2010 Partner'S Instructions For Schedule K-1 (Form 1065-B) - Department Of The Treasury Page 11

Limited partners who qualify for the

replacement QSB stock, the date the

liabilities as income, expense, and

exclusion. Report the extraterritorial

stock was purchased, and the cost of the

liabilities of the corporation for purposes

exclusion amount (Code O2) as a

stock.

of the interest deduction limitation under

•

deduction reducing the amount reported

section 163(j). The corporation’s

If a partner treats the partner’s interest

in box 1 (see the box 1 instructions on

distributive share of interest income is

in QSB stock that is purchased by a

page 6).

reported in box 9 using code R1. Its

purchasing partnership as the partner’s

distributive share of interest expense is

replacement QSB stock, the name and

General partners who qualify for the

reported using code R2. The amounts

EIN of the purchasing partnership, the

exclusion. Report the Code O2 amount

reported using code R1 and R2 are for

name of the corporation that issued the

in accordance with the instructions for box

information only, and are included in

QSB stock, the partner’s share of the cost

9, Code A1, B1, or C1, whichever applies.

amounts reported elsewhere on Schedule

of the QSB stock that was purchased by

See Form 8873, Extraterritorial Income

K-1. The corporation’s distributive share

the partnership, the computation of the

Exclusion, for more information.

of partnership liabilities is shown in the

partner’s adjustment to basis with respect

Partnership claimed the exclusion. If

first column of Schedule K-1.

to that QSB stock, and the date the stock

the partnership reports your distributive

was purchased by the partnership.

Code S1. Domestic Production

share of foreign trading gross receipts

Activities Information

(Code O1) but not the amount of the

Distribution of replacement QSB stock

extraterritorial income exclusion, the

to a partner that reduces another

The partnership must attach a statement

partnership met the foreign economic

partner’s interest in replacement QSB

to Schedule K-1 that provides the

process requirements and claimed the

stock. You must recognize gain upon a

information you need to figure the

exclusion when figuring your distributive

domestic production activities deduction.

distribution of replacement QSB stock to

share of partnership income. You also

another partner that reduces your share

Use Form 8903, Domestic Production

may need to know the amount of your

of the replacement QSB stock held by a

Activities Deduction, to figure this

distributive share of foreign trading gross

partnership. The amount of gain that you

deduction. See the Instructions for Form

receipts from this partnership to

must recognize is based on the amount of

8903 for details.

determine if you met the $5 million or less

gain that you would recognize upon the

Code S2. Qualified Production

exception discussed above for purposes

sale of the distributed replacement QSB

Activities Income (QPAI)

of qualifying for an extraterritorial income

stock for its fair market value on the date

exclusion from other sources.

Report the QPAI reported to you by the

of the distribution, but not to exceed the

partnership (in box 9 using code S2) on

Note. Upon request, the partnership

amount you previously deferred under

Form 8903, in the applicable column of

should furnish you a copy of the

section 1045 with respect to the

line 7.

partnership’s Form 8873 if there is a

distributed replacement QSB stock. If the

reduction for international boycott

partnership distributed your share of

Code S3. Employer’s W-2 Wages

operations, illegal bribes, kickbacks, etc.

replacement QSB stock to another

Report the portion of W-2 wages reported

partner, the partnership should give you

Code P. Inversion Gain

to you by the partnership (in box 9 using

(a) the name of the corporation that

code S3) on line 17 of Form 8903.

The partnership must provide a statement

issued the replacement QSB stock, (b)

showing the amounts of each type of

the date the replacement QSB stock was

Code T. Section 409A Income

income or gain that is included in

distributed to another partner or partners,

This is compensation to partners deferred

inversion gain. The partnership has

and (c) your share of the partnership’s

under a section 409A nonqualified

included inversion gain in income

adjusted basis and fair market value of

deferred compensation plan that does not

elsewhere on Schedule K-1. Inversion

the replacement QSB stock on such date.

meet the requirements of section 409A.

gain is also reported under Code P

This amount is also reported in box 9

For more information, see Regulations

because your taxable income and

using Code F. This amount is subject to

section 1.1045-1.

alternative minimum taxable income

interest and additional tax to be reported

cannot be less than the inversion gain.

on line 60 of Form 1040. See the

Code N. Unrecaptured Section

Also, your inversion gain (a) is not taken

instructions for line 60 of Form 1040 for

1250 Gain

into account in figuring the amount of net

details.

operating loss (NOL) for the tax year or

Report this gain on line 11 of the

the amount of NOL that can be carried

Code U. Other Information

Unrecaptured Section 1250 Gain

over to each tax year, (b) may limit the

Worksheet on page D-9 of the

The partnership will use Code U to report

amount of your credits, and (c) is treated

Instructions for Schedule D (Form 1040).

the following to partners.

as income from sources within the U.S.

•

Do not report the gain on line 5 as stated

The recapture of any credit (other than

for the foreign tax credit. See section

on the worksheet.

partnership level low-income housing

7874 for details.

credit or investment credit) is reported to

Codes O1 and O2. Extraterritorial

you as a separately stated item. See the

Code Q. Commercial Revitalization

Income Exclusion

instructions for the specific form identified

Deduction

with the credit for more information on

Partnership did not claim the

Follow the Instructions for Form 8582 for

reporting the recapture.

exclusion. If the partnership reports

commercial revitalization deductions from

•

Any information a partner that is a

your distributive share of foreign trading

rental real estate activities to figure how

publicly traded partnership may need to

gross receipts (Code O1) and the

much of the deduction can be reported on

determine if it meets the 90% qualifying

extraterritorial income exclusion (Code

Schedule E (Form 1040), line 28, column

income test of section 7704(c)(2).

O2), the partnership was not entitled to

(f).

Partners are required to notify the

claim the exclusion because it did not

Note. The commercial revitalization

partnership of their status as a publicly

meet the foreign economic process

deduction is not available for any building

traded partnership.

requirements. You may still qualify for

•

placed in service after December 31,

Any information you need to complete

your distributive share of this exclusion if

2009.

a disclosure statement for reportable

the partnership’s foreign trading gross

transactions in which the partnership

receipts for the tax year were $5 million or

Codes R1 and R2. Interest

participates. If the partnership participates

less.

Deduction Limitation for Corporate

in a transaction that must be disclosed on

Partners

To qualify for this exclusion, your

Form 8886, Reportable Transaction

foreign trading gross receipts from all

A corporate partner is required to treat its

Disclosure Statement, both you and the

sources for the tax year also must have

distributive share of interest income,

partnership may be required to file Form

been $5 million or less.

interest expense, and partnership

8886 for the transaction. The

-11-

Instructions for Schedule K-1 (1065-B) (2010)

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