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Page 1 of 35 Instructions for Form 8865 11:00 - 19-JAN-2006

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2005 Department of the Treasury
Internal Revenue Service

Instructions for Form 8865
Return of U.S. Persons With Respect to Certain Foreign Partnerships
Section references are to the Internal Revenue Code unless otherwise noted.

Contents Page Contents Page 2. The American Jobs Creation Act of
What’s New . . . . . . . . . . . . . . . . . ... 1 Self-Employment . . . . . . . . . . . . . 20 2004 added a new credit: the qualified
General Instructions . . . . . . . . . . ... 1 Credits and Credit Recapture . . . . . 21 railroad track maintenance credit. See the
Purpose of Form . . . . . . . . . . . . ... 1 Foreign Transactions . . . . . . . . . . 23 instructions for line 15f of Schedule K for
Who Must File . . . . . . . . . . . . . ... 1 Alternative Minimum Tax more information.
Categories of Filers . . . . . . . . . . ... 2 (AMT) Items . . . . . . . . . . . . . . . 24 3. The Highway Reauthorization and
Exceptions to Filing . . . . . . . . . . ... 3 Tax-Exempt Income and Excise Tax Simplification Act added the
Relief for Category 1 and 2 Nondeductible Expenses . . . . . . 26 distilled spirits credit (Form 8906).
Filers When the Foreign Distributions . . . . . . . . . . . . . . . . . 26 4. The Energy Policy Act of 2005
Partnership Files Form 1065 Other Information . . . . . . . . . . . . . 26 revised and/or added several new credits
or Form 1065-B . . . . . . . . . . . . . . 3 Schedule L — Balance Sheets that affect partnerships. These new
per Books . . . . . . . . . . . . . . . . . . 27 credits include the following.
When To File . . . . . . . . . . . . . . . . . 4
Definitions . . . . . . . . . . . . . . . . . . . 4 Schedule M — Balance Sheets • Energy Efficient Home Credit (Form
for Interest Allocation . . . . . . . . . . 27 8908).
Penalties . . . . . . . . . . . . . . . . . . . . 4
Corrections to Form 8865 . . . . . . . . 4 Schedule M-1 — Reconciliation of • Alternative Motor Vehicle Credit
Income (Loss) per Books With (Form 8910).
Specific Instructions . . . . . . . . . . . . 5
Tax Year . . . . . . . . . . . . . . . . . . . . 5 Income (Loss) per Return . . . . . . . 28 • Alternative Fuel Vehicle Refueling
Schedule M-2 — Analysis of Property Credit (Form 8911).
Identifying Numbers and
Addresses . . . . . . . . . . . . . . .... 5 Partners’ Capital Accounts . . . . . . . 28 • Clean Renewable Energy Bond
Schedule N — Transactions Credit (Form 8912).
Schedule A — Constructive
Ownership of Partnership Between Controlled Foreign • Qualifying advanced coal project
Partnership and Partners or credit (Form 3468).
Interest . . . . . . . . . . . . . . . . . .... 6
Schedule A-1 — Certain Partners Other Related Entities . . . . . . . . . . 28 • Qualifying gasification project credit
Schedule O — Transfer of (Form 3468).
of Foreign Partnership . . . . . . . .... 6
Schedule A-2 — Affiliation Property to a Foreign 5. Tax relief Acts for Hurricanes
Partnership . . . . . . . . . . . . . . . . . . 28 Katrina, Rita, and Wilma increased the
Schedule . . . . . . . . . . . . . . . . .... 6
Part I — Transfers Reportable rehabilitation credit for qualified buildings
Schedule B — Income located in the gulf opportunity zones for
Statement — Trade or Under Section 6038B . . . . . . . . . 28
the hurricanes and added the following
Business Income . . . . . . . . . . . . . . 6 Part II — Dispositions new credits: the employee retention
Income . . . . . . . . . . . . . . . . . . . . . . 6 Reportable Under Section credits, the Hurricane Katrina housing
Deductions . . . . . . . . . . . . . . . . . . . 8 6038B . . . . . . . . . . . . . . . . . . . . 29 credit (Form 5884-A), and the gulf bond
Limitations on Deductions . . . . . . . . 8 Part III — Gain Recognition credit (Form 8912). For details, see
Extraterritorial Income Under Section 904(f)(3) or Forms 3468, 5884-A, and 8912. The Acts
Exclusion . . . . . . . . . . . . . . . . . 11 (f)(5)(F) . . . . . . . . . . . . . . . . . . . 29 also temporarily suspended limitations for
Schedule D — Capital Gains and Schedule P — Acquisitions, certain charitable cash contributions,
Losses . . . . . . . . . . . . . . . . . . . . . 12 Dispositions, and Changes of temporarily extended the enhanced
Purpose of Schedule . . . . . . . . . . . 12 Interests in a Foreign deduction for certain charitable
What Are Capital Assets? . . . . . . . 12 Partnership . . . . . . . . . . . . . . . . . . 29 contributions of food inventory to
Items for Special Treatment . . . . . . 12 Part I — Acquisitions . . . . . . . . . . . 29 partnerships, and increased the
Special Rules for Traders in Part II — Dispositions . . . . . . . . . . . 29 reforestation expense deduction for
Securities . . . . . . . . . . . . . . . . . 13 Part III — Change in qualified timber located in the gulf
Constructive Sale Treatment Proportional Interest . . . . . . . . . 30 opportunity zones (see the instructions for
for Certain Appreciated Part IV — Supplemental Schedule K for details). See Pub. 4492,
Positions . . . . . . . . . . . . . . . . . . 13 Information Required To Be Information for Taxpayers Affected by
Reported . . . . . . . . . . . . . . . . . . 30 Hurricanes Katrina, Rita, and Wilma, for
Gain From Qualified Stock . . . . . . . 13
Privacy Act and Paperwork more information on the tax benefits
Specific Instructions (Schedule provided by the tax relief Acts.
D) . . . . . . . . . . . . . . . . . . . . . . . 13 Reduction Act Notice . . . . . . . . . . . 31
General Instructions for Codes for Principal Business
Schedules K and K-1 — Activity and Principal Product General Instructions
Partners’ Distributive Share or Service . . . . . . . . . . . . . . . . . . 31
Items . . . . . . . . . . . . . . . . . . . . . . 14 Index . . . . . . . . . . . . . . . . . . . . . . . . 35 Purpose of Form
Schedule K . . . . . . . . . . . . . . . . . 14 Use Form 8865 to report the information
Schedule K-1 . . . . . . . . . . . . . . . . 14 What’s New required under section 6038 (reporting
Specific Instructions (Schedules 1. There is a new deduction for with respect to controlled foreign
K and K-1, Except as Noted) . . . . . 14 certain domestic production activities. partnerships), section 6038B (reporting of
General Reporting Information . . . 15 See the instructions for line 13d of transfers to foreign partnerships), or
Special Allocations . . . . . . . . . . . . 15 Schedule K and Form 8903, Domestic section 6046A (reporting of acquisitions,
Income (Loss) . . . . . . . . . . . . . . . . 15 Production Activities Deduction, for more dispositions, and changes in foreign
Deductions . . . . . . . . . . . . . . . . . . 18 information. partnership interests).

Cat. No. 26053N
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Filer Categories – Required Information Category 1 Category 2 Category 3 Category 4

Identifying information — (page 1 of Form 8865) ⻫ ⻫ ⻫ ⻫

Schedule A — Constructive Ownership of Partnership Interest ⻫ ⻫ ⻫ ⻫

Schedule A-1 — Certain Partners of Foreign Partnership ⻫ ⻫

Schedule A-2 — Affiliation Schedule ⻫ ⻫ ⻫ ⻫

Schedule B — Income Statement — Trade or Business Income ⻫

Schedule D — Capital Gains and Losses ⻫

Schedule K — Partners’ Distributive Share Items ⻫

Schedule L — Balance Sheets per Books ⻫

Schedule M — Balance Sheets for Interest Allocation ⻫

Schedule M-1 — Reconciliation of Income (Loss) per Books With Income (Loss) per Return ⻫

Schedule M-2 — Analysis of Partners’ Capital Accounts ⻫

Schedule N — Transactions Between Controlled Foreign Partnership and Partners or Other ⻫ ⻫
Related Entities

Schedule K-1 — Partner’s Share of Income, Deductions, Credits, etc. (direct partners only) ⻫ ⻫

Schedule O — Transfer of Property to a Foreign Partnership ⻫

Schedule P — Acquisitions, Dispositions, and Changes of Interests in a Foreign Partnership ⻫

Who Must File person will be considered a Category 2 Acquisitions. A U.S. person that
A U.S. person qualifying under one or filer. See the definition of a 10% interest acquires a foreign partnership interest
more of the Categories of Filers (see on page 4. has a reportable event if:
below) must complete and file Form 8865. • The person did not own a 10% or
Category 3 filer. A Category 3 filer is a greater direct interest in the partnership
These instructions and the Filer U.S. person who contributed property
Categories – Required Information chart and as a result of the acquisition the
during that person’s tax year to a foreign person owns a 10% or greater direct
above explain the information, partnership in exchange for an interest in
statements, and schedules required for interest in the partnership (for example,
the partnership (a section 721 transfer), if from 9% to 10%). For purposes of this
each category of filer. If you qualify under that person either:
more than one category for a particular rule, an acquisition includes an increase
1. Owned directly or constructively at in a person’s direct proportional interest
foreign partnership, you must submit all least a 10% interest in the foreign
the items required for each category (see definition of change in proportional
partnership immediately after the interest on page 4); or
under which you qualify. contribution, or • Compared to the person’s direct
Example. If you qualify as a Category 2. The value of the property interest when the person last had a
2 and a Category 3 filer, you must submit contributed (when added to the value of reportable event, after the acquisition the
all the schedules required of Category 2 any other property contributed to the person’s direct interest has increased by
filers (page 1 of Form 8865, Schedules A, partnership by such person, or any at least a 10% interest (for example, from
A-2, N, and K-1) plus any additional related person, during the 12-month 11% to 21%).
schedules that Category 3 filers are period ending on the date of transfer)
required to submit (Schedules A-1 and exceeds $100,000. Dispositions. A U.S. person that
O). disposes of a foreign partnership interest
Complete a separate Form 8865 and has a reportable event if:
the applicable schedules for each foreign
If a domestic partnership contributes • The person owned a 10% or greater
property to a foreign partnership, the direct interest in the partnership before
partnership. domestic partnership’s partners are the disposition and as a result of the
File the 2005 Form 8865 with your considered to have transferred a disposition the person owns less than a
income tax return for your tax year proportionate share of the contributed 10% direct interest (for example, from
beginning in 2005. property to the foreign partnership. 10% to 8%). For purposes of this rule, a
However, if the domestic partnership files disposition includes a decrease in a
Categories of Filers Form 8865 and properly reports all the person’s direct proportional interest; or
Category 1 filer. A Category 1 filer is a required information with respect to the • Compared to the person’s direct
U.S. person who controlled the foreign contribution, its partners will not be interest when the person last had a
partnership at any time during the required to report the transfer. reportable event, after the disposition the
partnership’s tax year. Control of a person’s direct interest has decreased by
partnership is ownership of more than a Category 3 also includes a U.S.
person that previously transferred at least a 10% interest (for example, from
50% interest in the partnership. See the 21% to 11%).
definition of 50% interest on page 4. appreciated property to the partnership
There may be more than one Category 1 and was required to report that transfer Changes in proportional interests.
filer for a partnership for a particular under section 6038B, if the foreign A U.S. person has a reportable event if
partnership tax year. partnership disposed of such property compared to the person’s direct
while the U.S. person remained a direct proportional interest the last time the
Category 2 filer. A Category 2 filer is a or indirect partner in the partnership.
U.S. person who at any time during the person had a reportable event, the
tax year of the foreign partnership owned Category 4 filer. A Category 4 filer is a person’s direct proportional interest has
a 10% or greater interest in the U.S. person that had a reportable event increased or decreased by at least the
partnership while the partnership was under section 6046A during that person’s equivalent of a 10% interest in the
controlled by U.S. persons each owning tax year. There are three categories of partnership.
at least 10% interests. However, if the reportable events under section 6046A: Special rule for a partnership
foreign partnership had a Category 1 filer acquisitions, dispositions, and changes in interest owned on December 31, 1999.
at any time during that tax year, no proportional interests. If the U.S. person owned at least a 10%

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direct interest in the foreign partnership person(s) is not required to file Form 8865 exchange for a 15% direct interest.
on December 31, 1999, then comparisons if: Partner A qualifies as a Category 3 filer
should be made to the person’s direct 1. Form 8865 is filed by the U.S. because he transferred property to a
interest on December 31, 1999. Once the person(s) through which the indirect foreign partnership and owned at least a
person has a reportable event after partner constructively owns an interest in 10% interest in FPS immediately after the
December 31, 1999, future comparisons the foreign partnership, contribution. Partner A is also a Category
should be made by reference to the last 2. The U.S. person through which the 4 filer because he did not own a 10% or
reportable event. indirect partner constructively owns an greater direct interest in FPS and as a
interest in the foreign partnership is also a result of the acquisition now owns a 10%
Exceptions to Filing constructive owner and meets all the or greater direct interest in FPS. If Partner
Multiple Category 1 filers. If during the requirements of this constructive A properly reports the contribution on
tax year of the partnership more than one ownership filing exception, or Form 8865 as a Category 3 filer, Partner
U.S. person qualifies as a Category 1 3. Form 8865 is filed for the foreign A is not required to report his acquisition
filer, only one of these Category 1 partnership by another Category 1 filer of the 15% interest in FPS as a Category
partners is required to file Form 8865. A under the multiple Category 1 filers 4 filer.
U.S. person with a controlling interest in exception. Relief for Category 1 and 2
the losses or deductions of the Filers When the Foreign
partnership is not permitted to be the filer To qualify for the constructive
of Form 8865 if another U.S. person has ownership filing exception, the indirect Partnership Files Form 1065 or
a controlling interest in capital or profits; partner must file with its income tax return Form 1065-B
only the latter may file the return. The a statement entitled “Controlled Foreign If a foreign partnership files Form 1065,
U.S. person that files the Form 8865 must Partnership Reporting.” U.S. Return of Partnership Income, or
complete Item E on page 1. This statement must contain the Form 1065-B, U.S. Return of Income for
following information: Electing Large Partnerships, for its tax
The single Form 8865 to be filed must year, Category 1 and 2 filers may use a
contain all of the information that would 1. A statement that the indirect
partner was required to file Form 8865, copy of the completed Form 1065 or
be required if each Category 1 filer filed a 1065-B schedules in place of the
separate Form 8865. Specifically, a but is not doing so under the constructive
owners exception; equivalent schedules of Form 8865.
separate Schedule N and Schedule K-1
must be attached to the Form 8865 for 2. The names and addresses of the If you file Form 8865 with an
each Category 1 filer. Also, Items B, C, U.S. persons whose interests the indirect electronically filed income tax return, see
and D on page 1 and Schedule A on page partner constructively owns; and the electronic filing publications identified
2 of Form 8865 must be completed for 3. The name and address of the in the instructions for your income tax
each Category 1 filer not filing the form. foreign partnership for which the indirect return for more information.
Attach a separate statement listing this partner would have had to have filed The following Form 1065/1065-B
information to the single Form 8865. Form 8865, but for this exception. schedules are equivalent to the following
Form 8865 schedules:
A Category 1 filer not filing Form 8865 Members of an affiliated group of
must attach a statement entitled corporations filing a consolidated Forms 1065/ Form 8865
“Controlled Foreign Partnership return. If one or more members of an 1065-B
Reporting” to that person’s income tax affiliated group of corporations filing a
return. consolidated return qualify as Category 1 Page 1 (Parts I Schedule B
or 2 filers for a particular foreign and II of Form
The statement must include the partnership, the common parent 1065-B)
following information: corporation may file one Form 8865 on
• A statement that the person qualified behalf of all of the members of the group
Schedule D Schedule D
as a Category 1 filer, but is not submitting Schedule K Schedule K
required to report. Except for group
Form 8865 under the multiple Category 1 Schedule L Schedule L
members who also qualify under the
filers exception. Schedule M-1 Schedule M-1
constructive owners exception, the Form
• The name, address, and identifying 8865 must contain all the information that Schedule M-2 Schedule M-2
number (if any) of the foreign partnership Schedule K-1 Schedule K-1
would have been required to be submitted
of which the person qualified as a if each group member filed its own Form
Category 1 filer. Example. Partner A is a Category 1
8865.
• A statement that the filing requirement filer with respect to FPS, a foreign
has been or will be satisfied. Exception for certain trusts. Trusts partnership during the 2005 tax year. FPS
• The name and address of the person relating to state and local government completes and files a Form 1065 for its
filing Form 8865 for this partnership. employee retirement plans are not 2005 tax year. Instead of completing
• The Internal Revenue Service Center required to file Form 8865. Schedules B, D, K, L, M-1, M-2, and K-1
where the Form 8865 must be filed. Exception for certain Category 4 filers. of Form 8865, Partner A may attach to its
If you qualify as a Category 3 and 4 filer Form 8865 page 1 of Form 1065 and
A U.S. person who qualifies for because you contributed property to a Form 1065 Schedules D, K, L, M-1, M-2,
! this exception to the Category 1
CAUTION filing requirement would still have
foreign partnership in exchange for a 10% and K-1 (including the Schedules K-1 for
or greater interest in that partnership, you Partner A and all other U.S. persons
to file a separate Form 8865 if that person are not required to report this transaction owning 10% or greater direct interests in
is also subject to the filing requirements of under both Category 3 and 4 filing FPS). Partner A must complete the
Category 3 or 4. This separate Form 8865 requirements. If you properly report the following items and schedules on Form
would include all the information required contribution of property under the 8865:
for a Category 3 or 4 filer in addition to Category 3 rules, you are not required to • The first page,
the Controlled Foreign Partnership report it as a Category 4 filer. However, • Schedule A,
Reporting statement. the acquisition will count as a reportable • Schedule A-1,
Constructive owners. See the definition event to determine if a later change in • Schedule A-2,
of constructive ownership on page 4. A your partnership interest qualifies as a • Schedule M, and
Category 1 or 2 filer that does not own a reportable event under Category 4. • Schedule N.
direct interest in the partnership and that Example. Partner A does not own an Example. Partner A is a Category 2
is required to file this form solely because interest in FPS, a foreign partnership. filer with respect to FPS, a foreign
of constructive ownership from a U.S. Partner A transfers property to FPS in partnership. If FPS completes and files a
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Form 1065 for its 2005 tax year, Partner partnership, the constructive ownership If the failure continues 90 days or more
A may file with Form 8865 the Schedule rules of section 267(c) (excluding section after the date the IRS mails notice of the
K-1 (Form 1065) that it receives from the 267(c)(3)) apply, taking into account that failure, an additional 5% reduction is
partnership instead of Schedule K-1 such rules refer to corporations and not to made for each 3-month period, or fraction
(Form 8865). Partner A must complete partnerships. Generally, an interest thereof, during which the failure continues
the following items and schedules on owned directly or indirectly by or for a after the 90-day period has expired. See
Form 8865: corporation, partnership, estate, or trust section 6038(c)(2) for limits on the
• The first page, shall be considered as being owned amount of this penalty.
• Schedule A, proportionately by its owners, partners or • Criminal penalties under sections 7203,
• Schedule A-2, and beneficiaries. 7206, and 7207 may apply for failure to
• Schedule N. Also, an individual is considered to file or for filing false or fraudulent
own an interest owned directly or information.
When To File
indirectly by or for his or her family. The Additionally, any person that files
Attach Form 8865 to your income tax
family of an individual includes only that under the constructive owners exception
return (or, if applicable, partnership or
individual’s spouse, brothers, sisters, may be subject to these penalties if all the
exempt organization return) and file both
ancestors, and lineal descendants. An requirements of the exception are not
by the due date (including extensions) for
interest will be attributed from a met. Any person required to file Form
that return. If you do not have to file an
nonresident alien individual under the 8865 who does not file under the multiple
income tax return, you must file Form
family attribution rules only if the person Category 1 filers exception, may be
8865 separately with the IRS at the time
to whom the interest is attributed owns a subject to the above penalties if the other
and place you would be required to file an
direct or indirect interest in the foreign person does not file a correctly completed
income tax return (or, if applicable, a
partnership under section 267(c)(1) or (5). form and schedules. See Exceptions to
partnership or exempt organization
U.S. person. A U.S. person is a citizen Filing on page 3.
return). See below for penalties that may
apply if you do not file Form 8865 on time. or resident of the United States, a Failure to file information required of
domestic partnership, a domestic Category 3 filers. Any person that fails
Definitions corporation, and any estate or trust that is to properly report a contribution to a
Partnership. A partnership is the not foreign. foreign partnership that is required to be
relationship between two or more persons Control of a corporation. Control of a reported under section 6038B and the
who join to carry on a trade or business, corporation is ownership of stock regulations under that section is subject
with each person contributing money, possessing more than 50% of the total to a penalty equal to 10% of the fair
property, labor, or skill and each combined voting power, or more than market value (FMV) of the property at the
expecting to share in the profits and 50% of the total value of shares of all time of the contribution. This penalty is
losses of the business whether or not a classes of stock of the corporation. For subject to a $100,000 limit, unless the
formal partnership agreement is made. rules concerning indirect ownership and failure is due to intentional disregard. In
attribution, see Regulations section addition, the transferor must recognize
The term “partnership” includes a gain on the contribution as if the
limited partnership, syndicate, group, 1.6038-2(c).
contributed property had been sold for its
pool, joint venture, or other Change in a proportional interest. A FMV.
unincorporated organization, through or partner’s proportional interest in a foreign
by which any business, financial partnership can change as a result of Failure to file information required of
operation, or venture is carried on, that is changes in other partners’ interests, for Category 4 filers. Any person who fails
not, within the meaning of the regulations example, when another partner withdraws to properly report all the information
under section 7701, a corporation, trust, from the partnership. A partner’s requested by section 6046A is subject to
estate, or sole proprietorship. proportional interest can also change, for a $10,000 penalty. If the failure continues
example, by operation of the partnership for more than 90 days after the IRS mails
A joint undertaking merely to share notice of the failure, an additional $10,000
expenses is not a partnership. Mere agreement (for example, if the partnership
agreement provides that a partner’s penalty will apply for each 30-day period
co-ownership of property that is (or fraction thereof) during which the
maintained and leased or rented is not a interest in profits will change on a set date
or when the partnership has earned a failure continues after the 90-day period
partnership. However, if the co-owners has expired. The additional penalty shall
provide services to the tenants, a specified amount of profits, then the
partner’s proportional interest changes not exceed $50,000.
partnership exists.
when the set date or specified amount of Treaty-based return positions. File
Foreign partnership. A foreign
profits is reached). Form 8833, Treaty-Based Return Position
partnership is a partnership that is not
Disclosure Under Section 6114 or
created or organized in the United States Penalties 7701(b), to report a return position that a
or under the law of the United States or of
Failure to timely submit all information treaty of the United States (such as an
any state.
required of Category 1 and 2 filers. income tax treaty, an estate and gift tax
50% interest. A 50% interest in a • A $10,000 penalty is imposed for each treaty, or a friendship, commerce, and
partnership is an interest equal to: tax year of each foreign partnership for navigation treaty):
• 50% of the capital, failure to furnish the required information • Overrides or modifies any provision of
• 50% of the profits, or within the time prescribed. If the the Internal Revenue Code and
• 50% of the deductions or losses. information is not filed within 90 days after • Causes (or potentially causes) a
For purposes of determining a 50% the IRS has mailed a notice of the failure reduction of any tax incurred at any time.
interest, the constructive ownership rules to the U.S. person, an additional $10,000
described below apply. Failure to make such a report may
penalty (per foreign partnership) is result in a $1,000 penalty ($10,000 in the
10% interest. A 10% interest in a charged for each 30-day period, or case of a C corporation). See section
partnership is an interest equal to: fraction thereof, during which the failure 6712.
• 10% of the capital, continues after the 90-day period has
• 10% of the profits, or expired. The additional penalty is limited Corrections to Form 8865
• 10% of the deductions or losses. to a maximum of $50,000 for each failure. If you file a Form 8865 you later
For purposes of determining a 10% • Any person who fails to furnish all of determine is incomplete or incorrect, file a
interest, the constructive ownership rules the information required within the time corrected Form 8865 with an amended
described below apply. prescribed, will be subject to a reduction tax return following the instructions for the
Constructive ownership. For purposes of 10% of the foreign taxes available for return with which you originally filed Form
of determining an interest in a credit under sections 901, 902, and 960. 8865. Write “corrected” at the top of the

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form and attach a statement identifying Item C necessary to apply the total receipts test
and explaining the changes. Enter the filer’s share of nonrecourse is not available, pick a principal business
liabilities, partnership-level qualified activity code using the information you
nonrecourse financing, and other have about the partnership.
liabilities. Nonrecourse liabilities are those Item F8a—Functional Currency
Specific Instructions liabilities of the partnership for which no
Important: All information must be in Enter the foreign partnership’s functional
partner bears the economic risk of loss. currency. See sections 985 through 989
English. All amounts must be stated in The extent to which a partner bears the
U.S. dollars. and the regulations thereunder. If the
economic risk is determined under the partnership had more than one qualified
If the information required in a given rules of Regulations section 1.752-2. business unit (QBU), attach a statement
section exceeds the space provided ‘‘Qualified nonrecourse financing’’ identifying each QBU, its country of
within that section, attach separate sheets generally includes financing: operation, and its functional currency. A
to provide the remaining information, • For which no one is personally liable for QBU is any separate and clearly identified
using the same size and format as the repayment, unit of a trade or business of the
printed forms. • That is borrowed for use in an activity partnership which maintains separate
Fill in all applicable lines and of holding real property, and books and records.
schedules. All categories of filers must • That is borrowed from a qualified Hyperinflationary exception. A
complete all items on page 1, with three person (defined in section 49(a)(1)(D)(iv)) partnership that has a hyperinflationary
exceptions. Complete Item E only if, in or is lent or guaranteed by a federal, currency as its functional currency is
addition to filing the form on your own state, or local government. subject to special rules set forth in
behalf, you are reporting information See section 465(b)(6) for more Regulations section 1.985-3. Under these
about other Category 1 filers under the information on qualified nonrecourse rules, a partnership must use the U.S.
multiple Category 1 filing exception, or financing. dollar as its functional currency.
you are reporting information about Item D—Identification of
members of your affiliated group of Item F8b—Exchange Rate
corporations under the consolidated Common Parent When translating functional currency to
return exception. Only Category 1 and 2 If the person filing the form is a member U.S. dollars, you must use the method
filers are required to complete Item G6. of a consolidated group, but not the specified in sections 985 through 989 and
See Exceptions to Filing on page 3. parent, list the name, address, and EIN of the regulations thereunder. But,
Answer Items G8 and G9 only if you are a the filer’s common parent. regardless of the specific method
Category 1 filer. required, all exchange rates must be
Item E reported using a “divide-by convention”
Tax Year Information about certain partners. If rounded to at least 4 places. That is, the
Enter in the space below the title of Form you are reporting information about other exchange rate must be reported in terms
8865 the tax year of the foreign persons under the multiple Category 1 of the amount by which the functional
partnership that ended with or within the filers exception, or are reporting currency amount must be divided in order
tax year of the person filing this form. information about members of your to reflect an equivalent amount of U.S.
Category 1 or 2 filers must report affiliated group of corporations under the dollars. As such, the exchange rate must
information for the tax year of the foreign consolidated return exception (see be reported as the units of foreign
partnership that ends with or within their Exceptions to Filing on page 3), identify currency that equal one U.S. dollar,
tax years. A Category 3 or 4 filer must each such person in Item E. List their rounded to at least 4 places. Do not
report on Schedules O or P, respectively, names, addresses, and identifying report the exchange rate as the number
transactions that occurred during that numbers. Also, indicate whether each of U.S. dollars that equal one unit of
filer’s tax year (rather than during the person is a Category 1 filer or Category 2 foreign currency.
partnership’s tax year). filer, and whether such person Note. You must round the result to more
constructively owned an interest in the than 4 places if failure to do so would
Identifying Numbers and foreign partnership during the tax year of materially distort the exchange rate or the
the partnership listed at the top of page 1 equivalent amount of U.S. dollars.
Addresses of Form 8865. See Constructive
Enter the identifying number of the person ownership on page 4. Item G2
filing this return. Use an employer If the foreign partnership was required to
identification number (EIN) to identify Item F1 file Form 1065 or Form 1065-B for the
partnerships, corporations, and estates or For the foreign partnership’s address, partnership’s tax year listed at the top of
trusts. For individuals, use a social enter the city, province or state, and the page 1 (Form 8865), check the applicable
security number (SSN) or individual foreign country in that order. Follow the box and enter the IRS Service Center
taxpayer identification number (ITIN). foreign country’s practice in placing the where the form was or will be filed. Also,
postal code in the address. Do not check the applicable box(es) if the foreign
Include the suite, room, or other unit abbreviate the country name. If the
number after the street address. If the partnership was required to file Form
partnership receives its mail in care of a 8804, Annual Return for Partnership
Post Office does not deliver mail to the third party (such as an accountant or
street address and the U.S. person has a Withholding Tax (Section 1446), or Form
attorney), enter “C/O” followed by the 1042, Annual Withholding Tax Return for
P.O. box, show the box number instead. third-party’s name and street address or U.S. Source Income of Foreign Persons
Foreign address. Enter the information P.O. box. (for the calendar year ending with or
in the following order: city, province or Item F6—Principal Business within the foreign partnership’s tax year).
state, and country. Follow the country’s
practice for entering the postal code, if
Activity Code Item G6
any. Do not abbreviate the country name. If the foreign partnership filed Form Note. Only Category 1 and 2 filers are
1065 or 1065-B. Enter the business code required to complete Item G6.
Item A—Category of Filer shown in Item C of the Form 1065 or Enter the number of Forms 8858,
Check the box for each category that 1065-B filed by the partnership. Information Return of U.S. Persons With
describes the person filing the form. If If the foreign partnership did not file Respect To Foreign Disregarded Entities,
more than one category applies, check all Form 1065 or 1065-B. Enter the attached to Form 8865. A disregarded
boxes that apply. See Categories of Filers applicable business code from the list entity is an entity that is disregarded as
beginning on page 2. beginning on page 31. If the information an entity separate from its owner under
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Regulations section 301.7701-3. The interest in the foreign partnership. See
partnership is the tax owner of the foreign Constructive ownership on page 4.
disregarded entity if it owns the assets Category 1 and 2 filers. Category 1 and
Schedule B—Income
and liabilities of the foreign disregarded 2 filers must list the persons (U.S. and Statement—Trade or
entity for purposes of U.S. income tax foreign) whose interests in the foreign
law. partnership they constructively owned
Business Income
If the foreign partnership is the tax during the partnership tax year. Important: You do not need to complete
owner of a foreign disregarded entity and Schedule B if you have attached a copy
you are a Category 1 or 2 filer of Form Category 3 and 4 filers. Category 3 and of page 1 from Form 1065, or Parts I and
8865, complete and attach Form 8858 to 4 filers must list the persons (U.S. and II of Form 1065-B.
Form 8865. For more information, see the foreign) whose interests in the foreign
partnership they constructively owned All Category 1 filers must complete
instructions for Form 8858. Schedule B.
during the filer’s tax year that the
Item G8—Separate Units reportable transfer or “reportable event” Income
Note. Only Category 1 filers are required occurred.
to answer Item G8. Report only trade or business
Indicate whether the partnership ! activity income on lines 1a through
owned any interest in a separate unit. In Schedule A-1—Certain CAUTION 8. Do not report rental activity

general, a separate unit is: income or portfolio income on these lines.
1. A foreign branch that is owned
Partners of Foreign Rental activity income and portfolio
either directly by a domestic corporation Partnership income are reported on Schedules K and
or indirectly by a domestic corporation K-1. Rental real estate activities are also
All Category 1 and certain Category 3 reported on Form 8825, Rental Real
through ownership of a partnership or filers must complete Schedule A-1. Any
trust interest, Estate Income and Expenses of a
person already listed on Schedule A is Partnership or an S Corporation.
2. An interest in a partnership, or not required to be listed again on
3. An interest in a trust. Schedule A-1. Tax-exempt income. Do not include any
tax-exempt income on lines 1a through 8.
See Regulations section 1.1503-2(c)(3) Category 1 filers. Category 1 filers must A partner in a partnership that receives
and (4) for more information on separate list all U.S. persons who owned at least a any tax-exempt income other than
units. Attach a statement identifying each 10% direct interest in the foreign interest, or holds any property or engages
separate unit and its country of operation. partnership during the partnership’s tax in any activity that produces tax-exempt
Item G9 year listed at the top of page 1 of Form income reports the amount of this income
8865. on line 18b of Schedules K and in box 18
Note. Only Category 1 filers are required
to answer Item G9. Category 3 filers. Category 3 filers must of Schedule K-1 using code B.
list: Report tax-exempt interest income,
Answer “Yes” to Item G9 if the
partnership meets both of the • each U.S. person that owned a 10% or including exempt-interest dividends
greater direct interest in the foreign received by the partnership as a
requirements shown on the form. Total
partnership during the Category 3 filer’s shareholder in a mutual fund or other
receipts is defined as the sum of gross
tax year, and regulated investment company, on line
receipts or sales (Schedule B, line 1a); all
other income reported on Schedule B • any other person related to the 18a of Schedules K and in box 18 of
Category 3 filer that was a direct partner Schedule K-1 using code A.
(lines 4 through 7); income reported on
in the foreign partnership during that tax
Schedule K, lines 3a, 5, 6a, and 7; See Deductions on page 8 for
year.
income or net gain reported on Schedule information on how to report expenses
See Regulations section 1.6038B-2(i)(4)
K, lines 8, 9a, 10 and 11; and income or related to tax-exempt income.
for the definition of a related person.
net gain reported on Form 8825, lines 2,
19, and 20a. Exception. Category 3 filers who only Cancelled debt exclusion. If the
transferred cash and did not own a 10% partnership has had debt discharged
Signature or greater interest in the transferee resulting from a title 11 bankruptcy
partnership after the transfer are not proceeding or while insolvent, see Form
Filer. Do not sign Form 8865 if you are 982, Reduction of Tax Attributes Due to
filing it as an attachment to your income required to complete Schedule A-1.
Discharge of Indebtedness (and Section
tax return. Sign the return only if you are 1082 Basis Adjustment), and Pub. 908,
filing Form 8865 separately because you Bankruptcy Tax Guide.
are not required to file a U.S. income tax
return. See When To File on page 4 for
Schedule A-2—Affiliation Line 1a —Gross Receipts or Sales
more information. Schedule Enter the gross receipts or sales from all
Paid preparer. Do not sign Form 8865 or All filers must complete Schedule A-2. trade or business operations (except
complete the paid preparer section at the List on Schedule A-2 all partnerships those that must be reported on lines 4
bottom of the form if Form 8865 is filed as (foreign or domestic) in which the foreign through 7). For example, do not include
an attachment to an income tax return. partnership owned a direct interest, or a gross receipts from farming on this line.
Sign Form 8865 and complete the paid 10% indirect interest (under the rules of Instead, show the net profit (loss) from
preparer section only if Form 8865 is filed section 267(c)(1) and (5)) during the farming on line 5. Also, do not include
separately. partnership tax year listed at the top of rental activity income or portfolio income
page 1, Form 8865. on line 1a; report them on Schedule K.
Category 1 filers. Only Category 1 filers In general, advance payments are
Schedule A—Constructive must complete the ordinary income or reported in the year of receipt. To report
Ownership of Partnership loss column. In that column, report the income from long-term contracts, see
foreign partnership’s share of ordinary section 460. For special rules for
Interest income (even if not received) or loss from reporting certain advance payments for
All filers must complete Schedule A. partnerships in which the foreign goods and long-term contracts, see
Check box a if the person filing the return partnership owns a direct interest. The Regulations section 1.451-5. For
owns a direct interest in the foreign total amount of ordinary income or loss permissible methods for reporting
partnership. Check box b if the person from each partnership must also be advance payments for services and most
filing the return constructively owns an included on line 4 of Schedule B. goods by an accrual method partnership,
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Cost of Goods Sold Worksheet partnership is not reported on this line.
Instead, report the amount separately on
Form 8865 line 11 of Schedule K and in box 11,
(keep for your records) Schedule K-1 using code F.
1. Inventory at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Treat shares of other items separately
2. Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. reported on Schedule K-1 issued by the
3. Other costs of labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. other entity as if the items were realized
4. Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. or incurred by this partnership.
5. Total 5. If there is a loss from another
6. Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. partnership, the amount of the loss that
7. Cost of goods sold. Subtract line 6 from line 5. Enter the result here may be claimed is subject to the at-risk
and on Schedule B, line 2, page 2 . . . . . . . . . . . . . . . . . . . . . . . . . 7. and basis limitations as appropriate.
If the tax year of your partnership does
not coincide with the tax year of the other
see Rev. Proc. 2004-34, 2004-22 I.R.B. A qualifying small business taxpayer is partnership, estate, or trust, include the
991. a taxpayer (a) that, for each prior tax year ordinary income (loss) from the other
ending on or after December 31, 2000, entity in the tax year in which the other
Installment sales. Generally, the
has average annual gross receipts of $10 entity’s tax year ends.
installment method cannot be used for
million or less for the 3-tax-year period
dealer dispositions of property. A “dealer
disposition” is any disposition of personal
ending with that prior tax year and (b) Line 5 —Net Farm Profit (Loss)
whose principal business activity is not an Enter the partnership’s net farm profit
property by a person who regularly sells
ineligible activity. See Rev. Proc. (loss) from Schedule F (Form 1040),
or otherwise disposes of personal
2002-28, 2002-18 I.R.B. 815 for details. Profit or Loss From Farming. Attach
property of the same type on the
installment plan or any disposition of real Under this accounting method, Schedule F to Form 8865. Do not include
property held for sale to customers in the inventory costs for raw materials on this line any farm profit (loss) from
ordinary course of the taxpayer’s trade or purchased for use in producing finished other partnerships. Report those amounts
business. The disposition of property goods or merchandise purchased for on line 4. In figuring the net farm profit or
used or produced in a farming business is resale are deductible in the year the loss, do not include any section 179
not included as a dealer disposition. See finished goods or merchandise are sold expense deduction; this amount must be
section 453(l) for details and exceptions. (but not before the year the partnership separately stated.
paid for the raw materials or Also report the partnership’s fishing
Enter on line 1a the gross profit on merchandise, if it is also using the cash
collections from installment sales for any income on this line.
method). For additional guidance on this
of the following: method of accounting for inventoriable For information concerning the method
• Dealer dispositions of property before items, see Pub. 538. of accounting for a farming partnership
March 1, 1986. with a corporate partner and for other tax
Cost of Goods Sold Worksheet
• Dispositions of property used or Instructions. All filers not using the cash
information on farms, see Pub. 225,
produced in the trade or business of Farmer’s Tax Guide.
method of accounting should see Section
farming. Note. Farm partnerships that are not
263A uniform capitalization rules on page
• Certain dispositions of timeshares and 8 before completing the worksheet. required to use an accrual method should
residential lots reported under the not capitalize the expenses of raising any
installment method. Line 2 — Purchases. Reduce plant with a preproductive period of more
purchases by any items withdrawn for than 2 years. Instead, state them
Attach a statement showing the personal use. The cost of these items is
following information for the current and separately on an attachment to Schedule
shown on line 19b of Schedule K and in K, line 13d, and in Schedule K-1, box 13,
the 3 preceding tax years: box 19 Schedule K-1(code B) as
• Gross sales. distributions to partners.
using code P. See Regulations section
• Cost of goods sold. Line 4 — Other Costs. Enter on line 4
1.263A-4 for more information.
• Gross profits. any costs paid or incurred during the tax Line 6 —Net Gain (Loss) From
• Percentage of gross profits to gross year not entered on lines 2 and 3. Form 4797
sales.
• Amount collected. Line 4 —Ordinary Income (Loss) Include only ordinary gains or
• Gross profit on amount collected. From Other Partnerships, Estates,
and Trusts
! losses from the sale, exchange, or
CAUTION involuntary conversion of assets
Line 2 —Cost of Goods Sold
Enter the ordinary income (loss) shown used in a trade or business activity.
Generally, inventories are required at the on Schedule K-1 (Form 1065) or Ordinary gains or losses from the sale,
beginning and end of each tax year if the Schedule K-1 of Form 1041, or other exchange, or involuntary conversion of
production, purchase, or sale of ordinary income (loss) from a foreign rental activity assets are reported
merchandise is an income-producing partnership, estate, or trust. Show the separately on line 19 of Form 8825 or line
factor. See Regulations section 1.471-1. partnership’s, estate’s, or trust’s name, 3c of Schedule K and in box 3, Schedule
However, if the partnership is a address, and EIN on a separate K-1, generally as a part of the net income
qualifying taxpayer or a qualifying small statement attached to this return. If the (loss) from the rental activity.
business taxpayer, it may account for amount entered is from more than one A partnership that is a partner in
inventoriable items in the same manner source, identify the amount from each another partnership must include on Form
as materials and supplies that are not source. 4797, Sales of Business Property, its
incidental (unless its business is a tax Do not include portfolio income or share of ordinary gains (losses) from
shelter (as defined in section 448(d)(3))). rental activity income (loss) from other sales, exchanges, or involuntary
A qualifying taxpayer is a taxpayer partnerships, estates, or trusts on this conversions (other than casualties or
that, for each prior tax year ending after line. Instead, report these amounts on the thefts) of the other partnership’s trade or
December 16, 1998, has average annual applicable lines of Schedules K and K-1, business assets.
gross receipts of $1 million or less for the or on line 20a of Form 8825 if the amount Partnerships should not use Form
3-tax-year period ending with that prior is from a rental real estate activity. 4797 to report the sale or other
tax year. See Rev. Proc. 2001-10, 2001-2 Ordinary income or loss from another disposition of property if a section 179
I.R.B. 272 for details. partnership that is a publicly traded expense deduction was previously
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passed through to any of its partners for K and Schedule K-1, code J, explain how performance of production or resale
that property. Instead, report it in box 20 to report these amounts. activities.
of Schedule K-1 using code F. See the • Items that require separate For inventory, some of the indirect
instructions for Schedule K, line 20c, for computations by the partners. Examples costs that must be capitalized are:
details. include expenses incurred for the • Administration expenses.
Line 7 —Other Income (Loss) production of income not in a trade or • Taxes.
Enter on line 7 trade or business income
business, charitable contributions, foreign • Depreciation.
(loss) that is not included on lines 1a
taxes paid, intangible drilling and • Insurance.
through 6. List the type and amount of
development costs, soil and water • Compensation paid to officers
conservation expenditures, amortizable attributable to services.
income on an attached statement.
Examples of such income include:
basis of reforestation expenditures, and • Rework labor.
exploration expenditures. The distributive • Contributions to pension, stock bonus,
1. Interest income derived in the shares of these expenses are reported and certain profit-sharing, annuity, or
ordinary course of the partnership’s trade separately on Schedule K-1. deferred compensation plans.
or business, such as interest charged on Regulations section 1.263A-1(e)(3)
receivable balances.
Limitations on Deductions
specifies other indirect costs that relate to
2. Recoveries of bad debts deducted Section 263A uniform capitalization production or resale activities that must
in prior years under the specific rules. The uniform capitalization rules of be capitalized and those that may be
charge-off method. section 263A require partnerships to currently deductible.
3. Taxable income from insurance capitalize, or include in inventory, certain
proceeds. costs incurred in connection with: Interest expense paid or incurred
4. The amount included in income • The production of real property and during the production period of
from lines 1, 2, and 3 of Form 6478, tangible personal property held in designated property must be capitalized
Credit for Alcohol Used as Fuel. inventory or held for sale in the ordinary and is governed by special rules. For
5. The amount included in income course of business. more details, see Regulations sections
from line 8 of Form 8864, Biodiesel and • Real property or personal property 1.263A-8 through 1.263A-15.
Renewable Diesel Fuels Credit. (tangible and intangible) acquired for For more details on the uniform
6. All section 481 income adjustments resale. capitalization rules, see Regulations
resulting from changes in accounting • The production of real property and sections 1.263A-1 through 1.263A-3.
methods. Show the computation of the tangible personal property by a Transactions between related
section 481 adjustments on an attached partnership for use in its trade or business taxpayers. Generally, an accrual basis
statement. or in an activity engaged in for profit. partnership may deduct business
7. The amount of any deduction The costs required to be capitalized expenses and interest owed to a related
previously taken under section 179A that under section 263A are not deductible party (including any partner) only in the
is subject to recapture. See Chapter 12 in until the property to which the costs relate tax year of the partnership that includes
Pub. 535, Business Expenses, for details, is sold, used, or otherwise disposed of by the day on which the payment is
including how to figure the recapture. the partnership. includible in the income of the related
8. The recapture amount for section Exceptions. Section 263A does not party. See section 267 for details.
280F if the business use of listed property apply to: Business start-up and organizational
drops to 50% or less. To figure the
recapture amount, complete Part IV of
• Inventoriable items accounted for in the costs. Business start-up and
same manner as materials and supplies organizational costs must be capitalized
Form 4797. that are not incidental. unless the partnership elected to deduct
Do not include items requiring • Personal property acquired for resale if or amortize them. The partnership can
separate computations that must be the partnership’s average annual gross elect to amortize costs paid or incurred
reported on Schedules K and K-1. See receipts for the 3 prior tax years were $10 before October 23, 2004, over a period of
the instructions for Schedules K and K-1 million or less. 60 months or more. For costs paid or
later in these instructions for more • Timber. incurred after October 22, 2004, the
information. • Most property produced under a following rules apply separately to each
long-term contract. category of costs.
Do not report portfolio or rental activity • Certain property produced in a farming • The partnership can elect to deduct up
income (loss) on this line. business. See the note at the end of the to $5,000 of such costs for the year the
Deductions instructions for line 5. partnership begins business operations.
• Geological and geophysical costs • The $5,000 deduction is reduced (but
Report only trade or business amortized under section 167(h). not below zero) by the amount the total
!
CAUTION
activity deductions on lines 9
through 21.
Report the following costs separately
for purposes of determinations under
costs exceed $50,000. If the total costs
are $55,000 or more, the deduction is
section 59(e): reduced to zero.
Do not report the following expenses
• Research and experimental costs • If the election is made, any costs that
on lines 9 through 21: are not deducted must be amortized
• Rental activity expenses. Report these under section 174.
• Intangible drilling costs for oil, gas, and ratably over a 180-month period.
expenses on Form 8825 or line 3b of
Schedule K. geothermal property. The amortization period begins the
• Deductions allocable to portfolio • Mining exploration and development month the partnership begins business
income. Report these deductions on line costs. operations. For more details on the
13d of Schedule K and in box 13, Tangible personal property election for business start-up costs and
Schedule K-1 using code I, K, or L. produced by a partnership includes a film, organizational costs, see Pub. 535. To
• Nondeductible expenses (for example, sound recording, videotape, book, or make the election for business start-up
expenses connected with the production similar property. expenses, attach the statement required
of tax-exempt income). Report Indirect costs. Partnerships subject by Regulations section 1.195-1(b) to
nondeductible expenses on line 18c of to the uniform capitalization rules are Form 8865.
Schedule K and in box 18, Schedule K-1 required to capitalize not only direct costs To make the election for
using code C. but an allocable part of most indirect organizational costs, attach the statement
• Qualified expenditures to which an costs (including taxes) that benefit the required by Regulations section
election under section 59(e) may apply. assets produced or acquired for resale, or 1.248-1(c). Report the deductible amount
The instructions for line 13c of Schedule that are incurred by reason of the of these costs and any amortization on
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line 20. For amortization that begins amounts contributed under a salary the partnership leased a vehicle for a
during the tax year, complete and attach reduction SEP (Simplified Employee term of 30 days or more, the deduction for
Form 4562. Pension) agreement or a SIMPLE IRA vehicle lease expense may have to be
Syndication costs. Costs for issuing plan. reduced by an amount called the
and marketing interests in the inclusion amount. You may have an
Line 10 —Guaranteed Payments to inclusion amount if:
partnership, such as commissions, Partners
professional fees, and printing costs,
Deduct payments or credits to a partner And the
must be capitalized. They cannot be vehicle’s fair
for services or for the use of capital if the
depreciated or amortized. See the market value
payments or credits are determined
instructions for line 10 for the treatment of on the first
without regard to partnership income and
syndication fees paid to a partner. day of the
are allocable to a trade or business lease
Reducing certain expenses for which activity. Also include on line 10 amounts The lease term began: exceeded:
credits are allowable. For each of the paid during the tax year for insurance that
following credits, reduce the otherwise constitutes medical care for a partner, a 2005 . . . . . . . . . . . . . . . . . . . . . . . . $15,200
allowable deductions for expenses used partner’s spouse, or a partner’s
to figure the credit, by the amount of the dependents. For information on how to 2004 . . . . . . . . . . . . . . . . . . . . . . . . $17,500
current year credit. Do not reduce the treat the partnership’s contributions to a 2003 . . . . . . . . . . . . . . . . . . . . . . . . $18,000
amount of the allowable deduction for any partner’s Health Savings Account (HSA),
portion of the credit that was passed 1999 - 2002 . . . . . . . . . . . . . . . . . . . . $15,500
see Notice 2005-8, 2005-4 I.R.B. 368.
through to the partnership from another Do not include any payments and 1997 - 1998 . . . . . . . . . . . . . . . . . . . . $15,800
pass-through entity. credits that should be capitalized. For 1995 - 1996 . . . . . . . . . . . . . . . . . . . . $15,500
1. The work opportunity credit. example, although payments or credits to
2. The welfare-to-work credit. If the lease term began before January 1, 1995,
a partner for services rendered in see Pub. 463, Travel, Entertainment, Gift, and Car
3. The credit for increasing research syndicating a partnership may be Expenses, to find out if the partnership has an
activities. guaranteed payments, they are not inclusion amount. The inclusion amount for lease
4. The enhanced oil recovery credit. deductible on line 10. They are capital terms beginning in 2006 will be published in the
5. The disabled access credit. expenditures. Report them separately on Internal Revenue Bulletin in early 2006.
6. The empowerment zone and Schedule K, line 4 and on Schedule K-1,
renewal community employment credit. box 4. See Pub. 463 for how to figure inclusion
7. The Indian employment credit. amounts for all years noted above.
Do not include distributive shares of
8. The credit for employer social
partnership profits on line 10. Note. For 2005, the fair market value for
security and Medicare taxes paid on
certain employee tips. Report the guaranteed payments to trucks and vans is $16,700 and for
9. The orphan drug credit. the appropriate partners on Schedule K-1, electric cars, it is $45,000.
10. Credit for small employer pension box 4.
Line 14 —Taxes and Licenses
plan startup costs. Line 11 —Repairs and Maintenance
11. Credit for employer-provided Enter taxes and licenses paid or incurred
childcare facilities and services. Enter the costs of incidental repairs and in the trade or business activities of the
12. The low sulfur diesel fuel maintenance that do not add to the value partnership if not reflected in cost of
production credit. of the property or appreciably prolong its goods sold. Federal import duties and
13. Employee retention credits. life, but only to the extent that such costs Federal excise and stamp taxes are
14. Hurricane Katrina housing credit. relate to a trade or business activity and deductible only if paid or incurred in
are not claimed elsewhere on the return. carrying on the trade or business of the
Figure each current year credit before The cost of new buildings, machinery, partnership.
figuring the deduction for expenses on or permanent improvements that increase
Do not deduct the following taxes on
which the credit is based. the value of the property are not
line 14.
deductible. They are capitalized, then
Line 9 —Salaries and Wages depreciated or amortized, and reported
• Taxes not imposed on the partnership.
Enter the salaries and wages paid or on line 16 or line 20. • Federal income taxes or taxes reported
incurred for the tax year, reduced by the elsewhere on the return.
amount claimed on: Line 12 —Bad Debts • Section 901 foreign taxes. Report these
• Form 5884, Work Opportunity Credit, Enter the total debts that became taxes separately on Schedule K, line 16l
line 2; worthless in whole or in part during the and Schedule K-1, box 16, codes L and
• Form 5884-A, Credits for Employers year, but only to the extent such debts M.
Affected by Hurricane Katrina, Rita, or relate to a trade or business activity. • Taxes allocable to a rental activity.
Wilma; Report deductible nonbusiness bad debts Taxes allocable to a rental real estate
• Form 8861, Welfare-to-Work Credit, as a short-term capital loss on Schedule activity are reported on Form 8825. Taxes
line 2; D (Form 8865). allocable to a rental activity other than a
• Form 8844, Empowerment Zone and Cash method partnerships cannot
rental real estate activity are reported on
Renewal Community Employment Credit, line 3b of Schedule K.
line 2; and ! take a bad debt deduction unless
CAUTION the amount was previously
• Taxes allocable to portfolio income.
• Form 8845, Indian Employment Credit, included in income.
These taxes are reported on line 13d of
line 4. Schedule K and in box 13, Schedule K-1
Do not reduce the amount of the Line 13 —Rent using code K.
allowable deduction for any portion of the Enter rent paid on business property used • Taxes paid or incurred for the
credit that was passed through to the in a trade or business activity. Do not production or collection of income, or for
partnership from another pass-through deduct rent for a dwelling unit used by the management, conservation, or
entity. See the instructions for these any partner for personal use. maintenance of property held to produce
forms for more information. income. Report these taxes separately on
If the partnership rented or leased a line 13d of Schedule K and in box 13,
Do not include salaries and wages vehicle, enter the total annual rent or Schedule K-1 using code W.
reported elsewhere on the return, such as lease expense paid or incurred in the
amounts included in cost of goods sold, trade or business activities of the See section 263A(a) for rules on
elective contributions to a section 401(k) partnership. Also complete Part V of Form capitalization of allocable costs (including
cash or deferred arrangement, or 4562, Depreciation and Amortization. If taxes) for any property.
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• Taxes, including state or local sales paid or incurred on debt used to purchase that must be supplied to the partners by
taxes, that are paid or incurred in or carry investment property is reported the partnership.
connection with an acquisition or on line 13b of Schedule K and in box 13
disposition of property (these taxes must of Schedule K-1 using code H. See the Line 18 —Retirement Plans, etc.
be treated as a part of the cost of the instructions for line 13b of Schedule K Do not deduct payments for partners to
acquired property or, in the case of a and Form 4952, Investment Interest retirement or deferred compensation
disposition, as a reduction in the amount Expense Deduction, for more information plans including IRAs, qualified plans, and
realized on the disposition). on investment property. simplified employee pension (SEP) and
• Taxes assessed against local benefits Do not include interest on debt SIMPLE IRA plans on this line. These
that increase the value of the property proceeds allocated to distributions made amounts are reported on Schedule K-1,
assessed (such as for paving, etc.). to partners during the tax year. Instead, box 13, using code R, and are deducted
See section 164(d) for apportionment report such interest on line 13d of by the partners on their own returns.
of taxes on real property between seller Schedule K and in box 13 of Schedule Enter the deductible contributions, not
and purchaser. K-1 using code W. To determine the claimed elsewhere on the return, made
amount to allocate to distributions to for its common-law employees under a
Line 15 —Interest partners, see Notice 89-35, 1989-1 C.B. qualified pension, profit-sharing, annuity,
Include only interest incurred in the trade 675. or SEP or SIMPLE IRA plan, and under
or business activities of the partnership any other deferred compensation plan.
that is not claimed elsewhere on the Temporary Regulations section
return. 1.163-8T gives rules for allocating interest If the partnership contributes to an
expense among activities so that the individual retirement arrangement (IRA)
Do not deduct interest expense on limitations on passive activity losses, for employees, include the contribution in
debt required to be allocated to the investment interest, and personal interest salaries and wages on Schedule B, line 9,
production of designated property. can be properly figured. Generally, or Schedule B, line 2, and not on line 18.
Designated property includes real interest expense is allocated in the same
property, personal property that has a manner that debt is allocated. Debt is Line 19 —Employee Benefit
class life of 20 years or more, and other allocated by tracing disbursements of the Programs
tangible property requiring more than 2 debt proceeds to specific expenditures, Enter the partnership’s contributions to
years (1 year in the case of property with as provided in the regulations. employee benefit programs not claimed
a cost of more than $1 million) to produce
Interest paid by a partnership to a elsewhere on the return (for example,
or construct. Interest that is allocable to
partner for the use of capital should be insurance, health, and welfare programs)
designated property produced by a
entered on line 10 as guaranteed that are not part of a pension,
partnership for its own use or for sale
payments. profit-sharing, etc., plan included on line
must be capitalized.
Prepaid interest is deducted over the 18.
In addition, a partnership must also
capitalize any interest on debt that is period to which the prepayment applies. Do not include amounts paid during
allocable to an asset used to produce Note. Additional limitations on interest the tax year for insurance that constitutes
designated property. A partner may be deductions apply when the partnership is medical care for a partner, a partner’s
required to capitalize interest that was a policyholder or beneficiary with respect spouse, or a partner’s dependents.
incurred by the partner for the to a life insurance, endowment, or annuity Instead, include these amounts on line 10
partnership’s production expenditures. contract issued after June 8, 1997. For as guaranteed payments. Also, report
Similarly, a partner may have to capitalize details, see section 264. Attach a these amounts on Schedule K, lines 4
interest that was incurred by the statement showing the computation of the and 13d, and on Schedule K-1, box 4 and
partnership for the partner’s own deduction disallowed under section 264. box 13, code M for a partner on whose
production expenditures. The information behalf the amounts were paid.
Line 16 —Depreciation
required by the partner to properly Line 20 —Other Deductions
capitalize interest for this purpose must On line 16a, enter only the depreciation
be provided by the partnership in an claimed on assets used in a trade or Enter the total allowable trade or business
attachment for box 20 of Schedule K-1, business activity. Enter on line 16b the deductions that are not deductible
using code L. See section 263A(f) and depreciation reported elsewhere on the elsewhere on Schedule B of Form 8865.
Regulations sections 1.263A-8 through return that is attributable to assets used in Attach a statement listing, by type and
1.263A-15. trade or business activities. See the amount, each deduction included on this
Instructions for Form 4562 or Pub. 946, line. Examples of other deductions
Do not include interest expense on How To Depreciate Property, to figure the include.
debt used to purchase rental property or amount of depreciation to enter on this • Amortization (except as noted below) —
debt used in a rental activity. Interest line. see the Instructions for Form 4562 for
allocable to a rental real estate activity is more information. Complete and attach
reported on Form 8825 and is used in Complete and attach Form 4562 only if
the partnership placed property in service Form 4562 if the partnership is claiming
arriving at net income (loss) from rental amortization of costs that began during
real estate activities on line 2 of Schedule during the tax year or claims depreciation
on any car or other listed property. the tax year.
K and in box 2 of Schedule K-1. Interest • Insurance premiums.
allocable to a rental activity other than a Do not include any section 179 • Legal and professional fees.
rental real estate activity is included on expense on this line. Instead, report it in • Supplies used and consumed in the
line 3b of Schedule K and is used in box 12 of Schedule K-1. business.
arriving at net income (loss) from a rental
Line 17 —Depletion • Utilities.
activity (other than a rental real estate
If the partnership claims a deduction for • Certain business start-up expenditures
activity). This net amount is reported on and organizational expenditures that the
line 3c of Schedule K and in box 3 of timber depletion, complete and attach
Form T, Forest Activities Schedule. partnership has elected to amortize or
Schedule K-1. deduct. See Limitations on Deductions
Do not include interest expense on Do not deduct depletion for oil and beginning on page 8 for more details.
debt used to buy property held for ! gas properties. The partner figures • Deduction for certain energy efficient
investment. Do not include interest CAUTION depletion on oil and gas commercial building property placed in
expense that is clearly and directly properties. See the instructions for service after December 31, 2005. See
allocable to interest, dividend, royalty, or Schedule K, line 20c, “Information needed section 179D.
annuity income not derived in the ordinary to figure depletion-oil and gas (code N),” • Deduction for clean-fuel vehicle and
course of a trade or business. Interest for information on oil and gas depletion certain refueling property placed in
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service before January 1, 2006. See estate in box 13 of Schedule K-1 using amounts are treated as compensation to
section 179A and Pub. 535. code Q. the recipient and reported on Form W-2
• Any negative net section 481(a) Travel, meals, and entertainment. for an employee or on Form 1099-MISC
adjustment. Subject to limitations and restrictions for an independent contractor.
Also, see Special Rules below for discussed below, a partnership can Reforestation expenditures. If the
limits on certain other deductions. deduct ordinary and necessary travel, partnership made an election to deduct a
Do not deduct on line 20. meals, and entertainment expenses paid portion of its reforestation expenditures
• Items that must be reported separately or incurred in its trade or business. Also,
special rules apply to deductions for gifts,
on line 13d of Schedule K, it must
on Schedules K and K-1. amortize over an 84-month period the
• Qualified expenditures to which an skybox rentals, luxury water travel,
convention expenses, and entertainment
portion of these expenditures in excess of
election under section 59(e) may apply. the amount deducted on Schedule K (see
See the instructions for Schedule K, lines tickets. See section 274 and Pub. 463 for section 194). Deduct on line 20 only the
13c(1) and 13c(2), on page 18 for details more details. amortization of these excess reforestation
on treatment of these items. Travel. The partnership cannot expenditures. See Reforestation expense
• Fines or penalties paid to a government deduct travel expenses of any individual deduction (code S) on page 19.
for violating any law. Report these accompanying a partner or partnership
Do not deduct amortization of
expenses on Schedule K, line 18c. employee, including a spouse or
• Expenses allocable to tax-exempt dependent of the partner or employee, ! reforestation expenditures paid or
CAUTION incurred before October 23, 2004.
income. Report these expenses on unless:
If the partnership elected to amortize
Schedule K, line 18c. • That individual is an employee of the these expenditures, report the
• Net operating losses. Only individuals partnership, and
amortizable basis on line 20c of Schedule
and corporations may claim a net • His or her travel is for a bona fide K. See Amortization of reforestation costs
operating loss deduction. business purpose that would otherwise be
(code O) on page 27 for details.
• Amounts paid or incurred to participate deductible by that individual.
or intervene in any political campaign on Meals and entertainment. Extraterritorial Income Exclusion
behalf of a candidate for public office, or Generally, the partnership can deduct Generally, extraterritorial income can be
to influence the general public regarding only 50% of the amount otherwise excluded to the extent of qualifying
legislative matters, elections, or allowable for meals and entertainment foreign trade income. However, the
referendums. Report these expenses on expenses paid or incurred in its trade or extraterritorial income exclusion is
Schedule K, line 18c. business. In addition (subject to reduced by 20% for transactions during
• Expenses paid or incurred to influence exceptions under section 274(k)(2)): 2005 and 40% for transactions during
Federal or state legislation, or to influence • Meals must not be lavish or 2006, unless made under a binding
the actions or positions of certain Federal extravagant, contract with an unrelated person in effect
executive branch officials. However, • A bona fide business discussion must on September 17, 2003, and at all times
certain in-house lobbying expenditures occur during, immediately before, or thereafter. For details and to figure the
that do not exceed $2,000 are deductible. immediately after the meal, and amount of the exclusion, see Form 8873,
See section 162(e) for more details. • A partner or employee of the Extraterritorial Income Exclusion, and its
Special Rules partnership must be present at the meal. separate instructions. Report the
Commercial revitalization deduction. If See section 274(n)(3) for a special rule extraterritorial income exclusion as
the partnership constructs, purchases, or that applies to expenses for meals follows.
substantially rehabilitates a qualified consumed by individuals subject to the 1. If the partnership met the foreign
building in a renewal community it may hours of service limits of the Department economic process requirements
qualify for a deduction of either: of Transportation. explained in the Instructions for Form
• 50% of qualified capital expenditures in Membership dues. The partnership 8873, report the exclusion as a
the year the building is placed in service, may deduct amounts paid or incurred for nonseparately stated item on whichever
or membership dues in civic or public of the following lines apply to that activity.
• Amortization of 100% of the qualified service organizations, professional • Form 8865, Schedule B, line 20;
capital expenditures over a 120-month organizations (such as bar and medical • Form 8825, line 15; or
period beginning with the month the associations), business leagues, trade • Form 8865, Schedule K, line 3b.
building is placed in service. associations, chambers of commerce, In addition, report as an item of
boards of trade, and real estate boards. information on Schedule K-1, box 16,
If the partnership elected to amortize using code O, the partner’s distributive
these expenditures, complete and attach However, no deduction is allowed if a
principal purpose of the organization is to share of foreign trading gross receipts
Form 4562. To qualify, the building must from Form 8873, line 15.
be nonresidential (as defined in section entertain, or provide entertainment
facilities for, members or their guests. In 2. If the foreign trading gross receipts
168(e)(2)) and placed in service by the of the partnership for the tax year are $5
partnership. The partnership must be the addition, the partnership may not deduct
membership dues in any club organized million or less and the partnership did not
original user of the building unless it is meet the foreign economic process
substantially rehabilitated. The amount of for business, pleasure, recreation, or
other social purpose. This includes requirements, do not report the
the qualified expenditures cannot exceed extraterritorial income exclusion as a
the lesser of $10 million, or the amount country clubs, golf and athletic clubs,
airline and hotel clubs, and clubs nonseparately stated item on its return.
allocated to the building by the
commercial revitalization agency of the operated to provide meals under Instead, report the following separately
state in which the building is located. Any conditions favorable to business stated items to the partners on Schedule
remaining expenditures are depreciated discussion. K-1, box 16.
over the regular depreciation recovery Entertainment facilities. The • Foreign trading gross receipts (code
period. See Pub. 954, Tax Incentives for partnership cannot deduct an expense O). Report the partner’s distributive share
Distressed Communities, and section paid or incurred for a facility (such as a of foreign trading gross receipts from line
1400I for details. yacht or hunting lodge) used for an 15 of Form 8873 in box 16 using code O.
Rental real estate. Do not report this activity usually considered entertainment, • Extraterritorial income exclusion (code
deduction on line 20 if the building is amusement, or recreation. P). Report the partner’s distributive share
placed in service as rental real estate. Generally, the partnership may be able of the extraterritorial income exclusion
Instead, report the commercial to deduct otherwise nondeductible meals, from Form 8873 in box 16 using code P
revitalization deduction for rental real travel, and entertainment expenses if the and identify on an attached statement the
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activity to which the exclusion relates. If What Are Capital Assets? • Transfer of partnership assets and
more than one Form 8873 is required (for Each item of property the partnership held liabilities to a newly formed corporation in
example, separate forms for transactions (whether or not connected with its trade exchange for all of its stock. See Rev.
eligible for the 60%, 80%, and 100% or business) is a capital asset except: Rul. 84-111, 1984-2 C.B. 88.
exclusions), combine the exclusions from • Stock in trade or other property • Disposition of foreign investment in a
line 54 and report a single exclusion included in inventory or held mainly for U.S. real property interest. See section
amount in box 16. sale to customers. 897.
• Accounts or notes receivable acquired • Any loss from a sale or exchange of
in the ordinary course of the trade or property between the partnership and
Schedule D—Capital business for services rendered, or from certain related persons is not allowed,
the sale of stock in trade or other property except for distributions in a complete
Gains and Losses held mainly for sale to customers. liquidation of a corporation. See section
Important: You do not need to complete • Depreciable or real property used in the 267 and 707(b) for details.
Schedule D if you have attached to Form trade or business, even if it is fully • Any loss from securities that are capital
8865 a copy of the Schedule D from Form depreciated. assets that become worthless during the
1065 or Form 1065-B. • Certain copyrights; literary, musical, or year is treated as a loss from the sale or
All Category 1 filers must complete artistic compositions; letters or exchange of a capital asset on the last
Schedule D to report sales or exchanges memoranda; or similar property. See day of the tax year.
of capital assets, capital gain section 1221(a)(3). • Nonrecognition of gain on sale of stock
distributions, and nonbusiness bad debts. • U.S. Government publications, to an employee stock ownership plan
including the Congressional Record, that (ESOP) or an eligible cooperative. See
Purpose of Schedule the partnership received from the section 1042 and Temporary Regulations
Use Schedule D (Form 8865) to report Government, other than by purchase at section 1.1042-1T for rules under which
sales or exchanges of capital assets, the normal sales price, or that the the partnership may elect not to recognize
capital gain distributions, and partnership got from another taxpayer gain from the sale of certain stock to an
nonbusiness bad debts. Do not report on who had received it in a similar way, if the ESOP or an eligible cooperative.
Schedule D capital gains (losses) partnership’s basis is determined by • A nonbusiness bad debt must be
specially allocated to any partner. reference to the previous owner’s basis. treated as a short-term capital loss and
Enter capital gains (losses) specially • Certain commodities derivative can be deducted only in the year the debt
allocated to the partnership as a partner financial instruments held by a dealer. becomes totally worthless. For each bad
in other partnerships and from estates See section 1221(a)(6). debt, enter the name of the debtor and
and trusts on Schedule D, line 4 or 9, • Certain hedging transactions entered “statement attached” in column (a) of line
whichever applies. Enter capital gains into in the normal course of the trade or 1 and the amount of the bad debt as a
(losses) of the partnership that are business. See section 1221(a)(7). loss in column (f). Also, attach a
specially allocated to partners directly on • Supplies regularly used in the trade or statement of facts to support each bad
line 8, 9a, or 11 of Schedule K. business. debt deduction.
Note. For more information, see Pub. • Any loss from a wash sale of stock or
544, Sales and Other Dispositions of Items for Special Treatment securities (including contracts or options
Assets. • Transactions by a securities dealer. to acquire or sell stock or securities)
See section 1236. cannot be deducted unless the
Other Forms You May Have To • Bonds and other debt instruments. See partnership is a dealer in stock or
File Pub. 550, Investment Income and securities and the loss was sustained in a
Use Form 4797 to report. Expenses. transaction made in the ordinary course
• Sales or exchanges of property used in • Certain real estate subdivided for sale of the partnership’s trade or business. A
a trade or business. that may be considered a capital asset. wash sale occurs if the partnership
• Sales or exchanges of depreciable or See section 1237. acquires (by purchase or exchange), or
amortizable property. • Gain on the sale of depreciable has a contract or option to acquire,
• Sales or other dispositions of securities property to a more than 50%-owned substantially identical stock or securities
or commodities held in connection with a entity, or to a trust in which the within 30 days before or after the date of
trading business, if the partnership made partnership is a beneficiary, is treated as the sale or exchange. See section 1091
a mark-to-market election. ordinary gain. See Pub. 544. for more information.
• Involuntary conversions (other than • Liquidating distributions from a • Gain from installment sales. If the
from casualties or thefts). corporation. See Pub. 550 for details. partnership sold property at a gain and it
• The disposition of noncapital assets • Gain on the sale or exchange of stock will receive a payment in a tax year after
(other than inventory or property held in certain foreign corporations. See the year of sale, it generally must report
primarily for sale to customers in the section 1248. the sale on the installment method unless
ordinary course of a trade or business). • Gain or loss on options to buy or sell, it includes the full amount of the gain in its
Use Form 4684, Casualties and including closing transactions. See Pub. income in the year of sale. However, the
Thefts, to report involuntary conversions 550 for details. installment method may not be used to
of property due to casualty or theft. • Gain or loss from a short sale of report sales of stock or securities traded
property. See Pub. 550 for details. on an established securities market. Use
Use Form 6781, Gains and Losses • Transfer of property to a political Form 6252, Installment Sale Income, to
From Section 1256 Contracts and organization if the fair market value of the report the sale on the installment method.
Straddles, to report gains and losses from property exceeds the partnership’s Also use Form 6252 to report any
section 1256 contracts and straddles. If adjusted basis in such property. See payment received during the tax year
there are limited partners, see section section 84. from a sale made in an earlier year that
1256(e)(4) for the limitation on losses • Any loss on the disposition of was reported on the installment method.
from hedging transactions. converted wetland or highly erodible • Certain constructive ownership
Use Form 8824, Like-Kind Exchanges, cropland that is first used for farming after transactions. Gain in excess of the gain
if the partnership made one or more March 1, 1986, is reported as a long-term that would have been recognized if the
like-kind exchanges. A “like-kind capital loss on Schedule D. Gain on such partnership had held a financial asset
exchange” occurs when business or a disposition is reported as ordinary directly during the term of a derivative
investment property is exchanged for income on Form 4797. See section 1257 contract must be treated as ordinary
property of a like kind. for details. income. See section 1260 for details.
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• Gain from the sale of collectibles. information for each sale in a similar Gain From Qualified Stock
Report any collectibles gain or loss (28% format. However, if a trader used the
rate gain or loss) included on lines 6 mark-to-market accounting method (see Separately state on Form 8865,
through 10 on line 9b of Schedule K (and
the partner’s share in box 9b of Schedule
section 475 and its regulations for
details), each transaction is reported in
! Schedule K, line 11 (and not on
CAUTION Schedule D) any gain that would

K-1). A collectibles gain or loss is any Part II of Form 4797 instead of Schedule qualify for the section 1045 rollover at the
long-term gain or deductible long-term D. Regardless of whether a trader reports partner level instead of the partnership
loss from the sale or exchange of a its gains and losses on Schedule D or level (because a partner was entitled to
collectible that is a capital asset. Form 4797, the gain or loss from the purchase replacement stock) and any
Collectibles include works of art, rugs, disposition of securities is not taken into gain on qualified stock that could qualify
antiques, metals (such as gold, silver, and account when figuring net earnings from for the partial exclusion under section
platinum bullion), gems, stamps, coins, self-employment on Schedules K or K-1. 1202.
alcoholic beverages, and certain other See section 1402(i) for an exception that
tangible property. applies to section 1256 contracts. To be qualified small business stock,
The limitation on investment interest the stock must meet all of the following
Also include gain (but not loss) from tests:
the sale or exchange of an interest in a expense that applies to investors does
partnership or trust held for more than 1 not apply to interest paid or incurred in a • It must be stock in a C corporation (that
trading business. A trader reports interest is, not S corporation stock).
year and attributable to unrealized
appreciation of collectibles. For details, expense and other expenses (excluding • It must have been originally issued
see Regulations section 1.1(h)-1. Also commissions and other costs of acquiring after August 10, 1993.
attach the statement required under or disposing of securities) from a trading • As of the date the stock was issued,
Regulations section 1.1(h)-1(e). business on Schedule B of Form 8865. the corporation was a qualified small
• Exclusion of Gain from the sale or A trader also may hold securities for business. A qualified small business is a
exchange of District of Columbia investment. The rules for investors domestic C corporation with total gross
Enterprise Zone (DC Zone) assets. If the generally will apply to those securities. assets of $50 million or less a) at all times
partnership sold or exchanged a DC Zone Allocate interest and other expenses after August 9, 1993, and before the stock
asset that it held for more than 5 years, it between the partnership’s trading was issued, and b) immediately after the
may be able to exclude the qualified business and its investment securities. stock was issued. Gross assets include
capital gain. However, certain types of Investment interest expense is reported those of any predecessor of the
gain are not excludible, such as on line 13b of Schedule K and in box 13 corporation. All corporations that are
unrecaptured section 1250 gain. DC Zone of Schedule K-1 using code H. members of the same parent-subsidiary
capital assets include stock in a controlled group are treated as one
corporation that was a DC Zone business Constructive Sale Treatment for corporation.
and an interest in a partnership that was a Certain Appreciated Positions • The partnership must have acquired
DC Zone business. Report the sale or Generally, a partnership recognizes gain the stock at its original issue (either
exchange of property used in the (but not loss) on the date it enters into a directly or through an underwriter), either
partnership’s trade or business that constructive sale of any appreciated in exchange for money or other property
qualify as DC Zone assets on Form 4797. position in stock, a partnership interest, or or as pay for services (other than as an
See the Instructions for Schedule D certain debt instruments as if the position underwriter) to the corporation. In certain
(Form 1065) for details. were disposed of at fair market value on cases, the partnership may meet the test
that date. if it acquired the stock from another
Special Rules for Traders in person who met this test (such as by gift
A partnership is treated as making a
Securities constructive sale of an appreciated or at death) or through a conversion or
Traders in securities are engaged in the position when it (or a related person, in exchange of qualified business stock by
business of buying and selling securities some cases) does one of the following: the holder.
for their own account. To be engaged in • Enters into a short sale of the same or • During substantially all of the time the
business as a trader in securities: substantially identical property (that is, a partnership held the stock:
• The partnership must seek to profit “short sale against the box”). 1. The corporation was a C
from daily market movements in the • Enters into an offsetting notional corporation,
prices of securities and not from principal contract relating to the same or 2. At least 80% of the value of the
dividends, interest, or capital substantially identical property. corporation’s assets was used in the
appreciation. • Enters into a futures or forward contract active conduct of one or more qualified
• The partnership’s trading activity must to deliver the same or substantially businesses (defined below), and
be substantial. identical property. 3. The corporation was not a foreign
• The partnership must carry on the • Acquires the same or substantially corporation, domestic international sales
activity with continuity and regularity. identical property (if the appreciated corporation (DISC), former DISC,
The following facts and circumstances position is a short sale, offsetting notional corporation that has made (or that has a
should be considered in determining if a principal contract or a futures or forward subsidiary that has made) a section 936
partnership’s activity is a business: contract). election, regulated investment company
• Typical holding periods for securities Exception. Generally, constructive (RIC), real estate investment trust (REIT),
bought and sold. sale treatment does not apply if: real estate mortgage investment conduit
• The frequency and dollar amount of the • The partnership closed the transaction (REMIC), or cooperative.
partnership’s trades during the year. before the end of the 30th day after the
• The extent to which the partners end of the year in which it was entered Note. A specialized small business
pursue the activity to produce income for into, investment company (SSBIC) is treated
a livelihood. • The partnership held the appreciated as having met test 2 above.
• The amount of time devoted to the position to which the transaction relates A qualified business is any business
activity. throughout the 60-day period starting on other than the following.
Like an investor, a trader must report the date the transaction was closed, and • One involving services performed in the
each sale of securities (taking into • At no time during the 60-day period fields of health, law, engineering,
account commissions and any other costs was the partnership’s risk of loss reduced architecture, accounting, actuarial
of acquiring or disposing of the securities) by holding certain other positions. science, performing arts, consulting,
on Schedule D or on an attached For details and other exceptions to athletics, financial services, or brokerage
statement containing all the same these rules, see Pub. 550. services.
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• One whose principal asset is the adjusted basis as the amount realized direct interest is not required to complete
reputation or skill of one or more has to the fair market value. Schedule K-1.
employees. See section 852(f) for the treatment of Category 1 filers must also complete
• Any banking, insurance, financing, certain load charges incurred in acquiring Schedule K-1 for each U.S. person that
leasing, investing, or similar business. stock in a mutual fund with a reinvestment directly owns a 10% or greater direct
• Any farming business (including the right. interest in the partnership.
raising or harvesting of trees).
• Any business involving the production If the gross sales price is reported in Provide the partner’s beginning and
of products for which percentage column (d), increase the cost or other year-end percentage interest in
depletion can be claimed. basis by any expense of sale, such as partnership profits, losses, capital, or
• Any business of operating a hotel, broker’s fees, commissions, or option deductions. These percentages should
motel, restaurant, or similar business. premiums, before making an entry in include any interest constructively owned
column (e). by the filer.
Specific Instructions For more details, see Pub. 551, Basis Complete boxes 1 through 20 for any
of Assets. direct interest that the partner owns in the
(Schedule D) partnership.
Column (f) —Gain or (Loss)
Columns (b) and (c) —Date Make a separate entry in this column for Example. Partner A owns a 45%
Acquired and Date Sold each transaction reported on lines 1 and direct interest in foreign partnership
Use the trade dates for date acquired and 6 and any other line(s) that applies to the (FPS). Partner A also owns 100% of the
date sold for stocks and bonds traded on partnership. For lines 1 and 6, subtract stock of a domestic corporation (DC),
an exchange, or over-the-counter market. the amount in column (e) from the amount which owns a 10% direct interest in FPS.
The acquisition date for an asset the in column (d). Enter negative amounts in Therefore, Partner A is considered to own
partnership held on January 1, 2001, for parentheses. a 55% interest in FPS and is thus a
which it made an election to recognize Category 1 filer. When Partner A
any gain on a deemed sale, is the date of Lines 4 and 9 —Capital Gains and completes Schedule K-1 for itself, Partner
the deemed sale and reacquisition. Losses From Other Partnerships, A must report the distributive share of
Estates, and Trusts items allocated to Partner A’s direct
Column (d) —Sales Price interest of 45% but not any items
See the Schedule K-1 or other
Enter in this column either the gross sales information supplied to you by the other allocated to DC’s 10% interest. When
price or the net sales price from the sale. partnership, estate, or trust. Partner A completes Schedule K-1 for DC
On sales of stocks and bonds, report the (which Partner A must do because DC
gross amount as reported to the Line 10 —Capital Gain owns a direct 10% interest), Partner A
partnership by the partnership’s broker on Distributions must report on DC’s Schedule K-1 only
Form 1099-B, Proceeds From Broker and On line 10, column (f), report the total items allocated to DC’s direct 10%
Barter Exchange Transactions, or similar amount of (a) capital gain distributions interest.
statement. However, if the broker advised and (b) the partnership’s share of Although the partnership is not subject
the partnership that gross proceeds undistributed capital gains from a RIC or to income tax, the partners are liable for
(gross sales price) less commissions and REIT. Report the partnership’s share of tax on their shares of the partnership
option premiums were reported to the taxes paid on undistributed capital gains income, whether or not distributed, and
IRS, enter that net amount in column (d). by a RIC or REIT on a statement attached must include their share of such items on
Column (e) —Cost or Other Basis to Form 8865 for Schedule K, line 15f their tax returns.
(and the partner’s share in box 15 of Allocations of income, gains, losses,
In general, the cost or other basis is the
Schedule K-1 using code H). Report any deductions, or credits among the partners
cost of the property plus purchase
28% rate gain or (loss) on line 9b of generally should be made according to
commissions and improvements and
Schedule K and in box 9b of Schedule the partnership agreement. See section
minus depreciation, amortization, and
K-1. 704 and the regulations thereunder.
depletion. If the partnership got the
property in a tax-free exchange,
involuntary conversion, or wash sale of
stock, it may not be able to use the actual General Instructions for Specific Instructions
cash cost as the basis. If the partnership Schedules K and K-1—
does not use cash cost, attach an (Schedules K and K-1,
explanation of the basis. Partners’ Distributive Except as Noted)
If the partnership sold stock, adjust the Share Items Note. Generally, Schedules K and K-1 on
basis by subtracting all the stock-related Important: You do not need to complete Form 8865 and Form 1065 are the same.
nontaxable distributions received before Schedules K or K-1 if you have attached If more guidance is needed to complete
the sale. This includes nontaxable to Form 8865 a copy of the Schedules K Schedules K and K-1 of Form 8865, refer
distributions from utility company stock or K-1 from Form 1065 or Form 1065-B. to the Form 1065 instructions.
and mutual funds. Also adjust the basis
for any stock splits or stock dividends. Schedule K General Reporting Information
If the partnership elected to recognize Schedule K is a summary schedule of all On each Schedule K-1, enter the
gain on an asset held on January 1, 2001, of the partners’ shares of the partnership information about the partnership and the
the basis in the asset is its closing market income, credits, deductions, etc. Only partner in Parts I and II of the schedule
price or fair market value, whichever Category 1 filers must complete Schedule (Items A through F). In Part III, enter the
applies, on the date of the deemed sale K. partner’s pro rata share of each item of
and reacquisition, whether the deemed income, deduction, and credit and any
sale resulted in a gain or an unallowed Schedule K-1 other information the partner needs to
loss. Schedule K-1 is used to report a specific prepare the partner’s tax return.
If a charitable contribution deduction is partner’s share of the partnership income, Codes. In box 11 and boxes 13 through
passed through to a partner because of a deductions, credits, etc. 20, identify each item by entering a code
bargain sale of property to a charitable All Category 1 and 2 filers must in the column to the left of the dollar
organization, the adjusted basis for complete Schedule K-1 for any direct amount entry space. These codes are
determining gain from the sale is an interest they hold in the partnership. A identified on the back of Schedule K-1
amount that has the same ratio to the Category 1 or 2 filer that does not own a and in these instructions.
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Attached statements. Enter an asterisk These limitations, if applicable, are Generally, amounts reported on line 4
(*) after the code, if any, in the column to determined at the partner level. are not considered to be related to a
the left of the dollar amount entry space Line 1 should not include rental activity passive activity. For example, guaranteed
for each item for which you have attached income (loss) or portfolio income (loss). payments for personal services paid to a
a statement providing additional partner would not be passive activity
information. For those informational items Schedule K-1. Enter the partner’s income. Likewise, interest paid to any
that cannot be reported as a single dollar distributive share of ordinary business partner is not passive activity income.
amount, enter the code and asterisk in income (loss) in box 1 of Schedule K-1. If
the partnership has more than one trade Schedule K-1. Enter the partner’s
the left column and write “STMT” in the guaranteed payments in box 4 of
dollar amount entry space to indicate the or business activity, identify on an
attachment to Schedule K-1 the amount Schedule K-1.
information is provided on an attached
statement. from each separate activity. Portfolio Income
More than one attached statement can Line 2 — Net Rental Real Estate Do not reduce portfolio income by
be placed on the same sheet of paper Income (Loss) deductions allocable to it. Interest
and should be identified in alphanumeric expense allocable to portfolio income is
Enter the net income (loss) from rental
order by box number followed by the generally investment interest expense
real estate activities of the partnership
letter code (if any). For example: “Box 20, and is reported on line 13b of Schedule K.
from Form 8825. Attach this form to Form
Code N — Information Needed to Figure Report the partner’s distributive share of
8865.
Depletion — Oil and Gas” (followed by the interest expense allocable to portfolio
information the partner needs). Schedule K-1. Enter the partner’s income in box 13 of Schedule K-1 using
distributive share of net rental real estate code H.
Too few entry spaces on Schedule income (loss) in box 2 of Schedule K-1. If
K-1? If there are more coded items than the partnership has more than one rental Line 5 — Interest Income
the number of spaces in box 11 or boxes real estate activity, identify on an Enter only taxable interest on this line.
13 through 20, do not enter a code or attachment to Schedule K-1 the amount Taxable interest is interest from all
dollar amount in the last entry space of attributable to each activity. sources except interest exempt from tax
the box. In the last entry space, enter an and interest on tax-free covenant bonds.
asterisk in the left column and enter Line 3 — Other Net Rental Income
Schedule K-1. Enter the partner’s
“STMT” in the entry space to the right. (Loss) distributive share of interest income in
Report the additional items on an On Schedule K, line 3a, enter gross box 5 of Schedule K-1.
attached statement and provide the box income from rental activities other than
number, the code, description, and dollar those reported on Form 8825. See Pub. Line 6a — Ordinary Dividends
amount or information for each additional 925, Passive Activity and At-Risk Rules, Enter only taxable ordinary dividends on
item. For example: “Box 15, Code J — for a definition of rental activities. Include line 6a, including any qualified dividends
Work Opportunity Credit — $1,000.” on line 3a the gain (loss) from line 17 of reported on line 6b.
Special Allocations Form 4797 that is attributable to the sale, Schedule K-1. Enter the partner’s
exchange, or involuntary conversion of an distributive share of ordinary dividends in
An item is specially allocated if it is asset used in a rental activity other than a
allocated to a partner in a ratio different box 6a of Schedule K-1.
rental real estate activity.
from the ratio for sharing income or loss Line 6b — Qualified dividends
generally. On line 3b of Schedule K, enter the
deductible expenses of the activity. Attach Enter on line 6b all qualified dividends.
Report specially allocated ordinary a statement identifying these expenses. Except as provided below, qualified
gain (loss) on Schedule K, line 11. Report dividends are dividends received from
other specially allocated items on the Enter the net income (loss) on line 3c domestic corporations and qualified
applicable boxes of the partner’s of Schedule K. foreign corporations.
Schedule K-1, with the total amount on Schedule K-1. Enter the partner’s Exceptions. The following dividends
the applicable line of Schedule K. distributive share of net income (loss) are not qualified dividends.
Example. A partnership has a from rental activities other than rental real • Dividends the partnership received on
long-term capital gain that is specifically estate activities in box 3 of Schedule K-1. any share of stock held for less than 61
allocated to a partner and a net long-term If the partnership has more than one days during the 121-day period that
capital gain reported on line 11 of rental activity reported in box 3, identify began 60 days before the ex-dividend
Schedule D that must be reported on line on an attachment to Schedule K-1 the date. When determining the number of
9a of Schedule K. Because specially amount from each activity. days the partnership held the stock, it
allocated gains or losses are not reported Line 4 — Guaranteed Payments to cannot count certain days during which
on Schedule D, the partnership must Partners the partnership’s risk of loss was
report both the net long-term capital gain diminished. See Pub. 550 for more
from Schedule D and the specially Guaranteed payments to partners details. The ex-dividend date is the first
allocated gain on line 9a of Schedule K. include: date following the declaration of a
Box 9a of the Schedule K-1 for the • Payments for salaries, health dividend on which the purchaser of a
partner must include both the specially insurance, and interest deducted by the stock is not entitled to receive the next
allocated gain and the partner’s partnership and reported on Schedule B, dividend payment. When counting the
distributive share of the net long-term line 10; Form 8825; or on Schedule K, number of days the partnership held the
capital gain from Schedule D. line 3b; stock, include the day the partnership
• Compensation deferred under a section disposed of the stock but not the day the
Income (Loss) 409A nonqualified deferred compensation partnership acquired it.
plan that does not meet the requirements • Dividends attributable to periods
Line 1 — Ordinary Business of section 409A reported on line 20c of totaling more than 366 days that the
Income (Loss) Schedule K; and partnership received on any share of
Enter the amount from Schedule B, line • Payments the partnership must preferred stock held for less than 91 days
22. Enter the income (loss) without capitalize. See the Instructions for during the 181-day period that began 90
reference to: Schedule B, line 10, on page 9. days before the ex-dividend date. When
• the basis of the partners’ interests in Note. The reporting requirement for determining the number of days the
the partnership, section 409A deferred compensation has partnership held the stock, do not count
• the partners’ at-risk limitations, or been suspended for calendar year 2005 certain days during which the
• the passive activity limitations. (see the instructions for line 20c). partnership’s risk of loss was diminished.

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See Pub. 550 for more details. Preferred If any gain or loss from line 5 or 11 6252 (whichever applies) or (b) the total
dividends attributable to periods totaling
less than 367 days are subject to the
! of Schedule D is from the
CAUTION disposition of nondepreciable
unrecaptured section 1250 gain for the
sale reduced by all gain reported in prior
61-day holding period rule above. personal property used in a trade or years (excluding section 1250 ordinary
• Dividends that relate to payments that business, it may not be treated as income recapture).
the partnership is obligated to make with portfolio income. Report such gain or loss
However, if the partnership chose
respect to short sales or positions in on line 11 of Schedule K and box 11 of
substantially similar or related property. Schedule K-1 using code F. ! not to treat all of the gain from
CAUTION payments received after May 6,
• Dividends paid by a regulated Line 9b — Collectibles (28%) Gain 1997, and before August 24, 1999, as
investment company that are not treated
(Loss) unrecaptured section 1250 gain, use only
as qualified dividend income under
Figure the amount attributable to the amount the partnership chose to treat
section 854.
as unrecaptured section 1250 gain for
• Dividends paid by a real estate collectibles from the amount reported on
those payments to reduce the total
investment trust that are not treated as Schedule D, line 11. A collectibles gain
(loss) is any long-term gain or deductible unrecaptured section 1250 gain
qualified dividend income under section
long-term loss from the sale or exchange remaining to be reported for the sale.
857(c).
of a collectible that is a capital asset. From the sale or exchange of an
Qualified foreign corporation. A interest in a partnership. Also report as
foreign corporation is a qualified foreign Collectibles include works of art, rugs,
antiques, metal (such as gold, silver, a separate amount any gain from the sale
corporation if it is: or exchange of an interest in a
platinum bullion), gems, stamps, coins,
1. Incorporated in a possession of the alcoholic beverages, and certain other partnership attributable to unrecaptured
United States or tangible property. section 1250 gain. See Regulations
2. Eligible for benefits of a section 1.1(h)-1 and attach a statement
comprehensive income tax treaty with the Also, include gain (but not loss) from required under Regulations section
United States that the Secretary the sale or exchange of an interest in a 1.1(h)-1(e).
determines is satisfactory for this purpose partnership or trust held for more than 1
year and attributable to unrealized From an estate, trust, RIC, or REIT. If
and that includes an exchange of the partnership received a Schedule K-1
information program. See Notice 2003-69, appreciation of collectibles. For details,
see Regulations section 1.1(h)-1. Also, or Form 1099-DIV from an estate, a trust,
2003-42 I.R.B. 851 for details. a real estate investment trust (REIT), or a
attach the statement required under
Regulations section 1.1(h)-1(e). regulated investment company (RIC)
If the foreign corporation does not reporting “unrecaptured section 1250
meet either 1 or 2, then it may be treated Schedule K-1. Report the partner’s gain,” do not add it to the partnership’s
as a qualified foreign corporation for any distributive share of the collectibles (28%) own unrecaptured section 1250 gain.
dividend paid by the corporation if the gain (loss) in box 9b of Schedule K-1. Instead, report it as a separate amount.
stock associated with the dividend paid is Line 9c — Unrecaptured section For example, if the partnership received a
readily tradable on an established 1250 gain Form 1099-DIV from a REIT with
securities market in the United States. unrecaptured section 1250 gain, report it
The three types of unrecaptured section
However, qualified dividends do not as “Unrecaptured section 1250 gain from
1250 gain must be reported separately on
include dividends paid by a passive a REIT.”
an attached statement to Form 8865.
foreign investment company (defined in Schedule K-1. Report the partner’s
From the sale or exchange of the
section 1297) in either the tax year of the distributive share of unrecaptured section
partnership’s business assets. Figure
distribution or the preceding taxable year. 1250 gain from the sale or exchange of
this amount for each section 1250
the partnership’s business assets in box
See Notice 2004-71, 2004-45 I.R.B. property in Part III of Form 4797 (except
9c of Schedule K-1. If reporting
793 for more details. property for which gain is reported using
unrecaptured section 1250 gain from an
the installment method on Form 6252) for
Schedule K-1. Enter the partner’s estate, trust, REIT, RIC, or from the
which you had an entry in Part I of Form
distributive share of qualified dividends in partnership’s sale or exchange of an
4797. For each property, subtract line 26g
box 6b of Schedule K-1. interest in another partnership (as
of Form 4797 from the smaller of line 22
explained above), enter “STMT” in box 9c
or line 24. Figure the total of these
Line 7 — Royalties and an asterisk (*) in the left column of
amounts for all section 1250 properties.
Enter the royalties received by the the box and attach a statement that
Generally, the result is the partnership’s
partnership. separately identifies the amount of
unrecaptured section 1250 gain.
unrecaptured section 1250 from:
However, if the partnership is reporting
Schedule K-1. Enter the partner’s
gain on the installment method for a
• The sale or exchange of the
distributive share of royalties in box 7 of partnership’s business assets.
section 1250 property held more than 1
Schedule K-1.
year, see the next paragraph to figure the
• The sale or exchange of an interest in
another partnership.
unrecaptured section 1250 gain on that
Line 8 — Net Short-Term Capital
property for this tax year.
• An estate, trust, REIT, or RIC.
Gain (Loss)
Enter on line 8 the net short-term capital The total unrecaptured section 1250 Line 10 — Net Section 1231 Gain
gain (loss) from line 5 of Schedule D. gain for an installment sale of section (Loss)
1250 property held more than 1 year is Enter on line 10 the net section 1231 gain
Schedule K-1. Enter the partner’s figured in a manner similar to that used in (loss) from Form 4797, line 7, column (g).
distributive share of net short-term capital the preceding paragraph. However, the Do not include net gains or losses from
gain (loss) in box 8 of Schedule K-1. total unrecaptured section 1250 gain must involuntary conversions due to casualties
Line 9a — Net Long-Term Capital be allocated to the installment payments or theft on this line. Instead, report them
received from the sale. To do so, the on line 11 of Schedule K (box 11 of
Gain (Loss) partnership generally must treat the gain Schedule K-1 using code B). See the
Enter on line 9a the net long-term capital allocable to each installment payment as instructions for line 11 on how to report
gain (loss) that is portfolio income (loss) unrecaptured section 1250 gain until all net gain from involuntary conversions.
from line 11 of Schedule D. See Special such gain has been used in full. Schedule K-1. Report the partner’s
Allocations above. Figure the unrecaptured section 1250 distributive share of net section 1231 gain
Schedule K-1. Enter the partner’s gain for installment payments received (loss) in box 10 of Schedule K-1. If the
distributive share of net long-term capital during the tax year as the smaller of (a) partnership has more than one rental,
gain (loss) in box 9a of Schedule K-1. the amount from line 26 or line 37 of Form trade, or business activity, identify on an
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attachment to Schedule K-1 the amount • Gains from the disposition of an business stock the partnership held for
of section 1231 gain (loss) from each interest in oil, gas, geothermal, or other more than 6 months but that was not
separate activity. mineral properties. Report the following deferred by the partnership under section
information on an attached statement to 1045. A partner (other than a corporation)
Line 11 — Other Income (Loss) Schedule K-1. may be eligible to defer his or her
Use line 11 to report other items of (a) Description of the property, distributive share of this gain under
income, gain, or loss not included on lines (b) The partner’s share of the amount section 1045 if the partner purchases
1 through 10. Attach a statement to Form realized on the sale, exchange, or other qualified small business stock
8865 that separately identifies each type involuntary conversion of each property during the 60-day period that began on
and amount of income for each of the (fair market value of the property for any the date the stock was sold by the
following categories. The codes needed other disposition, such as a distribution), partnership. Additional limitations apply at
for Schedule K-1 reporting are provided (c) The partner’s share of the the partner level. Report the following on
for each category. partnership’s adjusted basis in the an attachment to Schedule K-1 for each
Other portfolio income (loss) (code A). property (except for oil or gas properties), sale or exchange: the name of the
Portfolio income not reported on lines 5 and corporation that issued the stock, the
through 10. (d) Total intangible drilling costs, partner’s share of the partnership’s
development costs, and mining adjusted basis and sales price of the
Report and identify other portfolio exploration costs (section 59(e) stock, and the dates the stock was bought
income or loss on an attachment for line expenditures) passed through to the and sold.
11. partner for the property. • Interest income from the clean
For example, income reported to the See Regulation section 1.1254-5 for more renewable energy bond credit. See the
partnership from a real estate mortgage information. instructions for Form 8912, Clean
investment conduit (REMIC), in which the • Gains from the disposition of farm Renewable Energy Bond Credit and Gulf
partnership is a residual interest holder, recapture property (see Form 4797) and Bond Credit, to determine if the
would be reported on an attachment for other items to which section 1252 applies. partnership must include the amount of
line 11. Taxable income (net loss) from • Any income, gain, or loss to the the credit in interest income.
the REMIC (line 1b of Schedule Q (Form partnership under section 751(b). • Interest income from the gulf bond
1066)).“Excess inclusion” (line 2c of • Specially allocated ordinary gain (loss). credit. See the instructions for Form 8912,
Schedule Q (Form 1066)).Section 212 • Gain from the sale or exchange of Clean Renewable Energy Bond Credit
expenses (line 3b of Schedule Q (Form qualified small business stock that is and Gulf Bond Credit, to determine if the
1066)). Do not report these section 212 eligible for the partial exclusion under partnership must include the amount of
expense deductions related to portfolio section 1202. The section 1202 exclusion the credit in interest income.
income on Schedules K and K-1. applies only to qualified small business Schedule K-1. Enter the partner’s
Involuntary conversions (code B). Net stock held by the partnership for more distributive share of the other income
gain (loss) from involuntary conversions than 5 years. Corporate partners are not categories listed above in box 11 of
due to casualty or theft. The amount for eligible for the section 1202 exclusion. Schedule K-1. Enter the applicable code
this line is shown on Form 4684, line 41a, Additional limitations apply at the partner A, B, C, D, E, or F (as shown above).
41b, or 42. level. Report the partner’s share of
section 1202 gain on Schedule K-1. The If you are reporting the partner’s
If there was a gain (loss) from a distributive share of only one type of
casualty or theft to property not used in a partner will determine if he or she
qualifies for the section 1202 exclusion. income under code F, enter the code with
trade or business or for income-producing an asterisk (F*) and the dollar amount in
purposes, do not complete Form 4684 for Report on an attachment to Schedule K-1
for each sale or exchange: the name of the entry space in box 11 and attach a
this type of casualty or theft. Instead, the statement that shows “Box 11, code F,”
partner will complete his or her own Form the corporation that issued the stock, the
partner’s share of the partnership’s and the type of income. If you are
4684. reporting multiple types of income under
adjusted basis and sales price of the
1256 contracts and straddles (code C). stock, and the dates the stock was bought code F, enter the code with an asterisk
Any net gain or loss from section 1256 and sold. (F*) and enter “STMT” in the entry space
in box 11 and attach a statement that
contracts from Form 6781, Gains and • Gain eligible for section 1045 rollover shows Box 11, code F, and the dollar
Losses From Section 1256 Contracts and (replacement stock purchased by the
Straddles. amount of each type of income.
partnership). Include only gain from the
Mining exploration costs recapture sale or exchange of qualified small If the partnership has more than one
(code D). Provide the information business stock (as defined in the trade or business or rental activity (for
partners will need to recapture certain instructions for Schedule D) that was codes B through F), identify on an
mining exploration expenditures. See deferred by the partnership under section attachment to Schedule K-1 the amount
Regulations section 1.617-3 1045 and reported on Schedule D. See from each separate activity.
the instructions for Schedule D for more
Cancellation of debt (code E). If
details. Corporate partners are not eligible
Deductions
cancellation of debt is reported to the
partnership on Form 1099-C, report the for the section 1045 rollover. Additional Line 12 — Section 179 Deduction
partner’s distributive share in box 11 limitations apply at the partner level.
Report the partner’s share of the gain The partnership can elect to expense part
using code E. of the cost of certain property the
eligible for section 1045 rollover on
Note. Include the amount of income the Schedule K-1. The partner will determine partnership purchased this year for use in
partnership must recognize for a transfer if he or she qualifies for the rollover. its trade or business or certain rental
of a partnership interest, after October 21, Report on an attachment to Schedule K-1 activities. See Pub. 946 for a definition of
2004, in satisfaction of a partnership debt for each sale or exchange the name of what kind of property qualifies for the
when the debt relieved exceeds the FMV the corporation that issued the stock, the section 179 expense deduction and the
of the partnership interest. See section partner’s share of the partnership’s Instructions for Form 4562 for limitations
108(e)(8) for more information. adjusted basis and sales price of the on the amount of the section 179 expense
Other income (loss) (code F). Include stock, and the dates the stock was bought deduction.
any other type of income, such as: and sold. Complete Part I of Form 4562 to figure
• Recoveries of tax benefit items (section • Gain eligible for section 1045 rollover the partnership’s section 179 expense
111). (replacement stock not purchased by the deduction. The partnership does not claim
• Gambling gains and losses subject to partnership). Include only gain from the the deduction itself but instead passes it
the limitations in section 165(d). sale or exchange of qualified small through to the partners. Attach Form 4562
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to Form 8865 and show the total section appreciation (gain if the donated food deductible. See section 170(f)(9) for more
179 expense deduction on Schedule K, were sold at fair market value on the date details.
line 12. of the gift) or (b) twice the amount of Schedule K-1. Report the partner’s
If the partnership is an enterprise zone basis of the donated food. distributive share of charitable
business, also report on an attachment to • The partner’s distributive share of the contributions in box 13 of Schedule K-1
Schedules K and K-1, the cost of section net income for the tax year from the using codes A through G for each of the
179 property placed in service during the partnership’s trades or businesses that contribution categories shown above.
year that is qualified zone property. made the contributions of food inventory. Attach a copy of Form 8283 filed with
See the instructions for line 20c of Noncash contributions (30%) (code D). Form 8865 to the Schedule K-1 if the
Schedule K for information on how to Enter the amount of noncash deduction for any item or group of similar
report a disposition of property if there contributions subject to the 30% AGI items of contributed property exceeds
was a section 179 expense deduction limitation. $5,000, even if the amount allocated to
passed through to a partner and for the Capital gain property to a 50% any partner is $5,000 or less.
recapture rules if the business use of the organization (30%) (code E). Enter the Line 13b — Investment Interest
property dropped to 50% or less. amount of capital gain property Expense
Schedule K-1. Report the partner’s contributions subject to the 30% AGI
limitation. Include on this line the interest properly
distributive share of the section 179 allocable to debt on property held for
expense deduction in box 12 of Schedule Capital gain property (20%) (code F). investment purposes. Property held for
K-1. Do not complete box 12 of Schedule Enter the amount of capital gain property investment includes property that
K-1 for any partner that is an estate or contributions subject to the 20% AGI produces income (unless derived in the
trust; estates and trusts are not eligible for limitation. ordinary course of a trade or business)
the section 179 expense deduction. Cash contributions (100%) (code G). from interest, dividends, annuities, or
If the partnership has more than one Enter the amount of cash contributions royalties; and gains from the disposition
rental, trade, or business activity, identify paid during the period from August 28, of property that produces those types of
on an attachment to Schedule K-1 the 2005, through December 31, 2005, to an income or is held for investment.
amount of section 179 deduction from organization described in section Investment interest expense does not
each separate activity. 170(b)(1)(A) (except for contributions to a include interest expense allocable to a
section 509(a)(3) organization). These passive activity.
Line 13a — Contributions contributions qualify for a partner level
Enter the total amount of charitable election under section 1400S(a). If the Investment income and investment
contributions made by the partnership partnership has partners that are expenses other than interest are reported
during its tax year. Attach a statement to corporations (other than S corporations), on lines 20a and 20b respectively. This
Form 8865 that separately identifies the separately identify on the attached information is needed by partners to
partnership’s contribution for each of the statement the amount of qualified cash determine the investment interest
following categories. See Limits on contributions that were donated for relief expense limitation (see Form 4952,
Deductions in Pub. 526, Charitable efforts related to Hurricane Katrina, Rita, Investment Interest Expense Deduction,
Contributions, for information on adjusted or Wilma. See Pub. 4492. for details).
gross income (AGI) limitations on Schedule K-1. Report the partner’s
deductions for charitable contributions. On Schedule K-1, report qualified
cash contributions as follows: distributive share of investment interest
The codes needed for Schedule K-1
reporting are provided for each category. • For partners that are not expense in box 13 of Schedule K-1 using
corporations (but including S code H.
Cash contributions (50%) (code A). corporations). Report each noncorporate
Enter the amount of cash contributions
Line 13c(1) and 13c(2) — Section
partner’s distributive share of qualified 59(e)(2)Expenditures
subject to the 50% AGI limitation. Do not cash contributions in box 13 using code
include in the amount reported using code G. Generally, section 59(e) allows the
A cash contributions reported on • For partners that are corporations partners to make an election to deduct
Schedule K-1 using code G. (other than S corporations). Report the partner’s distributive share of the
Cash contributions (30%) (code B). each corporate partner’s distributive partnership’s qualified expenditures
Enter the amount of cash contributions share of qualified cash contributions that ratably over 10 years (3 years for
subject to the 30% AGI limitation. were donated for relief efforts related to circulation expenditures), beginning with
Hurricane Katrina, Rita, or Wilma in box the tax year in which the expenditures
Noncash contributions (50%) (code C). were made (or for intangible drilling and
Enter the amount of noncash 13 using code G.
development costs, over the 60-month
contributions subject to the 50% AGI Note. Do not include the contributions period beginning with the month in which
limitation. Do not include the amount of reported on Schedule K-1 using code G in such costs were paid or incurred).
food inventory contributions reported the amount reported using code A.
separately on an attached statement The term “qualified expenditures”
Contributions of property. See includes only the following types of
under Act section 305 of the Katrina Contributions of Property in Pub. 526 for
Emergency Tax Relief Act of 2005. Attach expenditures paid or incurred during the
information on noncash contributions and tax year:
a statement to Schedule K-1 that shows:
• The partner’s distributive share of the
contributions of capital gain property. If • Circulation expenditures.
amount of the charitable contribution
the deduction claimed for noncash • Research and experimental
contributions exceeds $500, complete expenditures.
under section 170(e)(3) for qualified food
inventory that was donated to charitable
Form 8283, Noncash Charitable • Intangible drilling and development
Contributions, and attach it to Form 8865. costs.
organizations for the care of the ill, needy,
and infants during the period beginning If the partnership made a qualified • Mining exploration and development
on August 28, 2005, and ending on conservation contribution, include the costs.
December 31, 2005. The food must meet FMV of the underlying property (before Because the partners are generally
all the quality and labeling standards and after the donation) and describe the allowed to make this election, do not
imposed by federal, state, and local laws conservation purpose furthered by the deduct these amounts or include them as
and regulations. The amount of the donation. AMT items on Schedule K-1. Instead,
charitable contribution for donated food Nondeductible contributions. Certain attach a statement to Schedule K-1
inventory is the lesser of (a) the basis of contributions made to an organization providing the information the partners
the donated food plus one-half of the conducting lobbying activities are not need to figure their separate deductions.
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Identify on line 13c(1) the type of portfolio income and subject to the 2% of deducted. See the instructions for line 20
expenditures claimed on line 13c(2). AGI floor), or L (for other deductions on page 10.
Enter on line 13c(2) the qualified related to portfolio income). Increased deduction for qualified
expenditures paid or incurred during the Amounts paid for medical insurance timber property located in the Gulf
tax year to which an election under (code M). Enter amounts paid during the Opportunity Zones (GO Zones). For
section 59(e) may apply. Enter this tax year for insurance coverage that qualified timber property located in the
amount for all partners whether or not any constitutes medical care for a partner GO Zones for Hurricanes Katrina, Rita,
partner makes an election under section (including that partner’s spouse and and Wilma, the $10,000 limitation for
59(e). If the expenditures are for dependents). each property is increased by the lesser
intangible drilling and development costs, of $10,000 or the amount of qualified
enter the month in which the expenditures Education assistance benefits (code reforestation expenses paid or incurred
were paid or incurred (after the type of N). Enter amounts paid during the tax by the partnership during the following
expenditures on line 13c(1). If there is year for educational assistance benefits periods.
more than one type of expenditure paid to a partner. • August 28, 2005, through December
included in the total shown on line 13c(2) Dependent care benefits (code O). 31, 2007, for qualified timber property
(or intangible drilling and development Enter amounts paid during the tax year located in the GO Zone for Hurricane
costs were paid or incurred for more than for dependent care benefits paid on Katrina.
1 month), report this information behalf of a partner. • September 23, 2005, through
separately for each type of expenditure December 31, 2007, for qualified timber
(or month) on an attachment to Preproductive period expenses (code property located in the GO Zone for
Schedules K and K-1. P). If the partnership is required to use an Hurricane Rita (other than property
Schedule K-1. Report the partner’s accrual method of accounting under located in the Katrina GO Zone).
distributive share of section 59(e) section 447 or 448(a)(3), it must capitalize • October 23, 2005, through December
expenditures in box 13 of Schedule K-1 these expenses. If the partnership is 31, 2007, for qualified timber property
using code J. On an attached statement, permitted to use the cash method, enter located in the GO Zone for Hurricane
identify (a) the type of expenditure, (b) the the amount of preproductive period Wilma (other than property located in the
property for which the expenditures are expenses that qualify under Regulations Katrina or Rita GO Zone).
paid or incurred, and (c) for oil and gas section 1.263A-4(d). An election not to The increased limitation does not apply to
properties only, the month in which capitalize these expenses must be made partnerships that held more than 500
intangible drilling costs and development at the partner level. See Uniform acres of qualified timber property at any
costs were paid or incurred. If there is Capitalization Rules in Pub. 225, time during the tax year. See section
more than one type of expenditure or the Farmer’s Tax Guide. 1400N(i)(1) for details.
expenditures are for more than one Commercial revitalization deduction Schedule K-1. For partners that are a
property, provide the partner’s distributive from rental real estate activities (code real estate investment trust or a
share of the amounts (and the months Q). Enter the commercial revitalization corporation, the stock of which is publicly
paid or incurred for oil and gas properties) deduction on line 13d only if it is for a traded on an established securities
for each type of expenditure separately rental real estate activity. If the deduction market, enter the partner’s distributive
for each property. is for a nonrental building, it is deducted share of the allowable reforestation
Line 13d — Other Deductions on line 20 of Schedule B. See the expenses in box 13 of Schedule K-1
instructions for Schedule B, line 20 for using code S and attach a statement that
Use line 13d to report deductions not more information.
included on lines 12, 13a, 13b, 13c(2), provides a description of the qualified
and 16l. On an attachment, identify the Pensions and IRAs (code R). Enter the timber property. If the partnership is
type and amount of each deduction for payments for a partner to an IRA, electing to deduct amounts from more
the following categories. The codes qualified plan, simplified employee than one qualified timber property,
needed for Schedule K-1 reporting are pension (SEP) or a SIMPLE IRA plan. If a provide a description and the amount for
provided for each category. qualified plan is a defined benefit plan, a each property. These partners do not
partner’s distributive share of payments is qualify for the increased limitation for
Deductions — royalty income (code I). timber properties located in the GO
Enter the deductions related to royalty determined in the same manner as his or
her distributive share of partnership Zones.
income.
taxable income. For a defined benefit For all other partners, enter the
Deductions — portfolio income (2% plan, attach to Schedule K-1 a statement partner’s distributive share of allowable
floor) (code K). Enter the deductions showing the amount of benefit accrued for reforestation expense in box 13 of
related to portfolio income that are subject the tax year. Schedule K-1 using code S and attach a
to the 2% of AGI floor (see the statement that provides a description of
instructions for Schedule A (Form 1040)). Reforestation expense deduction
(code S). The partnership can elect to the qualified timber property. If the
Deductions — portfolio (other) (code L). deduct a limited amount of its partnership is electing to deduct amounts
Enter the amount of any other deductions reforestation expenditures. Generally, the from more than one qualified timber
related to portfolio income. amount the partnership may elect to property, provide a description and the
No deduction is allowable under deduct is limited to $10,000 for each amount for each property. Indicate if the
section 212 for expenses allocable to a qualified timber property. However, see property is located in the GO Zone for
convention, seminar, or similar meeting. the exception for timber property located Hurricane Katrina, the GO Zone for
Because these expenses are not in the Gulf Opportunity Zones below. See Hurricane Rita (other than the Katrina GO
deductible by partners, these expenses section 194(c) for a definition of Zone), or the GO Zone for Hurricane
are not reported on line 13d of Schedule reforestation expenditures and qualified Wilma (other than the Katrina and Rita
K. The expenses are nondeductible and timber property. Provide a description of GO Zones).
are reported as such on line 18c of the qualified timber property on an Domestic production activities
Schedule K and in box 18 of Schedule attached statement to Form 8865 and information (code T). If the partnership
K-1 using code C. Schedule K-1. If the partnership elected is not using the small business simplified
Schedule K-1. In box 13, report the to deduct amounts for more than one overall method to allocate and apportion
partner’s distributive share of deductions qualified timber property, provide a cost of goods sold and deductions
related to portfolio income that are description and the amount for each between domestic production gross
reported on line 13d of Schedule K using property on the statement. If the receipts (DPGR) and other receipts, it
codes I (for deductions related to royalty partnership made this election, amortize must attach a statement with the following
income), K (for deductions related to over 84 months any amount not information to enable the partner to figure
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the domestic production activities disabled that the partnership has elected the partnership is engaged solely in the
deduction under section 199. to treat as a current expense. See section operation of a group investment program,
• Domestic production gross receipts 190. earnings from the operation are not
(DPGR). • Film and television production self-employment earnings for either
• Gross receipts from all sources. expenses. The partnership can elect to general or limited partners.
• Cost of goods sold allocable to DPGR. deduct certain costs of a qualified film or General partners. General partners’ net
• Cost of goods sold from all sources. television production if the aggregate cost earnings (loss) from self-employment do
• Total deductions, expenses, and losses of the production does not exceed $15 not include:
directly allocable to DPGR.
• Total deductions, expenses, and losses
million. For a television series, each
episode of the series is treated as a
• Dividends on any shares of stock and
interest on any bonds, debentures, notes,
directly allocable to a non-DPGR class of separate production and only the first 44 etc., unless the dividends or interest are
income. episodes of a series are taken into received in the course of a trade or
• Other deductions, expenses, and account for this deduction. There is a business, such as a dealer in stocks or
losses not directly allocable to DPGR or higher dollar limitation for productions in securities or interest on notes or accounts
another class of income. certain areas. Provide a description of the receivable.
• Form W-2 wages. film or television production on an • Rentals from real estate, except rentals
See Form 8903, Domestic Production attached statement. If the partnership of real estate held for sale to customers in
Activities Deduction, and its instructions, makes the election for more than one film the course of a trade or business as a
and Proposed Regulations 1.199-4 for or television production, attach a real estate dealer, or payments for rooms
more details. If the partnership elects to statement to Schedule K-1 that shows the or space when significant services are
use the small business simplified overall partner’s distributive share of the qualified provided.
method, see the instructions below. expenditures separately for each
production. See section 181 for details.
• Royalty income, except royalty income
Domestic production activities received in the course of a trade or
information (small business simplified
• Interest expense allocated to business.
debt-financed distributions. See Notice
overall method). If the partnership See the instructions for Schedule SE
89-35 or Pub. 535, chapter 5, for more
elected to use the small business (Form 1040), Self-Employment Tax, for
information.
simplified overall method to apportion
cost of goods sold and deductions
• Interest paid or accrued on debt more information.
properly allocable to the general partner’s Limited partners. Generally, a limited
between domestic production gross
share of a working interest in any oil or partner’s share of partnership income
receipts and other receipts, report the
gas property (if the partner’s liability is not (loss) is not included in net earnings
following information in box 13 of
limited). (loss) from self-employment. Limited
Schedule K-1 using codes U and V.
• Contributions to a capital construction partners treat as self-employment
Qualified production activity income fund.
(code U). Enter the partner’s distributive earnings only guaranteed payments for
share of the partnership’s qualified Schedule K-1. Enter the partner’s services they actually rendered to, or on
production activities income computed distributive share of the deduction behalf of, the partnership to the extent
using the small business simplified overall categories listed above in box 13 of that those payments are payment for
method. This amount may be less than Schedule K-1 or provide the information those services.
zero. See the instructions for Form 8903 required for the deduction on an attached
statement. Enter the applicable code I, K, Line 14a — Net Earnings (Loss)
for details.
L, M, N, O, P, Q, R, S, U, V, or W (as From Self-Employment
Employer’s W-2 wages (code V).
shown above). Schedule K. Enter on line 14a the
Use code V to report the partner’s
distributive share of employer’s W-2 Enter code T with an asterisk (T*) and amount from line 5 of the worksheet.
wages if the partnership has elected to “STMT” in the dollar amount entry space Schedule K-1. Enter in box 14 of
use the small business simplified overall of box 13 and attach a statement that Schedule K-1 the partner’s share of the
method to apportion cost of goods sold shows the partner’s distributive share of amount shown on line 5 of the worksheet
and deductions. Employer’s W-2 wages the amounts identified above. If you are and any individual limited partner’s share
are the lesser of: reporting the partner’s distributive share of the amount shown on line 4c of the
• The partnership’s Form W-2 wages of only one type of deduction under code worksheet, using code A. Do not
(defined in section 199(b)(2)). W, enter the code with an asterisk (W*) complete this line for any partner that is
• 6% of the partnership’s qualified and the dollar amount in the entry space an estate, trust, corporation, exempt
production activities income computed in box 13 and attach a statement that organization, or IRA.
using the small business simplified overall shows box 13, code W, and type of
method. deduction. If you are reporting multiple Line 14b — Gross Farming or
Other deductions (code W). Include types of deduction under code W, enter Fishing Income
any other deduction, such as: the code with an asterisk (W*) and enter Enter on line 14b the partnership’s gross
• Amounts paid by the partnership that “STMT” in the dollar amount entry space farming or fishing income from
would be allowed as itemized deductions in box 13 and attach a statement that self-employment. Individual partners need
on any of the partners’ income tax returns shows box 13, code W, and the type and this amount to figure net earnings from
if they were paid directly by a partner for dollar amount of the deductions. If the self-employment under the farm optional
the same purpose. However, do not enter partnership has more than one trade or method in Section B, Part II of Schedule
expenses related to portfolio income or business activity, identify on an SE (Form 1040). Enter the partner’s
investment interest expense reported on attachment to Schedule K-1 the amount share in box 14 of Schedule K-1, using
line 13b of Schedule K on this line. for each separate activity. code B.
• The amount of any penalty on early Self-Employment
withdrawal of savings not reported on line Line 14c — Gross Nonfarm Income
13b because the partnership withdrew Note. If the partnership is an options Enter on line 14c the partnership’s gross
funds from its time savings deposit before dealer or a commodities dealer, see nonfarm income from self-employment.
its maturity. section 1402(i) before completing lines Individual partners need this amount to
• Soil and water conservation 14a, 14b, and 14c, to determine the figure net earnings from self-employment
expenditures (section 175). amount of any adjustment that may have under the nonfarm optional method in
• Expenditures paid or incurred for the to be made to the amounts shown on the Section B, Part II of Schedule SE (Form
removal of architectural and Worksheet for Figuring Net Earnings 1040). Enter the partner’s share in box 14
transportation barriers to the elderly and (Loss) From Self-Employment below . If of Schedule K-1, using code C.
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Worksheet Instructions residential rental buildings. To qualify for Line 15c — Qualified Rehabilitation
this credit, the partnership must file Form Expenditures (Rental Real Estate)
Line 1b. Include any part of the net 8609, Low-Income Housing Credit
income (loss) from rental real estate Enter on line 15c the total qualified
Allocation and Certification, separately rehabilitation expenditures related to
activities from Schedule K, line 2, that is with the IRS. Do not attach Form 8609 to
from: rental real estate activities of the
Form 8865. Complete and attach Form
1. Rentals of real estate held for sale partnership. Also complete the applicable
8586, Low-Income Housing Credit, and
to customers in the course of a trade or Form 8609-A, Annual Statement for lines of Form 3468, Investment Credit,
business as a real estate dealer, or Low-Income Housing Credit, to Form that apply to qualified rehabilitation
2. Rentals for which services were 8865. expenditures for property related to rental
rendered to the occupants (other than real estate activities of the partnership for
services usually or customarily rendered Line 15a — Low-Income Housing which income or loss is reported on line 2
for the rental of space for occupancy Credit (Section 42(j)(5)) of Schedule K. See Form 3468 for details
only). The supplying of maid service is Report on line 15a the total low-income on qualified rehabilitation expenditures.
such a service. The furnishing of heat and housing credit for property with respect to Attach Form 3468.
light, the cleaning of public entrances, which a partnership is to be treated,
exits, stairways and lobbies, trash Schedule K-1. Report the partner’s
under section 42(j)(5), as the taxpayer to
collection, etc., are not considered distributive share of qualified rehabilitation
which the low-income housing credit was
services rendered to the occupants. allowed. Report any other low-income expenditures related to rental real estate
housing credit on line 15b. activities in box 15 of Schedule K-1 using
Lines 3b and 4b. Allocate the amounts code C. Attach a statement to Schedule
on these lines in the same way line 22 of Schedule K-1. Report in box 15 of K-1 that separately identifies the partner’s
Schedule B is allocated to these particular Schedule K-1 the partner’s distributive share of expenditures from pre-1936
partners. share of the low income-housing credit buildings and from certified historic
reported on line 15a of Schedule K, using structures (lines 1b and 1c of Form 3468,
Line 4a. Include on line 4a any code A. If the partnership has credits from
guaranteed payments to partners respectively). Also, separately identify on
more than one rental activity, identify on the attached statement the amount of any
reported on Schedule K, line 4, and an attachment to Schedule K-1 the
Schedule K-1, box 4, and derived from a expenditures for pre-1936 buildings and
amount for each separate activity. certified historic structures that qualify for
trade or business as defined in section
1402(c). Also include other ordinary Line 15b — Low-Income Housing the increased rehabilitation credit under
business income and expense items section 1400N(h). The increased
Credit (Other)
(other than expense items subject to rehabilitation credit is for expenditures
Report on line 15b any low-income paid or incurred during the period
separate limitations at the partner level)
housing credit not reported on line 15a. beginning on August 28, 2005, and
reported on Schedules K and K-1 that are
used to figure self-employment earnings Schedule K-1. Report in box 15 of ending on December 31, 2008, for
under section 1402. Schedule K-1 the partner’s distributive property located in the Gulf Opportunity
share of the low-income housing credit Zone for Hurricane Katrina. See Form
Credits and Credit Recapture reported on line 15b of Schedule K, using 3468 and section 1400N(h) for details. If
code B. If the partnership has credits from the partnership has expenditures from
Low-Income Housing Credit more than one rental activity, identify on more than one rental real estate activity,
Section 42 provides a credit that can be an attachment to Schedule K-1 the identify on an attachment to Schedule K-1
claimed by owners of low-income amount for each separate activity. the amount for each separate activity.

Worksheet for Figuring Net Earnings (Loss) From Self-Employment

1a Ordinary business income (loss) (Schedule K, line 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1a
b Net income (loss) from certain rental real estate activities (see instructions) . . . . . . . . . . . 1b
c Other net rental income (loss)(Schedule K, line 3c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1c
d Net loss from Form 4797, Part II, line 17, included on line 1a above. Enter as a positive
amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1d
e Combine lines 1a through 1d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1e
2 Net gain from Form 4797, Part II, line 17, included on line 1a above . . . . . . . . . . . . . . . . 2
3a Subtract line 2 from line 1e. If line 1e is a loss, increase the loss on line 1e by the amount
on line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3a
b Part of line 3a allocated to limited partners, estates, trusts, corporations, exempt
organizations, and IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3b
c Subtract line 3b from line 3a. If line 3a is a loss, reduce the loss on line 3a by the amount on line 3b. Include an
individual general partner’s share in box 14 of Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . 3c
4a Guaranteed payments to partners (Schedule K, line 4) derived from a trade or business as
defined in section 1402(c) (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4a
b Part of line 4a allocated to individual limited partners for other than services and to estates,
trusts, corporations, exempt organizations, and IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . 4b
c Subtract line 4b from line 4a. Include an individual general partner’s share and an individual limited partner’s
share in box 14 of Schedule K-1, using code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4c
5 Net earnings (loss) from self-employment. Combine lines 3c and 4c. Enter here and on Schedule K, line 14a . . . . 5

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Qualified rehabilitation for line 15f, identify the type of credit. If • Basis of property using solar or
! expenditures for property not
CAUTION related to rental real estate
there is more than one type of credit or if
there are any credits subject to recapture,
geothermal energy placed in service
during 2005.
activities must be reported on line 15f, attach a statement to Form 8865 that • Basis of property using geothermal
“Other credits and credit recapture.” separately identifies each type and energy placed in service during 2006.
Line 15d — Other Rental Real
amount of credit and credit recapture • Basis of property using solar
information for the following categories. illumination or solar energy placed in
Estate Credits The codes needed for box 15 of Schedule service during 2006.
Enter on line 15d any other credit (other K-1 reporting are provided for each • Basis of qualified fuel cell property
than credits reported on lines 15a through category. installed during 2006.
15c) related to rental real estate activities. Qualified rehabilitation expenditures • Kilowatt capacity of the qualified fuel
On the dotted line to the left of the entry (other than rental real estate) (code D). cell property.
space for line 15d, identify the type of Enter total qualified rehabilitation • Basis of qualified microturbine property
credit. If there is more than one type of expenditures from activities other than installed during 2006.
credit, attach a statement that identifies rental real estate activities. Complete line • Kilowatt capacity of the qualified
the type and amount for each credit. 1 of Form 3468, Investment Credit, for microturbine property.
Schedule K-1. If you are reporting the property not related to rental real estate Attach Form 3468 to Form 8865.
partner’s distributive share of only one activities of the partnership for which Undistributed capital gains credit
type of rental real estate credit under income or loss is reported on line 1 of (code H). This credit represents taxes
code F, enter the code with an asterisk Schedule K. See Form 3468 for details on paid on undistributed capital gains by a
(F*) and the dollar amount in the entry qualified rehabilitation expenditures. regulated investment company (RIC) or a
space in box 15 and attach a statement real estate investment trust (REIT). As a
that shows box 15, code F, and type of Note. Report qualified rehabilitation
shareholder of a RIC or REIT, the
credit. If you are reporting multiple types expenditures related to rental real estate
partnership will receive notice of the
of rental real estate credit under code F, activities on line 15c.
amount of tax paid on undistributed
enter the code with an asterisk (F*) and Schedule K-1. Report the partner’s capital gains on Form 2439, Notice to
enter “STMT” in the entry space in box 15 distributive share of qualified rehabilitation Shareholder of Undistributed Long-Term
and attach a statement that shows box expenditures related to other than rental Capital Gains.
15, code F, and the type and dollar real estate activities in box 15 of Credit for alcohol used as fuel (code I).
amount of the credits. If the partnership Schedule K-1, using code D. Attach a Complete Form 6478 to determine the
has credits from more than one rental real statement to Schedule K-1 that separately amount of the credit. Attach it to Form
estate activity, identify on the attached identifies the partner’s share of 8865. Include the amounts shown on
statement the amount of each type of expenditures from pre-1936 buildings and lines 1, 2, and 3 of Form 6478 in the
credit for each separate activity. from certified historic structures (lines 1b partnership’s income on line 7 of
and 1c of Form 3468, respectively). Also, Schedule B. See section 40(f) for an
Line 15e — Other Rental Credits separately identify on the attached election the partnership can make to not
Enter on line 15e any other credit (other statement the amount of any have the credit apply. If this credit
than credits reported on lines 15a through expenditures for pre-1936 buildings and includes the small ethanol producer
15d) related to rental activities. On the certified historic structures that qualify for credit, identify on a statement attached to
dotted line to the left of the entry space the increased rehabilitation credit under Schedule K-1 (a) the partner’s distributive
for line 15e, identify the type of credit. If section 1400N(h). The increased share of the small ethanol producer
there is more than one type of credit, rehabilitation credit is for expenditures credit, (b) the number of gallons of
attach a statement that identifies the type paid or incurred during the period qualified ethanol fuel claimed by the
and amount for each credit. beginning on August 28, 2005, and partnership for the small ethanol producer
Schedule K-1. If you are reporting the ending on December 31, 2008, for credit, and (c) the partnership’s
partner’s distributive share of only one property located in the Gulf Opportunity productive capacity for alcohol.
type of rental credit under code G, enter Zone for Hurricane Katrina. See Form
3468 and section 1400N(h) for details. If Work opportunity credit (code J).
the code with an asterisk (G*) and the Complete Form 5884 to determine the
dollar amount in the entry space in box 15 the partnership has expenditures from
more than one activity, identify on a amount of the credit.
and attach a statement that shows box
15, code G, and type of credit. If you are statement attached to Schedule K-1 the Welfare-to-work credit (code K).
reporting multiple types of rental credit amount for each separate activity. Complete Form 8861 to determine the
under code G, enter the code with an amount of the credit.
Basis of energy property (code E).
asterisk (G*) and enter “STMT” in the Enter the following information for energy Disabled access credit (code L).
entry space in box 15 and attach a property that qualifies for the energy Complete Form 8826 to determine the
statement that shows box 15, code G, credit. amount of the credit.
and the type and dollar amount of the Empowerment zone and renewal
If all the qualified energy property
credits. If the partnership has credits from community employment credit (code
was placed in service during 2005.
more than one rental activity, identify on M). Complete Form 8844 to determine
Complete line 2 of Form 3468 and report
the attached statement the amount of the amount of the credit.
the partner’s distributive share of the
each type of credit for each separate Credit for increasing research
partnership’s basis in the property using
activity. activities (code N). Complete Form
solar or geothermal energy in box 15 of
Line 15f — Other Credits and Schedule K-1 using code E. 6765 to determine the amount of the
Credit Recapture credit.
If a fiscal-year partnership placed in
Enter on line 15f any other credit, except service or installed qualified energy New markets credit (code O).
credits or expenditures shown or listed for property after December 31, 2005. Complete Form 8874 to determine the
lines 15a through 15e. If any of these Complete line 2 and lines 3a through 3i of amount of the credit.
credits are attributable to rental activities, Form 3468. In box 15 of Schedule K-1, Credit for employer social security and
enter the amount on line 15d or 15e. Do enter code E followed by an asterisk and Medicare taxes paid on certain
not include any credit recapture amounts enter “STMT” in the entry space for the employee tips (code P). Complete Form
on line 15f but provide credit recapture dollar amount. Attach a statement to 8846 to determine the amount of the
information on an attached statement to Schedule K-1 showing separately the credit.
Schedule K-1 as explained below. On the partner’s distributive share of the Backup withholding (code Q). This
dotted line to the left of the entry space following items: credit is for backup withholding on

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dividends, interest, and other types of • Credit for increasing research activities. to determine if the partnership must
income of the partnership. Complete Form 6765 to determine the include the amount of the credit in interest
Recapture of low-income housing amount of the credit and attach it to Form income (on line 11 of Schedule K).
credit (codes R and S). If recapture of 8865. • Basis in qualified and certified
part or all of the low-income housing • Enhanced oil recovery credit. Complete advanced coal project property. Complete
credit is required because (a) prior year Form 8830 to determine the amount of lines 4a and 4b of Form 3468 and attach
qualified basis of a building decreased or the credit and attach it to Form 8865. it to Form 8865. See the instructions for
(b) the partnership disposed of a building • Renewable electricity, refined coal, and Form 3468 for details. Attach a statement
or part of its interest in a building, see Indian coal production credit. Complete to Schedule K-1 that separately identifies
Form 8611, Recapture of Low-Income Form 8835 to determine the amount of the partner’s distributive share of the
Housing Credit. The instructions for Form the credit. Attach a statement to Schedule partnership’s (a) basis in qualified and
8611 indicate when Form 8611 is K-1 showing separately the amount of the certified investment in integrated
completed and what information is credit from Section A and from Section B gasification combined cycle property (line
provided to partners when recapture is of Form 8835. Attach Form 8835 to Form 4a of Form 3468) and (b) basis in
required. Complete lines 1 through 7 of 8865. qualified and certified investment in other
Form 8611 to determine the amount of • Indian employment credit. Complete advanced coal project property (line 4b of
credit to recapture. Use code R on Form 8845 to determine the amount of Form 3468).
Schedule K-1 to report recapture of the the credit and attach it to Form 8865. • Basis in qualified and certified
low-income housing credit from section • Orphan drug credit. Complete Form gasification project property. Complete
42(j)(5) partnership. Use code S to report 8820 to determine the amount of the line 5 of Form 3468 and attach it to Form
recapture of other low-income housing credit and attach it to Form 8865. 8865.
credit. See the instructions for lines 15a • Credit for contributions to selected • Employee retention credits. Complete
and 15b above for more information. community development corporations. Form 5884-A to determine the amount of
Complete Form 8847 to determine the the credits and attach it to Form 8865.
Note. If a partner’s ownership interest in amount of the credit and attach it to Form • Hurricane Katrina housing credit.
a building decreased because of a 8865. Complete Form 5884-A to determine the
transaction at the partner level, attach a • Credit for small employer pension plan amount of the credit and attach it to Form
statement to Schedule K-1 providing the startup costs. Complete Form 8881 to 8865.
necessary information to the partner to determine the amount of the credit and
enable the partner to figure the recapture. Recapture of other credits (code V).
attach it to Form 8865.
On an attached statement to Schedule
If the partnership filed Form 8693, • Credit for employer-provided childcare K-1, provide any information partners will
! Low-Income Housing Credit facilities and services. Complete Form
8882 to determine the amount of the
need to report recapture of credits (other
CAUTION
(LIHC) Disposition Bond or than recapture of low-income housing
Securities Account Application, to avoid credit and attach it to Form 8865.
credit and investment credit reported on
recapture of the low-income housing • Biodiesel and renewable diesel fuels Schedule K-1, using codes R, S, and T).
credit, no entry should be made on credit. Complete Form 8864 to determine
Examples of credit recapture information
Schedule K-1. the amount of the credit. Include the
reported using code V include:
amount from line 8 of Form 8864 in the
See Form 8586, Form 8611, and partnership’s income on line 7 of
• Any information needed by a partner to
section 42 for more information. compute recapture of the qualified electric
Schedule B. If this credit includes the
Recapture of investment credit (code vehicle credit. See Pub. 535 for more
small agri-biodiesel producer credit,
T). Complete and attach Form 4255, information.
identify on a statement attached to
Recapture of Investment Credit, when Schedule K-1 (a) the partner’s distributive
• Any information needed by a partner to
investment credit property is disposed of, compute recapture of the new markets
share of the small agri-biodiesel producer
or it no longer qualifies for the credit, credit. See Form 8874 for details on
credit included in the total credit allocated
before the end of its estimated useful life. recapture.
to the partner, (b) the number of gallons
State the type of property at the top of of qualified agri-biodiesel produced by the
• Any information needed by a partner to
Form 4255, and complete lines 2, 4, and compute recapture of the Indian
partnership, and (c) the partnership’s
5, whether or not any partner is subject to employment credit. Generally, if the
productive capacity for agri-biodiesel.
partnership terminates a qualified
recapture of the credit. • Low sulfur diesel fuel production credit. employee less than 1 year after the date
Attach to Schedule K-1 a separate Complete Form 8896 to determine the
of initial employment, any Indian
statement providing the information amount of the credit and attach it to Form
employment credit allowed for a prior tax
reported on Form 4255, but list only the 8865.
year by reason of wages paid or incurred
partner’s distributive share of the cost of • Qualified railroad track maintenance to that employee must be recaptured. For
the property subject to recapture. Also, credit. Complete Form 8900 to determine details, see section 45A(d).
indicate the lines of Form 4255 on which the amount of the credit and attach it to • Any information needed by a partner to
the partners should report these amounts. Form 8865. compute recapture of the credit for
• General credits from an electing large employer-provided childcare facilities and
The partnership itself is liable for partnership. services. See section 45F(d) for details
investment credit recapture in certain • Distilled spirits credit. Complete Form on recapture.
cases. 8906 to determine the amount of the
Other credits (code U). Attach a credit. Schedule K-1. If you are reporting the
statement that identifies the type and • Energy efficient home credit. Complete partner’s distributive share of only one
amount of any other credits not shown Form 8908 to determine the amount of type of credit under code U, enter the
above, such as: the credit. code with an asterisk (U*) and the dollar
• Nonconventional source fuel credit. • Alternative motor vehicle credit. amount in the entry space in box 15 and
Complete Part I of Form 8907 to Complete Form 8910 to determine the attach a statement that shows “box 15,
determine the amount of the credit and amount of the credit. code U,” and type of credit. If you are
attach it to Form 8865. • Alternative fuel vehicle refueling reporting multiple types of credit under
• Qualified electric vehicle credit. property credit. Complete Form 8911 to code U, enter the code with an asterisk
Complete Form 8834 to determine the determine the amount of the credit. (U*) and enter “STMT” in the entry space
amount of the credit and attach it to Form • Clean renewable energy bond credit. in box 15 and attach a statement that
8865. Complete Form 8912 to determine the shows “box 15, code U,” and the type and
• Unused credits from cooperatives amount of the credit and attach it to Form dollar amount of the credits. If the
(Form 3468). 8865. See the instructions for Form 8912 partnership has credits from more than
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one activity, identify on an attached • Specify foreign source capital gains or Line 16j — Listed categories of income
statement to Schedule K-1 the amount of losses within each separate limitation (code J). Attach a statement showing the
each type of credit for each separate category. Also, separately identify foreign amount of foreign source deductions
activity. source gains or losses within each allocated and apportioned at the
separate limitation category that are partnership level to each of the following
Foreign Transactions collectibles (28%) gains and losses or listed categories:
Lines 16a through 16n must be unrecaptured section 1250 gain. • Financial services income;
completed if the partnership has foreign • High withholding tax interest;
income, deductions, or losses or has paid Lines 16d-16f. Foreign Gross • Shipping income;
or accrued foreign taxes. Income Sourced at Partnership • Dividends from a domestic international
Level sales corporation (DISC) or a former
Attach a statement to Schedule K-1 for DISC;
Separately report gross income from
these coded items providing the
sources outside the United States by • Distributions from a foreign sales
information described below. If the corporation (FSC) or a former FSC;
category of income as follows. See Pub.
partnership had income from, or paid or
514 for information on the categories of • Section 901(j) income; and
accrued taxes to, more than one country
income. • Certain income re-sourced by treaty.
or U.S. possession, see the requirement
for an attached statement in the Line 16d (code D). Enter the passive Line 16k (code K). General limitation
instruction for line 16a below. See Pub. foreign source income. foreign source income (all other foreign
514, Foreign Tax Credit for Individuals, source income).
and the Instructions for Form 1116, for Line 16e (code E). Attach a statement
more information. showing the amount of foreign source Line 16l —Total Foreign Taxes Paid
income included in each of the following or Accrued
Line 16a — Name of Country or listed categories of income: Enter in U.S. dollars the total foreign
U.S. Possession (Code A) • Financial services income; taxes (described in section 901 or section
Enter the name of the foreign country or • High withholding tax interest; 903) that were paid or accrued by the
U.S. possession from which the • Shipping income; partnership (according to its method of
partnership had income or to which the • Dividends from a domestic international accounting for such taxes). Enter the
partnership paid or accrued taxes. If the sales corporation (DISC) or a former amount paid or accrued on line 16l and
partnership had income from, or paid or DISC; check the appropriate box. Translate
accrued taxes to, more than one foreign • Distributions from a foreign sales these amounts into U.S. dollars by using
country or U.S. possession, enter “See corporation (FSC) or a former FSC; the applicable exchange rate (see Pub.
attached” and attach a statement for each • Section 901(j) income; and 514).
country for lines 16a through 16n (codes • Certain income re-sourced by treaty.
Foreign taxes paid (code L). If the
A through N and Q of Schedule K-1). On Line 16f (code F). Enter the general partnership uses the cash method of
Schedule K-1, if there is more than one limitation foreign source income. Include accounting, check the Paid box and enter
country enter code A followed by an all foreign gross income sourced at the foreign taxes paid during the tax year on
asterisk (A*), enter “STMT,” and attach a partnership level that is not reported on line 16l. Report the partner’s distributive
statement to Schedule K-1 for each lines 16d and 16e. share in box 16 of Schedule K-1 using
country for the information and amounts code L.
coded A through N and code Q. Lines 16g-16h — Deductions
Allocated and Apportioned at Foreign taxes accrued (code M). If the
Line 16b — Gross Income From All Partner Level partnership uses the accrual method of
Sources (Code B) accounting, check the Accrued box and
Enter the partnership’s gross income from Line 16g — Interest expense (code G). enter foreign taxes accrued on line 16l.
all sources (both U.S. and foreign Enter on line 16g the partnership’s total Report the partner’s distributive share in
source). interest expense (including interest box 16 of Schedule K-1 using code M.
equivalents under Temporary Regulations
Line 16c — Gross Income Sourced section 1.861-9T(b)). Do not include A partnership reporting foreign taxes
interest directly allocable, under using the cash method can make an
at Partner Level (Code C) irrevocable election to report these taxes
Temporary Regulations section
Enter the total gross income of the 1.861-10T, to income from a specific using the accrual method for the year of
partnership that is required to be sourced property. This type of interest is allocated the election and all future years. Make
at the partner level. This includes income and apportioned at the partnership level this election by reporting all foreign taxes
from the sale of most personal property and is included on lines 16i through 16k. using the accrual method on line 16l and
other than inventory, depreciable check the Accrued box. (See Regulations
property, and certain intangible property. Line 16h — Other (code H). On line section 1.905-1).
See Pub. 514 and section 865 for details. 16h, enter the total of all other deductions
Attach a statement showing the following or losses that are required to be allocated Attach a statement reporting the
information: at the partner level. For example, include following information:
• The amount of this gross income on line 16h research and experimental 1. The total amount of foreign taxes
(without regard to its source) in each expenditures (see Regulations section (including foreign taxes on income
category identified in the instructions for 1.861-17(f)). sourced at the partner level) relating to
lines 16d, 16e, and 16f including each of each category of income (see instructions
the listed categories. Lines 16i-16k — Deductions for lines 16d through 16f).
• Specifically identify gains on the sale of Allocated and Apportioned at 2. The dates on which the taxes were
personal property other than inventory, Partnership Level to Foreign paid or accrued, the exchange rates
depreciable property, and certain Source Income used, and the amounts in both foreign
intangible property on which a foreign tax Separately report partnership deductions currency and U.S. dollars, for:
of 10% or more was paid or accrued. that are apportioned at the partnership • Taxes withheld at source on
Also, list losses on the sale of such level to each of the listed foreign interest.
property if the foreign country would have categories of income as follows. See Pub. • Taxes withheld at source on
imposed a 10% or higher tax had the sale 514 for more information. dividends.
resulted in a gain. See Sales or • Taxes withheld at source on rents
exchanges of certain personal property in Line 16i (code I). Passive foreign source and royalties.
Pub. 514, and section 865. income. • Other foreign taxes paid or accrued.
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Line 16m — Reduction in Taxes respectively. If the partnership is reporting Line 17b — Adjusted Gain or Loss
Available for Credit (Code N) items of income or deduction for oil, gas, If the partnership disposed of any tangible
Enter the total reductions in taxes and geothermal properties, you may be property placed in service after 1986 (or
available for credit. required to identify these items on a after July 31, 1986, if an election was
statement attached to Schedule K-1 (see made to use the General Depreciation
Attach a statement showing the the instructions for lines 17d and 17e
reductions for: System), or if it disposed of a certified
below for details). Also see the
• Taxes on foreign mineral income requirement for an attached statement in
pollution control facility placed in service
(section 901(e)). after 1986, refigure the gain or loss from
the instructions for line 17f.
• Taxes on foreign oil and gas extraction the disposition using the adjusted basis
income (section 907(a)). Line 17a — Post-1986 Depreciation for the AMT. The property’s adjusted
• Taxes attributable to boycott operations Adjustment basis for the AMT is its cost or other basis
(section 908). minus all depreciation or amortization
Figure the adjustment for line 17a based
• Failure to timely file (or furnish all of the only on tangible property placed in
deductions allowed or allowable for the
information required on) Forms 5471 and AMT during the current tax year and
service after 1986 (and tangible property previous tax years.
8865. placed in service after July 31, 1986, and
• Any other items (specify). before 1987 for which the partnership Enter on this line the difference
elected to use the general depreciation between the regular tax gain (or loss) and
Line 16n — Other Foreign Tax the AMT gain (or loss). Enter the
Information system). Do not make an adjustment for
motion picture films, videotapes, sound difference as a negative amount if:
• Foreign trading gross receipts (code recordings, certain public utility property • The AMT gain is less than the regular
O). Report the partner’s distributive share (as defined in section 168(i)(10)), property tax gain,
of foreign trading gross receipts from line depreciated under the unit-of-production • The AMT loss is more than the regular
15 of Form 8873 using code O. See method (or any other method not tax loss, or
Extraterritorial Income Exclusion on page expressed in a term of years), qualified • There is an AMT loss and a regular tax
11. Indian reservation property, property gain.
• Extraterritorial income exclusion eligible for a special depreciation If any part of the adjustment is
(code P).. If the partnership is not allowance, qualified revitalization allocable to net short-term capital gain
permitted to deduct the extraterritorial expenditures, or the 179 expense (loss), net long-term capital gain (loss), or
income exclusion as a non-separately deduction. net section 1231 gain (loss), attach a
stated item, attach a statement to statement that identifies the amount of the
Schedule K-1 showing the partner’s For property placed in service before
1999, refigure depreciation for the AMT adjustment allocable to each type of gain
distributive share of the extraterritorial or loss. For a net long-term capital gain
income exclusion reported on lines 53a as follows (using the same convention
used for the regular tax): (loss), also identify the amount of the
through 53c of Form 8873. Also identify
the activity to which the exclusion is • For section 1250 property (generally, adjustment that is 28% rate gain (loss).
residential rental and nonresidential real For a net section 1231 gain (loss), also
related. identify the amount of adjustment that is
• Other foreign transactions (code Q). property), use the straight line method
unrecaptured section 1250 gain.
Enter in box 16 of Schedule K-1 any other over 40 years.
foreign transaction information the • For tangible property (other than Line 17c — Depletion (Other Than
partners need to prepare their tax returns section 1250 property) depreciated using Oil and Gas)
using code Q. the straight line method for the regular Do not include any depletion on oil and
tax, use the straight line method over the
Alternative Minimum Tax (AMT) gas wells. The partners must figure their
property’s class life. Use 12 years if the depletion deductions and preference
Items property has no class life. items separately under section 613A.
Lines 17a through 17f must be completed • For any other tangible property, use the
150% declining balance method, Refigure the depletion deduction under
for all partners except certain small
switching to the straight line method the section 611 for mines, wells (other than
corporations exempt from AMT under
first tax year it gives a larger deduction, oil and gas wells), and other natural
section 55(e).
over the property’s AMT class life. Use 12 deposits for the AMT. Percentage
Enter items of income and deductions depletion is limited to 50% of the taxable
years if the property has no class life.
that are adjustments or tax preference income from the property as figured under
items for the AMT. See Form 6251, Note. See the Table of Class Lives and section 613(a), using only income and
Alternative Minimum Tax – Individuals; Recovery Periods in Appendix B of Pub. deductions allowed for the AMT. Also, the
Form 4626, Alternative Minimum 946. deduction is limited to the property’s
Tax – Corporations; or Schedule I of Form For property placed in service after adjusted basis at the end of the year, as
1041, U.S. Income Tax Return for Estates 1998, refigure depreciation for the AMT refigured for the AMT. Figure this limit
and Trusts, to determine the amounts to only for property depreciated for the separately for each property. When
enter and for other information. regular tax using the 200% declining refiguring the property’s adjusted basis,
Do not include as a tax preference balance method. For the AMT, use the take into account any AMT adjustments
item any qualified expenditures to which 150% declining balance method, and the made this year or in previous years that
an election under section 59(e) may same convention and recovery period affect basis (other than the current year’s
apply. Instead, report these expenditures used for the regular tax, switching to the depletion).
on line 13c(2). Because these straight line method the first tax year it Enter the difference between the
expenditures are subject to an election by gives a larger deduction. regular tax and the AMT deduction. If the
a partner, the partnership cannot figure Figure the adjustment by subtracting AMT deduction is greater, enter the
the amount of any tax preference related the AMT deduction for depreciation from difference as a negative amount.
to them. Instead, the partnership must the regular tax deduction and enter the
pass through to the partner in box 13, result on line 17a. If the AMT deduction is Oil, Gas, and Geothermal
code J, of Schedule K-1 the information more than the regular tax deduction, enter Properties – Gross Income and
needed to figure the deduction. the difference as a negative amount. Deductions
Schedule K-1. Report the partner’s Depreciation capitalized to inventory must Enter only the income and deductions for
distributive share of amounts reported on also be refigured using the AMT rules. oil, gas, and geothermal properties that
lines 17a through 17f (concerning Include on this line the current year are used to figure the partnership’s
alternative minimum tax items) in box 17 adjustment to income, if any, resulting ordinary business income or loss (line 22
of Schedule K-1 using codes A through F, from the difference. of Schedule B). If there are items of
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income or deduction for oil, gas, and “STMT” in the entry space in box 17 and Schedule K-1. Report in box 19 the
geothermal properties included in the attach a statement that shows the dollar partner’s distributive share of the amount
amounts required to be passed through amount of each type of AMT item. on line 19a using code A and the amount
separately to the partners on Schedule on line 19b using code B. Attach a
K-1 (items not reported on line 1 of Tax-Exempt Income and statement to Schedule K-1 that provides
Schedule K-1), attach a statement Nondeductible Expenses the information required in the instructions
identifying these amounts. for lines 19a and 19b.
Figure the amount for lines 17d and
Line 18a — Tax-Exempt Interest
Income Other Information
17e separately for oil and gas properties
that are not geothermal deposits and for On line 18a enter all tax-exempt interest Lines 20a and 20b — Investment
all properties that are geothermal income, including any exempt-interest Income and Expenses
deposits. dividends received from a mutual fund or
other regulated investment company. Enter on line 20a the investment income
Attach a statement that shows the included on lines 5, 6a, 7, and 11 of
separate amounts that are included in the Line 18b — Other Tax-Exempt Schedule K. Do not include other portfolio
computation on lines 17d and 17e. Income gains or losses on this line.
Line 17d — Oil, Gas, and Enter on line 18b all income of the Investment income includes gross
Geothermal Properties – Gross partnership exempt from tax other than income from property held for investment,
Income tax-exempt interest (for example, life the excess of net gain attributable to the
insurance proceeds). disposition of property held for investment
Enter the aggregate amount of gross over net capital gain from the disposition
income (within the meaning of section Line 18c — Nondeductible of property held for investment, any net
613(a)) from all oil, gas, and geothermal Expenses capital gain from the disposition of
properties that was received or accrued property held for investment that the
during the tax year and included on Enter on line 18c nondeductible expenses
paid or incurred by the partnership. Do partner elects to include in investment
Schedule B. income under section 163(d)(4)(B)(iii),
not include separately stated deductions
Line 17e — Oil, Gas, and shown elsewhere on Schedules K and and any qualified dividend income that
Geothermal Properties – K-1, capital expenditures, or items for the partner elects to include in investment
Deductions which the deduction is deferred to a later income. Generally, investment income
tax year. and investment expenses are not treated
Enter the amount of any deductions as income or expenses from a passive
allowed for the AMT that are allocable to Schedule K-1. Report the partner’s activity. See Regulations section
oil, gas, and geothermal properties. distributive share of amounts reported on 1.469-2(f)(10) for exceptions.
lines 18a, 18b, and 18c of Schedule K
Line 17f — Other AMT Items (concerning items affecting partner’s Property subject to a net lease is not
Attach a statement to each required Form basis) in box 18 of Schedule K-1 using treated as investment property because it
8865 and Schedule K-1 that shows the codes A through C, respectively. is subject to the passive loss rules. Do not
partner’s share of other items not shown reduce investment income by losses from
on lines 17a through 17e that are Distributions passive activities.
adjustments or tax preference items, or Enter investment expenses on line
that the partner needs to complete Form Line 19a — Distributions of Cash 20b. Investment expenses are deductible
6251, Form 4626, or Schedule I of Form and Marketable Securities expenses (other than interest) directly
1041. See these forms and their Enter on line 19a the total distributions to connected with the production of
instructions to determine the amount to the partner(s) of cash and marketable investment income. See the Instructions
enter. securities that are treated as money for Form 4952 for more information.
Other adjustments and tax preference under section 731(c)(1). Generally, Schedule K-1. Report the partner’s
items or information the partner needs marketable securities are valued at FMV distributive share of amounts reported on
include: on the date of distribution. However, the lines 20a and 20b (investment income
• Accelerated depreciation of real value of marketable securities does not and expenses) in box 20 of Schedule K-1
property under pre-1987 rules. include the distributee partner’s share of using codes A through B, respectively.
• Accelerated depreciation of leased the gain on the securities distributed to If there are other items of investment
personal property under pre-1987 rules. that partner. See section 731(c)(3)(B) for income or expense included in the
• Long-term contracts entered into after details. amounts that are required to be passed
February 28, 1986. Except for certain If the amount on line 19a includes through separately to the partners on
home construction contracts, the taxable marketable securities treated as money, Schedule K-1, such as net short-term
income from these contracts must be state separately on an attachment to capital gain or loss, net long-term capital
figured using the percentage of Schedules K and K-1: (a) the gain or loss, and other portfolio gains or
completion method of accounting for the partnership’s adjusted basis of those losses, give the partner a statement
AMT. securities immediately before the identifying these amounts.
• Losses from tax shelter farm activities. distribution and (b) the FMV of those
No loss from any tax shelter farm activity Line 20c — Other Items and
securities on the date of distribution
is allowed for the AMT. (excluding the distributee partner’s share Amounts
• Any information needed by certain of the gain on the securities distributed to Report the following information on a
corporate partners to compute the that partner). statement attached to Form 8865. On
adjusted current earnings (ACE) Schedule K-1 enter the appropriate code
adjustment. Line 19b — Distributions of Other in box 20 for each information item
Schedule K-1. If you are reporting the Property followed by an asterisk in the left-hand
partner’s distributive share of only one Enter on line 19b the total distributions to column of the entry space (for example,
type of AMT item under code F, enter the the partner(s) of property not included on C*). In the right-hand column, enter
code with an asterisk (F*) and the dollar line 19a. In computing the amount of the “STMT”. The codes are provided below
amount in the entry space in box 17 and distribution, use the adjusted basis of the for each information category.
attach a statement that shows the type of property to the partnership immediately Fuel tax credit information (code C).
AMT item. If you are reporting multiple before the distribution. Attach a statement Report the number of gallons of each fuel
types of AMT items under code F, enter showing the adjusted basis and FMV of sold or used during the tax year for a
the code with an asterisk (F*) and enter each property distributed. nontaxable use qualifying for the credit for

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taxes paid on fuels, type of use, and the payments received for the property in the capitalize interest as required by section
applicable credit per gallon. See Form following tax years. (Installment payments 263A(f). See Regulations sections
4136, Credit for Federal Tax Paid on received for installments made in prior tax 1.263A-8 through 1.263A-15 for more
Fuels, for details. years should be reported in the same information.
Look-back interest — completed manner used in prior tax years.) CCF nonqualified withdrawal (code M).
long-term contracts (code D). If the Recapture of section 179 deduction Report nonqualified withdrawals by the
partnership is closely held (defined in (code G). This amount represents partnership from a capital construction
section 460(b)(4)) and it entered into any recapture of section 179 expense fund.
long-term contracts after February 28, deduction if business use of the property Information needed to figure
1986, that are accounted for under either dropped to 50 percent or less. If the depletion — oil and gas (code N).
the percentage of completion-capitalized business use of any property (placed in Report the partner’s share of gross
cost method or the percentage of service after 1986) for which a section income from each property, share of
completion method, it must attach a 179 expense deduction was passed production for the tax year, etc., needed
statement to Form 8865 showing the through to partners dropped to 50% or to figure the partner’s depletion deduction
information required in items (a) and (b) less (for a reason other than disposition), for oil and gas wells. The partnership
of the instructions for lines 1 and 3 of Part the partnership must provide all the should also allocate to the partner a
II of Form 8697. It must also report the following information. proportionate share of the adjusted basis
amounts for Part II, lines 1 and 3, to its • The partner’s distributive share of the of each partnership oil or gas property.
partners. See the Instructions for Form original basis and depreciation allowed or The allocation of the basis of each
8697 for more information. allowable (not including the section 179 property is made as specified in section
Look-back interest — income forecast expense deduction). 613A(c)(7)(D).
method (code E). If the partnership is • The partner’s distributive share of the
section 179 expense deduction (if any) The partnership cannot deduct
closely held (as defined in section depletion on oil and gas wells. The
460(b)(4)), and it depreciated certain passed through for the property and the
partnership’s tax year(s) in which the partner must determine the allowable
property placed in service after amount to report on his or her return. See
September 13, 1995, under the income amount was passed through.
Chapter 10 in Pub. 535 for more
forecast method, it must attach to Form Special basis adjustment (code H). If information.
8865 the information specified in the the partnership holds oil and gas
instructions for Form 8866, line 2, for the properties that are depleted at the partner Amortization of reforestation costs
3rd and 10th tax years beginning after the level under section 613A(c)(7)(D) and is (code O). Report the amortizable basis
tax year the property was placed in notified of a transfer of an interest in the of reforestation expenditures paid or
service. It must also report the line 2 partnership, it must attach a statement to incurred before October 23, 2004, for
amounts to its partners. See the the transferee partner’s Schedule K-1 that which the partnership elected
instructions for Form 8866 for more identifies any section 743(b) basis amortization and the tax year the
details. adjustments to property, other than amortization began for the current tax
depletable oil and gas property, allocable year and the 7 preceding tax years. The
Dispositions of property with section amortizable basis cannot exceed $10,000
179 deductions (code F). Gain or loss to the partner.
for each of those tax years.
on the sale, exchange, or other Section 453(l)(3) information (code I).
disposition of property for which a section Supply any information a partner needs to Unrelated business taxable income
179 expense deduction was passed figure the interest due under section (code P). Report any information a
through to partners. The partnership must 453(l)(3). If the partnership elected to partner that is a tax-exempt organization
provide all the following information with report the disposition of certain may need to figure its share of unrelated
respect to such dispositions (see the timeshares and residential lots on the business taxable income under section
instructions for Schedule B, line 6). installment method, the partner’s tax 512(a)(1) (excluding any modifications
• Description of the property. liability must be increased by the partner’s required by paragraphs (8) through (15)
• Date the property was acquired and distributive share of the interest on tax of section 512(b)). Partners are required
placed in service. attributable to the installment payments to notify the partnership of their
• Date of the sale or other disposition of received during the tax year. tax-exempt status. See Form 990-T,
the property. Exempt Organization Business Income
Section 453A(c) information (code J).
• The partner’s distributive share of the Supply any information a partner needs to
Tax Return, for more information.
gross sales price or amount realized. figure interest due under section 453A(c). Other information (code Q). Report to
• The partner’s distributive share of the If an obligation arising from the the partner:
cost or other basis plus the expense of disposition of property to which section • Any information or statements a partner
sale (reduced as explained in the 453A applies is outstanding at the close needs to comply with the disclosure
instructions for Form 4797, line 21). of the year, the partner’s tax liability must requirements under section 6111, section
• The partner’s distributive share of the be increased by the tax due under section 6662(d)(2)(B)(ii), and the list keeping
depreciation allowed or allowable, 453A(c) on the partner’s distributive share requirements of Regulations section
determined as described in the of the tax deferred under the installment 301.6112-1. See Form 8264 and Notice
instructions for Form 4797, line 22, but method. 2004-80, 2004-50 I.R.B. 963; Notice
excluding the section 179 expense 2005-17, 2005-8 I.R.B 606; and Notice
deduction. Section 1260(b) information (code K). 2005-22, 2005-12 I.R.B. 756.
• The partner’s distributive share of the Any information needed by a partner to • Any information a partner that is a
section 179 expense deduction (if any) figure the interest due under section publicly traded partnership may need to
passed through for the property and the 1260(b). If the partnership had gain from determine if it meets the 90% qualifying
partnership’s tax year(s) in which the certain constructive ownership income test of section 7704(c)(2).
amount was passed through. transactions, the partner’s tax liability Partners are required to notify the
• An indication if the disposition is from a must be increased by the partner’s partnership of their status as a publicly
casualty or theft. distributive share of interest due on any traded partnership.
• If this is an installment sale made deferral of gain recognition. See section • If the partnership participates in a
during the partnership’s tax year, any 1260(b) for details, including how to figure transaction that must be disclosed on
information the partner needs to complete the interest. Form 8886, its partners also may be
Form 6252, Installment Sale Income. The Interest allocable to production required to file Form 8886 for the
partnership also must separately report expenditures (code L). Supply any transaction. Attach a statement to
the partner’s distributive share of all information a partner needs to properly Schedule K-1 providing the information a
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partner needs to file Form 8886 for the uses the dollar approximate separate medical care for a partner, a partner’s
transaction. See Form 8886 for more transactions method (DASTM), Schedule spouse, and a partner’s dependents).
information. L should reflect the tax balance sheets Line 4b — Travel and entertainment.
• Compensation to partners deferred prepared and translated into U.S. dollars Include on this line:
under a section 409A nonqualified according to Regulations section • Meal and entertainment expenses not
deferred compensation plan that does not 1.985-3(d). deductible under section 274(n).
meet the requirements of section 409A. • Expenses for the use of an
Include in this amount any earnings on entertainment facility.
these deferrals. This amount must also be Schedule M—Balance • The part of business gifts over $25.
included on line 4 of Schedule K, • Expenses of an individual allocable to
Guaranteed Payments to Partners. If the Sheets for Interest conventions on cruise ships over $2,000.
section 409A deferred compensation was
Allocation • Employee achievement awards over
part of a transaction in which the partner $400. See exceptions at section
was not acting as a member of the All Category 1 filers must complete
Schedule M. Schedule M should reflect 274(j)(2)(B).
partnership (under section 707(a)), report
the book values of the partnership’s • The part of the cost of entertainment
the income and section 409A deferred tickets that exceeds face value (also
compensation information on Form assets, as described in Temporary
Regulations sections 1.861-9T(g)(2) and subject to 50% disallowance).
1099-MISC. The reporting requirement for
1.861-12T. Assets should be • The part of the cost of skyboxes that
section 409A deferred compensation has exceeds the face value of nonluxury box
been suspended for calendar year 2005. characterized as U.S. assets or foreign
assets in one or more separate limitation seat tickets.
However, future guidance may require
categories as provided in Temporary • The part of the cost of luxury water
you to file an amended return or request travel not allowed under section 274(m).
Regulations sections 1.861-9T(g)(3) and
for administrative adjustment to report this
1.861-12T. The balance sheets should be • Expenses for travel as a form of
income. For details, see Proposed education.
prepared in U.S. dollars under Temporary
Regulations section 1.409A, 2005-43
Regulations section 1.861-9T(g)(2)(ii). • Nondeductible club dues.
I.R.B. 786 and Notice 2005-94, 2005-52 • Other nondeductible travel and
I.R.B. Exception. If the partnership or any entertainment expenses.
• Any income or gain reported on lines 1 qualified business unit of the partnership
through 11 of Schedule K that qualifies as uses DASTM, Schedule M should reflect Line 7. Do not include on line 7 the
inversion gain, if the partnership is an the tax balance sheet prepared in U.S. domestic production activities information
expatriated entity or is a partner in an dollars under Regulations section (codes T, U, or V) reported on line 13d of
expatriated entity. For details, see section 1.985-3(d). See Temporary Regulations Schedule K. This information is used by
7874. Attach a statement to Form 8865 section 1.861-9T(g)(2)(ii)(A)(2) for more partners to figure the domestic production
that shows the amount of each type of information on DASTM. activities deduction and these income and
income or gain included in the inversion expense items are reported elsewhere on
Line 2. Enter the partnership’s foreign the return.
gain. The partnership must report the assets according to the following income
partner’s distributive share of the limitation categories:
inversion gain in box 20 of Schedule K-1 • Passive income category. Schedule M-2—Analysis
using code Q. Attach a statement to
Schedule K-1 that shows the partner’s
• Listed categories (attach a statement
distributive share of the amount of each
classifying foreign assets by the of Partners’ Capital
categories listed in the instructions for line
type of income or gain included in the 16e on page 24). Accounts
inversion gain.
• Any other information a partner may • General limitation income category. Important: You do not need to complete
See the instructions for line 16 of Schedule M-2 if you have attached to
need to file his or her return that is not Form 8865 a copy of the Schedule M-2
shown elsewhere on Schedule K-1. For Schedule K and section 904(d) for more
information. from Form 1065 or Form 1065-B.
example, if one of the partners is a
pension plan, that partner may need Only Category 1 filers are required to
special information to properly file its tax complete Schedule M-2. If you answered
return. Schedule M-1— ‘‘Yes’’ to Item G9 on page 1 of Form
8865, you do not have to complete
Reconciliation of Income Schedule M-2.
Schedule L—Balance (Loss) per Books With Show what caused the changes in the
direct partners’ capital accounts during
Sheets per Books Income (Loss) per Return the partnership’s tax year as reflected on
Important: You do not need to complete Important: You do not need to complete the partnership’s books and records. All
Schedule L if you have attached to Form Schedule M-1 if you have attached to items must be reported in U.S. dollars.
8865 a copy of the Schedule L from Form Form 8865 a copy of the Schedule M-1
1065 or Form 1065-B. Though not required to, you may use
from Form 1065 or Form 1065-B. the rules in Regulations section
The balance sheets should agree with Only Category 1 filers are required to 1.704-1(b)(2)(iv) to determine the
the partnership’s books and records. complete Schedule M-1. If you answered partners’ capital accounts in Schedule
Attach a statement explaining any ‘‘Yes’’ to Item G9 on page 1 of Form M-2. If the beginning and ending capital
differences. 8865, you do not have to complete accounts reported under these rules differ
Only Category 1 filers are required to Schedule M-1. from the amounts reported on Schedule
complete Schedule L. Line 2. Report on this line income L, attach a statement reconciling any
If you answered ‘‘Yes’’ to Item G9 on included on Schedule K, lines 1, 2, 3c, 5, differences.
page 1 of Form 8865, you do not have to 6a, 7, 8, 9a, 10, and 11 not recorded on Line 2 — Capital contributed during
complete Schedule L. the partnership’s books this year. year. Include on line 2a the amount of
Schedule L requires balance sheets Describe each such item of income. money contributed and on line 2b the
prepared and translated into U.S. dollars Attach a statement if necessary. amount of property contributed by the
in accordance with U.S. generally Line 3 — Guaranteed payments. Include partner to the partnership as reflected on
accepted accounting principles (GAAP). guaranteed payments shown on the partnership’s books and records.
Exception. If the partnership or any Schedule K, line 4 (other than amounts Line 3 — Net income (loss) per books.
qualified business unit of the partnership paid for insurance that constitutes Enter on line 3 the partnership’s net
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income (loss) shown on the partnership’s partnership as part of a wider transaction,
books, from Schedule M-1, line 1. briefly describe the entire transaction.
Schedule O—Transfer of
Line 6 — Distributions. Part II—Dispositions
Property to a Foreign Reportable Under Section
Line 6a — Cash. Enter the amount of Partnership 6038B
money distributed to the partner by the Note. Category 3 filers must complete Use Part II to report certain dispositions
partnership. Schedule O. by a foreign partnership. If you were
required to report a transfer of
Line 6b — Property. Enter the amount Part I—Transfers Reportable appreciated property to the partnership,
of property distributed to the partner by Under Section 6038B
the partnership as reflected on the and the partnership disposes of the
Part I is used to report the transfer of property while you are still a direct or
partnership’s books and records. Include
property to a foreign partnership. Provide constructive partner, you must report that
withdrawals from inventory for the the information required in columns (a) disposition in Part II. If the partnership
personal use of a partner. through (g) with respect to each disposes of the property in a
contribution of property to the foreign nonrecognition transaction and receives
partnership that must be reported. If you in exchange substituted basis property,
contributed property with a FMV greater report the subsequent disposition of the
Schedule N—Transactions than its tax basis (appreciated property), substituted basis property in the same
Between Controlled or intangible property, provide the manner as provided for the contributed
information required in columns (a) property. See section 7701(a)(42) for the
Foreign Partnership and through (g) separately with respect to definition of substituted basis property
each item of property transferred (except and Regulations section 1.704-3(a)(8) for
Partners or Other Related to the extent you are allowed to more information.
Entities aggregate the property under Regulations Column (a). Provide a brief description
section 1.704-3(e)(2), (3), and (4)). of the property disposed of by the
All Category 1 filers must complete
Provide a general description of each partnership. If you are reporting the
Schedule N and report all transactions of
item of property in the Supplemental disposition of substituted basis property
the foreign partnership during the tax year
Information Required To Be Reported received by the partnership in a
of the partnership listed on the top of
section. For all other property contributed, nonrecognition transaction in exchange
page 1 of Form 8865. A Category 1 filer
aggregate by the categories listed in Part for appreciated property contributed by
filing a Form 8865 for other Category 1 I. you, enter “See Attached.” Attach a
filers under the multiple Category 1 filers
exception must complete a Schedule N Column (a). Enter the date of the statement providing brief descriptions of
for itself and a separate Schedule N for transfer. If the transfer was composed of both the property contributed by you to
each Category 1 filer not filing Form 8865. a series of transactions over multiple the partnership and the substituted basis
dates, enter the date the transfer was property received by the partnership in
Category 2 filers are required to completed. exchange for that property.
complete columns (a), (b), and (c) of Column (b). Enter the number of items Column (b). Enter the date that you
Schedule N. Category 2 filers do not have of property transferred. transferred this property to the
to complete column (d). Column (c). Enter the FMV of the partnership. If you are reporting the
property contributed (measured as of the disposition of substituted basis property
Column (a). Use column (a) to report received by the partnership in a
date of the transfer).
transactions between the foreign nonrecognition transaction in exchange
partnership and the person filing the Form Column (d). Enter your adjusted basis in
for property previously contributed by you,
8865. the property contributed on the date of the
enter “See Attached.” Attach a statement
transfer. See sections 1011 through 1016
showing both the date you transferred the
Column (d). Use column (d) to report for more information on the determination
appreciated property to the partnership
transactions between the foreign of adjusted basis.
and the date the partnership exchanged
partnership and any U.S. person with a Column (e). If you contributed the property for substituted basis property
10% or more direct interest in the foreign appreciated property, enter the method in a nonrecognition transaction. See
partnership. If such person also qualifies (traditional, traditional with curative Regulations section 1.6038B-2.
under column (b), do not report allocations, or remedial) used by the
transactions between the foreign Column (c). Enter the date that the
partnership to make section 704(c)
partnership and that person under column partnership disposed of the property.
allocations with respect to each item of
(d). Report the transactions only under property. See Regulations section Column (d). Briefly describe how the
column (b). 1.704-3(b), (c), and (d) for more partnership disposed of the property (for
information on these allocation methods. example, by sale or exchange).
Lines 6 and 16. Enter distributions Column (e). Enter the amount of gain, if
Column (f). Enter the amount of gain, if
received from other partnerships and any, recognized by the partnership on the
any, recognized on the transfer. See
distributions from the foreign partnership sections 721(b) and 904(f)(3). disposition of property.
for which this form is being completed. Column (f). Enter the amount of
Column (g). Enter your percentage
Lines 20 and 21. Enter the largest interest in the partnership immediately depreciation recapture, if any, recognized
outstanding balances during the year of after the transfer. To the extent your by the partnership on the disposition of
gross amounts borrowed from, and gross percentage interest in the partnership property. See Regulations section
amounts lent to, the related parties differs among capital, profits, losses, or 1.1245-1(e) and 1.1250-1(f).
described in columns (a) through (d). Do deductions, enter “See Below” and state Column (g). Enter the amount of gain
not enter aggregate cash flows, year-end the different percentages. from column (e) allocated to you.
loan balances, average balances, or net Supplemental information required to Column (h). Enter the amount of
balances. Do not include open account be reported. Enter any information from depreciation recapture from column (f)
balances resulting from sales and Part I that is required to be reported in allocated to you. See Regulations
purchases reported under other items greater detail. Identify the applicable sections 1.1245-1(e) and 1.1250-1(f). If
listed on Schedule N that arise and are column number next to the information you recognize any section 1254 recapture
collected in full in the ordinary course of entered in this section. In addition, if you on the partnership’s disposition of natural
business. contributed property to a foreign resource recapture property, enter “See
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Attached” and attach a statement as of the date of acquisition). See after the disposition. To the extent your
calculating the amount of recapture. See sections 722 and 742. percentage interest in the partnership
Regulations section 1.1254-5. Columns (e) and (f). Enter your total differs among capital, profits, losses, or
direct percentage interest in the deductions, enter “See Below” and state
Part III—Gain Recognition the different percentages in Part IV.
partnership both before and immediately
Under Section 904(f)(3) or after the acquisition. To the extent your
(f)(5)(F) Part III—Change in
direct percentage interest in the
If gain recognition was required with partnership differs among capital, profits,
Proportional Interest
respect to any transfer reported in Part I losses, or deductions, enter “See Below” This section is completed by U.S. persons
under section 904(f)(3) and (f)(5)(F), and state the different percentages in Part who are Category 4 filers because their
attach a statement identifying the transfer IV. direct proportional interest in the foreign
and the amount of gain recognized. partnership changed. See Categories of
Part II—Dispositions Filers beginning on page 2 for more
This section is completed by U.S. persons details about which changes in
Schedule P—Acquisitions, who are Category 4 filers because they proportional interest must be reported.
disposed of an interest in a foreign Column (a). Briefly describe the event
Dispositions, and Changes partnership. See Categories of Filers that caused your interest in the
of Interests in a Foreign beginning on page 2 for more details partnership to change (for example, the
about what types of dispositions must be admission of a new partner).
Partnership reported. For each disposition reported in Column (b). Enter the date of the
Use Schedule P to report the acquisition, Part II, indicate in Part IV whether a change. If the change resulted from a
disposition, and change of interest in a statement is required by Regulations series of transactions over multiple dates,
foreign partnership. section 1.751-1(a)(3) to be filed with enter the date the change was completed.
Every Category 4 filer must complete respect to the disposition.
Column (c). Enter the FMV of your
Schedule P. Column (a). Unless you disposed of the interest in the partnership immediately
interest by withdrawing, in whole or in before the change.
Part I—Acquisitions part, from the partnership, enter the
Part I is completed by Category 4 filers name, address, and identifying number (if Column (d). Enter your basis in your
required to report an acquisition of an any) of the person to whom you partnership interest immediately before
interest in a foreign partnership. See transferred the interest in the foreign the change.
Categories of Filers beginning on page 2 partnership. Columns (e) and (f). Enter your direct
for more details about which types of Column (b). Enter the date of the percentage interest in the partnership
acquisitions must be reported. disposition. If the disposition was both before and immediately after the
Column (a). If you acquired the interest composed of a series of transactions over change. To the extent your percentage
in the foreign partnership by purchase, multiple dates, enter the date the interest in the partnership differs among
gift, inheritance, or in a distribution from a disposition was completed. capital, profits, losses, or deductions,
trust, estate, partnership, or corporation, enter “See Below” and state the different
Column (c). Enter the FMV of the percentages in Part IV.
enter the name, address, and identifying interest you disposed of in the partnership
number (if any), of the person from whom (measured as of the date of disposition). Part IV—Supplemental
you acquired the interest. If you recognized gain or loss on the Information Required To Be
Column (b). Enter the date of the disposition, state the amount of gain or Reported
acquisition. If the acquisition was loss in Part IV. See section 741. Enter any information asked for in Part I,
composed of a series of transactions over Column (d). Enter your adjusted basis in Part II, or Part III that must be reported in
multiple dates, enter the date the the partnership interest disposed of detail. Identify the applicable part number
acquisition was completed. immediately before the disposition. See and column next to the information
Column (c). Enter the FMV of the section 705. entered in Part IV.
interest you acquired in the partnership Columns (e) and (f). Enter your total
(measured as of the date of acquisition). direct percentage interest in the
Column (d). Enter your basis in the partnership both before and immediately
acquired partnership interest (measured

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Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws
of the United States. Sections 6038, 6038B, and 6046A require you to provide this information. Section 6109 requires you to provide
your identifying number (SSN, EIN, or PTIN). We need this information to ensure that you are complying with the revenue laws and
to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the
form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their
contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are
confidential, as required by section 6103.
The time needed to complete and file this form and related schedule will vary depending on individual circumstances. The
estimated burden for individual taxpayers filing this form is approved under OMB control number 1545 – 0074 and is included in the
estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this
form is shown below.
Learning about the Preparing, copying, assembling and
Form Recordkeeping law or the form sending the form to the IRS
8865 89 hr., 21 min. 23 hr., 16 min. 36 hr., 26 min.
Schedule K-1 (Form 8865) 10 hr., 31 min. 35 min. 48 min.
Schedule O (Form 8865) 12 hr., 12 min. 2 hr., 22 min. 2 hr., 41 min.
Schedule P (Form 8865) 5 hr., 15 min. 35 min. 42 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related
schedules simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed. If you do
not have to file a tax return, see the instructions for the return you would be required to file.

Using the list of activities and codes below, purchases raw materials and supplies them to a
Codes for Principal Business determine from which activity the business derives subcontractor to produce the finished product, but
Activity and Principal Product the largest percentage of its “total receipts.” Total retains title to the product, the business is
receipts is defined as the sum of gross receipts or considered a manufacturer and must use one of the
or Service sales (Schedule B, line 1a); all other income manufacturing codes (311110 – 339900).
reported on Schedule B, lines 4 through 7; income
This list of Principal Business Activities and their Once the Principal Business Activity is
reported on Schedule K, lines 3a, 5, 6a, and 7;
associated codes is designed to classify an determined, enter the six-digit code from the list
income or net gain reported on Schedule K, lines 8,
enterprise by the type of activity in which it is below on page 1, Item F6. Also enter a brief
9a, 10, and 11; and income or net gain reported on
engaged to facilitate the administration of the description of the business activity in Item F7.
Form 8825, lines 2, 19, and 20a. If the business
Internal Revenue Code. These Principal Business
Activity Codes are based on the North American
Industry Classification System.

Code Code Code Code
Agriculture, Forestry, Fishing Support Activities for Agriculture 237310 Highway, Street, & Bridge Beverage and Tobacco Product
and Hunting and Forestry Construction Manufacturing
115110 Support Activities for Crop 237990 Other Heavy & Civil 312110 Soft Drink & Ice Mfg
Crop Production Production (including cotton Engineering Construction 312120 Breweries
111100 Oilseed & Grain Farming ginning, soil preparation, Specialty Trade Contractors 312130 Wineries
111210 Vegetable & Melon Farming planting, & cultivating)
(including potatoes & yams) 238100 Foundation, Structure, & 312140 Distilleries
115210 Support Activities for Animal Building Exterior Contractors
111300 Fruit & Tree Nut Farming Production 312200 Tobacco Manufacturing
(including framing carpentry,
111400 Greenhouse, Nursery, & 115310 Support Activities For masonry, glass, roofing, & Textile Mills and Textile Product
Floriculture Production Forestry siding) Mills
111900 Other Crop Farming 238210 Electrical Contractors 313000 Textile Mills
(including tobacco, cotton, Mining 238220 Plumbing, Heating, & 314000 Textile Product Mills
sugarcane, hay, peanut, 211110 Oil & Gas Extraction Air-Conditioning Contractors Apparel Manufacturing
sugar beet & all other crop 315100 Apparel Knitting Mills
farming) 212110 Coal Mining 238290 Other Building Equipment
212200 Metal Ore Mining Contractors 315210 Cut & Sew Apparel
Animal Production 238300 Building Finishing Contractors
112111 Beef Cattle Ranching & 212310 Stone Mining & Quarrying
212320 Sand, Gravel, Clay, & Contractors (including 315220 Men’s & Boys’ Cut & Sew
Farming drywall, insulation, painting, Apparel Mfg
112112 Cattle Feedlots Ceramic & Refractory
Minerals Mining & Quarrying wallcovering, flooring, tile, & 315230 Women’s & Girls’ Cut & Sew
112120 Dairy Cattle & Milk finish carpentry) Apparel Mfg
Production 212390 Other Nonmetallic Mineral
Mining & Quarrying 238900 Other Specialty Trade 315290 Other Cut & Sew Apparel Mfg
112210 Hog & Pig Farming Contractors (including site 315990 Apparel Accessories & Other
213110 Support Activities for Mining preparation)
112300 Poultry & Egg Production Apparel Mfg
112400 Sheep & Goat Farming Utilities Leather and Allied Product
112510 Animal Aquaculture (including Manufacturing Manufacturing
221100 Electric Power Generation, Food Manufacturing
shellfish & finfish farms & Transmission & Distribution 316110 Leather & Hide Tanning &
hatcheries) 311110 Animal Food Mfg Finishing
221210 Natural Gas Distribution
112900 Other Animal Production 311200 Grain & Oilseed Milling 316210 Footwear Mfg (including
221500 Combination Gas & Electric
Forestry and Logging 311300 Sugar & Confectionery rubber & plastics)
221300 Water, Sewage & Other Product Mfg
113110 Timber Tract Operations Systems 316990 Other Leather & Allied
113210 Forest Nurseries & Gathering 311400 Fruit & Vegetable Preserving Product Mfg
of Forest Products & Specialty Food Mfg Wood Product Manufacturing
Construction 311500 Dairy Product Mfg
113310 Logging 321110 Sawmills & Wood
Construction of Buildings 311610 Animal Slaughtering and Preservation
Fishing, Hunting and Trapping
236110 Residential Building Processing 321210 Veneer, Plywood, &
114110 Fishing Construction
114210 Hunting & Trapping 311710 Seafood Product Preparation Engineered Wood Product
236200 Nonresidential Building & Packaging Mfg
Construction 311800 Bakeries & Tortilla Mfg 321900 Other Wood Product Mfg
Heavy and Civil Engineering 311900 Other Food Mfg (including Paper Manufacturing
Construction coffee, tea, flavorings & 322100 Pulp, Paper, & Paperboard
237100 Utility System Construction seasonings) Mills
237210 Land Subdivision

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Page 32 of 35 Instructions for Form 8865 11:00 - 19-JAN-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity and Principal Product or Service (continued)
Code Code Code Code
322200 Converted Paper Product Mfg Computer and Electronic Product 424800 Beer, Wine, & Distilled 448190 Other Clothing Stores
Printing and Related Support Manufacturing Alcoholic Beverages 448210 Shoe Stores
Activities 334110 Computer & Peripheral 424910 Farm Supplies 448310 Jewelry Stores
323100 Printing & Related Support Equipment Mfg 424920 Book, Periodical, & 448320 Luggage & Leather Goods
Activities 334200 Communications Equipment Newspapers Stores
Petroleum and Coal Products Mfg 424930 Flower, Nursery Stock, & Sporting Goods, Hobby, Book, and
Manufacturing 334310 Audio & Video Equipment Florists’ Supplies Music Stores
324110 Petroleum Refineries Mfg 424940 Tobacco & Tobacco Products 451110 Sporting Goods Stores
(including integrated) 334410 Semiconductor & Other 424950 Paint, Varnish, & Supplies 451120 Hobby, Toy, & Game Stores
324120 Asphalt Paving, Roofing, & Electronic Component Mfg 424990 Other Miscellaneous 451130 Sewing, Needlework, & Piece
Saturated Materials Mfg 334500 Navigational, Measuring, Nondurable Goods Goods Stores
324190 Other Petroleum & Coal Electromedical, & Control Wholesale Electronic Markets and
Instruments Mfg 451140 Musical Instrument &
Products Mfg Agents and Brokers Supplies Stores
Chemical Manufacturing 334610 Manufacturing & Reproducing 425110 Business to Business
Magnetic & Optical Media 451211 Book Stores
325100 Basic Chemical Mfg Electronic Markets 451212 News Dealers & Newsstands
Electrical Equipment, Appliance, and 425120 Wholesale Trade Agents &
325200 Resin, Synthetic Rubber, & 451220 Prerecorded Tape, Compact
Component Manufacturing Brokers
Artificial & Synthetic Fibers & Disc, & Record Stores
Filaments Mfg 335100 Electric Lighting Equipment
Mfg General Merchandise Stores
325300 Pesticide, Fertilizer, & Other Retail Trade 452110 Department Stores
Agricultural Chemical Mfg 335200 Household Appliance Mfg
Motor Vehicle and Parts Dealers 452900 Other General Merchandise
325410 Pharmaceutical & Medicine 335310 Electrical Equipment Mfg
441110 New Car Dealers Stores
Mfg 335900 Other Electrical Equipment &
Component Mfg 441120 Used Car Dealers Miscellaneous Store Retailers
325500 Paint, Coating, & Adhesive 441210 Recreational Vehicle Dealers
Mfg Transportation Equipment 453110 Florists
Manufacturing 441221 Motorcycle Dealers 453210 Office Supplies & Stationery
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg 336100 Motor Vehicle Mfg 441222 Boat Dealers Stores
325900 Other Chemical Product & 336210 Motor Vehicle Body & Trailer 441229 All Other Motor Vehicle 453220 Gift, Novelty, & Souvenir
Preparation Mfg Mfg Dealers Stores
Plastics and Rubber Products 336300 Motor Vehicle Parts Mfg 441300 Automotive Parts, 453310 Used Merchandise Stores
Manufacturing Accessories, & Tire Stores 453910 Pet & Pet Supplies Stores
336410 Aerospace Product & Parts
326100 Plastics Product Mfg Mfg Furniture and Home Furnishings 453920 Art Dealers
336510 Railroad Rolling Stock Mfg Stores 453930 Manufactured (Mobile) Home
326200 Rubber Product Mfg
336610 Ship & Boat Building 442110 Furniture Stores Dealers
Nonmetallic Mineral Product
Manufacturing 336990 Other Transportation 442210 Floor Covering Stores 453990 All Other Miscellaneous Store
327100 Clay Product & Refractory Equipment Mfg 442291 Window Treatment Stores Retailers (including tobacco,
Mfg Furniture and Related Product 442299 All Other Home Furnishings candle, & trophy shops)
327210 Glass & Glass Product Mfg Manufacturing Stores Nonstore Retailers
327300 Cement & Concrete Product 337000 Furniture & Related Product Electronics and Appliance Stores 454110 Electronic Shopping &
Mfg Manufacturing 443111 Household Appliance Stores Mail-Order Houses
327400 Lime & Gypsum Product Mfg Miscellaneous Manufacturing 443112 Radio, Television, & Other 454210 Vending Machine Operators
327900 Other Nonmetallic Mineral 339110 Medical Equipment & Electronics Stores 454311 Heating Oil Dealers
Product Mfg Supplies Mfg 443120 Computer & Software Stores 454312 Liquefied Petroleum Gas
Primary Metal Manufacturing 339900 Other Miscellaneous 443130 Camera & Photographic (Bottled Gas) Dealers
331110 Iron & Steel Mills & Ferroalloy Manufacturing Supplies Stores 454319 Other Fuel Dealers
Mfg Building Material and Garden 454390 Other Direct Selling
331200 Steel Product Mfg from Wholesale Trade Equipment and Supplies Dealers Establishments (including
Purchased Steel Merchant Wholesalers, Durable 444110 Home Centers door-to-door retailing, frozen
Goods 444120 Paint & Wallpaper Stores food plan providers, party
331310 Alumina & Aluminum plan merchandisers, &
Production & Processing 423100 Motor Vehicle & Motor 444130 Hardware Stores coffee-break service
331400 Nonferrous Metal (except Vehicle Parts & Supplies 444190 Other Building Material providers)
Aluminum) Production & 423200 Furniture & Home Dealers
Processing Furnishings 444200 Lawn & Garden Equipment & Transportation and
331500 Foundries 423300 Lumber & Other Construction Supplies Stores
Materials Warehousing
Fabricated Metal Product Food and Beverage Stores
Manufacturing 423400 Professional & Commercial Air, Rail, and Water Transportation
445110 Supermarkets and Other
332110 Forging & Stamping Equipment & Supplies Grocery (except 481000 Air Transportation
332210 Cutlery & Handtool Mfg 423500 Metal & Mineral (except Convenience) Stores 482110 Rail Transportation
332300 Architectural & Structural Petroleum) 445120 Convenience Stores 483000 Water Transportation
Metals Mfg 423600 Electrical & Electronic Goods 445210 Meat Markets Truck Transportation
332400 Boiler, Tank, & Shipping 423700 Hardware, & Plumbing & 445220 Fish & Seafood Markets 484110 General Freight Trucking,
Container Mfg Heating Equipment & 445230 Fruit & Vegetable Markets Local
332510 Hardware Mfg Supplies 484120 General Freight Trucking,
445291 Baked Goods Stores
332610 Spring & Wire Product Mfg 423800 Machinery, Equipment, & Long-distance
Supplies 445292 Confectionery & Nut Stores
332700 Machine Shops; Turned 484200 Specialized Freight Trucking
423910 Sporting & Recreational 445299 All Other Specialty Food
Product; & Screw, Nut, & Bolt Stores Transit and Ground Passenger
Mfg Goods & Supplies Transportation
423920 Toy & Hobby Goods & 445310 Beer, Wine, & Liquor Stores
332810 Coating, Engraving, Heat 485110 Urban Transit Systems
Supplies Health and Personal Care Stores
Treating, & Allied Activities 485210 Interurban & Rural Bus
423930 Recyclable Materials 446110 Pharmacies & Drug Stores Transportation
332900 Other Fabricated Metal
Product Mfg 423940 Jewelry, Watch, Precious 446120 Cosmetics, Beauty Supplies, 485310 Taxi Service
Stone, & Precious Metals & Perfume Stores
Machinery Manufacturing 485320 Limousine Service
423990 Other Miscellaneous Durable 446130 Optical Goods Stores
333100 Agriculture, Construction, & 485410 School & Employee Bus
Mining Machinery Mfg Goods 446190 Other Health & Personal Transportation
Merchant Wholesalers, Nondurable Care Stores
333200 Industrial Machinery Mfg 485510 Charter Bus Industry
Goods Gasoline Stations
333310 Commercial & Service 485990 Other Transit & Ground
Industry Machinery Mfg 424100 Paper & Paper Products 447100 Gasoline Stations (including Passenger Transportation
424210 Drugs & Druggists’ Sundries convenience stores with gas)
333410 Ventilation, Heating, Pipeline Transportation
Air-Conditioning, & 424300 Apparel, Piece Goods, & Clothing and Clothing Accessories
Stores 486000 Pipeline Transportation
Commercial Refrigeration Notions
Equipment Mfg 424400 Grocery & Related Products 448110 Men’s Clothing Stores Scenic & Sightseeing Transportation
333510 Metalworking Machinery Mfg 424500 Farm Product Raw Materials 448120 Women’s Clothing Stores 487000 Scenic & Sightseeing
Transportation
333610 Engine, Turbine & Power 424600 Chemical & Allied Products 448130 Children’s & Infants’ Clothing
Transmission Equipment Mfg Stores Support Activities for Transportation
424700 Petroleum & Petroleum
333900 Other General Purpose Products 448140 Family Clothing Stores 488100 Support Activities for Air
Machinery Mfg Transportation
448150 Clothing Accessories Stores

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Page 33 of 35 Instructions for Form 8865 11:00 - 19-JAN-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity and Principal Product or Service (continued)
Code Code Code Code
488210 Support Activities for Rail Activities Related to Credit 532400 Commercial & Industrial 561430 Business Service Centers
Transportation Intermediation Machinery & Equipment (including private mail centers
488300 Support Activities for Water 522300 Activities Related to Credit Rental & Leasing & copy shops)
Transportation Intermediation (including loan Lessors of Nonfinancial Intangible 561440 Collection Agencies
488410 Motor Vehicle Towing brokers, check clearing, & Assets (except copyrighted works) 561450 Credit Bureaus
488490 Other Support Activities for money transmitting) 533110 Lessors of Nonfinancial 561490 Other Business Support
Road Transportation Securities, Commodity Contracts, Intangible Assets (except Services (including
488510 Freight Transportation and Other Financial Investments and copyrighted works) repossession services, court
Arrangement Related Activities reporting, & stenotype
488990 Other Support Activities for 523110 Investment Banking & Professional, Scientific, and services)
Transportation Securities Dealing Technical Services 561500 Travel Arrangement &
Couriers and Messengers 523120 Securities Brokerage Legal Services Reservation Services
492110 Couriers 523130 Commodity Contracts 541110 Offices of Lawyers 561600 Investigation & Security
Dealing Services
492210 Local Messengers & Local 541190 Other Legal Services
Delivery 523140 Commodity Contracts 561710 Exterminating & Pest Control
Brokerage Accounting, Tax Preparation, Services
Warehousing and Storage Bookkeeping, and Payroll Services
523210 Securities & Commodity 561720 Janitorial Services
493100 Warehousing & Storage Exchanges 541211 Offices of Certified Public 561730 Landscaping Services
(except lessors of Accountants
miniwarehouses & 523900 Other Financial Investment 561740 Carpet & Upholstery Cleaning
Activities (including portfolio 541213 Tax Preparation Services
self-storage units) Services
management & investment 541214 Payroll Services
561790 Other Services to Buildings &
advice) 541219 Other Accounting Services Dwellings
Information Insurance Carriers and Related Architectural, Engineering, and
Publishing Industries (except 561900 Other Support Services
Activities Related Services (including packaging &
Internet) 524140 Direct Life, Health, & Medical 541310 Architectural Services labeling services, &
511110 Newspaper Publishers Insurance & Reinsurance 541320 Landscape Architecture convention & trade show
511120 Periodical Publishers Carriers Services organizers)
511130 Book Publishers 524150 Direct Insurance & 541330 Engineering Services Waste Management and
511140 Directory & Mailing List Reinsurance (except Life, 541340 Drafting Services Remediation Services
Publishers Health & Medical) Carriers 562000 Waste Management &
541350 Building Inspection Services
511190 Other Publishers 524210 Insurance Agencies & Remediation Services
Brokerages 541360 Geophysical Surveying &
511210 Software Publishers Mapping Services
Motion Picture and Sound 524290 Other Insurance Related Educational Services
Activities (including 541370 Surveying & Mapping (except
Recording Industries Geophysical) Services 611000 Educational Services
third-party administration of (including schools, colleges,
512100 Motion Picture & Video insurance and pension funds) 541380 Testing Laboratories
Industries (except video & universities)
Funds, Trusts, and Other Financial Specialized Design Services
rental)
Vehicles 541400 Specialized Design Services
512200 Sound Recording Industries (including interior, industrial,
Health Care and Social
525100 Insurance & Employee
Broadcasting (except Internet) Benefit Funds graphic, & fashion design) Assistance
515100 Radio & Television 525910 Open-End Investment Funds Computer Systems Design and Offices of Physicians and Dentists
Broadcasting (Form 1120-RIC) Related Services 621111 Offices of Physicians (except
515210 Cable & Other Subscription 525920 Trusts, Estates, & Agency 541511 Custom Computer mental health specialists)
Programming Accounts Programming Services 621112 Offices of Physicians, Mental
Internet Publishing and 525930 Real Estate Investment 541512 Computer Systems Design Health Specialists
Broadcasting Trusts (Form 1120-REIT) Services 621210 Offices of Dentists
516110 Internet Publishing & 525990 Other Financial Vehicles 541513 Computer Facilities Offices of Other Health Practitioners
Broadcasting (including closed-end Management Services 621310 Offices of Chiropractors
Telecommunications investment funds) 541519 Other Computer Related 621320 Offices of Optometrists
517000 Telecommunications “Offices of Bank Holding Companies” Services 621330 Offices of Mental Health
(including paging, cellular, and “Offices of Other Holding Other Professional, Scientific, and Practitioners (except
satellite, cable & other Companies” are located under Technical Services Physicians)
program distribution, Management of Companies (Holding 541600 Management, Scientific, &
resellers, & other 621340 Offices of Physical,
Companies) below. Technical Consulting Occupational & Speech
telecommunications) Services Therapists, & Audiologists
Internet Service Providers, Web Real Estate and Rental and 541700 Scientific Research & 621391 Offices of Podiatrists
Search Portals, and Data Processing Development Services
Services Leasing 621399 Offices of All Other
Real Estate 541800 Advertising & Related Miscellaneous Health
518111 Internet Service Providers Services
531110 Lessors of Residential Practitioners
518112 Web Search Portals 541910 Marketing Research & Public
Buildings & Dwellings Outpatient Care Centers
518210 Data Processing, Hosting, & Opinion Polling
Related Services 531114 Cooperative Housing 621410 Family Planning Centers
541920 Photographic Services 621420 Outpatient Mental Health &
Other Information Services 531120 Lessors of Nonresidential
Buildings (except 541930 Translation & Interpretation Substance Abuse Centers
519100 Other Information Services Miniwarehouses) Services 621491 HMO Medical Centers
(including news syndicates & 541940 Veterinary Services
libraries) 531130 Lessors of Miniwarehouses & 621492 Kidney Dialysis Centers
Self-Storage Units 541990 All Other Professional, 621493 Freestanding Ambulatory
531190 Lessors of Other Real Estate Scientific, & Technical Surgical & Emergency
Finance and Insurance Property Services Centers
Depository Credit Intermediation 531210 Offices of Real Estate Agents 621498 All Other Outpatient Care
522110 Commercial Banking & Brokers Management of Companies Centers
522120 Savings Institutions 531310 Real Estate Property (Holding Companies) Medical and Diagnostic Laboratories
522130 Credit Unions Managers 551111 Offices of Bank Holding 621510 Medical & Diagnostic
522190 Other Depository Credit 531320 Offices of Real Estate Companies Laboratories
Intermediation Appraisers 551112 Offices of Other Holding Home Health Care Services
Nondepository Credit Intermediation 531390 Other Activities Related to Companies
621610 Home Health Care Services
522210 Credit Card Issuing Real Estate
Other Ambulatory Health Care
522220 Sales Financing Rental and Leasing Services Administrative and Support Services
522291 Consumer Lending 532100 Automotive Equipment Rental and Waste Management and 621900 Other Ambulatory Health
522292 Real Estate Credit (including & Leasing Remediation Services Care Services (including
mortgage bankers & 532210 Consumer Electronics & Administrative and Support Services ambulance services & blood
originators) Appliances Rental 561110 Office Administrative & organ banks)
522293 International Trade Financing 532220 Formal Wear & Costume Services Hospitals
522294 Secondary Market Financing Rental 561210 Facilities Support Services 622000 Hospitals
522298 All Other Nondepository 532230 Video Tape & Disc Rental 561300 Employment Services Nursing and Residential Care
Credit Intermediation 532290 Other Consumer Goods 561410 Document Preparation Facilities
Rental Services 623000 Nursing & Residential Care
532310 General Rental Centers 561420 Telephone Call Centers Facilities

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Page 34 of 35 Instructions for Form 8865 11:00 - 19-JAN-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Codes for Principal Business Activity and Principal Product or Service (continued)
Code Code Code Code
Social Assistance 713900 Other Amusement & 811120 Automotive Body, Paint, 812320 Drycleaning & Laundry
624100 Individual & Family Services Recreation Industries Interior, & Glass Repair Services (except
624200 Community Food & Housing, (including golf courses, skiing 811190 Other Automotive Repair & Coin-Operated)
& Emergency & Other Relief facilities, marinas, fitness Maintenance (including oil 812330 Linen & Uniform Supply
Services centers, & bowling centers) change & lubrication shops & 812910 Pet Care (except Veterinary)
624310 Vocational Rehabilitation car washes) Services
Services Accommodation and Food 811210 Electronic & Precision 812920 Photofinishing
624410 Child Day Care Services Services Equipment Repair & 812930 Parking Lots & Garages
Accommodation Maintenance
812990 All Other Personal Services
811310 Commercial & Industrial
Arts, Entertainment, and 721110 Hotels (except Casino Hotels)
Machinery & Equipment Religious, Grantmaking, Civic,
Recreation & Motels Professional, and Similar
(except Automotive &
Performing Arts, Spectator Sports, 721120 Casino Hotels Electronic) Repair & Organizations
and Related Industries 721191 Bed & Breakfast Inns Maintenance 813000 Religious, Grantmaking,
711100 Performing Arts Companies 721199 All Other Traveler 811410 Home & Garden Equipment & Civic, Professional, & Similar
Accommodation Appliance Repair & Organizations (including
711210 Spectator Sports (including condominium and
sports clubs & racetracks) 721210 RV (Recreational Vehicle) Maintenance
Parks & Recreational Camps homeowners associations)
711300 Promoters of Performing Arts, 811420 Reupholstery & Furniture
Sports, & Similar Events 721310 Rooming & Boarding Houses Repair
711410 Agents & Managers for Food Services and Drinking Places 811430 Footwear & Leather Goods
Artists, Athletes, Entertainers, 722110 Full-Service Restaurants Repair
& Other Public Figures 722210 Limited-Service Eating 811490 Other Personal & Household
711510 Independent Artists, Writers, Places Goods Repair & Maintenance
& Performers 722300 Special Food Services Personal and Laundry Services
Museums, Historical Sites, and (including food service 812111 Barber Shops
Similar Institutions contractors & caterers) 812112 Beauty Salons
712100 Museums, Historical Sites, & 722410 Drinking Places (Alcoholic 812113 Nail Salons
Similar Institutions Beverages) 812190 Other Personal Care
Amusement, Gambling, and Services (including diet &
Recreation Industries Other Services weight reducing centers)
713100 Amusement Parks & Arcades Repair and Maintenance 812210 Funeral Homes & Funeral
713200 Gambling Industries 811110 Automotive Mechanical & Services
Electrical Repair & 812220 Cemeteries & Crematories
Maintenance 812310 Coin-Operated Laundries &
Drycleaners

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Page 35 of 35 Instructions for Form 8865 11:00 - 19-JAN-2006

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index

Entertainment Facilities . . . . . . . 11 O Credits . . . . . . . . . . . . . . . . . . . . 21
10% interest . . . . . . . . . . . . . . . . . . 4 Exceptions to Filing . . . . . . . . . . . . 3 Other Deductions . . . . . . . . . . . . . 10 Low-Income Housing
50% interest . . . . . . . . . . . . . . . . . . 4 Extraterritorial income Other Income (Loss) . . . . . . . . . . . 8 Credit . . . . . . . . . . . . . . . . . 21
exclusion . . . . . . . . . . . . . . 11, 25 Other Rental Credits . . . . . 22
Deductions . . . . . . . . . . . . . . . . 17
A P Contributions . . . . . . . . . . . . 18
Acquisitions . . . . . . . . . . . . . . . . . . . 2 F Partnership . . . . . . . . . . . . . . . . . . . 4 Section 179 Expense
Analysis of partners’ capital Foreign Address . . . . . . . . . . . . . . . 5 Penalties . . . . . . . . . . . . . . . . . . . . . . 4 Deduction . . . . . . . . . . . . . 17
accounts . . . . . . . . . . . . . . . . . . . 28 Foreign Partnership . . . . . . . . . . . 4 Publicly Traded Foreign Transactions . . . . . . . 24
Partnerships . . . . . . . . . . . . . . . 27 General Instructions . . . . . . . . 14
Purpose of Form . . . . . . . . . . . . . . 1 Self-Employment . . . . . . . . . . . 20
B G Gross Nonfarm
Bad Debts . . . . . . . . . . . . . . . . . . . . 9 Gain (loss), section 1231 . . . . . . 16 Income . . . . . . . . . . . . . . . . 20
Balance sheets per books . . . . . 28 Gain From Qualified Stock . . . . 13 Q Worksheet
Business start-up expenses . . . . 8 Gross Receipts or Sales . . . . . . . 6 Qualified dividends. . . . . . . . . . . . 15 Instructions . . . . . . . . . . . . 21
Guaranteed Payments . . . . . . . . 28 Special Allocations . . . . . . . . . 15
C Guaranteed Payments to R Specific Instructions . . . . . . . . 14
Cancelled debt . . . . . . . . . . . . . . . . 6 Partners . . . . . . . . . . . . . . . . . . . . 9 Recapture: Section 263A Uniform
Investment credit . . . . . . . . . . . 23 Capitalization Rules . . . . . . . . . 8
Capital Assets . . . . . . . . . . . . . . . . 12
Mining exploration costs . . . . 17 Exceptions . . . . . . . . . . . . . . . . . . 8
Categories of Filers . . . . . . . . . . . . 2 H
Recapture, low-income housing Section 59(e)(2)
Category 1 filer . . . . . . . . . 2, 5, 6 Hyperinflationary Exception . . . . 5
credit – Sch. K-1 (only) . . . . . . 23 expenditures – Sch. K or
Category 2 filer . . . . . . . . . . . . 2, 5 K-1 . . . . . . . . . . . . . . . . . . . . . . . . 18
Category 3 filer . . . . . . . . . 2, 5, 6 Reducing Certain Expenses for
I Special Rules for Trader in
Category 4 filer . . . . . . . . . . . . 2, 5 Which Credits Are
Identifying Numbers and Allowable . . . . . . . . . . . . . . . . . . . 9 Securities . . . . . . . . . . . . . . . . . . 13
Change in a Proportional
Addresses . . . . . . . . . . . . . . . . . . 5
Interest . . . . . . . . . . . . . . . . . . . . . 4 Reforestation costs . . . . . . . 19, 27
Interest . . . . . . . . . . . . . . . . . . . . . . 10 T
Changes in Proportional Rehabilitation credit (rental real
Interests . . . . . . . . . . . . . . . . . . . . 2 Interest expense, estate) . . . . . . . . . . . . . . . . . . . . . 21 Tax Year . . . . . . . . . . . . . . . . . . . . . . 5
investment – Sch. K or
Commercial revitalization Relief for Category 1 and 2 Tax-exempt income:
K-1 . . . . . . . . . . . . . . . . . . . . . . . . 18
deduction: filers . . . . . . . . . . . . . . . . . . . . . . . . 3 Taxes and Licenses . . . . . . . . . . . 9
Rental real estate . . . . . . . . . . 11 Investment income and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Transactions Between Related
expenses – Sch. K or
Consolidated Return . . . . . . . . . . . 5 Repairs and Maintenance . . . . . . 9 Taxpayers . . . . . . . . . . . . . . . . . . 8
K-1 . . . . . . . . . . . . . . . . . . . . . . . . 26
Constructive Ownership . . . . . . . . 4 Retirement Plans, etc. . . . . . . . . 10 Travel and Entertainment . . . . 11,
Items for Special
Constructive Sale Treatment . . . . . . . . . . . . . . . . . 12 28
Treatment . . . . . . . . . . . . . . . . . 13 Treaty-based Return
S
Control of a Corporation . . . . . . . 4 Positions . . . . . . . . . . . . . . . . . . . . 4
L Salaries and Wages . . . . . . . . . . . 9
Corrections to Form 8865 . . . . . . 4 Guaranteed payments . . . . . . 15
Cost of Goods Sold . . . . . . . . . . . . 7 Limitations on Deductions . . . . . . 8
Sale of small business stock: U
Low-income housing credit
recapture – Sch. K-1 Exclusion . . . . . . . . . . . . . . . . . . 17 U.S. Person . . . . . . . . . . . . . . . . . . . 4
D (only) . . . . . . . . . . . . . . . . . . . . . . 23 Rollover . . . . . . . . . . . . . . . . . . . 17
Deductions . . . . . . . . . . . . . . . . . . . . 8 Schedule B – Income W
Limitations . . . . . . . . . . . . . . . . . . 8 Statement – Trade or Business
M What’s new . . . . . . . . . . . . . . . . . . . 1
Syndication Costs . . . . . . . . . . . 9 Income . . . . . . . . . . . . . . . . . . . . . 6
Membership Dues . . . . . . . . . . . . 11 When To File . . . . . . . . . . . . . . . . . . 4
Definitions . . . . . . . . . . . . . . . . . . . . 4 Schedules K and K-1 – Partners’
Shares of Income, Credits, Who Must File . . . . . . . . . . . . . . . . . 2
Depletion . . . . . . . . . . . . . . . . . . . . 10
Deductions, Etc.:
Depreciation . . . . . . . . . . . . . . . . . 10 N
Self-Employment:

Dispositions . . . . . . . . . . . . . . . . . . . 2 Net Farm Profit (Loss) . . . . . . . . . 7
Limited partners . . . . . . . . . . 20
Net Gain (Loss) From Form
Schedules K and K-1 – Partners’
E 4797 . . . . . . . . . . . . . . . . . . . . . . . 7
Shares of Income, Deductions,
Employee Benefit Credits, Etc.:
Programs . . . . . . . . . . . . . . . . . . 10 Alternative Minimum Tax (AMT)
Items . . . . . . . . . . . . . . . . . . . . 25

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