Part II. — 1123 Inst 1065 (Schedule M-3) (PDF)

Lines 1 Through 9. Additional Information for Each Entity For any item reported on lines 1 or 3 through 5, attach a supporting statement that provides the name of the entity for which the item is reported, the entity's EIN (if applicable), the type of entity (corporation, partnership, etc.), and the item amounts for columns (a) through (d). See the instructions for lines 2 and 6 through 9 for the specific information required for those particular lines.

Line 1. Income (Loss) From Equity Method Foreign Corporations Report on line 1, column (a), the financial income (loss) included on 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 lines 2 through 4, as applicable.

Line 2. Gross Foreign Dividends Not Previously Taxed Except as otherwise provided in this paragraph, report on line 2, column (d), the amount (before any withholding tax) of any foreign dividends included on line 1 of the Analysis of Net Income (Loss) found on Form 1065, and report on line 2, column (a), the amount of dividends from any foreign corporation included on Part I, line 11. Don't 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 30, Other expense/deduction items with differences, or 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 statement for line 2: (a) the name of the dividend payer, (b) the payer's EIN (if applicable), (c) the class of voting stock on which the dividend was paid, (d) the percentage of the class directly or indirectly owned, and (e) the amounts for columns (a) through (d).

Line 3. Subpart F, QEF, and Similar Income Inclusions 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 QEFs). See Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, for more information.

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

Line 4. Gross Foreign Distributions Previously Taxed Report on line 4, column (a), any distributions received from foreign corporations that were included on Part I, line 11, and that were previously taxed for U.S. 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 30, Other expense/deduction items with differences, or line 25, Other items with no differences, as applicable. Because previously taxed foreign distributions aren't currently taxable, line 4, column (d), is shaded. (Also, see the instructions above for line 2.)

Line 5. Income (Loss) From Equity Method U.S. Corporations Report on line 5, column (a), the financial income (loss) included on 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 on line 6 the amount of dividends received from any U.S. corporations.

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

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 statement 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) the amounts for columns (a) through (d).

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

In column (a), the sum of the partnership's distributive share of income or loss from a U.S. or foreign partnership that is included on Part I, line 11.
In column (b) or (c), as applicable, the sum of all differences, if any, attributable to the partnership's distributive share of income or loss from a U.S. or foreign partnership.
In column (d), the sum of all amounts of income, gain, loss, or deduction attributable to the partnership's distributive share of income or loss from a U.S. or foreign partnership (that is, the sum of all amounts reportable on the partnership's Schedule(s) K-1 received from the partnership (if applicable)), without regard to any limitations computed at the partner level (for example, limitations on utilization of charitable contributions, capital losses, and interest expense).

For each partnership reported on line 7 or 8, attach a supporting statement that provides the name, EIN (if applicable), end of year profit-sharing percentage (if applicable), end of year

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loss-sharing percentage (if applicable), and the amount reported in column (a), (b), (c), or (d) of line 7 or 8, as applicable.

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).

Line 9. Income (Loss) From Other Pass-Through Entities 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.

In column (a), the sum of the partnership's distributive share of income or loss from the pass-through entity that is included on Part I, line 11.
In column (b) or (c), as applicable, the sum of all differences, if any, attributable to the pass-through entity.
In column (d), the sum of all taxable amounts of income, gain, loss, or deduction reportable on the partnership's Schedule(s) K-1 received from the pass-through entity (if applicable).

For each pass-through entity reported on line 9, attach a supporting statement 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.

Line 10. Items Relating to Reportable Transactions 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 tax return 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 statement number (shown on line A of Form 8886) on the supporting statement for line 10 each sequentially numbered reportable transaction and the amounts required for line 10, columns (a) through (d).

Instead of satisfying 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 statement that provides the following for each reportable transaction.

A description of the reportable transaction disclosed on Form 8886 for which amounts are reported on line 10.
The name and reportable transaction or tax shelter registration number, if applicable, as reported on lines 1a and 1c, respectively, of Form 8886.
The type of reportable transaction (that is, listed transaction, confidential transaction, transaction with contractual protection, etc.) as reported on line 2 of Form 8886.

If a transaction is a listed transaction described in Regulations section 1.6011-4(b)(2), the description must also include the published guidance number shown 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.

Example 13. Partnership Jasmine is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Jasmine incurred seven different abandonment losses during its 2023 tax year. One loss of $12 million results from a reportable transaction described in Regulations section 1.6011-4(b)(5), another loss of $5 million results from a reportable transaction described in Regulations section 1.6011-4(b)(4), and the remaining five abandonment losses aren't reportable transactions. Jasmine discloses the reportable transactions giving rise to the $12 million and $5 million losses on separate Forms 8886 and sequentially numbers them X1 and X2, respectively. Jasmine must separately state and adequately disclose the $12 million and $5 million losses on line 10. The $12 million loss and the $5 million loss will be adequately disclosed if Jasmine attaches a supporting statement for line 10 that lists each of the sequentially numbered forms, Form 8886-X1 and Form 8886-X2, and with respect to each reportable transaction reports the appropriate amounts required for line 10, columns (a) through (d). Alternatively, Jasmine's disclosures will be adequate if the description provided for each loss on the supporting statement includes the names and reportable transaction or tax shelter registration numbers, if any, disclosed on the applicable Form 8886, identifies the type of reportable transaction for the loss, and reports the appropriate amounts required for line 10, columns (a) through (d). Jasmine must report the losses attributable to the other five abandonment losses on line 21e, regardless of whether a difference exists for any or all of those abandonment losses.

Example 14. Partnership Kiwi is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Kiwi enters into a transaction with contractual protection that is a reportable transaction described in Regulations section 1.6011-4(b)(4). This reportable transaction is the only reportable transaction for Kiwi's 2023 tax year and results in a $7 million capital loss for both financial accounting purposes and U.S. income tax purposes. Although the transaction doesn't result in a difference, Kiwi is required to report on line 10 the following amounts: ($7 million) in column (a), $0 in columns (b) and (c), and ($7 million) in column (d). The transaction will be adequately disclosed if Kiwi attaches a supporting statement for line 10 that (a) sequentially numbers the Form 8886 and refers to the sequentially numbered Form 8886-X1; and (b) reports the applicable amounts required for line 10, columns (a) through (d). Alternatively, the transaction will be adequately disclosed if the supporting statement for line 10 includes a description of the transaction, the name and reportable transaction number, if any, and the type of reportable transaction disclosed on Form 8886.

Line 11. Interest Income Attach Form 8916-A, Supplemental Attachment to Schedule M-3. Complete Part II and enter the amounts shown on

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line 6, columns (a) through (d), on Schedule M-3, line 11, columns (a) through (d), as applicable.

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.

Don't report on line 11 amounts reported in accordance with the instructions for lines 7, 8, 9, 10, and 20.

Line 12. Total Accrual to Cash Adjustment 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. 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 (for example, 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 (for example, a depreciation difference must be reported on Part III, line 25).

Example 15. Partnership Laurel is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Laurel prepares financial statements in accordance with GAAP using an overall accrual method of accounting. Laurel uses an overall cash method of accounting for U.S. income tax purposes. Laurel's financial statements for the year ending December 31, 2023, report accounts receivable of $35,000, an allowance for bad debts of $10,000, and accounts payable of $17,000 related to 2023 acquisition and reorganization legal and accounting fees. In addition, for Laurel's year ending December 31, 2023, Laurel reported financial statement depreciation expense of $15,000 and depreciation for U.S. income tax purposes of $25,000. For Laurel's 2023 tax year using an overall cash method of accounting, Laurel doesn't recognize the $35,000 of revenue attributable to the accounts receivable, can't deduct the $10,000 allowance for bad debt, and can't deduct the $17,000 of accounts payable. In its financial statements, Laurel treats both the difference in overall accounting methods used for financial statement and U.S. income tax purposes and the difference in depreciation expense as temporary differences. Laurel must combine all adjustments attributable to the differences related to the overall accounting methods on line 12. As a result, Laurel must report on line 12 $8,000 in column (a) ($35,000 – $10,000 – $17,000), ($8,000) in column (b), and $0 in column (d). Laurel must not report the accrual to cash adjustment attributable to the legal and accounting fees on Part III, line 18, Current year acquisition/ reorganization legal and accounting fees. Because the difference in depreciation expense doesn't relate to the use of the cash or accrual method of accounting, Laurel must report the

depreciation difference on Part III, line 25, Depreciation, and report $15,000 in column (a), $10,000 in column (b), and $25,000 in column (d).

Line 13. Hedging Transactions Report on line 13, column (a), the net gain or loss from hedging transactions on Part I, line 11. 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. income tax purposes. For example, if a portion of a hedge is considered ineffective under GAAP but is still a valid hedge under section 1221(b)(2), the difference must be reported on line 13. The hedge of a capital asset, which isn't a valid hedge for U.S. 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.

Line 14. Mark-to-Market Income (Loss) 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 commodities described in section 475(e)(2). Securities described in section 475(c)(2)(E) do not include contracts to which section 1256(a) applies.

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

Traders in securities or commodities. For a trader in securities or commodities that made a valid election under section 475(f) to use the mark-to-market method to account for securities or commodities held in connection with a trading business that files Form 4797, Sales of Business Property, any Schedule M-3 entries required as a result of mark-to-market these securities or commodities are reported as follows: (a) mark-to-market gains and losses from Form 4797, line 10, are included on Schedule M-3, Part II, line 14; and (b) any other Schedule M-3 entries required based on other results (non-mark-to-market gains and losses) included in the total reported on Form 4797, line 17, should be reported on Schedule M-3, Part II, line 21d, unless the instructions for Schedule M-3 require the amounts to be reported on another line.

Line 15. Cost of Goods Sold 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, don't 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.

Note. The entries in columns (a) and (d) are negative amounts.

Don't report the following on line 15 or on Form 8916-A.

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Amounts reportable on line 10.
Any gain or loss from inventory hedging transactions reportable on line 13.
Amounts reportable on line 16.
Amounts reportable on line 19.
Mark-to-market income or (loss) associated with the inventories of dealers in securities under section 475 reportable on line 14.
Section 481(a) adjustments related to cost of goods sold or inventory valuation reportable on line 17.
Fines and penalties reportable on Part III, line 7.
Judgments, damages, awards, and similar costs, reportable on Part III, line 8.
Amounts included on Part III, line 28, Purchase versus lease.

Important. Complete and attach Form 8916-A, Part I, for each item listed on line 15 in columns (a) through (d).

Example 16. Partnership Cashew is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Cashew placed in service 10 depreciable fixed assets in a previous tax year. Cashew's total depreciation expense for its 2023 tax year for five of the assets is $50,000 for financial accounting purposes and $70,000 for U.S. income tax purposes. Cashew's total annual depreciation expense for its 2023 tax year for the other five assets is $40,000 for financial accounting purposes and $30,000 for U.S. income tax purposes. In addition, Cashew incurs $200 of meal expenses that Cashew deducts in computing net income for financial accounting purposes. All $200 of the meal expenses is subject to the 50% limitation under section 274(n). In its financial statements, Cashew treats the $50,000 depreciation and $100 of the meals as other costs in computing cost of goods sold. Cashew must include on Form 8916-A and on line 15, in column (a), the $50,000 of depreciation and $100 of meals. Cashew must also include a temporary difference of $20,000 in column (b), a permanent difference of ($50) in column (c), and $70,050 in column (d) ($70,000 depreciation and $50 meals). In addition, Cashew must report on Part III, line 25, for its 2023 tax year income statement, depreciation expense of $40,000 in column (a), a temporary difference of ($10,000) in column (b), and $30,000 in column (d); and on Part III, line 6, meals and entertainment expense of $100 in column (a), a permanent difference of ($50) in column (c), and $50 in column (d). All other cost of goods sold items would be added to the amounts included on line 15, detailed in this example, and reported on Form 8916-A and on line 15 in the appropriate columns.

Line 16. Sale Versus Lease (for Sellers and/or Lessors) Note. Also see the instructions for Part III, Line 28. Purchase Versus Lease (for Purchasers and/or Lessees) , later.

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 accounting purposes for all sale or lease transactions that must be given the opposite characterization for

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 columns (a) and (d).

Example 17. Maple is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Maple sells and leases property to customers. For financial accounting purposes, Maple accounts for each transaction as a sale. For U.S. income tax purposes, each of Maple's transactions must be treated as a lease. In its financial statements, Maple treats the difference in the financial accounting and the U.S. income tax treatment of these transactions as temporary. During 2023, Maple reports in its financial statements $1,000 of sales and $700 of cost of goods sold with respect to 2023 lease transactions. Maple receives periodic payments of $500 in 2023 with respect to these 2023 transactions and similar transactions from prior years and treats $400 as principal and $100 as interest income. For financial accounting purposes, Maple reports gross profit of $300 ($1,000

$700) and interest income of $100 from these transactions. For U.S. income tax purposes, Maple reports $500 of gross rental income (the periodic payments) and (based on other facts) $200 of depreciation deduction on the property. On its 2023 Schedule M-3, Maple must report on line 11 $100 in column (a), ($100) in column (b), and $0 in column (d). In addition, Maple must report on line 16 $300 of gross profit in column (a), $200 in column (b), and $500 of gross rental income in column (d). Lastly, Maple must report on Part III, line 25, $200 in columns (b) and (d).

Line 17. Section 481(a) Adjustments With the exception of a section 481(a) adjustment that is required to be reported on Part I, 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. 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.

Example 18. Partnership Noble is a calendar year partnership that files and entirely completes Schedule M-3 for its 2023 tax year. Noble was depreciating certain fixed assets over an erroneous recovery period and, effective for its 2023 tax year, Noble receives IRS consent to change its method of accounting for the depreciable fixed assets and begins using the proper recovery period. The change in method of accounting results in a positive section 481(a) adjustment of $100,000 that is required to be spread over 4 tax years, beginning with the 2023 tax year. In its financial statements, Noble treats the section 481(a) adjustment as a temporary difference. Noble must report on line 17 $25,000 in columns (b) and (d) for its 2023 tax year and each of the subsequent 3 tax years (unless Noble is otherwise required to recognize the remainder of the section 481(a) adjustment earlier). Noble must not report the section 481(a) adjustment on Part III, line 25.

Line 18. Unearned/Deferred Revenue Report on line 18, column (a), amounts of revenues included on 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. 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

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recognizable for U.S. income tax purposes in the current tax year. Use columns (b) and (c) of line 18, as applicable, to report differences between columns (a) and (d).

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

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

Line 20. Original Issue Discount and Other Imputed Interest 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 isn't limited to:

The excess of a debt instrument's stated redemption price at maturity over its issue price, as determined under section 1273;
Amounts that are imputed interest on a deferred sales contract under section 483;
Amounts treated as interest or OID under the stripped bond rules under section 1286; and
Amounts treated as OID under the below-market interest rate rules under section 7872.

Line 21a. Income Statement Gain/Loss on Sale, Exchange, Abandonment, Worthlessness, or Other Disposition of Assets Other Than Inventory and Pass-Through Entities 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 (for example, on Schedule K-1) that are included in the net income (loss) 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. income tax purposes are reported on lines 21b through 21g, as applicable.

Line 21b. Gross Capital Gains From Schedule D, Excluding Amounts From Pass-Through Entities Report on line 21b gross capital gains reported on Schedule D, Capital Gains and Losses, excluding capital gains from pass-through entities, which must be reported on line 7, 8, or 9, as applicable.

Line 21c. Gross Capital Losses From Schedule D, Excluding Amounts From Pass-Through Entities, Abandonment Losses, and Worthless Stock Losses Report on line 21c gross capital losses reported on Schedule D, excluding capital losses from (a) pass-through entities, which must be reported on line 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.

Line 21d. Net Gain/Loss Reported on Form 4797, Line 17, Excluding Amounts From Pass-Through Entities, Abandonment Losses, and Worthless Stock Losses Report on line 21d the net gain or loss reported on line 17 of Form 4797, excluding amounts from (a) pass-through entities, which must be reported on line 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.

Note. Traders in securities or commodities that have made a valid election under section 475(f) to use the mark-to-market method to account for securities or commodities, see the instructions for Part II, line 14, earlier.

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

Line 21f. Worthless Stock Losses 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 statement that separately states and adequately discloses each transaction that gives rise to a worthless stock loss and the amount of each loss.

Line 21g. Other Gain/Loss on Disposition of Assets Other Than Inventory Report on line 21g any gains or losses from the sale or exchange of property other than inventory that aren't reported on lines 21b through 21f.

Line 22. Other Income (Loss) Items With Differences Separately state and adequately disclose on line 22 all items of income (loss) with differences that aren't otherwise listed on lines 1 through 21. Attach a statement that describes and itemizes the type of income (loss) and the amount of each item and provides a description that states the income (loss) name for book purposes for the amount recorded in column (a) and describes the adjustment being recorded in column (b) or (c). The entire description completes the tax description for the amount included in column (d) for each item separately stated on this line.

The attached statement should have five columns. The first column has the description for the next four columns. The second column is Column (a), Income (Loss) per Income Statement. The third column is Column (b), Temporary Difference. The fourth column is Column (c), Permanent Difference. The fifth column is Column (d), Income (Loss) per Tax Return. For every item listed on the attached statement for line 22, columns (a) + (b) + (c) must equal column (d). Each item with amounts in columns (a), (b), (c), and (d) will be totaled and included as one line on line 22.

A partnership should include tax-exempt income from forgiven Paycheck Protection Program (PPP) loans on line 22, column (c), as a negative number if it was included on line 22 in column (a) as Income per Income Statement.

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—comprehensive income” and “Gains and losses on available-for-sale securities—comprehensive income.”

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Line 23. Total Income (Loss) Items Combine lines 1 through 22 and enter the total on line 23.

Note. Line 15, Cost of goods sold, columns (a) and (d), are negative amounts that will affect the totals entered on line 23.

Line 24. Total Expense/ Deduction Items Report on line 24, columns (a) through (d), as applicable, the negative of the amounts reported on Part III, line 31, columns (a) through (d). For example, if Part III, line 31, column (a), reflects an amount of $1 million, then report on line 24, column (a), ($1,000,000). Similarly, if Part III, line 31, column (b), reflects an amount of ($50,000), then report on line 24, column (b), $50,000.

Line 25. Other Items With No Differences 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 isn't described or included on lines 1 through 22, or Part III, lines 1 through 30, 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 doesn't have a difference, don't report any portion of the item on line 25. Instead, report the entire amount of the item (that is, both the portion with a difference and the portion without a difference) on the applicable line of lines 1 through 22, or Part III, lines 1 through 30. See Example 11, earlier.