IRS revises Schedule M-3 for C corps.

• Author: Heffes, Ellen M.
• Position: Financial Reporting - Internal Revenue Service - Schedule M-3

The Internal Revenue Service (IRS) released a new version of Schedule M-3, effective for tax years ending on or after Dec. 31, 2004. The new three-page form is a reconciliation of financial statement income to taxable income, with permanent and book-tax differences adequately disclosed. It is designed to increase the transparency between financial statement income and tax return income and to help the IRS identify tax returns for examination.

Schedule M-3 applies to C corporations with $10 million or more of total assets, generally determined on an accrual basis as of the end of the tax year. However, the IRS has granted a partial reprieve for the first year that a corporation's assets reach or exceed the $10 million mark. In that year, the corporation can list each temporary or permanent book-tax difference without preparing a detailed reconciliation of financial statement income to tax return income.

This reprieve resulted from correspondence the IRS received from Grant Thornton and other firms requesting that assets be measured at the beginning rather than the end of the year so that taxpayers would know up front whether they would be subject to the tough reporting obligations required by the form.

The IRS has indicated that it plans to...