b). the partnership for which an election under
entity with at least two members is classified
Regulations section 1.1411-10(g) has
under the default rules as a partnership only The partnership is required to attach a
already been made by the partnership, the
if the entity doesn't provide limited liability to statement for any section 743(b) basis
statement should include (i) the name of the
at least one member. File Form 8832 only if adjustments. See below for details.
CFC or QEF; and (ii) either the EIN of the
the entity doesn't want to be classified under To revoke a section 754 election, the CFC or QEF, or, if the CFC or QEF doesn't
these default rules or if it wants to change its partnership must file the revocation request have an EIN, the reference ID number of the
classification. at the same IRS Submission Processing CFC or QEF.
Attach a copy of Form 8832 to the Center in which the partnership return is
7. Section 41(h) (payroll tax credit
! partnership's federal tax return for filed. See Regulations section 1.754-1(c).
election).
CAUTION the tax year of the election. 5. Section 743(e) (electing investment
partnership). Effect of Section 743(b) Basis
Elections Made by the 6. Regulations section 1.1411-10(g) Adjustment on Partnership
(section 1411 election regarding CFCs and Items
Partnership QEFs).
Generally, the partnership decides how to If the basis of partnership property has been
A domestic partnership that directly or adjusted for a transferee partner under
figure income from its operations. For
indirectly owns stock of a controlled foreign section 743(b), the partnership must adjust
example, it chooses the accounting method
corporation (CFC) (within the meaning of the transferee's distributive share of the
and depreciation methods it will use. The
section 953(c)(1)(B) or section 957(a)) or a items of partnership income, deduction, gain,
partnership also makes elections under the
passive foreign investment company (within or loss in accordance with Regulations
following sections.
the meaning of section 1297(a)) that the section 1.743-1(j)(3) and (4). These
1. Section 179 (election to expense domestic partnership treats as a qualified adjustments (other than adjustments to
certain property). electing fund (QEF) under section 1293 may depletable oil and gas property allocable to
2. Section 614 (definition of make the election provided in Regulations the partner under section 613A(c)(7)(D))
property—mines, wells, and other natural section 1.1411-10(g). The election must be must be reported on Schedule K and the
deposits). This election must be made before made no later than the first tax year transferee partner's Schedule K-1. Report
the partners figure their individual depletion beginning after 2013 during which the the adjustments on an attached statement to
allowances under section 613A(c)(7)(D). partnership (i) includes an amount in gross Schedule K-1 using the codes for Other
income for chapter 1 purposes under section

Instructions for Form 1065 (2018) -11-

Income or Other Deductions. Identify the
partnership item being adjusted and the
Dispositions of partnership's basis in the contributed
property to reflect the gain recognized by the
amount of the adjustment. If the adjustments Contributed Property partner.
are to partnership items from more than one Generally, if the partnership disposes of
For more details and exceptions, see
trade or business, report the adjustments property contributed to the partnership by a
Pub. 541.
separately for each activity. Section 743(b) partner, income, gain, loss, and deductions
adjustments don't affect the transferee's from that property must be allocated among
capital account. the partners to take into account the Unrealized Receivables
difference between the property's basis and and Inventory Items
Elections Made by Each its fair market value (FMV) at the time of the Generally, if a partner sells or exchanges a
contribution. However, if the adjusted basis
Partner of the contributed property exceeds its FMV
partnership interest where unrealized
receivables or inventory items are involved,
Elections under the following sections are at the time of the contribution, the built-in the transferor partner must notify the
made by each partner separately on the loss can only be taken into account by the partnership, in writing, within 30 days of the
partner's tax return. contributing partner. For all other partners, exchange. The partnership must then file
1. Section 59(e) (election to deduct the basis of the property in the hands of the Form 8308, Report of a Sale or Exchange of
ratably certain qualified expenditures such partnership is treated as equal to its FMV at Certain Partnership Interests.
as intangible drilling costs, mining the time of the contribution (see section
exploration expenses, or research and 704(c)(1)(C)). If a partnership distributes unrealized
experimental expenditures). receivables or substantially appreciated
For property contributed to the inventory items in exchange for all or part of
2. Section 108 (income from discharge partnership, the contributing partner must a partner's interest in other partnership
of indebtedness). recognize gain or loss on a distribution of the property (including money), treat the
3. Section 617 (deduction and recapture property to another partner within 7 years of transaction as a sale or exchange between
of certain mining exploration expenditures being contributed. The gain or loss is equal the partner and the partnership. Treat the
paid or incurred). to the amount that the contributing partner partnership gain (loss) as ordinary business
4. Section 901 (foreign tax credit). should have recognized if the property had income (loss). The income (loss) is specially
been sold for its FMV when distributed, allocated only to partners other than the
because of the difference between the
Partner's Dealings With property's basis and its FMV at the time of
distributee partner.

Partnership contribution. If a partnership gives other property

(including money) for all or part of that
If a partner engages in a transaction with his See section 704(c) for details and other partner's interest in the partnership's
or her partnership, other than in his or her rules on dispositions of contributed property. unrealized receivables or substantially
capacity as a partner, the partner is treated See section 724 for the character of any gain appreciated inventory items, treat the
as not being a member of the partnership for or loss recognized on the disposition of transaction as a sale or exchange of the
that transaction. Special rules apply to sales unrealized receivables, inventory items, or property.
or exchanges of property between capital loss property contributed to the
partnerships and certain persons, as See Rev. Rul. 84-102, 1984-2 C.B. 119,
partnership by a partner. for information on the tax consequences that
explained in Pub. 541, Partnerships.
See Temporary Regulations sections result when a new partner joins a partnership
Contributions to the 1.721(c)-4T and 1.721(c)-5T for more that has liabilities and unrealized
receivables. Also see Pub. 541 for more
information on certain dispositions of
Partnership contributed 721(c) property to which the gain information on unrealized receivables and
Generally, no gain (loss) is recognized to the deferral method applies. Also see Section inventory items.
partnership or any of the partners when 721(c) Partnership, Section 721(c) Property,
property is contributed to the partnership in and Gain Deferral Method under Definitions, Passive Activity
exchange for an interest in the partnership.
This rule doesn't apply to any gain realized
earlier. Limitations
In general, section 469 limits the amount of
on a transfer of property to a partnership that
would be treated as an investment company
Recognition of losses, deductions, and credits that partners
(within the meaning of section 351(e)) if the Precontribution Gain on can claim from “passive activities.” The
passive activity limitations don't apply to the
partnership were incorporated. If, as a result
of a transfer of property to a partnership,
Certain Partnership partnership. Instead, they apply to each
there is a direct or indirect transfer of money Distributions partner's share of any income or loss and
or other property to the transferring partner, A partner who contributes appreciated credit attributable to a passive activity.
the partner may have to recognize gain on property to the partnership must include in Because the treatment of each partner's
the exchange. income any precontribution gain to the extent share of partnership income or loss and
the FMV of other property (other than credit depends on the nature of the activity
The basis to the partnership of property money) distributed to the partner by the that generated it, the partnership must report
contributed by a partner is the adjusted basis partnership exceeds the adjusted basis of income or loss and credits separately for
in the hands of the partner at the time it was his or her partnership interest just before the each activity.
contributed, plus any gain recognized (under distribution. Precontribution gain is the net
section 721(b)) by the partner at that time. The following instructions and the
gain, if any, that would have been instructions for Schedules K and K-1, later,
See section 723 for more information. recognized under section 704(c)(1)(B) if the explain the applicable passive activity
See Temporary Regulations sections partnership had distributed to another limitation rules and specify the type of
1.721(c)-1T(b)(7) and 1.721(c)-3T(b) for partner all the property that had been information the partnership must provide to
more information on a gain deferral contributed to the partnership by the its partners for each activity. If the
contribution of section 721(c) property to a distributee partner within 7 years of the partnership had more than one activity, it
section 721(c) partnership. Also see Section distribution and that was held by the must report information for each activity on
721(c) Partnership, Section 721(c) Property, partnership just before the distribution. an attached statement to Schedules K and
and Gain Deferral Method under Definitions, K-1.
Appropriate basis adjustments are to be
earlier.
made to the adjusted basis of the distributee Generally, passive activities include (a)
partner's interest in the partnership and the activities that involve the conduct of a trade

-12- Instructions for Form 1065 (2018)

or business if the partner doesn't materially If the partner is married filing jointly, either attached statements to each Schedule K-1.
participate in the activity, and (b) all rental the partner or his or her spouse must See Passive Activity Reporting
activities (defined later) regardless of the separately meet both of the above Requirements, later, for more information.
partner's participation. For exceptions, see conditions, without taking into account
Activities That Are Not Passive Activities, services performed by the other spouse. Rental Activities
later. The level of each partner's participation A real property trade or business is any Generally, except as noted below, if the
in an activity must be determined by the real property development, redevelopment, gross income from an activity consists of
partner. construction, reconstruction, acquisition, amounts paid principally for the use of real or
conversion, rental, operation, management, personal tangible property held by the
The passive activity rules provide that partnership, the activity is a rental activity.
losses and credits from passive activities can leasing, or brokerage trade or business.
generally be applied only against income Services the partner performed as an
There are several exceptions to this
and tax from passive activities. Thus, employee aren't treated as performed in a
general rule. Under these exceptions, an
passive losses and credits cannot be applied real property trade or business unless he or
activity involving the use of real or personal
against income from salaries, wages, she owned more than 5% of the stock (or
tangible property isn't a rental activity if any
professional fees, or a business in which the more than 5% of the capital or profits
of the following apply.
partner materially participates; against interest) in the employer.
• The average period of customer use
“portfolio income” (defined later); or against 3. An interest in an oil or gas well drilled (defined below) for such property is 7 days or
the tax related to any of these types of or operated under a working interest if at any less.
income. time during the tax year the partner held the • The average period of customer use for
working interest directly or through an entity such property is 30 days or less and
Special provisions apply to certain that didn't limit the partner's liability (for significant personal services (defined below)
activities. First, the passive activity limitations example, an interest as a general partner). are provided by or on behalf of the
must be applied separately for a net loss This exception applies regardless of whether partnership.
from passive activities held through a the partner materially participated for the tax
publicly traded partnership. Second, special • Extraordinary personal services (defined
year. below) are provided by or on behalf of the
rules require that net income from certain
4. The rental of a dwelling unit used by a partnership.
activities that would otherwise be treated as
passive income must be recharacterized as partner for personal purposes during the • The rental of such property is treated as
year for more than the greater of 14 days or incidental to a nonrental activity of the
nonpassive income for purposes of the
10% of the number of days that the partnership under Temporary Regulations
passive activity limitations.
residence was rented at fair rental value. section 1.469-1T(e)(3)(vi) and Regulations
To allow each partner to correctly apply 5. An activity of trading personal section 1.469-1(e)(3)(vi)(D).
the passive activity limitations, the property for the account of owners of • The partnership customarily makes the
partnership must report income or loss and interests in the activity. For purposes of this property available during defined business
credits separately by activity for each of the rule, personal property means property that hours for nonexclusive use by various
following. is actively traded, such as stocks, bonds, customers.
• Trade or business activities. and other securities. See Temporary • The partnership provides property for use
• Rental real estate activities. Regulations section 1.469-1T(e)(6). in a nonrental activity of a partnership or joint
• Rental activities other than real estate. venture in its capacity as an owner of an
• Portfolio income. Trade or Business Activities interest in such partnership or joint venture.
Whether the partnership provides property
Activities That Are Not Passive A trade or business activity is an activity used in an activity of another partnership or
(other than a rental activity or an activity
Activities treated as incidental to an activity of holding
of a joint venture in the partnership's capacity
The following are not passive activities. as an owner of an interest in the partnership
property for investment) that: or joint venture is determined on the basis of
1. Trade or business activities in which 1. Involves the conduct of a trade or all the facts and circumstances.
the partner materially participated for the tax business (within the meaning of section
year. 162), In addition, a guaranteed payment
2. Any rental real estate activity in which 2. Is conducted in anticipation of starting described in section 707(c) is never income
the partner materially participated if the a trade or business, or from a rental activity.
partner met both of the following conditions Average period of customer use. Figure
3. Involves research or experimental
for the tax year. the average period of customer use for a
expenditures deductible under section 174
a. More than half of the personal (or that would be if you chose to deduct class of property by dividing the total number
services the partner performed in trades or rather than capitalize them). of days in all rental periods by the number of
businesses were performed in real property rentals during the tax year. If the activity
trades or businesses in which he or she If the partner doesn't materially participate involves renting more than one class of
materially participated. in the activity, a trade or business activity property, multiply the average period of
conducted through a partnership is generally customer use of each class by the ratio of
b. The partner performed more than 750
a passive activity of the partner. the gross rental income from that class to the
hours of services in real property trades or
businesses in which he or she materially activity's total gross rental income. The
Each partner must determine if the
participated. activity's average period of customer use
partner materially participated in an activity.
equals the sum of these class-by-class
As a result, while the partnership's ordinary
Note. For a partner that is a closely held C average periods weighted by gross income.
business income (loss) is reported on page 1
corporation (defined in section 465(a)(1)(B)), See Regulations section 1.469-1(e)(3)(iii).
of Form 1065, the specific income and
the above conditions are treated as met if deductions from each separate trade or Significant personal services. Personal
more than 50% of the corporation's gross business activity must be reported on services include only services performed by
receipts are from real property trades or attached statements to Form 1065. Similarly, individuals. To determine if personal services
businesses in which the corporation while each partner's distributive share of the are significant personal services, consider all
materially participated. partnership's ordinary business income the relevant facts and circumstances.
For purposes of this rule, each interest in (loss) is reported in box 1 of Schedule K-1, Relevant facts and circumstances include:
rental real estate is a separate activity, each partner's distributive share of the • How often the services are provided,
unless the partner elects to treat all interests income and deductions from each trade or • The type and amount of labor required to
in rental real estate as one activity. business activity must be reported on perform the services, and

Instructions for Form 1065 (2018) -13-

 • The value of the services in relation to the customers in the ordinary course of the selling such property, but only if credit is
amount charged for use of the property. partnership's trade or business. customarily offered to customers of the
The following services aren't considered See Temporary Regulations section business.
in determining whether personal services are 1.469-1T(e)(3) and Regulations section • Income from investments made in the
significant. 1.469-1(e)(3) for more information on the ordinary course of a trade or business of
• Services necessary to permit the lawful definition of rental activities for purposes of furnishing insurance or annuity contracts or
use of the rental property. the passive activity limitations. reinsuring risks underwritten by insurance
• Services performed in connection with companies.
Reporting of rental activities. In reporting • Income or gain derived in the ordinary
improvements or repairs to the rental
the partnership's income or losses and course of an activity of trading or dealing in
property that extend the useful life of the
credits from rental activities, the partnership any property if such activity constitutes a
property substantially beyond the average
must separately report rental real estate trade or business (unless the dealer held the
rental period.
activities and rental activities other than property for investment at any time before
• Services provided in connection with the rental real estate activities.
use of any improved real property that are such income or gain is recognized).
similar to those commonly provided in Partners who actively participate in a • Royalties derived by the taxpayer in the
connection with long-term rentals of rental real estate activity may be able to ordinary course of a trade or business of
high-grade commercial or residential deduct part or all of their rental real estate licensing intangible property.
property. Examples include cleaning and losses (and the deduction equivalent of • Amounts included in the gross income of
maintenance of common areas, routine rental real estate credits) against income (or a patron of a cooperative by reason of any
repairs, trash collection, elevator service, tax) from nonpassive activities. The payment or allocation to the patron based on
and security at entrances. combined amount of rental real estate losses patronage as a result of a trade or business
and the deduction equivalent of rental real of the patron.
Extraordinary personal services. estate credits from all sources (including • Other income identified by the IRS as
Services provided in connection with making rental real estate activities not held through income derived by the taxpayer in the
rental property available for customer use the partnership) that may be claimed is ordinary course of a trade or business.
are extraordinary personal services only if limited to $25,000. This $25,000 amount is
the services are performed by individuals See Temporary Regulations section
generally reduced for high-income partners. 1.469-2T(c)(3) for more information on
and the customers' use of the rental property
is incidental to their receipt of the services. Report rental real estate activity income portfolio income.
(loss) on Form 8825, Rental Real Estate
For example, a patient's use of a hospital Report portfolio income and related
Income and Expenses of a Partnership or an
room generally is incidental to the care deductions on Schedule K rather than on
S Corporation, and line 2 of Schedule K and
received from the hospital's medical staff. page 1 of Form 1065.
box 2 of Schedule K-1, rather than on page 1
Similarly, a student's use of a dormitory room of Form 1065. Report credits related to rental
in a boarding school is incidental to the real estate activities on lines 15c and 15d of Self-Charged Interest
personal services provided by the school's Schedule K (box 15, codes E and F, of
teaching staff. Certain self-charged interest income and
Schedule K-1) and low-income housing deductions may be treated as passive
Rental activity incidental to a nonrental credits on lines 15a and 15b of Schedule K activity gross income and passive activity
activity. An activity isn't a rental activity if (box 15, codes A–D of Schedule K-1). deductions if the loan proceeds are used in a
the rental of the property is incidental to a See the instructions for Line 3. Other Net passive activity. Generally, self-charged
nonrental activity, such as the activity of Rental Income (Loss), later, for reporting interest income and deductions result from
holding property for investment, a trade or other net rental income (loss) other than loans between the partnership and its
business activity, or the activity of dealing in rental real estate. partners. It also includes loans between the
property. partnership and another partnership if each
Rental of property is incidental to an
Portfolio Income owner in the borrowing entity has the same
activity of holding property for investment if Generally, portfolio income includes all gross proportional ownership interest in the lending
both of the following apply. income, other than income derived in the entity.
• The main purpose for holding the property ordinary course of a trade or business, that is
is to realize a gain from the appreciation of attributable to interest; dividends; royalties; The self-charged interest rules don't
the property. income from a real estate investment trust, a apply to a partner's interest in a partnership if
• The gross rental income from such regulated investment company, a real estate the partnership makes an election under
property for the tax year is less than 2% of mortgage investment conduit, a common Regulations section 1.469-7(g) to avoid the
the smaller of the property's unadjusted trust fund, a controlled foreign corporation, a application of these rules. To make the
basis or its fair market value. qualified electing fund, or a cooperative; election, the partnership must attach to its
income from the disposition of property that original or amended partnership return a
Rental of property is incidental to a trade
produces income of a type defined as statement that includes the name, address,
or business activity if all of the following
portfolio income; and income from the and EIN of the partnership and a declaration
apply.
disposition of property held for investment. that the election is being made under
• The partnership owns an interest in the See Self-Charged Interest, later, for an Regulations section 1.469-7(g). The election
trade or business at all times during the year.
exception. will apply to the tax year in which it was
• The rental property was mainly used in made and all subsequent tax years. Once
the trade or business activity during the tax Solely for purposes of the preceding made, the election may only be revoked with
year or during at least 2 of the 5 preceding paragraph, gross income derived in the the consent of the IRS.
tax years. ordinary course of a trade or business
• The gross rental income from the property includes (and portfolio income, therefore, For more details on the self-charged
for the tax year is less than 2% of the smaller doesn't include) the following types of interest rules, see Regulations section
of the property's unadjusted basis or its fair income. 1.469-7.
market value.
• Interest income on loans and investments
The sale or exchange of property that is made in the ordinary course of a trade or Grouping Activities
also rented during the tax year (in which the business of lending money. Generally, one or more trade or business or
gain or loss is recognized) is treated as • Interest on accounts receivable arising rental activities may be treated as a single
incidental to the activity of dealing in property from the performance of services or the sale activity if the activities make up an
if, at the time of the sale or exchange, the of property in the ordinary course of a trade appropriate economic unit for measurement
property was held primarily for sale to or business of performing such services or of gain or loss under the passive activity

-14- Instructions for Form 1065 (2018)

rules. Whether activities make up an property; or exploring for or exploiting oil and Passive equity-financed lending activi-
appropriate economic unit depends on all the gas resources or geothermal deposits. ties. If the partnership has net income from
relevant facts and circumstances. The a passive equity-financed lending activity,
factors given the greatest weight in Activities conducted through other part- the smaller of the net passive income or the
determining whether activities make up an nerships. Once a partnership determines equity-financed interest income from the
appropriate economic unit are: its activities under these rules, the activity is nonpassive income.
• Similarities and differences in types of partnership as a partner can use these rules
trades or businesses, to group those activities with: Rental of property incidental to a devel-
• The extent of common control, • Each other, opment activity. Net rental activity income
• The extent of common ownership, • Activities conducted directly by the is the excess of passive activity gross
• Geographical location, and partnership, or income from renting or disposing of property
• Reliance between or among the activities. • Activities conducted through other over passive activity deductions (current
partnerships. year deductions and prior year unallowed
Example. The partnership has a losses) that are reasonably allocable to the
significant ownership interest in a bakery and A partner cannot treat as separate
activities those activities grouped together by rented property. Net rental activity income is
a movie theater in Baltimore and a bakery nonpassive income for a partner if all of the
and a movie theater in Philadelphia. a partnership.
following apply.
Depending on the relevant facts and
circumstances, there may be more than one
Recharacterization of Passive • The partnership recognizes gain from the
reasonable method for grouping the Income sale, exchange, or other disposition of the
partnership's activities. For instance, the Under Temporary Regulations section rental property during the tax year.
following groupings may or may not be 1.469-2T(f) and Regulations section • The use of the item of property in the
permissible. 1.469-2(f), net passive income from certain rental activity started less than 12 months
• A single activity. passive activities must be treated as before the date of disposition. The use of an
• A movie theater activity and a bakery nonpassive income. Net passive income is item of rental property begins on the first day
activity. the excess of an activity's passive activity that (a) the partnership owns an interest in
• A Baltimore activity and a Philadelphia gross income over its passive activity the property, (b) substantially all of the
activity. deductions (current year deductions and property is either rented or held out for rent
• Four separate activities. prior year unallowed losses). and ready to be rented, and (c) no significant
value-enhancing services remain to be
Once the partnership chooses a grouping performed.
Any net passive income recharacterized
under these rules, it must continue using that
as nonpassive income is treated as • The partner materially or significantly
grouping in later tax years unless a material participated for any tax year in an activity that
investment income for purposes of figuring
change in the facts and circumstances involved performing services to enhance the
investment interest expense limitations if it is
makes it clearly inappropriate. value of the property (or any other item of
from (a) an activity of renting substantially
The IRS may regroup the partnership's nondepreciable property from an property, if the basis of the property
activities if the partnership's grouping fails to equity-financed lending activity, or (b) an disposed of is determined in whole or in part
reflect one or more appropriate economic activity related to an interest in a by reference to the basis of that item of
units and one of the primary purposes of the pass-through entity that licenses intangible property).
grouping is to avoid the passive activity property. Because the partnership cannot
limitations. determine a partner's level of participation,
The amount of income from the activities
Limitation on grouping certain activities. the partnership must identify net income from
in the first three paragraphs that any partner
The following activities may not be grouped property described earlier under Rental
will be required to recharacterize as
together. Activities (without regard to the partner's
nonpassive income may be limited under
1. A rental activity with a trade or level of participation) as income that may be
Temporary Regulations section 1.469-2T(f)
business activity unless the activities being subject to recharacterization.
(8). Because the partnership will not have
grouped together make up an appropriate information regarding all of a partner's Rental of property to a nonpassive activi-
economic unit and: activities, it must identify all partnership ty. If a taxpayer rents property to a trade or
a. The rental activity is insubstantial activities meeting the definitions in the business activity in which the taxpayer
relative to the trade or business activity or Certain nondepreciable rental property materially participates, the taxpayer's net
vice versa, or activities and Passive equity-financed rental activity income from the property is
lending activities paragraphs as activities nonpassive income.
b. Each owner of the trade or business
that may be subject to recharacterization.
activity has the same proportionate Acquisition of an interest in a
ownership interest in the rental activity. If so, Income from the following six sources is pass-through entity that licenses intangi-
the portion of the rental activity involving the subject to recharacterization. ble property. Generally, net royalty income
rental of property to be used in the trade or from intangible property is nonpassive
business activity can be grouped with the Significant participation passive activi- income if the taxpayer acquired an interest in
trade or business activity. ties. A significant participation passive the pass-through entity after the
activity is any trade or business activity in pass-through entity created the intangible
2. An activity involving the rental of real which the partner participated for more than
property with an activity involving the rental property or performed substantial services or
100 hours during the tax year but didn't incurred substantial costs in developing or
of personal property (except personal materially participate. Because each partner
property provided in connection with the real marketing the intangible property. Net royalty
must determine the partner's level of income is the excess of passive activity
property or vice versa). participation, the partnership will not be able gross income from licensing or transferring
3. Any activity with another activity in a to identify significant participation passive any right in intangible property over passive
different type of business and in which the activities. activity deductions (current year deductions
partnership holds an interest as a limited and prior year unallowed losses) that are
partner or as a limited entrepreneur (as Certain nondepreciable rental property
activities. Net passive income from a reasonably allocable to the intangible
defined in section 461(j)(4)) if that other property.
activity engages in holding, producing, or rental activity is nonpassive income if less
distributing motion picture films or than 30% of the unadjusted basis of the See Temporary Regulations section
videotapes; farming; leasing section 1245 property used or held for use by customers 1.469-2T(f)(7)(iii) for exceptions to this rule.
in the activity is subject to depreciation under
section 167.

Instructions for Form 1065 (2018) -15-

Passive Activity Reporting the gain is investment income under b. The smaller of equity-financed
Regulations section 1.469-2(c)(2)(iii)(F). interest income or net passive income from
Requirements an equity-financed lending activity.
7. Specify the amount of gross portfolio
To allow partners to correctly apply the income, the interest expense properly c. Net rental activity income from
passive activity loss and credit limitation allocable to portfolio income, and expenses property developed (by the partner or the
rules, the partnership must do the following. other than interest expense that are clearly partnership), rented, and sold within 12
1. If the partnership carries on more and directly allocable to portfolio income. months after the rental of the property
than one activity, provide an attached 8. Identify separately any of the commenced.
statement for each activity conducted following types of payments to partners. d. Net rental activity income from the
through the partnership that identifies the rental of property by the partnership to a
type of activity conducted (trade or business, a. Payments to a partner for services
other than in the partner's capacity as a trade or business activity in which the partner
rental real estate, rental activity other than had an interest (either directly or indirectly).
rental real estate, or investment). See partner under section 707(a).
Grouping Activities, discussed earlier. b. Guaranteed payments to a partner for e. Net royalty income from intangible
services under section 707(c). property if the partner acquired the partner's
2. On the attached statement for each interest in the partnership after the
activity, provide a statement, using the same c. Guaranteed payments for use of partnership created the intangible property or
box numbers as shown on Schedule K-1, capital. performed substantial services, or incurred
detailing the net income (loss), credits, and d. If section 736(a)(2) payments are substantial costs in developing or marketing
all items required to be separately stated made for unrealized receivables or for the intangible property.
under section 702(a) from each trade or goodwill, the amount of the payments and
business activity, from each rental real estate 15. Identify separately the credits from
the activities to which the payments are each activity conducted by or through the
activity, from each rental activity other than a attributable.
rental real estate activity, and from partnership.
investments. e. If section 736(b) payments are made, 16. Identify the partner's distributive
the amount of the payments and the share of the partnership's self-charged
3. Identify the net income (loss) and activities to which the payments are
credits from each oil or gas well drilled or interest income or expense (see
attributable. Self-Charged Interest, earlier).
operated under a working interest that any
partner (other than a partner whose only 9. Identify the ratable portion of any a. Loans between a partner and the
interest in the partnership during the year is section 481 adjustment (whether a net partnership. Identify the lending or
as a limited partner) holds through the positive or a net negative adjustment) borrowing partner's share of the self-charged
partnership. Further, if any partner had an allocable to each partnership activity. interest income or expense. If the partner
interest as a general partner in the 10. Identify the amount of gross income made the loan to the partnership, also
partnership during less than the entire year, from each oil or gas property of the identify the activity in which the loan
the partnership must identify both the partnership. proceeds were used. If the proceeds were
disqualified deductions from each well that 11. Identify any gross income from used in more than one activity, allocate the
the partner must treat as passive activity sources specifically excluded from passive interest to each activity based on the amount
deductions, and the ratable portion of the activity gross income, including: of the proceeds used in each activity.
gross income from each well that the partner b. Loans between the partnership
must treat as passive activity gross income. a. Income from intangible property if the
partner is an individual whose personal and another partnership or an S
4. Identify the net income (loss) and the efforts significantly contributed to the corporation. If the partnership's partners
partner's share of partnership interest creation of the property; have the same proportional ownership
expense from each activity of renting a interest in the partnership and the other
dwelling unit that any partner uses for b. Income from state, local, or foreign
partnership or S corporation, identify each
personal purposes during the year for more income tax refunds; and
partner's share of the interest income or
than the greater of 14 days or 10% of the c. Income from a covenant not to expense from the loan. If the partnership was
number of days that the residence is rented compete if the partner is an individual who the borrower, also identify the activity in
at fair rental value. contributed the covenant to the partnership. which the loan proceeds were used. If the
5. Identify the net income (loss) and the 12. Identify any deductions that aren't loan proceeds were used in more than one
partner's share of partnership interest passive activity deductions. activity, allocate the interest to each activity
expense from each activity of trading based on the amount of the proceeds used
13. If the partnership makes a full or
personal property conducted through the in each activity.
partial disposition of its interest in another
partnership. entity, identify the gain (loss) allocable to Net Investment Income Tax
6. For any gain (loss) from the each activity conducted through the entity,
disposition of an interest in an activity or of and the gain allocable to a passive activity Reporting Requirements
an interest in property used in an activity that would have been recharacterized as The information described in this section
(including dispositions before 1987 from nonpassive gain had the partnership should be given directly to the partner and
which gain is being recognized after 1986): disposed of its interest in property used in should not be reported by the partnership to
a. Identify the activity in which the the activity (because the property was the IRS.
property was used at the time of disposition; substantially appreciated at the time of the
disposition, and the gain represented more To allow partners to correctly figure the
b. If the property was used in more than than 10% of the partner's total gain from the net investment income tax where a partner
one activity during the 12 months preceding disposition). disposes of an interest in the partnership
the disposition, identify the activities in which during the tax year, the partnership may be
the property was used and the adjusted 14. Identify the following items from
activities that may be subject to the required to provide the partner with certain
basis allocated to each activity; and information. The net investment income tax
recharacterization rules. See
c. For gains only, if the property was Recharacterization of Passive Income, is a tax imposed on an individual’s, trust’s, or
substantially appreciated at the time of the earlier. estate’s net investment income. Net
disposition and the applicable holding period investment income includes the net gains or
specified in Regulations section 1.469-2(c) a. Net income from an activity of renting losses from the sale of an interest in the
(2)(iii)(A) wasn't satisfied, identify the amount substantially nondepreciable property. partnership. A partner who is actively
of the nonpassive gain and indicate whether involved in one or more of the partnership or
lower tier pass-through entities’ trades or

-16- Instructions for Form 1065 (2018)

businesses (other than trading in financial • Form 1065, page 1, line 20. A foreign partnership required to file
instruments or commodities) can reduce the • Form 8825, line 15. TIP a return generally must report all of
amount of the gain or loss from the sale of • Form 1065, Schedule K, line 3b. its foreign and U.S. source income.
the partnership or lower tier pass-through In addition, the partnership must report as For rules regarding whether a foreign
entity interest included in its net investment an item of information on Schedule K-1, partnership must file Form 1065, see Who
income. However, to figure its net investment box 16, using code S, the partner's Must File, earlier.
income, the active partner needs certain distributive share of foreign trading gross
information from the partnership. receipts from Form 8873, line 15. Name and Address
Generally, the partnership must provide 2. If the foreign trading gross receipts of Print or type the legal name of the
certain information to the partner if the the partnership for the tax year are $5 million partnership, address, and EIN on the
partnership knows, or has reason to know, or less and the partnership didn't meet the appropriate lines. If the partnership has
the following. foreign economic process requirements, it changed its name, check box G(3). Include
cannot report the extraterritorial income the suite, room, or other unit number after the
1. The partner disposed of an interest in
exclusion as a nonseparately stated item on street address. If the Post Office doesn't
the partnership.
its return. Instead, the partnership must deliver mail to the street address and the
2. The partner materially participates report the following separately stated items partnership has a P.O. box, show the box
(within the meaning of the passive activity to the partners on Schedule K-1, box 16. number instead.
loss rules (section 469)) in one or more of • Foreign trading gross receipts (code S).
the trades or businesses (within the meaning If the partnership receives its mail in care
Report each partner's distributive share of of a third party (such as an accountant or an
of section 162) of the partnership or a lower foreign trading gross receipts from line 15 of
tier pass-through entity (other than trading in attorney), enter “C/O” on the street address
Form 8873 in box 16 using code S. line, followed by the third party’s name and
financial instruments or commodities). • Extraterritorial income exclusion (code T). street address or P.O. box.
3. The partner doesn't qualify for the Report each partner's distributive share of
optional simplified reporting method for the extraterritorial income exclusion from If the partnership's address is outside the
figuring its net investment income associated line 52 of Form 8873 in box 16 using code T United States or its possessions or
with the disposition of the interest. For more and identify on an attached statement the territories, enter the information on the line
information, see the Instructions for Form activity to which the exclusion relates. If the for “City or town, state or province, country,
8960, Line 5c. partnership is required to complete more and ZIP or foreign postal code” in the
than one Form 8873, combine the exclusions following order: city, province or state, and
Information to be provided to partner. from line 52 and report a single exclusion the foreign country. Follow the foreign
Generally, the partnership must provide the amount in box 16. country's practice in placing the postal code
partner with its distributive share of the net in the address. Do not abbreviate the country
gain and loss from the deemed sale for fair Upon request of a partner, the name.
market value of the partnership’s property, TIP partnership should furnish a copy of
the partnership's Form 8873 if that If the partnership has changed its
other than property that relates to the trades address since it last filed a return (including a
or businesses in which the partner materially partner has a reduction for international
boycott operations, illegal bribes, kickbacks, change to an “in care of” address), check
participates, as determined under the box G(4) for “Address change.”
passive activity loss rules applicable to the etc.
transfer of an interest in a pass-through If the partnership changes its mailing
entity. For more information see the TIP address or the responsible party
Instructions for Form 8960, line 5c. Specific Instructions after filing its return, it can notify the
If a partner, who qualifies for the optional IRS by filing Form 8822-B, Change of
simplified reporting method, prefers to Address or Responsible Party—Business.
These instructions follow the line numbers on
determine net gain or loss under the general
calculation, the partnership may, but isn't
the first page of Form 1065. The Items A and C
accompanying schedules are discussed
obligated to, provide the information to the Enter the applicable activity name and the
separately. Specific instructions for most of
partner at that partner’s request. code number from the list, Codes for
the lines are provided. Lines that aren't
discussed are self-explanatory. Principal Business Activity and Principal
Extraterritorial Income Product or Service, near the end of the
Fill in all applicable lines and schedules. instructions.
Exclusion
Enter any items specially allocated to the For example, if, as its principal business
See Form 8873, Extraterritorial Income
partners in the appropriate box of the activity, the partnership (a) purchases raw
Exclusion, to determine whether the
applicable partner's Schedule K-1. Enter the materials, (b) subcontracts out for labor to
partnership qualifies for the exclusion and to
total amount on the appropriate line of make a finished product from the raw
figure the amount of the exclusion. If the
Schedule K. Do not enter separately stated materials, and (c) retains title to the goods,
partnership's foreign trading gross receipts
amounts on the numbered lines on Form the partnership is considered to be a
don't exceed $5 million and the partnership
1065, page 1, on Form 1125-A, or on manufacturer and must enter “Manufacturer”
doesn't meet the foreign economic process
Schedule D. in item A and enter in item C one of the
requirements for the exclusion, it must report
certain information to its partners. See the File all five pages of Form 1065. codes (311110 through 339900) listed under
instructions below on how to report the However, if the answer to question 4 of “Manufacturing” on the list, Codes for
exclusion on the partnership's return and the Schedule B is “Yes,” Schedules L, M-1, and Principal Business Activity and Principal
information it must report to its partners. M-2 on page 5 are optional. Also attach a Product or Service, near the end of the
Schedule K-1 to Form 1065 for each partner. instructions.
The partnership must report the
extraterritorial income exclusion on its return File only one Form 1065 for each Item D. Employer Identification
as follows. partnership. Mark “Duplicate Copy” on any Number (EIN)
copy you give to a partner.
1. If the partnership met the foreign Show the correct EIN in item D. If the
economic process requirements explained in If a syndicate, pool, joint venture, or partnership doesn't have an EIN, it must
the Instructions for Form 8873, it can report similar group files Form 1065, it must attach apply for one in one of the following ways.
the exclusion as a nonseparately stated item a copy of the agreement and all • Online—Go to IRS.gov/EIN. The EIN is
on whichever of the following lines apply to amendments to the return, unless a copy has issued immediately once the application
that activity. previously been filed. information is validated.

Instructions for Form 1065 (2018) -17-

• By mailing or faxing Form SS-4, Schedule M-3, must either (i) complete Schedules K-1 to its partners certain
Application for Employer Identification Schedule M-3 entirely; or (ii) complete information relative to the section 108(i)
Number. Schedule M-3 through Part I and complete election. See Rev. Proc. 2009-37, 2009-36
Schedule M-1 instead of completing Parts II I.R.B. 309, for details. See also Regulations
A limited liability company must and III of Schedule M-3. See Schedule M-3 section 1.108(i)-2.
determine which type of federal tax entity it for more information.
will be (that is, partnership, corporation, or If the partnership is a section 721(c)
disregarded entity) before applying for an In addition, partnerships that meet the partnership and the gain deferral method is
EIN (see Form 8832, Entity Classification requirements of (a) and (b) above aren't applied, Schedule B must include any
Election, for details). If the partnership has required to file Schedule C (Form 1065) nor remedial items with respect to section 721(c)
not received its EIN by the time the return is Form 8916-A. property, including an offsetting remedial
due, enter “Applied for” and the application See the instructions for Schedule C and item relating to contributed section 197(f)(9)
date in the space for the EIN. For more Schedule M-3 for more information. property. See Regulations section 1.704-3(d)
details, see the Instructions for Form SS-4. and Temporary Regulations section
1.704-3T(d)(5)(iii). The total net amount of
Income remedial allocations should be included on
Note. The online application process isn't
yet available for partnerships with addresses Report only trade or business activity Form 1065, page 1, line 7. See Temporary
in foreign countries. If you are located income on lines 1a through 8. Do not Regulations section 1.721(c)-3T. Also see
outside the United States, please call
!
CAUTION report rental activity income or Section 721(c) Partnership, Section 721(c)
1-267-941-1099. portfolio income on these lines. See Passive Property, and Gain Deferral Method under
Activity Limitations, earlier, for definitions of Definitions, earlier.
Item F. Total Assets rental income and portfolio income. Rental
activity income and portfolio income are
Line 1a. Gross Receipts or
You aren't required to complete item F if the
answer to question 4 of Schedule B is “Yes.” reported on Schedules K and K-1. Rental Sales
real estate activities are also reported on Enter on line 1a gross receipts or sales from
If you are required to complete this item, Form 8825. all trade or business operations, except for
enter the partnership's total assets at the end amounts that must be reported on lines 4
of the tax year, as determined by the Tax-exempt income. Do not include any through 7.
accounting method regularly used in keeping tax-exempt income on lines 1a through 8. A
the partnership's books and records. If there partnership that receives any tax-exempt Special rules apply to certain income, as
were no assets at the end of the tax year, income other than interest, or holds any discussed below. For example, don't include
enter -0-. property or engages in any activity that gross receipts from farming on line 1a.
produces tax-exempt income, reports this Instead, show the net profit (loss) from
Item J. Schedule C and income on line 18b of Schedule K and in farming on line 5. Also, don't include on
Schedule M-3 box 18 of Schedule K-1 using code B. line 1a rental activity income or portfolio
A partnership must file Schedule M-3, Net income.
Report tax-exempt interest income,
Income (Loss) Reconciliation for Certain including exempt-interest dividends received In general, advance payments are
Partnerships, instead of Schedule M-1, if any as a shareholder in a mutual fund or other reported in the year of receipt. To report
of the following apply. regulated investment company, on line 18a income from long-term contracts, see
1. The amount of total assets at the end of Schedule K and in box 18 of Schedule K-1 section 460. For permissible methods for
of the tax year reported on Schedule L, using code A. reporting advance payments for goods and
line 14, column (d) is $10 million or more. See Deductions, after the instructions for services by an accrual method partnership,
2. The amount of adjusted total assets lines 1a through 8 and before the instructions see Rev. Proc. 2004-34, 2004-22 I.R.B. 991,
for the tax year is $10 million or more. for lines 9 through 21, for information on how and Notice 2018-35, 2018-18 I.R.B. 520 (or
Adjusted total assets is defined in the to report expenses related to tax-exempt any successor guidance). For rules for the
Instructions for Schedule M-3. income. deferral of advance payments from the sale
of certain gift cards and further explanation
3. The amount of total receipts (as Election to defer income from canceled of the tax treatments for advance payments
defined later, in the instructions for debt. If the partnership elected to defer see Pub. 538, Accounting Periods and
Schedule B, question 4) for the tax year is cancellations of debt (COD) income under Methods. For information on adopting or
$35 million or more. section 108(i), the exclusions for COD under changing to a permissible method for
4. An entity that is a reportable entity sections 108(a)(1)(A), (B), (C), and (D) don't reporting advance payments for goods and
partner of the partnership owns or is deemed apply to the income from the COD for the tax services by an accrual method partnership,
to own, directly or indirectly, an interest of year of the election and any later year. If the see the Instructions for Form 3115.
50% or more in the partnership's capital, partnership issued a debt instrument with
profit, or loss, on any day during the tax year original issue discount (OID) that is subject Installment sales. Generally, the
of the partnership. Reportable entity partner to section 108(i)(2) because of an election installment method cannot be used for
is defined in the Instructions for under section 108(i) to defer COD income, dealer dispositions of property. A “dealer
Schedule M-3. the deduction for all or a portion of the OID disposition” is any disposition of:
that accrues prior to the first tax year the 1. Personal property by a person who
A partnership filing Form 1065 that isn't COD is includible in income is deferred until regularly sells or otherwise disposes of
required to file the Schedule M-3 may the COD is includible in income. The amount personal property of the same type on the
voluntarily file Schedule M-3 instead of of OID deferred is limited to the amount of installment plan, or
Schedule M-1. COD income subject to the section 108(i)
2. Real property held for sale to
election. See section 108(i) and Rev. Proc.
Any partnership that files Schedule M-3 customers in the ordinary course of the
2009-37, 2009-36 I.R.B. 309, for more
must also complete and file Schedule C, taxpayer's trade or business.
information. See also Regulations section
Additional Information for Schedule M-3
1.108(i)-2. Exception. These restrictions on using
Filers. See Eased requirements, next.
Section 108(i) election and reporting by the installment method don't apply to
Eased requirements. Partnerships that tiered partnerships. A partnership that dispositions of property used or produced in
(a) are required to file Schedule M-3 and receives a Schedule K-1 from another a farming business or sales of timeshares
have less than $50 million in total assets at partnership containing information relating to and residential lots. However, if the
tax-year-end, or (b) aren't required to file a section 108(i) election must report on the partnership elects to report dealer
Schedule M-3 and voluntarily file dispositions of timeshares and residential

-18- Instructions for Form 1065 (2018)

lots on the installment method, each subject to the basis limitations as Line 7. Other Income (Loss)
partner's tax liability must be increased by appropriate.
Enter any other trade or business income
the partner's distributive share of the interest
If the tax year of your partnership doesn't (loss) not included on lines 1a through 6. List
payable under section 453(l)(3).
coincide with the tax year of the other the type and amount of income on an
Include on line 1a the gross profit on attached statement. Examples of other
collections from installment sales for any of partnership, estate, or trust, include the
ordinary income (loss) from the other entity income include the following.
the following.
in the tax year in which the other entity's tax 1. Interest income derived in the
• Dealer dispositions of property before ordinary course of the partnership's trade or
March 1, 1986. year ends.
business, such as interest charged on
• Dispositions of property used or produced Line 5. Net Farm Profit (Loss) receivable balances.
in the trade or business of farming.
Enter the partnership's net farm profit (loss)
• Certain dispositions of timeshares and 2. Recoveries of bad debts deducted in
residential lots reported under the installment from Schedule F (Form 1040), Profit or Loss prior years under the specific charge-off
method. From Farming. Attach Schedule F (Form method.
1040) to Form 1065. Do not include on this
Attach a statement showing the following 3. Taxable income from insurance
line any farm profit (loss) from other
information for the current year and the 3 proceeds.
partnerships. Report those amounts on
preceding years. line 4. In figuring the partnership's net farm 4. Any amount included in income from
• Gross sales. profit (loss), don't include any section 179 line 2 of Form 6478, Biofuel Producer Credit,
• Cost of goods sold. expense deduction; this amount must be if applicable.
• Gross profits. separately stated. 5. Any amount included in income from
• Percentage of gross profits to gross sales. line 8 of Form 8864, Biodiesel and
• Amount collected. Also report the partnership's fishing Renewable Diesel Fuels Credit, if applicable.
• Gross profit on the amount collected. income on this line.
6. The recapture amount under section
Nonaccrual-experience method. 280F if the business use of listed property
Partnerships that qualify to use the For a special rule concerning the method
of accounting for a farming partnership with a drops to 50% or less. To figure the recapture
nonaccrual-experience method (described amount, complete Part IV of Form 4797.
earlier) should attach a statement showing corporate partner and for other tax
total gross receipts, the amount not accrued information on farms, see Pub. 225, Farmer's 7. All section 481 income adjustments
as a result of the application of section Tax Guide. resulting from changes in accounting
448(d)(5), and the net amount accrued. methods. Show the computation of the
Because the partner, and not the section 481 adjustments on an attached
Include the net amount on line 1a. TIP partnership, makes the election to statement.
deduct the expenses of raising any
Line 2. Cost of Goods Sold plant with a preproductive period of more 8. Part or all of the proceeds received
If the partnership has a cost of goods sold than 2 years, farm partnerships that aren't from certain employer-owned life insurance
deduction, complete and attach Form required to use an accrual method should contracts issued after August 17, 2006.
1125-A. Enter on Form 1065, page 1, line 2 not capitalize such expenses. Instead, state Partnerships that own one or more
the amount from Form 1125-A, line 8. See them separately on an attached statement to employer-owned life insurance contracts
Form 1125-A and its instructions. Schedule K, line 13d, and in box 13 of issued after that date must file Form 8925,
Schedule K-1, using code P. See section Report of Employer-Owned Life Insurance
Line 4. Ordinary Income (Loss) 263A(d) for more information. Contracts. See section 101(j) for details.
From Other Partnerships, Do not include items requiring separate
Estates, and Trusts Line 6. Net Gain (Loss) From computations that must be reported on
Enter the ordinary income (loss) shown on Form 4797 Schedules K and K-1. See the instructions
Schedule K-1 (Form 1065) or Schedule K-1 for Schedules K and K-1, later.
(Form 1041), or other ordinary income (loss) Include only ordinary gains or losses
from a foreign partnership, estate, or trust. ! from the sale, exchange, or Do not report portfolio or rental activity
CAUTION involuntary conversion of assets
Show the partnership's, estate's, or trust's income (loss) on this line.
name, address, and EIN on a separate used in a trade or business activity. Ordinary
statement attached to this return. If the gains or losses from the sale, exchange, or
involuntary conversion of rental activity
Deductions
amount entered is from more than one
source, identify the amount from each assets are reported separately on line 19 of Report only trade or business activity
source. Form 8825 or line 3c of Schedule K and ! deductions on lines 9 through 20.
box 3 of Schedule K-1, generally as a part of CAUTION
Do not include portfolio income or rental the net income (loss) from the rental activity. Do not report the following expenses on
activity income (loss) from other lines 9 through 20.
partnerships, estates, or trusts on this line. A partnership that is a partner in another
partnership must include on Form 4797, • Rental activity expenses. Report these
Instead, report these amounts on Schedules expenses on Form 8825 or line 3b of
K and K-1, or on line 20a of Form 8825 if the Sales of Business Property, its share of
ordinary gains (losses) from sales, Schedule K.
amount is from a rental real estate activity. • Deductions allocable to portfolio income.
exchanges, or involuntary conversions (other
Ordinary income (loss) from another than casualties or thefts) of the other Report these deductions on line 13d of
partnership that is a publicly traded partnership's trade or business assets. Schedule K and in box 13 of Schedule K-1
partnership isn't reported on this line. using code I or L.
Instead, report the amount separately on Partnerships should not use Form 4797 to • Nondeductible expenses (for example,
line 11 of Schedule K and in box 11 of report the sale or other disposition of expenses connected with the production of
Schedule K-1 using code I. property if a section 179 expense deduction tax-exempt income). Report nondeductible
was previously passed through to any of its expenses on line 18c of Schedule K and in
Treat shares of other items separately box 18 of Schedule K-1 using code C.
reported on Schedule K-1 issued by the partners for that property. Instead, report it in
box 20 of Schedule K-1 using code L. See • Qualified expenditures to which an
other entity as if the items were realized or election under section 59(e) may apply. The
incurred by this partnership. the instructions for Dispositions of property
with section 179 deductions (code L), later, instructions for line 13c of Schedule K and
If there is a loss from another partnership, for details. for Schedule K-1, box 13, code J, explain
the amount of the loss that may be claimed is how to report these amounts.

Instructions for Form 1065 (2018) -19-

 • Items the partnership must state (including taxes) that benefit the assets top of the amended return. File the amended
separately that require separate produced or acquired for resale, or are return at the same address the partnership
computations by the partners. Examples incurred because of the performance of filed its original return. The election applies
include expenses incurred for the production production or resale activities. when figuring income for the current tax year
of income instead of in a trade or business, For inventory, indirect costs that must be and all subsequent years.
charitable contributions, foreign taxes paid or capitalized include the following. The partnership can choose to forgo the
accrued, intangible drilling and development • Administration expenses. above elections by clearly electing to
costs, soil and water conservation • Taxes. capitalize its start-up or organizational costs
expenditures, amortizable basis of • Depreciation. on its return filed by the due date (including
reforestation expenditures, and exploration • Insurance. extensions) for the tax year in which the
expenditures. The distributive shares of • Compensation paid to officers attributable active trade or business begins.
these expenses are reported separately to to services.
each partner on Schedule K-1. The election to either amortize or
• Rework labor. capitalize start-up or organizational costs is
Limitations on Deductions • Contributions to pension, stock bonus, irrevocable and applies to all start-up and
and certain profit-sharing, annuity, or organizational costs that are related to the
Section 263A uniform capitalization deferred compensation plans. trade or business.
rules. The uniform capitalization rules of Regulations section 1.263A-1(e)(3)
section 263A generally require partnerships specifies other indirect costs that relate to Amortization. Any costs not deducted
to capitalize certain costs incurred in production or resale activities that must be under the above rules must be amortized
connection with the following. capitalized and those that may be currently ratably over a 180-month period, beginning
• The production of real property and deductible. with the month the partnership begins
tangible personal property held in inventory business. See the Instructions for Form 4562
or held for sale in the ordinary course of Interest expense paid or incurred during for details.
business. the production period of designated property
must be capitalized and is governed by Report the deductible amount of these
• Real property or personal property costs and any amortization on line 20. For
(tangible and intangible) acquired for resale. special rules. For more details, see
Regulations sections 1.263A-8 through amortization that began during the tax year,
• The production of real property and complete and attach Form 4562.
tangible personal property by a partnership 1.263A-15.
for use in its trade or business or in an For more details on the uniform Syndication costs. Costs for issuing and
activity engaged in for profit. capitalization rules, see Regulations sections marketing interests in the partnership, such
1.263A-1 through 1.263A-3. as commissions, professional fees, and
Tangible personal property produced by
printing costs, must be capitalized. They
a partnership includes a film, sound Transactions between related taxpayers. cannot be depreciated or amortized. See the
recording, videotape, book, or similar Generally, an accrual basis partnership can instructions for line 10, later, for the
property. deduct business expenses and interest treatment of syndication fees paid to a
The costs required to be capitalized owed to a related party (including any partner.
under section 263A aren't deductible until the partner) only in the tax year of the
property to which the costs relate is sold, partnership that includes the day on which Reducing certain expenses for which
used, or otherwise disposed of by the the payment is includible in the income of the credits are allowable. The partnership
partnership. related party. See section 267 for details. may need to reduce the otherwise allowable
deductions for expenses used to figure
Exceptions. For tax years beginning Business interest. Business interest certain credits. The following are examples
after 2017, a small business taxpayer, expense is limited for tax years beginning of such credits. (Do not reduce the amount of
defined earlier, can adopt or change its after 2017. See section 163(j) for limitations the allowable deduction for any portion of the
method of accounting to not capitalize costs on deductions for business interest. credit that was passed through to the
under section 263A. See section 263A(i) and Business start-up and organizational partnership from another pass-through
Accounting Methods, earlier. costs. Generally, a partnership can elect to entity.)
Section 263A doesn't apply to the deduct a limited amount of start-up or 1. Work opportunity credit.
following. organizational costs paid or incurred. Any 2. Credit for increasing research
• Timber. costs not deducted must be amortized as activities.
• Most property produced under a explained below. See sections 195(b) and
long-term contract. 709(b). 3. Disabled access credit.
• Certain property produced in a farming Time for making an election. The
4. Empowerment zone employment
business. See the note at the end of the credit, if applicable.
partnership generally elects to deduct
instructions for line 5, earlier. 5. Indian employment credit, if
start-up or organizational costs by claiming
• Geological and geophysical costs the deduction on its return filed by the due applicable.
amortized under section 167(h).
date (including extensions) for the tax year in 6. Credit for employer social security
• Certain plants bearing fruits and nuts which the active trade or business begins.
under section 168(k)(5). and Medicare taxes paid on certain
However, for start-up or organizational costs employee tips.
The partnership must report the following paid or incurred before September 9, 2008, 7. Orphan drug credit.
costs separately to the partners for purposes the partnership may be required to attach a
of determinations under section 59(e). statement to its return to elect to deduct such 8. Credit for small employer pension
plan startup costs.
• Research and experimental costs under costs. See Temporary Regulations sections
section 174. 1.195-1T and 1.709-1T (as in effect on July 9. Credit for employer-provided
• Intangible drilling costs for oil, gas, and 7, 2008) for details. Also, see Regulations childcare facilities and services.
geothermal property. sections 1.195-1 and 1.709-1. If the 10. Low sulfur diesel fuel production
• Mining exploration and development partnership timely filed its return for the year credit.
costs. without making an election, it can still make
an election by filing an amended return 11. Mine rescue team training credit, if
Indirect costs. Partnerships subject to within 6 months of the due date of the return applicable.
the uniform capitalization rules are required (excluding extensions). Clearly indicate the 12. Credit for employer differential wage
to capitalize not only direct costs but an election on the amended return and write payments.
allocable part of most indirect costs “Filed pursuant to section 301.9100-2” at the

-20- Instructions for Form 1065 (2018)

 13. Credit for small employer health Line 11. Repairs and And the vehicle's FMV on
insurance premiums.
Maintenance The lease term the first day of the lease
14. Employer credit for paid family and began: exceeded:
medical leave (Form 8994). Enter the costs of incidental repairs and
maintenance that don't add to the value of Automobiles other than trucks and
If the partnership has any of these credits, the property or appreciably prolong its life, vans . . . . . . . . . . . . . . . . . . .
figure each current year credit before figuring but only to the extent that such costs relate
After 12/31/2017
the deductions for expenses on which the to a trade or business activity and aren't
but before
credit is based. claimed elsewhere on the return. See 1/1/2019 . . . . . . . . . . . . . . . $50,000
Regulations section 1.162-4. The
Line 9. Salaries and Wages partnership may elect to capitalize certain After 12/31/12 and before 1/1/18 $19,000
Enter the salaries and wages paid or repair and maintenance costs consistent with After 12/31/09 but before 1/1/13 $18,500
incurred for the tax year, reduced by the its books and records. See Regulations
Trucks and vans . . . . . . . . . . . .
amount of the following credit(s). section 1.263(a)-3(n) for information on how
• Work Opportunity Credit (Form 5884). to make the election. After 12/31/2017
• Empowerment Zone Employment Credit but before
(Form 8844), if applicable. The cost of new buildings, machinery, or 1/1/2019 . . . . . . . . . . . . . . . $50,000
permanent improvements that increase the
• Indian Employment Credit (Form 8845), if After 12/31/13 and before 1/1/18 $19,500
applicable. value of the property aren't deductible as
repairs and maintenance expense. These After 12/31/09 and before 1/1/14 $19,000
• Mine Rescue Team Training Credit (Form
8923), if applicable. expenses must be capitalized and The inclusion amount for lease terms beginning in
depreciated or amortized. However, 2019 will be published in the Internal Revenue
• Credit for Employer Differential Wage
Payments (Form 8932). amounts paid for routine maintenance on Bulletin in early 2019.
property, including buildings, may be
Do not reduce the amount of the deductible. See Regulations section
allowable deduction for any portion of the 1.263(a)-3(i).
See Pub. 463, Travel, Gift, and Car
credit that was passed through to the Line 12. Bad Debts Expenses, for instructions on figuring the
partnership from another pass-through inclusion amount.
entity. See the instructions for the credit form Enter the total debts that became worthless
in whole or in part during the year, but only to
for more information.
the extent such debts relate to a trade or
Line 14. Taxes and Licenses
business activity. Report deductible Enter taxes and licenses paid or incurred in
Do not include salaries and wages
nonbusiness bad debts as a short-term the trade or business activities of the
reported elsewhere on the return, such as
capital loss on Form 8949. partnership if not reflected elsewhere on the
amounts included in cost of goods sold,
return. Federal import duties and federal
elective contributions to a section 401(k) Cash method partnerships cannot excise and stamp taxes are deductible only if
cash or deferred arrangement, or amounts take a bad debt deduction unless the
contributed under a salary reduction SEP
! amount was previously included in
paid or incurred in carrying on the trade or
CAUTION
business of the partnership.
agreement or a SIMPLE IRA plan. income.
Line 10. Guaranteed Payments Do not deduct the following taxes on
Line 13. Rent line 14.
to Partners • Taxes not imposed on the partnership.
Enter rent paid on business property used in
Deduct payments or credits to a partner for a trade or business activity. Do not deduct • Federal income taxes or taxes reported
services or for the use of capital if the rent for a dwelling unit occupied by any elsewhere on the return.
payments or credits are determined without partner for personal use. • Section 901 foreign taxes. Report these
regard to partnership income and are taxes separately on Schedule K, line 16p
allocable to a trade or business activity. Also If the partnership rented or leased a and on Schedule K-1, box 16, using codes P
include on line 10 amounts paid during the vehicle, enter the total annual rent or lease and Q.
tax year for insurance that constitutes expense paid or incurred in the trade or • Taxes allocable to a rental activity. Report
medical care for a partner, a partner's business activities of the partnership. Also taxes allocable to rental real estate activity
spouse, a partner's dependents, or a complete Part V of Form 4562, Depreciation on Form 8825. Report taxes allocable to a
partner's children under age 27 who aren't and Amortization. If the partnership leased a rental activity other than a rental real estate
dependents. vehicle for a term of 30 days or more, the activity on line 3b of Schedule K.
deduction for vehicle lease expense may • Taxes paid or incurred for the production
For information on how to treat the have to be reduced by an amount called the or collection of income, or for the
partnership's contribution to a partner's inclusion amount. The partnership may have management, conservation, or maintenance
Health Savings Account (HSA), see Notice an inclusion amount if: of property held to produce income. Report
2005-8, 2005-4 I.R.B. 368. these taxes separately on line 13d of
Schedule K and in box 13 of Schedule K-1
Do not include any payments and credits using code W.
that should be capitalized. For example,
although payments or credits to a partner for See section 263A(a) for rules on
services rendered in syndicating a capitalization of allocable costs (including
partnership may be guaranteed payments, taxes) for any property.
they aren't deductible on line 10. They are
capital expenditures. However, they should • Taxes, including state or local sales taxes,
be separately reported on Schedule K, line 4, that are paid or incurred in connection with
and on Schedule K-1, box 4. an acquisition or disposition of property
(these taxes must be treated as a part of the
Do not include distributive shares of cost of the acquired property or, in the case
partnership profits. of a disposition, as a reduction in the amount
realized on the disposition).
Report the guaranteed payments to the • Taxes assessed against local benefits
appropriate partners on Schedule K-1, box 4. that increase the value of the property
assessed (such as for paving, etc.).

Instructions for Form 1065 (2018) -21-

 See section 164(d) for information on activity losses, investment interest, and expense elected by the partnership. This
apportionment of taxes on real property personal interest can be properly figured. reduction must be made in the basis of
between seller and purchaser. Generally, interest expense is allocated in partnership property even if the limitations of
the same manner as debt is allocated. Debt section 179(b) and Regulations section
Line 15. Interest is allocated by tracing disbursements of the 1.179-2 prevent a partner from deducting all
Include only interest incurred in the trade or debt proceeds to specific expenditures. or a portion of the amount of the section 179
business activities of the partnership that Temporary Regulations section 1.163-8T expense allocated by the partnership.
isn't claimed elsewhere on the return. gives rules for tracing debt proceeds to
expenditures. Line 17. Depletion
Do not include interest expense on the
following. • Interest paid by a partnership to a partner If the partnership claims a deduction for
• Debt used to purchase rental property or for the use of capital, which should be timber depletion, complete and attach Form
debt used in a rental activity. Interest entered on line 10 as guaranteed payments. T (Timber), Forest Activities Schedule.
allocable to a rental real estate activity is • Prepaid interest, which generally can only Do not deduct depletion for oil and
reported on Form 8825 and is used in be deducted over the term of the debt. See
! gas properties. Each partner figures
arriving at net income (loss) from rental real section 461(g) and Regulations sections CAUTION depletion on oil and gas properties.
estate activities on line 2 of Schedule K and 1.163-7, 1.446-2, and 1.1273-2(g) for details.
See the instructions for Schedule K-1,
in box 2 of Schedule K-1. Interest allocable • Interest which is allocable to unborrowed box 20, Depletion information oil and gas
to a rental activity other than a rental real policy cash values of life insurance,
(code T), for the information on oil and gas
estate activity is included on line 3b of endowment, or annuity contracts issued after
depletion that must be supplied to the
Schedule K and is used in arriving at net June 8, 1997, when the partnership is a
partners by the partnership.
income (loss) from a rental activity (other policyholder or beneficiary. See section
264(f). Attach a statement showing the
than a rental real estate activity). This net
computation of the deduction. Line 18. Retirement Plans, etc.
amount is reported on line 3c of Schedule K
and in box 3 of Schedule K-1. Do not deduct payments for partners to
Limitation on deduction. Business retirement or deferred compensation plans
• Debt used to buy property held for interest expense is generally limited to the
investment. Interest that is clearly and including IRAs, qualified plans, and
sum of business interest income, 30% of the simplified employee pension (SEP) and
directly allocable to interest, dividend, adjusted taxable income, and floor plan
royalty, or annuity income not derived in the SIMPLE IRA plans on this line. These
financing interest. Business interest expense amounts are reported on Schedule K-1,
ordinary course of a trade or business is includes any interest expense properly
reported on line 13b of Schedule K and in box 13, using code R, and are deducted by
allocable to a trade or business. A small the partners on their own returns.
box 13 of Schedule K-1 using code H. See business taxpayer that isn't a tax shelter (as
the instructions for line 13b of Schedule K; defined in section 448(d)(3)) and that meets Enter the deductible contributions not
box 13, code H of Schedule K-1; and Form the gross receipts test isn't required to limit claimed elsewhere on the return made by the
4952, Investment Interest Expense business interest expense under section partnership for its common-law employees
Deduction, for more information on 163(j). A taxpayer meets the gross receipts under a qualified pension, profit-sharing,
investment property. test if the taxpayer has average annual gross annuity, or SEP or SIMPLE IRA plan, and
• Debt proceeds allocated to distributions receipts of $25 million or less for the 3 prior under any other deferred compensation plan.
made to partners during the tax year. tax years under the gross receipts test of
Instead, report such interest on line 13d of section 448(c). Gross receipts include the If the partnership contributes to an
Schedule K and in box 13 of Schedule K-1 aggregate gross receipts from all persons individual retirement arrangement (IRA) for
using code W. To determine the amount to treated as a single employer such as a employees, include the contribution in
allocate to distributions to partners, see controlled group of corporations, commonly salaries and wages on page 1, line 9, or
Notice 89-35, 1989-1 C.B. 675. controlled partnerships or proprietorships, Form 1125-A, line 3, and not on line 18.
• Debt required to be allocated to the and affiliated service groups. If the Employers who maintain a pension,
production of designated property. partnership fails to meet the gross receipts profit-sharing, or other funded deferred
Designated property includes real property, test, Form 8990, Limitation on Business compensation plan (other than a SEP or
personal property that has a class life of 20 Interest Expense Under Section 163(j), is SIMPLE IRA), whether or not the plan is
years or more, and other tangible property generally required. Also see Schedule B, qualified under the Internal Revenue Code
requiring more than 2 years (1 year in the questions 23 and 24. and whether or not a deduction is claimed for
case of property with a cost of more than $1 the current year, generally must file the
million) to produce or construct. Interest Line 16. Depreciation applicable form listed below.
allocable to designated property produced On line 16a, enter only the depreciation • Form 5500, Annual Return/Report of
by a partnership for its own use or for sale claimed on assets used in a trade or Employee Benefit Plan.
must be capitalized. In addition, a business activity. Enter on line 16b the • Form 5500-SF, Short Form Annual
partnership must also capitalize to the basis depreciation included elsewhere on the Return/Report of Small Employee Benefit
of the designated property any interest on return (for example, on page 1, line 2) that is Plan (generally filed instead of Form 5500 if
debt allocable to an asset used to produce attributable to assets used in trade or there are under 100 participants at the
designated property. A partner may have to business activities. See the Instructions for beginning of the plan year).
capitalize interest that the partner incurs Form 4562, or Pub. 946, How To Depreciate
during the tax year for the partnership's Property, to figure the amount of Form 5500 and Form 5500-SF must
production expenditures. Similarly, interest depreciation to enter on this line. TIP be filed electronically under the
incurred by a partnership may have to be computerized ERISA Filing
capitalized by a partner for the partner's own Complete and attach Form 4562 only if Acceptance System (EFAST2). For more
production expenditures. The information the partnership placed property in service information, see the EFAST2 website at
required by the partner to properly capitalize during the tax year or claims depreciation on www.efast.dol.gov.
interest for this purpose must be provided by any car or other listed property.
• Form 5500-EZ, Annual Return of
the partnership on an attached statement for Do not include any section 179 expense One-Participant (Owners and Their
box 20 of Schedule K-1, using code R. See deduction on this line. This amount isn't Spouses) Retirement Plan. File this form for
section 263A(f) and Regulations sections deducted by the partnership. Instead, it is a plan that only covers one or more partners
1.263A-8 through 1.263A-15. passed through to the partners in box 12 of (or partners and their spouses).
Special rules apply to the following. Schedule K-1. Generally, the basis of a
• Allocating interest expense among partnership's section 179 property must be
activities so that the limitations on passive reduced to reflect the amount of section 179

-22- Instructions for Form 1065 (2018)

Line 19. Employee Benefit unless the amounts are specifically identified effect before its repeal on March 23, 2018,
in the settlement agreement or court order. for details.
Programs Also, any amount paid or incurred as
Enter the partnership's contributions to The commercial revitalization
reimbursement to the government for the
employee benefit programs not claimed costs of any investigation or litigation are not TIP deduction isn't available for buildings
elsewhere on the return (for example, placed in service after 2009.
eligible for the exceptions and are
insurance, health, and welfare programs) nondeductible. See section 162(f).
Rental real estate. Do not report this
that aren't part of a pension, profit-sharing, • Expenses allocable to tax-exempt
etc., plan included on line 18. income. Report these expenses on deduction on line 20 if the building is placed
Schedule K, line 18c. in service as rental real estate. A commercial
Do not include amounts paid during the revitalization deduction for rental real estate
tax year for insurance that constitutes
• Net operating losses. Only individuals and
corporations may claim a net operating loss isn't deducted by the partnership but is
medical care for a partner, a partner's passed through to the partners in box 13 of
deduction.
spouse, a partner's dependents, or a Schedule K-1 using code Q.
partner's children under age 27 who aren't
• Amounts paid or incurred to participate or
intervene in any political campaign on behalf Travel, meals, and entertainment.
dependents. Instead, include these amounts
of a candidate for public office, or to Subject to limitations and restrictions
on line 10 as guaranteed payments on
influence the general public regarding discussed below, a partnership can deduct
Schedule K, line 4, and Schedule K-1, box 4,
legislative matters, elections, or ordinary and necessary travel and
of each partner on whose behalf the
referendums. Report these expenses on non-entertainment related meal expenses
amounts were paid. Also report these
Schedule K, line 18c. paid or incurred in its trade or business.
amounts on Schedule K, line 13d, and
Schedule K-1, box 13, using code M, of each
• Lobbying expenses. Generally, lobbying Generally, entertainment expenses,
expenses are not deductible. These membership dues, and facilities used in
partner on whose behalf the amounts were
expenses include amounts paid or incurred connection with these activities cannot be
paid.
in connection with influencing federal, state, deducted. Also, special rules apply to
Line 20. Other Deductions or local legislation (but not amounts paid or deductions for gifts, luxury water travel, and
incurred before December 22, 2017, in convention expenses. See section 274 and
Enter the total allowable trade or business
connection with local legislation); or amounts Pub. 463 for details.
deductions that aren't deductible elsewhere
paid or incurred in connection with any
on page 1 of Form 1065. Attach a statement Travel. The partnership cannot deduct
communication with certain federal executive
listing by type and amount each deduction travel expenses of any individual
branch officials in an attempt to influence the
included on this line. Examples of other accompanying a partner or partnership
official actions or positions of the officials.
deductions include the following. employee, including a spouse or dependent
See Regulations section 1.162-29 for the
• Amortization. See the Instructions for definition of “influencing legislation.” Dues of the partner or employee, unless:
Form 4562 for more information. Complete • That individual is an employee of the
and other similar amounts paid to certain
and attach Form 4562 if the partnership is partnership, and
tax-exempt organizations may not be
claiming amortization of costs that began • His or her travel is for a bona fide
deductible. If certain in-house lobbying
during the tax year. business purpose and would otherwise be
expenditures don't exceed $2,000, they are
• Insurance premiums. deductible. See section 162(e)(4)(B). deductible by that individual.
• Legal and professional fees. • Amounts paid or incurred for any
• Supplies used and consumed in the settlement or payout related to sexual
Meals. Generally, the partnership can
business. deduct only 50% of the amount otherwise
harassment or sexual abuse that is subject to
• Utilities. a nondisclosure agreement, as well as any
allowable for non-entertainment meal
• Certain business startup and attorney’s fees related to the settlement or
expenses paid or incurred in its trade or
organizational costs. See Limitations on business. Entertainment related meals are
payout. See section 162(q). generally disallowed. In addition (subject to
Deductions, earlier, for more details.
• Deduction for certain energy efficient exceptions under section 274(k)(2)):
commercial building property placed in Special Rules • Meals must not be lavish or extravagant,
service before January 1, 2017. See section and
179D, Notice 2006-52, 2006-26 I.R.B. 1175, Commercial revitalization deduction. If • A partner or employee of the partnership
as amplified and clarified by Notice 2008-40, the partnership constructed, purchased, or must be present at the meal.
2008-14 I.R.B. 725, and modified by Notice substantially rehabilitated a qualified building
See section 274(n)(3) for a special rule
2012-26. in a renewal community, it may have
that applies to expenses for meals
• Any net negative section 481(a) qualified for either (a) a deduction of 50% of
consumed by individuals subject to the hours
adjustment. qualified capital expenditures in the year the
of service limits of the Department of
building was placed in service, or (b)
Transportation.
Also see Special Rules, later. amortization of 100% of the qualified capital
expenditures over a 120-month period Membership dues. The partnership
Do not deduct the following on line 20.
beginning with the month the building was may deduct amounts paid or incurred for
• Items that must be reported separately on placed in service. If the partnership elected membership dues in civic or public service
Schedules K and K-1.
to amortize these expenditures, complete organizations, professional organizations
• Fines and penalties. Generally, no and attach Form 4562. To qualify, the (such as bar and medical associations),
deduction is allowed for fines and penalties
building must be nonresidential (as defined business leagues, trade associations,
paid to a government or specified
in section 168(e)(2)) and placed in service by chambers of commerce, boards of trade,
nongovernmental entity for the violation of
the partnership. The partnership must be the and real estate boards. However, no
any law except amounts that constitute
original user of the building unless it is deduction is allowed if a principal purpose of
restitution, amounts paid to come into
substantially rehabilitated. The qualified the organization is to entertain, or provide
compliance with the law, amounts paid or
expenditures cannot exceed the lesser of entertainment facilities for, members or their
incurred as the result of certain court orders
$10 million or the amount allocated to the guests. In addition, the partnership may not
in which no government or specified
building by the commercial revitalization deduct membership dues in any club
nongovernmental agency is a party, and
agency of the state in which the building is organized for business, pleasure, recreation,
amounts paid or incurred for taxes due.
located. Any remaining expenditures are or other social purpose. This includes
Report nondeductible amounts on
depreciated over the regular depreciation country clubs, golf and athletic clubs, airline
Schedule K, line 18c. No deduction is
recovery period. See section 1400I, as in and hotel clubs, and clubs operated to
allowed for the restitution amount or amount
paid to come into compliance with the law

Instructions for Form 1065 (2018) -23-

provide meals under conditions favorable to Line 28. Payment. Enter any prepayments foreign government's ownership interest in
business discussion. related to lines 23–26 above. the profit, loss, or capital of the partnership,
the constructive ownership rules of
Entertainment facilities. The Regulations section 1.892-5T(c)(1)(i) apply
partnership cannot deduct an expense paid
or incurred for a facility (such as a yacht or Schedule B. Other to ownership of interests in the partnership
as well as corporate stock. An interest in the
hunting lodge) used for an activity usually Information partnership which is owned directly or
considered entertainment, amusement, or indirectly by an integral part or controlled
recreation.
Question 1 entity of a foreign sovereign (within the
Amounts treated as compensation. Check box 1f for any other type of entity and meaning of Regulations section 1.892-2T(a))
Generally, the partnership may be able to state the type. is considered to be owned proportionately by
deduct otherwise nondeductible such foreign sovereign.
entertainment, amusement, or recreation Maximum Percentage Owned Constructive ownership examples for
expenses if the amounts are treated as for Purposes of Questions 2 questions 2 and 3 are included below. For
compensation to the recipient and reported the purposes of questions 2 and 3, add an
on Form W-2 for an employee or on Form
and 3 owner's direct percentage ownership and
1099-MISC for an independent contractor. To determine the maximum percentage indirect percentage ownership in an entity to
owned in the partnership's profit, loss, or determine if the owner owns, directly or
Reforestation expenditures. If the capital for the purposes of questions 2a, 2b, indirectly, 50% or more of the entity.
partnership made an election to deduct a and 3b, determine separately the partner's
portion of its reforestation expenditures on percentage of interest in profit, loss, and Example for question 2a. Corporation
line 13d of Schedule K, it must amortize over capital at the end of the partnership's tax A owns, directly, an interest of 50% in the
an 84-month period the portion of these year. This determination must be based on profit, loss, or capital of Partnership B.
expenditures in excess of the amount the partnership agreement and it must be Corporation A also owns, directly, an interest
deducted on Schedule K (see section 194). made using the constructive ownership rules of 15% in the profit, loss, or capital of
Deduct on line 20 only the amortization of described below. The maximum percentage Partnership C. Partnership B owns, directly,
these excess reforestation expenditures. is the highest of these three percentages an interest of 70% in the profit, loss, or
See Reforestation expense deduction (code (determined at the end of the tax year). capital of Partnership C. Therefore,
S), later. Corporation A owns, directly or indirectly, an
See Item J. Partner's Profit, Loss, and interest of 50% in the profit, loss, or capital of
Tax and Payment Capital, later, for more information on Partnership C (15% directly and 35%
Line 23. Interest due under the look-back ownership percentages. indirectly through Partnership B). On
method for completed long-term con- Partnership C's Form 1065, it must answer
Questions 2 and 3 “Yes” to question 2a of Schedule B. See
tracts. For partnerships that aren't closely
held, attach Form 8697 and a check or Constructive ownership of the partner- Example 1 in the instructions for
money order for the full amount, made ship. For purposes of question 2, except for Schedule B-1 (Form 1065) for guidance on
payable to "United States Treasury." Write foreign governments within the meaning of providing the rest of the information required
the partnership's employer identification section 892, in determining an ownership of entities answering “Yes” to this question.
number (EIN), daytime phone number, and interest in the profit, loss, or capital of the
Example for question 2b. A owns,
"Form 8697 Interest'' on the check or money partnership, the constructive ownership rules
directly, 50% of the profit, loss, or capital of
order. of section 267(c) (excluding section 267(c)
Partnership X. B, the daughter of A, doesn't
(3)) apply to ownership of interests in the
Line 24. Interest due under the look-back own, directly, any interest in X and doesn't
partnership as well as corporate stock. An
method for property depreciated under own, indirectly, any interest in X through any
interest in the partnership which is owned
the income forecast method. For entity (corporation, partnership, trust, or
directly or indirectly by or for another entity
partnerships that aren’t closely held, attach estate). Because family attribution rules
(corporation, partnership, estate, trust, or
Form 8866 and a check or money order for apply only when an individual (in this
tax-exempt organization) is considered to be
the full amount, made payable to “United example, B) owns a direct interest in the
owned proportionately by the owners
States Treasury.” Write the partnership’s partnership or an indirect interest through
(shareholders, partners, or beneficiaries) of
employer identification number (EIN), another entity, A's interest in Partnership X
the owning entity.
daytime phone number, and “Form 8866 isn't attributable to B. On Partnership X's
Interest” on the check or money order. Also, under section 267(c), an individual Form 1065, it must answer “Yes” to question
is considered to own an interest owned 2b of Schedule B. See Example 2 in the
Line 25. BBA AAR imputed underpay- directly or indirectly by or for his or her instructions for Schedule B-1 (Form 1065)
ment. Use this line if the partnership is filing family. The family of an individual includes for guidance on providing the rest of the
an AAR electronically and chooses to pay only that individual's spouse, brothers, information required of entities answering
the imputed underpayment. For instructions sisters, ancestors, and lineal descendants. “Yes” to this question.
on how to figure the imputed underpayment, An interest will be attributed from an
see the Instructions for Form 8082. Write the individual under the family attribution rules Constructive ownership of other entities
name of the partnership, tax identification only if the person to whom the interest is by the partnership. For purposes of
number, tax year, "Form 1065," and "BBA attributed owns a direct interest in the determining the partnership's constructive
AAR Imputed Underpayment" on the partnership or an indirect interest under ownership of other entities, the constructive
payment. Checks must be payable to “United section 267(c)(1) or (5). For purposes of ownership rules of section 267(c) (excluding
States Treasury” and mailed to Ogden these instructions, an individual will not be section 267(c)(3)) apply to ownership of
Service Center, Ogden, UT 84201-0011. considered to own, under section 267(c)(2), interests in partnerships and trusts as well as
Payments can be made by check or an interest in the partnership owned, directly corporate stock. Generally, if an entity (a
electronically . or indirectly, by a family member of the corporation, partnership, or trust) is owned,
individual unless the individual also owns an directly or indirectly, by or for another entity
Line 26. Other taxes. In a few instances,
interest in the partnership either directly or (corporation, partnership, estate, or trust),
payments other than those listed above may
indirectly through a corporation, partnership, the owned entity is considered to be owned
have to be made with Form 1065. Enter the
or trust. proportionally by or for the owners
amount on this line and attach a statement
(shareholders, partners, or beneficiaries) of
identifying the purpose of the payment. For purposes of question 2, “foreign the owning entity.
government” has the same meaning as it
does under section 892. In determining a

-24- Instructions for Form 1065 (2018)

 Question 3a. List each corporation in made by each individual partner under rules not revoked) a section 754 election. If the
which the partnership, at the end of the tax found in section 108. For more information, partnership technically terminated under
year, owns, directly, 20% or more, or owns, see Pub. 334, Tax Guide for Small Business. section 708(b)(1)(B), and the new
directly or indirectly, 50% or more of the total partnership doesn't make a section 754
voting power of all classes of stock entitled to Question 7 election for its first tax year, the section 754
vote. Indicate the name, EIN, country of Answer “Yes” if the partnership filed, or is election is considered “revoked” for
incorporation, and percentage interest required to file, a return under section 6111 purposes of completing question 10a. For
owned, directly or indirectly, in the total to provide information on any reportable information about the election, see item 4
voting power. List the parent corporation of transaction by a material advisor. Use Form under Elections Made by the Partnership,
an affiliated group filing a consolidated tax 8918, Material Advisor Disclosure earlier.
return rather than the subsidiary members Statement, to provide the information. For
Question 10b. Answer “Yes” if the
except for subsidiary members in which an details, see the Instructions for Form 8918.
partnership made an optional basis
interest is owned, directly or indirectly,
independent of the interest owned, directly or Question 8 adjustment under section 743(b) or 734(b)
for the tax year. If the partnership has made
indirectly, in the parent corporation. If a Answer “Yes” if either (1) or (2) below applies
a section 754 election (and it has not been
corporation is owned through a disregarded to the partnership. Otherwise, check the “No”
revoked) and either of the following
entity, list the information for the corporation box.
transactions occurs, the partnership must
rather than the disregarded entity. 1. At any time during calendar year make a basis adjustment under section
Question 3b. List each partnership in 2018, the partnership had an interest in or 734(b) or 743(b).
which the partnership, at the end of the tax signature or other authority over a bank
account, securities account, or other Section 743(b) basis adjustment. A
year, owns, directly, an interest of 20% or
financial account in a foreign country (see section 743(b) basis adjustment is required if
more, or owns, directly or indirectly, an
FinCEN Form 114, Report of Foreign Bank there is a transfer of an interest in the
interest of 50% or more in the profit, loss, or
and Financial Accounts (FBAR); and partnership by a sale or exchange, or in the
capital of the partnership. List each trust in
which the partnership, at the end of the tax • The combined value of the accounts was death of a partner. See question 10c if the
more than $10,000 at any time during the partnership has a substantial built-in loss
year, owns, directly, an interest of 20% or
calendar year; and immediately after such a transfer. The basis
more, or owns, directly or indirectly, an
interest of 50% or more in the trust beneficial • The accounts were not with a U.S. military adjustment affects only the transferee's basis
banking facility operated by a U.S. financial in partnership property. The partnership
interest. For each partnership or trust listed,
institution. must attach a statement to the return for the
indicate the name, EIN, type of entity
tax year in which the transfer occurred. The
(partnership or trust), and country of origin. If 2. The partnership owns more than 50%
statement must include:
the listed entity is a partnership, enter in of the stock in any corporation that would
column (v) the maximum of percentage answer the question “Yes” based on item (1) • The name of the transferee partner,
interests owned, directly or indirectly, in the above. • The EIN or SSN of the transferee partner,
profit, loss, or capital of the partnership at the
• The computation of the adjustment, and
end of the partnership's tax year. If the entity If the “Yes” box is checked for the • The identity of the partnership properties
question, do the following. to which the adjustment has been allocated.
is a trust, enter in column (v) the percentage
of the partnership's beneficial interest in the • Enter the name of the foreign country or For details, see section 743 and Regulations
countries. Attach a separate sheet if more section 1.743-1. For details on allocating the
trust owned, directly or indirectly, at the end
space is needed. basis adjustment to partnership properties,
of the tax year. List a partnership or trust
owned through a disregarded entity rather • File FinCEN Form 114 electronically at the see section 755 and Regulations section
FinCEN website, bsaefiling.fincen.treas.gov/ 1.755-1.
than the disregarded entity.
main.html.
Section 734(b) basis adjustment. A
Question 4
Question 9 section 734(b) basis adjustment is required if
Answer “Yes” if the partnership meets all four there is a distribution of property to a partner,
of the requirements shown on the form. Total The partnership may be required to file Form
3520, Annual Return To Report Transactions whether or not in liquidation of the partner's
receipts is defined as the sum of gross entire interest in the partnership. See
receipts or sales (page 1, line 1a); all other With Foreign Trusts and Receipt of Certain
Foreign Gifts, if any of the following apply. question 10c if there is a substantial built-in
income (page 1, lines 4 through 7); income loss related to the distribution. The basis
reported on Schedule K, lines 3a, 5, 6a, and • It directly or indirectly transferred property adjustment affects each partner's basis in
7; income or net gain reported on or money to a foreign trust. For this purpose,
any U.S. person who created a foreign trust the partnership property. The partnership
Schedule K, lines 8, 9a, 10, and 11; and must attach a statement to the return for the
income or net gain reported on Form 8825, is considered a transferor.
tax year in which the distribution occurred.
lines 2, 19, and 20a. “Total assets” is defined • It is treated as the owner of any part of the The statement must include:
assets of a foreign trust under the grantor
as the amount that would be reported in item
trust rules. • The computation of the adjustment,
F on page 1 of Form 1065.
• It received a distribution from a foreign • The class of property distributed (ordinary
income property or capital gain property),
Question 5 trust.
and
Answer “Yes” if interests in the partnership For more information, see the Instructions • The partnership properties to which the
are traded on an established securities for Form 3520. adjustment has been allocated.
market or are readily tradable on a
For details, see section 734 and
secondary market (or its substantial An owner of a foreign trust must ensure Regulations section 1.734-1. For details on
equivalent). that the trust files an annual information allocating the basis adjustment to
Question 6 return on Form 3520-A, Annual Information partnership properties, see section 755 and
Return of Foreign Trust With a U.S. Owner. Regulations section 1.755-1.
Generally, the partnership will have income if
debt is canceled or forgiven. The Questions 10a, 10b, and 10c Question 10c. Answer “Yes” if the
determination of the existence and amount partnership had to make a basis reduction
of cancellation of debt income is made at the You must check “Yes” or “No” for
under section 743(b) because of a
partnership level. Partnership cancellation of TIP each question. substantial built-in loss (as defined in section
indebtedness income is separately stated on 743(d)) or under section 734(b) because of a
Schedule K and Schedule K-1. The extent to Question 10a. Answer “Yes” if the substantial basis reduction (as defined in
which such income is taxable is usually partnership is making, or has made (and has section 734(d)). Section 743(d)(1) provides

Instructions for Form 1065 (2018) -25-

that, for purposes of section 743, a common. Partners may agree to partition A domestic partnership required to file
partnership has a substantial built-in loss property held as tenants in common or may Form 8938 with its Form 1065 for the tax
resulting from a transfer of a partnership seek a court order to partition the property year should check “Yes” to question 20 of
interest if the partnership's adjusted basis in (usually dividing the property into fractional Schedule B, Form 1065.
the partnership's property exceeds by more interests in accordance with each partner's
than $250,000 the fair market value of the ownership interest in the partnership). Question 22
property or the transferee partner would be Section 267A disallows deductions for
allocated a loss of more than $250,000 if the Example. Partnership P is a partnership certain interest and royalty payments or
partnership assets were sold for cash equal which files Form 1065. Partnership P holds accruals. In general, section 267A applies
to their fair market value immediately after title to land held for investment. Partnership when the interest or royalty is paid or
such transfer. Under section 734(d), there is P converts its title to the land to fractional accrued to a related party which, under its
a substantial basis reduction resulting from a interests in the name of the partners and tax laws, either doesn't include the full
distribution if the sum of the following distributes such interests to its partners. amount in income, or is allowed a deduction
amounts exceeds $250,000. Partnership P must answer “Yes” to question with respect to the amount; and the amount
• The amount of loss recognized by the 12. is paid or accrued pursuant to a hybrid
distributee partner on a distribution in Question 13 transaction or by, or to, a hybnd entity. When
liquidation of the partner's interest in the section 267A applies, the deduction is
partnership (see section 731(a)(2)). Enter the number of Form(s) 8858, generally disallowed to the extent the related
Information Return of U.S. Persons With
• The excess of the basis of the distributed party doesn't include the amount in income
property to the distributee partner Respect To Foreign Disregarded Entities or is allowed a deduction with respect to the
(determined under section 732) over the (FDEs) and Foreign Branches (FBs), that are amount. However, the deduction isn't
adjusted basis of the distributed property to attached to the return. Form 8858 and its disallowed to the extent the amount is
the partnership immediately before the schedules are used by certain U.S. persons included in the gross income of a U.S.
distribution (as adjusted by section 732(d)). (including domestic partnerships) that own a shareholder under section 951(a). For
foreign disregarded entity (FDE) directly (or, definitions of terms, see section 267A.
Section 743(b) basis adjustment. For in certain cases, indirectly or constructively)
a section 743(b) basis adjustment, attach a to satisfy the reporting requirements of Question 23
statement that includes: sections 6011, 6012, 6031, 6038, and the For tax years beginning after 2017, the
• The name of the transferee partner, related regulations. See Form 8858 (and its limitation on business interest expense
• The EIN or SSN of the transferee partner, separate instructions) for information on applies to every taxpayer with a trade or
• The computation of the adjustment, and completing the form. business, unless the taxpayer meets certain
• The identity of the partnership properties specified exceptions. A partnership may
to which the adjustment has been allocated. Question 14
elect out of the limitation for certain
Answer “Yes” if the partnership had any businesses otherwise subject to the
Section 734(b) basis adjustment. For foreign partners (for purposes of section
a section 734(b) basis adjustment, attach a business interest expense limitation.
1446) at any time during the tax year.
statement that includes: Otherwise, answer “No.” Certain real property trades or
• The computation of the adjustment, businesses and farming businesses qualify
• The class of property distributed (ordinary If the partnership had gross income to make an election not to limit business
income property or capital gain property), effectively connected with a trade or interest expense. This is an irrevocable
and business in the United States and foreign election. If you make this election, you are
• The partnership properties to which the partners, it may be required to withhold tax required to use the alternative depreciation
adjustment has been allocated. under section 1446 on income allocable to system to depreciate certain property. Also,
Question 11 foreign partners (without regard to you are not entitled to the special
distributions) and file Forms 8804, 8805, and depreciation allowance for that property. For
Check the box if the partnership engaged in 8813. See Regulations sections 1.1446-1 a partnership with more than one qualifying
a like-kind exchange during the current or through 7 for more information. business, the election is made with respect
immediately preceding tax year and received to each business. Check “Yes” if the
replacement property which it distributed Questions 16a and 16b partnership has an election in effect to
during the current tax year. For purposes of If the partnership made any payment in 2018 exclude a real property trade or business or
this question, the partnership is considered that would require the partnership to file any a farming business from section 163(j). For
to have distributed replacement property if Form(s) 1099, check the “Yes” box for more information, see section 163(j) and the
the partnership contributed such property to question 16a and answer question 16b. Instructions for Form 8990.
any entity other than a disregarded entity. Otherwise, check the “No” box for question
The distribution of its ownership interest in a 16a and skip question 16b. See Am I Question 24
disregarded entity is considered a Required to File a Form 1099 or Other Generally, a taxpayer with a trade or
distribution of the underlying property. Information Return for more information. business must file Form 8990 to claim a
Question 12 deduction for business interest. In addition,
Question 20 Form 8990 must be filed by any taxpayer that
If a partnership distributed property to its For tax years beginning after December 31, owns an interest in a partnership with current
partners to be jointly owned, whether such 2015, domestic partnerships that are formed year, or prior year carryover, excess
distribution is direct or through the formation or availed of to hold specified foreign business interest expense allocated from the
of an intermediate entity, the question must financial assets (“specified domestic partnership. A pass-through entity allocating
be answered “Yes.” For purposes of entities”) must file Form 8938, Statement of excess taxable income or excess business
question 12, an “undivided interest in Specified Foreign Financial Assets, with its interest income to its owners (i.e., a
partnership property” means property that Form 1065 for the tax year. Form 8938 must pass-through entity that isn't a small
was owned by the partnership either directly be filed each year the value of the business taxpayer) must file Form 8990,
or through a disregarded entity and which partnership’s specified foreign financial regardless of whether it has any interest
was distributed to partners as fractional assets meets or exceeds the reporting expense.
ownership interests. A tenancy in common threshold. For more information on domestic
interest is a type of undivided ownership partnerships that are specified domestic Exclusions from filing. A taxpayer isn't
interest in property which provides each entities and the types of foreign financial required to file Form 8990 if the taxpayer is a
owner the right to transfer property to a third assets that must be reported, see the small business taxpayer and doesn't have
party without destroying the tenancy in Instructions for Form 8938. excess business interest expense from a

-26- Instructions for Form 1065 (2018)

partnership. A taxpayer is also not required partnership has made a valid election out of whether or not distributed, and must include
to file Form 8990 if the taxpayer only has the centralized partnership audit regime, their shares on their tax returns.
business interest expense from these each partnership must designate, in the
Schedule K. Schedule K is a summary
excepted trades or businesses: manner prescribed by the Secretary, a
schedule of all the partners' shares of the
• An electing real property trade or partner or other person with a substantial
partnership's income, credits, deductions,
business, presence in the United States as the
etc. All partnerships must complete
• An electing farming business, or partnership representative who shall have
Schedule K. Rental activity income (loss)
• Certain utility businesses. the sole authority to act on behalf of the
and portfolio income aren't reported on
partnership. If an entity is designated as
Small business taxpayer. A small page 1 of Form 1065. These amounts aren't
partnership representative, the partnership
business taxpayer isn't subject to the combined with trade or business activity
must also appoint an individual to act on the
business interest expense limitation and isn't income (loss). Schedule K is used to report
entity's behalf (a designated individual). To
required to file Form 8990. A small business the totals of these and other amounts.
be a designated individual, the appointed
taxpayer is a taxpayer that (a) isn't a tax
person must also have a substantial Schedule K-1. Schedule K-1 shows each
shelter (as defined in section 448(d)(3)) and
presence in the United States. partner's separate share. Attach a copy of
(b) meets the gross receipts test of section
each Schedule K-1 to the Form 1065 filed
448(c), discussed next. How to designate. A designation of a with the IRS. Keep a copy with a copy of the
partnership representative must be made on partnership return as a part of the
Gross receipts test. A taxpayer meets
the partnership’s Form 1065 filed for each partnership's records and furnish a copy to
the gross receipts test if the taxpayer has
respective partnership tax year. each partner. If a partnership interest is held
average annual gross receipts of $25 million
or less for the 3 prior tax years. A taxpayer's Partnership representative authority. by a nominee on behalf of another person,
average annual gross receipts for the 3 prior Under section 6223 the partnership and all the partnership may be required to furnish
tax years is determined by adding the gross its partners (and any other person whose tax Schedule K-1 to the nominee. See
receipts for the 3 prior tax years and dividing liability is determined in whole or in part by Temporary Regulations sections
the total by 3. Gross receipts include the taking into account directly or indirectly 1.6031(b)-1T and 1.6031(c)-1T for more
aggregate gross receipts from all persons adjustments determined under the information.
treated as a single employer, such as a centralized partnership audit regime) are Give each partner a copy of either the
controlled group of corporations, commonly bound by the actions of the partnership Partner's Instructions for Schedule K-1 (Form
controlled partnerships, or proprietorships, representative in dealings with the IRS. A 1065) or specific instructions for each item
and affiliated service groups. See section designation for a partnership tax year reported on the partner's Schedule K-1.
448(c) and the Instructions for Form 8990 for remains in effect until the designation is
additional information. terminated by (a) a valid resignation of the Substitute Forms
partnership representative, (b) a valid The partnership doesn't need IRS approval
Question 25 revocation of the partnership representative to use a substitute Schedule K-1 if it is an
Answer "Yes" if an eligible partnership (with designation of successor partnership exact copy of the IRS schedule. The boxes
chooses to elect out of the centralized representative), or (c) a determination by the must use the same numbers and titles and
partnership audit regime for the tax year and IRS that the designation isn't in effect. must be in the same order and format as on
enter the total from Schedule B-2, Part Ill, the comparable IRS Schedule K-1. The
line 3. If making the election, attach a Substantial presence. In order for
substitute schedule must include the OMB
completed Schedule B-2 to Form 1065. A either a partnership representative or a
number. The partnership must provide each
partnership is an eligible partnership for the designated individual to have substantial
partner with the Partner's Instructions for
tax year if it has 100 or fewer eligible presence, they must make themselves
Schedule K-1 (Form 1065) or other prepared
partners in that year. Eligible partners are available to meet in person with the IRS in
specific instructions for each item reported
individuals, C corporations, S corporations, the United States at a reasonable time and
on the partner's Schedule K-1.
foreign entities that would be C corporations place, as necessary and appropriate as
if they were domestic entities, and estates of determined by the IRS, and must have a The partnership must request IRS
deceased partners. The determination as to street address in the United States, a approval to use other substitute Schedules
whether the partnership has 100 or fewer telephone number with a U.S. area code, K-1. To request approval, write to
partners is made by adding the number of and a U.S. taxpayer identification number.
Schedules K-1 required to be issued by the Internal Revenue Service
Taxpayer identification numbers Attention: Substitute Forms Program
partnership for the tax year to the number of (TINs) of partnership representatives
Schedules K-1 required to be issued by any 5000 Ellin Road, C6-440
and designated individuals. The full TINs Lanham, MD 20706
partner that is an S corporation to its of the partnership representative and
shareholders for the tax year of the S designated individual must be shown on the
corporation ending with or within the Each partner's information must be on a
Form 1065 filed with the IRS. However,
partnership tax year. A partnership isn't separate sheet of paper. Therefore, separate
these TINs may be truncated on the copies
eligible to elect out of the centralized all continuously printed substitutes before
of Form 1065 which the partnership
partnership audit regime if it is required to you file them with the IRS.
furnishes to others, such as its partners. For
issue a Schedule K-1 to any of the following information on truncating TINs, see The partnership may be subject to a
partners. Truncating recipient's taxpayer identification penalty if it files Schedules K-1 that don't
• A partnership. number on Schedule K-1, later. conform to the specifications discussed in
• A trust. Pub. 1167, General Rules and Specifications
• A foreign entity that would not be treated for Substitute Forms and Schedules.
as a C corporation if it were a domestic
entity.
Schedules K and K-1. How Income Is Shared Among
• A disregarded entity described in Partners' Distributive Partners
Regulations 301.7701-2(c)(2)(i). Share Items Allocate shares of income, gain, loss,
• An estate of an individual other than a
deceased partner. deduction, or credit among the partners
• Any person that holds an interest in the Purpose of Schedules according to the partnership agreement for
partnership on behalf of another person. Although the partnership isn't subject to sharing income or loss generally. Partners
income tax, the partners are liable for tax on may agree to allocate specific items in a ratio
Designated partnership representative. their shares of the partnership income, different from the ratio for sharing income or
Section 6223 provides that unless the loss. For instance, if the net income

Instructions for Form 1065 (2018) -27-

exclusive of specially allocated items is If the return is for a fiscal year or a short tax
divided evenly among three partners but Specific Instructions year, fill in the tax year space at the top of
some special items are allocated 50% to
one, 30% to another, and 20% to the third
(Schedule K-1 Only) each Schedule K-1. On each Schedule K-1,
enter the information about the partnership
partner, report the specially allocated items and the partner in Parts I and II (items A
on the appropriate line of the applicable General Information through M). In Part III, enter the partner's
partner's Schedule K-1 and the total on the Generally, the partnership is required to distributive share of each item of income,
appropriate line of Schedule K, instead of on prepare and give a Schedule K-1 to each deduction, and credit and any other
the numbered lines on page 1 of Form 1065, person who was a partner in the partnership information the partner needs to file the
Form 1125-A, or Schedule D. at any time during the year. Schedule K-1 partner's tax return.
must be provided to each partner on or Codes. In box 11 and boxes 13 through 20,
If a partner's interest changed during the
before the day on which the partnership identify each item by entering a code in the
year (such as the entrance of a new partner,
return is required to be filed. column to the left of the entry space for the
the exit of a partner, an increase to a
partner's interest through an additional When the gain deferral method, as dollar amount. These codes are identified in
capital contribution, or a decrease in a described in Treasury Regulations section these instructions and on the back of the
partner's interest through a distribution), see 1.721(c)-3T, is being applied, a partnership Schedule K-1.
section 706(d) and Regulations section that is a section 721(c) partnership will attach Attached statements. Enter an asterisk (*)
1.706-4 before determining each partner's to the Schedule K-1 provided to a U.S. after the code, if any, in the column to the left
distributive share of any item of income, transferor the information required under of the dollar amount entry space for each
gain, loss, deduction, and other items. Temporary Regulations sections item for which you have attached a
Partnership items are allocated to a partner 1.721(c)-6T(b)(2) and (3). A partnership that statement providing additional information.
only for the part of the year in which that is a section 721(c) partnership will also For those informational items that cannot be
person is a member of the partnership. attach to its Form 1065 a Schedule K-1 for reported as a single dollar amount, enter the
Generally, for each change in a partner’s each partner that is a related foreign person code and asterisk in the left-hand column
interest, the partnership will either allocate its with respect to the U.S. transferor. For an and enter “STMT” in the entry space to the
items using a pro-ration method or a indirect partner that is a related foreign right to indicate that the information is
closing-of-the-books method. Special rules person with respect to the U.S. transferor, provided on an attached statement. More
apply to certain partnerships, certain the Schedule K-1 will only include relevant than one attached statement can be placed
variations, and certain items. See information with respect to section 721(c) on the same sheet of paper and should be
Regulations section 1.706-4 for additional property. See Temporary Regulations identified in alphanumeric order by box
rules and procedures for making elections. In section 1.721(c)-1T for definitions. number followed by the letter code (if any).
addition, special rules in section 706(d)(2) For example: “Box 20, Code C—Fuel tax
However, if a foreign partnership meets
apply to certain items of partnerships that credit information” (followed by the
each of the following four requirements, it
report their income on the cash basis and information the partner needs).
isn't required to file or provide Schedules K-1
special rules in section 706(d)(3) apply to
for foreign partners (unless the foreign For electronically filed returns, the
tiered partnerships.
partner is a pass-through entity through partnership must follow the
Special rules on the allocation of income, which a U.S. person holds an interest in the !
CAUTION instructions for attached statements
gain, loss, and deductions generally apply if foreign partnership). as described in Pub. 4164 when reporting
a partner contributes property to the • The partnership had no gross income the additional information that may be
partnership and the FMV of that property at effectively connected with the conduct of a required for each respective box. See Pub.
the time of contribution differs from the trade or business within the United States 4164 for more information.
contributing partner's adjusted tax basis. during its tax year.
Under these rules, the partnership must use • All required Forms 1042 and 1042-S were Too few entry spaces on Schedule K-1?
a reasonable method of making allocations filed by the partnership or another If the partnership has more coded items than
of income, gain, loss, and deductions from withholding agent as required by Regulations the number of spaces in box 11 or boxes 13
the property so that the contributing partner section 1.1461-1(b) and (c). through 20, do not enter a code or dollar
receives the tax burdens and benefits of any • The tax liability for each foreign partner for amount in the last entry space of the box. In
built-in gain or loss (that is, precontribution amounts reportable under Regulations the last entry space, enter an asterisk in the
appreciation or diminution of value of the section 1.1461-1(b) and (c) has been fully left column and enter “STMT” in the entry
contributed property). See Regulations satisfied by the withholding of tax at the space to the right. Report the additional
section 1.704-3 for details on how to make source. items on an attached statement and provide
these allocations, including a description of • The partnership isn't a withholding foreign the box number, code, description, and
specific allocation methods that are generally partnership as defined in Temporary dollar amount or information for each
reasonable. Regulations section 1.1441-5(c)(2)(i). additional item. For example: “Box 15, Code
See Dispositions of Contributed Property, Generally, any person who holds an J—Work opportunity credit—$1,000.”
earlier, for special rules on the allocation of interest in a partnership as a nominee for
income, gain, loss, and deductions on the another person must furnish to the Part I. Information About
disposition of property contributed to the
partnership by a partner.
partnership the name, address, etc., of the
other person.
the Partnership
On each Schedule K-1, enter the name,
If the partnership agreement doesn't If a married couple each had an interest in address, and identifying number of the
provide for the partner's share of income, the partnership, prepare a separate partnership.
gain, loss, deduction, or credit, or if the Schedule K-1 for each of them.
Item C. If the partnership is filing its return
allocation under the agreement doesn't have
electronically, enter "e-file." Otherwise, enter
substantial economic effect, the partner's How To Complete Schedule K-1 the name of the IRS service center where the
share is determined according to the
In order to enable accurate scanning partnership will file its return. See Where To
partner's interest in the partnership. See
and processing of Schedule(s) K-1, File, earlier.
Regulations section 1.704-1 for more !
CAUTION please use a 10-point Helvetica
information.
Light Standard font for all entries on
Schedules K-1 if the entries are typed or
made using a computer.

-28- Instructions for Form 1065 (2018)

Part II. Information About Item I1. What Type of Entity Is Item K. Partner's Share of
the Partner This Partner? Liabilities
Complete a Schedule K-1 for each partner. State whether the partner is an individual, a Enter each partner's share of nonrecourse
On each Schedule K-1, enter the partner's corporation, an estate, a trust, a partnership, liabilities, partnership-level qualified
name, address, identifying number, and a disregarded entity, an exempt nonrecourse financing, and other recourse
distributive share items. organization, a foreign government, or a liabilities at the end of the year.
nominee (custodian). If the entity is a limited
Items E and F liability company (LLC) and it is treated as “Nonrecourse liabilities” are those
other than a disregarded entity for federal liabilities of the partnership for which no
For an individual partner, enter the partner's
income tax purposes, the partnership must partner (or related person) bears the
social security number (SSN) or individual
enter the LLC's classification for federal economic risk of loss. The extent to which a
taxpayer identification number (ITIN). For all
income tax purposes (that is, a corporation partner bears the economic risk of loss is
other partners, enter the partner's EIN.
or partnership). If the partner is a nominee, determined under the rules of Regulations
However, if a partner is an individual
use one of the following codes after the word section 1.752-2. Do not include
retirement arrangement (IRA), enter the
“nominee” to indicate the type of entity the partnership-level qualified nonrecourse
identifying number of the custodian of the
nominee represents: I—Individual; financing (defined below) on the line for
IRA. Do not enter the identification number of
C—Corporation; F—Estate or Trust; nonrecourse liabilities.
the person for whom the IRA is maintained.
P—Partnership; DE—Disregarded Entity; If the partner terminated his or her interest
Foreign partners without a U.S. E—Exempt Organization; IRA—Individual in the partnership during the year, enter the
identifying number should be notified by the Retirement Arrangement; or FGOV—Foreign share that existed immediately before the
partnership of the necessity of obtaining a Government. total disposition. In all other cases, enter it as
U.S. identifying number. Certain aliens who of the end of the year.
aren't eligible to obtain SSNs can apply for Item J. Partner's Profit, Loss,
an ITIN on Form W-7, Application for IRS and Capital If the partnership is engaged in two or
Individual Taxpayer Identification Number. On each line, enter the partner's percentage more different types of at-risk activities, or a
share of the partnership's profit, loss, and combination of at-risk activities and any other
If a single-member limited liability capital as of the beginning and end of the activity, attach a statement showing the
company (LLC) owns an interest in the partnership's tax year, as determined under partner's share of nonrecourse liabilities,
partnership, and the LLC is treated as a the partnership agreement. If a partner's partnership-level qualified nonrecourse
disregarded entity for federal income tax interest commences after the beginning of financing, and other recourse liabilities for
purposes, enter the owner's identifying the partnership's tax year, enter in the each activity. See Pub. 925 to determine if
number in item E and the owner's name and Beginning column the percentages that the partnership is engaged in more than one
address in item F. existed for the partner immediately after at-risk activity.
Truncating recipient's taxpayer identifi- admission. If a partner's interest terminates The at-risk rules of section 465 generally
cation number on Schedule K-1. The before the end of the partnership's tax year, apply to any activity carried on by the
partnership can truncate a partner's enter in the Ending column the percentages partnership as a trade or business or for the
identifying number on the Schedule K-1 the that existed immediately before termination. production of income. These rules generally
partnership sends to the partner. Truncation limit the amount of loss and other deductions
On the line for Capital, enter the
isn't allowed on the Schedule K-1 the a partner can claim from any partnership
percentage share of the capital that the
partnership files with the IRS. Also, the activity to the amount for which that partner
partner would receive if the partnership was
partnership cannot truncate its own is considered at risk. However, for partners
liquidated by the distribution of undivided
identification number on any form. who acquired their partnership interests
interests in partnership assets and liabilities.
To truncate, where allowed, replace the If the partner's capital account is negative or before 1987, the at-risk rules don't apply to
first five digits of the nine-digit number with zero, express the percentage ownership of losses from an activity of holding real
asterisks (*) or Xs (for example, an SSN capital as zero. property the partnership placed in service
xxx-xx-xxxx would appear as ***-**-xxxx or before 1987. The activity of holding mineral
XXX-XX-xxxx). For more information, see The partner's percentage share of each property doesn't qualify for this exception.
Regulations section 301.6109-4. category must be expressed as a Identify on an attached statement to
percentage. The percentage must not be Schedule K-1 the amount of any losses that
Foreign address. If the partner has a negative. The total percentage interest in aren't subject to the at-risk rules.
foreign address, enter the information in the each category must total 100% for all
following order: City or town, state or partners. To determine whether the total If a partnership is engaged in an activity
province, country, and ZIP or foreign postal beginning and ending percentages are subject to the limitations of section 465(c)(1)
code. Follow the country's practice for 100%, do not include the beginning (such as films or videotapes, leasing section
entering the postal code. Do not abbreviate percentage for a partner that wasn't a partner 1245 property, farming, or oil and gas
the country name. at the beginning of the partnership's tax year property), give each partner his or her share
or the ending percentage for a partner that of the total pre-1976 losses from that activity
Item G for which there existed a corresponding
left the partnership before the end of the
Complete item G on all Schedules K-1. If a partnership's tax year. If the partnership amount of nonrecourse liability at the end of
partner holds interests as both a general and agreement doesn't express the partner's each year in which the losses occurred. See
limited partner, check both boxes and attach share of profit, loss, and capital as fixed Form 6198, At-Risk Limitations, and related
a statement for each activity that shows the percentages, the partnership may use a instructions for more information.
amounts allocable to the partner's interest as reasonable method in arriving at each Qualified nonrecourse financing secured
a limited partner. percentage for purposes of completing the by real property used in an activity of holding
Item H. Domestic/Foreign items required by item J, as long as such real property that is subject to the at-risk
method is consistent with the partnership rules is treated as an amount at risk.
Partner agreement and is applied consistently from “Qualified nonrecourse financing” generally
Check the foreign partner box if the partner is year to year. Maintain records to support the includes financing for which no one is
a nonresident alien individual, foreign share of profits, share of losses, and share of personally liable for repayment that is
partnership, foreign corporation, foreign capital reported for each partner. borrowed for use in an activity of holding real
estate, foreign trust, or foreign government. property and that is loaned or guaranteed by
Otherwise, check the domestic partner box. a federal, state, or local government or that is

Instructions for Form 1065 (2018) -29-

borrowed from a “qualified” person. Qualified Item M. Did the Partner
persons include any person actively and Special Allocations
regularly engaged in the business of lending Contribute Property With a An item is specially allocated if it is allocated
money, such as a bank or savings and loan Built-in Gain or Loss? to a partner in a ratio different from the ratio
association. Qualified persons generally Check the appropriate box to indicate for sharing income or loss generally.
don't include related parties (unless the whether the partner contributed property with
nonrecourse financing is commercially Report specially allocated ordinary gain
a built-in gain or loss during the tax year. If
reasonable and on substantially the same (loss) on Schedule K, line 11, and on
the “Yes” box is checked, attach a statement
terms as loans involving unrelated persons), Schedule K-1, box 11. Report other specially
that contains the following information.
the seller of the property, or a person who allocated items in the applicable boxes of the
• A description of each property the partner partner's Schedule K-1, with the total amount
receives a fee for the partnership's contributed.
investment in the real property. See section on the applicable line of Schedule K. See
• The date the property was contributed. How Income Is Shared Among Partners,
465(b)(6) for more information on qualified • The amount of the property's built-in gain
nonrecourse financing. earlier.
or loss.
The partner as well as the partnership Example. A partnership has a long-term
Exception. If a partner contributes more
must meet the qualified nonrecourse rules. capital gain that is specially allocated to a
than 10 properties with either a built-in gain
Therefore, the partnership must enter on an partner and a net long-term capital gain
or built-in loss on any date during the tax
attached statement any other information the reported on line 15 of Schedule D that must
year, the partnership isn't required to provide
partner needs to determine if the qualified be reported on line 9a of Schedule K.
the required information separately for each
nonrecourse rules are also met at the partner Because specially allocated gains or losses
property contributed for that date. Instead,
level. aren't reported on Schedule D, the
the partnership can report the (a) number of
partnership must report both the net
properties contributed on that date, (b) total
Item L. Partner's Capital amount of built-in gain, and (c) total amount
long-term capital gain from Schedule D and
Account Analysis the specially allocated gain on line 9a of
of built-in loss. Do not net the built-in gains
Schedule K. Box 9a of the Schedule K-1 for
You aren't required to complete item L if the and built-in losses; instead, show the total
the partner must include both the specially
answer to question 4 of Schedule B is “Yes.” built-in gain and total built-in loss for all
allocated gain and the partner's distributive
If you are required to complete this item, see properties contributed on that date.
share of the net long-term capital gain from
the instructions for Schedule M-2, later. A property's built-in gain is the amount by Schedule D.
Check the appropriate box that describes the which the fair market value of the property
method of accounting used to figure the exceeds its adjusted tax basis at the time the Income (Loss)
partner's capital account. property is contributed to the partnership. A
• Check the “Tax basis” box if the method of Line 1. Ordinary Business Income
property's built-in loss is the amount by
accounting used to figure the partner's which the fair market value of the property is (Loss)
capital account is based on the partnership's less than its adjusted tax basis at the time Enter the amount from page 1, line 22. Enter
income and deductions for federal tax the property is contributed to the partnership. the income (loss) without reference to (a) the
purposes. Partnerships are required to keep track of basis of the partners' interests in the
• Check the “GAAP” box if it is based on this information (see Regulations section partnership, (b) the partners' at-risk
generally accepted accounting principles 1.704-3). This information is also needed for limitations, or (c) the passive activity
(GAAP). purposes of allocating partnership items to limitations. These limitations, if applicable,
• Check the “Section 704(b) book” box if it partners because income, gain, loss, and are determined at the partner level.
is based on the capital accounting rules deductions related to property contributed to
under Regulations section 1.704-1(b)(2)(iv). the partnership by a partner must be shared Line 1 should not include rental activity
• Check the “Other” box if any other method among the partners so as to take account of income (loss) or portfolio income (loss).
is used to figure the partner's capital account the variation between the basis of the
and attach a statement describing the property to the partnership and its fair market Schedule K-1. Enter each partner's
method and showing how the partner's value at the time of contribution. If the distributive share of ordinary business
capital account was figured. partnership distributes any property (other income (loss) in box 1 of Schedule K-1.
than built-in gain property) to a partner that Identify on statements attached to
If a partnership reports other than tax has contributed built-in gain property to the Schedule K-1 any additional information the
basis capital accounts to its partners on partnership within the last 7 years, it will partner needs to correctly apply the passive
Schedule K-1 in Item L (that is, GAAP, need this information for the attached activity limitations. For example, if the
704(b) book, or other), and tax basis capital, statement required in the instructions for partnership has more than one trade or
if reported on any partner's Schedule K-1 at line 19b of Schedule K for distributions business activity, identify on an attached
the beginning or end of the tax year would be subject to section 737 (code B). If the statement to Schedule K-1 the amount from
negative, the partnership must report on partnership distributes contributed property each separate activity. See Passive Activity
line 20 of Schedule K-1, using code AH, with a built-in gain or loss to any partner Reporting Requirements, earlier.
such partner's beginning and ending shares other than the partner that contributed the
of tax basis capital. This is in addition to the
required reporting in Item L of Schedule K-1.
property and the date of the distribution is Line 2. Net Rental Real Estate
within 7 years of the date the property was
contributed to the partnership, it will need
Income (Loss)
For these purposes, the term “tax basis
this information for the attached statement Enter the net income (loss) from rental real
capital” means (i) the amount of cash plus
required by the instructions for line 20c of estate activities of the partnership from Form
the tax basis of property contributed to a
Schedule K for the precontribution gain 8825. Attach this form to Form 1065.
partnership by a partner minus the amount of
(loss) (code W).
cash plus the tax basis of property Schedule K-1. Enter each partner's
distributed to a partner by the partnership net distributive share of net rental real estate
of any liabilities assumed or taken subject to income (loss) in box 2 of Schedule K-1.
in connection with such contribution or Specific Instructions Identify on statements attached to
distribution, plus (ii) the partner's cumulative
share of partnership taxable income and
(Schedules K and K-1, Part Schedule K-1 any additional information the
partner needs to correctly apply the passive
tax-exempt income, minus (iii) the partner's III, Except as Noted) activity limitations. For example, if the
cumulative share of taxable loss and These instructions refer to the lines on partnership has more than one rental real
nondeductible, noncapital expenditures. Schedule K and the boxes on Schedule K-1. estate activity, identify the amount

-30- Instructions for Form 1065 (2018)

attributable to each activity. Also, for Schedule K-1. Enter each partner's partnership held the stock, don't count
example, identify certain items from any guaranteed payments in box 4 of certain days during which the partnership's
rental real estate activities that may be Schedule K-1. risk of loss was diminished. The ex-dividend
subject to the recharacterization rules. See date is the first date following the declaration
Passive Activity Reporting Requirements, of a dividend on which the purchaser of a
earlier. Portfolio Income stock isn't entitled to receive the next
See Portfolio Income, earlier, for a definition dividend payment. When counting the
of portfolio income. number of days the partnership held the
Line 3. Other Net Rental Income
stock, include the day the partnership
(Loss) disposed of the stock but not the day the
Do not reduce portfolio income by
Enter on line 3a gross income from rental deductions allocated to it. Report such partnership acquired it.
activities other than those reported on Form deductions (other than interest expense) on • Dividends attributable to periods totaling
8825. Include on line 3a gain (loss) from line 13d of Schedule K. Report each more than 366 days that the partnership
line 17 of Form 4797 that is attributable to the partner's distributive share of deductions received on any share of preferred stock
sale, exchange, or involuntary conversion of (other than interest) allocable to portfolio held for less than 91 days during the 181-day
an asset used in a rental activity other than a income in box 13 of Schedule K-1, using period that began 90 days before the
rental real estate activity. codes I or L. ex-dividend date. When determining the
number of days the partnership held the
stock, do not count certain days during which
Enter on line 3b the deductible expenses Interest expense allocable to portfolio
the partnership's risk of loss was diminished.
of the activity. Attach a statement of these income is generally investment interest
Preferred dividends attributable to periods
expenses to Form 1065. expense reported on line 13b of Schedule K.
totaling less than 367 days are subject to the
Report each partner's distributive share of
61-day holding period rule above.
Enter on line 3c the net income (loss). interest expense allocable to portfolio
income in box 13 of Schedule K-1 using
• Dividends that relate to payments that the
partnership is obligated to make because of
See Rental Activities, earlier, and Pub. code H.
short sales or positions in substantially
925 for more information on rental activities. similar or related property.
Schedule K-1. Enter each partner's
Line 5. Interest Income • Dividends paid by a regulated investment
Enter only taxable portfolio interest on this company that aren't treated as qualified
distributive share of net income (loss) from
line. Taxable interest is interest from all dividend income under section 854.
rental activities other than rental real estate
activities in box 3 of Schedule K-1. Identify sources except interest exempt from tax and • Dividends paid by a real estate
interest on tax-free covenant bonds. Include investment trust that aren't treated as
on statements attached to Schedule K-1 any
interest income from the credit to holders of qualified dividend income under section
additional information the partner needs to
tax credit bonds. See the instructions for 857(c).
correctly apply the passive activity
limitations. For example, if the partnership Other credits (code P), under Line 15f. Other • Dividends from a corporation which first
Credits, and the Instructions for Form 8912 became a surrogate foreign corporation (as
has more than one rental activity reported in
for details. defined in section 7874(a)(2)(B) after
box 3, identify on an attached statement to
December 22, 2017) other than a foreign
Schedule K-1 the amount from each activity.
Schedule K-1. Enter each partner's corporation which is treated as a domestic
See Passive Activity Reporting
distributive share of interest income in box 5 corporation under section 7874(b). See
Requirements, earlier.
of Schedule K-1. If the partnership is section 1(h)(11)(C)(iii)(II).
reporting interest income from clean See Pub. 550 for more details.
Line 4. Guaranteed Payments to renewable energy bonds, attach a statement
Partners to Schedule K-1 that shows each partner's Qualified foreign corporation. A foreign
distributive share of interest income from this corporation is a qualified foreign corporation
Guaranteed payments to partners include: credit. Partners need this information to if it is:
• Payments for salaries, health insurance, properly adjust the basis of their interest in 1. Incorporated in a possession of the
and interest deducted by the partnership and the partnership. United States, or
reported on Form 1065, page 1, line 10;
Form 8825; or on Schedule K, line 3b; 2. Eligible for benefits of a
• Compensation deferred under a section Line 6a. Ordinary Dividends comprehensive income tax treaty with the
409A nonqualified deferred compensation Enter only taxable ordinary dividends on United States that the Secretary determines
plan that doesn't meet the requirements of line 6a, including any qualified dividends is satisfactory for this purpose and that
section 409A reported on line 20c of reported on line 6b. Do not include any includes an exchange of information
Schedule K; and dividend equivalents reported on line 6c. program. See Notice 2011-64, 2011-37
• Payments the partnership must capitalize. I.R.B. 231, for details.
See the Instructions for Form 1065, line 10. Schedule K-1. Enter each partner's
distributive share of ordinary dividends in If the foreign corporation doesn't meet
box 6a of Schedule K-1. either (1) or (2), then it may be treated as a
Generally, amounts reported on line 4 qualified foreign corporation for any dividend
aren't considered to be related to a passive paid by the corporation if the stock
activity. For example, guaranteed payments Line 6b. Qualified Dividends associated with the dividend paid is readily
for personal services paid to a partner would Enter qualified dividends on line 6b. Except tradable on an established securities market
not be passive activity income. Likewise, as provided below, qualified dividends are in the United States.
interest paid to any partner isn't passive dividends received from domestic However, qualified dividends don't
activity income. corporations and qualified foreign include dividends paid by an entity which
A partnership must treat and report a corporations. was a passive foreign investment company
TIP transfer of partnership property to a Exceptions. The following dividends aren't (defined in section 1297) in either the tax
partner in satisfaction of a qualified dividends. year of the distribution or the preceding tax
guaranteed payment as a sale or exchange, • Dividends the partnership received on any year.
and not a distribution. See Rev. Rul. share of stock held for less than 61 days See Notice 2004-71, 2004-45 I.R.B. 793,
2007-40, 2007-25 I.R.B. 1426, for more during the 121-day period that began 60 for more details.
details. days before the ex-dividend date. When
determining the number of days the

Instructions for Form 1065 (2018) -31-

Schedule K-1. Enter each partner's Line 9b. Collectibles (28%) Gain If the partnership chose not to treat
distributive share of qualified dividends in ! all of the gain from payments
(Loss) CAUTION received after May 6, 1997, and
box 6b of Schedule K-1.
Figure the amount attributable to collectibles before August 24, 1999, as unrecaptured
Attach a statement to the Schedule K-1 from the amount reported on Schedule D section 1250 gain, use only the amount the
identifying the dividends included in box 6a (Form 1065), line 15. A collectibles gain partnership chose to treat as unrecaptured
or box 6b that are eligible for the deduction (loss) is any long-term gain or deductible section 1250 gain for those payments to
for dividends received under section 243(a), long-term loss from the sale or exchange of a reduce the total unrecaptured section 1250
(b), or (c); section 245; section 245A; or are collectible that is a capital asset. gain remaining to be reported for the sale.
hybrid dividends as defined in section See Regulations section 1.453-12.
245A(e)(4). Collectibles include works of art, rugs,
If any amounts from line 6b are from antiques, metal (such as gold, silver, or From the sale or exchange of an interest
foreign sources, see the instructions platinum bullion), gems, stamps, coins, in a partnership. Also report as a separate
!
CAUTION for lines 16d–h, later, for additional alcoholic beverages, and certain other amount any gain from the sale or exchange
statements required. tangible property. of an interest in a partnership attributable to
unrecaptured section 1250 gain. See
Also, include gain (but not loss) from the Regulations section 1.1(h)-1 and attach the
Line 6c. Dividend equivalents sale or exchange of an interest in a statement required under Regulations
partnership or trust held for more than 1 year section 1.1(h)-1(e).
Information on dividend equivalents, as and attributable to unrealized appreciation of
described in new section 871(m), is provided collectibles. For details, see Regulations From an estate, trust, REIT, or RIC. If the
for persons that are not U.S. persons, who section 1.1(h)-1. Also attach the statement partnership received a Schedule K-1 or Form
generally are required to treat dividend required under Regulations section 1099-DIV from an estate, a trust, a real
equivalents as U.S. source dividends, and 1.1(h)-1(e). estate investment trust (REIT), or a regulated
domestic partnerships with partners who investment company (RIC) reporting
may need this information. Enter the amount Schedule K-1. Report each partner's “unrecaptured section 1250 gain,” do not
of dividend equivalents as defined in section distributive share of the collectibles (28%) add it to the partnership's own unrecaptured
871(m). See Regulations section 1.871-15 gain (loss) in box 9b of Schedule K-1. section 1250 gain. Instead, report it as a
for additional information. For purposes of separate amount. For example, if the
line 6c, include all amounts that would be Line 9c. Unrecaptured Section partnership received a Form 1099-DIV from
included as a dividend equivalent if the a REIT with unrecaptured section 1250 gain,
amount were paid to a person subject to tax 1250 Gain report it as “Unrecaptured section 1250 gain
under section 871 or 881, even if the partner The three types of unrecaptured section from a REIT.”
is a U.S. person. 1250 gain must be reported separately on an Schedule K-1. Report each partner's
attached statement to Form 1065. distributive share of unrecaptured section
Line 7. Royalties From the sale or exchange of the part- 1250 gain from the sale or exchange of the
Enter the royalties received by the nership's business assets. Figure this partnership's business assets in box 9c of
partnership. amount in Part III of Form 4797 for each Schedule K-1. If the partnership is reporting
section 1250 property (except property for unrecaptured section 1250 gain from an
Schedule K-1. Enter each partner's which gain is reported using the installment estate, trust, REIT, or RIC, or from the
distributive share of royalties in box 7 of method on Form 6252) for which you had an partnership's sale or exchange of an interest
Schedule K-1. entry in Part I of Form 4797. Subtract in another partnership (as explained above),
line 26g of Form 4797 from the smaller of enter “STMT” in box 9c and an asterisk (*) in
Line 8. Net Short-Term Capital line 22 or line 24. Figure the total of these the left column of the box and attach a
amounts for all section 1250 properties. statement that separately identifies the
Gain (Loss) Generally, the result is the partnership's amount of unrecaptured section 1250 gain
Enter the gain (loss) that is portfolio income unrecaptured section 1250 gain. However, if from the following.
(loss) from Schedule D (Form 1065), line 7. the partnership is reporting gain on the • The sale or exchange of the partnership's
installment method for a section 1250 business assets.
Schedule K-1. Enter each partner's • The sale or exchange of an interest in
property held more than 1 year, see the next
distributive share of net short-term capital another partnership.
paragraph.
gain (loss) in box 8 of Schedule K-1. • An estate, trust, REIT, or RIC.
The total unrecaptured section 1250 gain
for an installment sale of section 1250 If any amounts from line 9c are from
Line 9a. Net Long-Term Capital property held more than 1 year is figured in a foreign sources, see the instructions
Gain (Loss) manner similar to that used in the preceding
!
CAUTION for lines 16d–h, later, for additional

Enter the gain or loss that is portfolio income paragraph. However, the total unrecaptured statements required.
(loss) from Schedule D (Form 1065), line 15. section 1250 gain must be allocated to the
installment payments received from the sale.
Schedule K-1. Enter each partner's To do so, the partnership generally must Line 10. Net Section 1231 Gain
distributive share of net long-term capital treat the gain allocable to each installment (Loss)
gain (loss) in box 9a of Schedule K-1. payment as unrecaptured section 1250 gain
until all such gain has been used in full. Enter the net section 1231 gain (loss) from
If any gain or loss from line 7 or 15 of Form 4797, line 7.
Figure the unrecaptured section 1250 gain
! Schedule D is from the disposition of
CAUTION nondepreciable personal property
for installment payments received during the
tax year as the smaller of (a) the amount Do not include net gain or loss from
used in a trade or business, it may not be involuntary conversions due to casualty or
from line 26 or line 37 of Form 6252
treated as portfolio income. Instead, report it theft. Report net gain or loss from involuntary
(whichever applies), or (b) the total
on line 11 of Schedule K and report each conversions due to casualty or theft on
unrecaptured section 1250 gain for the sale
partner's distributive share in box 11 of line 11 of Schedule K (box 11, code B, of
reduced by all gain reported in prior years
Schedule K-1 using code I. Schedule K-1). See the instructions for
(excluding section 1250 ordinary income
recapture). line 11 on how to report net gain (loss) due to
a casualty or theft.

-32- Instructions for Form 1065 (2018)

Schedule K-1. Report each partner's complete Form 4684 for this type of casualty Rev. Proc. 2008-64, 2008-47 I.R.B. 1195, for
distributive share of net section 1231 gain or theft. Instead, each partner will complete more information.
(loss) in box 10 of Schedule K-1. If the his or her own Form 4684. • Recoveries of tax benefit items (section
partnership has more than one rental, trade, 111).
Section 1256 contracts and straddles
or business activity, identify on an attached (code C). Report any net gain or loss from
• Gambling gains and losses subject to the
statement to Schedule K-1 the amount of limitations in section 165(d). Indicate on an
section 1256 contracts from Form 6781,
section 1231 gain (loss) from each separate attached statement whether or not the
Gains and Losses From Section 1256
activity. See Passive Activity Reporting partnership is in the trade or business of
Contracts and Straddles.
Requirements, earlier. gambling.
Mining exploration costs recapture (code • Disposition of an interest in oil, gas,
If any amounts from line 10 are from D). Provide the information partners need to geothermal, or other mineral properties.
! foreign sources, see the instructions recapture certain mining exploration Report the following information on an
CAUTION for lines 16d–h, later, for additional
expenditures. See Regulations section attached statement to Schedule K-1:
statements required. 1.617-3. (a) Description of the property;
(b) The partner's share of the amount
Cancellation of debt (code E). If
realized on the sale, exchange, or
Line 11. Other Income (Loss) cancellation of debt is reported to the
involuntary conversion of each property (fair
partnership on Form 1099-C, report each
Enter any other item of income or loss not market value of the property for any other
partner's distributive share in box 11 using
included on lines 1 through 10. On the line to disposition, such as a distribution);
code E.
the left of the entry space for line 11, identify (c) The partner's share of the partnership's
the type of income. If there is more than one Include the amount of income the adjusted basis in the property (except for oil
type of income, attach a statement to Form TIP partnership must recognize for a or gas properties); and
1065 that separately identifies each type and transfer of a partnership interest in (d) Total intangible drilling costs,
amount of income for each of the following satisfaction of a partnership debt when the development costs, and mining exploration
categories. The codes needed for debt relieved exceeds the FMV of the costs (section 59(e) expenditures) passed
Schedule K-1 reporting are provided for each partnership interest. See section 108(e)(8) through to the partner for the property.
category. for more information. See Regulations section 1.1254-5 for more
information.
Other portfolio income (loss) (code A). Do not report canceled debt income • Gains from the disposition of farm
Portfolio income not reported on lines 5 deferred under section 108(i) using recapture property (see Form 4797) and
through 10. !
CAUTION code E. Instead, report the deferred other items to which section 1252 applies.
Report and identify other portfolio income income using code I. For information on the • Any income, gain, or loss to the
or loss on an attached statement for line 11. section 108(i) election, see Election to defer partnership under section 751(b).
For example, income reported to the income from canceled debt., earlier. • Specially allocated ordinary gain (loss).
partnership from a real estate mortgage • Any gain or loss from line 7 or 15 of
investment conduit (REMIC), in which the Section 951A income (code F). Provide Schedule D that isn't portfolio income (for
partnership is a residual interest holder, the information partners need to figure the example, gain or loss from the disposition of
would be reported on an attached statement section 951A income. See the Instructions nondepreciable personal property used in a
for line 11. If the partnership holds a residual for Form 8992 for details. trade or business).
interest in a REMIC, report on the attached Section 965 inclusion (code G). Enter the
• Any cancellation of debt income
statement for box 11 of Schedule K-1 the previously deferred as a result of a section
section 965(a) inclusion amount from Form
partner's share of the following. 108(i) election that is includible in the current
965, line 3, on Schedule K, line 11. You must
• Taxable income (net loss) from the year. See section 108(i) for events that will
also complete and attach Form 965,
REMIC (line 1b of Schedules Q (Form cause previously deferred income to be
Inclusion of Deferred Foreign Income Upon
1066)). reportable, and a special rule for allocating
Transition to Participation Exemption
• Excess inclusion (line 2c of Schedules Q deferred income to the partners. For more
System, and applicable schedules.
(Form 1066)). information, see Election to defer income
• Section 212 expenses (line 3b of Subpart F income (other than section from canceled debt., earlier.
Schedules Q (Form 1066)). Do not report 951A and 965 inclusions) (code H). Special rule for filers of Form 8865. Filers
these section 212 expense deductions Provide the information the partners need to of Form 8865, Return of U.S. Persons With
related to portfolio income on Schedules K figure the subpart F income other than Respect to Certain Foreign Partnerships,
and K-1. sections 951A and 965 inclusion. Attach a cannot defer recognizing and reporting
statement to the Schedule K-1 identifying the canceled debt income on Form 8865, in
Because Schedule Q (Form 1066) is a subpart F inclusion attributable to the sale or accordance with the section 108(i) election,
quarterly statement, the partnership must exchange by a controlled foreign corporation unless the foreign partnership filed a U.S.
follow the Schedule Q instructions to figure (CFC) of stock in another foreign corporation partnership return and made the election. A
the amounts to report to partners for the described in section 964(e)(4) or attributable foreign partnership must file Form 1065 to
partnership's tax year. to hybrid dividends of tiered corporations make the section 108(i) election. These
Involuntary conversions (code B). Net under section 245A(e)(2). foreign partnerships also have an annual
gain (loss) from involuntary conversions due reporting requirement on Form 1065 for each
Other income (loss) (code I). Include any
to casualty or theft. The amount for this line tax year after the election until all items
other type of income, such as the following.
is shown on Form 4684, Casualties and deferred under section 108(i) have been
• The partner's distributive share of the recognized. See Rev. Proc. 2009-37,
Thefts, line 38a, 38b, or 39. partnership's gain or loss attributable to the
Each partner's share must be entered on 2009-36 I.R.B. 309, for details.
sale or exchange of qualified preferred stock
Schedule K-1. Give each partner a schedule of the Federal National Mortgage
• Gain from the sale or exchange of
that shows the amounts to be reported on qualified small business (QSB) stock (as
Association (Fannie Mae) and the Federal
the partner's Form 4684, line 34, columns (b) defined in the Instructions for Schedule D)
Home Loan Mortgage Corporation (Freddie
(i), (b)(ii), and (c). that is eligible for the section 1202 exclusion.
Mac). On an attached statement, show (a)
The section 1202 exclusion applies only to
If there was a gain (loss) from a casualty the gain or loss attributable to the sale or
QSB stock held by the partnership for more
or theft to property not used in a trade or exchange of the qualified preferred stock,
than 5 years. Corporate partners aren't
business or for income-producing purposes, (b) the date the stock was acquired by the
eligible for the section 1202 exclusion.
notify the partner. The partnership should not partnership, and (c) the date the stock was
Additional limitations apply at the partner
sold or exchanged by the partnership. See

Instructions for Form 1065 (2018) -33-

level. Report each partner's share of section replacement QSB stock. A partner must The partnership must reduce the basis of
1202 gain on Schedule K-1. Each partner will recognize gain upon a distribution of the asset by the amount of the section 179
determine if he or she qualifies for the replacement QSB stock to another partner expense elected by the partnership, even if a
section 1202 exclusion. Report on an that reduces the partner's share of the portion of that amount cannot be passed
attached statement to Schedule K-1 for each replacement QSB stock held by a through to its partners that year and must be
sale or exchange (a) the name of the partnership. The amount of gain that the carried forward because of limitations at the
corporation that issued the QSB stock, (b) partner must recognize is based on the partnership level. Do not reduce the
the partner's share of the partnership's amount of gain that the partner would partnership's basis in section 179 property to
adjusted basis and sales price of the QSB recognize upon a sale of the distributed reflect any portion of the section 179
stock, and (c) the dates the QSB stock was replacement QSB stock for its fair market expense that is allocable to a partner that is a
bought and sold. value on the date of the distribution, not to trust or estate.
• Gain eligible for section 1045 rollover exceed the amount that the partner
(replacement stock purchased by the previously deferred under section 1045 Identify on an attached statement to
partnership). Include only gain from the sale related to the distributed replacement QSB Schedules K and K-1 the cost of section 179
or exchange of qualified small business stock. If the partnership distributed a property placed in service during the year
(QSB) stock (as defined in the Instructions partner's share of replacement QSB stock to that is qualified enterprise zone. See the
for Schedule D) that was deferred by the another partner, the partnership must give Instructions for Form 4562 for more details.
partnership under section 1045 and reported the partner whose share of the replacement
on Form 8949/Schedule D. See the QSB stock is reduced (a) the name of the
See the instructions for line 20c of
Instructions for Schedule D, and the corporation that issued the replacement QSB
Schedule K for sales or other dispositions of
Instructions for Form 8949 for more details. stock, (b) the date the replacement QSB
property for which a section 179 deduction
The partnership makes the election for stock was distributed to another partner or
has passed through to partners and for the
section 1045 rollover on a timely filed partners, and (c) the partner's share of the
recapture rules if the business use of the
(including extensions) return for the year in partnership's adjusted basis and fair market
property dropped to 50% or less.
which the sale occurred. Corporate partners value of the replacement QSB stock on such
aren't eligible for the section 1045 rollover. date. Schedule K-1. Report each partner's
Additional limitations apply at the partner distributive share of the section 179 expense
Schedule K-1. Enter each partner's
level. Each partner will determine if he or she deduction in box 12 of Schedule K-1. If the
distributive share of the other income
qualifies for the rollover. Report on an partnership has more than one trade or
categories listed earlier in box 11 of
attached statement to Schedule K-1 for each business activity, identify on an attached
Schedule K-1. Enter the applicable code A,
sale or exchange (a) the name of the statement to Schedule K-1 the amount of
B, C, D, E, F, G, H, or I (as shown earlier).
corporation that issued the QSB stock, (b) section 179 deduction from each separate
the partner's share of the partnership's If you are reporting each partner's activity. See Passive Activity Reporting
adjusted basis and sales price of the QSB distributive share of only one type of income Requirements, earlier.
stock, (c) the dates the QSB stock was under code I, enter the code with an asterisk
Do not complete box 12 of Schedule K-1
bought and sold, (d) the partner's distributive (I*) and the dollar amount in the entry space
for any partner that is an estate or trust;
share of gain from the sale of the QSB stock, in box 11 and attach a statement that shows
estates and trusts aren't eligible for the
and (e) the partner's distributive share of the “Box 11, Code I,” and the type of income. If
section 179 expense deduction.
gain that was deferred by the partnership you are reporting multiple types of income
under section 1045. Do not include these under code I, enter the code with an asterisk
amounts on line 11 of Schedule K. (I*) and enter “STMT” in the entry space in Line 13a. Contributions
• Gain eligible for section 1045 rollover box 11 and attach a statement that shows Generally, no deduction is allowed for any
(replacement stock not purchased by the “Box 11, Code I,” and the dollar amount of contribution of $250 or more unless the
partnership). Include only gain from the sale each type of income. partnership obtains a written
or exchange of qualified small business If the partnership has more than one trade acknowledgment from the charitable
(QSB) stock (as defined in the Instructions or business or rental activity (for codes B organization that shows the amount of cash
for Schedule D) the partnership held for through I), identify on an attached statement contributed, describes any property
more than 6 months but that wasn't deferred to Schedule K-1 the amount from each contributed, and gives an estimate of the
by the partnership under section 1045. See separate activity. See Passive Activity value of any goods or services provided in
the Instructions for Schedule D for more Reporting Requirements, earlier. return for the contribution. The
details. A partner (other than a corporation) acknowledgment must be obtained by the
may be eligible to defer his or her distributive Deductions due date (including extensions) of the
share of this gain under section 1045 if he or Line 12. Section 179 Deduction partnership return or, if earlier, the date the
she purchases other QSB stock during the partnership files its return. Do not attach the
60-day period that began on the date the A partnership can elect to expense part or all acknowledgment to the partnership return,
QSB stock was sold by the partnership. of the cost of certain property the partnership but keep it with the partnership's records.
Additional limitations apply at the partner purchased during the tax year for use in its These rules apply in addition to the filing
level. Report on an attached statement to trade or business (including certain rental requirements for Form 8283, Noncash
Schedule K-1 for each sale or exchange (a) activities, if the renting of the property is the Charitable Contributions, described below.
the name of the corporation that issued the partnership’s trade or business). See Pub.
QSB stock, (b) the partner's share of the 946 for a definition of what kind of property
Cash contributions of any amount must
partnership's adjusted basis and sales price qualifies for the section 179 expense
be supported by a dated bank record or
of the QSB stock, (c) the dates the QSB deduction and the Instructions for Form 4562
receipt.
stock was bought and sold, and (d) the for limitations on the amount of the section
partner's distributive share of gain from the 179 expense deduction.
sale of the QSB stock. Enter charitable contributions made
Complete Part I of Form 4562 to figure during the tax year. Attach a statement to
For more information, see Regulations Form 1065 that separately identifies the
the partnership's section 179 expense
section 1.1045-1. Do not include these partnership's contributions for each of the
deduction. The partnership doesn't take the
amounts on line 11 of Schedule K. following categories. See Limits on
deduction itself but instead passes it through
Distribution of replacement QSB to the partners. Attach Form 4562 to Form Deductions in Pub. 526, Charitable
stock to a partner that reduces the 1065 and show the total section 179 Contributions, for information on adjusted
interest of another partner in expense deduction on Schedule K, line 12. gross income (AGI) limitations on deductions
for charitable contributions.

-34- Instructions for Form 1065 (2018)

 The codes needed for Schedule K-1 Capital gain property to a 50% organiza- described in section 4966(d)(2)) for certain
reporting are provided for each category. tion (30%) (code E). Enter capital gain relief efforts.
Cash contributions (60%) (code A). property contributions subject to the 30% • The partnership must obtain
AGI limitation. contemporaneous written acknowledgment
Enter cash contributions subject to the 60%
(within the meaning of section 170(f)(8)) from
AGI limitation. Do not include in the amount Capital gain property (20%) (code F). the qualified charitable organization that the
reported using code A the cash contributions Enter capital gain property contributions contribution was used or is to be used for
reported on Schedule K-1 using code G. subject to the 20% AGI limitation. relief efforts.
Cash contributions (30%) (code B). Contributions of property. See Any excess qualified contributions are
Enter cash contributions subject to the 30% Contributions of Property in Pub. 526, and carried over to the next 5 years. See Pub.
AGI limitation. Pub. 561, Determining the Value of Donated 976, Disaster Relief.
Noncash contributions (50%) (code C). Property, for information on noncash
Schedule K-1. Report each partner's
Enter noncash contributions subject to the contributions and contributions of capital
distributive share of charitable contributions
50% AGI limitation. If property other than gain property. If the deduction claimed for
in box 13 of Schedule K-1 using codes A
cash is contributed and if the claimed noncash contributions exceeds $500,
through F for each of the contribution
deduction for one item or group of similar complete Form 8283 and attach it to Form
categories shown above. For code G items,
items of property exceeds $5,000, the 1065.
report them by entering code G with an
partnership must give each partner a copy of If the partnership made a qualified asterisk (G*) and entering "STMT" in the
Form 8283 to attach to the partner's tax conservation contribution under section dollar amount entry space for box 13 and
return. 170(h), also include the fair market value of attach a statement that shows "Box 13, Code
the underlying property before and after the G" and the dollar amount of each type of
Qualified conservation contributions.
donation, as well as the type of legal interest deduction. The partnership must attach a
The AGI limit for qualified conservation
contributed, and describe the conservation copy of its Form 8283 to the Schedule K-1 of
contributions under section 170(h) is 50%.
purpose furthered by the donation. Give a each partner if the deduction for any item or
The carryover period is 15 years. See
copy of this information to each partner. group of similar items of contributed property
section 170(b) and Notice 2007-50, 2007-25
I.R.B. 1430, for details. Report qualified Nondeductible contributions. Certain exceeds $5,000, even if the amount
conservation contributions with a 50% AGI contributions made to an organization allocated to any partner is $5,000 or less.
limitation on Schedule K-1 in box 13 using conducting lobbying activities are not
code C. Do not include in the amount deductible. See section 170(f)(9) for more Line 13b. Investment Interest
reported using code C the conservation details. Also, see Contributions You Cannot
Expense
contributions of property used in agriculture Deduct in Pub. 526 for more examples of
or livestock production reported on nondeductible contributions. Include on this line the interest properly
Schedule K-1 using code G. allocable to debt on property held for
Contributions (100%) (code G). On an investment purposes. Property held for
Charitable contributions of food attached statement, provide the following investment includes property that produces
inventory. Attach a statement to information. income (unless derived in the ordinary
Schedule K-1 that shows the following. course of a trade or business) from interest,
Qualified conservation contributions
• The deduction for charitable contributions of property used in agriculture or dividends, annuities, or royalties; and gains
made under section 170(e)(3) of qualified from the disposition of property that
livestock production. Enter qualified
inventory that was donated for the care of the produces those types of income or is held for
conservation contributions of property used
ill, needy, and infants (see section 170(e)(3) investment.
in agriculture or livestock production. The
(C)). To qualify for the deduction, the food
contribution must be subject to a restriction
must meet all the quality and labeling Investment interest expense doesn't
that the property remain available for such
standards imposed by federal, state, and include interest expense allocable to a
production. See section 170(b)(1)(E)(iv) for
local laws and regulations. The amount of passive activity.
details.
the charitable contribution for donated food
inventory is the lesser of (a) the basis of the If the partnership is a qualified farmer or Investment income and investment
donated food plus one-half of the rancher (as defined in section 170(b)(1)(E) expenses other than interest are reported on
appreciation (gain if the donated food was (v)), show each partner's distributive share of lines 20a and 20b, respectively. This
sold at fair market value on the date of the qualified conservation contributions of information is needed by partners to
gift), or (b) twice the amount of basis of the property used in agriculture or livestock determine the investment interest expense
donated food. A partnership that doesn't production. Partners will have to separately limitation (see Form 4952, Investment
account for inventories and isn't required to determine whether they qualify for the 50% Interest Expense Deduction, for details).
capitalize indirect costs under section 263A or 100% AGI limitation for these
may elect to treat the basis of the donated contributions. Do not include the amounts Schedule K-1. Report each partner's
food as equal to 25% of the fair market value reported on the attached statement using distributive share of investment interest
of the food. code G in the amount reported on expense in box 13 of Schedule K-1 using
• The partner's distributive share of the net Schedule K-1 for qualified conservation code H.
income for the tax year from the contributions using code C.
partnership's trades or businesses that made
Cash contributions for relief efforts in Lines 13c(1) and 13c(2). Section
the contribution of food inventory.
certain disaster areas. Show each 59(e)(2) Expenditures
Do not include the amount of food partner's distributive share of qualified cash
Generally, section 59(e) allows each partner
! inventory contributions in the amount contributions made for relief efforts in certain
to make an election to deduct their
CAUTION reported in box 13 using code C. disaster areas that were before January 1,
distributive share of the partnership's
These contributions must be reported 2019. Partners can elect to use the 100%
otherwise deductible qualified expenditures
separately on an attached statement AGI limitation for these contributions. To
ratably over 10 years (3 years for circulation
because partners must separately determine qualify, the contributions must meet the
expenditures). The deduction is taken
the limitations on the deduction. following conditions.
beginning with the tax year in which the
• The contributions must be made in cash expenditures were made (or for intangible
Noncash contributions (30%) (code D). to qualified charitable organizations (other
drilling and development costs, over the
Enter noncash contributions subject to the than certain private foundations described in
60-month period beginning with the month in
30% AGI limitation. section 509(a)(3) or donor advised funds
which such costs were paid or incurred).

Instructions for Form 1065 (2018) -35-

 The term “qualified expenditures” Deductions—royalty income (code I). Excess business interest expense (code
includes only the following types of Enter deductions related to royalty income. K). If the partnership is required to file Form
expenditures paid or incurred during the tax 8990, Limitation on Business Interest
year. Schedule K-1. Report each partner’s Expense Under Section 163(j), it may
• Circulation expenditures. distributive share of deductions related to determine it has excess business interest
• Research and experimental expenditures. royalty income. expense. If so, enter the amount from Form
• Intangible drilling and development costs. Deductions—section 59(e)(2) expendi- 8990, Part II, line 32 for excess business
• Mining exploration and development tures (code J). Generally, section 59(e) interest expense.
costs.
allows each partner to make an election to
Schedule K-1. Provide the information
deduct their distributive share of the
If a partner makes the election, these the partners need to figure excess business
partnership's otherwise deductible qualified
items aren't treated as alternative minimum interest expenses. In box 13, report the
expenditures ratably over 10 years (3 years
tax (AMT) tax preference items. partner’s distributive share of excess
for circulation expenditures). The deduction
business expense. If the partnership reports
is taken beginning with the tax year in which
excess business interest expense, the
Because the partners are generally the expenditures were made (or for
partner is required to file Form 8990. The
allowed to make this election, the intangible drilling and development costs,
partner will enter the amount on Form 8990,
partnership cannot deduct these amounts or over the 60-month period beginning with the
Schedule A, line 43(c). See the Instructions
include them as AMT items on month in which such costs were paid or
for Form 8990 for additional information.
Schedule K-1. Instead, the partnership incurred). The term "qualified expenditures"
passes through the information the partners includes only the following types of Deductions—portfolio (other) (code L).
need to figure their separate deductions. expenditures paid or incurred during the tax Enter any other deductions related to
year. portfolio income.
On line 13c(1), enter the type of • Circulation expenditures. No deduction is allowed under section
expenditures claimed on line 13c(2). Enter • Research and experimental expenditures. 212 for expenses allocable to a convention,
on line 13c(2) the qualified expenditures paid • Intangible drilling and development costs. seminar, or similar meeting. Because these
or incurred during the tax year for which an • Mining exploration and development expenses aren't deductible by partners, the
election under section 59(e) may apply. costs. partnership doesn't report these expenses
Enter this amount for all partners whether or If a partner makes the election, these items on line 13d of Schedule K. The expenses are
not any partner makes an election under aren't treated as alternative minimum tax nondeductible and are reported as such on
section 59(e). (AMT) tax preference items. Because the line 18c of Schedule K and in box 18 of
partners make this election, the partnership Schedule K-1 using code C.
can't deduct these amounts or include them
On an attached statement, identify the Schedule K-1. In box 13, report the
as AMT items on Schedule K-1. Instead, the
property for which the expenditures were partner's distributive share of deductions
partnership passes through the information
paid or incurred. If the expenditures were for related to portfolio income that are reported
the partners need to figure their separate
intangible drilling costs or development costs on line 13d of Schedule K using code I (for
deductions. On line 13c(1), enter the type of
for oil and gas properties, identify the deductions related to royalty income), or L
expenditures claimed on line 13c(2). Enter
month(s) in which the expenditures were (for other deductions related to portfolio
on line 13c(2) the qualified expenditures paid
paid or incurred. If there is more than one income).
or incurred during the tax year for which a
type of expenditure or more than one
partner may make an election under section
property, provide the amounts (and the Amounts paid for medical insurance
59(e). Enter this amount for all partners
months paid or incurred if required) for each (code M). Enter amounts paid during the
whether or not any partner makes an election
type of expenditure separately for each tax year for insurance that constitutes
under section 59(e).
property. medical care for the partner (including the
On an attached statement, identify the partner's spouse, dependents, and children
Schedule K-1. Report each partner's property for which the expenditures were under age 27 who aren't dependents).
distributive share of section 59(e) paid or incurred. If the expenditures were for
expenditures in box 13 of Schedule K-1 intangible drilling or development costs for oil Educational assistance benefits (code
using code J. On an attached statement, and gas properties, identify the month(s) in N). Enter amounts paid during the tax year
identify (a) the type of expenditure, (b) the which the expenditures were paid or for educational assistance benefits paid to a
property for which the expenditures are paid incurred. If there is more than one type of partner.
or incurred, and (c) for oil and gas properties expenditure or more than one property, Dependent care benefits (code O). Enter
only, the month in which intangible drilling provide the amounts (and the months paid or amounts paid during the tax year for
costs and development costs were paid or incurred, if required) for each type of dependent care benefits paid on behalf of
incurred. If there is more than one type of expenditure separately for each property. each partner.
expenditure or the expenditures are for more
than one property, provide each partner's Schedule K-1. Report each partner's Preproductive period expenses (code P).
distributive share of the amounts (and the distributive share of section 59(e) If the partnership is required to use an
months paid or incurred for oil and gas expenditures in box 13 of Schedule K-1 accrual method of accounting under section
properties) for each type of expenditure using code J. Identify the following 447 or is prohibited from using the cash
separately for each property. information on an attached statement. method under 448(a)(3), it must capitalize
• The type of expenditure. these expenses. If the partnership is
Line 13d. Other Deductions • The property for which the expenditures permitted to use the cash method, enter the
are paid or incurred. amount of preproductive period expenses
Enter deductions not included on lines 12, • For oil and gas properties only, the month that qualify under section 263A(d). An
13a, 13b, 13c(2), and 16p. On the line to the in which intangible drilling costs and election not to capitalize these expenses
left of the entry space for this line, identify the development costs were paid or incurred. must be made at the partner level. See
type of deduction. If there is more than one If there is more than one type of expenditure Uniform Capitalization Rules in Pub. 225,
type of deduction, attach a statement to or the expenditures are for more than one Farmer's Tax Guide.
Form 1065 that separately identifies the type property, provide each partner's distributive
and amount of each deduction for the share of the amounts (and the months paid Commercial revitalization deduction
following categories. The codes needed for or incurred for oil and gas properties) for from rental real estate activities (code
Schedule K-1 reporting are provided for each each type of expenditure separately for each Q). Enter the commercial revitalization
category. property. deduction on line 13d only if it is for a rental

-36- Instructions for Form 1065 (2018)

real estate activity. If the deduction is for a commencing before January 1, 2018 (after section 212 expenses from a REMIC) can be
nonrental building, enter it on line 20 of Form December 31, 2015, and before January 1, deducted on those partners’ income tax
1065. See the instructions for line 20, earlier, 2018, for a live theatrical production) if the returns.
for more information. aggregate cost of the production doesn't
exceed $15 million. There is a higher dollar Schedule K-1. Enter each partner's
Pensions and IRAs (code R). Enter the distributive share of the deduction categories
limitation for productions in certain areas.
payments for a partner to an IRA, qualified listed earlier in box 13 of Schedule K-1 or
Provide a description of the film, television,
plan, or simplified employee pension (SEP) provide the information required on an
or theatrical production on an attached
or SIMPLE IRA plan. If a qualified plan is a attached statement for the deduction. Enter
statement. If the partnership makes the
defined benefit plan, a partner's distributive the applicable code I, K, L, M, N, O, P, Q, R,
election for more than one film, television, or
share of payments is determined in the same S, or W (as shown earlier).
theatrical production, attach a statement to
manner as his or her distributive share of If you are reporting only one type of
Schedule K-1 that shows each partner's
partnership taxable income. For a defined deduction under code W, enter code W with
distributive share of the qualified
benefit plan, attach to the Schedule K-1 for an asterisk (W*) and the dollar amount in the
expenditures separately for each production.
each partner a statement showing the entry space in box 13 and attach a statement
The deduction is subject to recapture under
amount of benefit accrued for the tax year. that shows the box number, code, and type
section 1245 if the election is voluntarily
Reforestation expense deduction (code revoked or the production fails to meet the of deduction. If you are reporting multiple
S). The partnership can elect to deduct a requirements for the deduction. See section types of deductions under code W, enter the
limited amount of its reforestation 181 and the related regulations for details. code with an asterisk (W*), enter “STMT” in
expenditures paid or incurred during the tax • Interest expense allocated to the dollar amount entry space in box 13, and
year. The amount the partnership can elect debt-financed distributions. See Notice attach a statement that shows the box
to deduct is limited to $10,000 for each 89-35, 1989-1 C.B. 675, or Pub. 535 for number, code, and dollar amount of each
qualified timber property. See section 194(c) more information. type of deduction.
for a definition of reforestation expenditures • Interest paid or accrued on debt properly If the partnership has more than one trade
and qualified timber property. The allocable to each general partner's share of a or business activity, identify on an attached
partnership must amortize over 84 months working interest in any oil or gas property (if statement to Schedule K-1 the amount for
any amount not deducted. See the the partner's liability isn't limited). General each separate activity. See Passive Activity
instructions for line 20, earlier. See Notice partners that didn't materially participate in Reporting Requirements, earlier.
2006-47, 2006-20 I.R.B. 892, for details on the oil or gas activity treat this interest as
making the election. investment interest; for other general Section 965(c) deduction (code X). The
partners, it is trade or business interest. partnership will provide information on your
Schedule K-1. Enter the partner's • Contributions to a capital construction share of the section 965(c) deduction. See
distributive share of the allowable fund. See Pub. 595. Form 965, Form 965-A, and the related
reforestation expenses in box 13 of • The partnership's original issue discount instructions for more detail.
Schedule K-1 using code S and attach a (OID) deduction deferred under section
statement that provides a description of the Schedule K-1. Enter the partner’s
108(i)(2) that is allowable as a deduction in distributive share of the section 965(c)
qualified timber property. If the partnership is the current year. The aggregate amount of
electing to deduct amounts from more than deduction amount.
OID that is deferred is generally allowed as a
one qualified timber property, provide a deduction ratably over the 5-year period the Self-Employment
description and the amount for each deferred COD income is includible in income
property. under section 108(i). For more information, If the partnership is an options dealer
Codes T through V. These codes are see Election to defer income from canceled TIP or a commodities dealer, see section
debt., earlier. 1402(i) before completing lines 14a,
reserved for future use.
Special rule for filers of Form 8865. Filers 14b, and 14c, to determine the amount of
Other deductions (code W). Include any of Form 8865, Return of U.S. Persons With any adjustment that may have to be made to
other deductions, such as the following. Respect to Certain Foreign Partnerships, the amounts shown on the Worksheet for
• Amounts paid by the partnership that cannot report a section 108(i) OID deduction Figuring Net Earnings (Loss) From
would be allowed as itemized deductions on on Form 8865, in accordance with the Self-Employment. If the partnership is
any of the partners' income tax returns if they section 108(i) election, unless the foreign engaged solely in the operation of a group
were paid directly by a partner for the same partnership filed a U.S. partnership return investment program, earnings from the
purpose. These amounts include, but aren't and made the election. A foreign partnership operation aren't self-employment earnings
limited to, expenses under section 212 for must file Form 1065 or Form 1065X to make for either general or limited partners.
the production of income other than from the the section 108(i) election. These foreign
partnership's trade or business. However, do partnerships also have an annual reporting General partners. General partners' net
not enter expenses related to portfolio requirement on Form 1065 for each tax year earnings (loss) from self-employment do not
income or investment interest expense after the election until all items deferred include the following.
reported on line 13b of Schedule K on this under section 108(i) have been recognized. • Dividends on any shares of stock and
line. See Rev. Proc. 2009-37, 2009-36 I.R.B. 309, interest on any bonds, debentures, notes,
• Any penalty on early withdrawal of for details. etc., unless the dividends or interest are
savings not reported on line 13b because the • Domestic production activities deduction received in the course of a trade or business,
partnership withdrew its time savings deposit (DPAD). If the partnership is a recipient of such as a dealer in stocks or securities or
before its maturity. the DPAD from a flow-through entity interest on notes or accounts receivable.
• Soil and water conservation expenditures, (partnership, estate, trust, or cooperative) • Rentals from real estate, except rentals of
and endangered species recovery with a tax year beginning before January 1, real estate held for sale to customers in the
expenditures (section 175). 2018, the DPAD can be taken by partners in course of a trade or business as a real estate
• Expenditures paid or incurred for the limited circumstances. See Form 8903 and dealer or payments for rooms or space when
removal of architectural and transportation its instructions for details. significant services are provided.
barriers to the elderly and disabled that the • Deductions—portfolio (formerly • Royalty income, except royalty income
partnership has elected to treat as a current deductible by individuals under section 67 received in the course of a trade or business.
expense. See section 190. subject to 2% AGI floor). For partners other See the Instructions for Schedule SE
• Film, television, and theatrical production than individuals, amounts that are clearly (Form 1040), Self-Employment Tax, for more
expenses. The partnership can elect to and directly allocable to portfolio income information.
deduct certain costs of a qualified film, (other than investment interest expense and
television, or live theatrical production

Instructions for Form 1065 (2018) -37-

 Worksheet for Figuring Net Earnings (Loss) From Self-Employment
1a Ordinary business income (loss) (Schedule K, line 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a
b Net income (loss) from certain rental real estate activities (see instructions) . . . . . . . . . . . . . . . . . 1b
c Other net rental income (loss) (Schedule K, line 3c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1c
d Net loss from Form 4797, Part II, line 17, included on line 1a, above. Enter as a positive amount . . . . . . 1d
e Combine lines 1a through 1d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1e
2 Net gain from Form 4797, Part II, line 17, included on line 1a, above . . . . . . . . . . . . . . . . . . . . . 2
3a Subtract line 2 from line 1e. If line 1e is a loss, increase the loss on line 1e by the amount on line 2 . . . . . 3a
b Part of line 3a allocated to limited partners, estates, trusts, corporations, exempt organizations, and 3b
IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include each individual general
partner's share in box 14 of Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c
4a Guaranteed payments to partners (Schedule K, line 4) derived from a trade or business as defined in section
1402(c) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4a
b Part of line 4a allocated to individual limited partners for other than services and to estates, trusts,
corporations, exempt organizations, and IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4b
c Subtract line 4b from line 4a. Include each individual general partner's share and each individual limited partner's share in box 14 of
Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c
5 Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 14a . . . . . . . . . . . . . . 5

Limited partners. Generally, a limited net earnings from self-employment under the Credits
partner's share of partnership income (loss) nonfarm optional method in Section B, Part II
of Schedule SE (Form 1040). Enter each Do not attach Form 3800, General
isn't included in net earnings (loss) from
self-employment. Limited partners treat as individual partner's share in box 14 of TIP Business Credit, to Form 1065.
self-employment earnings only guaranteed Schedule K-1 using code C.
payments for services they actually rendered
to, or on behalf of, the partnership to the Worksheet Instructions Low-Income Housing Credit
extent that those payments are payment for
Line 1b. Include on line 1b any part of the Section 42 provides a credit that can be
those services.
net income (loss) from rental real estate claimed by owners of low-income residential
activities from Schedule K, line 2, that is rental buildings. To qualify for this credit, the
Line 14a. Net Earnings (Loss) from: partnership must file Form 8609,
From Self-Employment Low-Income Housing Credit Allocation and
1. Rentals of real estate held for sale to Certification, separately with the IRS. Do not
Schedule K. Enter on line 14a the amount customers in the course of a trade or attach Form 8609 to Form 1065. Complete
from line 5 of the worksheet. business as a real estate dealer, or and attach Form 8609-A, Annual Statement
2. Rentals for which services were for Low-Income Housing Credit, and Form
Schedule K-1. Do not complete this line for
rendered to the occupants (other than 8586, Low-Income Housing Credit, to Form
any partner that is an estate, trust,
services usually or customarily rendered for 1065.
corporation, exempt organization, or
the rental of space for occupancy only). The
individual retirement arrangement (IRA).
supplying of maid service is such a service, Line 15a. Low-Income Housing
Enter in box 14 of Schedule K-1 each but the furnishing of heat and light, the
individual general partner's share of the cleaning of public entrances, exits, stairways Credit (Section 42(j)(5))
amount shown on line 3c of the worksheet and lobbies, trash collection, etc., aren't Enter on line 15a the total low-income
and each individual limited partner's share of considered services rendered to the housing credit for property which a
the amount shown on line 4c of the occupants. partnership is to be treated under section
worksheet, using code A. 42(j)(5) as the taxpayer to which the
Lines 3b and 4b. Allocate the amounts on low-income housing credit was allowed.
Line 14b. Gross Farming or these lines in the same way Form 1065,
page 1, line 22, is allocated to these If the partnership invested in another
Fishing Income particular partners. partnership to which the provisions of section
Enter on line 14b the partnership's gross Line 4a. Include in the amount on line 4a 42(j)(5) apply, report on line 15a the credit
farming or fishing income from any guaranteed payments to partners reported to the partnership on Schedule K-1
self-employment. Individual partners need reported on Schedule K, line 4, and (Form 1065), box 15, code A and code C.
this amount to figure net earnings from Schedule K-1, box 4, and derived from a
self-employment under the farm optional Schedule K-1. Report in box 15 of
trade or business as defined in section Schedule K-1 each partner's distributive
method in Section B, Part II of Schedule SE 1402(c). Also include other ordinary
(Form 1040). Enter each individual partner's share of the low-income housing credit
business income and expense items (other reported on line 15a of Schedule K. Use
distributive share in box 14 of Schedule K-1 than expense items subject to separate
using code B. code A to report credits attributable to
limitations at the partner level, such as the buildings placed in service before 2008. Use
section 179 expense deduction) reported on code C to report credits attributable to
Line 14c. Gross Nonfarm Income Schedules K and K-1 that are used to figure buildings placed in service after 2007. If the
self-employment earnings under section partnership has credits from more than one
Enter on line 14c the partnership's gross
1402. rental activity, identify on an attached
nonfarm income from self-employment.
Individual partners need this amount to figure statement to Schedule K-1 the amount for

-38- Instructions for Form 1065 (2018)

each separate activity. See Passive Activity code F. If you are reporting each partner's investment company (RIC) or a real estate
Reporting Requirements, earlier. distributive share of only one type of rental investment trust (REIT). As a shareholder of
real estate credit under code F, enter the a RIC or beneficiary of a REIT, the
code with an asterisk (F*) and the dollar partnership will receive notice of the amount
Line 15b. Low-Income Housing
amount in the entry space in box 15 and of tax paid on undistributed capital gains on
Credit (Other) attach a statement that shows “Box 15, Code Form 2439, Notice to Shareholder of
Enter on line 15b any low-income housing F,” and type of credit. If you are reporting Undistributed Long-Term Capital Gains.
credit not reported on line 15a. This includes multiple types of rental real estate credit
Biofuel producer credit (code I).
any credit reported to the partnership on under code F, enter the code with an asterisk
Complete Form 6478, if applicable, to figure
Schedule K-1 (Form 1065), box 15, using (F*) and enter “STMT” in the entry space in
the credit. Attach it to Form 1065. Include
code B and code D. box 15 and attach a statement that shows
any amount shown on line 2 of Form 6478 in
“Box 15, Code F,” and the type and dollar
Schedule K-1. Report in box 15 of the partnership's income on line 7. See
amount of the credits. If the partnership has
Schedule K-1 each partner's distributive section 40(f) for an election the partnership
credits from more than one rental real estate
share of the low-income housing credit can make to not have the credit apply.
activity, identify on the attached statement
reported on line 15b of Schedule K. Use the amount of each type of credit for each Work opportunity credit (code J).
code B to report credits attributable to separate activity. See Passive Activity Complete Form 5884 to figure the credit.
buildings placed in service before 2008. Use Reporting Requirements, earlier. Attach it to Form 1065.
code D to report credits attributable to
buildings placed in service after 2007. If the Disabled access credit (code K).
partnership has credits from more than one Line 15e. Other Rental Credits Complete Form 8826 to figure the credit.
rental activity, identify on an attached Enter on line 15e any other credit (other than Attach it to Form 1065.
statement to Schedule K-1 the amount for credits reported on lines 15a through 15d) Empowerment zone employment credit
each separate activity. See Passive Activity related to rental activities. On the dotted line (code L). Complete Form 8844 to figure
Reporting Requirements, earlier. to the left of the entry space for line 15e, the credit. Attach it to Form 1065.
identify the type of credit. If there is more
than one type of credit, attach a statement to Credit for increasing research activities
Line 15c. Qualified Rehabilitation (code M). Complete Form 6765 to figure
Form 1065 that identifies the type and
Expenditures (Rental Real Estate) amount for each credit. These credits may the credit. Attach it to Form 1065.
Enter on line 15c the total qualified include any type of credit listed in the
instructions for line 15f. Note. The partnership should provide the
rehabilitation expenditures related to rental
information necessary for the partner to
real estate activities of the partnership. See Schedule K-1. Report in box 15 of determine whether the partnership is an
the Instructions for Form 3468 for details on Schedule K-1 each partner's distributive eligible small business under section 38(c)
qualified rehabilitation expenditures. share of other rental credits using code G. If (5)(A). If the partner and the partnership
Schedule K-1. Report each partner's you are reporting each partner's distributive meet the requirements of section 38(c)(5)(A),
distributive share of qualified rehabilitation share of only one type of rental credit under the research credit may be treated as a
expenditures related to rental real estate code G, enter the code with an asterisk (G*) specified credit.
activities in box 15 of Schedule K-1 using and the dollar amount in the entry space in
box 15 and attach a statement that shows Credit for employer social security and
code E. Attach a statement to Schedule K-1
“Box 15, Code G,” and type of credit. If you Medicare taxes paid on certain employee
that provides the information and the
are reporting multiple types of rental credit tips (code N). Complete Form 8846 to
partner's distributive share of the amounts
under code G, enter the code with an figure the credit. Attach it to Form 1065.
the partner will need to complete lines 11b
through 11g and line 11j of Form 3468. See asterisk (G*) and enter “STMT” in the entry Backup withholding (code O). This credit
the Instructions for Form 3468 for details. If space in box 15 and attach a statement that is for backup withholding on dividends,
the partnership has expenditures from more shows “Box 15, Code G,” and the type and interest, and other types of income of the
than one rental real estate activity, identify on dollar amount of the credits. If the partnership.
an attached statement to Schedule K-1 the partnership has credits from more than one
amount for each separate activity. See rental activity, identify on the attached Other credits (code P). Attach a
Passive Activity Reporting Requirements, statement the amount of each type of credit statement to Form 1065 that identifies the
earlier. for each separate activity. See Passive type and amount of any other credits not
Activity Reporting Requirements, earlier. reported elsewhere, such as the following.
Qualified rehabilitation expenditures • New markets credit. Complete Form 8874
! for property not related to rental real to figure the credit. Attach it to Form 1065.
CAUTION estate activities must be reported in Line 15f. Other Credits • Qualified railroad track maintenance
box 20, using code D. Enter on line 15f any other credit, except credit. Complete Form 8900 to figure the
credits or expenditures shown or listed for credit, and attach it to Form 1065.
lines 15a through 15e. If any of these credits • Unused investment credit from the
Line 15d. Other Rental Real Estate are attributable to rental activities, enter the qualifying advanced coal project credit,
Credits amount on line 15d or 15e. On the dotted line qualifying gasification project credit, or
to the left of the entry space for line 15f, qualifying advanced energy project credit
Enter on line 15d any other credit (other than allocated from cooperatives.
credits reported on lines 15a through 15c) identify the type of credit. If there is more
than one type of credit or if there are any • Enhanced oil recovery credit. Complete
related to rental real estate activities. On the Form 8830 to figure the credit, and attach it
dotted line to the left of the entry space for credits subject to recapture, attach a
statement to Form 1065 that separately to Form 1065.
line 15d, identify the type of credit. If there is • Unused investment credit from the
more than one type of credit, attach a identifies each type and amount of credit and
credit recapture information for the following rehabilitation credit or energy credit allocated
statement to Form 1065 that identifies the from cooperatives.
type and amount for each credit. These categories. The codes needed for box 15 of
Schedule K-1 are provided in the heading of • Renewable electricity, refined coal, and
credits may include any type of credit listed Indian coal production credit. See Rev. Proc.
in the instructions for line 15f. each category.
2007-65, as modified by Announcement
Schedule K-1. Report in box 15 of Undistributed capital gains credit (code 2009-69 and Announcement 2007-112, for a
Schedule K-1 each partner's distributive H). This credit represents taxes paid on safe harbor method for allocating the credit
share of other rental real estate credits using undistributed capital gains by a regulated for wind energy production. Complete Form

Instructions for Form 1065 (2018) -39-

8835 to figure the credit. Attach a statement credit must also be reported as a cash Individuals, and the Instructions for Form
to Form 1065 and Schedule K-1 showing the distribution on line 19a of Schedule K. 1116, for more information.
allocation of the credit for production during • Qualified school construction bond credit
the 4-year period beginning on the date the (Form 8912). The amount of this credit
Line 16a. Name of Country or U.S.
facility was placed in service and for (excluding any credits from other
production after that period. Attach Form partnerships, estates, and trusts) must also Possession (code A)
8835 to Form 1065. be reported as interest income on line 5 of Enter the name of the foreign country or U.S.
• Indian employment credit. Complete Form Schedule K. In addition, the amount of this possession from which the partnership had
8845 to figure the credit, and attach it to credit must also be reported as a cash income or to which the partnership paid or
Form 1065. distribution on line 19a of Schedule K. accrued taxes. If the partnership had income
• Orphan drug credit. Complete Form 8820 • Build America bond credit (Form 8912). from, or paid or accrued taxes to, more than
to figure the credit, and attach it to Form The amount of this credit (excluding any one foreign country or U.S. possession,
1065. credits from other partnerships, estates, and enter “See attached” and attach a statement
• Credit for small employer pension plan trusts) must also be reported as interest for each country for lines 16a through 16r
startup costs. Complete Form 8881 to figure income on line 5 of Schedule K. In addition, (codes A through R and code X of
the credit, and attach it to Form 1065. the amount of this credit must also be Schedule K-1). On Schedule K-1, if there is
• Credit for employer-provided childcare reported as a cash distribution on line 19a of more than one country, enter code A
facilities and services. Complete Form 8882 Schedule K. followed by an asterisk (A*), enter “STMT,”
to figure the credit, and attach it to Form • Mine rescue team training credit (Form and attach a statement to Schedule K-1 for
1065. 8923). each country for the information and
• Biodiesel and renewable diesel fuels • Credit for employer differential wage amounts coded A through R and code X.
credit. Complete Form 8864, if applicable, to payments (Form 8932).
figure the credit, and attach it to Form 1065. • Carbon oxide sequestration credit (Form RIC pass-through amounts. Aggregate all
If this credit includes the small agri-biodiesel 8933). income passed through from regulated
producer credit, identify on a statement • Qualified two-wheeled plug-in electric investment companies (RICs) and report the
attached to Schedule K-1 (a) each partner's drive motor vehicle credit (Form 8936). total on a single line. Enter “RIC” on line 16a
distributive share of the small agri-biodiesel • Credit for small employer health insurance and report the total on line 16b. Note that the
producer credit included in the total credit premiums (Form 8941). totals are being reported on a single line
allocated to the partner, (b) the number of • Employee retention credit (Form 5884-A). because it isn't necessary to report the RIC
gallons for which the partnership claimed the • Credit for oil and gas production from pass-through amounts on a per-country
small agri-biodiesel producer credit, and (c) marginal wells (Form 8904). basis.
the partnership's productive capacity for • Employer credit for paid family and
agri-biodiesel. medical leave (Form 8994). Line 16b. Gross Income From All
• Low sulfur diesel fuel production credit. Schedule K-1. Enter in box 15 of Sources (code B)
Complete Form 8896 to figure the credit, and
Schedule K-1 each partner's distributive
attach it to Form 1065. Enter the partnership's gross income from all
share of the credits listed above. See
• General credits from an electing large additional Schedule K-1 reporting
sources (both U.S. and foreign).
partnership.
information provided in the instructions
• Distilled spirits credit (Form 8906). above. Enter the applicable code, H through Line 16c. Gross Income Sourced at
• Energy efficient home credit (Form 8908). P, in the column to the left of the dollar
• Alternative motor vehicle credit (Form Partner Level (code C)
amount entry space.
8910). Enter the total gross income of the
• Alternative fuel vehicle refueling property If you are reporting each partner's partnership that is required to be sourced at
credit (Form 8911). distributive share of only one type of credit the partner level. This includes income from
• Clean renewable energy bond credit under code P, enter the code with an asterisk the sale of most personal property other than
(Form 8912). The amount of this credit (P*) and the dollar amount in the entry space inventory, depreciable property, and certain
(excluding any credits from other in box 15 and attach a statement that shows intangible property. See Pub. 514 and
partnerships, estates, and trusts) must also “Box 15, Code P,” and type of credit. If you section 865 for details.
be reported as interest income on line 5 of are reporting multiple types of credit under
Schedule K. code P, enter the code with an asterisk (P*) You must attach a statement to Form
• New clean renewable energy bond credit and enter “STMT” in the entry space in ! 1065 showing the following
(Form 8912). The amount of this credit box 15 and attach a statement that shows CAUTION information.
(excluding any credits from other “Box 15, Code P,” and the type and dollar
• The amount of this gross income (without
partnerships, estates, and trusts) must also amount of the credits. If the partnership has regard to its source) in each category
be reported as interest income on line 5 of credits from more than one activity, identify identified in the instructions for lines 16d
Schedule K. In addition, the amount of this on an attached statement to Schedule K-1 through 16h including each of the listed
credit must also be reported as a cash the amount of each type of credit for each categories.
distribution on line 19a of Schedule K. separate activity. See Passive Activity
• Specifically identify gains on the sale of
• Qualified energy conservation bond credit Reporting Requirements, earlier. personal property other than inventory,
(Form 8912). The amount of this credit
(excluding any credits from other
Foreign Transactions depreciable property, and certain intangible
property on which a foreign tax of 10% or
partnerships, estates, and trusts) must also Lines 16a through 16r must be completed if more was paid or accrued. Also list losses on
be reported as interest income on line 5 of the partnership has foreign income, the sale of such property if the foreign
Schedule K. In addition, the amount of this deductions, or losses, or has paid or accrued country would have imposed a 10% or higher
credit must also be reported as a cash foreign taxes. tax had the sale resulted in a gain. In
distribution on line 19a of Schedule K. addition, separately identify the amounts of
• Qualified zone academy bond credit Attach a statement to Schedule K-1 for
such gains or losses within each separate
(Form 8912). The amount of this credit these coded items providing the information
limitation category that are long-term capital
(excluding any credits from other described below. If the partnership had
gains and losses or collectibles (28%) gains
partnerships, estates, and trusts) must also income from, or paid or accrued taxes to,
and losses. See Determining the Source of
be reported as interest income on line 5 of more than one country or U.S. possession,
Income From the Sales or Exchanges of
Schedule K. In addition, the amount of this see the requirement for an attached
Certain Personal Property in Pub. 514 and
statement in the instructions for line 16a,
section 865.
below. See Pub. 514, Foreign Tax Credit for

-40- Instructions for Form 1065 (2018)

Lines 16d–16h. Foreign Gross and apportioned at the partnership level and Foreign taxes paid (code P). If the
is included on lines 16k through 16o. partnership uses the cash method of
Income Sourced at Partnership
Line 16j. Other (code J). Enter the total of accounting, check the Paid box and enter
Level foreign taxes paid during the tax year on
all other deductions or losses that are
Separately report gross income from sources required to be allocated at the partner level. line 16p. Report each partner's distributive
outside the United States by category of For example, include on line 16j research share in box 16 of Schedule K-1 using code
income as follows. See Pub. 514 and the and experimental expenditures (see P.
Instructions for Form 1116 for more Regulations section 1.861-17(f)). Foreign taxes accrued (code Q). If the
information on the categories of income.
partnership uses the accrual method of
You must attach a statement to Form Lines 16k–16o. Deductions accounting, check the Accrued box and
! 1065 that specifies foreign source enter foreign taxes accrued on line 16p.
Allocated and Apportioned at
CAUTION qualified dividends, unrecaptured Report each partner's distributive share in
section 1250 gains, and net section 1231 Partnership Level to Foreign box 16 of Schedule K-1 using code Q.
gain (loss). Source Income
A partnership reporting foreign taxes
Line 16d. Section 951A category (code Separately report partnership deductions using the cash method can make an
D). Section 951A category foreign source that are allocated and apportioned at the irrevocable election to report these taxes
income includes any amount included in partnership level by category of income as using the accrual method for the year of the
gross income under section 951A (other than follows. See Pub. 514 and the Instructions election and all future years. Make this
passive category income). Section 951A for Form 1116 for more information. election by reporting all foreign taxes using
defines global low-taxed income. Creditable foreign expenditures the accrual method on line 16p and check
TIP generally must be allocated in the Accrued box (see Regulations section
Line 16e. Foreign branch category (code
accordance with each partner's 1.905-1).
E). Foreign branch category foreign source
income is defined under section 904(d)(2)(J) interest in the partnership. See Treasury
Decision 9292, 2006-47 I.R.B. 914, for Attach a statement reporting the following
(i) as the business profits of a U.S. person
details. information.
which are attributable to one or more
qualified business units (as defined in 1. The total amount of foreign taxes
section 989(a)) in one or more foreign Line 16k. Section 951A category (code (including foreign taxes on income sourced
countries. Report all income that would be K). Enter the amount of deductions at the partner level) relating to each category
foreign branch category income of its allocated and apportioned at the partnership of income (see the instructions for lines 16d–
partners as if all of its partners were U.S. level to section 951A category foreign source 16h).
persons that were not pass-through entities. income.
2. The dates on which the taxes were
Line 16f. Passive category (code F). Line 16l. Foreign branch category (code paid or accrued, the exchange rates used,
Passive category foreign source income. L). Enter the amount of deductions allocated and the amounts in both foreign currency
This category includes the following income. and apportioned at the partnership level to and U.S. dollars, for the following.
• Passive income. foreign branch category foreign source • Taxes withheld at source on interest.
• Dividends from a domestic international income. • Taxes withheld at source on dividends.
sales corporation (DISC) or a former DISC. Line 16m. Passive category (code M). • Taxes withheld at source on rents and
• Distributions from a former foreign sales Enter the amount of deductions allocated royalties.
corporation. and apportioned at the partnership level to • Other foreign taxes paid or accrued.
See Line 16h. Other (code H) for exceptions. passive category foreign source income
Passive income doesn't include (defined in the instructions for line 16f). Line 16q. Reduction in Taxes
! export financing interest. Line 16n. General category (code N). Available for Credit (Code R)
CAUTION Enter the amount of deductions allocated Enter the total reduction in taxes available for
and apportioned at the partnership level to credit. Attach a statement showing the
Line 16g. General category (code G).
general category foreign source income reductions for the following.
General category foreign source income.
(defined in the instructions for line 16g). • Taxes on foreign mineral income (section
Include all foreign source income sourced at
the partnership level that isn't reported on Line 16o. Other (code O). Attach a 901(e)).
lines 16d, 16e, 16f, or 16h. statement separately showing the amount of • Taxes on foreign oil and gas extraction
deductions allocated and apportioned at the income and foreign oil-related income
Line 16h. Other (code H). Attach a (section 907(a)).
partnership level to the following two
statement separately showing the amount of • Taxes attributable to boycott operations
categories.
foreign source income included in the (section 908).
following categories.
• Section 901(j) income.
• Other. • Failure to timely file (or furnish all of the
• Section 901(j) income. information required on) Forms 5471 and
• Other. 8865.
Lines 16p–16x. Other information • Foreign income taxes paid or accrued
Lines 16i–16j. Deductions during the current tax year that have been
suspended under section 909.
Allocated and Apportioned at Line 16p. Total Foreign Taxes Paid • Taxes with respect to hybrid dividends
Partner Level or Accrued included in box 6a or 6b.
Enter in U.S. dollars the total foreign taxes • Taxes with respect to subpart F inclusions
Line 16i. Interest expense (code I). Enter reported on line 11, where such inclusions
on line 16i the partnership's total interest (described in section 901 or section 903) that
were paid or accrued by the partnership result from hybrid dividends of tiered
expense (including interest equivalents corporations.
under Temporary Regulations section (according to its method of accounting for
such taxes). Enter the amount paid on • Taxes with respect to dividends included
1.861-9T(b)). Do not include interest directly in box 6a or 6b, where a deduction is allowed
allocable under Temporary Regulations line 16p. Translate these amounts into U.S.
dollars by using the applicable exchange under section 245A with respect to such
section 1.861-10T to income from a specific dividends.
property. This type of interest is allocated rate (see Pub. 514).
• Taxes with respect to subpart F inclusions
reported on line 11, where such inclusions

Instructions for Form 1065 (2018) -41-

are treated under section 964(e)(4) as a partner in box 13, code J, of Schedule K-1 and the same convention and recovery
dividend that is eligible for a deduction under the information needed to figure the period used for the regular tax.
section 245A. deduction.
• Any other items (specify). Schedule K-1. Report each partner's Figure the adjustment by subtracting the
distributive share of amounts reported on AMT deduction for depreciation from the
Line 16r. Other Foreign Tax lines 17a through 17f (concerning alternative regular tax deduction and enter the result on
minimum tax items) in box 17 of line 17a. If the AMT deduction is more than
Information the regular tax deduction, enter the
Schedule K-1 using codes A through F,
• Foreign trading gross receipts (code respectively. If the partnership is reporting difference as a negative amount.
S). Report the partner's distributive share of items of income or deduction for oil, gas, and Depreciation capitalized to inventory must
foreign trading gross receipts from line 15 of geothermal properties, you may be required also be refigured using the AMT rules.
Form 8873 using code S. See Extraterritorial to identify these items on a statement Include on this line the current year
Income Exclusion, earlier. attached to Schedule K-1 (see the adjustment to income, if any, resulting from
• Extraterritorial income exclusion instructions for Oil, Gas, and Geothermal the difference.
(code T). If the partnership isn't permitted to Properties—Gross Income and Deductions,
deduct the extraterritorial income exclusion later, for details). Also see the requirement Line 17b. Adjusted Gain or Loss
as a non-separately stated item, attach a for an attached statement in the instructions
statement to Schedule K-1 showing the If the partnership disposed of any tangible
for line 17f.
partner's distributive share of the property placed in service after 1986 (or after
extraterritorial income exclusion reported on July 31, 1986, if an election was made to use
line 52 of Form 8873. Also identify the Line 17a. Post-1986 Depreciation the General Depreciation System), or if it
activity to which the exclusion is related. Adjustment disposed of a certified pollution control
• Section 951A tested income (code U). facility placed in service after 1986, refigure
Figure the adjustment for line 17a based only the gain or loss from the disposition using the
Report tested income as defined in section
on tangible property placed in service after adjusted basis for the AMT. The property's
951A(c)(1)(A).
1986 (and tangible property placed in service adjusted basis for the AMT is its cost or other
• Tested foreign income tax (code V). after July 31, 1986, and before 1987 for
Reported tested foreign income tax as basis minus all depreciation or amortization
which the partnership elected to use the deductions allowed or allowable for the AMT
defined in section 960(d)(3).
General Depreciation System). Do not make during the current tax year and previous tax
• Section 965 information (code W). an adjustment for motion picture films,
Report information necessary for the years. Enter on this line the difference
videotapes, sound recordings, certain public between the regular tax gain (loss) and the
calculation of creditable foreign income
utility property (as defined in section 168(f) AMT gain (loss). If the AMT gain is less than
taxes related to the section 965(a) inclusion.
(2)), property depreciated under the the regular tax gain, or the AMT loss is more
Attach Form 965, including its Schedules F,
unit-of-production method (or any other than the regular tax loss, or there is an AMT
G, and H, to the Schedule K-1 (Form 1065).
method not expressed in a term of years), loss and a regular tax gain, enter the
• Other foreign transactions (code X). qualified Indian reservation property,
Enter in box 16 of Schedule K-1 any other difference as a negative amount.
property eligible for a special depreciation
foreign transaction information the partners
allowance, qualified revitalization If any part of the adjustment is allocable
need to prepare their tax returns using code
expenditures, or the section 179 expense to net short-term capital gain (loss), net
X. Attach a statement that separately
deduction. long-term capital gain (loss), or net section
identifies any arrangement, along with the
taxes paid or accrued in connection with the 1231 gain (loss), attach a statement that
For property placed in service before
arrangement, in which the partnership identifies the amount of the adjustment
1999, refigure depreciation for the AMT as
participates that would qualify as a splitter allocable to each type of gain or loss.
follows (using the same convention used for
arrangement under section 909 if one or
the regular tax).
more partners are covered persons with For a net long-term capital gain (loss),
respect to an entity that took into account
• For section 1250 property (generally,
residential rental and nonresidential real also identify the amount of the adjustment
related income from the arrangement. Also that is collectibles (28%) gain (loss).
property), use the straight line method over
indicate whether the partnership has taken
40 years.
into account any related income from any For a net section 1231 gain (loss), also
such splitter arrangement. (See section 909
• For tangible property (other than section
1250 property) depreciated using the straight identify the amount of adjustment that is
and the related regulations.) unrecaptured section 1250 gain.
line method for the regular tax, use the
Alternative Minimum Tax (AMT) straight line method over the property's class
Items
life. Use 12 years if the property has no class Line 17c. Depletion (Other Than Oil
life.
and Gas)
Lines 17a through 17f must be completed for • For any other tangible property, use the
all partners. 150% declining balance method, switching Do not include any depletion on oil and gas
to the straight line method the first tax year it wells. The partners must figure their oil and
Enter items of income and deductions
gives a larger deduction, over the property's gas depletion deductions and preference
that are adjustments or tax preference items
AMT class life. Use 12 years if the property items separately under section 613A.
for the AMT. See Form 6251, Alternative
has no class life.
Minimum Tax—Individuals; or Schedule I
(Form 1041), Alternative Minimum Refigure the depletion deduction under
See Pub. 946 for a table of class
Tax—Estates and Trusts, to determine the section 611 for mines, wells (other than oil
TIP lives. and gas wells), and other natural deposits for
amounts to enter and for other information.
the AMT. Percentage depletion is limited to
Do not include as a tax preference item 50% of the taxable income from the property
For property placed in service after 1998,
any qualified expenditures to which an as figured under section 613(a), using only
refigure depreciation for the AMT only for
election under section 59(e) may apply. income and deductions for the AMT. Also,
property depreciated for the regular tax using
Instead, report these expenditures on the deduction is limited to the property's
the 200% declining balance method. For the
line 13c(2). Because these expenditures are adjusted basis at the end of the year as
AMT, use the 150% declining balance
subject to an election by each partner, the figured for the AMT. Figure this limit
method, switching to the straight line method
partnership cannot figure the amount of any separately for each property. When
the first tax year it gives a larger deduction,
tax preference related to them. Instead, the refiguring the property's adjusted basis, take
partnership must pass through to each into account any AMT adjustments made this

-42- Instructions for Form 1065 (2018)

year or in previous years that affect basis • Accelerated depreciation of leased subject to section 737 (code B) below).
(other than the current year's depletion). personal property under pre-1987 rules. Generally, marketable securities are valued
• Long-term contracts entered into after at FMV on the date of distribution. However,
Enter the difference between the regular February 28, 1986. Except for certain home the value of marketable securities doesn't
tax and AMT deduction. If the AMT construction contracts, the taxable income include the distributee partner's share of the
deduction is greater, enter the difference as from these contracts must be figured using gain on the securities distributed to that
a negative amount. the percentage of completion method of partner. See section 731(c)(3)(B) for details.
accounting for the AMT. If the amount on line 19a includes
• Losses from tax shelter farm activities. No marketable securities treated as money,
Oil, Gas, and Geothermal loss from any tax shelter farm activity is state separately on an attached statement to
Properties—Gross Income and allowed for the AMT. Schedules K and K-1 (a) the partnership's
Deductions Schedule K-1. If you are reporting each adjusted basis of those securities
Generally, the amounts to be entered on partner's distributive share of only one type immediately before the distribution, and (b)
lines 17d and 17e are only the income and of AMT item under code F, enter the code the FMV of those securities on the date of
deductions for oil, gas, and geothermal with an asterisk (F*) and the dollar amount in distribution (excluding the distributee
properties that are used to figure the the entry space in box 17 and attach a partner's share of the gain on the securities
partnership's ordinary income (loss) (line 22 statement that shows the type of AMT item. If distributed to that partner).
of Form 1065). you are reporting multiple types of AMT Line 19b. Distributions of other property.
items under code F, enter the code with an Enter on line 19b the total distributions to
If there are any items of income or asterisk (F*) and enter “STMT” in the entry each partner of property not included on
deductions for oil, gas, and geothermal space in box 17 and attach a statement that line 19a. In box 19 of Schedule K-1,
properties included in the amounts that are shows the dollar amount of each type of distributions of section 737 property will be
required to be passed through separately to AMT item. reported separately from other property. The
the partners on Schedule K-1 (items not codes used when reporting amounts from
reported in box 1 of Schedule K-1), give Tax-Exempt Income and line 19b in box 19 of Schedule K-1 appear in
each partner a statement that shows, for the the heading for the categories.
Nondeductible Expenses
box in which the income or deduction is
Distributions subject to section 737
included, the amount of income or Line 18a. Tax-exempt interest income. (code B). If a partner contributed section
deductions included in the total amount for Enter on line 18a tax-exempt interest 704(c) built-in gain property within the last 7
that box. Do not include any of these direct income, including any exempt-interest years and the partnership made a
pass-through amounts on line 17d or 17e. dividends received from a mutual fund or distribution of property to that partner other
other regulated investment company. than the previously contributed built-in gain
Figure the amounts for lines 17d and 17e property, attach a statement to the
Line 18b. Other tax-exempt income.
separately for oil and gas properties that distributee partner's Schedule K-1 that
Enter on line 18b all income of the
aren't geothermal deposits and for all provides the following information.
partnership exempt from tax other than
properties that are geothermal deposits. • The fair market value of the distributed
tax-exempt interest.
property (other than money).
Give each partner a statement that shows Line 18c. Nondeductible expenses. • The amount of money received in the
the separate amounts included in the Enter on line 18c nondeductible expenses distribution.
computation of the amounts on lines 17d and paid or incurred by the partnership. • The net precontribution gain of the
17e of Schedule K. Do not include separately stated partner. This is the net gain (if any) that
deductions shown elsewhere on Schedules would have been recognized by the
Line 17d. Oil, Gas, and Geothermal K and K-1, capital expenditures, or items the distributee partner under section 704(c)(1)
deduction for which is deferred to a later tax (B) if all the following property had been
Properties—Gross Income year. distributed by the partnership to another
Enter the total amount of gross income partner. This property includes all property
Schedule K-1. Report in box 18 of
(within the meaning of section 613(a)) from contributed by the distributee partner during
Schedule K-1 each partner's distributive
all oil, gas, and geothermal properties the 7 years prior to the distribution and that is
share of amounts reported on lines 18a, 18b,
received or accrued during the tax year and still held by the partnership at the time of the
and 18c of Schedule K (concerning items
included on page 1, Form 1065. distribution (see section 737).
affecting partners' basis) using codes A
through C, respectively. Attach a statement For more information, see Recognition of
Line 17e. Oil, Gas, and Geothermal to Schedule K-1 for the amounts included in Precontribution Gain on Certain Partnership
line 18b that are exempt by reason of section Distributions, earlier.
Properties—Deductions
892, and describe the nature of the income.
Enter any deductions allowed for the AMT Other property (code C). Include all
that are allocable to oil, gas, and geothermal distributions of property not included on
properties. Distributions line 19a that aren't section 737 property. In
figuring the amount of the distribution, use
Line 19a. Distributions of cash and mar- the adjusted basis of the property to the
Line 17f. Other AMT Items ketable securities. Enter on line 19a the partnership immediately before the
total distributions to each partner of cash and distribution. In addition, attach a statement
Attach a statement to Form 1065 and
marketable securities that are treated as showing the adjusted basis and fair market
Schedule K-1 that shows other items not
money under section 731(c)(1). Also include value of each property distributed.
shown on lines 17a through 17e that are
the amount of the credits to holders of tax
adjustments or tax preference items or that Schedule K-1. Report in box 19 each
credit bonds that are treated as cash
the partner needs to complete Form 6251, partner's distributive share of the amount on
distributions under section 54A(g) and
Form 4626, or Schedule I (Form 1041). See line 19a using code A. If a statement is
54AA(f)(2). The instructions for the separate
these forms and their instructions to attached, enter an asterisk after the code
credits (see Other Credits (Code P) under
determine the amount to enter. (A*) and “STMT” in the entry space, and
Line 15f. Other Credits) state when the
amount of the credit must be reported as a attach the required statement. For line 19b,
Other AMT items include the following. cash distribution. Do not include distributions report distributions subject to section 737 in
• Accelerated depreciation of real property of section 737 property (see Distributions box 19 using code B with an asterisk (B*)
under pre-1987 rules.

Instructions for Form 1065 (2018) -43-

and “STMT” in the entry space, and attach Fuel tax credit information (code C). The disposal of a building or an
the required statement. For distributions of Report the number of gallons of each fuel ! interest therein will generate a credit
other property, report each partner's sold or used during the tax year for a CAUTION recapture unless it is reasonably

distributive share of the amount in box 19 nontaxable use qualifying for the credit for expected that the building will continue to be
using code C with an asterisk (C*) and taxes paid on fuel, type of use, and the operated as a qualified low-income building
“STMT” in the entry space, and attach the applicable credit per gallon. See Form 4136, for the remainder of the building's
required statement. Credit for Federal Tax Paid on Fuels, for compliance period.
Other Information details.
See Form 8586, Form 8611, and section
Qualified rehabilitation expenditures 42 for more information.
Lines 20a and 20b. Investment
(other than rental real estate) (code D).
Income and Expenses Recapture of investment credit (code H).
Enter total qualified rehabilitation
Complete and attach Form 4255, Recapture
Enter on line 20a the investment income expenditures from activities other than rental
of Investment Credit, when investment credit
included on lines 5, 6a, 7, and 11 of real estate activities. See the Instructions for
property is disposed of, or it no longer
Schedule K. Do not include other portfolio Form 3468 for details on qualified
qualifies for the credit, before the end of the
gains or losses on this line. rehabilitation expenditures.
recapture period or the useful life applicable
to the property. State the type of property at
Note. Report qualified rehabilitation
Investment income includes gross the top of Form 4255, and complete lines 2,
expenditures related to rental real estate
income from property held for investment, 3, 4, 10, and 11, whether or not any partner
activities on line 15c.
the excess of net gain attributable to the is subject to recapture of the credit.
disposition of property held for investment Schedule K-1. Report each partner's Attach to each Schedule K-1 a separate
over net capital gain from the disposition of distributive share of qualified rehabilitation statement providing the information the
property held for investment, any net capital expenditures related to activities other than partnership is required to show on Form
gain from the disposition of property held for rental real estate activities in box 20 of 4255, but list only the partner's distributive
investment that each partner elects to Schedule K-1 using code D. Attach a share of the cost of the property subject to
include in investment income under section statement to Schedule K-1 that provides the recapture. Also indicate the lines of Form
163(d)(4)(B)(iii), and any qualified dividend information and the partner's distributive 4255 on which the partners should report
income that the partner elects to include in share of the amounts the partner will need to these amounts.
investment income. Generally, investment complete lines 11b through 11g and line 11j
income and investment expenses don't of Form 3468. See the Instructions for Form Recapture of other credits (code I). On
include any income or expenses from a 3468 for details. If the partnership has an attached statement to Schedule K-1,
passive activity. See Regulations section expenditures from more than one activity, provide any information partners will need to
1.469-2(f)(10) for exceptions. identify on a statement attached to report recapture of credits (other than
Schedule K-1 the amount for each separate recapture of low-income housing and
activity. See Passive Activity Reporting investment credit reported on Schedule K-1
Property subject to a net lease isn't
Requirements, earlier. using codes F, G, and H). Examples of
treated as investment property because it is
credits reported using code I when subject to
subject to the passive loss rules. Do not Basis of energy property (code E). See recapture include the following.
reduce investment income by losses from the Instructions for Form 3468 for details on
passive activities. • The new markets credit. See Form 8874
basis of energy property. In box 20 of and Form 8874-B, Notice of Recapture
Schedule K-1, enter code E followed by an Event for New Markets Credit, for details.
Enter investment expenses on line 20b. asterisk and enter “STMT” in the entry space • The Indian employment credit. See
Investment expenses are deductible for the dollar amount. Attach a statement to section 45A(d) for details.
expenses (other than interest) directly Schedule K-1 that provides the information • The credit for employer-provided
connected with the production of investment and the partner's distributive share of the childcare facilities and services. See section
income. See the Instructions for Form 4952 amounts the partner will need to figure the 45F(d).
for more information. amounts to report on lines 12a–12d, 12f, • The alternative motor vehicle credit. See
Schedule K-1. Report each partner's 12g, 12i, 12j, 12l, 12m, 12o, and 12q–12v of section 30B(h)(8).
distributive share of amounts reported on Form 3468. See the Instructions for Form • The alternative fuel vehicle refueling
lines 20a and 20b (investment income and 3468 for details. property credit. See section 30C(e)(5).
expenses) in box 20 of Schedule K-1 using Recapture of low-income housing credit • The qualified plug-in electric drive motor
codes A and B, respectively. (codes F and G). If recapture of part or all vehicles credit. See section 30D(f)(5).
If there are other items of investment of the low-income housing credit is required Look-back interest—completed
income or expense included in the amounts because (a) the prior year qualified basis of long-term contracts (code J). If the
that are required to be passed through a building decreased or (b) the partnership partnership is closely held (defined in section
separately to the partners on Schedule K-1, disposed of a building or part of its interest in 460(b)(4)) and it entered into any long-term
such as net short-term capital gain or loss, a building, see Form 8611, Recapture of contracts after February 28, 1986, that are
net long-term capital gain or loss, and other Low-Income Housing Credit. Complete lines accounted for under either the percentage of
portfolio gains or losses, give each partner a 1 through 7 of Form 8611 to determine the completion-capitalized cost method or the
statement identifying these amounts. amount of credit to recapture. Use code F on percentage of completion method, it must
Schedule K-1 to report recapture of the attach a statement to Form 1065 showing
low-income housing credit from a section the information required in items (a) and (b)
Line 20c. Other Items and 42(j)(5) partnership. Use code G to report of the instructions for lines 1 and 3 of Part II
Amounts recapture of any other low-income housing of Form 8697. It must also report the
credit. See the instructions for lines 15a and amounts for Part II, lines 1 and 3, to its
Report the following information on a
15b, earlier, for more information. partners. See the Instructions for Form 8697
statement attached to Form 1065. On
Schedule K-1, enter the appropriate code in If a partner's ownership interest in a for more information.
box 20 for each information item followed by TIP building decreased because of a Look-back interest—income forecast
an asterisk in the left-hand column of the transaction at the partner level, the method (code K). If the partnership is
entry space (for example,“C*”). In the partnership must provide the necessary closely held (defined in section 460(b)(4))
right-hand column, enter “STMT.” The codes information to the partner to enable the and it depreciated certain property placed in
are provided for each information category. partner to figure the recapture. service after September 13, 1995, under the

-44- Instructions for Form 1065 (2018)

income forecast method, it must attach to See Regulations section 1.179-1(e) for Unrelated business taxable income
Form 1065 the information specified in the details. (code V). Report any information a partner
instructions for Form 8866, line 2, for the 3rd that is a tax-exempt organization may need
Interest expense for corporate partners
and 10th tax years beginning after the tax to figure its share of unrelated business
(code N). Report as an information item
year the property was placed in service. It taxable income under section 512(a)(1) (but
each corporate partner's distributive share of
must also report the line 2 amounts to its excluding any modifications required by
the total amount of interest expense reported
partners. See the Instructions for Form 8866 paragraphs (8) through (15) of section
elsewhere on this return. A corporate
for more details. 512(b)). Partners are required to notify the
partner's distributive share of interest
Dispositions of property with section 179 income, interest expense, and partnership partnership of their tax-exempt status. See
deductions (code L). This represents gain liabilities are treated as income, expense, Form 990-T, Exempt Organization Business
or loss on the sale, exchange, or other and liabilities of the corporation for purposes Income Tax Return, and Pub. 598, Tax on
disposition of property for which a section of the limitation on the deduction for interest Unrelated Business Income of Exempt
179 deduction has been passed through to under section 163(j). Organizations, for more information.
partners. The partnership must provide all Precontribution gain (loss) (code W). If
Section 453(l)(3) information (code O).
the following information related to such the partnership distributed any section
Supply any information needed by a partner
dispositions (see the instructions for line 6, 704(c) property to any partner other than
to figure the interest due under section 453(l)
earlier). the contributing partner, and the date of the
(3). If the partnership elected to report the
• Description of the property. dispositions of certain timeshares and distribution was within 7 years of the date the
• Date the property was acquired and residential lots on the installment method, section 704(c) property was contributed to
placed in service. the partnership, the distribution must be
each partner's tax liability must be increased
• Date of the sale or other disposition of the by the partner's distributive share of the treated as if it were a sale by the contributing
property. partner taking place on the date of the
interest on tax attributable to the installment
• The partner's share of the gross sales payments received during the tax year. distribution. Section 704(c) property is
price or amount realized. property that had a fair market value which
• The partner's share of the cost or other Section 453A(c) information (code P). was either greater or less than the
basis plus expense of sale (reduced as Supply any information needed by a partner contributing partner's adjusted basis at the
explained in the instructions for Form 4797, to figure the interest due under section time the property was contributed to the
line 21). 453A(c). If an obligation arising from the partnership. See Dispositions of Contributed
• The partner's share of the depreciation disposition of property to which section 453A Property, earlier, for more information. If the
allowed or allowable, determined as applies is outstanding at the close of the partnership made such a distribution during
described in the instructions for Form 4797, year, each partner's tax liability must be its tax year, attach a statement to the
line 22, but excluding the section 179 increased by the tax due under section contributing partner's Schedule K-1 that
deduction. 453A(c) on the partner's distributive share of provides the following information.
• The partner's share of the section 179 the tax deferred under the installment • The amount of the gain or loss that would
deduction (if any) passed through for the method. have been allocated to the contributing
property and the partnership's tax year(s) in partner if the partnership had sold the
Section 1260(b) information (code Q).
which the amount was passed through. section 704(c) property at its fair market
Supply any information needed by a partner
• If the disposition is due to a casualty or to figure the interest due under section value at the time of the distribution. See
theft, a statement indicating so, and any section 704(c)(1)(B) for details.
1260(b). If the partnership had gain from
additional information needed by the partner. • The character of the gain or loss which
certain constructive ownership transactions,
• For an installment sale made during the each partner's tax liability must be increased would have resulted if the partnership had
partnership's tax year, any information the sold the section 704(c) property to the
by the partner's distributive share of interest
partner needs to complete Form 6252. The distributee partner.
due on any deferral of gain recognition. See
partnership also must separately report the
section 1260(b) for details, including how to Enter code W in box 20 of Schedule K-1
partner's share of all payments received for
figure the interest. with an asterisk (W*) and enter “STMT,” and
the property in future tax years. (Installment
payments received for sales made in prior attach the required statement.
Interest allocable to production expendi-
tax years should be reported in the same tures (code R). Supply any information Section 108(i) information (code X).
manner used in prior tax years.) See the needed by a partner to properly capitalize Report the following.
Instructions for Form 6252 for details. interest as required by section 263A(f). See • For the deferred cancellation of debt
Section 263A uniform capitalization rules, (COD) income, report the partner's deferred
Recapture of section 179 deduction
earlier, for more information. amount that has not been included in income
(code M). This amount represents
recapture of section 179 deduction if in the current or prior tax years.
CCF nonqualified withdrawal (code S).
business use of the property dropped to 50% Report nonqualified withdrawals by the • For the deferred original issue discount
or less before the end of the recapture (OID) deduction, report the partner's share of
partnership from a capital construction fund
period. If the business use of any property the partnership's OID deduction deferred
to partners. See Pub. 595.
(placed in service after 1986) for which a under section 108(i)(2)(A)(i) that has not
section 179 deduction was passed through Depletion information—oil and gas (code been deducted in the current or prior tax
to partners dropped to 50% or less (for a T). Report gross income and other years.
reason other than disposition), the information relating to oil and gas well • For the section 752(b) distribution, report
partnership must provide all the following properties to partners to allow them to figure the partner's share of the deferred section
information. the depletion deduction for oil and gas well 752 amount that is treated as a distribution of
properties. Allocate to each partner a money to the partner under section 752 in
• The partner's distributive share of the
original basis and depreciation allowed or proportionate share of the adjusted basis of the current tax year.
allowable (not including the section 179 each partnership oil or gas property. See • For the deferred section 752(b)
deduction). section 613A(c)(7)(D) for details. distribution, report the partner's deferred
• The partner's distributive share of the The partnership cannot deduct depletion section 752 amount remaining as of the end
section 179 deduction (if any) passed on oil and gas wells. Each partner must of the current tax year.
through for the property and the determine the allowable amount to report on Net investment income (code Y). Use
partnership's tax year(s) in which the amount his or her return. See Pub. 535 for more code Y to report any information that may be
was passed through. information. relevant for partners to figure their net
investment income tax when the information

Instructions for Form 1065 (2018) -45-

isn't otherwise identifiable elsewhere on entity-by-entity basis (to the extent such investment income under section 1411(c)(1)
Schedule K-1. Attach a statement that shows information isn't otherwise identifiable (A)(ii).
a description and dollar amount of each elsewhere on Schedule K-1).
Section 1291 funds. In the case of stock of
relevant item. • Section 951(a) inclusions. PFICs directly or indirectly owned by the
Examples of items reported using code Y • Section 951A inclusions. partnership with respect to which direct or
may include the following. • Section 1293(a)(1)(A) inclusions. indirect partners are subject to section 1291,
• Net rental real estate income reported on • Section 1293(a)(1)(B) inclusions. the partnership must provide the following
Form 1065, Schedule K, line 2, and other net • Section 959(d) distributions subject to information (to the extent such information
rental income reported on Form 1065, section 1411.
isn't otherwise identifiable elsewhere on
Schedule K, line 3c, derived from a section • Section 1293(c) distributions subject to Schedule K-1) on an entity-by-entity basis.
212 for-profit activity (and not from a section section 1411.
• Amount of gain or loss derived from • Excess distributions made by a PFIC for
162 trade or business). which a partner is subject to section 1291.
• Gains and losses from dispositions of dispositions of the stock of CFCs and QEFs
that is taken into account for section 1411
• Gains derived from the disposition of
assets attributable to a section 212 for-profit stock of a PFIC for which a partner is subject
activity (and not from a section 162 trade or purposes.
to section 1291.
business). • Amounts that are derived from the
• Gain reported on the installment sale disposition of the stock of CFCs and QEFs Qualified Business Income (QBI) Deduc-
basis (or attributable to a private annuity) that and included in income as a dividend under tion (codes Z through AD). For tax years
is attributable to the disposition of property section 1248 for section 1411 purposes. beginning after 2017, individuals, estates,
held in a trade or business. In the case of stock of CFCs and QEFs and trusts may be entitled to a deduction of
• Gain or loss from the disposition of a directly or indirectly owned by the up to 20% of their qualified business income
partnership interest, but only if such partnership for which an election under (QBI) from a trade or business, including
partnership was engaged, directly or Regulations section 1.1411-10(g) is in effect, income from a pass-through entity, but not
indirectly, in one or more trades or the partnership must provide the following from a C corporation, plus 20% of qualified
businesses, and at least one of those trades information (to the extent such information real estate investment trust (REIT) dividends
or businesses wasn't trading in financial isn't otherwise identifiable elsewhere on and qualified publicly traded partnership
instruments or commodities. Schedule K-1) on either an aggregate basis (PTP) income. The deduction is subject to
• The partner’s distributive share of interest or an entity-by-entity basis. multiple limitations such as the type of trade
income, or interest expense, which is • Section 951(a) inclusions. or business, the taxpayer's taxable income,
attributable to a loan between the • Section 951A inclusions. the amount of W-2 wages paid with respect
partnership and the partner (self-charged • Section 1293(a)(1)(A) inclusions. to the trade or business, and the unadjusted
interest). • Section 1293(a)(1)(B) inclusions. basis immediately after acquisition of
• If the partnership received a Form 1065, qualified property held by the trade or
In the case of stock of CFCs and QEFs business. The deduction can be taken in
Schedule K-1, the detail and amounts directly or indirectly owned by the
reported to the partnership on code Y. addition to the standard or itemized
partnership with respect to which the deductions. For more information, see
• If the partnership received a Form 1065-B, partnership is engaged in a trade or business
Schedule K-1, the detail and amounts section 199A and Pub. 535, Business
described in section 1411(c)(2), the Expenses.
reported to the partnership. partnership must provide the following
• If the partnership received a Form 1041, information (to the extent such information Schedule K-1. In the case of a
Schedule K-1, the amount of the adjustment isn't otherwise identifiable elsewhere on the partnership, the QBI deduction is determined
reported. Schedule K-1) on either an aggregate or an at the partner level. To allow partners to
• Guaranteed payments (reported on Form entity-by-entity basis, or may aggregate this correctly figure their QBI deduction, the
1065, Schedule K, line 4) unrelated to information with other income derived by the partnership must attach a statement to its
services, such as for the use of capital or partnership that is net investment income Schedules K-1, separately identifying each
attributable to section 736(a)(2) payments for under section 1411(c)(1)(A)(ii). trade or business and identifying any
unrealized receivables or goodwill. • Section 951(a) inclusions. specified service trade or business.
• In the case of a common trust fund, any • Section 951A inclusions.
items of income or loss that may be taken A partnership engaged in more than one
• Section 1293(a)(1)(A) inclusions. trade or business may choose to aggregate
into account in figuring the participant’s net • Section 1293(a)(1)(B) inclusions.
investment income (other than qualified multiple trades or businesses into a single
dividends, and short-term and long-term Section 1296 Mark-to-market PFICs. In trade or business for purposes of section
capital gains). the case of stock of PFICs directly or 199A if it meets the following requirements.
In addition, Regulations section 1.1411-10 indirectly owned by the partnership for which 1. The partnership directly or indirectly
provides special rules for stock of controlled an election under section 1296 is in effect, owns 50% or more of each trade or business
foreign corporations (CFCs) and passive the partnership must provide the following for a majority of the tax year, including the
foreign investment companies (PFICs) information (to the extent such information last day of the tax year, and all trades or
owned by the partnership. If the partnership isn't otherwise identifiable elsewhere on businesses use the same tax year end;
owns directly or indirectly stock of a CFC or Schedule K-1) on either an aggregate basis
2. None of the trades or businesses is a
PFIC, then additional reporting may be or an entity-by-entity basis (except as
specified service trade or business; and
required under code Y. provided below).
• Amounts included in income under 3. The trades or businesses to be
CFCs and QEFs. In the case of stock of section 1296(a)(1). aggregated meet at least 2 of the following 3
CFCs and QEFs directly or indirectly owned • Amounts deducted from income under factors.
by the partnership, the partnership must section 1296(a)(2).
provide the name and EIN (if one has been • They provide products, property, or
issued) for each CFC and QEF the stock of In the case of PFIC stock owned directly services that are the same or that are
which is owned by the partnership for which or indirectly by the partnership for which an customarily offered together.
an election under Regulations section election under section 1296 is in effect and • They share facilities or share significant
1.1411-10(g) is not in effect and for which with respect to which the partnership is centralized business elements, such as
the partnership isn't engaged in a trade or engaged in a trade or business described in personnel, accounting, legal, manufacturing,
business described in section 1411(c)(2). section 1411(c)(2), the partnership may purchasing, human resources, or information
For each of these entities, the partnership aggregate this information with other income technology resources.
must provide the following information on an derived by the partnership that is net

-46- Instructions for Form 1065 (2018)

 • They are operated in coordination with, or • Income, loss, or deductions from notional an attached statement. Do not sum the
reliance upon, one or more of the businesses principal contracts under section 954(c)(1) amounts from multiple trades or businesses
in the aggregated group. (F). that are not aggregated together into a single
If the partnership chooses to aggregate • Annuities (unless received in connection number on Schedule K-1 for reporting
multiple trades or businesses, it must report with the trade or business). purposes.
the aggregation by filling out • Guaranteed payments received by the
Schedule B—Aggregation of Business entity. However, amounts paid as Determining the partnership's
Operations, under Worksheet 12-A Specific guaranteed payments reduce the amount of qualified trades or businesses. The
Instructions, in Pub. 535. However, since a QBI passed through from the partnership to partnership's qualified trades and
partnership can’t claim the deduction, it can’t its partners. businesses include its section 162 trades or
enter the total of Schedule B, line 4, on • Payments received by the entity for businesses, except for specified service
Schedule C or Part II and IV of Worksheet services rendered to a partnership under trades or businesses. A section 162 trade or
12-A. Instead, the partnership must attach a section 707(a). However, amounts paid as business generally includes any activity
copy of Schedule B to each of its partners’ payments for services rendered to a carried on to make a profit. For more
Schedules K-1 (Form 1065). Each partner’s partnership under section 707(a) reduce the information on what qualifies as a trade or
Schedule K-1 (Form 1065) will show the amount of QBI passed through from the business, see Pub. 535.
partner’s distributive share so each partner partnership to its partners. Specified service trades or
can properly report the aggregation on the • Qualified REIT dividends. businesses excluded from qualified
partner’s income tax return. • Qualified PTP income. trades or businesses. Specified service
The partnership's aggregations must be W-2 wages from qualified trade or busi- trades or businesses are generally excluded
reported consistently for all subsequent nesses (Code AA). The W-2 wages from the definition of a qualified trade or
years, unless there is a change in facts and include amounts paid to employees under business. A specified service trade or
circumstances that disqualify the section 6051(a)(3) and (8). If the partnership business is any trade or business providing
aggregation. Schedule B must be completed conducts more than one trade or business, it services in the fields of health, law,
each year to show the partnership's trade or must allocate the W-2 wages among its accounting, actuarial science, performing
business aggregations. Failure to disclose trades or business. See Notice 2018-64 for arts, consulting, athletics, financial services,
the aggregations can cause them to be more information. brokerage services, or any other trade or
disaggregated. business where the principal asset is the
Unadjusted basis on acquisition of quali- reputation or skill of one or more of its
The partnership must attach the fied property (code AB). The unadjusted
Schedule B to each partner’s Schedule K-1 employees. In addition, the trade or business
basis of qualified property is figured by of investing and investment management,
(Form 1065), along with a statement showing adding unadjusted basis of all qualified
the partner’s distributive share from the trading or dealing in securities, partnership
assets immediately after acquisition. interests, or commodities is a specified trade
Schedule B. The statement must show the Qualified property includes all tangible
QBI, W-2 wages, and UBIA of qualified or business.
property subject to depreciation under
property for all aggregated trades or section 167 that is held and used by the Exceptions. If the partner's taxable
businesses so the partners can properly trade or business during the tax year, for income is equal to or less than the threshold
apply the W-2 wage and UBIA limitations. which the depreciable period has not ended. of $157,500 ($315,000 if married filing
If the partnership directly or indirectly The depreciable period ends on the later of jointly), the specified service items are
owns an interest in another passthrough 10 years after the property is placed in treated as a qualified trade or business. If the
entity that aggregates multiple trades or service or the last day of the full year for the partner's taxable income is between
businesses, it must attach a copy of the applicable recovery period under section $157,501 and $207,500 ($315,001 and
passthrough entity’s aggregation. The 168. $415,000 if married filing jointly), an
partnership can’t subtract from the trades or applicable percentage of the specified
businesses aggregated by the passthrough Section 199A REIT dividends (code AC). service trade or business is treated as a
entity, but can add additional trades or Qualified REIT dividends include any qualified trade or business. Therefore, the
businesses to the aggregation, assuming the dividend the partnership receives from a real Schedule K-1 issued to each partner must
rules above are followed. estate investment trust held for more than 45 separately identify each trade or business
days and for which the payment is not and identify any specified service trade or
For each trade or business or obligated to someone else and that is not
aggregation, the partnership must state, business.
capital gain dividend under section 857(b)(3)
using the same box numbers as shown on and is not a qualified dividend under section Excess taxable income (code AE). If the
Schedule K-1, the amount of codes Z 1(h)(11) plus any qualified REIT dividends partnership is required to file Form 8990, it
through AD, if applicable. from a regulated investment company (RIC). may determine it has excess taxable income.
Section 199A QBI (code Z). Qualified If so, enter the amount from Form 8990, Part
Qualified publicly traded partnership II, line 36 for excess taxable income.
business income includes items of income, (PTP) income (code AD). Qualified PTP
gain, deduction, and loss from the income includes the partnership's share of Schedule K-1. Enter the partner’s
partnership's trades or businesses. qualified items of income, gain, deduction, amount of excess taxable income. The
However, qualified business income doesn't and loss from a publicly traded partnership. It partner will enter the amount on Form 8990,
include any of the following. also may include gain or loss recognized on Schedule A, line 43(f) if the partner is
• Investment items such as capital gains or the disposition of the partnership interest that required to file Form 8990.
losses, dividends, or interest income. is not treated as a capital gain or loss.
• Wage income. Excess business interest income (code
• Foreign income that is not effectively If the partnership has only one trade or AF). If the partnership is required to file
connected with the conduct of business business, the partnership enters each Form 8990, it may determine it has excess
within the United States. For more partner’s distributive share directly on that business interest income. If so, enter the
information, go to IRS.gov and enter partner’s Schedule K-1 for codes Z through amount from Form 8990, Part II, line 37 for
"effectively connected income" in the search AD. excess business interest income.
box. If the partnership has more than one trade Schedule K-1. Enter the partner’s
• Commodities transaction or foreign or business or aggregation, enter an asterisk amount of excess business interest income.
currency gains or losses described in section (*) on each partner's Schedule K-1 next to The partner will enter the amount on Form
954(c)(1)(C) or (D). code Z and enter “STMT” in the right column 8990, Schedule A, line 43(g) if the partner is
to indicate that the information is provided on required to file Form 8990.

Instructions for Form 1065 (2018) -47-

Gross receipts for section 59A(e) (code 2007-86, 2007-46 I.R.B. 990; and Notice Form W-8BEN or Form W-8BEN-E (within
AG). Provide the partner's share of gross 2008-113, 2008-51 I.R.B. 1305, for the meaning of Regulations section
receipts. If the partner is a foreign person, additional information on transitional and 1.1446-2(b)(2)(iii)) on which the corporation
only gross receipts effectively connected relief rules. claims an exemption from U.S. tax by
with the conduct of a trade or business within • Noncash charitable contributions. If the operation of an income tax treaty or
the United States shall be taken into partnership made a noncash charitable reciprocal agreement on the grounds that
account. contribution, report the partner’s share of the none of the income is attributable to a
partnership’s adjusted basis of the property permanent establishment of the partner.
Other information (code AH). Report the for basis limitation purposes. 2. The partnership doesn't allocate any
following to each partner. • Any income or gain reported on lines 1 effectively connected income to the partner
• Any information a partner that is a publicly through 11 of Schedule K that qualifies as (foreign corporation or partnership) and the
traded partnership may need to determine if inversion gain, if the partnership is an partnership receives a written statement from
it meets the 90% qualifying income test of expatriated entity or is a partner in an the partner (corporation or partnership)
section 7704(c)(2). Partners are required to expatriated entity. For details, see section indicating that the information isn't needed to
notify the partnership of their status as a 7874. Attach a statement to Form 1065 that determine its (or its direct or indirect
publicly traded partnership. shows the amount of each type of income or partner(s)) U.S. federal income tax liabilities.
• If a partner that is a corporation elected gain included in the inversion gain. The • The partner's distributive share of any
under section 168(k)(4) to accelerate the partnership must report each partner's conservation reserve program payments
corporation's pre-2006 AMT credit distributive share of the inversion gain in made to the partnership.
carryforward instead of bonus depreciation, box 20 of Schedule K-1 using code AH. • If the partnership has deductions
it’s required to notify the partnership in Attach a statement to Schedule K-1 that attributable to a farming business and
writing of this election so the partnership can shows the partner's distributive share of the receives an applicable subsidy. The
adjust the electing corporate partner's amount of each type of income or gain partnership should report the aggregate
distributive share of partnership items that included in the inversion gain. gross income or gain and the aggregate
include bonus depreciation. See Rev. Proc. • Qualifying advanced coal project deductions from the farming business and
2009-16, 2009-6 I.R.B. 449, as modified by property. Attach a statement to Schedule K-1 any information the partners need to comply
Rev. Proc. 2009-33, 2009-29 I.R.B. 150, for showing the partner's distributive share of with the limitation on excess farm losses of
more information about the written the amounts that the partner will use when certain taxpayers under section 461(j).
notification that the electing corporate figuring the amounts to report on lines 5a • If a partnership is a trader in securities,
partner must provide the partnership. The through 5c of the partner's Form 3468. See commodities, or both, and has properly
partnership is required to refigure the the Instructions for Form 3468 for details. elected under section 475(f) to mark to
partner's distributive share of the • Qualifying gasification project property. market the securities, the commodities, or
depreciation on any eligible qualified Attach a statement to Schedule K-1 showing both, the partnership should report ordinary
property or extension property placed in the partner's distributive share of the gain or loss from the securities or
service by the partnership to eliminate bonus amounts that the partner will use when commodities (or both securities and
depreciation and use the straight line figuring the amounts to report on lines 6a commodities) trading activities separately
depreciation method for such property. On and 6b of the partner's Form 3468. See the from any other ordinary gain or loss.
an attached statement, list each partnership Instructions for Form 3468 for details. • Transfer of the partnership interest by a
item that includes bonus depreciation and • Qualifying advanced energy project foreign partner. If a partner that is a
show the electing corporate partner's credit. Attach a statement to Schedule K-1 nonresident alien or foreign corporation has
adjustment for each item that results from the showing the partner's distributive share of gain or loss from the sale, exchange, or other
refigured depreciation and elimination of the the amounts that the partner will use when disposition of its partnership interest,
bonus depreciation. See section 168(k)(4) figuring the amount to report on line 7 of the provide, on an attached statement, any
for more information. partner's Form 3468. See the Instructions for information that the partner may need to
• If the partnership participates in a Form 3468 for details. determine effectively connected gain or loss
transaction that must be disclosed on Form • The information needed to complete under section 864(c)(8).
8886, both the partnership and its partners Schedule P (Form 1120-F), List of Foreign • If the partnership is a section 721(c)
may be required to file Form 8886. The Partner Interests in Partnerships, on an partnership, line 20c must include the
partnership must determine if any of its attached statement for a partner that is (a) a amounts relating to any remedial items made
partners are required to disclose the corporation (identified as a foreign partner under the remedial allocation method
transaction and provide those partners with under Regulations section 1.1446-1(c)(3)); (described in Regulations section 1.704-3(d)
information they will need to file Form 8886. or (b) a partnership (domestic or foreign) if and Temporary Regulations section
This determination is based on the you know, or have reason to know, that one 1.704-3T(d)(5)(iii)) with respect to section
category(s) under which a transaction or more of the partners is a foreign 721(c) property. Enter a separate code AH
qualified for disclosures. See Form 8886 and corporation. on Schedule K-1 line 20 for each amount for
its instructions for details. If the partnership allocates effectively items allocated to the partner. For the U.S.
• Compensation to partners deferred under connected income to the partner, provide the transferor, enter a separate code AH, if any,
a section 409A nonqualified deferred information needed to complete lines 1 for the total remedial income allocated to the
compensation plan that doesn't meet the through 10, 13, 14, 15b, 17a, 17b, and 18 of U.S. transferor, total gain recognized due to
requirements of section 409A. Include in this Schedule P (Form 1120-F). If the partnership an acceleration event and/or total gain
amount any earnings on these deferrals. doesn't allocate effectively connected recognized due to a section 367 transfer
This amount must also be included on line 4 income to the partner, provide the reflected on Schedule G (Form 8865), Part II,
of Schedule K, Guaranteed payments. For information needed to complete lines 13, 14, columns (c), (d), and (e), respectively. For all
details, see the regulations under section and 18 of Schedule P (Form 1120-F). The other partners of the section 721(c)
409A. These regulations don't provide information must be provided in a format partnership, enter a separate code AH for
guidance on the application of section 409A which references the specific line numbers the total amount of remedial items allocated
to arrangements between partnerships and on Schedule P for which the information is to such partner relating to section 721(c)
partners. For interim guidance on such provided. For more information, see the property. See Temporary Regulations
arrangements, see Q&A-7 in Notice 2005-1, Instructions for Schedule P (Form 1120-F). sections 1.721(c)-3T and 1.721(c)-6T.
2005-2 I.R.B. 274, and the information Exceptions. The statement isn't required in • The partnership is a patron of an
provided in the preamble to these the following situations. agricultural or horticultural cooperative.
regulations (T.D. 9321). Also see Notice 1. The direct or indirect foreign corporate Attach a statement to Schedule K-1 showing
2006-79, 2006-43 I.R.B. 763; Notice partner provides the partnership with a valid the partner’s distributive share of the

-48- Instructions for Form 1065 (2018)

qualified business income allocable to distributed exempt-interest dividends during
qualified payments received from the Schedule L. Balance the tax year of the partnership.
cooperative so the partner may compute the
patron reduction under section 199A(b)(7).
Sheets per Books Line 7a. Loans to Partners (or
Also include any pass-through domestic Schedules L, M-1, and M-2 aren't Persons Related to Partners)
production activities deduction under section TIP required to be completed if the Include on this line loans to partners or
199A(g)(2). partnership answered “Yes” to persons related to partners. Persons are
• Any other information the partners need to question 4 of Schedule B. related if they have a relationship specified in
prepare their tax returns.
The balance sheets should agree with the section 267(b) or 707(b). Amounts included
partnership's books and records. Attach a here should not be included elsewhere on
Analysis of Net Income statement explaining any differences. There lines 1 through 13.
are additional requirements for completing
(Loss) Schedule L for partnerships that are required
Line 14. Total Assets
For each type of partner shown, enter the to file Schedule M-3 (see the Instructions for Generally, total assets at the beginning of the
portion of the amount shown on line 1 that Schedule M-3 for details). year (Schedule L, line 14, column (b)) must
was allocated to that type of partner. Foreign equal total assets at the close of the prior tax
government partners are treated as Partnerships reporting to the Interstate year (Schedule L, line 14, column (d)). If total
corporate partners. Report all amounts for Commerce Commission (ICC) or to any assets at the beginning of the year don't
LLC members on the line for limited partners. national, state, municipal, or other public equal total assets at the close of the prior
The sum of the amounts shown on line 2 officer may send copies of their balance year, attach a statement explaining the
must equal the amount shown on line 1. In sheets prescribed by the ICC or national, difference.
addition, the amount on line 1 of Analysis of state, or municipal authorities, as of the
beginning and end of the tax year, instead of For purposes of measuring total assets at
Income (Loss) must equal the amount on
completing Schedule L. However, the end of the year, the partnership's assets
line 9, Schedule M-1 (if the partnership is
statements filed under this procedure must may not be netted against or reduced by
required to complete Schedule M-1). If the
contain sufficient information to enable the partnership liabilities. In addition, asset
partnership files Schedule M-3, the amount
IRS to reconstruct a balance sheet similar to amounts may not be reported as a negative
on line 1 of Analysis of Income (Loss) must
that contained on Form 1065 without number. If the partnership has an interest in
equal the amount in column (d) of line 26,
contacting the partnership during another partnership and uses a tax-basis
Part II of Schedule M-3.
processing. method for Schedule L, it must show as an
In classifying partners who are individuals asset the adjusted basis of its interest in the
as “active” or “passive,” the partnership All amounts on the balance sheet should other partnership and separately show as a
should apply the rules below. In applying be reported in U.S. dollars. If the liability its share of the other partnership's
these rules, a partnership should classify partnership's books and records are kept in a liabilities (which are included in the
each partner to the best of its knowledge and foreign currency, the balance sheet should computation of its adjusted basis). See the
belief. It is assumed that in most cases the be translated in accordance with U.S. Partner's Instructions for Schedule K-1 for
level of a particular partner's participation in generally accepted accounting principles details on how to figure the adjusted basis of
an activity will be apparent. (GAAP). a partnership interest. If Schedule L is
non-tax-basis, investment in a partnership
1. If the partnership's principal activity is Exception. If the partnership or any may be shown as appropriate under the
a trade or business, classify a general qualified business unit of the partnership non-tax-basis accounting method of the
partner as “active” if the partner materially uses the U.S. dollar approximate separate partnership including, if required by the
participated in all partnership trade or transactions method, Schedule L should non-tax-basis accounting method of the
business activities; otherwise, classify a reflect the tax balance sheet prepared and partnership, the equity method of accounting
general partner as “passive.” translated into U.S. dollars according to for investments, but must be shown as a
2. If the partnership's principal activity Regulations section 1.985-3(d), and not a non-negative amount.
consists of a working interest in an oil or gas U.S. GAAP balance sheet.
well, classify a general partner as “active.” Example. Partnership A prepares a
Partnerships Required To File tax-basis Schedule L and is a general
3. If the partnership's principal activity is
a rental real estate activity, classify a general Schedule M-3 partner in Partnership B, a general
partnership. Partnership A's adjusted basis
partner as “active” if the partner actively For partnerships required to file in Partnership B at the end of the tax year is
participated in all of the partnership's rental Schedule M-3, the amounts reported on $16 million. Partnership A's share of
real estate activities; otherwise, classify a Schedule L must be amounts from financial Partnership B's liabilities is $20 million, which
general partner as “passive.” statements used to complete Schedule M-3. is included in the $16 million adjusted basis
4. Classify as “passive” all partners in a If the partnership prepares non-tax-basis amount. On its Schedule L, Partnership A
partnership whose principal activity is a financial statements, Schedule M-3 and must report $16 million on line 8 as the
rental activity other than a rental real estate Schedule L must report non-tax-basis amount of its investment asset in Partnership
activity. financial statement amounts. If the B and report on line 20 its $20 million share
partnership doesn't prepare non-tax-basis of Partnership B's liabilities. These amounts
5. If the partnership's principal activity is financial statements, Schedule L must be
a portfolio activity, classify all partners as cannot be netted on Schedule L.
based on the partnership's books and
“active.” records and may show tax-basis balance Line 18. All Nonrecourse Loans
6. Classify as “passive” all limited sheet amounts if the partnership's books and Nonrecourse loans are those liabilities of the
partners in a partnership whose principal records reflect only tax-basis amounts. partnership for which no partner bears the
activity is a trade or business or rental
activity. Line 5. Tax-Exempt Securities economic risk of loss. If the partnership's
nonrecourse liabilities include its share of the
7. If the partnership cannot make a Include on this line: liabilities of another partnership, the
reasonable determination whether a 1. State and local government partnership's share of those liabilities must
partner's participation in a trade or business obligations, the interest on which is be reflected on line 18.
activity is material or whether a partner's excludable from gross income under section
participation in a rental real estate activity is 103(a); and
active, classify the partner as “passive.” 2. Stock in a mutual fund or other
regulated investment company that

Instructions for Form 1065 (2018) -49-

Line 19a. Loans From Partners amounts paid for insurance that constitutes records. The amounts on Schedule M-2
medical care for a partner, a partner's should equal the total of the amounts
(or Persons Related to spouse, a partner's dependents, and a reported in item L of all the partners'
Partners) partner's children under age 27 who aren't Schedules K-1.
Include on this line loans from partners or dependents).
persons related to partners. Persons are The partnership may use tax-basis
related if they have a relationship specified in
Line 4b. Travel and amounts or apply the rules in Regulations
section 267(b) or 707(b). Amounts included Entertainment section 1.704-1(b)(2)(iv) to determine the
here should not be included elsewhere on Include the following on this line. partners' capital accounts in Schedule M-2
and item L of the partners' Schedules K-1. If
lines 15 through 21. • Entertainment expenses not deductible
under section 274(a). the beginning and ending capital accounts
Line 20. Other Liabilities • Non-entertainment related meal expenses reported under these rules differ from the
A partnership that is a partner in a tiered not deductible under section 274(n). amounts reported on Schedule L, attach a
statement reconciling any differences.
partnership must include as a liability on • Entertainment related meals.
line 20 the partner's share of the tiered • The part of business gifts over $25. See Line 2. Capital Contributed
partnership's liabilities to the extent they are section 274(b).
recourse liabilities to the partner. • Expenses of an individual allocable to During Year
conventions on cruise ships over $2,000. Include on line 2a the amount of money
See section 274(h)(2). contributed and on line 2b the amount of
Schedule M-1. • Employee achievement awards of property contributed by each partner to the
Reconciliation of Income non-tangible property or tangible property partnership as reflected on the partnership's
books and records.
over $400 ($1,600 if part of a qualified plan).
(Loss) per Books With See section 274(j).
Line 3. Net Income (Loss) per
Income (Loss) per Return • The cost of skyboxes.
• The part of the cost of luxury water travel Books
Schedule M-3 may be required expenses not deductible under section Enter on line 3 the net income (loss) shown
TIP instead of Schedule M-1. See Item J. 274(m). See section 274(m)(1)(A). on the partnership books used in maintaining
Schedule C and Schedule M-3, • Expenses for travel as a form of the partner's capital accounts for purposes of
earlier. See the Instructions for education. See section 274(m)(2). Schedule K-1.
Schedule M-3 for more information. • Nondeductible club dues. See section
274(a)(3). Line 6. Distributions
Line 2 • Other nondeductible travel and Line 6a. Cash. Enter the amount of money
entertainment expenses.
Report on this line income included on distributed to each partner by the
Schedule K, lines 1, 2, 3c, 5, 6a, 7, 8, 9a, 10, partnership. For purposes of line 6a, “money”
and 11 not recorded on the partnership's Schedule M-2. Analysis of includes marketable securities, as described
in section 731(c).
books this year. Describe each such item of
income. Attach a statement if necessary. Partners' Capital Accounts Line 6b. Property. Enter the amount of
Line 3. Guaranteed Payments property distributed to each partner by the
Show what caused the changes during the partnership as reflected on the partnership's
Include on this line guaranteed payments tax year in the partners' capital accounts as books and records. Include withdrawals from
shown on Schedule K, line 4 (other than reflected on the partnership's books and inventory for the personal use of a partner.

-50- Instructions for Form 1065 (2018)

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States.
You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect
the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may
become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required
by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of December
2018, for taxpayers filing 2018 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120S, 1120-SF, 1120-FSC, 1120-L, 1120-PC,
1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time burden is
broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses incurred by
taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and photocopying
costs, and tax preparation software costs. While these estimates 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
taxpayers filing Forms 1065, 1066, or 1120 and related forms is 280 hours, with an average cost of $5,146 per return. This average includes
all associated forms and schedules, across all preparation methods and taxpayer activities.
The average burden for taxpayers filing Forms 1065, 1066, and related attachments is about 290 hours and $5,800; the average burden for
taxpayers filing Form 1120 and associated forms is about 340 hours and $7,900; and the average for Forms 1120-REIT, 1120-RIC, 1120S,
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 Entities Taxed as Partnerships

Forms 1065, 1066, and all attachments
Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Partnerships 4.2 290 $5,800
Small 4.0 270 $4,400
Large* 0.2 610 $29,000
*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 Entities Taxed as Taxable Corporations

Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Taxable Corporations 2.0 340 $7,900
Small 1.9 380 $4,000
Large* 0.1 1,250 $69,100
*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 Entities Taxed as Pass-Through Corporations

Forms 1120-REIT, 1120-RIC, 1120S, and all attachments
Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer
All Pass-Through Corporations 5.0 245 $3,500
Small 4.9 240 $3,100
Large* 0.1 610 $30,800
*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. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we
would be happy to hear from you. You can send us comments from IRS.gov/formspubs. Click on “More Information” and then on “Give us
feedback.” Or you can write to the Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington,
DC 20224. Do not send the tax form to this address. Instead, see Where To File, earlier, near the beginning of the instructions.

Instructions for Form 1065 (2018) -51-

Codes for Principal Business Using the list of activities and codes below, determine
from which activity the business derives the largest
manufacturer and must use one of the manufacturing codes
(311110–339900).
Activity and Principal Product or percentage of its “total receipts.” Total receipts is defined
Once the Principal Business Activity is determined,
as the sum of gross receipts or sales (page 1, line 1a); all
Service other income (page 1, lines 4 through 7); income reported enter the six-digit code from the list below on page 1, item
on Schedule K, lines 3a, 5, 6a, and 7; income or net gain C. Also enter the business activity in item A and a brief
This list of Principal Business Activities and their associated description of the principal product or service of the
codes is designed to classify an enterprise by the type of reported on Schedule K, lines 8, 9a, 10, and 11; and
income or net gain reported on Form 8825, lines 2, 19, and business in item B.
activity in which it is engaged to facilitate the administration
of the Internal Revenue Code. These Principal Business 20a. If the business purchases raw materials and supplies
Activity Codes are based on the North American Industry them to a subcontractor to produce the finished product,
Classification System. but retains title to the product, the business is considered a

Agriculture, Forestry, Fishing 238900 Other Specialty Trade Contractors 327900 Other Nonmetallic Mineral Product 423500 Metal & Mineral (except
(including site preparation) Mfg Petroleum)
and Hunting Primary Metal Manufacturing 423600 Household Appliances & Electrical
Manufacturing & Electronic Goods
Crop Production 331110 Iron & Steel Mills & Ferroalloy Mfg
Food Manufacturing 423700 Hardware, & Plumbing & Heating
111100 Oilseed & Grain Farming 331200 Steel Product Mfg from Purchased
311110 Animal Food Mfg Steel Equipment & Supplies
111210 Vegetable & Melon Farming
(including potatoes & yams) 311200 Grain & Oilseed Milling 331310 Alumina & Aluminum Production & 423800 Machinery, Equipment, & Supplies
111300 Fruit & Tree Nut Farming 311300 Sugar & Confectionery Product Processing 423910 Sporting & Recreational Goods &
Mfg 331400 Nonferrous Metal (except Supplies
111400 Greenhouse, Nursery, &
Floriculture Production 311400 Fruit & Vegetable Preserving & Aluminum) Production & 423920 Toy & Hobby Goods & Supplies
Specialty Food Mfg Processing 423930 Recyclable Materials
111900 Other Crop Farming (including
tobacco, cotton, sugarcane, hay, 311500 Dairy Product Mfg 331500 Foundries 423940 Jewelry, Watch, Precious Stone, &
peanut, sugar beet & all other crop 311610 Animal Slaughtering & Processing Fabricated Metal Product Manufacturing Precious Metals
farming) 311710 Seafood Product Preparation & 332110 Forging & Stamping 423990 Other Miscellaneous Durable
Animal Production Packaging 332210 Cutlery & Handtool Mfg Goods
112111 Beef Cattle Ranching & Farming 311800 Bakeries, Tortilla & Dry Pasta Mfg 332300 Architectural & Structural Metals Merchant Wholesalers, Nondurable
112112 Cattle Feedlots 311900 Other Food Mfg (including coffee, Mfg Goods
112120 Dairy Cattle & Milk Production tea, flavorings & seasonings) 332400 Boiler, Tank, & Shipping Container 424100 Paper & Paper Products
112210 Hog & Pig Farming Beverage and Tobacco Product Mfg 424210 Drugs & Druggists' Sundries
Manufacturing 332510 Hardware Mfg 424300 Apparel, Piece Goods, & Notions
112300 Poultry & Egg Production
312110 Soft Drink & Ice Mfg 332610 Spring & Wire Product Mfg 424400 Grocery & Related Products
112400 Sheep & Goat Farming
312120 Breweries 332700 Machine Shops; Turned Product; & 424500 Farm Product Raw Materials
112510 Aquaculture (including shellfish &
finfish farms & hatcheries) 312130 Wineries Screw, Nut, & Bolt Mfg 424600 Chemical & Allied Products
112900 Other Animal Production 312140 Distilleries 332810 Coating, Engraving, Heat Treating, 424700 Petroleum & Petroleum Products
312200 Tobacco Manufacturing & Allied Activities
Forestry and Logging 424800 Beer, Wine, & Distilled Alcoholic
Textile Mills and Textile Product Mills 332900 Other Fabricated Metal Product Beverages
113110 Timber Tract Operations Mfg
113210 Forest Nurseries & Gathering of 313000 Textile Mills 424910 Farm Supplies
Machinery Manufacturing
Forest Products 314000 Textile Product Mills 424920 Book, Periodical, & Newspapers
333100 Agriculture, Construction, & Mining
113310 Logging Apparel Manufacturing Machinery Mfg 424930 Flower, Nursery Stock, & Florists'
Fishing, Hunting and Trapping 315100 Apparel Knitting Mills Supplies
333200 Industrial Machinery Mfg
114110 Fishing 315210 Cut & Sew Apparel Contractors 424940 Tobacco & Tobacco Products
333310 Commercial & Service Industry
114210 Hunting & Trapping 315220 Men's & Boys' Cut & Sew Apparel Machinery Mfg 424950 Paint, Varnish, & Supplies
Support Activities for Agriculture and Mfg 333410 Ventilation, Heating, 424990 Other Miscellaneous Nondurable
Forestry 315240 Women's, Girls' & Infants' Cut & Air-Conditioning, & Commercial Goods
115110 Support Activities for Crop Sew Apparel Mfg Refrigeration Equipment Mfg Wholesale Electronic Markets and Agents
Production (including cotton 315280 Other Cut & Sew Apparel Mfg 333510 Metalworking Machinery Mfg and Brokers
ginning, soil preparation, planting, 315990 Apparel Accessories & Other 333610 Engine, Turbine & Power 425110 Business to Business Electronic
& cultivating) Apparel Mfg Transmission Equipment Mfg Markets
115210 Support Activities for Animal Leather and Allied Product Manufacturing 333900 Other General Purpose Machinery 425120 Wholesale Trade Agents & Brokers
Production Mfg
115310 Support Activities For Forestry
316110 Leather & Hide Tanning & Retail Trade
Finishing Computer and Electronic Product
Manufacturing Motor Vehicle and Parts Dealers
Mining 316210 Footwear Mfg (including rubber &
441110 New Car Dealers
plastics) 334110 Computer & Peripheral Equipment
211120 Crude Petroleum Extraction Mfg 441120 Used Car Dealers
316990 Other Leather & Allied Product Mfg
211130 Natural Gas Extraction 334200 Communications Equipment Mfg 441210 Recreational Vehicle Dealers
Wood Product Manufacturing
212110 Coal Mining 334310 Audio & Video Equipment Mfg 441222 Boat Dealers
321110 Sawmills & Wood Preservation
212200 Metal Ore Mining 334410 Semiconductor & Other Electronic 441228 Motorcycle, ATV, & All Other Motor
321210 Veneer, Plywood, & Engineered
212310 Stone Mining & Quarrying Wood Product Mfg Component Mfg Vehicle Dealers
212320 Sand, Gravel, Clay, & Ceramic & 321900 Other Wood Product Mfg 334500 Navigational, Measuring, 441300 Automotive Parts, Accessories, &
Refractory Minerals Mining & Electromedical, & Control Tire Stores
Quarrying Paper Manufacturing Instruments Mfg Furniture and Home Furnishings Stores
212390 Other Nonmetallic Mineral Mining 322100 Pulp, Paper, & Paperboard Mills 334610 Manufacturing & Reproducing 442110 Furniture Stores
& Quarrying 322200 Converted Paper Product Mfg Magnetic & Optical Media
442210 Floor Covering Stores
213110 Support Activities for Mining Printing and Related Support Activities Electrical Equipment, Appliance, and
Component Manufacturing 442291 Window Treatment Stores
Utilities 323100 Printing & Related Support
Activities 335100 Electric Lighting Equipment Mfg 442299 All Other Home Furnishings Stores
221100 Electric Power Generation, Petroleum and Coal Products 335200 Major Household Appliance Mfg Electronics and Appliance Stores
Transmission & Distribution Manufacturing 443141 Household Appliance Stores
335310 Electrical Equipment Mfg
221210 Natural Gas Distribution 324110 Petroleum Refineries (including 443142 Electronics Stores (including
335900 Other Electrical Equipment &
221300 Water, Sewage & Other Systems integrated) Component Mfg Audio, Video, Computer, &
221500 Combination Gas & Electric 324120 Asphalt Paving, Roofing, & Camera Stores)
Transportation Equipment Manufacturing
Saturated Materials Mfg Building Material and Garden Equipment
Construction 324190 Other Petroleum & Coal Products
336100 Motor Vehicle Mfg and Supplies Dealers
Construction of Buildings Mfg 336210 Motor Vehicle Body & Trailer Mfg 444110 Home Centers
236110 Residential Building Construction Chemical Manufacturing 336300 Motor Vehicle Parts Mfg 444120 Paint & Wallpaper Stores
236200 Nonresidential Building 325100 Basic Chemical Mfg 336410 Aerospace Product & Parts Mfg 444130 Hardware Stores
Construction 325200 Resin, Synthetic Rubber, & 336510 Railroad Rolling Stock Mfg 444190 Other Building Material Dealers
Heavy and Civil Engineering Construction Artificial & Synthetic Fibers & 336610 Ship & Boat Building 444200 Lawn & Garden Equipment &
237100 Utility System Construction Filaments Mfg 336990 Other Transportation Equipment Supplies Stores
237210 Land Subdivision 325300 Pesticide, Fertilizer, & Other Mfg Food and Beverage Stores
Agricultural Chemical Mfg Furniture and Related Product
237310 Highway, Street, & Bridge 445110 Supermarkets & Other Grocery
Construction 325410 Pharmaceutical & Medicine Mfg Manufacturing (except Convenience) Stores
237990 Other Heavy & Civil Engineering 325500 Paint, Coating, & Adhesive Mfg 337000 Furniture & Related Product 445120 Convenience Stores
Construction 325600 Soap, Cleaning Compound, & Manufacturing
445210 Meat Markets
Specialty Trade Contractors Toilet Preparation Mfg Miscellaneous Manufacturing
445220 Fish & Seafood Markets
238100 Foundation, Structure, & Building 325900 Other Chemical Product & 339110 Medical Equipment & Supplies Mfg
Preparation Mfg 445230 Fruit & Vegetable Markets
Exterior Contractors (including 339900 Other Miscellaneous
framing carpentry, masonry, glass, Plastics and Rubber Products Manufacturing 445291 Baked Goods Stores
roofing, & siding) Manufacturing 445292 Confectionery & Nut Stores
238210 Electrical Contractors 326100 Plastics Product Mfg
Wholesale Trade 445299 All Other Specialty Food Stores
238220 Plumbing, Heating, & 326200 Rubber Product Mfg Merchant Wholesalers, Durable Goods 445310 Beer, Wine, & Liquor Stores
Air-Conditioning Contractors Nonmetallic Mineral Product 423100 Motor Vehicle & Motor Vehicle Health and Personal Care Stores
238290 Other Building Equipment Manufacturing Parts & Supplies
446110 Pharmacies & Drug Stores
Contractors 327100 Clay Product & Refractory Mfg 423200 Furniture & Home Furnishings
446120 Cosmetics, Beauty Supplies, &
238300 Building Finishing Contractors 327210 Glass & Glass Product Mfg 423300 Lumber & Other Construction Perfume Stores
(including drywall, insulation, Materials
painting, wallcovering, flooring, tile, 327300 Cement & Concrete Product Mfg 446130 Optical Goods Stores
423400 Professional & Commercial
& finish carpentry) 327400 Lime & Gypsum Product Mfg Equipment & Supplies 446190 Other Health & Personal Care
Stores

-52-
Codes for Principal Business Activity and Principal Product or Service (Continued)
Gasoline Stations Couriers and Messengers located under Management of Companies
(Holding Companies), below. Administrative and Support and
447100 Gasoline Stations (including 492110 Couriers
convenience stores with gas) Waste Management and
492210 Local Messengers & Local Delivery Real Estate and Rental and
Clothing and Clothing Accessories Stores Warehousing and Storage Remediation Services
448110 Men's Clothing Stores
Leasing
493100 Warehousing & Storage (except Administrative and Support Services
448120 Women's Clothing Stores lessors of miniwarehouses & Real Estate
561110 Office Administrative Services
448130 Children's & Infants' Clothing self-storage units) 531110 Lessors of Residential Buildings &
Dwellings (including equity REITs) 561210 Facilities Support Services
Stores Information 561300 Employment Services
448140 Family Clothing Stores 531120 Lessors of Nonresidential
Publishing Industries (except Internet) Buildings (except Miniwarehouses) 561410 Document Preparation Services
448150 Clothing Accessories Stores (including equity REITs) 561420 Telephone Call Centers
511110 Newspaper Publishers
448190 Other Clothing Stores 531130 Lessors of Miniwarehouses & 561430 Business Service Centers
511120 Periodical Publishers
448210 Shoe Stores Self-Storage Units (including equity (including private mail centers &
511130 Book Publishers REITs) copy shops)
448310 Jewelry Stores
511140 Directory & Mailing List Publishers 531190 Lessors of Other Real Estate 561440 Collection Agencies
448320 Luggage & Leather Goods Stores
511190 Other Publishers Property (including equity REITs)
Sporting Goods, Hobby, Book, and Music 561450 Credit Bureaus
Stores 511210 Software Publishers 531210 Offices of Real Estate Agents &
Brokers 561490 Other Business Support Services
451110 Sporting Goods Stores Motion Picture and Sound Recording (including repossession services,
Industries 531310 Real Estate Property Managers court reporting, & stenotype
451120 Hobby, Toy, & Game Stores services)
512100 Motion Picture & Video Industries 531320 Offices of Real Estate Appraisers
451130 Sewing, Needlework, & Piece (except video rental) 561500 Travel Arrangement & Reservation
Goods Stores 531390 Other Activities Related to Real
512200 Sound Recording Industries Estate Services
451140 Musical Instrument & Supplies 561600 Investigation & Security Services
Stores Broadcasting (except Internet) Rental and Leasing Services
451211 Book Stores 515100 Radio & Television Broadcasting 532100 Automotive Equipment Rental & 561710 Exterminating & Pest Control
Leasing Services
451212 News Dealers & Newsstands 515210 Cable & Other Subscription
Programming 532210 Consumer Electronics & 561720 Janitorial Services
General Merchandise Stores Appliances Rental 561730 Landscaping Services
Telecommunications
452200 Department Stores 532281 Formal Wear & Costume Rental 561740 Carpet & Upholstery Cleaning
517000 Telecommunications (including
452300 General Merchandise Stores, incl. paging, cellular, satellite, cable & 532282 Video Tape & Disc Rental Services
Warehouse Clubs and other program distribution, 561790 Other Services to Buildings &
Supercenters 532283 Home Health Equipment Rental
resellers, other Dwellings
Miscellaneous Store Retailers telecommunications, & Internet 532284 Recreational Goods Rental
service providers) 532289 All Other Consumer Goods Rental 561900 Other Support Services (including
453110 Florists packaging & labeling services, &
453210 Office Supplies & Stationery Stores Data Processing Services 532310 General Rental Centers convention & trade show
453220 Gift, Novelty, & Souvenir Stores 518210 Data Processing, Hosting, & 532400 Commercial & Industrial Machinery organizers)
Related Services & Equipment Rental & Leasing Waste Management and Remediation
453310 Used Merchandise Stores Services
Other Information Services Lessors of Nonfinancial Intangible Assets
453910 Pet & Pet Supplies Stores (except copyrighted works) 562000 Waste Management &
519100 Other Information Services
453920 Art Dealers (including news syndicates, 533110 Lessors of Nonfinancial Intangible Remediation Services
453930 Manufactured (Mobile) Home libraries, Internet publishing, & Assets (except copyrighted works)
Dealers broadcasting) Educational Services
453990 All Other Miscellaneous Store
Professional, Scientific, and 611000 Educational Services (including
Retailers (including tobacco,
Finance and Insurance Technical Services schools, colleges, & universities)
candle, & trophy shops) Depository Credit Intermediation
Legal Services Health Care and Social
Nonstore Retailers 522110 Commercial Banking
454110 Electronic Shopping & Mail-Order 522120 Savings Institutions
541110 Offices of Lawyers Assistance
Houses 541190 Other Legal Services
522130 Credit Unions Offices of Physicians and Dentists
454210 Vending Machine Operators Accounting, Tax Preparation,
522190 Other Depository Credit Bookkeeping, and Payroll Services 621111 Offices of Physicians (except
454310 Fuel Dealers (including Heating Oil Intermediation mental health specialists)
& Liquefied Petroleum) 541211 Offices of Certified Public
Nondepository Credit Intermediation Accountants 621112 Offices of Physicians, Mental
454390 Other Direct Selling Health Specialists
522210 Credit Card Issuing 541213 Tax Preparation Services
Establishments (including 621210 Offices of Dentists
door-to-door retailing, frozen food 522220 Sales Financing 541214 Payroll Services
Offices of Other Health Practitioners
plan providers, party plan 522291 Consumer Lending 541219 Other Accounting Services
merchandisers, & coffee-break 621310 Offices of Chiropractors
522292 Real Estate Credit (including Architectural, Engineering, and Related
service providers) mortgage bankers & originators) 621320 Offices of Optometrists
Services
Transportation and 522293 International Trade Financing 541310 Architectural Services 621330 Offices of Mental Health
Practitioners (except Physicians)
Warehousing 522294 Secondary Market Financing 541320 Landscape Architecture Services
621340 Offices of Physical, Occupational &
522298 All Other Nondepository Credit 541330 Engineering Services Speech Therapists, & Audiologists
Air, Rail, and Water Transportation Intermediation
481000 Air Transportation 541340 Drafting Services 621391 Offices of Podiatrists
Activities Related to Credit Intermediation
482110 Rail Transportation 541350 Building Inspection Services 621399 Offices of All Other Miscellaneous
522300 Activities Related to Credit Health Practitioners
483000 Water Transportation Intermediation (including loan 541360 Geophysical Surveying & Mapping
brokers, check clearing, & money Services Outpatient Care Centers
Truck Transportation
transmitting) 541370 Surveying & Mapping (except 621410 Family Planning Centers
484110 General Freight Trucking, Local Geophysical) Services
Securities, Commodity Contracts, and 621420 Outpatient Mental Health &
484120 General Freight Trucking, Other Financial Investments and Related 541380 Testing Laboratories Substance Abuse Centers
Long-distance Activities Specialized Design Services 621491 HMO Medical Centers
484200 Specialized Freight Trucking 523110 Investment Banking & Securities 541400 Specialized Design Services 621492 Kidney Dialysis Centers
Transit and Ground Passenger Dealing (including interior, industrial,
Transportation graphic, & fashion design) 621493 Freestanding Ambulatory Surgical
523120 Securities Brokerage & Emergency Centers
485110 Urban Transit Systems 523130 Commodity Contracts Dealing Computer Systems Design and Related
485210 Interurban & Rural Bus Services 621498 All Other Outpatient Care Centers
523140 Commodity Contracts Brokerage Medical and Diagnostic Laboratories
Transportation 541511 Custom Computer Programming
523210 Securities & Commodity 621510 Medical & Diagnostic Laboratories
485310 Taxi and Ridesharing Services Exchanges Services
485320 Limousine Service 541512 Computer Systems Design Home Health Care Services
523900 Other Financial Investment
485410 School & Employee Bus Activities (including portfolio Services 621610 Home Health Care Services
Transportation management & investment advice) 541513 Computer Facilities Management Other Ambulatory Health Care Services
485510 Charter Bus Industry Insurance Carriers and Related Activities Services
621900 Other Ambulatory Health Care
485990 Other Transit & Ground Passenger 524140 Direct Life, Health, & Medical 541519 Other Computer Related Services Services (including ambulance
Transportation Insurance & Reinsurance Carriers Other Professional, Scientific, and services & blood & organ banks)
Pipeline Transportation 524150 Direct Insurance & Reinsurance Technical Services Hospitals
486000 Pipeline Transportation (except Life, Health & Medical) 541600 Management, Scientific, & 622000 Hospitals
Carriers Technical Consulting Services
Scenic & Sightseeing Transportation Nursing and Residential Care Facilities
524210 Insurance Agencies & Brokerages 541700 Scientific Research &
487000 Scenic & Sightseeing Development Services 623000 Nursing & Residential Care
Transportation 524290 Other Insurance Related Activities Facilities
(including third-party administration 541800 Advertising & Related Services
Support Activities for Transportation Social Assistance
of insurance & pension funds) 541910 Marketing Research & Public
488100 Support Activities for Air Opinion Polling 624100 Individual & Family Services
Funds, Trusts, and Other Financial
Transportation Vehicles 624200 Community Food & Housing, &
541920 Photographic Services
488210 Support Activities for Rail Emergency & Other Relief
525100 Insurance & Employee Benefit 541930 Translation & Interpretation Services
Transportation Funds Services
488300 Support Activities for Water 624310 Vocational Rehabilitation Services
525910 Open-End Investment Funds 541940 Veterinary Services
Transportation (Form 1120-RIC) 624410 Child Day Care Services
488410 Motor Vehicle Towing 541990 All Other Professional, Scientific, &
525920 Trusts, Estates, & Agency Technical Services Arts, Entertainment, and
488490 Other Support Activities for Road Accounts
Transportation 525990 Other Financial Vehicles (including Management of Companies Recreation
488510 Freight Transportation mortgage REITs & closed-end (Holding Companies) Performing Arts, Spectator Sports, and
Arrangement investment funds) Related Industries
488990 Other Support Activities for “Offices of Bank Holding Companies” and 551111 Offices of Bank Holding
Companies 711100 Performing Arts Companies
Transportation “Offices of Other Holding Companies” are 711210 Spectator Sports (including sports
551112 Offices of Other Holding
Companies clubs & racetracks)

-53-
Codes for Principal Business Activity and Principal Product or Service (Continued)
711300 Promoters of Performing Arts, 721120 Casino Hotels 811120 Automotive Body, Paint, Interior, & 812220 Cemeteries & Crematories
Sports, & Similar Events 721191 Bed & Breakfast Inns Glass Repair 812310 Coin-Operated Laundries &
711410 Agents & Managers for Artists, 721199 All Other Traveler Accommodation 811190 Other Automotive Repair & Drycleaners
Athletes, Entertainers, & Other Maintenance (including oil change 812320 Drycleaning & Laundry Services
Public Figures 721210 RV (Recreational Vehicle) Parks & & lubrication shops & car washes)
Recreational Camps (except Coin-Operated)
711510 Independent Artists, Writers, & 811210 Electronic & Precision Equipment 812330 Linen & Uniform Supply
Performers 721310 Rooming & Boarding Houses, Repair & Maintenance
Dormitories, & Workers’ Camps 812910 Pet Care (except Veterinary)
Museums, Historical Sites, and Similar 811310 Commercial & Industrial Machinery Services
Institutions Food Services and Drinking Places & Equipment (except Automotive &
722300 Special Food Services (including Electronic) Repair & Maintenance 812920 Photofinishing
712100 Museums, Historical Sites, &
Similar Institutions food service contractors & 811410 Home & Garden Equipment & 812930 Parking Lots & Garages
caterers) Appliance Repair & Maintenance 812990 All Other Personal Services
Amusement, Gambling, and Recreation
Industries 722410 Drinking Places (Alcoholic 811420 Reupholstery & Furniture Repair Religious, Grantmaking, Civic,
Beverages) Professional, and Similar Organizations
713100 Amusement Parks & Arcades 811430 Footwear & Leather Goods Repair
722511 Full-Service Restaurants 813000 Religious, Grantmaking, Civic,
713200 Gambling Industries 811490 Other Personal & Household
722513 Limited Service Restaurants Goods Repair & Maintenance Professional, & Similar
713900 Other Amusement & Recreation Organizations (including
Industries (including golf courses, 722514 Cafeterias & Buffets Personal and Laundry Services condominium & homeowners
skiing facilities, marinas, fitness 722515 Snack & Non-alcoholic Beverage 812111 Barber Shops associations)
centers, & bowling centers) Bars
812112 Beauty Salons
Accommodation and Food Other Services 812113 Nail Salons
Services Repair and Maintenance 812190 Other Personal Care Services
811110 Automotive Mechanical & (including diet & weight reducing
Accommodation centers)
Electrical Repair & Maintenance
721110 Hotels (except Casino Hotels) & 812210 Funeral Homes & Funeral Services
Motels

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Index

Rehabilitation 39, 44 Reconciliation of income (loss) per

Rental activities 39 books with income (loss) per
A I return 50
Accounting methods 6 Inclusion amount 21 Recordkeeping 8
Change in accounting Income:
D Reforestation costs 37
method 7 Gross receipts or sales 18
Deductions: Rental activities 13
Mark-to-market accounting Tax-exempt income 18
Bad debts 21 Rounding off to whole dollars 7
method 7 Trade or business 18
Depletion 22 Royalties 32
Nonaccrual experience Installment sales 18
method 19 Depreciation 22 Interest income 31
Nonaccrual-experience Employee benefit programs 23 Interest on production
method 7 Entertainment facilities 24 expenditures 22 S
Percentage of completion Guaranteed payments 21 Investment: Sale of partnership interests 12
method 7 How to report 19 Income and expenses 44 Sale of small business stock:
Accounting periods 7 Interest 22 Interest expense 35 Exclusion 33
Adjusting deductions for certain Limitations 20 Rollover 34
credits 20 Meals and entertainment 23 Schedule:
Administrative adjustment Membership dues 23 B 24
L
request 8 Reforestation expenditures 24 K 27, 30
Limited liability company 4
Allocation of partnership items: Rent 21 K-1 27, 30
Limited liability partnership 4
Contributed property 28 Repairs and maintenance 21 L 49
Limited partner 4
Liabilities 29 Retirement plans 22 M-1 50
Limited partnership 4
Nonrecourse liabilities 29 Salaries and wages 21, 31 M-2 50
Partnership agreement 27 Taxes and licenses 21 M-3 50
Special allocations 30 Transactions between related Section 108(i) 18, 33, 37, 45
Alternative minimum tax 42 taxpayers 20 N Section 179 expense
Adjusted gain (loss) 42 Travel 23 Net section 1231 gain (loss) 32 deduction 34
Depletion (other than oil and Wages 21 Nondeductible expenses 43 Recapture 45
gas) 42 Definitions 3 Nonrecourse liabilities 29 Section 481(a) adjustment 7
Depreciation adjustment on Depreciation 22 Nonrecourse loans 4, 29 Section 59(e) expenditures 12,
property placed in service Dispositions of contributed (See also Nonrecourse liabilities) 19, 20, 35
after 1986 42 property 12 Notice of inconsistent treatment 8 Self-charged interest 14
Oil, gas, and geothermal Distributions: Self-employment 37
properties 43 Cash and marketable Signatures:
Amended return 8 securities 43 O General partner or LLC
Analysis of net income (loss) 49 Other property 43 Ordinary business income member manager 5
Analysis of partner's capital Recognition of precontribution (loss) 30 Paid preparer 5
account 30 gain 12 Special allocations 30
Analysis of partners' capital Dividends 31 Substitute forms 27
accounts 50 Syndication costs 20
P
Assembling the return 11 Paid preparer authorization 5
At-risk activities 29 E Partner contributing property with a
Attached statements 28 Elections: T
built-in gain or loss 30
By each partner 12 Passive activity limitations: Tax-exempt income 43
By the partnership 11 Grouping activities 14 Tax shelter:
B Electronic filing 5 Passive activities defined 12 Registration 25
Balance sheets per books 49 Entity classification election 11 Recharacterization of passive Termination of partnership 5
Bipartisan Budget Act of 2015 Extensions 5 income 15 Travel and entertainment 23, 50
(BBA) 3 Extraterritorial income Rental activities 13
Business start-up expenses 20 exclusion 17, 42 Reporting requirements 16
Trade or business activities 13 U
Penalties 5 Uniform capitalization rules 20
C F Failure to furnish information Unrealized receivables and
Capital gain: Foreign accounts 25 timely 6 inventory:
Net long-term 32 Foreign partners, withholding 26 Late filing 5 Sale of partnership
Net short-term 32 Foreign partnership 3 Trust fund recovery 6 interests 12
Change of address 17 Foreign taxes 40 Period covered 5 Unrecaptured section 1250
Charitable contribution 34 Foreign trusts, transactions 25 Portfolio income 14, 31 gain 32
Codes: Forms: Private delivery services 5 Unrelated business taxable
Partner 29 How to get 3 Publicly traded partnerships 4, income 45
Principal business activity 52 That may be required 8 13, 19
Schedule K-1 reporting 28 Future Developments 1
Collectibles (28%) gain (loss) 32 W
Commercial revitalization R When to file 5
deduction 23 G Recapture: Where to file 6
Consolidated audit procedures 8 General partner 4 Investment credit 44 Who must file 4
Contributions to the General partnership 4 Low-income housing credit 44
partnership 12 Guaranteed payments 31, 50 Mining exploration costs 33
Cost of goods sold 19 Section 179 deduction 45
Credits 38
Low-income housing 38

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