The IRS does not consider a partnership a taxable entity. Income from a partnership is dispersed to the partners based on each partner's distributive share. Your distributive share, generally based on the partnership agreement, is considered taxable. As a result, you must report your distributive share of income on your 2006 tax return, regardless of if it's distributed to you. Each partnership of which you're a member should send you a copy of Schedule K-1 from Form 1065 (10-65), showing your share of income, deductions, and credits of the partnership for the tax year. Report your share of income on Schedule E of Form 1040 (10-40). Treat all other partnership items on your individual return the same way they're reported on the partnership return. For example, if the partnership had a capital gain, you report your share on Schedule D of Form 1040 (10-40). Generally, Schedule K-1 indicates where to report each item of income on your individual return. Be sure to retain Schedule K-1 for your records and don't attach it to your 1040 (10-40) form. Also, keep in mind that your distributive share of any partnership losses is limited to the adjusted basis of your partnership interest at the end of the year in which the losses took place. For more information on reporting income from partnerships, consult a tax advisor or call the toll-free number for Federal Tax Information and Assistance at 1-800-829-1040.
