Instructions for Schedule M-3 (Form 1065) (Rev. December …

1 2018 Department of the Treasury Internal Revenue Service Instructions for Schedule M-3 (Form 1065). Net Income (Loss) Reconciliation for Certain Partnerships Section references are to the Internal Revenue Code unless otherwise noted. Who Must File (Form 1065). If the filer chooses to complete Schedule M-1 instead of Any entity that files Form 1065 must file completing Parts II and III of Schedule M-3. Future Developments Schedule M-3 (Form 1065) if any of the following is true. (Form 1065), line 1 of Schedule M-1 must For the latest information about equal line 11 of Part I of Schedule M-3. developments related to Schedule M-3 1. The amount of total assets at the (Form 1065). (Form 1065) and its Instructions , such as end of the tax year reported on legislation enacted after they were Schedule L, line 14, column (d), is equal to For any part of Schedule M-3 (Form published, go to $10 million or more. 1065) that is completed, all columns must be completed, all applicable questions 2.

2 The amount of adjusted total assets must be answered, all numerical data General Instructions for the tax year is equal to $10 million or more. See Total Assets and Adjusted requested must be provided, any statement required to support a line item Applicable Schedule and Instructions . Total Assets below. must be attached and provide the Use the 2018 Schedule M-3 (Form 1065) 3. The amount of total receipts for the information required for that line item. Any with these Instructions for tax years ending tax year is equal to $35 million or more. partnership required to file Schedule M-3. December 31, 2018, through December Total receipts is defined in the Instructions must check all boxes above Part I that 30, 2019. For previous tax years, see the for Codes for Principal Business Activity apply for the reason(s) for which the applicable Schedule M-3 (Form 1065) and and Principal Product or Service in the Schedule M-3 is required to be filed.

3 A. Instructions . (For example, use the 2017 Instructions for Form 1065. partnership not required to file Schedule M-3 (Form 1065) with the 2017 Schedule M-3, but that is doing so 4. An entity that is a reportable entity Instructions for tax years ending voluntarily, should check box E above Part partner with respect to the partnership (as December 31, 2017, through December I. defined under these Instructions ) owns or 30, 2018.). is deemed to own, directly or indirectly, an interest of 50% or more in the Total Assets and Adjusted Purpose of Schedule partnership's capital, profit, or loss on any Total Assets day during the tax year of the partnership. The partnership should figure its adjusted Schedule M-3, Part I, asks certain total assets using the Adjusted Total A common trust fund or foreign questions about the partnership's financial Assets Worksheet, later. partnership must file Schedule M-3 if it statements and reconciles financial meets any of the tests discussed above.

4 For purposes of determining for statement net income (loss) for the consolidated financial statement group to Schedule M-3 whether the partnership's Note. All references to a partnership adjusted total assets (under these income (loss) per the income statement in these Instructions refer to any entity for the partnership. Instructions ) equal $10 million or more, the required to file Schedule M-3 (Form 1065), partnership's total assets at the end of the Schedule M-3, Parts II and III, reconcile where appropriate. tax year must be determined on an overall financial statement net income (loss) for Partnerships not required to file accrual method of accounting unless both the partnership (per Schedule M-3, Part I, Schedule M-3 may voluntarily file of the following apply: (a) the tax return of line 11) to line 1 of the Analysis of Net Schedule M-3. the partnership is prepared using an Income (Loss) found on Form 1065. overall cash method of accounting, and Completing Schedule M-3 (b) the partnership doesn't prepare Where To File (Form 1065) financial statements using, and isn't If the partnership is required to file (or included in financial statements prepared Form 1065 filers that are required to file voluntarily files) Schedule M-3 (Form on, an accrual basis.)

5 Schedule M-3 (Form 1065) and have at 1065), the partnership must file Form least $50 million total assets at the end of See the Instructions for Schedule M-3, 1065 and all attachments and schedules, the tax year must complete Schedule M-3 Part I, line 1, regarding non-tax-basis including Schedule M-3 (Form 1065), at (Form 1065) entirely. income statements and related the following address. non-tax-basis balance sheets to be used Form 1065 filers that (a) are required to in the preparation of Schedule M-3 and Department of the Treasury file Schedule M-3 (Form 1065) and have the related non-tax-basis balance sheets less than $50 million total assets at the to be used in the preparation of Internal Revenue Service Center end of the tax year or (b) aren't required to Schedule L. file Schedule M-3 (Form 1065) and Ogden, UT 84201-0011 voluntarily file Schedule M-3 (Form 1065) In the case of a partnership year ending must either (i) complete Schedule M-3 because of a section 708 termination, the (Form 1065) entirely or (ii) complete total assets of the partnership at the end of Schedule M-3 (Form 1065) through Part I the year for determining the requirement and complete Schedule M-1 instead of to file Schedule M-3 are determined completing Parts II and III of Schedule M-3 immediately before the section 708.

6 Nov 16, 2018 Cat. No. 38800Y. termination and any actual or deemed determine adjusted total assets for 2018), 31, 2018. T has total assets at the end of contribution or distribution of the an amount that isn't less than the total the tax year reported on Schedule L, partnership assets under the provisions of liabilities at the end of 2018 reported to R's line 14, column (d), of $ million. The section 708. partners on Schedules K-1. Because R amount of total liabilities at the end of has adjusted total assets of $10 million or 2018 reported to T's partners on more for its tax year ending December 31, Schedules K-1 is $5 million. T made no Example 1. 2018, R must file Schedule M-3 for 2018 distributions during 2018 reflected on and either (i) complete Schedule M-3 Schedule M-2, line 6. T didn't report a loss 1. partnership A, a limited liability entirely, or (ii) complete Schedule M-3 for 2018 on Schedule M-2, line 3. T didn't company (LLC), owns 60% of the income through Part I and complete Schedule M-1 report adjustments to capital on and capital of partnership B, also an instead of completing Parts II and III of Schedule M-2, line 7, but did report a LLC.

7 For its tax year ending December 31, Schedule M-3. negative adjustment of ($3 million) on 2018, A prepares non-tax-basis GAAP Schedule M-2, line 4. T has adjusted total (generally accepted accounting principles) 4. Same facts as in Example except that the amount of total liabilities at assets for 2018 in the tentative amount of consolidated financial statements with B $ million, the sum of $ million plus that report total assets at the end of the the end of 2018 reported to R's partners on Schedules K-1 is $11 million. R made $3 million (the amount of the negative year of $12 million. A files Form 1065 and adjustment stated as a positive amount reports on its non-tax-basis distributions of $ million during 2018 as reflected on Schedule M-2, line 6. R has that must be added back to determine unconsolidated GAAP Schedule L total adjusted total assets for 2018), an amount assets at the end of the year of $7 million. adjusted total assets for 2018 equal to $11.

8 Million, the greater of the tentative amount that isn't less than the total liabilities at the The $7 million total includes $3 million for end of 2018 reported to T's partners on its investment in B under the equity of $9 million, the sum of $ million plus $ million (the amount of distributions Schedules K-1. Because T has adjusted method of accounting. The amount of total total assets of $10 million or more for its liabilities at the end of the year reported to that must be added back to determine adjusted total assets for 2018), or $11 tax year ending December 31, 2018, T. A's partners on Schedules K-1 is $5 must file Schedule M-3 for 2018 and either million. A made distributions of $1 million million (the amount of the total liabilities at the end of 2018 reported to R's partners (i) complete Schedule M-3 entirely, or (ii). during the year reflected on complete Schedule M-3 through Part I and Schedule M-2, line 6. The amount of A's on Schedules K-1).

9 Because R has adjusted total assets of $10 million or complete Schedule M-1 instead of adjusted total assets is $8 million for the completing Parts II and III of tax year. A has total receipts for the tax more for its tax year ending December 31, 2018, R must file Schedule M-3 for 2018 Schedule M-3. year of $15 million. A has no reportable entity partners (as defined under and either (i) complete Schedule M-3 7. Z has $50 million in total assets at Reportable Entity Partner Reporting entirely, or (ii) complete Schedule M-3 the end of its 2018 tax year ending Responsibilities, later). A isn't required to through Part I and complete Schedule M-1 December 31, 2018, and files Form 1065. file Schedule M-3 under any of the four instead of completing Parts II and III of Z must file Schedule M-3 and complete it tests discussed earlier. A may voluntarily Schedule M-3. entirely. file Schedule M-3 for the tax year. If A 5. S, a partnership, files Form doesn't file Schedule M-3, it must 1065 for the tax year ending December Reportable Entity Partner complete Schedule M-1.

10 If A files 31, 2018. S has total assets at the end of Reporting Responsibilities Schedule M-3, it must either (i) complete 2018 reported on Schedule L, line 14, For the purposes of these Instructions , a Schedule M-3 entirely, or (ii) complete column (d), of $ million. The amount of reportable entity partner with respect to a Schedule M-3 through Part I and complete total liabilities at the end of 2018 reported partnership filing Form 1065 is an entity Schedule M-1 instead of completing Parts to S's partners on Schedules K-1 is $5. that: II and III of Schedule M-3. million. S made no distributions during 2018 reflected on Schedule M-2, line 6. S. Owns or is deemed to own, directly or 2. Same facts as in Example indirectly, under these Instructions , a 50%. except that A has total receipts for 2018 of reported a loss of ($3 million) for 2018 on or greater interest in the income, loss, or $40 million. A must file Schedule M-3 for Schedule M-2, line 3.