Schedule K-1 (Form 65) Instructions

# preamble

Instructions to Pass-Through Entity General Instructions. The Alabama Schedule K-1 is a required attach - ment to the Alabama Form 65. The Alabama Schedule K-1 is similar to the federal Schedule K-1 in that it is used to report the pass-through entity owners' share of income, deductions, credits and other items. The format of the Alabama Schedule K-1 differs from that of the fed - eral Schedule K-1; therefore, the federal Schedule K-1 cannot serve as a substitute for the Alabama Schedule K-1. Heading Information. Enter in the upper left area of the form whether the Subchapter K entity is a Qualified Investment Partnership (QIP). Provide the tax period information if the return is filed for other than the 2016 calendar year. Enter in the upper right area of the form if the Schedule K-1 is either a final K-1 or an amended K-1. Part I - Information about the Pass-Through Entity. Enter on line A the pass-through entity's Federal Employer Identification Number. Enter on line B the pass-through entity's name and mailing address (street address, city, state and zip code). Part II - Information about the Pass-Through Entity Owner. Line C. Enter the pass-through entity owner's social security number or federal identification number. Line D. Enter the name, the street address, city, state and zip code for the pass-through entity owner. Line E1. Check the appropriate box to indicate if the pass-through entity owner is a general partner or limited liability company member manager or if the pass-through entity owner is a limited partner or a non-manager member of a limited liability company. Line E2. State whether the partner is an individual, an S corporation, a C corporation, an estate, a trust, a partnership, a disregarded entity, an exempt organization, a foreign government, or a nominee (custodian). If the entity is a limited liability company (LLC) and it is treated as other than a disregarded entity for federal income tax purposes, the partnership must enter the LLC's classification for federal income tax purposes (that is, a corporation or part - nership). If the partner is a nominee 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 Retire - ment Arrangement; or FGOV - Foreign Government. Check the box if the owner is a nominee. Line E3. Check the box if the partner is a retirement plan. Line E4. Enter the pass-through entity owner's beginning and ending per - centage of profit, loss and capital. Line E5. Enter the pass-through entity owner's share of nonrecourse, qualified nonrecourse financing and recourse liabilities. Line E6. Check the appropriate box to indicate if the pass-through entity owner is a nonresident. If a nonresident, provide the state of legal residence. Line E7. Check the appropriate box to indicate if the pass-through entity owner is a single member LLC. List the name and FEIN of owner. Line E8. Enter the pass-through entity owner's capital account analysis. Line F. Enter the pass through entity owner's pro rata share of the credit reported on Schedule K, Line 22. Credits shall be identified by the following codes and claimed in the order below: A: Alabama Enterprise Zone Credit B: Basic Skills Education Credit C: Coal Credit D: Full Employment Act of 2011 Credit E: Alabama New Markets Development Credit F: Heroes for Hire Tax Credit Act of 2012 Employee Credit G: Heroes for Hire Tax Credit Act of 2012 Business Start-Up Expense Credit H: Qualified Irrigation System/Reservoir System Credit I: Rehabilitation, Preservation and Development of Historic Structures Credit J: Credit for Taxes Paid to Foreign Country K: Dual Enrollment Credit L: Alabama Jobs Act - Investment Credit M: Alabama Accountability Tax Credit N: Alabama Renewal Act - Port Credit O: Capital Credit If additional space is needed, please provide the requested informa - tion as an attachment to the Alabama Schedule K-1. Part III - Partner's Share of Current Year Alabama Income, Deductions, Credits and Other Items. Please note: The term "gross income," in the case of a resident individual, includes income from sources within and outside Alabama, and in the case of a nonresident individual, includes only income from property owned or busi - ness transacted in Alabama. The Alabama K-1 has two columns in some boxes of Part III. The first column of Part III is income allocated and appor - tioned to Alabama. This column should be completed for both resident and nonresident partners. The second column of Part III should be completed for resident partners only. This column should include the resident's share of in - come (loss) from all sources, including income (loss) earned from other states. For example, a multistate entity has $100,000.00 of income and 27% is allocated to Alabama. The entity has a nonresident and resident partner each receiving 50% of income (loss). On Schedule K-1, the entity would report $13,500.00 in Column 1, Box G, for both the nonresident partner resident part - ner. The entity would report $50,000.00, income (loss) from all sources, in Col - umn 2, Box G, for the resident partner. Line G - Enter the pass-through entity owner's pro rata share of the ordi - nary income (loss) apportioned to Alabama from Schedule K, Line 1. Line H - Enter the pass-through entity owner's pro rata share of net rental real estate income (loss) apportioned to Alabama from Schedule K, Lines 2 and 3c. Line I - Enter the pass-through entity owner's pro rata share of guaranteed payments apportioned to Alabama from Schedule K, Line 4. Line J - Enter the pass-through entity owner's pro rata share of the port - folio income apportioned to Alabama from Schedule K, Lines 5-7. Check the box if the entity is a QIP and the income is tax exempt for the nonresident owner. Line K - Enter the pass-through entity owner's pro rata share of net capital gain (loss) apportioned to Alabama from Schedule K, Lines 8-10. Line L - Enter the pass-through entity owner's pro rata share of other in - come (loss) apportioned to Alabama from Schedule K, Line 11. Line M - Enter the pass-through entity owner's pro rata share of the non - business items apportioned to Alabama from Schedule K, Line 12 minus Line 18. The nature and amount of each different separately stated business item must be provided to the pass-through entity owner with the Alabama Schedule K-1. Line N - Enter the pass-through entity owner's pro rata share of the section 179 expense apportioned to Alabama from Schedule K, Line 13.

INSTRUCTIONS FOR THE PREPARATION OF Pass Through Entity Partner's Statement of Income and Deductions

SCHEDULE K-1 FORM 65

# INSTRUCTIONS

Line O - Enter the pass-through entity owner's pro rata share of the char - itable contributions apportioned to Alabama from Schedule K, Line 14a. Line P - Enter the pass-through entity owner's pro rata share of the in - vestment interest expense apportioned to Alabama from Schedule K, Line 14b. Line Q - Enter the pass-through entity owner's pro rata share of other de - ductions apportioned to Alabama from Schedule K, Line 15. Line R - Enter the pass-through entity owner's pro rata share of oil and gas depletion apportioned to Alabama from Schedule K, Line 16. Line S - Enter the pass-through entity owner's pro rata share of casualty losses apportioned to Alabama from Schedule K, Line 17. Line T - Enter the pass-through entity owner's pro rata share of tax-ex - empt income apportioned to Alabama from Schedule K, Lines 19a and 19b. Line U - Enter the pass-through entity owner's pro rata share of nonde - ductible expenses apportioned to Alabama from Schedule K, Line 19c. Line V - Enter the pass-through entity owner's pro rata share of distribu - tions apportioned to Alabama from Schedule K, Lines 20a and 20b. Line W - Enter the pass-through entity owner's pro rata share of invest - ment income apportioned to Alabama from Schedule K, Line 21a. Line X - Enter the pass-through entity owner's pro rata share of investment expenses apportioned to Alabama from Schedule K, Line 21b. Line Y - Enter the pass-through entity owner's pro rata share of other items and amounts apportioned to Alabama from Schedule K, Line 21c. Line Z - Enter the amount of the Alabama composite payment made on behalf of the pass-through entity owner. Check the box if the nonresident member has certified exemption from the composite payment requirements. Schedule NRC-Exempt must be attached if the box on Column Z is checked. Instructions to Pass-Through Entity Owner Important Information for pass-through entity owners that are not in - dividuals. Pass-through entity owners that are not individuals can create nexus (a presence subjecting the pass-through entity owner to Alabama income taxation) in Alabama by having an ownership interest in a passthrough entity doing business in Alabama. Also, having an ownership interest in a pass-through entity doing business in Alabama can subject the pass-through entity owner (which is a corporation or subchapter K entity) to the requirements of the Alabama Multistate Tax Compact. The remainder of these instructions are directed toward pass-through entity owners that are individual taxpayers. Note: Nonresident owners would report income (loss) allocated and ap - portioned to Alabama as stated in Part III, Column 1 of Schedule K-1. Resident owners are required to report income from sources within and outside Ala - bama as indicated on Part III, Column 2 of Schedule K-1. Line F. Pass-through entity owners who are individuals would claim this amount on Schedule OC and/or Schedule NTC of Form 40 or Form 40NR. Refer to page 1, Line F instructions for applicable codes and ordering of credits. Line G . Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Line H. Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Line I. Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. The entire amount of guaranteed payments received by the owner of the subchap - ter K entity should be reported on this line of the Schedule K-1, if the owner is an Alabama resident individual. The apportioned amount of the guaranteed payments received by the owner of the subchapter K entity should be reported on this line, if the owner is an individual, but not an Alabama resident. Line J. Pass-through entity owners that are individuals would report this amount on the appropriate schedule of the Alabama Form 40 or Alabama Form 40NR filed by the individual, depending upon the nature of the portfolio income. Accompanying the Alabama Schedule K-1 should be an explanation of the different types and amounts of portfolio income making up the amount on Line J. Line K. Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Line L. Pass-through entity owners that are individuals would report this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Line M. Pass-through entity owners that are individuals would report or claim these items on the appropriate schedule of the Alabama Form 40 or Ala - bama Form 40NR, filed by the individual, depending upon the nature of the nonbusiness item. Accompanying the Alabama Schedule K-1 should be an explanation of the different types and amounts of other separately stated busi - ness items making up the amount on Line M. Line N. Pass-through entity owners that are individuals would claim this amount on the Form 4562, Depreciation and Amortization, which accompanies the individual's Alabama Form 40 or Alabama Form 40NR. Line O. Pass-through entity owners that are individuals would claim this amount on Schedule A of the Alabama Form 40 or Alabama Form 40NR. Line P. Pass-through entity owners that are individuals would report this amount on the Alabama Form 4952A that accompanies the individuals Ala - bama Form 40 or Alabama Form 40NR. Line Q. Pass-through entity owners that are individuals would report or claim these items on the appropriate schedule of the Alabama Form 40 or Ala - bama Form 40NR, filed by the individual, depending upon the nature of the other deductions. Line R. Pass-through entity owners that are individuals should claim this amount on Schedule E of the Alabama Form 40 or Alabama Form 40NR. Ac - companying the Alabama Schedule K-1 should be a computation of the amount reported on Line R. Alabama income tax law concerning oil and gas depletion differs from the federal law. Care should be exercised in claiming this deduction to ensure that the proper amount is deducted. Line S. Pass-through entity owners that are individuals would claim this amount on the Form 4684 that accompanies the Alabama Form 40 or Alabama Form 40NR. Line T. Pass-through entity owners that are individuals are encouraged to disclose the amount of Alabama exempt income on the Alabama Form 40 or Alabama Form 40NR, filed by the individual. Accompanying the Alabama Schedule K-1 should be an explanation showing the different types of Alabama exempt income items and amounts making up the amount reported on Line T. Line U. Pass-through entity owners that are individuals are encouraged to disclose the amount of nondeductible expenses on the Alabama Form 40 or Alabama Form 40NR, filed by the individual. Line V. Pass-through entity owners that are individuals would report the portion of this amount that represents reportable income on the Schedule D accompanying the Alabama Form 40 or Alabama Form 40NR. Accompanying the Alabama Schedule K-1 should be a detailed explanation of the amount on Line V. Line W. Pass-through entity owners that are individuals would report this amount on the Alabama Form 4952A that accompanies the individuals Ala - bama Form 40 or Alabama Form 40NR. Line X. Pass-through entity owners that are individuals would report this amount on the Alabama Form 4952A that accompanies the individuals Ala - bama Form 40 or Alabama Form 40NR. Line Y. Pass-through entity owners that are individuals would report or claim these items on the appropriate schedule of the Alabama Form 40 or Ala - bama Form 40NR, filed by the individual, depending upon the nature of the other items. Accompanying the Alabama Schedule K-1 should be an expla - nation of the different types and amounts of other items making up the amount on Line Y. Line Z. Pass-through entity owners that are individuals would claim this amount on the Alabama Form 40NR.