Part III. 1 Ordinary business income (loss) 2 Net rental real estate income (loss) 3 Other net rental income (loss) 4 Guaranteed payments

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1 Schedule K-1 (Form 1065) 2010 Department of the Treasury Internal Revenue Service For calendar year 2010, or tax year beginning, 2010 ending, 20 Partner s Share of Income, Deductions, Credits, etc. See back of form and separate instructions. A B Part I Information About the Partnership Partnership s employer identification number Partnership s name, address, city, state, and ZIP code Part III Final K-1 Amended K-1 OMB No Partner s Share of Current Year Income, Deductions, Credits, and Other Items 1 Ordinary business income (loss) 2 Net rental real estate income (loss) 3 Other net rental income (loss) 4 Guaranteed payments 5 Interest income 6a Ordinary dividends 15 Credits 16 Foreign transactions 6b Qualified dividends C IRS Center where partnership filed return D Check if this is a publicly traded partnership (PTP) Part II Information About the Partner E Partner s identifying number 7 Royalties 8 Net short-term capital gain (loss) 9a Net long-term capital gain (loss) 9b Collectibles (28%) gain (loss) 17 Alternative minimum tax (AMT) items F Partner s name, address, city, state, and ZIP code 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) 18 Tax-exempt income and nondeductible expenses 11 Other income (loss) G General partner or LLC member-manager Limited partner or other LLC member H Domestic partner Foreign partner I J What type of entity is this partner? Partner s share of profit, loss, and capital (see instructions): Beginning Ending Profit % % Loss % % Capital % % 12 Section 179 deduction 13 Other deductions 19 Distributions 20 Other information K Partner s share of liabilities at year end: Nonrecourse $ Qualified nonrecourse financing. $ Recourse $ 14 Self-employment earnings (loss) L M Partner s capital account analysis: Beginning capital account... $ Capital contributed during the year $ Current year increase (decrease). $ Withdrawals & distributions.. $ ( ) Ending capital account.... $ Tax basis GAAP Section 704(b) book Other (explain) Did the partner contribute property with a built-in gain or loss? Yes No If "Yes", attach statement (see instructions) *See attached statement for additional information. For IRS Use Only For Paperwork Reduction Act Notice, see Instructions for Form Cat. No R Schedule K-1 (Form 1065) 2010

2 Schedule K-1 (Form 1065) 2010 Page 2 This list identifies the codes used on Schedule K-1 for all partners and provides summarized reporting information for partners who file Form For detailed reporting and filing information, see the separate Partner s Instructions for Schedule K-1 and the instructions for your income tax return. 1. Ordinary business income (loss). Determine whether the income (loss) is passive or nonpassive and enter on your return as follows. Report on Passive loss Passive income Schedule E, line 28, column (g) Nonpassive loss Schedule E, line 28, column (h) Nonpassive income Schedule E, line 28, column (j) 2. Net rental real estate income (loss) 3. Other net rental income (loss) Net income Schedule E, line 28, column (g) Net loss 4. Guaranteed payments Schedule E, line 28, column (j) 5. Interest income Form 1040, line 8a 6a. Ordinary dividends Form 1040, line 9a 6b. Qualified dividends Form 1040, line 9b 7. Royalties Schedule E, line 4 8. Net short-term capital gain (loss) Schedule D, line 5, column (f) 9a. Net long-term capital gain (loss) Schedule D, line 12, column (f) 9b. Collectibles (28%) gain (loss) 28% Rate Gain Worksheet, line 4 (Schedule D instructions) 9c. Unrecaptured section 1250 gain 10. Net section 1231 gain (loss) 11. Other income (loss) Code A Other portfolio income (loss) B Involuntary conversions C Sec contracts & straddles Form 6781, line 1 D Mining exploration costs recapture See Pub. 535 E Cancellation of debt Form 1040, line 21 or Form 982 F Other income (loss) 12. Section 179 deduction 13. Other deductions } A Cash contributions (50%) B Cash contributions (30%) C Noncash contributions (50%) D Noncash contributions (30%) See the Partner s E Capital gain property to a 50% Instructions organization (30%) F Capital gain property (20%) G Contributions (100%) H Investment interest expense Form 4952, line 1 I Deductions royalty income Schedule E, line 18 J Section 59(e)(2) expenditures K Deductions portfolio (2% floor) Schedule A, line 23 L Deductions portfolio (other) Schedule A, line 28 M Amounts paid for medical insurance Schedule A, line 1 or Form 1040, line 29 N Educational assistance benefits O Dependent care benefits Form 2441, line 12 P Preproductive period expenses Q Commercial revitalization deduction from rental real estate activities See Form 8582 instructions R Pensions and IRAs S Reforestation expense deduction T Domestic production activities information See Form 8903 instructions U Qualified production activities income Form 8903, line 7b V Employer s Form W-2 wages Form 8903, line 17 W Other deductions 14. Self-employment earnings (loss) Note. If you have a section 179 deduction or any partner-level deductions, see the Partner s Instructions before completing Schedule SE. A Net earnings (loss) from self-employment Schedule SE, Section A or B B Gross farming or fishing income C Gross non-farm income 15. Credits A Low-income housing credit (section 42(j)(5)) from pre-2008 buildings B Low-income housing credit (other) from pre-2008 buildings C Low-income housing credit (section 42(j)(5)) from post-2007 buildings Form 8586, line 11 D Low-income housing credit (other) from post-2007 buildings Form 8586, line 11 E Qualified rehabilitation expenditures (rental real estate) } F Other rental real estate credits G Other rental credits H Undistributed capital gains credit Form 1040, line 71; check box a I Alcohol and cellulosic biofuel fuels credit Form 6478, line 8 J Work opportunity credit Form 5884, line 3 Code Report on K Disabled access credit L Empowerment zone and renewal community employment credit Form 8844, line 3 M Credit for increasing research activities N Credit for employer social security and Medicare taxes Form 8846, line 5 O Backup withholding Form 1040, line 61 P Other credits 16. Foreign transactions A Name of country or U.S. possession } Form 1116, Part I B Gross income from all sources C Gross income sourced at partner level Foreign gross income sourced at partnership level D Passive category E General category Form 1116, Part I F Other Deductions allocated and apportioned at partner level G Interest expense Form 1116, Part I H Other Form 1116, Part I Deductions allocated and apportioned at partnership level to foreign source income I Passive category } General category Form 1116, Part I K Other Other information L Total foreign taxes paid Form 1116, Part II M Total foreign taxes accrued Form 1116, Part II N Reduction in taxes available for credit Form 1116, line 12 O Foreign trading gross receipts Form 8873 P Extraterritorial income exclusion Form 8873 Q Other foreign transactions 17. Alternative minimum tax (AMT) items A Post-1986 depreciation adjustment } B Adjusted gain or loss See the Partner s C Depletion (other than oil & gas) Instructions and D Oil, gas, & geothermal gross income the Instructions for E Oil, gas, & geothermal deductions Form 6251 F Other AMT items 18. Tax-exempt income and nondeductible expenses A Tax-exempt interest income Form 1040, line 8b B Other tax-exempt income C Nondeductible expenses 19. Distributions A Cash and marketable securities B Distribution subject to section 737 C Other property } 20. Other information A Investment income Form 4952, line 4a B Investment expenses Form 4952, line 5 C Fuel tax credit information Form 4136 D Qualified rehabilitation expenditures (other than rental real estate) E Basis of energy property F Recapture of low-income housing credit (section 42(j)(5)) Form 8611, line 8 G Recapture of low-income housing credit (other) Form 8611, line 8 H Recapture of investment credit See Form 4255 I Recapture of other credits J Look-back interest completed long-term contracts See Form 8697 K Look-back interest income forecast method See Form 8866 L Dispositions of property with section 179 deductions M Recapture of section 179 deduction N Interest expense for corporate partners O Section 453(l)(3) information P Section 453A(c) information Q Section 1260(b) information R Interest allocable to production }See the Partner s expenditures Instructions S CCF nonqualified withdrawals T Depletion information oil and gas U Amortization of reforestation costs V Unrelated business taxable income W Precontribution gain (loss) X Section 108(i) information Y Other information }

3 2010 Partner s Instructions for Schedule K-1 (Form 1065) Partner s Share of Income, Deductions, Credits, etc. (For Partner s Use Only) Section references are to the Internal Revenue Code unless otherwise noted. General Instructions Purpose of Schedule K-1 The partnership uses Schedule K-1 to report your share of the partnership s income, deductions, credits, etc. Keep it for your records. Do not file it with your tax return. The partnership has filed a copy with the IRS. Although the partnership generally is not Errors If you believe the partnership has made an error on your Schedule K-1, notify the partnership and ask for a corrected Schedule K-1. Do not change any items on your copy of Schedule K-1. Be sure that the partnership sends a copy of the corrected Schedule K-1 to the IRS. If you are a partner in a partnership that does not meet the small partnership exception and you report any partnership item on your return in a manner different from the way the partnership reported it, you must file Form Department of the Treasury Internal Revenue Service number of the nominee and such other person, description of the partnership interest held as nominee for that person, and other information required by Temporary Regulations section (c)-1T. A nominee that fails to furnish this statement must furnish to the person for whom the nominee holds the partnership interest a copy of Schedule K-1 and related information within 30 days of receiving it from the partnership. A nominee who fails to furnish all the information required by Temporary Regulations section (c)-1T when due, or who furnishes incorrect information, is subject to income tax, you are liable for tax Sale or Exchange of subject to a $50 penalty for each statement on your share of the partnership income, Partnership Interest required to be filed before 2011 for which a whether or not distributed. Include your share on your tax return if a return is required. Use these instructions to help you report the items shown on Schedule K-1 on your tax return. The amount of loss and deduction you may claim on your tax return may be less than the amount reported on Schedule K-1. It is the partner s responsibility to consider and apply any applicable limitations. See Limitations on Losses, Deductions, and Credits beginning on page 2 for more information. Generally, a partner who sells or exchanges a partnership interest in a section 751(a) exchange must notify the partnership, in writing, within 30 days of the exchange (or, if earlier, by January 15 of the calendar year following the calendar year in which the exchange occurred). A section 751(a) exchange is any sale or exchange of a partnership interest in which any money or other property received by the partner in exchange for that partner s interest is attributable to unrealized receivables (as defined in section 751(c)) or inventory items (as defined in section 751(d)). failure occurs. The maximum penalty is $100,000 for all such failures during a calendar year. If the nominee intentionally disregards the requirement to report correct information, each $50 penalty increases to $100 or, if greater, 10% of the aggregate amount of items required to be reported, and the $100,000 maximum does not apply. For statements required to be made after 2010, the nominee is subject to a $100 penalty for each statement for which a failure occurs. The maximum penalty is $1,500,000 for all such failures during a calendar year. If the nominee intentionally disregards the requirement to report correct Inconsistent Treatment of The written notice to the partnership information, each $100 penalty increases to Items must include the names and addresses of $250 or, if greater, 10% of the aggregate Generally, you must report partnership items shown on your Schedule K-1 (and any attached schedules) the same way that the partnership treated the items on its return. This rule does not apply if your partnership is within the small partnership exception and does not elect to have the tax treatment of partnership items determined at the partnership level. If the treatment on your original or amended return is inconsistent with the partnership s treatment, or if the partnership was required to but has not filed a return, you must file Form 8082, Notice of Inconsistent Treatment or Administrative Adjustment Request (AAR), with your original or amended return to identify and explain any inconsistency (or to note that a partnership return has not been filed). both parties to the exchange, the identifying amount of items required to be reported, numbers of the transferor and (if known) of and the $1,500,000 maximum does not the transferee, and the exchange date. apply. An exception to this rule is made for sales or exchanges of publicly traded International Boycotts partnership interests for which a broker is Every partnership that had operations in, or required to file Form 1099-B, Proceeds related to, a boycotting country, company, or From Broker and Barter Exchange a national of a country must file Form 5713, Transactions. International Boycott Report. If a partner is required to notify the If the partnership cooperated with an partnership of a section 751(a) exchange international boycott, it must give you a copy but fails to do so, a $50 penalty may be of its Form You must file your own imposed for each such failure for a Form 5713 to report the partnership s notification required to be filed before activities and any other boycott operations For notifications required to be filed after that you may have. You may lose certain tax 2010, the penalty is $100 for each such benefits if the partnership participated in, or failure. However, no penalty will be imposed cooperated with, an international boycott. if the partner can show that the failure was See Form 5713 and its instructions for more due to reasonable cause and not willful information. neglect. Definitions If you are required to file Form 8082 but do not do so, you may be subject to the Nominee Reporting accuracy-related penalty. This penalty is in Any person who holds, directly or indirectly, General Partner addition to any tax that results from making an interest in a partnership as a nominee for A general partner is a partner who is your amount or treatment of the item another person must furnish a written personally liable for partnership debts. consistent with that shown on the statement to the partnership by the last day partnership s return. Any deficiency that of the month following the end of the Limited Partner results from making the amounts consistent partnership s tax year. This statement must A limited partner is a partner in a partnership may be assessed immediately. include the name, address, and identifying formed under a state limited partnership law, Cat. No N

4 whose personal liability for partnership debts forward indefinitely and deducted in a later Use the worksheet below to figure the is limited to the amount of money or other year subject to the basis limit for that year. basis of your interest in the partnership. property that the partner contributed or is required to contribute to the partnership. The partnership is not responsible for For more details on the basis rules, see Some members of other entities, such as keeping the information needed to figure the Pub. 541, Partnerships. domestic or foreign business trusts or basis of your partnership interest. Although limited liability companies that are classified the partnership does provide an analysis of as partnerships, may be treated as limited the changes to your capital account in item At-Risk Limitations partners for certain purposes. See, for L of Schedule K-1, that information is based Generally, if you have (a) a loss or other example, Temporary Regulations section on the partnership s books and records and deduction from any activity carried on as a T(e)(3), which treats all members cannot be used to figure your basis. trade or business or for the production of with limited liability as limited partners for income by the partnership and (b) amounts purposes of section 469(h)(2). You can figure the adjusted basis of your in the activity for which you are not at risk, partnership interest by adding items that you will have to complete Form 6198, Nonrecourse Loans increase your basis and then subtracting At-Risk Limitations, to figure your allowable Nonrecourse loans are those liabilities of the partnership for which no partner bears the economic risk of loss. items that decrease your basis. loss. Elections Generally, the partnership decides how to figure taxable income from its operations. However, certain elections are made by you Worksheet for Adjusting the Basis of a Partner s Interest in the Partnership Keep for Your Records 1. Your adjusted basis at the end of the prior year. Do not enter less than separately on your income tax return and zero. Enter -0- if this is your first tax year not by the partnership. These elections are made under the following code sections. Increases: Section 59(e) (deduction of certain 2. Money and your adjusted basis in property contributed to the qualified expenditures ratably over the partnership less the associated liabilities (but not less than zero) period of time specified in that section). For details, see the instructions for code J in box 3. Your increased share of or assumption of partnership liabilities. 13. (Subtract your share of liabilities shown in item K of your 2009 Schedule Section 108(b)(5) (election related to K-1 from your share of liabilities shown in item K of your 2010 Schedule reduction of tax attributes due to exclusion K-1 and add the amount of any partnership liabilities you assumed from gross income of discharge of during the tax year (but not less than zero)) indebtedness). This does not include the 4. Your share of the partnership s income or gain (including tax-exempt section 108(i) election (election to defer and income) reduced by any amount included in interest income with ratably include income arising from certain respect to the credit to holders of clean renewable energy bonds and discharge of indebtedness). Midwestern tax credit bonds Section 263A(d) (preproductive 5. Any gain recognized this year on contributions of property. Do not expenses). See the instructions for code P include gain from transfer of liabilities in box 13. Section 617 (deduction and recapture of 6. Your share of the excess of the deductions for depletion (other than oil certain mining exploration expenditures). and gas depletion) over the basis of the property subject to depletion.. 6. Section 901 (foreign tax credit). Additional Information Decreases: 7. Withdrawals and distributions of money and the adjusted basis of property distributed to you from the partnership. Do not include the For more information on the treatment of amount of property distributions included in the partner s income partnership income, deductions, credits, (taxable income) etc., see Pub. 535, Business Expenses. Caution: A distribution may be taxable if the amount exceeds your To get forms and publications, see the adjusted basis of your partnership interest immediately before the instructions for your tax return or visit the distribution. IRS website at IRS.gov. 8. Your decreased share of partnership liabilities and any decrease in your individual liabilities because they were assumed by the partnership. Limitations on Losses, (Subtract your share of liabilities shown in item K of your 2010 Schedule Deductions, and Credits K-1 from your share of liabilities shown in item K of your 2009 Schedule K-1 and add the amount of your individual liabilities that the partnership There are potential limitations on assumed during the tax year (but not less than zero)) partnership losses that you can deduct on your return. These limitations and the order 9. Your share of the partnership s nondeductible expenses that are not in which you must apply them are as capital expenditures follows: the basis rules, the at-risk 10. Your share of the partnership s losses and deductions (including capital limitations, and the passive activity losses). However, include your share of the partnership s section 179 limitations. These limitations are discussed expense deduction for this year even if you cannot deduct all of it below. because of limitations Other limitations may apply to specific 11. The amount of your deduction for depletion of any partnership oil and deductions (for example, the section 179 gas property, not to exceed your allocable share of the adjusted basis expense deduction). Generally, specific of that property... limitations apply before the basis, at-risk, and passive loss limitations. 12. Your adjusted basis in the partnership at the end of this tax year. (Add lines 1 through 6 and subtract lines 7 through 11 from the total. If zero 11. or less, enter -0-.) Basis Rules Generally, you may not claim your share of a partnership loss (including a capital loss) to the extent that it is greater than the adjusted basis of your partnership interest at the end of the partnership s tax year. Any losses and deductions not allowed this year because of the basis limit can be carried Caution: The deduction for your share of the partnership s losses and deductions is limited to your adjusted basis in your partnership interest. If you entered zero on line 12 and the amount figured for line 12 was less than zero, a portion of your share of the partnership losses and deductions may not be deductible. (See Basis Rules above for more information.) -2- Partner s Instructions for Schedule K-1 (Form 1065)

5 The at-risk rules generally limit the Note. For a closely held C corporation owned a general partnership interest at all amount of loss and other deductions that (defined in section 465(a)(1)(B)), the above times during the tax year), you materially you can claim to the amount you could conditions are treated as met if more than participated in an activity only if one or more actually lose in the activity. These losses 50% of the corporation s gross receipts were of the following apply. and deductions include a loss on the from real property trades or businesses in 1. You participated in the activity for disposition of assets and the section 179 which the corporation materially more than 500 hours during the tax year. expense deduction. However, if you participated. 2. Your participation in the activity for acquired your partnership interest before For purposes of this rule, each interest in the tax year constituted substantially all the 1987, the at-risk rules do not apply to losses rental real estate is a separate activity, participation in the activity of all individuals from an activity of holding real property unless you elect to treat all interests in rental (including individuals who are not owners of placed in service before 1987 by the real estate as one activity. For details on interests in the activity). partnership. The activity of holding mineral making this election, see the Instructions for 3. You participated in the activity for property does not qualify for this exception. Schedule E (Form 1040). more than 100 hours during the tax year, The partnership should identify on an If you are married filing jointly, either you and your participation in the activity for the attachment to Schedule K-1 any losses that or your spouse must separately meet both tax year was not less than the participation are not subject to the at-risk limitations. of the above conditions, without taking into in the activity of any other individual Generally, you are not at risk for amounts account services performed by the other (including individuals who were not owners such as the following. spouse. of interests in the activity) for the tax year. Nonrecourse loans used to finance the A real property trade or business is any 4. The activity was a significant activity, to acquire property used in the real property development, redevelopment, participation activity for the tax year, and activity, or to acquire your interest in the construction, reconstruction, acquisition, you participated in all significant activity, that are not secured by your own conversion, rental, operation, management, participation activities (including activities property (other than the property used in the leasing, or brokerage trade or business. outside the partnership) during the year for activity). See the instructions for item K on Services you performed as an employee are more than 500 hours. A significant page 5 for the exception for qualified not treated as performed in a real property participation activity is any trade or business nonrecourse financing secured by real trade or business unless you owned more activity in which you participated for more property. than 5% of the stock (or more than 5% of than 100 hours during the year and in which Cash, property, or borrowed amounts the capital or profits interest) in the you did not materially participate under any used in the activity (or contributed to the employer. of the material participation tests (other than activity, or used to acquire your interest in 3. Working interests in oil or gas wells if this test). the activity) that are protected against loss you were a general partner. 5. You materially participated in the by a guarantee, stop-loss agreement, or 4. The rental of a dwelling unit any activity for any 5 tax years (whether or not other similar arrangement (excluding partner used for personal purposes during consecutive) during the 10 tax years that casualty insurance and insurance against the year for more than the greater of 14 immediately precede the tax year. tort liability). Amounts borrowed for use in the activity days or 10% of the number of days that the 6. The activity was a personal service from a person who has an interest in the residence was rented at fair rental value. activity and you materially participated in the activity, other than as a creditor, or who is 5. Activities of trading personal property activity for any 3 tax years (whether or not related, under section 465(b)(3), to a person for the account of owners of interests in the consecutive) preceding the tax year. A (other than you) having such an interest. activities. personal service activity involves the performance of personal services in the You should get a separate statement of If you are an individual, an estate, or a fields of health, law, engineering, income, expenses, etc., for each activity trust, and you have a passive activity loss or architecture, accounting, actuarial science, from the partnership. credit, use Form 8582, Passive Activity Loss performing arts, consulting, or any other Limitations, to figure your allowable passive trade or business in which capital is not a Passive Activity Limitations losses and Form 8582-CR, Passive Activity material income-producing factor. Section 469 provides rules that limit the Credit Limitations, to figure your allowable 7. Based on all the facts and deduction of certain losses and credits. passive credits. For a corporation, use Form circumstances, you participated in the These rules apply to partners who: 8810, Corporate Passive Activity Loss and activity on a regular, continuous, and Are individuals, estates, trusts, closely Credit Limitations. See the instructions for substantial basis during the tax year. held corporations, or personal service these forms for details. corporations and If the partnership had more than one Limited partners. If you are a limited Have a passive activity loss or credit for activity, it will attach a statement to your partner, you do not materially participate in the tax year. Schedule K-1 that identifies each activity an activity unless you meet one of the tests Generally, passive activities include the (trade or business activity, rental real estate in paragraphs 1, 5, or 6 above. following. activity, rental activity other than rental real 1. Trade or business activities in which estate, etc.) and specifies the income (loss), Work counted toward material you did not materially participate and deductions, and credits from each activity. participation. Generally, any work that you 2. Activities that meet the definition of or your spouse does in connection with an Material participation. You must rental activities under Temporary activity held through a partnership (where determine if you materially participated (a) in Regulations section T(e)(3) and you own your partnership interest at the time each trade or business activity held through Regulations section (e)(3). the work is done) is counted toward material the partnership and (b) if you were a real participation. However, work in connection estate professional (defined above), in each Passive activities do not include: with the activity is not counted toward rental real estate activity held through the 1. Trade or business activities in which material participation if either of the following partnership. All determinations of material you materially participated. applies. participation are based on your participation 2. Rental real estate activities in which during the partnership s tax year. 1. The work is not the type of work that you materially participated if you were a real owners of the activity would usually do and Material participation standards for estate professional for the tax year. You one of the principal purposes of the work partners who are individuals are listed were a real estate professional only if you that you or your spouse does is to avoid the below. Special rules apply to certain retired met both of the following conditions. passive loss or credit limitations. or disabled farmers and to the surviving a. More than half of the personal 2. You do the work in your capacity as spouses of farmers. See the Instructions for services you performed in trades or an investor and you are not directly involved Form 8582 for details. businesses were performed in real property in the day-to-day operations of the activity. trades or businesses in which you materially Corporations should refer to the Examples of work done as an investor that participated and Instructions for Form 8810 for the material would not count toward material b. You performed more than 750 hours participation standards that apply to them. participation include: of services in real property trades or Individuals (other than limited a. Studying and reviewing financial businesses in which you materially partners). If you are an individual (either a statements or reports on operations of the participated. general partner or a limited partner who activity, Partner s Instructions for Schedule K-1 (Form 1065) -3-

6 b. Preparing or compiling summaries or nonpassive income. On the form or column (c) of Worksheet 6 (column (e) of analyses of the finances or operations of the schedule you normally use, report the net Worksheet 7) are the allowed losses to activity for your own use, and gain portion as nonpassive income and the report on the forms or schedules. Report c. Monitoring the finances or operations remaining income and the total losses as both these losses and any income from the of the activity in a non-managerial capacity. passive income and loss. To the left of the PTP on the forms and schedules you entry space, enter From PTP. It is normally use. Effect of determination. Income (loss), important to identify the nonpassive income 4. If you have an overall loss and you deductions, and credits from an activity are because the nonpassive portion is included disposed of your entire interest in the PTP to nonpassive if you determine that: in modified adjusted gross income for an unrelated person in a fully taxable You materially participated in a trade or purposes of figuring on Form 8582 the transaction during the year, your losses business activity of the partnership or special allowance for active participation in (including prior year unallowed losses) You were a real estate professional a non-ptp rental real estate activity. In allocable to the activity for the year are not (defined earlier) in a rental real estate addition, the nonpassive income is included limited by the passive loss rules. A fully activity of the partnership. in investment income when figuring your taxable transaction is one in which you If you determine that you did not investment interest expense deduction on recognize all your realized gain or loss. materially participate in a trade or business Form Report the income and losses on the forms activity of the partnership or if you have and schedules you normally use. Example. If you have Schedule E (Form income (loss), deductions, or credits from a 1040) income of $8,000, and a Form 4797 Note. For rules on the disposition of an rental activity of the partnership (other than prior year unallowed loss of $3,500 from the entire interest reported using the installment a rental real estate activity in which you passive activities of a particular PTP, you method, see the Instructions for Form materially participated as a real estate have a $4,500 overall gain ($8,000 professional), the amounts from that activity $3,500). On Schedule E (Form 1040), line Special allowance for a rental real estate are passive. Report passive income 28, report the $4,500 net gain as activity. If you actively participated in a (losses), deductions, and credits as follows. nonpassive income in column (j). In column rental real estate activity, you may be able 1. If you have an overall gain (the (g), report the remaining Schedule E (Form to deduct up to $25,000 of the loss from the excess of income over deductions and 1040) gain of $3,500 ($8,000 $4,500). On activity from nonpassive income. This losses, including any prior year unallowed the appropriate line of Form 4797, report the special allowance is an exception to the loss) from a passive activity, report the prior year unallowed loss of $3,500. Be sure general rule disallowing losses in excess of income, deductions, and losses from the to enter From PTP to the left of each entry income from passive activities. The special activity as indicated in these instructions. space. allowance is not available if you were 2. If you have an overall loss (the married, file a separate return for the year, 3. If you have an overall loss (but did not excess of deductions and losses, including and did not live apart from your spouse at all dispose of your entire interest in the PTP to any prior year unallowed loss, over income) times during the year. an unrelated person in a fully taxable or credits from a passive activity, report the transaction during the year), the losses are Only individuals, qualifying estates, and income, deductions, losses, and credits from allowed to the extent of the income, and the qualifying revocable trusts that made a all passive activities using the Instructions excess loss is carried forward to use in a section 645 election can actively participate for Form 8582 or Form 8582-CR (or Form future year when you have income to offset in a rental real estate activity. Estates (other 8810), to see if your deductions, losses, and it. Report as a passive loss on the schedule than qualifying estates), trusts (other than credits are limited under the passive activity or form you normally use the portion of the qualifying revocable trusts that made a rules. loss equal to the income. Report the income section 645 election), and corporations as passive income on the form or schedule cannot actively participate. Limited partners Publicly traded partnerships. The you normally use. cannot actively participate unless future passive activity limitations are applied regulations provide an exception. separately for items (other than the Example. You have a Schedule E (Form You are not considered to actively low-income housing credit and the 1040) loss of $12,000 (current year losses participate in a rental real estate activity if, at rehabilitation credit) from each publicly plus prior year unallowed losses) and a any time during the tax year, your interest traded partnership (PTP). Thus, a net Form 4797 gain of $7,200. Report the (including your spouse s interest) in the passive loss from a PTP may not be $7,200 gain on the appropriate line of Form activity was less than 10% (by value) of all deducted from other passive income On Schedule E (Form 1040), line 28, interests in the activity. Instead, a passive loss from a PTP is report $7,200 of the losses as a passive loss in column (f). Carry forward to 2011 the Active participation is a less stringent suspended and carried forward to be unallowed loss of $4,800 ($12,000 requirement than material participation. You applied against passive income from the $7,200). may be treated as actively participating if same PTP in later years. If the partner s you participated, for example, in making entire interest in the PTP is completely If you have unallowed losses from more management decisions or arranging for disposed of, any unused losses are allowed than one activity of the PTP or from the others to provide services (such as repairs) in full in the year of disposition. same activity of the PTP that must be in a significant and bona fide sense. If you have an overall gain from a PTP, reported on different forms, you must Management decisions that can count as the net gain is nonpassive income. In allocate the unallowed losses on a pro rata active participation include approving new addition, the nonpassive income is included basis to figure the amount allowed from tenants, deciding rental terms, approving in investment income to figure your each activity or on each form. capital or repair expenditures, and other investment interest expense deduction. To allocate and keep a record of the similar decisions. Do not report passive income, gains, or TIP unallowed losses, use Worksheets 5, An estate is a qualifying estate if the losses from a PTP on Form Instead, 6, and 7 of Form List each decedent would have satisfied the active use the following rules to figure and report activity of the PTP in Worksheet 5. Enter the participation requirement for the activity for on the proper form or schedule your income, overall loss from each activity in column (a). the tax year the decedent died. A qualifying gains, and losses from passive activities that Complete column (b) of Worksheet 5 estate is treated as actively participating for you held through each PTP you owned according to its instructions. Multiply the tax years ending less than 2 years after the during the tax year. total unallowed loss from the PTP by each date of the decedent s death. 1. Combine any current year income, ratio in column (b) and enter the result in Modified adjusted gross income gains and losses, and any prior year column (c) of Worksheet 5. Then, complete limitation. The maximum special unallowed losses to see if you have an Worksheet 6 if all the loss from the same allowance that single individuals and overall gain or loss from the PTP. Include activity is to be reported on one form or married individuals filing a joint return can only the same types of income and losses schedule. Use Worksheet 7 instead of qualify for is $25,000. The maximum is you would include in your net income or loss Worksheet 6 if you have more than one loss $12,500 for married individuals who file from a non-ptp passive activity. See Pub. to be reported on different forms or separate returns and who lived apart at all 925, Passive Activity and At-Risk Rules, for schedules for the same activity. Enter the times during the year. The maximum special more details. net loss plus any prior year unallowed allowance for which an estate can qualify is 2. If you have an overall gain, the net losses in column (a) of Worksheet 6 (or $25,000 reduced by the special allowance gain portion (total gain minus total losses) is Worksheet 7 if applicable). The losses in for which the surviving spouse qualifies. -4- Partner s Instructions for Schedule K-1 (Form 1065)

7 If your modified adjusted gross income you and the partnership (or between the amounts are included in either of these (defined below) is $100,000 or less ($50,000 partnership and another partnership or S categories. or less if married filing separately), your loss corporation if both entities have the same is deductible up to the maximum special owners with the same proportional If your partnership is engaged in two or allowance referred to in the preceding ownership interest in each entity). If there more different types of activities subject to paragraph. If your modified adjusted gross was more than one activity, the partnership the at-risk provisions, or a combination of income is more than $100,000 (more than will provide a statement allocating the at-risk activities and any other activity, the $50,000 if married filing separately), the interest income or expense with respect to partnership should give you a statement special allowance is limited to 50% of the each activity. The self-charged interest rules showing your share of nonrecourse difference between $150,000 ($75,000 if do not apply to your partnership interest if liabilities, partnership-level qualified married filing separately) and your modified the partnership made an election under nonrecourse financing, and other recourse adjusted gross income. When modified Regulations section (g) to avoid the liabilities for each activity. adjusted gross income is $150,000 or more application of these rules. See the Qualified nonrecourse financing secured ($75,000 or more if married filing Instructions for Form 8582 for details. by real property used in an activity of separately), there is no special allowance. holding real property that is subject to the Modified adjusted gross income is your at-risk rules is treated as an amount at risk. adjusted gross income figured without taking Qualified nonrecourse financing generally into account the following amounts, if Specific Instructions includes financing for which no one is applicable: personally liable for repayment that is Any passive activity loss. Part I. Information About borrowed for use in an activity of holding Any rental real estate loss allowed under real property and that is loaned or section 469(c)(7) to real estate professionals the Partnership guaranteed by a federal, state, or local (defined on page 3). government or borrowed from a qualified Any overall loss from a publicly-traded Item D person. partnership. If the box in item D is checked, you are a Qualified persons include any persons Any taxable social security or equivalent partner in a publicly traded partnership and actively and regularly engaged in the railroad retirement benefits. must follow the rules discussed on page 4 business of lending money, such as a bank Any deductible contributions to an IRA or under Publicly traded partnerships. or savings and loan association. Qualified certain other qualified retirement plans persons generally do not include related under section 219. parties (unless the nonrecourse financing is The domestic production activities commercially reasonable and on deduction. Part II. Information About substantially the same terms as loans The student loan interest deduction. the Partner involving unrelated persons), the seller of The tuition and fees deduction. the property, or a person who receives a fee The deduction for one-half of Item J for the partnership s investment in the real self-employment taxes. property. The exclusion from income of interest Generally, the amounts reported in item J from Series EE or I U.S. Savings Bonds are based on the partnership agreement. If See Pub. 925 for more information on used to pay higher education expenses. your interest commenced after the qualified nonrecourse financing. The exclusion of amounts received under beginning of the partnership s tax year, the an employer s adoption assistance program. Both the partnership and you must meet partnership will have entered, in the the qualified nonrecourse rules on this debt Commercial revitalization deduction. Beginning column, the percentages that before you can include the amount shown The special $25,000 allowance for the existed for you immediately after admission. next to Qualified nonrecourse financing in commercial revitalization deduction from If your interest terminated before the end of your at-risk computation. rental real estate activities is not subject to the partnership s tax year, the partnership the active participation rules or modified will have entered, in the Ending column, the See Limitations on Losses, Deductions, adjusted gross income limits discussed percentages that existed immediately before and Credits beginning on page 2 for more above. See the instructions for box 13, code termination. information on the at-risk limitations. Q, for more information. The ending percentage share shown on Special rules for certain other activities. the Capital line is the portion of the capital Item M If you have net income (loss), deductions, or you would receive if the partnership was If you have contributed property with a credits from any activity to which special liquidated at the end of its tax year by the built-in gain or loss during the tax year, the rules apply, the partnership will identify the distribution of undivided interests in the partnership will check the Yes box. Also, activity and all amounts relating to it on partnership s assets and liabilities. If your the partnership will attach a statement Schedule K-1 or on an attachment. capital account is negative or zero, the showing the property contributed, the date If you have net income subject to partnership will have entered zero on this of the contribution, and the amount of any recharacterization under Temporary line. built-in gain or loss. A built-in gain or loss is Regulations section T(f) and the difference between the fair market value Regulations section (f), report such Item K of the property and your adjusted basis in amounts according to the Instructions for Item K should show your share of the the property at the time it was contributed to Form 8582 (or Form 8810). partnership s nonrecourse liabilities, the partnership. If you contributed more than partnership-level qualified nonrecourse 10 properties on a single date during the tax If you have net income (loss), financing, and other recourse liabilities as of year, the statement may instead show the deductions, or credits from any of the the end of the partnership s tax year. If you number of properties contributed on that following activities, treat such amounts as terminated your interest in the partnership date, the total amount of built-in gain, and nonpassive and report them as indicated in during the tax year, item K should show the the total amount of built-in loss. these instructions. 1. Working interests in oil and gas wells share that existed immediately before the The partnership is providing this for your if you are a general partner. total disposition. A partner s recourse information. Contributions of property with a 2. The rental of a dwelling unit any liability is any partnership liability for which built-in gain or loss could affect a partner s partner used for personal purposes during a partner is personally liable. tax liability (in matters concerning the year for more than the greater of 14 Use the total of the three amounts for precontribution gain or loss, and days or 10% of the number of days that the computing the adjusted basis of your distributions subject to section 737), and residence was rented at fair rental value. partnership interest. may also affect how the partnership 3. Trading personal property for the allocated certain items on your Schedule account of owners of interests in the activity. Generally, you may use only the K-1. For information on precontribution gain amounts shown next to Qualified or loss, see the instructions for box 20, Self-charged interest. The partnership will nonrecourse financing and Recourse to Code W. For information on distributions report any self-charged interest income or figure your amount at risk. Do not include subject to section 737 see the instructions expense that resulted from loans between any amounts that are not at risk if such for box 19, Code B. Partner s Instructions for Schedule K-1 (Form 1065) -5-

8 1040) in accordance with the instructions for activity. If the partnership had more than box 1 of Schedule K-1. one rental real estate activity, it will attach a statement identifying the income or loss If you have amounts other than from each activity.! those shown on Schedule K-1 to CAUTION report on Schedule E (Form 1040), If you are filing a 2010 Form 1040, use enter each item separately on line 28 of the following instructions to determine where Part III. Partner s Share of Current Year Income, Deductions, Credits, and Other Items Schedule E (Form 1040). to report a box 2 amount. The amounts shown in boxes 1 through 20 Codes. In box 11 and boxes 13 through 1. If you have a loss from a passive reflect your share of income, loss, 20, the partnership will identify each item by activity in box 2 and you meet all the deductions, credits, etc., from partnership entering a code in the column to the left of following conditions, report the loss on business or rental activities without the dollar amount entry space. These codes Schedule E (Form 1040), line 28, column (f). reference to limitations on losses or are identified on page 2 of Schedule K-1 a. You actively participated in the adjustments that may be required of you and in these instructions. partnership rental real estate activities. See because of: Attached statements. The partnership will Special allowance for a rental real estate 1. The adjusted basis of your enter an asterisk (*) after the code, if any, in activity on page 4. partnership interest, the column to the left of the dollar amount b. Rental real estate activities with 2. The amount for which you are at risk, entry space for each item for which it has active participation were your only passive 3. The passive activity limitations, or attached a statement providing additional activities. 4. Any other limitations that must be information. For those informational items c. You have no prior year unallowed taken into account at the partner level in that cannot be reported as a single dollar losses from these activities. figuring taxable income (for example, the amount, the partnership will enter an d. Your total loss from the rental real section 179 expense limitation). asterisk in the left column and enter STMT estate activities was not more than $25,000 in the dollar amount entry space to indicate (not more than $12,500 if married filing For information on these provisions, see the information is provided on an attached separately and you lived apart from your Limitations on Losses, Deductions, and statement. spouse all year). Credits beginning on page 2. e. If you are a married person filing If you are an individual and the passive separately, you lived apart from your spouse activity rules do not apply to the amounts Income (Loss) all year. shown on your Schedule K-1, take the f. You have no current or prior year amounts shown and enter them on the lines Box 1. Ordinary Business unallowed credits from a passive activity. on your tax return as indicated in the g. Your modified adjusted gross income summarized reporting information shown on Income (Loss) was not more than $100,000 (not more than page 2 of the Schedule K-1. If the passive The amount reported in box 1 is your share $50,000 if married filing separately and you activity rules do apply, report the amounts of the ordinary income (loss) from trade or lived apart from your spouse all year). shown as indicated in these instructions. business activities of the partnership. h. Your interest in the rental real estate Generally, where you report this amount on If you are not an individual, report the activity was not held as a limited partner. Form 1040 depends on whether the amount amounts in each box as instructed on your 2. If you have a loss from a passive is from an activity that is a passive activity to tax return. activity in box 2 and you do not meet all the you. If you are an individual partner filing a conditions in 1 above, follow the Instructions The line numbers in the summarized 2010 Form 1040, find your situation below for Form 8582 to figure how much of the reporting information on page 2 of Schedule and report your box 1 income (loss) as loss you can report on Schedule E (Form K-1 are references to forms in use for instructed, after applying the basis and 1040), line 28, column (f). However, if the calendar year If you file your tax at-risk limitations on losses. If the box in item D is checked, report the loss return on a calendar year basis, but your partnership had more than one trade or following the rules for Publicly traded partnership files a return for a fiscal year, business activity, it will attach a statement partnerships on page 4. report the amounts on your tax return for the identifying the income or loss from each 3. If you were a real estate professional year in which the partnership s fiscal year activity. and you materially participated in the ends. For example, if the partnership s tax 1. Report box 1 income (loss) from activity, report box 2 income (loss) on year ends in February 2011, report the partnership trade or business activities in Schedule E (Form 1040), line 28, column (h) amounts on your 2011 tax return. which you materially participated on or (j). If you have losses, deductions, or credits Schedule E (Form 1040), line 28, column (h) 4. If you have income from a passive from a prior year that were not deductible or or (j). activity in box 2, report the income on usable because of certain limitations, such 2. Report box 1 income (loss) from Schedule E (Form 1040), line 28, column as the basis rules or the at-risk limitations, partnership trade or business activities in (g). However, if the box in item D is take them into account in determining your which you did not materially participate, as checked, report the income following the net income, loss, or credits for this year. follows. rules for Publicly traded partnerships on However, except for passive activity losses a. If income is reported in box 1, report page 4. and credits, do not combine the prior-year the income on Schedule E (Form 1040), line amounts with any amounts shown on this 28, column (g). However, if the box in item D Schedule K-1 to get a net figure to report on is checked, report the income following the Box 3. Other Net Rental Income any supporting schedules, statements, or rules for Publicly traded partnerships on (Loss) forms attached to your return. Instead, page 4. b. If a loss is reported in box 1, follow The amount in box 3 is a passive activity report the amounts on the attached the Instructions for Form 8582 to figure how amount for all partners. If the partnership schedule, statement, or form on a much of the loss can be reported on had more than one rental activity, it will year-by-year basis. Schedule E (Form 1040), line 28, column (f). attach a statement identifying the income or If the partnership reports a section 743(b) However, if the box in item D is checked, loss from each activity. Report the income or adjustment to partnership items, report report the loss following the rules for loss as follows. these adjustments as separate items on Publicly traded partnerships on page If box 3 is a loss, follow the Form 1040 in accordance with the reporting Instructions for Form 8582 to figure how instructions for the partnership item being much of the loss can be reported on Box 2. Net Rental Real Estate adjusted. A section 743(b) adjustment Schedule E (Form 1040), line 28, column (f). increases or decreases your distributive Income (Loss) However, if the box in item D is checked, share of income, deduction, gain, or loss for Generally, the income (loss) reported in box report the loss following the rules for a partnership item. For example, if the 2 is a passive activity amount for all Publicly traded partnerships on page 4. partnership reports a section 743(b) partners. However, the income (loss) in box 2. If income is reported in box 3, report adjustment to depreciation for property used 2 is not from a passive activity if you were a the income on Schedule E (Form 1040), line in its trade or business, report the real estate professional (defined on page 3) 28, column (g). However, if the box in item D adjustment on line 28 of Schedule E (Form and you materially participated in the is checked, report the income following the -6- Partner s Instructions for Schedule K-1 (Form 1065)

9 Box 9c. Unrecaptured Section (e). If you itemize your deductions on Schedule A (Form 1040), you may also 1250 Gain deduct these section 212 expenses as a There are three types of unrecaptured miscellaneous deduction subject to the 2% Box 4. Guaranteed Payments section 1250 gain. Report your share of this limit on Schedule A (Form 1040), line 23. rules for Publicly traded partnerships on page 4. Generally, amounts on this line are not unrecaptured gain on the Unrecaptured Code B. Involuntary conversions. This is passive income, and you should report them Section 1250 Gain Worksheet Line 19 in your net gain (loss) from involuntary on Schedule E (Form 1040), line 28, column the Instructions for Schedule D (Form 1040) conversions due to casualty or theft. The (j) (for example, guaranteed payments for as follows. partnership will give you a schedule that personal services). Report unrecaptured section 1250 gain shows the amounts to be reported on Form from the sale or exchange of the 4684, Casualties and Thefts, line 37, partnership s business assets on line 5. Portfolio Income columns (b)(i), (b)(ii), and (c). Report unrecaptured section 1250 gain Portfolio income or loss (shown in boxes 5 from the sale or exchange of an interest in a If there was a gain (loss) from a casualty through 9b and in box 11, code A) is not partnership on line 10. or theft to property not used in a trade or subject to the passive activity limitations. Report unrecaptured section 1250 gain business or for income-producing purposes, Portfolio income includes income (not from an estate, trust, regulated investment the partnership will provide you with the derived in the ordinary course of a trade or company (RIC), or real estate investment information you need to complete Form business) from interest, ordinary dividends, trust (REIT) on line annuities or royalties, and gain or loss on If the partnership reports only Code C. Section 1256 contracts and the sale of property that produces such unrecaptured section 1250 gain from the straddles. The partnership will report any income or is held for investment. sale or exchange of its business assets, it net gain or loss from section 1256 contracts. will enter a dollar amount in box 9c. If it Report this amount on Form 6781, Gains Box 5. Interest Income reports the other two types of unrecaptured and Losses From Section 1256 Contracts Report interest income on line 8a of Form gain, it will provide an attached statement and Straddles If the amount of interest income that shows the amount for each type of Code D. Mining exploration costs included in box 5 includes interest from the unrecaptured section 1250 gain. recapture. The partnership will give you a credit for holders of clean renewable energy Box 10. Net Section 1231 Gain schedule that shows the information needed bonds or Midwestern tax credit bonds, the to recapture certain mining exploration costs partnership will attach a statement to (Loss) (section 617). See Pub. 535 for details. Schedule K-1 showing your distributive The amount in box 10 is generally passive if share of interest income from these credits. Code E. Cancellation of debt. Generally, it is from a: Because the basis of your interest in the this amount is included in your gross income Rental activity or partnership has been increased by your (Form 1040, line 21). Under section Trade or business activity in which you distributive share of the interest income from 108(b)(5), you may elect to apply any did not materially participate. these credits, you must reduce your basis portion of this cancellation of debt to the However, an amount from a rental real by the same amount. See line 4 of the reduction of the basis of depreciable estate activity is not from a passive activity if Worksheet for Adjusting the Basis of a property. See Form 982 for more details. you were a real estate professional (defined Partner s Interest in the Partnership on page Code F. Other income (loss). Amounts on page 3) and you materially participated in 2. with code F are other items of income, gain, the activity. or loss not included in boxes 1 through 10 or Box 6a. Ordinary Dividends If the amount is either (a) a loss that is reported in box 11 using codes A through E. not from a passive activity or (b) a gain, The partnership should give you a Report ordinary dividends on line 9a of Form report it on line 2, column (g), of Form 4797, description and the amount of your share for Sales of Business Property. Do not each of these items. complete columns (b) through (f) on line 2 of Box 6b. Qualified Dividends Form Instead, enter From Schedule Report loss items that are passive K-1 (Form 1065) across these columns. activity amounts to you following the Report any qualified dividends on line 9b of Instructions for Form However, if the Form If the amount is a loss from a passive box in item D is checked, report the loss activity, see Passive Loss Limitations in the Note. Qualified dividends are excluded following the rules for Publicly traded Instructions for Form Report the loss from investment income, but you may elect partnerships on page 4. following the Instructions for Form 8582 to to include part or all of these amounts in figure how much of the loss is allowed on Code F items may include the following. investment income. See the instructions for Form However, if the box in item D is Gain or loss attributable to the sale or line 4g of Form 4952, Investment Interest checked, report the loss following the rules exchange of qualified preferred stock of the Expense Deduction, for important for Publicly traded partnerships on page 4. If Federal National Mortgage Association information on making this election. the partnership had net section 1231 gain (Fannie Mae) and the Federal Home Loan (loss) from more than one activity, it will Mortgage Corporation (Freddie Mac). The Box 7. Royalties attach a statement that will identify the partnership will report on an attached Report royalties on Schedule E (Form section 1231 gain (loss) from each activity. statement the amount of gain or loss 1040), line 4. attributable to the sale or exchange of the Box 11. Other Income (Loss) qualified preferred stock, the date the stock was acquired by the partnership, and the Box 8. Net Short-Term Capital Code A. Other portfolio income (loss). date the stock was sold or exchanged by the Gain (Loss) The partnership will report portfolio income partnership. If the partner is not a financial other than interest, ordinary dividend, Report the net short-term capital gain (loss) institution (as defined below), report the gain royalty, and capital gain (loss) income, and on Schedule D (Form 1040), line 5. or loss on line 5 or line 12 of Schedule D attach a statement to tell you what kind of (Form 1040) in accordance with the portfolio income is reported. Instructions for Schedule D. If a partner is a Box 9a. Net Long-Term Capital If the partnership held a residual interest financial institution referred to in section Gain (Loss) in a real estate mortgage investment conduit 582(c)(2) or a depositary institution holding Report the net long-term capital gain (loss) on Schedule D (Form 1040), line 12. (REMIC), it will report on the statement your company (as defined in section 3(w)(1) of share of REMIC taxable income (net loss) the Federal Deposit Insurance Act), report that you report on Schedule E (Form 1040), the gain or loss in accordance with the line 38, column (d). The statement will also Instructions for Form 4797 and Rev. Proc. report your share of any excess inclusion , I.R.B Box 9b. Collectibles (28%) Gain (Loss) that you report on Schedule E (Form 1040), Partnership gains from the disposition of Report collectibles gain or loss on line 4 of line 38, column (c), and your share of farm recapture property (see the instructions the 28% Rate Gain Worksheet Line 18 in section 212 expenses that you report on for line 27 of Form 4797) and other items to the Instructions for Schedule D (Form 1040). Schedule E (Form 1040), line 38, column which section 1252 applies. Partner s Instructions for Schedule K-1 (Form 1065) -7-

10 Income from recoveries of tax benefit following additional limitations apply at the the partnership held the QSB stock (more items. A tax benefit item is an amount you partner level. than 6 months prior to the sale), deducted in a prior tax year that reduced 1. You must have held an interest in the 2. Your distributive share of the gain your income tax. Report this amount on line partnership when the partnership acquired eligible for the section 1045 rollover cannot 21 of Form 1040 to the extent it reduced the QSB stock and at all times thereafter exceed the amount that would have been your tax. until the partnership disposed of the QSB allocated to you based on your interest in Gambling gains and losses. stock. the partnership at the time the QSB stock 1. If the partnership was not engaged in 2. Your distributive share of the eligible was acquired, and the trade or business of gambling, (a) report section 1202 gain cannot exceed the 3. You must purchase other QSB stock gambling winnings on Form 1040, line 21 amount that would have been allocated to (as defined in the Instructions for Schedule and (b) deduct gambling losses to the extent you based on your interest in the D (Form 1040)) during the 60-day period of winnings on Schedule A (Form 1040), line partnership at the time the QSB stock was that began on the date the QSB stock was 28. acquired. sold by the partnership. 2. If the partnership was engaged in the See the Instructions for Schedule D See the Instructions for Schedule D trade or business of gambling, (a) report (Form 1040) for details on how to report the (Form 1040) for details on how to report the gambling winnings on line 28 of Schedule E gain and the amount of the allowable gain and the amount of the allowable (Form 1040) and (b) deduct gambling losses exclusion. postponed gain. (to the extent of winnings) on line 28 of Gain eligible for section 1045 rollover. Making the section 1045 election. Schedule E (Form 1040), column (h). You make a section 1045 election on a Gain (loss) from the disposition of an Replacement stock purchased by the timely filed return for the tax year during interest in oil, gas, geothermal, or other partnership. The partnership should give which the partnership s tax year ends. mineral properties. The partnership will you (a) the name of the corporation that Attach to your Schedule D (Form 1040) a attach a statement that provides a issued the qualified small business (QSB) statement that includes the following description of the property, your share of the stock, (b) your share of the partnership s information for each amount of gain that you amount realized from the disposition, your adjusted basis and sales price of the QSB do not recognize under section share of the partnership s adjusted basis in stock, (c) the dates the QSB stock was The name of the corporation that issued the property (for other than oil or gas bought and sold, (d) your distributive share the QSB stock. properties), and your share of the total of gain from the sale of the QSB stock, and (e) your distributive share of the gain that The name and EIN of the selling intangible drilling costs, development costs, was deferred by the partnership under partnership. and mining exploration costs (section 59(e) section Corporate partners are not The dates the QSB stock was purchased expenditures) passed through for the eligible for the section 1045 rollover. To and sold. property. You must figure your gain or loss qualify for the section 1045 rollover: The amount of gain that is not recognized from the disposition by increasing your under section share of the adjusted basis by the intangible 1. You must have held an interest in the partnership during the entire period in which If a partner purchases QSB stock, the drilling costs, development costs, or mine the partnership held the QSB stock (more name of the corporation that issued the exploration costs for the property that you than 6 months prior to the sale) and replacement QSB stock, the date the stock capitalized (that is, costs that you did not was purchased, and the cost of the stock. elect to deduct under section 59(e)). Report 2. Your distributive share of the gain eligible for the section 1045 rollover cannot If a partner treats the partner s interest in a loss in Part I of Form Report a gain exceed the amount that would have been QSB stock that is purchased by a in Part III of Form 4797 in accordance with allocated to you based on your interest in purchasing partnership as the partner s the instructions for line 28. See Regulations the partnership at the time the QSB stock replacement QSB stock, the name and EIN section for details. was acquired. of the purchasing partnership, the name of Any income, gain, or loss to the the corporation that issued the QSB stock, partnership under section 751(b) (certain See the Instructions for Schedule D the partner s share of the cost of the QSB distributions treated as sales or exchanges). (Form 1040) for details on how to report the stock that was purchased by the Report this amount on Form 4797, line 10. gain and the amount of the allowable partnership, the computation of the partner s postponed gain. Specially allocated ordinary gain (loss). adjustment to basis with respect to that QSB Report this amount on Form 4797, line 10. stock, and the date the stock was purchased Opting out of partnership election. You Net short-term capital gain (loss) and net by the partnership. can opt out of the partnership s section 1045 long-term capital gain (loss) from Schedule election and either (1) recognize the gain or D (Form 1065) that is not portfolio income. (2) elect to purchase different replacement Distribution of replacement qualified An example is gain or loss from the QSB stock, either directly or through small business (QSB) stock to a partner disposition of nondepreciable personal ownership of a partnership that acquired that reduces another partner s interest in property used in a trade or business activity replacement QSB stock. You satisfy the replacement QSB stock. You must of the partnership. Report total net requirement to purchase replacement QSB recognize gain upon a distribution of short-term gain (loss) on Schedule D (Form stock if you own an interest in a partnership replacement QSB stock to another partner 1040), line 5. Report the total net long-term that purchases QSB stock during the 60-day that reduces your share of the replacement gain (loss) on Schedule D (Form 1040), line period. You also must notify the partnership, QSB stock held by a partnership. The 12. in writing, if you opt out of the partnership s amount of gain that you must recognize is Current year section 108(i) cancellation of section 1045 election. If you recognize gain, based on the amount of gain that you would debt (COD) income. The partnership will you must notify the partnership, in writing, of recognize upon a sale of the distributed provide your distributive share of the the amount of the gain that you are replacement QSB for its fair market value on deferred COD income amount that you must recognizing. the date of the distribution, but not to exceed include in income in the current tax year the amount you previously deferred under under section 108(i)(1) or section Replacement stock not purchased by the section 1045 with respect to the distributed 108(i)(5)(D)(i) or (ii). partnership. The partnership should give replacement QSB stock. If the partnership you (a) the name of the corporation that distributed your share of replacement QSB Gain from the sale or exchange of issued the qualified small business (QSB) stock to another partner, the partnership qualified small business (QSB) stock (as stock, (b) your share of the partnership s should give you (a) the name of the defined in the Instructions for Schedule D adjusted basis and sales price of the QSB corporation that issued the replacement (Form 1065)) that is eligible for the partial stock, (c) the dates the QSB stock was QSB stock, (b) the date the replacement section 1202 exclusion. The partnership bought and sold, and (d) your distributive QSB stock was distributed to another should also give you (a) the name of the share of gain from the sale of the QSB partner or partners, and (c) your share of corporation that issued the QSB stock, (b) stock. Corporate partners are not eligible for the partnership s adjusted basis and fair your distributive share of the partnership s the section 1045 rollover. To qualify for the market value of the replacement QSB stock adjusted basis and sales price of the QSB section 1045 rollover: on such date. stock, and (c) the dates the QSB stock was bought and sold. Corporate partners are not 1. You must have held an interest in the For more information see Regulations eligible for the section 1202 exclusion. The partnership during the entire period in which section Partner s Instructions for Schedule K-1 (Form 1065)

11 Deductions made the food inventory contribution(s). Your deduction for food inventory contributions cannot exceed 10% of your aggregate net income for the tax year from If you deduct these expenditures in full in the current year, they are treated as adjustments or tax preference items for purposes of alternative minimum tax. Box 12. Section 179 Deduction the business activities from which the food However, you may elect to amortize these Use this amount, along with the total cost of inventory contribution was made (including expenditures over the number of years in section 179 property placed in service your share of net income from partnership or the applicable period rather than deduct the during the year from other sources, to S corporation businesses that made food full amount in the current year. If you make complete Part I of Form 4562, Depreciation inventory contributions). Report the this election, these items are not treated as and Amortization. The partnership will report deduction, subject to the 50% AGI limitation, adjustments or tax preference items. on an attached statement your allowable on line 17 of Schedule A (Form 1040). Under the election, you can deduct share of the cost of any qualified enterprise zone, qualified section 179 Recovery Code D. Noncash contributions (30%). circulation expenditures ratably over a Assistance, qualified section 179 disaster Report this amount, subject to the 30% AGI 3-year period. Research and experimental assistance, or qualified real property it limitation, on line 17 of Schedule A (Form expenditures and mining exploration and placed in service during the tax year. Report 1040). development costs can be amortized over a the amount from line 12 of Form year period. Intangible drilling and Code E. Capital gain property to a 50% allocable to a passive activity using the development costs can be amortized over a organization (30%). Report this amount, Instructions for Form If the amount is 60-month period. The amortization period subject to the 30% AGI limitation, on line 17 not a passive activity deduction, report it on begins with the month in which such costs of Schedule A (Form 1040). See Special Schedule E (Form 1040), line 28, column (i). were paid or incurred. 30% Limit for Capital Gain Property in Pub. However, if the box in item D is checked, 526. Make the election on Form If you report this amount following the rules for make the election, report the current year Code F. Capital gain property (20%). Publicly traded partnerships on page 4. amortization of section 59(e) expenditures Report this amount, subject to the 20% AGI from Part VI of Form 4562 on line 28 of Box 13. Other Deductions limitation, on line 17 of Schedule A (Form Schedule E (Form 1040). If you do not make 1040). Contributions. Codes A through G. The the election, report the section 59(e)(2) Code G. Contributions (100%). The partnership will give you a schedule that expenditures on line 28 of Schedule E partnership will report your distributive share shows charitable contributions subject to the (Form 1040) and figure the resulting of qualified conservation contributions of 100%, 50%, 30%, and 20% adjusted gross adjustment or tax preference item (see Form property used in agriculture or livestock income limitations. For more details, see 6251, Alternative Minimum production. This contribution is not included Pub. 526, Charitable Contributions, and the Tax Individuals). Whether you deduct the in the amount reported in box 13 using code Instructions for Schedule A (Form 1040). If expenditures or elect to amortize them, C. If you are a farmer or rancher, you qualify your contributions are subject to more than report the amount on a separate line in for a 100% AGI limitation for this one of the AGI limitations, see Worksheet 2. column (h) of line 28 if you materially contribution. Otherwise, your deduction for Applying the Deduction Limits in Pub participated in the partnership activity. If you this contribution is subject to a 50% AGI did not materially participate, follow the Charitable contribution deductions are limitation. Report this deduction on line 17 of Instructions for Form 8582 to figure how not taken into account in figuring your Schedule A (Form 1040). See Pub. 526 for much of the deduction can be reported in passive activity loss for the year. Do not more information on qualified conservation column (f). enter them on Form contributions. Code K. Deductions portfolio (2% Code A. Cash contributions (50%). Code H. Investment interest expense. floor). Amounts entered with code K are Report this amount, subject to the 50% AGI Enter this amount on Form 4952, line 1. If deductions that are clearly and directly limitation, on line 16 of Schedule A (Form the partnership has investment income or allocable to portfolio income (other than 1040). other investment expense, it will report your investment interest expense and section Code B. Cash contributions (30%). share of these items in box 20 using codes 212 expenses from a REMIC). Generally, Report this amount, subject to the 30% AGI A and B. Include investment income and you should report these amounts on limitation, on line 16 of Schedule A (Form expenses from other sources to figure how Schedule A (Form 1040), line 23. See the 1040). much of your total investment interest is instructions for Schedule A (Form 1040), deductible. You will also need this lines 23 and 28, for details. Code C. Noncash contributions (50%). If property other than cash is contributed, and information to figure your investment interest These deductions are not taken into if the claimed deduction for one item or expense deduction. account in figuring your passive activity loss group of similar items of property exceeds If the partnership paid or accrued interest for the year. Do not enter them on Form $5,000, the partnership must give you a on debts properly allocable to investment copy of Form 8283, Noncash Charitable property, the amount of interest you are Code L. Deductions portfolio (other). Contributions, to attach to your tax return. allowed to deduct may be limited. Generally, you should report these amounts Do not deduct the amount shown on Form For more information on the special on Schedule A (Form 1040), line 28. See It is the partnership s contribution. provisions that apply to investment interest the instructions for Schedule A, lines 23 and Instead, deduct the amount identified by expense, see Form 4952 and Pub , for details. These deductions are not code C, box 13, subject to the 50% AGI taken into account in figuring your passive limitation, on line 17 of Schedule A (Form Code I. Deductions royalty income. activity loss for the year. Do not enter them 1040). Enter deductions allocable to royalties on on Form Schedule E (Form 1040), line 18. For this If the partnership provides you with type of expense, enter From Schedule K-1 Code M. Amounts paid for medical information that the contribution was (Form 1065). insurance. Any amounts paid during the property other than cash and does not give tax year for insurance that constitutes you a Form 8283, see the Instructions for These deductions are not taken into medical care for you, your spouse, your Form 8283 for filing requirements. Do not account in figuring your passive activity loss dependents, and any children under age 27 file Form 8283 unless the total claimed for the year. Do not enter them on Form who are not dependents. On line 29 of Form deduction for all contributed items of , you may be allowed to deduct such property exceeds $500. Code J. Section 59(e)(2) expenditures. amounts, even if you do not itemize Food inventory contributions. The On an attached statement, the partnership deductions. If you do itemize deductions, partnership will report on an attached will show the type and the amount of enter on line 1 of Schedule A (Form 1040) statement your distributive share of qualified qualified expenditures for which you may any amounts not deducted on line 29 of food inventory contributions. The food make a section 59(e) election. The Form inventory contribution is not included in the statement will also identify the property for Code N. Educational assistance benefits. amount reported in box 13 using code C. which the expenditures were paid or Deduct your educational assistance benefits The partnership will also report your incurred. If there is more than one type of on a separate line of Schedule E (Form distributive share of the partnership s net expenditure, the amount of each type will 1040), line 28, up to the $5,250 limitation. If income from the business activities that also be listed. your benefits exceed $5,250, you may be Partner s Instructions for Schedule K-1 (Form 1065) -9-

12 able to use the excess amount on Form elected to treat as a current expense. The 8863 to figure the education credits. deductions are limited by section 190(c) to Box 14. Self-Employment Code O. Dependent care benefits. The $15,000 per year from all sources. Earnings (Loss) partnership will report the dependent care Interest expense allocated to benefits you received. You must use Form debt-financed distributions. The manner in If you and your spouse are both partners, 2441, Part III, to figure the amount, if any, of which you report such interest expense each of you must complete and file your the benefits you may exclude from your depends on your use of the distributed debt own Schedule SE (Form 1040), income. proceeds. If the proceeds were used in a Self-Employment Tax, to report your Code P. Preproductive period expenses. trade or business activity, report the interest partnership net earnings (loss) from You may be able to deduct these expenses on line 28 of Schedule E (Form 1040). In self-employment. currently or you may need to capitalize them column (a) enter the name of the Code A. Net earnings (loss) from under section 263A. See Pub. 225, Farmer s partnership and interest expense. If you self-employment. If you are a general Tax Guide, and Regulations section materially participated in the trade or partner, reduce this amount before entering 1.263A-4 for details. business activity, enter the interest expense it on Schedule SE (Form 1040) by any Code Q. Commercial revitalization in column (h). If you did not materially section 179 expense deduction claimed, deduction from rental real estate participate in the activity, follow the unreimbursed partnership expenses activities. Follow the Instructions for Form Instructions for Form 8582 to figure the claimed, and depletion claimed on oil and 8582 to figure how much of the deduction interest expense you can report in column gas properties. Do not reduce net earnings can be reported on Schedule E (Form (f). See page 3 for a definition of material from self-employment by any separately 1040), line 28, column (f). participation. If the proceeds were used in stated deduction for health insurance an investment activity, report the interest on Code R. Pensions and IRAs. Payments expenses. Form If the proceeds are used for made on your behalf to an IRA, qualified If the amount on this line is a loss, enter personal purposes, the interest is generally plan, simplified employee pension (SEP), or only the deductible amount on Schedule SE not deductible. a SIMPLE IRA plan. See Form 1040 (Form 1040). See Limitations on Losses, instructions for line 32 to figure your IRA Interest paid or accrued on debt properly Deductions, and Credits beginning on page deduction. Enter payments made to a allocable to your share of a working interest 2. qualified plan, SEP, or SIMPLE IRA plan on in any oil or gas property (if your liability is If your partnership is an options dealer or Form 1040, line 28. If the payments to a not limited). If you did not materially a commodities dealer, see section 1402(i). qualified plan were to a defined benefit plan, participate in the oil or gas activity, this interest is investment interest reportable as If your partnership is an investment club, the partnership should give you a statement described on page 9; otherwise, it is trade or see Rev. Rul , C.B showing the amount of the benefit accrued for the current tax year. business interest. If you did not materially Code B. Gross farming or fishing participate in the oil or gas activity, this income. If you are an individual partner, Code S. Reforestation expense interest is investment interest expense and enter the amount from this line, as an item deduction. The partnership will provide a should be reported on Form If you of information, on Schedule E (Form 1040), statement that describes the qualified timber materially participated in the activity, report line 42. Also use this amount to figure net property for these reforestation expenses. the interest on line 28 of Schedule E (Form earnings from self-employment under the The expense deduction is limited to $10, ). On a separate line, enter interest farm optional method on Schedule SE ($5,000 if married filing separately) for each expense and the name of the partnership in (Form 1040), Section B, Part II. qualified timber property, including your column (a) and the amount in column (h). distributive share of the partnership s Code C. Gross non-farm income. If you expense and any reforestation expenses Contributions to a capital construction are an individual partner, use this amount to you separately paid or incurred during the fund (CCF). The deduction for a CCF figure net earnings from self-employment tax year. investment is not taken on Schedule E under the nonfarm optional method on (Form 1040). Instead, you subtract the Schedule SE (Form 1040), Section B, Part If you did not materially participate in the deduction from the amount that would II. activity, use Form 8582 to figure the amount normally be entered as taxable income on to report on Schedule E (Form 1040), line line 43 (Form 1040). In the margin to the left 28. If you materially participated in the of line 43, enter CCF and the amount of Box 15. Credits reforestation activity, report the deduction on the deduction. line 28, column (h), of Schedule E (Form If you have general business credits, the 1040). Penalty on early withdrawal of savings. partnership will provide the information Report this amount on Form 1040, line 30. Code T. Domestic production activities necessary for you to determine if it is an information. The partnership will provide Film and television production expenses. eligible small business under section you with a statement with information that The partnership will provide a statement that 38(c)(5)(C). If you and the partnership meet you must use to figure the domestic describes the film or television production the requirements of section 38(c)(5)(C) your production activities deduction. Use Form generating these expenses. Generally, if the general business credits may be treated as 8903, Domestic Production Activities aggregate cost of the production exceeds eligible small business credits. See the Deduction, to figure this deduction. See the $15 million, you are not entitled to the instructions for Form 3800 for more Instructions for Form 8903 for details. deduction. The limitation is $20 million for information. productions in certain areas (see section Code U. Qualified production activities 181 for details). If you did not materially If you have credits that are passive income (QPAI). Report the QPAI reported participate in the activity, use Form 8582 to activity credits to you, you must complete to you by the partnership (in box 13 of determine the amount that can be reported Form 8582-CR (or Form 8810 for Schedule K-1) in the applicable column of on Schedule E (Form 1040), line 28, column corporations) in addition to the credit forms Form 8903, line 7. (f). If you materially participated in the identified below. See Passive Activity Code V. Employer s Form W-2 wages. production activity, report the deduction on Limitations on page 3 and the Instructions Report the portion of Form W-2 wages Schedule E (Form 1040), line 28, column for Form 8582-CR (or Form 8810) for reported to you by the partnership (in box 13 (h). details. of Schedule K-1) on line 17 of Form Current year section 108(i) original issue In general, partners whose only Code W. Other deductions. Amounts with discount (OID) deduction. The partnership TIP source for credits listed only on page this code may include: will provide your distributive share of the 1 of Form 3800 are from Itemized deductions that Form 1040 filers partnership s OID deduction deferred under pass-through entities are not required to report on Schedule A (Form 1040). section 108(i)(2)(A)(i) that is allowable as a complete the source credit form or attach it Soil and water conservation expenditures deduction in the current tax year under to Form Instead, you can report this and endangered species recovery section 108(i)(2)(A)(ii) or section credit directly on Form However, expenditures. See section 175 for limitations 108(i)(5)(D)(i) or (ii). when applicable, all partners must complete on the amount you are allowed to deduct. and attach the following credit forms to Form Expenditures for the removal of The partnership will give you a architectural and transportation barriers to description and the amount of your share for Form 3468, Investment Credit (line 1a of the elderly and disabled that the partnership each of these items. Form 3800) Partner s Instructions for Schedule K-1 (Form 1065)

13 Form 8864, Biodiesel and Renewable Code H. Undistributed capital gains Credit for small employer pension plan Diesel Fuels Credit (line 1l of Form 3800). credit. Code H represents taxes paid on startup costs (Form 8881). Codes A, B, C, and D. Low-income undistributed capital gains by a regulated Credit for employer-provided childcare housing credit. If section 42(j)(5) applies, investment company or real estate facilities and services (Form 8882). the partnership will report your share of the investment trust. Report these taxes on line Biodiesel and renewable diesel fuels low-income housing credit using code A or 71 of Form 1040, check box a for Form credit. If this credit includes the small code C, depending on the date the building 2439, and enter Form agri-biodiesel producer credit, the was placed in service. If section 42(j)(5) Code I. Alcohol and cellulosic biofuel partnership will provide additional does not apply, your share of the credit will fuels credit. If this credit includes the small information on an attached statement. If no be reported using code B or code D, ethanol producer credit, the partnership will statement is attached, report this amount on depending on the date the building was provide additional information on an line 9 of Form If a statement is placed in service. Any allowable low-income attached statement. If no statement is attached, see the instructions for Form housing credit reported using code A or attached, report this amount on line 8 of 8864, line 9. code B is reported on line 4 of Form 8586, Form 6478, Alcohol and Cellulosic Biofuel Low sulfur diesel fuel production credit Low-Income Housing Credit, or line 1d of Fuels Credit. If a statement is attached, see (Form 8896). Form 3800 (see TIP above). Any allowable the instructions for Form 6478, line 8. General credits from an electing large low-income housing credit reported using partnership. Report these credits on Form Code J. Work opportunity credit. Report code C or code D is reported on line 11 of 3800, line 1bb. this amount on line 3 of Form 5884, Work Form Distilled spirits credit (Form 8906). Opportunity Credit. Energy efficient home credit (Form 8908). Keep a separate record of the Code K. Disabled access credit. Report Energy efficient appliance credit (Form low-income housing credit from each this amount on line 7 of Form 8826, 8909). separate source so that you can correctly Disabled Access Credit, or line 1e of Form Alternative motor vehicle credit (Form figure any recapture of low-income housing 3800 (see TIP above). 8910). credit that may result from the disposition of Code L. Empowerment zone and renewal Alternative fuel vehicle refueling property all or part of your partnership interest. For community employment credit. Report credit (Form 8911). more information on recapture, see the this amount on line 3 of Form 8844, Clean renewable energy bond credit. instructions for Form 8611, Recapture of Empowerment Zone and Renewal Report this amount on Form Low-Income Housing Credit. Community Employment Credit. Midwestern tax credit bond credit. Report Code E. Qualified rehabilitation this amount on Form expenditures (rental real estate). The Code M. Credit for increasing research New clean renewable energy bond credit. partnership will report your share of the activities. Report this amount on line 37 of Report this amount on Form qualified rehabilitation expenditures and Form 6765, Credit for Increasing Research Qualified energy conservation bond other information you need to complete Activities, or line 1c of Form 3800 (see TIP credit. Report this amount on Form Form 3468 related to rental real estate above). Qualified forestry conservation bond activities using code E. Your share of Code N. Credit for employer social credit. Report this amount on Form qualified rehabilitation expenditures from security and Medicare taxes. Report this Qualified zone academy bond credit. property not related to rental real estate amount on line 5 of Form 8846, Credit for Report this amount on Form activities will be reported in box 20 using Employer Social Security and Medicare Qualified school construction bond credit. code D. See the Instructions for Form 3468 Taxes Paid on Certain Employee Tips. Report this amount on Form for details. If the partnership is reporting Build America bond credit. Report this Code O. Backup withholding. This is your expenditures from more than one activity, amount on Form share of the credit for backup withholding on the attached statement will separately Mine rescue team training credit (Form dividends, interest income, and other types identify the expenditures from each activity. 8923). of income. Include this amount in the total Agricultural chemicals security credit Combine the expenditures (for Form you enter on Form 1040, line 61 and attach (Form 8931) reporting) from box 15, code E and a copy of the Schedule K-1 to your tax Credit for employer differential wage box 20, code D. The expenditures related to return. payments (Form 8932). rental real estate activities (box 15, code E) Code P. Other credits. On an attachment Carbon dioxide sequestration credit (Form are reported on Schedule K-1 separately to Schedule K-1, the partnership will identify 8933). from other qualified rehabilitation the type of credit and any other information Qualified plug-in electric drive motor expenditures (box 20, code D) because they you need to figure credits other than those vehicle credit (Form 8936). are subject to different passive activity reported with codes A through O. Most Qualified plug-in electric vehicle credit limitation rules. See the Instructions for credits identified by code P will be reported (Part I of Form 8834). Form 8582-CR for details. on Form 3800 (see TIP above). Credit for small employer health Code F. Other rental real estate credits. Credits that may be reported with code P insurance premiums (Form 8941). The partnership will identify the type of include the following: New hire retention credit (Form 5884-B). credit and any other information you need to New markets credit (Form 8874). figure these credits from rental real estate Nonconventional source fuel credit (Form activities (other than the low-income housing 8907). credit and qualified rehabilitation Box 16. Foreign Qualified railroad track maintenance expenditures). These credits may be limited Transactions credit (Form 8900). by the passive activity limitations. If the Unused investment credit from the credits are from more than one activity, the Codes A through N. Use the information qualifying advanced coal project credit, partnership will identify the credits from each identified by codes A through N, code Q, qualifying gasification project credit, activity on an attached statement. See and any attached schedules to figure your qualifying advanced energy project credit, or Passive Activity Limitations on page 3 and foreign tax credit. For details, see Form qualifying therapeutic discovery project the Instructions for Form 8582-CR for 1116, Foreign Tax Credit, and its credit allocated from cooperatives (Form details. instructions; Form 1118, Foreign Tax 3468, line 9). Credit Corporations, and its instructions; Code G. Other rental credits. The Unused investment credit from the and Pub. 514, Foreign Tax Credit for partnership will identify the type of credit and rehabilitation credit or energy credit Individuals. any other information you need to figure allocated from cooperatives (Form 3468, these rental credits. These credits may be line 13). Codes O and P. Extraterritorial income limited by the passive activity limitations. If Renewable electricity, refined coal, and exclusion. the credits are from more than one activity, Indian coal production credit. The 1. Partnership did not claim the the partnership will identify the credits from partnership will provide a statement showing exclusion. If the partnership reports your each activity on an attached statement. See separately the amount of credit from Part I distributive share of foreign trading gross Passive Activity Limitations on page 3 and and Part II of Form receipts (code O) and the extraterritorial the Instructions for Form 8582-CR for Indian employment credit (Form 8845). income exclusion (code P), the partnership details. Orphan drug credit (Form 8820). was not entitled to claim the exclusion Partner s Instructions for Schedule K-1 (Form 1065) -11-

14 because it did not meet the foreign 20 of Schedule K-1. Use the amounts distributions made on the last day of the economic process requirements. You may reported and the amounts on the attached partnership s tax year. still qualify for your distributive share of this schedule to help you figure the net amount Your basis in the distributed marketable exclusion if the partnership s foreign trading to enter on line 26 of Form securities (other than in liquidation of your gross receipts for the tax year were $5 Code F. Other AMT items. Enter the interest) is the smaller of: million or less. To qualify for this exclusion, information on the statement attached by The partnership s adjusted basis in the your foreign trading gross receipts from all the partnership on the applicable lines of securities immediately before the distribution sources for the tax year also must have Form 6251, Form 4626, or Schedule I (Form increased by any gain recognized on the been $5 million or less. If you qualify for the 1041). distribution of the securities or exclusion, report the exclusion amount in The adjusted basis of your partnership accordance with the instructions for Income interest reduced by any cash distributed in (Loss) on page 6 for box 1, 2, or 3, Box 18. Tax-Exempt the same transaction and increased by any whichever applies. See Form 8873, gain recognized on the distribution of the Extraterritorial Income Exclusion, for details. Income and Nondeductible securities. 2. Partnership claimed the exclusion. If Expenses the partnership reports your distributive If you received the securities in share of foreign trading gross receipts but liquidation of your partnership interest, your Code A. Tax-exempt interest income. not the amount of the extraterritorial income basis in the marketable securities is equal to Report on your return, as an item of exclusion, the partnership met the foreign the adjusted basis of your partnership information, your share of the tax-exempt economic process requirements and interest reduced by any cash distributed in interest received or accrued by the claimed the exclusion when figuring your the same transaction and increased by any partnership during the year. Individual distributive share of partnership income. gain recognized on the distribution of the partners include this amount on Form 1040, securities. You also may need to know the amount of line 8b. Increase the adjusted basis of your your distributive share of foreign trading Code B. Distribution subject to section interest in the partnership by this amount. gross receipts from this partnership to 737. If a partner contributed section 704(c) determine if you met the $5 million or less Code B. Other tax-exempt income. built-in gain property within the last 7 years exception discussed above for purposes of Increase the adjusted basis of your interest and the partnership made a distribution of qualifying for an extraterritorial income in the partnership by the amount shown, but property to that partner other than the exclusion from other sources. do not include it in income on your tax previously contributed built-in gain property, return. the partner may be required to recognize Note. Upon request, the partnership should Code C. Nondeductible expenses. The gain under section 737. This gain is in furnish you a copy of the partnership s Form nondeductible expenses paid or incurred by addition to any gain recognized under 8873 if there is a reduction for international the partnership are not deductible on your section 731 on the distribution. boycott operations, illegal bribes, kickbacks, tax return. Decrease the adjusted basis of When this occurs, the partnership will etc. your interest in the partnership by this enter code B in box 19 of the contributing Code Q. Other foreign transactions. On amount. partner s Schedule K-1 and attach a an attachment to Schedule K-1, the statement that provides the information the partnership will report any other information partner needs to compute the recognized on foreign transactions that you may need Box 19. Distributions gain under section 737. The partnership is using code Q. required to provide the following information. Code A. Cash and marketable securities. The fair market value (FMV) of the Code A shows the distributions the distributed property (other than money). partnership made to you of cash and certain Box 17. Alternative The amount of money received in the marketable securities. The marketable distribution. Minimum Tax (AMT) Items securities are included at their fair market The net precontribution gain of the value (FMV) on the date of distribution Use the information reported in box 17 (as partner. (minus your share of the partnership s gain well as your adjustments and tax preference on the securities distributed to you). If the Using the information from the attached items from other sources) to prepare your amount shown as code A exceeds the statement, complete the worksheet below to Form 6251, Alternative Minimum adjusted basis of your partnership interest compute your recognized gain under section Tax Individuals; Form 4626, Alternative immediately before the distribution, the 737. Minimum Tax Corporations; or Schedule I excess is treated as gain from the sale or (Form 1041), Alternative Minimum exchange of your partnership interest. Computation of Section 737 Gain Tax Estates and Trusts. Generally, this gain is treated as gain from 1. Enter the FMV of the distributed Note. A partner that is a corporation the sale of a capital asset and should be property (other than money).. $ subject to alternative minimum tax must reported on the Schedule D for your return. 2. Enter your adjusted basis in the notify the partnership of its status. However, if you receive cash or property in partnership immediately before Code A. This amount is your share of the exchange for any part of a partnership the distribution. See Basis Rules partnership s post-1986 depreciation interest, the amount of the distribution on page 2... adjustment. If you are an individual partner, attributable to your share of the 3. Enter the amount of money report this amount on line 18 of Form partnership s unrealized receivable or received in the distribution... inventory items results in ordinary income 4. Subtract line 3 from line 2. If zero Code B. This amount is your share of the or less, enter partnership s adjusted gain or loss. If you (see Regulations section (a) and are an individual partner, report this amount Sale or Exchange of Partnership Interest on 5. Subtract line 4 from line 1... on line 17 of Form page 1). For details, see Pub Enter your net precontribution Code C. This amount is your share of the The partnership will separately identify gain... partnership s depletion adjustment. If you both of the following. 7. Section 737 gain. Enter the are an individual partner, report this amount The FMV of the marketable securities lesser of the amount on line 5 or on line 9 of Form when distributed (minus your share of the line 6... Codes D and E. Oil, gas, & geothermal gain on the securities distributed to you). properties gross income and The partnership s adjusted basis of those The type of gain (section 1231 gain, deductions. The amounts reported on securities immediately before the capital gain) generated is determined by the these lines include only the gross income distribution. type of gain you would have recognized if (code D) from, and deductions (code E) Decrease the adjusted basis of your you sold the property rather than allocable to, oil, gas, and geothermal interest in the partnership (but not below contributing it to the partnership. properties included in box 1 of Schedule zero) by the amount of cash distributed to Accordingly, report the amount from line 7 K-1. The partnership should have attached a you and the partnership s adjusted basis of above on Form 4797 or Schedule D of your schedule that shows any income from or the distributed securities. Advances or tax return. deductions allocable to such properties that drawings of money or property against your Code C. Other property. Code C shows are included in boxes 2 through 13, 18, and distributive share are treated as current the partnership s adjusted basis of property -12- Partner s Instructions for Schedule K-1 (Form 1065)

15 other than money immediately before the low-income housing credit with code F. All 5. Your distributive share of the cost or property was distributed to you. In addition, other partnerships will report recapture of a other basis plus the expense of sale. the partnership should report the adjusted low-income housing credit with code G. 6. Your distributive share of the basis and FMV of each property distributed. Keep a separate record of recapture from depreciation allowed or allowable. Decrease the adjusted basis of your interest each of these sources so that you will be 7. Your distributive share of the section in the partnership by the amount of your able to correctly figure any recapture of 179 expense deduction (if any) passed basis in the distributed property. Your basis low-income housing credit that may result through for the property and the in the distributed property (other than in from the disposition of all or part of your partnership s tax year(s) in which the liquidation of your interest) is the smaller of: partnership interest. For details, see Form amount was passed through. To figure the The partnership s adjusted basis amount of depreciation allowed or allowable immediately before the distribution or Code H. Recapture of investment credit. for Form 4797, line 22, add to the amount The adjusted basis of your partnership The partnership will provide any information from item 6 above the amount of your interest reduced by any cash distributed in you need to figure your recapture tax on distributive share of the section 179 the same transaction. Form 4255, Recapture of Investment Credit. expense deduction, reduced by any unused If you received the property in liquidation See the Form 3468 on which you took the carryover of the deduction for this property. of your interest, your basis in the distributed original credit for other information you need This amount may be different than the property is equal to the adjusted basis of to complete Form amount of section 179 expense you your partnership interest reduced by any deducted for the property if your interest in You may also need Form 4255 if you cash distributed in the same transaction. the partnership has changed. disposed of more than one-third of your 8. If the disposition is due to a casualty If you receive cash or property in interest in a partnership. or theft, a statement providing the exchange for any part of a partnership Code I. Recapture of other credits. On information you need to complete Form interest, the amount of the distribution an attachment to Schedule K-1, the attributable to your share of the partnership will report any information you 9. If the sale was an installment sale partnership s unrealized receivable or need to figure the recapture of the new made during the partnership s tax year, any inventory items results in ordinary income markets credit (see Form 8874); qualified information you need to complete Form (see Regulations section (a) and plug-in electric and electric vehicle credit 6252, Installment Sale Income. The Sale or Exchange of Partnership Interest on (see Form 8834); Indian employment credit partnership will separately report your share page 1). (see section 45A(d)); any credit for of all payments received for the property in employer-provided childcare facilities and the following tax years. See the instructions services (see Form 8882); alternative motor for Form 6252 for details. Box 20. Other Information vehicle credit (see section 30B(h)(8)); alternative fuel vehicle refueling property Code M. Recapture of section 179 Code A. Investment income. Report this credit (see section 30C(e)(5)); or the new deduction. The partnership will report your amount on line 4a of Form qualified plug-in electric drive motor vehicles distributive share of any recapture of section Code B. Investment expenses. Report credit (see section 30D(f)(5)). 179 expense deduction if business use of this amount on line 5 of Form any property for which the section 179 Code J. Look-back interest completed Code C. Fuel tax credit information. The expense deduction was passed through to long-term contracts. The partnership will partnership will report the number of gallons partners dropped to 50% or less. If this report any information you need to figure the of each fuel sold or used during the tax year occurs, the partnership must provide the interest due or to be refunded under the for a nontaxable use qualifying for the credit following information. look-back method of section 460(b)(2) on for taxes paid on fuels, type of use, and the certain long-term contracts. Use Form 8697, 1. Your distributive share of the applicable credit per gallon. Use this Interest Computation Under the Look-Back depreciation allowed or allowable (not information to complete Form 4136, Credit Method for Completed Long-Term including the section 179 expense for Federal Tax Paid on Fuels. Contracts, to report any such interest. deduction). Code D. Qualified rehabilitation 2. Your distributive share of the section Code K. Look-back interest income expenditures (other than rental real 179 expense deduction (if any) passed forecast method. The partnership will estate). The partnership will report your through for the property and the report any information you need to figure the share of qualified rehabilitation expenditures partnership s tax year(s) in which the interest due or to be refunded under the and other information you need to complete amount was passed through. Reduce this look-back method of section 167(g)(2) for Form 3468 for property not related to rental amount by the portion, if any, of your certain property placed in service after real estate activities in box 20 using code D. unused (carryover) section 179 expense September 13, 1995, and depreciated under Your share of qualified rehabilitation deduction for this property. the income forecast method. Use Form expenditures related to rental real estate 8866, Interest Computation Under the activities is reported in box 15 using code E. Code N. Interest expense for corporate Look-Back Method for Property Depreciated See the Instructions for Form 3468 for partners. The partnership will report each Under the Income Forecast Method, to details. If the partnership is reporting corporate partner s distributive share of the report any such interest. expenditures from more than one activity, partnership s interest expense. This amount the attached statement will separately Code L. Dispositions of property with is reported elsewhere on Schedule K-1 and identify the expenditures from each activity. section 179 deductions. The partnership the total amount is reported here for will report your distributive share of gain or information only. Your distributive share of Combine the expenditures (for Form loss on the sale, exchange, or other interest income is reported in box 5 and your 3468 reporting) from box 15, code E and disposition of property for which a section share of the partnership s liabilities is box 20, code D. The expenditures related to 179 expense deduction was passed through reported in Part II, item K. A corporate rental real estate activities (box 15, code E) to partners with code L. If the partnership partner s distributive share of interest are reported on Schedule K-1 separately passed through a section 179 expense income, interest expense, and partnership from other qualified rehabilitation deduction for the property, you must report liabilities are treated as income, expense, expenditures (box 20, code D) because they the gain or loss and any recapture of the and liabilities of the corporation for purposes are subject to different passive activity section 179 expense deduction for the of the limitation on the deduction for interest limitation rules. See the Instructions for property on your income tax return (see the under section 163(j). Form 8582-CR for details. Instructions for Form 4797 for details). The Code O. Section 453(l)(3) information. Code E. Basis of energy property. If the partnership will provide all the following The partnership will report any information partnership provides an attached statement information. you need to figure the interest due under for code E, use the information on the 1. Description of the property. section 453(l)(3) with respect to the statement to complete lines 12a-d, 12f, 12g, 2. Date the property was acquired and disposition of certain timeshares and 12i, 12j, 12l, 12m, 12o, and 12q-s of Form placed in service. residential lots on the installment method. If Date of the sale or other disposition of you are an individual, report the interest on Codes F and G. Recapture of low-income the property. Form 1040, line 60. Enter 453(l)(3) and the housing credit. A section 42(j)(5) 4. Your distributive share of the gross amount of the interest on the dotted line to partnership will report recapture of a sales price or amount realized. the left of line 60. Partner s Instructions for Schedule K-1 (Form 1065) -13-

16 Code P. Section 453A(c) information. Code V. Unrelated business taxable 409A nonqualified deferred compensation The partnership will report any information income. The partnership will report any plan that does not meet the requirements of you need to figure the interest due under information you need to figure unrelated section 409A. See section 409A(a)(1)(B) to section 453A(c) with respect to certain business taxable income under section figure the interest and additional tax on this installment sales. If you are an individual, 512(a)(1) (but excluding any modifications income. Report this interest and tax on line report the interest on Form 1040, line 60. required by paragraphs (8) through (15) of 60 of Form This income is included in Enter 453A(c) and the amount of the section 512(b)) for a partner that is a the amount in box 4, Guaranteed Payments. interest on the dotted line to the left of line tax-exempt organization. 4. Inversion gain. The partnership will 60. See the instructions for Form 6252 for Note. A partner is required to notify the provide a statement showing the amounts of more information. Also see section 453A(c) partnership of its tax-exempt status. each type of income or gain that is included for details on how to figure the interest. in inversion gain. The partnership has Code Q. Section 1260(b) information. Code W. Precontribution gain (loss). If included inversion gain in income elsewhere The partnership will report any information the partnership distributed any contributed on Schedule K-1. Inversion gain is also you need to figure the interest due under property to any partner other than the reported under code Y because your taxable section 1260(b). If the partnership had gain contributing partner, and the date of the income and alternative minimum taxable from certain constructive ownership distribution was within 7 years of the date income cannot be less than the inversion transactions, your tax liability must be the property was contributed to the gain. Also, your inversion gain (a) is not increased by the interest charge on any partnership, the contributing partner must taken into account in figuring the net deferral of gain recognition under section recognize a gain or loss under section operating loss (NOL) for the tax year or the 1260(b). Report the interest on Form 1040, 704(c)(1)(B). If the partnership made such a NOL that can be carried over to each tax line 60. Enter 1260(b) and the amount of distribution during its tax year, it will enter year, (b) may limit your credits, and (c) is the interest on the dotted line to the left of code W in box 20 of the contributing treated as income from sources within the line 60. See section 1260(b) for details, partner s Schedule K-1 and attach a U.S. for the foreign tax credit. See section including how to figure the interest. statement providing the amount of the 7874 for details. partner s precontribution gain (loss) and Code R. Interest allocable to production 5. Qualified timber gain (corporate identifying the character of the gain or loss expenditures. The partnership will report partners only). Report the partner s (for example, capital gain (loss) or section any information you need relating to interest distributive share of qualified timber gain on 1231 gain (loss)). Report the precontribution you are required to capitalize under section the applicable line of your corporate tax gain or loss on Schedule D or Form 4797 in 263A for production expenditures. See return. See section 1201(b) and the accordance with the information provided by Regulations sections 1.263A-8 through instructions for your corporate tax return for the partnership A-15 for details. more information. Code X. Section 108(i) information. If the 6. Qualifying advanced coal project Code S. CCF nonqualified withdrawals. partnership made a section 108(i) election property. Use the amounts the partnership The partnership will report your share of or allocates any section 108(i) items to its provides you to figure the amounts to report nonqualified withdrawals from a capital partners, it will provide a statement on Form 3468, lines 5a through 5c. construction fund (CCF). These withdrawals are taxed separately from your other gross identifying your distributive share of the 7. Qualifying gasification project income at the highest marginal ordinary following: property. Use the amounts the partnership income or capital gains tax rate. Attach a The deferred section 108(i) cancellation of provides you to figure the amounts to report statement to your federal income tax return debt (COD) income that has not been on Form 3468, lines 6a and 6b. to show your computation of both the tax included in income in the current or prior tax 8. Qualifying advanced energy project and interest for a nonqualified withdrawal. years, property. Use the amount the partnership Include the tax and interest on Form 1040, The partnership s original issue discount provides you to figure the amount to report line 60. On the dotted line to the left of line (OID) deduction deferred under section on Form 3468, line 7. 60, enter the amount of tax and interest and 108(i)(2)(A)(i) that has not been deducted in 9. Qualifying therapeutic discovery CCF. the current or prior tax years, project property. Use the amount the The deferred section 752 amount that is partnership provides you to figure the Code T. Depletion information oil and treated as a distribution of money under amount to report on Form 3468, line 8. gas. This is your share of gross income section 752 in the current tax year, and 10. The information needed to complete from the property, share of production for The deferred section 752 amount Schedule P (Form 1120-F), List of Foreign the tax year, etc., needed to figure your remaining as of the end of the current tax Partner Interests in Partnerships. When depletion deduction for oil and gas wells. year. required, the partnership will make this The partnership should also allocate to you Code Y. Other information. The report on an attached statement to partners a share of the adjusted basis of each partnership will report: that are a corporation (identified as a foreign partnership oil or gas property. See Pub. partner under Regulations section 535 for details on how to figure your 1. Any information a publicly traded (c)(3)) or partners that are a depletion deduction. partnership needs to determine whether it partnership (domestic or foreign) if the Code U. Amortization of reforestation meets the 90% qualifying income test of reporting partnership knows, or has reason costs. The partnership will provide a section 7704(c)(2). to know, that one or more of the partners is statement identifying your share of the Note. A partner is required to notify the a foreign corporation. If the partnership amortizable basis of reforestation partnership of its status as a publicly traded allocates effectively connected income to expenditures paid or incurred before partnership. the partner, the statement will contain the October 23, The partnership will 2. Any information you need to complete information needed to complete lines 1 separately report your share of the a disclosure statement for reportable through 9, 12, 13, 14b, 16a, 16b, and 17 of amortizable basis of reforestation transactions in which the partnership Schedule P (Form 1120-F). If the expenditures for 2003 and Your participates. If the partnership participates in partnership does not allocate effectively amortizable basis of reforestation a transaction that must be disclosed on connected income to the partner, the expenditures for each tax year from all Form 8886, Reportable Transaction statement will contain the information properties is limited to $10,000 ($5,000 if Disclosure Statement, both you and the needed to complete lines 12, 13, and 17 of married filing separately), including your partnership may be required to file Form Schedule P (Form 1120-F). distributive share of the partnership s 8886 for the transaction. The determination 11. Conservation reserve program expenditures and any qualified reforestation of whether you are required to disclose a payments. Individuals who received social expenditures you separately paid or transaction of the partnership is based on security retirement or disability benefits, and incurred. To figure your allowable the category(s) under which the transaction are partners in farm partnerships that amortization, see section 194 and Pub qualifies for disclosure and is determined by receive conservation reserve program Follow the Instructions for Form 8582 to the partnership. You may have to pay a payments, do not pay self-employment tax report a deduction allocable to a passive penalty if you are required to file Form 8886 on their portion of the payments. The activity. If you materially participated in the and do not do so. See the Instructions for partnership will report your portion of the reforestation activity, report the deduction on Form 8886 for details. conservation reserve program payments in line 28, column (h), of Schedule E (Form 3. Interest and additional tax on box 20 using code Y. See Schedule SE 1040). compensation deferred under a section (Form 1040) for information on excluding the -14- Partner s Instructions for Schedule K-1 (Form 1065)

17 payment from your calculation of partnership item that includes bonus may be used to offset tentative minimum tax self-employment tax. depreciation and shows the electing and qualify for a 5-year carryback. An 12. Acceleration of AMT and research corporate partner s adjustment for each item eligible small business is a business with credits (corporations only). If a corporate that results from the recomputed average annual gross receipts for the three partner has made an election to accelerate depreciation and elimination of the bonus preceding tax years of $50 million or less. the AMT and research credits in lieu of depreciation. The partner must reduce the To qualify for the eligible small business bonus depreciation, it is required to notify amount shown on Schedule K-1 for these credit, both you and the partnership must the partnership in writing of this election. partnership items by the amount of the meet the gross receipts test of section See Rev. Proc , I.R.B. 449 corresponding adjustment. See section 38(c)(5)(C). The partnership will provide the and Rev. Proc , I.R.B (k)(4) for more information. information you need to determine if it is an for more information about the written 13. Any information you may need to eligible small business. For more notification that the electing corporate comply with the limitation on excess farm information on eligible small business partner must provide the partnership. The losses of certain taxpayers under section credits, see Form partnership is required to recompute the 461(j). 15. Any other information you may need electing corporate partner s distributive 14. Eligible small business credits. to file your return not shown elsewhere on share of depreciation on any eligible General business credits (credits reported Schedule K-1. qualified property or extension property to under box 15, box 20 using codes D and E, The partnership should give you a eliminate bonus depreciation and use the and box 20 using code Y for items 6 through description and the amount of your share for straight line depreciation method for such 9), that are determined after 2009 and each of these items. property. The partnership will attach a attributable to an eligible small business statement to Schedule K-1 that lists each Partner s Instructions for Schedule K-1 (Form 1065) -15-

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