Partner’s Instructions for Schedule K-1 (5 65)
References in these instructions are to the Internal Revenue Code (I R C) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).
For more information on the treatment of partnership income, deductions,
credits, etc., get the following federal publications:
Single-Sales Factor Formula – For taxable years beginning on or after
• Publication 5 41, Partnerships
January 1, 2013, Revenue and Taxation Code (R&TC) Section 25128.7
• Publication 535, Business Expenses
requires all business income of an apportioning trade or business, other
Any information returns required for federal purposes under I R C
than an apportioning trade or business under R&TC Section 25128(b),
Sections 6038, 6038A, and 6038B are also required for California purposes.
to apportion its business income to California using the single-sales
Attach the information returns to your California tax return when filed. If
factor formula. For more information, get Schedule R, Apportionment and
the information returns are not provided, penalties may be imposed under
Allocation of Income, or go to ftb.ca.gov and search for law changes.
R&TC Sections 19141.2 and 19141.5.
Market Assignment – For taxable years beginning on or after January 1,
2013, R&TC Section 25136 requires all taxpayers to assign sales, other
than sales of tangible personal property, using market assignment. For more
information, get Schedule R, Apportionment and Allocation of Income, or go
to ftb.ca.gov and search for law changes.
An individual or entity owning an interest in a partnership who is personally
liable for partnership debts and who is authorized to act on behalf of the
In general, for taxable years beginning on or after January 1, 2010, California
An individual or entity owning an interest in a partnership whose potential
law conforms to the Internal Revenue Code (I R C) as of January 1, 2009.
personal liability for partnership debts is limited to the amount of money or
However, there are continuing differences between California and federal
other property that the partner contributed or is required to contribute to the
law. When California conforms to federal tax law changes, we do not always
adopt all of the changes made at the federal level. For more information, go
to ftb.ca.gov and search for conformity. Additional information can be found
Liabilities of the partnership for which none of the partners have assumed
in FTB Pub. 1001, Supplemental Guidelines to California Adjustments, the
any personal liability.
instructions for California Schedule CA (5 40 or 5 40N R), and the Business
Entity tax booklets.
Qualified Nonrecourse Financing
Any financing for which no one is personally liable for repayment that is
The instructions provided with California tax forms are a summary of
borrowed for use in an activity of holding real property and that is loaned
California tax law and are only intended to aid taxpayers in preparing their
or guaranteed by a federal, state, or local government, or borrowed from a
state income tax returns. We include information that is most useful to the
greatest number of taxpayers in the limited space available. It is not possible
to include all requirements of the California Revenue and Taxation Code
California Business Situs
(R&T C) in the tax booklets. Taxpayers should not consider the tax booklets
The place at which intangible personal property is employed as capital
as authoritative law.
in California or the possession and control of the property is localized in
connection with a business in California so that its substantial use and value
For taxable years beginning on or after January 1, 2003, California will follow
attach to and become an asset of the business in California.
the revised federal instructions (with some exceptions) for reporting the sale,
exchange or disposition of an asset for which an I R C Section 179 expense
was claimed in a prior year by a partnership, limited liability company (LLC)
The process by which business income from a trade or business conducted
or S corporation.
in two or more states (an apportioning trade or business) is divided between
taxing jurisdictions. Get Schedule R, Apportionment and Allocation of
Partners should follow federal reporting requirements as detailed in federal
Income, for more information.
Form 1065, U.S. Return of Partnership Income, and federal Form 4797, Sale
of Business Property instructions.
A method of taxation by which all of the activities comprising a single trade
Revised Schedule K-1 – The California Schedule K-1 (5 65), Partner’s
or business are viewed as a single unit, regardless of whether those activities
Share of Income, Deductions, Credits, etc., line items were revised to be in
are conducted by divisions of a single entity or by commonly owned or
a similar format with the federal Schedule K-1 (1065), Partner’s Share of
controlled entities. For more information about unitary business principles,
Income, Deductions, Credits, etc. For more information, get the Schedule K
get FTB Pub. 1061, Guidelines for Corporations Filing a Combined Report.
Federal/State Line References chart included in the Form 5 65, Partnership
The choice of a particular accounting method for tax reporting purposes.
Generally, the partnership decides how to compute taxable income from its
operations. For example, it chooses the accounting method and depreciation
The partnership uses Schedule K-1 (5 65) to report your distributive share
methods it will use.
of the partnership’s income, deductions, credits, etc. Keep the Schedule K-1
(5 65) for your records. Information from the Schedule K-1 (5 65) should be
However, certain elections are made separately on your California return and
used to complete your California tax return. However, do not file the schedule
not by the partnership. These elections are made under the following I R C
with your California tax return. The partnership has filed a copy with the
Sections, to which the R&TC conforms:
Franchise Tax Board (FTB).
• I R C Section 108(b)(5) (income from discharge of indebtedness)
As a partner of the partnership, you are subject to tax on your distributive
• I R C Section 617 (deduction and recapture of certain mining exploration
share of the partnership income, whether or not distributed.
expenditures, paid or incurred)
The amount of loss and deduction you are allowed to claim on your
California tax return may be less than the amount reported on Schedule K-1
For definitions of a partnership, general partnership, limited partnership,
(5 65). Generally, the amount of loss and deduction you are allowed to claim
limited liability partnership, etc., see the instructions for Form 5 65,
is limited to your basis in the partnership and the amount for which you are
Partnership Return of Income, or the instructions for federal Form 1065,
considered at-risk. If you have losses, deductions, or credits from a passive
U.S. Return of Partnership Income.
activity, you must also apply the passive activity loss and credit rules. It is
C Reporting Information from Columns (d) and (e)
the partner’s responsibility to consider and apply any applicable limitations.
See Instructions, Loss Limitations.
If the partnership derives income from activities conducted both within and
You should also read the federal Schedule K-1 (1065) instructions before
outside California, the partnership will complete Schedule R, Apportionment
completing your California tax return with this Schedule K-1 (5 65)
and Allocation of Income, to determine the partnership income from
California sources. Resident partners will use only the information in
column (c) and column (d) to report their share of the partnership’s income
Schedule K-1 (5 65) Instructions 2013 Page 1