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 2018

January 1, 2018 "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" contain the latest filing requirements for the IRS-issued Form 1120-PC. Download your copy of the instructions by clicking the link below.

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

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2018
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
Department of the Treasury
its 2018 tax year, A prepares consolidated
Section references are to the Internal Revenue
Code unless otherwise noted.
Internal Revenue Service Center
financial statements with B and F that
Ogden, UT 84201-0012
report total assets of $12 million. A files a
Future Developments
consolidated U.S. income tax return with B
Who Must File
and reports total consolidated assets on
For the latest information about
Schedule L of $8 million. A's U.S.
developments related to Schedule M-3
Any domestic corporation or group of
consolidated tax group is not required to
(Form 1120-PC), and its instructions, such
corporations required to file Form
file Schedule M-3 for the 2018 tax year.
as legislation enacted after they were
1120-PC, U.S. Property and Casualty
published, go to IRS.gov/Form1120PC.
2. U.S. property and casualty
Insurance Company Income Tax Return,
insurance company C owns U.S. property
that reports on Schedule L of Form
What’s New
and casualty insurance company D. For its
1120-PC total assets at the end of the
2018 tax year, C prepares consolidated
Domestic production activities
corporation's tax year that equal or exceed
financial statements with D but C and D
deduction (DPAD). The DPAD has been
$10 million must complete and file
file separate U.S. income tax returns. The
repealed for tax years beginning after
Schedule M-3 instead of Schedule M-1,
consolidated accrual basis financial
2017, with limited exceptions. See Part III,
Reconciliation of Income (Loss) per Books
statements for C and D report total assets
Line 39,
Domestic production activities
With Income (Loss) per Return.
at the end of the tax year of $12 million
deduction, later.
A corporation filing a non-consolidated
after intercompany eliminations. C reports
Form 1120-PC that reports on Schedule L
General Instructions
separate company total year-end assets
for Form 1120-PC total assets that equal
on its Schedule L of $7 million. D reports
or exceed $10 million must complete and
separate company total year-end assets
Purpose of Schedule
file Schedule M-3 instead of Schedule M-1
on its Schedule L of $6 million. Neither C
and must check box (1) Non-consolidated
Schedule M-3, Part I, asks certain
nor D is required to file Schedule M-3 for
return, at the top of page 1 of
questions about the corporation's financial
the 2018 tax year.
Schedule M-3.
statements and reconciles financial
3. Foreign corporation A owns 100%
Any U.S. consolidated tax group
statement net income (loss) for the
of both U.S. property and casualty
consisting of a U.S. parent corporation
corporation (or consolidated financial
insurance company B and U.S. property
and additional includible corporations
statement group, if applicable), as
and casualty insurance company C. C
listed on Form 851, Affiliations Schedule,
reported on Schedule M-3, Part I, line 4a,
owns 100% of U.S. property and casualty
required to file Form 1120-PC that reports
to net income (loss) of the corporation for
insurance company D. For its 2018 tax
on Schedule L of Form 1120-PC total
U.S. taxable income purposes, as
year, A prepares a consolidated
consolidated assets at the end of the tax
reported on Schedule M-3, Part I, line 11.
worldwide financial statement for the
year that equal or exceed $10 million must
ABCD consolidated group. The ABCD
complete and file Schedule M-3 instead of
Schedule M-3, Parts II and III, reconcile
consolidated financial statement reports
Schedule M-1, and must check box (2)
financial statement net income (loss) for
total year-end assets of $25 million. A is
Consolidated return (Form 1120-PC only),
the U.S. corporation (or consolidated tax
not required to file a U.S. income tax
or (3) Mixed 1120/L/PC group, as
group, if applicable), as reported on
return. B files a separate U.S. income tax
applicable, at the top of page 1 of
Schedule M-3, Part I, line 11, to the
return and reports separate company total
Schedule M-3.
subtotal on Form 1120-PC, Schedule A,
year-end assets on its Schedule L of $12
line 35 (or Schedule B, line 19, if
A U.S. property and casualty insurance
million. C files a consolidated U.S. income
applicable). For property and casualty
company filing Form 1120-PC that is not
tax return with D and, after eliminating
insurance companies that prepare an
required to file Schedule M-3 may
intercompany transactions between C and
annual statement, financial statement net
voluntarily file Schedule M-3 in place of
D, reports consolidated total year-end
income (loss) should be reported on the
Schedule M-1. A property and casualty
assets on Schedule L of $8 million. B is
statutory basis on Schedule M-3, Part I,
insurance company filing Schedule M-3
required to file Schedule M-3 because its
line 11.
must check Item A, box 3, on Form
total year-end assets reported on
1120-PC, page 1, indicating that
Where To File
Schedule L equal at least $10 million. The
Schedule M-3 is attached, whether
CD U.S. consolidated tax group is not
If the corporation is required to file (or
required or voluntary. A property and
required to file Schedule M-3 because its
voluntarily files) Schedule M-3 (Form
casualty insurance company filing
total year-end assets reported on
1120-PC), the corporation must file Form
Schedule M-3 must not file Schedule M-1.
Schedule L do not equal at least $10
1120-PC and all attachments and
Example 1.
million.
schedules, including Schedule M-3 (Form
1. U.S. corporation A owns U.S.
1120-PC), at the following address.
subsidiary B and foreign subsidiary F. For
Mar 05, 2019
Cat. No. 39943A
2018
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
Department of the Treasury
its 2018 tax year, A prepares consolidated
Section references are to the Internal Revenue
Code unless otherwise noted.
Internal Revenue Service Center
financial statements with B and F that
Ogden, UT 84201-0012
report total assets of $12 million. A files a
Future Developments
consolidated U.S. income tax return with B
Who Must File
and reports total consolidated assets on
For the latest information about
Schedule L of $8 million. A's U.S.
developments related to Schedule M-3
Any domestic corporation or group of
consolidated tax group is not required to
(Form 1120-PC), and its instructions, such
corporations required to file Form
file Schedule M-3 for the 2018 tax year.
as legislation enacted after they were
1120-PC, U.S. Property and Casualty
published, go to IRS.gov/Form1120PC.
2. U.S. property and casualty
Insurance Company Income Tax Return,
insurance company C owns U.S. property
that reports on Schedule L of Form
What’s New
and casualty insurance company D. For its
1120-PC total assets at the end of the
2018 tax year, C prepares consolidated
Domestic production activities
corporation's tax year that equal or exceed
financial statements with D but C and D
deduction (DPAD). The DPAD has been
$10 million must complete and file
file separate U.S. income tax returns. The
repealed for tax years beginning after
Schedule M-3 instead of Schedule M-1,
consolidated accrual basis financial
2017, with limited exceptions. See Part III,
Reconciliation of Income (Loss) per Books
statements for C and D report total assets
Line 39,
Domestic production activities
With Income (Loss) per Return.
at the end of the tax year of $12 million
deduction, later.
A corporation filing a non-consolidated
after intercompany eliminations. C reports
Form 1120-PC that reports on Schedule L
General Instructions
separate company total year-end assets
for Form 1120-PC total assets that equal
on its Schedule L of $7 million. D reports
or exceed $10 million must complete and
separate company total year-end assets
Purpose of Schedule
file Schedule M-3 instead of Schedule M-1
on its Schedule L of $6 million. Neither C
and must check box (1) Non-consolidated
Schedule M-3, Part I, asks certain
nor D is required to file Schedule M-3 for
return, at the top of page 1 of
questions about the corporation's financial
the 2018 tax year.
Schedule M-3.
statements and reconciles financial
3. Foreign corporation A owns 100%
Any U.S. consolidated tax group
statement net income (loss) for the
of both U.S. property and casualty
consisting of a U.S. parent corporation
corporation (or consolidated financial
insurance company B and U.S. property
and additional includible corporations
statement group, if applicable), as
and casualty insurance company C. C
listed on Form 851, Affiliations Schedule,
reported on Schedule M-3, Part I, line 4a,
owns 100% of U.S. property and casualty
required to file Form 1120-PC that reports
to net income (loss) of the corporation for
insurance company D. For its 2018 tax
on Schedule L of Form 1120-PC total
U.S. taxable income purposes, as
year, A prepares a consolidated
consolidated assets at the end of the tax
reported on Schedule M-3, Part I, line 11.
worldwide financial statement for the
year that equal or exceed $10 million must
ABCD consolidated group. The ABCD
complete and file Schedule M-3 instead of
Schedule M-3, Parts II and III, reconcile
consolidated financial statement reports
Schedule M-1, and must check box (2)
financial statement net income (loss) for
total year-end assets of $25 million. A is
Consolidated return (Form 1120-PC only),
the U.S. corporation (or consolidated tax
not required to file a U.S. income tax
or (3) Mixed 1120/L/PC group, as
group, if applicable), as reported on
return. B files a separate U.S. income tax
applicable, at the top of page 1 of
Schedule M-3, Part I, line 11, to the
return and reports separate company total
Schedule M-3.
subtotal on Form 1120-PC, Schedule A,
year-end assets on its Schedule L of $12
line 35 (or Schedule B, line 19, if
A U.S. property and casualty insurance
million. C files a consolidated U.S. income
applicable). For property and casualty
company filing Form 1120-PC that is not
tax return with D and, after eliminating
insurance companies that prepare an
required to file Schedule M-3 may
intercompany transactions between C and
annual statement, financial statement net
voluntarily file Schedule M-3 in place of
D, reports consolidated total year-end
income (loss) should be reported on the
Schedule M-1. A property and casualty
assets on Schedule L of $8 million. B is
statutory basis on Schedule M-3, Part I,
insurance company filing Schedule M-3
required to file Schedule M-3 because its
line 11.
must check Item A, box 3, on Form
total year-end assets reported on
1120-PC, page 1, indicating that
Where To File
Schedule L equal at least $10 million. The
Schedule M-3 is attached, whether
CD U.S. consolidated tax group is not
If the corporation is required to file (or
required or voluntary. A property and
required to file Schedule M-3 because its
voluntarily files) Schedule M-3 (Form
casualty insurance company filing
total year-end assets reported on
1120-PC), the corporation must file Form
Schedule M-3 must not file Schedule M-1.
Schedule L do not equal at least $10
1120-PC and all attachments and
Example 1.
million.
schedules, including Schedule M-3 (Form
1. U.S. corporation A owns U.S.
1120-PC), at the following address.
subsidiary B and foreign subsidiary F. For
Mar 05, 2019
Cat. No. 39943A
Other Issues Affecting
Special Filing Requirements for
non-tax-basis amounts. See the
discussion in the instructions for
Schedule M-3 Filing
Mixed Groups
Schedule M-3, Part I, line 1, of
Requirements
If the parent company of a U.S.
non-tax-basis income statements and
consolidated tax group files Form
related non-tax-basis balance sheets
If a property and casualty insurance
1120-PC and files Schedule M-3, all
prepared for any purpose and the impact
company was required to file
members of the group must file
on the selection of the income statement
Schedule M-3 for the preceding tax year
Schedule M-3. However, if the parent
used for Schedule M-3 and the related
but reports on Schedule L of Form
corporation of a U.S. consolidated tax
non-tax-basis balance sheet amounts that
1120-PC total consolidated assets at the
group files Form 1120-PC and any
must be used for Schedule L.
end of the current tax year of less than $10
member of the group files a Form 1120 or
million, the property and casualty
Total assets shown on Schedule L,
Form 1120-L, U.S. Life Insurance
insurance company is not required to file
line 15, column (d), must equal the total
Company Income Tax Return, that
Schedule M-3 for the current tax year. The
assets of the property and casualty
member must file a Form 1120
property and casualty insurance company
Schedule M-3 or a Form 1120-L
insurance company (or, in the case of a
may voluntarily file Schedule M-3 for the
U.S. consolidated tax group, the total
Schedule M-3, respectively, and the group
current tax year. If for a subsequent tax
assets of all members of the group listed
must comply with the mixed group
year the property and casualty insurance
on Form 851) as of the last day of the tax
consolidated Schedule M-3 reporting
company is required to file Schedule M-3,
described under
Schedule M-3
year, and must be the same total assets
the property and casualty insurance
reported by the property and casualty
Consolidation for Mixed Groups (1120/L/
company must complete Schedule M-3 in
insurance company (or by each member
PC), later. A mixed group also must file
its entirety for that subsequent tax year.
of the U.S. consolidated tax group) in the
Form 8916, Reconciliation of
non-tax-basis financial statements, if any,
Schedule M-3 Taxable Income with Tax
In the case of a U.S. consolidated tax
Return Taxable Income for Mixed Groups,
used for Schedule M-3. If the property and
group, total assets at the end of the tax
casualty insurance company prepares
and, if applicable, Form 8916-A,
year must be determined based on the
non-tax-basis financial statements,
Supplemental Attachment to
total year-end assets of all includible
Schedule L must equal the sum of the
Schedule M-3.
corporations listed on Form 851, net of
non-tax-basis financial statement total
eliminations for intercompany transactions
If the parent company of a U.S.
assets for each corporation listed on Form
and balances between the includible
consolidated tax group files Form
851 and included in the consolidated U.S.
corporations. In addition, for purposes of
1120-PC, and any member of the group
income tax return (includible corporation)
determining for Schedule M-3 whether the
files Form 1120 or Form 1120-L, and the
net of eliminations for intercompany
corporation (or U.S. consolidated tax
consolidated Schedule L reported in the
transactions between includible
group) has total assets at the end of the
return includes the assets of all of the
corporations. If the property and casualty
current tax year of $10 million or more, the
companies (insurance companies as well
insurance company does not prepare
corporation's total consolidated assets
as the non-insurance companies), in order
non-tax-basis financial statements,
must be determined on an overall accrual
to determine if the group meets the $10
Schedule L must be based on the property
method of accounting unless both of the
million threshold test for the requirement
and casualty company's books and
following apply: (a) the tax returns of all
to file Schedule M-3, use the amount of
records. The Schedule L balance sheet
includible corporations in the U.S.
total assets reported on Schedule L of the
may show tax-basis balance sheet
consolidated tax group are prepared using
consolidated return. If the parent company
amounts if the property and casualty
an overall cash method of accounting, and
of a U.S. consolidated tax group files Form
insurance company is allowed to use
(b) no includible corporation in the U.S.
1120-PC and any member of the group
books and records for Schedule M-3 and
consolidated tax group prepares or is
files Form 1120 or Form 1120-L and the
the property and casualty insurance
included in financial statements prepared
consolidated Schedule L reported in the
company's books and records reflect only
on an accrual basis.
return does not include the assets of one
tax-basis amounts.
or more of the insurance companies in the
Note. See the instructions for Part I,
U.S. consolidated tax group, in order to
Generally, total assets at the beginning
line 1, for a discussion of non-tax-basis
determine if the group meets the $10
of the year (Schedule L, line 15, column
income statements and related
million threshold test for the requirement
(b)) must equal total assets at the close of
non-tax-basis balance sheets to be used
to file Schedule M-3, use the sum of the
the prior year (Schedule L, line 15, column
in the preparation of Schedule M-3 and
amount of total assets reported on the
(d)). For each Schedule L balance sheet
Form 1120-PC, Schedule L.
consolidated Schedule L plus the amounts
item reported for which there is a
of all assets reported on Forms 1120 and
Other Form 1120-PC
difference between the current opening
1120-L that are included in the
balance sheet amount and the prior
Schedules Affected by
consolidated return but not included on
closing balance sheet amount, attach a
Schedule M-3
the consolidated Schedule L.
statement that reports the balance sheet
item, the prior closing amount, the current
Requirements
For insurance companies included in
opening amount, and a short explanation
the consolidated U.S. income tax return,
Report on Schedules L and Form
of the change. Reasons for these
see instructions for Part I, lines 10a, 10b,
1120-PC, Schedule A (or Schedule B, if
differences include mergers and
10c, and 11, and Part II, line 7, for
applicable), amounts for the U.S.
acquisitions.
guidance on Schedule M-3 reporting of
corporation or, if applicable, the U.S.
intercompany dividends and statutory
For purposes of measuring total assets
consolidated tax group.
accounting adjustments.
at the end of the year, the corporation's
Schedule L
assets may not be netted or reduced by
If a non-tax-basis income statement and
the corporation's liabilities. In addition,
related non-tax-basis balance sheet are
total assets may not be reported as a
prepared for any purpose for a period
negative amount. If Schedule L is
ending with or within the tax year,
prepared on a non-tax-basis method, an
Schedule L must be prepared showing
investment in a partnership may be shown
Instructions for Schedule M-3 (Form 1120-PC) (2018)
-2-
as appropriate under the corporation's
only if its financial statement income or
3. Taxpayer identification number
non-tax-basis method of accounting,
loss is included on Part I, line 11, but not
(TIN or EIN), if applicable.
including, if required by the corporation's
on Part I, line 4a.
4. Entity or organization type.
reporting methodology, the equity method
Reportable Entity Partner
5. State or country in which it is
of accounting for investments. If
organized.
Reporting Responsibilities
Schedule L is prepared on a tax basis, an
6. Date on which it first became a
investment by the corporation in a
A reportable entity partner with respect to
reportable entity partner.
partnership must be shown as an asset
a partnership filing Form 1065 is an entity
and measured by the corporation's
that:
7. Date with respect to which it is
adjusted basis in its partnership interest.
Owns or is deemed to own, directly or
reporting a change in its ownership
Any liabilities contributing to such adjusted
indirectly, under these instructions a 50%
interest in the partnership, if applicable.
basis must be shown on Schedule L as
or greater interest in the income, loss, or
8. The interest in the partnership it
corporate liabilities.
capital of the partnership on any day of the
owns or is deemed to own in the
tax year; and
Schedule M-2
partnership, directly or indirectly (as
Was required to file Schedule M-3 on its
defined under these instructions) as of the
The amount shown on Schedule M-2,
most recently filed U.S. income tax return
date with respect to which it is reporting.
line 2, Net income (loss) per books, must
or return of income filed prior to that day.
9. Any change in that interest as of the
equal the amount shown on
For the purposes of these instructions,
date with respect to which it is reporting.
Schedule M-3, Part I, line 11.
the following rules apply.
Schedule M-2 must reflect activity only of
The reportable entity partner must
corporations included in the consolidated
1. The parent corporation of a
retain copies of required reports it makes
U.S. income tax return.
consolidated tax group is deemed to own
to partnerships under these instructions.
all corporate and partnership interests
Consolidated Return (Form
Each partnership must retain copies of the
owned or deemed to be owned under
required reports it receives under these
1120-PC)
these instructions by any member of the
instructions from reportable entity
tax consolidated group.
Report on Form 1120-PC each item of
partners.
income, gain, loss, expense, or deduction
2. The owner of a disregarded entity
Example 2.
net of elimination entries for intercompany
is deemed to own all corporate and
1. A, an LLC filing a Form 1065 for
transactions between includible
partnership interests owned or deemed to
2018, is owned 50% by U.S. property and
corporations. The corporation must not
be owned under these instructions by the
casualty insurance company Z. A owns
report as dividends on Form 1120-PC,
disregarded entity.
50% of B, C, D, and E, which are also
Schedule A, any amounts received from
3. The owner of 50% or more of a
LLCs filing a Form 1065 for calendar year
an includible corporation unless the
corporation by vote on any day of the
2018. Z was first required to file
corporation receiving the intercompany
corporation’s tax year is deemed to own
Schedule M-3 (Form 1120-PC), for its
dividends is an insurance company and
all corporate and partnership interests
corporate tax year ended December 31,
only to the extent that the insurance
owned or deemed to be owned under
2017, and filed its Schedule M-3 with
company is required to include
these instructions by the corporation
Form 1120-PC for 2017 on September 15,
intercompany dividends in taxable
during its tax year.
2018. As of September 16, 2018, Z was a
income. (See the instructions for Part I,
4. The owner of 50% or more of
reportable entity partner with respect to A
lines 10a, 10b, 10c, and 11, for a
partnership income, loss, or capital on any
and, through A, with respect to B, C, D,
discussion of intercompany dividends and
day of the partnership tax year is deemed
and E. On October 5, 2018, Z reports to A,
insurance company statutory accounting.)
to own all corporate and partnership
B, C, D, and E, as it is required to do
In general, dividends received from an
interests owned or deemed to be owned
within 30 days of September 16, that Z is a
includible corporation must be eliminated
under these instructions by the
reportable entity partner directly owning
in consolidation rather than offset by the
partnership during the partnership tax
(with respect to A) or deemed to own
dividends-received deduction.
year.
indirectly (with respect to B, C, D, and E) a
Entity Considerations for
50% interest. Therefore, because Z was a
5. The beneficial owner of 50% or
reportable entity partner for 2018, each of
Schedule M-3
more of the beneficial interest of a trust or
A, B, C, D, and E is required to file
nominee arrangement on any day of the
For purposes of Schedule M-3, references
Schedule M-3 (Form 1065), for 2018,
trust or nominee arrangement tax year is
to the classification of an entity (for
regardless of whether they would
deemed to own all corporate and
example, as a corporation, a partnership,
otherwise be required to file Schedule M-3
partnership interests owned or deemed to
or a trust) are references to the treatment
for that year.
be owned under these instructions by the
of the entity for U.S. income tax purposes.
trust or nominee arrangement.
2. P, a U.S. property and casualty
An entity that generally is disregarded as
insurance company, is the parent of a
separate from its owner for U.S. income
A reportable entity partner with respect
financial consolidation group with 50
tax purposes (disregarded entity) must not
to a partnership (as defined above) must
domestic subsidiaries, DS1 through DS50,
be separately reported on Schedule M-3
report the following to the partnership
and 50 foreign subsidiaries, FS1 through
except, if required, on Part I, line 7a or 7b.
within 30 days of first becoming a
FS50, all 100% owned on September 16,
On Schedule M-3, Parts II and III, any item
reportable entity partner and, after first
2018. On September 15, 2018, P filed a
of income, gain, loss, deduction, or credit
reporting to the partnership under these
consolidated tax return on Form 1120-PC
of a disregarded entity must be reported
instructions, thereafter within 30 days of
and was required to file Schedule M-3 for
as an item of its owner. In particular, the
the date of any change in the interest it
the tax year ending December 31, 2017.
income or loss of a disregarded entity
owns or is deemed to own, directly or
On September 16, 2018, DS1, DS2, DS3,
must not be reported on Part II, line 9, 10,
indirectly, under these instructions, in the
FS1, and FS2 each acquire a 10%
or 11 as a separate partnership or other
partnership.
partnership interest in partnership K which
pass-through entity. The financial
1. Name.
files Form 1065 for the tax year ending
statement income or loss of a disregarded
December 31, 2018. P is deemed to own,
2. Mailing address.
entity is included on Part I, line 7a or 7b,
Instructions for Schedule M-3 (Form 1120-PC) (2018)
-3-
directly or indirectly (under these
activity of the entire U.S. consolidated tax
Schedule M-3 Taxable Income with Tax
instructions), all corporate and partnership
group.
Return Taxable Income for Mixed Groups.
interests of DS1, DS2, and DS3, as the
Parts II and III of a separate
In addition to one Schedule M-3, Part II,
parent of the tax consolidation group and
Schedule M-3 for each of the four
and one Schedule M-3, Part III, for each
therefore is deemed to own 30% of K on
includible corporations to reflect the
corporation in the three subgroup
September 16, 2018. P is deemed to own,
activity of each includible corporation.
sub-consolidations, there generally will be
directly or indirectly (under these
Parts II and III of a separate
a total of six additional Schedule M-3,
instructions), all corporate and partnership
Schedule M-3 to eliminate intercompany
Parts II, and six additional Schedule M-3,
interests of FS1 and FS2 as the owner of
transactions between includible
Parts III, for the subgroup
50% or more of each corporation by vote
corporations and to include limitations on
sub-consolidations. Specifically, there
and therefore is deemed to own 20% of K
deductions (for example, charitable
must be one Part II, and one Part III, for
on September 16, 2018. P is therefore
contribution limitations and capital loss
each subgroup's sub-consolidated
deemed to own 50% of K on September
limitations) and carryover amounts (for
amounts and one Part II, and one Part III,
16, 2018. Since P owns or is deemed to
example, charitable contribution
for each subgroup's sub-consolidation
own, directly or indirectly (under these
carryovers and capital loss carryovers).
eliminations amounts.
instructions), 50% or more of K on
See
Completion of Schedule M-3 and
September 16, 2018, and was required to
Certain Allocations, Limitations, and
At the mixed group consolidated level,
file Schedule M-3 with its most recently
Carryovers, later.
there must be a consolidated
filed U.S. income tax return filed prior to
Schedule M-3, Part II, and, if applicable, a
Note. Complete only one Schedule M-3,
that date, P is a reportable entity partner of
Part II, for consolidation eliminations not
Part I, for each consolidated group. A
K as of September 16, 2018. On October
includible in the subgroup eliminations. At
subsidiary of a consolidated group does
5, 2018, P reports to K that P is a
the consolidated level there also must be
not complete Schedule M-3, Part I. Enter
reportable entity partner as of September
a consolidated Schedule M-3, Part I, and a
on Part I the name and EIN of the common
16, 2018, deemed to own (under these
consolidated Form 8916. For a mixed
parent of the consolidated group.
instructions) a 50% interest in K. K is,
group, there is no Schedule M-3, Part III,
therefore, required to file Schedule M-3
Indicate on each Schedule M-3, Parts II
at the consolidated level. At the
when it files its Form 1065 for its tax year
and III, on the line after the common
consolidated level, use the Schedule M-3
ending December 31, 2018.
parent's name and EIN, whether the
(Form 1120, 1120-PC, or 1120-L), Parts I
Schedule M-3, Parts II and III, is for the:
and II, that match the form on which the
Consolidated
parent corporation reports and the entire
1. Consolidated group,
Schedule M-3 Versus
consolidated group files.
2. Parent corporation,
Consolidating Schedules
The corporation must check the
3. Consolidation eliminations, or
M-3 for Form 1120-PC
applicable mixed group checkboxes on all
4. Subsidiary corporation,
Schedules M-3, Parts I, II, and III, as
Groups
discussed below.
by checking the appropriate box. If Parts II
A consolidated tax return group with a
and III are for a subsidiary in a
parent corporation that files a Form
consolidated return, also enter the name
Subgroup Sub-Consolidation:
1120-PC is a mixed group if any member
and EIN of the subsidiary.
1120 Subgroup, 1120-PC
is a life insurance company (files Form
Schedule M-3 Consolidation for
Subgroup, and 1120-L Subgroup
1120-L, U.S. Life Insurance Company
Mixed Groups (1120/L/PC)
Income Tax Return) or is not an insurance
A subgroup Schedule M-3, Parts II and III,
company. See
Schedule M-3
Special Schedule M-3 consolidation rules
sub-consolidation must be prepared with
Consolidation for Mixed Groups (1120/L/
apply to a mixed group, that is, a
all necessary eliminations within the
PC), later.
consolidated tax group that:
subgroup for each of the three possible
subgroups that are in fact present.
1. Includes both a corporation that is
A U.S. consolidated tax group must file
One subgroup for those corporations
an insurance company and a corporation
a consolidated Schedule M-3. Parts I, II,
reporting on Form 1120,
that is not an insurance company, or
and III of the consolidated Schedule M-3
One subgroup for those corporations
must reflect the activity of the entire U.S.
2. Includes both a life insurance
reporting on Form 1120-PC, and
consolidated tax group. The parent
company and a property and casualty
One subgroup for those reporting on
corporation also must complete Parts II
insurance company, or
Form 1120-L.
and III of a separate Schedule M-3 to
3. Includes a life insurance company,
The parent corporation is included in the
reflect the parent's own activity. In
a property and casualty insurance
subgroup that corresponds to the form on
addition, Parts II and III of a separate
company, and a corporation that is not an
which it reports and the entire
Schedule M-3 must be completed by each
insurance company.
consolidated group files. For example, in
includible corporation to reflect the activity
the case of a Form 1120-PC parent and
Mixed group consolidation for
of that includible corporation. Lastly, it
Form 1120-PC consolidated group, the
Schedule M-3, Parts II and III, requires:
generally will be necessary to complete
parent is included in the Form 1120-PC
Parts II and III of a separate Schedule M-3
1. Subgroup sub-consolidation of the
subgroup sub-consolidation. Each
for consolidation eliminations.
1120 subgroup, the 1120-PC subgroup,
subgroup uses its own Schedule M-3
and the 1120-L subgroup, each with its
(Form 1120, 1120-PC, or 1120-L), Parts II
If a U.S. consolidated tax group that is
own sub-consolidated Schedule M-3,
and III, for each corporation within the
not a mixed group consists of four
Parts II and III, and
subgroup and for the subgroup
includible corporations (the parent and
sub-consolidation and the subgroup
2. Consolidation of the subgroup
three subsidiaries) all filing Form 1120-PC,
eliminations.
sub-consolidation totals on a consolidated
the U.S. consolidated tax group must
Schedule M-3, Part II, that ties to a
complete six Schedules M-3 as follows.
The three subgroup sub-consolidation
consolidated Schedule M-3, Part I, and a
One consolidated Schedule M-3 with
taxable income calculations on
consolidated Form 8916, Reconciliation of
Parts I, II, and III completed to reflect the
Schedule M-3 must follow the separate
Instructions for Schedule M-3 (Form 1120-PC) (2018)
-4-
return requirements of the regulations
For mixed groups, the consolidated
and box (7) 1120-L eliminations for the
under section 1502 and all other
Part II, line 30, column (a), must equal Part
eliminations.
applicable regulations taking into account
I, line 11, with appropriate adjustments for
the amounts separately reported on Form
statutory accounting requirements
A mixed group with a Form 1120-PC
8916. Capital loss limitation and
reflected on Part I, lines 10a and 10b. The
parent corporation completes a
carryforward used and charitable
consolidated taxable income indicated on
consolidated level Form 1120-PC,
deduction limitation and carryforward used
Part II, line 30, column (d), must equal the
Schedule M-3, Parts I and II, and a
are not taken into account in the
amount shown on Form 8916, line 1. Form
consolidated Form 8916. The mixed group
determination of the three subgroup
8916, line 8, must equal taxable income
consolidated Schedule M-3, Part II, must
sub-consolidated taxable incomes on
reported on the tax return.
be indicated by checking box (1)
Schedule M-3, but are reflected on Form
Consolidated group, and box (5) Mixed
8916 and in the calculation of the life/
1120/L/PC group. (If a consolidated level
Completion of Mixed Group
non-life loss limitation and carryforward
Part II for consolidation eliminations not
Checkboxes for Schedule M-3,
used. See
Life/Non-Life Loss Limitation
includible in the subgroup eliminations is
Part II and Part III
and Carryforward Used
Calculations, later.
applicable, that Part II must be indicated
by checking box (3) Consolidated
Note. The following discussion of
The reconciliation totals for book,
eliminations, and box (5) Mixed
checkboxes will assume that the 1120-PC
temporary difference, permanent
1120/L/PC group.)
subgroup includes the corporate parent of
difference, and taxable income for each
the mixed group.
subgroup are reported on Form 1120,
Life/Non-Life Loss Limitation and
1120-PC, or 1120-L, as applicable,
Forms 1120, 1120-PC, and 1120-L,
Carryforward Used Calculations
Schedule M-3, Part II, line 29a, columns
Schedule M-3, Parts II and III, each have a
(a), (b), (c), and (d), and equal the sum of
The applicable life/non-life loss limitation
checkbox (5) at the top indicating a mixed
the line amounts on Part II, lines 26
and all carryforward used calculations are
group. Checkbox (5) and one or more
through 28. For a mixed group,
made using the amounts determined for
other applicable checkboxes must be
Schedule M-3, Part II, lines 29b, 29c, and
taxable income in the three subgroup
checked for a mixed group.
30 are blank on the Form 1120, 1120-PC,
sub-consolidations and other applicable
or 1120-L, as applicable, for the separate
amounts separately reported on Form
For example, an 1120-PC parent
corporations (parent and subsidiary) and
8916. The calculated life/non-life loss
corporation included in the 1120-PC
for the three subgroup sub-consolidations.
limitation or carryforward used amounts, if
subgroup must check Form 1120-PC,
any, are not entered on Schedule M-3.
Schedule M-3, Parts II and III, box (2)
Note. A sub-consolidation is required for
The calculated amounts, if any, are
Parent corporation, and box (5) Mixed
every subgroup, even if the subgroup
entered on Form 8916.
1120/L/PC group. An 1120-PC subsidiary
consists of only one corporation. In
corporation within the 1120-PC subgroup
addition, Form 8916-A, if applicable, is
Completion of
must check Form 1120-PC,
required at the sub-consolidated level and
Schedule M-3, Parts II and III, box (4)
Schedule M-3 and Certain
the sub-consolidated elimination level.
Subsidiary corporation, and box (5) Mixed
Allocations, Limitations,
1120/L/PC group. An 1120 subsidiary
and Carryovers
Reconciliation of Mixed Group
corporation within the 1120 subgroup
must check Form 1120, Schedule M-3,
Subgroup Sub-Consolidation
Generally, a corporation (or any member
Parts II and III, box (4) Subsidiary
Amounts to Schedule M-3, Part I,
of a U.S. consolidated tax group) required
corporation, and box (5) Mixed 1120/L/PC
to file Schedule M-3 must complete the
Line 11, and to Tax Return Taxable
group. An 1120-L subsidiary corporation
form in its entirety. In particular, a
Income
within the 1120-L subgroup must check
corporation filing a nonconsolidated return
Form 1120-L, Schedule M-3, Parts II and
that meets the filing requirements for
At the consolidated level, use the
III, box (4) Subsidiary corporation, and box
Schedule M-3 must complete Parts I, II,
Schedule M-3 (Form 1120, 1120-PC, or
(5) Mixed 1120/L/PC group.
and III. Such a corporation does not check
1120-L), Parts I and II, that matches the
any of the checkboxes at the top of Parts II
form on which the parent corporation
The 1120 subgroup sub-consolidation
reports and the entire consolidated group
and III. In the case of a U.S. consolidated
Form 1120, Schedule M-3, Parts II and III,
tax group, Part I must be completed once,
files. For a mixed group, the consolidated
must be indicated by checking box (5)
on the consolidated Schedule M-3, by the
Schedule M-3, Part II, lines 29a, 29b, and
Mixed 1120/L/PC group, and box (6) 1120
parent corporation. Parts II and III must be
29c amounts report the applicable
group for the sub-consolidation, and by
completed by the parent corporation, each
amounts from the three subgroup
checking box (5) Mixed 1120/L/PC group,
includible corporation, and a consolidating
sub-consolidation Part II, line 29a,
and box (7) 1120 eliminations for the
eliminations entity.
amounts. (If a consolidated level Part II for
eliminations. The 1120-PC subgroup
consolidation eliminations not includible in
sub-consolidation Form 1120-PC,
Except as otherwise provided in these
the subgroup eliminations is applicable,
Schedule M-3, Parts II and III, must be
instructions, when a Schedule M-3 (Form
the applicable amounts must be adjusted
indicated by checking box (5) Mixed
1120-PC) is filed, all applicable Part I
by the applicable elimination amounts.)
1120/L/PC group, and box (6) 1120-PC
questions must be answered; all
The consolidated Schedule M-3, Part II,
group for the sub-consolidation, and by
applicable columns in Parts II and III must
line 30, amounts are the sums of the
checking box (5) Mixed 1120/L/PC group,
be completed; all numerical data required
applicable amounts on the consolidated
and box (7) 1120-PC eliminations for the
in Parts I, II, and III must be provided; and
Part II, lines 29a, 29b, and 29c. For a
eliminations. The 1120-L subgroup
any statement required to support a line
mixed group, the consolidated Part II, lines
sub-consolidation Form 1120-L,
item in Parts I, II, or III must be attached
1 through 28, are blank and no
Schedule M-3, Parts II and III, must be
and must provide the information for that
consolidated Part III is required to be
indicated by checking box (5) Mixed
line item.
completed.
1120/L/PC group, and box (6) 1120-L
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
Instructions for Schedule M-3 (Form 1120-PC) (2018)
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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 2018

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