Page 313 - BusinessStructures & Forms

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
figured for tax purposes for the year, minus the partner's distributive built-in loss. Do not net the built-in gains and built-in losses; instead,
share of partnership loss and deductions (including nondeductible, show the total built-in gain and total built-in loss for all properties
noncapital expenditures) as figured for tax purposes for the year. contributed on that date.
Other increase (decrease). On the line for other increase A property's built-in gain is the amount by which the FMV of the
(decrease), enter the sum of all other increases or decreases that property exceeds its adjusted tax basis at the time the property is
affected the partner's capital account for tax purposes during the contributed to the partnership. A property's built-in loss is the
year and attach a statement explaining each adjustment. For amount by which the FMV of the property is less than its adjusted
example, if a new partner acquired its interest in the partnership from tax basis at the time the property is contributed to the partnership.
another partner in a purchase, exchange, gift, or inheritance, enter Partnerships are required to keep track of this information (see
an amount for the transferee under other increase that is equal to the Regulations section 1.704-3). This information is also needed for
transferor partner's ending capital account with respect to the purposes of allocating partnership items to partners because
interest transferred immediately before the transfer figured using the income, gain, loss, and deductions related to property contributed to
tax basis method. Other examples of increases include the the partnership by a partner must be shared among the partners so
following. as to take account of the variation between the basis of the property
• The partner's distributive share of the excess of the tax to the partnership and its FMV at the time of contribution. If the
deductions for depletion (other than oil and gas depletion) over the partnership distributes any property (other than built-in gain
adjusted tax basis of the property subject to depletion. property) to a partner that has contributed built-in gain property to
• The partner's share of any increase to the adjusted tax basis of the partnership within the last 7 years, it will need this information for
partnership property under section 734(b). the attached statement required in the instructions for line 19b of
If a transferor partner disposed of its interest in the partnership by Schedule K for distributions subject to section 737 (code B). If the
sale, exchange, or gift, or as the result of death, enter the transferor partnership distributes contributed property with a built-in gain or
partner's ending capital account with respect to the interest loss to any partner other than the partner that contributed the
transferred immediately before the transfer figured using the tax property and the date of the distribution is within 7 years of the date
basis method. Other examples of decreases include the following. the property was contributed to the partnership, it will need this
• The partner's distributive share of tax deductions for depletion of information for the attached statement required by the instructions
any partnership oil and gas property, but not exceeding the partner's for line 20c of Schedule K for the precontribution gain (loss) (code
share of the adjusted tax basis of that property. W).
• The partner's share of any decrease to the adjusted tax basis of
partnership property under section 734(b). Item N. Partner's Share of Net Unrecognized
Note. Section 743(b) basis adjustments are not taken into account Section 704(c) Gain or (Loss)
in calculating a partner's capital account under the tax basis method. For item N, the partnership should report the partner's share of net
Withdrawals and distributions. On the line for withdrawals and unrecognized section 704(c) gains or losses, both at the beginning
distributions, enter the amount of cash plus the adjusted tax basis of and at the end of the partnership's tax year. Solely for purposes of
all property distributed by the partnership to the partner during the completing item N, the section 704(c) gain or loss is the partner's
year. The amount you enter on this line should be reduced by any share of the net (net means aggregate or sum) of all unrecognized
liabilities assumed by the partner in connection with, or liabilities to section 704(c) gain or loss in partnership property, including section
which the property is subject immediately before, the distribution. 704(c) gain or loss arising from revaluations of partnership property.
This amount might be negative. See Notice 2019-66 for more information.
Ending capital account. The sum of the amounts shown on the
lines in item L above the line for ending capital account must equal Specific Instructions (Schedules K
the amount reported on the line for ending capital account. A
partner's ending capital account determined under the tax basis and K-1, Part III, Except as Noted)
method may be negative if the sum of a partner's losses and These instructions refer to the lines on Schedule K and the boxes on
distributions exceeds the sum of the partner's contributions and Schedule K-1.
share of income.
Publicly traded partnerships (PTPs). In the case of a sale or Special Allocations
exchange of an interest in a PTP, you may determine a transferee An item is specially allocated if it is allocated to a partner in a ratio
partner's beginning capital account by adjusting the partner's different from the ratio for sharing income or loss generally.
beginning capital account to reflect the transferee partner's
purchase price of the interest rather than entering the transferor Report specially allocated ordinary gain (loss) on Schedule K,
partner's ending capital account. In making the adjustments, you line 11, and in box 11 of Schedule K-1. Report other specially
may use information required to be reported to you under allocated items in the applicable boxes of the partner's
Regulations section 1.6031(c)-1T, and publicly available trading Schedule K-1, with the total amount on the applicable line of
price information. Schedule K. See How Income Is Shared Among Partners, earlier.
Example. A partnership has a long-term capital gain that is
Item M. Did the Partner Contribute Property specially allocated to a partner and a net long-term capital gain
With a Built-in Gain or Loss? reported on line 15 of Schedule D (Form 1065) that must be
reported on line 9a of Schedule K. Because specially allocated
Check the appropriate box to indicate whether the partner gains or losses aren't reported on Schedule D, the partnership must
contributed property with a built-in gain or loss during the tax year. If report both the net long-term capital gain from Schedule D and the
the “Yes” box is checked, attach a statement that contains the specially allocated gain on line 9a of Schedule K. Box 9a of the
following information. Schedule K-1 for the partner must include both the specially
• A description of each property the partner contributed. allocated gain and the partner's distributive share of the net
• The date the property was contributed. long-term capital gain from Schedule D.
• The amount of the property's built-in gain or loss.
Exception. If a partner contributes more than 10 properties with Income (Loss)
either a built-in gain or built-in loss on any date during the tax year,
the partnership isn't required to provide the required information Line 1. Ordinary Business Income (Loss)
separately for each property contributed for that date. Instead, the
partnership can report the (a) number of properties contributed on Enter the amount from page 1, line 22. Enter the income (loss)
that date, (b) total amount of built-in gain, and (c) total amount of without reference to (a) the basis of the partners' interests in the
partnership, (b) the partners' at-risk limitations, or (c) the passive

-34- Instructions for Form 1065 (2022)