Other Issues Affecting Schedule M-3 Filing Requirements

If a property and casualty insurance company was required to file Schedule M-3 for the preceding tax year but reports on Schedule L of Form 1120-PC total consolidated assets at the end of the current tax year of less than $10 million, the property and casualty insurance company is not required to file Schedule M-3 for the current tax year. The property and casualty insurance company may voluntarily file Schedule M-3 for the current tax year. If for a subsequent tax year the property and casualty insurance company is required to file Schedule M-3, the property and casualty insurance company must complete Schedule M-3 in its entirety for that subsequent tax year.

In the case of a U.S. consolidated tax group, total assets at the end of the tax year must be determined based on the total year-end assets of all includible corporations listed on Form 851, net of eliminations for intercompany transactions and balances between the includible corporations. In addition, for purposes of determining for Schedule M-3 whether the corporation (or U.S. consolidated tax group) has total assets at the end of the current tax year of $10 million or more, the corporation’s total consolidated assets must be determined on an overall accrual method of accounting unless both of the following apply: (a) the tax returns of all includible corporations in the U.S. consolidated tax group

2 Instructions for Schedule M-3 (Form 1120-PC)

are prepared using an overall cash method of accounting, and (b) no includible corporation in the U.S. consolidated tax group prepares or is included in financial statements prepared on an accrual basis.

Note: See the instructions for Part I, line 1, for a discussion of non-tax-basis income statements and related non-tax-basis balance sheets to be used in the preparation of Schedule M-3 and Form 1120-PC, Schedule L.