Specific Instructions — Instruction 1120-L (Schedule M-3)

For consolidated U.S. income tax returns, file supporting statements for each includible corporation. See Consolidated Return in the Instructions for Form 1120-L.

General Format of Parts II and III Check the applicable box(es) at the top of pages 2 and 3 of Schedule M-3 to indicate whether the Schedule M-3 is for the:

Consolidated group,
Parent corporation,
Consolidated eliminations,
Subsidiary corporation, or
Mixed 1120/L/PC group.

Also, check the applicable box to indicate whether the Schedule M-3 is for a sub-consolidated (6) 1120-L group; or (7) 1120-L eliminations. See Consolidated Schedule M-3 Versus Consolidating Schedules M-3 for Form 1120-L Groups and Schedule M-3 Consolidation for Mixed Groups (1120/L/PC) , earlier.

For each line item in Parts II and III, report in column (a) the amount of net income (loss) included in Part I, line 11, and report in column (d) the amount included in the subtotal on Form 1120-L, page 1, line 20.

Note: A statement or explanation may be attached to any line even if none is required.

Instructions for Schedule M-3 (Form 1120-L) (12-2025) 13

For any item of income, gain, loss, expense, or deduction for which there is a difference between columns (a) and (d), the portion of the difference that is temporary must be entered in column (b) and the portion of the difference that is permanent must be entered in column (c).

If financial statements are prepared by the life insurance company in accordance with statutory accounting principles (SAP), differences that are treated as temporary for SAP must be reported in column (b) and differences that are permanent (that is, not temporary for SAP) must be reported in column (c). Generally, pursuant to SAP, a temporary difference affects (creates, increases, or decreases) a deferred tax asset or liability.

If the life insurance company does not prepare financial statements, or the financial statements are not prepared in accordance with SAP, report in column (b) any difference that the life insurance company believes will reverse in a future tax year (that is, have an opposite effect on taxable income in a future tax year (or years) due to the difference in timing of recognition for financial accounting and U.S. income tax purposes) or is the reversal of such a difference that arose in a prior tax year. Report in column (c) any difference that the life insurance company believes will not reverse in a future tax year (and is not the reversal of such a difference that arose in a prior tax year).

If the life insurance company is unable to determine whether a difference between column (a) and column (d) for an item will reverse in a future tax year or is the reversal of a difference that arose in a prior tax year, report the difference for that item in column (c).

Example 6. In its first year of operation, life insurance company A is not required to file a Schedule M-3. If A voluntarily files Schedule M-3, all applicable Part I questions must be answered and all applicable columns in Parts II and III must be completed.

Example 7. Life insurance company B is a U.S. publicly traded corporation that files a consolidated U.S. income tax return and prepares consolidated SAP/GAAP financial statements. In prior years, B acquired intellectual property (IP) and goodwill through several corporate acquisitions. The IP is amortizable for both U.S. income tax and financial statement purposes. In the current year, B’s annual amortization expense for IP is $9,000 for U.S. income tax purposes and $6,000 for financial statement purposes. In its financial statements, B treats the difference in IP amortization as a temporary difference. The goodwill is not amortizable for U.S. income tax purposes and is subject to impairment for financial statement purposes. In the current year, B records an impairment charge on the goodwill of $5,000. In its financial statements, B treats the goodwill impairment as a permanent difference. B must report the amortization attributable to the IP in Part III, line 30, and report $6,000 in column (a), a temporary difference of $3,000 in column (b), and $9,000 in column (d). B must report the goodwill impairment in Part III, line 29, and report $5,000 in column (a), a permanent difference of ($5,000) in column (c), and $0 in column (d).