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1.6031(c)-1T, or who furnishes incorrect

Section 617 (deduction and recapture

Your share of the partnership’s income

information, is subject to a $50 penalty for

of certain mining exploration

(including tax-exempt income).

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each statement for which a failure occurs.

expenditures).

Your share of the excess of the

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The maximum penalty is $100,000 for all

Section 901 (foreign tax credit).

deductions for depletion over the basis of

such failures during a calendar year. If the

If the partnership attaches a statement

the property subject to depletion.

nominee intentionally disregards the

to Schedule K-1 indicating that it has

Items that decrease your basis (but

requirement to report correct information,

changed its tax year and that you may

not below zero) are:

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each $50 penalty increases to $100 or, if

elect to report your distributive share of

Money and the adjusted basis of

greater, 10% of the aggregate amount of

the income attributable to that change

property distributed to you.

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items required to be reported, and the

ratably over 4 tax years, see Rev. Proc.

Your share of the decrease in the

$100,000 maximum does not apply.

2003-79, 2003-45 I.R.B. 1036, for details

partnership’s liabilities (or your individual

on making the election. To make the

liabilities assumed by the partnership).

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International Boycotts

election, you must file Form 8082, Notice

Your share of the partnership’s losses

of Inconsistent Treatment or

(including capital losses).

Every partnership that had operations in,

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Administrative Adjustment Request, with

Your share of the partnership’s section

or related to, a boycotting country,

your income tax return for each of the 4

179 expense deduction (even if you

company, or a national of a country must

tax years. File Form 8082 for this purpose

cannot deduct all of it).

file Form 5713, International Boycott

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in accordance with Rev. Proc. 2003-79

Your share of the partnership’s

Report.

instead of the Form 8082 instructions.

nondeductible expenses.

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If the partnership cooperated with an

The amount of your deduction for

international boycott, it must give you a

Additional Information

depletion of any partnership oil and gas

copy of its Form 5713. You must file your

property (not to exceed your allocable

For more information on the treatment of

own Form 5713 to report the partnership’s

share of the adjusted basis of that

partnership income, credits, deductions,

activities and any other boycott

property).

etc., see Pub. 541, Partnerships, and

operations that you may have. You may

For more details on the basis rules,

Pub. 535, Business Expenses.

lose certain tax benefits if the partnership

see Pub. 541.

To get forms and publications, see the

participated in, or cooperated with, an

instructions for your tax return.

At-Risk Limitations

international boycott. See Form 5713 and

the instructions for more information.

Generally, if you have (a) a loss or other

Limitations on Losses,

deduction from any activity carried on as

Definitions

Deductions, and Credits

a trade or business or for the production

of income by the partnership and (b)

There are three separate potential

General Partner

amounts in the activity for which you are

limitations on the amount of partnership

A general partner is a partner who is

not at risk, you will have to complete

losses that you may deduct on your

personally liable for partnership debts.

Form 6198, At-Risk Limitations, to figure

return. These limitations and the order in

your allowable loss.

which you must apply them are as

Limited Partner

follows: the basis rules, the at-risk

The at-risk rules generally limit the

A limited partner is a partner in a

limitations, and the passive activity

amount of loss and other deductions that

partnership formed under a state limited

limitations. Each of these limitations is

you can claim to the amount you could

partnership law, whose personal liability

discussed separately below.

actually lose in the activity. These losses

for partnership debts is limited to the

and deductions include a loss on the

Other limitations may apply to specific

amount of money or other property that

disposition of assets and the section 179

deductions (e.g., the section 179 expense

the partner contributed or is required to

expense deduction. However, if you

deduction). Generally, these limitations

contribute to the partnership. Some

acquired your partnership interest before

apply before the basis, at-risk, and

members of other entities, such as

1987, the at-risk rules do not apply to

passive loss limitations.

domestic or foreign business trusts or

losses from an activity of holding real

limited liability companies that are

Basis Rules

property placed in service before 1987 by

classified as partnerships, may be treated

Generally, you may not claim your share

the partnership. The activity of holding

as limited partners for certain purposes.

of a partnership loss (including a capital

mineral property does not qualify for this

See, e.g., Temporary Regulations section

loss) to the extent that it is greater than

exception. The partnership should identify

1.469-5T(e)(3), which treats all members

the adjusted basis of your partnership

on an attachment to Schedule K-1 the

with limited liability as limited partners for

interest at the end of the partnership’s tax

amount of any losses that are not subject

purposes of section 469(h)(2).

year.

to the at-risk limitations.

Nonrecourse Loans

The partnership is not responsible for

Generally, you are not at risk for

keeping the information needed to figure

Nonrecourse loans are those liabilities of

amounts such as the following:

the basis of your partnership interest.

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the partnership for which no partner bears

Nonrecourse loans used to finance the

Although the partnership does provide an

the economic risk of loss.

activity, to acquire property used in the

analysis of the changes to your capital

activity, or to acquire your interest in the

Elections

account in Item J of Schedule K-1, that

activity, that are not secured by your own

information is based on the partnership’s

Generally, the partnership decides how to

property (other than the property used in

books and records and cannot be used to

figure taxable income from its operations.

the activity). See the instructions for Item

figure your basis.

However, certain elections are made by

F on page 5 for the exception for qualified

You can figure the adjusted basis of

you separately on your income tax return

nonrecourse financing secured by real

your partnership interest by adding items

and not by the partnership. These

property.

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that increase your basis and then

elections are made under the following

Cash, property, or borrowed amounts

subtracting items that decrease your

code sections:

used in the activity (or contributed to the

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basis.

Section 59(e) (deduction of certain

activity, or used to acquire your interest in

qualified expenditures ratably over the

Items that increase your basis are:

the activity) that are protected against

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period of time specified in that section).

Money and your adjusted basis in

loss by a guarantee, stop-loss agreement,

For more information, see the instructions

property contributed to the partnership.

or other similar arrangement (excluding

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for lines 18a and 18b of Schedule K-1 on

Your share of the increase in the

casualty insurance and insurance against

page 10.

partnership’s liabilities (or your individual

tort liability).

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Section 108(b)(5) (income from the

liabilities caused by your assumption of

Amounts borrowed for use in the

discharge of indebtedness).

partnership liabilities).

activity from a person who has an interest

-2-

Partner’s Instructions for Schedule K-1 (Form 1065)

Partner'S Instructions For Schedule K-1 (Form 1065) - Partner'S Share Of Income, Credits, Deductions, Etc. (For Partner'S Use Only) - 2003 Page 2

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