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                                                                                         Department of the Treasury
Instructions for Schedule C                                                              Internal Revenue Service

(Form 1065)
(Rev. December 2014)
Additional Information for Schedule M-3 Filers

Section references are to the Internal Revenue Code           2. Certain debt is incurred by a partner within two 
unless otherwise noted.                                       years of the earlier of:
                                                              A written agreement to transfer or
General Instructions                                          A transfer of the property that secures the debt, if the 
                                                              debt, nevertheless, is treated as a qualified liability; or
Future Developments
                                                              3. Transfers from a partnership to a partner occur 
For the latest information about developments related to      which are the equivalent to those listed in 1 or 2 above.
Schedule C (Form 1065) and its instructions, such as 
legislation enacted after they were published, go to          The disclosure must be made on the transferor 
www.irs.gov/form1065.                                         partner's return using Form 8275, Disclosure Statement, 
                                                              or on an attached statement providing the same 
What's New                                                    information. When more than one partner transfers 
Some filers of Form 1065, U.S. Return of Partnership          property to a partnership under a plan, the disclosure may 
Income, that file Schedule M-3 (Form 1065), Net Income        be made by the partnership rather than by each partner.
(Loss) Reconciliation for Certain Partnerships, with tax      Question 2.  Answer “Yes” if this partnership is a partner 
years ending on December 31, 2014 or later are not            in another partnership and has received special 
required to file Schedule C (Form 1065). See Who Must         allocations of income, gain, loss, deduction, or credit from 
File, later.                                                  that partnership. For more information on special 
                                                              allocations, see Special Allocations, in the Instructions for 
Purpose of Form
                                                              Form 1065.
Use Schedule C (Form 1065) to provide answers to 
additional questions for some filers of Schedule M-3          Example.     P, a partnership, joins with B, an individual, 
(Form 1065), Net Income (Loss) Reconciliation for Certain     in forming the PB partnership. P and B each contribute 
Partnerships.                                                 $50,000 cash to PB partnership. Profits and losses are 
                                                              split 50/50, with the exception of depreciation, which is 
Who Must File                                                 allocated 99% to P and 1% to B. P answers “Yes” to 
Generally, filers of Form 1065, U.S. Return of Partnership    question 2 because its 99% allocation of depreciation 
Income, that file Schedule M-3 (Form 1065), Net Income        deductions from PB partnership is disproportionate to its 
(Loss) Reconciliation for Certain Partnerships, must          ratio of sharing other items from PB partnership.
complete and file Schedule C (Form 1065) and attach it to     Question 5. The term “change in accounting principle” 
their return. However, for tax years ending on December       means a change from one generally accepted accounting 
31, 2014 or later, partnerships that (a) are required to file principle to another generally accepted accounting 
Schedule M-3 and have less than $50 million in total          principle as described in “Statement of Financial 
assets at the end of the tax year or (b) are not required to  Accounting Standards No. 154–Accounting Changes and 
file Schedule M-3 and voluntarily file Schedule M-3, are      Error Corrections.”
not required to file Schedule C (Form 1065). For more         For purposes of this question, answer “Yes” if such a 
information, visit IRS.gov and enter “Schedule M-3 for        change in accounting principle occurred during the tax 
Large Business International (LBI)” in the Search box.        year and such change resulted in, or is expected to result 
Also see the Instructions for Schedule M-3 (Form 1065)        in, an effect on the amount of income reported for financial 
for more information.                                         statement purposes.
Specific Instructions                                         Question 6.  File Form 3115, Application for Change in 
                                                              Accounting Method, to request a change in a method of 
Question 1.   For certain transfers that are presumed to 
                                                              accounting. See the Instructions for Form 3115 for 
be sales, the partnership or the partners must comply with 
                                                              information on requesting a change in accounting method.
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;

Apr 01, 2014                                          Cat. No. 51534B