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Department of the Treasury
Internal Revenue Service
Instructions for Schedule B-2
(Form 1065)
(December 2018)
Election Out of the Centralized Partnership Audit Regime
Section references are to the Internal Revenue it is required to issue a Schedule K-1 to If the partnership has more than 15
Code unless otherwise noted. any of the following partners. partners, use Part IV to continue the list of
• A partnership. partners.
Future Developments • A trust.
For the latest information about • A foreign entity that would not be Ineligible partner types. Types of
developments related to Schedule B-2 treated as a C corporation were it a partners that will invalidate your election
(Form 1065) and its instructions, such as domestic entity. are the following.
legislation enacted after they were • A disregarded entity described in • Partnerships,
published, go to IRS.gov/Form1065. Regulations 301.7701-2(c)(2)(i). • Trusts,
• An estate of an individual other than a • Foreign entities not treated as C
What’s New deceased partner. corporations if they were domestic
• Any person that holds an interest in the entities,
Bipartisan Budget Act. The Bipartisan partnership on behalf of another person. • Disregarded entities described in
Budget Act of 2015 (BBA) created a new Regulations 301.7701-2(c)(2)(i),
• Estates of individuals other than those
centralized partnership audit regime Who Must File of deceased partners, and
effective for partnership tax years
beginning after 2017. Section 6221(b) (as Partnerships, including Real Estate • Persons that hold an interest in the
amended by BBA) provides that certain Mortgage Investment Conduits (REMIC), partnership on behalf of another person.
partnerships with 100 or fewer partners that elect out of the centralized partnership By completing Part I, you are making an
may elect out of the centralized audit regime must complete this form for affirmative statement that all of the
partnership audit regime. This schedule every tax year that the election is to be partners in the partnership meet eligibility
was created to allow partnerships to elect effective. If the form is not completed requirements under section 6221(b)(1)(C),
out of the centralized partnership audit correctly, the IRS may determine that the as amended by BBA, and you have
regime. election is not valid. provided all of the information required on
this schedule.
Purpose of Form How To File Part II—List of S Corporation Share-
Partnerships with 100 or fewer partners This form must be attached to a timely holders. For each S corporation that is a
can annually elect out of the centralized filed (including extensions) Form 1065 (or partner in the partnership, provide the
partnership audit regime if each partner for Form 1066 in the case of a REMIC) for name of the S corporation and the U.S.
the tax year is an individual, a C every tax year the partnership is electing TIN of the S corporation. If there is more
corporation, a foreign entity that would be out of the centralized partnership audit than one S corporation that is a partner in
treated as a C corporation were it regime. the partnership during the tax year,
domestic, an S corporation, or an estate of complete a separate Part II (and Part V, if
a deceased partner. For purposes of Specific Instructions applicable) of this Schedule B-2 for each
determining whether the partnership has Part I—List of Eligible Partners. In additional S corporation partner. For each
100 or fewer partners, the partnership column 1 provide the name of the partner S corporation provide the correct name of
must include, in the count of partners, all required to be furnished a Schedule K-1 each shareholder for the tax year of the S
shareholders of each S corporation that is from the partnership for the tax year. In corporation ending with or within the
a partner. If a partnership makes an column 2 provide the correct U.S. Tax partnership tax year, the correct U.S. TIN
election out of the centralized partnership Identification Number (TIN) of the partner. for each shareholder, and the type of
audit regime, the partnership must Inaccurate TINs will result in validation person code. The following are codes
complete and attach this form to the errors, and the IRS may determine that the available for S corporation shareholders.
partnership return for the tax year the election is not valid. In column 3 provide • I— Individual
election is being made. the code for the type of eligible partner. If • T—Trust
Eligible partnership. A partnership is an the code is not one of the following, you • E— Estate of deceased shareholder
eligible partnership if it has 100 or fewer may not elect out of the centralized • O—Other
eligible partners for the tax year. Whether partnership audit regime. The following The “Other” code includes pension plans
the partnership has 100 or fewer partners are the codes to be used in column 3 for under section 401(a), including Employee
is determined by adding the number of eligible partners. Stock Ownership Plans (ESOPs); section
Schedules K-1 required to be issued by • I— Individual 501(c)(3) charitable organizations; or
the partnership for the tax year plus the • C—Corporation eligible disregarded entities.
number of Schedules K-1 required to be • S—S corporation If there are more than 12 shareholders
issued by each partner that is an S • E— Estate of deceased partner for Part II, use Part V to continue the list of
corporation to its shareholders for the tax • F— Foreign partner that would be shareholders for that S corporation
year of the S corporation ending with or treated as a C corporation if it were a partner.
within the partnership tax year. A domestic entity Part III—Total Number of Schedules
partnership is not an eligible partnership if K-1 Required To Be Issued. The
Dec 18, 2018 Cat. No. 69661H
