Part II. — Instruction 1065 — Instructions for Form

Complete a Schedule K-1 for each partner. On each Schedule K-1, enter the partner’s name, address, identifying number, and distributive share items. See special rules below for partners that are DEs.

Items E and F For an individual partner, enter the partner’s SSN or individual taxpayer identification number (ITIN) rather than the TIN of the DE partner. For all other partners, enter the partner’s EIN.

However, if a partner is an IRA, enter the identifying number of the custodian of the IRA. Don’t enter the identification number of the person for whom the IRA is maintained. If the partnership reports unrelated business taxable income (UBTI) to such IRA partner, include the IRA partner’s unique EIN in box 20, code AR, along with the amount of such income.

Note: For tax year 2025, PTPs aren’t required to include the IRA partner’s unique EIN in box 20, code AR.

Caution: Don’t include dashes when entering the EIN in box 20.

32 Instructions for Form 1065 (2025)

Foreign partners without a U.S. identifying number should be notified by the partnership of the necessity of obtaining a U.S. identifying number. Certain aliens who aren’t eligible to obtain SSNs can apply for an ITIN on Form W-7, Application for IRS Individual Taxpayer Identification Number.

If the partner in the partnership is an entity, such as a single-member LLC, that is a DE for federal income tax purposes, enter the TIN of the beneficial owner of the DE partner in item E rather than the TIN of the DE partner. The beneficial owner is the taxpayer who owns the DE partner. In item F, enter the name and address of the beneficial owner of the DE partner. See the instructions for item H2 below.

Note: If the partner is an LLC or a trust, the partnership should inquire as to whether the LLC is a DE for federal income tax purposes. If the LLC or trust is a DE, the partnership must verify that the partner’s TIN is the TIN used by the partner’s beneficial owner in filing its federal income tax return.

Truncating recipient’s TIN on Schedule K-1. The partnership can truncate a partner’s identifying number on the Schedule K-1 the partnership sends to the partner. Truncation isn’t allowed on the Schedule K-1 the partnership files with the IRS. Also, the partnership can’t truncate its own identification number on any form.

To truncate, where allowed, replace the first five digits of the nine-digit number with asterisks (*) or Xs (for example, an SSN xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For more information, see Regulations section 301.6109-4.

Foreign address. If the partner has a foreign address, enter the information in the following order: city or town, state or province, country, and ZIP or foreign postal code. Follow the country’s practice for entering the postal code. Don’t abbreviate the country name.

Item G Complete item G on all Schedules K-1. If a partner holds interests as both a general and limited partner, check both boxes and attach a statement for each activity that shows the amounts allocable to the partner’s interest as a limited partner.

Item H1. Domestic/Foreign Partner Check the “Foreign partner” box if the partner is a nonresident alien individual, foreign partnership, foreign corporation, foreign estate, foreign trust, or foreign government. Otherwise, check the “Domestic partner” box.

Item H2. Disregarded Entity (DE) If the partner is a DE, check the box and provide the name and TIN of the DE partner. The partnership should make reasonable attempts to obtain the DE’s TIN. If after making reasonable attempts to obtain the DE’s TIN such TIN is unavailable or unknown to the partnership, the partnership may report the DE’s TIN as unknown. If the DE doesn’t have a TIN, enter “None” in the space for the DE’s TIN. For more information about DE reporting, go to IRS.gov/Forms-Pubs/Clarifications-for- disregarded-entity-reporting-and-section-743b-reporting .

Item I1. What Type of Entity Is This Partner? State whether the partner is an individual, a corporation, an estate, a trust, a partnership, a DE, an exempt organization, a foreign government, or a nominee (custodian). If the partner is an LLC and has elected to be treated as other than a DE under Regulations section 301.7701-3 for federal income tax purposes, the partnership must enter the LLC’s classification for federal income tax purposes (that is, a corporation or partnership). If any legal owner of the partnership is a DE for federal income tax purposes, report the beneficial owner’s entity type in item I1. If

the partner is a nominee, use one of the following codes after the word “nominee” to indicate the type of entity the nominee represents: I—Individual; C—Corporation; F—Estate or Trust; P—Partnership; DE—Disregarded Entity; E—Exempt Organization; IRA—Individual Retirement Arrangement; or FGOV—Foreign Government. If the partner is a nominee that acts on behalf of more than one person, use code M—Multiple.

Item J. Partner’s Profit, Loss, and Capital On each line, enter the partner’s percentage share of the partnership’s profit, loss, and capital as of the beginning and end of the partnership’s tax year, as determined under the partnership agreement. If a partner’s interest commences after the beginning of the partnership’s tax year, enter in the “Beginning” column the percentages that existed for the partner immediately after admission. If a partner’s interest terminates before the end of the partnership’s tax year, enter in the “Ending” column the percentages that existed immediately before termination.

On the line for “Capital,” enter the percentage share of the capital that the partner would receive if the partnership was liquidated by the distribution of undivided interests in partnership assets and liabilities. If the partner’s capital account is negative or zero, express the percentage ownership of capital as zero.

The partner’s percentage share of each category must be expressed as a percentage. The percentage must not be negative. The total percentage interest in each category must total 100% for all partners. To determine whether the total beginning and ending percentages are 100%, don’t include the beginning percentage for a partner that wasn’t a partner at the beginning of the partnership’s tax year or the ending percentage for a partner that left the partnership before the end of the partnership’s tax year. If the partnership agreement doesn’t express the partner’s share of profit, loss, and capital as fixed percentages, the partnership may use a reasonable method in arriving at each percentage for purposes of completing the items required by item J, as long as such method is consistent with the partnership agreement and is applied consistently from year to year. Maintain records to support the share of profits, losses, and capital reported for each partner.

Exchange box. Check the “Exchange” box in this item if there was a nontaxable exchange of all or part of a partnership interest to a new or pre-existing partner during the year. “Exchange,” for purposes of this checkbox, means a nontaxable transaction involving the transfer of a partnership interest excluding a transfer on the death of a partner. “Exchange” also includes a transaction under section 721(a) regardless of whether gain recognition took place.

Item K1. Partner’s Share of Liabilities Enter each partner’s share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other recourse liabilities at the end of the year.

Nonrecourse liabilities are those liabilities of the partnership for which no partner (or related person) bears the economic risk

If there is a decrease in the partner’s share of profits, losses, or capital, indicate whether it was due to a sale or an exchange.

Sale box. Check the “Sale” box in this item if there was a taxable sale of all or part of a partnership interest to a new or pre-existing partner during the year, regardless of whether the partner recognized gain or loss on the transaction(s). “Sale,” for the purposes of this checkbox, means a taxable transaction involving the transfer of a partnership interest. This will exclude transfers subject to gain recognition under section 721(b). This will also exclude transactions where a new partnership interest is issued to a partner in exchange for property contributed to the partnership, even if some gain is recognized by the contributing partner.

Instructions for Form 1065 (2025) 33

of loss. The extent to which a partner bears the economic risk of loss is determined under the rules of Regulations section 1.752-2. Don’t include partnership-level qualified nonrecourse financing (defined below) on the line for nonrecourse liabilities.

If the partner terminated their interest in the partnership during the year, enter the share that existed immediately before the total disposition. In all other cases, enter it as of the end of the year.

If the partnership is engaged in two or more different types of at-risk activities, or a combination of at-risk activities and any other activity, attach a statement showing the partner’s share of nonrecourse liabilities, partnership-level qualified nonrecourse financing, and other recourse liabilities for each activity. See Pub. 925 to determine if the partnership is engaged in more than one at-risk activity.

The at-risk rules of section 465 generally apply to any activity carried on by the partnership as a trade or business or for the production of income. These rules generally limit the amount of loss and other deductions a partner can claim from any partnership activity to the amount for which that partner is considered at risk. However, for partners who acquired their partnership interests before 1987, the at-risk rules don’t apply to losses from an activity of holding real property the partnership placed in service before 1987. The activity of holding mineral property doesn’t qualify for this exception. Identify on an attached statement to Schedule K-1 the amount of any losses that aren’t subject to the at-risk rules.

If a partnership is engaged in an activity subject to the limitations of section 465(c)(1) (such as films or videotapes, leasing section 1245 property, farming, or oil and gas property), give each partner their share of the total pre-1976 losses from that activity for which there existed a corresponding amount of nonrecourse liability at the end of each year in which the losses occurred. See Form 6198, At-Risk Limitations, and related instructions for more information.

Qualified nonrecourse financing secured by real property used in an activity of holding real property that is subject to the at-risk rules is treated as an amount at risk. Qualified nonrecourse financing generally includes financing for which no one is personally liable for repayment that is borrowed for use in an activity of holding real property and that is loaned or guaranteed by a federal, state, or local government or that is borrowed from a qualified person. Qualified persons include any person actively and regularly engaged in the business of lending money, such as a bank or savings and loan association. Qualified persons generally don’t include related parties (unless the nonrecourse financing is commercially reasonable and on substantially the same terms as loans involving unrelated persons), the seller of the property, or a person who receives a fee for the partnership’s investment in the real property. See section 465(b)(6) for more information on qualified nonrecourse financing.

The partner as well as the partnership must meet the qualified nonrecourse rules. Therefore, the partnership must enter on an attached statement any other information the partner needs to determine if the qualified nonrecourse rules are also met at the partner level.

Item K2 If a partnership (upper-tier) owns a direct interest in other partnerships (lower-tier), then Regulations section 1.752-4(a) requires that the upper-tier partnership allocate to its partners its share of the lower-tier partnership’s liabilities (except for any liability of the lower-tier partnership that is owed to the upper-tier partnership). Allocate those lower-tier partnership liabilities to each partner based on whether that liability is a recourse or

nonrecourse liability to the partner under the regulations under section 752. The characterization of a liability may change as it moves from a lower-tier partnership to an upper-tier partnership. If Schedule K-1 (Form 1065) includes lower-tier partnership liabilities, check the box in item K2. If the total liabilities on all Schedules K-1 (Form 1065) don’t equal the total liabilities on Schedule L, attach a reconciliation.

Item K3. Payment Obligations Including Guarantees and Deficit Restoration Obligations (DROs) Check the box in item K3 if the partner or a related person has certain payment obligations, including guarantees or DROs, with respect to any liability in item K1. See the instructions for line 20c, code X, for additional information. For purposes of item K3, a payment obligation is defined as an obligation under Regulations section 1.752-2(b)(1) that is recognized under Regulations sections 1.752-2(b)(3)(i)(A) and (B) (such as a recognized guarantee or an obligation to restore a deficit capital account upon liquidation), and a related person is defined as a related person as defined in Regulations section 1.752-4(b).

Item L. Partner’s Capital Account Analysis You aren’t required to complete item L if the answer to question 4 of Schedule B is “Yes.” If you’re required to complete this item, also see the instructions for Schedule M-2, later.

Tax-basis method. Figure each partner’s capital account for the partnership’s tax year using the transactional approach, discussed below, for the tax-basis method.

How to report partnership events or transactions. If you’re uncertain how to report a partnership event or transaction, you should account for the event or transaction in a manner generally consistent with figuring the partner’s adjusted tax basis in its partnership interest (without regard to partnership liabilities), taking into account the rules and principles of sections 705, 722, 733, and 742 and by reporting the amount on the line for other increase (decrease). The partner’s ending capital account as reported using the tax-basis method in item L might not equal the partner’s adjusted tax basis in its partnership interest. Generally, this is because a partner’s adjusted tax basis in its partnership interest includes the partner’s share of partnership liabilities, as well as partner-specific adjustments. Each partner is responsible for maintaining a record of the adjusted tax basis in its partnership interest.

Beginning capital account. Enter the partner’s ending capital account as determined for last year on the line for beginning capital account. If a partner joined the partnership through a contribution to the partnership this year, enter zero as the partner’s beginning capital account.

Capital contributed during the year. On the line “Capital contributed during the year,” enter the amount of cash plus the adjusted tax basis of all property contributed by the partner to the partnership during the year. The amount you enter on this line should be reduced by any liabilities assumed by the partnership in connection with, or liabilities to which the property is subject immediately before, the contribution. This amount might be negative.

Current year net income (loss). On the line “Current year net income (loss),” enter the partner’s distributive share of partnership income and gain (including tax-exempt income) as figured for tax purposes for the year, minus the partner’s distributive share of partnership loss and deductions (including nondeductible, noncapital expenditures) as figured for tax purposes for the year.

Other increase (decrease). On the line “Other increase (decrease),” enter the sum of all other increases or decreases that affected the partner’s capital account for tax purposes during the year and attach a statement explaining each

34 Instructions for Form 1065 (2025)

adjustment. For example, if a new partner acquired its interest in the partnership from another partner in a purchase, exchange, gift, or inheritance, enter an amount for the transferee under other increase that is equal to the transferor partner’s ending capital account with respect to the interest transferred immediately before the transfer figured using the tax-basis method. Other examples of increases include the following.

The partner’s distributive share of the excess of the tax deductions for depletion (other than oil and gas depletion) over the adjusted tax basis of the property subject to depletion.
The partner’s share of any increase to the adjusted tax basis of partnership property under section 734(b).

If a transferor partner disposed of its interest in the partnership by sale, exchange, or gift, or as the result of death, enter the transferor partner’s ending capital account with respect to the interest transferred immediately before the transfer figured using the tax-basis method. Other examples of decreases include the following.

The partner’s distributive share of tax deductions for depletion of any partnership oil and gas property, but not exceeding the partner’s share of the adjusted tax basis of that property.
The partner’s share of any decrease to the adjusted tax basis of partnership property under section 734(b).

Note: Section 743(b) basis adjustments aren’t taken into account in calculating a partner’s capital account under the tax-basis method.

Withdrawals and distributions. On the line “Withdrawals and distributions,” enter the amount of cash plus the adjusted tax basis of all property distributed by the partnership to the partner during the year. The amount you enter on this line should be reduced by any liabilities assumed by the partner in connection with, or liabilities to which the property is subject immediately before, the distribution. This amount might be negative.

Ending capital account. The sum of the amounts shown on the lines in item L above the line “Ending capital account” must equal the amount reported on the line “Ending capital account.” A partner’s ending capital account determined under the tax-basis method may be negative if the sum of a partner’s losses and distributions exceeds the sum of the partner’s contributions and share of income.

Publicly traded partnerships (PTPs). In the case of a sale or exchange of an interest in a PTP, you may determine a transferee partner’s beginning capital account by adjusting the partner’s beginning capital account to reflect the transferee partner’s purchase price of the interest rather than entering the transferor partner’s ending capital account. In making the adjustments, you may use information required to be reported to you under Temporary Regulations section 1.6031(c)-1T, and publicly available trading price information.

Item M. Did the Partner Contribute Property With a Built-in Gain or Loss? Check the appropriate box to indicate whether the partner contributed property with a built-in gain or loss during the tax year. If “Yes,” attach a statement that contains the following information.

A description of each property the partner contributed.
The date the property was contributed.
The amount of the property’s built-in gain or loss.

Exception. If a partner contributes more than 10 properties with either a built-in gain or built-in loss on any date during the tax year, the partnership isn’t required to provide the required information separately for each property contributed for that date. Instead, the partnership can report the (a) number of properties contributed on that date, (b) total amount of built-in

gain, and (c) total amount of built-in loss. Don’t net the built-in gains and built-in losses; instead, show the total built-in gain and total built-in loss for all properties contributed on that date.

A property’s built-in gain is the amount by which the FMV of the property exceeds its adjusted tax basis at the time the property is contributed to the partnership. A property’s built-in loss is the amount by which the FMV of the property is less than its adjusted tax basis at the time the property is contributed to the partnership. Partnerships are required to keep track of this information; see Regulations section 1.704-3. This information is also needed for purposes of allocating partnership items to partners because income, gain, loss, and deductions related to property contributed to the partnership by a partner must be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its FMV at the time of contribution. If the partnership distributes any property (other than built-in gain property) to a partner that has contributed built-in gain property to the partnership within the last 7 years, it will need this information for the attached statement required in the instructions for Schedule K, line 19b, for distributions subject to section 737 (code B). If the partnership distributes contributed property with a built-in gain or loss to any partner other than the partner that contributed the property and the date of the distribution is within 7 years of the date the property was contributed to the partnership, it will need this information for the attached statement required by the instructions for line 20c of Schedule K for the precontribution gain (loss) (code W).

Item N. Partner’s Share of Net Unrecognized Section 704(c) Gain or (Loss) For item N, the partnership should report the partner’s share of net unrecognized section 704(c) gains or losses, both at the beginning and at the end of the partnership’s tax year. Solely for purposes of completing item N, the section 704(c) gain or loss is the partner’s share of the net (“net” means aggregate or sum) of all unrecognized section 704(c) gain or loss in partnership property, including section 704(c) gain or loss arising from revaluations of partnership property. See Notice 2019-66 for more information.