Professional Documents
Culture Documents
Publication 541
Cat. No. 15071D Introduction ........................................ 1
1997 Returns
Partnership Return (Form 1065) .......
Penalties ..............................................
5
Index .................................................... 27
Introduction
This publication explains how the tax law ap-
plies to partnerships and to partners. A part-
nership does not pay tax on its income but
“passes through” any profits or losses to its
partners. Partners must include partnership
items on their tax returns.
For a discussion of business expenses a
partnership can deduct, see Publication 535.
Members of oil and gas partnerships should
read about the deduction for depletion in
chapter 13 of that publication.
Certain partnerships must have a tax
matters partner (TMP) who is also a general
partner. For information on the rules for des-
ignating a TMP, see the instructions for
Schedule B of Form 1065 and Temporary
Regulations section 301.6231(a)(7)–1T.
1) A description of each organization ex- Estimated tax. Partners may have to make
pense incurred (whether or not paid). payments of estimated tax as a result of
partnership income.
2) The amount of each expense.
Partner's Distributive Generally, the required estimated tax
payment for individuals is the smaller of:
3) The date each expense was incurred.
4) The month the partnership began its
Share 1) 90% of the tax to be shown on the cur-
business. A partner's taxable income for a tax year in- rent year's tax return, or
cludes his or her distributive share of certain 2) 100% of the total tax shown on the prior
5) The number of months (not less than 60) partnership items for the partnership's tax
over which the expenses are to be year's tax return.
year ending with or within the partner's tax
amortized. year. A different rule applies to individuals who
A cash basis taxpayer must also indicate receive at least two-thirds of their gross in-
the amount paid before the end of the year Partnership agreement. Generally, the come from farming or fishing.
for each expense. Expenses less than $10 partnership agreement determines a partner's See Publication 505 for more information.
need not be separately listed, provided the distributive share of any item or class of items
total amount is listed with the dates on which of income, gain, loss, deduction, or credit. Self-employment tax. A partner is not an
the first and last of the expenses were in- The allocations provided for in the partnership employee of the partnership. The partner's
curred. agreement or any modification will be disre- distributive share of ordinary income from a
Amortizable expenses. Amortization garded if they do not have substantial eco- partnership is generally included in figuring
applies to expenses that are: nomic effect. If an allocation does not have net earnings from self-employment. However,
substantial economic effect or the partnership a limited partner generally does not include
1) Incident to the creation of the partner- agreement does not provide for the allocation, his or her distributive share of income or loss
ship, the partner's distributive share of the part- in computing net earnings from self-
nership items is determined by the partner's employment. This exclusion does not apply
2) Chargeable to a capital account, and to guaranteed payments made to a limited
interest in the partnership.
3) The type that would be amortized if they Substantial economic effect. An allo- partner for services actually rendered to or
were incurred in the creation of a part- cation has substantial economic effect if both on behalf of a partnership engaged in a trade
nership having a fixed life. of the following apply: or business. If an individual partner has net
earnings from self-employment of $400 or
To satisfy (1) and (2) above, an expense 1) There is a reasonable possibility that the more for the year, the partner must figure
must be incurred during the period beginning allocation will substantially affect the self-employment tax on Schedule SE (Form
at a point which is a reasonable time before dollar amount of the partners' shares of 1040). For more information on self-
the partnership begins business and ending partnership income or loss independ- employment tax, see Publication 533.
with the date for filing the partnership return ently of tax consequences.
(not including extensions) for the tax year in Alternative minimum tax. To figure alter-
which the partnership begins business. In 2) The partner to whom the allocation is native minimum tax, a partner must sepa-
addition, the expense must be for creating the made actually receives the economic rately take into account any distributive share
partnership and not for starting or operating benefit or bears the economic burden of items of income and deductions that enter
the partnership trade or business. corresponding to that allocation. into the computation of alternative minimum
To satisfy (3) above, the expense must taxable income. For information on which
be for a type of item normally expected to Nonrecourse liability. A nonrecourse liability items of income and deductions are affected,
benefit the partnership throughout its entire is one for which no partner or related person see the Form 6251 instructions.
life. has an economic risk of loss. An allocation
Organization expenses that can be amor-
tized include:
of a loss, deduction, or partnership expense Reporting Distributive
attributable to nonrecourse liabilities not
1) Legal fees for services incident to the deductible or chargeable to capital cannot Share
organization of the partnership, such as have economic effect. A partner's share of A partner must report his or her distributive
negotiation and preparation of a part- nonrecourse deductions is determined by his share of partnership items on his or her tax
nership agreement. or her interest in the partnership. For the rules return, whether or not it is actually distributed.
on allocating nonrecourse deductions, see However, a partner's distributive share of a
2) Accounting fees for services incident to section 1.704–2 of the Income Tax Regu- loss may be limited. See Limits on Losses,
the organization of the partnership. lations. later. These items are reported to the partner
Page 6
on Schedule K–1 (Form 1065). See the Part- Passive activities. Generally, section 469
ner's Instructions for Schedule K–1 (Form
Limits on Losses of the Internal Revenue Code limits the
1065) for more information. amount a partner can deduct for passive ac-
To determine the allowable amount of any Partner's adjusted basis. A partner's dis- tivity losses and credits. The passive activity
deduction or exclusion subject to a limit, a tributive share of partnership loss is allowed limits do not apply to the partnership. Instead,
partner must combine any separate de- only to the extent of the adjusted basis of the they apply to each partner's share of loss or
ductions or exclusions on his or her income partner's partnership interest. The adjusted credit from passive activities. Because the
tax return with the distributive share of part- basis is figured at the end of the partnership's treatment of each partner's share of partner-
nership deductions or exclusions before ap- tax year in which the loss occurred, before ship income, loss, or credit depends on the
plying the limit. taking the loss into account. Any loss more nature of the activity that generated it, the
than the partner's adjusted basis is not partnership must report income, loss, and
deductible for that year. However, any loss credits separately for each activity.
Character of items. The character of each not allowed for this reason will be allowed as Generally, passive activities include a
item of income, gain, loss, deduction, or credit a deduction (up to the partner's basis) at the trade or business activity in which the partner
included in a partner's distributive share is end of any succeeding year in which the does not materially participate. The level of
determined as if the partner: partner increases his or her basis to more each partner's participation must be deter-
than zero. See Basis of Partner's Interest, mined by the partner.
1) Realized the item directly from the same later. Rental activities. Passive activities also
source as the partnership, or include rental activities, regardless of the
Example. Mike and Joe are equal part- partner's participation. However, a rental real
2) Incurred the item in the same manner ners in a partnership. Mike files his individual estate activity in which the partner materially
as the partnership. return on a calendar year basis. The partner- participates is not considered a passive ac-
ship return is also filed on a calendar year tivity. The partner must also meet both of the
For example, a partner's distributive share basis. The partnership incurred a $10,000 following conditions for the tax year:
of gain from the sale of partnership depre- loss last year and Mike's distributive share of
the loss is $5,000. The adjusted basis of his 1) More than half of the personal services
ciable property used in the trade or business
partnership interest before considering his the partner performs in any trade or
of the partnership is treated as gain from the
share of last year's loss was $2,000. He could business are in a real property trade or
sale of depreciable property the partner used
claim only $2,000 of the loss on last year's business in which the partner materially
in a trade or business.
individual return. The adjusted basis of his participates.
interest at the end of last year was then re- 2) The partner performs more than 750
Inconsistent treatment of items. Partners duced to zero. hours of service in real property trades
must generally treat partnership items the The partnership showed an $8,000 profit or businesses in which the partner
same way on their individual tax returns as for this year. Mike's $4,000 share of the profit materially participates.
they are treated on the partnership return. If increased the adjusted basis of his interest
a partner treats an item differently on his or by $4,000 (not taking into account the $3,000 Limited partners. Limited partners are
her individual return, the IRS can immediately excess loss he could not deduct last year). generally not considered to materially partic-
assess and collect any tax and penalties that His return for this year will show his $4,000 ipate in trade or business activities conducted
result from adjusting the item to make it con- distributive share of this year's profits and the through partnerships.
sistent with the partnership return. However, $3,000 loss not allowable last year. The ad- More information. For more information
this rule will not apply if a partner identifies the justed basis of his partnership interest at the on passive activities, see Publication 925 and
different treatment by filing Form 8082, No- end of this year is $1,000. the instructions to Forms 1065 and 8582.
tice of Inconsistent Treatment or Administra-
tive Adjustment Request (AAR), with his or
her return. Not-for-profit activity. Deductions relating Partner's Exclusions and
to an activity not engaged in for profit are
limited. For a discussion of the limits, see
Deductions
Consolidated audit procedures. Under chapter 1 in Publication 535.
Cancellation of qualified real property
current examination procedures, the tax
business debt. A partner other than a C
treatment of any partnership item is deter-
At-risk limits. At-risk rules apply to most corporation can elect to exclude from gross
mined at the partnership level in a consol-
trade or business activities, including activ- income the partner's distributive share of in-
idated audit proceeding, rather than at the
ities conducted through a partnership. The come from cancellation of the partnership's
individual partner's level. After the proper
at-risk rules limit a partner's deductible loss qualified real property business debt. This is
treatment is determined at the partnership
to the amounts for which that partner is con- a debt (other than a qualified farm debt) in-
level, the IRS can automatically make related
sidered at risk in the activity. curred or assumed by the partnership in
adjustments to the tax returns of the partners,
A partner is considered at risk for: connection with real property used in its trade
based on their share of the adjusted items.
or business and secured by that property. A
The consolidated audit procedures do not
1) The money and adjusted basis of any debt incurred or assumed after 1992 qualifies
apply to certain small partnerships (with 10
property he or she contributed to the only if it was incurred or assumed to acquire,
or fewer partners) if each partner is either:
activity. construct, reconstruct, or substantially im-
prove such property. A debt incurred to refi-
1) An individual (other than a nonresident 2) The partner's share of net income re- nance a qualified real property business debt
alien), tained by the partnership. qualifies, but only up to the refinanced debt.
A partner who elects the exclusion must
2) A C corporation, or 3) Certain amounts borrowed by the part- reduce the basis of his or her depreciable real
nership for use in the activity if the part- property by the amount excluded. For this
3) An estate of a deceased partner. ner is personally liable for repayment or purpose, a partnership interest is treated as
the amounts borrowed are secured by depreciable real property to the extent of the
However, small partnerships can make an the partner's property (other than prop- partner's share of the partnership's deprecia-
election to have these procedures apply. erty used in the activity). ble real property. However, a partnership in-
terest cannot be treated as depreciable real
For partnership tax years ending be- A partner is not considered at risk for property unless the partnership makes a cor-
! fore August 6, 1997, these proce-
CAUTION dures do not apply to small partner-
amounts protected against loss through responding reduction in the basis of its
guarantees, stop-loss agreements, or similar depreciable real property with respect to that
ships if both of the following applied: arrangements. Nor is the partner at risk for partner.
amounts borrowed if the lender has an inter- To elect the exclusion, the partner must
1) Each partner was an individual (other est in the activity (other than as a creditor) file Form 982 with his or her original income
than a nonresident alien) or an estate. or is related to a person (other than the part- tax return. If the election is not made on that
ner) having such an interest. return, a partner may request permission to
2) The partnership did not make a special For more information on determining the make a late election, but must show that he
allocation of any partnership item. amount at risk, see Publication 925. or she acted reasonably and in good faith and
Page 7
that granting relief will not prejudice the in- Limits. The section 179 deduction is funds. See chapter 8 in Publication 535 for
terests of the government. For more informa- subject to certain limits that apply to the more information on the allocation of interest
tion on making a late election, see sections partnership and to each partner. The part- expense related to debt-financed distribu-
301.9100–1T through 301.9100–3T of the nership determines its section 179 deduction tions.
Temporary Procedure and Administration subject to the limits. It then allocates the de-
Regulations. duction among its partners. Debt-financed acquisitions. The interest
Exclusion limit. The partner's exclusion Each partner adds the amount allocated expense on loan proceeds used to purchase
cannot be more than the smaller of the fol- from the partnership (shown on Schedule an interest in, or make a contribution to, a
lowing two amounts. K–1) to his or her other nonpartnership sec- partnership must be allocated as explained in
tion 179 costs and then applies the maximum chapter 8 of Publication 535.
1) The partner's share of the excess (if any) dollar limit to this total. To determine if a
of: partner has exceeded the $200,000 invest-
ment limit, the partner does not include any
a) The outstanding principal of the
debt immediately before the can-
of the cost of section 179 property placed in
service by the partnership. After the maximum
Partnership
cellation, over dollar limit and investment limit are applied, Distributions
b) The fair market value (as of that the remaining cost of the partnership and
Partnership distributions include the following:
time) of the property securing the nonpartnership section 179 property is sub-
debt, reduced by the outstanding ject to the taxable income limit. 1) A withdrawal by a partner in anticipation
principal of other qualified real Figuring partnership's taxable income. of the current year's earnings.
property business debt secured by For purposes of the taxable income limit,
taxable income of a partnership is figured by 2) A distribution of the current year's or
that property (as of that time).
adding together the net income (or loss) from prior years' earnings not needed for
2) The total adjusted bases of depreciable all trades or businesses actively conducted working capital.
real property held by the partner imme- by the partnership during the tax year. 3) A complete or partial liquidation of a
diately before the cancellation (other Figuring partner's taxable income. For partner's interest.
than property acquired in contemplation purposes of the taxable income limit, the tax-
of the cancellation). able income of a partner who is engaged in 4) A distribution to all partners in a com-
the active conduct of one or more of a part- plete liquidation of the partnership.
Effect on partner's basis. Because of nership's trades or businesses includes his
offsetting adjustments, the cancellation of a A partnership distribution is not taken into
or her allocable share of taxable income de-
partnership debt does not usually cause a net account in determining the partner's distribu-
rived from the partnership's active conduct of
change in the basis of a partnership interest. tive share of partnership income or loss. If any
any trade or business.
Each partner's basis is: gain or loss from the distribution is recognized
Basis adjustment. A partner who is al-
by the partner, it must be reported on his or
located section 179 expenses from the part-
1) Increased by his or her share of the her return for the tax year in which the distri-
nership must reduce the basis of his or her
partnership income from the cancellation bution is received. Money or property with-
partnership interest by the total section 179
of debt (whether or not the partner ex- drawn by a partner in anticipation of the cur-
expenses allocated, regardless of whether
cludes the income), and rent year's earnings is treated as a distribution
the full amount allocated can be currently
received on the last day of the partnership's
2) Reduced by the deemed distribution re- deducted. See Adjusted Basis under Basis
tax year.
sulting from the reduction in his or her of Partner's Interest, later. If a partner dis-
share of partnership liabilities. poses of his or her interest in a partnership,
Effect on partner's basis. A partner's ad-
the partner's basis for determining gain or
justed basis in his or her partnership interest
(See Adjusted Basis under Basis of Partner's loss is increased by any outstanding carry-
is decreased (but not below zero) by the
Interest, later.) The basis of a partner's inter- over of disallowed deductions of section 179
money and adjusted basis of property dis-
est will change only if the partner's share of expenses allocated from the partnership.
tributed to the partner. See Adjusted Basis
income is different from the partner's share The basis of a partnership's section 179
under Basis of Partner's Interest, later.
of debt. property must be reduced by the section 179
As explained earlier, however, a partner's deduction elected by the partnership. This
Effect on partnership. A partnership gen-
election to exclude income from the cancel- reduction of basis must be made even if any
erally does not recognize any gain or loss
lation of debt may reduce the basis of the partner cannot deduct his or her entire
because of distributions it makes to partners.
partner's interest to the extent the interest is allocable share of the section 179 deduction
The partnership may be able to elect to adjust
treated as depreciable real property. because of the limits.
the basis of its undistributed property, as ex-
Basis of depreciable real property re- More information. See Publication 946
plained later under Adjusting the Basis of
duced. If the basis of depreciable real prop- for more information on the section 179 de-
Partnership Property.
erty is reduced, and the property is disposed duction.
of, then for purposes of determining recapture Certain distributions treated as a sale or
under section 1250 of the Internal Revenue Partnership expenses paid by partner. In exchange. When a partnership distributes
Code: general, a partner cannot deduct partnership the following items, the distribution may be
expenses paid out of personal funds unless treated as a sale or exchange of property
1) Any such basis reduction is treated as a the partnership agreement requires the part- rather than a distribution.
deduction allowed for depreciation, and ner to pay the expenses. These expenses are
usually considered incurred and deductible 1) Unrealized receivables or substantially
2) The determination of what would have appreciated inventory items to a partner
been the depreciation adjustment under by the partnership.
If an employee of the partnership performs in exchange for any part of the partner's
the straight line method is made as if interest in other partnership property, in-
there had been no such reduction. part of a partner's duties and the partnership
agreement requires the partner to pay the cluding money.
Therefore, the basis reduction recaptured employee out of personal funds, the partner 2) Other property (including money) in ex-
as ordinary income is reduced over the time can deduct the payment as a business ex- change for any part of a partner's interest
the partnership continues to hold the property, pense. in unrealized receivables or substantially
as the partnership forgoes depreciation de- appreciated inventory items.
ductions due to the basis reduction. Interest expense for distributed loan. If the See Payments for Unrealized Receivables
More information. See chapter 5 in partnership distributes borrowed funds to a and Inventory Items under Disposition of
Publication 334 for more information on partner, the partnership should list the part- Partner's Interest, later.
qualified real property business debt. ner's share of interest expense for these This treatment does not apply in the fol-
funds as “Interest expense allocated to debt- lowing situations:
Section 179 deduction. A partner can elect financed distributions” under “Other de-
to deduct all or part of the cost of certain as- ductions” on the partner's Schedule K–1. The 1) A distribution of property to the partner
sets under section 179 of the Internal Reve- partner deducts this interest on his or her tax who contributed the property to the
nue Code. return depending on how the partner uses the partnership.
Page 8
2) Certain payments made to a retiring 3) The distribution is in money, unrealized For these rules, the term “money” includes
partner or successor in interest of a de- receivables, or inventory items. marketable securities treated as money, as
ceased partner. discussed earlier.
There are exceptions to these general Effect on basis. The adjusted basis of
rules. See the following discussions. Also, the partner's interest in the partnership is in-
Partner's Gain or Loss see Liquidation at Partner's Retirement or creased by any net precontribution gain rec-
A partner generally recognizes gain on a Death under Disposition of Partner's Interest, ognized by the partner. Other than for pur-
partnership distribution only to the extent any later. poses of determining the gain, the increase
money (and marketable securities treated as is treated as occurring immediately before the
money) included in the distribution exceeds Distribution of partner's debt. If a partner- distribution. See Basis of Partner's Interest,
the adjusted basis of the partner's interest in ship acquires a partner's debt and extin- later.
the partnership. Any gain recognized is gen- guishes the debt by distributing it to the part- The partnership must adjust its basis in
erally treated as capital gain from the sale of ner, the partner will recognize capital gain or any property the partner contributed within 5
the partnership interest on the date of the loss to the extent the fair market value of the years (7 years for property contributed after
distribution. If partnership property (other than debt differs from the basis of the debt (deter- June 8, 1997) of the distribution to reflect any
marketable securities treated as money) is mined under the rules discussed in Partner's gain that partner recognizes under this rule.
distributed to a partner, he or she generally Basis for Distributed Property, later). Exceptions. If any of the distributed
does not recognize any gain until the sale or The partner is treated as having satisfied property is property the partner had contrib-
other disposition of the property. the debt for its fair market value. If the issue uted to the partnership, the property is not
For exceptions to these rules, see Distri- price (adjusted for any premium or discount) taken into account in determining either of the
bution of partner's debt and following dis- of the debt exceeds its fair market value when following.
cussions, later. Also, see Payments for Un- distributed, the partner may have to include
1) The excess of the fair market value of
realized Receivables and Inventory Items that amount in income as canceled debt.
any property received over the adjusted
under Disposition of Partner's Interest, later. Similarly, a deduction may be available to
basis of the partner's interest in the
a corporate partner if the fair market value of
Example. The adjusted basis of Jo's partnership.
the debt at the time of distribution exceeds its
partnership interest is $14,000. She receives adjusted issue price. 2) The partner's net precontribution gain.
a distribution of $8,000 cash and land that has
an adjusted basis of $2,000 and a fair market Net precontribution gain. A partner gener- If any interest in an entity is distributed, this
value of $3,000. Because the cash received ally must recognize gain on the distribution exception does not apply to the extent that the
does not exceed the basis of her partnership of property (other than money) if the partner value of the interest is due to property con-
interest, Jo does not recognize any income contributed appreciated property to the part- tributed to the entity after the interest in the
on the distribution. Any gain on the land will nership during the 5-year period before the entity had been contributed to the partnership.
be recognized when she sells or otherwise distribution. Recognition of gain under this rule also
disposes of it. The distribution decreases the does not apply to a distribution of either:
adjusted basis of Jo's partnership interest to A 7-year period applies to property
$4,000 [$14,000 − ($8,000 + $2,000)]. ! contributed after June 8, 1997, except 1) Unrealized receivables or substantially
CAUTION property contributed under a written appreciated inventory items of the part-
Marketable securities treated as money. binding contract: nership, discussed later, in exchange for
Generally, a marketable security distributed all or part of a partner's interest in other
to a partner after December 8, 1994, is 1) That was in effect on June 8, 1997, and partnership property.
treated as money in determining whether gain at all times thereafter before the contri- 2) Other partnership property in exchange
is recognized on the distribution. This treat- bution, and for all or part of a partner's interest in
ment, however, does not generally apply if unrealized receivables or substantially
that partner contributed the security to the 2) That provides for the contribution of a
fixed amount of property. appreciated inventory items of the part-
partnership or an investment partnership nership.
made the distribution to an eligible partner.
The amount treated as money is the se- The gain recognized is the lesser of:
curity's fair market value when distributed,
1) The excess of:
Partner's Basis for
reduced (but not below zero) by the excess
(if any) of: a) The fair market value of the prop-
Distributed Property
erty received in the distribution, Unless there is a complete liquidation of a
1) The partner's distributive share of the over partner's interest, the basis of property (other
gain that would be recognized had the than money) distributed to the partner by a
partnership sold all its marketable secu- b) The adjusted basis of the partner's partnership is its adjusted basis to the part-
rities of the same class and issuer as the interest in the partnership imme- nership immediately before the distribution.
distributed security at their fair market diately before the distribution, re- However, the basis of the property to the
value immediately before the transaction duced (but not below zero) by any partner cannot be more than the adjusted
resulting in the distribution, over money received in the distribution, basis of his or her interest in the partnership
or reduced by any money received in the same
2) The partner's distributive share of the transaction.
gain that would be recognized had the 2) The “net precontribution gain” of the
partnership sold all such securities it still partner. This is the net gain the Example 1. The adjusted basis of Beth's
held after the distribution at the fair distributee partner would recognize if all partnership interest is $30,000. She receives
market value in (1). the property contributed by the partner a distribution of property that has an adjusted
within 5 years (7 years for property con- basis of $20,000 to the partnership and
For the definition of marketable securities tributed after June 8, 1997) of the distri- $4,000 in cash. Her basis for the property is
and other information, see section 731(c) of bution, and held by the partnership im- $20,000.
the Internal Revenue Code. mediately before the distribution, were
distributed to another partner, other than Example 2. The adjusted basis of Mike's
a partner who owns more than 50% of partnership interest is $10,000. He receives
Loss on distribution. A partner does not
the partnership. See Distribution of con- a distribution of $4,000 cash and property that
recognize loss on a partnership distribution
tributed property to another partner un- has an adjusted basis to the partnership of
unless all of the following requirements are
der Contribution of Property, later. $8,000. His basis for the distributed property
met:
is limited to $6,000 ($10,000 − $4,000, the
The character of the gain is determined cash he receives).
1) The adjusted basis of the partner's in-
terest in the partnership exceeds the by reference to the character of the net pre-
distribution. contribution gain. This gain is in addition to Complete liquidation of partner's interest.
any gain the partner must recognize if the The basis of property received in complete
2) The partner's entire interest in the part- money distributed is more than his or her liquidation of a partner's interest is the ad-
nership is liquidated. basis in the partnership. justed basis of the partner's interest in the
Page 9
partnership reduced by any money distributed Allocating a basis decrease. Allocate nership of $12,000, and unrealized receiv-
to the partner in the same transaction. any basis decrease required in rule (1) or rule ables having a basis to the partnership of
(2) above as follows: $8,000. The basis of her partnership interest
Partner's holding period. A partner's hold- is first reduced to $6,000 by the $12,000 cash
1) Allocate the basis decrease first to items she receives. This $6,000 basis is then di-
ing period for property distributed to the part-
with unrealized depreciation to the extent vided proportionately between the inventory
ner includes the period the property was held
of the unrealized depreciation. (If the items and the unrealized receivables. Her
by the partnership. If the property was con-
basis decrease is less than the total un- basis for the inventory items is $3,600
tributed to the partnership by a partner, then
the period it was held by that partner is also
realized depreciation, allocate it among [(12,000 ÷ 20,000) × $6,000]. Her basis for
those items in proportion to their re- the unrealized receivables is $2,400 [(8,000
included.
spective amounts of unrealized depreci- ÷ 20,000) × $6,000].
ation.)
Basis divided among properties. If the Partner's interest more than partner-
basis of property received is the adjusted 2) Allocate any remaining basis decrease
ship basis. If the basis of a partner's interest
basis of the partner's interest in the partner- among all the items in proportion to their
to be divided in a complete liquidation of the
ship (reduced by money received in the same respective assigned basis amounts (as
partner's interest is more than the partner-
transaction), it must be divided among the decreased in (1)).
ship's adjusted basis for the unrealized
properties distributed to the partner. For receivables and inventory items distributed,
properties distributed after August 5, 1997, Example. Tom's basis in his partnership
interest is $20,000. In a distribution in liqui- and if no other property is distributed to which
allocate the basis using the following rules. the partner can apply the remaining basis, the
dation of his entire interest, he receives
properties C and D, neither of which is in- partner has a capital loss to the extent of the
1) Allocate the basis first to unrealized remaining basis of the partnership interest.
receivables and inventory items included ventory or unrealized receivables. Property
in the distribution by assigning a basis C has an adjusted basis to the partnership
to each item equal to the partnership's of $15,000 and a fair market value of $15,000. Special adjustment to basis of property
adjusted basis in the item immediately Property D has an adjusted basis to the received. A partner who acquired any part
before the distribution. If the total of partnership of $15,000 and a fair market of his or her partnership interest in a sale or
these assigned bases exceeds the value of $5,000. exchange or upon the death of another part-
allocable basis, decrease the assigned To figure his basis in each property, Tom ner may be able choose a special basis ad-
bases by the amount of the excess. first assigns bases of $15,000 to property A justment for the property. In order for the
and $15,000 to property B (their adjusted partner to choose the special adjustment, the
2) Allocate any remaining basis to proper- bases to the partnership). This leaves a distribution must be made within 2 years after
ties other than unrealized receivables $10,000 basis decrease (the $30,000 total of the partner acquired the partnership interest.
and inventory items by assigning a basis the assigned bases minus the $20,000 Also, the partnership must not have chosen
to each property equal to the partner- allocable basis). He allocates the entire the optional adjustment to basis, discussed
ship's adjusted basis in the property im- $10,000 to property D (its unrealized depre- later under Adjusting the Basis of Partnership
mediately before the distribution. If the ciation). Tom's basis in property C is $15,000 Property, when the partner acquired the
allocable basis exceeds the total of and his basis in property D is $5,000 ($15,000 partnership interest.
these assigned bases, increase the as- − $10,000). If a partner chooses this special basis
signed bases by the amount of the ex- adjustment, the partner's basis for the prop-
cess. If the total of these assigned bases Distributions before August 6, 1997. erty distributed is the same as it would have
exceeds the allocable basis, decrease For properties distributed before August 6, been if the partnership had chosen the op-
the assigned bases by the amount of the 1997, allocate the basis using the following tional adjustment to basis. However, this as-
excess. rules. signed basis is not reduced by any depletion
or depreciation that would have been allowed
Allocating a basis increase. Allocate 1) Allocate the basis first to unrealized or allowable if the partnership had previously
any basis increase required in rule (2) above receivables and inventory items included chosen the optional adjustment.
first to properties with unrealized appreciation in the distribution to the extent of the The choice must be made with the part-
to the extent of the unrealized appreciation. partnership's adjusted basis in those ner's tax return for the year of the distribution
(If the basis increase is less than the total items. If the partnership's adjusted basis if the distribution includes any property sub-
unrealized appreciation, allocate it among in those items exceeds the allocable ject to depreciation, depletion, or amorti-
those properties in proportion to their re- basis, allocate the basis among the zation. If the choice does not have to be made
spective amounts of unrealized appreciation.) items in proportion to their adjusted for the distribution year, it must be made with
Allocate any remaining basis increase among bases to the partnership. the return for the first year in which the basis
all the properties in proportion to their re- 2) Allocate any remaining basis to other of the distributed property is pertinent in de-
spective fair market values. distributed properties in proportion to termining the partner's income tax.
their adjusted bases to the partnership. A partner choosing this special basis ad-
Example. Julie's basis in her partnership justment must attach a statement to his or her
interest is $55,000. In a distribution in liqui- Example 1. The adjusted basis of Ted's tax return that the partner chooses under
dation of her entire interest, she receives partnership interest is $30,000. In complete section 732(d) of the Internal Revenue Code
properties A and B, neither of which is in- liquidation of his interest, he receives $10,000 to adjust the basis of property received in a
ventory or unrealized receivables. Property A in cash, his share of the inventory items hav- distribution. The statement must show the
has an adjusted basis to the partnership of ing a basis to the partnership of $12,000, and computation of the special basis adjustment
$5,000 and a fair market value of $40,000. two parcels of land having adjusted bases to for the property distributed and list the prop-
Property B has an adjusted basis to the part- the partnership of $12,000 and $4,000. erties to which the adjustment has been allo-
nership of $10,000 and a fair market value The basis of Ted's partnership interest is cated.
of $10,000. reduced to $20,000 by the $10,000 cash. This
To figure her basis in each property, Julie $20,000 basis is then divided among the Example. Bob purchased a 25% interest
first assigns bases of $5,000 to property A properties he receives. The inventory items in X partnership for $17,000 cash. At the time
and $10,000 to property B (their adjusted in his hands now have a basis of $12,000. of the purchase, the partnership owned in-
bases to the partnership). This leaves a To divide the balance of $8,000, he first adds ventory having a basis to the partnership of
$40,000 basis increase (the $55,000 the partnership's bases for the land ($12,000 $14,000 and a fair market value of $16,000.
allocable basis minus the $15,000 total of the + $4,000 = $16,000). The bases of the two Thus, $4,000 of the $17,000 he paid was at-
assigned bases). She first allocates $35,000 parcels of land in his hands are $6,000 tributable to his share of inventory with a ba-
to property A (its unrealized appreciation). [(12,000 ÷ 16,000) × $8,000] and $2,000 sis to the partnership of $3,500.
The remaining $5,000 is allocated between [(4,000 ÷ 16,000) × $8,000], respectively. Within 2 years after acquiring his interest,
the properties based on their fair market val- Bob withdrew from the partnership and for his
ues, $4,000 ($40,000/$50,000) to property A Example 2. Jenny's basis for her part- entire interest received cash of $1,500, in-
and $1,000 ($10,000/$50,000) to property B. nership interest is $18,000. In a distribution ventory with a basis to the partnership of
Julie's basis in property A is $44,000 ($5,000 in liquidation of her entire interest, she re- $3,500, and other property with a basis of
+ $35,000 + $4,000) and her basis in property ceives $12,000 cash, her share of inventory $6,000. The value of the inventory received
B is $11,000 ($10,000 + $1,000). items having an adjusted basis to the part- was 25% of the value of all partnership in-
Page 10
ventory. (It is immaterial whether the inven- 1) Performing services for or transferring by the partnership is $2,000 ($8,000 −
tory he received was on hand when he ac- property to a partnership if— $6,000). Sandy's income from the partnership
quired his interest.) is $8,000, and the remaining $12,000 will be
Since the partnership from which Bob a) There is a related allocation and reported by the other partners in proportion
withdrew did not make the optional adjust- distribution to a partner, and to their shares under the partnership agree-
ment to basis, he chose to adjust the basis b) The entire transaction, when ment.
of the inventory received. His share of the viewed together, is properly char- If the partnership net income had been
partnership's basis for the inventory is in- acterized as occurring between the $30,000, there would have been no guaran-
creased by $500 (1/4 of the $2,000 difference partnership and a partner not acting teed payment since her share, without regard
between the $16,000 fair market value of the in the capacity of a partner. to the guarantee, would have been greater
inventory and its $14,000 basis to the part- than the guarantee.
nership at the time he acquired his interest). 2) Transferring money or other property to
The adjustment applies only for purposes of a partnership if— Self-employed health insurance premi-
determining his new basis in the inventory, ums. Premiums for health insurance paid by
and not for purposes of partnership gain or a) There is a related transfer of money
or other property by the partnership a partnership on behalf of a partner for ser-
loss on disposition. vices as a partner are treated as guaranteed
The total to be allocated among the prop- to the contributing partner or an-
other partner, and payments. The partnership can deduct the
erties Bob received in the distribution is payments as a business expense and the
$15,500 ($17,000 basis of his interest − b) The transfers together are properly partner must include them in gross income.
$1,500 cash received). His basis in the in- characterized as a sale or ex- However, if the partnership accounts for in-
ventory items is $4,000 ($3,500 partnership change of property. surance paid for a partner as a reduction in
basis + $500 special adjustment). The re- distributions to the partner, the partnership
maining $11,500 is allocated to his new basis cannot deduct the premiums.
for the other property he received. Payments by accrual basis partnership to
cash basis partner. A partnership that uses For 1997, a partner who qualifies can de-
an accrual method of accounting cannot de- duct 40% of the health insurance premiums
Mandatory adjustment. A partner does paid by the partnership on his or her behalf
duct any business expense owed to a cash
not always have a choice whether or not to as an adjustment to income. The partner
basis partner until the amount is paid. How-
use this special adjustment to basis. The cannot deduct the premiums for any calendar
ever, this rule does not apply to guaranteed
special adjustment to basis must be made for month or part of a month in which the partner
payments made to a partner, which are gen-
a distribution of property, whether or not the is eligible to participate in any subsidized
erally deductible when accrued.
distribution is made within 2 years after the health plan maintained by any employer of
partnership interest was acquired, if all of the the partner or the partner's spouse. For more
following conditions existed when the partner information on the self-employed health in-
received the partnership interest. Guaranteed Payments surance deduction, see chapter 10 in Publi-
Guaranteed payments are those made by a cation 535.
1) The fair market value of all partnership partnership to a partner that are determined
property (other than money) was more without regard to the partnership's income. A Note. For 1998, a partner who qualifies
than 110% of its adjusted basis to the partnership treats guaranteed payments for can deduct 45% of the health insurance pre-
partnership. services, or for the use of capital, as if they miums paid on his or her behalf as an ad-
were made to a person who is not a partner. justment to income.
2) If there had been a liquidation of the This treatment is for purposes of determining
partner's interest immediately after it was gross income and deductible business ex-
penses only. For other tax purposes, guar- Including payments in partner's income.
acquired, an allocation of the basis of
anteed payments are treated as a partner's Guaranteed payments are included in income
that interest under the general rules
distributive share of ordinary income. Guar- in the partner's tax year in which the partner-
(discussed earlier under Basis divided
anteed payments are not subject to income ship's tax year ends.
among properties) would have de-
creased the basis of property that could tax withholding.
The partnership generally deducts guar- Example 1. Under the terms of a part-
not be depreciated, depleted, or amor- nership agreement, Erica is entitled to a fixed
tized and increased the basis of property anteed payments on line 10 of Form 1065 as
a business expense. They are also listed on annual payment of $10,000 without regard to
that could be. the income of the partnership. Her distributive
Schedules K and K–1 of the partnership re-
3) The optional basis adjustment, if it had turn. The individual partner reports guaran- share of the partnership income is 10%. The
been chosen by the partnership, would teed payments on Schedule E (Form 1040) partnership has $50,000 of ordinary income
have changed the partner's basis for the as ordinary income, along with his or her after deducting the guaranteed payment. She
property actually distributed. distributive share of the partnership's other must include ordinary income of $15,000 on
ordinary income. her individual income tax return for her tax
Guaranteed payments made to partners year in which the partnership's tax year ends
Marketable securities. A partner's basis in for organizing the partnership or syndicating ($10,000 guaranteed payment + $5,000
marketable securities received in a partner- interests in the partnership are capital ex- ($50,000 × 10%) distributive share).
ship distribution, as determined in the pre- penses and are not deductible by the part-
ceding discussions, is increased by any gain nership. However, these payments must be Example 2. Mike is a calendar year tax-
recognized by treating the securities as included in the partners' individual income tax payer who is a partner in a partnership. The
money. See Marketable securities treated as returns. See Organization expenses and partnership is on a fiscal year that ended
money under Partner's Gain or Loss, earlier. syndication fees under Partnership Income January 31, 1997. Mike received guaranteed
The basis increase is allocated among the or Loss, earlier. payments from the partnership from February
securities in proportion to their respective 1, 1996, until December 31, 1996. He must
amounts of unrealized appreciation before the include these guaranteed payments in in-
basis increase. Minimum payment. If a partner is to receive come for 1997 and report them on his 1997
a minimum payment from the partnership, the income tax return.
guaranteed payment is the amount by which
the minimum payment is more than the part- Payments resulting in loss. If a part-
ner's distributive share of the partnership in- nership agreement provides for guaranteed
come before taking into account the guaran-
Transactions Between teed payment.
payments to a partner and the payments re-
sult in a partnership loss in which the partner
Partnership and Example. Under a partnership agree-
shares, the partner must:
Page 20
Form 1065 U.S. Partnership Return of Income OMB No. 1545-0099
G Check applicable boxes: (1) Initial return (2) Final return (3) Change in address (4) Amended return
H Check accounting method: (1) Cash (2) u Accrual (3) Other (specify) ©
I Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year © 2
Caution: Include only trade or business income and expenses on lines 1a through 22 below. See the instructions for more information.
9 Salaries and wages (other than to partners) (less employment credits) 9 29,350
10 Guaranteed payments to partners 10 25,000
11 Repairs and maintenance 11 1,125
12 Bad debts 12 250
13 Rent 13 20,000
14 Taxes and licenses 14 3,295
15 Interest 15 1,451
16a Depreciation (if required, attach Form 4562) 16a 1,174
b Less depreciation reported on Schedule A and elsewhere on return 16b –0– 16c 1,174
17 Depletion (Do not deduct oil and gas depletion.) 17
18 Retirement plans, etc. 18
19 Employee benefit programs 19
21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 21 89,648
22 Ordinary income (loss) from trade or business activities. Subtract line 21 from line 8 22 49,370
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
and belief, it is true, correct, and complete. Declaration of preparer (other than general partner or limited liability company member) is based on all
information of which preparer has any knowledge.
Please
Sign Frank W. Able
Here © Signature of general partner or limited liability company member © Date
3-12-98
©
Preparer’s Date Preparer’s social security no.
Check if
Paid signature
self-employed ©
Preparer’s
©
Firm’s name (or EIN ©
Use Only yours if self-employed)
and address ZIP code ©
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11390Z Form 1065 (1997)
Page 21
Form 1065 (1997) Page 2
Schedule A Cost of Goods Sold (see page 13 of the instructions)
c Check this box if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970) ©
d Do the rules of section 263A (for property produced or acquired for resale) apply to the partnership? Yes u No
e Was there any change in determining quantities, cost, or valuations between opening and closing inventory? Yes u No
If “Yes,” attach explanation.
1 What type of entity is filing this return? Check the applicable box: Yes No
a u General partnership b Limited partnership c Limited liability company
d Other (see page 14 of the instructions) ©
u
2 Are any partners in this partnership also partnerships?
3 Is this partnership a partner in another partnership?
u
4 Is this partnership subject to the consolidated audit procedures of sections 6221 through 6233? If “Yes,” see
u
Designation of Tax Matters Partner below
5 Does this partnership meet ALL THREE of the following requirements?
a The partnership’s total receipts for the tax year were less than $250,000;
b The partnership’s total assets at the end of the tax year were less than $600,000; AND
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including
extensions) for the partnership return.
If “Yes,” the partnership is not required to complete Schedules L, M-1, and M-2; Item F on page 1 of Form 1065;
or Item J on Schedule K-1 u
6 Does this partnership have any foreign partners? u
7 Is this partnership a publicly traded partnership as defined in section 469(k)(2)? u
8 Has this partnership filed, or is it required to file, Form 8264, Application for Registration of a Tax Shelter? u
9 At any time during calendar year 1997, did the partnership have an interest in or a signature or other authority
over a financial account in a foreign country (such as a bank account, securities account, or other financial
account)? See page 14 of the instructions for exceptions and filing requirements for Form TD F 90-22.1. If “Yes,”
enter the name of the foreign country. © u
10 During the tax year, did the partnership receive a distribution from, or was it the grantor of, or transferor to, a
foreign trust? If “Yes,” the partnership may have to file Form 3520 or 926. See page 14 of the instructions u
11 Was there a distribution of property or a transfer (e.g., by sale or death) of a partnership interest during the tax
year? If “Yes,” you may elect to adjust the basis of the partnership’s assets under section 754 by attaching the
statement described under Elections Made By the Partnership on page 5 of the instructions u
Designation of Tax Matters Partner (see page 15 of the instructions)
Enter below the general partner designated as the tax matters partner (TMP) for the tax year of this return:
Name of
designated TMP © Identifying
number of TMP ©
Address of
designated TMP ©
Page 22
Form 1065 (1997) Page 3
Schedule K Partners’ Shares of Income, Credits, Deductions, etc.
(a) Distributive share items (b) Total amount
1 Ordinary income (loss) from trade or business activities (page 1, line 22) 1 49,370
2 Net income (loss) from rental real estate activities (attach Form 8825) 2
3a Gross income from other rental activities 3a
b Expenses from other rental activities (attach schedule) 3b
cNet income (loss) from other rental activities. Subtract line 3b from line 3a 3c
4 Portfolio income (loss):
Income (Loss)
a Interest income 4a
b Dividend income 4b 150
cRoyalty income 4c
d Net short-term capital gain (loss) (attach Schedule D (Form 1065)) 4d
eNet long-term capital gain (loss) (attach Schedule D (Form 1065)):
(1) 28% rate gain (loss) © (2) Total for year © 4e(2)
f Other portfolio income (loss) (attach schedule) 4f
5 Guaranteed payments to partners 5 25,000
6 Net section 1231 gain (loss) (other than due to casualty or theft) (attach Form 4797):
a 28% rate gain (loss) © b Total for year © 6b
7 Other income (loss) (attach schedule) 7
8 Charitable contributions (attach schedule) 8 650
Deduc-
(3) From partnerships to which section 42(j)(5) applies for property placed in service after 1989 12a(3)
(4) Other than on line 12a(3) for property placed in service after 1989 12a(4)
b Qualified rehabilitation expenditures related to rental real estate activities (attach Form 3468) 12b
c Credits (other than credits shown on lines 12a and 12b) related to rental real estate activities 12c
d Credits related to other rental activities 12d
13 Other credits 13
Interest
b (1) Investment income included on lines 4a, 4b, 4c, and 4f above 14b(1) 150
(2) Investment expenses included on line 10 above 14b(2)
15a Net earnings (loss) from self-employment 15a 74,370
ment
Adjustments and Self-
Page 23
Form 1065 (1997) Page 4
Analysis of Net Income (Loss)
1 Net income (loss). Combine Schedule K, lines 1 through 7 in column (b). From the result, subtract the
sum of Schedule K, lines 8 through 11, 14a, 17e, and 18b 1 73,870
2 Analysis by (ii) Individual (iii) Individual (v) Exempt
(i) Corporate (iv) Partnership (vi) Nominee/Other
partner type: (active) (passive) organization
a General partners 73,870
b Limited partners
Schedule L Balance Sheets per Books (Not required if Question 5 on Schedule B is answered “Yes.”)
Beginning of tax year End of tax year
Assets (a) (b) (c) (d)
1 Cash 3,455 3,350
2a Trade notes and accounts receivable 7,150 10,990
b Less allowance for bad debts 7,150 10,990
3 Inventories 18,125 19,225
4 U.S. government obligations
5 Tax-exempt securities 1,000 1,000
6 Other current assets (attach schedule)
7 Mortgage and real estate loans
8 Other investments (attach schedule) 1,000 1,000
9a Buildings and other depreciable assets 15,000 15,000
b Less accumulated depreciation 4,000 11,000 5,174 9,826
10a Depletable assets
b Less accumulated depletion
11 Land (net of any amortization)
12a Intangible assets (amortizable only)
b Less accumulated amortization
13 Other assets (attach schedule)
14 Total assets 41,730 45,391
Liabilities and Capital
15 Accounts payable 10,180 10,462
16 Mortgages, notes, bonds payable in less than 1 year 4,000 3,600
17 Other current liabilities (attach schedule)
18 All nonrecourse loans
19 Mortgages, notes, bonds payable in 1 year or more 7,739
20 Other liabilities (attach schedule)
21 Partners’ capital accounts 27,550 23,590
22 Total liabilities and capital 41,730 45,391
Reconciliation of Income (Loss) per Books With Income (Loss) per Return
Schedule M-1
(Not required if Question 5 on Schedule B is answered “Yes.” See page 23 of the instructions.)
1 Net income (loss) per books 48,920 6 Income recorded on books this year not included
2 Income included on Schedule K, lines 1 on Schedule K, lines 1 through 7 (itemize):
through 4, 6, and 7, not recorded on books a Tax-exempt interest $ 50
this year (itemize): 50
3 Guaranteed payments (other than health 7 Deductions included on Schedule K, lines 1
insurance) 25,000 through 11, 14a, 17e, and 18b, not charged
4 Expenses recorded on books this year not against book income this year (itemize):
included on Schedule K, lines 1 through a Depreciation $
11, 14a, 17e, and 18b (itemize):
a Depreciation $
b Travel and entertainment $ Add lines 6 and 7 8 50
9
Income (loss) (Analysis of Net Income (Loss),
5 Add lines 1 through 4 73,920 line 1). Subtract line 8 from line 5 73,870
Schedule M-2 Analysis of Partners’ Capital Accounts (Not required if Question 5 on Schedule B is answered “Yes.”)
1 Balance at beginning of year 27,550 6 Distributions: a Cash 52,880
2 Capital contributed during year b Property
3 Net income (loss) per books 48,920 7 Other decreases (itemize):
4 Other increases (itemize):
8 Add lines 6 and 7 52,880
5 Add lines 1 through 4 76,470 9 Balance at end of year. Subtract line 8 from line 5 23,590
Page 24
SCHEDULE K-1 OMB No. 1545-0099
Partner’s Share of Income, Credits, Deductions, etc.
(Form 1065)
Department of the Treasury
Internal Revenue Service
©
A This partner is a u general partner limited partner F Partner’s share of liabilities (see instructions):
limited liability company member Nonrecourse $
B What type of entity is this partner? © Individual Qualified nonrecourse financing $
C Is this partner a u domestic or a foreign partner? Other $ 10,900
(i) Before change (ii) End of
D Enter partner’s percentage of: G Tax shelter registration number © N/A
or termination year
Profit sharing % 50 % H Check here if this partnership is a publicly traded
Loss sharing % 50 % partnership as defined in section 469(k)(2)
Ownership of capital % 50 %
E IRS Center where partnership filed return: Philadelphia I Check applicable boxes: (1) Final K-1 (2) Amended K-1
J Analysis of partner’s capital account:
(c) Partner’s share of lines (e) Capital account at end of
(a) Capital account at (b) Capital contributed (d) Withdrawals and year (combine columns (a)
3, 4, and 7, Form 1065,
beginning of year during year distributions through (d))
Schedule M-2
14,050 24,460 ( 26,440 ) 12,070
(c) 1040 filers enter the
(a) Distributive share item (b) Amount
amount in column (b) on:
%
1 Ordinary income (loss) from trade or business activities 1 24,685 See page 6 of Partner’s
2 Net income (loss) from rental real estate activities 2 Instructions for Schedule K-1
(Form 1065).
3 Net income (loss) from other rental activities 3
4 Portfolio income (loss):
a Interest 4a Sch. B, Part I, line 1
b Dividends 4b 75 Sch. B, Part II, line 5
Income (Loss)
%
f Other portfolio income (loss) (attach schedule) Enter on applicable line of your return.
%
8 Charitable contributions (see instructions) (attach schedule)
Deduc-
tions
%
12a Low-income housing credit:
(1) From section 42(j)(5) partnerships for property placed in
service before 1990 a(1)
(2) Other than on line 12a(1) for property placed in service before 1990 a(2)
Form 8586, line 5
(3) From section 42(j)(5) partnerships for property placed in
service after 1989 a(3)
Credits
(4) Other than on line 12a(3) for property placed in service after 1989 a(4)
%
b Qualified rehabilitation expenditures related to rental real estate
activities 12b
c Credits (other than credits shown on lines 12a and 12b) related See page 8 of Partner’s
to rental real estate activities 12c Instructions for Schedule K-1
(Form 1065).
d Credits related to other rental activities 12d
13 Other credits 13
For Paperwork Reduction Act Notice, see Instructions for Form 1065. Cat. No. 11394R Schedule K-1 (Form 1065) 1997
Page 25
Schedule K-1 (Form 1065) 1997 Page 2
(c) 1040 filers enter the
(a) Distributive share item (b) Amount
amount in column (b) on:
Investment
Interest
15a Net earnings (loss) from self-employment 15a 44,685 Sch. SE, Section A or B
b Gross farming or fishing income 15b
% See page 9 of Partner’s
Instructions for Schedule K-1
%
c Gross nonfarm income 15c (Form 1065).
%
Foreign Taxes
%
See page 9 of Partner’s
18 Section 59(e)(2) expenditures: a Type © Instructions for Schedule K-1
b Amount 18b (Form 1065).
19 Tax-exempt interest income 19 25
%
Form 1040, line 8b
20 Other tax-exempt income 20
Other
b
a From section 42(j)(5) partnerships
Other than on line 24a
24a
24b % Form 8611, line 8
25 Supplemental information required to be reported separately to each partner (attach additional schedules if more space is
needed):
Supplemental Information
Page 26
It also contains an index of tax topics and Evaluating the quality of our telephone
related publications and describes other free services. To ensure that IRS representatives
How To Get More tax services available from the IRS, including give accurate, courteous, and professional
tax education and assistance programs. answers, we evaluate the quality of our “800
Information If you have access to a personal computer number” telephone services in several ways.
and modem, you can also get many forms
and publications electronically. See Quick 1) A second IRS representative sometimes
and Easy Access to Tax Help and Forms in monitors live telephone calls. That per-
your income tax package for details. son only evaluates the IRS assistor and
You can get help from the IRS in several does not keep a record of any taxpayer's
ways. name or tax identification number.
Tax questions. You can call the IRS with
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write to the IRS Forms Distribution Center week and use them only to measure the
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Index
Page 27