Partner'S Instructions For Schedule K-1 (Form 1065-B) Draft - Partner'S Share Of Income (Loss) From An Electing Large Partnership (For Partner'S Use Only) - 2011 Page 10

Codes J1 and J2. Self-Employment

Codes M1 Through M9.

level. The following types of income

have already been sourced for you by the

Miscellaneous

Code J1. Net earnings or (loss) from

partnership. Include these amounts on

self-employment. Enter this amount on

Code M1. Other tax-exempt income.

lines 1a and 3d of the applicable Form

Schedule SE (Form 1040), line 2, Section

Increase the adjusted basis of your

1116 (that is, the Form 1116 for each

A or B, whichever is applicable. General

interest in the partnership by this amount,

category of income provided to you).

partners should reduce this amount by

but do not include it in income on your

•

Code K4(a). Passive category

unreimbursed partnership expenses

income tax return. The partnership will

foreign source income.

claimed. General partners who are

attach a statement to Schedule K-1 for

•

DRAFT AS OF

Code K4(b). General category

disqualified persons also should reduce

the amount included in Box 9, Code M-1

foreign source income.

this amount by depletion claimed on oil

that is exempt due to section 892 and

•

Code K4(c). Other foreign source

and gas properties. If this amount is a

describe the nature of the income.

income.

loss, enter only the deductible amount on

Code M2. Nondeductible expenses.

Code K5. Interest expense allocated

Schedule SE. For purposes of

Decrease the adjusted basis of your

and apportioned at the partner level.

self-employment tax, no income from an

interest in the partnership by this amount.

ELP is treated as farming or fishing

Include this amount on line 4b of the

The nondeductible expenses paid or

January 24, 2012

income.

applicable Forms 1116.

incurred by the partnership are not

Code J2. Gross nonfarm income.

deductible on your income tax return, but

Code K6. Other expenses allocated

Individual partners use this amount to

they do affect your basis.

and apportioned at the partner level.

figure net earnings from self-employment

Include this amount on line 2 of the

Code M3. Unrelated business taxable

under the nonfarm optional method on

applicable Forms 1116.

income. The partnership must give you

Schedule SE (Form 1040), Section B,

any information you need to figure

Note. For Codes K5 and K6, do not

Part II.

unrelated business taxable income under

include any expenses allocated and

section 512(a)(1) (but excluding any

Codes K1 Through K9. Foreign Tax

apportioned to U.S. source income on

modifications required by paragraphs (8)

Credit Information

any line of Part I of Form 1116.

through (15) of section 512(b)) for a

Use the information reported under

Codes K7(a) Through Codes K7(c).

partner that is a tax-exempt organization.

Codes K1 through K9 to figure your

Deductions allocated and apportioned

Reminder. A partner is required to notify

foreign tax credit. Caution. Taxpayers

at partnership level to foreign source

the partnership of its tax-exempt status.

filing Form 1116 - If you have any

income. The following codes report the

qualified dividends, capital gains

Code M4. Health insurance. Include

expenses allocated and apportioned by

(including any capital gain distributions) or

any amounts paid during the tax year for

the partnership to foreign source

capital losses, you may have to make

insurance that constitutes medical care

categories of income. Include these

certain adjustments to those amounts

for you, your spouse, your dependents,

amounts on line 2 of the applicable Forms

before taking them into account on Form

and your children under age 27 who are

1116 (that is, the Forms 1116 for each

1116. For more information, see Form

not dependents on line 29 of your 2011

category of income provided to you).

1116, Foreign Tax Credit (Individual,

•

Form 1040. You may be allowed to

Code K7(a). Deductions allocated

Estate, or Trust) and its instructions; Form

deduct such amounts, even if you do not

and apportioned at partnership level to

1118, Foreign Tax Credit — Corporations,

itemize deductions. If you do itemize

passive category foreign source

and its instructions; and Pub. 514,

deductions, enter on line 1 of Schedule A

income.

Foreign Tax Credit for Individuals. See

•

(Form 1040) any amounts not deducted

Code K7(b). Deductions allocated

page 4 of the Instructions for Form 1116

on line 29 of Form 1040.

and apportioned at partnership level to

for detailed instructions for reporting

general category foreign source

Code M5. Distributions of money (cash

foreign tax information from partnerships.

income.

and marketable securities). This

•

Code K1. Name of foreign country or

Code K7(c). Deductions allocated

amount includes the distributions the

U.S. possession. Include on Form

and apportioned at partnership level to

partnership made to you of cash and

1116, Part I, item g. For each country

other foreign source income.

certain marketable securities. The

reported, the partnership must give you

marketable securities are included at their

Code K8(a). Total foreign taxes paid.

the amount and a description of your

fair market value (FMV) on the date of

Include this amount in Part II of Form

share of the following items for Codes K2

distribution (minus your share of the

1116.

through K9. For each country or

partnership’s gain on the securities

possession being reported, a separate

Code K8(b). Total foreign taxes

distributed to you). If this amount exceeds

column in Part I and a separate line in

accrued. Include this amount in Part II of

the adjusted basis of your partnership

Part II is needed on Form 1116.

Form 1116.

interest immediately before the

distribution, the excess is treated as gain

Code K2. Gross income from all

Code K9. Reduction in taxes available

from the sale or exchange of your

sources. Enter this amount on line 3e of

for credit. Enter this amount on line 12

partnership interest. Generally, this gain

Form 1116.

of Form 1116.

is treated as gain from the sale of a

Code K3. Gross income sourced at

capital asset and should be reported on

Code L. Oil and Gas Activities

partner level. Although all this income

the Schedule D for your return. However,

reported has been apportioned to foreign

Generally, oil and gas income,

the gain may be ordinary income. For

source categories of income, you must

deductions, credits, and other items are

details, see Pub. 541.

nevertheless determine whether the

included in your distributive share of

The partnership must separately

income being reported is U.S. source

income or loss from passive loss

identify both of the following.

income or foreign source income. See the

limitation activities, general credits, and

•

The FMV of the marketable securities

Instructions for Form 1116 for the rules to

the alternative minimum tax adjustment.

when distributed (minus your share of the

source the income reported to you. Enter

However, distributive shares of all oil

gain on the securities distributed to you).

only foreign source income on lines 1a

•

and gas income, deductions, credits, and

The partnership’s adjusted basis of

and 3d of Form 1116. A separate Form

other items are separately reported to

those securities immediately before the

1116 or 1118 is required for each foreign

partners who are disqualified persons in

distribution.

source category of income. Do not

accordance with the regular partnership

include income that you determined to be

Decrease the adjusted basis of your

rules, here or on an attached statement.

U.S. source income.

interest in the partnership (but not below

Codes K4(a) Through K4(c). Foreign

Note. A partner must notify the ELP of

zero) by the amount of cash distributed to

gross income sourced at partnership

its status as a “disqualified person.”

you and the partnership’s adjusted basis

-9-

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

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