Schedule C - Additional Information for Schedule M-3 Filers

2010

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.

General Instructions
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 are also filing 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 or the partners must comply
with the disclosure requirements in Regulations 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. Certain debt is incurred by a partner 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. Transfers from a partnership to a partner 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, Disclosure Statement,
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. For more information on special
allocations, see Special Allocations, in the Instructions for
Form 1065.
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
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.
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.

Cat. No. 51534B