Form 1065 (2019): Tax Year–Specific Checklist
Year Uniqueness Statement
The 2019 Form 1065 incorporates the Taxpayer Certainty and Disaster Relief Act of 2019, which retroactively extended provisions including energy-efficient commercial building deductions and film, television, and theatrical production expense deductions.
Guaranteed payments reporting redesigned into three lines (services, capital, total).
New Schedule K-1 items require partners to report unrecognized section 704(c) gain/loss and tax basis capital for the first time.
Year-Specific Provisions Applicable to 2019 Form 1065
For calendar year 2019 (or tax year beginning in 2019), the Bipartisan Budget Act (2015) centralized partnership audit regime applies unless the partnership elects out under section 6221(b) using Schedule B-2. The BBA partnership provision permitting amended returns (instead of Administrative Adjustment Requests) for 2018 and 2019 returns applies only to partnerships filing such amended returns before September 30, 2020, with “Filed pursuant to Rev. Proc. 2020-23” notation.
Section 267A hybrid arrangement interest and royalty deduction disallowance must be reported on Schedule B, question 22, if the partnership knows or has reason to believe a partner’s deduction is disallowed.
10-Step 2019 Form 1065 Checklist
Step 1: Determine Filing Requirement and Partnership Classification
Confirm the partnership meets the domestic partnership definition or qualifies as a foreign partnership required to file (with effectively connected income or U.S. source income exceeding 20,000 dollars). If the partnership qualifies as an eligible partnership with 100 or fewer eligible partners, determine whether to file Schedule B-2 to elect out of the centralized partnership audit regime under section 6221(b).
Step 2: Gather Guaranteed Payment Documentation for New Three-Line Reporting
Collect documentation separating guaranteed payments into: (a) guaranteed payments for services, (b) guaranteed payments for capital, and (c) total guaranteed payments.
This 2019 reporting change requires separate tracking of compensation versus capital-use payments to partners.
Step 3: Compute and Document Tax Basis Capital and Section 704(c) Attributes
For Schedule K-1 Item L, calculate the partner’s tax basis capital account for all partners (beginning and ending amounts). Prior years required negative tax basis disclosure only; 2019 expanded the requirement to all partners’ tax basis capital accounts.
For Schedule K-1 Item N, compute each partner’s beginning and ending share of net unrecognized section 704(c) gain or (loss). This 2019 requirement applies to all partnerships, regardless of whether specific transactions have created Section 704(c) items.
Step 4: Review Section 267A Hybrid Arrangement Interest and Royalty Payments
Identify all interest and royalty payments made during the tax year under hybrid arrangements. On Schedule B, question 22, report the total amount for which the partnership knows or has reason to know that one or more partners’ distributive share of deductions is disallowed under section 267A.
Step 5: Assemble Schedules L, M-1, and M-2 Based on Threshold Tests
If total receipts are less than $ 250,000, total assets are less than $ 1 million at year-end, Schedules K-1 are filed by the due date, and the partnership is not required to file Schedule M-3, the partnership may skip Schedules L, M-1, and M-2. Otherwise, complete the balance sheet and reconciliation schedules.
Step 6: Prepare Schedule K-1 with New Lines 21 and 22 Activity Indicators
Check Line 21 of Schedule K-1 to determine if the partnership has more than one activity for at-risk purposes (Section 465). Check Line 22 to determine if the partnership has more than one activity for passive activity purposes (Section 469). These checkboxes alert partners to attach separate activity statements.
Step 7: Complete Depreciation Schedules with Section 179 Deduction Flow-Through
Attach Form 4562 if claiming depreciation for property placed in service during 2019. Report section 179 expense deduction as a separately-stated pass-through item on Schedule K, line 12, and to each partner on Schedule K-1, Box 12. Partners must report this deduction on their individual returns and may face limitations.
Step 8: Report Depletion for Non-Oil-and-Gas Properties Only
On line 17 (Form 1065 page 1), report depletion deductions only for non-oil-and-gas properties. Do not deduct depletion for oil and gas properties; instead, allocate the depletion deduction to each partner to calculate on their individual returns using section 613(a) rules.
Step 9: Designate Partnership Representative for BBA Audit Authority
Complete Schedule B, Partnership Representative section, designating one individual or entity with substantial U.S. presence (taxpayer identification number, U.S. street address, U.S. telephone number, and availability for in-person IRS meetings). This representative holds sole authority for the centralized partnership audit regime unless the partnership validly elects out.
Step 10: Sign, Date, and Assemble Final Return
Have a partner or LLC member sign and date Form 1065 in the designated signature block; ensure that the paid preparer (if applicable) signs only in the “Paid Preparer Use Only” section with a valid PTIN. Attach all required schedules (Schedule K-1 for each partner; Schedules B-1, C, M-3 if applicable; and Schedule B-2 if electing out of BBA). Refer to the IRS 'Where to File' page for 2019 for the correct mailing address by entity type.
2019 Schedule K-1 (Form 1065) Redesigns and Additions
Item N Addition: Prior year did not report this information. The current year (2019) added a new Item N requiring reporting each partner’s beginning and ending share of net unrecognized section 704(c) gain or (loss). This arises from contributed property with built-in gain/loss under Internal Revenue Code section 704(c). This revision represents an added provision.
Guaranteed Payments Redesign (Line 4 and Page 2, Line 4): The prior year used a single line for total guaranteed payments. The current year (2019) was redesigned into three lines: 4a (Guaranteed payments for services), 4b (Guaranteed payments for capital), and 4c (Total guaranteed payments). This subsection represents a redesigned provision.
Lines 21 and 22: Checkboxes for Multiple Activities – The prior year did not separately indicate this information. The current year (2019) introduced a new Line 21 checkbox, suggesting that a partnership has more than one activity for Section 465 at-risk purposes. The New Line 22 checkbox indicates that the partnership has more than one activity for section 469 passive activity purposes. This clause represents an added provision.
Final Compliance Notes
The 2019 Form 1065 instructions do not reference Economic Impact Payment reconciliation, ACA shared responsibility provisions, or 2020 unemployment exclusion adjustments, as these provisions do not apply to partnership returns. Nonresident aliens cannot hold partnership interests directly; however, they may do so through foreign entities, subject to section 1446 withholding on the adequately connected taxable income.
Limit all entries to amounts that are explicitly supported by the partnership's books and records; if the tax basis capital or section 704(c) attributes cannot be computed with certainty, omit those amounts instead of estimating, and include a note on an attached statement.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
