Partnership Taxation: US Partnerships

PARTNERSHIP TAXATION
US Partnerships
Krishna Kumar S
Department of Management Studies
US Partnerships
Krishna Kumar S
US Partnerships
Guaranteed payments
• Guaranteed payments are those made by a partnership to

a partner that are determined without regard to the
partnership's income.
• A partnership treats guaranteed payments for services, or
for the use of capital, as if they were made to a person
who is not a partner. This treatment is for purposes of
determining gross income and deductible business
expenses only.
US Partnerships
Guaranteed payments
• For other tax purposes, guaranteed payments are treated

as a partner's distributive share of ordinary income.
• Guaranteed payments are not subject to income tax
withholding.
US Partnerships
Guaranteed payments
• The partnership generally deducts guaranteed payments

on Form 1065, line 10, as a business expense. They are
also listed on Schedules K and K-1 of the partnership
return.
• The individual partner reports guaranteed payments on
Schedule E (Form 1040) as ordinary income, along with his
or her distributive share of the partnership's other
ordinary income.
US Partnerships
Guaranteed payments
• Fixed amount stated. If the partnership agreement

provides for a Gp in a fixed amount, e. g., annual salary
amount, the Gp amount is the stated amount.
• Stated minimum amount. The partnership agreement may
allocate a share of Partnership income to the partner but
guarantee payment of not less than a stated amount to the
partner even if the allocable share is less.
• If so, the GP amount is any excess of the guaranteed
minimum amount over the distributive share allocable to
the partner.
US Partnerships
Guaranteed payments
• A partnership or LLC doesn't pay taxes on business income.

Instead, these businesses are considered pass-through
entities, meaning that the income passes through to the
owners.
• The IRS considers guaranteed payments as ordinary
income to the owners.
• This guaranteed payment is considered a deductible
expense to the business.
• If the owner's share of net income is greater than the
guaranteed amount, there is no guaranteed amount for
that year.
US Partnerships
Guaranteed payments
• From the standpoint of payroll taxes, guaranteed payments

are not salary.
• But from the standpoint of tax-deductible expenses to the
company, LLC guaranteed payments are treated in the
same way as salary.
• Partners and LLC members are not paid a salary in their
positions as owners.
US Partnerships
Guaranteed payments
• A partner or LLC member may be paid a salary as an

employee, but this payment has nothing to do
with payments to the owner as an owner through the
ownership agreements.
• If an LLC owner is paid a salary as an employee, the IRS
requires that federal income taxes and FICA taxes (Social
Security and Medicare) be withheld from the employee's
pay.
THANK YOU
Krishna Kumar S
krishnakumars@pes.edu
US Partnerships
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Guaranteed payments
• Under the terms of a partnership agreement, Erica is

entitled to a fixed annual payment of $10,000 without
regard to the income of the partnership. Her distributive
share of the partnership income is 10%. The partnership
has $50,000 of ordinary income after deducting the
guaranteed payment. Compute her guaranteed payment
and ordinary income.
US Partnerships
Guaranteed payments
• She must include ordinary income of $15,000 ($10,000

guaranteed payment + $5,000 ($50,000 × 10%) distributive
share) on her individual income tax return for her tax year
in which the partnership's tax year ends.
US Partnerships
Guaranteed payments
• Alex is a member of an LLC. The LLC operating agreement

states that he has a 40 percent share of the LLC profits
each year and that he has a minimum guaranteed payment
amount of $25,000. This year, the LLC net income is
$50,000
US Partnerships
Guaranteed payments
• Alex's share is $20,000 (40 percent of $50,000). Since he

has a guaranteed minimum of $25,000, $5,000 is
considered as his guaranteed minimum and the other
$20,000 is his distributive share.
• Remember, Alex must pay tax on his share of the profits
even if he doesn't receive all—or any—of that money.
• The LLC could take a tax deduction for the $5,000
considered as guaranteed payment.
US Partnerships
Guaranteed payments
• Alex is a member of an LLC. The LLC operating agreement

states that he has a 40 percent share of the LLC profits
each year and that he has a minimum guaranteed payment
amount of $25,000. This year, If the net income of the
partnership was $70,000. Compute guaranteed payment
amount.
US Partnerships
Guaranteed payments
• Alex's share would be $28,000 and no guaranteed

payments would be made. There is no guaranteed
minimum for that year, so the partnership can't take a tax
deduction for this payment.
THANK YOU
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Partnership Taxable Income
• Partnership taxable income is determined in the same way

as for individuals except that certain deductions are not
allowed for a partnership, and other items are required to
be separately stated.
US Partnerships
Separately stated Items

• Each partnership item of income, gain, deduction, loss, or
credit that may vary the tax separately stated Items that
must be separately stated include the following
• a. Section 1231 gains and losses
• b. Net STCG and net LTCG or loss from the sale or exchange
of capital assets
• c. Dividends that are eligible for a corporate dividends-
received deductions
• d. Tax-exempt income and related expenses
• e. Investment income and related expenses
• f. Rental activities, portfolio income, and related expenses
US Partnerships
Separately stated Items
• g. Recovery items (e. g., prior taxes, bad debts)

• h. Charitable contributions
• i. Foreign income taxes paid or accrued
• j. Depletion on oil and gas wells
• k. Section 179 deductions
US Partnerships
Separately stated Items-Numerical
• ABC Partnership’s financial records show the following in terms

of $
• Gross receipts from sales 600,000
• Cost of goods sold 400,000
• Operating expenses 90,000
• Business entertainment expenses disallowed 6000
• Section 1231 loss 10000
• Charitable contribution 5000
• Guaranteed payments 15000
• Distribution to partners 17000
• What is the partnerships ordinary income and separately stated
items.
THANK YOU
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Adjustments to Basis
• The basis of a partner's, interest in a partnership is adjusted

each year for subsequent variations in the partner's share of
partnership liabilities, and distributions from the
• Initial basis
• + Subsequent contributions of capital
• +/-Distributive share of partnership taxable income (loss)
• + Separately stated taxable and on taxable income
• - Separately stated deductible and non deductible expenditures
• + Increase in allocable share of partnership liabilities
• - Decrease in allocable share of partnership liabilities
• - Distributions from partnership
• Adjusted basis in partnership interest
US Partnerships
The taxpayer’s ownership and basis in the partnership are
50% and $15,000, respectively, at the beginning of the year.
The partnership has ordinary income of $ 8,000, made
charitable contributions of $ 3,000 and made a $ 5,000
distribution to the taxpayer. Calculate the taxpayer’s basis at
the end of the year.

US Partnerships
Tony and Mary form a partnership as equal partners. Tony
contributes cash of $100,000, and Mary contributes an asset
with a basis of $80, 000 and a FMV of $100,000. Two years
later, the partnership sells the asset for $110, 000. Calculate
the Basis of Each partner post sale of the asset.

US Partnerships
The $30,000 gain ($110, 000 selling price-$80, 000 basis) is
allocated, $25, 000 to Mary [$20, 000 precontribution gain +
(50% partnership interest × $10, 000 postcontribution gain) ]
and $5, 000 to Tony (50% partnership interest × $1o, ooo
postcontribution gain).
THANK YOU
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Schedule M-1
• Schedule M-1 is required when the gross receipts of the

partnership are greater than $250,000, or the total assets are
greater than $1,000,000.
• The calculation for Schedule M-1 is done in reverse from the
form itself.
US Partnerships
Schedule M-1
US Partnerships
Schedule M-3
• Schedule M-3 is required when the partner’s total assets or

adjusted total assets at the end of the tax year is equal to $10
million or more, or the partnership’s total receipts for the tax
year is $35 million or more.
• The calculation for Schedule M-3 is done in reverse from the
form itself.
THANK YOU
Krishna Kumar S
Note: The form, instructions, or publication you are looking
for begins after this coversheet.
Please review the updated information below.
Form 1065 BBA Partnerships Filing Amended Returns for CARES Act
Relief
For tax years beginning in 2018 or 2019, BBA partnerships which filed Form 1065 and
furnished all required Schedules K-1 prior to the issuance of Revenue Procedure 2020-23 may
amend those returns by filing Form 1065, checking the “Amended return” box, and furnish
corresponding amended Schedules K-1 prior to September 30, 2020. This will allow
partnerships and their partners to benefit from the provisions of the Coronavirus Aid, Relief, and
Economic Security (CARES) Act, without waiting to file Administrative Adjustment Requests
(AARs) for the current year, which would otherwise be required under section 6227. See
Revenue Procedure 2020-23 for more information.
Form 1065 U.S. Return of Partnership Income OMB No. 1545-0123
Department of the Treasury

Internal Revenue Service
For calendar year 2019, or tax year beginning
▶
, 2019, ending
Go to www.irs.gov/Form1065 for instructions and the latest information.

, 20 .
2019
A Principal business activity Name of partnership D Employer identification number
Steve and John LLP

B Principal product or service Type Number, street, and room or suite no. If a P.O. box, see instructions. E Date business started
Computer CPU or
C Business code number Print City or town, state or province, country, and ZIP or foreign postal code F Total assets
(see instructions)
$
G Check applicable boxes: Initial return (2) Final return (1)
(3) Name change (4) Address change (5) Amended return
H Check accounting method: Cash (2) Accrual (1)
(3) Other (specify) ▶
I Number of Schedules K-1. Attach one for each person who was a partner at any time during the tax year ▶
J Check if Schedules C and M-3 are attached . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶
K Check if partnership: (1) Aggregated activities for section 465 at-risk purposes (2) Grouped activities for section 469 passive activity purposes
Caution: Include only trade or business income and expenses on lines 1a through 22 below. See instructions for more information.
1a Gross receipts or sales . . . . . . . . . . . . . . . . . 1a 352350
b Returns and allowances . . . . . . . . . . . . . . . . 1b 0
c Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . . . 1c
2 Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . . 2 67000
Income
3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . 3 285350

4 Ordinary income (loss) from other partnerships, estates, and trusts (attach statement) . . . . 4
5 Net farm profit (loss) (attach Schedule F (Form 1040 or 1040-SR)) . . . . . . . . . . 5
6 Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797) . . . . . . . . . . 6
7 Other income (loss) (attach statement) . . . . . . . . . . . . . . . . . . . 7
8 Total income (loss). Combine lines 3 through 7 . . . . . . . . . . . . . . . . 8 285350
9 Salaries and wages (other than to partners) (less employment credits) . . . . . . . . . 9 26530
Deductions (see instructions for limitations)
10 Guaranteed payments to partners . . . . . . . . . . . . . . . . . . . . . 10 24000

11 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . 11 8650
12 Bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 48000
14 Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15 Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . 15
16a Depreciation (if required, attach Form 4562) . . . . . . . . . . 16a
b Less depreciation reported on Form 1125-A and elsewhere on return . 16b 16c
17 Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . . . 17
18 Retirement plans, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 18
19 Employee benefit programs . . . . . . . . . . . . . . . . . . . . . . . 19
20 Other deductions (attach statement) . . . . . . . . . . . . . . . . . . . . 20 49950
21 Total deductions. Add the amounts shown in the far right column for lines 9 through 20 . . . 21 157130
22 Ordinary business income (loss). Subtract line 21 from line 8 . . . . . . . . . . . 22 128220
23 Interest due under the look-back method—completed long-term contracts (attach Form 8697) . 23
Tax and Payment
24 Interest due under the look-back method—income forecast method (attach Form 8866) . . . 24
25 BBA AAR imputed underpayment (see instructions) . . . . . . . . . . . . . . . 25
26 Other taxes (see instructions) . . . . . . . . . . . . . . . . . . . . . . 26
27 Total balance due. Add lines 23 through 26 . . . . . . . . . . . . . . . . . 27
28 Payment (see instructions) . . . . . . . . . . . . . . . . . . . . . . . 28
29 Amount owed. If line 28 is smaller than line 27, enter amount owed . . . . . . . . . . 29
30 Overpayment. If line 28 is larger than line 27, enter overpayment . . . . . . . . . . 30
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
and belief, it is true, correct, and complete. Declaration of preparer (other than partner or limited liability company member) is based on all information of
Sign which preparer has any knowledge.
May the IRS discuss this return
Here with the preparer shown below?
▲
See instructions. Yes No

Signature of partner or limited liability company member Date
Print/Type preparer’s name Preparer’s signature Date PTIN
Paid Check if
self-employed
Preparer
Firm’s name ▶ Firm’s EIN ▶
Use Only Firm’s address ▶ Phone no.
For Paperwork Reduction Act Notice, see separate instructions. Cat. No. 11390Z Form 1065 (2019)
Form 1065 (2019) Page 2
Schedule B Other Information
1 What type of entity is filing this return? Check the applicable box: Yes No
a Domestic general partnership b Domestic limited partnership
c Domestic limited liability company d Domestic limited liability partnership
e Foreign partnership f Other ▶
2 At the end of the tax year:
a Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or tax-
exempt organization, or any foreign government own, directly or indirectly, an interest of 50% or more in the profit,
loss, or capital of the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule
B-1, Information on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . .
b Did any individual or estate own, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of
the partnership? For rules of constructive ownership, see instructions. If “Yes,” attach Schedule B-1, Information
on Partners Owning 50% or More of the Partnership . . . . . . . . . . . . . . . . . . . .
3 At the end of the tax year, did the partnership:
a Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of
stock entitled to vote of any foreign or domestic corporation? For rules of constructive ownership, see instructions.
If “Yes,” complete (i) through (iv) below . . . . . . . . . . . . . . . . . . . . . . . . .
(i) Name of Corporation (ii) Employer Identification (iii) Country of (iv) Percentage
Number (if any) Incorporation Owned in Voting Stock
b Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in the profit, loss,
or capital in any foreign or domestic partnership (including an entity treated as a partnership) or in the beneficial
interest of a trust? For rules of constructive ownership, see instructions. If “Yes,” complete (i) through (v) below . .
(i) Name of Entity (ii) Employer (iii) Type of (iv) Country of (v) Maximum
Identification Percentage Owned in
Number (if any) Entity Organization Profit, Loss, or Capital
4 Does the partnership satisfy all four of the following conditions? Yes No
a The partnership’s total receipts for the tax year were less than $250,000.
b The partnership’s total assets at the end of the tax year were less than $1 million.
c Schedules K-1 are filed with the return and furnished to the partners on or before the due date (including
extensions) for the partnership return.
d The partnership is not filing and is not required to file Schedule M-3 . . . . . . . . . . . . . . .
If “Yes,” the partnership is not required to complete Schedules L, M-1, and M-2; item F on page 1 of Form 1065;
or item L on Schedule K-1.
5 Is this partnership a publicly traded partnership, as defined in section 469(k)(2)? . . . . . . . . . . .
6 During the tax year, did the partnership have any debt that was canceled, was forgiven, or had the terms modified
so as to reduce the principal amount of the debt? . . . . . . . . . . . . . . . . . . . . .
7 Has this partnership filed, or is it required to file, Form 8918, Material Advisor Disclosure Statement, to provide
information on any reportable transaction? . . . . . . . . . . . . . . . . . . . . . . . .
8 At any time during calendar year 2019, did the partnership have an interest in or a signature or other authority over
a financial account in a foreign country (such as a bank account, securities account, or other financial account)?
See instructions for exceptions and filing requirements for FinCEN Form 114, Report of Foreign Bank and
Financial Accounts (FBAR). If “Yes,” enter the name of the foreign country ▶
9 At any time during the tax year, did the partnership receive a distribution from, or was it the grantor of, or
transferor to, a foreign trust? If “Yes,” the partnership may have to file Form 3520, Annual Return To Report
Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. See instructions . . . . . . . . .
10a Is the partnership making, or had it previously made (and not revoked), a section 754 election? . . . . . .
See instructions for details regarding a section 754 election.
b Did the partnership make for this tax year an optional basis adjustment under section 743(b) or 734(b)? If “Yes,”
attach a statement showing the computation and allocation of the basis adjustment. See instructions . . . .
Form 1065 (2019)
Form 1065 (2019) Page 3
Schedule B Other Information (continued)
c Is the partnership required to adjust the basis of partnership assets under section 743(b) or 734(b) because of a Yes No
substantial built-in loss (as defined under section 743(d)) or substantial basis reduction (as defined under section
734(d))? If “Yes,” attach a statement showing the computation and allocation of the basis adjustment. See
instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Check this box if, during the current or prior tax year, the partnership distributed any property received in a like-
kind exchange or contributed such property to another entity (other than disregarded entities wholly owned by the
partnership throughout the tax year) . . . . . . . . . . . . . . . . . . . . . . . . ▶
12 At any time during the tax year, did the partnership distribute to any partner a tenancy-in-common or other
undivided interest in partnership property? . . . . . . . . . . . . . . . . . . . . . . . .
13 If the partnership is required to file Form 8858, Information Return of U.S. Persons With Respect To Foreign
Disregarded Entities (FDEs) and Foreign Branches (FBs), enter the number of Forms 8858 attached. See
instructions . . . . . . . . . . . . . . . . . . . . . . . . . . ▶
14 Does the partnership have any foreign partners? If “Yes,” enter the number of Forms 8805, Foreign Partner’s
Information Statement of Section 1446 Withholding Tax, filed for this partnership . . . ▶
15 Enter the number of Forms 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, attached
to this return . . . . . . . . . . . . . . . . . . . . . . . . . . ▶
16a Did you make any payments in 2019 that would require you to file Form(s) 1099? See instructions . . . . .
b If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . . . . . . . .
17 Enter the number of Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign
Corporations, attached to this return . . . . . . . . . . . . . . . . . . ▶
18 Enter the number of partners that are foreign governments under section 892 . . . . ▶
19 During the partnership’s tax year, did the partnership make any payments that would require it to file Form 1042
and 1042-S under chapter 3 (sections 1441 through 1464) or chapter 4 (sections 1471 through 1474)? . . . .
20 Was the partnership a specified domestic entity required to file Form 8938 for the tax year? See the Instructions
for Form 8938 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 Is the partnership a section 721(c) partnership, as defined in Regulations section 1.721(c)-1T(b)(14)? . . . . .
22 During the tax year, did the partnership pay or accrue any interest or royalty for which the deduction is not allowed
under section 267A? See instructions . . . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” enter the total amount of the disallowed deductions . . . . . . . . . ▶ $
23 Did the partnership have an election under section 163(j) for any real property trade or business or any farming
business in effect during the tax year? See instructions . . . . . . . . . . . . . . . . . . . .
24 Does the partnership satisfy one or more of the following? See instructions . . . . . . . . . . . . .
a The partnership owns a pass-through entity with current, or prior year carryover, excess business interest
expense.
b The partnership’s aggregate average annual gross receipts (determined under section 448(c)) for the 3 tax years
preceding the current tax year are more than $26 million and the partnership has business interest.
c The partnership is a tax shelter (see instructions) and the partnership has business interest expense.
If “Yes” to any, complete and attach Form 8990.
25 Is the partnership electing out of the centralized partnership audit regime under section 6221(b)? See instructions.
If “Yes,” the partnership must complete Schedule B-2 (Form 1065). Enter the total from Schedule B-2, Part III,
line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶
If “No,” complete Designation of Partnership Representative below.
Designation of Partnership Representative (see instructions)
Enter below the information for the partnership representative (PR) for the tax year covered by this return.
Name of PR ▶
▲
U.S. phone number of

U.S. address of PR
PR
If the PR is an entity, name of the designated individual for the PR ▶
▲
U.S. address of U.S. phone number of

designated individual designated individual
26 Is the partnership attaching Form 8996 to certify as a Qualified Opportunity Fund? . . . . . . . . . .
If “Yes,” enter the amount from Form 8996, line 14 . . . . . . . . . . . . ▶ $
27 Enter the number of foreign partners subject to section 864(c)(8) as a result of transferring all or a portion of an
interest in the partnership or of receiving a distribution from the partnership . . . . . ▶
28 At any time during the tax year, were there any transfers between the partnership and its partners subject to the
disclosure requirements of Regulations section 1.707-8? . . . . . . . . . . . . . . . . . . .
Form 1065 (2019)
Form 1065 (2019) Page 4
Schedule K Partners’ Distributive Share Items Total amount
1 Ordinary business income (loss) (page 1, line 22) . . . . . . . . . . . . . . . 1 128220
2 Net rental real estate income (loss) (attach Form 8825) . . . . . . . . . . . . . 2 65000
3a Other gross rental income (loss) . . . . . . . . . . . . . 3a
b Expenses from other rental activities (attach statement) . . . . . 3b
c Other net rental income (loss). Subtract line 3b from line 3a . . . . . . . . . . . . 3c
4 Guaranteed payments: a Services 4a b Capital 4b 24000
Income (Loss)
c Total. Add lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . 4c 24000

5 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . 5 150
6 Dividends and dividend equivalents: a Ordinary dividends . . . . . . . . . . . . 6a 200
b Qualified dividends 6b c Dividend equivalents 6c
7 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 Net short-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . 8 25000
9a Net long-term capital gain (loss) (attach Schedule D (Form 1065)) . . . . . . . . . . 9a 3600
b Collectibles (28%) gain (loss) . . . . . . . . . . . . . . 9b
c Unrecaptured section 1250 gain (attach statement) . . . . . . 9c
10 Net section 1231 gain (loss) (attach Form 4797) . . . . . . . . . . . . . . . . 10
11 Other income (loss) (see instructions) Type ▶ 11
12 Section 179 deduction (attach Form 4562) . . . . . . . . . . . . . . . . . 12
Employ- Deductions
13a Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13a

b Investment interest expense . . . . . . . . . . . . . . . . . . . . . . 13b
c Section 59(e)(2) expenditures: (1) Type ▶ (2) Amount ▶ 13c(2)
d Other deductions (see instructions) Type ▶ 13d
14a Net earnings (loss) from self-employment . . . . . . . . . . . . . . . . . . 14a
ment
Self-
b Gross farming or fishing income . . . . . . . . . . . . . . . . . . . . . 14b

c Gross nonfarm income . . . . . . . . . . . . . . . . . . . . . . . . 14c 300000
15a Low-income housing credit (section 42(j)(5)) . . . . . . . . . . . . . . . . . 15a
b Low-income housing credit (other) . . . . . . . . . . . . . . . . . . . . 15b
Credits
c Qualified rehabilitation expenditures (rental real estate) (attach Form 3468, if applicable) . . 15c
d Other rental real estate credits (see instructions) Type ▶ 15d
e Other rental credits (see instructions) Type ▶ 15e
f Other credits (see instructions) Type ▶ 15f
16a Name of country or U.S. possession ▶
b Gross income from all sources . . . . . . . . . . . . . . . . . . . . . 16b
c Gross income sourced at partner level . . . . . . . . . . . . . . . . . . . 16c
Foreign Transactions
Foreign gross income sourced at partnership level

d Reserved for future use ▶ e Foreign branch category . . . . . ▶ 16e
f Passive category ▶ g General category ▶ h Other (attach statement) ▶ 16h
Deductions allocated and apportioned at partner level
i Interest expense ▶ j Other . . . . . . . . . . . . . . ▶ 16j
Deductions allocated and apportioned at partnership level to foreign source income
k Reserved for future use ▶ l Foreign branch category . . . . . ▶ 16l
m Passive category ▶ n General category ▶ o Other (attach statement) ▶ 16o
p Total foreign taxes (check one): ▶ Paid Accrued . . . . . . . . . . . 16p
q Reduction in taxes available for credit (attach statement) . . . . . . . . . . . . . 16q
r Other foreign tax information (attach statement)
17a Post-1986 depreciation adjustment . . . . . . . . . . . . . . . . . . . . 17a
Minimum Tax
(AMT) Items
b Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . . . 17b

Alternative
c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . . 17c

d Oil, gas, and geothermal properties—gross income . . . . . . . . . . . . . . 17d
e Oil, gas, and geothermal properties—deductions . . . . . . . . . . . . . . . 17e
f Other AMT items (attach statement) . . . . . . . . . . . . . . . . . . . . 17f
18a Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . . 18a
Other Information
b Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . 18b

c Nondeductible expenses . . . . . . . . . . . . . . . . . . . . . . . 18c
19a Distributions of cash and marketable securities . . . . . . . . . . . . . . . . 19a
b Distributions of other property . . . . . . . . . . . . . . . . . . . . . 19b
20a Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 20a
b Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . 20b
c Other items and amounts (attach statement)
Form 1065 (2019)
Form 1065 (2019) Page 5
Analysis of Net Income (Loss)
1 Net income (loss). Combine Schedule K, lines 1 through 11. From the result, subtract the sum of
Schedule K, lines 12 through 13d, and 16p . . . . . . . . . . . . . . . . . . . . 1 246170
2 Analysis by (i) Corporate (ii) Individual (iii) Individual (iv) Partnership (v) Exempt (vi)
partner type: (active) (passive) Organization Nominee/Other
a General partners
b Limited partners
Schedule L Balance Sheets per Books Beginning of tax year End of tax year
Assets (a) (b) (c) (d)
1 Cash . . . . . . . . . . . . . . . .
2a Trade notes and accounts receivable . . . . . .
b Less allowance for bad debts . . . . . . . .
3 Inventories . . . . . . . . . . . . . .
4 U.S. government obligations . . . . . . . .
5 Tax-exempt securities . . . . . . . . . .
6 Other current assets (attach statement) . . . . .
7a Loans to partners (or persons related to partners) .
b Mortgage and real estate loans . . . . . . .
8 Other investments (attach statement) . . . . . .
9a Buildings and other depreciable assets . . . . .
b Less accumulated depreciation . . . . . . .
10a Depletable assets . . . . . . . . . . . .
b Less accumulated depletion . . . . . . . .
11 Land (net of any amortization) . . . . . . . .
12a Intangible assets (amortizable only) . . . . . .
b Less accumulated amortization . . . . . . .
13 Other assets (attach statement) . . . . . . .
14 Total assets . . . . . . . . . . . . . .
Liabilities and Capital
15 Accounts payable . . . . . . . . . . . .
16 Mortgages, notes, bonds payable in less than 1 year
17 Other current liabilities (attach statement) . . . .
18 All nonrecourse loans . . . . . . . . . . .
19a Loans from partners (or persons related to partners) .
b Mortgages, notes, bonds payable in 1 year or more .
20 Other liabilities (attach statement) . . . . . . .
21 Partners’ capital accounts . . . . . . . . .
22 Total liabilities and capital . . . . . . . . .
Schedule M-1 Reconciliation of Income (Loss) per Books With Income (Loss) per Return
Note: The partnership may be required to file Schedule M-3. See instructions.
1 Net income (loss) per books . . . . 217470 6 Income recorded on books this year not included
2 Income included on Schedule K, lines 1, 2, 3c, on Schedule K, lines 1 through 11 (itemize):
5, 6a, 7, 8, 9a, 10, and 11, not recorded on a Tax-exempt interest $
books this year (itemize): 0
3 Guaranteed payments (other than health 7 Deductions included on Schedule K, lines
insurance) . . . . . . . . . . 24000 1 through 13d, and 16p, not charged
4 Expenses recorded on books this year against book income this year (itemize):
not included on Schedule K, lines 1 a Depreciation $
through 13d, and 16p (itemize): 0
a Depreciation $ 8 Add lines 6 and 7 . . . . . . . . 0
b Travel and entertainment $ 4700 4700 9 Income (loss) (Analysis of Net Income
5 Add lines 1 through 4 . . . . . . 246170 (Loss), line 1). Subtract line 8 from line 5 246170
Schedule M-2 Analysis of Partners’ Capital Accounts
1 Balance at beginning of year . . . 6 Distributions: a Cash . . . . . . 50000
2 Capital contributed: a Cash . . . 100000 b Property . . . . .
b Property . . 7 Other decreases (itemize):
3 Net income (loss) per books . . . . 217470
4 Other increases (itemize): 8 Add lines 6 and 7 . . . . . . . . 50000
5 Add lines 1 through 4 . . . . . . 317470 9 Balance at end of year. Subtract line 8 from line 5 267470
Form 1065 (2019)
651118
Final K-1 Amended K-1 OMB No. 1545-0123
Schedule K-1
(Form 1065) 2018 Part III Partner’s Share of Current Year Income,
Deductions, Credits, and Other Items
Department of the Treasury 1 Ordinary business income (loss) 15 Credits
Internal Revenue Service For calendar year 2018, or tax year
64110
beginning / / 2018 ending / / 2 Net rental real estate income (loss)
Partner’s Share of Income, Deductions, 32500

3 Other net rental income (loss) 16 Foreign transactions
Credits, etc. ▶ See back of form and separate instructions.
Part I Information About the Partnership 4 Guaranteed payments

A Partnership’s employer identification number 24000
5 Interest income
B Partnership’s name, address, city, state, and ZIP code 75
6a Ordinary dividends
100
6b Qualified dividends
Steve and John LLP
C IRS Center where partnership filed return 6c Dividend equivalents
D Check if this is a publicly traded partnership (PTP) 7 Royalties
Part II Information About the Partner 8 Net short-term capital gain (loss) 17 Alternative minimum tax (AMT) items
E Partner’s identifying number 12500
9a Net long-term capital gain (loss)
F Partner’s name, address, city, state, and ZIP code 1800
9b Collectibles (28%) gain (loss)
9c Unrecaptured section 1250 gain 18 Tax-exempt income and

nondeductible expenses
Steve
G General partner or LLC ✖ Limited partner or other LLC 10 Net section 1231 gain (loss)
member-manager member
H Domestic partner Foreign partner 11 Other income (loss)
I1 What type of entity is this partner? Individual

I2 If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here 19 Distributions
J Partner’s share of profit, loss, and capital (see instructions): 25000

Beginning Ending
Profit 50 % 50 % 12 Section 179 deduction
Loss 50 % 50 % 20 Other information

Capital 50 % 50 % 13 Other deductions
K Partner’s share of liabilities:

Beginning Ending
Nonrecourse . . $ $
Qualified nonrecourse
financing . . . $ $ 14 Self-employment earnings (loss)
Recourse . . . $ $ 300000
L Partner’s capital account analysis:
Beginning capital account . . . . $ 50000
Capital contributed during the year . $ *See attached statement for additional information.
Current year increase (decrease) . . $ 108735
Withdrawals & distributions . . . $( 25000 )
For IRS Use Only
Ending capital account . . . . . $
Tax basis GAAP Section 704(b) book

Other (explain)
M Did the partner contribute property with a built-in gain or loss?

Yes No
If “Yes,” attach statement (see instructions)
For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 Cat. No. 11394R Schedule K-1 (Form 1065) 2018
Schedule K-1 (Form 1065) 2018 Page 2
This list identifies the codes used on Schedule K-1 for all partners and provides summarized reporting information for partners who file Form 1040.
For detailed reporting and filing information, see the separate Partner’s Instructions for Schedule K-1 and the instructions for your income tax return.
}
1. Ordinary business income (loss). Determine whether the income (loss) is Code Report on
passive or nonpassive and enter on your return as follows. J Work opportunity credit
Report on K Disabled access credit
Passive loss See the Partner’s Instructions L Empowerment zone
Passive income Schedule E, line 28, column (h) employment credit
M Credit for increasing research
Nonpassive loss See the Partner’s Instructions activities See the Partner’s Instructions
Nonpassive income Schedule E, line 28, column (k) N Credit for employer social
2. Net rental real estate income (loss) See the Partner’s Instructions security and Medicare taxes
3. Other net rental income (loss) O Backup withholding
Net income Schedule E, line 28, column (h) P Other credits
Net loss See the Partner’s Instructions 16. Foreign transactions
}
4. Guaranteed payments Schedule E, line 28, column (k) A Name of country or U.S.
5. Interest income Form 1040, line 2b possession
6a. Ordinary dividends Form 1040, line 3b B Gross income from all sources Form 1116, Part I
6b. Qualified dividends Form 1040, line 3a C Gross income sourced at
6c. Dividend equivalents See the Partner’s Instructions partner level
Foreign gross income sourced at partnership level
}
7. Royalties Schedule E, line 4
8. Net short-term capital gain (loss) Schedule D, line 5 D Section 951A category
9a. Net long-term capital gain (loss) Schedule D, line 12 E Foreign branch category
9b. Collectibles (28%) gain (loss) 28% Rate Gain Worksheet, line 4 F Passive category Form 1116, Part I
(Schedule D instructions) G General category
9c. Unrecaptured section 1250 gain See the Partner’s Instructions H Other
10. Net section 1231 gain (loss) See the Partner’s Instructions Deductions allocated and apportioned at partner level
11. Other income (loss) I Interest expense Form 1116, Part I
Code J Other Form 1116, Part I
A Other portfolio income (loss) See the Partner’s Instructions Deductions allocated and apportioned at partnership level to foreign source
B Involuntary conversions See the Partner’s Instructions income
}
C Sec. 1256 contracts & straddles Form 6781, line 1 K Section 951A category
D Mining exploration costs recapture See Pub. 535 L Foreign branch category
E Cancellation of debt Schedule 1 (Form 1040), line 21 or M Passive category Form 1116, Part I
Form 982 N General category
}
F Section 951A income O Other
G Section 965(a) inclusion Other information
H Subpart F income other than See the Partner’s Instructions P Total foreign taxes paid Form 1116, Part II
sections 951A and 965 inclusion Q Total foreign taxes accrued Form 1116, Part II
I Other income (loss) R Reduction in taxes available for credit Form 1116, line 12
12. Section 179 deduction See the Partner’s Instructions S Foreign trading gross receipts Form 8873
}
13. Other deductions T Extraterritorial income exclusion Form 8873
}
A Cash contributions (60%) U Section 951A(c)(1)(A) tested income
B Cash contributions (30%) V Tested foreign income tax
C Noncash contributions (50%) W Section 965 information See the Partner’s Instructions
D Noncash contributions (30%) See the Partner’s X Other foreign transactions
}
E Capital gain property to a 50% Instructions 17. Alternative minimum tax (AMT) items
organization (30%) A Post-1986 depreciation adjustment
F Capital gain property (20%) B Adjusted gain or loss See the Partner’s
G Contributions (100%) C Depletion (other than oil & gas) Instructions and
H Investment interest expense Form 4952, line 1 D Oil, gas, & geothermal—gross income the Instructions for
I Deductions—royalty income Schedule E, line 19 E Oil, gas, & geothermal—deductions Form 6251
J Section 59(e)(2) expenditures See the Partner’s Instructions F Other AMT items
K Excess business interest expense See the Partner’s Instructions 18. Tax-exempt income and nondeductible expenses
L Deductions—portfolio (other) Schedule A, line 16 A Tax-exempt interest income Form 1040, line 2a
M Amounts paid for medical insurance Schedule A, line 1 or Schedule 1 B Other tax-exempt income See the Partner’s Instructions
(Form 1040), line 29 C Nondeductible expenses See the Partner’s Instructions
N Educational assistance benefits See the Partner’s Instructions 19. Distributions
}
O Dependent care benefits Form 2441, line 12 A Cash and marketable securities
P Preproductive period expenses See the Partner’s Instructions B Distribution subject to section 737 See the Partner’s Instructions
Q Commercial revitalization deduction C Other property
from rental real estate activities See Form 8582 instructions 20. Other information
R Pensions and IRAs See the Partner’s Instructions
A Investment income Form 4952, line 4a
S Reforestation expense deduction See the Partner’s Instructions
B Investment expenses Form 4952, line 5
T through V Reserved for future use C Fuel tax credit information Form 4136
W Other deductions See the Partner’s Instructions
D Qualified rehabilitation expenditures See the Partner’s Instructions
X Section 965(c) deduction See the Partner’s Instructions (other than rental real estate)
14. Self-employment earnings (loss) E Basis of energy property See the Partner’s Instructions
Note: If you have a section 179 deduction or any partner-level deductions, see the F Recapture of low-income housing Form 8611, line 8
Partner’s Instructions before completing Schedule SE. credit (section 42(j)(5))
A Net earnings (loss) from G Recapture of low-income housing Form 8611, line 8
self-employment Schedule SE, Section A or B credit (other)
}
B Gross farming or fishing income See the Partner’s Instructions H Recapture of investment credit See Form 4255
C Gross non-farm income See the Partner’s Instructions I Recapture of other credits See the Partner’s Instructions
J Look-back interest—completed See Form 8697
}
15. Credits
A Low-income housing credit long-term contracts
(section 42(j)(5)) from pre-2008 K Look-back interest—income forecast See Form 8866
method
buildings L Dispositions of property with
B Low-income housing credit
(other) from pre-2008 buildings section 179 deductions
M Recapture of section 179 deduction
C Low-income housing credit N Interest expense for corporate
(section 42(j)(5)) from partners
post-2007 buildings See the Partner’s Instructions O through Y
D Low-income housing credit Z Section 199A income
(other) from post-2007 AA Section 199A W-2 wages See the Partner’s
buildings AB Section 199A unadjusted basis Instructions
E Qualified rehabilitation AC Section 199A REIT dividends
expenditures (rental real estate) AD Section 199A PTP income
F Other rental real estate credits
AE Excess taxable income
G Other rental credits
H Undistributed capital gains credit Schedule 5 (Form 1040), line 74, box a AF Excess business interest income
AG Gross receipts for section 59A(e)
I Biofuel producer credit See the Partner’s Instructions AH Other information
US Partnerships
Krishna Kumar S
US Partnerships
Krishna Kumar S
US Partnerships
Allocations of Partnership Items Under Partnership Agreement
• A partner’s distributive share of income, gain, loss, deduction, or

credit is generally determined by the partnership agreement.
• Allocations of any partnership item must have substantial
economic effect if they are to be recognized for Code purposes.
• If a partnership agreement does not provide for the allocation
of partnership items or if partnership allocations lack substantial
economic effect, the partner’s distributive share is determined
according to his or her interest in the partnership.
US Partnerships
• Economic Effect. Allocations have economic effect if they are

consistent with the underlying economic arrangement of the
partners.
• For instance, a limited partner who has no risk under the
partnership agreement other than his or her initial capital
contribution ordinarily may not be allocated losses attributable
to a partnership recourse liability to the extent such losses
exceed his or her capital contribution.
US Partnerships
• A partnership’s nonrecourse deductions—those attributable to

those liabilities of the partnership for which no partner bears
personal liability (for example, a mortgage secured only by a
building and the land on which it is located)—are deemed to
lack economic effect and must be allocated according to the
partners’ interests in the partnership
US Partnerships
• Partnership allocations may be deemed to have substantial

economic effect if the requirements of optional safe harbor
provisions are met.
• a partnership must maintain its “book capital accounts and
make tax allocations consistent with the capital accounts.
• A second safe harbor applies to the allocation of
nonrecourse deductions.
• Ensure partner receives economic benefits and bears economic
burdens
US Partnerships
• Substantiality: The economic effect of an allocation is generally

considered substantial if there is a reasonable possibility that
the allocation will substantially affect the dollar amounts to be
received by the partners from the partnership, independent of
tax consequences.
THANK YOU
Krishna Kumar S

Partnership Taxation: US Partnerships

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PARTNERSHIP TAXATION

• Guaranteed payments are those made by a partnership to

• For other tax purposes, guaranteed payments are treated

• The partnership generally deducts guaranteed payments

• Fixed amount stated. If the partnership agreement

• A partnership or LLC doesn't pay taxes on business income.

• From the standpoint of payroll taxes, guaranteed payments

• A partner or LLC member may be paid a salary as an

• Under the terms of a partnership agreement, Erica is

• She must include ordinary income of $15,000 ($10,000

• Alex is a member of an LLC. The LLC operating agreement

• Alex's share is $20,000 (40 percent of $50,000). Since he

• Alex is a member of an LLC. The LLC operating agreement

• Alex's share would be $28,000 and no guaranteed

Partnership Taxable Income

• Partnership taxable income is determined in the same way

Separately stated Items

Separately stated Items

• g. Recovery items (e. g., prior taxes, bad debts)

Separately stated Items-Numerical

• ABC Partnership’s financial records show the following in terms

• The basis of a partner's, interest in a partnership is adjusted

The taxpayer’s ownership and basis in the partnership are

50% and $15,000, respectively, at the beginning of the year.

The partnership has ordinary income of $ 8,000, made

charitable contributions of $ 3,000 and made a $ 5,000

distribution to the taxpayer. Calculate the taxpayer’s basis at

the end of the year.

Tony and Mary form a partnership as equal partners. Tony

contributes cash of $100,000, and Mary contributes an asset

with a basis of $80, 000 and a FMV of $100,000. Two years

the Basis of Each partner post sale of the asset.

The $30,000 gain ($110, 000 selling price-$80, 000 basis) is

allocated, $25, 000 to Mary [$20, 000 precontribution gain +

(50% partnership interest × $10, 000 postcontribution gain) ]

and $5, 000 to Tony (50% partnership interest × $1o, ooo

• Schedule M-1 is required when the gross receipts of the

• Schedule M-3 is required when the partner’s total assets or

Department of the Treasury

Go to www.irs.gov/Form1065 for instructions and the latest information.

Steve and John LLP

3 Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . . . 3 285350

10 Guaranteed payments to partners . . . . . . . . . . . . . . . . . . . . . 10 24000

See instructions. Yes No

U.S. phone number of

U.S. address of U.S. phone number of

c Total. Add lines 4a and 4b . . . . . . . . . . . . . . . . . . . . . . 4c 24000

13a Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13a

b Gross farming or fishing income . . . . . . . . . . . . . . . . . . . . . 14b

Foreign gross income sourced at partnership level

b Adjusted gain or loss . . . . . . . . . . . . . . . . . . . . . . . . 17b

c Depletion (other than oil and gas) . . . . . . . . . . . . . . . . . . . . 17c

b Other tax-exempt income . . . . . . . . . . . . . . . . . . . . . . . 18b

Partner’s Share of Income, Deductions, 32500

Part I Information About the Partnership 4 Guaranteed payments

D Check if this is a publicly traded partnership (PTP) 7 Royalties

9c Unrecaptured section 1250 gain 18 Tax-exempt income and