Page 310 - BusinessStructures & Forms

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
the nominee. See Temporary Regulations sections 1.6031(b)-1T property so that the contributing partner receives the tax burdens
and 1.6031(c)-1T for more information. and benefits of any built-in gain or loss (that is, precontribution
Give each partner a copy of either the Partner's Instructions for appreciation or diminution of value of the contributed property). See
Schedule K-1 (Form 1065) or specific instructions for each item Regulations section 1.704-3 for details on how to make these
reported on the partner's Schedule K-1. allocations, including a description of specific allocation methods
that are generally reasonable.
Note. Schedules K-2 and K-3 replace prior lines 16 and 20 for See Dispositions of Contributed Property, earlier, for special
certain international codes on Schedules K and K-1. rules on the allocation of income, gain, loss, and deductions on the
Substitute Forms disposition of property contributed to the partnership by a partner.
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 is 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 Only)
substitute Schedules K-1. To request approval, write to:
Internal Revenue Service General Information
Attention: Substitute Forms Program Generally, the partnership is required to prepare and give a
1111 Constitution Ave. NW, Room 6554 Schedule K-1 to each person who was a partner in the partnership at
Washington, DC 20224 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.
Therefore, separate all continuously printed substitutes before you However, a foreign partnership that has one or more U.S.
file them with the IRS. partners must file Form 1065. But if it meets each of the following
four requirements, it isn't required to file or provide Schedules K-1
The partnership may be subject to a penalty if it files Schedules for foreign partners (unless the foreign partner is a pass-through
K-1 that don't conform to the specifications discussed in Pub. 1167, entity through which a U.S. person holds an interest in the foreign
General Rules and Specifications for Substitute Forms and partnership).
Schedules. • The partnership had no gross income effectively connected with
the conduct of a trade or business within the United States during its
How Income Is Shared Among Partners tax year.
Allocate shares of income, gain, loss, deduction, or credit among the • The partnership isn't a withholding foreign partnership as defined
partners according to the partnership agreement for sharing income in Regulations section 1.1441-5(c)(2)(i).
or loss generally. Partners may agree to allocate specific items in a • All required Forms 1042 and 1042-S were filed by the partnership
ratio different from the ratio for sharing income or loss. For instance, or another withholding agent as required by Regulations sections
if the net income exclusive of specially allocated items is divided 1.1461-1(b) and (c).
evenly among three partners but some special items are allocated • The tax liability for each foreign partner for amounts reportable
50% to one, 30% to another, and 20% to the third partner, report the under Regulations sections 1.1461-1(b) and (c) has been fully
specially allocated items on the appropriate line of the applicable satisfied by the withholding of tax at the source.
partner's Schedule K-1 and the total on the appropriate line of Generally, any person who holds an interest in a partnership as a
Schedule K, instead of on the numbered lines on page 1 of Form nominee for another person must furnish to the partnership the
1065, Form 1125-A, or Schedule D. name, address, etc., of the other person.
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 If a married couple each had an interest in the partnership,
partner's interest through an additional capital contribution, or a prepare a separate Schedule K-1 for each of them.
decrease in a partner's interest through a distribution), see section
706(d) and Regulations section 1.706-4 before determining each How To Complete Schedule K-1
partner's distributive share of any item of income, gain, loss, and
deduction, and other items. Partnership items are allocated to a In order to enable accurate scanning and processing of
partner only for the part of the year in which that person is a member ! Schedule(s) K-1, please use a 10-point Helvetica Light
of the partnership. Generally, for each change in a partner’s interest, CAUTION Standard font for all entries on Schedules K-1 if the entries
the partnership will either allocate its items using a proration method are typed or made using a computer.
or a closing-of-the-books method. Special rules apply to certain
partnerships, certain variations, and certain items. See Regulations If the return is for a fiscal year or a short tax year, fill in the tax
section 1.706-4 for additional rules and procedures for making year space at the top of each Schedule K-1. On each Schedule K-1,
elections. In addition, special rules in section 706(d)(2) apply to enter the information about the partnership and the partner in Parts I
certain items of partnerships that report their income on the cash and II (items A through N). In Part III, enter the partner's distributive
basis, and special rules in section 706(d)(3) apply to tiered share of each item of income, deduction, and credit and any other
partnerships. information the partner needs to file the partner's tax return,
Special rules on the allocation of income, gain, loss, and including information needed to prepare state and local tax returns.
deductions generally apply if a partner contributes property to the Codes. In box 11 and boxes 13 through 15, and 17 through 20,
partnership and the FMV of that property at the time of contribution identify each item by entering a code in the column to the left of the
differs from the contributing partner's adjusted tax basis. Under entry space for the dollar amount. These codes are identified in
these rules, the partnership must use a reasonable method of these instructions and on the List of Codes in the Partner’s
making allocations of income, gain, loss, and deductions from the Instructions for Schedule K-1 (Form 1065).

Instructions for Form 1065 (2022) -31-