TEI comments on final Schedule M-3: July 21, 2004.

• Position: Tax Executives Institute

On July 21, 2004, TEI President Raymond G. Rossi sent the following letter to Acting Assistant Treasury Secretary Gregory F. Jenner and LMSB Commissioner Deborah M. Nolan concerning the draft of the final version of the Schedule M3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More. A follow-up meeting on the new schedule was held on August 2, 2004. The comments were prepared under the aegis of TEI's Federal Tax Committee, whose chair is Neil D. Traubenberg of Storage Technology Corporation. TEI's previous comments on the proposed schedule were published in the May-June issue of The Tax Executive.

On July 7, 2004, the Treasury Department and Internal Revenue Service released the draft of the final version of the Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More. The new schedule expands upon the information corporations are required to file with their current Schedule M-1.

Schedule M-3 is effective for any tax year ending on or after December 31, 2004, and must generally be filed by a corporation required to file a Form 1120 with total assets that equal or exceed $10 million. For the first taxable year in which the schedule is required, however, a corporation is required to complete only Parts I and Columns B and C of Parts II and III. The remaining sections of the schedule (most notably, Column A and D of Parts II and III) are optional for the first year.

TEI commends the Treasury Department and IRS for their efforts to fine-tune the tax compliance system to expedite the examination of tax returns. The data to be reported in the new schedule are intended to identify high-risk issues to determine whether a return should be audited. Taxpayers share the government's hope that the new schedule will focus (or even eliminate) examinations, reduce the time required to produce information during audit, and eventually eliminate the need to file Form 8886 for...