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Business Tax

Draft Instructions for 2019 form 1065 and Schedule K-1 Released

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The IRS has released draft instructions for the 2019 Form 1065 (U.S. Return of Partnership Income). The draft instructions also include instructions for Schedule K-1 (Partner’s Share of Income, Deductions, Credits, Etc.).

Background

Form 1065 is an information return used to report the income, gains, losses, deductions, credits, and other information from the operation of a partnership.

Schedule K-1 is used to report income, deductions, and credits allocated to partners and S corporation shareholders.

The IRS previously released a draft of Form 1065 and Schedule K-1 for 2019. See Draft 2019 Forms 1065, 1120-S, and Schedules K-1 released (10/03/2019).

What’s new

The new instructions include the following changes.

Changes to Schedule B of Form 1065:

  • New Question 27 has been added to enter the number of foreign partners that transferred all or part of their interests or received a distribution subject to Code Sec. 864(c)(8).
  • New Question 28 has been added regarding disclosures for disguised sales.

Changes to Schedule K of Form 1065:

  • Schedule K and Schedule K-1, line 4, Guaranteed payments, now has three lines: a. Guaranteed payments for services, b. Guaranteed payments for capital, and c. Total.
  • Schedule K, lines 16(d) and (k), are reserved for future use because Code Sec. 951A categories are no longer reported on Schedules K and K-1.

Changes to Schedule K-1:

  • Item E: A parenthetical has been added to caution against using the TIN of a disregarded entity.
  • Item H: Has been revised to request the name and TIN of a disregarded entity, if applicable.
  • Item J: A new checkbox has been added to indicate the sale of a partnership interest.
  • Item K: A new checkbox has been added to indicate whether the liabilities shown in that box include liabilities from lower-tier partnerships.
  • Item L: Partner’s capital accounts are now reported only on the tax basis method, and checkboxes to indicate other methods have been removed.
  • Item N: A new item has been added for partner’s share of unrecognized Code Sec. 704(c) gain or (loss) at the beginning and the end of the year.
  • Box 11: Code F will no longer be used for Code Sec. 951A income. Instead, it will now be used for any net positive income effect from Code Sec. 743(b) adjustments.
  • Box 13: New code V has been added for any negative income effect from Code Sec. 743(b) adjustments.
  • Box 20: Codes Z through AD that were previously used to report Code Sec. 199A information have been changed. Only code Z will be used to report Code Sec. 199A information.
  • Box 20: Code AA is used for the net income/loss effect for all Code Sec. 704(c) adjustments.
  • Box 20: Code AB is used for Code Sec. 751 gain or loss from the sale of a partnership interest.
  • Box 20: Code AC is used for any deemed gain or loss from Code Sec. 1(h)(5) collectibles from the sale of a partnership interest.
  • Box 20: Code AD is used for any deemed gain under Code Sec. 1250 from the sale of a partnership interest.
  • Box 20: Code AH, Other, includes net Code Sec. 743(b) adjustment for partners with basis adjustments.
  • Lines 21 and 22: These new lines have checkboxes to indicate that there are attachments to the Schedule K-1 related to the partnership having more than one activity for Code Sec. 465 at-risk purposes, or more than one activity for Code Sec. 469 passive activity purposes, or both.

General. The draft instructions point out that at the time the instructions went to print, several credits and deductions available to partnerships expired prior to 2019. The instructions tell taxpayers who wish to find out if legislation extended the credits and deductions and made them available for 2019, to go to IRS.gov/Extenders.

To continue your research on partnership returns, see FTC 2d/FIN ¶S-2701; United States Tax Reporter ¶60,314.

 

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