# Additional Detail to be Used with Schedule M-3 Instructions for Each Particular Form

**The following information provides additional detail to be used in conjunction with the Schedule M-3 instructions for each particular form. (Revised 01-28-2010)**

**A. Consolidated Level Form 1120 Mixed Return**

**A.1.** Form 1120 Schedule M-3 is required with a consolidated Part II that ties to a consolidated Schedule M-3, Part I, and a consolidated Form 8916, line 1. If Form 8916-A is required at any level, it must be present at the consolidated level.

Part I is completed in its entirety and Part II, lines 29a, 29b and 29c, are completed for the total Mixed Return. At the consolidated level, all columns in Part II are required (a, b, c & d) for lines 29a, 29b, 29c, and 30, even if this is the first year of the M-3 requirement.. No Part III is required at the consolidated level.

All the following checkboxes much be completed:

**Part I**, checkbox 3, Mixed 1120/L/PC Group**Above Part II**, checkbox 1, Consolidated Group**Above Part II**, checkbox 5, Mixed 1120/L/PC Group

**A.2**. A consolidated eliminations return is optional. However, if one is included, an 1120 Schedule M-3 must be completed and attached to the consolidated eliminations return. All the following checkboxes must be completed:

**Above Part II**checkbox 3, Consolidated Eliminations**Above Part II**, checkbox 5, Mixed 1120/L/PC Group

**B. Mixed Return Subgroups**

**B.1**. There are 3 subgroups possible in a Mixed Return: One subgroup for those corporations reporting on Form 1120 (1120 Subgroup); one subgroup for those corporations reporting on Form 1120-L (1120-L Subgroup); and one subgroup for those corporations reporting on Form 1120-PC (1120-PC Subgroup).

**B.2.** Each subgroup will require:

- Sub-consolidation return
- Eliminations return, as applicable
- Parent return (in the case of the 1120 Subgroup)
- Subsidiary returns

**B.3.** Each corporation within the subgroup must complete its own Schedule M-3 form (1120, 1120-PC, 1120-L), Parts II and III. A separate Schedule M-3 is also required for the subgroup sub-consolidation and the subgroup eliminations, if applicable.

**C.** **Mixed Return Sub-consolidation Return(s)**

**C.1**. Subgroup **sub-consolidation returns** are **required as follows**:

- 1120 -- When an 1120 Parent, filing alone or with 1 or more 1120 subsidiaries included, files a consolidated mixed return
- 1120-L -- When 1 or more 1120 -L subsidiaries are included in the consolidated mixed return
- 1120-PC -- When 1 or more 1120-PC subsidiaries are included in the consolidated mixed return

**C.2**. Schedule M-3 Preparation for an 1120 Sub-consolidation return

- 1120 Schedule M-3 is required and must reflect the total net amounts for all of the returns included in the 1120 sub-consolidation group. This must include amounts from the parent return, all of the 1120 subsidiary returns, and the eliminations return, if applicable.

All of the following checkboxes must be completed:

**Above Part II**and**Part III**checkbox 5, Mixed 1120/L/PC Group- Checkbox 6, 1120 Group

Part II through line 29(a) and Part III **must** be completed for all columns a, b, c & d. if the Parent is required to complete all columns.

- If the Parent is not required to complete all columns, only columns b & c are required,
**Part II, line 29a**, columns a, b, c, and d,**must always be completed**

**NOTE:** To meet the requirements of proper reporting for the Schedule M-3 instructions and general reporting requirements, each difference reported in Parts II and III must be separately stated and adequately disclosed. In general, a difference is adequately disclosed if the difference is labeled in a manner that clearly identifies the item or transaction from which the difference arises. Differences for separate items **must not** be combined or netted together. Each item (and corresponding amount attributable to that item) must be separately stated and adequately disclosed on the applicable line of the Schedule M-3 even if the amounts are deminimus. This guidance applies to columns a, b, c and d of all parts of the Schedule M-3.

The Form 1120 sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(a) column d amount must each tie to taxable income on the Form 1120 sub-consolidation return line 28.

**C.3**. 1120-L or 1120-PC Sub-consolidation return(s)

An applicable subgroup Schedule M-3 is required and must reflect the total net amounts for all of the subsidiary returns included in the sub-consolidation group. This must include amounts from the eliminations return, if applicable.

All of the following checkboxes must be completed:

**Above Part II**and**Part III**checkbox 5, Mixed 1120/L/PC Group- Checkbox 6, 1120-L Group or 1120-PC Group, if applicable.

Part II through line 29(a) and Part III **must** be completed for all columns a, b, c & d, if the Parent of the 1120 subgroup is required to complete all columns.

- If the Parent of the 1120 subgroup is not required to complete all columns, only columns b & c are required,
**Part II, line 29a**, columns a, b, c, and d,**must always be completed**

The Form 1120-L sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(c) column d amount must tie to taxable income on the Form 1120-L sub-consolidation return, line 20.

The Form 1120-PC sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(b) column d amount must each tie to taxable income on the Form 1120-PC sub-consolidation return Schedule A, line 35.

**D. Mixed Return Sub-Consolidation Required.**

**D. 1.** Schedule M-3 is required in XML for **ALL** levels in a Mixed Return. This includes the top consolidation, each entity (parent, subsidiary), and the return subgroup(s) level. Additionally, a Form 8916 will be required for all Mixed Returns. Form 8916-A, Supplemental Attachment to Schedule M-3, is required to be filed for each return (including subsidiary returns) for those entities that report any amounts for Cost of Goods Sold (COGS), Interest Income or Interest Expense on their returns.

Each type of entity is considered a subgroup when they are part of a Mixed Group return. There are three possible subgroups in a Mixed Return:

- One subgroup reporting for all Forms 1120 (1120 Subgroup)
- One subgroup reporting for all Forms 1120-L (1120-L Subgroup)
- And one subgroup reporting for all Forms 1120-PC (1120-PC Subgroup)

A sub-consolidation is the reporting of all income and expense items relative to each subgroup. A sub-consolidation must be present for each subgroup. This is true even if there is only one corporation in a subgroup.

**D.2.** Different forms (1120, 1120-L, and 1120-PC) may **not** be combined in a single subgroup sub-consolidation. In particular, an 1120 parent and an 1120-PC subsidiary must not be combined as a non-life subgroup. The 1120 parent **must be** in the 1120 subgroup and the 1120-PC subsidiary **must be** in the 1120-PC subgroup. Form 8916 at the consolidated Schedule M-3 level will provide life-nonlife detail.

**D.3**. Form 8916-A, if applicable, is required at each level, including the subgroup and subgroup elimination levels.

**E. Mixed Return - 1120 Parent Return**

**E.1.** Form 1120 Schedule M-3 is required.

Part II is completed through line 29a, columns a, b, c, and d, unless this is the first year of the Schedule M-3 requirement.

- If this is the initial year the Schedule M-3 is required, then
**only**Part II, lines 1 – 28 columns b & c are required. **Part II, line 29a**, columns a, b, c, and d,**must always be completed**regardless of the initial or later year of the Schedule M-3 requirement.

Part III **must** be completed for all columns a, b, c, and d, unless this is the first year of the Schedule M-3 requirement.

- If this is the initial year the Schedule M-3 is required, then only Part III, lines 1 – 36 columns b & c are required.

All of the following checkboxes must be completed:

**Above Part II**and**Part III**checkbox 2, Parent Corporation**Part III**checkbox 5, Mixed 1120/L/PC Group

**F. Mixed Return - All Subsidiary Returns**

An applicable subgroup Schedule M-3 is required.

Part II through line 29(a) and Part III **must** be completed for all columns a, b, c & d, if the Parent of the 1120 subgroup is required to complete all columns.

- If the Parent of the 1120 subgroup is not required to complete all columns, only columns b & c are required,
**Part II, line 29a**, columns a, b, c, and d,**must always be completed**

Part III is completed for all lines.

- If the Parent of the 1120 subgroup is not required to complete columns a & d, then the subsidiaries are only required to complete columns b and c.

All of the following checkboxes must be completed:

**Above Part II**and**Part III**, checkbox 4, Subsidiary corp**Above Part II**and**Part III**checkbox 5, Mixed 1120/L/PC group

**G. Form 8916 - Reconciliation of Schedule M-3 Taxable Income with Tax Return Taxable Income for Mixed Groups**

Form 8916 is required to be completed and attached to the top consolidated 1120 return for **every** Mixed Return required to file an M-3.

Form 8916 is used to reconcile the consolidated Form 1120 Schedule M-3 taxable income reported on Part II, line 30, column d to the taxable income reported on the consolidated Form 1120 income tax return, page 1, line 30.

The amount on Form 8916, line 1 must equal the amount reflected on the consolidated Form 1120 Schedule M-3, line 30, column d.

The amount on Form 8916, line 8, must equal the taxable income reported on the consolidated Form 1120, line 30.

The mixed group consolidated Form 1120 page 1, lines 1-29, **may** be left blank. In particular, the consolidated amounts that would otherwise be reported on lines 28, 29a, and 29b are reported on Form 8916, lines 1 to 8, in a different format, which takes into account the requirements of Section 1502 with respect to life/non-life limitations.

**G.3.** Any entry on Form 8916, line 7, must be supported by a short explanation. This explanation must be entered on the IRS schema **OtherAdjustmentsToReconcileTaxableIncomeStatement** and attached to the Form 8916.

**G.4**. Except for the explanation required for line 7 entries, no other supporting taxable income calculation, workpapers, or explanations are required to be attached to the Form 8916. However, the workpapers must be retained and produced, if requested. The taxpayer may provide additional PDF supporting attachments for any line of Form 8916 on a voluntary basis and for **any** line of any Schedule M-3.

**H. Form 8916-A – Supplemental Attachment to Schedule M-3**

**H.1**. Form 8916-A is required to be completed and attached to every Form 1120, 1120-L, and 1120-PC Schedule M-3 (consolidated, consolidated eliminations if applicable, sub-consolidation, parent, subsidiary, and eliminations) that is filed as part of a Mixed Return that includes any amounts for Cost of Goods Sold (COGS), interest income, or interest expense.

**H.2.** Form 8916-A Part I Cost of Goods Sold contains line 6, Other Items With Differences. Line 6 requires supporting detail to be attached to the Form 8916-A for the following M-3s, if applicable.

- Form 1120 Parent Schedule M-3
- Every Form 1120 Subsidiary Schedule M-3

The supporting detail for line 6, Other Items With Differences (attach schedule) must be provided on the IRS schema titled **OtherItemsWithDifferencesSchedule**.

- Attach this schedule to the respective Form 8916-A that it supports.

**H.3**. No supporting line 6 detail is required for the Forms 8916-A attached to the

- Form 1120 Sub-consolidation Schedule M-3
- Any Form 1120 Eliminations M-3 (i.e. Consolidation or Sub-consolidation)

**H.4.** Summarized (aggregated) data for each applicable line is required on the Form 8916-A attached to the following forms:

- Forms 1120, 1120-L, and 1120-PC, Sub-consolidation Schedule M-3, elimination Schedule M-3
- Consolidated Form 1120 Schedule M-3 and elimination Schedule M-3.

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