The IRS has released the drafts of instructions for Form 1065[1] and Schedule K-1 Form 1065.[2]

The Form 1065 draft instructions describe the following new items on the 2019 forms in the “What’s New” section:

Schedule B

• New Question 27 has been added to Schedule B to enter the number of foreign partners that transferred all or part of their interests or received a distribution subject to section 864(c)(8).

• New Question 28 regarding disclosures for disguised sales has been added to Schedule B.

Schedule K

• 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 section 951A categories are no longer reported on Schedules K and K-1.

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 Item K 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 section 704(c) gain or (loss) at the beginning and the end of the year.

• Box 11—Code F will no longer be used for section 951A income. Instead, it will now be used for any net positive income effect from section 743(b) adjustments.

• Box 13—New code V has been added for any negative income effect from section 743(b) adjustments.

• Box 20—Codes Z through AD that were previously used to report section 199A information have been changed. Only code Z will be used to report section 199A information.

• Box 20—Code AA is used for the net income/loss effect for all section 704(c) adjustments.

• Box 20—Code AB is used for section 751 gain or loss from the sale of a partnership interest.

• Box 20—Code AC is used for any deemed gain or loss from section 1(h)(5) collectibles from the sale of a partnership interest.

• Box 20—Code AD is used for any deemed gain under section 1250 from the sale of a partnership interest.

• Box 20—Code AH, Other, includes net section 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 section 465 at-risk purposes, or more than one activity for section 469 passive activity purposes, or both.

The draft Schedule K-1, Form 1065 instructions contain the following details regarding changes to that form in the What’s New section of these instructions:

Changes on page 1.

Item E. The partner's social security number (SSN) or taxpayer identification number (TIN) is entered here. If the partner is a disregarded entity (DE), the SSN or TIN of the beneficial owner is entered, not that of the DE.

Item F. This field contains the name and address of the person whose SSN or TIN is entered in item E.

Item H2. A new checkbox has been added to indicate if the partner is a DE. If so, the TIN and name of the DE is entered in the spaces provided.

Item J.  A new checkbox has been added to indicate if a decrease in the partner's ownership percentages of profit, loss, or capital is due in part or in whole to a sale or exchange of a portion or all of the partnership interest.

Item K. A new checkbox has been added to indicate if the partner's share of liabilities includes liability amounts from lower-tier partnerships.

Item L.  The partner's capital account is shown using only tax basis.

Item N. This new item shows the partner's beginning and ending share of net unrecognized section 704(c) gain or (loss).

Line 4, and page 2, line 4. Guaranteed payments is now three lines: 4a Guaranteed payments for services, 4b Guaranteed payments for capital, 4c Total guaranteed payments.

New line 21. This new line provides a checkbox for the partnership to indicate if it has more than one activity for at-risk purposes.

New line 22. This new line provides a checkbox for the partnership to indicate if it has more than one activity for passive activity purposes.

Changes on page 2.

Boxes 11 and 16. Codes in boxes 11 and 16, that in 2018 were used for information concerning global intangible low-taxed income (GILTI) under section 951A, are reserved or repurposed. Information concerning GILTI will be provided to affected partners in statements attached to Schedules K-1 by the partnership.

Boxes 11 and 13.  Code F in box 11 is used to indicate section 743(b) positive adjustments. Code V in box 13 is used to indicate section 743(b) negative adjustments.

Box 20. Codes Z, AA, AB, AC, AD. Code Z is section 199A information; code AA is section 704(c) information; code AB is section 751 gain (loss); code AC is section 1(h)(5) gain (loss); and code AD is section 1250 unrecaptured gain.

The instructions for Form 1065 contain the same three statements related to §199A that are to be provided with K-1s that are found in the draft Form 1120-S instructions for 2019.

[1] https://www.irs.gov/pub/irs-dft/i1065--dft.pdf, October 29, 2019, retrieved November 2, 2019

[2] https://www.irs.gov/pub/irs-dft/i1065--dft.pdf, October 30, 2019, retrieved November 2, 2019

[1] https://www.irs.gov/pub/irs-dft/i1065--dft.pdf, October 29, 2019, retrieved November 2, 2019

[2] https://www.irs.gov/pub/irs-dft/i1065--dft.pdf, October 30, 2019, retrieved November 2, 2019