IRS Changes Schedule M-3 Filing Requirements for Some Entities 

    NEWS NOTES 
    by Alistair M. Nevius, J.D. 
    Published August 01, 2013

    From the IRS

    The IRS on its website announced changes in the filing requirements for Schedule M-3, Net Income (Loss) Reconciliation, for certain corporations and partnerships. For tax years ending on or after Dec. 31, 2014, certain corporations and partnerships will be permitted to file Schedule M-1, Reconciliation of Income (Loss) and Analysis of Unappropriated Retained Earnings per Books, in place of Parts II and III of Schedule M-3, which reconcile net income or loss per the income statement and report expense and deduction items. However, these entities will still have to file Schedule M-3, Part I, Financial Information and Net Income (Loss) Reconciliation.

    The change applies to corporations and partnerships that have at least $10 million but less than $50 million in total assets at tax year end and that file Forms 1120, U.S. Corporation Income Tax Return; 1120-C, U.S. Income Tax Return for Cooperative Associations; 1120-F, U.S. Income Tax Return of a Foreign Corporation; 1120S, U.S. Income Tax Return for an S Corporation; 1065, U.S. Return of Partnership Income; or 1065-B, U.S. Return of Income for Electing Large Partnerships.

    If such entities choose to file Schedule M-1, the book income they report on Schedule M-1, line 1, must match the book income they report on Schedule M-3, line 11. These entities will not be required to file Form 1120, Schedule B, Additional Information for Schedule M-3 Filers; Form 1065, Schedule C, Additional Information for Schedule M-3 Filers; or Form 8916-A, Supplemental Attachment to Schedule M-3.

    The IRS says that partnerships with less than $10 million in total assets that are currently required to file Schedule M-3 will continue to file Schedule M-3, Part I, but 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. These partnerships include those with total receipts of $35 million or more or that have a reportable entity partner who is also required to file Schedule M-3.

    Corporations and partnerships with less than $10 million in total assets that are not otherwise required to file Schedule M-3 are currently permitted to voluntarily file Schedule M-3. The IRS says these 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. These corporations and partnerships will not be required to file Form 1120, Schedule B; Form 1065, Schedule C; or Form 8916-A.

    The IRS says the reason for the change is to reduce these entities’ filing burden and simplify reporting. It also says that its Large Business and International (LB&I) Division is looking at other changes to Schedule M-3 and to the requirements for book-tax reconciliation for corporations with $10 million to $50 million in total assets that are life insurance or property and casualty insurance companies or that file as a mixed group (i.e., file a consolidated return that includes an insurance company and a noninsurance company or both a life insurance company and a property and casualty insurance company), including the requirement that mixed groups subconsolidate and file Form 8916, Reconciliation of Schedule M-3 Taxable Income With Tax Return Taxable Income for Mixed Groups.

    The Schedule M-3 reporting requirement has been in place since 2004. It requires corporate and partnership entities that report assets of $10 million or more on their Schedule L balance sheet to reconcile taxable income or loss with financial statement income or loss.




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