Instructions for IRS Form 1120-pc Schedule M-3 - Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More 2017

January 1, 2017 "Instructions For Schedule M-3 (irs Form 1120-pc) - Net Income (loss) Reconciliation For U.s. Property And Casualty Insurance Companies With Total Assets Of $10 Million Or More" contain the updated filing procedures for the IRS-issued Form 1120-PC. Download your copy of the instructions by clicking the link below.

IRS Form 1120-PC is a tax form issued by the United States Internal Revenue Service.

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2017
Department of the Treasury
Internal Revenue Service
Instructions for
Schedule M-3 (Form
1120-PC)
Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance
Companies With Total Assets of $10 Million or More
Insurance Company Income Tax Return,
2. U.S. property and casualty
Section references are to the Internal Revenue
Code unless otherwise noted.
that reports on Schedule L of Form
insurance company C owns U.S. property
1120-PC total assets at the end of the
and casualty insurance company D. For its
Future Developments
corporation's tax year that equal or exceed
2017 tax year, C prepares consolidated
$10 million must complete and file
financial statements with D but C and D
For the latest information about
Schedule M-3 instead of Schedule M-1,
file separate U.S. income tax returns. The
developments related to Schedule M-3
Reconciliation of Income (Loss) per Books
consolidated accrual basis financial
(Form 1120-PC), and its instructions, such
With Income (Loss) per Return.
statements for C and D report total assets
as legislation enacted after they were
A corporation filing a non-consolidated
at the end of the tax year of $12 million
published, go to IRS.gov/Form1120PC.
Form 1120-PC that reports on Schedule L
after intercompany eliminations. C reports
General Instructions
for Form 1120-PC total assets that equal
separate company total year-end assets
or exceed $10 million must complete and
on its Schedule L of $7 million. D reports
file Schedule M-3 instead of Schedule M-1
separate company total year-end assets
Purpose of Schedule
and must check box (1) Non-consolidated
on its Schedule L of $6 million. Neither C
Schedule M-3, Part I, asks certain
return, at the top of page 1 of
nor D is required to file Schedule M-3 for
questions about the corporation's financial
Schedule M-3.
the 2017 tax year.
statements and reconciles financial
Any U.S. consolidated tax group
3. Foreign corporation A owns 100%
statement net income (loss) for the
consisting of a U.S. parent corporation
of both U.S. property and casualty
corporation (or consolidated financial
and additional includible corporations
insurance company B and U.S. property
statement group, if applicable), as
listed on Form 851, Affiliations Schedule,
and casualty insurance company C. C
reported on Schedule M-3, Part I, line 4a,
required to file Form 1120-PC that reports
owns 100% of U.S. property and casualty
to net income (loss) of the corporation for
on Schedule L of Form 1120-PC total
insurance company D. For its 2017 tax
U.S. taxable income purposes, as
consolidated assets at the end of the tax
year, A prepares a consolidated
reported on Schedule M-3, Part I, line 11.
year that equal or exceed $10 million must
worldwide financial statement for the
complete and file Schedule M-3 instead of
ABCD consolidated group. The ABCD
Schedule M-3, Parts II and III, reconcile
Schedule M-1, and must check box (2)
consolidated financial statement reports
financial statement net income (loss) for
Consolidated return (Form 1120-PC only),
total year-end assets of $25 million. A is
the U.S. corporation (or consolidated tax
or (3) Mixed 1120/L/PC group, as
not required to file a U.S. income tax
group, if applicable), as reported on
applicable, at the top of page 1 of
return. B files a separate U.S. income tax
Schedule M-3, Part I, line 11, to the
Schedule M-3.
return and reports separate company total
subtotal on Form 1120-PC, Schedule A,
year-end assets on its Schedule L of $12
A U.S. property and casualty insurance
line 35 (or Schedule B, line 19, if
million. C files a consolidated U.S. income
company filing Form 1120-PC that is not
applicable). For property and casualty
tax return with D and, after eliminating
required to file Schedule M-3 may
insurance companies that prepare an
intercompany transactions between C and
voluntarily file Schedule M-3 in place of
annual statement, financial statement net
D, reports consolidated total year-end
Schedule M-1. A property and casualty
income (loss) should be reported on the
assets on Schedule L of $8 million. B is
insurance company filing Schedule M-3
statutory basis on Schedule M-3, Part I,
required to file Schedule M-3 because its
must check Item A, box 3, on Form
line 11.
total year-end assets reported on
1120-PC, page 1, indicating that
Schedule L equal at least $10 million. The
Where To File
Schedule M-3 is attached, whether
CD U.S. consolidated tax group is not
required or voluntary. A property and
If the corporation is required to file (or
required to file Schedule M-3 because its
casualty insurance company filing
voluntarily files) Schedule M-3 (Form
total year-end assets reported on
Schedule M-3 must not file Schedule M-1.
1120-PC), the corporation must file Form
Schedule L do not equal at least $10
Example 1.
1120-PC and all attachments and
million.
schedules, including Schedule M-3 (Form
1. U.S. corporation A owns U.S.
Special Filing Requirements for
1120-PC), at the following address.
subsidiary B and foreign subsidiary F. For
Mixed Groups
its 2017 tax year, A prepares consolidated
Department of the Treasury
financial statements with B and F that
If the parent company of a U.S.
Internal Revenue Service Center
report total assets of $12 million. A files a
consolidated tax group files Form
Ogden, UT 84201-0012
consolidated U.S. income tax return with B
1120-PC and files Schedule M-3, all
and reports total consolidated assets on
members of the group must file
Who Must File
Schedule L of $8 million. A's U.S.
Schedule M-3. However, if the parent
consolidated tax group is not required to
Any domestic corporation or group of
corporation of a U.S. consolidated tax
file Schedule M-3 for the 2017 tax year.
corporations required to file Form
group files Form 1120-PC and any
1120-PC, U.S. Property and Casualty
member of the group files a Form 1120 or
Aug 29, 2017
Cat. No. 39943A
2017
Department of the Treasury
Internal Revenue Service
Instructions for
Schedule M-3 (Form
1120-PC)
Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance
Companies With Total Assets of $10 Million or More
Insurance Company Income Tax Return,
2. U.S. property and casualty
Section references are to the Internal Revenue
Code unless otherwise noted.
that reports on Schedule L of Form
insurance company C owns U.S. property
1120-PC total assets at the end of the
and casualty insurance company D. For its
Future Developments
corporation's tax year that equal or exceed
2017 tax year, C prepares consolidated
$10 million must complete and file
financial statements with D but C and D
For the latest information about
Schedule M-3 instead of Schedule M-1,
file separate U.S. income tax returns. The
developments related to Schedule M-3
Reconciliation of Income (Loss) per Books
consolidated accrual basis financial
(Form 1120-PC), and its instructions, such
With Income (Loss) per Return.
statements for C and D report total assets
as legislation enacted after they were
A corporation filing a non-consolidated
at the end of the tax year of $12 million
published, go to IRS.gov/Form1120PC.
Form 1120-PC that reports on Schedule L
after intercompany eliminations. C reports
General Instructions
for Form 1120-PC total assets that equal
separate company total year-end assets
or exceed $10 million must complete and
on its Schedule L of $7 million. D reports
file Schedule M-3 instead of Schedule M-1
separate company total year-end assets
Purpose of Schedule
and must check box (1) Non-consolidated
on its Schedule L of $6 million. Neither C
Schedule M-3, Part I, asks certain
return, at the top of page 1 of
nor D is required to file Schedule M-3 for
questions about the corporation's financial
Schedule M-3.
the 2017 tax year.
statements and reconciles financial
Any U.S. consolidated tax group
3. Foreign corporation A owns 100%
statement net income (loss) for the
consisting of a U.S. parent corporation
of both U.S. property and casualty
corporation (or consolidated financial
and additional includible corporations
insurance company B and U.S. property
statement group, if applicable), as
listed on Form 851, Affiliations Schedule,
and casualty insurance company C. C
reported on Schedule M-3, Part I, line 4a,
required to file Form 1120-PC that reports
owns 100% of U.S. property and casualty
to net income (loss) of the corporation for
on Schedule L of Form 1120-PC total
insurance company D. For its 2017 tax
U.S. taxable income purposes, as
consolidated assets at the end of the tax
year, A prepares a consolidated
reported on Schedule M-3, Part I, line 11.
year that equal or exceed $10 million must
worldwide financial statement for the
complete and file Schedule M-3 instead of
ABCD consolidated group. The ABCD
Schedule M-3, Parts II and III, reconcile
Schedule M-1, and must check box (2)
consolidated financial statement reports
financial statement net income (loss) for
Consolidated return (Form 1120-PC only),
total year-end assets of $25 million. A is
the U.S. corporation (or consolidated tax
or (3) Mixed 1120/L/PC group, as
not required to file a U.S. income tax
group, if applicable), as reported on
applicable, at the top of page 1 of
return. B files a separate U.S. income tax
Schedule M-3, Part I, line 11, to the
Schedule M-3.
return and reports separate company total
subtotal on Form 1120-PC, Schedule A,
year-end assets on its Schedule L of $12
A U.S. property and casualty insurance
line 35 (or Schedule B, line 19, if
million. C files a consolidated U.S. income
company filing Form 1120-PC that is not
applicable). For property and casualty
tax return with D and, after eliminating
required to file Schedule M-3 may
insurance companies that prepare an
intercompany transactions between C and
voluntarily file Schedule M-3 in place of
annual statement, financial statement net
D, reports consolidated total year-end
Schedule M-1. A property and casualty
income (loss) should be reported on the
assets on Schedule L of $8 million. B is
insurance company filing Schedule M-3
statutory basis on Schedule M-3, Part I,
required to file Schedule M-3 because its
must check Item A, box 3, on Form
line 11.
total year-end assets reported on
1120-PC, page 1, indicating that
Schedule L equal at least $10 million. The
Where To File
Schedule M-3 is attached, whether
CD U.S. consolidated tax group is not
required or voluntary. A property and
If the corporation is required to file (or
required to file Schedule M-3 because its
casualty insurance company filing
voluntarily files) Schedule M-3 (Form
total year-end assets reported on
Schedule M-3 must not file Schedule M-1.
1120-PC), the corporation must file Form
Schedule L do not equal at least $10
Example 1.
1120-PC and all attachments and
million.
schedules, including Schedule M-3 (Form
1. U.S. corporation A owns U.S.
Special Filing Requirements for
1120-PC), at the following address.
subsidiary B and foreign subsidiary F. For
Mixed Groups
its 2017 tax year, A prepares consolidated
Department of the Treasury
financial statements with B and F that
If the parent company of a U.S.
Internal Revenue Service Center
report total assets of $12 million. A files a
consolidated tax group files Form
Ogden, UT 84201-0012
consolidated U.S. income tax return with B
1120-PC and files Schedule M-3, all
and reports total consolidated assets on
members of the group must file
Who Must File
Schedule L of $8 million. A's U.S.
Schedule M-3. However, if the parent
consolidated tax group is not required to
Any domestic corporation or group of
corporation of a U.S. consolidated tax
file Schedule M-3 for the 2017 tax year.
corporations required to file Form
group files Form 1120-PC and any
1120-PC, U.S. Property and Casualty
member of the group files a Form 1120 or
Aug 29, 2017
Cat. No. 39943A
Form 1120-L, U.S. Life Insurance
year the property and casualty insurance
on Form 851) as of the last day of the tax
Company Income Tax Return, that
company is required to file Schedule M-3,
year, and must be the same total assets
member must file a Form 1120
the property and casualty insurance
reported by the property and casualty
Schedule M-3 or a Form 1120-L
company must complete Schedule M-3 in
insurance company (or by each member
Schedule M-3, respectively, and the group
its entirety for that subsequent tax year.
of the U.S. consolidated tax group) in the
must comply with the mixed group
non-tax-basis financial statements, if any,
In the case of a U.S. consolidated tax
consolidated Schedule M-3 reporting
used for Schedule M-3. If the property and
group, total assets at the end of the tax
described under Schedule M-3
casualty insurance company prepares
year must be determined based on the
Consolidation for Mixed Groups (1120/L/
non-tax-basis financial statements,
total year-end assets of all includible
PC), later. A mixed group also must file
Schedule L must equal the sum of the
corporations listed on Form 851, net of
Form 8916, Reconciliation of
non-tax-basis financial statement total
eliminations for intercompany transactions
Schedule M-3 Taxable Income with Tax
assets for each corporation listed on Form
and balances between the includible
Return Taxable Income for Mixed Groups,
851 and included in the consolidated U.S.
corporations. In addition, for purposes of
and, if applicable, Form 8916-A,
income tax return (includible corporation)
determining for Schedule M-3 whether the
Supplemental Attachment to
net of eliminations for intercompany
corporation (or U.S. consolidated tax
Schedule M-3.
transactions between includible
group) has total assets at the end of the
corporations. If the property and casualty
current tax year of $10 million or more, the
If the parent company of a U.S.
insurance company does not prepare
corporation's total consolidated assets
consolidated tax group files Form
non-tax-basis financial statements,
must be determined on an overall accrual
1120-PC, and any member of the group
Schedule L must be based on the property
method of accounting unless both of the
files Form 1120 or Form 1120-L, and the
and casualty company's books and
following apply: (a) the tax returns of all
consolidated Schedule L reported in the
records. The Schedule L balance sheet
includible corporations in the U.S.
return includes the assets of all of the
may show tax-basis balance sheet
consolidated tax group are prepared using
companies (insurance companies as well
amounts if the property and casualty
an overall cash method of accounting, and
as the non-insurance companies), in order
insurance company is allowed to use
(b) no includible corporation in the U.S.
to determine if the group meets the $10
books and records for Schedule M-3 and
consolidated tax group prepares or is
million threshold test for the requirement
the property and casualty insurance
included in financial statements prepared
to file Schedule M-3, use the amount of
company's books and records reflect only
on an accrual basis.
total assets reported on Schedule L of the
tax-basis amounts.
consolidated return. If the parent company
Note. See the instructions for Part I,
of a U.S. consolidated tax group files Form
Generally, total assets at the beginning
line 1, for a discussion of non-tax-basis
1120-PC and any member of the group
of the year (Schedule L, line 15, column
income statements and related
files Form 1120 or Form 1120-L and the
(b)) must equal total assets at the close of
non-tax-basis balance sheets to be used
consolidated Schedule L reported in the
the prior year (Schedule L, line 15, column
in the preparation of Schedule M-3 and
return does not include the assets of one
(d)). For each Schedule L balance sheet
Form 1120-PC, Schedule L.
or more of the insurance companies in the
item reported for which there is a
U.S. consolidated tax group, in order to
difference between the current opening
Other Form 1120-PC
determine if the group meets the $10
balance sheet amount and the prior
Schedules Affected by
million threshold test for the requirement
closing balance sheet amount, attach a
to file Schedule M-3, use the sum of the
statement that reports the balance sheet
Schedule M-3
amount of total assets reported on the
item, the prior closing amount, the current
Requirements
consolidated Schedule L plus the amounts
opening amount, and a short explanation
of all assets reported on Forms 1120 and
of the change. Reasons for these
Report on Schedules L and Form
1120-L that are included in the
differences include mergers and
1120-PC, Schedule A (or Schedule B, if
consolidated return but not included on
acquisitions.
applicable), amounts for the U.S.
the consolidated Schedule L.
corporation or, if applicable, the U.S.
For purposes of measuring total assets
consolidated tax group.
For insurance companies included in
at the end of the year, the corporation's
the consolidated U.S. income tax return,
Schedule L
assets may not be netted or reduced by
see instructions for Part I, lines 10a, 10b,
the corporation's liabilities. In addition,
If a non-tax-basis income statement and
10c, and 11, and Part II, line 7, for
total assets may not be reported as a
related non-tax-basis balance sheet are
guidance on Schedule M-3 reporting of
negative amount. If Schedule L is
prepared for any purpose for a period
intercompany dividends and statutory
prepared on a non-tax-basis method, an
ending with or within the tax year,
accounting adjustments.
investment in a partnership may be shown
Schedule L must be prepared showing
as appropriate under the corporation's
Other Issues Affecting
non-tax-basis amounts. See the
non-tax-basis method of accounting,
discussion in the instructions for
Schedule M-3 Filing
including, if required by the corporation's
Schedule M-3, Part I, line 1, of
reporting methodology, the equity method
Requirements
non-tax-basis income statements and
of accounting for investments. If
related non-tax-basis balance sheets
If a property and casualty insurance
Schedule L is prepared on a tax-basis, an
prepared for any purpose and the impact
company was required to file
investment by the corporation in a
on the selection of the income statement
Schedule M-3 for the preceding tax year
partnership must be shown as an asset
used for Schedule M-3 and the related
but reports on Schedule L of Form
and measured by the corporation's
non-tax-basis balance sheet amounts that
1120-PC total consolidated assets at the
adjusted basis in its partnership interest.
must be used for Schedule L.
end of the current tax year of less than $10
Any liabilities contributing to such adjusted
million, the property and casualty
Total assets shown on Schedule L,
basis must be shown on Schedule L as
insurance company is not required to file
line 15, column (d), must equal the total
corporate liabilities.
Schedule M-3 for the current tax year. The
assets of the property and casualty
Schedule M-2
property and casualty insurance company
insurance company (or, in the case of a
may voluntarily file Schedule M-3 for the
U.S. consolidated tax group, the total
The amount shown on Schedule M-2,
current tax year. If for a subsequent tax
assets of all members of the group listed
line 2, Net income (loss) per books, must
Instructions for Schedule M-3 (Form 1120-PC) (2017)
-2-
equal the amount shown on
For the purposes of these instructions,
9. Any change in that interest as of the
Schedule M-3, Part I, line 11.
the following rules apply.
date with respect to which it is reporting.
Schedule M-2 must reflect activity only of
1. The parent corporation of a
The reportable entity partner must
corporations included in the consolidated
consolidated tax group is deemed to own
retain copies of required reports it makes
U.S. income tax return.
all corporate and partnership interests
to partnerships under these instructions.
owned or deemed to be owned under
Consolidated Return (Form
Each partnership must retain copies of the
these instructions by any member of the
required reports it receives under these
1120-PC)
tax consolidated group.
instructions from reportable entity
Report on Form 1120-PC each item of
2. The owner of a disregarded entity
partners.
income, gain, loss, expense, or deduction
is deemed to own all corporate and
Example 2.
net of elimination entries for intercompany
partnership interests owned or deemed to
transactions between includible
1. A, an LLC filing a Form 1065 for
be owned under these instructions by the
corporations. The corporation must not
2017, is owned 50% by U.S. property and
disregarded entity.
report as dividends on Form 1120-PC,
casualty insurance company Z. A owns
3. The owner of 50% or more of a
Schedule A, any amounts received from
50% of B, C, D, and E, which are also
corporation by vote on any day of the
an includible corporation unless the
LLCs filing a Form 1065 for calendar year
corporation’s tax year is deemed to own
corporation receiving the intercompany
2017. Z was first required to file
all corporate and partnership interests
dividends is an insurance company and
Schedule M-3 (Form 1120-PC), for its
owned or deemed to be owned under
only to the extent that the insurance
corporate tax year ended December 31,
these instructions by the corporation
company is required to include
2016, and filed its Schedule M-3 with
during its tax year.
intercompany dividends in taxable
Form 1120-PC for 2016 on September 15,
4. The owner of 50% or more of
income. (See the instructions for Part I,
2017. As of September 16, 2017, Z was a
lines 10a, 10b, 10c, and 11, for a
partnership income, loss, or capital on any
reportable entity partner with respect to A
discussion of intercompany dividends and
day of the partnership tax year is deemed
and, through A, with respect to B, C, D,
insurance company statutory accounting.)
to own all corporate and partnership
and E. On October 5, 2017, Z reports to A,
In general, dividends received from an
interests owned or deemed to be owned
B, C, D, and E, as it is required to do
under these instructions by the
includible corporation must be eliminated
within 30 days of September 16, that Z is a
in consolidation rather than offset by the
partnership during the partnership tax
reportable entity partner directly owning
dividends-received deduction.
year.
(with respect to A) or deemed to own
indirectly (with respect to B, C, D, and E) a
5. The beneficial owner of 50% or
Entity Considerations for
50% interest. Therefore, because Z was a
more of the beneficial interest of a trust or
Schedule M-3
reportable entity partner for 2017, each of
nominee arrangement on any day of the
A, B, C, D, and E is required to file
trust or nominee arrangement tax year is
For purposes of Schedule M-3, references
Schedule M-3 (Form 1065), for 2017,
deemed to own all corporate and
to the classification of an entity (for
regardless of whether they would
partnership interests owned or deemed to
example, as a corporation, a partnership,
otherwise be required to file Schedule M-3
be owned under these instructions by the
or a trust) are references to the treatment
for that year.
trust or nominee arrangement.
of the entity for U.S. income tax purposes.
2. P, a U.S. property and casualty
An entity that generally is disregarded as
A reportable entity partner with respect
insurance company, is the parent of a
separate from its owner for U.S. income
to a partnership (as defined above) must
financial consolidation group with 50
tax purposes (disregarded entity) must not
report the following to the partnership
domestic subsidiaries, DS1 through DS50,
be separately reported on Schedule M-3
within 30 days of first becoming a
and 50 foreign subsidiaries, FS1 through
except, if required, on Part I, line 7a or 7b.
reportable entity partner and, after first
FS50, all 100% owned on September 16,
On Schedule M-3, Parts II and III, any item
reporting to the partnership under these
2017. On September 15, 2017, P filed a
of income, gain, loss, deduction, or credit
instructions, thereafter within 30 days of
consolidated tax return on Form 1120-PC
of a disregarded entity must be reported
the date of any change in the interest it
and was required to file Schedule M-3 for
as an item of its owner. In particular, the
owns or is deemed to own, directly or
the tax year ending December 31, 2016.
income or loss of a disregarded entity
indirectly, under these instructions, in the
On September 16, 2017, DS1, DS2, DS3,
must not be reported on Part II, line 9, 10,
partnership.
FS1, and FS2 each acquire a 10%
or 11 as a separate partnership or other
1. Name.
partnership interest in partnership K which
pass-through. The financial statement
files Form 1065 for the tax year ending
2. Mailing Address.
income or loss of a disregarded entity is
December 31, 2017. P is deemed to own,
included on Part I, line 7a or 7b, only if its
3. Taxpayer identification number
directly or indirectly (under these
financial statement income or loss is
(TIN or EIN), if applicable.
instructions), all corporate and partnership
included on Part I, line 11, but not on Part
4. Entity or organization type.
interests of DS1, DS2, and DS3, as the
I, line 4a.
5. State or country in which it is
parent of the tax consolidation group and
Reportable Entity Partner
organized.
therefore is deemed to own 30% of K on
Reporting Responsibilities
September 16, 2017. P is deemed to own,
6. Date on which it first became a
directly or indirectly (under these
reportable entity partner.
A reportable entity partner with respect to
instructions), all corporate and partnership
a partnership filing Form 1065 is an entity
7. Date with respect to which it is
interests of FS1 and FS2 as the owner of
that:
reporting a change in its ownership
50% or more of each corporation by vote
Owns or is deemed to own, directly or
interest in the partnership, if applicable.
and therefore is deemed to own 20% of K
indirectly, under these instructions a 50%
8. The interest in the partnership it
on September 16, 2017. P is therefore
or greater interest in the income, loss, or
owns or is deemed to own in the
deemed to own 50% of K on September
capital of the partnership on any day of the
partnership, directly or indirectly (as
16, 2017. Since P owns or is deemed to
tax year; and
defined under these instructions) as of the
own, directly or indirectly (under these
Was required to file Schedule M-3 on its
date with respect to which it is reporting.
instructions), 50% or more of K on
most recently filed U.S. income tax return
September 16, 2017, and was required to
or return of income filed prior to that day.
Instructions for Schedule M-3 (Form 1120-PC) (2017)
-3-
file Schedule M-3 with its most recently
Note. Complete only one Schedule M-3,
Part II, for consolidation eliminations not
filed U.S. income tax return filed prior to
Part I, for each consolidated group. A
includible in the subgroup eliminations. At
that date, P is a reportable entity partner of
subsidiary of a consolidated group does
the consolidated level there also must be
K as of September 16, 2017. On October
not complete Schedule M-3, Part I. Enter
a consolidated Schedule M-3, Part I, and a
5, 2017, P reports to K that P is a
on Part I the name and EIN of the common
consolidated Form 8916. For a mixed
reportable entity partner as of September
parent of the consolidated group.
group, there is no Schedule M-3, Part III,
16, 2017, deemed to own (under these
at the consolidated level. At the
Indicate on each Schedule M-3, Parts II
instructions) a 50% interest in K. K is,
consolidated level, use the Schedule M-3
and III, on the line after the common
therefore, required to file Schedule M-3
(Form 1120, 1120-PC, or 1120-L), Parts I
parent's name and EIN, whether the
when it files its Form 1065 for its tax year
and II, that match the form on which the
Schedule M-3, Parts II and III, is for the:
ending December 31, 2017.
parent corporation reports and the entire
1. Consolidated group,
consolidated group files.
Consolidated
2. Parent corporation,
The corporation must check the
Schedule M-3 Versus
3. Consolidation eliminations, or
applicable mixed group checkboxes on all
Consolidating Schedules
4. Subsidiary corporation,
Schedules M-3, Parts I, II, and III, as
discussed below.
M-3 for Form 1120-PC
by checking the appropriate box. If Parts II
and III are for a subsidiary in a
Groups
Subgroup Sub-Consolidation:
consolidated return, also enter the name
A consolidated tax return group with a
and EIN of the subsidiary.
1120 Subgroup, 1120-PC
parent corporation that files a Form
Schedule M-3 Consolidation for
Subgroup, and 1120-L Subgroup
1120-PC is a mixed group if any member
Mixed Groups (1120/L/PC)
is a life insurance company (files Form
A subgroup Schedule M-3, Parts II and III,
1120-L, U.S. Life Insurance Company
sub-consolidation must be prepared with
Special Schedule M-3 consolidation rules
Income Tax Return) or is not an insurance
all necessary eliminations within the
apply to a mixed group, that is, a
company. See Schedule M-3
subgroup for each of the three possible
consolidated tax group that:
Consolidation for Mixed Groups (1120/L/
subgroups that are in fact present.
1. Includes both a corporation that is
PC), later.
One subgroup for those corporations
an insurance company and a corporation
reporting on Form 1120,
A U.S. consolidated tax group must file
that is not an insurance company, or
One subgroup for those corporations
a consolidated Schedule M-3. Parts I, II,
2. Includes both a life insurance
reporting on Form 1120-PC, and
and III of the consolidated Schedule M-3
company and a property and casualty
One subgroup for those reporting on
must reflect the activity of the entire U.S.
insurance company, or
Form 1120-L.
consolidated tax group. The parent
The parent corporation is included in the
3. Includes a life insurance company,
corporation also must complete Parts II
subgroup that corresponds to the form on
a property and casualty insurance
and III of a separate Schedule M-3 to
which it reports and the entire
company, and a corporation that is not an
reflect the parent's own activity. In
consolidated group files. For example, in
insurance company.
addition, Parts II and III of a separate
the case of a Form 1120-PC parent and
Schedule M-3 must be completed by each
Mixed group consolidation for
Form 1120-PC consolidated group, the
includible corporation to reflect the activity
Schedule M-3, Parts II and III, requires:
parent is included in the Form 1120-PC
of that includible corporation. Lastly, it
1. Subgroup sub-consolidation of the
subgroup sub-consolidation. Each
generally will be necessary to complete
1120 subgroup, the 1120-PC subgroup,
subgroup uses its own Schedule M-3
Parts II and III of a separate Schedule M-3
and the 1120-L subgroup, each with its
(Form 1120, 1120-PC, or 1120-L), Parts II
for consolidation eliminations.
own sub-consolidated Schedule M-3,
and III, for each corporation within the
Parts II and III, and
subgroup and for the subgroup
If a U.S. consolidated tax group that is
sub-consolidation and the subgroup
not a mixed group consists of four
2. Consolidation of the subgroup
eliminations.
includible corporations (the parent and
sub-consolidation totals on a consolidated
three subsidiaries) all filing Form 1120-PC,
Schedule M-3, Part II, that ties to a
The three subgroup sub-consolidation
the U.S. consolidated tax group must
consolidated Schedule M-3, Part I, and a
taxable income calculations on
complete six Schedules M-3 as follows.
consolidated Form 8916, Reconciliation of
One consolidated Schedule M-3 with
Schedule M-3 must follow the separate
Schedule M-3 Taxable Income with Tax
Parts I, II, and III completed to reflect the
return requirements of the regulations
Return Taxable Income for Mixed Groups.
under section 1502 and all other
activity of the entire U.S. consolidated tax
In addition to one Schedule M-3, Part II,
applicable regulations taking into account
group.
and one Schedule M-3, Part III, for each
the amounts separately reported on Form
Parts II and III of a separate
corporation in the three subgroup
Schedule M-3 for each of the four
8916. Capital loss limitation and
sub-consolidations, there generally will be
includible corporations to reflect the
carryforward used and charitable
a total of six additional Schedule M-3,
deduction limitation and carryforward used
activity of each includible corporation.
Parts II, and six additional Schedule M-3,
are not taken into account in the
Parts II and III of a separate
Parts III, for the subgroup
determination of the three subgroup
Schedule M-3 to eliminate intercompany
sub-consolidations. Specifically, there
transactions between includible
sub-consolidated taxable incomes on
must be one Part II, and one Part III, for
corporations and to include limitations on
Schedule M-3, but are reflected on Form
each subgroup's sub-consolidated
8916 and in the calculation of the life/
deductions (for example, charitable
amounts and one Part II, and one Part III,
non-life loss limitation and carryforward
contribution limitations and capital loss
for each subgroup's sub-consolidation
used. See Life/Non-Life Loss Limitation
limitations) and carryover amounts (for
eliminations amounts.
example, charitable contribution
and Carryforward Used Calculations, later.
carryovers and capital loss carryovers).
At the mixed group consolidated level,
See Completion of Schedule M-3 and
The reconciliation totals for book,
there must be a consolidated
Certain Allocations, Limitations, and
temporary difference, permanent
Schedule M-3, Part II, and, if applicable, a
Carryovers, later.
difference, and taxable income for each
Instructions for Schedule M-3 (Form 1120-PC) (2017)
-4-
subgroup are reported on Form 1120,
Forms 1120, 1120-PC, and 1120-L,
Life/Non-Life Loss Limitation and
1120-PC, or 1120-L, as applicable,
Schedule M-3, Parts II and III, each have a
Carryforward Used Calculations
Schedule M-3, Part II, line 29a, columns
checkbox (5) at the top indicating a mixed
The applicable life/non-life loss limitation
(a), (b), (c), and (d), and equal the sum of
group. Checkbox (5) and one or more
and all carryforward used calculations are
the line amounts on Part II, lines 26
other applicable checkboxes must be
made using the amounts determined for
through 28. For a mixed group,
checked for a mixed group.
taxable income in the three subgroup
Schedule M-3, Part II, lines 29b, 29c, and
For example, an 1120-PC parent
sub-consolidations and other applicable
30 are blank on the Form 1120, 1120-PC,
amounts separately reported on Form
corporation included in the 1120-PC
or 1120-L, as applicable, for the separate
8916. The calculated life/non-life loss
subgroup must check Form 1120-PC,
corporations (parent and subsidiary) and
limitation or carryforward used amounts, if
Schedule M-3, Parts II and III, box (2)
for the three subgroup sub-consolidations.
Parent corporation, and box (5) Mixed
any, are not entered on Schedule M-3.
Note. A sub-consolidation is required for
1120/L/PC group. An 1120-PC subsidiary
The calculated amounts, if any, are
entered on Form 8916.
every subgroup, even if the subgroup
corporation within the 1120-PC subgroup
consists of only one corporation. In
must check Form 1120-PC,
Completion of
addition, Form 8916-A, if applicable, is
Schedule M-3, Parts II and III, box (4)
required at the sub-consolidated level and
Subsidiary corporation, and box (5) Mixed
Schedule M-3 and Certain
the sub-consolidated elimination level.
1120/L/PC group. An 1120 subsidiary
Allocations, Limitations,
corporation within the 1120 subgroup
and Carryovers
must check Form 1120, Schedule M-3,
Reconciliation of Mixed Group
Parts II and III, box (4) Subsidiary
Generally, a corporation (or any member
Subgroup Sub-Consolidation
corporation, and box (5) Mixed 1120/L/PC
of a U.S. consolidated tax group) required
Amounts to Schedule M-3, Part I,
group. An 1120-L subsidiary corporation
to file Schedule M-3 must complete the
within the 1120-L subgroup must check
Line 11, and to Tax Return Taxable
form in its entirety. In particular, a
Form 1120-L, Schedule M-3, Parts II and
Income
corporation filing a nonconsolidated return
III, box (4) Subsidiary corporation, and box
that meets the filing requirements for
At the consolidated level, use the
(5) Mixed 1120/L/PC group.
Schedule M-3 must complete Parts I, II,
Schedule M-3 (Form 1120, 1120-PC, or
and III. Such a corporation does not check
1120-L), Parts I and II, that matches the
The 1120 subgroup sub-consolidation
any of the checkboxes at the top of Parts II
form on which the parent corporation
Form 1120, Schedule M-3, Parts II and III,
and III. In the case of a U.S. consolidated
reports and the entire consolidated group
must be indicated by checking box (5)
tax group, Part I must be completed once,
files. For a mixed group, the consolidated
Mixed 1120/L/PC group, and box (6) 1120
on the consolidated Schedule M-3, by the
Schedule M-3, Part II, lines 29a, 29b, and
group for the sub-consolidation, and by
parent corporation. Parts II and III must be
29c amounts report the applicable
checking box (5) Mixed 1120/L/PC group,
completed by the parent corporation, each
amounts from the three subgroup
and box (7) 1120 eliminations for the
includible corporation, and a consolidating
sub-consolidation Part II, line 29a,
eliminations. The 1120-PC subgroup
eliminations entity.
amounts. (If a consolidated level Part II for
sub-consolidation Form 1120-PC,
consolidation eliminations not includible in
Schedule M-3, Parts II and III, must be
Except as otherwise provided in these
the subgroup eliminations is applicable,
indicated by checking box (5) Mixed
instructions, when a Schedule M-3 (Form
the applicable amounts must be adjusted
1120/L/PC group, and box (6) 1120-PC
1120-PC) is filed, all applicable Part I
by the applicable elimination amounts.)
group for the sub-consolidation, and by
questions must be answered; all
The consolidated Schedule M-3, Part II,
checking box (5) Mixed 1120/L/PC group,
applicable columns in Parts II and III must
line 30, amounts are the sums of the
and box (7) 1120-PC eliminations for the
be completed; all numerical data required
applicable amounts on the consolidated
eliminations. The 1120-L subgroup
in Parts I, II, and III must be provided; and
Part II, lines 29a, 29b, and 29c. For a
sub-consolidation Form 1120-L,
any statement required to support a line
mixed group, the consolidated Part II, lines
Schedule M-3, Parts II and III, must be
item in Parts I, II, or III must be attached
1 through 28, are blank and no
indicated by checking box (5) Mixed
and must provide the information for that
consolidated Part III is required to be
1120/L/PC group, and box (6) 1120-L
line item.
completed.
group for the sub-consolidation, and by
All detailed statements for Part II and
checking box (5) Mixed 1120/L/PC group,
Part III of Schedule M-3 must be attached
For mixed groups, the consolidated
and box (7) 1120-L eliminations for the
for each separate entity included in the
Part II, line 30, column (a), must equal Part
eliminations.
consolidated Part II and Part III, including
I, line 11, with appropriate adjustments for
those for the parent company and the
statutory accounting requirements
A mixed group with a Form 1120-PC
eliminations entity, if applicable. It is not
reflected on Part I, lines 10a and 10b. The
parent corporation completes a
required that the same supporting detailed
consolidated taxable income indicated on
consolidated level Form 1120-PC,
information be presented for Part II and
Part II, line 30, column (d), must equal the
Schedule M-3, Parts I and II, and a
Part III of the consolidated Schedule M-3.
amount shown on Form 8916, line 1. Form
consolidated Form 8916. The mixed group
8916, line 8, must equal taxable income
consolidated Schedule M-3, Part II, must
If an item attributable to an includible
reported on the tax return.
be indicated by checking box (1)
corporation is not shared by or allocated to
Consolidated group, and box (5) Mixed
the appropriate member of the group but
1120/L/PC group. (If a consolidated level
Completion of Mixed Group
is retained in the parent corporation's
Part II for consolidation eliminations not
Checkboxes for Schedule M-3,
financial statements (or books and
includible in the subgroup eliminations is
records, if applicable), then the item must
Part II and Part III
applicable, that Part II must be indicated
be reported by the parent corporation in its
by checking box (3) Consolidated
Note. The following discussion of
separate Schedule M-3. For example, if
eliminations, and box (5) Mixed
checkboxes will assume that the 1120-PC
the parent of a U.S. consolidated tax
1120/L/PC group.)
subgroup includes the corporate parent of
group prepares financial statements that
the mixed group.
include all members of the U.S.
consolidated tax group and the parent
Instructions for Schedule M-3 (Form 1120-PC) (2017)
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Download Instructions for IRS Form 1120-pc Schedule M-3 - Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More 2017

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