Specific Instructions

Publicly Traded Partnership (PTP)

If the “publicly traded partnership” box is checked, you are a partner in a publicly traded partnership (PTP) and must follow the rules under Publicly traded partnerships discussed above.

Partner's Share of Liabilities

The partnership will show your share of the partnership's nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other liabilities as of the end of the partnership's tax year. If you terminated your interest in the partnership during the tax year, the amounts should reflect the share that existed immediately before the total disposition. A partner's “other liability” is any partnership liability for which a partner is personally liable.

Use the total of the three amounts for computing the adjusted basis of your partnership interest.

Generally, you can use only the amounts shown next to “Qualified nonrecourse financing” and “Other” to figure your amount at risk. Do not include any amounts that are not at risk if such amounts are included in either of these categories.

If your partnership is engaged in two or more different types of activities subject to the at-risk provisions, or a combination of at-risk activities and any other activity, the partnership should give you a statement showing your share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other liabilities for each activity.

Qualified nonrecourse financing.    Qualified nonrecourse financing generally includes financing for which no one is personally liable for repayment that is borrowed for use in an activity of holding real property and that is loaned or guaranteed by a federal, state, or local government or borrowed from a “qualified” person. Qualified nonrecourse financing secured by real property used in an activity of holding real property that is subject to the at-risk rules is treated as an amount at risk.

Qualified persons.   Qualified persons include any persons actively and regularly engaged in the business of lending money, such as a bank or savings and loan association. Qualified persons generally do not include related parties (unless the nonrecourse financing is commercially reasonable and on substantially the same terms as loans involving unrelated persons), the seller of the property, or a person who receives a fee for the partnership's investment in the real property.

See Pub. 925 for more information on qualified nonrecourse financing.

Both the partnership and you must meet the qualified nonrecourse rules on this debt before you can include the amount shown next to “Qualified nonrecourse financing” in your at-risk computation.

See Limitations on Losses, Deductions, and Credits, earlier, for more information on the at-risk limitations.

Boxes 1 Through 9

The amounts shown in boxes 1 through 9 reflect your share of income, loss, deductions, credits, etc., from the partnership. These amounts do not take into consideration the following limitations.

  • The adjusted basis of your partnership interest.

  • The amount for which you are at risk.

  • The passive activity limitations.

For information on these provisions, see Limitations on Losses, Deductions, and Credits, earlier.

For individuals, the following instructions explain how to report the amounts shown in the boxes. For all other entities, report the amounts in the boxes as instructed on your income tax return.

The line numbers in these instructions are references to forms in use for calendar year 2013. If you file your tax return on a calendar year basis, but your partnership files a return for a fiscal year, enter the amounts shown in the boxes on your tax return for the year in which the partnership's fiscal year ends. For example, if the partnership's tax year ends on June 30, 2014, report the amounts in the boxes on your 2014 income tax return.

If you have losses, deductions, or credits from a prior year that were not deductible or usable because of certain limitations, such as the basis rules or the at-risk limitations, take them into account in determining your net income, loss, or credits for this year. However, except for passive activity losses and credits, do not combine the prior-year amounts with any amounts shown on this Schedule K-1 to get a net figure to report on any supporting schedules, statements, or forms attached to your return. Instead, report the amounts separately on the attached schedule, statement, or form on a year-by-year basis.

For amounts other than those shown on Schedule K-1, enter each item on a separate line of Part II of Schedule E (Form 1040).

Box 1. Taxable Income (Loss) From Passive Activities

Limited partners only.   Any amount reported in box 1 is treated as being from a trade or business that is a single passive activity. Report this amount as follows.
  • If income is reported in box 1, report the income on Schedule E (Form 1040), line 28, column (g). However, if the PTP box is checked, report the income following the rules for Publicly traded partnerships, earlier.

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

Box 2. Taxable Income (Loss) From Other Activities

This amount is not subject to the passive activity limitations. Report the amount as follows.

  • If the amount is income, report it on Schedule E (Form 1040), line 28, column (j).

  • If the amount is a loss, report it on Schedule A (Form 1040), line 28.

Note.

If the amount of interest included in box 2 includes interest from the credit to holders of clean renewable energy bonds or Midwestern tax credit bonds, the partnership will attach a statement to Schedule K-1 showing your share of interest income from these credits. Because the basis in your partnership interest is increased by your share of the interest income from these credits, you must reduce your basis by the same amount to offset the increase. See Line 4 of the Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership, earlier.

Box 3. Qualified Dividends

Report this amount on lines 9a and 9b of Form 1040.

Note.

Qualified dividends are excluded from investment income, but you can elect to include part or all of these amounts in investment income. See the instructions for line 4g of Form 4952, Investment Interest Expense Deduction, for important information on making this election.

If you have any foreign source qualified dividends, see the instructions for Box 9, Code K.

Note.

In the case of a corporate partner, the partnership will attach a statement to the Schedule K-1 explaining what part of the dividends included in box 3 is eligible for the “dividends received by corporations deduction” under section 243(a), (b), or (c).

Box 4a. Net Capital Gain or (Loss) From Passive Activities

Limited partners only.   The net capital gain (loss) reported in box 4a, is treated as being from a trade or business that is a single passive activity. If a net capital gain is reported in box 4a, report the gain on Schedule D (Form 1040), line 12.

  If a loss is reported in box 4a, report it following the Form 8582 instructions to figure how much of the loss can be reported on Schedule D (Form 1040), line 12. However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

  
If you have any foreign source capital gains or losses, see the instructions for Box 9, Code K.

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

Net capital gain or (loss) from other activities is not subject to the passive activity limitations. Report the gain or (loss) on Schedule D (Form 1040), line 12.

If you have any foreign source capital gains or losses, see the instructions for Box 9, Code K.

Box 5. Net Passive AMT Adjustment

Limited partners only.   Use this amount (as well as your adjustments and tax preference items from other sources) to prepare your Form 6251, Alternative Minimum Tax— Individuals; Form 4626, Alternative Minimum Tax—Corporations; or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts. The adjustment is treated as being from a trade or business that is a single passive activity.

  Individuals should enter the amount on line 19 of Form 6251, where it is taken into account with adjustments and preferences from other passive activities.

Box 6. Net Other AMT Adjustment

Individual general and limited partners should enter this amount on line 16 of Form 6251.

Box 7. General Credits

Limited partners only. Enter this amount from box 7 on line 1bb of Form 3800, Part III, General Business Credit. Because general credits are treated as being from a trade or business that is a single passive activity, you must also report the box 7 amount on Form 3800, Part III as a credit from a passive activity.

Box 8. Low-Income Housing Credit

Limited partners only. Enter the amount reported in box 8 of Schedule K-1 on line 4 of Form 8586, Low-Income Housing Credit. If an amount is reported in box 8, all of the low-income housing credit is for buildings placed in service before 2008. If any of the low-income housing credit is for buildings placed in service after 2007, the partnership will enter “STMT” in box 8 and attach a statement which lists separately the amount of the credit for buildings placed in service prior to 2008 (reported on line 4 of Form 8586 or line 1d of Form 3800), and the amount for buildings placed in service after 2007 (reported on line 11 of Form 8586 or line 4d of Form 3800). See the Instructions for Form 8586 for more information.

Box 9. Other

Codes A Through C

General partners in an ELP must separately account for any items attributable to passive loss limitation activities to the extent necessary to comply with the section 469 passive loss rules. Therefore, the partnership is required to report income or (loss), capital gain or (loss), 28% rate gain or (loss), credits, and the alternative minimum tax adjustment separately for all trade or business activities, rental real estate activities, and rental activities other than rental real estate.

Code A1. General partner's taxable income (loss) from trade or business activities.   Report Code A1 income (loss) from partnership trade or business activities in which you materially participated on Schedule E (Form 1040), line 28, column (h) or (j). See the instructions to determine whether you materially participated in a trade or business activity.

  Report Code A1 income or (loss) from partnership trade or business activities in which you did not materially participate as follows.
  1. Report any income on Schedule E (Form 1040), line 28, column (g). However, if the PTP box on Schedule K-1 is checked, report the income following the rules for Publicly traded partnerships.

  2. Report a loss following the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule E (Form 1040), line 28, column (f). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code A2. General partner's net capital gain or (loss) from trade or business activities.   If you did not materially participate in the trade or business activity, the net capital gain or (loss) is a passive activity amount. If the amount is either (a) a loss that is not from a passive activity or (b) a gain, report it on Schedule D (Form 1040), line 12.

  If the amount is a loss from a passive activity, report it following the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule D (Form 1040), line 12. However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code A3. General partner's 28% rate gain (loss) from trade or business activities.   If you did not materially participate in the trade or business activity, the 28% rate gain or (loss) is a passive activity amount. If the amount is either (a) a loss that is not from a passive activity or (b) a gain, include it on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040).

  If the amount is a loss from a passive activity, report it following the Instructions for Form 8582 to figure how much of the loss can be included on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code A4. General partner's general credits from trade or business activities.   Report the general credits on line 1bb of Form 3800, Part III. If you did not materially participate in the trade or business activity, you must also report the general credits on Form 3800, Part III as a credit from a passive activity.

Code A5. General partner's alternative minimum tax adjustment from trade or business activities.    Generally, an AMT adjustment must be reported on line 16 of Form 6251. However, if the AMT adjustment is from a passive activity, it must be taken into account on line 19 with adjustments and preferences from other passive activities.

Code B1. General partner's taxable income (loss) from rental real estate activities.   Generally, the income or (loss) reported in box 9, Code B1, is a passive activity amount for all general partners. However, the income or (loss) in box 9 is not from a passive activity if you were a real estate professional and you materially participated in the activity.

  Use the following instructions to determine where to enter the Code B1 amount.
  1. If you have a loss from a passive activity in box 9, Code B1, and you meet all of the following conditions, enter the loss on Schedule E (Form 1040), line 28, column (f).

    1. You actively participated in the partnership rental real estate activities. See Special allowance for rental real estate activities, earlier.

    2. Rental real estate activities with active participation were your only passive activities.

    3. You have no prior year unallowed losses from these activities.

    4. Your total loss from the rental real estate activities was not more than $25,000 (not more than $12,500 if married filing separately and you lived apart from your spouse all year).

    5. If you are a married person filing separately, you lived apart from your spouse all year.

    6. You have no current or prior year unallowed credits from a passive activity.

    7. Your modified adjusted gross income was not more than $100,000 (not more than $50,000 if married filing separately and you lived apart from your spouse all year).

  2. If you have a (loss) from a passive activity in box 9 and you do not meet all the conditions in 1 above, report the loss following the Instructions for Form 8582 to figure how much of the loss you can report on Schedule E (Form 1040), line 28, column (f). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

  3. If you were a real estate professional and you materially participated in the activity, report box 9 income or (loss) on Schedule E (Form 1040), line 28, column (h) or (j).

  4. If you have income from a passive activity in box 9, Code B1, enter the income on Schedule E (Form 1040), line 28, column (g). However, if the PTP box is checked, report the income following the rules for Publicly traded partnerships.

Code B2. General partner's net capital gain or (loss) from rental real estate activities (for the entire year).   The net capital gain or (loss) from a rental real estate activity is a passive activity amount unless you were a real estate professional and you materially participated in the activity. If the amount is either (a) a loss that is not from a passive activity or (b) a gain, report it on Schedule D (Form 1040), line 12.

  If the amount is a loss from a passive activity, report it following the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule D, line 12. However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code B3. General partner's 28% rate gain or (loss) from rental real estate activities.   The 28% rate gain or (loss) from a rental real estate activity is a passive activity amount unless you were a real estate professional and you materially participated in the activity. If the amount is either (a) a loss that is not from a passive activity or (b) a gain, include it on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040).

  If the amount is a loss from a passive activity, report it following the Instructions for Form 8582 to figure how much of the loss can be included on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code B4. General partner's general credits from rental real estate activities.   Report the general credits on line 1bb of Form 3800. Unless you were a real estate professional and materially participated in the rental real estate activity, you must also report the general credits on Form 3800, Part III as a credit from a passive activity.

Code B5. General partner's low-income housing credit from rental real estate activities.   Report the low-income housing credit on line 4 of Form 8586 or line 1d of Form 3800 for buildings placed in service before 2008, and on line 11 of Form 8586 or line 4d of Form 3800 for buildings placed in service after 2007. Unless you were a real estate professional and materially participated in the rental real estate activity, the low-income housing credit is a passive activity credit.

Code B6. General partner's rehabilitation credit from rental real estate activities.   Report the rehabilitation credit on line 11m of Form 3468, Investment Credit. Unless you were a real estate professional and materially participated in the rental real estate activity, the credit is a passive activity credit, and you must also file Form 3800.

Code B7. General partner's alternative minimum tax adjustment from rental real estate activities.    An AMT adjustment must be reported on line 16 of Form 6251. However, if the AMT adjustment is from a passive activity, it must be taken into account on line 19 with other passive activities instead of being reported on line 16.

Code C1. General partner's taxable income or (loss) from other rental activities.   Income (loss) reported in box 9, Code C1, is a passive activity amount for all general partners. Report a loss following the Instructions for Form 8582. Report income on Schedule E (Form 1040), line 28, column (g). However, if the PTP box is checked, report the income (loss) following the rules for Publicly traded partnerships.

Code C2. General partner's net capital gain or (loss) from other rental activities.   The net capital gain (loss) from other rental activities is a passive activity amount for all general partners. Report the gain on Schedule D (Form 1040), line 12. Report a loss following the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule D (Form 1040), line 12. However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code C3. General partner's 28% rate gain or (loss) from other rental activities.   The 28% rate gain or (loss) from other rental activities is a passive activity amount for all general partners. If the amount is a gain, include it on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040). Report a loss following the Instructions for Form 8582 to figure how much of the loss can be included on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code C4. General partner's general credits from other rental activities.   Report the general credits on line 1bb of Form 3800, Part III. Because general credits from other rental activities are passive activity credits for all general partners, you must also report the general credits on Form 3800, Part III as a credit from a passive activity.

Code C5. General partner's alternative minimum tax adjustment from other rental activities.    An AMT adjustment must be reported on line 16 of Form 6251. However, if the AMT adjustment is from a passive activity, it must be taken into account on line 19 with adjustments and preferences from other passive activities instead of being reported on line 16.

Code D. Limited Partner's 28% Rate Gain or (Loss) From Passive Activities

Limited partners only.   The 28% rate gain or (loss) is treated as being from a trade or business that is a single passive activity. If a gain is reported, include it on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040).

  If a loss is reported, report the loss following the Instructions for Form 8582 to figure how much of the loss can be included on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040). However, if the PTP box is checked, report the loss following the rules for Publicly traded partnerships.

Code E. Limited Partner's 28% Rate Gain or (Loss) From Other Activities

The 28% gain or (loss) from other activities is not subject to the passive activity limitations. Include it on line 4 of the 28% Rate Gain Worksheet in the Instructions for Schedule D (Form 1040).

Code F. Guaranteed Payments

Generally, these amounts are not passive income. Report them on Schedule E (Form 1040), line 28, column (j) (for example, guaranteed payments for personal services).

Code G. Income From Discharge of Indebtedness

The amount reported under Code G is excluded from your gross income to the extent provided in section 108 if the discharge:

  • Occurred in a title 11 case relating to bankruptcy,

  • Occurred when you were insolvent,

  • Involved qualified farm indebtedness, as defined in section 108(g), or

  • Involved qualified real property business indebtedness, as defined in section 108(c)(3), unless the partner is a C corporation.

This amount is applied, instead, to reduce certain tax attributes. File Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to explain why any amount received from the discharge of indebtedness should be excluded and to report your reduction of tax attributes.

For a discharge of indebtedness not described above, you must include this amount in income on line 21 of Form 1040.

Code H. Tax-Exempt Interest Income

Report on your income tax return, as an item of information, your share of the tax-exempt interest received or accrued by the partnership during the year. Individual partners must include this amount on Form 1040, line 8b. Increase the adjusted basis of your interest in the partnership by this amount.

Code I. Limited Partner's Rehabilitation Credit From Rental Real Estate Activities

Limited partners only. Report this amount on line 11m of Form 3468. Because the credit is treated as being from a single passive activity, you must also file Form 3800.

Codes J1 and J2. Self-Employment

Code J1. Net earnings or (loss) from self-employment.   Enter this amount on Schedule SE (Form 1040), line 2, Section A or B, whichever is applicable. General partners should reduce this amount by unreimbursed partnership expenses claimed. General partners who are disqualified persons also should reduce this amount by depletion claimed on oil and gas properties. If this amount is a loss, enter only the deductible amount on Schedule SE. For purposes of self-employment tax, no income from an ELP is treated as farming or fishing income.

Code J2. Gross nonfarm income.   Individual partners use this amount to figure net earnings from self-employment under the nonfarm optional method on Schedule SE (Form 1040), Section B, Part II.

Codes K1 Through K9. Foreign Tax Credit Information

Use the information reported under Codes K1 through K9 to figure your foreign tax credit. Caution. Taxpayers filing Form 1116, Foreign Tax Credit – If you have any qualified dividends, capital gains (including any capital gain distributions) or capital losses, you may have to make certain adjustments to those amounts before taking them into account on Form 1116. For more information, see Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) and its instructions; Form 1118, Foreign Tax Credit—Corporations, and its instructions; and Pub. 514, Foreign Tax Credit for Individuals. See the Instructions for Form 1116 for detailed instructions for reporting foreign tax information from partnerships.

Code K1. Name of foreign country or U.S. possession.   Include on Form 1116, Part I, item g. For each country reported, the partnership must give you the amount and a description of your share of the following items for Codes K2 through K9. For each country or possession being reported, a separate column in Part I and a separate line in Part II is needed on Form 1116.

Code K2. Gross income from all sources.   Enter this amount on line 3e of Form 1116.

Code K3. Gross income sourced at partner level.   Although all this income reported has been apportioned to foreign source categories of income, you must nevertheless determine whether the income being reported is U.S. source income or foreign source income. See the Instructions for Form 1116 for the rules to source the income reported to you. Enter only foreign source income on lines 1a and 3d of Form 1116. A separate Form 1116 or 1118 is required for each foreign source category of income. Do not include income that you determined to be U.S. source income.

Codes K4(a) Through K4(c). Foreign gross income sourced at partnership level.   The following types of income have already been sourced for you by the partnership. Include these amounts on lines 1a and 3d of the applicable Form 1116 (that is, the Form 1116 for each category of income provided to you).
  • Code K4(a). Passive category foreign source income.

  • Code K4(b). General category foreign source income.

  • Code K4(c). Other foreign source income.

Code K5. Interest expense allocated and apportioned at the partner level.   Include this amount on line 4b of the applicable Forms 1116.

Code K6. Other expenses allocated and apportioned at the partner level.   Include this amount on line 2 of the applicable Forms 1116.

Note.

For Codes K5 and K6, do not include any expenses allocated and apportioned to U.S. source income on any line of Part I of Form 1116.

Codes K7(a) Through Codes K7(c). Deductions allocated and apportioned at partnership level to foreign source income.   The following codes report the expenses allocated and apportioned by the partnership to foreign source categories of income. Include these amounts on line 2 of the applicable Forms 1116 (that is, the Forms 1116 for each category of income provided to you).
  • Code K7(a). Deductions allocated and apportioned at partnership level to passive category foreign source income.

  • Code K7(b). Deductions allocated and apportioned at partnership level to general category foreign source income.

  • Code K7(c). Deductions allocated and apportioned at partnership level to other foreign source income.

Code K8(a). Total foreign taxes paid.   Include this amount in Part II of Form 1116.

Code K8(b). Total foreign taxes accrued.   Include this amount in Part II of Form 1116.

Note.

The partnership will attach a statement that separately identifies any arrangement, along with the taxes paid or accrued in connection with the arrangement, in which the partnership participates that would qualify as a splitter arrangement under section 909 if one or more partners are covered persons with respect to an entity that took into account related income from the arrangement. The statement will also indicate whether the partnership has taken into account any related income from any such splitter arrangement. See section 909 and the related regulations for rules regarding splitter arrangements.

Code K9. Reduction in taxes available for credit.   Enter this amount on line 12 of Form 1116.

Code L. Oil and Gas Activities

Generally, oil and gas income, deductions, credits, and other items are included in your share of income or loss from passive loss limitation activities, general credits, and the alternative minimum tax adjustment.

However, shares of all oil and gas income, deductions, credits, and other items are separately reported to partners who are disqualified persons in accordance with the regular partnership rules, here or on an attached statement.

Note.

A partner must notify the ELP of its status as a “disqualified person.

Codes M1 Through M9. Miscellaneous

Code M1. Other tax-exempt income.   Increase the adjusted basis of your interest in the partnership by this amount, but do not include it in income on your income tax return.

Note.

The partnership will attach a statement to Schedule K-1 for the amount included in box 9, Code M-1 that is exempt due to section 892 and describe the nature of the income.

Code M2. Nondeductible expenses.   Decrease the adjusted basis of your interest in the partnership by this amount. The nondeductible expenses paid or incurred by the partnership are not deductible on your income tax return, but they do affect your basis.

Code M3. Unrelated business taxable income.   The partnership must give you any information you need to figure unrelated business taxable income under section 512(a)(1) (but excluding any modifications required by paragraphs (8) through (15) of section 512(b)) for a partner that is a tax-exempt organization.

Reminder.

A partner is required to notify the partnership of its tax-exempt status.

Code M4. Health insurance.   Include any amounts paid during the tax year for insurance that constitutes medical care for you, your spouse, your dependents, and your children under age 27 who are not dependents on line 29 of your 2013 Form 1040. You may be allowed to deduct such amounts, even if you do not itemize deductions. If you do itemize deductions, enter on line 1 of Schedule A (Form 1040) any amounts not deducted on line 29 of Form 1040.

Code M5. Distributions of money (cash and marketable securities).   This amount includes the distributions the partnership made to you of cash and certain marketable securities. The marketable securities are included at their fair market value (FMV) on the date of distribution (minus your share of the partnership's gain on the securities distributed to you). If this amount exceeds the adjusted basis of your partnership interest immediately before the distribution, the excess is treated as gain from the sale or exchange of your partnership interest. Generally, this gain is treated as gain from the sale of a capital asset and should be reported on Form 8949 and the Schedule D for your return. However, the gain may be ordinary income. For details, see Pub. 541.

  

  The partnership must separately identify both of the following.
  • The FMV of the marketable securities when distributed (minus your share of the gain on the securities distributed to you).

  • The partnership's adjusted basis of those securities immediately before the distribution.

  Decrease the adjusted basis of your interest in the partnership (but not below zero) by the amount of cash distributed to you and the partnership's adjusted basis of the distributed securities. Advances or drawings of money or property against your share are treated as current distributions made on the last day of the partnership's tax year.

  Your basis in the distributed marketable securities (other than in liquidation of your interest) is the smaller of:
  • The partnership's adjusted basis in the securities immediately before the distribution increased by any gain recognized on the distribution of the securities or

  • The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities.

   If you received the securities in liquidation of your partnership interest, your basis in the marketable securities is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction and increased by any gain recognized on the distribution of the securities.

  If, within 7 years of a distribution to you of marketable securities, you contributed appreciated property (other than those securities) to the partnership and the FMV of those securities exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. See section 737 for details.

Code M6. Distributions of property other than money.   Box 9, Code M6, shows the partnership's adjusted basis of property other than money immediately before the property was distributed to you. In addition, the partnership should attach a statement showing the cost basis and FMV of each property distributed. Decrease the adjusted basis of your interest in the partnership by the amount of your basis in the distributed property. Your basis in the distributed property (other than in liquidation of your interest) is the smaller of:
  • The partnership's adjusted basis immediately before the distribution or

  • The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

   If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

  If you contributed appreciated property to the partnership within 7 years of a distribution of other property to you, and the FMV of the other property exceeded the adjusted basis of your partnership interest immediately before the distribution (reduced by any cash received in the distribution), you may have to recognize gain on the appreciated property. See section 737 for details.

Code M7. Gain eligible for section 1202 exclusion.   This gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D) is eligible for the section 1202 exclusion. The partnership must also provide you with:
  • The name of the corporation that issued the QSB stock,

  • Your share of the partnership's adjusted basis of the QSB stock,

  • Your share of the partnership's sales price of the QSB stock, and

  • The dates the QSB stock was bought and sold.

   Corporate partners are not eligible for the section 1202 exclusion. The following additional limitations apply at the partner level.
  • You must have held an interest in the partnership when the partnership acquired the QSB stock and at all times thereafter until the partnership disposed of the QSB stock.

  • Your share of the eligible section 1202 gain cannot exceed the amount that would have been allocated to you based on your interest in the partnership at the time the QSB stock was acquired.

  See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for details on how to report the gain and the amount of the allowable exclusion.

Code M8. Gain eligible for section 1045 rollover–stock replaced.   This gain is eligible for the section 1045 rollover. Replacement stock has been purchased by the partnership. The partnership must also provide you with:
  • The name of the corporation that issued the qualified small business (QSB) stock,

  • Your share of the partnership's adjusted basis of the QSB stock,

  • Your share of the partnership's sales price of the QSB stock,

  • The dates the QSB stock was bought and sold,

  • Your share of gain from the sale of the QSB stock, and

  • Your share of the gain that was deferred by the partnership under section 1045.

   Corporate partners are not eligible for the section 1045 rollover. To qualify for the section 1045 rollover:
  • You must have held an interest in the partnership during the entire period in which the partnership held the QSB stock and

  • Your share of the gain eligible for the section 1045 rollover cannot exceed the amount that would have been allocated to you based on your interest in the partnership at the time the QSB stock was acquired.

  See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for details on how to report the gain and the amount of the allowable postponed gain.

Opting out of partnership election.

You can opt out of the partnership's section 1045 election and either (1) recognize the gain or (2) elect to purchase different replacement QSB stock, either directly or through ownership of a different partnership that acquired replacement QSB stock. You satisfy the requirement to purchase replacement QSB stock if you own an interest in a partnership that purchases QSB stock during the 60-day period. You also must notify the partnership, in writing, if you opt out of the partnership's section 1045 election. If you recognize gain, you must notify the partnership, in writing, of the amount of gain that you are recognizing.

Code M9. Gain eligible for section 1045 rollover–stock not replaced.   This gain is eligible for the section 1045 rollover. Replacement stock has not been purchased by the partnership. The partnership must also provide you with:
  • The name of the corporation that issued the qualified small business (QSB) stock,

  • Your share of the partnership's adjusted basis of the QSB stock,

  • Your share of the partnership's sales price of the QSB stock,

  • The dates the QSB stock was bought and sold, and

  • Your share of the gain from the sale of the QSB stock.

   Corporate partners are not eligible for the section 1045 rollover. To qualify for the section 1045 rollover:
  • You must have held an interest in the partnership during the entire period in which the partnership held the QSB stock,

  • Your share of the gain eligible for the section 1045 rollover cannot exceed the amount that would have been allocated to you based on your interest in the partnership at the time the stock was acquired, and

  • You must purchase other QSB stock (as defined in the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949) and during the 60-day period that began on the date the QSB stock was sold by the partnership.

  See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for details on how to report the gain and the amount of the allowable postponed gain.

Making the section 1045 election.

You make a section 1045 election on a timely filed return for the tax year during which the partnership's tax year ends. Attach to your Schedule D (Form 1040) a statement that includes the following information for each amount of gain that you do not recognize under section 1045.

  • The name of the corporation that issued the QSB stock.

  • The name and EIN of the selling partnership.

  • The dates the QSB stock was purchased and sold.

  • The amount of gain that is not recognized under section 1045.

  • If a partner purchases QSB stock, the name of the corporation that issued the replacement QSB stock, the date the stock was purchased, and the cost of the stock.

  • If a partner treats the partner's interest in QSB stock that is purchased by a purchasing partnership as the partner's replacement QSB stock, the name and EIN of the purchasing partnership, the name of the corporation that issued the replacement QSB stock, the partner's share of the cost of the QSB stock that was purchased by the partnership, the computation of the partner's adjustment to basis with respect to that QSB stock, and the date the stock was purchased by the partnership.

Distribution of replacement QSB stock to a partner that reduces another partner's interest in replacement QSB stock.   You must recognize gain upon a distribution of replacement QSB stock to another partner that reduces your share of the replacement QSB stock held by a partnership. The amount of gain that you must recognize is based on the amount of gain that you would recognize upon the sale of the distributed replacement QSB stock for its fair market value on the date of the distribution, but not to exceed the amount you previously deferred under section 1045 with respect to the distributed replacement QSB stock. If the partnership distributed your share of replacement QSB stock to another partner, the partnership should give you (a) the name of the corporation that issued the replacement QSB stock, (b) the date the replacement QSB stock was distributed to another partner or partners, and (c) your share of the partnership's adjusted basis and fair market value of the replacement QSB stock on such date.

  For more information, see Regulations section 1.1045-1.

Code N. Unrecaptured Section 1250 Gain

Report this gain on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the Instructions for Schedule D (Form 1040). Do not report the gain on line 5 as stated on the worksheet.

Codes O1 and O2. Extraterritorial Income Exclusion

Partnership did not claim the exclusion.    If the partnership reports your share of foreign trading gross receipts (Code O1) and the extraterritorial income exclusion (Code O2), the partnership was not entitled to claim the exclusion because it did not meet the foreign economic process requirements. You may still qualify for your share of this exclusion if the partnership's foreign trading gross receipts for the tax year were $5 million or less.

  To qualify for this exclusion, your foreign trading gross receipts from all sources for the tax year also must have been $5 million or less.

Limited partners who qualify for the exclusion.

Report the extraterritorial exclusion amount (Code O2) as a deduction reducing the amount reported in box 1 (see the box 1 instructions, earlier).

General partners who qualify for the exclusion.

Report the Code O2 amount in accordance with the instructions for box 9, Code A1, B1, or C1, whichever applies. See Form 8873, Extraterritorial Income Exclusion, for more information.

Partnership claimed the exclusion.    If the partnership reports your share of foreign trading gross receipts (Code O1) but not the amount of the extraterritorial income exclusion, the partnership met the foreign economic process requirements and claimed the exclusion when figuring your share of partnership income. You also may need to know the amount of your share of foreign trading gross receipts from this partnership to determine if you met the $5 million or less exception discussed above for purposes of qualifying for an extraterritorial income exclusion from other sources.

Note.

Upon request, the partnership should furnish you a copy of the partnership's Form 8873 if there is a reduction for international boycott operations, illegal bribes, kickbacks, etc.

Code P. Inversion Gain

The partnership must provide a statement showing the amounts of each type of income or gain that is included in inversion gain. The partnership has included inversion gain in income elsewhere on Schedule K-1. Inversion gain is also reported under Code P because your taxable income and alternative minimum taxable income cannot be less than the inversion gain. Also, your inversion gain (a) is not taken into account in figuring the amount of net operating loss (NOL) for the tax year or the amount of NOL that can be carried over to each tax year, (b) may limit the amount of your credits, and (c) is treated as income from sources within the United States for the foreign tax credit. See section 7874 for details.

Code Q. Commercial Revitalization Deduction

Follow the Instructions for Form 8582 for commercial revitalization deductions from rental real estate activities to figure how much of the deduction can be reported on Schedule E (Form 1040), line 28, column (f).

Note.

The commercial revitalization deduction is not available for any building placed in service after December 31, 2009.

Codes R1 and R2. Interest Deduction Limitation for Corporate Partners

A corporate partner is required to treat its share of interest income, interest expense, and partnership liabilities as income, expense, and liabilities of the corporation for purposes of the interest deduction limitation under section 163(j). The corporation's share of interest income is reported in box 9 using code R1. Its share of interest expense is reported using code R2. The amounts reported using code R1 and R2 are for information only, and are included in amounts reported elsewhere on Schedule K-1. The corporation's share of partnership liabilities is shown in the first column of Schedule K-1.

Code S1. Domestic Production Activities Information

The partnership must attach a statement to Schedule K-1 that provides the information you need to figure the domestic production activities deduction. Use Form 8903, Domestic Production Activities Deduction, to figure this deduction. See the Instructions for Form 8903 for details.

Code S2. Qualified Production Activities Income (QPAI)

Report the QPAI reported to you by the partnership (in box 9 using Code S2) on Form 8903, in the applicable column of line 7.

Code S3. Employer's W-2 Wages

Report the portion of W-2 wages reported to you by the partnership (in box 9 using Code S3) on line 17 of Form 8903.

Code T. Section 409A Income

This is compensation to partners deferred under a section 409A nonqualified deferred compensation plan that does not meet the requirements of section 409A. This amount is also reported in box 9 using Code F. This amount is subject to interest and additional tax to be reported on line 60 of Form 1040. See the instructions for line 60 of Form 1040 for details.

Code U. Net Investment Income

The partnership may use this Code U to report information you may need to determine your net investment income tax under section 1411 including information regarding income from controlled foreign corporations (CFCs) and passive foreign investment companies (PFICs) the stock of which is owned by the partnership. Any information that is not provided elsewhere on Schedule K-1 (or an attachment to Schedule K-1) is provided using Code U. For CFCs and PFICs that you treat as qualified electing funds (QEFs), the information that is relevant to you will depend on whether you, the partnership, or a lower-tier entity has made an election under Regulations section 1.1411-10(g) with respect to the CFC or QEF. For example, if the partnership made an election under Regulations section 1.1411-10(g) for a CFC the stock of which is owned by the partnership, and the relevant income and deduction items derived from that CFC are reported elsewhere on the Schedule K-1, then you will not need the information provided using Code U to complete yourForm 8960.

If you are an individual who is a U.S. citizen or resident, or a domestic trust or estate, follow the Instructions for Form 8960 to figure and report your net investment income and adjusted gross income or modified adjusted gross income. Corporate partners are not subject to the net investment income tax. See Regulations sections 1.1411-1 through 10 for details.

Code V. Other Information

The partnership will use Code V to report the following to partners.

  • The recapture of any credit (other than partnership level low-income housing credit or investment credit) is reported to you as a separately stated item. See the instructions for the specific form identified with the credit for more information on reporting the recapture.

  • Any information a partner that is a publicly traded partnership may need to determine if it meets the 90% qualifying income test of section 7704(c)(2). Partners are required to notify the partnership of their status as a publicly traded partnership.

  • Any information you need to complete a disclosure statement for reportable transactions in which the partnership participates. If the partnership participates in a transaction that must be disclosed on Form 8886, Reportable Transaction Disclosure Statement, both you and the partnership may be required to file Form 8886 for the transaction. The determination of whether you are required to disclose a transaction of the partnership is based on the category(s) under which the transaction qualifies for disclosure and is determined by the partnership. See the Instructions for Form 8886 for details.

  • Conservation reserve program payments. Individuals who received social security retirement or disability benefits, and are partners in a farm partnership that receives conservation reserve program payments, do not pay self-employment tax on their share of the conservation reserve payments. The partnership will report your share of the conservation reserve program payments in box 9 using Code V. See Schedule SE (Form 1040) for information on excluding the payments from your calculation of self-employment tax.

  • Gain or loss attributable to the sale or exchange of qualified preferred stock of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The partnership will report on an attached statement the amount of gain or loss attributable to the sale or exchange of the qualified preferred stock, the date the stock was acquired by the partnership, and the date the stock was sold or exchanged by the partnership. If the partner is not a financial institution, report the gain or loss on line 5 or line 12 of Schedule D (Form 1040) in accordance with the instructions for Schedule D. If a partner is a financial institution referred to in section 582(c)(2) or a depositary institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act), report the gain or loss in accordance with the Instructions for Form 4797 and Rev. Proc. 2008-64, 2008-47 I.R.B. 1195.

  • If the partnership made a section 108(i) election or allocates any section 108(i) items to its partners, it will provide a statement identifying your share of the following.

    1. The deferred section 108(i) cancellation of debt (COD) income that has not been included in income in the current or prior tax years.

    2. The partnership's original issue discount (OID) deduction deferred under section 108(i)(2)(A)(i) that has not been deducted in the current or prior tax years.

    3. The deferred section 752 amount that is treated as a distribution of money under section 752 in the current tax year.

    4. The deferred section 752 amount remaining as of the end of the current tax year.

    5. Any income previously deferred as a result of a section 108(i) election that is includible in the current year. See section 108(i) for events that will cause previously deferred income to be reportable, and a special rule for allocating deferred income to partners.

    6. The current year section 108(i) OID deduction. The partnership will provide your share of the partnership's OID deduction deferred under section 108(i)(2)(A)(i) that is allowable as a deduction in the current tax year under section 108(i)(2)(A)(ii) or section 108(i)(5)(D)(i) or (ii).

  • The information needed to complete Schedule P (Form 1120-F), List of Foreign Partner Interests in Partnerships. When required, the partnership will make this report on an attached statement to partners that are a corporation identified as a foreign partner under Regulations section 1.1446-1(c)(3) or partners that are a partnership (domestic or foreign) if the reporting partnership knows, or has reason to know, that one or more of the partners is a foreign corporation. If the partnership allocates effectively connected income to the partner, the statement will contain the information needed to complete lines 1 through 10, 13, 14, 15b, 17a, 17b, and 18 of Schedule P (Form 1120-F). If the partnership does not allocate effectively connected income to the partner, the statement will contain the information needed to complete lines 13, 14, and 18 of Schedule P (Form 1120-F), information that might be relevant for purposes of completing Schedule P in determining your interest expense deduction under Regulations section 1.882-5.

  • The partner's share of the credit for each separate bond credit that was reported on the partnership's Form 8912. Do not add these amounts to your income, as they were included in the income (loss) reported in box 1 or 2. The partnership will report the following credits separately: Clean renewable energy bond credit, Midwestern tax credit bond credit, new clean renewable energy bond credit, qualified energy conservation bond credit, qualified zone academy bond credit, qualified school construction bond credit, and build America bond credit.

  • Excess farm loss limitation. If the partnership has deductions attributable to a farming activity, it will provide a statement showing the aggregate gross income or gain and the aggregate deductions from the farming activity that you need to figure any excess farm loss limitation. See section 461(j) for details.

  • Any other information you may need to file with your return not shown elsewhere on Schedule K-1. The partnership must give you a description and the amount of your share for each of these items.


More Online Instructions