However, not all partnerships have to do this analysis, and many smaller partnerships do not complete Schedule M-2. The amounts on Schedule M-2 should equal the total of the amounts reported in Part II, Item L of ALL the partners’ Schedules K-1’s. This section of the tax return is used by the IRS to verify the accuracy of the tax reporting because analyzing the changes to the capital accounts should be consistent with the income reporting and balance sheet (Schedule L). Return of Partnership Income where the partnership reports to the IRS what caused the changes to the partners’ capital accounts on the partnership’s books and records. ![]() ![]() Schedule M-2 – Analysis of Partner’s Capital Accounts is the section in Form 1065 – U.S.
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