Instructions for IRS Form 1120-L Schedule M-3 "Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or More"

January 1, 2018 "Instructions For Irs Form 1120-l Schedule M-3 - Net Income (loss) Reconciliation For U.s. Life Insurance Companies With Total Assets Of $10 Million Or More" contain the latest filing requirements for the IRS-issued Form 1120-L. Download your copy of the instructions by clicking the link below.

IRS Form 1120-L is tax form released and collected by the Internal Revenue Service of the United States.

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Download Instructions for IRS Form 1120-L Schedule M-3 "Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total Assets of $10 Million or More"

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2018
Department of the Treasury
Internal Revenue Service
Instructions for
Schedule M-3 (Form 1120-L)
Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total
Assets of $10 Million or More
Who Must File
file separate U.S. income tax returns. The
Section references are to the Internal Revenue
Code unless otherwise noted.
consolidated accrual basis financial
Any domestic corporation or group of
statements for C and D report total assets
Future Developments
corporations required to file Form 1120-L,
at the end of the tax year of $12 million
U.S. Life Insurance Company Income Tax
after intercompany eliminations. C reports
For the latest information about
Return, that reports on Schedule L, Part II,
separate company total year-end assets
developments related to Schedule M-3
line 2, column (b), of Form 1120-L
on its Schedule L, Part II, line 2, column
(Form 1120-L), and its instructions, such
total assets at the end of the corporation's
(b), of $7 million. D reports separate
as legislation enacted after they were
tax year that equal or exceed $10 million
company total year-end assets on its
published, go to IRS.gov/Form1120L.
must complete and file Schedule M-3.
Schedule L, Part II, line 2, column (b), of
A corporation filing a non-consolidated
What’s New
$6 million. Neither C nor D is required to
Form 1120-L that reports on Schedule L,
file Schedule M-3 for the 2018 tax year.
Domestic Production Activities
Part II, line 2, column (b), of Form 1120-L
3. Foreign corporation A owns 100%
Deduction (DPAD). The DPAD has been
total assets that equal or exceed $10
of both U.S. life insurance company B and
repealed for tax years beginning after
million must complete and file
U.S. life insurance company C. C owns
2017, with limited exceptions. See Part III,
Schedule M-3 and must check box (1)
100% of U.S. life insurance company D.
Line 39, later.
Non-consolidated return, at the top of
For its 2018 tax year, A prepares a
page 1 of Schedule M-3.
General Instructions
consolidated worldwide financial
Any U.S. consolidated tax group
statement for the ABCD consolidated
consisting of a U.S. parent corporation
group. The ABCD consolidated financial
and additional includible corporations
Purpose of Schedule
statement reports total year-end assets of
listed on Form 851, Affiliations Schedule,
Schedule M-3, Part I, asks certain
$25 million. A is not required to file a U.S.
required to file Form 1120-L that reports
questions about the corporation's financial
income tax return. B files a separate U.S.
on Schedule L, Part II, line 2, column (b),
statements and reconciles financial
income tax return and reports separate
of Form 1120-L total consolidated assets
statement net income (loss) for the
company total year-end assets on
at the end of the tax year that equal or
corporation (or consolidated financial
its Schedule L, Part II, line 2, column (b),
exceed $10 million must complete and file
statement group, if applicable), as
of $12 million. C files a consolidated U.S.
Schedule M-3, and must check box (2)
reported on Schedule M-3, Part I, line 4a,
income tax return with D and, after
Consolidated return (Form 1120-L only) or
to net income (loss) of the corporation for
eliminating intercompany transactions
(3) Mixed 1120/L/PC group, as applicable,
U.S. taxable income purposes, as
between C and D, reports consolidated
at the top of page 1 of Schedule M-3.
reported on Schedule M-3, Part I, line 11.
total year-end assets on Schedule L, Part
II, line 2, column (b), of $8 million. B is
A U.S. life insurance company filing
Schedule M-3, Parts II and III, reconcile
required to file Schedule M-3 because its
Form 1120-L that is not required to file
financial statement net income (loss) for
total year-end assets reported on
Schedule M-3 may voluntarily file
the U.S. corporation (or consolidated tax
Schedule L, Part II, line 2, column (b),
Schedule M-3. A life insurance company
group, if applicable), as reported on
equal at least $10 million. The CD U.S.
filing Schedule M-3 must check Item A,
Schedule M-3, Part I, line 11, to the
consolidated tax group is not required to
box 3, on Form 1120-L, page 1, indicating
subtotal on Form 1120-L, page 1, line 20.
file Schedule M-3 because its total
that Schedule M-3 is attached, whether
For life insurance companies that prepare
year-end assets reported on Schedule L,
required or voluntary.
an annual statement, financial statement
Part II, line 2, column (b), do not equal at
Example 1.
net income (loss) should be reported on
least $10 million.
the statutory basis on Schedule M-3, Part
1. U.S. life insurance company A
I, line 11.
Special Filing Requirements for
owns U.S. subsidiary B and foreign
subsidiary F. For its 2018 tax year, A
Mixed Groups
Where To File
prepares consolidated financial
If the parent corporation of a U.S.
statements with B and F that report total
If the corporation is required to file (or
consolidated tax group files Form 1120-L
assets of $12 million. A files a
voluntarily files) Schedule M-3 (Form
and files Schedule M-3, each member of
consolidated U.S. income tax return with B
1120-L), the corporation must file Form
the group must file Schedule M-3.
and reports total consolidated assets on
1120-L and all attachments and
However, if the parent corporation of a
Schedule L, Part II, line 2, column (b), of
schedules, including Schedule M-3 (Form
U.S. consolidated tax group files Form
$8 million. A's U.S. consolidated tax group
1120-L) at the following address.
1120-L and any member of the group files
is not required to file Schedule M-3 for the
Form 1120-PC, U.S. Property and
Department of the Treasury
2018 tax year.
Casualty Insurance Company Income Tax
Internal Revenue Service Center
2. U.S. life insurance company C
Return, or Form 1120, that member must
Ogden, UT 84201-0012
owns U.S. life insurance company D. For
file a Form 1120-PC Schedule M-3 or a
its 2018 tax year, C prepares consolidated
Form 1120 Schedule M-3, respectively,
financial statements with D but C and D
Feb 27, 2019
Cat. No. 39945W
2018
Department of the Treasury
Internal Revenue Service
Instructions for
Schedule M-3 (Form 1120-L)
Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total
Assets of $10 Million or More
Who Must File
file separate U.S. income tax returns. The
Section references are to the Internal Revenue
Code unless otherwise noted.
consolidated accrual basis financial
Any domestic corporation or group of
statements for C and D report total assets
Future Developments
corporations required to file Form 1120-L,
at the end of the tax year of $12 million
U.S. Life Insurance Company Income Tax
after intercompany eliminations. C reports
For the latest information about
Return, that reports on Schedule L, Part II,
separate company total year-end assets
developments related to Schedule M-3
line 2, column (b), of Form 1120-L
on its Schedule L, Part II, line 2, column
(Form 1120-L), and its instructions, such
total assets at the end of the corporation's
(b), of $7 million. D reports separate
as legislation enacted after they were
tax year that equal or exceed $10 million
company total year-end assets on its
published, go to IRS.gov/Form1120L.
must complete and file Schedule M-3.
Schedule L, Part II, line 2, column (b), of
A corporation filing a non-consolidated
What’s New
$6 million. Neither C nor D is required to
Form 1120-L that reports on Schedule L,
file Schedule M-3 for the 2018 tax year.
Domestic Production Activities
Part II, line 2, column (b), of Form 1120-L
3. Foreign corporation A owns 100%
Deduction (DPAD). The DPAD has been
total assets that equal or exceed $10
of both U.S. life insurance company B and
repealed for tax years beginning after
million must complete and file
U.S. life insurance company C. C owns
2017, with limited exceptions. See Part III,
Schedule M-3 and must check box (1)
100% of U.S. life insurance company D.
Line 39, later.
Non-consolidated return, at the top of
For its 2018 tax year, A prepares a
page 1 of Schedule M-3.
General Instructions
consolidated worldwide financial
Any U.S. consolidated tax group
statement for the ABCD consolidated
consisting of a U.S. parent corporation
group. The ABCD consolidated financial
and additional includible corporations
Purpose of Schedule
statement reports total year-end assets of
listed on Form 851, Affiliations Schedule,
Schedule M-3, Part I, asks certain
$25 million. A is not required to file a U.S.
required to file Form 1120-L that reports
questions about the corporation's financial
income tax return. B files a separate U.S.
on Schedule L, Part II, line 2, column (b),
statements and reconciles financial
income tax return and reports separate
of Form 1120-L total consolidated assets
statement net income (loss) for the
company total year-end assets on
at the end of the tax year that equal or
corporation (or consolidated financial
its Schedule L, Part II, line 2, column (b),
exceed $10 million must complete and file
statement group, if applicable), as
of $12 million. C files a consolidated U.S.
Schedule M-3, and must check box (2)
reported on Schedule M-3, Part I, line 4a,
income tax return with D and, after
Consolidated return (Form 1120-L only) or
to net income (loss) of the corporation for
eliminating intercompany transactions
(3) Mixed 1120/L/PC group, as applicable,
U.S. taxable income purposes, as
between C and D, reports consolidated
at the top of page 1 of Schedule M-3.
reported on Schedule M-3, Part I, line 11.
total year-end assets on Schedule L, Part
II, line 2, column (b), of $8 million. B is
A U.S. life insurance company filing
Schedule M-3, Parts II and III, reconcile
required to file Schedule M-3 because its
Form 1120-L that is not required to file
financial statement net income (loss) for
total year-end assets reported on
Schedule M-3 may voluntarily file
the U.S. corporation (or consolidated tax
Schedule L, Part II, line 2, column (b),
Schedule M-3. A life insurance company
group, if applicable), as reported on
equal at least $10 million. The CD U.S.
filing Schedule M-3 must check Item A,
Schedule M-3, Part I, line 11, to the
consolidated tax group is not required to
box 3, on Form 1120-L, page 1, indicating
subtotal on Form 1120-L, page 1, line 20.
file Schedule M-3 because its total
that Schedule M-3 is attached, whether
For life insurance companies that prepare
year-end assets reported on Schedule L,
required or voluntary.
an annual statement, financial statement
Part II, line 2, column (b), do not equal at
Example 1.
net income (loss) should be reported on
least $10 million.
the statutory basis on Schedule M-3, Part
1. U.S. life insurance company A
I, line 11.
Special Filing Requirements for
owns U.S. subsidiary B and foreign
subsidiary F. For its 2018 tax year, A
Mixed Groups
Where To File
prepares consolidated financial
If the parent corporation of a U.S.
statements with B and F that report total
If the corporation is required to file (or
consolidated tax group files Form 1120-L
assets of $12 million. A files a
voluntarily files) Schedule M-3 (Form
and files Schedule M-3, each member of
consolidated U.S. income tax return with B
1120-L), the corporation must file Form
the group must file Schedule M-3.
and reports total consolidated assets on
1120-L and all attachments and
However, if the parent corporation of a
Schedule L, Part II, line 2, column (b), of
schedules, including Schedule M-3 (Form
U.S. consolidated tax group files Form
$8 million. A's U.S. consolidated tax group
1120-L) at the following address.
1120-L and any member of the group files
is not required to file Schedule M-3 for the
Form 1120-PC, U.S. Property and
Department of the Treasury
2018 tax year.
Casualty Insurance Company Income Tax
Internal Revenue Service Center
2. U.S. life insurance company C
Return, or Form 1120, that member must
Ogden, UT 84201-0012
owns U.S. life insurance company D. For
file a Form 1120-PC Schedule M-3 or a
its 2018 tax year, C prepares consolidated
Form 1120 Schedule M-3, respectively,
financial statements with D but C and D
Feb 27, 2019
Cat. No. 39945W
and the group must comply with the mixed
required to file Schedule M-3, the life
insurance company (or by each member
group consolidated Schedule M-3
insurance company must complete
of the U.S. consolidated tax group) in the
reporting described in the section
Schedule M-3 in its entirety for that
non-tax-basis financial statements, if any,
Schedule M-3 Consolidation for Mixed
subsequent tax year.
used for Schedule M-3. If the life
Groups (1120/L/PC), later in these
insurance company prepares
In the case of a U.S. consolidated tax
instructions. A mixed group also must file
non-tax-basis financial statements,
group, total assets at the end of the tax
Form 8916, Reconciliation of
Schedule L, Part II, line 2, column (b),
year must be determined based on the
Schedule M-3 Taxable Income with Tax
must equal the sum of the non-tax-basis
total year-end assets of all includible
Return Taxable Income for Mixed Groups,
financial statement total assets for each
corporations listed on Form 851, net of
and, if applicable, Form 8916-A,
corporation listed on Form 851 and
eliminations for intercompany transactions
Supplemental Attachment to
included in the U.S. consolidated tax
and balances between the includible
Schedule M-3.
return (includible corporation) net of
corporations. In addition, for purposes of
eliminations for intercompany transactions
determining for Schedule M-3 whether the
If the parent corporation of a U.S.
between includible corporations. If the life
corporation (or U.S. consolidated tax
consolidated tax group files Form 1120-L
insurance company does not prepare
group) has total assets at the end of the
and any member of the group files Form
non-tax-basis financial statements,
current tax year of $10 million or more, the
1120-PC or Form 1120, and the
Schedule L, Part II, line 2, column (b),
corporation's total consolidated assets
consolidated Schedule L, Part II, line 2,
must be based on the life insurance
must be determined on an overall accrual
column (b), reported in the return includes
company's books and records. The
method of accounting unless both of the
the assets of all of the corporations (the
Schedule L balance sheet may show
following apply: (a) the tax returns of all
insurance companies as well as the
tax-basis balance sheet amounts if the life
includible corporations in the U.S.
non-insurance companies), in order to
insurance company is allowed to use
consolidated tax group are prepared using
determine if the group meets the $10
books and records for Schedule M-3 and
an overall cash method of accounting, and
million threshold test for the requirement
the life insurance company's books and
(b) no includible corporation in the U.S.
to file Schedule M-3, use the amount of
records reflect only tax-basis amounts.
consolidated tax group prepares or is
total assets reported on Schedule L, Part
included in financial statements prepared
Generally, total assets at the beginning
II, line 2, column (b), of the consolidated
on an accrual basis.
of the year (Schedule L, Part II, line 2,
return. If the parent company of a U.S.
column (a)) must equal total assets at the
consolidated tax group files Form 1120-L
Note. See the instructions for Part I,
and any member of the group files Form
close of the prior year (Schedule L, Part II,
line 1, for a discussion of non-tax-basis
line 2, column (b)). For each Schedule L
1120-PC or Form 1120 and the
income statements and related
balance sheet item reported for which
consolidated Schedule L, Part II, line 2,
non-tax-basis balance sheets to be used
there is a difference between the current
column (b), reported in the return does not
in the preparation of Schedule M-3 and
opening balance sheet amount and the
include the assets of one or more of the
Form 1120-L, Schedule L.
corporations in the U.S. consolidated tax
prior closing balance sheet amount, attach
a statement that reports the balance sheet
group, in order to determine if the group
Other Form 1120-L
item, the prior closing amount, the current
meets the $10 million threshold test for the
Schedules Affected by
opening amount, and a short explanation
requirement to file Schedule M-3, use the
sum of the amount of total assets reported
of the change. Reasons for those
Schedule M-3
differences include mergers and
on the consolidated Schedule L, Part II,
Requirements
acquisitions.
line 2, column (b), plus the amounts of all
assets reported on Forms 1120-PC and
Report on Schedules L and Form 1120-L,
For purposes of measuring total assets
1120 that are included in the consolidated
page 1, amounts for the U.S. corporation
at the end of the year, the corporation's
return but not included on the
or, if applicable, the U.S. consolidated tax
assets may not be netted or reduced by
consolidated Schedule L, Part II, line 2,
group.
the corporation's liabilities. In addition,
column (b).
total assets may not be reported as a
Schedule L
negative amount. If Schedule L is
For insurance companies included in
If a non-tax-basis income statement and
prepared on a non-tax-basis method, an
the consolidated U.S. income tax return,
related non-tax-basis balance sheet are
investment in a partnership may be shown
see instructions for Part I, lines 10a, 10b,
prepared for any purpose for a period
as appropriate under the corporation's
10c, and 11, and Part II, line 7, for
ending with or within the tax year,
non-tax-basis method of accounting,
guidance on Schedule M-3 reporting of
Schedule L must be prepared showing
including, if required by the corporation's
intercompany dividends and statutory
non-tax-basis amounts. See the
reporting methodology, the equity method
accounting adjustments.
discussion in the instructions for
of accounting for investments. If
Other Issues Affecting
Schedule M-3, Part I, line 1, of
Schedule L is prepared on a tax basis, an
non-tax-basis income statements and
investment by the corporation in a
Schedule M-3 Filing
related non-tax-basis balance sheets
partnership must be shown as an asset
Requirements
prepared for any purpose and the impact
and measured by the corporation's
on the selection of the income statement
adjusted basis in its partnership interest.
If a life insurance company was required
used for Schedule M-3 and the related
Any liabilities contributing to such adjusted
to file Schedule M-3 for the preceding tax
non-tax-basis balance sheet amounts that
basis must be shown on Schedule L as
year but reports on Schedule L, Part II,
must be used for Schedule L.
corporate liabilities.
line 2, column (b), of Form 1120-L total
consolidated assets at the end of the
Total assets shown on Schedule L,
Consolidated Return
current tax year of less than $10 million,
Part II, line 2, column (b), must equal the
(Form 1120-L, Page 1)
the life insurance company is not required
total assets of the life insurance company
to file Schedule M-3 for the current tax
(or, in the case of a U.S. consolidated tax
Report on Form 1120-L, page 1, each item
year. The life insurance company may
group, the total assets of all members of
of income, gain, loss, expense, or
voluntarily file Schedule M-3 for the
the group listed on Form 851) as of the
deduction net of elimination entries for
current tax year. If for a subsequent tax
last day of the tax year, and must be the
intercompany transactions between
year the life insurance company is
same total assets reported by the life
includible corporations. The corporation
Instructions for Schedule M-3 (Form 1120-L) (2018)
-2-
must not report as dividends on Form
be owned under these instructions by the
1. A, an LLC filing a Form 1065 for
1120-L, Schedule A, any amounts
disregarded entity.
2018, is owned 50% by U.S. life insurance
received from an includible corporation
company Z. A owns 50% of B, C, D, and
3. The owner of 50% or more of a
unless the corporation receiving the
E, which are also LLCs filing a Form 1065
corporation by vote on any day of the
intercompany dividends is an insurance
for calendar year 2018. Z was first
corporation’s tax year is deemed to own
company and only to the extent that the
required to file Form 1120-L,
all corporate and partnership interests
insurance company is required to include
Schedule M-3, for its corporate tax year
owned or deemed to be owned under
intercompany dividends in taxable
ended December 31, 2017, and filed
these instructions by the corporation
income. (See the instructions for Part I,
Schedule M-3 with its Form 1120-L for
during the corporation’s tax year.
lines 10a, 10b, 10c, and 11, for a
2017 on September 15, 2018. As of
4. The owner of 50% or more of
discussion of intercompany dividends and
September 16, 2018, Z was a reportable
partnership income, loss, or capital on any
insurance company statutory accounting.)
entity partner with respect to A and,
day of the partnership tax year is deemed
In general, dividends received from an
through A, with respect to B, C, D, and E.
to own all corporate and partnership
includible corporation must be eliminated
On October 5, 2018, Z reports to A, B, C,
interests owned or deemed to be owned
in consolidation rather than offset by the
D, and E, as it is required to do within 30
under these instructions by the
dividends-received deduction.
days of September 16, that Z is a
partnership during the partnership tax
reportable entity partner directly owning
year.
Entity Considerations for
(with respect to A) or deemed to own
5. The beneficial owner of 50% or
indirectly (with respect to B, C, D, and E) a
Schedule M-3
more of the beneficial interest of a trust or
50% interest. Therefore, because Z was a
For purposes of Schedule M-3, references
nominee arrangement on any day of the
reportable entity partner for 2018, each of
to the classification of an entity (for
trust or nominee arrangement tax year is
A, B, C, D, and E is required to file Form
example, as a corporation, a partnership,
deemed to own all corporate and
1065, Schedule M-3, for 2018, regardless
or a trust) are references to the treatment
partnership interests owned or deemed to
of whether they would otherwise be
of the entity for U.S. income tax purposes.
be owned under these instructions by the
required to file Schedule M-3 for that year.
An entity that generally is disregarded as
trust or nominee arrangement.
2. P, a U.S. life insurance company, is
separate from its owner for U.S. income
the parent of a financial consolidation
A reportable entity partner with respect
tax purposes (disregarded entity) must not
group with 50 domestic subsidiaries, DS1
to a partnership (as defined above) must
be separately reported on Schedule M-3
through DS50, and 50 foreign
report the following to the partnership
except, if required, on Part I, line 7a or 7b.
subsidiaries, FS1 through FS50, all 100%
within 30 days of first becoming a
On Parts II and III, any item of income,
owned on September 16, 2018. On
reportable entity partner and, after first
gain, loss, deduction, or credit of a
September 15, 2018, P filed a
reporting to the partnership under these
disregarded entity must be reported as an
consolidated tax return on Form 1120-L
instructions, thereafter within 30 days of
item of its owner. In particular, the income
and was required to file Schedule M-3 for
the date of any change in the interest it
or loss of a disregarded entity must not be
the tax year ending December 31, 2017.
owns or is deemed to own, directly or
reported on Part II, line 9, 10, or 11 as a
On September 16, 2018, DS1, DS2, DS3,
indirectly, under these instructions, in the
separate partnership or other
FS1, and FS2 each acquire a 10%
partnership.
pass-through entity. The financial
partnership interest in partnership K which
statement income or loss of a disregarded
1. Name.
files Form 1065 for the tax year ending
entity is included on Part I, line 7a or 7b,
2. Mailing address.
December 31, 2018. P is deemed to own,
only if its financial statement income or
directly or indirectly (under these
3. Taxpayer identification number
loss is included on Part I, line 11, but not
instructions), all corporate and partnership
(TIN or EIN), if applicable.
on Part I, line 4a.
interests of DS1, DS2, and DS3, as the
4. Entity or organization type.
Reportable Entity Partner
parent of the tax consolidation group and
5. State or country in which it is
therefore is deemed to own 30% of K on
Reporting Responsibilities
organized.
September 16, 2018. P is deemed to own,
A reportable entity partner with respect to
6. Date on which it first became a
directly or indirectly (under these
a partnership filing Form 1065 is an entity
reportable entity partner.
instructions), all corporate and partnership
that:
interests of FS1 and FS2 as the owner of
7. Date with respect to which it is
Owns or is deemed to own, directly or
50% or more of each corporation by vote
reporting a change in its ownership
indirectly, under these instructions a 50%
and therefore is deemed to own 20% of K
interest in the partnership, if applicable.
or greater interest in the income, loss, or
on September 16, 2018. P is therefore
8. The interest in the partnership it
capital of the partnership on any day of the
deemed to own 50% of K on September
owns or is deemed to own in the
tax year; and
16, 2018. Since P owns or is deemed to
partnership, directly or indirectly (as
Was required to file Schedule M-3 on its
own, directly or indirectly (under these
defined under these instructions), as of
most recently filed U.S. income tax return
instructions), 50% or more of K on
the date with respect to which it is
or return of income filed prior to that day.
September 16, 2018, and was required to
reporting.
file Schedule M-3 with its most recently
For the purposes of these instructions,
9. Any change in that interest as of the
filed U.S. income tax return filed prior to
the following rules apply.
date with respect to which it is reporting.
that date, P is a reportable entity partner of
1. The parent corporation of a
K as of September 16, 2018. On October
The reportable entity partner must
consolidated tax group is deemed to own
5, 2018, P reports to K that P is a
retain copies of required reports it makes
all corporate and partnership interests
reportable entity partner as of September
to the partnerships under these
owned or deemed to be owned under
16, 2018, deemed to own (under these
instructions. Each partnership must retain
these instructions by any member of the
instructions) a 50% interest in K. K is,
copies of the required reports it receives
tax consolidated group.
therefore, required to file Schedule M-3
under these instructions from reportable
2. The owner of a disregarded entity
when it files its Form 1065 for its tax year
entity partners.
is deemed to own all corporate and
ending December 31, 2018.
partnership interests owned or deemed to
Example 2.
Instructions for Schedule M-3 (Form 1120-L) (2018)
-3-
Consolidated
or (4) subsidiary corporation, by checking
Subgroup Sub-Consolidation:
the appropriate box. If Parts II and III are
Schedule M-3 Versus
1120 Subgroup, 1120-PC
for a subsidiary in a consolidated return,
Consolidating Schedules
Subgroup, and 1120-L Subgroup
also enter the name and EIN of the
M-3 for Form 1120-L
subsidiary.
A subgroup Schedule M-3, Parts II and III,
sub-consolidation must be prepared with
Groups
Schedule M-3 Consolidation for
all necessary eliminations within the
Mixed Groups (1120/L/PC)
A consolidated tax return group with a
subgroup for each of the three possible
parent corporation that files a Form
subgroups that are in fact present: one
Special Schedule M-3 consolidation rules
1120-L is a mixed group if any member is
subgroup for those corporations reporting
apply to a mixed group, that is, a
a property and casualty insurance
on Form 1120, one subgroup for those
consolidated tax group that (1) includes
company (files Form 1120-PC) or is not an
corporations reporting on Form 1120-PC,
both a corporation that is an insurance
insurance company. See Schedule M-3
and one subgroup for those reporting on
company and a corporation that is not an
Consolidation for Mixed Groups (1120/L/
Form 1120-L. The parent corporation is
insurance company; or (2) includes both a
PC), later.
included in the subgroup that corresponds
life insurance company and a property
to the form on which it reports and the
and casualty insurance company; or (3)
A U.S. consolidated tax group must file
entire consolidated group files. For
includes a life insurance company, a
a consolidated Schedule M-3. Parts I, II,
example, in the case of a Form 1120-L
property and casualty insurance company,
and III of the consolidated Schedule M-3
parent and Form 1120-L consolidated
and a corporation that is not an insurance
must reflect the activity of the entire U.S.
group, the parent is included in the Form
company.
consolidated tax group. The parent
1120-L subgroup sub-consolidation. Each
corporation also must complete Parts II
Mixed group consolidation for
subgroup uses its own Schedule M-3
and III of a separate Schedule M-3 to
Schedule M-3, Parts II and III, requires (1)
(1120, 1120-PC, or 1120-L), Parts II and
reflect the parent's own activity. In
subgroup sub-consolidation of the 1120
III, for each corporation within the
addition, Parts II and III of a separate
subgroup, the 1120-PC subgroup, and the
subgroup and for the subgroup
Schedule M-3 must be completed by each
1120-L subgroup, each with its own
sub-consolidation and the subgroup
includible corporation to reflect the activity
sub-consolidated Schedule M-3, Parts II
eliminations.
of that includible corporation. Lastly, it
and III, and (2) consolidation of the
generally will be necessary to complete
subgroup sub-consolidation totals on a
The three subgroup sub-consolidation
Parts II and III of a separate Schedule M-3
consolidated Schedule M-3, Part II, that
taxable income calculations on
for consolidation eliminations.
ties to a consolidated Schedule M-3, Part
Schedule M-3 must follow the separate
I, and a consolidated Form 8916.
If a U.S. consolidated tax group that is
return requirements of the regulations
not a mixed group consists of four
under section 1502 and all other
In addition to one Schedule M-3, Part II,
includible corporations (the parent and
applicable regulations taking into account
and one Schedule M-3, Part III, for each
three subsidiaries) all filing Form 1120-L,
the amounts separately reported on Form
corporation in the three subgroup
the U.S. consolidated tax group must
8916. Capital loss limitation and
sub-consolidations, there generally will be
complete six Schedules M-3 as follows.
carryforward used and charitable
a total of six additional Schedule M-3,
One consolidated Schedule M-3 with
deduction limitation and carryforward used
Parts II, and six additional Schedule M-3,
Parts I, II, and III completed to reflect the
are not taken into account in the
Parts III, for the subgroup
activity of the entire U.S. consolidated tax
determination of the three subgroup
sub-consolidations. Specifically, there
group.
sub-consolidated taxable incomes on
must be one Schedule M-3, Part II, and
Parts II and III of a separate
Schedule M-3, but are reflected on Form
one Schedule M-3, Part III, for each
Schedule M-3 for each of the four
8916 and in the calculation of the life/
subgroup's sub-consolidated amounts
includible corporations to reflect the
non-life loss limitation and carryforward
and one Schedule M-3, Part II, and one
activity of each includible corporation.
used. See Life/Non-Life Loss Limitation
Schedule M-3, Part III, for each
Parts II and III of a separate
and Carryforward Used Calculations, later.
subgroup's sub-consolidation eliminations
Schedule M-3 to eliminate intercompany
amounts.
transactions between includible
The reconciliation totals for book,
temporary difference, permanent
corporations and to include limitations on
At the mixed group consolidated level,
difference, and taxable income for each
deductions (for example, charitable
there must be a consolidated
subgroup are reported on Form 1120,
contribution limitations and capital loss
Schedule M-3, Part II, and, if applicable, a
limitations) and carryover amounts (for
1120-PC, or 1120-L, as applicable,
Schedule M-3, Part II, for consolidation
example, charitable contribution
Schedule M-3, Part II, line 29a, columns
eliminations not includible in the subgroup
(a), (b), (c), and (d), and equal the sum of
carryovers and capital loss carryovers).
eliminations. At the consolidated level,
the line amounts on Part II, lines 26
See Completion of Schedule M-3 and
there also must be a consolidated
through 28. For a mixed group,
Certain Allocations, Limitations, and
Schedule M-3, Part I, and a consolidated
Carryovers, later.
Schedule M-3, Part II, lines 29b, 29c, and
Form 8916. For a mixed group, there is no
30, are blank on the Form 1120, 1120-PC,
Schedule M-3, Part III, at the consolidated
Note. Complete only one Schedule M-3,
or 1120-L, as applicable, for the separate
level. At the consolidated level, use the
Part I, for each consolidated group. A
corporations (parent and subsidiary) and
Schedule M-3 (1120, 1120-PC, or
subsidiary of a consolidated group does
for the three subgroup sub-consolidations.
1120-L), Parts I and II, that match the form
not complete Schedule M-3, Part I. Enter
on which the parent corporation reports
Note. A sub-consolidation is required for
on Part I the name and EIN of the common
and the entire consolidated group files.
every subgroup, even if the subgroup
parent of the consolidated group.
The corporation must check the
consists of only one corporation. In
Indicate on each Schedule M-3, Parts II
applicable mixed group checkboxes on all
addition, Form 8916-A, if applicable, is
and III, on the line after the common
Schedules M-3, Parts I, II, and III, as
required at the sub-consolidated level and
parent's name and EIN, whether the
discussed below.
the sub-consolidated elimination level.
Schedule M-3, Parts II and III, is for the:
(1) consolidated group; (2) parent
corporation; (3) consolidation eliminations;
Instructions for Schedule M-3 (Form 1120-L) (2018)
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Completion of
Form 1120-PC Schedule M-3, Parts II and
Reconciliation of Mixed Group
III, box (4) Subsidiary corporation, and box
Schedule M-3 and Certain
Subgroup Sub-Consolidation
(5) Mixed 1120/L/PC group. An 1120
Allocations, Limitations,
Amounts to Schedule M-3, Part I,
subsidiary corporation within the 1120
Line 11, and to Tax Return Taxable
and Carryovers
subgroup must check Form 1120
Schedule M-3, Parts II and III, box (4)
Income
Generally, a corporation (or any member
Subsidiary corporation, and box (5) Mixed
of a U.S. consolidated tax group) required
At the consolidated level, use the
1120/L/PC group.
to file Schedule M-3 must complete the
Schedule M-3 (Form 1120, 1120-PC, or
form in its entirety. In particular, a
1120-L), Parts I and II that matches the
The 1120 subgroup sub-consolidation
corporation filing a non-consolidated
form on which the parent corporation
Form 1120, Schedule M-3, Parts II and III,
return that meets the filing requirements
reports and the entire consolidated group
must be indicated by checking box (5)
for Schedule M-3 must complete Parts I, II,
files. For a mixed group, on the
Mixed 1120/L/PC group, and box (6) 1120
and III. Such a corporation does not
consolidated Schedule M-3, Part II, lines
group for the sub-consolidation, and by
check any of the checkboxes at the top of
29a, 29b, and 29c, report the applicable
checking box (5) Mixed 1120/L/PC group,
Parts II and III. In the case of a U.S.
amounts from the three subgroup
and box (7) 1120 eliminations, for the
consolidated tax group, Part I must be
sub-consolidation Part II, line 29a,
eliminations. The 1120-PC subgroup
completed once, on the consolidated
amounts. (If a consolidated level Part II for
sub-consolidation Form 1120-PC,
Schedule M-3, by the parent corporation.
consolidation eliminations not includible in
Schedule M-3, Parts II and III, must be
Parts II and III must be completed by the
the subgroup eliminations is applicable,
indicated by checking box (5) Mixed
parent corporation, each includible
the applicable amounts must be adjusted
1120/L/PC group, and box (6) 1120-PC
corporation, and a consolidating
by the applicable elimination amounts.)
group for the sub-consolidation and by
eliminations entity.
The consolidated Schedule M-3, Part II,
checking box (5) Mixed 1120/L/PC group,
line 30, amounts are the sum of the
and box (7) 1120-PC eliminations, for the
Except as otherwise provided in these
applicable amounts on the consolidated
eliminations. The 1120-L subgroup
instructions, when a Schedule M-3 (Form
Part II, lines 29a, 29b, and 29c. For a
sub-consolidation Form 1120-L,
1120-L) is filed, all applicable Part I
mixed group, the consolidated Part II, lines
Schedule M-3, Parts II and III, must be
questions must be answered; all
1 through 28 are blank and no
indicated by checking box (5) Mixed
applicable columns in Parts II and III must
consolidated Part III is required to be
1120/L/PC group, and box (6) 1120-L
be completed; all numerical data required
completed.
group for the sub-consolidation, and by
in Parts I, II, and III must be provided; and
checking box (5) Mixed 1120/L/PC group,
any statement required to support a line
For mixed groups, the consolidated
and box (7) 1120-L eliminations, for the
item in Part I, II, or III must be attached and
Part II, line 30, column (a) must equal Part
eliminations.
must provide the information required for
I, line 11, with appropriate adjustments for
that line item.
statutory accounting requirements
A mixed group with a Form 1120-L
reflected on Part I, lines 10a and 10b. The
parent corporation completes a
All detailed statements for Part II and
consolidated taxable income indicated on
consolidated level Form 1120-L,
Part III of Schedule M-3 must be attached
Part II, line 30, column (d), must equal the
Schedule M-3, Parts I and II, and a
for each separate entity included in the
amount shown on Form 8916, line 1. Form
consolidated Form 8916. The mixed group
consolidated Part II and Part III, including
8916, line 8 must equal taxable income
consolidated Schedule M-3, Part II, must
those for the parent company and the
reported on the tax return.
be indicated by checking box (1)
eliminations entity, if applicable. It is not
Consolidated group, and box (5) Mixed
required that the same supporting detailed
1120/L/PC group. If a consolidated level
information be presented for Part II and
Completion of Mixed Group
Part II for consolidation eliminations not
Part III of the consolidated Schedule M-3.
Checkboxes for Schedule M-3,
includible in the subgroup eliminations is
Part II and Part III
If an item attributable to an includible
applicable, that Part II must be indicated
corporation is not shared by or allocated to
by checking box (3) Consolidated
Note. The following discussion of
the appropriate member of the group but
eliminations, and box (5) Mixed
checkboxes will assume that the 1120-L
is retained in the parent corporation's
1120/L/PC group.
subgroup includes the corporate parent of
financial statements (or books and
the mixed group.
records, if applicable), then the item must
Life/Non-Life Loss Limitation and
be reported by the parent corporation in its
Forms 1120, 1120-PC, and 1120-L,
Carryforward Used Calculations
separate Schedule M-3. For example, if
Schedule M-3, Parts II and III, each have a
the parent of a U.S. consolidated tax
The applicable life/non-life loss limitation
checkbox (5) at the top indicating a mixed
group prepares financial statements that
and all carryforward used calculations are
group. Checkbox (5) and one or more
include all members of the U.S.
made using the amounts determined for
other applicable checkboxes must be
consolidated tax group and the parent
taxable income in the three subgroup
checked for a mixed group.
does not allocate the group's income tax
sub-consolidations and other applicable
expense as reflected in the financial
amounts separately reported on Form
For example, an 1120-L parent
statements among the members of the
8916. The calculated life/non-life loss
corporation included in the 1120-L
group but retains it in the parent
limitation or carryforward used amounts, if
subgroup must check Form 1120-L,
corporation, the parent corporation must
any, are not entered on Schedule M-3.
Schedule M-3, Parts II and III, box (2)
report on its separate Schedule M-3 the
The calculated amounts, if any, are
Parent corporation, and box (5) Mixed
U.S. consolidated tax group's income tax
entered on Form 8916.
1120/L/PC group. An 1120-L subsidiary
expense as reflected in the financial
corporation within the 1120-L subgroup
statements.
must check Form 1120-L, Schedule M-3,
Parts II and III, box (4) Subsidiary
Any adjustments made at the
corporation, and box (5) Mixed 1120/L/PC
consolidated group level that are not
group. An 1120-PC subsidiary corporation
attributable to any specific member of the
within the 1120-PC subgroup must check
U.S. consolidated tax group (for example,
Instructions for Schedule M-3 (Form 1120-L) (2018)
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