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Page 1 of 1      Instructions for Schedule C (Form 1065)                                       10:24 -  4-NOV-2011

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                                                                                               Department of the Treasury
Instructions for Schedule C                                                                    Internal Revenue Service

(Form 1065)

(Rev. December 2011)
Additional Information for Schedule M-3 Filers

Section references are to the Internal Revenue Code unless      The disclosure must be made on the transferor
otherwise noted.                                                partner’s return using Form 8275, Disclosure Statement,
                                                                or on an attached statement providing the same
General Instructions                                            information. When more than one partner transfers
                                                                property to a partnership pursuant to a plan, the
What’s New                                                      disclosure may be made by the partnership rather than
The IRS has created a page on IRS.gov for information           by each partner.
about Schedule C (Form 1065) and its instructions, at           Question 2. Answer “Yes” if this partnership is a partner
www.irs.gov/form1065. Information about any future              in another partnership and has received special
developments affecting Schedule C (Form 1065) (such             allocations of income, gain, loss, deduction, or credit from
as legislation enacted after we release it) will be posted      such partnership. For more information on special
on that page.                                                   allocations, see Special Allocations, in the Instructions for
Purpose of Form                                                 Form 1065.
                                                                Example.    P, a partnership, joins with B, an individual,
Use Schedule C (Form 1065) to provide answers to
                                                                in forming the PB partnership. P and B each contribute
additional questions for filers of Schedule M-3 (Form
                                                                $50,000 cash to PB partnership. Profits and losses are
1065), Net Income (Loss) Reconciliation for Certain
                                                                split 50/50, with the exception of depreciation, which is
Partnerships.
                                                                allocated 99% to P and 1% to B. P answers “Yes” to
Who Must File                                                   question 2 because its 99% allocation of depreciation
Schedule C (Form 1065) must be filed by all partnerships        deductions from PB partnership is disproportionate to its
that file Form 1065, U.S. Return of Partnership Income,         ratio of sharing other items from PB partnership.
and are also filing Schedule M-3 (Form 1065). Attach            Question 5. The term “change in accounting principle”
Schedule C (Form 1065) to Form 1065.                            means a change from one generally accepted accounting
                                                                principle to another generally accepted accounting
Specific Instructions                                           principle as described in “Statement of Financial
Question 1.   For certain transfers that are presumed to        Accounting Standards No. 154–Accounting Changes
be sales, the partnership or the partners must comply           and Error Corrections.”
with the disclosure requirements in Regulations section         For purposes of this question, answer “Yes” if such a
1.707-8. Generally, disclosure is required when:                change in accounting principle occurred during the tax
1. Certain transfers to a partner are made within two           year and such change resulted in, or is expected to result
years of a transfer of property by the partner to the           in, an effect on the amount of income reported for
partnership;                                                    financial statement purposes.
2. Certain debt is incurred by a partner within two             Question 6. File Form 3115, Application for Change in
years of the earlier of:                                        Accounting Method, to request a change in a method of
• A written agreement to transfer or                            accounting. See the Instructions for Form 3115 for
• A transfer of the property that secures the debt, if          information on requesting a change in accounting
the debt, nevertheless, is treated as a qualified liability; or method.
3. Transfers from a partnership to a partner occur
which are the equivalent to those listed in 1 or 2 above.

Nov 04, 2011                                          Cat. No. 51534B