What is the difference between the Tax basis and GAAP basis on a K-1 1065? I am preparing a partner basis schedule since the individual sold their share of the partnership this year and am not understanding why the partners share of income, deductions, etc. in Part III of the K-1 don't tie to Line L.

“What is the difference between the Tax basis and GAAP basis on a K-1 1065?”----->As you can see,there are two choices when selecting an accounting method for your business: GAAP, generally accepted accounting principles, and tax accounting; each has benefits that may be ideally suited to the needs of your business financial reporting, and each method has drawbacks that may make it an unsuitable choice. GAAP accounting records all financial transactions: cash, accrual, investment, expenses, tax and deductions that may or may not have to be reported on your yearly tax form. This form of accounting is governed by strict standards and rules and may show actual income that is different from taxable income. For example, GAAP accounting is a set of standards provided by policy boards and commonly accepted methods of recording financial information that gives consistency to any type of financial reporting.Tax-based accounting is used by most accountants, and the majority of certified financial statements come from tax-based accounting. The focus of this type of accounting is on tracking your taxable income as it builds throughout the year. Tax accounting is a method of producing financial statements that uses the same methods that will apply to your tax return. GAAP accounting provides a means for a business to have a complete overview of the reality of its operations by tracking all monetary relationships, investments and expenditure. Tax accounting provides a focus on business or personal expenses that pertain to tax records only. GAAP accounting is more involved then tax accounting and provides more details about the monetary reality of daily operations that may or may not pertain to your tax needs; it also provides an accurate statement of your liabilities and assets. Tax based accounting has less rules and makes it easier to see where you stand at any given point of the year with taxable income. It does not, however, reliably report all liabilities and assets. When choosing which form of accounting to use for your personal or business needs there are several points to consider. If your business must issue financial statements to investors, GAAP provides greater consistency in the reporting, as it is guided by industry standards and not subject to the many changes that occur in tax requirements on a yearly basis. If you are established in your business and do not need to issue financial statements or your personal budget is adequate and realistic to your living needs, the simpler tax accounting methods may be better for you; your focus will remain on what is needed to successfully file taxes at the end of each year and you do not need the masses of data associated with tracking every financial transaction that occurs during the year.The IRS requires the reconciliation of the PS’s financial accounting income(book income) and its taxable income on M1 of 1065. So, as said above, book income is calculated according to GAPP including rules promulgated by FASB. On the other hand, taxable income must be calculated using tax rules so, book income and taxable income usually differ.
“I am preparing a partner basis schedule since the individual sold their share of the partnership this year and am not understanding why the partners share of income, deductions, etc. in Part III of the K-1 don't tie to Line L.”------->I do not think that the partner’s share of income, deductions or etc. in Part 3 of 1065 tie to line L of Part 2. The amounts on Sch M2 should equal the total of all the amounts reported in item L (analysis of partner’s capital account) Part 2.The line numbers on the SCh K and K-1 are coordinated to make transferring the information easier. Sch K-1 informs the partners of their respective share of the items on Sch K. I guess you need to include individual partner’s share in the partnership, so that the percentage of ownership shown on the partner’s K-1 form under lines L and M of Part II his percentage of share and the dollar amounts on the partner”s K-1 form under Part III reflect the total dollar amounts for these items on the partnership's completed Form 1065.