This Schedule M-3 Form 1065 guide explains the IRS Net Income (Loss) Reconciliation for Certain Partnerships. Schedule M-3 for Form 1065 provides the financial statement and tax reconciliation required for certain partnerships. Temporary differences, permanent differences and entity-level reporting details should be supported by workpapers. Cash receipts alone do not supply the reconciliation.
Reviewed October 31, 2026. This is an independent guide. The version and availability information below identifies the IRS documents used for this page.
What Schedule M-3 Form 1065 does and who prepares it
A partnership covered by the reporting rules reconciles financial statement net income or loss with the tax return calculation.
For the connected reporting route, see Form 1065. Keep the role of that document separate from the task explained on this page.
| Official form | Form 1065 (Schedule M-3) |
|---|---|
| IRS title | Net Income (Loss) Reconciliation for Certain Partnerships |
| Guide period | the applicable reporting period |
| Target version | Dec 2021 |
| Availability | Current IRS catalog PDF |
| Last checked | October 31, 2026 |
Get the Schedule M-3 Form 1065 PDF and check its status
Use the IRS source to confirm the document before completing a real filing. The download link is a reference to the official file; it is not a statement that every copy inside the PDF may be printed and submitted. Follow any instructions about electronic filing, scannable copies, recipient copies or attachments.
Which version of Schedule M-3 Form 1065 should you use?
This form follows a revision or continuing-use format rather than a new title for every calendar year. Check the revision printed on the document and the period requested inside it. A revision date, transaction date and tax year are different pieces of information. The current document should be read with the instructions that apply to the actual transaction or return.
Records to gather for Schedule M-3 Form 1065
- Financial statements.
- Book-to-tax workpapers.
- Entity and consolidated reporting details.
- Income and deduction schedules.
- Prior reconciliation.
Keep a working reconciliation with these records. It should show the source of each reported item, any correction made before filing and the reason a different amount appears on a connected form. This is especially useful when a statement is corrected or a prior-year balance continues into the current calculation.
How to work through Schedule M-3 Form 1065
- Confirm applicability. Start with the purpose, filer category and version of the form. Complete any eligibility or applicability question before spending time on the numerical calculation.
- Prepare the source workpapers. Gather the records listed below and reconcile their totals. Keep prior-year balances, current-year transactions and estimated payments separate where they serve different purposes.
- Complete dependent calculations first. When a line refers to another form, schedule or worksheet, finish that supporting calculation first. Preserve any classification, limitation and carryforward information.
- Follow the line sequence. Use the actual line labels and arithmetic in the applicable form. A line number from an older version may refer to something different after a revision.
- Reconcile the filing package. Check names, identifying numbers, tax periods, totals and required attachments. Then use the filing method, signature process and deadline that apply to this filer and form.
Form-specific IRS instructions and reporting details
The following points retain the operative wording of the IRS documents linked above. Read each point with its stated conditions and the applicable form version. References to another form or section describe a connected requirement; they do not mean that every reader must file every referenced document.
For the purposes of these instructions, a reportable entity partner with respect to a partnership filing Form 1065 is an entity that: • Owns or is deemed to own, directly or indirectly, under these instructions, a 50% or greater interest in the income, loss, or capital of the partnership on any day of the tax year; and • Was required to file Schedule M-3 on its most recently filed U.S. federal income tax return or return of income filed prior to that day.
Non-Tax-Basis Financial Statements and Tax-Basis Financial Statements A tax-basis income statement is allowed for Schedule M-3 and a tax-basis balance sheet for Schedule L only if neither a non-tax-basis income statement nor a non-tax-basis balance sheet were prepared for any purpose and the books and records of the partnership reflect only tax-basis amounts.
The partnership is deemed to have non-tax-basis income statements and the related non-tax-basis balance sheets for the current tax year for purposes of Schedule M-3 and Schedule L if such non-tax-basis financial statements were prepared for and presented to management, creditors, members or partners, government regulators, or any other third parties for a period ending with or within the tax year.
Additional reporting conditions
For purposes of Schedule M-3, references to the classification of an entity (for example, as a corporation, a partnership, or a trust) are references to the treatment of the entity for U.S. income tax purposes. An entity that is generally disregarded as separate from its owner for U.S. income tax purposes (disregarded entity) must not be separately reported on Schedule M-3 except, if required, on Part I, line 7a or 7b.
On Schedule M-3, Parts II and III, any item of income, gain, loss, deduction, or credit of a disregarded entity must be reported as an item of its owner. In particular, the income or loss of a disregarded entity must not be reported on Part II, line 7, 8, or 9, as from a separate partnership or other pass-through entity.
The financial statement income or loss of a disregarded entity is included on Part I, line 7a or 7b, only if its financial statement income or loss is included on Part I, line 11, but not on Part I, line 4a.
Calculations and supporting information
If a Form 10-K is filed with the Securities and Exchange Commission (SEC) for the period ending with or within the tax year, the partnership must check “Yes” for line 1a and use that income statement for Schedule M-3. If Form 10-K isn't filed and a non-tax-basis income statement is prepared that is a certified non-tax-basis income statement for the period ending with or within the tax year, the partnership must check “Yes” for line 1b and use that income statement for Schedule M-3.
If Form 10-K isn't filed and no certified non-tax-basis income statement is prepared but an unaudited non-tax-basis income statement is prepared for the period ending with or within the tax year, the partnership must check “Yes” for line 1c and use that income statement for Schedule M-3.
If no non-tax-basis income statement is certified and two or more non-tax-basis income statements are prepared, the income statement prepared according to the first listed of the accounting standards above must be used. If no non-tax-basis financial statements are prepared for the U.S. partnership filing Schedule M-3, the U.S. partnership must check “No” 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 4a.
Exceptions and related reporting
For lines 1 through 11, use only the financial statements of the U.S. partnership filing Form 1065. If the U.S. partnership filing Form 1065 is controlled by another entity, the U.S. partnership must use for its Schedule M-3, Part I, its own financial statements and not the financial statements of the controlling entity.
Enter the beginning and ending dates on line 2 for the partnership's annual income statement period ending with or within the current tax year. 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 and used to prepare Schedule M-3. Answer “Yes” on lines 3a and/or 3b if the partnership's annual income statement has been restated for any reason.
Attach a short statement 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 statement isn't required to report restatements on an entity-by-entity basis.
Further form details
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 4a the net income amount reported in the income statement presented to the SEC on the partnership's Form 10-K.
If a partnership prepares non-tax-basis financial statements, the amount on line 4a 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.
Example 12. U.S. partnership Holly is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Holly has an investment in a U.S. partnership USP. Holly prepares financial statements in accordance with GAAP. For its 2023 tax year, Holly's financial statement net income includes $10,000 of income attributable to its share of USP's net income. Holly's Schedule K-1 from USP reports $5,000 of ordinary income, $7,000 of long-term capital gains, $4,000 of charitable contributions, and $200 of section 179 expense.
Holly must report on line 7 $10,000 in column (a), a permanent difference of ($2,200) in column (c), and $7,800 in column (d).
Further form details
An entity that (a) is required to file a Schedule M-3 and has less than $50 million in total assets at the end of the tax year, or (b) isn't required to file a Schedule M-3 and voluntarily files a Schedule M-3, isn't required to file Form 8916-A but may voluntarily do so.
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 line 1 of the Analysis of Net Income (Loss) found on Form 1065 that isn't required to be reported elsewhere on Schedule M-3. In column (b) or (c), as applicable, adjust for any amounts treated for U.S. income tax purposes as interest income that are treated as some other form of income for financial accounting purposes, or vice versa.
For example, adjustments to interest income resulting from adjustments made in accordance with the instructions for line 16, Sale versus lease, should be made in columns (b) and (c) of line 11.
Reading the lines and boxes
These selected labels come from the linked target PDF. They are a reading aid, not a replacement for the full line instructions or a completed calculation. Match the label and document version before transferring any amount.
| Line or box | Label in the source form | What to check |
|---|---|---|
| A | The amount of the partnership’s total assets at the end of the tax year is equal to $10 million or more. | Follow the stated arithmetic and line references in sequence. Complete the referenced inputs first and retain the worksheet supporting the result. |
| 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, | Follow the stated arithmetic and line references in sequence. Complete the referenced inputs first and retain the worksheet supporting the result. |
| 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 | Follow the stated arithmetic and line references in sequence. Complete the referenced inputs first and retain the worksheet supporting the result. |
| D | An entity that is a reportable entity partner with respect to the partnership owns or is deemed to own an interest of 50% or | Check the applicable line instructions and keep the source workpaper with the return records. Transfer only the information that matches the field and reporting period. |
| 1a | Did the partnership file SEC Form 10-K for its income statement period ending with or within this tax year? | Use the date or tax period requested by this particular field. A payment date, acquisition date and return year can describe different facts. |
Further selected fields
| Line or box | Label in the source form | What to check |
|---|---|---|
| 2 | Enter the income statement period: Beginning | Identify the income or transaction category before entering a total. Preserve the distinction between gross amounts, adjustments and the resulting taxable or reportable figure. |
| 3a | Has the partnership’s income statement been restated for the income statement period on line 2? | Identify the income or transaction category before entering a total. Preserve the distinction between gross amounts, adjustments and the resulting taxable or reportable figure. |
| 4a | Worldwide consolidated net income (loss) from income statement source identified on Part I, line 1 . | Use the identity of the person or entity requested on this line. Check that the name and identification number agree with the underlying tax records. |
| 5a | Net income from nonincludible foreign entities (attach statement) | Identify the income or transaction category before entering a total. Preserve the distinction between gross amounts, adjustments and the resulting taxable or reportable figure. |
| 6a | Net income from nonincludible U.S. entities (attach statement) | Identify the income or transaction category before entering a total. Preserve the distinction between gross amounts, adjustments and the resulting taxable or reportable figure. |
A practical example
A partnership prepares financial statements and identifies tax adjustments. Its preparer organizes the differences in the required M-3 categories and reconciles the final tax amounts with the partnership return.
This example illustrates the order of the review. It does not assume an unverified deduction, exemption, treaty rate or final tax amount. The applicable form instructions and the actual records determine the result.
Common mistakes to avoid with Schedule M-3 Form 1065
- Check which reconciliation schedule is required.
- Do not mix permanent and temporary differences.
- Reconcile financial statement totals before entering tax adjustments.
Questions about Schedule M-3 Form 1065
Does receiving or downloading this form mean I must file it?
A partnership covered by the reporting rules reconciles financial statement net income or loss with the tax return calculation. The form purpose and the applicable filing or furnishing conditions determine the action. Downloading a blank PDF does not itself create a filing obligation or establish eligibility for a tax benefit.
Is the revision date always the same as the tax year?
No. Some forms show a tax year, while continuing-use forms show a revision date and ask separately for the reporting period. Check the actual document and instructions. Do not relabel a payment or transaction solely because it was reported in a later calendar year.
What should I do if the underlying information is wrong?
Check which reconciliation schedule is required. Keep the original record and the correction trail. The issuer correction process, an amended return and an updated certificate can be different procedures. Choose the process that matches the document and the actual error.
Which records should I keep with the completed form?
Retain the source documents, applicable worksheets, submitted version and filing or furnishing confirmations. For this form, the working file should include financial statements, book-to-tax workpapers, entity and consolidated reporting details. Keep continuing balances and prior-year support for as long as they remain relevant under the applicable recordkeeping rules.
Related forms and next steps
Use these guides when the connected issue applies to your records. Each page has its own purpose, reporting year and availability status.