When is form 1065 due with extension

We recommend that you e-file at least several hours before the deadline to ensure a timely filing. For more information, see Related Links below, and Publication The for a is for a 6 month extension.

If a calendar year return, a on a timely filed extension is due on September How to produce and e-file a :. If you intend to paper file the extension, see the table "Where To File" on page 4 of the instructions for Form If the due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday. Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.

Business Taxes Professional Taxes. Sign In. Prepare and File Taxes. Return Status. Tax Tools. We're ready to help. Have a question? Ask, or enter a search term below. Search Help Topics: For more information, contact the state tax agency for the state in which the partnership return was filed. Apply for an online payment agreement IRS.

Once you complete the online process, you will receive immediate notification of whether your agreement has been approved. Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. Distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc. Any listed transaction, which is a transaction that is the same as or substantially similar to one of the types of transactions that the IRS has determined to be a tax avoidance transaction and identified by notice, regulation, or other published guidance as a listed transaction.

Certain transactions for which the partnership or a related party has contractual protection against disallowance of the tax benefits. Any transaction of interest, which is a transaction that is the same as, or substantially similar to, one of the types of transactions identified by the IRS by notice, regulation, or other published guidance. See Notice , I. Complete every applicable entry space on Form and Schedule K Do not enter "See attached" instead of completing the entry spaces.

Penalties may be assessed if the partnership files an incomplete return. If you need more space on the forms or schedules, attach separate sheets and place them at the end of the return using the same size and format as on the printed forms. Show the totals on the printed forms. Also be sure to put the partnership's name and EIN on each supporting statement.

Use Form , Entity Classification Election, to make a change in classification. Except for certain business entities always classified as a corporation, a business entity with at least two members may choose to be classified either as a partnership or an association taxable as a corporation. A domestic eligible entity with at least two members that doesn't file Form is classified under the default rules as a partnership.

However, a foreign eligible entity with at least two members is classified under the default rules as a partnership only if the entity doesn't provide limited liability to at least one member. File Form only if the entity doesn't want to be classified under these default rules or if it wants to change its classification. Attach a copy of Form to the partnership's federal tax return for the tax year of the election. Generally, the partnership decides how to figure income from its operations.

For example, it chooses the accounting method and depreciation methods it will use. The partnership also makes elections under the following sections. Section definition of property—mines, wells, and other natural deposits.

This election must be made before the partners figure their individual depletion allowances under section A c 7 D. Under section , a partnership may elect to adjust the basis of partnership property when property is distributed or when a partnership interest is transferred. If the election is made regarding a transfer of a partnership interest section b and the assets of the partnership constitute a trade or business for purposes of section c , then the value of any goodwill transferred must be determined in the manner provided in Regulations section 1.

Once an election is made under section , it applies both to all distributions and to all transfers made during the tax year and in all subsequent tax years unless the election is revoked. This election must be made in a statement that is filed with the partnership's timely filed return including any extension for the tax year during which the distribution or transfer occurs. See Proposed Regulations section 1. The statement must include:. A declaration that the partnership elects under section to apply the provisions of section b and section b.

The partnership can get an automatic month extension to make the section election, provided corrective action is taken within 12 months of the original deadline for making the election. For details, see Regulations section If there is a distribution of property consisting of an interest in another partnership, see section b.

The partnership is required to attach a statement for any section b basis adjustments. See below for details. To revoke a section election, the partnership must file the revocation request using Form , Request for Section Revocation. See the Instructions for Form for more information. A domestic partnership that directly or indirectly owns stock of a controlled foreign corporation CFC within the meaning of section c 1 B or section a or a passive foreign investment company within the meaning of section a that the domestic partnership treats as a qualified electing fund QEF under section may make the election provided in Regulations section 1.

The election must be made no later than the first tax year beginning after during which the partnership i includes an amount in gross income for chapter 1 purposes under section a or section a for the CFC or QEF, and ii has a direct or indirect owner that is subject to tax under section or would have been if the election were made.

This election must be made on an entity-by-entity basis, and applies only to the particular CFCs and QEFs for which an election is made. In general, for purposes of section , if an election is in effect for a CFC or QEF, the amounts included in income under section and section derived from the CFC or QEF are included in net investment income, and distributions described in section d or section c are excluded from net investment income.

An election that is made under Regulations section 1. For more information regarding this election, see Regulations section 1. An election can be made on an amended return only if the tax year for which the election is made, and all tax years affected by the election, aren't closed by the period of limitations on assessments under section A declaration that the partnership elects under Regulations section 1.

If the basis of partnership property has been adjusted for a transferee partner under section b , the partnership must adjust the transferee's distributive share of the items of partnership income, deduction, gain, or loss in accordance with Regulations section 1.

These adjustments other than adjustments to depletable oil and gas property allocable to the partner under section A c 7 D must be reported on Schedule K and the transferee partner's Schedule K Report the adjustments on an attached statement on line 20, code AH.

See instructions for line Identify the partnership item being adjusted and the amount of the adjustment. If the adjustments are to partnership items from more than one trade or business, report the adjustments separately for each activity.

A partnership can elect out of the centralized partnership audit regime for a tax year if the partnership is an eligible partnership that year. See Question 25 under Schedule B below. Elections under the following sections are made by each partner separately on the partner's tax return. Section 59 e election to deduct ratably certain qualified expenditures such as intangible drilling costs, mining exploration expenses, or research and experimental expenditures.

Section deduction and recapture of certain mining exploration expenditures paid or incurred. If a partner engages in a transaction with his or her partnership, other than in his or her capacity as a partner, the partner is treated as not being a member of the partnership for that transaction. Special rules apply to sales or exchanges of property between partnerships and certain persons, as explained in Pub.

Generally, no gain loss is recognized to the partnership or any of the partners when property is contributed to the partnership in exchange for an interest in the partnership. This rule doesn't apply to any gain realized on a transfer of property to a partnership that would be treated as an investment company within the meaning of section e if the partnership were incorporated.

If, as a result of a transfer of property to a partnership, there is a direct or indirect transfer of money or other property to the transferring partner, the partner may have to recognize gain on the exchange. The basis to the partnership of property contributed by a partner is the adjusted basis in the hands of the partner at the time it was contributed, plus any gain recognized under section b by the partner at that time.

See section for more information. Generally, if the partnership disposes of property contributed to the partnership by a partner, income, gain, loss, and deductions from that property must be allocated among the partners to take into account the difference between the property's basis and its FMV at the time of the contribution. However, if the adjusted basis of the contributed property exceeds its FMV at the time of the contribution, the built-in loss can only be taken into account by the contributing partner.

For all other partners, the basis of the property in the hands of the partnership is treated as equal to its FMV at the time of the contribution see section c 1 C. For property contributed to the partnership, the contributing partner must recognize gain or loss on a distribution of the property to another partner within 7 years of being contributed.

The gain or loss is equal to the amount that the contributing partner should have recognized if the property had been sold for its FMV when distributed, because of the difference between the property's basis and its FMV at the time of contribution.

See section c for details and other rules on dispositions of contributed property. See section for the character of any gain or loss recognized on the disposition of unrealized receivables, inventory items, or capital loss property contributed to the partnership by a partner.

A partner who contributes appreciated property to the partnership must include in income any precontribution gain to the extent the FMV of other property other than money distributed to the partner by the partnership exceeds the adjusted basis of his or her partnership interest just before the distribution. Precontribution gain is the net gain, if any, that would have been recognized under section c 1 B if the partnership had distributed to another partner all the property that had been contributed to the partnership by the distributee partner within 7 years of the distribution and that was held by the partnership just before the distribution.

Appropriate basis adjustments are to be made to the adjusted basis of the distributee partner's interest in the partnership and the partnership's basis in the contributed property to reflect the gain recognized by the partner.

Generally, if a partner sells or exchanges a partnership interest where unrealized receivables or inventory items are involved, the transferor partner must notify the partnership, in writing, within 30 days of the exchange. If a partnership distributes unrealized receivables or substantially appreciated inventory items in exchange for all or part of a partner's interest in other partnership property including money , treat the transaction as a sale or exchange between the partner and the partnership.

Treat the partnership gain loss as ordinary business income loss. The income loss is specially allocated only to partners other than the distributee partner.

If a partnership gives other property including money for all or part of that partner's interest in the partnership's unrealized receivables or substantially appreciated inventory items, treat the transaction as a sale or exchange of the property.

Also see Pub. In general, section limits the amount of deductible losses partners can claim from certain activities. The at-risk limitations don't apply to the partnership, but instead apply to each partner's share of net losses attributable to each activity.

Because the treatment of each partner's share of partnership losses depends on the nature of the activity that generated it, the partnership must report the items of income, loss, and deduction separately for each activity. The at-risk limitation applies to individuals, estates, trusts, and certain closely held C corporations.

See Pub. If the partnership is involved in one of the following activities as a trade or business or for the production of income, the partner may be subject to the at-risk rules.

Holding, producing, or distributing motion picture films or video tapes. Leasing section property, including personal property and certain other tangible property that's depreciable or amortizable. Exploring for, or exploiting, geothermal deposits for wells started after September Any other activity not included in items 1 through 5, above, that's carried on as a trade or business or for the production of income. Activities described in 6 above that constitute a trade or business are treated as one activity if:.

You actively participate in the management of the trade or business, or. If you aggregate your activities under these rules for section purposes, check the appropriate box in item K. If the partnership items of income, loss or deduction reported on Schedule K-1 are from more than one activity covered by the at-risk rules, the partnership should report on an attachment to Schedule K-1 information relating to each activity as is required by Item K.

Partner's Share of Liabilities. Additional information needed to enable the partner to compute the profit or loss from each at-risk activity and the amount at risk may be required to be separately reported pursuant to the Instructions for Form and Pub.

In general, section limits the amount of losses, deductions, and credits that partners can claim from "passive activities. Instead, they apply to each partner's share of any income or loss and credit attributable to a passive activity. Because the treatment of each partner's share of partnership income or loss and credit depends on the nature of the activity that generated it, the partnership must report income or loss and credits separately for each activity.

The following instructions and the instructions for Schedules K and K-1, later, explain the applicable passive activity limitation rules and specify the type of information the partnership must provide to its partners for each activity. If the partnership had more than one activity, it must report information for each activity on an attached statement to Schedules K and K Generally, passive activities include a activities that involve the conduct of a trade or business if the partner doesn't materially participate in the activity, and b all rental activities defined later regardless of the partner's participation.

The level of each partner's participation in an activity must be determined by the partner. The passive activity rules provide that losses and credits from passive activities can generally be applied only against income and tax from passive activities. Thus, passive losses and credits cannot be applied against income from salaries, wages, professional fees, or a business in which the partner materially participates; against "portfolio income" defined later ; or against the tax related to any of these types of income.

Special provisions apply to certain activities. First, the passive activity limitations must be applied separately for a net loss from passive activities held through a publicly traded partnership. Second, special rules require that net income from certain activities that would otherwise be treated as passive income must be recharacterized as nonpassive income for purposes of the passive activity limitations.

To allow each partner to correctly apply the passive activity limitations, the partnership must report income or loss and credits separately by activity for each of the following. Any rental real estate activity in which the partner materially participated if the partner met both of the following conditions for the tax year. More than half of the personal services the partner performed in trades or businesses were performed in real property trades or businesses in which he or she materially participated.

The partner performed more than hours of services in real property trades or businesses in which he or she materially participated. For purposes of this rule, each interest in rental real estate is a separate activity, unless the partner elects to treat all interests in rental real estate as one activity. If the partner is married filing jointly, either the partner or his or her spouse must separately meet both of the above conditions, without taking into account services performed by the other spouse.

A real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

An interest in an oil or gas well drilled or operated under a working interest if at any time during the tax year the partner held the working interest directly or through an entity that didn't limit the partner's liability for example, an interest as a general partner.

This exception applies regardless of whether the partner materially participated for the tax year. An activity of trading personal property for the account of owners of interests in the activity. For purposes of this rule, personal property means property that is actively traded, such as stocks, bonds, and other securities.

See Temporary Regulations section 1. A trade or business activity is an activity other than a rental activity or an activity treated as incidental to an activity of holding property for investment that:. Involves research or experimental expenditures deductible under section or that would be if you chose to deduct rather than capitalize them. If the partner doesn't materially participate in the activity, a trade or business activity conducted through a partnership is generally a passive activity of the partner.

Each partner must determine if the partner materially participated in an activity. As a result, while the partnership's ordinary business income loss is reported on page 1 of Form , the specific income and deductions from each separate trade or business activity must be reported on attached statements to Form Similarly, while each partner's distributive share of the partnership's ordinary business income loss is reported in box 1 of Schedule K-1, each partner's distributive share of the income and deductions from each trade or business activity must be reported on attached statements to each Schedule K See Passive Activity Reporting Requirements , later, for more information.

Generally, except as noted below, if the gross income from an activity consists of amounts paid principally for the use of real or personal tangible property held by the partnership, the activity is a rental activity. There are several exceptions to this general rule. Under these exceptions, an activity involving the use of real or personal tangible property isn't a rental activity if any of the following apply.

The average period of customer use for such property is 30 days or less and significant personal services defined below are provided by or on behalf of the partnership.

The rental of such property is treated as incidental to a nonrental activity of the partnership under Temporary Regulations section 1. The partnership customarily makes the property available during defined business hours for nonexclusive use by various customers.

The partnership provides property for use in a nonrental activity of a partnership or joint venture in its capacity as an owner of an interest in such partnership or joint venture. Whether the partnership provides property used in an activity of another partnership or of a joint venture in the partnership's capacity as an owner of an interest in the partnership or joint venture is determined on the basis of all the facts and circumstances.

In addition, a guaranteed payment described in section c is never income from a rental activity. Figure the average period of customer use for a class of property by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by the ratio of the gross rental income from that class to the activity's total gross rental income.

The activity's average period of customer use equals the sum of these class-by-class average periods weighted by gross income.

Personal services include only services performed by individuals. To determine if personal services are significant personal services, consider all the relevant facts and circumstances. Relevant facts and circumstances include:. The value of the services in relation to the amount charged for use of the property. The following services aren't considered in determining whether personal services are significant.

Services performed in connection with improvements or repairs to the rental property that extend the useful life of the property substantially beyond the average rental period.

Services provided in connection with the use of any improved real property that are similar to those commonly provided in connection with long-term rentals of high-grade commercial or residential property. Examples include cleaning and maintenance of common areas, routine repairs, trash collection, elevator service, and security at entrances. Services provided in connection with making rental property available for customer use are extraordinary personal services only if the services are performed by individuals and the customers' use of the rental property is incidental to their receipt of the services.

For example, a patient's use of a hospital room is generally incidental to the care received from the hospital's medical staff. Similarly, a student's use of a dormitory room in a boarding school is incidental to the personal services provided by the school's teaching staff.

An activity isn't a rental activity if the rental of the property is incidental to a nonrental activity, such as the activity of holding property for investment, a trade or business activity, or the activity of dealing in property. Rental of property is incidental to an activity of holding property for investment if both of the following apply. The main purpose for holding the property is to realize a gain from the appreciation of the property.

Rental of property is incidental to a trade or business activity if all of the following apply. The partnership owns an interest in the trade or business at all times during the year. The rental property was mainly used in the trade or business activity during the tax year or during at least 2 of the 5 preceding tax years.

The sale or exchange of property that is also rented during the tax year in which the gain or loss is recognized is treated as incidental to the activity of dealing in property if, at the time of the sale or exchange, the property was held primarily for sale to customers in the ordinary course of the partnership's trade or business.

In reporting the partnership's income or losses and credits from rental activities, the partnership must separately report rental real estate activities and rental activities other than rental real estate activities. Partners who actively participate in a rental real estate activity may be able to deduct part or all of their rental real estate losses and the deduction equivalent of rental real estate credits against income or tax from nonpassive activities.

Report credits related to rental real estate activities on lines 15c and 15d of Schedule K box 15, codes E and F, of Schedule K-1 and low-income housing credits on lines 15a and 15b of Schedule K box 15, codes A—D of Schedule K See the instructions for Line 3. Other Net Rental Income Loss , later, for reporting other net rental income loss other than rental real estate.

Generally, portfolio income includes all gross income, other than income derived in the ordinary course of a trade or business, that is attributable to interest; dividends; royalties; income from a real estate investment trust, a regulated investment company, a real estate mortgage investment conduit, a common trust fund, a controlled foreign corporation, a qualified electing fund, or a cooperative; income from the disposition of property that produces income of a type defined as portfolio income; and income from the disposition of property held for investment.

See Self-Charged Interest , later, for an exception. Solely for purposes of the preceding paragraph, gross income derived in the ordinary course of a trade or business includes and portfolio income, therefore, doesn't include the following types of income. Interest income on loans and investments made in the ordinary course of a trade or business of lending money. Interest on accounts receivable arising from the performance of services or the sale of property in the ordinary course of a trade or business of performing such services or selling such property, but only if credit is customarily offered to customers of the business.

Income from investments made in the ordinary course of a trade or business of furnishing insurance or annuity contracts or reinsuring risks underwritten by insurance companies. Income or gain derived in the ordinary course of an activity of trading or dealing in any property if such activity constitutes a trade or business unless the dealer held the property for investment at any time before such income or gain is recognized.

Royalties derived by the taxpayer in the ordinary course of a trade or business of licensing intangible property. Amounts included in the gross income of a patron of a cooperative by reason of any payment or allocation to the patron based on patronage as a result of a trade or business of the patron.

Other income identified by the IRS as income derived by the taxpayer in the ordinary course of a trade or business. Report portfolio income and related deductions on Schedule K rather than on page 1 of Form Certain self-charged interest income and deductions may be treated as passive activity gross income and passive activity deductions if the loan proceeds are used in a passive activity.

Generally, self-charged interest income and deductions result from loans between the partnership and its partners. It also includes loans between the partnership and another partnership if each owner in the borrowing entity has the same proportional ownership interest in the lending entity. The self-charged interest rules don't apply to a partner's interest in a partnership if the partnership makes an election under Regulations section 1.

To make the election, the partnership must attach to its original or amended partnership return a statement that includes the name, address, and EIN of the partnership and a declaration that the election is being made under Regulations section 1.

The election will apply to the tax year in which it was made and all subsequent tax years. Once made, the election may only be revoked with the consent of the IRS.

For more details on the self-charged interest rules, see Regulations section 1. Generally, one or more trade or business or rental activities may be treated as a single activity if the activities make up an appropriate economic unit for measurement of gain or loss under the passive activity rules. Whether activities make up an appropriate economic unit depends on all the relevant facts and circumstances. The factors given the greatest weight in determining whether activities make up an appropriate economic unit are:.

The partnership has a significant ownership interest in a bakery and a movie theater in Baltimore and a bakery and a movie theater in Philadelphia. Depending on the relevant facts and circumstances, there may be more than one reasonable method for grouping the partnership's activities. For instance, the following groupings may or may not be permissible. Once the partnership chooses a grouping under these rules, it must continue using that grouping in later tax years unless a material change in the facts and circumstances makes it clearly inappropriate.

The IRS may regroup the partnership's activities if the partnership's grouping fails to reflect one or more appropriate economic units and one of the primary purposes of the grouping is to avoid the passive activity limitations.

A rental activity with a trade or business activity unless the activities being grouped together make up an appropriate economic unit and:. The rental activity is insubstantial relative to the trade or business activity or vice versa, or. Each owner of the trade or business activity has the same proportionate ownership interest in the rental activity.

If so, the portion of the rental activity involving the rental of property to be used in the trade or business activity can be grouped with the trade or business activity. An activity involving the rental of real property with an activity involving the rental of personal property except personal property provided in connection with the real property or vice versa.

Any activity with another activity in a different type of business and in which the partnership holds an interest as a limited partner or as a limited entrepreneur as defined in section k 4 if that other activity engages in holding, producing, or distributing motion picture films or videotapes; farming; leasing section property; or exploring for or exploiting oil and gas resources or geothermal deposits. Once a partnership determines its activities under these rules, the partnership as a partner can use these rules to group those activities with:.

A partner cannot treat as separate activities those activities grouped together by a partnership. If you group your activities under these rules for section purposes, check the appropriate box in item K. Under Temporary Regulations section 1. Net passive income is the excess of an activity's passive activity gross income over its passive activity deductions current year deductions and prior year unallowed losses.

Any net passive income recharacterized as nonpassive income is treated as investment income for purposes of figuring investment interest expense limitations if it is from a an activity of renting substantially nondepreciable property from an equity-financed lending activity, or b an activity related to an interest in a pass-through entity that licenses intangible property.

The amount of income from the activities in the first three paragraphs, below, that any partner will be required to recharacterize as nonpassive income may be limited under Temporary Regulations section 1. Because the partnership will not have information regarding all of a partner's activities, it must identify all partnership activities meeting the definitions in the Certain nondepreciable rental property activities and Passive equity-financed lending activities paragraphs as activities that may be subject to recharacterization.

A significant participation passive activity is any trade or business activity in which the partner participated for more than hours during the tax year but didn't materially participate. Because each partner must determine the partner's level of participation, the partnership will not be able to identify significant participation passive activities.

If the partnership has net income from a passive equity-financed lending activity, the smaller of the net passive income or the equity-financed interest income from the activity is nonpassive income. Net rental activity income is the excess of passive activity gross income from renting or disposing of property over passive activity deductions current year deductions and prior year unallowed losses that are reasonably allocable to the rented property.

Net rental activity income is nonpassive income for a partner if all of the following apply. The partnership recognizes gain from the sale, exchange, or other disposition of the rental property during the tax year. The use of the item of property in the rental activity started less than 12 months before the date of disposition.

The use of an item of rental property begins on the first day that a the partnership owns an interest in the property, b substantially all of the property is either rented or held out for rent and ready to be rented, and c no significant value-enhancing services remain to be performed. The partner materially or significantly participated for any tax year in an activity that involved performing services to enhance the value of the property or any other item of property if the basis of the property disposed of is determined in whole or in part by reference to the basis of that item of property.

Because the partnership cannot determine a partner's level of participation, the partnership must identify net income from property described earlier under Rental Activities without regard to the partner's level of participation as income that may be subject to recharacterization. If a taxpayer rents property to a trade or business activity in which the taxpayer materially participates, the taxpayer's net rental activity income from the property is nonpassive income. Acquisition of an interest in a pass-through entity that licenses intangible property.

Generally, net royalty income from intangible property is nonpassive income if the taxpayer acquired an interest in the pass-through entity after the pass-through entity created the intangible property or performed substantial services or incurred substantial costs in developing or marketing the intangible property. Net royalty income is the excess of passive activity gross income from licensing or transferring any right in intangible property over passive activity deductions current year deductions and prior year unallowed losses that are reasonably allocable to the intangible property.

To allow partners to correctly apply the passive activity loss and credit limitation rules, the partnership must do the following. If the partnership carries on more than one activity, provide an attached statement for each activity conducted through the partnership that identifies the type of activity conducted trade or business, rental real estate, or rental activity other than rental real estate.

See Grouping Activities , discussed earlier. On the attached statement for each activity, provide a statement, using the same box numbers as shown on Schedule K-1, detailing the net income loss , credits, and all items required to be separately stated under section a from each trade or business activity, from each rental real estate activity, from each rental activity other than a rental real estate activity, and from investments.

If the partnership grouped separate activities, the attachments must identify each group. The attached group activity description must be sufficient for a partner to determine if its other activities qualify to be grouped with any groups provided by the partnership.

Identify the net income loss and credits from each oil or gas well drilled or operated under a working interest that any partner other than a partner whose only interest in the partnership during the year is as a limited partner holds through the partnership. Further, if any partner had an interest as a general partner in the partnership during less than the entire year, the partnership must identify both the disqualified deductions from each well that the partner must treat as passive activity deductions, and the ratable portion of the gross income from each well that the partner must treat as passive activity gross income.

Identify the net income loss and the partner's share of partnership interest expense from each activity of trading personal property conducted through the partnership. For any gain loss from the disposition of an interest in an activity or of an interest in property used in an activity including dispositions before from which gain is being recognized after :.

If the property was used in more than one activity during the 12 months preceding the disposition, identify the activities in which the property was used and the adjusted basis allocated to each activity; and. For gains only, if the property was substantially appreciated at the time of the disposition and the applicable holding period specified in Regulations section 1. Specify the amount of gross portfolio income, the interest expense properly allocable to portfolio income, and expenses other than interest expense that are clearly and directly allocable to portfolio income.

Payments to a partner for services other than in the partner's capacity as a partner under section a. If section a 2 payments are made for unrealized receivables or for goodwill, the amount of the payments and the activities to which the payments are attributable. If section b payments are made, the amount of the payments and the activities to which the payments are attributable.

Identify the ratable portion of any section adjustment whether a net positive or a net negative adjustment allocable to each partnership activity.

Identify any gross income from sources specifically excluded from passive activity gross income, including:. Income from intangible property if the partner is an individual whose personal efforts significantly contributed to the creation of the property;.

Income from a covenant not to compete if the partner is an individual who contributed the covenant to the partnership. Identify the following items from activities that may be subject to the recharacterization rules. See Recharacterization of Passive Income , earlier.

The smaller of equity-financed interest income or net passive income from an equity-financed lending activity. Net rental activity income from property developed by the partner or the partnership , rented, and sold within 12 months after the rental of the property commenced. Net rental activity income from the rental of property by the partnership to a trade or business activity in which the partner had an interest either directly or indirectly.

Net royalty income from intangible property if the partner acquired the partner's interest in the partnership after the partnership created the intangible property or performed substantial services, or incurred substantial costs in developing or marketing the intangible property.

Identify the partner's distributive share of the partnership's self-charged interest income or expense see Self-Charged Interest , earlier. Loans between a partner and the partnership. Identify the lending or borrowing partner's share of the self-charged interest income or expense.

If the partner made the loan to the partnership, also identify the activity in which the loan proceeds were used. If the proceeds were used in more than one activity, allocate the interest to each activity based on the amount of the proceeds used in each activity.

Loans between the partnership and another partnership or an S corporation. If the partnership's partners have the same proportional ownership interest in the partnership and the other partnership or S corporation, identify each partner's share of the interest income or expense from the loan. If the partnership was the borrower, also identify the activity in which the loan proceeds were used. If the loan proceeds were used in more than one activity, allocate the interest to each activity based on the amount of the proceeds used in each activity.

The information described in this section should be given directly to the partner and should not be reported by the partnership to the IRS. To allow partners to correctly figure the net investment income tax where a partner disposes of an interest in the partnership during the tax year, the partnership may be required to provide the partner with certain information.

Net investment income includes the net gains or losses from the sale of an interest in the partnership. However, to figure its net investment income, the active partner needs certain information from the partnership. Generally, the partnership must provide certain information to the partner if the partnership knows, or has reason to know, the following.