Part I must be completed for any tax year for which the partnership files Schedule M-3.

For lines 1 through 11, use only the financial statements of the U.S. partnership filing the Form 1065. If the U.S. partnership filing the Form 1065 is controlled by another entity, the U.S. partnership must not use the financial statements of the controlling entity for its Schedule M-3, Part I.

If no financial statements are prepared for the U.S. partnership filing Schedule M-3, the U.S. partnership must check the “No” box on questions 1a, 1b, and 1c, skip lines 2 through 3b, and enter the net income (loss) per the books and records of the U.S. partnership on line 4.

If a partnership filing a Schedule M-3 (a) is included in the consolidated financial statements of a group (consolidated financial statement group) with an entity parent filing a U.S tax return and Schedule M-3, (b) has its income (loss) included and removed by the entity parent on that entity parent's Schedule M-3, Part I, and (c) does not have a separate financial statement (certified or otherwise) of its own, the partnership must answer questions 1a, 1b, and 1c as appropriate for its own tax return and must report on its own Schedule M-3, as appropriate, the amount for the partnership's net income (loss) that is equal to the amount included and removed in the entity parent's Schedule M-3, Part I. However, if in the circumstances described immediately above, the partnership does have separate financial statements (certified or otherwise) of its own, independent of the amount of the partnership's net income included in the consolidated financial statements with the entity parent, the partnership must answer questions 1a, 1b, and 1c, as appropriate, for its own tax return, based on its own separate income statement, and must report on line 4, the net income amounts shown on its separate income statement.

The questions on lines 3a and 3b, regarding income statement restatements, refer to the worldwide consolidated income statement issued by the partnership filing Form 1065. Answer “Yes” on lines 3a and/or 3b if the partnership's annual income statement has been restated for any reason. Attach a short explanation of the reasons for the restatement in net income for each annual income statement period that is restated, including the original amount and restated amount of each annual statement period's net income. The attached schedule is not required to report restatements on an entity-by-entity basis.

Report on Part I, line 4, the worldwide consolidated net income (loss) per the income statement (or books and records, if applicable) of the partnership.

In completing Schedule M-3, the partnership must use financial statement amounts from the financial statement type checked “Yes” on line 1 or from its books and records if line 1c is checked “No.” If line 1a is checked “Yes,” report on line 4 the net income amount reported in the income statement presented to the SEC on the partnership's Form 10-K.

If a partnership prepares financial statements, the amount on line 4 must equal the financial statement net income (loss) for the income statement period ending with or within the tax year as indicated on line 2.

If the partnership prepares financial statements and the income statement period differs from the partnership's tax year, the income statement period indicated on line 2 applies for purposes of lines 4 through 8.

If the partnership does not prepare financial statements, check “No” on line 1c and enter the net income (loss) per the books and records of the partnership on line 4.

Report on lines 5a through 10, as instructed below, all adjustment amounts required to adjust worldwide net income (loss) reported on line 4 (whether from financial statements or books and records) to net income (loss) of the partnership that must be reported on line 11.

Remove the financial statement net income (line 5a) or loss (line 5b) of each foreign entity that is included in the consolidated financial statement group but is not the partnership (nonincludible foreign entity). In addition, on line 8, adjust for consolidation eliminations and correct for minority interest and intercompany dividends between any nonincludible foreign entity and the partnership filing Form 1065. Do not remove in Part I the financial statement net income (loss) of any nonincludible foreign entity accounted for in the financial statements on the equity method.

Attach a supporting schedule that provides the name, EIN (if applicable), and net income (loss) per the financial statement or books and records included on line 4 that is removed on this line 5 for each separate nonincludible foreign entity. The amounts of income (loss) detailed on the supporting schedule should be reported for each separate nonincludible foreign entity without regard to the effect of consolidation or elimination entries. If there are consolidation or elimination entries relating to nonincludible foreign entities whose income (loss) is reported on the attached schedule that are not reportable on line 8, the net amounts of all such consolidation and elimination entries must be reported on a separate line on the attached schedule, so that the separate financial accounting income (loss) of each nonincludible foreign entity remains separately stated. For example, if the net income (after consolidation and elimination entries) of a nonincludible foreign sub-consolidated group is being reported on line 5a, the attached supporting schedule should report the income (loss) of each separate nonincludible foreign legal entity from each such entity's own financial accounting net income statement or books and records, and any consolidation or elimination entries (for intercompany dividends, minority interests, etc.) not reportable on line 8 should be reported on the attached supporting schedule as a net amount on a line separate and apart from lines that report each nonincludible foreign entity's separate net income (loss).

Remove the financial statement net income (line 6a) or loss (line 6b) of each U.S. entity that is included in the consolidated financial statement group but is not an includible entity in the partnership return (nonincludible U.S. entity). In addition, on line 8, adjust for consolidation eliminations and correct for minority interest and intercompany dividends between any nonincludible U.S. entity and any includible entity. Do not remove in Part I the financial statement net income (loss) of any nonincludible U.S. entity accounted for in the financial statements on the equity method.

Attach a supporting schedule that provides the name, EIN (if applicable), and net income (loss) per the financial statement or books and records included on line 4 that is removed on line 6 for each separate nonincludible U.S. entity. The amounts of income (loss) detailed on the supporting schedule should be reported for each separate nonincludible U.S. entity without regard to the effect of consolidation or elimination entries. If there are consolidation or elimination entries relating to nonincludible U.S. entities whose income (loss) is reported on the attached schedule that are not reportable on line 8, the net amounts of all such consolidation and elimination entries must be reported on a separate line on the attached schedule, so that the separate financial accounting income (loss) of each nonincludible U.S. entity remains separately stated. For example, if the net income (after consolidation and elimination entries) of a nonincludible U.S. sub-consolidated group is being reported on line 6a, the attached supporting schedule should report the income (loss) of each separate nonincludible U.S. legal entity from each such entity's own financial accounting net income statement or books and records, and any consolidation or elimination entries (for intercompany dividends, minority interests, etc.) not reportable on line 8 should be reported on the attached supporting schedule as a net amount on a line separate and apart from lines that report each nonincludible U.S. entity's separate net income (loss).

Include the financial statement net income (line 7a) or loss (line 7b) of each includible entity in the U.S. tax return that is not included in the consolidated financial statement group and therefore not included in the income reported on line 4. Also include on line 7 the financial statement income of any disregarded entity that is not included in the income reported on line 4 , but is included on line 11 (other includible entities). In addition, on line 8, adjust for consolidation eliminations and correct for minority interest and intercompany dividends for any other includible entity.

Attach a supporting schedule that provides the name, EIN, and net income (loss) per the financial statement or books and records included on line 7 for each separate other includible entity. The amounts of income (loss) detailed on the supporting schedule should be reported for each separate other includible entity without regard to the effect of consolidation or elimination entries solely between or among the entities listed. If there are consolidation or elimination entries relating to such other includible entities whose income (loss) is reported on the attached schedule that are not reportable on line 8, the net amounts of all such consolidation and elimination entries must be reported on a separate line on the attached schedule, so that the separate financial accounting income (loss) of each other includible entity remains separately stated. For example, if the net income (after consolidation and elimination entries) of a sub-consolidated U.S. group of other includible entities is being reported on line 7a, the attached supporting schedule should report the income (loss) of each separate other includible entity from each entity's own financial accounting net income statement or books and records, and any consolidation or elimination entries (for intercompany dividends, minority interests, etc.) not reportable on line 8 should be reported on the attached supporting schedule as a net amount on a line separate and apart from lines that report each other includible entity's separate net income (loss).

Adjustments on line 8 to reverse certain financial accounting consolidation or elimination entries are necessary to ensure that transactions between includible entities and nonincludible U.S. or foreign entities are not eliminated, in order to report the correct total amount on line 11. Also, additional consolidation entries and eliminations entries may be necessary on line 8 related to transactions between includible entities that are in the consolidated financial statement group and other includible entities that are not in the consolidated financial statement group but that are reported on line 7 in order to report the correct total amount on line 11.

Include on line 8 the total of the following: (i) amounts of any adjustments to consolidation entries and elimination entries that are contained in the amount reported on line 4, required as a result of removing amounts on line 5 or 6; and (ii) amounts of any additional consolidation entries and elimination entries that are required as a result of including amounts on line 7. This is necessary in order that the consolidation entries and intercompany eliminations entries included in the amount reported on line 11 are only those applicable to the financial net income (loss) of includible entities for the financial statement period. For example, adjustments must be reported on line 8 to remove minority interest and to reverse the elimination of intercompany dividends included on line 4 that relate to the net income of entities removed on line 5 or 6 because the income to which the consolidation or elimination entries relate has been removed. Also, for example, consolidation or elimination entries must be reported on line 8 to eliminate any intercompany dividends between entities whose income is included on line 7 and other entities included in the U.S. federal income tax return.

If an entity owner of an interest in another entity: (1) accounts for the interest in the other entity in the owner's separate general ledger on the equity method, and (2) fully consolidates the other entity in the owner's consolidated financial statements, but that entity is not includible in the owner's Form 1065, then, as part of reversing all consolidation and elimination entries for the nonincludible entity, the owner must reverse on line 8 the elimination of the equity income inclusion from the other entity. If the owner does not account for the other entity on the equity method on its own general ledger, it will not have eliminated the equity income for consolidated financial statement purposes, and therefore will have no elimination of equity income to reverse.

The attached supporting schedule for line 8 must identify the type (e.g., minority interest, intercompany dividends, etc.) and amount of consolidation or elimination entries reported, as well as the names of the entities to which they pertain. It is not necessary, but it is permitted, to report intercompany eliminations that net to zero on line 8, such as intercompany interest income and expense.

Include on line 9 any adjustments necessary to the income (loss) of the partnership to reconcile differences between the partnership's income statement period reported on line 2 and the partnership's tax year. Attach a schedule describing the adjustment.

Include on line 10 any other adjustments to reconcile net income (loss) on line 4, with net income (loss) of the partnership reported on line 11.

For any adjustment reported on line 10, attach a supporting schedule with an explanation of each net adjustment included on line 10.

Report on line 11 the net income (loss) per the income statement (or books and records, if applicable) of the partnership. Amounts reported in column (a) of Parts II and III (see page 6) must be reported on the same accounting method as is used to report the amount of net income (loss) per income statement of the partnership on Part I, line 11.

Do not, in any event, report on line 11 the net income of entities other than the partnership filing Form 1065 for the tax year. For example, it is not permissible to remove the income of nonincludible entities on lines 5 and/or 6, above, then to add back such income on lines 7 through 10, such that the amount reported at line 11 includes the net income of entities not includible in the U.S. federal income tax return. A principal purpose of Schedule M-3 is to report on line 11 only the financial accounting net income of only the partnership (including any other includible entities) filing the U.S. Return of Partnership Income.

Whether or not the partnership prepares financial statements, Line 11 must include all items that impact the net income (loss) of the partnership even if they are not recorded in the profit and loss accounts in the partnership's general ledger, including, for example, all post-closing adjusting entries (including workpaper adjustments) and dividend income or other income received from nonincludible entities.

For each line item in Parts II and III, report in column (a) the amount of net income (loss) included in Part I, line 11, and report in column (d) the amount included in taxable income on Form 1065, page 4, Analysis of Net Income (Loss), line 1.

A partnership is not required to complete columns (a) and (d) of Parts II and III for the first tax year the partnership is required to file Schedule M-3, and for all subsequent years the partnership is required to file Schedule M-3, the partnership must complete Schedule M-3 in its entirety. Accordingly, the partnership must complete columns (a) through (d) of Parts II and III for all tax years subsequent to the first tax year the partnership is required to file Schedule M-3.

If, for any tax year (or tax years) prior to the first tax year a partnership is required to file Schedule M-3, a partnership voluntarily files Schedule M-3 in lieu of Schedule M-1, then in those voluntary filing years the partnership is not required to complete columns (a) and (d) of Parts II and III. In addition, in the first tax year the partnership is required to file Schedule M-3 the partnership is not required to complete columns (a) and (d) of Parts II and III.

If a partnership chooses not to complete columns (a) and (d) of Parts II and III in the first tax year the partnership is required to file Schedule M-3 (or in any year in which the partnership voluntarily files Schedule M-3), then Part II, line 26, is reconciled by the partnership in the following manner:

Columns (b) and (c) of Parts II and III must be completed for any tax year for which the partnership files Schedule M-3.

For any item of income, gain, loss, expense, or deduction for which there is a difference between columns (a) and (d), the portion of the difference that is temporary must be entered in column (b) and the portion of the difference that is permanent must be entered in column (c).

If financial statements are prepared by the partnership in accordance with generally accepted accounting principles (GAAP), differences that are treated as temporary for GAAP must be reported in column (b) and differences that are permanent (that is, not temporary for GAAP) must be reported in column (c). Generally, pursuant to GAAP, a temporary difference affects (creates, increases, or decreases) a deferred tax asset or liability.

If the partnership does not prepare financial statements, or the financial statements are not prepared in accordance with GAAP, report in column (b) any difference that the partnership believes will reverse in a future tax year (that is, have an opposite effect on taxable income in a future tax year (or years) due to the difference in timing of recognition for financial accounting and U.S. federal income tax purposes) or is the reversal of such a difference that arose in a prior tax year. Report in column (c) any difference that the partnership believes will not reverse in a future tax year (and is not the reversal of such a difference that arose in a prior tax year).

If the partnership is unable to determine whether a difference between column (a) and column (d) for an item will reverse in a future tax year or is the reversal of a difference that arose in a prior tax year, report the difference for that item in column (c).

For any item reported on lines 1 or 3 through 5, attach a supporting schedule that provides the name of the entity for which the item is reported, the type of entity (corporation, partnership, etc.), the entity's EIN (if applicable), and the item amounts for columns (a) through (d). See the instructions for lines 2 and 6, for the specific information required for those particular lines.

Report on line 1, column (a), the income statement income (loss) included in Part I, line 11 for any foreign corporation accounted for on the equity method and remove such amount in column (b) or (c), as applicable. Report the amount of dividends received and other taxable amounts received or includible from foreign corporations on Part II, lines 2 through 4, as applicable.

Except as otherwise provided in this paragraph, report on line 2, column (d), the amount (before any withholding tax) of any foreign dividends included in Form 1065, page 4, Analysis of Net Income (Loss), line 1, and report on line 2, column (a), the amount of dividends from any foreign corporation included in Part I, line 11. Do not report on line 2 any amounts that must be reported on line 3 or dividends that were previously taxed and must be reported on line 4. (See the instructions below for lines 3 and 4.) Report withholding taxes on Part III, line 29, Other expense/deduction items with differences, or Part II, line 25, Other items with no differences, as applicable.

For any dividends reported on line 2 that are received on a class of voting stock of which the partnership directly or indirectly owned 10% or more of the outstanding shares of that class at any time during the tax year, report on an attached supporting schedule (1) the name of the dividend payer, (2) the payer's EIN (if applicable), (3) the class of voting stock on which the dividend was paid, (4) the percentage of the class directly or indirectly owned, and (5) through (8) the item amounts for columns (a) through (d).

Report on line 3, column (d), the amount included in taxable income under section 951 (relating to Subpart F), gains or other income inclusions resulting from elections under sections 1291(d)(2) and 1298(b)(1), and any amount included in taxable income pursuant to section 1293 (relating to qualified electing funds). The amount of Subpart F income corresponds to the total of the amounts reported by the partnership on line 6, Schedule I, of all Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The amount of qualified electing fund income corresponds to the total of the amounts reported by the partnership on line 3(a), Part II, of all Forms 8621, Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

Also include on line 3 passive foreign investment company mark-to-market gains and losses under section 1296. Do not report such gains and losses on line 14.

Report on line 4, column (a), any distributions received from foreign corporations that were included in Part I, line 11, that were previously taxed for U.S federal income tax purposes. For example, include in column (a) amounts that are excluded from taxable income under sections 959 and 1293(c). Remove such amounts in column (b) or (c), as applicable. Report the full amount of the distribution before any withholding tax. Report withholding taxes on Part III, line 29, Other expense/deduction items with differences, or Part II, line 25, as applicable. Since previously taxed foreign distributions are not currently taxable, line 4, column (d) is shaded. (Also, see instructions above for line 2.)

Report on line 5, column (a), the income statement income (loss) included in Part I, line 11 for any U.S. corporation accounted for on the equity method and remove such amount in column (b) or (c), as applicable. Report the amount of dividends received from any U.S. corporations on line 6.

Report on line 6, column (a), the amount of dividends included in Part I, line 11, received from any U.S. corporation. Report on line 6, column (d), the amount of any U.S. dividends included in taxable income on Form 1065, page 4, Analysis of Net Income (Loss), line 1.

For any dividends reported on line 6 that are received on classes of voting stock in which the partnership directly or indirectly owned 10% or more of the outstanding shares of that class at any time during the tax year, report on an attached supporting schedule for line 6 (1) the name of the dividend payer, (2) the payer's EIN (if applicable), (3) the class of voting stock on which the dividend was paid, (4) the percentage of the class directly or indirectly owned, and (5) through (8) the item amounts for columns (a) through (d).

For any interest owned by the partnership that is treated as an investment in a partnership for U.S. federal income tax purposes (other than an interest in a disregarded entity), report amounts on line 7 or 8 as described below:

For each partnership reported on line 7 or 8, attach a supporting schedule that provides the name, EIN (if applicable), end-of-year profit-sharing percentage (if applicable), end-of-year loss-sharing percentage (if applicable), and the amount reported in column (a), (b), (c), or (d) of lines 7 or 8, as applicable.

For any interest in a pass-through entity (other than an interest in a partnership reportable on line 7 or 8, as applicable) owned by the U.S. partnership (other than an interest in a disregarded entity), report the following on line 9:

For each pass-through entity reported on line 9, attach a supporting schedule that provides that entity's name, EIN (if applicable), the partnership's end-of-year profit-sharing percentage (if applicable), the partnership's end-of-year loss-sharing percentage (if applicable), and the amounts reported by the partnership in column (a), (b), (c), or (d), of line 9, as applicable.

Any amounts attributable to any reportable transactions (as described in Regulations section 1.6011-4) must be included on line 10 regardless of whether the difference, or differences, would otherwise be reported elsewhere in Part II or Part III. Thus, if a taxpayer files Form 8886 for any reportable transaction described in Regulations section 1.6011-4 the amounts attributable to that reportable transaction must be reported on line 10. In addition, all income and expense amounts attributable to a reportable transaction must be reported on line 10, columns (a) and (d), even if there is no difference between the financial statement amounts and the taxable amounts.

Each difference attributable to a reportable transaction must be separately stated and adequately disclosed. A partnership will be considered to have separately stated and adequately disclosed a reportable transaction on line 10 if the partnership sequentially numbers each Form 8886 and lists by identifying number on the supporting schedule for line 10 each sequentially numbered reportable transaction and the amounts required for line 10, columns (a) through (d).

In lieu of the requirements of the preceding paragraph, a partnership will be considered to have separately stated and adequately disclosed a reportable transaction if the partnership attaches a supporting schedule that provides the following for each reportable transaction:

If a transaction is a listed transaction described in Regulations section 1.6011-4(b)(2), the description also must include the description provided on line 3 of Form 8886. In addition, if the reportable transaction involves an investment in the transaction through another entity such as a partnership, the description must include the name and EIN (if applicable) of that entity as reported on line 5 of Form 8886.

Report on line 11, column (a), the total amount of interest income included on Part I, line 11, and report on line 11, column (d), the total amount of interest income included on Form 1065, page 4, Analysis of Net Income (Loss), line 1, that is not required to be reported elsewhere on Schedule M-3. In columns (b) or (c), as applicable, adjust for any amounts treated for U.S. federal income tax purposes as interest income that are treated as some other form of income in the financial statements, or vice versa. For example, adjustments to interest income resulting from adjustments made in accordance with instructions for line 16 should be made in columns (b) and (c) of line 11.

Do not report on line 11 amounts reported in accordance with instructions for lines 7, 8, 9, 10, and 20.

This line is completed by a partnership that prepares financial statements (or books and records, if permitted) using an overall accrual method of accounting and uses an overall cash method of accounting for U.S. federal income tax purposes (or vice-versa). With the exception of amounts required to be reported on line 10, the partnership must report on line 12 a single amount net of all adjustments attributable solely to the use of the different overall methods of accounting (e.g., adjustments related to accounts receivable, accounts payable, compensation, accrued liabilities, etc.), regardless of whether a separate line on Schedule M-3 corresponds to an item within the accrual to cash reconciliation. Differences not attributable to the use of the different overall methods of accounting must be reported on the appropriate lines of Schedule M-3 (e.g., a depreciation difference must be reported on Part III, line 25).

Report on line 13, column (a), the net gain or loss from hedging transactions included in net income per the income statement. Report in column (d) the amount of taxable income from hedging transactions as defined in section 1221 (b)(2). Use columns (b) and (c) to report all differences caused by treating hedging transactions differently for financial accounting purposes and for U.S. federal income tax purposes. For example, if a portion of a hedge is considered ineffective under GAAP but still is a valid hedge under section 1221(b)(2), the difference must be reported on line 13. The hedge of a capital asset, which is not a valid hedge for U.S. federal income tax purposes but may be considered a hedge for GAAP purposes, must also be reported here.

Report hedging gains and losses computed under the mark-to-market method of accounting on line 13 and not on line 14.

Report any gain or loss from inventory hedging transactions on line 13 and not on line 15.

Report on line 14 any amount representing the mark-to-market income or loss for any securities held by a dealer in securities, a dealer in commodities having made a valid election under section 475(e), or a trader in securities or commodities having made a valid election under section 475(f). “Securities” for these purposes are securities described in section 475(c)(2) and section 475(e)(2). “Securities” do not include any items specifically excluded from sections 475(c)(2) and 475(e)(2), such as certain contracts to which section 1256(a) applies.

Report hedging gains and losses computed under the mark-to-market method of accounting on Part II, line 13, and not on line 14.

Report on line 15 any amounts deducted as part of cost of goods sold during the tax year, regardless of whether the amounts would otherwise be reported elsewhere in Part II or Part III. However, do not report the items mentioned in the next paragraph on line 15. Examples of amounts that must be included on line 15 are amounts attributable to inventory valuation, such as amounts attributable to cost-flow assumptions, additional costs required to be capitalized (including depreciation) such as section 263A costs, inventory shrinkage accruals, inventory obsolescence reserves, and lower of cost or market (LCM) write-downs.

Do not report the following on line 15:

For the amount reported on Part II, line 15, attach Form 8916-A and report amounts for each item listed on Form 8916-A in columns (a) through (d).

(Also see the instructions at Part III, line 28, for purchasers and/or lessees.)

Asset transfer transactions with periodic payments characterized for financial accounting purposes as either a sale or a lease may, under some circumstances, be characterized as the opposite for tax purposes. If the transaction is treated as a lease, the seller/lessor reports the periodic payments as gross rental income and also reports depreciation expense or deduction. If the transaction is treated as a sale, the seller/lessor reports gross profit (sale price less cost of goods sold) from the sale of assets and reports the periodic payments as payments of principal and interest income.

On line 16, column (a), report the gross profit or gross rental income for financial income purposes for all sale or lease transactions that must be given the opposite characterization for U.S. federal income tax purposes. On line 16, column (d), report the gross profit or gross rental income for federal income tax purposes. Interest income amounts for such transactions must be reported on line 11 in column (a) or (d), as applicable. Depreciation expense for such transactions must be reported on Part III, line 25 in column (a) or (d), as applicable. Use columns (b) and (c) of lines 11 and 16, and Part III, line 25, as applicable to report the differences between column (a) and (d).

With the exception of a section 481(a) adjustment that is required to be reported on line 10 for reportable transactions, any difference between an income or expense item attributable to an authorized (or unauthorized) change in method of accounting made for U.S. federal income tax purposes that results in a section 481(a) adjustment must be reported on line 17, regardless of whether a separate line for that income or expense item exists in Part II or Part III.

Report on line 18, column (a), amounts of revenues included in Part I, line 11, that were deferred from a prior financial accounting year. Report on line 18, column (d), amounts of revenues recognizable for U.S. federal income tax purposes in the current tax year that are recognized for financial accounting purposes in a different year. Also report on line 18, column (d), any amount of revenues reported on line 18, column (a), that are recognizable for U.S. federal income tax purposes in the current tax year. Use columns (b) and (c) of line 18, as applicable, to report differences between column (a) and (d).

Line 18 must not be used to report income recognized from long-term contracts. Instead, use line 19.

Report on line 19 the amount of net income or loss for financial statement purposes (or books and records, if applicable) or U.S. federal income tax purposes for any contract accounted for under a long-term contract method of accounting.

Report on line 20 any amounts of original issue discount (OID) and other imputed interest. The term “original issue discount and other imputed interest” includes, but is not limited to:

Report on line 21a, column (a), all gains and losses on the disposition of assets except for (a) gains and losses on the disposition of inventory, and (b) gains and losses allocated to the partnership from a pass-through entity (e.g., on Schedule K-1) that are included in the net income (loss) per income statement of the partnership reported on Part I, line 11. Reverse the amount reported in column (a) in column (b) or (c), as applicable. The corresponding gains and losses for U.S. federal income tax purposes are reported on lines 21b through 21g, as applicable.

Report on line 21b, gross capital gains reported on Schedule D, excluding capital gains from pass-through entities, which must be reported on lines 7, 8, or 9, as applicable.

Report on line 21c gross capital losses reported on Schedule D, excluding capital losses from (a) pass-through entities, which must be reported on lines 7, 8, or 9, as applicable; (b) abandonment losses, which must be reported on line 21e; and (c) worthless stock losses, which must be reported on line 21f.

Report on line 21d the net gain or loss reported on line 17 of Form 4797, Sales of Business Property, excluding amounts from (a) pass-through entities, which must be reported on lines 7, 8, or 9, as applicable; (b) abandonment losses, which must be reported on line 21e; and (c) worthless stock losses, which must be reported on line 21f.

Report on line 21e any abandonment losses, regardless of whether the loss is characterized as an ordinary loss or a capital loss.

Report on line 21f any worthless stock loss, regardless of whether the loss is characterized as an ordinary loss or a capital loss. Attach a schedule that separately states and adequately discloses each transaction that gives rise to a worthless stock loss and the amount of each loss.

Report on line 21g any gains or losses from the sale or exchange of property other than inventory and that are not reported on lines 21b through 21f.

Separately state and adequately disclose on line 22 all items of income (loss) with differences that are not otherwise listed on lines 1 through 21. Attach a schedule that itemizes the type of income (loss) and the amount of each item.

If any “comprehensive income” as defined by Statement of Financial Accounting Standards (SFAS) No. 130 is reported on this line, describe the item(s) in detail. Examples of sufficiently detailed descriptions include “Foreign currency translation adjustments” and “gains and losses on available-for-sale securities.”

Report on line 24 columns (a) through (d), as applicable, the negative of the amounts reported on Part III, line 30, columns (a) through (d). For example, if Part III, line 30, column (a), reflects an amount of $1 million, then report on line 24, column (a), ($1 million). Similarly, if Part III, line 30, column (b), reflects an amount of ($50,000), then report on line 24, column (b), $50,000.

If there is no difference between the financial accounting amount and the taxable amount of an entire item of income, gain, loss, expense, or deduction and the item is not described or included in Part II, lines 1 through 22, or Part III, lines 1 through 29, report the entire amount of the item in columns (a) and (d) of line 25. If a portion of an item of income, loss, expense, or deduction has a difference and a portion of the item does not have a difference, do not report any portion of the item on line 25. Instead, report the entire amount of the item (i.e., both the portion with a difference and the portion without a difference) on the applicable line of Part II, lines 1 through 22, or Part III, lines 1 through 29. See Example 9 on page 8.

If a partnership chooses not to complete columns (a) and (d) of Parts II and III in the first tax year the partnership is required to file Schedule M-3 (or for any year in which the partnership voluntarily files Schedule M-3), line 26 is reconciled by the partnership in the following manner:

If the partnership does not distinguish between current and deferred income tax expense in its financial statements (or its books and records, if applicable), report income tax expense as current income tax expense using lines 1 and 3, as applicable.

Report on line 5 any amounts for equity-based compensation or consideration that are reflected as expense in the financial statements (column (a)) or deducted in the U.S. federal income tax return (column (d)) other than amounts reportable elsewhere on Schedule M-3, Parts II and III. Examples of amounts reportable on line 5 include expense/deduction items attributable to options to acquire capital interest units, profits interest units, and other rights to acquire partnership equity, regardless of whether such payments are made to employees or non-employees, or as payment for property or compensation for services.

Report on line 6, column (a), any amounts paid or accrued by the partnership during the tax year for meals, beverages, and entertainment that are accounted for in financial accounting income, regardless of the classification, nomenclature, or terminology used for such amounts, and regardless of how or where such amounts are classified in the partnership's financial income statement or the income and expense accounts maintained in the partnership's books and records. Report only amounts not otherwise reportable elsewhere on Schedule M-3, Parts II and III (e.g., Part II, line 15).

Report on line 7 any fines or similar penalties paid to a government or other authority for the violation of any law for which fines or penalties are assessed. All fines and penalties expensed in financial accounting income (paid or accrued) must be included on this line 7, column (a), regardless of the government or other authority that imposed the fines or penalties, regardless of whether the fines and penalties are civil or criminal, regardless of the classification, nomenclature, or terminology used for the fines or penalties by the imposing authority in its actions or documents, and regardless of how or where the fines or penalties are classified in the partnership's financial income statement or the income and expense accounts maintained in the partnership's books and records. Also report on line 7, column (a), the reversal of any overaccrual of any amount described in this paragraph. See sections 162(f) and 162(g) for additional guidance.

Report on line 7, column (d), any such amounts as are described in the preceding paragraph that are includible in taxable income, regardless of the financial accounting period in which such amounts were or are included in financial accounting net income. Complete columns (b) and (c), as appropriate.

Do not report on line 7 amounts required to be reported in accordance with instructions for Part III, line 8.

Do not report on line 7 amounts recovered from insurers or any other indemnitors for any fines and penalties described above.

Report on line 8, column (a), the amount of any estimated or actual judgments, damages, awards, settlements, and similar costs, however named or classified, included in financial accounting income, regardless of whether the amount deducted was attributable to an estimate of future anticipated payments or actual payments. Also report on line 8, column (a), the reversal of any overaccrual of any amount described in this paragraph.

Report on line 8, column (d), any such amounts as are described in the preceding paragraph that are includible in taxable income, regardless of the financial accounting period in which such amounts were or are included in financial accounting net income. Complete columns (b) and (c), as appropriate.

Do not report on line 8 amounts required to be reported in accordance with instructions for line 7.

Do not report on line 8 amounts recovered from insurers or any other indemnitors for any judgments, damages, awards, or similar costs described above.

Include on line 9, column (a), the amount of guaranteed payments expense that is included on Part I, line 11. Report in column (d) the amount of guaranteed payments deduction included on Form 1065, page 4, Analysis of Net Income (Loss), line 1.

Report on line 10 any amounts attributable to the partnership's pension plans, profit-sharing plans, and any other retirement plans.

Report on line 11 any amounts attributable to other post-retirement benefits not otherwise includible on line 10, for example, retiree health and life insurance coverage, dental coverage, etc.

Report on line 12, column (a), any deferred compensation expense included in the net income (loss) amount reported in Part I, line 11, that is not deductible for U.S. federal income tax purposes in the current tax year and that was not reported elsewhere on Schedule M-3, column (a). Report on line 12, column (d), any deferred compensation deductible in the current tax year that is not included in the net income (loss) amount reported in Part I, line 11, for the current tax year and that is not reportable elsewhere on Schedule M-3, including any compensation deductions deferred in a prior tax year. For example, report originations and reversals of deferred compensation subject to section 409A on line 12. 

Report on line 14 any charitable contribution of intangible property, for example, contributions of:

Include on line 15, column (a), organizational expenses as defined in Regulations 1.709-2(a). Include on line 15, column (d), the amount of organizational expense deducted per section 709(b).

Include on line 16 syndication expenses as defined in Regulations section 1.709-2(b).

Report on line 17 any investment banking fees paid or incurred in connection with a taxable or tax-free acquisition of property (e.g., ownership interests or assets) or a tax-free reorganization not otherwise reportable on Schedule M-3 (e.g., Part III, line 15 or 16). Report on this line any investment banking fees paid or incurred at any stage of the acquisition or reorganization process including, for example, fees paid or incurred to evaluate whether to investigate an acquisition, fees to conduct an actual investigation, and fees to consummate the acquisition or reorganization.

Report on line 18 any legal and accounting fees paid or incurred in connection with a taxable or tax-free acquisition of property (e.g., ownership interests or assets) or a tax-free reorganization not otherwise reportable on Schedule M-3 (e.g., Part III, line 15 or 16). Report on this line any legal and accounting fees paid or incurred at any stage of the acquisition or reorganization process including, for example, fees paid or incurred to evaluate whether to investigate an acquisition, fees to conduct an actual investigation, and fees to consummate the acquisition or reorganization.

Report on line 19 amortization of goodwill or amounts attributable to the impairment of goodwill.

Report on line 20 amortization of acquisition, reorganization, and start-up costs. For purposes of column (b), (c), and (d), include amounts amortizable under section 167 or 195.

Report on line 21 any amortization or impairment write-offs not otherwise includible on Schedule M-3.

Report on line 22, column (a), any amounts attributable to environmental remediation costs included in the net income per the income statement. Report in columns (b), (c), and (d), as applicable, any deductible amounts attributable to environmental remediation costs described in section 198 that are paid or incurred during the current tax year.

Report on line 23a, column (a), any oil and gas depletion included in Part I, line 11.

Report on line 23b any depletion expense/deduction other than oil and gas that is not required to be reported elsewhere on Schedule M-3 (e.g., on Part II, lines 7, 8, 9, or 15).

Intangible Drilling and Development Costs (IDC) are costs of developing oil, gas, or geothermal wells. Report on line 24, column (a), the total amount of intangible drilling and development costs (or such equivalent costs as classified in the partnership's financial statements) included on Part I, line 11, and report on line 24, column (d), the total amount of IDC paid or incurred during the current tax year under section 263(c) and Regulations section 1.612-4.

Report on line 25 any depreciation expense/deduction that is not required to be reported elsewhere on Schedule M-3 (e.g., on Part II, lines 7, 8, 9, or 15).

Report on line 26, column (a), any amounts attributable to an allowance for uncollectible accounts receivable or actual write-offs of accounts receivable included in net income per the income statement. Report in column (d), the amount of bad debt expense deducted for federal income tax purposes in accordance with section 166.

Report on line 27, column (a), the total amount of interest expense included on Part I, line 11, and report on line 27, column (d), the total amount of interest deduction included on Form 1065, page 4, Analysis of Net Income (Loss), line 1, that is not reported elsewhere on Schedule M-3. In columns (b) or (c), as applicable, adjust for any amounts treated for U.S. federal income tax purposes as interest deduction that are treated as some other form of expense in the financial statements, or vice versa. For example, adjustments to interest expense/deduction resulting from adjustments made in accordance with instructions for line 28 should be made in columns (b) and (c), as applicable, of line 27.

Do not report on line 27 amounts reported in accordance with instructions for (i) Part II, lines 7, 8 and 9, Income (loss) from U.S. partnerships, foreign partnerships and other pass-through entities, and (ii) Part II, line 10, Items relating to reportable transactions.

Asset transfer transactions with periodic payments characterized for financial accounting purposes as either a purchase or a lease may, under some circumstances, be characterized as the opposite for tax purposes.

If a transaction is treated as a lease, the purchaser/lessee reports the periodic payments as gross rental expense. If the transaction is treated as a purchase, the purchaser/lessee reports the periodic payments as payments of principal and interest and also reports depreciation expense or deduction with respect to the purchased asset.

Report on line 28, column (a), gross rent expense for a transaction treated as a lease for income statement purposes but as a sale for U.S. federal income tax return purposes. Report on line 28, column (d), gross rental deductions for a transaction treated as a lease for U.S. federal income tax purposes but as a purchase for income statement purposes. Report interest expense or deduction amounts for such transactions on line 27 in columns (a) and (d), as applicable. Report depreciation expense or deductions for such transactions on line 25 in column (a) or (d), as applicable. Use columns (b) and (c) of lines 25, 27, and 28, as applicable, to report the differences between column (a) and (d) for such recharacterized transactions.

Report on line 29 all items of expense/deduction that are not otherwise listed on Part III, lines 1 through 28.

Report on Part II, line 24, columns (a) though (d), as applicable, the negative of the amounts reported on line 30, column (a) through (d), as applicable. For example, if line 30, column (a), reflects an amount of $1 million, then report on Part II, line 24, column (a), ($1 million). Similarly, if line 30, column (b), reflects an amount of ($50,000), then report on Part II, line 24, column (b), $50,000.