Instructions For Form 165 - Arizona Partnership Income Tax Return

Arizona Form 165

The subtraction is only available to individuals, estates,

The multistate partnership must compute the partner's

and trusts.

distributive share of the partnership's income that is subject to

apportionment. Make this computation by subtracting the

A worksheet is provided at the end of these instructions that

partner's distributive share of the multistate partnership's

may assist the partnership in determining the amounts to

nonbusiness income from the partner's total distributive share

include in Part III, line 5 for each partner’s Form 165,

amount of the partnership's income. The multistate

Schedule K-1.

partnership must attach a computation schedule that details

For 165 Schedule K-1(NR) - Partnership

the following, for each line item:

Instructions

 The partner's distributive share amount from the federal

Form 1065, Schedule K-1, or from the adjustment of

Any partnership that has income from business activity that is

partnership income from federal to Arizona basis

taxable both within and without Arizona must allocate and

(Form 165, page 1, line 6).

apportion its net income. The partnership must allocate and

 The

apportion its net income according to the Uniform Division

partner's

distributive

amount

the

of Income for Tax Purposes Act (UDITPA), A.R.S.

partnership's nonapportionable or allocable income.

 The partner's distributive share of the partnership's income

§§ 43-1131 through 43-1150. A partnership that has income

from business activity taxable in more than one state is a

that is subject to apportionment. Refer to A.R.S.

multistate partnership. A partnership that has income from

§§ 43-1134 through 43-1138 for the methods of allocating

business activity taxable entirely within Arizona is a wholly

certain types of nonbusiness income.

Arizona partnership.

NOTE: For corporate partners, apply this computation only for

Type or print the required information in the name, address,

the amount to be entered on Part II, line 17. Do not complete

and information boxes on the top of the Arizona Form 165,

Part I for a corporate partner.

Schedule K-1(NR). Indicate whether the partnership’s taxable

Column (b) - Arizona Apportionment Ratio

year is a calendar year or a fiscal year; if a fiscal year,

indicate the period covered by the taxable year on the

Wholly Arizona partnerships - Enter 100 percent.

schedule. Indicate whether this is an original or an amended

Multistate partnerships - Enter the average ratio amount

schedule.

from Form 165, Schedule C, line C5, column C, or from

Part I and Part II: Distributive Share Items

Schedule ACA, line 3. (Refer to Schedule ACA or

Schedule C instructions.)

Column (a) - Distributive Share Amount

Column (c) - Arizona Source Income

Wholly Arizona partnerships - In column (a), enter the

Wholly Arizona partnerships - Multiply column (a) by

distributive share amount for each line item from the federal

column (b). Enter the result in column (c).

Form 1065, Schedule K-1. On Part II, line 17, enter the

Multistate partnerships - Attach a schedule that details (for

adjustment of partnership income from federal to Arizona

each line item) the following computation:

basis (Form 165, page 1, line 6) multiplied by the partner's

percentage of gain or loss.

1. The partner's distributive share of the partnership's income

subject to apportionment multiplied by the average ratio

NOTE FOR CORPORATE PARTNERS: Leave Part I

in column (b).

blank. Complete Part II, Part III and Part IV of Form 165,

2. The partner's distributive share of the partnership's income

Schedule K-1(NR).

(loss) which is specifically allocable to Arizona.

Multistate partnerships - Apportion all business income of a

3. The total of the amounts computed in steps 1 and 2 that is

multistate partnership by the use of the apportionment formula.

to be entered in column (c).

Nonbusiness

income

multistate

partnership

nonapportionable and specifically allocable to a particular

NOTE: A.R.S. §§ 43-1134 through 43-1138 specify the

state.

methods for allocating certain types of income to Arizona.

Do not include the amount of any nonbusiness income

"Business income" under the transactional test means

allocable to another state in the total entered in column (c).

income arising from transactions and activity in the regular

course of the taxpayer's trade or business. Business income

All partnerships - Column (c) is the partner's Arizona source

under the functional test includes income from tangible and

income from the partnership. Partners should refer to

intangible property if the acquisition, management, and

Form 165, Schedule K-1(NR), instructions for information on

disposition of the property constitute integral parts of the

completing their Arizona returns.

taxpayer's regular trade or business operations. (A.R.S.

Part III: Net Capital Gain from Investment in a

§ 43-1131(1))

Qualified

Small

Business

–

Information

"Nonbusiness income" means all income other than business

Schedule

income. (A.R.S. § 43-1131(4))

In column (a), enter the partner's distributive share of the

For taxable years beginning from and after December 31,

multistate partnership's income (loss) that is subject to

2013, Arizona allows a subtraction from Arizona gross

apportionment.

income for any net capital gain derived from investment in a

Instructions For Form 165 - Arizona Partnership Income Tax Return - 2014 Page 10

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