Final answer:
The correct answer is option C, claimed the Section 179 deduction. This type of deduction involves a difference between book and tax reporting, which would require an adjustment on Schedule M-1 of Form 1065.
Step-by-step explanation:
The correct answer is option C. Claimed the Section 179 deduction. When completing Schedule M-1 of Form 1065, adjustments must be made for income and expenses that are reported differently for book purposes than they are for tax purposes.
The Section 179 deduction can create a difference between book income and taxable income because it allows a business to deduct the full purchase price of qualifying equipment and software purchased or financed during the tax year.
The partnership may have recorded the expense over a longer term for book purposes but would deduct the full amount in one year for tax purposes under Section 179.
Meanwhile, making the de minimis safe harbor election (Option A), filing a short-year tax return (Option B), or deducting business interest expenses (Option D) would not inherently require an adjustment on Schedule M-1 unless there was a specific difference between the book and tax reporting of these items.
The partnership making the de minimis safe harbor election under section 1.263(a)-1(f) of the tangible property regulations will require an adjustment on Schedule M-1 of Form 1065. This election allows small taxpayers to expense certain costs for tangible property instead of capitalizing them.
The adjustment is necessary to reflect the difference between the capitalization and expensing of these costs on the Schedule M-1.