Partnership received 1099-NEC for unearned revenue, best way to report on form 1065 in Proconnect

Has anyone ever seen a case of IRS document matching 1099s to a 1065?  If there were tens of thousands of dollars involved, from multiple payers, on cash-basis returns, it might lead to a referral for field audit.  It's not like they can assess tax to the entity.  It would not be a bad idea to attach a one-paragraph statement, much like above, explaining what happened.  In case you're not around next year and no one else remembers.  

You stated they are accrual basis and this is a prepayment against the contract. There is no matching for this amount, because you don't always fall under a 1099-NEC requirement. Yet the entity should be reporting everything, especially as they are on accrual basis.

There is no way the 1099-NEC is for more than they are going to report. What's the issue, then?

You don't enter a 1099-NEC. You use the full data from the entity for their tax preparation. They should have this activity as part of their entire financial reporting.

If your taxpayer entity made $800 from one customer subject to 1099-NEC reporting, and $3 million from private customers with no requirement to report on 1099-NEC, you would be reporting the $3,000,800. The 1099-NEC is just informational. It's not the entity's perspective. It's from that one payer, because there exists a business relationship here.

OP is saying client received a 2025 1099-NEC, but due to being accrual basis and the nature of the work, etc. the amount is not taxable, reportable income until 2026.

If they've already got expenses charged to the contract, that associated income would be reported. If nothing else, this is work in progress. The 1099-NEC really is bit meaningless for the taxpayer, that's the point. It's the customer's perspective.

I understand the partnership is an overall accrual basis taxpayer and, presumably, you'll check the box as such on its return.  You also indicated that this is the partnership's first tax year.  If the partnership received a Form 1099-NEC then, presumably, it also received the payment in the tax year (which would be for the first tax year since there are no prior tax years).  Simply put, why do the constructive receipt rules not apply?  What specific deferral accounting method applies to the tax item?  [I don't have any entertainment clients but usually the mere execution of a services contract (without more) is not deductible by the payor but may well be includable by the payee.  Just curious.]

Thanks everyone for their responses.  I am mainly concerned about not having the IRS questioning the 1099-NEC. I was going to record the deposit as a sale in the program and make a negative adjustment entry for the amount and include an explanation for the entry and attach a letter explaining the client is under accrual accounting, and the payment is unearned revenue.