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the partnership. These elections are made under

the following code sections:

2012

State of Hawaii

•

Section 108(b)(5) (income from discharge of

Department of Taxation

indebtedness); and

•

(REV. 2012)

Section 617 (deduction and recapture of cer-

tain mining exploration expenditures, paid or

Partner’s Instructions for

incurred).

Additional information.—For more information

Schedule K-1 (Form N-20)

on the treatment of partnership income, deduc-

tions, etc., see federal Publication 541, Partner-

(For Partner’s Use Only)

ships; and federal Publication 535, Business Ex-

penses.

(Section references are to the Internal Revenue Code unless otherwise noted.)

Specific Instructions

Where to Get Tax Forms

General Information

Name, address, and identifying number.—

Your name, address, and identifying number, as

Hawaii tax forms, instructions, and schedules

Inconsistent treatment of items.—Generally,

well as the partnership’s name, address, and

may be obtained at any taxation district office or

you must report partnership items shown on your

identifying number, should be entered.

from the Department of Taxation’s website at

Schedule K-1 (and any attached schedules) or

Item D.—Item D should show your share of the

, or you may contact the

similar statement, consistent with the way the

partnership’s nonrecourse liabilities, partnership-

customer service representative at: 808-587-

partnership treated the items on its filed return.

level qualified nonrecourse financing, and other

4242 or 1-800-222-3229 (Toll-Free).

This rule does not apply if your partnership is

liabilities as of the end of the partnership’s tax

within the “small partnership exception” and does

Purpose of Schedule K-1

year. If you terminated your interest in the part-

not elect to have the tax treatment of partnership

nership during the tax year, Item D should show

items determined at the partnership level.

The partnership uses Schedule K-1 to report

the share that existed immediately before the to-

your share of the partnership’s income, credits,

If the treatment on your original or amended

tal disposition. A partner’s “other liability” is, gen-

deductions, etc. Please keep it for your re-

return is (or may be) inconsistent with the part-

erally, any partnership liability for which a partner

cords. Do not file it with your tax return un-

nership’s treatment, or if the partnership was re-

is personally liable.

less otherwise instructed. A copy has been

quired to, but has not filed a return, you must file

Use the total of the three amounts for comput-

filed with the Department of Taxation.

federal Form 8082, Notice of Inconsistent Treat-

ing the adjusted basis of your partnership inter-

ment or Administrative Adjustment Request

Although the partnership is not subject to in-

est.

(AAR), with your original or amended return to

come tax, you are liable for tax on your share of

identify and explain the inconsistency (or to note

Generally, you may use only the amounts

the partnership income, whether or not distribut-

that a partnership return has not been filed).

shown next to “Qualified nonrecourse financing”

ed, and you must include your share on your tax

and “Other” to compute your amount at risk. Do

return.

Errors.—If you believe the partnership has made

not include any amounts that are not at risk if

an error on your Schedule K-1, notify the partner-

The amount of loss and deduction that you

such amounts are included in either of these cat-

ship and ask for a corrected Schedule K-1. Do

may claim on your tax return may be less than

egories.

not change any items on your copy. Be sure that

the amount reported on Schedule K-1. General-

the partnership sends a copy of the corrected

If your partnership is engaged in two or more

ly, the amount of loss and deduction you may

Schedule K-1 to the Department of Taxation.

different types of at-risk activities, or a combina-

claim is limited to your basis in the partnership

However, see Inconsistent treatment of items

tion of at-risk activities and any other activity, the

and the amount for which you are considered at

above.

partnership should give you a statement showing

risk. If you have losses, deductions, or credits

your share of nonrecourse liabilities, partnership-

from a passive activity, you must also apply the

Sale or exchange of partnership interest.—

level qualified nonrecourse financing, and other

passive activity rules. It is the partner’s respon-

Generally, if a partner sells or exchanges a part-

liabilities for each activity.

sibility to consider and apply any applicable

nership interest where unrealized receivables or

limitations. See Limitations on Losses and

substantially appreciated inventory items are in-

Qualified nonrecourse financing secured

Deductions, on page 2, for more information.

volved, the partner must notify the partnership, in

by real property used in an activity of holding real

writing, within 30 days of the exchange. An ex-

property that is subject to the at-risk rules is treat-

Use these instructions to help you report the

ception to this rule is made in the case of sales or

ed as an amount at risk. Qualified nonrecourse

items shown on Schedule K-1 on your tax re-

exchanges of publicly traded partnership interest

financing generally includes financing for which

turn.

for which a broker is required to file federal Form

no one is personally liable for repayment that is

Where “(attach schedule)” appears beside a

1099-B. See federal Form 8308 for the types of

borrowed for use in an activity of holding real

line item, it means you should see the schedule

unrealized receivables involved.

property and that is loaned or guaranteed by a

that the partnership has attached for that line or

federal, state, or local government or borrowed

the space provided on page 2 of Schedule K-1.

Definitions

from a “qualified” person. Qualified persons in-

Schedule K-1 provides you with information

clude any person actively and regularly engaged

General partner.—A general partner is a mem-

relating to the source of your share of the income

in the business of lending money, such as a bank

ber of the organization who is personally liable for

of the partnership. How this income is reported

or savings and loan association. Qualified per-

obligations of the partnership.

by you to the State of Hawaii depends on your

sons generally do not include related parties (un-

Limited partner.—A limited partner is one whose

residency status. Partners who are Hawaii resi-

less the nonrecourse financing is commercially

potential personal liability for partnership debts is

dents are to report the income and deductions

reasonable and on substantially the same terms

limited to the amount of money or other property

attributable everywhere, and the credits attribut-

as loans involving unrelated persons), the seller

that the partner contributed or is required to con-

able to Hawaii. Partners who are not residents of

of the property, or a person who receives a fee for

tribute to the partnership. Some members of

Hawaii or who are part-year residents of Hawaii

the partnership’s investment in the real property.

other entities, such as business trusts or limited

are to use the income, deduction, and credit

See federal Publication 925 for more informa-

liability companies that are classified as partner-

amounts attributable to Hawaii and attributable

tion on qualified nonrecourse financing.

ships, may be treated as limited partners for cer-

everywhere in preparing their Hawaii income tax

Both the partnership and you must meet the

tain purposes.

returns. Resident partners may make an adjust-

qualified nonrecourse rules on this debt before

ment to income reported on their net income tax

Nonrecourse loans.—Nonrecourse loans are

you can include the amount shown next to “Qual-

return for interest penalty on early withdrawal of

those liabilities of the partnership for which none

ified nonrecourse financing” in your at-risk com-

savings if a penalty was imposed on the early

of the partners has any personal liability.

putation.

withdrawal of savings by the partnership and the

Elections.—Generally, the partnership decides

See Limitations on Losses, and Deduc-

interest income is not attributable to Hawaii. See

how to figure taxable income from its operations.

tions for more information on the at-risk limita-

the Instructions for Form N-11. The amount of

For example, it chooses the accounting method

tions.

this deduction should be reported on line 34.

and depreciation methods it will use.

Item E.—If the box in Item E is checked, you are

However, certain elections are made by you

a partner in a publicly traded partnership and

separately on your income tax return and not by

Partner'S Instructions For Schedule K-1 (Form N-20) - Partnership'S Income, Credits, Deductions, Etc. - 2012

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