Schedule M-3 for Large Business & International (LB&I)

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.

Suggested software diagnostics to alert of problems on a Schedule M-3 prior to submission are available.

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.

2008 Changes to Form 1065 - Frequently Asked Questions

Form 1065 has a number of changes for 2008. For example, Schedule B and Schedule K-1 require reporting of ownership percentages. The FAQ page on Form 1065 changes offers helpful examples.

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
  • 2007 Instructions for Schedule M-3 (Form 1120-F)

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 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.

• FAQs on Rev. Proc. 2004-45

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)   
• MAPI 
• 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.