Schedule C - Additional Information for Schedule M-3 Filers

Memo of Major Changes for Instructions for Schedule C (Form 1065), Additional
Information for Schedule M-3 Filers

These are new instructions, so there are no major changes to report.

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Instructions for Schedule C (Form 1065)

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2008

Department of the Treasury
Internal Revenue Service

Instructions for Schedule C
(Form 1065)
Additional Information for Schedule M-3 Filers
Section references are to the Internal
Revenue Code unless otherwise noted.

Schedule C. Additional
Information for Schedule
M-3 Filers
General Instructions
Section references are to the Internal
Revenue Code unless otherwise noted.

Purpose of Form
Use Schedule C (Form 1065) to provide
answers to additional questions for filers
of Schedule M-3 (Form 1065), Net
Income (Loss) Reconciliation for Certain
Partnerships.

Who Must File
Schedule C (Form 1065) must be filed by
all partnerships that file Form 1065, U.S.
Return of Partnership Income, and that
are required to file Schedule M-3 (Form
1065). Attach Schedule C (Form 1065) to
Form 1065.

Specific Instructions
Question 1. For certain transfers that
are presumed to be sales, the partnership
and the partners must comply with the
disclosure requirements in Regs. section
1.707-8. Generally, disclosure is required
when:

1. Certain transfers to a partner are
made within two years of a transfer of
property by the partner to the partnership;
2. Debt is incurred within two years of
the earlier of:
• A written agreement to transfer or
• A transfer of the property that
secures the debt, if the debt,
nevertheless, is treated as a qualified
liability; or
3. Transactions occur which are the
equivalent to those listed in 1 or 2 above.
The disclosure must be made on the
transferor partner’s return using Form
8275, or on an attached statement
providing the same information. When
more than one partner transfers property
to a partnership pursuant to a plan, the
disclosure may be made by the
partnership rather than by each partner.
Question 2. Answer “Yes” if this
partnership is a partner in another
partnership and has received special
allocations of income, gain, loss,
deduction, or credit from such
partnership.
Example. P, a partnership, joins with
B, an individual, in forming the PB
partnership. P and B each contribute
$50,000 cash to PB partnership. Profits
and losses are split 50/50, with the
exception of depreciation, which is

Cat. No. 51534B

allocated 99% to P and 1% to B. P
answers “Yes” to question 2 because its
99% allocation of depreciation deductions
from PB partnership is disproportionate to
its ratio of sharing other items from PB
partnership.
Question 5. The term “change in
accounting principle” means a change
from one generally accepted accounting
principle to another generally accepted
accounting principle as described in
“Statement of Financial Accounting
Standards No. 154 – Accounting Changes
and Error Corrections.”
For purposes of this question, answer
“Yes” if such a change in accounting
principle occurred during the tax year and
such change resulted in, or is expected to
result in, an effect on the amount of
income reported for financial statement
purposes.
If the partnership has audited

TIP financial statements, any material
changes in accounting principle
should be identified in footnotes to those
statements.
Question 6. File Form 3115, Application
for Change in Accounting Method, to
request a change in a method of
accounting. See the Instructions for Form
3115 for information on requesting a
change in accounting method.