Schedule M‑3 (Form 1065) – Net Income (Loss) Reconciliation for Certain Partnerships

Last reviewed: 2025-10-26

Use the Form 1065sm: Schedule M‑3 (Form 1065) – Net Income (Loss) Reconciliation for Certain Partnerships Tax Form Calculator Form 1065sm: Schedule M‑3 (Form 1065) – Net Income (Loss) Reconciliation for Certain Partnerships as a stand alone tax form calculator to quickly calculate specific amounts for your 2026 1065sm state tax return. Alternatively, you can use one of our Combined Federal and State Tax Estimators to quickly calculate your salary, tax, and take-home pay.

Schedule M‑3 (Form 1065) is required for partnerships with $10 million or more in total assets or $35 million or more in total receipts for the tax year. This schedule plays a critical role in reconciling net income (loss) reported on a financial statement with net income (loss) reported on Form 1065. It applies to complex partnerships subject to greater transparency requirements and provides the IRS with a clearer view of book-tax differences across multiple financial dimensions.The form is divided into three parts:

Part I identifies the type of income statement used (e.g., GAAP, IFRS, tax basis), whether the statement is audited, and establishes a starting point for reconciliation.
Part II lists income and loss reconciliation items — these include adjustments for items such as unrealized gains, intercompany transactions, and differences in income recognition.
Part III details expense and deduction items that differ between book and tax accounting, such as depreciation, penalties, fines, and nondeductible expenses.

Each entry is categorized across four columns:

(a) Financial statement amount
(b) Temporary differences
(c) Permanent differences
(d) Tax return amount

Net Income (Loss) Reconciliation for Certain Partnerships
This Schedule M-3 is being filed because (check all that apply):
A The amount of the partnership’s total assets at the end of the tax year is equal to $10 million or more.
B The amount of the partnership’s adjusted total assets for the tax year is equal to $10 million or more. If box B is checked, enter the amount of adjusted total assets for the tax year
C The amount of total receipts for the tax year is equal to $35 million or more. If box C is checked, enter the total receipts for the tax year
D An entity that is a reportable entity partner with respect to the partnership owns or is deemed to own an interest of 50 percent or more in the partnership’s capital, profit, or loss, on any day during the tax year of the partnership.
Name of Reportable Entity Partner		Identifying Number		Maximum Percentage Owned or Deemed Owned



E Voluntary Filer.
Part I Financial Information and Net Income (Loss) Reconciliation
1a	Did the partnership file SEC Form 10-K for its income statement period ending with or within this tax year?
	Yes. Skip lines 1b and 1c and complete lines 2 through 11 with respect to that SEC Form 10-K.
	No. Go to line 1b. See instructions if multiple non-tax-basis income statements are prepared.
b	Did the partnership prepare a certified audited non-tax-basis income statement for that period?
	Yes. Skip line 1c and complete lines 2 through 11 with respect to that income statement.
	No. Go to line 1c.
c	Did the partnership prepare a non-tax-basis income statement for that period?
	Yes. Complete lines 2 through 11 with respect to that income statement.
	No. Skip lines 2 through 3b and enter the partnership’s net income (loss) per its books and records on line 4a.
2	Enter the income statement period: Beginning Ending
3a	Has the partnership’s income statement been restated for the income statement period on line 2?
	Yes. (If “Yes,” attach a statement and the amount of each item restated.)
	No.
b	Has the partnership’s income statement been restated for any of the five income statement periods immediately preceding the period on line 2?
	Yes. (If “Yes,” attach a statement and the amount of each item restated.)
	No.
4a					4a
b	Indicate accounting standard used for line 4a (see instructions): 1 GAAP 2 IFRS 3 704(b) 4 Tax-basis 5 Other: (Specify) ▸
5a	Net income from nonincludible foreign entities (attach statement)				5a
b	Net loss from nonincludible foreign entities (attach statement and enter as a positive amount)				5b
6a	Net income from nonincludible U.S. entities (attach statement)				6a
b	Net loss from nonincludible U.S. entities (attach statement and enter as a positive amount)				6b
7a	Net income (loss) of other foreign disregarded entities (attach statement)				7a
b	Net income (loss) of other U.S. disregarded entities (attach statement)				7b
8	Adjustment to eliminations of transactions between includible entities and nonincludible entities (attach statement)				8
9	Adjustment to reconcile income statement period to tax year (attach statement)				9
10	Other adjustments to reconcile to amount on line 11 (attach statement)				10
11	Net income (loss) per income statement of the partnership. Combine lines 4a through 10 Note: Part I, line 11, must equal Part II, line 26, column (a) or Schedule M-1, line 1 (see instructions).				11
12	Enter the total amount (not just the partnership’s share) of the assets and liabilities of all entities included or removed on the following lines:
		Total Assets	Total Liabilities
a	Included on Part I, line 4
b	Removed on Part I, line 5
c	Removed on Part I, line 6
d	Included on Part I, line 7
Part II Reconciliation of Net Income (Loss) per Income Statement of Partnership With Income (Loss) per Return
Income (Loss) Items (Attach statements for lines 1 through 10)		a Income (Loss) per Income Statement	b Temporary Difference	c Permanent Difference		d Income (Loss) per Tax Return
1	Income (loss) from equity method foreign corporations
2	Gross foreign dividends not previously taxed
3	Subpart F, QEF, and similar income inclusions
4	Gross foreign distributions previously taxed
5	Income (loss) from equity method U.S. corporations
6	U.S. dividends
7	Income (loss) from U.S. partnerships
8	Income (loss) from foreign partnerships
9	Income (loss) from other pass-through entities
10	Items relating to reportable transactions
11	Interest income (see instructions)
12	Total accrual to cash adjustment
13	Hedging transactions
14	Mark-to-market income (loss)
15	Cost of goods sold (see instructions)
16	Sale versus lease (for sellers and/or lessors)
17	Section 481(a) adjustments
18	Unearned/deferred revenue
19	Income recognition from long-term contracts
20	Original issue discount and other imputed interest
21a	Income statement gain/loss on sale, exchange, abandonment, worthlessness, or other disposition of assets other than inventory and pass-through entities
b	Gross capital gains from Schedule D, excluding amounts from pass-through entities
c	Gross capital losses from Schedule D, excluding amounts from pass-through entities, abandonment losses, and worthless stock losses
d	Net gain/loss reported on Form 4797, line 17, excluding amounts from pass-through entities, abandonment losses, and worthless stock losses
e	Abandonment losses
f	Worthless stock losses (attach statement)
g	Other gain/loss on disposition of assets other than inventory
22	Other income (loss) items with differences (attach statement)
23	Total income (loss) items. Combine lines 1 through 22
24	Total expense/deduction items. (From Part III, line 31) (see instructions)
25	Other items with no differences
26	Reconciliation totals. Combine lines 23 through 25
	Note: Line 26, column (a), must equal Part I, line 11, and column (d) must equal Form 1065, Analysis of Net Income (Loss), line 1.
Part III Reconciliation of Net Income (Loss) per Income Statement of Partnership With Income (Loss) per Return—Expense/Deduction Items
Expense/Deduction Items		a Expense per Income Statement	b Temporary Difference	c Permanent Difference		d Deduction per Tax Return
1	State and local current income tax expense
2	State and local deferred income tax expense
3	Foreign current income tax expense (other than foreign withholding taxes)
4	Foreign deferred income tax expense
5	Equity-based compensation
6	Meals and entertainment
7	Fines and penalties
8	Judgments, damages, awards, and similar costs
9	Guaranteed payments
10	Pension and profit-sharing
11	Other post-retirement benefits
12	Deferred compensation
13	Charitable contribution of cash and tangible property
14	Charitable contribution of intangible property
15	Organizational expenses as per Regulations section 1.709-2(a)
16	Syndication expenses as per Regulations section 1.709-2(b)
17	Current year acquisition/reorganization investment banking fees
18	Current year acquisition/reorganization legal and accounting fees
19	Amortization/impairment of goodwill
20	Amortization of acquisition, reorganization, and start-up costs
21	Other amortization or impairment write-offs
22	Reserved
23a	Depletion—Oil & Gas
b	Depletion—Other than Oil & Gas
24	Intangible drilling & development costs
25	Depreciation
26	Bad debt expense
27	Interest expense (see instructions)
28	Purchase versus lease (for purchasers and/ or lessees)
29	Research and development costs
30	Other expense/deduction items with differences (attach statement)
31	Total expense/deduction items. Combine lines 1 through 30. Enter here and on Part II, line 24, reporting positive amounts as negative and negative amounts as positive

Schedule M‑3 is typically used in place of Schedule M‑1. However, if a partnership chooses to complete only Part I of Schedule M‑3 and meets the requirements, it may file Schedule M‑1 instead of Parts II and III. In such cases, the value reported on line 11 of Schedule M‑3 Part I must match line 1 of Schedule M‑1. Attach all supporting documentation where appropriate, particularly when reporting significant book-tax differences. Partnerships under common control or with foreign activities must also disclose additional detail.

Last reviewed: 2025-10-26: If you believe this form requires an update, please contact us.

Schedule M‑3 improves tax compliance by providing greater clarity on the timing and nature of income and expense reporting. Partnerships in sectors such as real estate, private equity, and professional services frequently use this schedule. If your partnership is filing consolidated returns, ensure each entity files a separate Schedule M‑3 unless otherwise directed. For lower-asset partnerships, refer to Schedule M‑1 (Form 1065) and Schedule M‑2 for simplified reporting. Use this tool to automate reconciliation and avoid common errors in column misalignment or omitted line entries.

Frequently Asked Questions

Can I estimate the General Business Credit?

Start with Form 3800 and then reflect the credit here.

How much would a 401(k) contribution change my net?

Model it with the 401(k) Calculator then rerun this page with your pre-tax amount.

Considering an IRS Offer in Compromise?

Read through Form 656-B to understand eligibility and steps.

What does FICA include?

FICA includes Social Security and Medicare payroll taxes withheld from employee wages.

Is there a quick pay-frequency comparison?

Yes—switch frequency on this page; for employer filings see 941 vs 944.

Important Notes

All calculations are estimates for guidance only. Always review your return and consider professional advice when submitting official filings.

Schedule M‑3 (Form 1065) – Net Income (Loss) Reconciliation for Certain Partnerships