Final version of Schedule M-3 available.

• Author: Reinstein, Todd B.
• Position: Corporate net income loss reconciliation reporting

On July 7, 2004, Treasury and the IRS released the final version of Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More, for reporting annual book-to-tax reconciliations for tax years ending on or after Dec. 31, 2004. The new schedule replaces current Schedule M-1, Reconciliation of Income (Loss) per Books With Income per Return, and requires taxpayers to submit significant details beyond the general "white paper" disclosure required for many years. A corporation must file Schedule M-3 if it is required to file Form 1120 and its assets equal or exceed $10 million at the end of a tax year.

Overview

The schedule has been combined and reformatted from the draft released in January 2004. Part I, Financial Information and Net Income (Loss) Reconciliation, asks about the corporation's financial statements and reconciles worldwide financial statement net income (or loss) to net book income reported on the return. Part II, Reconciliation of Net Income (Loss) per Income Statement of Includible Corporations With Taxable Income per Return, and Part III, Reconciliation of Nat Income (Loss) per Income Statement of Includible Corporations With Taxable Income per Return--Expense/Deduction Items, are consolidating schedules that require corporations to (1) separately report over 70 items of income and expense in reconciling net income (or loss) and (2) identify each as either a temporary or permanent difference.

FAQs

In a list of frequently asked questions (FAQs) (available at www.irs.gov/pub/irs-utl/m-3_faq.pdf), the IRS states in Q&A-4 that a corporation must complete only Part I and columns B and C of Parts II and III for a "transition year" (i.e., the first tax year the corporation is required to file Schedule M-3). Q&A-6 clarifies that Part I of Schedule M-3 must be completed once to report consolidated information and activity for an entire U.S. consolidated tax group; however, Parts II...