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2006

Department of the Treasury

Internal Revenue Service

Partner’s Instructions for

Schedule K-1 (Form 1065)

Partner’s Share of Income, Deductions, Credits, etc.

(For Partner’s Use Only)

addition to any tax that results from making

penalty will be imposed if the partner can

Section references are to the Internal

your amount or treatment of the item

show that the failure was due to reasonable

Revenue Code unless otherwise noted.

consistent with that shown on the

cause and not willful neglect.

General Instructions

partnership’s return. Any deficiency that

results from making the amounts consistent

Nominee Reporting

may be assessed immediately.

Purpose of Schedule K-1

Any person who holds, directly or indirectly,

The partnership uses Schedule K-1 to report

an interest in a partnership as a nominee for

Errors

your share of the partnership’s income,

another person must furnish a written

If you believe the partnership has made an

deductions, credits, etc. Keep it for your

statement to the partnership by the last day

error on your Schedule K-1, notify the

records. Do not file it with your tax return.

of the month following the end of the

partnership and ask for a corrected

The partnership has filed a copy with the

partnership’s tax year. This statement must

Schedule K-1. Do not change any items on

IRS.

include the name, address, and identifying

your copy of Schedule K-1. Be sure that the

number of the nominee and such other

Although the partnership generally is not

partnership sends a copy of the corrected

person, description of the partnership

subject to income tax, you are liable for tax

Schedule K-1 to the IRS. If you are a partner

interest held as nominee for that person,

on your share of the partnership income,

in a partnership that does not meet the small

and other information required by

whether or not distributed. Include your

partnership exception and you report any

Temporary Regulations section

share on your tax return if a return is

partnership item on your return in a manner

1.6031(c)-1T. A nominee that fails to furnish

required. Use these instructions to help you

different from the way the partnership

this statement must furnish to the person for

report the items shown on Schedule K-1 on

reported it, you must file Form 8082.

whom the nominee holds the partnership

your tax return.

interest a copy of Schedule K-1 and related

The amount of loss and deduction that

Sale or Exchange of

information within 30 days of receiving it

you may claim on your tax return may be

from the partnership.

less than the amount reported on Schedule

Partnership Interest

K-1. It is the partner’s responsibility to

A nominee who fails to furnish when due

Generally, a partner who sells or exchanges

consider and apply any applicable

all the information required by Temporary

a partnership interest in a section 751(a)

limitations. See Limitations on Losses,

Regulations section 1.6031(c)-1T, or who

exchange must notify the partnership, in

Deductions, and Credits beginning on page

furnishes incorrect information, is subject to

writing, within 30 days of the exchange (or, if

2 for more information.

a $50 penalty for each statement for which a

earlier, by January 15 of the calendar year

failure occurs. The maximum penalty is

following the calendar year in which the

Inconsistent Treatment of

$100,000 for all such failures during a

exchange occurred). A “section 751(a)

Items

calendar year. If the nominee intentionally

exchange” is any sale or exchange of a

disregards the requirement to report correct

partnership interest in which any money or

Generally, you must report partnership items

information, each $50 penalty increases to

other property received by the partner in

shown on your Schedule K-1 (and any

$100 or, if greater, 10% of the aggregate

exchange for that partner’s interest is

attached schedules) the same way that the

amount of items required to be reported,

attributable to unrealized receivables (as

partnership treated the items on its return.

and the $100,000 maximum does not apply.

defined in section 751(c)) or inventory items

This rule does not apply if your partnership

(as defined in section 751(d)).

is within the “small partnership exception”

and does not elect to have the tax treatment

International Boycotts

The written notice to the partnership

of partnership items determined at the

must include the names and addresses of

Every partnership that had operations in, or

partnership level.

both parties to the exchange, the identifying

related to, a boycotting country, company, or

If the treatment on your original or

numbers of the transferor and (if known) of

a national of a country must file Form 5713,

amended return is inconsistent with the

the transferee, and the exchange date.

International Boycott Report.

partnership’s treatment, or if the partnership

An exception to this rule is made for

was required to but has not filed a return,

If the partnership cooperated with an

sales or exchanges of publicly traded

you must file Form 8082, Notice of

international boycott, it must give you a copy

partnership interests for which a broker is

Inconsistent Treatment or Administrative

of its Form 5713. You must file your own

required to file Form 1099-B, Proceeds

Adjustment Request (AAR), with your

Form 5713 to report the partnership’s

From Broker and Barter Exchange

original or amended return to identify and

activities and any other boycott operations

Transactions.

explain any inconsistency (or to note that a

that you may have. You may lose certain tax

partnership return has not been filed).

If a partner is required to notify the

benefits if the partnership participated in, or

If you are required to file Form 8082 but

partnership of a section 751(a) exchange

cooperated with, an international boycott.

fail to do so, you may be subject to the

but fails to do so, a $50 penalty may be

See Form 5713 and its instructions for more

accuracy-related penalty. This penalty is in

imposed for each such failure. However, no

information.

Cat. No. 11396N

Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Deductions, Credits, Etc. - 2006

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