PDF document

- 1 -

                           Userid: CPM                       Schema: instrx   Leadpct: 100%       Pt. size: 8.5            Draft             Ok to Print
AH XSL/XML                 Fileid: … ions/i1065/2023/a/xml/cycle03/source                                             (Init. & Date) _______

Page 1 of 67                                                                                                          18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

                                                                                                                      Department of the Treasury
                                                                                                                      Internal Revenue Service
2023

Instructions for Form 1065

U.S. Return of Partnership Income

Section references are to the Internal Revenue Code unless                    Contents                                                                  Page
otherwise noted.                                                                  Schedule M-1. Reconciliation of Income 
Contents                                                               Page           (Loss) per Books With Analysis of Net 
How To Get Forms and Publications              . . . . . . . . . . . . .   3          Income (Loss) per Return            . . . . . . . . . . . . . . .   59
General Instructions   . . . . . . . . . . . . . . . . . . . . . . . . .   3      Schedule M-2. Analysis of Partners' Capital 
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . .          3          Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . .      59
Definitions      . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3  Codes for Principal Business Activity and Principal 
                                                                                  Product or Service        . . . . . . . . . . . . . . . . . . . . . .   63
Who Must File        . . . . . . . . . . . . . . . . . . . . . . . . . .   4
                                                                              Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Termination of the Partnership . . . . . . . . . . . . . . .               5
Electronic Filing      . . . . . . . . . . . . . . . . . . . . . . . . .   5
                                                                              Future Developments
When To File       . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
Where To File        . . . . . . . . . . . . . . . . . . . . . . . . . .   7  For the latest information about developments related to Form 1065 
                                                                              and its instructions, such as legislation enacted after they were 
Who Must Sign          . . . . . . . . . . . . . . . . . . . . . . . . .   6  published, go to IRS.gov/Form1065.
Penalties    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
Accounting Methods             . . . . . . . . . . . . . . . . . . . . .   7  What’s New
Accounting Periods           . . . . . . . . . . . . . . . . . . . . . .   8
                                                                              Electronically filed returns.     Beginning January 1, 2024, 
Rounding Off to Whole Dollars                . . . . . . . . . . . . . .   9  partnerships are required to file Form 1065 and related forms and 
Recordkeeping          . . . . . . . . . . . . . . . . . . . . . . . . .   9  schedules electronically if they file 10 or more returns of any type 
Administrative Adjustment Request (AAR)                      . . . . . .   9  during the tax year, including information, income tax, employment 
                                                                              tax, and excise tax returns. Certain exceptions apply. See Electronic 
Amended Return           . . . . . . . . . . . . . . . . . . . . . . . .   9  Filing, later.
Assembling the Return            . . . . . . . . . . . . . . . . . . .     12 Qualified derivatives dealers (QDDs).           Under the new qualified 
Entity Classification Election           . . . . . . . . . . . . . . .     12 intermediary agreement (QIA), if the partnership is, or has a branch 
Elections Made by the Partnership                  . . . . . . . . . .     12 that is, a QDD, it must file Form 1065. See Qualified derivatives 
                                                                              dealers (QDDs), later, for more information.
Elections Made by Each Partner                 . . . . . . . . . . . .     13
Partner’s Dealings With Partnership . . . . . . . . . .                    13 Energy efficient commercial building deduction.               Line 20 has 
                                                                              been changed from Other deductions to Energy efficient commercial 
Contributions to the Partnership . . . . . . . . . . . . .                 13 building deduction. See Line 20, later.
Dispositions of Contributed Property                 . . . . . . . . .     13 Elective payment election.        Line 29 has been changed from 
Recognition of Precontribution Gain on                                        Amount owed to Elective payment election amount from Form 3800. 
Certain Partnership Distributions                  . . . . . . . . . .     14 See Line 29, later.
Unrealized Receivables and Inventory Items . . . .                         14 Schedule B.   Schedule B has multiple updates. First, question 10 
At-Risk Limitations        . . . . . . . . . . . . . . . . . . . . . .     14 was expanded and now includes 10d. See Questions 10a, 10b, 10c, 
                                                                              and 10d, later, for more information. Second, question 29 was 
Passive Activity Limitations           . . . . . . . . . . . . . . . .     14 activated to request information on excise tax on repurchase of 
Specific Instructions  . . . . . . . . . . . . . . . . . . . . . . . .     19 corporate stock. See Question 29, later. Third, a new Question 30 
Income       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20 was added to request information on digital assets. Fourth, the 
                                                                              previous question 30 has been renumbered to 31.
Deductions       . . . . . . . . . . . . . . . . . . . . . . . . . . .     21
Schedule B. Other Information . . . . . . . . . . . . . .                  26 Schedule K-1 (Form 1065), item J.           The checkbox under 
                                                                              Schedule K-1 (Form 1065), item J, was expanded to a box for sale 
Schedules K and K-1. Partners' Distributive                                   and a box for exchange. The instructions differentiate when each 
Share Items          . . . . . . . . . . . . . . . . . . . . . . . . .     31 should be checked; see Item J, for more information.
Specific Instructions (Schedule K-1 Only) . . . . . .                      31 Schedule K-1 (Form 1065), items K2 and K3.                Item K was 
Part I. Information About the Partnership . . . . . . .                    32 expanded to include an additional checkbox and each item given a 
Part II. Information About the Partner               . . . . . . . . .     32 separate number. The instructions were separated to identify 
                                                                              information pertaining to each item and new instructions are 
Specific Instructions (Schedules K and K-1,                                   provided for the new item K3 checkbox to indicate whether the listed 
Part III, Except as Noted) . . . . . . . . . . . . . . . .                 35 liabilities are subject to guarantees or other payment obligations. For 
Flowchart To Help Determine if Items Are                                      more information, see Item K1 Item K2,      , and Item K3, later.
Qualified Business Income                  . . . . . . . . . . . . . .     53 Schedule K, line 11.    Line 11, Other income (loss) (code I), 
Analysis of Net Income (Loss) per Return . . . . . .                       58 previously included a number of bulleted items. These items have 
Schedule L. Balance Sheets per Books                     . . . . . . .     58 been assigned individual codes for Schedule K, line 11, and box 11 
                                                                              of Schedule K-1. See Line 11. Other Income (Loss), later, for the 
                                                                              expanded list of codes.

Jan 16, 2024                                                           Cat. No. 11392V

- 2 -

Page 2 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Schedule K, line 13. There are two major changes to line 13. First, Domestic partnerships treated as aggregates for purposes of
line 13a, Contributions, has been split into Line 13a. Cash sections 951, 951A, and 956(a). Final regulations announced in
Contributions and Line 13b. Noncash Contributions. The T.D. 9960 treat domestic partnerships as aggregates of their
subsequent lines have been renumbered accordingly. Second, the partners for purposes of sections 951, 951A, and 956(a), and any
2022 line 13d, Other deductions (code W), included a number of provision that specifically applies by reference to any of those
bulleted items. These items have been assigned individual codes for sections, for tax years of foreign corporations beginning on or after
Schedule K, line 13, and box 13 of Schedule K-1. See Line 13e. January 25, 2022, and for tax years of U.S. persons in which or with
Other Deductions, later, for the expanded list of codes. which such tax years of foreign corporations end. Domestic
partnerships may apply the final regulations to tax years of foreign
Schedule K, line 15. Line 15f, Other credits (code P), previously corporations beginning after December 31, 2017, and to tax years of
included a number of bulleted items. These items have been the domestic partnership in which or with which such tax years of the
assigned individual codes for Schedule K, line 15, and box 15 of foreign corporations end, provided certain consistency requirements
Schedule K-1. See Line 15f. Other Credits, later, for the expanded are met.
list of codes and new energy credits.
IRA partner disclosure. For IRA partners, the partnership reports
Schedule K, line 20. Line 20c, Other information (code AH), the employer identification number (EIN) of the IRA's custodian in
previously included a number of bulleted items. These items have item E on the partner's Schedule K-1 (Form 1065). If the partnership
been assigned individual codes for Schedule K, line 20, and box 20 reports unrelated business taxable income (UBTI) to an IRA partner
of Schedule K-1. See Line 20c. Other Items and Amounts, later, for on line 20, code V, the partnership must report the IRA's EIN on
the expanded list of codes. line 20, code AR. See Items E and F and IRA disclosure (code AR),
Schedule K, line 20c, code P. Instructions have been updated for later.
section 453A information required to be provided to partners.
Schedule K, line 20c, code X. Line 20c, code X, was previously Photographs of Missing Children
Reserved and has been activated to report payment obligations The Internal Revenue Service is a proud partner with the National
including guarantees and deficit restoration obligations (DROs). See Center for Missing & Exploited Children® (NCMEC). Photographs of
line 20c, code X, later. missing children selected by the Center may appear in instructions
on pages that would otherwise be blank. You can help bring these
Reminders children home by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you recognize a child.
Changes from the Inflation Reduction Act of 2022 (IRA 2022)
and the CHIPS Act of 2022 (CHIPS 2022). The following are How To Get Tax Help
changes from the IRA 2022 (P.L. 117-169) and the CHIPS 2022 (P.L. If you have questions about a tax issue; need help preparing your tax
117-167). return; or want to download free publications, forms, or instructions,
• Advanced manufacturing investment credit for qualified go to IRS.gov to find resources that can help you right away.
investment in an advanced manufacturing facility placed in service
after 2022. See section 48D and Form 3468 and its instructions for Online tax information in other languages. You can find
more information. information on IRS.gov/MyLanguage if English isn’t your native
• Increase in energy credit for solar and wind facilities placed in language.
service in connection with low-income communities, effective Free Over-the-Phone Interpreter (OPI) Service. The IRS is
January 1, 2023. See section 48(e) and Form 3468 and its committed to serving our multilingual customers by offering OPI
instructions for more information. services. The OPI Service is a federally funded program and is
• Extension of incentives for biodiesel, renewable diesel, alternative available at Taxpayer Assistance Centers (TACs), other IRS offices,
fuels, and sustainable aviation fuels for productions after 2021. See and every VITA/TCE return site. The OPI Service is accessible in
Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation more than 350 languages.
Fuels Credit, and its instructions. See sections 40A, 40B, 6426, and
6427. Accessibility Helpline available for taxpayers with disabilities.
• Credit for clean hydrogen produced after 2022. See section 45V Taxpayers who need information about accessibility services can
and Form 7210 and its instructions for more information. call 833-690-0598. The Accessibility Helpline can answer questions
• Credit for clean vehicles placed in service after 2022. See section related to current and future accessibility products and services
30D and Form 8936, Clean Vehicle Credit, and its instructions for available in alternative media formats (for example, braille, large
more information. print, audio, etc.). The Accessibility Helpline doesn't have access to
• Credit for qualified commercial clean vehicles for vehicles your IRS account. For help with tax law, refunds, or account-related
acquired after 2022. See section 45W and Form 8936 and its issues, go to IRS.gov/LetUsHelp.
instructions for more information.
• Advanced manufacturing production credit for certain The Taxpayer Advocate Service (TAS) Is Here To
components produced and sold after 2022. See Form 7207, Help You
Advanced Manufacturing Production Credit, and its instructions. See
section 45X. What Is TAS?
• Credit against payroll taxes for small businesses for increase in
research for tax years beginning after 2022. See section 41(h) and TAS is an independent organization within the IRS that helps
Form 6765, Credit for Increasing Research Activities, and its taxpayers and protects taxpayer rights. Their job is to ensure that
instructions for more information. every taxpayer is treated fairly and that you know and understand
your rights under the Taxpayer Bill of Rights.
Schedule M-1. Reconciliation of Income (Loss) per Books With
Analysis of Net Income (Loss) per Return. The title of the
Schedule M-1 was changed to Reconciliation of Income (Loss) per How Can You Learn About Your Taxpayer Rights?
Books With Analysis of Net Income (Loss) per Return. There weren't
any changes to the Schedule M-1 line items. The change clarified The Taxpayer Bill of Rights describes 10 basic rights that all
that Schedule M-1, line 9, isn't the taxable income of the partnership. taxpayers have when dealing with the IRS. Go to
Instead, Schedule M-1, line 9, agrees with the Analysis of Net TaxpayerAdvocate.IRS.gov to help you understand what these rights
Income (Loss) per Return, line 1. The Analysis of Net Income (Loss) mean to you and how they apply. These are your rights. Know them.
per Return, line 1, is a summary of various items reported on the Use them.
Schedule K and is used for reconciliation purposes.

2 Instructions for Form 1065 (2023)

- 3 -

Page 3 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

What Can TAS Do for You? Definitions
TAS can help you resolve problems that you can’t resolve with the
IRS. And their service is free. If you qualify for their assistance, you Centralized Partnership Audit Regime
will be assigned to one advocate who will work with you throughout The Bipartisan Budget Act of 2015 (BBA) created a new centralized
the process and will do everything possible to resolve your issue. partnership audit regime effective for partnership tax years
TAS can help you if: beginning after 2017. The new audit regime replaces the
• Your problem is causing financial difficulty for you, your family, or consolidated audit proceedings under the Tax Equity and Fiscal
your business; Responsibility Act (TEFRA). The new audit regime applies to all
• You face (or your business is facing) an immediate threat of partnerships unless the partnership is an eligible partnership and
adverse action; or elects out by making a valid election using Schedule B-2 (Form
• You’ve tried repeatedly to contact the IRS but no one has 1065).
responded, or the IRS hasn’t responded by the date promised. Electing out of the centralized partnership audit regime. See
Electing Out of the Centralized Partnership Audit Regime, later.
How Can You Reach TAS? Adjustment year. An adjustment year is a tax year in which:
• In the case of an adjustment pursuant to the decision of a court in
TAS has offices in every state, the District of Columbia, and Puerto a proceeding brought under section 6234, such decision becomes
Rico. Your local advocate's number is in your local directory and at final;
TaxpayerAdvocate.IRS.gov/Contact-Us. You can also call them at • In the case of an administrative adjustment request (AAR) under
877-777-4778. section 6227, such AAR is filed; or
• In any other case, a notice of final partnership adjustment is
mailed under section 6231 or, if the partnership waives the
How Else Does TAS Help Taxpayers? restrictions under section 6232(b) (regarding limitations on
assessments), the waiver is executed by the IRS.
TAS works to resolve large-scale problems that affect many
taxpayers. If you know of one of these broad issues, report it to them Reviewed year. A reviewed year is a partnership’s tax year to which
at IRS.gov/SAMS. a partnership adjustment relates.

TAS for Tax Professionals Partnership
A partnership is the relationship between two or more persons who
TAS can provide a variety of information for tax professionals, join to carry on a trade or business, with each person contributing
including tax law updates and guidance, TAS programs, and ways to money, property, labor, or skill and each expecting to share in the
let TAS know about systemic problems you’ve seen in your practice. profits and losses of the business whether or not a formal
partnership agreement is made.
How To Get Forms and Publications
The term “partnership” includes a limited partnership, syndicate,
Internet. You can access the IRS website at IRS.gov 24 hours a group, pool, joint venture, or other unincorporated organization,
day, 7 days a week to: through or by which any business, financial operation, or venture is
• E-file your return—find out about commercial tax preparation and carried on, that isn't, within the meaning of regulations under section
e-file services available free to eligible taxpayers; 7701, a corporation, trust, estate, or sole proprietorship.
• Download forms, including talking tax forms, instructions, and
publications; A joint undertaking merely to share expenses isn't a partnership.
• Use the online Internal Revenue Code, regulations, or other Mere co-ownership of property that is maintained and leased or
official guidance; rented isn't a partnership. However, if the co-owners provide
• Get information on starting and operating a small business; services to the tenants, a partnership exists.
• Order IRS products online;
• Research your tax questions online; Business owned and operated by spouses. Generally, if you and
• Search publications online by topic or keyword; your spouse jointly own and operate an unincorporated business
• View Internal Revenue Bulletins (IRBs) published in the last few and share in the profits and losses, you're partners in a partnership
years; and and you must file Form 1065.
• Sign up to receive local and national tax news by email. Exception—qualified joint venture (QJV). If you and your
spouse materially participate as the only members of a jointly owned
Tax forms and publications. The partnership can download or and operated business, and you file a joint return for the tax year,
print all of the forms and publications it may need on IRS.gov/ you can make an election to be treated as a QJV instead of a
FormsPubs. Otherwise, the partnership can go to IRS.gov/ partnership. By making the election, you won't be required to file
OrderForms to place an order and have forms mailed to the Form 1065 for any year the election is in effect and will instead report
partnership. The IRS will process your order for forms and the income and deductions directly on your joint return.
publications as soon as possible. A QJV conducts a trade or business where the only members of
the joint venture are a married couple who file a joint return, both
spouses materially participate in the trade or business (because
General Instructions mere joint ownership of property isn’t enough), both spouses elect
not to be treated as a partnership, and the business is co-owned by
Purpose of Form both spouses and isn't held in the name of a state law entity such as
a partnership or limited liability company (LLC).
Form 1065 is an information return used to report the income, gains,
losses, deductions, credits, and other information from the operation To make this election, you must divide all items of income, gain,
of a partnership. Generally, a partnership doesn't pay tax on its loss, deduction, and credit between you and your spouse in
income but passes through any profits or losses to its partners. accordance with your respective interests in the venture. Each of you
Partners must include partnership items on their tax or information must file a separate Schedule C (Form 1040), Profit or Loss From
returns. Business; or Schedule F (Form 1040), Profit or Loss From Farming.
On each line of your separate Schedule C or F (Form 1040), you
must enter your share of the applicable income, deduction, or loss.
Each of you must also file a separate Schedule SE (Form 1040),
Self-Employment Tax, to pay self-employment tax, as applicable.
Instructions for Form 1065 (2023) 3

- 4 -

Page 4 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

If you and your spouse make the election for your rental real classified for federal income tax purposes as a partnership, a
estate business, you each must report your share of income and corporation, or an entity disregarded as an entity separate from its
deductions on Schedule E (Form 1040), Supplemental Income and owner by applying the rules in Regulations section 301.7701-3. See
Loss. Rental real estate income isn’t generally included in net Form 8832, Entity Classification Election, for more details.
earnings from self-employment subject to self-employment tax and
is generally subject to the passive loss limitation rules. Electing QJV A domestic LLC with at least two members that doesn't file
status doesn't alter the application of the self-employment tax or the TIP Form 8832 is classified as a partnership for federal income
passive loss limitation rules. tax purposes.
To make the QJV election for 2023, jointly file the 2023 Form
1040 or 1040-SR with the required schedules. This generally doesn't Nonrecourse Loans
increase the total tax on the return, but it does give each spouse Nonrecourse loans are those liabilities of the partnership for which
credit for social security earnings on which retirement benefits are no partner or related person bears the economic risk of loss.
based, provided neither spouse exceeds the social security wage
base limitation. Section 721(c) Partnership
Once made, the election can't be revoked without IRS consent. If A partnership (domestic or foreign) is a section 721(c) partnership if
you and your spouse filed a Form 1065 for the year prior to the there is a contribution of section 721(c) property to the partnership
election, you don't need to amend that return or file a final Form and, after the contribution (and all transactions related to the
1065 for the year the election takes effect. contribution), (a) a related foreign person with respect to the U.S.
For more information on QJVs, go to IRS.gov/QJV. transferor is a direct or indirect partner in the partnership; and (b) the
U.S. transferor and related persons own 80% or more of the interests
Foreign Partnership in partnership capital, profits, deductions, or losses. See Regulations
section 1.721(c)-1(b)(14).
A foreign partnership is a partnership that isn't created or organized
in the United States or under the law of the United States or of any
state. In certain instances, a partnership created or organized in the U.S. Transferor
United States can be treated as a foreign partnership. See, for A U.S. transferor is a U.S. person other than a domestic partnership.
example, Regulations section 1.958-1(d)(1). See Regulations section 1.721(c)-1(b)(18).

In addition, if a domestic section 721(c) partnership is formed Section 721(c) Property
after January 17, 2017, and the gain deferral method is applied, then
a U.S. transferor must treat the section 721(c) partnership as a Section 721(c) property is property (other than excluded property)
foreign partnership and file a Form 8865, Return of U.S. Persons with built-in gain that is contributed to a partnership by a U.S.
With Respect to Certain Foreign Partnerships, with respect to the transferor, including pursuant to a contribution described in
partnership. See Form 8865 and its instructions. See also Regulations section 1.721(c)-2(d) (partnership look-through rule).
Regulations section 1.721(c)-6(b)(4). See Regulations section 1.721(c)-1(b)(15).

General Partner Gain Deferral Contribution
A general partner is a partner who is personally liable for partnership A gain deferral contribution is a contribution of section 721(c)
debts. property to a section 721(c) partnership with respect to which the
recognition of gain is deferred under the gain deferral method. See
Regulations section 1.721(c)-1(b)(7).
General Partnership
A general partnership is composed only of general partners. Gain Deferral Method
The gain deferral method is the method described in Regulations
Limited Partner section 1.721(c)-3(b) applied to avoid the immediate recognition of
A limited partner is a partner in a partnership formed under a state gain on a contribution of section 721(c) property to a section 721(c)
limited partnership law, whose personal liability for partnership debts partnership under Regulations section 1.721(c)-2(b).
is limited to the amount of money or other property that the partner
contributed or is required to contribute to the partnership. Some Who Must File
members of other entities, such as domestic or foreign business
trusts or LLCs that are classified as partnerships, may be treated as Domestic Partnerships
limited partners for certain purposes.
Except as provided below, every domestic partnership must file
However, whether a partner qualifies as a limited partner for Form 1065, unless it neither receives income nor incurs any
purposes of self-employment tax depends on whether the partner expenditures treated as deductions or credits for federal income tax
meets the definition of a limited partner under section 1402(a)(13). purposes.
See Self-Employment, later.
Note. To be certified as a qualified opportunity fund (QOF), the
Limited Partnership partnership must file Form 1065 and attach Form 8996, Qualified
A limited partnership is formed under a state limited partnership law Opportunity Fund, even if the partnership had no income or
and composed of at least one general partner and one or more expenses to report. See Schedule B, question 25, and the
limited partners. Instructions for Form 8996.
Entities formed as LLCs that are classified as partnerships for
Limited Liability Partnership (LLP) federal income tax purposes have the same filing requirements as
An LLP is formed under a state limited liability partnership law. domestic partnerships.
Generally, a partner in an LLP isn't personally liable for the debts of A religious or apostolic organization exempt from income tax
the LLP or any other partner, nor is a partner liable for the acts or under section 501(d) must file Form 1065 to report its taxable
omissions of any other partner solely by reason of being a partner. income, which must be allocated to its members as a dividend,
whether distributed or not. Such an organization must figure its
Limited Liability Company (LLC) taxable income on an attached statement to Form 1065 in the same
An LLC is an entity formed under state law by filing articles of manner as a corporation. The organization may use Form 1120, U.S.
organization as an LLC. Unlike a partnership, none of the members Corporation Income Tax Return, for this purpose. Enter the
of an LLC are personally liable for its debts. An LLC may be organization's taxable income, if any, on Form 1065, Schedule K,

4 Instructions for Form 1065 (2023)

- 5 -

Page 5 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

line 6a, and each member's distributive share in box 6a of provide its name, address, and EIN on page 1 of Form 1065 and
Schedule K-1 (Form 1065). Net operating losses aren't deductible attach a statement citing “Regulations section 1.6031(a)-1(b)(5)”
by the members but may be carried back or forward by the and identifying the election being made. A foreign partnership filing
organization under the rules of section 172. The religious or Form 1065 solely to make an election must obtain an EIN if it doesn't
apostolic organization must also make its annual information return already have one.
available for public inspection. For this purpose, annual information
return includes an exact copy of Form 1065 and all accompanying Qualified derivatives dealers (QDDs) A partnership that is, or has
schedules and attached statements, except Schedules K-1. For a branch that is, a QDD (QDD partnership) must file Form 1065 even
more details, see Regulations section 301.6104(d)-1. if it wouldn't be required to file otherwise. A QDD partnership must
attach a statement (QDD statement) to its Form 1065 with certain
A qualifying syndicate, pool, joint venture, or similar organization required information as provided in section 7.01(C) of the QIA in
may elect under section 761(a) not to be treated as a partnership for Rev. Proc. 2022-43, 2022-52 I.R.B. 570. If the only reason the
federal income tax purposes and won't be required to file Form 1065 partnership is filing Form 1065 is because it's a QDD partnership,
except for the year of election. For details, see section 761(a) and then the only information it must provide on Form 1065 in addition to
Regulations section 1.761-2. the QDD statement is its tax year, name, address, and EIN; and it
must check item G on page 1 of Form 1065. While a partnership is
Real estate mortgage investment conduits (REMICs) must file generally required to use an EIN, if the only reason the partnership is
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) filing Form 1065 is because it's a QDD partnership and it doesn't
Income Tax Return. have an EIN, it may use its QI-EIN instead.
Certain publicly traded partnerships (PTPs) treated as
corporations under section 7704 must file Form 1120. Termination of the Partnership
A partnership terminates when all its operations are discontinued
Note. Notwithstanding the foregoing, a partnership that is, or has a and no part of any business, financial operation, or venture is
branch that is, a QDD must file Form 1065. See Qualified derivatives continued by any of its partners in a partnership.
dealers (QDDs), later.
The partnership’s tax year ends on the date of termination which
Foreign Partnerships is the date the partnership winds up its affairs. Special rules apply in
the case of a merger, consolidation, or division of a partnership. See
Generally, a foreign partnership that has gross income that is (or is Regulations sections 1.708-1(c) and (d) for details. Also see
treated as) effectively connected with the conduct of a trade or IRS.gov/newsroom/questions-and-answers-about-technical-
business within the United States (effectively connected income) or terminations-internal-revenue-code-irc-sec-708.
has gross income derived from sources in the United States (U.S.
source income) must file Form 1065, even if its principal place of Electronic Filing
business is outside the United States or all its members are foreign
persons. A foreign partnership required to file a return must generally Beginning January 1, 2024, partnerships are required to file Form
report all of its foreign and U.S. partnership items. 1065 and related forms and schedules electronically if they file 10 or
more returns of any type during the tax year, including information,
A foreign partnership with U.S. source income isn't required to file income tax, employment tax, and excise tax returns. See
Form 1065 if it qualifies for either of the following two exceptions. Regulations section 301.6011-3, updated by T.D. 9972.
Note. Notwithstanding the foregoing, a partnership that is, or has a Partnerships with more than 100 partners are required to file
branch that is, a QDD must file Form 1065. See Qualified derivatives Form 1065, Schedules K-1, and other related forms and schedules
dealers (QDDs), later. electronically.

Exception for foreign partnerships with U.S. partners. A return Exclusions From Electronic Filing Requirement
isn't required if: The IRS may waive the electronic filing rules if the partnership
• The partnership had no effectively connected income during its demonstrates that a hardship would result if it were required to file its
tax year; return electronically. A partnership interested in requesting a waiver
• The partnership had U.S. source income of $20,000 or less of the mandatory electronic filing requirement must file a written
during its tax year; request, and request one in the manner prescribed by the Ogden
• Less than 1% of any partnership item of income, gain, loss, Submission Processing Center.
deduction, or credit was allocable in the aggregate to direct U.S.
partners at any time during its tax year; and All written requests for waivers should be mailed to:
• The partnership isn't a withholding foreign partnership as defined
in Regulations section 1.1441-5(c)(2)(i). Internal Revenue Service
Ogden Submission Processing Center
Exception for foreign partnerships with no U.S. partners and Attn: Form 1065 e-file Waiver Request, Stop 1057
no effectively connected income. A foreign partnership with U.S. Mail Stop 1057
source income isn't required to file a return if it meets the following Ogden, UT 84201
requirements.
• The partnership had no effectively connected income during its
tax year. Use the following address if using an overnight delivery service.
• The partnership had no U.S. partners at any time during its tax Internal Revenue Service
year. Ogden Submission Processing Center
• The partnership isn't a withholding foreign partnership as defined Attn: Form 1065 e-file Waiver Request
in Regulations section 1.1441-5(c)(2)(i). 1973 N. Rulon White Blvd.
• All required Forms 1042, Annual Withholding Tax Return for U.S. Ogden, UT 84404
Source Income of Foreign Persons, and 1042-S, Foreign Person's
U.S. Source Income Subject to Withholding, were filed by the
partnership or another withholding agent as required by Regulations Waiver requests can also be faxed to 877-477-0575.
sections 1.1461-1(b) and (c). Contact the e-Help Desk at 866-255-0654 for questions
• The tax liability of each partner for amounts reportable under regarding the waiver procedures or process. For more information,
Regulations sections 1.1461-1(b) and (c) has been fully satisfied by go to Guidance on Waivers for Partnerships Unable to Meet e-file
the withholding of tax at the source. Requirements.
A foreign partnership filing Form 1065 solely to make an election Religious. If using the technology required to file electronically
(such as an election to amortize organization expenses) need only conflicts with the religious beliefs of the partners, the partnership is
Instructions for Form 1065 (2023) 5

- 6 -

Page 6 of 67           Fileid: … ions/i1065/2023/a/xml/cycle03/source                                       18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

exempt from the requirement and may file using paper forms. Enter            The 2023 Form 1065 may also be used if:
“Religious Exemption” at the top of page 1 of Form 1065 filed in           • The partnership has a tax year of less than 12 months that begins 
paper form. Also, most filers claiming the religious exemption who         and ends in 2024, and
file information returns subject to the general electronic filing          • The 2024 Form 1065 isn't available by the time the partnership is 
requirements prescribed by Regulations section 301.6011-2 (for             required to file its return.
example, Forms 1099 and Forms W-2) have the option to notify the 
IRS that they qualify for a religious exemption in advance of filing         However, the partnership must show its 2024 tax year on the 
returns and other documents. Filers are encouraged to notify the IRS       2023 Form 1065 and incorporate any tax law changes that are 
in advance that they're claiming a religious exemption by filing Form      effective for tax years beginning after 2023.
8508, Application for a Waiver from Electronic Filing of Information 
Returns, in accordance with the form's instructions. For additional        Who Must Sign
information, see Notice 2024-18.
                                                                           Any Partner or LLC Member
  The requirement to file electronically doesn't apply to certain 
returns, including:                                                        Form 1065 isn't considered to be a return unless it's signed by a 
• Bankruptcy returns, and                                                  partner or LLC member. When a return is made for a partnership by 
• Returns with pre-computed penalty and interest.                          a receiver, trustee, or assignee, the fiduciary must sign the return, 
                                                                           instead of the partner or LLC member. Returns and forms signed by 
  See Rev. Proc. 2012-17, available at IRS.gov/pub/irs-irbs/               a receiver or trustee in bankruptcy on behalf of a partnership must 
irb12-10.pdf, for the requirements for furnishing substitute               be accompanied by a copy of the order or instructions of the court 
Schedule K-1 in electronic format.                                         authorizing signing of the return or form.
For more details on electronic filing using the Modernized                   Signatures required when filing an AAR.    When filing an AAR, 
e-file system, see:                                                        Form 1065 must be signed by the partnership representative (PR) 
• Pub. 3112, IRS e-file Application & Participation;                       (or the designated individual (DI) if the PR is an entity) for the 
• Pub. 4163, Modernized e-file (MeF) Information for Authorized            reviewed year.
IRS e-file Providers for Business Returns;
• Pub. 4164, Modernized e-file (MeF) Guide for Software                    Paid Preparer’s Information
Developers and Transmitters;                                               If a partner, member, or employee of the partnership completes 
• Form 8453-PE, E-file Declaration for Form 1065; and                      Form 1065, the paid preparer's space should remain blank. Only 
• Form 8879-PE, E-file Authorization for Form 1065.                        paid preparers with a valid preparer tax identification number (PTIN) 
                                                                           should complete this section.
For More Information on Filing Electronically                                Generally, anyone who is paid to prepare the partnership return 
• Call the e-Help Desk at 866-255-0654.                                    must do the following.
• Go to IRS.gov/Filing.                                                    • Sign the return in the space provided for the preparer's signature.
                                                                           • Fill in the other blanks in the “Paid Preparer Use Only” area of the 
When To File                                                               return. A paid preparer can't use a social security number (SSN) in 
Generally, a domestic partnership must file Form 1065 by the 15th          the “Paid Preparer Use Only” box. The paid preparer must use a 
day of the 3rd month following the date its tax year ended as shown        PTIN.
at the top of Form 1065. For calendar year partnerships, the due           • Give the partnership a copy of the return in addition to the copy to 
date is March 15.                                                          be filed with the IRS.
  If the due date falls on a Saturday, Sunday, or legal holiday in the          A paid preparer may sign original or amended returns by 
District of Columbia or the state in which you file your return, a return  TIP  rubber stamp, mechanical device, or computer software 
filed by the next day that isn't a Saturday, Sunday, or legal holiday will      program.
be treated as timely. Calendar year partnerships may therefore 
timely file their return for the 2023 partnership year by March 15,        Paid Preparer Authorization
2024.
                                                                           If the partnership wants to allow the paid preparer to discuss its 2023 
                                                                           Form 1065 with the IRS, check the “Yes” box in the signature area of 
Private Delivery Services (PDSs)                                           the return. The authorization applies only to the individual whose 
Partnerships can use certain PDSs designated by the IRS to meet            signature appears in the “Paid Preparer Use Only” section of its 
the “timely mailing as timely filing/paying” rule for tax returns. Go to   return. It doesn't apply to the firm, if any, shown in the section.
IRS.gov/PDS for the current list of designated services. The PDS 
can tell you how to get written proof of the mail date.                      If the “Yes” box is checked, the partnership is authorizing the IRS 
                                                                           to call the paid preparer to answer any questions that may arise 
  For the IRS mailing address to use if you're using a PDS, go to          during the processing of its return. The partnership is also 
IRS.gov/PDSStreetAddresses.                                                authorizing the paid preparer to:
        A PDS can’t deliver items to P.O. boxes. You must use the          • Give the IRS any information that is missing from its return,
                                                                           • Call the IRS for information about the processing of its return, and
  !     U.S. Postal Service to mail any item to an IRS P.O. box            • Respond to certain IRS notices about math errors and return 
CAUTION address.
                                                                           preparation.
Extension of Time To File                                                    The partnership isn't authorizing the paid preparer to bind the 
                                                                           partnership to anything or otherwise represent the partnership 
File Form 7004, Application for Automatic Extension of Time To File        before the IRS. If the partnership wants to expand the paid 
Certain Business Income Tax, Information, and Other Returns, to            preparer's authorization, see Pub. 947, Practice Before the IRS and 
request an extension of time to file. File Form 7004 by the regular        Power of Attorney.
due date of the partnership return. Form 7004 can be electronically 
filed. See the Instructions for Form 7004.                                   The authorization can't be revoked. However, the authorization 
                                                                           will automatically end no later than the due date (excluding 
Period Covered                                                             extensions) for filing the 2024 return.
The 2023 Form 1065 is an information return for calendar year 2023 
and fiscal years that begin in 2023 and end in 2024. For a fiscal year 
or a short tax year, fill in the tax year space at the top of Form 1065 
and each Schedule K-1 and Schedules K-2 and K-3, if applicable.

6                                                                                                       Instructions for Form 1065 (2023)

- 7 -

Page 7 of 67            Fileid: … ions/i1065/2023/a/xml/cycle03/source                                        18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Where To File 
File Form 1065 at the applicable IRS address listed below. If Schedule M-3 is filed, Form 1065 must be filed at the Ogden Internal Revenue 
Service Center as shown below.
If the partnership's principal business,        And the total assets at the end of the tax  Use the following address:
office, or agency is located in:                year (Form 1065, page 1, item F) are:
Connecticut, Delaware, District of Columbia, 
Georgia, Illinois, Indiana, Kentucky, Maine, 
Maryland, Massachusetts, Michigan, New                                                         Department of the Treasury 
                                                Less than $10 million and Schedule M-3 
Hampshire, New Jersey, New York, North                                                         Internal Revenue Service Center
                                                                       isn't filed
Carolina, Ohio, Pennsylvania, Rhode Island,                                                    Kansas City, MO 64999-0011
South Carolina, Tennessee, Vermont, Virginia, 
West Virginia, Wisconsin
Connecticut, Delaware, District of Columbia, 
Georgia, Illinois, Indiana, Kentucky, Maine, 
Maryland, Massachusetts, Michigan, New                      $10 million or more or             Department of the Treasury
Hampshire, New Jersey, New York, North                      less than $10 million and          Internal Revenue Service Center
Carolina, Ohio, Pennsylvania, Rhode Island,                 Schedule M-3 is filed              Ogden, UT 84201-0011
South Carolina, Tennessee, Vermont, Virginia, 
West Virginia, Wisconsin
Alabama, Alaska, Arizona, Arkansas, California, 
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, 
                                                                                               Department of the Treasury
Louisiana, Minnesota, Mississippi, Missouri, 
                                                                Any amount                     Internal Revenue Service Center
Montana, Nebraska, Nevada, New Mexico, 
                                                                                               Ogden, UT 84201-0011
North Dakota, Oklahoma, Oregon, South 
Dakota, Texas, Utah, Washington, Wyoming
A foreign country or U.S. territory                                                            Internal Revenue Service 
                                                                Any amount                     P.O. Box 409101
                                                                                               Ogden, UT 84409

                                                                                  withheld, or these taxes aren't paid. These taxes are generally 
Penalties                                                                         reported on:
                                                                                  • Form 720, Quarterly Federal Excise Tax Return;
Late Filing of Return                                                             • Form 941, Employer's QUARTERLY Federal Tax Return;
A penalty is assessed against the partnership if it's required to file a          • Form 943, Employer's Annual Federal Tax Return for Agricultural 
partnership return and it (a) fails to file the return by the due date,           Employees;
including extensions; or (b) files a return that fails to show all the            • Form 944, Employer's ANNUAL Federal Tax Return; and
information required, unless such failure is due to reasonable cause.             • Form 945, Annual Return of Withheld Federal Income Tax.
The penalty is $235 for each month or part of a month (for a 
maximum of 12 months) the failure continues, multiplied by the total                The trust fund recovery penalty may be imposed on all persons 
number of persons who were partners in the partnership during any                 who are determined by the IRS to have been responsible for 
part of the partnership's tax year for which the return is due. If the            collecting, accounting for, or paying over these taxes, and who acted 
partnership receives a notice about a penalty after it files the return,          willfully in not doing so. The penalty is equal to the unpaid trust fund 
the partnership may send the IRS an explanation and the IRS will                  tax. See the Instructions for Form 720; Pub. 15 (Circular E), 
determine if the explanation meets reasonable-cause criteria. Don’t               Employer's Tax Guide; Pub. 51 (Circular A), Agricultural Employer's 
attach an explanation when filing the return.                                     Tax Guide; or Pub. 15-T, Federal Income Tax Withholding Methods, 
                                                                                  for more details, including the definition of a responsible person.
Failure To Furnish Information Timely
                                                                                  Accounting Methods
For each failure to furnish Schedule K-1 (and K-3, if applicable) to a 
partner when due and each failure to include on Schedule K-1 (and                 An accounting method is a set of rules used to determine when and 
K-3, if applicable) all the information required to be shown (or the              how income and expenditures are reported. The method of 
inclusion of incorrect information), a $310 penalty may be imposed                accounting used must be reconcilable with the partnership's books 
for each Schedule K-1 (and K-3, if applicable) for which a failure                and records. In all cases, the method used must clearly reflect 
occurs. For all such failures during a calendar year, the maximum                 income. Generally, the following rules apply. For more information, 
penalty for entities with gross receipts over $5,000,000 is                       see Pub. 538, Accounting Periods and Methods.
$3,783,000; and $1,261,000 for entities with gross receipts at or 
below $5,000,000. If the requirement to report correct information is               Permissible overall methods of accounting include:
intentionally disregarded, each $310 penalty is increased to $630 or,             • Cash,
if greater, 10% of the aggregate amount of items required to be                   • Accrual, or
reported. There's no limit to the amount of the penalty in the case of            • Any other method authorized by the Internal Revenue Code (the 
intentional disregard.                                                            Code).
                                                                                    Generally, a partnership may use the cash method of accounting 
Trust Fund Recovery Penalty                                                       unless it’s required to maintain inventories, has a C corporation as a 
This penalty may apply if certain excise, income, social security, and            partner, or is a tax shelter (as defined in section 448(d)(3)). However, 
Medicare taxes that must be collected or withheld aren't collected or             for tax years beginning after 2017, any partnership qualifying as a 
                                                                                  small business taxpayer (defined below) may use the cash method.
Instructions for Form 1065 (2023)                                                                                                                     7

- 8 -

Page 8 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Tax shelter election. A taxpayer that is a tax shelter, as defined in performance of services that, on the basis of their experience, won't
section 448(d)(3), isn't permitted to use the cash method pursuant to be collected if:
section 448(a)(3), and is also not permitted to use the small • The services are in the field of health, law, engineering,
business taxpayer exemptions contained in sections 163(j)(3) architecture, accounting, actuarial science, performing arts, or
(limitation on business interest), 263A(i) (uniform capitalization), consulting; or
460(e)(1)(B) (percentage of completion method), and 471(c) • The partnership's average annual gross receipts don’t exceed
(general inventory method). Under section 448(d)(3), a taxpayer that $29 million for all prior tax years. For more details, see section
is a syndicate is considered a tax shelter. For purposes of section 448(d)(5).
448(d)(3), a syndicate is a partnership or other entity (other than a C This provision doesn't apply to any amount if interest is required
corporation) if more than 35% of the losses of such entity during the to be paid on the amount or if there's any penalty for failure to timely
tax year are allocated to limited partners or limited entrepreneurs. pay the amount. For information, see section 448(d)(5) and
The final regulations under section 448 permit a taxpayer to make Regulations section 1.448-2. For reporting requirements, see the
an annual election to use its allocations made in the immediately instructions for line 1a, later.
preceding tax year, instead of using the current tax year's allocation, Percentage of completion method. Long-term contracts (except
to determine whether the taxpayer is a syndicate under section for certain real property construction contracts) must generally be
448(d)(3) for the current tax year. The election is made on the timely accounted for using the percentage of completion method described
filed original return (including extensions) for the tax year for which in section 460. See section 460 and the underlying regulations for
it's made. The election is valid only for the tax year for which it's rules on long-term contracts.
made, and once made, can't be revoked. See Regulations section
1.448-2(b)(2)(iii)(B)(2) for guidance on the time and manner of Mark-to-market accounting method. Dealers in securities must
making the annual election and effective dates. use the mark-to-market accounting method described in section
475. Under this method, any security that is inventory to the dealer
Small business taxpayer. For tax years beginning after 2017, a must be included in inventory at its fair market value (FMV). Any
small business taxpayer (defined below) can adopt or change its security that isn't inventory and that is held at the close of the tax
accounting method to account for inventories (a) in the same year is treated as sold at its FMV on the last business day of the tax
manner as materials and supplies that are nonincidental; or (b) to year, and any gain or loss must be taken into account in determining
conform to the taxpayer's treatment of inventories in an applicable gross income. The gain or loss taken into account is generally
financial statement (as defined in section 451(b)(3)), or, if the treated as ordinary gain or loss. For details, including exceptions,
taxpayer doesn't have an applicable financial statement, the method see section 475, the related regulations, and Rev. Rul. 97-39,
of accounting used in the taxpayer's books and records prepared in 1997-39 I.R.B. 4.
accordance with the taxpayer's accounting procedures. See section
471(c)(1), and Change in accounting method, later. Dealers in commodities and traders in securities and
commodities can elect to use the mark-to-market accounting
For tax years beginning after 2017, a small business taxpayer method. To make the election, the partnership must file a statement
(defined below) can adopt or change its accounting method to not describing the election, the first tax year the election is to be
capitalize costs to property produced or acquired for resale under effective, and, in the case of an election for traders in securities or
section 263A. See section 263A(i), and Change in accounting commodities, the trade or business for which the election is made.
method and Limitations on Deductions, later. Except for new taxpayers, the statement must be filed by the due
Small business taxpayer defined. For 2023, a small business date (not including extensions) of the return for the tax year
taxpayer is a taxpayer that (a) has average annual gross receipts of immediately preceding the election year and attached to that return
$29 million or less for the prior 3 tax years, and (b) isn't a tax shelter or, if applicable, to a request for an extension of time to file that
(as defined in section 448(d)(3)). return. For more details, see Rev. Proc. 99-17, 1999-7 I.R.B. 52, as
superseded in part by Rev. Proc. 99-49; and sections 475(e) and (f).
Accrual method. Generally, under the accrual method, an amount
is includible in income when: Change in accounting method. Generally, the partnership must
1. All the events have occurred that fix the right to receive get IRS consent to change its method of accounting used to report
income, which is the earliest date: income or expense (for income or expense as a whole or for any
material item). To do so, the partnership must generally file Form
a. Payment is earned through the required performance, 3115, Application for Change in Accounting Method, during the tax
b. Payment is due to the taxpayer, year for which the change is requested. See the Instructions for
c. Payment is received by the taxpayer, or Form 3115 and Pub. 538 for more information and exceptions.
Section 481(a) adjustment. The partnership may have to make
d. When the income is reported as revenue in an applicable an adjustment to prevent amounts of income or expenses from being
financial statement (AFS); and omitted or duplicated. This is called a section 481(a) adjustment.
2. When the amount can be determined with reasonable The section 481(a) adjustment period is generally 1 year for a net
accuracy. negative adjustment and 4 years for a net positive adjustment.
See Regulations sections 1.451-1(a) and 1.451-3(c) for details. However, in some instances, a partnership can elect to modify the
section 481(a) adjustment period. The partnership must complete
Generally, an accrual basis taxpayer can deduct accrued the appropriate lines of Form 3115 to make the election. See the
expenses in the tax year in which: Instructions for Form 3115.
• All events that establish the liability have occurred,
• The amount of the liability can be figured with reasonable Include any net positive section 481(a) adjustment on page 1 of
accuracy, and Form 1065, line 7. If the net section 481(a) adjustment is negative,
• Economic performance takes place with respect to the expense. report it on page 1, line 21.
For property and service liabilities, for example, economic There are some instances when the partnership can obtain
performance occurs as the property or service is provided. There automatic consent from the IRS to change to certain accounting
are special economic performance rules for certain items, including methods. See the Instructions for Form 3115.
recurring expenses. See section 461(h) and the related regulations
for the rules for determining when economic performance takes Accounting Periods
place. A partnership is generally required to have one of the following tax
years.
Nonaccrual-experience method. Accrual method partnerships
aren't required to accrue certain amounts to be received from the 1. The tax year of a majority of its partners (majority tax year).

8 Instructions for Form 1065 (2023)

- 9 -

Page 9 of 67         Fileid: … ions/i1065/2023/a/xml/cycle03/source                                           18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

2. If there's no majority tax year, then the tax year common to all      the amount or other treatment of one or more partnership-related 
of the partnership's principal partners (partners with an interest of    items.
5% or more in the partnership profits or capital).
                                                                           BBA partnerships filing an AAR shouldn't file amended tax 
3. If there's neither a majority tax year nor a tax year common to       returns or amended Schedules K-1 and/or K-3. For an exception 
all principal partners, then the tax year that results in the least      where a BBA partnership is itself a partner in a BBA partnership and 
aggregate deferral of income.                                            is filing an amended return, see Partner amended return filed as part 
Note. In determining the tax year of a partnership under (1), (2), or    of modification of the IU during a BBA examination, later.
(3) above, the tax years of certain tax-exempt and foreign partners 
are disregarded. See Regulations section 1.706-1(b) for more             Electronically filed AARs. If the AAR will be filed electronically, 
details.                                                                 complete Form 1065 with the corrected amounts and check box 
                                                                         G(5). In addition, complete Form 8082, Notice of Inconsistent 
4. Some other tax year if one of the following applies.                  Treatment or Administrative Adjustment Request (AAR). See the 
a. The partnership can establish that there's a business                 Instructions for Form 8082 for detailed instructions. For AARs filed 
purpose for the tax year.                                                on paper, see Paper-filed amended returns and AARs, later.
b. The partnership elects under section 444 to have a tax year             AARs for which payment is made.      A partnership that hasn't 
other than a required tax year by filing Form 8716, Election To Have     made a valid election out of the BBA centralized partnership audit 
a Tax Year Other Than a Required Tax Year. For a partnership to          regime, which is filing an AAR and that doesn't elect to have its 
have this election in effect, it must make the payments required by      partners take adjustments into account, and that has adjustments 
section 7519 and file Form 8752, Required Payment or Refund              that result in an imputed underpayment (IU), should report the IU 
Under Section 7519.                                                      and any interest and penalties on Form 1065, page 1, line 26. See 
                                                                         the Instructions for Form 8082 for information on how to figure a BBA 
A section 444 election ends if a partnership changes its                 IU and what to do when an adjustment requested by an AAR doesn't 
accounting period to its required tax year or some other permitted       result in an IU. See section 6233 for information about interest and 
year or it's penalized for willfully failing to comply with the          penalties on the IU. Include the following information on your 
requirements of section 7519. If the termination results in a short tax  payment.
year, enter at the top of the first page of Form 1065 for the short tax  • Name of partnership.
year, “SECTION 444 ELECTION TERMINATED.”                                 • Form 1065.
c. The partnership elects to use a 52–53-week tax year that              • Taxpayer identification number (TIN).
ends with reference to either its required tax year or a tax year        • Tax year.
elected under section 444.                                               • BBA AAR Imputed Underpayment.
Change of tax year. To change its tax year or to adopt or retain a       • Checks must be made payable to “United States Treasury.”
tax year other than its required tax year, the partnership must file       Mail payment to:
Form 1128, Application To Adopt, Change, or Retain a Tax Year, 
unless the partnership is making an election under section 444.            Ogden Service Center
                                                                           Ogden, UT 84201-0011
         The tax year of a common trust fund must be the calendar 
TIP      year.                                                           Payments can be made by check or electronically. If making an 
                                                                         electronic payment, choose the payment description “BBA AAR 
                                                                         Imputed Underpayment” from the list of payment types.
Rounding Off to Whole Dollars
                                                                           If the partnership has an IU, the partnership may elect to have its 
The partnership may enter decimal points and cents when                  partners take the adjustments into account instead of paying the IU. 
completing its return. However, it should round off cents to whole       See the Instructions for Form 8082 for information on how to make 
dollars on its return, forms, and schedules to make completing its       the election.
return easier. The partnership must either round off all amounts on 
the return to whole dollars, or use cents for all amounts. To round,     Amended Return
drop amounts under 50 cents and increase amounts from 50 to 99 
cents to the next dollar. For example, $8.40 rounds to $8 and $8.50      The procedures to follow when filing an amended partnership return 
rounds to $9.                                                            depend on whether the amended return is filed electronically or on 
                                                                         paper. The rules for determining when a return must be filed 
If two or more amounts are added to figure the amount to enter           electronically (see Electronic Filing, earlier) also apply to amended 
on a line, include cents when adding the amounts and round off only      returns.
the total.                                                               Electronically filed amended returns.  If the amended return will 
                                                                         be filed electronically, complete Form 1065 and check box G(5) to 
Recordkeeping                                                            indicate that you're filing an amended return. Attach a statement that 
The partnership must keep its records as long as they may be             identifies the line number of each amended item, the corrected 
needed for the administration of any provision of the Code. The          amount or other treatment of the item, and an explanation of the 
partnership must usually keep records that support an item of            reason(s) for each change. If the income, deductions, credits, or 
income, deduction, or credit on the partnership return for 3 years       other information provided to any partner on Schedule K-1 or 
from the date the return is due or is filed, whichever is later. These   Schedule K-3, as applicable, is incorrect, file an amended 
records must usually be kept for 3 years from the date each partner's    Schedule K-1 or K-3 for that partner with the amended Form 1065. 
return is due or is filed, whichever is later. It must also keep records Also give a copy of the amended Schedule K-1 or K-3 to that 
that verify the partnership's basis in property for as long as they are  partner. Check the “Amended K-1” or “Amended K-3” box at the top 
needed to figure the basis of the original or replacement property.      of the Schedule K-1 or K-3 to indicate that it's an amended 
                                                                         Schedule K-1 or K-3.
The partnership should also keep copies of all returns it has filed. 
They help in preparing future returns and in making computations         Partner amended return filed as part of modification of the IU 
when filing an amended return.                                           during a BBA examination.  Section 6225(c)(2) allows a BBA 
                                                                         partnership under examination to request specific types of 
Administrative Adjustment Request                                        modifications of any IU proposed by the IRS. One type of 
                                                                         modification that may be requested is when one or more partners, 
(AAR)                                                                    including partnership-partners, file amended returns for the tax years 
A partnership that is subject to the BBA centralized partnership audit   of the partners which include the end of the reviewed year of the 
regime must file an AAR to request an administrative adjustment in 
Instructions for Form 1065 (2023)                                                                                                              9

- 10 -

Page 10 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

BBA partnership under examination and for any tax year with respect Paper-filed amended returns and AARs. If the amended return or
to which tax attributes are affected. Go to IRS.gov/bbaaar. AAR won't be filed electronically, complete Form 1065-X, Amended
A modification amended return filing must meet a number of Return or Administrative Adjustment Request (AAR), to file the
requirements. Therefore, a partnership-partner filing a modification amended return or AAR. See Form 1065-X and its separate
amended return must refer to Form 8982, Affidavit for Partner instructions for information on completing and filing the form.
Modification Amended Return Under IRC 6225(c)(2)(A) or Partner
Alternative Procedure Under IRC 6225(c)(2)(B). The instructions for When a partnership's federal return is amended or changed
Form 8982, Section A, explain the modification of amended returns, TIP for any reason, it may affect the partnership's state tax
requirements for payment and submission, and the requirement to return. For more information, contact the state tax agency for
provide Form 8982, Section A, to the PR of the BBA partnership. the state in which the partnership return was filed.
See Filing Instructions for Partner Modification Amended Returns
and Paying the Amount You Owe in the instructions for Form 8982. What if You Can’t Pay Now?
Partnership-partners who are filing amended returns Go to IRS.gov/Payments for more information about your options.
electronically as part of the modification will report the applicable • Apply for an online payment agreement IRS.gov/OPA ( ) to meet
payment of tax and interest and any penalties on Form 1065, your tax obligation in monthly installments if you can’t pay your taxes
page 1, line 26. A payment made with an amended Form 1065 in full today. Once you complete the online process, you will receive
should detail the amount of the payment to be applied separately to immediate notification of whether your agreement has been
tax, interest, and penalties. The partnership should consider all approved.
guidance issued by the IRS when figuring the amount due. In • Use the Offer in Compromise Pre-Qualifier to see if you can settle
general, the partnership should figure its amount due in accordance your tax debt for less than the full amount you owe.
with Regulations sections 301.6225-2(d)(2)(vi)(A) and
301.6226-3(e)(4)(iii).

Other Forms, Returns, and Statements That May Be Required

Form, Return, or Statement Use this to—
W-2 and W-3—Wage and Tax Statement; and Transmittal of Wage Report wages, tips, other compensation, and withheld income, social security, and Medicare taxes for
and Tax Statements employees.
720—Quarterly Federal Excise Tax Return Report and pay environmental excise taxes, communications and air transportation taxes, fuel taxes,
manufacturers taxes, ship passenger tax, and certain other excise taxes. Also see Trust Fund
Recovery Penalty, earlier.
940—Employer's Annual Federal Unemployment (FUTA) Tax Return Report and pay FUTA tax.
941—Employer's QUARTERLY Federal Tax Return Report quarterly income tax withheld on wages and employer and employee social security and
Medicare taxes. Also see Trust Fund Recovery Penalty, earlier.
943—Employer's Annual Federal Tax Return for Agricultural Report income tax withheld and employer and employee social security and Medicare taxes on
Employees farmworkers. Also see Trust Fund Recovery Penalty, earlier.
944—Employer's ANNUAL Federal Tax Return File annual Form 944 instead of filing quarterly Forms 941 if the IRS notified you in writing.
945—Annual Return of Withheld Federal Income Tax Report income tax withheld from nonpayroll payments, including pensions, annuities, individual
retirement accounts (IRAs), gambling winnings, and backup withholding. Also see Trust Fund
Recovery Penalty, earlier.
1042 and 1042-S—Annual Withholding Tax Return for U.S. Source Report tax withheld on payments or distributions made to nonresident alien individuals, foreign
Income of Foreign Persons; and Foreign Person's U.S. Source partnerships, or foreign corporations to the extent these payments or distributions constitute gross
Income Subject to Withholding income from sources within the United States that isn't effectively connected with a U.S. trade or
business. A domestic partnership must also withhold tax on a foreign partner's distributive share of
such income, including amounts that aren't actually distributed. Withholding on amounts not previously
distributed to a foreign partner must generally be made and paid over by the earlier of:
• The date on which Schedules K-1 and K-3 are sent to that partner, or
• The 15th day of the 3rd month after the end of the partnership's tax year.
These forms are also used to report tax withheld on distributions of effectively connected taxable
income made by PTPs and certain transfers of interests in PTPs. For more details, see the instructions
for Forms 1042 and 1042-S and Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign
Entities.
1042-T—Annual Summary and Transmittal of Forms 1042-S Transmit paper Forms 1042-S to the IRS.
1065-X—Amended Return or Administrative Adjustment Request Use Form 1065-X to correct a previously filed partnership return or to make an AAR for a previously
(AAR) filed return.
1095-B and 1094-B—Health Coverage; and Transmittal of Forms Required to be filed by certain health insurance issuers and others who provide minimum essential
1095-B coverage to report information on the primary insured and other individuals covered under the plan.
1095-C and 1094-C—Employer-Provided Health Insurance Offer and Used by certain employers to report information about the health care coverage the employer offered
Coverage; and Transmittal of Forms 1095-C with regard to each full-time employee.
1096—Annual Summary and Transmittal of U.S. Information Returns Transmit paper Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G to the IRS.
1097-BTC—Bond Tax Credit Report tax credits to bond holders and tax credits passed to another person.
1098—Mortgage Interest Statement Report the receipt from any individual of $600 or more of mortgage interest (including certain points) in
the course of the partnership's trade or business.

10 Instructions for Form 1065 (2023)

- 11 -

Page 11 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Form, Return, or Statement Use this to—
1099-A, B, C, INT, K, LS, LTC, MISC, NEC, OID, R, S, and SA. Report the following.
• Acquisitions or abandonments of secured property.
Important. Every partnership must file Forms 1099-MISC or • Proceeds from broker and barter exchange transactions.
1099-NEC if, in the course of its trade or business, it makes payments • Cancellation of debts.
of rents, commissions, or other fixed or determinable income (see • Interest income.
section 6041) totaling $600 or more to any one person during the • Payment card and third-party network transactions.
calendar year. • Payments of long-term care and accelerated death benefits.
• Acquisition of a life insurance contract, or interest therein, in a reportable policy sale.
• Miscellaneous income.
• Nonemployee compensation
• Original issue discount.
• Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts,
etc.
• Proceeds from real estate transactions.
• Distributions from an HSA, Archer MSA, or Medicare Advantage MSA.
5471—Information Return of U.S. Persons With Respect to Certain A partnership may have to file Form 5471 if it:
Foreign Corporations • Controls a foreign corporation,
• Acquires or owns 10% or more of the total combined voting power or value of shares of all classes
of stock, or
• Disposes of sufficient stock to reduce its interest to less than 10% of the total combined voting
power or value of shares of all classes of stock.
5713—International Boycott Report Report operations in, or related to, a boycotting country, company, or national of a country and to figure
the loss of certain tax benefits. The partnership must give each partner a copy of the Form 5713 filed
by the partnership if there has been participation in, or cooperation with, an international boycott.
8275—Disclosure Statement Disclose items or positions, except those contrary to a regulation, that aren't otherwise adequately
disclosed on a tax return. The disclosure is made to avoid the parts of the accuracy-related penalty
imposed for disregard of rules or substantial understatement of tax. Also use Form 8275 for
disclosures relating to preparer penalties for understatements due to unrealistic positions or disregard
of rules.
8275-R—Regulation Disclosure Statement Disclose any item on a tax return for which a position has been taken that is contrary to Treasury
regulations.
8288 8288-A, , and 8288-C—U.S. Withholding Tax Return for Certain Report and send withheld tax on the sale of U.S. real property or the transfer of certain partnership
Dispositions by Foreign Persons; Statement of Withholding on interests by a foreign person. See sections 1445 and 1446(f), and the related regulations, for additional
Certain Dispositions by Foreign Persons; and Statement of information.
Withholding Under Section 1446(f)(4) on Dispositions by Foreign
Persons of Partnership Interests
8300—Report of Cash Payments Over $10,000 Received in a Trade Report the receipt of more than $10,000 in cash or foreign currency in one transaction or a series of
or Business related transactions.
8308—Report of a Sale or Exchange of Certain Partnership Interests Report the sale or exchange by a partner of all or part of a partnership interest where any money or
other property received in exchange for the interest is attributable to unrealized receivables or
inventory items.
8594—Asset Acquisition Statement Under Section 1060 Report a sale of assets if goodwill or going concern value attaches, or could attach, to such assets.
Both the seller and buyer of a group of assets that makes up a trade or business must use this form.
8621—Information Return by a Shareholder of a Passive Foreign Report an ownership interest in, make elections for, and compute inclusions with respect to passive
Investment Company or Qualified Electing Fund foreign investment companies and qualified electing funds.
8697—Interest Computation Under the Look-Back Method for Figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain
Completed Long-Term Contracts long-term contracts that are accounted for under either the percentage of completion-capitalized cost
method or the percentage of completion method. Partnerships that aren't closely held use this form.
Closely held partnerships should see the instructions for Schedule K, Line 20c. Other Items and
Amounts, and Look-back interest completed long-term contracts (code J), later, for details on the Form
8697 information they must provide to their partners.
8804 8805, , and 8813—Annual Return for Partnership Withholding Use Forms 8804 and 8805 to figure and report the withholding tax on foreign partners' allocable shares
Tax (Section 1446); Foreign Partner's Information Statement of of effectively connected taxable income (ECTI). Form 8804 must also be filed to report effectively
Section 1446 Withholding Tax; and Partnership Withholding Tax connected gross income allocable to foreign partners even if the partnership has no ECTI on which to
Payment Voucher (Section 1446) withhold. Use Form 8813 to send installment payments of withheld tax based on ECTI allocable to
foreign partners.
Exception. PTPs don't file these forms. They must instead withhold tax on distributions to foreign
partners and report and send payments using Forms 1042 and 1042-S. See Regulations section
1.1446-4 for more information.
8832—Entity Classification Election See Entity Classification Election, later.
8865—Return of U.S. Persons With Respect to Certain Foreign Report the information required under section 6038 (reporting with respect to controlled foreign
Partnerships partnerships), section 6038B (reporting of transfers to foreign partnerships), section 6046A (reporting
of acquisitions, dispositions, and changes in foreign partnership interests), or section 721(c) (reporting
related to the application of the gain deferral method). See Form 8865 and its instructions for more
details.
8866—Interest Computation Under the Look-Back Method for Figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain
Property Depreciated Under the Income Forecast Method property placed in service after September 13, 1995, depreciated under the income forecast method.
Partnerships that aren't closely held use this form. Closely held partnerships should see the
instructions for Schedule K, line 20c, Look-back interest income forecast method (code K), later, for
details on the Form 8866 information they must provide to their partners.

Instructions for Form 1065 (2023) 11

- 12 -

Page 12 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Form, Return, or Statement Use this to—
8876—Excise Tax on Structured Settlement Factoring Transactions Report and pay the 40% excise tax imposed under section 5891.
8886—Reportable Transaction Disclosure Statement Disclose information for each reportable transaction in which the partnership participated. Form 8886
must be filed for each tax year the partnership participated in the reportable transaction. The
partnership may have to pay a penalty if it's required to file Form 8886 and doesn't do so. The following
are reportable transactions.
• Any listed transaction, which is a transaction that is the same as or substantially similar to one of
the types of transactions that the IRS has determined to be a tax avoidance transaction and identified
by notice, regulation, or other published guidance as a listed transaction.
• Any transaction offered under conditions of confidentiality for which the partnership (or a related
party) paid an adviser a fee of at least $50,000 ($250,000 for partnerships if all partners are
corporations).
• Certain transactions for which the partnership (or a related party) has contractual protection against
disallowance of the tax benefits.
• Certain transactions resulting in a loss of at least $2 million in any single year or $4 million in any
combination of years.
• Any transaction of interest, which is a transaction that is the same as, or substantially similar to, one
of the types of transactions identified by the IRS by notice, regulation, or other published guidance.
See Notice 2009-55, 2009-31 I.R.B. 170.
See Regulations section 1.6011-4; the Instructions for Form 8886; and the instructions for Schedule K,
Line 20c. Other Items and Amounts, and Reportable transactions (code AW), later, for more
information.
8918—Material Advisor Disclosure Statement Material advisors to any reportable transaction must disclose certain information about the reportable
transaction by filing a Form 8918 with the IRS. See Form 8918 and its instructions for more details.
8925—Report of Employer-Owned Life Insurance Contracts Report the number of employees covered by employer-owned life insurance contracts issued after
August 17, 2006, and the total amount of employer-owned life insurance in force on those employees
at the end of the tax year.
8990—Limitation on Business Interest Expense Under Section 163(j) Business interest expense may be limited. See section 163(j) and Form 8990 and its instructions. Also
see Schedule B, questions 23 and 24, and the related instructions.
8994—Employer Credit for Paid Family and Medical Leave Report if the partnership has a credit for paid family and medical leave. See the Instructions for Form
8994 for more information.
8996—Qualified Opportunity Fund Certify that the requirements to be a qualified opportunity fund investing in qualified opportunity zone
property, as defined in section 1400Z-2, have been fulfilled. Entities attaching Form 8996 must also
complete Form 1065, Schedule B, question 25. For more information, see the Instructions for Form
8996.

Assembling the Return Entity Classification Election
When submitting Form 1065, organize the pages of the return in the Use Form 8832, Entity Classification Election, to make a change in
following order. classification. Except for certain business entities always classified
• Pages 1–6. as a corporation, a business entity with at least two members may
• Schedule F (Form 1040), Profit or Loss From Farming (if choose to be classified either as a partnership or an association
required). taxable as a corporation. A domestic eligible entity with at least two
• Form 8825, Rental Real Estate Income and Expenses of a members that doesn't file Form 8832 is classified under the default
Partnership or an S Corporation (if required). rules as a partnership. However, a foreign eligible entity with at least
• Schedule D (Form 1065), Capital Gains and Losses (if required). two members is classified under the default rules as a partnership
• Form 4797, Sales of Business Property (if required). only if the entity doesn't provide limited liability to at least one
• Form 8949, Sales and Other Dispositions of Capital Assets (if member. File Form 8832 only if the entity doesn't want to be
required). classified under these default rules or if it wants to change its
• Form 8996, Qualified Opportunity Fund (if required). classification.
• Form 1125-A, Cost of Goods Sold (if required).
• Form 8941, Credit For Small Employer Health Insurance Attach a copy of Form 8832 to the partnership's Form 1065
Premiums (if required). ! for the tax year of the election.
CAUTION
• Form 3800, General Business Credit (if required).
• Form 8997, Initial and Annual Statement of Qualified Opportunity
Fund (QOF) Investments (if required). Elections Made by the Partnership
• Form 6252, Installment Sale Income (if required). Generally, the partnership decides how to figure income from its
• Schedule A (Form 8936), Clean Vehicle Credit Amount (if operations. For example, it chooses the accounting method and
required). depreciation methods it will use. The partnership also makes
• Schedule K-1 (Form 1065), Partner’s Share of Income, elections under the following sections.
Deductions, Credits, etc. 1. Section 179 (election to expense certain property).
• Form 8938, Statement of Specified Foreign Financial Assets (if 2. Section 614 (definition of property—mines, wells, and other
required). natural deposits). This election must be made before the partners
• Any other forms in numerical order. figure their individual depletion allowances under section 613A(c)(7)
Complete every applicable entry space on Form 1065 and (D).
Schedule K-1. Don't enter “See attached” instead of completing the 3. Section 1033 (involuntary conversions).
entry spaces. Penalties may be assessed if the partnership files an 4. Section 754 (manner of electing optional adjustment to basis
incomplete return. If you need more space on the forms or of partnership property).
schedules, attach separate sheets and place them at the end of the Under section 754, a partnership may elect to adjust the basis of
return using the same size and format as on the printed forms. Show partnership property when property is distributed or when a
the totals on the printed forms. Also be sure to put the partnership's partnership interest is transferred. If the election is made regarding a
name and EIN on each supporting statement.

12 Instructions for Form 1065 (2023)

- 13 -

Page 13 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

transfer of a partnership interest (section 743(b)) and the assets of EIN of the CFC or QEF, or, if an EIN isn’t available, the reference ID
the partnership constitute a trade or business for purposes of number of the CFC or QEF.
section 1060(c), then the value of any goodwill transferred must be 7. Section 41(h) (payroll tax credit election).
determined in the manner provided in Regulations section 1.1060-1.
Once an election is made under section 754, it applies both to all Effect of Section 743(b) Basis Adjustment on
distributions and to all transfers made during the tax year and in all
subsequent tax years unless the election is revoked. Partnership Items
This election must be made in a statement that is filed with the If the basis of partnership property has been adjusted for a
partnership's timely filed return (including any extension) for the tax transferee partner under section 743(b), the partnership must adjust
year during which the distribution or transfer occurs. See the transferee's distributive share of the items of partnership income,
Regulations section 1.754-1(b)(1). The statement must include: deduction, gain, or loss in accordance with Regulations sections
1.743-1(j)(3) and (4). These adjustments (other than adjustments to
a. The name and address of the partnership, and depletable oil and gas property allocable to the partner under
b. A declaration that the partnership elects under section 754 to section 613A(c)(7)(D)) must be reported on Schedule K and the
apply the provisions of section 734(b) and section 743(b). A transferee partner's Schedule K-1. Report the adjustments on an
declaration that the partnership elects under section 754 to apply the attached statement to Schedule K, line 20c, code U. See the
provisions of section 734(b) and section 743(b). instructions for Schedule K, line 20. Identify the partnership item
being adjusted and the amount of the adjustment. If the adjustments
The partnership can get an automatic 12-month extension to are to partnership items from more than one trade or business,
make the section 754 election, provided corrective action is taken report the adjustments separately for each activity.
within 12 months of the original deadline for making the election. For
details, see Regulations section 301.9100-2.
Electing Out of the Centralized Partnership
See section 754 and the related regulations for more information.
Audit Regime
If there's a distribution of property consisting of an interest in
another partnership, see section 734(b). A partnership can elect out of the centralized partnership audit
regime for a tax year if the partnership is an eligible partnership that
The partnership is required to attach a statement for any section year. See Question 31 under Schedule B, later.
743(b) basis adjustments. See below for details.
To revoke a section 754 election, the partnership must file the Elections Made by Each Partner
revocation request using Form 15254, Request for Section 754 Elections under the following sections are made by each partner
Revocation. See the instructions for Form 15254 for more separately on the partner's tax return.
information. • Section 59(e) (election to deduct ratably certain qualified
5. Section 743(e) (electing investment partnership). expenditures such as intangible drilling costs, mining exploration
6. Regulations section 1.1411-10(g) (section 1411 election expenses, or research and experimental expenditures).
regarding controlled foreign corporations (CFCs) and qualified • Section 108 (income from discharge of indebtedness).
electing fund (QEF)). • Section 617 (deduction and recapture of certain mining
exploration expenditures paid or incurred).
A domestic partnership that directly or indirectly owns stock of a • Section 901 (foreign tax credit).
CFC (within the meaning of section 953(c)(1)(B) or section 957(a))
or a passive foreign investment company (PFIC) (within the meaning Partner’s Dealings With Partnership
of section 1297(a)) that the domestic partnership treats as a QEF
under section 1293 may make the election provided in Regulations If a partner engages in a transaction with the partnership, other than
section 1.1411-10(g). The election must be made no later than the in the capacity as a partner, the partner is treated as not being a
first tax year beginning after 2013 during which the partnership: member of the partnership for that transaction. Special rules apply to
sales or exchanges of property between partnerships and certain
a. Includes an amount in gross income for chapter 1 purposes persons, as explained in Pub. 541.
under section 951(a) or section 1293(a)(1)(A) for the CFC or QEF,
and Contributions to the Partnership
b. Has a direct or indirect owner that is subject to tax under Generally, no gain (loss) is recognized to the partnership or any of
section 1411 or would have been if the election were made. the partners when property is contributed to the partnership in
This election must be made on an entity-by-entity basis, and applies exchange for an interest in the partnership. This rule doesn't apply to
only to the particular CFCs and QEFs for which an election is made. any gain realized on a transfer of property to a partnership that would
In general, for purposes of section 1411, if an election is in effect for be treated as an investment company (within the meaning of section
a CFC or QEF, the amounts included in income under section 951 351(e)) if the partnership were incorporated. If, as a result of a
and section 1293 derived from the CFC or QEF are included in net transfer of property to a partnership, there's a direct or indirect
investment income, and distributions described in section 959(d) or transfer of money or other property to the transferring partner, the
section 1293(c) are excluded from net investment income. An partner may have to recognize gain on the exchange.
election that is made under Regulations section 1.1411-10(g) can't The basis to the partnership of property contributed by a partner
be revoked. For more information regarding this election, see is the adjusted basis in the hands of the partner at the time it was
Regulations section 1.1411-10(g). contributed, plus any gain recognized (under section 721(b)) by the
The election must be made in a statement that is filed with the partner at that time. See section 723 for more information.
partnership’s original or amended return for the tax year in which the See Regulations sections 1.721(c)-1(b)(7) and 1.721(c)-3(b) for
election is made. An election can be made on an amended return more information on a gain deferral contribution of section 721(c)
only if the tax year for which the election is made, and all tax years property to a section 721(c) partnership. Also see Section 721(c)
affected by the election, aren't closed by the period of limitations on Partnership Section 721(c) Property, , and Gain Deferral Method
assessments under section 6501. The statement must include: under Definitions, earlier.
a. The name and EIN of the partnership making the election;
b. A declaration that the partnership elects under Regulations Dispositions of Contributed Property
section 1.1411-10(g) to apply the rules in Regulations section Generally, if the partnership disposes of property contributed to the
1.1411-10(g) to the CFCs and QEFs identified in the statement; and partnership by a partner, income, gain, loss, and deductions from
c. The following information for each CFC and QEF for which an that property must be allocated among the partners to take into
election is made: (a) the name of the CFC or QEF; and (b) either the account the difference between the property's basis and its FMV at
the time of the contribution. However, if the adjusted basis of the
Instructions for Form 1065 (2023) 13

- 14 -

Page 14 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

contributed property exceeds its FMV at the time of the contribution, apply to the partnership, but instead apply to each partner's share of
the built-in loss can only be taken into account by the contributing net losses attributable to each activity. Because the treatment of
partner. For all other partners, the basis of the property in the hands each partner's share of partnership losses depends on the nature of
of the partnership is treated as equal to its FMV at the time of the the activity that generated it, the partnership must report the items of
contribution (see section 704(c)(1)(C)). income, loss, and deduction separately for each activity. The at-risk
limitation applies to individuals, estates, trusts, and certain closely
For property contributed to the partnership, the contributing held C corporations. See Pub. 925, Passive Activity and At-Risk
partner must recognize gain or loss on a distribution of the property Rules, for additional information.
to another partner within 7 years of being contributed. The gain or
loss is equal to the amount that the contributing partner should have Activities covered by the at-risk rules. If the partnership is
recognized if the property had been sold for its FMV when involved in one of the following activities as a trade or business or for
distributed, because of the difference between the property's basis the production of income, the partner may be subject to the at-risk
and its FMV at the time of contribution. rules.
See section 704(c) for details and other rules on dispositions of 1. Holding, producing, or distributing motion picture films or
contributed property. See section 724 for the character of any gain or videotapes.
loss recognized on the disposition of unrealized receivables, 2. Farming.
inventory items, or capital loss property contributed to the 3. Leasing section 1245 property, including personal property
partnership by a partner. and certain other tangible property that's depreciable or amortizable.
See Regulations sections 1.721(c)-4 and 1.721(c)-5 for more 4. Exploring for, or exploiting, oil and gas.
information on certain dispositions of contributed 721(c) property to 5. Exploring for, or exploiting, geothermal deposits (for wells
which the gain deferral method applies. Also see Section 721(c) started after September 1978).
Partnership Section 721(c) Property, , and Gain Deferral Method
under Definitions, earlier. 6. Any other activity not included in items 1 through 5, above,
that's carried on as a trade or business or for the production of
Recognition of Precontribution Gain income.
on Certain Partnership Distributions Aggregation of activities. Activities described in (6) above that
A partner who contributes appreciated property to the partnership constitute a trade or business are treated as one activity if:
must include in income any precontribution gain to the extent the • You actively participate in the management of the trade or
FMV of other property (other than money) distributed to the partner business, or
by the partnership exceeds the adjusted basis of the partner’s • The trade or business is carried on by a partnership or S
partnership interest just before the distribution. Precontribution gain corporation and 65% or more of its losses for the tax year are
is the net gain, if any, that would have been recognized under allocable to persons who actively participate in the management of
section 704(c)(1)(B) if the partnership had distributed to another the trade or business.
partner all the property that had been contributed to the partnership Similar rules apply to activities described in items 1 through 5 above.
by the distributee partner within 7 years of the distribution and that For more information, see Pub. 925.
was held by the partnership just before the distribution. If you aggregate your activities under these rules for section 465
purposes, check the appropriate box in item K below the name and
Appropriate basis adjustments are to be made to the adjusted address block on page 1 of Form 1065.
basis of the distributee partner's interest in the partnership and the
partnership's basis in the contributed property to reflect the gain At-risk activity reporting requirements. If the partnership items
recognized by the partner. of income, loss, or deduction reported on Schedule K-1 are from
more than one activity covered by the at-risk rules, the partnership
For more details and exceptions, see Pub. 541. should report on an attachment to Schedule K-1 information relating
to each activity as is required by Item K. Partner's Share of
Unrealized Receivables and Inventory Liabilities, later. See the Instructions for Form 6198 and Pub. 925 for
Items additional information needed to help the partner compute the profit
or loss from each at-risk activity and the amount at risk that may be
Generally, if a partner sells or exchanges a partnership interest required to be separately reported.
where unrealized receivables or inventory items are involved, the
transferor partner must notify the partnership, in writing, within 30 Passive Activity Limitations
days of the exchange. The partnership must then file Form 8308,
Report of a Sale or Exchange of Certain Partnership Interests. In general, section 469 limits the amount of losses, deductions, and
credits that partners can claim from passive activities. The passive
If a partnership distributes unrealized receivables or substantially activity limitations don't apply to the partnership. Instead, they apply
appreciated inventory items in exchange for all or part of a partner's to each partner's share of any income or loss and credit attributable
interest in other partnership property (including money), treat the to a passive activity. Because the treatment of each partner's share
transaction as a sale or exchange between the partner and the of partnership income or loss and credit depends on the nature of
partnership. Treat the partnership gain (loss) as ordinary business the activity that generated it, the partnership must report income or
income (loss). The income (loss) is specially allocated only to loss and credits separately for each activity.
partners other than the distributee partner.
The following instructions and the instructions for Schedules K
If a partnership gives other property (including money) for all or and K-1, later, explain the applicable passive activity limitation rules
part of that partner's interest in the partnership's unrealized and specify the type of information the partnership must provide to
receivables or substantially appreciated inventory items, treat the its partners for each activity. If the partnership had more than one
transaction as a sale or exchange of the property. activity, it must report information for each activity on an attached
See Rev. Rul. 84-102, 1984-2 C.B. 119, for information on the tax statement to Schedules K and K-1.
consequences that result when a new partner joins a partnership Generally, passive activities include (a) activities that involve the
that has liabilities and unrealized receivables. Also see Pub. 541 for conduct of a trade or business if the partner doesn't materially
more information on unrealized receivables and inventory items. participate in the activity, and (b) all rental activities (defined later)
regardless of the partner's participation. For exceptions, see
At-Risk Limitations Activities That Are Not Passive Activities, later. The level of each
In general, section 465 limits the amount of deductible losses partner's participation in an activity must be determined by the
partners can claim from certain activities. The at-risk limitations don't partner.

14 Instructions for Form 1065 (2023)

- 15 -

Page 15 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

The passive activity rules provide that losses and credits from Trade or Business Activities
passive activities can generally be applied only against income and
tax from passive activities. Thus, passive losses and credits can't be A trade or business activity is an activity (other than a rental activity
applied against income from salaries, wages, professional fees, or a or an activity treated as incidental to an activity of holding property
business in which the partner materially participates; against for investment) that:
portfolio income (defined later); or against the tax related to any of • Involves the conduct of a trade or business (within the meaning of
these types of income. section 162),
• Is conducted in anticipation of starting a trade or business, or
Special provisions apply to certain activities. First, the passive • Involves research or experimental expenditures deductible under
activity limitations must be applied separately for a net loss from section 174 (or that would be if you chose to deduct rather than
passive activities held through a PTP. Second, special rules require capitalize them).
that net income from certain activities that would otherwise be If the partner doesn't materially participate in the activity, a trade
treated as passive income must be recharacterized as nonpassive or business activity conducted through a partnership is generally a
income for purposes of the passive activity limitations. passive activity of the partner.
To allow each partner to correctly apply the passive activity Each partner must determine if the partner materially participated
limitations, the partnership must report income or loss and credits in an activity. As a result, while the partnership's ordinary business
separately by activity for each of the following. income (loss) is reported on page 1 of Form 1065, the specific
• Trade or business activities. income and deductions from each separate trade or business
• Rental real estate activities. activity must be reported on attached statements to Form 1065.
• Rental activities other than real estate. Similarly, while each partner's distributive share of the partnership's
• Portfolio income. ordinary business income (loss) is reported in box 1 of
Schedule K-1, each partner's distributive share of the income and
deductions from each trade or business activity must be reported on
Activities That Aren’t Passive Activities attached statements to each Schedule K-1. See Passive Activity
The following aren't passive activities. Reporting Requirements, later, for more information.
1. Trade or business activities in which the partner materially
participated for the tax year. Rental Activities
2. Any rental real estate activity in which the partner materially Generally, except as noted below, if the gross income from an
participated if the partner met both of the following conditions for the activity consists of amounts paid principally for the use of real or
tax year. personal tangible property held by the partnership, the activity is a
a. More than half of the personal services the partner rental activity.
performed in trades or businesses were performed in real property There are several exceptions to this general rule. Under these
trades or businesses in which the partner materially participated. exceptions, an activity involving the use of real or personal tangible
b. The partner performed more than 750 hours of services in property isn't a rental activity if any of the following apply.
real property trades or businesses in which the partner materially • The average period of customer use (defined below) for such
participated. property is 7 days or less.
• The average period of customer use for such property is 30 days
Note. For a partner that is a closely held C corporation (defined in or less and significant personal services (defined below) are
section 465(a)(1)(B)), the above conditions are treated as met if provided by or on behalf of the partnership.
more than 50% of the corporation's gross receipts are from real • Extraordinary personal services (defined below) are provided by
property trades or businesses in which the corporation materially or on behalf of the partnership.
participated. • The rental of such property is treated as incidental to a nonrental
For purposes of this rule, each interest in rental real estate is a activity of the partnership under Temporary Regulations section
separate activity, unless the partner elects to treat all interests in 1.469-1T(e)(3)(vi) and Regulations section 1.469-1(e)(3)(vi)(D).
rental real estate as one activity. • The partnership customarily makes the property available during
defined business hours for nonexclusive use by various customers.
If the partner is married filing jointly, either the partner or the • The partnership provides property for use in a nonrental activity of
partner’s spouse must separately meet both of the above conditions, a partnership or joint venture in its capacity as an owner of an
without taking into account services performed by the other spouse. interest in such partnership or joint venture. Whether the partnership
A real property trade or business is any real property provides property used in an activity of another partnership or of a
development, redevelopment, construction, reconstruction, joint venture in the partnership's capacity as an owner of an interest
acquisition, conversion, rental, operation, management, leasing, or in the partnership or joint venture is determined on the basis of all
brokerage trade or business. Services the partner performed as an the facts and circumstances.
employee aren't treated as performed in a real property trade or In addition, a guaranteed payment described in section 707(c) is
business unless the partner owned more than 5% of the stock (or never income from a rental activity.
more than 5% of the capital or profits interest) in the employer.
3. An interest in an oil or gas well drilled or operated under a Average period of customer use. Figure the average period of
working interest if at any time during the tax year the partner held the customer use for a class of property by dividing the total number of
working interest directly or through an entity that didn't limit the days in all rental periods by the number of rentals during the tax year.
partner's liability (for example, an interest as a general partner). This If the activity involves renting more than one class of property,
exception applies regardless of whether the partner materially multiply the average period of customer use of each class by the
participated for the tax year. ratio of the gross rental income from that class to the activity's total
gross rental income. The activity's average period of customer use
4. The rental of a dwelling unit used by a partner for personal equals the sum of these class-by-class average periods weighted by
purposes during the year for more than the greater of 14 days or gross income. See Regulations section 1.469-1(e)(3)(iii).
10% of the number of days that the residence was rented at fair
rental value. Significant personal services. Personal services include only
services performed by individuals. To determine if personal services
5. An activity of trading personal property for the account of are significant personal services, consider all the relevant facts and
owners of interests in the activity. For purposes of this rule, personal circumstances. Relevant facts and circumstances include:
property means property that is actively traded, such as stocks, How often the services are provided,
bonds, and other securities. See Temporary Regulations section •
1.469-1T(e)(6). • The type and amount of labor required to perform the services,
and
Instructions for Form 1065 (2023) 15

- 16 -

Page 16 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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

16 Instructions for Form 1065 (2023)

- 17 -

Page 17 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Grouping Activities Recharacterization of Passive Income
Generally, one or more trade or business or rental activities may be Under Temporary Regulations section 1.469-2T(f) and Regulations
treated as a single activity if the activities make up an appropriate section 1.469-2(f), net passive income from certain passive activities
economic unit for measurement of gain or loss under the passive must be treated as nonpassive income. Net passive income is the
activity rules. Whether activities make up an appropriate economic excess of an activity's passive activity gross income over its passive
unit depends on all the relevant facts and circumstances. The factors activity deductions (current year deductions and prior year
given the greatest weight in determining whether activities make up unallowed losses).
an appropriate economic unit are:
• Similarities and differences in types of trades or businesses, Any net passive income recharacterized as nonpassive income is
• The extent of common control, treated as investment income for purposes of figuring investment
• The extent of common ownership, interest expense limitations if it's from (a) an activity of renting
• Geographical location, and substantially nondepreciable property from an equity-financed
• Reliance between or among the activities. lending activity, or (b) an activity related to an interest in a
pass-through entity that licenses intangible property.
Example. The partnership has a significant ownership interest in
a bakery and a movie theater in Baltimore and a bakery and a movie The amount of income from the activities in the first three
theater in Philadelphia. Depending on the relevant facts and paragraphs, below, that any partner will be required to recharacterize
circumstances, there may be more than one reasonable method for as nonpassive income may be limited under Temporary Regulations
grouping the partnership's activities. For instance, the following section 1.469-2T(f)(8). Because the partnership won't have
groupings may or may not be permissible. information regarding all of a partner's activities, it must identify all
• A single activity. partnership activities meeting the definitions under Certain
• A movie theater activity and a bakery activity. nondepreciable rental property activities and Passive
• A Baltimore activity and a Philadelphia activity. equity-financed lending activities below as activities that may be
• Four separate activities. subject to recharacterization.
Once the partnership chooses a grouping under these rules, it Income from the following six sources is subject to
must continue using that grouping in later tax years unless a material recharacterization.
change in the facts and circumstances makes it clearly
inappropriate. Significant participation passive activities. A significant
participation passive activity is any trade or business activity in
The IRS may regroup the partnership's activities if the which the partner participated for more than 100 hours during the tax
partnership's grouping fails to reflect one or more appropriate year but didn't materially participate. Because each partner must
economic units and one of the primary purposes of the grouping is to determine the partner's level of participation, the partnership won't
avoid the passive activity limitations. be able to identify significant participation passive activities.
Limitation on grouping certain activities. The following activities Certain nondepreciable rental property activities. Net passive
may not be grouped together. income from a rental activity is nonpassive income if less than 30%
1. A rental activity with a trade or business activity unless the of the unadjusted basis of the property used or held for use by
activities being grouped together make up an appropriate economic customers in the activity is subject to depreciation under section
unit and: 167.
a. The rental activity is insubstantial relative to the trade or Passive equity-financed lending activities. If the partnership has
business activity or vice versa, or net income from a passive equity-financed lending activity, the
b. Each owner of the trade or business activity has the same smaller of the net passive income or the equity-financed interest
proportionate ownership interest in the rental activity. If so, the income from the activity is nonpassive income.
portion of the rental activity involving the rental of property to be
used in the trade or business activity can be grouped with the trade Rental of property incidental to a development activity. Net
or business activity. rental activity income is the excess of passive activity gross income
from renting or disposing of property over passive activity
2. An activity involving the rental of real property with an activity deductions (current year deductions and prior year unallowed
involving the rental of personal property (except personal property losses) that are reasonably allocable to the rented property. Net
provided in connection with the real property or vice versa). rental activity income is nonpassive income for a partner if all of the
3. Any activity with another activity in a different type of following apply.
business and in which the partnership holds an interest as a limited • The partnership recognizes gain from the sale, exchange, or other
partner or as a limited entrepreneur (as defined in section 461(k)(4)) disposition of the rental property during the tax year.
if that other activity engages in holding, producing, or distributing • The use of the item of property in the rental activity started less
motion picture films or videotapes; farming; leasing section 1245 than 12 months before the date of disposition. The use of an item of
property; or exploring for or exploiting oil and gas resources or rental property begins on the first day that (a) the partnership owns
geothermal deposits. an interest in the property, (b) substantially all of the property is
either rented or held out for rent and ready to be rented, and (c) no
Activities conducted through other partnerships. Once a significant value-enhancing services remain to be performed.
partnership determines its activities under these rules, the • The partner materially or significantly participated for any tax year
partnership as a partner can use these rules to group those activities in an activity that involved performing services to enhance the value
with: of the property (or any other item of property if the basis of the
• Each other, property disposed of is determined in whole or in part by reference
• Activities conducted directly by the partnership, or to the basis of that item of property).
• Activities conducted through other partnerships.
Because the partnership can't determine a partner's level of
A partner can't treat as separate activities those activities participation, the partnership must identify net income from property
grouped together by a partnership. described earlier under Rental Activities (without regard to the
If you group your activities under these rules for section 469 partner's level of participation) as income that may be subject to
purposes, check the appropriate box in item K below the name and recharacterization.
address block on page 1 of Form 1065.
Rental of property to a nonpassive activity. If a taxpayer rents
property to a trade or business activity in which the taxpayer
materially participates, the taxpayer's net rental activity income from
the property is nonpassive income.
Instructions for Form 1065 (2023) 17

- 18 -

Page 18 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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

18 Instructions for Form 1065 (2023)

- 19 -

Page 19 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

each activity based on the amount of the proceeds used in each File all six pages of Form 1065. However, if the answer to
activity. Schedule B, question 4, is “Yes,” Schedules L, M-1, and M-2 on
b. Loans between the partnership and another partnership or S page 6 are optional. Also attach a Schedule K-1 to Form 1065 for
corporation. If the partnership's partners have the same proportional each partner.
ownership interest in the partnership and the other partnership or S File only one Form 1065 for each partnership. Mark “Duplicate
corporation, identify each partner's share of the interest income or Copy” on any copy you give to a partner.
expense from the loan. If the partnership was the borrower, also
identify the activity in which the loan proceeds were used. If the loan If a syndicate, pool, joint venture, or similar group files Form
proceeds were used in more than one activity, allocate the interest to 1065, it must attach a copy of the agreement and all amendments to
each activity based on the amount of the proceeds used in each the return, unless a copy has previously been filed.
activity. A foreign partnership required to file a return must generally
TIP report all of its foreign and U.S. partnership items. For rules
Net Investment Income Tax Reporting regarding whether a foreign partnership must file Form
Requirements 1065, see Who Must File, earlier.
The information described in this section should be given directly to
the partner and shouldn't be reported by the partnership to the IRS. Name and Address
To allow partners to correctly figure the net investment income tax Enter the legal name of the partnership, address, and EIN on the
(NIIT) where a partner disposes of an interest in the partnership appropriate lines. If the partnership has changed its name, check
during the tax year, the partnership may be required to provide the box G(3). Include the suite, room, or other unit number after the
partner with certain information. The NIIT is a tax imposed on an street address. If the post office doesn't deliver mail to the street
individual’s, trust’s, or estate’s net investment income. Net address and the partnership has a P.O. box, show the box number
investment income includes the net gains or losses from the sale of instead.
an interest in the partnership. A partner who is actively involved in If the partnership receives its mail in care of a third party (such as
one or more of the partnership’s or lower-tier pass-through entities’ an accountant or an attorney), enter “C/O” on the street address line,
trades or businesses (other than trading in financial instruments or followed by the third party’s name and street address or P.O. box.
commodities) can reduce the amount of the gain or loss from the
sale of the partnership or lower-tier pass-through entity interest If the partnership's address is outside the United States or U.S.
included in its net investment income. However, to figure its net territories, enter the information on the line for “City or town, state or
investment income, the active partner needs certain information from province, country, and ZIP or foreign postal code” in the following
the partnership. order: city, province or state, and the foreign country. Follow the
foreign country's practice in placing the postal code in the address.
Generally, the partnership must provide certain information to the Don't abbreviate the country name.
partner if the partnership knows, or has reason to know, the
following. If the partnership has changed its address since it last filed a
• The partner disposed of an interest in the partnership. return (including a change to an “in care of” address), check box
• The partner materially participates (within the meaning of the G(4) for “Address change.”
passive activity loss rules (section 469)) in one or more of the trades If the partnership changes its mailing address or the
or businesses (within the meaning of section 162) of the partnership TIP responsible party after filing its return, it can notify the IRS by
or a lower-tier pass-through entity (other than trading in financial filing Form 8822-B, Change of Address or Responsible
instruments or commodities). Party—Business.
• The partner doesn't qualify for the optional simplified reporting
method for figuring its net investment income associated with the
disposition of the interest. For more information, see the instructions Partnerships With Adjustments in the Current
for Form 8960, line 5c. Year That Didn’t Result in an IU
Information to be provided to partner. Generally, the partnership If a partnership has an adjustment from a BBA audit which doesn't
must provide the partner with its distributive share of the net gain result in an IU, the partnership shouldn't take the adjustment into
and loss from the deemed sale for FMV of the partnership’s property, account until the adjustment year (see Definitions, earlier). With its
other than property that relates to the trades or businesses in which Form 1065 for the adjustment year, the partnership should provide a
the partner materially participates, as determined under the passive statement describing the adjustments, including the line numbers to
activity loss rules applicable to the transfer of an interest in a which the adjustments relate, and incorporate those adjustments
pass-through entity. For more information, see the instructions for into its adjustment year return. If there's a reallocation adjustment
Form 8960, line 5c. being reported on the adjustment year return, ensure the statement
If a partner, who qualifies for the optional simplified reporting identifies the partner receiving the reallocation adjustment. If there's
method, prefers to determine net gain or loss under the general an adjustment to a separately stated item or to a credit, the
calculation, the partnership may, but isn't obligated to, provide the partnership must adjust that item or that credit in the adjustment
information to the partner at that partner’s request. year. See Examples 1 and 2 in Regulations 301.6225-3.

Items A and C
Specific Instructions Enter the applicable activity name and the code number from the list,
Codes for Principal Business Activity and Principal Product or
These instructions follow the line numbers on the first page of Form Service, near the end of these instructions.
1065. The accompanying schedules are discussed separately. For example, if, as its principal business activity, the partnership
Specific instructions for most of the lines are provided. Lines that (a) purchases raw materials, (b) subcontracts out for labor to make a
aren't discussed are self-explanatory. finished product from the raw materials, and (c) retains title to the
Fill in all applicable lines and schedules. goods, the partnership is considered to be a manufacturer and must
enter “Manufacturer” in item A and enter in item C one of the codes
Enter any items specially allocated to the partners in the (311110 through 339900) listed under “Manufacturing” on the list,
appropriate box of the applicable partner's Schedule K-1. Enter the Codes for Principal Business Activity and Principal Product or
total amount on the appropriate line of Schedule K. Don't enter Service, near the end of these instructions. For nonstore retailers,
separately stated amounts on the numbered lines on Form 1065; select the Principal Business Activity (PBA) code by the primary
Form 1125-A, page 1; or Schedule D (Form 1065). product that your establishment sells. For example, establishments
Instructions for Form 1065 (2023) 19

- 20 -

Page 20 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

primarily selling prescription and non-prescription drugs, select PBA
code 456110 Pharmacies & Drug Retailers. Income
Report only trade or business activity income on lines 1a
Item D. Employer Identification Number (EIN) ! through 8. Don't report rental activity income or portfolio
Show the correct EIN in item D. If the partnership doesn't have an CAUTION income on these lines. See Passive Activity Limitations,
EIN, it must apply for one in one of the following ways. earlier, for definitions of rental activity income and portfolio income.
• Online—Go to IRS.gov/EIN. The EIN is issued immediately once Rental activity income and portfolio income are reported on
the application information is validated. Schedules K and K-1. Rental real estate activities are also reported
• By mailing or faxing Form SS-4, Application for Employer on Form 8825.
Identification Number.
Tax-exempt income. Don’t include any tax-exempt income on lines
An LLC must determine which type of federal tax entity it will be 1a through 8. A partnership that receives any tax-exempt income
(partnership, corporation, or disregarded entity (DE)) before applying other than interest, or holds any property or engages in any activity
for an EIN (see Form 8832 for details). If the partnership hasn't that produces tax-exempt income, reports this income on
received its EIN by the time the return is due, enter “Applied for” and Schedule K, line 18b, and in box 18 of Schedule K-1 using code B.
the application date in the space for the EIN. For more details, see
the Instructions for Form SS-4. Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other RIC,
Note. The online application process isn't yet available for on Schedule K, line 18a, and in box 18 of Schedule K-1 using code
partnerships with addresses in foreign countries. If you're located A.
outside the United States, please call 267-941-1099. See Deductions, later, for information on how to report expenses
related to tax-exempt income.
Item F. Total Assets
You aren't required to complete item F if the answer to Schedule B, Line 1a. Gross Receipts or Sales
question 4, is “Yes.” Enter on line 1a gross receipts or sales from all trade or business
operations, except for amounts that must be reported on lines 4
If you're required to complete this item, enter the partnership's through 7. If a cost offset method under section 451(b) or (c) is used,
total assets at the end of the tax year, as determined by the the resulting gross income is reported on line 1a.
accounting method regularly used in keeping the partnership's
books and records. If there were no assets at the end of the tax year, Special rules apply to certain income, as discussed below. For
enter zero. example, don't include gross receipts from farming on line 1a.
Instead, show the net profit (loss) from farming on line 5. Also, don't
Item J. Schedule C and Schedule M-3 include on line 1a rental activity income or portfolio income.
A partnership must file Schedule M-3, Net Income (Loss) In general, advance payments are reported in the year of receipt.
Reconciliation for Certain Partnerships, instead of Schedule M-1, if For exceptions to this general rule for partnerships that use the
any of the following apply. accrual method of accounting, see the following.
• The amount of total assets at the end of the tax year reported on • To report income from long-term contracts, see section 460.
Schedule L, line 14, column (d), is $10 million or more. • For permissible methods that allow a limited deferral of advance
• The amount of adjusted total assets for the tax year is $10 million payments beyond the current tax year, see section 451(c) and
or more. Adjusted total assets is defined in the Instructions for Regulations section 1.451-8.
Schedule M-3. • For information on adopting or changing to a permissible method
• The amount of total receipts (as defined later in the instructions for reporting advance payment for goods and services by an accrual
for Schedule B, question 4) for the tax year is $35 million or more. method partnership, see the Instructions for Form 3115.
• An entity that is a reportable entity partner of the partnership
owns or is deemed to own, directly or indirectly, an interest of 50% or Installment sales. Generally, the installment method can't be used
more in the partnership's capital, profit, or loss on any day during the for dealer dispositions of property. A dealer disposition is any
tax year of the partnership. Reportable entity partner is defined in the disposition of:
Instructions for Schedule M-3. • Personal property by a person who regularly sells or otherwise
disposes of personal property of the same type on the installment
A partnership filing Form 1065 that isn't required to file plan, or
Schedule M-3 may voluntarily file Schedule M-3 instead of • Real property held for sale to customers in the ordinary course of
Schedule M-1. the taxpayer's trade or business.
Any partnership that files Schedule M-3 must also complete and Exception. These restrictions on using the installment method
file Schedule C (Form 1065), Additional Information for don't apply to dispositions of property used or produced in a farming
Schedule M-3 Filers. See Eased requirements next. business or sales of timeshares and residential lots. However, if the
partnership elects to report dealer dispositions of timeshares and
Eased requirements. Partnerships that (a) are required to file residential lots on the installment method, each partner's tax liability
Schedule M-3 and have less than $50 million in total assets at must be increased by the partner's distributive share of the interest
tax-year-end, or (b) aren't required to file Schedule M-3 and payable under section 453(l)(3).
voluntarily file Schedule M-3, must either (i) complete Schedule M-3
entirely, or (ii) complete Schedule M-3 through Part I and complete Include on line 1a the gross profit on collections from installment
Schedule M-1 instead of completing Parts II and III of Schedule M-3. sales for any of the following.
In addition, partnerships that meet the requirements of (a) and (b) • Dealer dispositions of property before March 1, 1986.
above aren't required to file Schedule C (Form 1065) or Form • Dispositions of property used or produced in the trade or
business of farming.
8916-A. Certain dispositions of timeshares and residential lots reported
•
See the instructions for Schedule C and Schedule M-3 for more under the installment method.
information. Attach a statement showing the following information for the
current year and the 3 preceding years.
• Gross sales.
• Cost of goods sold.
• Gross profits.
• Percentage of gross profits to gross sales.
• Amount collected.

20 Instructions for Form 1065 (2023)

- 21 -

Page 21 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Gross profit on the amount collected. A partnership that is a partner in another partnership must
include on Form 4797 its share of ordinary gains (losses) from sales,
Nonaccrual-experience method. Partnerships that qualify to use exchanges, or involuntary conversions (other than casualties or
the nonaccrual-experience method (described earlier) should attach thefts) of the other partnership's trade or business assets.
a statement showing total gross receipts, the amount not accrued as
a result of the application of section 448(d)(5), and the net amount Partnerships shouldn't use Form 4797 to report the sale or other
accrued. Include the net amount on line 1a. disposition of property if a section 179 expense deduction was
previously passed through to any of its partners for that property.
Line 2. Cost of Goods Sold Instead, report it in box 20 of Schedule K-1 using code L. See
If the partnership has a cost of goods sold deduction, complete and Dispositions of property with section 179 deductions (code L), later,
attach Form 1125-A. Enter on Form 1065, page 1, line 2, the amount for details.
from Form 1125-A, line 8. See Form 1125-A and its instructions.
Line 7. Other Income (Loss)
Line 4. Ordinary Income (Loss) From Other Enter any other trade or business income (loss) not included on lines
Partnerships, Estates, and Trusts 1a through 6. List the type and amount of income on an attached
Enter the ordinary income (loss) shown on Schedule K-1 (Form statement. Examples of other income include the following.
1065) or Schedule K-1 (Form 1041), or other ordinary income (loss) • Interest income derived in the ordinary course of the partnership's
from a foreign partnership, estate, or trust. Show the partnership's, trade or business, such as interest charged on receivable balances.
estate's, or trust's name, address, and EIN on a separate statement • Recoveries of bad debts deducted in prior years under the
attached to this return. If the amount entered is from more than one specific charge-off method.
source, identify the amount from each source. • Taxable income from insurance proceeds.
• Any amount included in income from Form 6478, Biofuel
Don't include portfolio income or rental activity income (loss) from Producer Credit, line 2, if applicable.
other partnerships, estates, or trusts on this line. Instead, report • Any amount included in income from Form 8864, line 9, if
these amounts on Schedules K and K-1, or on Form 8825, line 20a, applicable.
if the amount is from a rental real estate activity. • The recapture amount under section 280F if the business use of
listed property drops to 50% or less. To figure the recapture amount,
Ordinary income (loss) from another partnership that is a PTP complete Form 4797, Part IV.
isn't reported on this line. Instead, report the amount separately on • All section 481 income adjustments resulting from changes in
Schedule K, line 11, and in box 11 of Schedule K-1 using code ZZ. accounting methods. Show the computation of the section 481
Treat shares of other items separately reported on Schedule K-1 adjustments on an attached statement.
issued by the other entity as if the items were realized or incurred by • Part or all of the proceeds received from certain employer-owned
this partnership. life insurance contracts issued after August 17, 2006. Partnerships
that own one or more employer-owned life insurance contracts
If there's a loss from another partnership, the amount of the loss issued after that date must file Form 8925, Report of
that may be claimed is subject to the basis limitations as appropriate. Employer-Owned Life Insurance Contracts. See section 101(j) for
details.
If the tax year of your partnership doesn't coincide with the tax • The amount of payroll tax credit taken by an employer for qualified
year of the other partnership, estate, or trust, include the ordinary paid sick leave and qualified paid family leave under the Families
income (loss) from the other entity in the tax year in which the other First Coronavirus Response Act (FFCRA) and the American Rescue
entity's tax year ends. Plan Act of 2021 (the ARP). See Form 941, lines 11b, 11d, 13c, and
13e; Form 944, lines 8b, 8d, 10d, and 10f; or Form 943, lines 12b,
Line 5. Net Farm Profit (Loss) 12d, 14d, and 14f. The partnership must include the full amount
Enter the partnership's net farm profit (loss) from Schedule F (Form (both the refundable and nonrefundable portions) of the credit for
1040). Attach Schedule F (Form 1040) to Form 1065. Don't include qualified sick and family leave wages in its gross income for the tax
on this line any farm profit (loss) from other partnerships. Report year that includes the last day of any calendar quarter with respect to
those amounts on line 4. In figuring the partnership's net farm profit which a credit is allowed.
(loss), don't include any section 179 expense deduction; this amount
must be separately stated. Note. A credit is available only if the leave was taken sometime after
March 31, 2020, and before October 1, 2021, and only after the
Also report the partnership's fishing income on this line. qualified leave wages were paid, which might under certain
For a special rule concerning the method of accounting for a circumstances not occur until a quarter after September 30, 2021,
farming partnership with a corporate partner and for other tax including quarters during 2022. Accordingly, all lines related to
information on farms, see Pub. 225, Farmer's Tax Guide. qualified sick and family leave wages remain on the employment tax
returns for 2023.
Because the partner, and not the partnership, makes the • The amount of any COBRA premium assistance credit allowed to
TIP election to deduct the expenses of raising any plant with a employers under section 6432(e), as amended by the ARP. See
preproductive period of more than 2 years, farm Notices 2021-31 and 2021-46.
partnerships that aren't required to use an accrual method shouldn't
capitalize such expenses. Instead, state them separately on an Don't include items requiring separate computations that must be
attached statement to Schedule K, line 13d, and in box 13 of reported on Schedules K and K-1. See the instructions for
Schedule K-1 using code P. See section 263A(d) for more Schedules K and K-1, later.
information.
Don't report portfolio or rental activity income (loss) on this line.

Line 6. Net Gain (Loss) From Form 4797 Deductions
Include only ordinary gains or losses from the sale, Report only trade or business activity deductions on lines 9
! exchange, or involuntary conversion of assets used in a ! through 21.
CAUTION trade or business activity. Ordinary gains or losses from the CAUTION
sale, exchange, or involuntary conversion of rental activity assets are
reported separately on Form 8825, line 19, or Schedule K, line 3c, Don't report the following expenses on lines 9 through 21.
and in box 3 of Schedule K-1, generally as a part of the net income • Rental activity expenses. Report these expenses on Form 8825
(loss) from the rental activity. or Schedule K, line 3b.

Instructions for Form 1065 (2023) 21

- 22 -

Page 22 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Deductions allocable to portfolio income. Report these Interest expense paid or incurred during the production period of
deductions on Schedule K, line 13e, and in box 13 of Schedule K-1 designated property must be capitalized and is governed by special
using code I or L. rules. For more details, see Regulations sections 1.263A-8 through
• Nondeductible expenses (for example, expenses connected with 1.263A-15.
the production of tax-exempt income). Report nondeductible For more details on the uniform capitalization rules, see
expenses on Schedule K, line 18c, and in box 18 of Schedule K-1 Regulations sections 1.263A-1 through 1.263A-3.
using code C.
• Qualified expenditures to which an election under section 59(e) Transactions between related taxpayers. Generally, an accrual
may apply. The instructions for Schedule K, line 13d, and for box 13, basis partnership can deduct business expenses and interest owed
code J, of Schedule K-1 explain how to report these amounts. to a related party (including any partner) only in the tax year of the
• Items the partnership must state separately that require separate partnership that includes the day on which the payment is includible
computations by the partners. Examples include expenses incurred in the income of the related party. See section 267 for details.
for the production of income instead of in a trade or business, Business interest. Business interest expense (BIE) is limited for
charitable contributions, foreign taxes paid or accrued, intangible tax years beginning after 2017. See section 163(j) for limitations on
drilling and development costs, soil and water conservation deductions for business interest, and section 163(j)(4) for rules
expenditures, amortizable basis of reforestation expenditures, and specific to partnerships.
exploration expenditures. The distributive shares of these expenses
are reported separately to each partner on Schedule K-1. Business startup and organizational costs. Generally, a
partnership can elect to deduct a limited amount of startup or
Limitations on Deductions organizational costs paid or incurred. Any costs not deducted must
be amortized as explained below. See sections 195(b) and 709(b).
Section 263A uniform capitalization rules. The uniform Time for making an election. The partnership generally elects
capitalization rules of section 263A generally require partnerships to to deduct startup or organizational costs by claiming the deduction
capitalize certain costs incurred in connection with the following. on its return filed by the due date (including extensions) for the tax
• The production of real property and tangible personal property year in which the active trade or business begins. However, for
held in inventory or held for sale in the ordinary course of business. startup or organizational costs paid or incurred before September 9,
• Real property or personal property (tangible and intangible) 2008, the partnership may be required to attach a statement to its
acquired for resale. return to elect to deduct such costs. See Temporary Regulations
• The production of real property and tangible personal property by sections 1.195-1T and 1.709-1T (as in effect on July 7, 2008) for
a partnership for use in its trade or business or in an activity details. Also, see Regulations sections 1.195-1 and 1.709-1.
engaged in for profit.
If the partnership timely filed its return for the year without making
Tangible personal property produced by a partnership includes a an election, it can still make an election by filing an amended return
film, sound recording, videotape, book, or similar property. within 6 months of the due date of the return (excluding extensions).
The costs required to be capitalized under section 263A aren't Clearly indicate the election on the amended return and enter “Filed
deductible until the property to which the costs relate is sold, used, pursuant to section 301.9100-2” at the top of the amended return.
or otherwise disposed of by the partnership. File the amended return at the same address the partnership filed its
Exceptions. For tax years beginning after 2017, a small business original return. The election applies when figuring income for the
taxpayer, defined earlier, can adopt or change its method of current tax year and all subsequent years.
accounting to not capitalize costs under section 263A. See section The partnership can choose to forgo the above elections by
263A(i) and Accounting Methods, earlier. clearly electing to capitalize its startup or organizational costs on its
Section 263A doesn't apply to the following. return filed by the due date (including extensions) for the tax year in
• Timber. which the active trade or business begins.
• Most property produced under a long-term contract. The election to either amortize or capitalize startup or
• Certain property produced in a farming business. See the note at organizational costs is irrevocable and applies to all startup and
the end of the instructions for line 5, earlier. organizational costs that are related to the trade or business.
• Geological and geophysical costs amortized under section Amortization. Any costs not deducted under the above rules
167(h). must be amortized ratably over a 180-month period, beginning with
• Certain plants bearing fruits and nuts under section 168(k)(5). the month the partnership begins business. See the Instructions for
The partnership must report the following costs separately to the Form 4562 for details.
partners for purposes of determinations under section 59(e). Report the deductible amount of these costs and any
• Research and experimental costs under section 174. amortization on line 21. For amortization that began during the tax
• Intangible drilling costs for oil, gas, and geothermal property. year, complete and attach Form 4562, Depreciation and
• Mining exploration and development costs. Amortization.
Indirect costs. Partnerships subject to the uniform capitalization Syndication costs. Costs for issuing and marketing interests in the
rules are required to capitalize not only direct costs but an allocable partnership, such as commissions, professional fees, and printing
part of most indirect costs (including taxes) that benefit the assets costs, must be capitalized. They can't be depreciated or amortized.
produced or acquired for resale, or are incurred because of the See the instructions for line 10, later, for the treatment of syndication
performance of production or resale activities. fees paid to a partner.
For inventory, indirect costs that must be capitalized include the
following. Reducing certain expenses for which credits are allowable.
• Administration expenses. The partnership may need to reduce the otherwise allowable
• Taxes. deductions for expenses used to figure certain credits. The following
• Depreciation. are examples of such credits. (Don't reduce the amount of the
• Insurance. allowable deduction for any portion of the credit that was passed
• Compensation paid to officers attributable to services. through to the partnership from another pass-through entity.)
• Rework labor. • Work opportunity credit.
• Contributions to pension, stock bonus, and certain profit-sharing, • Credit for increasing research activities.
annuity, or deferred compensation plans. • Disabled access credit.
• Empowerment zone employment credit, if applicable.
Regulations section 1.263A-1(e)(3) specifies other indirect costs • Credit for employer social security and Medicare taxes paid on
that relate to production or resale activities that must be capitalized certain employee tips.
and those that may be currently deductible. • Orphan drug credit.

22 Instructions for Form 1065 (2023)

- 23 -

Page 23 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Credit for small employer pension plan startup costs (including records. See Regulations section 1.263(a)-3(n) for information on
employer contributions). how to make the election.
• Credit for employer-provided childcare facilities and services.
• Low sulfur diesel fuel production credit. Line 12. Bad Debts
• Credit for employer differential wage payments. Enter the total debts that became worthless in whole or in part during
• Credit for small employer health insurance premiums. the year, but only to the extent such debts relate to a trade or
• Employer credit for paid family and medical leave (Form 8994). business activity. Report deductible nonbusiness bad debts as a
short-term capital loss on Form 8949.
Note. Wages taken into account in determining the credit for
qualified sick and family leave on Form 941 can't be taken into Cash method partnerships can't take a bad debt deduction
account in determining the employer credit for paid family and ! unless the amount was previously included in income.
medical leave on Form 8994. See the Instructions for Form 8994. CAUTION
If the partnership has any of the credits listed above, figure each
current year credit before figuring the deductions for expenses on Line 13. Rent
which the credit is based. Enter rent paid on business property used in a trade or business
activity. Don't deduct rent for a dwelling unit occupied by any partner
Line 9. Salaries and Wages for personal use.
Enter the salaries and wages paid or incurred for the tax year, If the partnership rented or leased a vehicle, enter the total
reduced by the amount of the following credit(s). annual rent or lease expense paid or incurred in the trade or
• Work Opportunity Credit (Form 5884). business activities of the partnership. Also complete Form 4562,
• Empowerment Zone Employment Credit (Form 8844), if Part V. If the partnership leased a vehicle for a term of 30 days or
applicable. more, the deduction for vehicle lease expense may have to be
• Credit for Employer Differential Wage Payments (Form 8932). reduced by an amount called the inclusion amount. The partnership
Don't reduce the amount of the allowable deduction for any may have an inclusion amount if:
portion of the credit that was passed through to the partnership from
another pass-through entity. See the instructions for the credit form The lease term began: And the vehicle's FMV on the first day of
for more information. the lease exceeded:
Automobiles other than trucks and vans
Don't include salaries and wages reported elsewhere on the
return, such as amounts included in cost of goods sold, elective During calendar year 2023 . . . . . . . . . . . . . . . . . . $60,000
contributions to a section 401(k) cash or deferred arrangement, or During calendar year 2022 . . . . . . . . . . . . . . . . . . $56,000
amounts contributed under a salary reduction SEP agreement or a During calendar year 2021 . . . . . . . . . . . . . . . . . . $51,000
SIMPLE IRA plan.
After 12/31/2017 but before 1/1/2021 . . . . . . . . . . . . $50,000
Line 10. Guaranteed Payments to Partners After 12/31/12 and before 1/1/18 . . . . . . . . . . . . . . $19,000
Deduct payments or credits to a partner for services or for the use of After 12/31/09 but before 1/1/13 . . . . . . . . . . . . . . . $18,500
capital if the payments or credits are determined without regard to
partnership income and are allocable to a trade or business activity. Trucks and vans
Also include on line 10 amounts paid during the tax year for During calendar year 2023 . . . . . . . . . . . . . . . . . . $60,000
insurance that constitutes medical care for a partner, a partner's During calendar year 2022 . . . . . . . . . . . . . . . . . . $56,000
spouse, a partner's dependents, or a partner's children under age 27
who aren't dependents. During calendar year 2021 . . . . . . . . . . . . . . . . . . $51,000
After 12/31/2017 but before 1/1/2021 . . . . . . . . . . . . $50,000
For information on how to treat the partnership's contribution to a
partner's health savings account (HSA), see Notice 2005-8, 2005-4 After 12/31/13 and before 1/1/18 . . . . . . . . . . . . . . $19,500
I.R.B. 368. After 12/31/09 and before 1/1/14 . . . . . . . . . . . . . . $19,000
Don't include any payments and credits that should be The inclusion amount for lease terms beginning in 2024 will be published in the
capitalized. For example, although payments or credits to a partner Internal Revenue Bulletin in early 2024.
for services rendered in syndicating a partnership may be
guaranteed payments, they aren't deductible on line 10. They are
capital expenditures. However, they should be reported as See Pub. 463, Travel, Gift, and Car Expenses, for instructions on
guaranteed payments on the applicable line of Schedule K, line 4b, figuring the inclusion amount.
and in box 4b of Schedule K-1.
Don't include distributive shares of partnership profits. Line 14. Taxes and Licenses
Enter taxes and licenses paid or incurred in the trade or business
Report the guaranteed payments to the appropriate partners activities of the partnership if not reflected elsewhere on the return.
using the applicable box 4 of Schedule K-1. Federal import duties and federal excise and stamp taxes are
deductible only if paid or incurred in carrying on the trade or
Line 11. Repairs and Maintenance business of the partnership. Foreign taxes are included on line 14
Enter the cost of repairs and maintenance not claimed elsewhere on only if they are taxes not creditable but deductible under sections
the return, such as labor and supplies, that aren't payments for 901 and 903. See Schedule K-2, Part II, Section 2, line 45, column
improvements to the partnership’s property. Amounts are paid for (g).
improvements if they’re for betterments to the property or for
restorations of the property (such as the replacements of major Don't deduct the following taxes on line 14.
components or substantial structural parts), or if they adapt the • Taxes not imposed on the partnership.
property to a new or different use. Improvements must be • Federal income taxes or taxes reported elsewhere on the return.
capitalized. See Regulations section 1.263(a)-3. • Creditable foreign taxes under sections 901 and 903. Report
these taxes separately on Schedule K, line 21, and in box 21 of
The partnership can deduct repair and maintenance expenses Schedule K-1.
only to the extent they relate to a trade or business activity. See • Taxes allocable to a rental activity. Report taxes allocable to rental
Regulations section 1.162-4. The partnership may elect to capitalize real estate activity on Form 8825. Report taxes allocable to a rental
certain repair and maintenance costs consistent with its books and activity other than a rental real estate activity on Schedule K, line 3b.
Instructions for Form 1065 (2023) 23

- 24 -

Page 24 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Taxes paid or incurred for the production or collection of income, proceeds to expenditures. Also see Proposed Regulations 1.163-14
or for the management, conservation, or maintenance of property for a special rule for allocating interest expense with respect to
held to produce income. Report these taxes separately on pass-through entities.
Schedule K, line 13e, and in box 13 of Schedule K-1 using code ZZ. • Interest paid by a partnership to a partner for the use of capital,
which should be entered on line 10 as guaranteed payments.
See section 263A(a) for rules on capitalization of allocable costs • Prepaid interest, which can generally only be deducted over the
(including taxes) for any property. term of the debt. See section 461(g) and Regulations sections
• Taxes, including state or local sales taxes, that are paid or 1.163-7, 1.446-2, and 1.1273-2(g) for details.
incurred in connection with an acquisition or disposition of property • Interest that is allocable to unborrowed policy cash values of life
(these taxes must be treated as a part of the cost of the acquired insurance, endowment, or annuity contracts issued after June 8,
property or, in the case of a disposition, as a reduction in the amount 1997, when the partnership is a policyholder or beneficiary. See
realized on the disposition). section 264(f). Attach a statement showing the computation of the
• Taxes assessed against local benefits that increase the value of deduction.
the property assessed (such as for paving, etc.). Limitation on deduction. Business interest expense deduction is
generally limited to the sum of business interest income, 30% of the
See section 164(d) for information on apportionment of taxes on adjusted taxable income (ATI), and floor plan financing interest. This
real property between seller and purchaser. limitation generally applies at the partnership level. See section
Don't reduce your deduction for social security and 163(j)(4) for additional information about the application of the
! Medicare taxes by the nonrefundable and refundable business interest expense limitation to partnerships. See Form 8990,
CAUTION portions of the FFCRA and ARP credits for qualified sick and Limitation on Business Interest Expense Under Section 163(j), and
family leave wages claimed on the partnership's employment tax its instructions for more information. BIE includes any interest
returns. Instead, report the credits as income on line 7. expense properly allocable to a trade or business. A small business
taxpayer that isn't a tax shelter (as defined in section 448(d)(3)) and
that meets the gross receipts test isn't required to limit BIE under
Line 15. Interest section 163(j). A taxpayer meets the gross receipts test if the
Include only interest incurred in the trade or business activities of the taxpayer has average annual gross receipts of $29 million or less for
partnership that isn't claimed elsewhere on the return. the 3 prior tax years under the gross receipts test of section 448(c).
Gross receipts include the aggregate gross receipts from all persons
Don't include interest expense on the following. treated as a single employer such as a controlled group of
• Debt used to purchase rental property or debt used in a rental corporations, commonly controlled partnerships or proprietorships,
activity. Interest allocable to a rental real estate activity is reported on and affiliated service groups. If the partnership fails to meet the
Form 8825 and is used in arriving at net income (loss) from rental gross receipts test, Form 8990 is generally required. Also see
real estate activities on Schedule K, line 2, and in box 2 of Schedule B, questions 23 and 24.
Schedule K-1. Interest allocable to a rental activity other than a
rental real estate activity is included on Schedule K, line 3b, and is
used in arriving at net income (loss) from a rental activity (other than Line 16. Depreciation
a rental real estate activity). This net amount is reported on On line 16a, enter only the depreciation claimed on assets used in a
Schedule K, line 3c, and in box 3 of Schedule K-1. trade or business activity. Enter on line 16b the depreciation
• Debt used to buy property held for investment. Interest that is included elsewhere on the return (for example, on page 1, line 2) that
clearly and directly allocable to interest, dividend, royalty, or annuity is attributable to assets used in trade or business activities. See the
income not derived in the ordinary course of a trade or business is Instructions for Form 4562, or Pub. 946, How To Depreciate
reported on Schedule K, line 13c, and in box 13 of Schedule K-1 Property, to figure the amount of depreciation to enter on this line.
using code H. See the instructions for Schedule K, line 13c; box 13,
code H, of Schedule K-1; and Form 4952, Investment Interest Complete and attach Form 4562 only if the partnership placed
Expense Deduction, for more information on investment property. property in service during the tax year or claims depreciation on any
• Debt proceeds allocated to distributions made to partners during car or other listed property.
the tax year. Instead, report such interest on Schedule K, line 13e,
and in box 13 of Schedule K-1 using code AC. Don't include any section 179 expense deduction on this line.
• Debt required to be allocated to the production of designated This amount isn't deducted by the partnership. Instead, it's passed
property. Designated property includes real property, personal through to the partners in box 12 of Schedule K-1. Generally, the
property that has a class life of 20 years or more, and other tangible basis of a partnership's section 179 property must be reduced to
property requiring more than 2 years (1 year in the case of property reflect the amount of section 179 expense elected by the
with a cost of more than $1 million) to produce or construct. Interest partnership. This reduction must be made in the basis of partnership
allocable to designated property produced by a partnership for its property even if the limitations of section 179(b) and Regulations
own use or for sale must be capitalized. In addition, a partnership section 1.179-2 prevent a partner from deducting all or a portion of
must also capitalize to the basis of the designated property any the amount of the section 179 expense allocated by the partnership.
interest on debt allocable to an asset used to produce designated
property. A partner may have to capitalize interest that the partner Line 17. Depletion
incurs during the tax year for the partnership's production If the partnership claims a deduction for timber depletion, complete
expenditures. Similarly, interest incurred by a partnership may have and attach Form T (Timber), Forest Activities Schedule.
to be capitalized by a partner for the partner's own production
expenditures. The information required by the partner to properly Don't deduct depletion for oil and gas properties. Each
capitalize interest for this purpose must be provided by the ! partner figures depletion on oil and gas properties. See the
partnership on an attached statement for box 20 of Schedule K-1 CAUTION instructions for Schedule K-1, box 20, Depletion information
using code R. See section 263A(f) and Regulations sections oil and gas (code T), for the information on oil and gas depletion that
1.263A-8 through 1.263A-15. must be supplied to the partners by the partnership.

Special rules apply to the following. Line 18. Retirement Plans, etc.
• Allocating interest expense among activities so that the limitations
on passive activity losses, investment interest, and personal interest Don't deduct payments for partners to retirement or deferred
can be properly figured. Generally, interest expense is allocated in compensation plans including IRAs, qualified plans, and simplified
the same manner as debt is allocated. Debt is allocated by tracing employee pension (SEP) and SIMPLE IRA plans on this line. These
disbursements of the debt proceeds to specific expenditures. amounts are reported in box 13 of Schedule K-1, using code R, and
Temporary Regulations section 1.163-8T gives rules for tracing debt are deducted by the partners on their own returns.

24 Instructions for Form 1065 (2023)

- 25 -

Page 25 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Enter the deductible contributions not claimed elsewhere on the or governmental entity for violating any law except amounts that
return made by the partnership for its common-law employees under constitute restitution (including remediation of property), amounts
a qualified pension, profit-sharing, annuity, or SEP or SIMPLE IRA paid to come into compliance with the law, amounts paid or incurred
plan, and under any other deferred compensation plan. as the result of orders or agreements in which no government or
If the partnership contributes to an IRA for employees, include the governmental entity is a party, and amounts paid or incurred for
contribution in salaries and wages on page 1, line 9, or Form taxes due to the extent the amount would have been allowed as a
1125-A, line 3, and not on line 18. deduction if timely paid. No deduction is allowed unless the amounts
are specifically identified in the order or agreement and the taxpayer
Employers who maintain a pension, profit-sharing, or other establishes that the amounts were paid for that purpose. Also, any
funded deferred compensation plan (other than a SEP or SIMPLE amount paid or incurred as reimbursement to the government for the
IRA), whether or not the plan is qualified under the Code and costs of any investigation or litigation aren't eligible for the
whether or not a deduction is claimed for the current year, must exceptions and are nondeductible. See section 162(f). Report
generally file the applicable form listed below. nondeductible amounts on Schedule K, line 18c.
• Form 5500, Annual Return/Report of Employee Benefit Plan. • Expenses allocable to tax-exempt income. Report these
• Form 5500-SF, Short Form Annual Return/Report of Small expenses on Schedule K, line 18c.
Employee Benefit Plan (generally filed instead of Form 5500 if there • Net operating losses. Only individuals and corporations may
are under 100 participants at the beginning of the plan year). claim a net operating loss deduction.
Form 5500 and Form 5500-SF must be filed electronically • Amounts paid or incurred to participate or intervene in any
TIP under the computerized ERISA Filing Acceptance System political campaign on behalf of a candidate for public office, or to
(EFAST2). For more information, see the EFAST2 website at influence the general public regarding legislative matters, elections,
EFAST.dol.gov. or referendums. Report these expenses on Schedule K, line 18c.
• Lobbying expenses. Generally, lobbying expenses aren't
• Form 5500-EZ, Annual Return of A One-Participant (Owners/ deductible. These expenses include amounts paid or incurred in
Partners and Their Spouses) Retirement Plan or A Foreign Plan. File connection with influencing federal, state, or local legislation; or
this form for a plan that only covers one or more partners (or amounts paid or incurred in connection with any communication with
partners and their spouses) or a foreign plan that is required to file certain federal executive branch officials in an attempt to influence
an annual return and doesn't file the annual return electronically on the official actions or positions of the officials. See Regulations
Form 5500-SF. section 1.162-29 for the definition of “influencing legislation.” Dues
and other similar amounts paid to certain tax-exempt organizations
Line 19. Employee Benefit Programs may not be deductible. If certain in-house lobbying expenditures
Enter the partnership's contributions to employee benefit programs don't exceed $2,000, they are deductible. See section 162(e)(4)(B).
not claimed elsewhere on the return (for example, insurance, health, • Amounts paid or incurred for any settlement or payout related to
and welfare programs) that aren't part of a pension, profit-sharing, sexual harassment or sexual abuse that is subject to a
etc., plan included on line 18. nondisclosure agreement, as well as any attorney’s fees related to
the settlement or payout. See section 162(q).
Don't include amounts paid during the tax year for insurance that
constitutes medical care for a partner, a partner's spouse, a partner's
dependents, or a partner's children under age 27 who aren't Special Rules
dependents. Instead, include these amounts on line 10 as Travel, meals, and entertainment. Subject to limitations and
guaranteed payments on the applicable line of Schedule K, line 4, restrictions discussed below, a partnership can deduct ordinary and
and the applicable line of box 4 of Schedule K-1, of each partner on necessary travel and non-entertainment-related meal expenses paid
whose behalf the amounts were paid. Also report these amounts on or incurred in its trade or business. Generally, entertainment
Schedule K, line 13e, and in box 13 of Schedule K-1, using code M, expenses, membership dues, and facilities used in connection with
of each partner on whose behalf the amounts were paid. these activities can't be deducted. Also, special rules apply to
deductions for gifts, luxury water travel, and convention expenses.
Line 20. Energy Efficient Commercial Building See section 274 and Pub. 463 for details.
Deduction Travel. The partnership can't deduct travel expenses of any
Deduction for certain energy efficient commercial building property. individual accompanying a partner or partnership employee,
See the Instructions for Form 7205 and section 179D for more including a spouse or dependent of the partner or employee, unless:
information. Complete and attach Form 7205 if claiming this • That individual is an employee of the partnership, and
deduction. • The travel is for a bona fide business purpose and would
otherwise be deductible by that individual.
Line 21. Other Deductions Meals. Generally, the partnership can deduct only 50% of the
Enter the total allowable trade or business deductions that aren't amount otherwise allowable for non-entertainment meal expenses
deductible elsewhere on page 1 of Form 1065. Attach a statement paid or incurred in its trade or business. Entertainment-related meals
listing by type and amount each deduction included on this line. are generally disallowed. In addition (subject to exceptions under
Examples of other deductions include the following. section 274(k)(2)):
• Amortization. See the Instructions for Form 4562 for more • Meals must not be lavish or extravagant, and
information. Complete and attach Form 4562 if the partnership is • A partner or employee of the partnership must be present at the
claiming amortization of costs that began during the tax year. meal.
• Insurance premiums. See section 274(n)(3) for a special rule that applies to expenses
• Legal and professional fees. for meals consumed by individuals subject to the hours of service
• Supplies used and consumed in the business. limits of the Department of Transportation.
• Utilities. Membership dues. The partnership may deduct amounts paid
• Certain business startup and organizational costs. See or incurred for membership dues in civic or public service
Limitations on Deductions, earlier, for more details. organizations, professional organizations (such as bar and medical
• Any net negative section 481(a) adjustment. associations), business leagues, trade associations, chambers of
Also see Special Rules, later. commerce, boards of trade, and real estate boards. However, no
deduction is allowed if a principal purpose of the organization is to
Don't deduct the following on line 21. entertain, or provide entertainment facilities for, members or their
• Items that must be reported separately on Schedules K and K-1. guests. In addition, the partnership may not deduct membership
• Fines or similar penalties. Generally, no deduction is allowed for dues in any club organized for business, pleasure, recreation, or
fines or similar penalties paid to or at the direction of a government
Instructions for Form 1065 (2023) 25

- 26 -

Page 26 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

other social purpose. This includes country clubs, golf and athletic below. The maximum percentage is the highest of these three
clubs, airline and hotel clubs, and clubs operated to provide meals percentages (determined at the end of the tax year).
under conditions favorable to business discussion. See Item J. Partner's Profit, Loss, and Capital, later, for more
Entertainment facilities. The partnership can't deduct an information on ownership percentages.
expense paid or incurred for a facility (such as a yacht or hunting
lodge) used for an activity usually considered entertainment, Questions 2 and 3
amusement, or recreation.
Amounts treated as compensation. Generally, the partnership Constructive ownership of the partnership. For purposes of
may be able to deduct otherwise nondeductible entertainment, question 2, except for foreign governments within the meaning of
amusement, or recreation expenses if the amounts are treated as section 892, in determining an ownership interest in the profit, loss,
compensation to the recipient and reported on Form W-2 for an or capital of the partnership, the constructive ownership rules of
employee or on Form 1099-NEC for an independent contractor. section 267(c) (excluding section 267(c)(3)) apply to ownership of
interests in the partnership as well as corporate stock. An interest in
Reforestation expenditures. If the partnership made an election the partnership that is owned directly or indirectly by or for another
to deduct a portion of its reforestation expenditures on Schedule K, entity (corporation, partnership, estate, trust, or tax-exempt
line 13e, it must amortize over an 84-month period the portion of organization) is considered to be owned proportionately by the
these expenditures in excess of the amount deducted on owners (shareholders, partners, or beneficiaries) of the owning
Schedule K (see section 194). Deduct on line 21 only the entity.
amortization of these excess reforestation expenditures. See
Reforestation expense deduction (code S), later. Also, under section 267(c), an individual is considered to own an
interest owned directly or indirectly by or for the individual’s family.
Tax and Payment The family of an individual includes only that individual's spouse,
brothers, sisters, ancestors, and lineal descendants. An interest will
Line 24. Interest due under the look-back method for comple- be attributed from an individual under the family attribution rules only
ted long-term contracts. For partnerships that aren't closely held, if the person to whom the interest is attributed owns a direct interest
attach Form 8697 and a check or money order for the full amount, in the partnership or an indirect interest under section 267(c)(1) or
made payable to "United States Treasury." Enter the partnership's (5). For purposes of these instructions, an individual won't be
EIN, daytime phone number, and "Form 8697 Interest'' on the check considered to own, under section 267(c)(2), an interest in the
or money order. partnership owned, directly or indirectly, by a family member of the
individual unless the individual also owns an interest in the
Line 25. Interest due under the look-back method for property partnership either directly or indirectly through a corporation,
depreciated under the income forecast method. For partnership, or trust.
partnerships that aren’t closely held, attach Form 8866 and a check
or money order for the full amount, made payable to “United States For purposes of question 2, “foreign government” has the same
Treasury.” Enter the partnership’s EIN, daytime phone number, and meaning as it does under section 892. In determining a foreign
“Form 8866 Interest” on the check or money order. government's ownership interest in the profit, loss, or capital of the
partnership, the constructive ownership rules of Regulations section
Line 26. BBA AAR imputed underpayment. Use this line if the 1.892-5T(c)(1)(i) apply to ownership of interests in the partnership
partnership is filing an AAR electronically and chooses to pay the IU. as well as corporate stock. An interest in the partnership that is
For instructions on how to figure the IU, see the Instructions for Form owned directly or indirectly by an integral part or controlled entity of a
8082. Enter the name of the partnership, TIN, tax year, “Form 1065,” foreign sovereign (within the meaning of Regulations section
and “BBA AAR Imputed Underpayment” on the payment. Checks 1.892-2T(a)) is considered to be owned proportionately by such
must be made payable to “United States Treasury” and mailed to foreign sovereign.
Ogden Service Center, Ogden, UT 84201-0011. Payments can be
made by check or electronically. If making an electronic payment, Constructive ownership examples for questions 2 and 3 are
choose the payment description “BBA AAR Imputed Underpayment” included below. For the purposes of questions 2 and 3, add an
from the list of payment types. owner's direct percentage ownership and indirect percentage
ownership in an entity to determine if the owner owns, directly or
Line 27. Other taxes. In a few instances, payments other than indirectly, 50% or more of the entity.
those listed above may have to be made with Form 1065. Enter the Example for question 2a. Corporation A owns, directly, an
amount on this line and attach a statement identifying the purpose of interest of 50% in the profit, loss, or capital of Partnership B.
the payment. Corporation A also owns, directly, an interest of 15% in the profit,
Line 29. Elective payment election amount from Form 3800. loss, or capital of Partnership C. Partnership B owns, directly, an
Report the gross elective payment election amount from Form 3800, interest of 70% in the profit, loss, or capital of Partnership C.
Part III, line 6, column (h). Therefore, Corporation A owns, directly or indirectly, an interest of
50% in the profit, loss, or capital of Partnership C (15% directly and
Line 30. Payment. Enter any prepayments related to lines 24–27 35% indirectly through Partnership B). On Partnership C's Form
above. 1065, it must answer “Yes” to question 2a of Schedule B. See
Example 1 in the instructions for Schedule B-1 (Form 1065) for
guidance on providing the rest of the information required of entities
Schedule B. Other Information answering “Yes” to this question.
Example for question 2b. A owns, directly, 50% of the profit,
Question 1 loss, or capital of Partnership X. B, the daughter of A, doesn't own,
Check box 1f for any other type of entity and state the type. directly, any interest in X and doesn't own, indirectly, any interest in X
through any entity (corporation, partnership, trust, or estate).
Maximum Percentage Owned for Purposes of Because family attribution rules apply only when an individual (in this
Questions 2 and 3 example, B) owns a direct interest in the partnership or an indirect
interest through another entity, A's interest in Partnership X isn't
To determine the maximum percentage owned in the partnership's attributable to B. On Partnership X's Form 1065, it must answer “Yes”
profit, loss, or capital for the purposes of questions 2a, 2b, and 3b, to question 2b of Schedule B. See Example 2 in the instructions for
determine separately the partner's percentage of interest in profit, Schedule B-1 (Form 1065) for guidance on providing the rest of the
loss, and capital at the end of the partnership's tax year. This information required of entities answering “Yes” to this question.
determination must be based on the partnership agreement and it
must be made using the constructive ownership rules described Constructive ownership of other entities by the partnership.
For purposes of determining the partnership's constructive
ownership of other entities, the constructive ownership rules of

26 Instructions for Form 1065 (2023)

- 27 -

Page 27 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

section 267(c) (excluding section 267(c)(3)) apply to ownership of Question 8
interests in partnerships and trusts as well as corporate stock.
Generally, if an entity (a corporation, partnership, or trust) is owned, Answer “Yes” if either (1) or (2) below applies to the partnership.
directly or indirectly, by or for another entity (corporation, Otherwise, check the “No” box.
partnership, estate, or trust), the owned entity is considered to be 1. At any time during calendar year 2023, the partnership had
owned proportionally by or for the owners (shareholders, partners, or an interest in or signature or other authority over a bank account,
beneficiaries) of the owning entity. securities account, or other financial account in a foreign country
Question 3a. List each corporation in which the partnership, at (see FinCEN Form 114, Report of Foreign Bank and Financial
the end of the tax year, owns, directly, 20% or more, or owns, directly Accounts (FBAR)); and
or indirectly, 50% or more of the total voting power of all classes of a. The combined value of the accounts was more than $10,000
stock entitled to vote. Indicate the name, EIN, country of at any time during the calendar year; and
incorporation, and percentage interest owned, directly or indirectly, b. The accounts were not with a U.S. military banking facility
in the total voting power. List the parent corporation of an affiliated operated by a U.S. financial institution.
group filing a consolidated tax return rather than the subsidiary
members except for subsidiary members in which an interest is 2. The partnership owns more than 50% of the stock in any
owned, directly or indirectly, independent of the interest owned, corporation that would answer “Yes” based on item (1) above.
directly or indirectly, in the parent corporation. If a corporation is If the “Yes” box is checked for this question, do the following.
owned through a DE, list the information for the corporation rather • Enter the name of the foreign country or countries. Attach a
than the DE. separate sheet if more space is needed.
Question 3b. List each partnership in which the partnership, at • File FinCEN Form 114 electronically at the FinCEN website,
the end of the tax year, owns, directly, an interest of 20% or more, or bsaefiling.fincen.treas.gov/main.html.
owns, directly or indirectly, an interest of 50% or more in the profit,
loss, or capital of the partnership. List each trust in which the Question 9
partnership, at the end of the tax year, owns, directly, an interest of
20% or more, or owns, directly or indirectly, an interest of 50% or The partnership may be required to file Form 3520, Annual Return To
more in the trust beneficial interest. For each partnership or trust Report Transactions With Foreign Trusts and Receipt of Certain
listed, indicate the name, EIN, type of entity (partnership or trust), Foreign Gifts, if any of the following apply.
and country of origin. If the listed entity is a partnership, enter in • It directly or indirectly transferred property or money to a foreign
column (v) the maximum of percentage interests owned, directly or trust. For this purpose, any U.S. person who created a foreign trust is
indirectly, in the profit, loss, or capital of the partnership at the end of considered a transferor.
the partnership's tax year. If the entity is a trust, enter in column (v) • It's treated as the owner of any part of the assets of a foreign trust
the percentage of the partnership's beneficial interest in the trust under the grantor trust rules.
owned, directly or indirectly, at the end of the tax year. List a • It received a distribution, a loan of cash or other marketable
partnership or trust owned through a DE rather than the DE. securities, or uncompensated use of trust property from a foreign
trust, or a foreign trust holds an outstanding qualified obligation of
the partnership.
Question 4
Answer “Yes” if the partnership meets all four of the requirements For more information, see the Instructions for Form 3520.
shown on the form. Total receipts is defined as the sum of gross An owner of a foreign trust must ensure that the trust files an
receipts or sales (page 1, line 1a); all other income (page 1, lines 4 annual information return on Form 3520-A, Annual Information
through 7); income reported on Schedule K, lines 3a, 5, 6a, and 7; Return of Foreign Trust With a U.S. Owner.
income or net gain reported on Schedule K, lines 8, 9a, 10, and 11;
and income or net gain reported on Form 8825, lines 2, 19, and 20a. Questions 10a, 10b, 10c, and 10d
“Total assets” is defined as the amount that would be reported in
item F on page 1 of Form 1065. You must check “Yes” or “No” for each question.
TIP
Question 5
Answer “Yes” if interests in the partnership are traded on an Question 10a. Answer “Yes” if the partnership is making, or has
established securities market or are readily tradable on a secondary made (and hasn't revoked), a section 754 election. For information
market (or its substantial equivalent). about the election, see item 4 under Elections Made by the
Partnership, earlier.
Question 6 Question 10b. Answer “Yes” if either of the following has occurred.
Generally, the partnership will have income if debt is canceled or • The partnership made an optional basis adjustment under section
forgiven. Amounts related to forgiven Paycheck Protection Program 743(b) or 734(b) for the tax year.
(PPP) loans are disregarded for purposes of this question. The • The partnership has made a section 754 election (and it hasn't
determination of the existence and amount of cancellation of debt been revoked) and a basis adjustment under section 743(b) is made
income is determined at the partnership level. Partnership on a sale or exchange of a partnership interest or a transfer of a
cancellation of indebtedness income is separately stated on partnership interest on the death of a partner. See question 10c if
Schedule K and Schedule K-1. The extent to which such income is the partnership has a substantial built-in loss immediately after such
taxable is usually determined by each individual partner under rules a transfer.
found in section 108. For more information, see Pub. 334, Tax Guide For partnerships other than PTPs, enter the total aggregate
for Small Business. positive amount (in the appropriate space provided) resulting from all
section 743(b) adjustments. Aggregate positive amount from all
Question 7 section 743(b) adjustments means the increase in the partners'
Answer “Yes” if the partnership filed, or is required to file, a return share of basis in partnership property from all section 743(b)
under section 6111 to provide information on any reportable adjustments allocated to all the partners. Enter the total aggregate
transaction by a material advisor. Use Form 8918, Material Advisor negative amount (in the appropriate space provided) resulting from
Disclosure Statement, to provide the information. For details, see the all section 743(b) adjustments. Aggregate negative amount from all
Instructions for Form 8918. section 743(b) adjustments means decrease in the partners' share
of basis in partnership property from all section 743(b) adjustments
allocated to all the partners.
Section 743(b) basis adjustment. The basis adjustment affects
only the transferee's basis in partnership property. The partnership
Instructions for Form 1065 (2023) 27

- 28 -

Page 28 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

must attach a statement to the return for the tax year in which the ownership interest in a DE is considered a distribution of the
transfer occurred. The statement must include: underlying property.
• The name of the transferee partner,
• The EIN or SSN of the transferee partner, Question 12
• The computation of the adjustment, and If a partnership distributed property to its partners to be jointly
• The identity of the partnership properties to which the adjustment owned, whether such distribution is direct or through the formation of
has been allocated. an intermediate entity, the question must be answered “Yes.” For
For details, see section 743 and Regulations section 1.743-1. For purposes of question 12, an “undivided interest in partnership
details on allocating the basis adjustment to partnership properties, property” means property that was owned by the partnership either
see section 755 and Regulations section 1.755-1. directly or through a DE and which was distributed to partners as
Question 10c. Answer “Yes” if the partnership made an optional fractional ownership interests. A tenancy-in-common interest is a
basis adjustment under section 734(b) for the tax year. If the type of undivided ownership interest in property which provides each
partnership has made a section 754 election (and it hasn't been owner the right to transfer property to a third party without destroying
revoked), the partnership must make a basis adjustment under the tenancy in common. Partners may agree to partition property
section 734(b). Enter the total aggregate positive amount and the held as tenants in common or may seek a court order to partition the
total aggregate negative amount in the appropriate space provided. property (usually dividing the property into fractional interests in
Aggregate positive amount from all section 734(b) adjustments accordance with each partner's ownership interest in the
means the increase in the basis of partnership property from all partnership).
section 734(b) adjustments. Enter the total aggregate negative Example. Partnership P is a partnership that files Form 1065.
amount (in the appropriate space provided) resulting from all section Partnership P holds title to land held for investment. Partnership P
734(b) adjustments. Aggregate negative amount from all section converts its title to the land to fractional interests in the name of the
734(b) adjustments means the decrease in basis of partnership partners and distributes such interests to its partners. Partnership P
property from all section 734(b) adjustments. must answer “Yes” to question 12.
Section 734(b) basis adjustment. For a section 734(b) basis
adjustment, attach a statement that includes: Question 13
• The computation of the adjustment, Enter the number of Forms 8858, Information Return of U.S. Persons
• The class of property distributed (ordinary income property or With Respect To Foreign Disregarded Entities (FDEs) and Foreign
capital gain property), and Branches (FBs), that are attached to the return. Form 8858 and its
• The partnership properties to which the adjustment has been schedules are used by certain U.S. persons (including domestic
allocated. partnerships) that own an FDE or FB directly (or, in certain cases,
Question 10d. Answer “Yes” if the partnership had to make a basis indirectly or constructively) to satisfy the reporting requirements of
reduction under section 743(b) because of a substantial built-in loss sections 6011, 6012, 6031, and 6038, and the related regulations.
(as defined in section 743(d)) or under section 734(b) because of a See Form 8858 (and its separate instructions) for information on
substantial basis reduction (as defined in section 734(d)). completing the form and the information that the partnership may
need to provide to certain partners for them to complete their Forms
Enter the total aggregate amount of such section 743(b) 8858 relating to that FDE or FB.
adjustments and/or section 734(b) adjustments for all partners
and/or partnership property made in the tax year in the space
provided as a positive number. Question 14
Answer “Yes” if the partnership had any foreign partners (for
Section 743(d)(1) provides that, for purposes of section 743, a purposes of section 1446(a)) at any time during the tax year.
partnership has a substantial built-in loss resulting from a transfer of Otherwise, answer “No.”
a partnership interest if the partnership's adjusted basis in the
partnership's property exceeds by more than $250,000 the FMV of If the partnership had gross income effectively connected with a
the property or the transferee partner would be allocated a loss of trade or business in the United States and foreign partners, it may be
more than $250,000 if the partnership assets were sold for cash required to withhold tax under section 1446(a) on income allocable
equal to their FMV immediately after such transfer. Under section to foreign partners (without regard to distributions) and file Forms
734(d), there's a substantial basis reduction resulting from a 8804, 8805, and 8813. See Regulations sections 1.1446-1
distribution if the sum of the following amounts exceeds $250,000. through -7 for more information.
• The amount of loss recognized by the distributee partner on a
distribution in liquidation of the partner's interest in the partnership Questions 16a and 16b
(see section 731(a)(2)). If the partnership made any payment in 2023 that would require the
• The excess of the basis of the distributed property to the partnership to file any Form(s) 1099, check the “Yes” box for
distributee partner (determined under section 732) over the adjusted question 16a and answer question 16b. Otherwise, check the “No”
basis of the distributed property to the partnership immediately box for question 16a and skip question 16b. See Am I Required to
before the distribution (as adjusted by section 732(d)). File a Form 1099 or Other Information Return for more information.
Section 734(b) basis adjustment. For section 734(b) basis
adjustment, for partnerships other than PTPs, attach a statement Question 20
that includes:
• The computation of the adjustment, For tax years beginning after 2015, domestic partnerships that are
• The class of property distributed (ordinary income property or formed or availed of to hold specified foreign financial assets
capital gain property), and (“specified domestic entities”) must file Form 8938, Statement of
• The partnership properties to which the adjustment has been Specified Foreign Financial Assets, with its Form 1065 for the tax
allocated. year. Form 8938 must be filed each year the value of the
partnership’s specified foreign financial assets meets or exceeds the
Question 11 reporting threshold. For more information on domestic partnerships
that are specified domestic entities and the types of foreign financial
Check the box if the partnership engaged in a like-kind exchange assets that must be reported, see the Instructions for Form 8938.
during the current or immediately preceding tax year and received
replacement property that it distributed during the current tax year. A domestic partnership required to file Form 8938 with its Form
For purposes of this question, the partnership is considered to have 1065 for the tax year should check “Yes” to this question.
distributed replacement property if the partnership contributed such
property to any entity other than a DE. The distribution of its

28 Instructions for Form 1065 (2023)

- 29 -

Page 29 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Question 22 the "Yes" box for question 25. On the line following the dollar sign,
enter the amount from Form 8996, Part III, line 15.
Section 267A disallows a deduction for certain interest or royalty
paid or accrued pursuant to a hybrid arrangement, to the extent that,
under the foreign tax law, there isn't a corresponding income Question 26
inclusion (including long-term deferral). In the entry line for question Provide the number of foreign partners subject to section 864(c)(8)
22, report the total amount of interest and royalty paid or accrued by as a result of transferring all or a portion of an interest in the
the partnership for which the partnership knows, or has reason to partnership if the partnership is engaged in a U.S. trade or business.
know, that one or more partners' distributive share of deductions is Section 864(c)(8) provides that gain or loss of a foreign transferor
disallowed under section 267A. For additional information, see FAQs from the transfer of a partnership interest is treated as effectively
at IRS.gov/businesses/partnerships/FAQs-for-Form-1065-Schedule- connected with the conduct of a trade or business within the United
B-Other-Information-Question-22. States to the extent that the transferor would have had effectively
connected gain or loss if the partnership sold all of its assets at FMV
Question 23 on the date of transfer. For purposes of section 864(c)(8), a transfer
of a partnership interest means a sale, exchange, or other
The limitation on BIE applies to every taxpayer with a trade or disposition, and includes a distribution from a partnership to a
business, unless the taxpayer meets certain specified exceptions. A partner to the extent that gain or loss is recognized on the
partnership may elect out of the limitation for certain businesses distribution, as well as a transfer treated as a sale or exchange under
otherwise subject to the business interest expense limitation. section 707(a)(2)(B). Section 864(c)(8) applies to foreign partners
Certain real property trades or businesses and farming that directly or indirectly transfer an interest in a partnership that is
businesses qualify to make an election not to limit BIE. This is an engaged in a U.S. trade or business. The partnership should include
irrevocable election. If you make this election, you're required to use in its response any transfer for which it has received notification or
the alternative depreciation system to depreciate certain property. otherwise knows about. If the partnership is a PTP as defined in
Also, you aren’t entitled to the special depreciation allowance for that section 469(k)(2) and has properly answered “Yes” to question 5 on
property. For a partnership with more than one qualifying business, Form 1065, Schedule B, then it's not required to answer the
the election is made with respect to each business. Check “Yes” if question.
the partnership has an election in effect to exclude a real property If a partnership had any foreign partners subject to section 864(c)
trade or business or a farming business from section 163(j). For (8), the partnership must complete Schedule K-3 (Form 1065), Part
more information, see section 163(j) and the Instructions for Form XIII, for each foreign partner subject to section 864(c)(8) on a
8990. transfer or distribution. The partnership may also be required to
withhold under section 1446(f)(4) on future distributions that it
Question 24 makes to the transferee partner if that partner failed to withhold on
Generally, a taxpayer with a trade or business must file Form 8990 to the transfer under section 1446(f)(1). See Pub. 515, Withholding of
claim a deduction for business interest. BIE is interest that is Tax on Nonresident Aliens and Foreign Entities, for more
properly allocable to a non-excepted trade or business or that is floor information.
plan financing interest. In addition, Form 8990 must be filed by any
taxpayer that owns an interest in a partnership with current year, or Question 27
prior year carryover, excess business interest expense (EBIE) Answer "Yes" if at any time during the tax year there were transfers
allocated from the partnership. A pass-through entity allocating between the partnership and its partners subject to the disclosure
excess taxable income or excess business interest income to its requirements of Regulations section 1.707-8. For certain transfers
owners (that is, a pass-through entity that isn't a small business that are presumed to be sales, the partnership or the partners must
taxpayer) must file Form 8990, regardless of whether it has any comply with the disclosure requirements in Regulations section
interest expense. 1.707-8. Generally, disclosure is required when:
Exclusions from filing. A taxpayer isn't required to file Form 8990 1. Certain transfers to a partner are made within 2 years of a
if the taxpayer is a small business taxpayer and doesn't have EBIE transfer of property by the partner to the partnership;
from a partnership. A taxpayer is also not required to file Form 8990
if the taxpayer only has BIE from the following excepted trades or 2. Certain debt is incurred by a partner within 2 years of the
businesses. earlier of (a) a written agreement to transfer, or (b) a transfer of the
• The trade or business of providing services as an employee. property that secures the debt, if the debt is treated as a qualified
• An electing real property trade or business. liability; or
• An electing farming business. 3. Transfers from a partnership to a partner occur which are the
• Certain utility businesses. equivalent to those listed in (1) or (2) above.
Small business taxpayer. A small business taxpayer isn't subject The disclosure must be made on the transferor partner's return
to the business interest expense limitation and isn't required to file using Form 8275, Disclosure Statement, or on an attached
Form 8990. A small business taxpayer is a taxpayer that (a) isn't a statement providing the same information. When more than one
tax shelter (as defined in section 448(d)(3)); and (b) meets the gross partner transfers property to a partnership under a plan, the
receipts test of section 448(c), discussed next. disclosure may be made by the partnership rather than by each
Gross receipts test. A taxpayer meets the gross receipts test if partner.
the taxpayer has average annual gross receipts of $29 million or less
for the 3 prior tax years. A taxpayer's average annual gross receipts Question 28
for the 3 prior tax years is determined by adding the gross receipts Section 7874 applies in certain cases in which a foreign corporation
for the 3 prior tax years and dividing the total by 3. Gross receipts directly or indirectly acquires substantially all of the properties
include the aggregate gross receipts from all persons treated as a constituting a trade or business of a domestic partnership. Check
single employer, such as a controlled group of corporations, “Yes” if, since December 22, 2017, a foreign corporation directly or
commonly controlled partnerships, or proprietorships, and affiliated indirectly acquired substantially all of the properties constituting a
service groups. See section 448(c) and the Instructions for Form trade or business of your partnership (and you're a domestic
8990 for additional information. partnership), and the ownership with respect to the acquisition was
greater than 50% (by vote or value). If “Yes” is checked, list the
Question 25 ownership percentage by both vote and value.
To be certified as a QOF, the partnership must file Form 1065 and
attach Form 8996, even if the partnership had no income or The information must be reported even if you conclude that
expenses to report. If the partnership is attaching Form 8996, check section 7874 doesn't apply.

Instructions for Form 1065 (2023) 29

- 30 -

Page 30 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Section 7874 generally applies when the following three • Received new digital assets as a result of mining, staking, and
requirements are met. similar activities;
• Pursuant to a plan or series of related transactions, a foreign • Received digital assets as a result of a hard fork;
corporation must acquire directly or indirectly substantially all of the • Disposed of digital assets in exchange for property or services;
properties constituting a trade or business of a domestic partnership. • Disposed of a digital asset in exchange or trade for another digital
• After the acquisition, the ownership percentage (by vote or value) asset;
must be at least 60%. • Sold a digital asset; or
• After the acquisition, the expanded affiliate that includes the • Otherwise disposed of any other financial interest in a digital
foreign acquiring corporation must not have substantial business asset.
activities in the foreign country in which the foreign acquiring The partnership has a financial interest in a digital asset if it’s the
corporation is created or organized. owner of record of a digital asset, or has an ownership stake in an
account that holds one or more digital assets, including the rights
When section 7874 applies, the tax treatment of the acquisition and obligations to acquire a financial interest, or it owns a wallet that
depends on the ownership percentage. If the ownership is at least holds digital assets.
80%, the foreign acquiring corporation is treated as a domestic
corporation for all purposes of the Code. See section 7874(b). If the The following actions or transactions in 2023, alone, generally
ownership is at least 60% but less than 80%, the foreign acquiring don’t require the partnership to check “Yes.”
corporation is considered a foreign corporation but the domestic • Holding a digital asset in a wallet or account.
partnership and certain other persons are subject to special rules • Transferring a digital asset from one wallet or account it owns or
that reduce the tax benefits of the acquisition. See section 7874(a) controls to another wallet or account that it owns or controls.
(1). • Purchasing digital assets using U.S. or other real currency,
The Tax Cuts and Jobs Act of 2017 provides additional special including through the use of electronic platforms such as PayPal and
rules for certain cases in which section 7874 applies. See sections Venmo.
59A(d)(4) and 965(l).
Don’t leave the question unanswered. You must answer “Yes” or
Ownership percentage. The ownership percentage is the “No” by checking the appropriate box. For more information, go to
percentage described in section 7874(a)(2)(B)(ii). See the IRS.gov/VirtualCurrencyFAQs.
regulations under section 7874 for rules regarding the computation
of the ownership percentage. Question 31
In general, the ownership percentage measures the percentage Answer "Yes" if an eligible partnership chooses to elect out of the
of stock of the foreign acquiring corporation that is held by partners centralized partnership audit regime for the tax year and enter the
of the domestic partnership by reason of holding a capital or profits total from Schedule B-2, Part III, line 3. If making the election, attach
interest in the domestic partnership, with certain adjustments (for a completed Schedule B-2 to Form 1065. An election out of the
example, disregarding certain stock of the foreign acquiring centralized partnership audit regime can only be made on a timely
corporation attributable to passive assets or assets of other filed return (including extensions). A partnership is an eligible
domestic entities that were recently acquired by the foreign acquiring partnership for the tax year if it has 100 or fewer eligible partners in
corporation). The ownership percentage is measured separately by that year. Eligible partners are individuals, C corporations, S
vote and value. corporations, foreign entities that would be C corporations if they
Multiple reportable acquisitions. If there are multiple acquisitions were domestic entities, and estates of deceased partners. The
that must be reported, list on the lines for question 28 the ownership determination as to whether the partnership has 100 or fewer
percentage by vote and value for the most recent acquisition. Attach partners is made by adding the number of Schedules K-1 required to
a statement reporting the ownership percentage by vote and value be issued by the partnership for the tax year to the number of
for the other acquisitions. Schedules K-1 required to be issued by any partner that is an S
corporation to its shareholders for the tax year of the S corporation
ending with or within the partnership tax year. A partnership isn't
Question 29 eligible to elect out of the centralized partnership audit regime if it's
Under section 4501, the partnership may be required to file Form required to issue a Schedule K-1 to any of the following partners.
7208 and pay the stock repurchase excise tax if, during the • A partnership.
partnership's tax year, (a) the partnership is a specified affiliate of an • A trust.
applicable foreign corporation, or (b) the partnership is an • A foreign entity that would not be treated as a C corporation if it
expatriated entity with respect to a covered surrogate foreign were a domestic entity.
corporation. Don't complete a Form 7208 until the date specified in • A DE described in Regulations section 301.7701-2(c)(2)(i).
upcoming regulations under section 4501. For additional • An estate of an individual other than a deceased partner.
information, see section 4501 and Announcement 2023-18. • Any person that holds an interest in the partnership on behalf of
another person.
Question 30
Digital assets are any digital representations of value that are Designated Partnership Representative (PR)
recorded on a cryptographically secured distributed ledger or any Section 6223 provides that unless the partnership has made a valid
similar technology. For example, digital assets include non-fungible election out of the centralized partnership audit regime, each
tokens (NFTs) and virtual currencies, such as cryptocurrencies and partnership must designate, in the manner prescribed by the
stablecoins. If a particular asset has the characteristics of a digital Secretary, a partner or other person with a substantial presence in
asset, it will be treated as a digital asset for federal income tax the United States as the PR who shall have the sole authority to act
purposes. on behalf of the partnership. On Form 1065, provide the name,
Check the “Yes” box if at any time during 2023, the partnership address, and phone number of the PR. If an entity is designated as
(a) received (as a reward, award, or payment for property or the PR, the partnership must also appoint an individual to act on the
services); or (b) sold, exchanged, or otherwise disposed of a digital entity's behalf (a DI). To be a DI, the appointed person must also
asset (or any financial interest in any digital asset). have a substantial presence in the United States.
How to designate. A designation of a PR must be made for each
For example, check “Yes” if at any time during 2023 the respective year on the partnership’s Form 1065. The partnership can
partnership: revoke a designation of a PR or DI, and the PR or DI can resign, by
• Received digital assets as payment for property or services submitting Form 8979, Partnership Representative Revocation,
provided; Designation, and Resignation Form.
• Received digital assets as a result of a reward or award;

30 Instructions for Form 1065 (2023)

- 31 -

Page 31 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

See the Instructions for Form 8979 for information The partnership may be subject to a penalty if it files Schedules
! concerning how and when Form 8979 can be submitted to K-1 that don't conform to the specifications discussed in Pub. 1167,
CAUTION the IRS. General Rules and Specifications for Substitute Forms and
Schedules.
PR authority. Under section 6223, the partnership and all its
partners (and any other person whose tax liability is determined in How Income Is Shared Among Partners
whole or in part by taking into account directly or indirectly Allocate shares of income, gain, loss, deduction, or credit among the
adjustments determined under the centralized partnership audit partners according to the partnership agreement for sharing income
regime) are bound by the actions of the PR in dealings with the IRS. or loss generally. Partners may agree to allocate specific items in a
A designation for a partnership tax year remains in effect until the ratio different from the ratio for sharing income or loss. For instance,
designation is terminated by (a) a valid resignation of the PR or DI, if the net income exclusive of specially allocated items is divided
(b) a valid revocation of the PR (with designation of successor PR), evenly among three partners but some special items are allocated
or (c) a determination by the IRS that the designation isn't in effect. 50% to one, 30% to another, and 20% to the third partner, report the
Substantial presence. In order for either a PR or a DI to have specially allocated items on the appropriate line of the applicable
substantial presence, they must make themselves available to meet partner's Schedule K-1 and the total on the appropriate line of
in person with the IRS in the United States at a reasonable time and Schedule K, instead of on the numbered lines on page 1 of Form
place as determined by the IRS, and must have a street address in 1065, Form 1125-A, or Schedule D.
the United States, a U.S. TIN, and a telephone number with a U.S.
area code. If a partner's interest changed during the year (such as the
entrance of a new partner, the exit of a partner, an increase to a
partner's interest through an additional capital contribution, or a
Schedules K and K-1. Partners' decrease in a partner's interest through a distribution), see section
706(d) and Regulations section 1.706-4 before determining each
Distributive Share Items partner's distributive share of any item of income, gain, loss, and
deduction, and other items. Partnership items are allocated to a
Purpose of Schedules partner only for the part of the year in which that person is a member
Although the partnership isn't subject to income tax, the partners are of the partnership. Generally, for each change in a partner’s interest,
liable for tax on their shares of the partnership income, whether or the partnership will either allocate its items using a proration method
not distributed, and must include their shares on their tax returns. or a closing-of-the-books method. Special rules apply to certain
partnerships, certain variations, and certain items. See Regulations
Schedule K. Schedule K is a summary schedule of all the partners' section 1.706-4 for additional rules and procedures for making
shares of the partnership's income, credits, deductions, etc. All elections. In addition, special rules in section 706(d)(2) apply to
partnerships must complete Schedule K. Rental activity income certain items of partnerships that report their income on the cash
(loss) and portfolio income aren't reported on page 1 of Form 1065. basis, and special rules in section 706(d)(3) apply to tiered
These amounts aren't combined with the trade or business activity partnerships.
income (loss) reported on page 1. Schedule K is used to report the
totals of these and other amounts reported on page 1. Special rules on the allocation of income, gain, loss, and
deductions generally apply if a partner contributes property to the
Schedule K-1. Schedule K-1 shows each partner's separate share. partnership and the FMV of that property at the time of contribution
Attach a copy of each Schedule K-1 to the Form 1065 filed with the differs from the contributing partner's adjusted tax basis. Under
IRS. Keep a copy with a copy of the partnership return as a part of these rules, the partnership must use a reasonable method of
the partnership's records and furnish a copy to each partner. If the making allocations of income, gain, loss, and deductions from the
partner is a DE, furnish the Schedule K-1 to the DE partner. If a property so that the contributing partner receives the tax burdens
partnership interest is held by a nominee on behalf of another and benefits of any built-in gain or loss (that is, precontribution
person, the partnership may be required to furnish Schedule K-1 to appreciation or diminution of value of the contributed property). See
the nominee. See Temporary Regulations sections 1.6031(b)-1T Regulations section 1.704-3 for details on how to make these
and 1.6031(c)-1T for more information. allocations, including a description of specific allocation methods
Give each partner a copy of either the Partner's Instructions for that are generally reasonable.
Schedule K-1 (Form 1065) or specific instructions for each item
reported on the partner's Schedule K-1. See Dispositions of Contributed Property, earlier, for special rules
on the allocation of income, gain, loss, and deductions on the
disposition of property contributed to the partnership by a partner.
Substitute Forms
The partnership doesn't need IRS approval to use a substitute If the partnership agreement doesn't provide for the partner's
Schedule K-1 if it's an exact copy of the IRS schedule. The boxes share of income, gain, loss, deduction, or credit, or if the allocation
must use the same numbers and titles and must be in the same under the agreement doesn't have substantial economic effect, the
order and format as on the comparable IRS Schedule K-1. The partner's share is determined according to the partner's interest in
substitute schedule must include the OMB number. The partnership the partnership. See Regulations section 1.704-1 for more
must provide each partner with the Partner's Instructions for information.
Schedule K-1 (Form 1065) or other prepared specific instructions for
each item reported on the partner's Schedule K-1.
Specific Instructions (Schedule K-1
The partnership must request IRS approval to use other
substitute Schedules K-1. To request approval, write to: Only)

Internal Revenue Service General Information
Attention: Substitute Forms Program
SE:W:CAR:MP:P:TP:TP Generally, the partnership is required to prepare and give a
5000 Ellin Road, Mail Stop C6-110 Schedule K-1 to each person who was a partner in the partnership
Lanham, MD 20706 at any time during the year. Schedule K-1 must be provided to each
substituteforms@irs.gov partner on or before the day on which the partnership return is
required to be filed.
Each partner's information must be on a separate sheet of paper. However, a foreign partnership that has one or more U.S.
Therefore, separate all continuously printed substitutes before you partners must file Form 1065. But if it meets each of the following
file them with the IRS. four requirements, it isn't required to file or provide Schedules K-1 for
Instructions for Form 1065 (2023) 31

- 32 -

Page 32 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

foreign partners (unless the foreign partner is a pass-through entity will only include relevant information with respect to section 721(c)
through which a U.S. person holds an interest in the foreign property. See Regulations section 1.721(c)-1 for definitions.
partnership).
• The partnership had no gross income effectively connected with Part I. Information About the
the conduct of a trade or business within the United States during its
tax year. Partnership
• The partnership isn't a withholding foreign partnership as defined On each Schedule K-1, enter the name, address, and identifying
in Regulations section 1.1441-5(c)(2)(i). number of the partnership.
• All required Forms 1042 and 1042-S were filed by the partnership
or another withholding agent as required by Regulations sections Item C. If the partnership is filing its return electronically, enter
1.1461-1(b) and (c). "e-file." Otherwise, enter the name of the IRS Service Center where
• The tax liability for each foreign partner for amounts reportable the partnership will file its return. See Where To File, earlier.
under Regulations sections 1.1461-1(b) and (c) has been fully
satisfied by the withholding of tax at the source. Part II. Information About the Partner
Complete a Schedule K-1 for each partner. On each Schedule K-1,
Generally, any person who holds an interest in a partnership as a enter the partner's name, address, identifying number, and
nominee for another person must furnish to the partnership the distributive share items. See special rules below for partners that are
name, address, etc., of the other person. DEs.
If a married couple each had an interest in the partnership,
prepare a separate Schedule K-1 for each of them. Items E and F
For an individual partner, enter the partner's SSN or individual
taxpayer identification number (ITIN) rather than the TIN of the DE
How To Complete Schedule K-1 partner. For all other partners, enter the partner's EIN.
In order to enable accurate scanning and processing of
However, if a partner is an IRA, enter the identifying number of
! Schedule(s) K-1, please use a 10-point Helvetica Light the custodian of the IRA. Don't enter the identification number of the
CAUTION Standard font for all entries on Schedules K-1 if the entries
are typed or made using a computer. person for whom the IRA is maintained. If the partnership reports
UBTI to such IRA partner, include the IRA partner's unique EIN in
box 20, code AR, along with the amount of such income.
If the return is for a fiscal year or a short tax year, fill in the tax
year space at the top of each Schedule K-1. On each Schedule K-1, Note. For tax year 2023, PTPs aren't required to include the IRA
enter the information about the partnership and the partner in Parts I partner’s unique EIN in box 20, code AR.
and II (items A through N). In Part III, enter the partner's distributive
share of each item of income, deduction, and credit and any other Don’t include dashes when entering the EIN in box 20.
information the partner needs to file the partner's tax return, CAUTION!
including information needed to prepare state and local tax returns.
Codes. In box 11 and boxes 13 through 15, and 17 through 20, Foreign partners without a U.S. identifying number should be
identify each item by entering a code in the column to the left of the notified by the partnership of the necessity of obtaining a U.S.
entry space for the dollar amount. These codes are identified in identifying number. Certain aliens who aren't eligible to obtain SSNs
these instructions and on the List of Codes in the Partner’s can apply for an ITIN on Form W-7, Application for IRS Individual
Instructions for Schedule K-1 (Form 1065). Taxpayer Identification Number.
Attached statements. When attaching statements to Schedule K-1 If the partner in the partnership is an entity, such as
to report additional information to the partner, indicate there's a single-member LLC, that is a DE for federal income tax purposes,
statement for the following. enter the TIN of the beneficial owner of the DE partner in item E
• If an amount can be input on Schedule K-1 but additional rather than the TIN of the DE partner. The beneficial owner is the
information is required, enter an asterisk (*) after the code in the taxpayer who owns the DE partner. In item F, enter the name and
column to the left of the entry space. address of the beneficial owner of the DE partner. See the
• For items that can't be reported as a single dollar amount, enter instructions for item H2 below.
the code and an asterisk (*) in the column to the left and enter
“STMT” in the right column to indicate that the information is Note. If the partner is an LLC or a trust, the partnership should
provided on an attached statement. inquire as to whether the LLC is a DE for federal income tax
• If the partnership has more coded items than the number of entry purposes. If the LLC or trust is a DE, the partnership must verify that
boxes (for example, box 11, boxes 13 through 15, or boxes 17 the partner's TIN is the TIN used by the partner's beneficial owner in
through 20), don't enter a code or dollar amount in the last entry box. filing its federal income tax return.
Instead, enter an asterisk (*) in the left column and enter “STMT” in
the entry space to the right. Truncating recipient’s TIN on Schedule K-1. The partnership can
truncate a partner's identifying number on the Schedule K-1 the
More than one attached statement can be placed on the same partnership sends to the partner. Truncation isn't allowed on the
sheet of paper. The information included in the statement should be Schedule K-1 the partnership files with the IRS. Also, the partnership
identified in alphanumeric order by box number followed by the letter can't truncate its own identification number on any form.
code (if any), description, and dollar amount for each item. For
example: “Box 13, code J—Section 59(e)(2) expenditures—$1,000.” To truncate, where allowed, replace the first five digits of the
This can be followed with any additional information the partner nine-digit number with asterisks (*) or Xs (for example, an SSN
needs to determine the proper tax treatment of the item. xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For more
information, see Regulations section 301.6109-4.
Section 721(c) partnerships. When the gain deferral method, as
described in Regulations section 1.721(c)-3, is being applied, a Foreign address. If the partner has a foreign address, enter the
partnership that is a section 721(c) partnership will attach to the information in the following order: city or town, state or province,
Schedule K-1 provided to a U.S. transferor the information required country, and ZIP or foreign postal code. Follow the country's practice
under Regulations sections 1.721(c)-6(b)(2) and (3). A partnership for entering the postal code. Don't abbreviate the country name.
that is a section 721(c) partnership will also attach to its Form 1065 a
Schedule K-1 for each partner that is a related foreign person with Item G
respect to the U.S. transferor. For an indirect partner that is a related Complete item G on all Schedules K-1. If a partner holds interests as
foreign person with respect to the U.S. transferor, the Schedule K-1 both a general and limited partner, check both boxes and attach a

32 Instructions for Form 1065 (2023)

- 33 -

Page 33 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

statement for each activity that shows the amounts allocable to the Sale box. Check the Sale box in this item if there was a taxable
partner's interest as a limited partner. sale of all or part of a partnership interest to a new or pre-existing
partner during the year, regardless of whether the partner
Item H1. Domestic/Foreign Partner recognized gain or loss on the transaction(s). Sale, for the purposes
Check the foreign partner box if the partner is a nonresident alien of this checkbox, means a taxable transaction involving the transfer
individual, foreign partnership, foreign corporation, foreign estate, of a partnership interest. This will exclude transfers subject to gain
foreign trust, or foreign government. Otherwise, check the domestic recognition under section 721(b). This will also exclude transactions
partner box. where a new partnership interest is issued to a partner in exchange
for property contributed to the partnership, even if some gain is
Item H2. Disregarded Entity (DE) recognized by the contributing partner.
Exchange box. Check the Exchange box in this item if there was
If the partner is a DE, check the box and provide the name and TIN a nontaxable exchange of all or part of a partnership interest to a
of the DE partner. The partnership should make reasonable attempts new or pre-existing partner during the year. Exchange, for purposes
to obtain the DE’s TIN. If after making reasonable attempts to obtain of this checkbox, means a nontaxable transaction involving the
the DE’s TIN such TIN is unavailable or unknown to the partnership, transfer of a partnership interest excluding a transfer on the death of
the partnership may report the DE’s TIN as unknown. If the DE a partner. Exchange also includes a transaction under section
doesn't have a TIN, enter “None” in the space for the DE’s TIN. For 721(a) regardless of whether gain recognition took place.
more information about DE reporting, go to IRS.gov/forms-pubs/
clarifications-for-disregarded-entity-reporting-and-section-743b- Item K1. Partner's Share of Liabilities
reporting.
Enter each partner's share of nonrecourse liabilities,
Item I1. What Type of Entity Is This Partner? partnership-level qualified nonrecourse financing, and other
recourse liabilities at the end of the year.
State whether the partner is an individual, a corporation, an estate, a
trust, a partnership, a DE, an exempt organization, a foreign Nonrecourse liabilities are those liabilities of the partnership for
government, or a nominee (custodian). If the partner is an LLC and which no partner (or related person) bears the economic risk of loss.
has elected to be treated as other than a DE under Regulations The extent to which a partner bears the economic risk of loss is
section 301.7701-3 for federal income tax purposes, the partnership determined under the rules of Regulations section 1.752-2. Don't
must enter the LLC's classification for federal income tax purposes include partnership-level qualified nonrecourse financing (defined
(that is, a corporation or partnership). If any legal owner of the below) on the line for nonrecourse liabilities.
partnership is a DE for federal income tax purposes, report the
beneficial owner’s entity type in item I1. If the partner is a nominee, If the partner terminated their interest in the partnership during
use one of the following codes after the word “nominee” to indicate the year, enter the share that existed immediately before the total
the type of entity the nominee represents: I—Individual; disposition. In all other cases, enter it as of the end of the year.
C—Corporation; F—Estate or Trust; P—Partnership; If the partnership is engaged in two or more different types of
DE—Disregarded Entity; E—Exempt Organization; IRA—Individual at-risk activities, or a combination of at-risk activities and any other
Retirement Arrangement; or FGOV—Foreign Government. If the activity, attach a statement showing the partner's share of
partner is a nominee that acts on behalf of more than one person, nonrecourse liabilities, partnership-level qualified nonrecourse
use code M—Multiple. financing, and other recourse liabilities for each activity. See Pub.
925 to determine if the partnership is engaged in more than one
Item J. Partner’s Profit, Loss, and Capital at-risk activity.
On each line, enter the partner's percentage share of the
partnership's profit, loss, and capital as of the beginning and end of The at-risk rules of section 465 generally apply to any activity
the partnership's tax year, as determined under the partnership carried on by the partnership as a trade or business or for the
agreement. If a partner's interest commences after the beginning of production of income. These rules generally limit the amount of loss
the partnership's tax year, enter in the Beginning column the and other deductions a partner can claim from any partnership
percentages that existed for the partner immediately after activity to the amount for which that partner is considered at risk.
admission. If a partner's interest terminates before the end of the However, for partners who acquired their partnership interests before
partnership's tax year, enter in the Ending column the percentages 1987, the at-risk rules don't apply to losses from an activity of
that existed immediately before termination. holding real property the partnership placed in service before 1987.
The activity of holding mineral property doesn't qualify for this
On the line for Capital, enter the percentage share of the capital exception. Identify on an attached statement to Schedule K-1 the
that the partner would receive if the partnership was liquidated by amount of any losses that aren't subject to the at-risk rules.
the distribution of undivided interests in partnership assets and
liabilities. If the partner's capital account is negative or zero, express If a partnership is engaged in an activity subject to the limitations
the percentage ownership of capital as zero. of section 465(c)(1) (such as films or videotapes, leasing section
1245 property, farming, or oil and gas property), give each partner
The partner's percentage share of each category must be their share of the total pre-1976 losses from that activity for which
expressed as a percentage. The percentage must not be negative. there existed a corresponding amount of nonrecourse liability at the
The total percentage interest in each category must total 100% for end of each year in which the losses occurred. See Form 6198,
all partners. To determine whether the total beginning and ending At-Risk Limitations, and related instructions for more information.
percentages are 100%, don't include the beginning percentage for a
partner that wasn't a partner at the beginning of the partnership's tax Qualified nonrecourse financing secured by real property used in
year or the ending percentage for a partner that left the partnership an activity of holding real property that is subject to the at-risk rules
before the end of the partnership's tax year. If the partnership is treated as an amount at risk. Qualified nonrecourse financing
agreement doesn't express the partner's share of profit, loss, and generally includes financing for which no one is personally liable for
capital as fixed percentages, the partnership may use a reasonable repayment that is borrowed for use in an activity of holding real
method in arriving at each percentage for purposes of completing property and that is loaned or guaranteed by a federal, state, or local
the items required by item J, as long as such method is consistent government or that is borrowed from a qualified person. Qualified
with the partnership agreement and is applied consistently from year persons include any person actively and regularly engaged in the
to year. Maintain records to support the share of profits, share of business of lending money, such as a bank or savings and loan
losses, and share of capital reported for each partner. association. Qualified persons generally don't include related parties
(unless the nonrecourse financing is commercially reasonable and
If there is a decrease in the partner's share of profits, losses, or on substantially the same terms as loans involving unrelated
capital, indicate whether it was due to a sale or an exchange. persons), the seller of the property, or a person who receives a fee
Instructions for Form 1065 (2023) 33

- 34 -

Page 34 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

for the partnership's investment in the real property. See section Current year net income (loss). On the line for current year net
465(b)(6) for more information on qualified nonrecourse financing. income (loss), enter the partner's distributive share of partnership
income and gain (including tax-exempt income) as figured for tax
The partner as well as the partnership must meet the qualified purposes for the year, minus the partner's distributive share of
nonrecourse rules. Therefore, the partnership must enter on an partnership loss and deductions (including nondeductible,
attached statement any other information the partner needs to noncapital expenditures) as figured for tax purposes for the year.
determine if the qualified nonrecourse rules are also met at the Other increase (decrease). On the line for other increase
partner level. (decrease), enter the sum of all other increases or decreases that
affected the partner's capital account for tax purposes during the
Item K2 year and attach a statement explaining each adjustment. For
If a partnership (upper-tier) owns a direct interest in other example, if a new partner acquired its interest in the partnership from
partnerships (lower-tier), then Regulations section 1.752-4(a) another partner in a purchase, exchange, gift, or inheritance, enter
requires that the upper-tier partnership allocate to its partners its an amount for the transferee under other increase that is equal to the
share of the lower-tier partnership's liabilities (except for any liability transferor partner's ending capital account with respect to the
of the lower-tier partnership that is owed to the upper-tier interest transferred immediately before the transfer figured using the
partnership). Allocate those lower-tier partnership liabilities to each tax-basis method. Other examples of increases include the
partner based on whether that liability is a recourse or nonrecourse following.
liability to the partner under the regulations under section 752. The • The partner's distributive share of the excess of the tax
characterization of a liability may change as it moves from a deductions for depletion (other than oil and gas depletion) over the
lower-tier partnership to an upper-tier partnership. If Schedule K-1 adjusted tax basis of the property subject to depletion.
(Form 1065) includes lower-tier partnership liabilities, check the box • The partner's share of any increase to the adjusted tax basis of
in item K2. If the total liabilities on all Schedules K-1 (Form 1065) partnership property under section 734(b).
don't equal the total liabilities on Schedule L, attach a reconciliation. If a transferor partner disposed of its interest in the partnership by
sale, exchange, or gift, or as the result of death, enter the transferor
Item K3. Payment Obligations Including partner's ending capital account with respect to the interest
Guarantees and Deficit Restoration Obligations transferred immediately before the transfer figured using the
tax-basis method. Other examples of decreases include the
(DROs) following.
Check the box in item K3 if the partner or a related person has • The partner's distributive share of tax deductions for depletion of
certain payment obligations, including guarantees or DROs, with any partnership oil and gas property, but not exceeding the partner's
respect to any liability in item K1. See the instructions for line 20c, share of the adjusted tax-basis of that property.
code X, for additional information. For purposes of item K3, a • The partner's share of any decrease to the adjusted tax basis of
payment obligation is defined as an obligation under Regulations partnership property under section 734(b).
section 1.752-2(b)(1) that is recognized under Regulations sections
1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an Note. Section 743(b) basis adjustments aren't taken into account in
obligation to restore a deficit capital account upon liquidation) and a calculating a partner's capital account under the tax-basis method.
related person is defined as a related person as defined in Withdrawals and distributions. On the line for withdrawals and
Regulations section 1.752-4(b). distributions, enter the amount of cash plus the adjusted tax basis of
all property distributed by the partnership to the partner during the
Item L. Partner's Capital Account Analysis year. The amount you enter on this line should be reduced by any
You aren’t required to complete item L if the answer to question 4 of liabilities assumed by the partner in connection with, or liabilities to
Schedule B is “Yes.” If you're required to complete this item, also see which the property is subject immediately before, the distribution.
the instructions for Schedule M-2, later. This amount might be negative.
Ending capital account. The sum of the amounts shown on the
Tax-basis method. Figure each partner's capital account for the lines in item L above the line for ending capital account must equal
partnership's tax year using the transactional approach, discussed the amount reported on the line for ending capital account. A
below, for the tax-basis method. partner's ending capital account determined under the tax-basis
How to report partnership events or transactions. If you're method may be negative if the sum of a partner's losses and
uncertain how to report a partnership event or transaction, you distributions exceeds the sum of the partner's contributions and
should account for the event or transaction in a manner generally share of income.
consistent with figuring the partner's adjusted tax basis in its
partnership interest (without regard to partnership liabilities), taking Publicly traded partnerships (PTPs). In the case of a sale or
into account the rules and principles of sections 705, 722, 733, and exchange of an interest in a PTP, you may determine a transferee
742 and by reporting the amount on the line for other increase partner's beginning capital account by adjusting the partner's
(decrease). The partner's ending capital account as reported using beginning capital account to reflect the transferee partner's purchase
the tax-basis method in item L might not equal the partner's adjusted price of the interest rather than entering the transferor partner's
tax basis in its partnership interest. Generally, this is because a ending capital account. In making the adjustments, you may use
partner's adjusted tax basis in its partnership interest includes the information required to be reported to you under Regulations section
partner's share of partnership liabilities, as well as partner-specific 1.6031(c)-1T, and publicly available trading price information.
adjustments. Each partner is responsible for maintaining a record of
the adjusted tax basis in its partnership interest. Item M. Did the Partner Contribute Property
Beginning capital account. Enter the partner's ending capital With a Built-in Gain or Loss?
account as determined for last year on the line for beginning capital Check the appropriate box to indicate whether the partner
account. If a partner joined the partnership through a contribution to contributed property with a built-in gain or loss during the tax year. If
the partnership this year, enter zero as the partner's beginning the “Yes” box is checked, attach a statement that contains the
capital account. following information.
Capital contributed during the year. On the line for capital • A description of each property the partner contributed.
contributed during the year, enter the amount of cash plus the • The date the property was contributed.
adjusted tax basis of all property contributed by the partner to the • The amount of the property's built-in gain or loss.
partnership during the year. The amount you enter on this line Exception. If a partner contributes more than 10 properties with
should be reduced by any liabilities assumed by the partnership in either a built-in gain or built-in loss on any date during the tax year,
connection with, or liabilities to which the property is subject the partnership isn't required to provide the required information
immediately before, the contribution. This amount might be negative.

34 Instructions for Form 1065 (2023)

- 35 -

Page 35 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

separately for each property contributed for that date. Instead, the Income (Loss)
partnership can report the (a) number of properties contributed on
that date, (b) total amount of built-in gain, and (c) total amount of Line 1. Ordinary Business Income (Loss)
built-in loss. Don't net the built-in gains and built-in losses; instead,
show the total built-in gain and total built-in loss for all properties Enter the amount from page 1, line 23. Enter the income (loss)
contributed on that date. without reference to (a) the bases of the partners' interests in the
partnership, (b) the partners' at-risk limitations, or (c) the passive
A property's built-in gain is the amount by which the FMV of the activity limitations. These limitations, if applicable, are determined at
property exceeds its adjusted tax basis at the time the property is the partner level.
contributed to the partnership. A property's built-in loss is the
amount by which the FMV of the property is less than its adjusted Line 1 shouldn't include rental activity income (loss) or portfolio
tax basis at the time the property is contributed to the partnership. income (loss).
Partnerships are required to keep track of this information; see
Regulations section 1.704-3. This information is also needed for Schedule K-1. Enter each partner's distributive share of ordinary
purposes of allocating partnership items to partners because business income (loss) in box 1 of Schedule K-1. Identify on
income, gain, loss, and deductions related to property contributed to statements attached to Schedule K-1 any additional information the
the partnership by a partner must be shared among the partners so partner needs to correctly apply the passive activity limitations. For
as to take account of the variation between the basis of the property example, if the partnership has more than one trade or business
to the partnership and its FMV at the time of contribution. If the activity, identify on an attached statement to Schedule K-1 the
partnership distributes any property (other than built-in gain amount from each separate activity. See Passive Activity Reporting
property) to a partner that has contributed built-in gain property to Requirements, earlier.
the partnership within the last 7 years, it will need this information for
the attached statement required in the instructions for Schedule K, Line 2. Net Rental Real Estate Income (Loss)
line 19b, for distributions subject to section 737 (code B). If the
partnership distributes contributed property with a built-in gain or Enter the net income (loss) from rental real estate activities of the
loss to any partner other than the partner that contributed the partnership from Form 8825. Attach this form to Form 1065.
property and the date of the distribution is within 7 years of the date
the property was contributed to the partnership, it will need this Schedule K-1. Enter each partner's distributive share of net rental
information for the attached statement required by the instructions real estate income (loss) in box 2 of Schedule K-1. Identify on
for line 20c of Schedule K for the precontribution gain (loss) (code statements attached to Schedule K-1 any additional information the
W). partner needs to correctly apply the passive activity limitations. For
example, if the partnership has more than one rental real estate
Item N. Partner's Share of Net Unrecognized activity, identify the amount attributable to each activity. Also, for
example, identify certain items from any rental real estate activities
Section 704(c) Gain or (Loss) that may be subject to the recharacterization rules. See Passive
For item N, the partnership should report the partner's share of net Activity Reporting Requirements, earlier.
unrecognized section 704(c) gains or losses, both at the beginning
and at the end of the partnership's tax year. Solely for purposes of
completing item N, the section 704(c) gain or loss is the partner's Line 3. Other Net Rental Income (Loss)
share of the net (net means aggregate or sum) of all unrecognized
section 704(c) gain or loss in partnership property, including section Enter on line 3a gross income from rental activities other than those
704(c) gain or loss arising from revaluations of partnership property. reported on Form 8825. Include on line 3a gain (loss) from Form
See Notice 2019-66 for more information. 4797, line 17, that is attributable to the sale, exchange, or involuntary
conversion of an asset used in a rental activity other than a rental
real estate activity.
Specific Instructions (Schedules K
Enter on line 3b the deductible expenses of the activity. Attach a
and K-1, Part III, Except as Noted) statement of these expenses to Form 1065.
These instructions refer to the lines on Schedule K and the boxes on
Schedule K-1. Enter on line 3c the net income (loss).
Special Allocations See Rental Activities, earlier, and Pub. 925 for more information
on rental activities.
An item is specially allocated if it's allocated to a partner in a ratio
different from the ratio for sharing income or loss generally. Schedule K-1. Enter each partner's distributive share of net income
(loss) from rental activities other than rental real estate activities in
Report specially allocated ordinary gain (loss) on Schedule K, box 3 of Schedule K-1. Identify on statements attached to
line 11, and in box 11 of Schedule K-1. Report other specially Schedule K-1 any additional information the partner needs to
allocated items in the applicable boxes of the partner's correctly apply the passive activity limitations. For example, if the
Schedule K-1, with the total amount on the applicable line of partnership has more than one rental activity reported in box 3,
Schedule K. See How Income Is Shared Among Partners, earlier. identify on an attached statement to Schedule K-1 the amount from
Example. A partnership has a long-term capital gain that is each activity. See Passive Activity Reporting Requirements, earlier.
specially allocated to a partner and a net long-term capital gain
reported on Schedule D (Form 1065), line 15, that must be reported
on Schedule K, line 9a. Because specially allocated gains or losses Line 4. Guaranteed Payments to Partners
aren't reported on Schedule D, the partnership must report both the
net long-term capital gain from Schedule D and the specially Guaranteed payments are payments made by a partnership to a
allocated gain on Schedule K, line 9a. Box 9a of Schedule K-1 for partner that are determined without regard to the partnership's
the partner must include both the specially allocated gain and the income. Some examples of guaranteed payments to partners
partner's distributive share of the net long-term capital gain from include:
Schedule D. • Payments for salaries, health insurance, and interest deducted by
the partnership and reported on Form 1065, page 1, line 10; Form
8825; or Schedule K, line 3b;
• Compensation deferred under a section 409A nonqualified
deferred compensation plan that doesn't meet the requirements of
section 409A reported on Schedule K, line 20c, code AI; and
Instructions for Form 1065 (2023) 35

- 36 -

Page 36 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• Payments the partnership must capitalize. See the instructions for Line 6b. Qualified Dividends
Form 1065, line 10.
Enter qualified dividends on line 6b. Except as provided below,
Generally, amounts reported on line 4a as guaranteed payment qualified dividends are dividends received from domestic
for services and line 4b as guaranteed payment for the use of capital corporations and qualified foreign corporations. Don't include any
aren't considered to be related to a passive activity. For example, distributions received by the partnership from foreign corporations to
guaranteed payments for personal services paid to a partner would the extent that they are attributable to PTEP in annual PTEP
not be passive activity income. Likewise, guaranteed payments for accounts of the partnership.
capital are treated as interest for purposes of section 469 and are
generally not passive activity income. Note. The amount determined by the partnership based on its
A partnership must treat and report a transfer of partnership annual PTEP accounts in determining the amount on line 6b doesn't
TIP property to a partner in satisfaction of a guaranteed payment include the amount by which distributions are attributable to PTEP in
as a sale or exchange, and not a distribution. See Rev. Rul. annual PTEP accounts of a direct or indirect partner.
2007-40, 2007-25 I.R.B. 1426, for more details. Exceptions. The following dividends aren't qualified dividends.
• Dividends the partnership received on any share of stock held for
Schedule K-1. Enter each partner's guaranteed payments for less than 61 days during the 121-day period that began 60 days
services in box 4a and guaranteed payments for use of capital in before the ex-dividend date. When determining the number of days
box 4b of Schedule K-1. Report each partner's total guaranteed the partnership held the stock, don't count certain days during which
payments in box 4c of Schedule K-1. the partnership's risk of loss was diminished. The ex-dividend date is
the first date following the declaration of a dividend on which the
Portfolio Income purchaser of a stock isn't entitled to receive the next dividend
payment. When counting the number of days the partnership held
See Portfolio Income, earlier, for a definition of portfolio income. the stock, include the day the partnership disposed of the stock but
not the day the partnership acquired it.
Don't reduce portfolio income by deductions allocated to it. • Dividends attributable to periods totaling more than 366 days that
Report such deductions (other than interest expense) on the partnership received on any share of preferred stock held for less
Schedule K, line 13e. Report each partner's distributive share of than 91 days during the 181-day period that began 90 days before
deductions (other than interest) allocable to portfolio income in the ex-dividend date. When determining the number of days the
box 13 of Schedule K-1 using code I or L. partnership held the stock, don't count certain days during which the
partnership's risk of loss was diminished. Preferred dividends
Interest expense allocable to portfolio income is generally attributable to periods totaling less than 367 days are subject to the
investment interest expense reported on Schedule K, line 13c. 61-day holding period rule above.
Report each partner's distributive share of interest expense allocable • Dividends that relate to payments that the partnership is obligated
to portfolio income in box 13 of Schedule K-1 using code H. to make because of short sales or positions in substantially similar or
related property.
Line 5. Interest Income • Dividends paid by a RIC that aren't treated as qualified dividend
income under section 854.
Enter only taxable portfolio interest on this line. Taxable interest is • Dividends paid by a REIT that aren't treated as qualified dividend
income under section 857(c).
interest from all sources except interest exempt from tax and interest Dividends from a corporation which first became a surrogate
on tax-free covenant bonds. Include interest income from the credit •
foreign corporation (as defined in section 7874(a)(2)(B) after
to holders of tax credit bonds. See the instructions for codes AP December 22, 2017) other than a foreign corporation that is treated
through AU under Line 15f. Other Credits, later, and the Instructions as a domestic corporation under section 7874(b). See section 1(h)
for Form 8912, Credit to Holders of Tax Credit Bonds, for details. (11)(C)(iii)(II).
Schedule K-1. Enter each partner's distributive share of interest See Pub. 550 for more details.
income in box 5 of Schedule K-1. If the partnership is reporting
interest income from clean renewable energy bonds, attach a Qualified foreign corporation. A foreign corporation is a qualified
statement to Schedule K-1 that shows each partner's distributive foreign corporation if it's:
share of interest income from this credit. Partners need this 1. Incorporated in a territory of the United States, or
information to properly adjust the bases of their interests in the 2. Eligible for benefits of a comprehensive income tax treaty
partnership. with the United States that the Secretary determines is satisfactory
for this purpose and that includes an exchange of information
Line 6a. Ordinary Dividends program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.
Enter only taxable ordinary dividends on line 6a, including any If the foreign corporation doesn't meet either (1) or (2) above,
qualified dividends reported on line 6b. Don't include any dividend then it may be treated as a qualified foreign corporation for any
equivalents reported on line 6c, or, to the extent attributable to dividend paid by the corporation if the stock associated with the
previously taxed earnings and profits (PTEP) in annual PTEP dividend paid is readily tradable on an established securities market
accounts of the partnership, any distributions received by the in the United States.
partnership from foreign corporations. However, qualified dividends don't include dividends paid by an
entity that was a PFIC (defined in section 1297) in either the tax year
Note. The amount determined by the partnership based on its of the distribution or the preceding tax year.
annual PTEP accounts in determining the amount on line 6a doesn't See Notice 2004-71, 2004-45 I.R.B. 793, for more details.
include the amount by which distributions are attributable to PTEP in
annual PTEP accounts of a direct or indirect partner. Schedule K-1. Enter each partner's distributive share of qualified
dividends in box 6b of Schedule K-1.
Schedule K-1. Enter each partner's distributive share of ordinary Attach a statement to the Schedule K-1 identifying the dividends
dividends in box 6a of Schedule K-1. included in box 6a or box 6b that are eligible for the deduction for
dividends received under section 243(a), (b), or (c); section 245; or
section 245A; or are hybrid dividends as defined in section 245A(e)
(4).

36 Instructions for Form 1065 (2023)

- 37 -

Page 37 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

If any amounts from line 6b are from foreign sources, see the 1250 property (except property for which gain is reported using the
! Partnership Instructions for Schedules K-2 and K-3 for installment method on Form 6252) for which you had an entry in
CAUTION additional information. Form 4797, Part I. Subtract Form 4797, Part III, line 26g, from the
smaller of Form 4797, line 22 or line 24. Figure the total of these
amounts for all section 1250 properties. Generally, the result is the
Line 6c. Dividend Equivalents partnership's unrecaptured section 1250 gain. However, if the
partnership is reporting gain on the installment method for a section
Information on dividend equivalents, as described in section 871(m), 1250 property held more than 1 year, see the next paragraph.
is provided for persons that aren't U.S. persons, who are generally The total unrecaptured section 1250 gain for an installment sale
required to treat dividend equivalents as U.S. source dividends, and of section 1250 property held more than 1 year is figured in a
domestic partnerships with partners who may need this information. manner similar to that used in the preceding paragraph. However,
Enter the amount of dividend equivalents as defined in section the total unrecaptured section 1250 gain must be allocated to the
871(m). See Regulations section 1.871-15 for additional information. installment payments received from the sale. To do so, the
For purposes of line 6c, include all amounts that would be included partnership must generally treat the gain allocable to each
as a dividend equivalent if the amount were paid to a person subject installment payment as unrecaptured section 1250 gain until all such
to tax under section 871 or 881, even if the partner is a U.S. person. gain has been used in full. Figure the unrecaptured section 1250
gain for installment payments received during the tax year as the
Line 7. Royalties smaller of (a) the amount from Form 6252, Part II, line 26, or Part III,
line 37 (whichever applies); or (b) the total unrecaptured section
Enter the royalties received by the partnership. 1250 gain for the sale reduced by all gain reported in prior years
(excluding section 1250 ordinary income recapture).
Schedule K-1. Enter each partner's distributive share of royalties in
box 7 of Schedule K-1. If the partnership chose not to treat all of the gain from
! payments received after May 6, 1997, and before August 24,
CAUTION 1999, as unrecaptured section 1250 gain, use only the
Line 8. Net Short-Term Capital Gain (Loss) amount the partnership chose to treat as unrecaptured section 1250
gain for those payments to reduce the total unrecaptured section
Enter the gain (loss) that is portfolio income (loss) from Schedule D 1250 gain remaining to be reported for the sale. See Regulations
(Form 1065), line 7. section 1.453-12.
Schedule K-1. Enter each partner's distributive share of net From the sale or exchange of an interest in a partnership. Also
short-term capital gain (loss) in box 8 of Schedule K-1. report as a separate amount any gain from the sale or exchange of
an interest in a partnership attributable to unrecaptured section 1250
Line 9a. Net Long-Term Capital Gain (Loss) gain. See Regulations section 1.1(h)-1 and attach the statement
required under Regulations section 1.1(h)-1(e).
Enter the gain or loss that is portfolio income (loss) from Schedule D From an estate, trust, REIT, or RIC. If the partnership received a
(Form 1065), line 15. Schedule K-1 or Form 1099-DIV from an estate, a trust, a REIT, or a
Schedule K-1. Enter each partner's distributive share of net RIC reporting unrecaptured section 1250 gain, don't add it to the
long-term capital gain (loss) in box 9a of Schedule K-1. partnership's own unrecaptured section 1250 gain. Instead, report it
as a separate amount. For example, if the partnership received a
If any gain or loss from Schedule D, line 7 or 15, is from the Form 1099-DIV from a REIT with unrecaptured section 1250 gain,
! disposition of nondepreciable personal property used in a report it as “Unrecaptured section 1250 gain from a REIT.”
CAUTION trade or business, it may not be treated as portfolio income.
Instead, report it on Schedule K, line 11, and report each partner's Schedule K-1. Report each partner's distributive share of
distributive share in box 11 of Schedule K-1 using code ZZ. unrecaptured section 1250 gain from the sale or exchange of the
business assets in box 9c of Schedule K-1. If the partnership is
reporting unrecaptured section 1250 gain from an estate, a trust, a
Line 9b. Collectibles (28%) Gain (Loss) REIT, or a RIC, or from the partnership's sale or exchange of an
interest in another partnership (as explained above), enter “STMT” in
Figure the amount attributable to collectibles from the amount box 9c and an asterisk (*) in the left column of the box, and attach a
reported on Schedule D (Form 1065), line 15. A collectibles gain statement that separately identifies the amount of unrecaptured
(loss) is any long-term gain or deductible long-term loss from the section 1250 gain from the following.
sale or exchange of a collectible that is a capital asset. • The sale or exchange of the partnership's business assets.
• The sale or exchange of an interest in another partnership.
Collectibles include works of art, rugs, antiques, metal (such as • An estate, a trust, a REIT, or a RIC.
gold, silver, or platinum bullion), gems, stamps, coins, alcoholic If any amounts from line 9c are from foreign sources, see the
beverages, and certain other tangible property. ! Partnership Instructions for Schedules K-2 and K-3 for
CAUTION additional information.
Also, include gain (but not loss) from the sale or exchange of an
interest in a partnership or trust held for more than 1 year and
attributable to unrealized appreciation of collectibles. For details, see Line 10. Net Section 1231 Gain (Loss)
Regulations section 1.1(h)-1. Also attach the statement required
under Regulations section 1.1(h)-1(e). Enter the net section 1231 gain (loss) from Form 4797, Part I, line 7.
Schedule K-1. Report each partner's distributive share of the
collectibles (28%) gain (loss) in box 9b of Schedule K-1. Don't include net gain or loss from involuntary conversions due to
casualty or theft. Report net gain or loss from involuntary
conversions due to casualty or theft on Schedule K, line 11 (box 11,
Line 9c. Unrecaptured Section 1250 Gain code B, of Schedule K-1). See the instructions for line 11 on how to
report net gain (loss) due to a casualty or theft.
The three types of unrecaptured section 1250 gain must be reported Schedule K-1. Report each partner's distributive share of net
separately on an attached statement to Form 1065. section 1231 gain (loss) in box 10 of Schedule K-1. If the partnership
From the sale or exchange of the partnership's business as- has more than one rental, trade, or business activity, identify on an
sets. Figure this amount in Form 4797, Part III, for each section attached statement to Schedule K-1 the amount of section 1231
Instructions for Form 1065 (2023) 37

- 38 -

Page 38 of 67              Fileid: … ions/i1065/2023/a/xml/cycle03/source                               18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

gain (loss) from each separate activity. See Passive Activity           purposes of code F, net positive income from all section 743(b) 
Reporting Requirements, earlier.                                        adjustments means the excess of all section 743(b) adjustments 
                                                                        allocated to the partner that increase the partner's taxable income 
        If any amounts from line 10 are from foreign sources, see the   over all section 743(b) adjustments that decrease the partner's 
  !     Partnership Instructions for Schedules K-2 and K-3 for          taxable income. Attach a statement to line 20, code U, showing each 
CAUTION additional information.
                                                                        section 743(b) basis adjustment making up the total and identify the 
                                                                        assets to which it relates. The partnership may group these section 
Line 11. Other Income (Loss)                                            743(b) basis adjustments by asset category or description in cases 
                                                                        where multiple assets are affected. See the instructions for line 20, 
Enter any other item of income or loss not included on lines 1          code U.
through 10. Determine other income (loss) without regard to any         Code G. Reserved for future use.
amount reported on line 6c. On the line to the left of the entry space 
for line 11, identify the type of income. If there's more than one type Section 951(a) income inclusions (code H).      If the partnership is 
of income, attach a statement to Form 1065 that separately identifies   a domestic partnership, enter any section 951(a) income inclusions 
each type and amount of income for each of the following                of the domestic partnership. A domestic partnership may only have 
categories. The codes needed for Schedule K-1 reporting are             section 951(a) income inclusions with respect to a foreign 
provided for each category.                                             corporation and a tax year of the foreign corporation that begins 
                                                                        before January 25, 2022, if the domestic partnership (a) doesn't 
Other portfolio income (loss) (code A). Portfolio income not            apply Regulations sections 1.958-1(d)(1) through (3) to such tax 
reported on lines 5 through 10.                                         year to be treated as not owning stock of the foreign corporation 
  Report and identify other portfolio income or loss on an attached     within the meaning of section 958(a) for purposes of section 951, 
statement for line 11.                                                  and (b) is a U.S. shareholder of the foreign corporation during such 
                                                                        tax year. A domestic partnership doesn't have section 951(a) income 
  For example, income reported to the partnership from a REMIC,         inclusions with respect to a foreign corporation for tax years of the 
in which the partnership is a residual interest holder, would be        foreign corporation that begin on or after January 25, 2022, under 
reported on an attached statement for line 11. If the partnership       Regulations section 1.958-1(d)(1). Additionally, if the partnership, 
holds a residual interest in a REMIC, report on the attached            domestic or foreign, has a distributive share of section 951(a) 
statement for box 11 of Schedule K-1 the partner's share of the         income inclusions of a lower-tier partnership, enter the partnership's 
following.                                                              distributive share of the section 951(a) income inclusions. If the 
• Taxable income (net loss) from the REMIC (Schedules Q (Form           partnership doesn't have a section 951(a) income inclusion with 
1066), line 1b).                                                        respect to a foreign corporation stock of which it owns within the 
• Excess inclusion (Schedules Q (Form 1066), line 2c).                  meaning of section 958(a) and without regard to Regulations section 
• Section 212 expenses (Schedules Q (Form 1066), line 3b). Don't        1.958-1(d), see Schedule K-2, Part VI, for reporting of information 
report these section 212 expense deductions related to portfolio        with respect to section 951(a) income inclusions of certain partners 
income on Schedules K and K-1.                                          with respect to the foreign corporation. Attach a statement to the 
  Because Schedule Q (Form 1066) is a quarterly statement, the          Schedule K-1 identifying the section 951(a) income inclusions 
partnership must follow the Schedule Q instructions to figure the       attributable to the sale or exchange by a CFC of stock in another 
amounts to report to partners for the partnership's tax year.           foreign corporation described in section 964(e)(4) or attributable to 
Involuntary conversions (code B). Net gain (loss) from                  hybrid dividends of tiered corporations under section 245A(e)(2).
involuntary conversions due to casualty or theft. The amount for this   Gain (loss) from disposition of oil, gas, geothermal, or other 
line is shown on Form 4684, Casualties and Thefts, Section B, Part      mineral properties (section 59(e)) (code I).    Disposition of an 
II, line 38a, 38b, or 39.                                               interest in oil, gas, geothermal, or other mineral properties. Report 
  Each partner's share must be entered on Schedule K-1. Give            the following information on an attached statement to Schedule K-1.
each partner a schedule that shows the amounts to be reported on        • Description of the property.
the partner's Form 4684, Section B, Part II, line 34, columns (b)(i),   • The partner's share of the amount realized on the sale, exchange, 
(b)(ii), and (c).                                                       or involuntary conversion of each property (FMV of the property for 
  If there was a gain (loss) from a casualty or theft to property not   any other disposition, such as a distribution).
used in a trade or business or for income-producing purposes, notify    • The partner's share of the partnership's adjusted basis in the 
the partner. The partnership shouldn't complete Form 4684 for this      property (except for oil or gas properties).
type of casualty or theft. Instead, each partner will complete their    • Total intangible drilling costs, development costs, and mining 
own Form 4684.                                                          exploration costs (section 59(e) expenditures) passed through to the 
                                                                        partner for the property.
Section 1256 contracts and straddles (code C).       Report any net     See Regulations section 1.1254-5 for more information.
gain or loss from section 1256 contracts from Form 6781, Gains and      Recoveries of tax benefit items (code J).      Recoveries of tax 
Losses From Section 1256 Contracts and Straddles.                       benefit items. See section 111.
Mining exploration costs recapture (code D).   Provide the              Gambling gains and losses (code K).         Gambling gains and 
information partners need to recapture certain mining exploration       losses subject to the limitations in section 165(d). Indicate on an 
expenditures. See Regulations section 1.617-3.                          attached statement whether or not the partnership is in the trade or 
Cancellation of debt (code E).   If cancellation of debt is reported    business of gambling.
to the partnership on Form 1099-C, report each partner's distributive   Any income, gain, or loss to the partnership from a distribu-
share in box 11 using code E. Amounts related to forgiven PPP           tion under section 751(b) (code L). When a partnership makes a 
loans are disregarded for purposes of this question.                    distribution and the partnership holds section 751 property, if any 
        Include the amount of income the partnership must               partner has any gain or loss under section 751(b), the partnership 
TIP     recognize for a transfer of a partnership interest in           must report the net of all such gains or losses.
        satisfaction of a partnership debt when the debt relieved       Gain eligible for section 1045 rollover (replacement stock pur-
exceeds the FMV of the partnership interest. See section 108(e)(8)      chased by partnership) (code M). Include only gain from the sale 
for more information.                                                   or exchange of qualified small business (QSB) stock (as defined in 
Section 743(b) positive income adjustments (code F).          For       the Instructions for Schedule D) that was deferred by the partnership 
partnerships other than PTPs, report the partner's share of net         under section 1045 and reported on Form 8949 and/or Schedule D. 
positive income resulting from all section 743(b) adjustments. For      See the Instructions for Schedule D, and the Instructions for Form 
                                                                        8949 for more details. The partnership makes the election for section 

38                                                                                                    Instructions for Form 1065 (2023)

- 39 -

Page 39 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

1045 rollover on a timely filed (including extensions) return for the amount from each separate activity. See Passive Activity Reporting
year in which the sale occurred. Corporate partners aren't eligible for Requirements, earlier.
the section 1045 rollover. Additional limitations apply at the partner
level. Each partner will determine if they qualify for the rollover. Deductions
Report on an attached statement to Schedule K-1 for each sale or
exchange (a) the name of the corporation that issued the QSB stock, Line 12. Section 179 Deduction
(b) the partner's share of the partnership's adjusted basis and sales
price of the QSB stock, (c) the dates the QSB stock was bought and A partnership can elect to expense part or all of the cost of certain
sold, (d) the partner's distributive share of gain from the sale of the property the partnership purchased during the tax year for use in its
QSB stock, and (e) the partner's distributive share of the gain that trade or business (including certain rental activities, if the renting of
was deferred by the partnership under section 1045. Only report the property is the partnership’s trade or business). See Pub. 946 for
these amounts on Schedule K-1; don’t include them on Schedule K, a definition of what kind of property qualifies for the section 179
line 11. expense deduction and the Instructions for Form 4562 for limitations
Gain eligible for section 1045 rollover (replacement stock not on the amount of the section 179 expense deduction.
purchased by the partnership) (code N). Include only gain from
the sale or exchange of QSB stock (as defined in the Instructions for Complete Part I of Form 4562 to figure the partnership's section
Schedule D) the partnership held for more than 6 months but that 179 expense deduction. The partnership doesn't take the deduction
wasn't deferred by the partnership under section 1045. See the itself but instead passes it through to the partners. Attach Form 4562
Instructions for Schedule D for more details. A partner (other than a to Form 1065 and show the total section 179 expense deduction on
corporation) may be eligible to defer their distributive share of this Schedule K, line 12.
gain under section 1045 if the partner purchases other QSB stock
during the 60-day period that began on the date the QSB stock was The partnership must reduce the basis of the asset by the
sold by the partnership. Additional limitations apply at the partner amount of the section 179 expense elected by the partnership, even
level. Report on an attached statement to Schedule K-1 for each if a portion of that amount can't be passed through to its partners
sale or exchange (a) the name of the corporation that issued the that year and must be carried forward because of limitations at the
QSB stock, (b) the partner's share of the partnership's adjusted partnership level. Don't reduce the partnership's basis in section 179
basis and sales price of the QSB stock, (c) the dates the QSB stock property to reflect any portion of the section 179 expense that is
was bought and sold, and (d) the partner's distributive share of gain allocable to a partner that is a trust or estate.
from the sale of the QSB stock.
Gain from sale or exchange of QSB stock with section 1202 ex- Identify on an attached statement to Schedules K and K-1 the
clusion (code O). The section 1202 exclusion applies only to QSB cost of section 179 property placed in service during the year that is
stock held by the partnership for more than 5 years. Corporate a qualified enterprise zone property. See the Instructions for Form
partners aren't eligible for the section 1202 exclusion. Additional 4562 for more details.
limitations apply at the partner level. Report each partner's share of
section 1202 gain on Schedule K-1. Each partner will determine if See the instructions for Schedule K, line 20c, for sales or other
they qualify for the section 1202 exclusion. Report on an attached dispositions of property for which a section 179 deduction has
statement to Schedule K-1 for each sale or exchange (a) the name passed through to partners and for the recapture rules if the
of the corporation that issued the QSB stock, (b) the partner's share business use of the property dropped to 50% or less.
of the partnership's adjusted basis and sales price of the QSB stock, Schedule K-1. Report each partner's distributive share of the
and (c) the dates the QSB stock was bought and sold. section 179 expense deduction in box 12 of Schedule K-1. If the
Gain or loss on disposition of farm recapture property and partnership has more than one trade or business activity, identify on
other items to which section 1252 applies (code P). Gains from an attached statement to Schedule K-1 the amount of section 179
the disposition of farm recapture property (see Form 4797) and other deduction from each separate activity. See Passive Activity
items to which section 1252 applies. Reporting Requirements, earlier.
Gain or loss on Fannie Mae or Freddie Mac qualified preferred Don't complete box 12 of Schedule K-1 for any partner that is an
stock (code Q). The partner's distributive share of the partnership's estate or a trust; estates and trusts aren't eligible for the section 179
gain or loss attributable to the sale or exchange of qualified preferred expense deduction.
stock of the Federal National Mortgage Association (Fannie Mae)
and the Federal Home Loan Mortgage Corporation (Freddie Mac). Line 13a. Cash Contributions
On an attached statement, show (a) the gain or loss attributable to
the sale or exchange of the qualified preferred stock, (b) the date the No deduction is allowed for any contribution of $250 or more unless
stock was acquired by the partnership, and (c) the date the stock the partnership obtains a written acknowledgment from the
was sold or exchanged by the partnership. See Rev. Proc. 2008-64, charitable organization that shows the amount of cash contributed
2008-47 I.R.B. 1195, for more information. and gives an estimate of the value of any goods or services provided
Specially allocated ordinary gain (loss) (code R). in return for the contribution. The acknowledgment must be obtained
by the due date (including extensions) of the partnership return or, if
Non-portfolio capital gain (loss) (code S). Any gain or loss from earlier, the date the partnership files its return. Don't attach the
Schedule D (Form 1065), line 7 or 15, that isn't portfolio income (for acknowledgment to the partnership return, but keep it with the
example, gain or loss from the disposition of nondepreciable partnership's records.
personal property used in a trade or business).
Codes T through X. Reserved for future use. Cash contributions of any amount must be supported by a dated
bank record or a written communication from the donee showing the
Other (code ZZ). Any other information the partners need to name of the donee organization, the date of the contribution, and the
prepare their tax returns. amount of the contribution, for example, a receipt.
Schedule K-1. Enter each partner's distributive share of the other
income categories listed earlier in box 11 of Schedule K-1. Enter the Enter charitable cash contributions made during the tax year.
applicable code provided. Attach a statement to Form 1065 that separately identifies the
If the partnership has more than one trade or business or rental partnership's contributions for each applicable code below. See
activity, identify on an attached statement to Schedule K-1 the Limits on Deductions in Pub. 526, Charitable Contributions, for
information on adjusted gross income (AGI) limitations on
deductions for charitable contributions.
Instructions for Form 1065 (2023) 39

- 40 -

Page 40 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Cash contributions (60%) (code A). Enter cash contributions Capital gain property (20%) (code F). Enter capital gain property
subject to the 60% AGI limitation. Don’t include in the amount contributions subject to the 20% AGI limitation.
reported using code A the cash contributions reported using code G.
Contributions of property. See Contributions of Property in Pub.
Cash contributions (30%) (code B). Enter cash contributions 526, and Pub. 561, Determining the Value of Donated Property, for
subject to the 30% AGI limitation. information on noncash contributions and contributions of capital
gain property. If the deduction claimed for noncash contributions
Schedule K-1. Report each partner's distributive share of cash exceeds $500, complete Form 8283 and attach it to Form 1065.
charitable contributions in box 13 of Schedule K-1 using code A or
B, as applicable. If the partnership made a qualified conservation contribution
under section 170(h), also include the FMV of the underlying
property before and after the donation, as well as the type of legal
Line 13b. Noncash Contributions interest contributed, and describe the conservation purpose
furthered by the donation. Give a copy of this information to each
No deduction is allowed for any contribution of $250 or more unless partner.
the partnership obtains a written acknowledgment from the If the partnership made a qualified conservation contribution for
charitable organization that describes the property contributed and the preservation of a historic structure, there are additional
gives an estimate of the value of any goods or services provided in requirements that may apply to obtain a charitable contribution
return for the contribution. The acknowledgment must be obtained deduction. This deduction may be reduced if rehabilitation credits
by the due date (including extensions) of the partnership return or, if were claimed for the historic structure. This deduction may be
earlier, the date the partnership files its return. Don't attach the denied if the partnership doesn't comply with section 170(f)(19). A
acknowledgment to the partnership return but keep it with the $500 filing fee may apply to certain deductions over $10,000. See
partnership's records. These rules apply in addition to the filing the Instructions for Form 8283 and Pub. 526 for details.
requirements for Form 8283, Noncash Charitable Contributions,
described below. A charitable contribution by a partnership (whether directly or as
a distributive share of a contribution of another partnership) isn't
Attach a statement to Form 1065 that separately identifies the treated as a qualified conservation contribution if the amount of such
partnership's contributions for each of applicable codes C through F. contribution exceeds 2.5 times the sum of each partner’s relevant
See Limits on Deductions in Pub. 526 for information on AGI basis in such partnership. In an attachment to each Schedule K-1
limitations on deductions for charitable contributions. issued to a partner, report the partner’s relevant basis allocable to
the portion of the real property or historic structure on which the
Noncash contributions (50%) (code C). Enter noncash qualified conservation contribution is made. The partnership should
contributions subject to the 50% AGI limitation. coordinate with each partner in calculating relevant basis. See
Qualified conservation contributions. The AGI limit for Qualified Conservation Contribution in Pub. 526 and Disallowance of
qualified conservation contributions under section 170(h) is 50%. conservation contribution deductions by certain pass-through
The carryover period is 15 years. See section 170(b) and Notice entities in the Instructions for Form 8283.
2007-50, 2007-25 I.R.B. 1430, for details. Report qualified
conservation contributions with a 50% AGI limitation in box 13 of Nondeductible contributions. Certain contributions made to an
Schedule K-1 using code C. Don't include in the amount reported organization conducting lobbying activities aren't deductible. See
using code C the conservation contributions of property used in section 170(f)(9) for more details. Also, see Contributions You Can’t
agriculture or livestock production reported on Schedule K-1 using Deduct in Pub. 526 for more examples of nondeductible
code G. See Qualified Conservation Contribution in Pub. 526 and contributions.
Disallowance of deduction for certain qualified conservation Contributions (100%) (code G). Use code G to report the
contributions by pass-through entities in the Instructions for Form contributions below and, on an attached statement, provide the
8283. following information.
Charitable contributions of food inventory. Attach a Qualified conservation contributions of property used in
statement to Schedule K-1 that shows the following. agriculture or livestock production. Enter qualified conservation
• The partner's distributive share of the amount of the charitable contributions of property used in agriculture or livestock production.
contributions made under section 170(e)(3) for qualified inventory The contribution must be subject to a restriction that the property
that was donated to charitable organizations for the care of the ill, remain available for such production. See section 170(b)(1)(E)(iv) for
needy, and infants. The food must meet all the quality and labeling details.
standards imposed by federal, state, and local laws and regulations. If the partnership is a qualified farmer or rancher (as defined in
The amount of the charitable contribution for donated food inventory section 170(b)(1)(E)(v)), show each partner's distributive share of
is the lesser of (a) the basis of the donated food plus one-half of the qualified conservation contributions of property used in agriculture or
appreciation (gain if the donated food was sold at FMV on the date livestock production. Partners will have to separately determine
of the gift), or (b) twice the amount of basis of the donated food. A whether they qualify for the 50% or 100% AGI limitation for these
partnership that doesn't account for inventories and isn't required to contributions. Don't include the amounts reported on the attached
capitalize indirect costs under section 263A may elect to treat the statement using code G in the amount reported on Schedule K-1 for
basis of the donated food as equal to 25% of the FMV of the food. qualified conservation contributions using code C.
See section 170(e)(3)(C) for more details.
• The partner's distributive share of the net income for the tax year Schedule K-1. Report each partner's distributive share of noncash
from the partnership's trades or businesses that made the charitable contributions in box 13 of Schedule K-1 using codes C
contribution of food inventory. through F for each of the contribution categories shown above. For
code G items, report them by entering code G with an asterisk (G*)
Don’t include the amount of food inventory contributions in and entering "STMT" in the dollar amount entry space for box 13 and
! the amount reported in box 13 using code C. These attach a statement that shows "Box 13, Code G" and the dollar
CAUTION contributions must be reported separately on an attached
amount of each type of deduction. The partnership must attach a
statement because partners must separately determine the copy of its Form 8283 to the Schedule K-1 of each partner receiving
limitations on the deduction. a distributive share of the contribution deduction shown in its Form
Noncash contributions (30%) (code D). Enter noncash 8283, Section A or Section B.
contributions subject to the 30% AGI limitation.
Capital gain property to a 50% limit organization (30%) (code
E). Enter capital gain property contributions subject to the 30% AGI
limitation.

40 Instructions for Form 1065 (2023)

- 41 -

Page 41 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 13c. Investment Interest Expense (Code H) Line 13e. Other Deductions
Include on this line the interest properly allocable to debt on property Enter deductions not included on lines 12, 13a, 13b, 13c, 13d(2),
held for investment purposes. Property held for investment includes and 21. On the line to the left of the entry space for this line, identify
property that produces income (unless derived in the ordinary the type of deduction. If there's more than one type of deduction,
course of a trade or business) from interest, dividends, annuities, or attach a statement to Form 1065 that separately identifies the type
royalties; and gains from the disposition of property that produces and amount of each deduction for the following categories. The
those types of income or is held for investment. codes needed for Schedule K-1 reporting are provided for each
category.
Investment interest expense doesn't include interest expense Deductions—royalty income (code I). Enter deductions related
allocable to a passive activity. to royalty income.
Schedule K-1. Report each partner’s distributive share of
Investment income and investment expenses other than interest deductions related to royalty income.
are reported on lines 20a and 20b, respectively. This information is Excess business interest expense (EBIE) (code K). If the
needed by partners to determine the investment interest expense partnership is required to file Form 8990, it may determine it has
limitation (see Form 4952 for details). EBIE. If so, enter the amount from Form 8990, Part II, line 32, for
Schedule K-1. Report each partner's distributive share of EBIE.
investment interest expense in box 13 of Schedule K-1 using code Schedule K-1. Provide the information the partners need to
H. figure EBIE. In box 13, report the partner’s distributive share of EBIE.
If the partnership reports EBIE, the partner is required to file Form
8990. The partner will enter the amount on Form 8990, Schedule A,
Lines 13d(1) and 13d(2). Section 59(e)(2) line 43, column (c). See the Instructions for Form 8990 for additional
Expenditures (Code J) information.
Deductions—portfolio income (other) (code L). Enter any other
Generally, section 59(e) allows each partner to make an election to deductions related to portfolio income.
deduct their distributive share of the partnership's otherwise
deductible qualified expenditures ratably over 10 years (3 years for No deduction is allowed under section 212 for expenses
circulation expenditures). The deduction is taken beginning with the allocable to a convention, seminar, or similar meeting. Because
tax year in which the expenditures were made (or for intangible these expenses aren't deductible by partners, the partnership
drilling and development costs, over the 60-month period beginning doesn't report these expenses on Schedule K, line 13e. The
with the month in which such costs were paid or incurred). expenses are nondeductible and are reported as such on
Schedule K, line 18c, and in box 18 of Schedule K-1 using code C.
Schedule K-1. In box 13, report the partner's distributive share of
The term “qualified expenditures” includes only the following deductions related to portfolio income that are reported on
types of expenditures paid or incurred during the tax year. Schedule K, line 13e, using code I (for deductions related to royalty
• Circulation expenditures. income) or L (for other deductions related to portfolio income).
• Research and experimental expenditures.
• Intangible drilling and development costs. Amounts paid for medical insurance (code M). Enter amounts
• Mining exploration and development costs. paid during the tax year for insurance that constitutes medical care
for the partner (including the partner's spouse, dependents, and
If a partner makes the election, these items aren't treated as children under age 27 who aren't dependents).
alternative minimum tax (AMT) tax preference items. Because the Educational assistance benefits (code N). Enter amounts paid
partners are generally allowed to make this election, the partnership during the tax year for educational assistance benefits paid to a
can't deduct these amounts or include them as AMT items on partner.
Schedule K-1. Instead, the partnership passes through the
information the partners need to figure their separate deductions. On Dependent care benefits (code O). Enter amounts paid during
line 13d(1), enter the type of expenditures claimed on line 13d(2). the tax year for dependent care benefits paid on behalf of each
Enter on line 13d(2) the qualified expenditures paid or incurred partner.
during the tax year for which an election under section 59(e) may Preproductive period expenses (code P). If the partnership is
apply. Enter this amount for all partners whether or not any partner required to use an accrual method of accounting under section 447
makes an election under section 59(e). or is prohibited from using the cash method under section 448(a)(3),
it must capitalize these expenses. If the partnership is permitted to
On an attached statement, identify the property for which the use the cash method, enter the amount of preproductive period
expenditures were paid or incurred. If the expenditures were for expenses that qualify under section 263A(d). An election not to
intangible drilling costs or development costs for oil and gas capitalize these expenses must be made at the partner level. See
properties, identify the month(s) in which the expenditures were paid Uniform Capitalization Rules in Pub. 225.
or incurred. If there's more than one type of expenditure or more
than one property, provide the amounts (and the months paid or Code Q. Reserved for future use.
incurred if required) for each type of expenditure separately for each Pensions and IRAs (code R). Enter the payments for a partner to
property. an IRA, a qualified plan, or a SEP or SIMPLE IRA plan. If a qualified
Schedule K-1. Report each partner's distributive share of section plan is a defined benefit plan, a partner's distributive share of
59(e) expenditures in box 13 of Schedule K-1 using code J. Identify payments is determined in the same manner as the partner’s
the following on an attached statement: (a) the type of expenditure; distributive share of partnership taxable income. For a defined
(b) the property for which the expenditures are paid or incurred; and benefit plan, attach to the Schedule K-1 for each partner a statement
(c) for oil and gas properties only, the month in which intangible showing the amount of benefit accrued for the tax year.
drilling costs and development costs were paid or incurred. If there's Reforestation expense deduction (code S). The partnership can
more than one type of expenditure or the expenditures are for more elect to deduct a limited amount of its reforestation expenditures
than one property, provide each partner's distributive share of the paid or incurred during the tax year. The amount the partnership can
amounts (and the months paid or incurred for oil and gas properties) elect to deduct is limited to $10,000 for each qualified timber
for each type of expenditure separately for each property. property. See section 194(c) for a definition of reforestation
expenditures and qualified timber property. The partnership must

Instructions for Form 1065 (2023) 41

- 42 -

Page 42 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

amortize over 84 months any amount not deducted. See the as investment interest; for other general partners, it's trade or
instructions for Form 1065, page 1, line 21, earlier. See Notice business interest.
2006-47, 2006-20 I.R.B. 892, for details on making the election.
Deductions—portfolio income (code AE). Enter amount of
Schedule K-1. Enter the partner's distributive share of the deductions related to portfolio income which were formerly
allowable reforestation expenses in box 13 of Schedule K-1 using deductible by individuals under section 67 subject to the 2% AGI
code S and attach a statement that provides a description of the floor. For partners other than individuals, amounts that are clearly
qualified timber property. If the partnership is electing to deduct and directly allocable to portfolio income (other than investment
amounts from more than one qualified timber property, provide a interest expense and section 212 expenses from a REMIC) can be
description and the amount for each property. deducted on those partners’ income tax returns.
Codes T through U. Reserved for future use. Codes AF through AJ. Reserved for future use.
Section 743(b) negative income adjustments (code V). For Other (code ZZ). Any other information the partners need to
partnerships other than PTPs, report the partner’s share of net prepare their tax returns.
negative income resulting from all section 743(b) adjustments. For
purposes of code V, net negative income from all section 743(b) Schedule K-1. Enter each partner's distributive share of the
adjustments means the excess of all section 743(b) adjustments deduction categories listed earlier in box 13 of Schedule K-1 or
allocated to the partner that decrease partner taxable income over provide the information required on an attached statement for the
all section 743(b) adjustments that increase partner taxable income. deduction.
Attach a statement for line 20, code U, showing each section 743(b) If the partnership has more than one trade or business activity,
basis adjustment making up the total and identify the assets to which identify on an attached statement to Schedule K-1 the amount for
it relates. The partnership may group these section 743(b) basis each separate activity. See Passive Activity Reporting
adjustments by asset category or description in cases where Requirements, earlier.
multiple assets are affected. See the instructions for line 20, code U.
Soil and water conservation (code W). Enter amounts for soil Self-Employment
and water conservation expenditures, and endangered species If the partnership is an options dealer or a commodities
recovery expenditures. See section 175. TIP dealer, see section 1402(i) before completing lines 14a, 14b,
Film, television, and theatrical production expenses (code X). and 14c, to determine the amount of any adjustment that
The partnership can elect to deduct certain costs of a qualified film, may have to be made to the amounts shown on the Worksheet for
television, or live theatrical production commencing before January Figuring Net Earnings (Loss) From Self-Employment, later. If the
1, 2026 (after December 31, 2015, and before January 1, 2026, for a partnership is engaged solely in the operation of a group investment
live theatrical production), limited to $15 million of the aggregate program, earnings from the operation generally aren't
production cost of the production. There's a higher dollar limitation self-employment earnings for either general or limited partners.
for productions in certain areas. Provide a description of the film,
television, or theatrical production on an attached statement. If the General partners. General partners' net earnings (loss) from
partnership makes the election for more than one film, television, or self-employment don't include the following.
theatrical production, attach a statement to Schedule K-1 that shows • Dividends on any shares of stock and interest on any bonds,
each partner's distributive share of the qualified expenditures debentures, notes, etc., unless the dividends or interest are received
separately for each production. The deduction is subject to in the course of a trade or business, such as a dealer in stocks or
recapture under section 1245 if the election is voluntarily revoked or securities or interest on notes or accounts receivable.
the production fails to meet the requirements for the deduction. See • Rentals from real estate, except rentals of real estate held for sale
section 181 and the related regulations for details. to customers in the course of a trade or business as a real estate
dealer or payments for rooms or space when significant services are
Expenditures for removal of barriers (code Y). Enter provided.
expenditures paid or incurred for the removal of architectural and • Royalty income, except royalty income received in the course of a
transportation barriers to the elderly and disabled that the trade or business.
partnership has elected to treat as a current expense. See section
190. See the Instructions for Schedule SE (Form 1040) for more
information.
Itemized deductions (code Z). Enter amounts paid by the
partnership that would be allowed as itemized deductions on any of Limited partners. Generally, a limited partner's share of
the partners' income tax returns if they were paid directly by a partnership income (loss) isn't included in net earnings (loss) from
partner for the same purpose. These amounts include, but aren't self-employment. Limited partners treat as self-employment
limited to, expenses under section 212 for the production of income earnings only guaranteed payments for services they actually
other than from the partnership's trade or business. However, don't rendered to, or on behalf of, the partnership to the extent that those
enter expenses related to portfolio income or investment interest payments are payment for those services.
expense reported on Schedule K, line 13b, on this line. However, whether a partner qualifies as a limited partner for
purposes of self-employment tax depends on whether the partner
Contributions to a capital construction fund (CCF) (code AA). meets the definition of a limited partner under section 1402(a)(13).
Enter amount of contributions made to a capital construction fund.
See Pub. 595.
Line 14a. Net Earnings (Loss) From
Penalty on early withdrawal of savings (code AB). Enter any
penalty on early withdrawal of savings not reported on Schedule K, Self-Employment (Code A)
line 13c, because the partnership withdrew its time savings deposit
before its maturity. Use the Worksheet for Figuring Net Earnings (Loss) From
Self-Employment in these instructions.
Interest expense allocated to debt-financed distributions
(code AC). See 2022 Pub. 535, Business Expenses, for more Schedule K. Enter on line 14a the amount from line 5 of the
information. worksheet.
Interest expense on working interest in oil or gas (code AD). Schedule K-1. Don't complete this line for any partner that is an
Enter interest paid or accrued on debt properly allocable to each estate, a trust, a corporation, an exempt organization, or an IRA.
general partner's share of a working interest in any oil or gas Enter in box 14 of Schedule K-1 each individual general partner's
property (if the partner's liability isn't limited). General partners that share of the combined amounts shown on the worksheet, lines 3c
didn't materially participate in the oil or gas activity treat this interest

42 Instructions for Form 1065 (2023)

- 43 -

Page 43 of 67               Fileid: … ions/i1065/2023/a/xml/cycle03/source                                                                 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

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

and 4c; and each individual limited partner’s share of the amount                            deduction) reported on Schedules K and K-1 that are used to figure 
shown on the worksheet, line 4c, using code A.                                               self-employment earnings under section 1402.
                                                                                             Line 4c.     Guaranteed payments to general partners and limited 
Line 14b. Gross Farming or Fishing Income (Code                                              partners for services provided to the partnership are net earnings 
B)                                                                                           from self-employment and are reported on this line.

Enter on line 14b the partnership's gross farming or fishing income                          Credits
from self-employment. Individual partners need this amount to figure 
net earnings from self-employment under the farm optional method                             Zero-Emission Nuclear Power Production Credit 
on Schedule SE (Form 1040), Part II. Enter each individual partner's 
distributive share in box 14 of Schedule K-1 using code B.                                   (Code A)

                                                                                             The IRA 2022 created section 45U, the zero-emission nuclear power 
Line 14c. Gross Nonfarm Income (Code C)                                                      production credit, for electricity produced at a qualified nuclear 
                                                                                             power facility and sold by the taxpayer to an unrelated person in tax 
Enter on line 14c the partnership's gross nonfarm income from                                years beginning after December 31, 2023, and before January 1, 
self-employment. Individual partners need this amount to figure net                          2033. For more information about the zero-emission nuclear power 
earnings from self-employment under the nonfarm optional method                              production credit, see Form 7213, Part II, and the Instructions for 
on Schedule SE (Form 1040), Part II. Enter each individual partner's                         Form 7213.
share in box 14 of Schedule K-1 using code C.
                                                                                             Schedule K-1.         Report in box 15 of Schedule K-1 each partner's 
                                                                                             distributive share of the zero-emission nuclear power production 
Worksheet Instructions                                                                       credit reported on Schedule K, line 15f, using code A.
Line 1b. Include on line 1b any part of the net income (loss) from 
rental real estate activities from Schedule K, line 2, that is from:                         Credit for Production From Advanced Nuclear 
• Rentals of real estate held for sale to customers in the course of a                       Power Facilities (Code B)
trade or business as a real estate dealer, or
• Rentals for which services were rendered to the occupants (other                           Section 45J was enacted by section 1306 of the Energy Policy Act of 
than services usually or customarily rendered for the rental of space                        2005, P.L. 109-58, title XIII, section 1306. The credit is allowed only 
for occupancy only). The supplying of maid service is such a                                 for qualifying electricity that the taxpayer produces and sells to an 
service, but the furnishing of heat and light; the cleaning of public                        unrelated person. For more information about the credit for electricity 
entrances, exits, stairways, and lobbies; and trash collection, etc.,                        produced from advanced nuclear power facilities, see Form 7213, 
aren't considered services rendered to the occupants.                                        Part I, and the Instructions for Form 7213.
Line 3c. The distributive share of limited partners isn't earnings                           Schedule K-1        Report in box 15 of Schedule K-1 each partner's 
from self-employment and isn't reported on this line.                                        distributive share of the credit for electricity produced from advanced 
Lines 3b and 4b.   Allocate the amounts on these lines in the same                           nuclear power facilities reported on Schedule K, line 15f, using code 
way Form 1065, page 1, line 23, is allocated to these particular                             B.
partners.
Line 4a. Include in the amount on line 4a any guaranteed payments                            Low-Income Housing Credit
to partners reported on Schedule K, line 4c, and in box 4c of 
Schedule K-1, and derived from a trade or business as defined in                             Section 42 provides a credit that can be claimed by owners of 
section 1402(c). Also include other ordinary business income and                             low-income residential rental buildings. To qualify for this credit, the 
expense items (other than expense items subject to separate                                  partnership must file Form 8609, Low-Income Housing Credit 
limitations at the partner level, such as the section 179 expense                            Allocation and Certification, separately with the IRS. Don't attach 
Instructions for Form 1065 (2023)                                                                                                                                  43

- 44 -

Page 44 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Form 8609 to Form 1065. Complete and attach Form 8609-A, credits may include any type of credit listed in the instructions for
Annual Statement for Low-Income Housing Credit; and Form 8586, line 15f.
Low-Income Housing Credit, to Form 1065.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of other rental real estate credits using code F. If
Line 15a. Low-Income Housing Credit (Section you're reporting each partner's distributive share of only one type of
42(j)(5)) (Code C) rental real estate credit under code F, enter the code with an asterisk
(F*) and the dollar amount in the entry space in box 15 and attach a
statement that shows “Box 15, Code F” and the type of credit. If
Enter on line 15a the total low-income housing credit for property you're reporting multiple types of rental real estate credits under
which a partnership is to be treated under section 42(j)(5) as the code F, enter the code with an asterisk (F*) and enter “STMT” in the
taxpayer to which the low-income housing credit was allowed. entry space in box 15 and attach a statement that shows “Box 15,
Code F” and the types and dollar amounts of the credits. If the
If the partnership invested in another partnership to which the partnership has credits from more than one rental real estate activity,
provisions of section 42(j)(5) apply, report on line 15a the credit identify on the attached statement the amount of each type of credit
reported to the partnership in box 15 of Schedule K-1 (Form 1065), for each separate activity. See Passive Activity Reporting
code C. Requirements, earlier.
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
distributive share of the low-income housing credit reported on Line 15e. Other Rental Credits (Code G)
line 15a of Schedule K. Use code C to report credits attributable to
buildings placed in service after 2007. If the partnership has credits Enter on line 15e any other credit (other than credits reported on
from more than one rental activity, identify on an attached statement lines 15a through 15d) related to rental activities. On the dotted line
to Schedule K-1 the amount for each separate activity. See Passive to the left of the entry space for line 15e, identify the type of credit. If
Activity Reporting Requirements, earlier. there's more than one type of credit, attach a statement to Form
1065 that identifies the type and amount for each credit. These
Line 15b. Low-Income Housing Credit (Other) credits may include any type of credit listed in the instructions for
line 15f.
(Code D)
Schedule K-1. Report in box 15 of Schedule K-1 each partner's
Enter on line 15b any low-income housing credit not reported on distributive share of other rental credits using code G. If you're
line 15a. This includes any credit reported to the partnership in reporting each partner's distributive share of only one type of rental
box 15 of Schedule K-1 using code D. credit under code G, enter the code with an asterisk (G*) and the
dollar amount in the entry space in box 15 and attach a statement
Schedule K-1. Report in box 15 of Schedule K-1 each partner's that shows “Box 15, Code G” and type of credit. If you're reporting
distributive share of the low-income housing credit reported on multiple types of rental credits under code G, enter the code with an
Schedule K, line 15b. Use code D to report credits attributable to asterisk (G*) and enter “STMT” in the entry space in box 15 and
buildings placed in service after 2007. If the partnership has credits attach a statement that shows “Box 15, Code G” and the types and
from more than one rental activity, identify on an attached statement dollar amounts of the credits. If the partnership has credits from
to Schedule K-1 the amount for each separate activity. See Passive more than one rental activity, identify on the attached statement the
Activity Reporting Requirements, earlier. amount of each type of credit for each separate activity. See Passive
Activity Reporting Requirements, earlier.
Line 15c. Qualified Rehabilitation Expenditures
(Rental Real Estate) (Code E) Line 15f. Other Credits
Enter on line 15f any other credit, except credits or expenditures
Enter on line 15c the total qualified rehabilitation expenditures shown or listed for lines 15a through 15e. If any of these credits are
related to rental real estate activities of the partnership. See the attributable to rental activities, enter the amount on line 15d or 15e.
Instructions for Form 3468 for details on qualified rehabilitation On the dotted line to the left of the entry space for line 15f, identify
expenditures. the type of credit. If there's more than one type of credit or if there
Schedule K-1. Report each partner's distributive share of qualified are any credits subject to recapture, attach a statement to Form
rehabilitation expenditures related to rental real estate activities in 1065 that separately identifies each type and amount of credit and
box 15 of Schedule K-1 using code E. Attach a statement to credit recapture information for the following categories. The codes
Schedule K-1 that provides the information and the partner's needed for box 15 of Schedule K-1 are provided in the headings of
distributive share of the amounts the partner will need to complete the following categories.
Form 3468, Part VII, lines 1d through 1k. See the Instructions for Undistributed capital gains credit (code H). This credit
Form 3468 for details. If the partnership has expenditures from more represents taxes paid on undistributed capital gains by a RIC or a
than one rental real estate activity, identify on an attached statement REIT. As a shareholder of a RIC or a REIT, the partnership will
to Schedule K-1 the amount for each separate activity. See Passive receive notice of the amount of tax paid on undistributed capital
Activity Reporting Requirements, earlier. gains on Form 2439, Notice to Shareholder of Undistributed
Qualified rehabilitation expenditures for property not related Long-Term Capital Gains.
! to rental real estate activities must be reported in box 20 Biofuel producer credit (code I). Complete Form 6478, if
CAUTION using code D.
applicable, to figure the credit. Attach it to Form 1065. Include any
amount shown on Form 6478, line 2, in the partnership's income on
line 7. See section 40(f) for an election the partnership can make to
Line 15d. Other Rental Real Estate Credits (Code not have the credit apply.
F)
Work opportunity credit (code J). Complete Form 5884 to figure
the credit. Attach it to Form 1065.
Enter on line 15d any other credit (other than credits reported on
lines 15a through 15c) related to rental real estate activities. On the Disabled access credit (code K). Complete Form 8826 to figure
dotted line to the left of the entry space for line 15d, identify the type the credit. Attach it to Form 1065.
of credit. If there's more than one type of credit, attach a statement to Empowerment zone employment credit (code L). Complete
Form 1065 that identifies the type and amount for each credit. These Form 8844 to figure the credit. Attach it to Form 1065.

44 Instructions for Form 1065 (2023)

- 45 -

Page 45 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Credit for increasing research activities (code M). Complete Credit for employer-provided childcare facilities and services
Form 6765 to figure the credit. Attach it to Form 1065. (code AH). Complete Form 8882 to figure the credit, and attach it to
Form 1065.
Note. The partnership should provide the information necessary for
the partner to determine whether the partnership is an eligible small Low sulfur diesel fuel production credit (code AI). Complete
business under section 38(c)(5)(A). If the partner and the Form 8896 to figure the credit, and attach it to Form 1065.
partnership meet the requirements of section 38(c)(5)(A), the Qualified railroad track maintenance credit (code AJ).
research credit may be treated as a specified credit. Complete Form 8900 to figure the credit, and attach it to Form 1065.
Credit for employer social security and Medicare taxes paid on Credit for oil and gas production from marginal wells (code
certain employee tips (code N). Complete Form 8846 to figure AK). See Form 8904.
the credit. Attach it to Form 1065.
Distilled spirits credit (code AL). See Form 8906.
Backup withholding (code O). This credit is for backup
withholding on dividends, interest, and other types of income of the Energy efficient home credit (code AM). See Form 8908.
partnership. Alternative motor vehicle credit (code AN). See Form 8910.
Unused investment credit from the qualifying advanced coal Alternative fuel vehicle refueling property credit (code AO).
project credit or qualifying gasification project credit allocated See Form 8911.
from cooperatives (code P). See Form 3468.
Clean renewable energy bond credit (code AP). See Form
Unused investment credit from the qualifying advanced ener- 8912. The amount of this credit (excluding any credits from other
gy project credit allocated from cooperatives (code Q). See partnerships, estates, and trusts) must also be reported as interest
Form 3468. income on Schedule K, line 5.
Unused investment credit from the advanced manufacturing New clean renewable energy bond credit (code AQ). See Form
investment credit allocated from cooperatives (code R). See 8912. The amount of this credit (excluding any credits from other
Form 3468. partnerships, estates, and trusts) must also be reported as interest
Code S. Reserved for future use. income on Schedule K, line 5. In addition, the amount of this credit
must also be reported as a cash distribution on Schedule K,
Unused investment credit from the energy credit allocated line 19a.
from cooperatives (code T). See Form 3468.
Qualified energy conservation bond credit (code AR). See
Unused investment credit from the rehabilitation credit alloca- Form 8912. The amount of this credit (excluding any credits from
ted from cooperatives (code U). See Form 3468. other partnerships, estates, and trusts) must also be reported as
Advanced manufacturing production credit (code V). See Form interest income on Schedule K, line 5. In addition, the amount of this
7207. credit must also be reported as a cash distribution on Schedule K,
line 19a.
Codes W and X. Reserved for future use.
Qualified zone academy bond credit (code AS). See Form
Clean hydrogen production credit (code Y). See Form 7210. 8912. The amount of this credit (excluding any credits from other
Orphan drug credit (code Z). Complete Form 8820 to figure the partnerships, estates, and trusts) must also be reported as interest
credit, and attach it to Form 1065. income on Schedule K, line 5. In addition, the amount of this credit
must also be reported as a cash distribution on Schedule K,
Enhanced oil recovery credit (code AA). See Form 8830. line 19a.
Renewable electricity production credit (code AB). See Rev. Qualified school construction bond credit (code AT). See Form
Proc. 2007-65, as modified by Announcement 2009-69 and 8912. The amount of this credit (excluding any credits from other
Announcement 2007-112, for a safe harbor method for allocating the partnerships, estates, and trusts) must also be reported as interest
credit for wind energy production. Complete Form 8835 to figure the income on Schedule K, line 5. In addition, the amount of this credit
credit. Attach a statement to Form 1065 and Schedule K-1 showing must also be reported as a cash distribution on Schedule K,
the allocation of the credit for production during the 4-year period line 19a.
beginning on the date the facility was placed in service and for
production after that period. Attach Form 8835 to Form 1065. Build America bond credit (code AU). See Form 8912. The
amount of this credit (excluding any credits from other partnerships,
Biodiesel, renewable diesel, or sustainable aviation fuels cred- estates, and trusts) must also be reported as interest income on
it (code AC). Complete Form 8864, if applicable, to figure the Schedule K, line 5. In addition, the amount of this credit must also be
credit, and attach it to Form 1065. If this credit includes the small reported as a cash distribution on Schedule K, line 19a.
agri-biodiesel producer credit, identify on a statement attached to
Schedule K-1 (a) each partner's distributive share of the small Credit for employer differential wage payments (code AV). See
agri-biodiesel producer credit included in the total credit allocated to Form 8932.
the partner, (b) the number of gallons for which the partnership Carbon oxide sequestration credit (code AW). See Form 8933,
claimed the small agri-biodiesel producer credit, and (c) the Part III, Section D, line 20.
partnership's productive capacity for agri-biodiesel.
Carbon oxide sequestration credit recapture (code AX). See
New markets credit (code AD). Complete Form 8874 to figure the Form 8933, Part III, Section D, line 22. Enter as a negative number.
credit. Attach it to Form 1065.
New clean vehicle credit (code AY). See Form 8936, Part II.
Credit for small employer pension plan startup costs (code
AE). Complete Form 8881 to figure the credit, and attach it to Form Qualified commercial clean vehicle credit (code AZ). See Form
1065. 8936, Part V.
Credit for small employer auto-enrollment (code AF). Complete Credit for small employer health insurance premiums (code
Form 8881 to figure the credit, and attach it to Form 1065. BA). See Form 8941.
Credit for small employer military spouse retirement plan eligi- Employer credit for paid family and medical leave (code BB).
bility (code AG). Complete Form 8881 to figure the credit, and See Form 8994.
attach it to Form 1065. Eligible credits from transferor(s) under section 6418 (code
BC). Enter the total amount of eligible credits received from

Instructions for Form 1065 (2023) 45

- 46 -

Page 46 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

transferor(s) included in column (g) of the partnership's Form 3800, Don't include as a tax preference item any qualified expenditures
Part III, line 6. Also, enter the total of the partnership's distributive to which an election under section 59(e) may apply. Instead, report
share of all eligible credits received from transferor(s) that were these expenditures on Schedule K, line 13d(2). Because these
received from another pass-through entity. See required statement expenditures are subject to an election by each partner, the
below. partnership can't figure the amount of any tax preference related to
them. Instead, the partnership must pass through to each partner in
Partnership and S corporation pass-through entities that box 13, code J, of Schedule K-1 the information needed to figure the
! transferred eligible credits from an unrelated person for cash deduction.
CAUTION under section 6418 must use Form 3800, Part III and Part V
(if applicable) to report such credits. See the Instructions for Form Schedule K-1. Report each partner's distributive share of amounts
3800 for reporting and other requirements. reported on lines 17a through 17f (concerning AMT) in box 17 of
Schedule K-1 using codes A through F, respectively. If the
Schedule K-1. Report each partner's distributive share of all partnership is reporting items of income or deduction for oil, gas,
eligible credits transferred from one or more unrelated transferors and geothermal properties, you may be required to identify these
pursuant to a transfer election under section 6418 in box 15 of items on a statement attached to Schedule K-1 (see Oil, Gas, and
Schedule K-1 using code BC. This amount must include the Geothermal Properties Gross Income and Deductions, later, for
partner’s distributive share of all eligible credits from transferors that details). Also see the requirement for an attached statement in the
were received from another pass-through entity. Enter code BC with instructions for line 17f.
an asterisk (BC*) and enter “STMT” in the dollar amount entry space
for box 15. Attach a statement that contains the following
information. Line 17a. Post-1986 Depreciation Adjustment
• The partner’s distributive share amount of the eligible credits (Code A)
received from transferor(s) reported in column (g) of the
partnership's Form 3800, Part III or Part V (if applicable). Figure the adjustment for line 17a based only on tangible property
• The name of the credit form in column (a) of the applicable line of placed in service after 1986 (and tangible property placed in service
Part III or Part V (if applicable). after July 31, 1986, and before 1987 for which the partnership
• Source information for each eligible credit shown on Form 3800, elected to use the General Depreciation System). Don't make an
Part III or V (if applicable), including: adjustment for motion picture films, videotapes, sound recordings,
1. IRS-issued registration number for transfers in column (b) of certain public utility property (as defined in section 168(f)(2)),
Part III and Part V, and property depreciated under the unit-of-production method (or any
2. The transferor’s EIN in column (d) of Part III or column (c) of other method not expressed in a term of years), qualified Indian
Part V. reservation property, property eligible for a special depreciation
• If a partner’s distributive share includes an allocation of eligible allowance, qualified revitalization expenditures, or the section 179
credits purchased by a lower-tier pass-through entity and reported expense deduction.
on Schedule K-1, you must provide the EIN of such transferee
partnership or S corporation and the source information that was For property placed in service before 1999, refigure depreciation
provided to you by such entity. for the AMT as follows (using the same convention used for the
See the Instructions for Form 3800 for additional details. regular tax).
• For section 1250 property (generally, residential rental and
Codes BD through BG. Reserved for future use. nonresidential real property), use the straight line method over 40
Other (code ZZ). Any other information the partners need to years.
prepare their tax returns. • For tangible property (other than section 1250 property)
depreciated using the straight line method for the regular tax, use
Schedule K-1. Enter in box 15 of Schedule K-1 each partner's the straight line method over the property's class life. Use 12 years if
distributive share of the credits listed above. See additional the property has no class life.
Schedule K-1 reporting information provided in the instructions • For any other tangible property, use the 150% declining balance
above. method, switching to the straight line method the first tax year it
If the partnership has credits from more than one activity, identify gives a larger deduction, over the property's AMT class life. Use 12
on an attached statement to Schedule K-1 the amount of each type years if the property has no class life.
of credit for each separate activity. See Passive Activity Reporting See Pub. 946 for a table of class lives.
Requirements, earlier. TIP
International Transactions
Line 16. International Transactions For property (except section 1250 property) placed in service
after 1998, refigure depreciation for the AMT only for property
If the partnership had items of international tax relevance, see the depreciated for the regular tax using the 200% declining balance
instructions for Schedule K-2 (Form 1065) to determine if you need method. For the AMT, use the 150% declining balance method,
to attach Schedules K-2 and K-3. If you satisfy the domestic filing switching to the straight line method the first tax year it gives a larger
exception to filing Schedule K-3, you must provide notification to the deduction, and the same convention and recovery period used for
partner either through an attachment to the Schedule K-1, or the regular tax. For section 1250 property, refigure depreciation for
separately prior to filing the Form 1065. If you satisfy an exception to the AMT using the straight line method, and the same convention
filing Schedule K-2, you may also attach a statement to Form 1065 and recovery period used for regular tax.
that states “Qualified for exception to filing Schedule K-2.” Figure the adjustment by subtracting the AMT deduction for
depreciation from the regular tax deduction and enter the result on
Alternative Minimum Tax (AMT) Items line 17a. If the AMT deduction is more than the regular tax
Lines 17a through 17f must be completed for all partners. deduction, enter the difference as a negative amount. Depreciation
capitalized to inventory must also be refigured using the AMT rules.
Enter items of income and deductions that are adjustments or tax Include on this line the current year adjustment to income, if any,
preference items for the AMT. See Form 6251, Alternative Minimum resulting from the difference.
Tax—Individuals; or Schedule I (Form 1041), Alternative Minimum
Tax—Estates and Trusts, to determine the amounts to enter and for
other information.

46 Instructions for Form 1065 (2023)

- 47 -

Page 47 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 17b. Adjusted Gain or Loss (Code B) Give each partner a statement that shows the separate amounts
included in the computation of the amounts on lines 17d and 17e of
Schedule K.
If the partnership disposed of any tangible property placed in service
after 1986 (or after July 31, 1986, if an election was made to use the
General Depreciation System), or if it disposed of a certified Line 17d. Oil, Gas, and Geothermal
pollution control facility placed in service after 1986, refigure the gain Properties—Gross Income (Code D)
or loss from the disposition using the adjusted basis for the AMT.
The property's adjusted basis for the AMT is its cost or other basis
minus all depreciation or amortization deductions allowed or Enter the total amount of gross income (within the meaning of
allowable for the AMT during the current tax year and previous tax section 613(a)) from all oil, gas, and geothermal properties received
years. Enter on this line the difference between the regular tax gain or accrued during the tax year and included on page 1 of Form 1065.
(loss) and the AMT gain (loss). If the AMT gain is less than the
regular tax gain, or the AMT loss is more than the regular tax loss, or Line 17e. Oil, Gas, and Geothermal
there's an AMT loss and a regular tax gain, enter the difference as a Properties—Deductions (Code E)
negative amount.
If any part of the adjustment is allocable to net short-term capital Enter any deductions allowed for the AMT that are allocable to oil,
gain (loss), net long-term capital gain (loss), or net section 1231 gain gas, and geothermal properties.
(loss), attach a statement that identifies the amount of the
adjustment allocable to each type of gain or loss. Line 17f. Other AMT Items (Code F)

For a net long-term capital gain (loss), also identify the amount of Attach a statement to Form 1065 and Schedule K-1 that shows other
the adjustment that is collectibles (28%) gain (loss). items not shown on lines 17a through 17e that are adjustments or
tax preference items or that the partner needs to complete Form
For a net section 1231 gain (loss), also identify the amount of 6251 or Schedule I (Form 1041). See these forms and their
adjustment that is unrecaptured section 1250 gain. instructions to determine the amount to enter.

Line 17c. Depletion (Other Than Oil and Gas) Other AMT items include the following.
• Accelerated depreciation of real property under pre-1987 rules.
(Code C) • Accelerated depreciation of leased personal property under
pre-1987 rules.
Don't include any depletion on oil and gas wells. The partners must • Long-term contracts entered into after February 28, 1986. Except
figure their oil and gas depletion deductions and preference items for certain home construction contracts, the taxable income from
separately under section 613A. these contracts must be figured using the percentage of completion
method of accounting for the AMT.
Refigure the depletion deduction under section 611 for mines, • Losses from tax shelter farm activities. No loss from any tax
wells (other than oil and gas wells), and other natural deposits for the shelter farm activity is allowed for the AMT.
AMT. Percentage depletion is limited to 50% of the taxable income • Any information needed by certain corporate partners to figure
from the property as figured under section 613(a), using only income corporate AMT for tax years beginning after 2022, under section 55.
and deductions for the AMT. Also, the deduction is limited to the Schedule K-1. If you're reporting each partner's distributive share
property's adjusted basis at the end of the year as figured for the of only one type of AMT item under code F, enter the code with an
AMT. Figure this limit separately for each property. When refiguring asterisk (F*) and the dollar amount in the entry space in box 17 and
the property's adjusted basis, take into account any AMT attach a statement that shows the type of AMT item. If you're
adjustments made this year or in previous years that affect basis reporting multiple types of AMT items under code F, enter the code
(other than the current year's depletion). with an asterisk (F*) and enter “STMT” in the entry space in box 17
and attach a statement that shows the dollar amount of each type of
Enter the difference between the regular tax and AMT deduction. AMT item.
If the AMT deduction is greater, enter the difference as a negative
amount. Other Information

Oil, Gas, and Geothermal Properties—Gross Line 18a. Tax-Exempt Interest Income
Income and Deductions
Enter on line 18a tax-exempt interest income, including any
Generally, the amounts to be entered on lines 17d and 17e are only exempt-interest dividends received from a mutual fund or other RIC.
the income and deductions for oil, gas, and geothermal properties
that are used to figure the partnership's ordinary income (loss) (Form Line 18b. Other Tax-Exempt Income
1065, line 23).
Enter on line 18b all income of the partnership exempt from tax other
If there are any items of income or deductions for oil, gas, and than tax-exempt interest.
geothermal properties included in the amounts that are required to
be passed through separately to the partners on Schedule K-1 Tax-exempt income from transfer election. Enter the total
(items not reported in box 1 of Schedule K-1), give each partner a consideration received by the transferor partnership as a result of a
statement that shows, for the box in which the income or deduction transfer election under section 6418. If the partnership is allocated
is included, the amount of income or deductions included in the total tax-exempt income from a pass-through entity (or lower-tier
amount for that box. Don't include any of these direct pass-through pass-through entity) making a transfer election to transfer its credits,
amounts on line 17d or 17e. include those amounts in code B as well.
Tax-exempt income from elective payment election. Enter the
Figure the amounts for lines 17d and 17e separately for oil and amount from Form 1065, page 1, line 29. This is the total amount of
gas properties that aren't geothermal deposits and for all properties credits determined by the partnership for which an elective payment
that are geothermal deposits. election is being made.
Instructions for Form 1065 (2023) 47

- 48 -

Page 48 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

PPP loan forgiveness reporting. Report tax-exempt income for the amounts included on line 18b that are exempt by reason of
resulting from the forgiveness of a PPP loan on this line. Attach a section 892, and describe the nature of the income.
statement to Form 1065 for each tax year in which the partnership is
applying the provisions of Rev. Proc. 2021-48, section 3.01(1), (2), Line 19a. Distributions of Cash and Marketable
or (3). The statement should include the following information for
each PPP loan. Securities (Code A)
• The partnership’s name, address, and EIN.
• Which section(s) of Rev. Proc. 2021-48 the partnership is If the amount on line 19a includes marketable securities treated as
applying: 3.01(1), (2), and/or (3). money, state separately on an attached statement to Schedules K
• The amount of tax-exempt income from forgiveness of the PPP and K-1 (a) the partnership's adjusted basis of those securities
loan that the partnership is treating as received or accrued during immediately before the distribution, and (b) the FMV of those
the year. securities on the date of distribution (excluding the distributee
• Whether forgiveness of the PPP loan has been granted as of the partner's share of the gain on the securities distributed to that
date the return is filed. partner).
A partnership that did not report tax-exempt income from a PPP
loan on its 2020 return may file an amended return or AAR to apply Line 19b. Distributions of Other Property
the applicable provisions of Rev. Proc. 2021-48. A partnership that
reported tax-exempt income from a PPP loan on its 2020 return, the Enter on line 19b the total distributions to each partner of property
timing of which corresponds to section 3.01(1), (2), or (3) of Rev. not included on line 19a. In box 19 of Schedule K-1, distributions of
Proc. 2021-48, doesn't need to file an amended return or AAR solely section 737 property will be reported separately from other property.
to attach the statement that is described in the preceding paragraph. The codes used when reporting amounts from line 19b in box 19 of
As explained in section 3.03 of Rev. Proc. 2021-48, if a Schedule K-1 appear in the headings for the categories.
partnership treats tax-exempt income resulting from a PPP loan as Distributions subject to section 737 (code B). If a partner
received or accrued prior to when forgiveness of the PPP loan is contributed section 704(c) built-in gain property within the last 7
granted, and the amount of forgiveness granted is less than the years and the partnership made a distribution of property to that
amount of tax-exempt income that was previously treated as partner other than the previously contributed built-in gain property,
received or accrued, the partnership must make appropriate attach a statement to the distributee partner's Schedule K-1 that
required adjustments on an amended return or AAR, as applicable, provides the following information.
for the tax year in which the partnership treated the tax-exempt • The FMV of the distributed property (other than money).
income as received or accrued. The partnership should attach a • The amount of money received in the distribution.
statement to that amended return or AAR that includes the following • The net precontribution gain of the partner. This is the net gain (if
information. any) that would have been recognized by the distributee partner
• The partnership’s name, address, and EIN. under section 704(c)(1)(B) if all the following property had been
• A statement that the partnership is making adjustments in distributed by the partnership to another partner. This property
accordance with section 3.03 of Rev. Proc. 2021-48. includes all property contributed by the distributee partner during the
• The tax year in which tax-exempt income was originally reported, 7 years prior to the distribution and that is still held by the partnership
the amount of tax-exempt income that was originally reported in that at the time of the distribution (see section 737).
tax year, and the amount of tax-exempt income being adjusted on
the amended return or AAR, as applicable. For more information, see Recognition of Precontribution Gain on
Certain Partnership Distributions, earlier.
Schedule K-1.
Tax-exempt income from transfer election. Include the Other property (code C). Include all distributions of property not
partner's distributive share of tax-exempt income allocated by the included on line 19a that aren't section 737 property. In figuring the
transferor partnership related to proceeds received by the amount of the distribution, use the adjusted basis of the property to
partnership as a result of the partnership making a transfer election the partnership immediately before the distribution. In addition,
to transfer its credits under section 6418. Also include the partner's attach a statement showing the adjusted basis and FMV of each
distributive share of allocations made to the transferor partnership property distributed.
from a pass-through entity for which it was a partner related to the Schedule K-1. Report in box 19 each partner's distributive share of
pass-through entity (or lower-tier pass-through entity) making a the amount on line 19a using code A. If a statement is attached,
transfer election to transfer its credits. enter an asterisk after the code (A*) and “STMT” in the entry space,
Tax-exempt income from elective payment election. Include and attach the required statement. For line 19b, report distributions
the partner's distributive share of tax-exempt income as a result of subject to section 737 in box 19 using code B with an asterisk (B*)
the partnership making an elective payment election under section and “STMT” in the entry space, and attach the required statement.
6417. Also include the partner's distributive share of allocations to For distributions of other property, report each partner's distributive
the partnership from a pass-through entity (or lower-tier share of the amount in box 19 using code C with an asterisk (C*) and
pass-through entity) that made an elective payment election. “STMT” in the entry space, and attach the required statement.

Line 18c. Nondeductible Expenses Lines 20a and 20b. Investment Income and
Expenses (Codes A and B)
Enter on line 18c nondeductible expenses paid or incurred by the
partnership. Enter on line 20a the investment income included on Schedule K,
lines 5, 6a, 7, and 11. Don't include other portfolio gains or losses on
Payments made by transferee partnerships to eligible taxpayers this line.
for the purchase of eligible credits as a result of a transfer election
under section 6418 are treated as nondeductible expenses and are
reported on this line 18c. Don't include separately stated deductions Investment income includes gross income from property held for
shown elsewhere on Schedules K and K-1, capital expenditures, or investment, the excess of net gain attributable to the disposition of
items the deduction for which is deferred to a later tax year. property held for investment over net capital gain from the
disposition of property held for investment, any net capital gain from
Schedule K-1. Report in box 18 of Schedule K-1 each partner's the disposition of property held for investment that each partner
distributive share of amounts reported on lines 18a, 18b, and 18c of elects to include in investment income under section 163(d)(4)(B)
Schedule K (concerning items affecting partners' bases) using (iii), and any qualified dividend income that the partner elects to
codes A through C, respectively. Attach a statement to Schedule K-1 include in investment income. Generally, investment income and

48 Instructions for Form 1065 (2023)

- 49 -

Page 49 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

investment expenses don't include any income or expenses from a credit. See the instructions for lines 15a and 15b, earlier, for more
passive activity. See Regulations section 1.469-2(f)(10) for information.
exceptions.
If a partner's ownership interest in a building decreased
TIP because of a transaction at the partner level, the partnership
Property subject to a net lease isn't treated as investment must provide the necessary information to the partner to
property because it's subject to the passive loss rules. Don't reduce enable the partner to figure the recapture.
investment income by losses from passive activities.
The disposal of a building or an interest therein will generate
Enter investment expenses on line 20b. Investment expenses are ! a credit recapture unless it's reasonably expected that the
deductible expenses (other than interest) directly connected with the CAUTION building will continue to be operated as a qualified
production of investment income. See the instructions for Form 4952 low-income building for the remainder of the building's compliance
for more information. period.
Schedule K-1. Report each partner's distributive share of amounts
reported on lines 20a and 20b (investment income and expenses) in See Form 8586, Form 8611, and section 42 for more information.
box 20 of Schedule K-1 using codes A and B, respectively. Recapture of investment credit (code H). Complete and attach
If there are other items of investment income or expense included Form 4255, Recapture of Investment Credit, when investment credit
in the amounts that are required to be passed through separately to property is disposed of, or it no longer qualifies for the credit, before
the partners on Schedule K-1, such as net short-term capital gain or the end of the recapture period or the useful life applicable to the
loss, net long-term capital gain or loss, and other portfolio gains or property. State the type of property at the top of Form 4255, and
losses, give each partner a statement identifying these amounts. complete lines 2, 3, 4, 10, and 11, whether or not any partner is
subject to recapture of the credit.
Line 20c. Other Items and Amounts Attach to each Schedule K-1 a separate statement providing the
information the partnership is required to show on Form 4255, but list
only the partner's distributive share of the cost of the property
Report the following information on a statement attached to Form subject to recapture. Also indicate the lines of Form 4255 on which
1065. On Schedule K-1, enter the appropriate code in box 20 for the partners should report these amounts.
each information item followed by an asterisk in the left-hand column
of the entry space (for example, “C*”). In the right-hand column, Recapture of other credits (code I). On an attached statement to
enter “STMT.” The codes are provided in the headings of the Schedule K-1, provide any information partners will need to report
following information categories. recapture of credits (other than recapture of low-income housing and
investment credit reported on Schedule K-1 using codes F, G, and
Fuel tax credit information (code C). Report the number of H). Examples of credits reported using code I when subject to
gallons of each fuel sold or used during the tax year for a nontaxable recapture include the following.
use qualifying for the credit for taxes paid on fuel, type of use, and • The new markets credit. See Form 8874 and Form 8874-B,
the applicable credit per gallon. See Form 4136, Credit for Federal Notice of Recapture Event for New Markets Credit, for details.
Tax Paid on Fuels, for details. • The credit for employer-provided childcare facilities and services.
Qualified rehabilitation expenditures (other than rental real es- See section 45F(d).
tate) (code D). Enter total qualified rehabilitation expenditures from • The alternative motor vehicle credit. See section 30B(h)(8).
activities other than rental real estate activities. See the Instructions • The alternative fuel vehicle refueling property credit. See section
for Form 3468 for details on qualified rehabilitation expenditures. 30C(e)(5).
• The clean vehicle credit. See section 30D(f)(5).
Note. Report qualified rehabilitation expenditures related to rental Look-back interest—completed long-term contracts (code J).
real estate activities on line 15c. If the partnership is closely held (defined in section 460(b)(4)(C))
Schedule K-1. Report each partner's distributive share of and it entered into any long-term contracts after February 28, 1986,
qualified rehabilitation expenditures related to activities other than that are accounted for under either the percentage of
rental real estate activities in box 20 of Schedule K-1 using code D. completion-capitalized cost method or the percentage of completion
Attach a statement to Schedule K-1 that provides the information method, it must attach a statement to Form 1065 showing the
and the partner's distributive share of the amounts the partner will information required in items (a) and (b) of the instructions for Form
need to complete Form 3468, Part VII, lines 1d through 1j. See the 8697, Part II, lines 1 and 3. It must also report the amounts for Part II,
Instructions for Form 3468 for details. If the partnership has lines 1 and 3, to its partners. See the Instructions for Form 8697 for
expenditures from more than one activity, identify on a statement more information.
attached to Schedule K-1 the amount for each separate activity. See
Passive Activity Reporting Requirements, earlier. Look-back interest—income forecast method (code K). If the
partnership is closely held (defined in section 460(b)(4)(C)) and it
Basis of energy property (code E). See the Instructions for Form depreciated certain property placed in service after September 13,
3468 for details on basis of energy property. In box 20 of 1995, under the income forecast method, it must attach to Form
Schedule K-1, enter code E followed by an asterisk (E*) and enter 1065 the information specified in the instructions for Form 8866,
“STMT” in the entry space for the dollar amount. Attach a statement line 2, for the 3rd and 10th tax years beginning after the tax year the
to Schedule K-1 that provides the information and the partner's property was placed in service. It must also report the line 2 amounts
distributive share of the amounts the partner will need to figure the to its partners. See the Instructions for Form 8866 for more details.
amounts to report on Form 3468, Part VI, lines 1a, 3a, 3e, 5a, 5c, 5f,
5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e, 19a, 21a, 23a, Dispositions of property with section 179 deductions (code L).
23e, 25a, 25d, 25g, 25j, and 29a. See the Instructions for Form 3468 This represents gain or loss on the sale, exchange, or other
for details. disposition of property for which a section 179 deduction has been
passed through to partners. The partnership must provide all the
Recapture of low-income housing credit (codes F and G). If following information related to such dispositions (see the
recapture of part or all of the low-income housing credit is required instructions for page 1, line 6, earlier).
because (a) the prior year qualified basis of a building decreased, or • Description of the property.
(b) the partnership disposed of a building or part of its interest in a • Date the property was acquired and placed in service.
building, see Form 8611, Recapture of Low-Income Housing Credit. • Date of the sale or other disposition of the property.
Complete Form 8611, lines 1 through 7, to determine the amount of • The partner's share of the gross sales price or amount realized.
credit to recapture. Use code F on Schedule K-1 to report recapture • The partner's share of the cost or other basis plus expense of sale
of the low-income housing credit from a section 42(j)(5) partnership. (reduced as explained in the instructions for Form 4797, line 21).
Use code G to report recapture of any other low-income housing
Instructions for Form 1065 (2023) 49

- 50 -

Page 50 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• The partner's share of the depreciation allowed or allowable, • Prior year payments, not including interest whether stated or
determined as described in the instructions for Form 4797, line 22, unstated.
but excluding the section 179 deduction. • Installment sale income.
• The partner's share of the section 179 deduction (if any) passed • Character of the income—capital or ordinary.
through for the property and the partnership's tax year(s) in which See section 453A(c) for information on how to compute the
the amount was passed through. interest charge on the deferred tax liability. The section 453A interest
• If the disposition is due to a casualty or theft, a statement charge is reported as additional or other tax. See Interest on
indicating so, and any additional information needed by the partner. Deferred Tax in Pub. 537 for additional details on how to compute
• For an installment sale, any information the partner needs to the section 453A(c) interest.
complete Form 6252. The partnership must also separately report
the partner's share of all payments received for the property in future Section 1260(b) information (code Q). Supply any information
tax years. (Installment payments received for sales made in prior tax needed by a partner to figure the interest due under section 1260(b).
years should be reported in the same manner used in prior tax If the partnership had gain from certain constructive ownership
years.) See the instructions for Form 6252 for details. transactions, each partner's tax liability must be increased by the
partner's distributive share of interest due on any deferral of gain
Recapture of section 179 deduction (code M). This amount recognition. See section 1260(b) for details, including how to figure
represents recapture of the section 179 deduction if business use of the interest.
the property dropped to 50% or less before the end of the recapture
period. If the business use of any property (placed in service after Interest allocable to production expenditures (code R). Supply
1986) for which a section 179 deduction was passed through to any information needed by a partner to properly capitalize interest as
partners dropped to 50% or less (for a reason other than required by section 263A(f). See Section 263A uniform capitalization
disposition), the partnership must provide all the following rules, earlier, for more information.
information. CCF nonqualified withdrawal (code S). Report nonqualified
• The partner's distributive share of the original basis and withdrawals by the partnership from a CCF to partners. See Pub.
depreciation allowed or allowable (not including the section 179 595.
deduction).
• The partner's distributive share of the section 179 deduction (if Depletion information—oil and gas (code T). Report gross
any) passed through for the property and the partnership's tax income and other information relating to oil and gas well properties
year(s) in which the amount was passed through. to partners to allow them to figure the depletion deduction for oil and
See Regulations section 1.179-1(e) for details. gas well properties. Allocate to each partner a proportionate share of
the adjusted basis of each partnership oil or gas property. See
Business interest expense (BIE) (code N). The partnership must section 613A(c)(7)(D) for details.
determine the amount of deductible BIE included on other lines on The partnership can't deduct depletion on oil and gas wells. Each
the Schedule K. Attach a statement to Schedule K providing the partner must determine the allowable amount to report on their
allocation of the deductible BIE included on other lines of return. See 2022 Pub. 535 for more information.
Schedule K. EBIE isn't deductible BIE; therefore, don't include it in
this reported amount for tax years beginning after November 12, Section 743(b) basis adjustment (code U). Report the total
2020. section 743(b) adjustment net of any cost recovery as a single
Schedule K-1. For tax years beginning after November 12, 2020, amount for all asset categories for each partner. In addition, attach a
enter the partner's amount of deductible BIE for inclusion in the statement to the Schedule K-1 for this code showing the amount of
separate loss class for computing any basis limitation (defined in each remaining section 743(b) basis, net of cost recovery by asset
section 704(d) and Regulations section 1.163(j)-6(h)). Also attach a category. A reasonable grouping by asset category may be used,
statement to Schedule K-1 providing the allocation of the BIE but such grouping shouldn't be less detailed than the asset
already deducted by the partnership on other lines of Schedule K-1 categories listed on the Form 1065, Schedule L, balance sheet. See
by line number. Don't include EBIE reported in box 13, code K. IRS.gov/forms-pubs/clarifications-for-disregarded-entity-reporting-
and-section-743b-reporting for more information.
Section 453(l)(3) information (code O). Supply any information
needed by a partner to figure the interest due under section 453(l) Unrelated business taxable income (UBTI) (code V). Report
(3). If the partnership elected to report the dispositions of certain any information a partner that is a tax-exempt organization may need
timeshares and residential lots on the installment method, each to figure its share of UBTI under section 512(a)(1) (but excluding any
partner's tax liability must be increased by the partner's distributive modifications required by paragraphs (8) through (15) of section
share of the interest on tax attributable to the installment payments 512(b)). Partners are required to notify the partnership of their
received during the tax year. tax-exempt status. See Form 990-T, Exempt Organization Business
Income Tax Return; and Pub. 598, Tax on Unrelated Business
Section 453A(c) information (code P). Supply any information Income of Exempt Organizations, for more information.
needed by a partner to figure the interest due under section 453A(c);
see Pub. 537, Installment Sales, for additional information. This If the partner is an IRA, include the IRA partner's unique EIN on
information must include the following from each Form 6252 where line 20, code AR.
the partner’s share of the selling price, including mortgages and Note. For tax year 2023, PTPs aren’t required to include the IRA
other debts, is greater than $150,000. partner’s unique EIN on line 20, code AR.
• Description of property.
• Date acquired. Precontribution gain (loss) (code W). If the partnership
• Date property sold. distributed any section 704(c) property to any partner other than the
• Selling price, including mortgages and other debts, not including contributing partner, and the date of the distribution was within 7
interest, whether stated or unstated. years of the date the section 704(c) property was contributed to the
• Mortgages, debts, and other liabilities the buyer assumed or took partnership, the distribution must be treated as if it were a sale by the
the property subject to. contributing partner taking place on the date of the distribution.
• Gross profit. Section 704(c) property is property that had an FMV that was either
• Contract price. greater or less than the contributing partner's adjusted basis at the
• Gross profit percentage. time the property was contributed to the partnership. See
• Current year payments and deemed payments received during Dispositions of Contributed Property, earlier, for more information. If
the year, not including interest whether stated or unstated. the partnership made such a distribution during its tax year, attach a
• Origination year payments and deemed payments received statement to the contributing partner's Schedule K-1 that provides
during the year, not including interest whether stated or unstated. the following information.

50 Instructions for Form 1065 (2023)

- 51 -

Page 51 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

• The amount of the gain or loss that would have been allocated to • Gain reported on the installment sale basis (or attributable to a
the contributing partner if the partnership had sold the section 704(c) private annuity) that is attributable to the disposition of property held
property at its FMV at the time of the distribution. See section 704(c) in a trade or business.
(1)(B) for details. • Gain or loss from the disposition of a partnership interest, but only
• The character of the gain or loss that would have resulted if the if such partnership was engaged, directly or indirectly, in one or more
partnership had sold the section 704(c) property to the distributee trades or businesses, and at least one of those trades or businesses
partner. wasn't trading in financial instruments or commodities.
Enter code W in box 20 of Schedule K-1 with an asterisk (W*) • The partner’s distributive share of interest income, or interest
and enter “STMT,” and attach the required statement. expense, which is attributable to a loan between the partnership and
the partner (self-charged interest).
Payment obligations including guarantees and deficit restora- • If the partnership received a Schedule K-1 (Form 1065), the detail
tion obligations (DROs) (code X). If the box in item K3 is and amounts reported to the partnership in box 20 using code Y.
checked, in box 20 of Schedule K-1, enter code X followed by an • If the partnership received a Schedule K-1 (Form 1041), the
asterisk (X*) and enter “STMT” in the entry for dollar amount. On the amount of the adjustment reported.
attached statement, provide the aggregate ending balance of the • Guaranteed payments (reported on Form 1065, Schedule K,
partner's or related person's payment obligations and identify the line 4b) unrelated to services, such as for the use of capital or
ending balance of each payment obligation that is included in the attributable to section 736(a)(2) payments for unrealized receivables
aggregate amount. For purposes of box 20, code X, a payment or goodwill.
obligation is defined as an obligation under Regulations section • In the case of a common trust fund, any items of income or loss
1.752-2(b)(1) that is recognized under Regulations sections that may be taken into account in figuring the participant’s net
1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an investment income (other than qualified dividends, and short-term
obligation to restore a deficit capital account upon liquidation) and a and long-term capital gains).
related person is defined as a related person as defined in • Gain from a trade or business of trading in securities or
Regulations section 1.752-4(b). commodities for which the partnership has elected under section
The following examples assume that the described partnership 475(f) to mark to market the securities, the commodities, or both.
liabilities are properly allocable to the partner in the examples under In addition, Regulations section 1.1411-10 provides special rules
the rules of section 752. for stock of CFCs and PFICs owned by the partnership. If the
Example 1. In Year 1, a partnership borrows $1,000 (PS Liability partnership owns directly or indirectly stock of a CFC or PFIC, then
1) from Bank 1 and $1,000 (PS Liability 2) from Bank 2. A partner additional reporting may be required under code Y.
guarantees payment of up to $500 of PS Liability 1 if any amount of CFCs and QEFs. In the case of stock of CFCs and QEFs directly
the full $1,000 isn't recovered by Bank 1 and lends $200 to the or indirectly owned by the partnership, the partnership must provide
partnership, and a person related to the partner guarantees payment the name and EIN (if one has been issued) for each CFC and QEF
of the entire amount of PS Liability 2 of $1,000. The partnership the stock of which is owned by the partnership for which an election
enters $1,700 as the ending balance of the partner's share of under Regulations section 1.1411-10(g) isn’t in effect and for which
recourse liabilities on item K1 of the Schedule K-1 for tax Year 1. For the partnership isn't engaged in a trade or business described in
tax Year 1, the partnership would enter $1,500 in box 20 under code section 1411(c)(2). For each of these entities, the partnership must
X as the aggregate ending balance of the partner's or related provide the following information on an entity-by-entity basis (to the
person's payment obligations. On the attached statement, the extent such information isn't otherwise identifiable elsewhere on
partnership would separately identify each of the partner's or related Schedule K-3).
person's payment obligations (for example, $500 with respect to the • Section 951(a) inclusions.
partner's guarantee of PS Liability 1 and $1,000 with respect to the • Section 1293(a)(1)(A) inclusions.
related person's guarantee of PS Liability 2). • Section 1293(a)(1)(B) inclusions.
Example 2. Assume the same facts as in Example 1, except • Section 959(d) distributions subject to section 1411.
that, instead of loaning $200 to the partnership, the partner has a • Section 1293(c) distributions subject to section 1411.
$100 DRO and a $20 negative tax capital account and the • Amount of gain or loss derived from dispositions of the stock of
CFCs and QEFs that is taken into account for section 1411
partnership enters $1,520 as the ending balance of the partner's purposes.
share of recourse liabilities on item K1 of the Schedule K-1 for tax Amounts that are derived from the disposition of the stock of
Year 1. For tax Year 1, the partnership would enter $1,520 in box 20 •
CFCs and QEFs and included in income as dividends under section
under code X as the aggregate ending balance of the partner's or 1248 for section 1411 purposes.
related person's payment obligations. On the attached statement,
the partnership would separately identify each of the partner's or In the case of stock of CFCs and QEFs directly or indirectly
related person's payment obligations (for example, $500 with owned by the partnership for which an election under Regulations
respect to the partner's guarantee of PS Liability 1, $1,000 with section 1.1411-10(g) is in effect, the partnership must provide the
respect to the related person's guarantee of PS Liability 2, and $20 following information (to the extent such information isn't otherwise
with respect to the partner's DRO). identifiable elsewhere on Schedule K-3) on either an aggregate
basis or an entity-by-entity basis.
Net investment income (code Y). Use code Y to report any • Section 951(a) inclusions.
information that may be relevant for partners to figure their NIIT when • Section 1293(a)(1)(A) inclusions.
the information isn't otherwise identifiable elsewhere on • Section 1293(a)(1)(B) inclusions.
Schedule K-1. Attach a statement that shows a description and
dollar amount of each relevant item. In the case of stock of CFCs and QEFs directly or indirectly
owned by the partnership with respect to which the partnership is
Examples of items reported using code Y may include the engaged in a trade or business described in section 1411(c)(2), the
following. partnership must provide the following information (to the extent
• Net rental real estate income reported on Form 1065, such information isn't otherwise identifiable elsewhere on
Schedule K, line 2, and other net rental income reported on Form Schedule K-3) on either an aggregate or an entity-by-entity basis, or
1065, Schedule K, line 3c, derived from a section 212 for-profit the partnership may aggregate this information with other income
activity (and not from a section 162 trade or business). derived by the partnership that is net investment income under
• Gains and losses from dispositions of assets attributable to a section 1411(c)(1)(A)(ii).
section 212 for-profit activity (and not from a section 162 trade or • Section 951(a) inclusions.
business). • Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions.

Instructions for Form 1065 (2023) 51

- 52 -

Page 52 of 67             Fileid: … ions/i1065/2023/a/xml/cycle03/source                            18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

  Section 1296 mark-to-market PFICs. In the case of stock of              UBIA of qualified property, qualified PTP items, and qualified REIT 
PFICs directly or indirectly owned by the partnership for which an        dividends reported to the partnership by another entity.
election under section 1296 is in effect, the partnership must provide      Partnerships should use Statement B—QBI Pass-Through Entity 
the following information (to the extent such information isn't           Aggregation Election(s), later, or a substantially similar statement, to 
otherwise identifiable elsewhere on Schedule K-3) on either an            report aggregated trades or businesses and provide supporting 
aggregate basis or an entity-by-entity basis (except as provided          information to partners on each Schedule K-1.
below).
• Amounts included in income under section 1296(a)(1).                      Partnerships should use Statement C—QBI Pass-Through Entity 
• Amounts deducted from income under section 1296(a)(2).                  Reporting—Patrons of Specified Agricultural and Horticultural 
                                                                          Cooperatives, later, or a substantially similar statement, to report the 
  In the case of PFIC stock owned directly or indirectly by the           distributive share of QBI and W-2 wages allocable to qualified 
partnership for which an election under section 1296 is in effect and     payments from a specified agricultural or horticultural cooperative for 
with respect to which the partnership is engaged in a trade or            each trade or business. This statement should also be used to report 
business described in section 1411(c)(2), the partnership may             each partner’s share of section 199A(g) deduction reported to the 
aggregate this information with other income derived by the               partnership by the specified cooperative.
partnership that is net investment income under section 1411(c)(1)          Determining the partnership’s qualified trades or 
(A)(ii).                                                                  businesses. The partnership’s qualified trades or businesses 
  Section 1291 funds.    In the case of stock of PFICs directly or        include its section 162 trades or businesses, except for SSTBs, or 
indirectly owned by the partnership with respect to which direct or       the trade or business of providing services as an employee. A 
indirect partners are subject to section 1291, the partnership must       section 162 trade or business generally includes any activity if the 
provide the following information (to the extent such information isn't   partnership’s primary purpose for engaging in the activity is for 
otherwise identifiable elsewhere on Schedule K-3) on an                   income or profit and the partnership is involved in the activity with 
entity-by-entity basis.                                                   continuity and regularity. For more information on what qualifies as a 
• Excess distributions made by a PFIC for which a partner is              trade or business for purposes of section 199A, see the Instructions 
subject to section 1291.                                                  for Form 8995, Qualified Business Income Deduction Simplified 
• Gains derived from the disposition of stock of a PFIC for which a       Computation; or the Instructions for Form 8995-A, Qualified 
partner is subject to section 1291.                                       Business Income Deduction.
Section 199A information (code Z).  The qualified business                  Rental real estate. Rental real estate may constitute a trade or 
income (QBI) deduction may be taken by eligible taxpayers,                business for purposes of the QBI deduction if the rental real estate:
including individuals and some trusts and estates. The deduction is       • Rises to the level of a trade or business under section 162,
determined at the partner level. Partnerships are required to report      • Satisfies the requirements for the rental real estate safe harbor in 
information necessary for their partners to figure the deduction. Use     Rev. Proc. 2019-38, or
code Z with an asterisk (Z*) on each partner’s Schedule K-1 and           • Meets the self-rental exception (that is, the rental or licensing of 
enter “STMT” in the entry space to indicate that the information is       property to a commonly controlled trade or business conducted by 
provided on an attached statement that separately identifies the          an individual or relevant pass-through entity) described in 
partner’s distributive share of:                                          Regulations section 1.199A-1(b)(14).
• Qualified items of income, gain, deduction, and loss;                     The determination of whether rental real estate constitutes a 
• W-2 wages;                                                              trade or business for purposes of the QBI deduction is made by the 
• Unadjusted basis immediately after acquisition (UBIA) of qualified      partnership. The partnership must first make this determination and 
property;                                                                 then only include the distributive share of rental real estate items of 
• Qualified PTP items; and                                                income, gain, loss, and deduction from a trade or business on the 
• Qualified REIT dividends.                                               statement provided to partners. Rental real estate that doesn't meet 
  The partnership must make an initial determination of which             any of the three conditions noted above doesn't constitute a trade or 
items are qualified items of income, gain, deduction, and loss at its     business for purposes of the QBI deduction and must not be 
level and report to each partner its distributive share of all items that included in the QBI information provided to partners.
may be qualified items at the partner level. These items must be            SSTBs excluded from qualified trades or businesses.             SSTBs 
separately stated where necessary for the partner to figure the           are generally excluded from the definition of a qualified trade or 
deduction. See Determining the partnership’s QBI or qualified PTP         business. An SSTB is any trade or business providing services in the 
items, later. The partner must then determine whether each item is        field of health, law, accounting, actuarial science, performing arts, 
includible in QBI.                                                        consulting, athletics, financial services, brokerage services, 
  In addition, the partnership must also report whether any of its        investing and investment management, trading or dealing in 
trades or businesses are specified service trades or businesses           securities, partnership interests, or commodities, or any other trade 
(SSTBs) and identify on the statement any trades or businesses that       or business where the principal asset is the reputation or skill of one 
are aggregated. The partnership must also report all QBI information      or more of its employees or owners. The term “any trade or business 
reported to it by any entity in which the partnership has an ownership    where the principal asset is the reputation or skill of one or more of 
interest.                                                                 its employees or owners” means any trade or business that consists 
                                                                          of (a) a trade or business in which a person receives fees, 
Note. The partnership must report each partner’s share of qualified       compensation, or other income from endorsing products or services; 
items of income, gain, deduction, and loss from a PTP so that             (b) a trade or business in which a person licenses or receives fees, 
partners can determine their qualified PTP income. However, the           compensation, or other income for the use of an individual’s image, 
W-2 wages and UBIA of qualified property from the PTP shouldn't be        likeness, name, signature, voice, or trademark, or any other symbols 
reported because partners can't use that information in figuring their    associated with the individual’s identity; or (c) receiving fees, 
QBI deduction.                                                            compensation, or other income for appearing at an event or on radio, 
                                                                          television, or another media format.
  Partnerships should use Statement A—QBI Pass-Through Entity 
Reporting, later, or a substantially similar statement, to report           Partnerships must separately report QBI information for all trades 
information for each partner’s distributive share from each trade or      or businesses engaged in by the partnership, including SSTBs, but 
business, including QBI items, W-2 wages, UBIA of qualified               must identify which trades or businesses are SSTBs.
property, qualified PTP items, and qualified REIT dividends by              Aggregation of trades or businesses.   A partnership engaged 
attaching the completed statement(s) to each partner’s                    in more than one trade or business may choose to aggregate 
Schedule K-1. The partnership should also use Statement A to              multiple trades or businesses into a single trade or business for 
report each partner’s distributive share of QBI items, W-2 wages,         purposes of section 199A if it meets the following requirements.

52                                                                                                  Instructions for Form 1065 (2023)

- 53 -

Page 53 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

1. The same person, or group of persons, either directly or or business within the United States. This may include, but isn't
through attribution, owns 50% or more of each trade or business for limited to, items such as ordinary business income or losses, section
a majority of the tax year, including the last day of the tax year, and 1231 gains or (losses), section 179 deductions, and interest from
all trades or businesses use the same tax year-end. debt-financed distributions.
2. None of the trades or businesses are SSTBs. QBI may also include rental income/losses or royalty income, if
3. The trades or businesses to be aggregated meet at least two the activity rises to the level of a trade or business; and gambling
of the following three factors. gains or losses, but only if the partnership is engaged in the trade or
business of gambling. Whether an activity rises to the level of a trade
a. They provide products, property, or services that are the or business must be determined at the entity level and, once made,
same or that are customarily offered together. is binding on partners.
b. They share facilities or share significant centralized business Qualified PTP items include the partnership’s share of qualified
elements, such as personnel, accounting, legal, manufacturing, items of income, gain, deduction, and loss from an interest in a PTP
purchasing, human resources, or information technology resources. and may also include gain or loss recognized on the disposition of
c. They are operated in coordination with, or reliance on, one or the partner’s partnership interest that isn't treated as a capital gain or
more of the businesses in the aggregated group. loss. If the reporting partnership is itself a PTP, the PTP should report
all qualified items of income, gain, deduction, and loss separately for
If the partnership chooses to aggregate multiple trades or each trade or business engaged in by the PTP.
businesses, it must report the aggregation on Statement B, or a
substantially similar statement, and attach it to each Schedule K-1. QBI and qualified PTP items don’t include the following.
The statement must provide the information necessary to identify • Items that aren’t properly includible in income.
each separate trade or business included in each aggregation, a • Items that are treated as capital gain or loss under any provision
description of the aggregated trades or businesses, and an of the Code.
explanation of the factors met that allow the aggregation in • Dividends or dividend equivalents, including qualified REIT
accordance with Regulations section 1.199A-4. The aggregation dividends.
statement must be completed each year to show the partnership's • Interest income (unless received in connection with the trade or
trade or business aggregations. Failure to disclose the aggregations business).
may cause them to be disaggregated. • Wage income.
The partnership's aggregations must be reported consistently for • Income that isn't effectively connected with the conduct of
business within the United States (go to IRS.gov/ECI for more
all subsequent years, unless there's a change in facts and information).
circumstances that changes or disqualifies the aggregation. The Commodities transactions, or foreign currency gains or losses
partnership must provide a written explanation for any changes to •
described in section 954(c)(1)(C) or (D).
prior year aggregations that describes the change in facts and Income, loss, or deductions from notional principal contracts
circumstances. •
under section 954(c)(1)(F).
If the partnership directly or indirectly owns an interest in another • Annuities (unless received in connection with the trade or
relevant pass-through entity (RPE) that aggregates multiple trades business).
or businesses, it must attach a copy of the RPE’s aggregation to • Guaranteed payments described in section 707(c) received by
each Schedule K-1. The partnership can't break apart the the entity for services rendered to a partnership.
aggregation of another RPE, but it may add trades or businesses to • Payments described in section 707(a) received by the entity for
the aggregation, assuming the requirements above are satisfied. services rendered to a partnership.
Determining the partnership’s QBI or qualified PTP items. QBI flowchart. Partnerships may use this flowchart to determine
The partnership’s items of QBI include qualified items of income, if an item of income, gain, deduction, or loss is includible in QBI
gain, deduction, and loss from the partnership’s trades or reportable to partners.
businesses that are effectively connected with the conduct of a trade

Flowchart To Help Determine if Items Are Qualified Business Income
Questions Yes No
1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question. Stop. This item isn't QBI.
2. Is the item attributable to a trade or business (this may include section 1231 gain/(loss), section 179 Continue to next question. Stop. This item isn't QBI.
deductions, interest from debt-financed distributions, etc.)? Examples of an item not considered attributable
to the trade or business at the entity level include gambling income/(loss) where the entity isn't engaged in
the trade or business of gambling, income/(loss) from vacation properties when the entity isn't in that trade or
business, activities not engaged in for profit, etc.
3. Is the item treated as a capital gain or loss under any provision of the Code or is it a dividend or dividend Stop. This item isn't QBI. Continue to next question.
equivalent?
4. Is the item interest income other than interest income properly allocable to a trade or business? (Note that Stop. This item isn't QBI. Continue to next question.
interest income attributable to an investment of working capital, reserves, or similar accounts isn't properly
allocable to a trade or business.)
5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn't QBI. Continue to next question.
6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss described in Stop. This item isn't QBI. Continue to next question.
section 954(c)(1)(C) or (D)?
7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn't QBI. Continue to next question.
8. Is the item of income or loss from a qualified PTP? This item is a qualified PTP This item is QBI. Report this
item. Report this item as item as QBI subject to
qualified PTP income or partner-specific
loss, subject to determinations.
partner-specific
determinations, and check
the PTP box.

Instructions for Form 1065 (2023) 53

- 54 -

Page 54 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Specific instructions for Statement A—QBI Pass-Through Enti- property from a PTP aren't allowed in figuring the W-2 wage and
ty Reporting. UBIA limitations.
QBI or qualified PTP items. The partnership (including PTPs) The W-2 wages are amounts paid to employees described in
must first determine if it's engaged in one or more trades or sections 6051(a)(3) and (8). If the partnership conducts more than
businesses. It must then determine if any of its trades or businesses one trade or business, it must allocate the W-2 wages among its
are SSTBs. It must also determine whether it has qualified PTP trades or businesses. See Rev. Proc. 2019-11, 2019-09 I.R.B. 742,
items from an interest in a PTP. It must indicate the status in the for more information.
appropriate checkboxes for each trade or business (or aggregated The unadjusted basis of qualified property is figured by adding
trade or business) reported. the unadjusted basis of all qualified assets immediately after
acquisition. Qualified property includes all tangible property subject
Note. SSTBs and PTPs can't be aggregated with any other trade or to depreciation under section 167, for which the depreciable period
business. So, if the aggregation box is checked, the SSTB and PTP hasn’t ended, that is held and used by the trade or business during
boxes for that specific aggregated trade or business shouldn't be the tax year and held on the last day of the tax year. The depreciable
checked. period ends on the later of 10 years after the property is placed in
Next, the partnership must report to each partner their distributive service or the last day of the full year for the applicable recovery
share of all items that are QBI or qualified PTP items for each trade period under section 168.
or business the partnership owns directly or indirectly. Use the QBI Qualified REIT dividends. The partnership must report the
flowchart above to determine if an item is reportable as a QBI item or distributive share of any qualified REIT dividends to each partner on
qualified PTP item subject to partner-specific determinations. Statement A, or a substantially similar statement, attached to
The descriptions on the statement generally match the Schedule K-1. Qualified REIT dividends don’t have to be separately
descriptions reported on Schedule K-1. So the amounts should reported by trades or businesses and can be reported as a single
reflect each trade’s or business’s portion of the qualified items of amount to partners. Qualified REIT dividends include any dividend
income, gain, deduction, or loss reported in the applicable box of the the partnership receives on REIT stock held for more than 45 days
partner’s Schedule K-1. For example, the amount reported on the (taking into account the principles of sections 246(c)(3) and (4))
“Ordinary business income (loss)” line of this statement should during the 91-day period beginning on the date that is 45 days
reflect the attributable portion of qualified items of income, gain, before the date on which such stock becomes ex-dividend with
deduction, and loss for each trade or business included in the respect to such dividend, for which the payment isn't obligated to
“Ordinary business income (loss)” reported in box 1 of the partner’s someone else, isn't a capital gain dividend under section 857(b)(3),
Schedule K-1. Each item included under “Other income (loss)” and and isn't a qualified dividend under section 1(h)(11), plus any
“Other deductions” must be stated separately, identifying the nature section 199A dividends received from a RIC that are permitted to be
and amount of each item. treated as qualified REIT dividends under Regulations section
W-2 wages and UBIA of qualified property. The partnership 1.199A-3(d).
must determine the W-2 wages and UBIA of qualified property Fiscal year partnerships. For purposes of determining the QBI
properly allocable to QBI for each qualified trade or business and or qualified PTP items, UBIA of qualified property, and the aggregate
report the distributive share to each partner on Statement A, or a amount of qualified REIT dividends, fiscal year-end partnerships
substantially similar statement, attached to Schedule K-1. This include all items from the tax (fiscal) year.
includes the pro rata share of W-2 wages and UBIA of qualified For purposes of determining W-2 wages, fiscal year-end
property reported to the partnership from any qualified trades or partnerships include amounts paid to employees under sections
businesses of an RPE the partnership owns directly or indirectly. 6051(a)(3) and (8) for the calendar year ended with or within the
However, partnerships that own a direct or indirect interest in a PTP partnership’s tax year. If the partnership conducts more than one
may not include any amounts for W-2 wages or UBIA of qualified trade or business, it must allocate W-2 wages among its trades or
property from the PTP, as the W-2 wages and UBIA of qualified businesses. See Rev. Proc. 2019-11 for more information.

Statement A—QBI Pass-Through Entity Reporting
Partnership’s name: Partnership’s EIN:
Partner’s name: Partner’s identifying number:

Trade or Business 1 Trade or Business 2 Trade or Business 3
Partner’s share of: PTP PTP PTP
Aggregated Aggregated Aggregated
SSTB SSTB SSTB
QBI or qualified PTP items subject to partner-specific determinations:
Ordinary business income (loss) . . . . . . . . . . . . . . . .
Rental income (loss) . . . . . . . . . . . . . . . . . . . . . .
Royalty income (loss) . . . . . . . . . . . . . . . . . . . . .
Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . .
Other income (loss) . . . . . . . . . . . . . . . . . . . . . .
Section 179 deduction. . . . . . . . . . . . . . . . . . . . .
Other deductions . . . . . . . . . . . . . . . . . . . . . . .
W-2 wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UBIA of qualified property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qualified REIT dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

54 Instructions for Form 1065 (2023)

- 55 -

Page 55 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Specific instructions for Statement B—QBI Pass-Through Enti- disclose the aggregations may cause them to be disaggregated. The
ty Aggregation Election(s). If the partnership elects to aggregate partnership’s aggregations must be reported consistently for all
more than one trade or business that meets all the requirements to subsequent years, unless there's a change in facts and
aggregate, the partnership must report the aggregation to partners circumstances that changes or disqualifies the aggregation. The
on Statement B, or a substantially similar statement, and attach it to partnership must provide a written explanation for any changes to
each Schedule K-1. The partnership must indicate trades or prior year aggregations that describes the change in facts and
businesses that were aggregated by checking the appropriate box circumstances.
on Statement A for each aggregated trade or business. The If the partnership holds a direct or indirect interest in an RPE that
partnership must also provide a description of the aggregated trade aggregates multiple trades or businesses, the partnership must also
or business and an explanation of the factors met that allow the include a copy of the RPE’s aggregations with each partner’s
aggregation. Schedule K-1. The partnership can't break apart the aggregation of
The aggregation statement must be completed each year to another RPE, but it may add trades or businesses to the
show the partnership’s trade or business aggregations. Failure to aggregation, assuming the aggregation requirements are satisfied.

Statement B—QBI Pass-Through Entity Aggregation Election(s)
Partnership’s name: Partnership’s EIN:
Trade or business aggregation 1*
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section
1.199A-4. In addition, if the partnership holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach
a copy of the RPE's aggregations.

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

* If the partnership has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.
Specific instructions for Statement C—QBI Pass-Through Enti- QBI items and W-2 wages allocable to qualified payments
ty Reporting—Patrons of Specified Agricultural and Horticul- include QBI items included on Statement A that are allocable to the
tural Cooperatives. qualified payments reported to the partnership on Form 1099-PATR
QBI items and W-2 wages allocable to qualified payments. If from the cooperative.
the partnership is a patron of a specified agricultural or horticultural Section 199A(g) deduction. The partnership must report to its
cooperative, the partnership must provide the share of QBI items partners their share of any section 199A(g) deduction passed
and W-2 wages allocable to qualified payments from each trade or through from the cooperative, as reported on Form 1099-PATR.
business to each of its partners on Statement C, or a substantially Section 199A(g) deductions don't have to be reported separately by
similar statement, and attach it to each Schedule K-1 so each trades or businesses and can be reported as a single amount to
partner can figure their patron reduction under section 199A(b)(7). partners.

Instructions for Form 1065 (2023) 55

- 56 -

Page 56 of 67             Fileid: … ions/i1065/2023/a/xml/cycle03/source                                            18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

   Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural 
                                                                           Cooperatives
Partnership’s name:                                                                                     Partnership’s EIN:
Partner’s name:                                                                       Partner’s identifying number:

                                                                                      Trade or Business Trade or Business          Trade or Business
Partner’s share of:                                                                    PTP               PTP                        PTP
                                                                                       Aggregated        Aggregated                 Aggregated
                                                                                       SSTB              SSTB                       SSTB 
QBI items allocable to qualified payments subject to partner-specific determinations:
                 Ordinary business income (loss) . . . . . . . . . . . . . . . .
                Rental income (loss) . . . . . . . . . . . . . . . . . . . . . . .
                Royalty income (loss)  . . . . . . . . . . . . . . . . . . . . . .
                Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . . .
                Other income (loss) . . . . . . . . . . . . . . . . . . . . . . .
                Section 179 deduction  . . . . . . . . . . . . . . . . . . . . . .
                Other deductions   . . . . . . . . . . . . . . . . . . . . . . . .
W-2 wages allocable to qualified payments. . . . . . . . . . . . . . . . . . . . .
Section 199A(g) deduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 704(c) information (code AA).            For partnerships other               partnership must report to the transferor partner their share of the 
than PTPs, if a partner’s taxable income or loss on any line item on                  gain or loss figured for the following categories of assets. If there 
Schedule K-1 (Form 1065) includes an allocation of any income or                      was an exchange described in section 751(a), this information must 
deduction item determined by applying section 704(c), include the                     also be reported on Form 8308.
sum of such income and deduction items here.                                          Section 751 gain (loss) (code AB).  Section 751 “hot assets” 
                                                                                      (unrealized receivables and inventory items).
Example 1—single section 704(c) allocation.                    Partnership P          Section 1(h)(5) gain (code AC).     Section 1(h)(5) collectible 
has two partners, A and B. A and B share all items of income, loss,                   assets.
and deduction equally, except for items required to be allocated 
under section 704(c). A contributes property X with an FMV of $100                    Deemed section 1250 unrecaptured gain (code AD).           Section 
and a tax basis of $60. X is depreciable over 10 years. B contributes                 1(h)(6) unrecaptured section 1250 gain assets (depreciable real 
$100. The traditional method is used to allocate section 704(c) items                 property) are section 751 property per Regulations section 
pertaining to X. In the first year, the partnership has $10 of section                1.751-1(c)(4)(v).
704(b) book depreciation, which is allocated equally to A and B for                   Excess taxable income (code AE).    If the partnership is required 
book purposes ($5 each). However, P only has $6 of tax                                to file Form 8990, it may determine it has excess taxable income. If 
depreciation. The partnership has no other income or deductions                       so, enter the amount from Form 8990, Part II, line 36, for excess 
during the tax year. Under the traditional method, P allocates $1 to A                taxable income.
and $5 to B for tax purposes. Assuming this is the only item where                    Schedule K-1.     Enter the partner’s amount of excess taxable 
taxable income is affected by section 704(c) allocations during the                   income. The partner will enter the amount on Form 8990, 
current year, the partnership would report deductions of $1 for A and                 Schedule A, line 43, column (f), if the partner is required to file Form 
$5 for B in box 20, code AA, of Schedule K-1.                                         8990.
Example 2—multiple section 704(c) allocations.                     The facts          Excess business interest income (code AF).   If the partnership is 
are the same as in Example 1, except in addition to the facts in that                 required to file Form 8990, it may determine it has excess business 
example, A also contributes property Y with an FMV of $100 and a                      interest income. If so, enter the amount from Form 8990, Part II, 
remaining tax basis of $0. If Y were newly placed in service, its                     line 37, for excess business interest income.
depreciable life would be 10 years straight line. The partnership                     Schedule K-1.     Enter the partner’s amount of excess business 
adopts the remedial method with respect to property Y. In the first                   interest income. The partner will enter the amount on Form 8990, 
year, P has $10 of section 704(b) book depreciation, which is                         Schedule A, line 43, column (g), if the partner is required to file Form 
allocated equally to A and B for book purposes ($5 each). However,                    8990.
P has $0 of tax depreciation with respect to property Y. Under the 
remedial method, for tax purposes, P allocates $5 of remedial                         Gross receipts for section 448(c) (code AG). Regulations 
income to A and $5 of a remedial depreciation deduction to B with                     section 1.163(j)-2(d)(2)(iii) requires that partners in a partnership 
respect to property Y. In this case, the partnership would report in                  include a share of partnership gross receipts in proportion to their 
box 20, code AA, of Schedule K-1 that A has $4 of taxable income,                     share of gross income under section 703 (unless the partnership is 
determined by applying section 704(c) ($1 of depreciation                             treated as one person under the aggregation rules of section 
deductions from property X and $5 of remedial income from property                    448(c)). Partnerships with current year gross receipts (defined in 
Y) and that B has $10 of deductions for tax purposes, determined by                   Regulations section 1.448-1T(f)(2)(iv)) greater than $5 million are 
applying section 704(c) (consisting of $5 depreciation from property                  required to report to partners their distributive shares of their current 
X and $5 remedial depreciation from property Y).                                      year gross receipts, as well as their distributive shares of gross 
                                                                                      receipts for the 3 immediately preceding tax years. If a partnership 
Required reporting for the sale or exchange of an interest in a                       and a partner are treated as a single employer under the section 
partnership (codes AB, AC, and AD).            When a sale or exchange                448(c) aggregation rules, and the partnership has current year gross 
of a partnership interest occurs and the partnership holds section                    receipts greater than $5 million, then the partnership should also 
751 property such as unrealized receivables defined in section                        report its current year total gross receipts, as well as its total gross 
751(c), property subject to unrecaptured section 1250 gain,                           receipts for the 3 immediately preceding tax years, to that partner. 
inventory items defined in section 751(d), or collectibles, the 

56                                                                                                                 Instructions for Form 1065 (2023)

- 57 -

Page 57 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

See IRS.gov/newsroom/faqs-regarding-the-aggregation-rules-under- in the inversion gain. The partnership must report each partner's
section-448c2–that-apply-to-the-section-163j-small-business- distributive share of the inversion gain in box 20 of Schedule K-1
exemption. Partnerships whose current year gross receipts are less using code AP. Attach a statement to Schedule K-1 that shows the
than or equal to $5 million may also use this code to report gross partner's distributive share of the amount of each type of income or
receipts. gain included in the inversion gain.
Noncash charitable contributions (code AH). If the partnership Conservation reserve program payments (code AQ). The
made a noncash charitable contribution, report the partner’s share of partner's distributive share of any conservation reserve program
the partnership’s adjusted basis of the property for basis limitation payments made to the partnership.
purposes.
IRA disclosure (code AR). For IRA partners with an amount
Interest and tax on deferred compensation to partners (code reported in box 20, code V, include code AR with the IRA partner's
AI). Interest and additional tax on deferred compensation under a unique EIN (not the custodian's EIN).
section 409A nonqualified deferred compensation plan that doesn't
meet the requirements of section 409A. Include in this amount any Enter the EIN without any dashes.
earnings on these deferrals. This amount must also be included on CAUTION!
Schedule K, line 4. For details, see the regulations under section
409A. These regulations don't provide guidance on the application Qualifying advanced coal project property and qualifying gasi-
of section 409A to arrangements between partnerships and fication project property (code AS). Attach a statement to
partners. For interim guidance on such arrangements, see Q&A-7 in Schedule K-1 showing the partner's distributive share of the
Notice 2005-1, 2005-2 I.R.B. 274, and the information provided in amounts that the partner will use when figuring the amounts to report
T.D. 9321. Also see Notice 2006-79, 2006-43 I.R.B. 763; Notice on their Form 3468, Part II. See the Instructions for Form 3468 for
2007-86, 2007-46 I.R.B. 990; and Notice 2008-113, 2008-51 I.R.B. details.
1305, for additional information on transitional and relief rules.
Qualifying advanced energy project property (code AT). Attach
Excess business loss limitation (code AJ). To enable partners a statement to Schedule K-1 showing the partner's distributive share
to figure their excess business loss limitation under section 461(l), of the amounts that the partner will use when figuring the amounts to
attach a statement to each partner's Schedule K-1 showing the report on their Form 3468, Part III. See the Instructions for Form
partner's distributive share of the aggregate business activity gross 3468 for details.
income or gain, and the aggregate business activity deductions,
from all of the partnership's trades or businesses. Advanced manufacturing investment property (code AU).
Attach a statement to Schedule K-1 showing the partner's
Gain from mark-to-market election (code AK). If a partnership is distributive share of the amounts that the partner will use when
a trader in securities, commodities, or both, and has properly elected figuring the amount to report on their Form 3468, Part IV. See the
under section 475(f) to mark-to-market the securities, the Instructions for Form 3468 for details.
commodities, or both, the partnership should report ordinary gain or
loss from the securities or commodities (or both securities and Code AV. Reserved for future use.
commodities) trading activities separately from any other ordinary Reportable transactions (code AW). If the partnership
gain or loss. Gain from the mark-to-market election is relevant for participates in a transaction that must be disclosed on Form 8886,
partners to figure the NIIT. See the instructions regarding net both the partnership and its partners may be required to file Form
investment income (code Y), earlier. 8886. The partnership must determine if any of its partners are
Section 721(c) partnership (code AL). If the partnership is a required to disclose the transaction and provide those partners with
section 721(c) partnership, line 20c must include the amounts information they will need to file Form 8886. This determination is
relating to any remedial items made under the remedial allocation based on the category(ies) under which a transaction qualified for
method (described in Regulations sections 1.704-3(d) and disclosures. See Form 8886 and its instructions for details.
1.704-3(d)(5)(iii)) with respect to section 721(c) property. Enter a Code AX. Reserved for future use.
separate code AL in box 20 of Schedule K-1 for each amount for
items allocated to the partner. For the U.S. transferor, enter a Foreign partners, Form 8990, Schedule A (code AY). Form
separate code AL, if any, for the total remedial income allocated to 8990, Schedule A, requires certain foreign partners to report their
the U.S. transferor, total gain recognized due to an acceleration allocable share of EBIE, excess taxable income, and excess
event, and/or total gain recognized due to a section 367 transfer business interest income, if any, that is attributable to income
reflected on Schedule G (Form 8865), Part II, columns (c), (d), and effectively connected with a U.S. trade or business. Provide on
(e), respectively. For all other partners of the section 721(c) Schedule K-1 the information needed to complete Form 8990,
partnership, enter a separate code AL for the total amount of Schedule A, for a partner that is a foreign corporation or nonresident
remedial items allocated to such partner relating to section 721(c) alien or is a partnership (domestic or foreign) in which you know, or
property. See Regulations sections 1.721(c)-3 and 1.721(c)-6. have reason to know, that one or more of the partners is a foreign
corporation or nonresident alien.
Section 1061 information (code AM). The partnership will furnish
to the partners any information needed to figure their capital gains Code AZ. Reserved for future use.
with respect to an applicable partnership interest. Go to Section Codes BA through BD. Reserved for future use.
1061 Reporting Guidance FAQs.
Other (code ZZ). Any other information the partners need to
Farming and fishing business (code AN). If the partnership is prepare their tax returns, including information needed to prepare
involved in a farming or fishing business, report the gross income state and local tax returns.
and gains as well as the losses and deductions attributable to such Instructions regarding the corporate alternative minimum tax
business activities. See section 1301. (CAMT) will be issued as a Recent Development article.
PTP information (code AO). Any information a partner that is a
PTP may need to determine if it meets the 90% qualifying income Line 21. Total Foreign Taxes Paid or Accrued
test of section 7704(c)(2). A partner is required to notify the
partnership of their status as a PTP.
Enter in U.S. dollars the total creditable foreign taxes (described in
Inversion gain (code AP). Any income or gain reported on section 901 or section 903) that were paid or accrued by the
Schedule K, lines 1 through 11, that qualifies as inversion gain, if the partnership (according to its method of accounting for such taxes).
partnership is an expatriated entity or is a partner in an expatriated Enter the amount paid or accrued on line 21. Translate these
entity. For details, see section 7874. Attach a statement to Form amounts into U.S. dollars by using the applicable exchange rate (see
1065 that shows the amount of each type of income or gain included Pub. 514, Foreign Tax Credit for Individuals).
Instructions for Form 1065 (2023) 57

- 58 -

Page 58 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

The information on line 21 is solely for purposes of computing The balance sheets should agree with the partnership's books
basis. A partnership must complete Schedules K-2 and K-3 to and records. Attach a statement explaining any differences. There
provide the information necessary for the partner to claim a foreign are additional requirements for completing Schedule L for
tax credit. partnerships that are required to file Schedule M-3 (see the
Instructions for Schedule M-3 (Form 1065) for details).
Line 22. More Than One At-Risk Activity Partnerships reporting to the Interstate Commerce Commission
(ICC) or to any national, state, municipal, or other public officer may
If the partnership conducted more than one at-risk activity, the send copies of their balance sheets prescribed by the ICC or
partnership is required to provide certain information separately for national, state, or municipal authorities, as of the beginning and end
each at-risk activity to its partners. This information is reported on an of the tax year, instead of completing Schedule L. However,
attached statement to Schedule K-1. Check the box to indicate statements filed under this procedure must contain sufficient
there's more than one at-risk activity for which a statement is information to enable the IRS to reconstruct a balance sheet similar
attached. See At-risk activity reporting requirements, earlier, for to that contained on Form 1065 without contacting the partnership
details. Also see Notice 2019-66 for certain at-risk reporting. during processing.
All amounts on the balance sheet should be reported in U.S.
dollars. If the partnership's books and records are kept in a foreign
Line 23. More Than One Passive Activity currency, the balance sheet should be translated in accordance with
U.S. generally accepted accounting principles (GAAP).
If the partnership conducted more than one activity (determined for
purposes of the passive activity loss and credit limitations), the Exception. If the partnership or any qualified business unit of the
partnership is required to provide information separately for each partnership uses the U.S. dollar approximate separate transactions
activity to its partners. This information is reported on an attached method, Schedule L should reflect the tax balance sheet prepared
statement to Schedule K-1. Check the box to indicate there's more and translated into U.S. dollars according to Regulations section
than one passive activity for which a statement is attached. See 1.985-3(d), and not a U.S. GAAP balance sheet.
Passive Activity Reporting Requirements, earlier, for details.
Partnerships Required To File Schedule M-3
Analysis of Net Income (Loss) per For partnerships required to file Schedule M-3, the amounts
reported on Schedule L must be amounts from financial statements
Return used to complete Schedule M-3. If the partnership prepares
For each type of partner shown on line 2, enter the portion of the non-tax-basis financial statements, Schedule M-3 and Schedule L
amount shown on line 1 that was allocated to that type of partner. must report non-tax-basis financial statement amounts. If the
Foreign government partners are treated as corporate partners partnership doesn't prepare non-tax-basis financial statements,
pursuant to section 892(a)(3). Report all amounts for LLC members Schedule L must be based on the partnership's books and records
on the line for limited partners. The sum of the amounts shown on and may show tax-basis balance sheet amounts if the partnership's
line 2 must equal the amount shown on line 1. In addition, the books and records reflect only tax-basis amounts.
amount on Analysis of Net Income (Loss) per Return, line 1, must
equal the amount on Schedule M-1, line 9 (if the partnership is Line 5. Tax-Exempt Securities
required to complete Schedule M-1). If the partnership files Include on this line:
Schedule M-3, the amount on Analysis of Net Income (Loss) per • State and local government obligations, the interest on which is
Return, line 1, must equal the amount in column (d) of excludable from gross income under section 103(a); and
Schedule M-3, Part II, line 26. • Stock in a mutual fund or other RIC that distributed
exempt-interest dividends during the tax year of the partnership.
In classifying partners who are individuals as active or passive,
the partnership should apply the rules below. In applying these rules, Line 7a. Loans to Partners (or Persons Related
a partnership should classify each partner to the best of its to Partners)
knowledge and belief. It's assumed that in most cases the level of a
particular partner's participation in an activity will be apparent. Include on this line loans to partners or persons related to partners.
• If the partnership's principal activity is a trade or business, classify Persons are related if they have a relationship specified in section
a general partner as active if the partner materially participated in all 267(b) or 707(b). Amounts included here shouldn't be included
partnership trade or business activities; otherwise, classify a general elsewhere on lines 1 through 13.
partner as passive.
• If the partnership's principal activity consists of a working interest Line 14. Total Assets
in an oil or gas well, classify a general partner as active. Generally, total assets at the beginning of the year (Schedule L,
• If the partnership's principal activity is a rental real estate activity, line 14, column (b)) must equal total assets at the close of the prior
classify a general partner as active if the partner actively participated tax year (Schedule L, line 14, column (d)). If total assets at the
in all of the partnership's rental real estate activities; otherwise, beginning of the year don't equal total assets at the close of the prior
classify a general partner as passive. year, attach a statement explaining the difference.
• Classify as passive all partners in a partnership whose principal For purposes of measuring total assets at the end of the year, the
activity is a rental activity other than a rental real estate activity. partnership's assets may not be netted against or reduced by
• If the partnership's principal activity is a portfolio activity, classify partnership liabilities. In addition, asset amounts may not be
all partners as active. reported as a negative number. If the partnership has an interest in
• Classify as passive all limited partners in a partnership whose another partnership and uses a tax-basis method for Schedule L, it
principal activity is a trade or business or rental activity. must show as an asset the adjusted basis of its interest in the other
partnership and separately show as a liability its share of the other
Schedule L. Balance Sheets per partnership's liabilities (which are included in the computation of its
adjusted basis). See the Partner's Instructions for Schedule K-1 for
Books details on how to figure the adjusted basis of a partnership interest.
If Schedule L is non-tax-basis, investment in a partnership may be
Schedules L, M-1, and M-2 aren't required to be completed shown as appropriate under the non-tax-basis accounting method of
TIP if the partnership answered “Yes” to question 4 of the partnership including, if required by the non-tax-basis accounting
Schedule B. method of the partnership, the equity method of accounting for
investments, but must be shown as a non-negative amount.

58 Instructions for Form 1065 (2023)

- 59 -

Page 59 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Example. Partnership A prepares a tax-basis Schedule L and is • Qualified transportation fringes under section 274(a)(4).
a general partner in Partnership B, a general partnership. • Transportation and commuting expenses under section 274(l).
Partnership A's adjusted basis in Partnership B at the end of the year • Other nondeductible travel and entertainment expenses.
is $16 million. Partnership A's share of Partnership B's liabilities is
$20 million, which is included in the $16 million adjusted basis Line 6
amount. On its Schedule L, Partnership A must report $16 million on Include tax-exempt income from forgiven PPP loans on line 6 if it
line 8 as the amount of its investment asset in Partnership B and was included on line 1 of Schedule M-1.
report on line 20 its $20 million share of Partnership B's liabilities.
These amounts can't be netted on Schedule L. Line 7
Line 18. All Nonrecourse Loans Report on this line deductions included on Schedule K, lines 1
through 13e, and 21, not charged against the partnership's book
Nonrecourse loans are those liabilities of the partnership for which income this year. Describe each such item of deduction. Attach a
no partner bears the economic risk of loss. If the partnership's statement if necessary.
nonrecourse liabilities include its share of the liabilities of another
partnership, the partnership's share of those liabilities must be Line 9
reflected on line 18.
This line 9 should reconcile to the Analysis of Net Income (Loss) per
Line 19a. Loans From Partners (or Persons Return, line 1.
Related to Partners)
Include on this line loans from partners or persons related to Schedule M-2. Analysis of Partners'
partners. Persons are related if they have a relationship specified in
section 267(b) or 707(b). Amounts included here shouldn't be Capital Accounts
included elsewhere on lines 15 through 21. Show what caused changes during the tax year in the partners'
tax-basis capital accounts.
Line 20. Other Liabilities
A partnership that is a partner in a tiered partnership must include as Line 1. Balance at Beginning of Year
a liability on line 20 the partner's share of the tiered partnership's The balance at the beginning of the year should equal the total of the
liabilities to the extent they are recourse liabilities to the partner. amounts reported as the partners’ beginning tax-basis capital
accounts in item L of all the partners’ Schedules K-1. If not, the
partnership should attach an explanation of the difference.
Schedule M-1. Reconciliation of Generally, the balance at the beginning of the year should equal the
adjusted tax basis of the partnership’s assets at the beginning of the
Income (Loss) per Books With year reduced by the partnership’s liabilities at the beginning of the
year. If the partnership’s balance sheet (Schedule L) is reported on
Analysis of Net Income (Loss) per the tax basis and if the aggregate of the partners’ beginning and
Return ending capital accounts differs from the amounts reported on
Schedule L, attach a statement reconciling any differences. No such
Schedule M-3 may be required instead of Schedule M-1. reconciliation is required if Schedule L isn't reported on the tax basis.
TIP See Item J. Schedule C and Schedule M-3, earlier. See the
Instructions for Schedule M-3 for more information. Line 2. Capital Contributed During Year
Include on line 2a the amount of money contributed by each partner
Line 2 to the partnership, as reflected on the partnership's books and
Report on this line income included on Schedule K, lines 1, 2, 3c, 5, records. Include on line 2b the adjusted tax basis of property net of
6a, 7, 8, 9a, 10, and 11, not recorded on the partnership's books this liabilities contributed by each partner to the partnership, as reflected
year. Describe each such item of income. Attach a statement if on the partnership’s books and records.
necessary.
Line 3. Net Income (Loss)
Line 3. Guaranteed Payments Enter on Schedule M-2, line 3, the amount from the Analysis of Net
Include on this line guaranteed payments shown on Schedule K, Income (Loss) per Return, line 1. Generally, this is the same as the
lines 4a and 4b (other than amounts paid for insurance that amount entered on Schedule M-1, line 9, (if the partnership is
constitutes medical care for a partner, a partner's spouse, a partner's required to complete Schedule M-1) or, if the partnership files
dependents, and a partner's children under age 27 who aren't Schedule M-3, the amount in column (d) of Schedule M-3, Part II,
dependents). line 26. Because section 743(b) basis adjustments and income from
guaranteed payments aren't included in the partners' tax-basis
Line 4b. Travel and Entertainment capital accounts, certain adjustments may be necessary. If
adjustments to income under section 743(b) are taken into account
Include the following on this line. in calculating net income (loss), remove the effects of those
• Entertainment expenses, including entertainment-related meals adjustments (for example, by adding or subtracting the income, gain,
and facilities, not deductible under section 274(a). loss, or deduction resulting from those adjustments on line 4 or line 7
• Non-entertainment-related meal expenses not deductible under in accordance with the instructions for those lines). If net income
section 274(n). includes income from guaranteed payments made to partners,
• The part of business gifts over $25. See section 274(b). remove such income on line 7.
• Expenses of an individual allocable to conventions on cruise
ships over $2,000. See section 274(h)(2). Line 4. Other Increases (Itemize)
• Employee achievement awards of nontangible property or
tangible property over $400 ($1,600 if part of a qualified plan). See Enter on line 4 the sum of all other increases to the partners'
section 274(j). tax-basis capital accounts during the year not reflected on lines 2
• The part of the cost of luxury water travel expenses not deductible and 3. Also, if the aggregate net negative income from all section
under section 274(m). See section 274(m)(1)(A). 743(b) adjustments reported on Schedule K, line 13e, was included
• Expenses for travel as a form of education. See section 274(m) as a decrease to income in arriving at net income (loss) on line 3,
(2). report those amounts as an increase on line 4. For these purposes,
• Nondeductible club dues. See section 274(a)(3). “net negative income from all section 743(b) adjustments” means

Instructions for Form 1065 (2023) 59

- 60 -

Page 60 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

the excess of all section 743(b) adjustments to income allocated to Also, if the aggregate net positive income from all section 743(b)
the partner that decrease partner taxable income over all section adjustments reported on Schedule K, line 11, was included as an
743(b) adjustments to income that increase partner taxable income. increase to income in arriving at net income (loss) on line 3, report
that amount as a decrease on line 7. For these purposes, “net
Line 6. Distributions positive income from all section 743(b) adjustments” means the
excess of all section 743(b) adjustments to income allocated to the
Line 6a. Cash. Enter the amount of money distributed to each partner that increase the partner's taxable income over all section
partner by the partnership. For purposes of line 6a, money includes 743(b) adjustments to income that decrease the partner's taxable
marketable securities, as described in section 731(c). income. Likewise, if line 3 includes income from guaranteed
Line 6b. Property. Enter the sum of the adjusted tax bases of payments reported on Schedule K, line 4c, include that amount as a
property net of liabilities distributed to each partner by the decrease on line 7.
partnership as reflected on the partnership's books and records.
Include withdrawals from inventory for the personal use of a partner. Line 9. Balance at End of Year
The balance at the end of the year should equal the total of the
Line 7. Other Decreases (Itemize) amounts reported as the partners’ ending capital accounts in item L
Enter on line 7 the sum of all other decreases to the partners' of all the partners’ Schedules K-1.
tax-basis capital accounts during the year not reflected on line 6.

60 Instructions for Form 1065 (2023)

- 61 -

Page 61 of 67 Fileid: … ions/i1065/2023/a/xml/cycle03/source 18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States.
You're required to give us the information. We need it to ensure that you're complying with these laws and to allow us to figure and collect the
right amount of tax.
You aren’t required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a
valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become
material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section
6103.
Estimates of taxpayer burden. The following tables show burden estimates based on current statutory requirements as of December
2023, for taxpayers filing 2023 Forms 1065, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1066,
1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time burden is
broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses incurred by
taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and photocopying
costs, and tax preparation software costs. While these estimates don't include burden associated with post-filing activities, IRS operational
data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience
lower-than-average burden, with taxpayer burden varying considerably by taxpayer type.
The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden for
corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT, 1120-RIC,
and 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates, there's significant variation in taxpayer
activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type of software
or professional preparer used, and the geographic location. Third-party burden hours aren't included in these estimates.

Table 1—Taxpayer Burden for Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns Average Time (hours) Average Cost Average Monetized
(millions) Burden
All Partnerships 5.3 60 $5,000 $8,700
Small 4.9 50 $3,200 $5,200
Large* 0.4 200 $27,800 $50,800
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.

Table 2—Taxpayer Burden for Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, and 1120-POL, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns Average Time (hours) Average Cost Average Monetized
(millions) Burden
All Taxable Corporations 2.1 105 $6,700 $14,900
Small 2.0 55 $3,600 $6,200
Large* 0.1 830 $53,800 $149,000
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.

Table 3—Taxpayer Burden for Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, and 1120-S, and all attachments
Primary Form Filed or Type of Taxpayer Total Number of Returns Average Time (hours) Average Cost Average Monetized
(millions) Burden
All Pass-Through Corporations 5.8 65 $4,400 $7,500
Small 5.7 60 $3,800 $6,400
Large* 0.1 295 $37,700 $71,800
* A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that doesn't meet the definition of a large business.

Comments and Suggestions. We welcome your comments about this publication and your suggestions for future editions. You can send
us comments through IRS.gov/FormComments. Or, you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

Instructions for Form 1065 (2023) 61

- 62 -

Page 62 of 67  Fileid: … ions/i1065/2023/a/xml/cycle03/source                                               18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we 
revise our tax forms, instructions, and publications. Don’t send the tax form to this address. Instead, see Where To File, earlier, near the 
beginning of these instructions.

62                                                            Instructions for Form 1065 (2023)

- 63 -

Page 63 of 67                    Fileid: … ions/i1065/2023/a/xml/cycle03/source                                                                18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity                                        Using the list of activities and codes below, determine but retains title to the product, the business is considered a 
                                                                    from which activity the business derives the largest             manufacturer and must use one of the manufacturing codes 
and Principal Product or Service                                    percentage of its “total receipts.” Total receipts is defined as (311110–339900).
                                                                    the sum of gross receipts or sales (page 1, line 1a); all other 
This list of Principal Business Activities and their associated     income (page 1, lines 4 through 7); income reported on             Once the Principal Business Activity is determined, 
codes is designed to classify an enterprise by the type of          Schedule K, lines 3a, 5, 6a, and 7; income or net gain           enter the six-digit code from the list below on page 1, item 
activity in which it's engaged to facilitate the administration     reported on Schedule K, lines 8, 9a, 10, and 11; and             C. Also enter the business activity in item A and a brief 
of the Internal Revenue Code. These Principal Business              income or net gain reported on Form 8825, lines 2, 19, and       description of the principal product or service of the 
Activity Codes are based on the North American Industry             20a. If the business purchases raw materials and supplies        business in item B.
Classification System.                                              them to a subcontractor to produce the finished product, 
Agriculture, Forestry, Fishing                   238900         Other Specialty Trade Contractors   331200 Steel Product Mfg from Purchased    423800   Machinery, Equipment, & Supplies
                                                                (including site preparation)               Steel                               423910   Sporting & Recreational Goods & 
and Hunting                                      Manufacturing                                      331310 Alumina & Aluminum Production &              Supplies
                                                                                                           Processing                          423920   Toy & Hobby Goods & Supplies
Crop Production                                  Food Manufacturing                                 331400 Nonferrous Metal (except            423930   Recyclable Materials
111100   Oilseed & Grain Farming                 311110         Animal Food Mfg                            Aluminum) Production &              423940   Jewelry, Watch, Precious Stone, & 
111210   Vegetable & Melon Farming               311200         Grain & Oilseed Milling                    Processing                                   Precious Metals
         (including potatoes & yams)             311300         Sugar & Confectionery Product       331500 Foundries                           423990   Other Miscellaneous Durable 
111300   Fruit & Tree Nut Farming                               Mfg                                 Fabricated Metal Product Manufacturing              Goods
111400   Greenhouse, Nursery, &                  311400         Fruit & Vegetable Preserving &      332110 Forging & Stamping                  Merchant Wholesalers, Nondurable 
         Floriculture Production                                Specialty Food Mfg                  332210 Cutlery & Handtool Mfg              Goods
111900   Other Crop Farming (including           311500         Dairy Product Mfg                   332300 Architectural & Structural Metals   424100   Paper & Paper Products
         tobacco, cotton, sugarcane, hay,        311610         Animal Slaughtering & Processing           Mfg                                 424210   Drugs & Druggists' Sundries
         peanut, sugar beet & all other crop                                                        332400 Boiler, Tank, & Shipping Container  424300   Apparel, Piece Goods, & Notions
Animal Production                                               Packaging
         farming)                                311710         Seafood Product Preparation &              Mfg                                 424400   Grocery & Related Products
112111   Beef Cattle Ranching & Farming          311800         Bakeries, Tortilla & Dry Pasta Mfg  332510 Hardware Mfg                        424500   Farm Product Raw Materials
112112   Cattle Feedlots                         311900         Other Food Mfg (including coffee,   332610 Spring & Wire Product Mfg           424600   Chemical & Allied Products
112120   Dairy Cattle & Milk Production                         tea, flavorings & seasonings)       332700 Machine Shops; Turned Product; &    424700   Petroleum & Petroleum Products
112210   Hog & Pig Farming                       Beverage and Tobacco Product                              Screw, Nut, & Bolt Mfg
                                                 Manufacturing                                      332810 Coating, Engraving, Heat Treating,  424800   Beer, Wine, & Distilled Alcoholic 
112300   Poultry & Egg Production                312110         Soft Drink & Ice Mfg                       & Allied Activities                          Beverages
112400   Sheep & Goat Farming                    312120         Breweries                           332900 Other Fabricated Metal Product      424910   Farm Supplies
112510   Aquaculture (including shellfish &      312130         Wineries                                   Mfg                                 424920   Book, Periodical, & Newspapers
         finfish farms & hatcheries)             312140         Distilleries                        Machinery Manufacturing                    424930   Flower, Nursery Stock, & Florists' 
112900   Other Animal Production                 312200         Tobacco Manufacturing               333100 Agriculture, Construction, & Mining          Supplies
                                                                                                           Machinery Mfg                       424940   Tobacco Products & Electronic 
Forestry and Logging                             Textile Mills and Textile Product Mills            333200 Industrial Machinery Mfg                     Cigarettes
113110   Timber Tract Operations                 313000         Textile Mills                       333310 Commercial & Service Industry       424950   Paint, Varnish, & Supplies
113210   Forest Nurseries & Gathering of         314000         Textile Product Mills                      Machinery Mfg                       424990   Other Miscellaneous Nondurable 
         Forest Products                                                                                                                                Goods
113310   Logging                                 Apparel Manufacturing                              333410 Ventilation, Heating, 
Fishing, Hunting and Trapping                    315100         Apparel Knitting Mills                     Air-Conditioning, & Commercial      Wholesale Trade Agents & Brokers
114110   Fishing                                 315210         Cut & Sew Apparel Contractors              Refrigeration Equipment Mfg         425120   Wholesale Trade Agents & Brokers
114210   Hunting & Trapping                      315250         Cut & Sew Apparel Mfg (except       333510 Metalworking Machinery Mfg
Support Activities for Agriculture and                          Contractors)                        333610 Engine, Turbine & Power             Retail Trade
Forestry                                         315990         Apparel Accessories & Other                Transmission Equipment Mfg          Motor Vehicle and Parts Dealers
115110   Support Activities for Crop                            Apparel Mfg                         333900 Other General Purpose Machinery     441110   New Car Dealers
         Production (including cotton            Leather and Allied Product Manufacturing                  Mfg                                 441120   Used Car Dealers
         ginning, soil preparation, planting,    316110         Leather & Hide Tanning & Finishing  Computer and Electronic Product            441210   Recreational Vehicle Dealers
                                                                                                    Manufacturing
         & cultivating)                          316210         Footwear Mfg (including rubber &    334110 Computer & Peripheral Equipment     441222   Boat Dealers
115210   Support Activities for Animal                          plastics)                                  Mfg                                 441227   Motorcycle, ATV, & All Other Motor 
         Production (including farriers)         316990         Other Leather & Allied Product Mfg  334200 Communications Equipment Mfg                 Vehicle Dealers
115310   Support Activities For Forestry         Wood Product Manufacturing                         334310 Audio & Video Equipment Mfg         441300   Automotive Parts, Accessories, & 
Mining                                           321110         Sawmills & Wood Preservation        334410 Semiconductor & Other Electronic             Tire Retailers
211120   Crude Petroleum Extraction              321210         Veneer, Plywood, & Engineered              Component Mfg                       Building Material and Garden Equipment 
                                                                Wood Product Mfg                    334500 Navigational, Measuring,            and Supplies Dealers
211130   Natural Gas Extraction                  321900         Other Wood Product Mfg                     Electromedical, & Control           444110   Home Centers
212110   Coal Mining                             Paper Manufacturing                                       Instruments Mfg                     444120   Paint & Wallpaper Retailers
212200   Metal Ore Mining                        322100         Pulp, Paper, & Paperboard Mills     334610 Manufacturing & Reproducing         444140   Hardware Retailers
212310   Stone Mining & Quarrying                322200         Converted Paper Product Mfg                Magnetic & Optical Media            444180   Other Building Material Dealers
212320   Sand, Gravel, Clay, & Ceramic &         Printing and Related Support Activities            Electrical Equipment, Appliance, and       444200   Lawn & Garden Equipment & 
                                                                                                    Component Manufacturing                             Supplies Retailers
         Refractory Minerals Mining &            323100         Printing & Related Support          335100 Electric Lighting Equipment Mfg     Food and Beverage Retailers
         Quarrying                                              Activities                          335200 Household Appliance Mfg             445110   Supermarkets & Other Grocery 
212390   Other Nonmetallic Mineral Mining        Petroleum and Coal Products                        335310 Electrical Equipment Mfg                     Retailers (except Convenience)
         & Quarrying                             Manufacturing
213110   Support Activities for Mining           324110         Petroleum Refineries (including     335900 Other Electrical Equipment &        445131   Convenience Retailers
Utilities                                                       integrated)                                Component Mfg                       445132   Vending Machine Operators
221100   Electric Power Generation,              324120         Asphalt Paving, Roofing, &          Transportation Equipment Manufacturing     445230   Fruit & Vegetable Retailers
         Transmission, & Distribution                           Saturated Materials Mfg             336100 Motor Vehicle Mfg                   445240   Meat Retailers
221210   Natural Gas Distribution                324190         Other Petroleum & Coal Products     336210 Motor Vehicle Body & Trailer Mfg    445250   Fish & Seafood Retailers
                                                                Mfg                                 336300 Motor Vehicle Parts Mfg             445291   Baked Goods Retailers
221300   Water, Sewage & Other Systems           Chemical Manufacturing                             336410 Aerospace Product & Parts Mfg       445292   Confectionery & Nut Retailers
221500   Combination Gas & Electric              325100         Basic Chemical Mfg                  336510 Railroad Rolling Stock Mfg          445298   All Other Specialty Food Retailers
Construction                                     325200         Resin, Synthetic Rubber, &          336610 Ship & Boat Building                445320   Beer, Wine, & Liquor Retailers
                                                                Artificial & Synthetic Fibers & 
Construction of Buildings                                       Filaments Mfg                       336990 Other Transportation Equipment      Furniture and Home Furnishings Retailers
236110   Residential Building Construction       325300         Pesticide, Fertilizer, & Other             Mfg                                 449110   Furniture Retailers
236200   Nonresidential Building                                Agricultural Chemical Mfg           Furniture and Related Product              449121   Floor Covering Retailers
         Construction                            325410         Pharmaceutical & Medicine Mfg       Manufacturing
Heavy and Civil Engineering Construction         325500         Paint, Coating, & Adhesive Mfg      337000 Furniture & Related Product         449122   Window Treatment Retailers
                                                                                                           Manufacturing                       449129   All Other Home Furnishings 
237100   Utility System Construction             325600         Soap, Cleaning Compound, &          Miscellaneous Manufacturing                         Retailers
237210   Land Subdivision                                       Toilet Preparation Mfg              339110 Medical Equipment & Supplies Mfg    Electronics and Appliance Retailers
237310   Highway, Street, & Bridge               325900         Other Chemical Product &            339900 Other Miscellaneous                 449210   Electronics & Appliance Retailers 
         Construction                                           Preparation Mfg                            Manufacturing                                (including computers)
237990   Other Heavy & Civil Engineering         Plastics and Rubber Products                                                                  General Merchandise Retailers
         Construction                            Manufacturing                                      Wholesale Trade                            455110   Department Stores
Specialty Trade Contractors                      326100         Plastics Product Mfg                Merchant Wholesalers, Durable Goods        455210   Warehouse Clubs, Supercenters, & 
238100   Foundation, Structure, & Building       326200         Rubber Product Mfg                  423100 Motor Vehicle & Motor Vehicle                Other General Merch. Retailers
         Exterior Contractors (including         Nonmetallic Mineral Product                               Parts & Supplies                    Health and Personal Care Retailers
         framing carpentry, masonry, glass,      Manufacturing                                      423200 Furniture & Home Furnishings        456110   Pharmacies & Drug Retailers
         roofing, & siding)                      327100         Clay Product & Refractory Mfg       423300 Lumber & Other Construction         456120   Cosmetics, Beauty Supplies, & 
238210   Electrical Contractors                  327210         Glass & Glass Product Mfg                  Materials                                    Perfume Retailers
238220   Plumbing, Heating, &                    327300         Cement & Concrete Product Mfg       423400 Professional & Commercial           456130   Optical Goods Retailers
         Air-Conditioning Contractors            327400         Lime & Gypsum Product Mfg                  Equipment & Supplies                456190   Other Health & Personal Care 
238290   Other Building Equipment                327900         Other Nonmetallic Mineral Product   423500 Metal & Mineral (except Petroleum)           Retailers
         Contractors                                            Mfg                                 423600 Household Appliances & Electrical   Gasoline Stations & Fuel Dealers
         (including drywall, insulation, 
238300   Building Finishing Contractors          Primary Metal Manufacturing                               & Electronic Goods                  457100   Gasoline Stations (including 
         painting, wallcovering, flooring, tile, 331110         Iron & Steel Mills & Ferroalloy Mfg 423700 Hardware, & Plumbing & Heating               convenience stores with gas)
         & finish carpentry)                                                                               Equipment & Supplies

                                                                                                                                                                                               63

- 64 -

Page 64 of 67                  Fileid: … ions/i1065/2023/a/xml/cycle03/source                                                             18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity and Principal Product or Service (Continued)
457210 Fuel Dealers (including Heating oil  Information                                    531310   Real Estate Property Managers         561440   Collection Agencies
       & Liquefied Petroleum)                                                              531320   Offices of Real Estate Appraisers     561450   Credit Bureaus
Clothing and Accessories Retailers          Motion Picture and Sound Recording             531390   Other Activities Related to Real      561490   Other Business Support Services 
458110 Clothing & Clothing Accessories      Industries                                              Estate                                         (including repossession services, 
       Retailers                            512100   Motion Picture & Video Industries     Rental and Leasing Services                             court reporting, & stenotype 
458210 Shoe Retailers                                (except video rental)                 532100   Automotive Equipment Rental &                  services)
458310 Jewelry Retailers                    512200   Sound Recording Industries                     Leasing                               561500   Travel Arrangement & Reservation 
458320 Luggage & Leather Goods              Publishing Industries                          532210   Consumer Electronics &                         Services
       Retailers                            513110   Newspaper Publishers                           Appliances Rental                     561600   Investigation & Security Services
Sporting, Hobby, Book, Musical              513120   Periodical Publishers                 532281   Formal Wear & Costume Rental          561710   Exterminating & Pest Control 
Instruments, & Miscellaneous Retailers      513130   Book Publishers                       532282   Video Tape & Disc Rental                       Services
459110 Sporting Goods Retailers             513140   Directory & Mailing List Publishers   532283   Home Health Equipment Rental          561720   Janitorial Services
459120 Hobby, Toy, & Game Retailers         513190   Other Publishers                      532284   Recreational Goods Rental             561730   Landscaping Services
459130 Sewing, Needlework, & Piece          513210   Software Publishers                   532289   All Other Consumer Goods Rental       561740   Carpet & Upholstery Cleaning 
                                                                                                                                                   Services
       Goods Retailers                      Broadcasting & Content Providers &             532310   General Rental Centers                561790   Other Services to Buildings & 
459140 Musical Instrument & Supplies        Telecommunications                             532400   Commercial & Industrial Machinery              Dwellings
       Retailers                            516100   Radio & Television Broadcasting                & Equipment Rental & Leasing          561900   Other Support Services (including 
459210 Book Retailers & News Dealers                 Stations                              Lessors of Nonfinancial Intangible Assets               packaging & labeling services, & 
       (including newsstands)               516210   Media Streaming, Social Networks,     (except copyrighted works)                              convention & trade show 
459310 Florists                                      & Other Content Providers             533110   Lessors of Nonfinancial Intangible             organizers)
459410 Office Supplies & Stationery         517000   Telecommunications (including                  Assets (except copyrighted works)     Waste Management and Remediation 
       Retailers                                     Wired, Wireless, Satellite, Cable &                                                  Services
459420 Gift, Novelty, & Souvenir Retailers           Other Program Distribution,           Professional, Scientific, and                  562000   Waste Management & 
459510 Used Merchandise Retailers                    Resellers, Agents, Other                                                                      Remediation Services
459910 Pet & Pet Supplies Retailers                  Telecommunications, & Internet        Technical Services
                                                     Service Providers)
459920 Art Dealers                          Data Processing, Web Search Portals, &         Legal Services                                 Educational Services
459930 Manufactured (Mobile) Home           Other Information Services                     541110   Offices of Lawyers                    611000   Educational Services (including 
       Dealers                              518210   Computing Infrastructure              541190   Other Legal Services                           schools, colleges, & universities)
459990 All Other Miscellaneous Retailers             Providers, Data Processing, Web       Accounting, Tax Preparation,                   Health Care and Social 
       (including tobacco, candle, &                 Hosting, & Related Services           Bookkeeping, and Payroll Services
       trophy retailers)                    519200   Web Search Portals, Libraries,        541211   Offices of Certified Public           Assistance
Nonstore Retailers                                   Archives, & Other Info. Services               Accountants                           Offices of Physicians and Dentists
       Nonstore retailers sell all types of Finance and Insurance                          541213   Tax Preparation Services              621111   Offices of Physicians (except 
       merchandise using such methods                                                      541214   Payroll Services                               mental health specialists)
       as Internet, mail-order catalogs,    Depository Credit Intermediation               541219   Other Accounting Services             621112   Offices of Physicians, Mental 
       interactive television, or direct    522110   Commercial Banking                    Architectural, Engineering, and Related                 Health Specialists
       sales. These types of Retailers 
       should select the PBA associated     522130   Credit Unions                         Services                                       621210   Offices of Dentists
       with their primary line of products  522180   Savings Institutions & Other          541310   Architectural Services                Offices of Other Health Practitioners
       sold. For example, establishments             Depository Credit Intermediation      541320   Landscape Architecture Services       621310   Offices of Chiropractors
       non-prescription drugs, select PBA 
       primarily selling prescription and   Nondepository Credit Intermediation            541330   Engineering Services                  621320   Offices of Optometrists
       code 456110 Pharmacies & Drug        522210   Credit Card Issuing                   541340   Drafting Services                     621330   Offices of Mental Health 
       Retailers.                           522220   Sales Financing                       541350   Building Inspection Services                   Practitioners (except Physicians)
Transportation and                          522291   Consumer Lending                      541360   Geophysical Surveying & Mapping       621340   Offices of Physical, Occupational & 
                                            522292   Real Estate Credit (including                  Services                                       Speech Therapists, & Audiologists
Warehousing                                          mortgage bankers & originators)       541370   Surveying & Mapping (except           621391   Offices of Podiatrists
Air, Rail, and Water Transportation         522299   Intl, Secondary Market, & Other                Geophysical) Services                 621399   Offices of All Other Miscellaneous 
481000 Air Transportation                            Nondepos. Credit Intermediation       541380   Testing Laboratories & Services                Health Practitioners
482110 Rail Transportation                  Activities Related to Credit Intermediation    Specialized Design Services                    Outpatient Care Centers
483000 Water Transportation                 522300   Activities Related to Credit          541400   Specialized Design Services           621410   Family Planning Centers
                                                     Intermediation (including loan 
Truck Transportation                                 brokers, check clearing, & money               (including interior, industrial,      621420   Outpatient Mental Health & 
484110 General Freight Trucking, Local               transmitting)                                  graphic, & fashion design)                     Substance Abuse Centers
484120 General Freight Trucking,            Securities, Commodity Contracts, and           Computer Systems Design and Related            621491   HMO Medical Centers
       Long-distance                        Other Financial Investments and Related        Services                                       621492   Kidney Dialysis Centers
484200 Specialized Freight Trucking         Activities                                     541511   Custom Computer Programming           621493   Freestanding Ambulatory Surgical 
Transit and Ground Passenger                523150   Investment Banking & Securities                Services                                       & Emergency Centers
Transportation                                       Intermediation                        541512   Computer Systems Design               621498   All Other Outpatient Care Centers
485110 Urban Transit Systems                523160   Commodity Contracts                            Services
                                                     Intermediation                        541513   Computer Facilities Management        Medical and Diagnostic Laboratories
485210 Interurban & Rural Bus               523210   Securities & Commodity                         Services                              621510   Medical & Diagnostic Laboratories
       Transportation                                Exchanges                             541519   Other Computer Related Services       Home Health Care Services
485310 Taxi and Ridesharing Services        523900   Other Financial Investment            Other Professional, Scientific, and            621610   Home Health Care Services
485320 Limousine Service                             Activities (including portfolio       Technical Services                             Other Ambulatory Health Care Services
485410 School & Employee Bus                         management & investment advice)       541600   Management, Scientific, &             621900   Other Ambulatory Health Care 
       Transportation                       Insurance Carriers and Related Activities               Technical Consulting Services                  Services (including ambulance 
485510 Charter Bus Industry                 524110   Direct Life, Health, & Medical        541700   Scientific Research & Development              services & blood & organ banks)
485990 Other Transit & Ground Passenger              Insurance Carriers                             Services                              Hospitals
       Transportation                       524120   Direct Insurance (except Life,        541800   Advertising, Public Relations, &      622000   Hospitals
Pipeline Transportation                              Health, & Medical) Carriers                    Related Services                      Nursing and Residential Care Facilities
486000 Pipeline Transportation              524210   Insurance Agencies & Brokerages       541910   Marketing Research & Public           623000   Nursing & Residential Care 
Scenic & Sightseeing Transportation         524290   Other Insurance Related Activities             Opinion Polling                                Facilities
487000 Scenic & Sightseeing                          (including third-party administration 541920   Photographic Services                 Social Assistance
       Transportation                                of insurance & pension funds)         541930   Translation & Interpretation          624100   Individual & Family Services
Support Activities for Transportation       Funds, Trusts, and Other Financial                      Services
                                            Vehicles                                       541940   Veterinary Services                   624200   Community Food & Housing, & 
488100 Support Activities for Air           525100   Insurance & Employee Benefit          541990   All Other Professional, Scientific, &          Emergency & Other Relief 
       Transportation                                Funds                                          Technical Services                             Services
                                                                                                                                          624310   Vocational Rehabilitation Services
488210 Support Activities for Rail          525910   Open-End Investment Funds (Form       Management of Companies                        624410   Childcare Services
       Transportation                                1120-RIC)
488300 Support Activities for Water         525920   Trusts, Estates, & Agency             (Holding Companies)                            Arts, Entertainment, and 
       Transportation                                Accounts
488410 Motor Vehicle Towing                 525990   Other Financial Vehicles (including   551111   Offices of Bank Holding               Recreation
488490 Other Support Activities for Road             mortgage REITs & closed-end                    Companies
       Transportation                                investment funds)                     551112   Offices of Other Holding              Performing Arts, Spectator Sports, and 
                                                                                                    Companies                             Related Industries
488510 Freight Transportation               Real Estate and Rental and                                                                    711100   Performing Arts Companies
       Arrangement                                                                         Administrative and Support and                 711210   Spectator Sports (including sports 
488990 Other Support Activities for         Leasing                                                                                                clubs & racetracks)
Couriers and Messengers                     Real Estate
       Transportation                                                                      Waste Management and                           711300   Promoters of Performing Arts, 
492110 Couriers & Express Delivery          531110   Lessors of Residential Buildings &    Remediation Services                                    Sports, & Similar Events
       Services                                      Dwellings (including equity REITs)    Administrative and Support Services            711410   Agents & Managers for Artists, 
                                                                                                                                                   Athletes, Entertainers, & Other 
492210 Local Messengers & Local Delivery    531120   Lessors of Nonresidential             561110   Office Administrative Services                 Public Figures
Warehousing and Storage                              Buildings (except Miniwarehouses) 
                                                     (including equity REITs)              561210   Facilities Support Services           711510   Independent Artists, Writers, & 
493100 Warehousing & Storage (except        531130   Lessors of Miniwarehouses &           561300   Employment Services                            Performers
       lessors of miniwarehouses &                   Self-Storage Units (including equity  561410   Document Preparation Services         Museums, Historical Sites, and Similar 
       self-storage units)                           REITs)                                561420   Telephone Call Centers                Institutions
                                            531190   Lessors of Other Real Estate          561430   Business Service Centers              712100   Museums, Historical Sites, & 
                                                     Property (including equity REITs)              (including private mail centers &              Similar Institutions
                                            531210   Offices of Real Estate Agents &                copy shops)
                                                     Brokers

            64

- 65 -

Page 65 of 67                Fileid: … ions/i1065/2023/a/xml/cycle03/source                                                     18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity and Principal Product or Service (Continued)
Amusement, Gambling, and Recreation        Food Services and Drinking Places           811210 Electronic & Precision Equipment  812310 Coin-Operated Laundries & 
Industries                                 722300 Special Food Services (including            Repair & Maintenance                     Drycleaners
713100 Amusement Parks & Arcades                  food service contractors &           811310 Commercial & Industrial Machinery 812320 Drycleaning & Laundry Services 
713200 Gambling Industries                        caterers)                                   & Equipment (except Automotive &         (except Coin-Operated)
713900 Other Amusement & Recreation        722410 Drinking Places (Alcoholic                  Electronic) Repair & Maintenance  812330 Linen & Uniform Supply
       Industries (including golf courses,        Beverages)                           811410 Home & Garden Equipment &         812910 Pet Care (except Veterinary) 
       skiing facilities, marinas, fitness 722511 Full-Service Restaurants                    Appliance Repair & Maintenance           Services
       centers, & bowling centers)         722513 Limited Service Restaurants          811420 Reupholstery & Furniture Repair   812920 Photofinishing
Accommodation and Food                     722514 Cafeterias, Grill Buffets, & Buffets 811430 Footwear & Leather Goods Repair   812930 Parking Lots & Garages
                                           722515 Snack & Non-alcoholic Beverage       811490 Other Personal & Household 
Services                                          Bars                                        Goods Repair & Maintenance        812990 All Other Personal Services
                                                                                       Personal and Laundry Services            Religious, Grantmaking, Civic, 
                                                                                                                                Professional, and Similar Organizations
Accommodation                              Other Services                              812111 Barber Shops                      813000 Religious, Grantmaking, Civic, 
721110 Hotels (except Casino Hotels) &     Repair and Maintenance                      812112 Beauty Salons                            Professional, & Similar 
       Motels                                                                                                                          Organizations (including 
721120 Casino Hotels                       811110 Automotive Mechanical & Electrical   812113 Nail Salons                              condominium & homeowners 
721191 Bed & Breakfast Inns                       Repair & Maintenance                 812190 Other Personal Care Services             associations)
721199 All Other Traveler Accommodation    811120 Automotive Body, Paint, Interior, &         (including diet & weight reducing 
                                                  Glass Repair                                centers)                          Other
721210 RV (Recreational Vehicle) Parks &   811190 Other Automotive Repair &            812210 Funeral Homes & Funeral Services  999000 Unclassified Establishments 
       Recreational Camps                         Maintenance (including oil change    812220 Cemeteries & Crematories                 (unable to classify)
721310 Rooming & Boarding Houses,                 & lubrication shops & car washes)
       Dormitories, & Workers’ Camps

                                                                                                                                                                       65

- 66 -

Page 66 of 67               Fileid: … ions/i1065/2023/a/xml/cycle03/source                    18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index
 
                                             Reforestation expenditures  26
A                                            Rent 23                                O
Accounting methods     7                     Repairs and maintenance  23            Ordinary business income (loss)       35
  Change in accounting method    8           Retirement plans  24
  Mark-to-market accounting method    8      Salaries and wages   23 35, 
  Nonaccrual-experience method   8 21,       Taxes and licenses  23                 P
  Percentage of completion method    8       Transactions between related           Paid preparer authorization   6
                                             taxpayers     22                       Partner contributing property with a 
Accounting periods    8                      Travel 25                               built-in gain or loss   34
Adjusting deductions for certain             Wages    23                            Passive activity limitations:
  credits  22                                                                        Grouping activities 17
Administrative adjustment request    9     Definitions 3
Allocation of partnership items:           Depreciation  24                          Passive activities defined  14
  Contributed property  31                 Dispositions of contributed property  13  Recharacterization of passive income     17
  Liabilities 33                           Distributions:                            Rental activities 15
  Nonrecourse liabilities  33                Recognition of precontribution gain 14  Reporting requirements    18
  Partnership agreement    31              Dividends  36                             Trade or business activities 15
                                                                                    Penalties 7
  Special allocations 35                                                             Failure to furnish information timely  7
Alternative minimum tax    46              E
                                                                                     Late filing 7
  Adjusted gain (loss) 47                  Elections:                                Trust fund recovery  7
  Depletion (other than oil and gas) 47      By each partner   13                   Period covered 6
  Depreciation adjustment on property        By the partnership 12                  Portfolio income  16 36, 
  placed in service after 1986   46        Electronic filing 5                      Private delivery services  6
  Oil, gas, and geothermal properties 47   Entity classification election 12        Publicly traded partnerships   5 15 21, , 
Amended return     9                       Extensions  6
Analysis of net income (loss) per 
                                                                                    Q
  Return   58                              F
Analysis of partner's capital account   34                                          Qualified Business Income Deduction       52
Analysis of partners' capital accounts  59 Foreign accounts    27
Assembling the return   12                 Foreign partners, withholding   28
At-risk activities 33                      Foreign partnership   4                  R
Attached statements    32                  Foreign trusts, transactions  27         Recapture:
                                           Forms:                                    Investment credit  49
B                                            How to get  3                           Low-income housing credit    49
                                             That may be required  10                Mining exploration costs  38
Balance sheets per books   58              Future Developments    1                  Section 179 deduction   50
Bipartisan Budget Act of 2015 (BBA)    3                                            Reconciliation of income (loss) per books 
Business start-up expenses    22           G                                         with income (loss) per return        59
                                                                                    Recordkeeping  9
C                                          General partner   4                      Reforestation costs  41
                                           General partnership   4                  Rental activities 15
Capital gain:                              Guaranteed payments     35 59,           Rounding off to whole dollars        9
  Net long-term  37
                                                                                    Royalties 37
  Net short-term   37                      I
Change of address    19
Charitable contribution   39               Inclusion amount    23                   S
Codes:                                     Income:                                  Sale of partnership interests  14
  Partner  33                                Gross receipts or sales  20            Sale of small business stock:
  Principal business activity 63             Tax-exempt income    20                 Exclusion   39
  Schedule K-1 reporting   32                Trade or business  20                   Rollover  38 39, 
Collectibles (28%) gain (loss) 37          Installment sales 20                     Schedule:
Consolidated audit procedures    3         Interest income   36                      B 26
Contributions to the partnership  13       Interest on production expenditures   24  K 31 35, 
Cost of goods sold   21                    Investment:                               K-1 31 35, 
Credits 43                                   Income and expenses   48                L 58
  Low-income housing    43                   Interest expense  41                    M-1 59
  Rehabilitation 44                                                                  M-2 59
  Rental activities 44                     L                                         M-3 59
                                           Limited liability company  4             Section 179 expense deduction         39
D                                          Limited liability partnership 4           Recapture   50
Deductions:                                Limited partner   4                      Section 481(a) adjustment    8
  Bad debts   23                           Limited partnership  4                   Section 59(e) expenditures   13 22 41, , 
  Depletion   24                                                                    Self-charged interest 16
  Depreciation   24                        N                                        Self-employment    42
                                                                                    Signatures:
  Employee benefit programs   25           Net section 1231 gain (loss)   37         General partner or LLC member 
  Entertainment facilities 26              Nondeductible expenses     48               manager    6
  Guaranteed payments      23              Nonrecourse liabilities 33                Paid preparer 6
  How to report  21                        Nonrecourse loans    4 33,               Special allocations 35
  Interest 24                               (See also Nonrecourse liabilities)      Substitute forms  31
  Limitations 22                           Notice of inconsistent treatment    9    Syndication costs  22
  Meals and entertainment  25
  Membership dues     25

              66

- 67 -

Page 67 of 67         Fileid: … ions/i1065/2023/a/xml/cycle03/source      18:59 - 16-Jan-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

T                               U                                        W
Tax shelter:                    Uniform capitalization rules 22          When to file 6
  Registration 27               Unrealized receivables and inventory:    Where to file 7
Tax-exempt income 47              Sale of partnership interests 14       Who must file 4
Termination of partnership 5    Unrecaptured section 1250 gain       37
Travel and entertainment 25 59, Unrelated business taxable income      50

                                                                                                                         67

PDF file checksum: 2028587692

(Plugin #1/9.12/13.0)