Discussion:1065 Schedule M1 "Permanent Items"

Schedules L and M2 balance and match up with the books. No problems that I can see there.

But Schedule M1 is off. Last year's M1 balanced out fine.

The return's income/loss is low compared to the book income/loss for the year, so is missing items on the books for income/deductions. 50% meals is accounted for as well as non-taxed income.

The amount off is about what I'd expect if I carried over the 2007 "permanent items" to the 2008 return. That is, if I added the 2007 "permanent items" from the 2007 M1 to the current year's items not addressed in the return (e.g. 50% meals, non-taxable income) schedule M1 would be in balance.

But should I be doing that? That doesn't seem correct, though these items are indicated as "permanent". Maybe I'm just getting hung up on the term "permanent"? Any other ideas on where to dig to find the difference?

Thanks!

Schedule L also balances.

So no problems (that I can see?) in those areas.

I've gone back through double checking COGs, income, and deductions to make sure there isn't something missing, but M2 is proving stubborn.

At this point I'm thinking "permanent" items for the 2007 M2 are included in calculation for the 2008 M2, as the difference is about equivalent to that amount. But that doesn't seem the proper either.

That is the opening retained earnings are not same, either the general ledger or the tax return.

Found the error -- a missing permanent difference on an asset sale ($11). For some reason I was hung up on the word 'permanent' thinking it meant something else. Too many long nights I guess.

Thanks for the input.