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The partnership may have provided a schedule with amounts showing your

If the partner and the partnership are engaged in a single unitary business or

proportionate interest in the partnership’s aggregate gross receipts, less

if the partnership is uncertain as to whether it is unitary with the partner, the

returns and allowances. A qualified taxpayer may exclude income, positive

partnership will furnish the information in Table 2.

and negative adjustments, and preference items attributable to any trade or

The partner’s share of the partnership’s business income is entered on

business from alternative minimum taxable income. A “qualified taxpayer”

Table 2, Part A. The partner then adds that income to its own business

means a taxpayer that meets both of the following:

income and apportions the combined business income using the revised

• Is the owner of, or has an ownership interest in a trade or business.

factor described below.

• Has aggregate gross receipts, less returns and allowances, of less than

Table 2, Part B reflects the partner’s share of nonbusiness income from

$1,000,000 during the taxable year from all trades or businesses in

real and tangible property wholly sourced or allocable to California. This is

which the taxpayer is an owner or has an ownership interest. In the case

added to apportioned business income and nonbusiness intangible income

of an ownership interest, you should include only your proportional share

allocated to California and becomes a part of California taxable income. For

of aggregate gross receipts of any trade or business from a partnership,

more information, see R&TC Sections 25124 and 25125, and Cal. Code

LLC, S corporation, regulated investment company (R I C), real estate

Regs., tit. 18 sections 17951-1, 17951-2, and 17951-3.

investment trust (R E I T), or real estate mortgage investment conduit

The partner’s share of the partnership’s property, payroll, and sales factors

(R E M I C).

is in Table 2, Part C. The partner combines its apportionment factors with

You need to add your share of the aggregate gross receipts from this

the apportionment factors of the partnership and uses the revised factor to

partnership to your aggregate gross receipts from all other trades or

compute its business income apportioned to California. For more information

businesses in which you hold an interest to determine if you are a qualified

see General Information D, Nonbusiness Income, and General Information E,

taxpayer.

Unitary Partners.

For purposes of R&TC Section 17062(b)(4), “aggregate gross receipts, less

The partnership will complete Table 2, Part C to report the partner’s

returns and allowances” means the sum of the following:

distributive share of property, payroll and sales Total within California.

• The gross receipts of the trades or businesses which the taxpayer owns.

Partners will use Table 2, Part C to determine if they meet threshold amounts

• The proportionate interest of the gross receipts of the trades or

of California property, payroll and sales.

businesses which the taxpayer owns.

R&TC Section 23101 provides that for taxable years beginning on or after

• The proportional interest of pass-through entities gross receipts in which

January 1, 2011, a taxpayer is doing business if it actively engages in

the taxpayer holds an interest.

any transaction for the purpose of financial or pecuniary gain or profit in

Gross Receipts – For taxable years beginning on or after January 1, 2011,

California or if any of the following conditions are satisfied:

R&TC Section 25120 was amended to add the definition of gross receipts.

• The taxpayer is organized or commercially domiciled in California.

“Gross receipts” means the gross amounts realized (the sum of money and

• The sales as defined in subdivision (e) or (f) of R&TC Section 25120, of

the fair market value of other property or services received) on:

the taxpayer in California, including sales by the taxpayer’s agents and

• The sale or exchange of property,

independent contractors, exceed the lesser of $518,162 or 25% of the

• The performance of services, or

taxpayer’s total sales.

• The use of property or capital (including rents, royalties, interest, and

• The real property and tangible personal property of the taxpayer in

dividends) in a transaction that produces business income, in which

California exceed the lesser of $51,816 or 25% of the taxpayer’s total real

the income, gain, or loss is recognized (or would be recognized if the

property and tangible personal property.

transaction were in the United States) under the IRC.

• The amount paid in California by the taxpayer for compensation, as

Amounts realized on the sale or exchange of property shall not be reduced

defined in subdivision (c) of R&TC Section 25120, exceeds the lesser of

by the cost of goods sold or the basis of property sold.

$51,816 or 25% of the total compensation paid by the taxpayer.

For a complete definition of “gross receipts”, refer to R&TC Section 25120(f)

If the partner’s distributive share of property, payroll, or sales in California,

or go to ftb.ca.gov and search for law changes.

when combined with the partner’s property, payroll, or sales in California

from other pass-through entities or its own activities, exceeds the threshold

For purposes of this section, “pass-through entity” means a partnership (as

amounts set forth in R&TC Section 23101, the partner is “doing business”

defined by R&TC Section 17008), an S corporation, a R I C, a R E I T, and a

in California and must file a return and pay all applicable taxes, including the

R E M I C. See R&TC Section 17062 for more information.

minimum franchise tax if the partner is a corporation or the applicable annual

The pro-rata share of gain or loss on property subject to the I R C Section 179

tax if the partner is a business entity that is required to pay an annual tax.

expense deduction recapture should be reported on Schedule K-1 (565) as

For more information, see R&TC Section 23101 or go to ftb.ca.gov and

other information. Follow the instructions on the federal Form 4797 and

search for law changes. Under law changes, see general information and

federal Schedule K-1 (1065) for the reporting requirements.

specific examples on the application of doing business rules in California,

Get FTB Pub. 1001 for a listing of items of nonconformity for individuals.

especially if you are an out-of-state taxpayer or have ownership interest in

pass-through entities.

Other Partner Information

Table 3 – Partner’s share of cost of goods sold, deductions, and rental

Table 1 – Partner’s Share of Nonbusiness Income from Intangibles (source

income.

of income is dependent on residence or commercial domicile of the

Table 3 is completed for partners that are partnerships or LLCs taxed as

partners)

partnerships. The information on Table 3 is used by LLCs that file Form 568,

Generally, nonbusiness interest and dividends are sourced to the state of

Limited Liability Company Return of Income, to determine their total income.

residence for nonapportioning individuals. Nonapportioning means doing

business entirely within California. For more information regarding the

sourcing of intangibles, see R&TC Section 17952.

For apportioning partners, nonbusiness interest and dividends generally are

allocable to California if the taxpayer’s commercial domicile is California.

For more information regarding sourcing of intangibles for apportioning

taxpayers, see R&TC Sections 25126 and 25127.

The income data contained in Table 1 is not reflected in column (e) of

Schedule K-1 (5 65). For more information, see General Information D,

Nonbusiness Income, and General Information E, Unitary Partners.

Table 2 – Partner’s Share of Distributive Items

The Partnership will complete Table 2, Parts A to C for unitary partners

and Table 2 Part C for all non-unitary partners. Table 2 does not need to be

completed for non-unitary individuals. The final determination of unity is

made at the partner level.

Schedule K-1 (5 65) Instructions 2013 Page 7

Partner'S Instructions For Schedule K-1 (Form 565) - Partner'S Share Of Income, Deductions, Credits, Etc. - 2013 Page 7

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