Schedule M-3 for 1065

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Subject Author Date Schedule M-3 for 1065 Mike20878 03-30-2007  Re: Schedule M-3 for 1065 Drew Edmundson 03-30-2007
Posted by Mike20878 on March 30, 2007, 4:35 am Please log in for more thread options I have a partnership that meets the new requirement to file schedule M-3 this year. We are running into a problem determining how we will track tax basis going forward if we are forced to convert partner capital to book basis to reconcile to the M-3. It's my understanding that schedule M-2 line 3 should equal the audited book income, whereas in the past we used a tax basis balance sheet and book income (simply taxable income less nondeductibles). Is it permissible to continue to do this for the M-2 and reconcile the difference to schedule L with a statement? The instructions for the M-2 say that a partnership "may, but is not required to, use the rules in Regulations section 1.704-1(b) (2)(iv) to determine the partners'' capital accounts... If the beginning and ending capital accounts reported under these rules differ from the amounts reported on Schedule L, attach a statement reconciling any differences." Does anyone have a summary of this regulation? I looked it up but I don't completely follow what it says. Put another way, do we have to report the audited balance sheet or can we continue to use a tax basis balance sheet and still reconcile audited income on the M-3? Is it permissible for M-2 line 3 net income to differ from M-3, Part I, Line 11? The reconciliation statement of schedule L partners' capital to M-2 should explain the difference. Is anyone encountering this and/or using RIA GoSystem Tax RS? Thanks. << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Posted by Drew Edmundson on March 30, 2007, 11:25 pm Please log in for more thread options > I have a partnership that meets the new requirement to file > schedule M-3 this year. We are running into a problem > determining how we will track tax basis going forward if we > are forced to convert partner capital to book basis to > reconcile to the M-3. It's my understanding that schedule > M-2 line 3 should equal the audited book income, whereas in > the past we used a tax basis balance sheet and book income > (simply taxable income less nondeductibles). Is it > permissible to continue to do this for the M-2 and reconcile > the difference to schedule L with a statement? The > instructions for the M-2 say that a partnership "may, but is > not required to, use the rules in Regulations section > 1.704-1(b) (2)(iv) to determine the partners'' capital > accounts... If the beginning and ending capital accounts > reported under these rules differ from the amounts reported > on Schedule L, attach a statement reconciling any > differences." Does anyone have a summary of this > regulation? I looked it up but I don't completely follow > what it says. > > Put another way, do we have to report the audited balance > sheet or can we continue to use a tax basis balance sheet > and still reconcile audited income on the M-3? Is it > permissible for M-2 line 3 net income to differ from M-3, > Part I, Line 11? The reconciliation statement of schedule L > partners' capital to M-2 should explain the difference. Wow, your partners' capital accounts match their basis? I don't have any partnerships where that is the case. I track the tax basis separately. The same way you do for clients' who own partnership interest where you don't prepare the partnership's return. -- Drew Edmundson, CPA Cary, NC << ======================================================= >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2006) - All rights reserved. >> << ======================================================= >> Similar Threads Posted where did the distributions from line 19 of 1065 Schedule K1 go? April 7, 2009, 4:49 pm Form 1065 February 13, 2007, 1:30 am Amended 1065 return April 5, 2007, 1:49 am How to sign Form 1065 April 5, 2007, 1:49 am Cost Basis of PTP's on K-1/1065 April 19, 2008, 4:26 pm Re: Form 1065 foreign partnership January 25, 2009, 10:54 am Individual 401(k) in LLC - how to book and report on 1065? March 26, 2009, 10:20 am Where do I report dividends paid on Form 5471 Schedule C or Schedule F March 12, 2008, 9:23 am Entry of Capital Gain and Depreciation Recapture on Form 1065 January 2, 2007, 4:07 am Schedule C or Form 4137 + Schedule U ? March 30, 2007, 4:35 am