Interpreting partnership reporting often involves navigating code references with limited context and little practical explanation. When precision is critical and time is limited, relying on assumptions can compromise the accuracy of your work.

A clear grasp of what each entry represents allows you to correctly apply items such as basis adjustments, credits and deductions that directly impact the return.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: Where is the partner’s basis shown on the Schedule K-1 (Form 1065)?

A: A partner’s outside basis is actually not shown as a total on the K-1 since it is comprised of capital contributions, yearly increases and decreases based on income and distributions, and liabilities assumed by the partner. Although the capital account is listed, and liabilities are listed separately, the total number is found, as best practice, on a basis schedule kept by the partner (or their tax preparer).

Q: What is the significance of recourse liability information reported on Schedule K-1 (Form 1065), Line K1?

A: Since liabilities assumed by a partner are treated as additions to outside basis, these boxes determine how much partnership debt a partner may include in that outside basis. Different types of partners may assume different types of debt. This, in turn, affects the ability to deduct losses, receive tax-free distributions and recognize gain or loss on disposition of the interest.

Q: Where is the foreign tax entered for claiming the foreign tax credit?

A: For informational purposes only, the foreign tax paid goes in Box 21 as a general number but the Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc. – International, breaks down the foreign taxed income by source, which is a prerequisite for claiming the foreign tax credit on an individual level. The Schedule K-3 information is used to complete Form 1116, Foreign Tax Credit (Individual, Estate, or Trust).

Q: What is the difference between a general partner and limited partner?

A: This issue is currently being clarified in the courts, as there is a basic understanding of a limited partner as an investor with no management duties. As such, their income is exempt from self-employment (SE) tax. Limited partners may be named “limited” by state practices, but if they engage in management and operations decisions on a daily basis, their Box 1 income will be subject to SE tax. Soroban Capital Partners, LP (2023), and Denham Capital Management, LP (T.C. Memo. 2024-114) are court cases to refer to. Their focus is a functional analysis of duties that actually sets true status.

To learn more about Schedule K-1 1065 instructions, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

For tax professionals who e-file client returns, the electronic filing identification number (EFIN) is a non-negotiable requirement for e-filing. Issued by the IRS, the EFIN authorizes individuals and firms to transmit electronic returns securely. Without one, you cannot legally e-file for clients.

Unfortunately, because of its importance, EFIN scams have become a serious problem. Cybercriminals target tax professionals by attempting to steal EFINs and use them to file fraudulent returns.

Why is an EFIN important?

An IRS EFIN is a unique identifier assigned to approved participants in the IRS e-file program. It allows the IRS to track electronically filed tax returns to the authorized provider.

Think of your EFIN as a digital license to operate in the e-file system. Every return you transmit is linked to your EFIN, making it a critical tool in verifying that returns come from trusted professionals. Without it, your firm is unable to electronically file tax returns for clients.

Who needs an EFIN?

The EFIN requirement applies to:

• Tax professionals and firms that prepare and file electronic returns on behalf of clients
• Organizations transmitting returns as part of a tax preparation service

Exceptions:

• Individual taxpayers filing their own returns using tax software or the IRS Free File program do not need an EFIN.
• Software developers and transmitters may use a different identifier, such as an electronic transmitter identification number (ETIN). But if you prepare and file returns directly for clients, you must have your own electronic filing identification number (EFIN).

How to apply for an EFIN

The IRS provides a clear process for obtaining your EFIN through its e-Services platform. Here’s an overview:

1. Create an IRS e-Services account

   Register online and verify your identity using personal and financial information.

2. Submit an e-File application

   Log into e-Services and complete the IRS e-file application. You must include details about your firm, business principals and responsible officials.

3. Pass IRS background and suitability checks

   The IRS conducts reviews for all principals and responsible officials, including fingerprinting and tax compliance checks.

4. Receive your EFIN

   Once approved, the IRS will assign your EFIN. The process usually takes up to 45 days, so apply before tax season.

Tip: To avoid delays, ensure all information provided is accurate and up to date.

Maintaining your EFIN

Having an EFIN is just the first step; keeping it active and compliant is equally essential.

• Update your application: If you change your business address, ownership or staff, update your e-file application promptly. The IRS sometimes inactivates EFINs if firms fail to update their application within 30 days of changes.
• Stay compliant: IRS rules require accurate return filing, safeguarding taxpayer information and following e-file procedures. Violations can lead to suspension or revocation of your EFIN.
• Check periodically: EFINs don’t expire annually like PTINs; the IRS conducts periodic suitability checks to ensure ongoing compliance. Keeping your information current ensures you remain in good standing.

How to prevent fraud and scams

Because EFINs are so valuable, they are a significant target for cybercriminals. Stolen EFINs are often used to commit tax refund fraud. Protecting your EFIN is a top priority.

1. Monitor EFIN activity

Regularly log into your IRS e-Services account and check your EFIN records. If the number of returns filed under your EFIN is higher than what you’ve submitted, it could signal fraudulent activity.

2. Protect your IRS e-Services login

• Use strong, unique passwords
• Enable multi-factor authentication (MFA)
• Limit access to authorized staff only

3. Strengthen cybersecurity

• Install and update antivirus and firewall protection
• Encrypt sensitive client data
• Apply security patches to all tax software and operating systems
• Restrict data access for employees to a need-to-know basis

4. Watch out for IRS phishing scams

Fraudsters often impersonate the IRS to trick tax pros into giving away login credentials. Remember:

• The IRS will never email or call you asking for your EFIN or password.
• Be wary of unsolicited links and attachments.
• Report suspicious activity to the IRS immediately.

5. Act quickly if your EFIN is compromised

If you believe your EFIN has been stolen:

• Contact the IRS e-Help Desk right away.
• Notify your local IRS stakeholder liaison.
• Review and strengthen your firm’s security policies to prevent further breaches.

Your IRS EFIN is more than just a number; it’s your professional key to e-filing client tax returns. Without it, you cannot participate in the IRS e-file program. Because of its importance, however, scammers are always looking for ways to steal or misuse it. Staying proactive helps you meet IRS compliance requirements and safeguards your reputation as a trusted tax professional.

Identity theft in the tax world can feel like a nightmare. Imagine filing your return only to learn someone else has already used your Social Security number. That’s where the IRS identity protection PIN, better known as the IP PIN, comes in. This simple six-digit code is one of the best defenses against tax-related identity theft, and it’s available to any taxpayer who wants an extra layer of security.

If you haven’t considered getting one before, here’s what you need to know, how to apply and the best ways to keep it safe.

What is an IP PIN?

An IP PIN is a six-digit number that’s known only to you and the IRS. It’s used when you file your federal tax return to prove you’re the legitimate taxpayer connected to that Social Security number. Even if someone else has your personal information, they can’t successfully e-file a tax return using your SSN without the correct IP PIN.

Who can get an IP PIN?

When the program first began, IP PINs were available only to confirmed victims of identity theft. Now, the IRS has expanded it to any taxpayer who can verify their identity, whether or not they’ve had a problem in the past.

Why you might want one:

• You’ve had a past incident of identity theft.
• You’ve been part of a data breach.
• You just want peace of mind when filing.

Victims of confirmed identity theft will automatically receive an IP PIN each year from the IRS without reapplying.

Key facts about IP PINs

Before you decide to get one, it’s worth understanding how the program works:

• Valid for one calendar year: A new IP PIN is generated each year, and you’ll need to retrieve (online or by mail) your updated code annually.
• Voluntary but encouraged: You’re not required to have an IP PIN unless you’re a confirmed victim of identity theft, but the IRS strongly recommends it for anyone who wants extra protection.
• Known only to you and the IRS: This is what makes it effective; it’s not publicly available anywhere. Even with stolen SSN data, fraudsters cannot e-file without the correct IP PIN.
• Must be able to verify your identity: The IRS will ask you to confirm your personal details before issuing an IP PIN.
• Beware of scams: The IRS will never call, email or text you to ask for your IP PIN. Requests like that are a red flag.

How to get an IP PIN

Here’s the process; one important thing to note, tax professionals cannot request an IP PIN on behalf of their clients. Each taxpayer must apply for themselves.

1. Use the IRS online tool

The fastest way is through the Get an IP PIN page on IRS.gov. You’ll log in with your IRS account or create one if you don’t already have access. The system will guide you through identity verification, then issue your IP PIN immediately.

2. For those who can’t verify online

If you can’t pass the online identity check, you can still apply by filing Form 15227, Application for an Identity Protection Personal Identification Number (IP PIN), but only if your income is $84,000 or less for individuals ($168,000 or less for married couples filing jointly). The IRS will call you to verify your identity and then mail your IP PIN.

3. In-person verification

Another option is to make an appointment at an IRS Taxpayer Assistance Center. Bring two forms of identification, and once verified, you’ll receive your IP PIN by mail.

Best practices for using your IP PIN

Once you have your IP PIN, it’s your responsibility to keep it secure.

• Share it only with the IRS or your trusted tax preparer. Don’t give it to anyone else: not friends, family or anyone claiming to be from the IRS who contacts you unexpectedly.
• Store it safely. Keep it with your tax documents or in a secure digital vault.
• Use a new one every year. An IP PIN is valid only for the calendar year in which it’s issued. You’ll need the current one for your return to be accepted.
• Be cautious about scams. If you get an unexpected call, email or text asking for your IP PIN, it’s not the IRS; it’s a scammer.

Common questions about IP PINs

Do I need an IP PIN to file?

No. Unless you’re a confirmed victim of tax-related identity theft, it’s optional. But having one greatly reduces your risk of someone else filing a fraudulent tax return using your information.

What happens if I lose it?

You can retrieve it using the IRS Get an IP PIN tool after reverifying your identity.

Will it delay my refund?

No. If anything, it helps prevent delays caused by fraudulent filings. However, using an incorrect IP PIN can cause your return to reject.

Can my spouse and dependents get one?

Yes, if they can verify their identity through the IRS process.

Why tax pros should encourage clients to consider IP PINs

Even though tax professionals can’t obtain IP PINs for clients, they can and should educate clients on the benefits. The IP PIN program is one of the simplest, most effective ways to stop tax-related identity theft before it happens. For clients who’ve been through the stress of identity theft, it’s a game changer.

Consider:

• Providing a one-page IP PIN fact sheet in your office or client portal
• Sending reminder emails each January to retrieve the new IP PIN
• Walking clients through the IRS’s Get an IP PIN webpage during a consultation

The bottom line

The IRS Identity Protection PIN is a free, easy-to-use tool that offers powerful protection against tax identity theft. It’s not just for victims; it’s available to anyone who can verify their identity, and it renews each year.

For taxpayers, it’s an extra layer of security. For tax professionals, it’s another way to add value to your practice and build trust with clients.

If you haven’t yet explored the program, visit the IRS Get an IP PIN page, verify your identity and start the year knowing your tax return is safer from fraud.