Summary of Changes to Schedule M-3:
Notice of Change in Schedule M-3 requirements for corporations and partnerships with $10 million to $50 million in total assets permitting the filing of Schedule M-1 in place of Schedule M-3, Parts II and III, effective for tax years ending December 31, 2014 and later:
Effective for tax years ending December 31, 2014 and later, corporations and partnerships with at least $10 million but less than $50 million in total assets at tax year end will be permitted to file Schedule M-1 in place of Schedule M-3, Parts II and III. Schedule M-3, Part I, lines 1-12 will continue to be required for these taxpayers. Those taxpayers electing to file Schedule M-1 must report book income on Schedule M-1, line 1, equal to the book income amount reported on Schedule M-3, Part I, line 11. Corporations and partnerships with $10 million to $50 million in total assets may voluntarily file Schedule M-3 Parts II and III rather than Schedule M-1. This change applies to corporations and partnerships filing Forms 1120, 1120-C, 1120-F, 1120S, 1065 and 1065B.
Corporations and partnerships filing Forms 1120, 1120-C, 1120-F, 1120S, 1065 and 1065B with $10 million to $50 million in total assets will not be required to file Form 1120 Schedule B, Form 1065 Schedule C or Form 8916-A.
The reason for these changes is to reduce filing burden and to simplify reporting for these corporations and partnerships.
LB&I continues to consider changes to Schedule M-3 and to the requirements for the book-to-tax reconciliation for corporations with $10 million to $50 million in total assets filing Form 1120-L, 1120-PC, or filing as a mixed group including the requirement that mixed groups sub-consolidate and file Form 8916.
Schedule M-1 detail is currently filed electronically as four attachments, one each to Schedule M-1 lines 4, 5, 7, and 8. This will not change.
Partnerships with less than $10 million in total assets currently required to file Schedule M-3 (adjusted total assets of $10 million or more, total receipts for $35 million or more, or a reportable entity partner also required to file Schedule M-3) will continue to file Schedule M-3, Part I and may elect to file Schedule M-1 in place of Schedule M-3, Parts II and III. Partnerships with less than $10 million in assets will not be required to file Form 1065 Schedule C or Form 8916-A.
Corporations and partnerships with less than $10 million in total assets not otherwise required to file Schedule M-3 are currently permitted to voluntarily file Schedule M-3. Such taxpayers may continue to voluntarily file Schedule M-3 and may elect to file Schedule M-3 Parts I, II, and III or to file Schedule M-3 Part I and to file Schedule M-1 in place of Schedule M-3 Parts II and III. Such corporations and partnerships will not be required to file Form 1120 Schedule B, Form 1065 Schedule C, or Form 8916-A.
LB&I continues to consider changes to Schedule M-3 and to the requirements for the book-to-tax reconciliation for corporations and partnerships with $50 million or more in total assets.
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Section 2 of TY 2009 Directions to e-file, Mixed Returns, has been updated to provide more clarity around the various Schedule M-3 required for Mixed Group Returns. This update is available at the link below. These directions MUST be followed by ALL Mixed Group Corporations (Form 1120 Parent with one or more Form 1120-L or Form 1120-PC subsidiaries) that e-file.
New Additional Schedules for Corporations and Partnerships Filing Schedule M-3
- For tax years ending on or after December 31, 2008, corporations filing Form 1120 Schedule M-3 must also file new Form 1120 Schedule B.
- For tax years ending on or after December 31, 2008, partnerships filing Schedule M-3 must also file new Form 1065 Schedule C.
Forms 1120 and 1065 and Related Schedules and Instructions for 2008
Forms 1120 and 1065, and several related schedules and instructions, released July 2008 for public comment, are now final. Changes to the forms increase the transparency of the relationship between entities that make up complex business enterprises.
IRS Releases Final Schedule M-3 (1120-F)
The Internal Revenue Service has released a final version of Schedule M-3 (1120-F), new for tax years ending on or after December 31, 2007 for taxpayers with reportable assets of $10 million or more.
- 2007 Schedule M-3 (Form1120-F), Net Income (Loss) Reconciliation for Foreign Corporations With Reportable Assets of $10 Million or More
Related Financial Accounting and Disclosure Guidance
Revenue Procedure 2005-75 provides guidance on adequate disclosure on Schedule M-3 to avoid IRC 6662 penalties.
Notice 2006-06 (PDF) eliminates the "large book-tax differences" as a category of transactions, pursuant to the Tax Shelter Disclosure Regulation 1.6011-4(b)(6), requiring disclosure on Form 8886, "Reportable Transaction Disclosure Statement." This change is due to the reporting requirements of the Schedule M-3 book-tax differences, and is effective for transactions that would have previously been required to be reported on or after January 6, 2006. For example, prior to Notice 2006-06, a transaction in 2005 for a taxpayer that has a December 31, 2005 year end would have had to be first reported in the return due on March 15, 2006; such reporting is no longer required. Notice 2006-06 does not relieve taxpayers of any obligation to file a Schedule M-3.
Prior to Notice 2006-06, Revenue Procedure 2004-45, issued in conjunction with the Form 1120 Schedule M-3, provided that filing Schedule M-3 by certain taxpayers in accordance with the Rev. Proc. satisfied the Treasury Regulation 1.6011-4(b)(6) requirements to disclose transactions with significant book-tax difference.
How to Submit Your Question about Form 1120 Schedule M-3
IRS is partnering with stakeholder groups to provide answers to questions about the Form 1120 Schedule M-3 that are not covered in published material, such as the Form 1120 Schedule M-3 instructions and on-line FAQs. Please check these sources first for the information you need. If your question is not answered there, you should submit your questions(s) to one of the following stakeholder contact points with which you are affiliated. These participating groups have been requested to assist by eliminating duplication and offering taxpayers anonymity if desired.
- American Bar Association
- American Institute of Certified Public Accountants (AICPA)
- American Taxation Association (ATA)
- Association for Computers and Taxation (ACT)
- Tax Executives Institute (TEI)
Taxpayers who are not affiliated with any of the participating stakeholder groups listed above can submit their questions by emailing them to F1120 Schedule M3. Priority will be given, however, to questions submitted through the participating stakeholder groups.