Who Must File — Instruction 1120-PC (Schedule M-3)

Any domestic corporation or group of corporations required to file Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, that reports on the balance sheet, Schedule L of Form 1120-PC, total assets at the end of the corporation’s tax year that equal or exceed $10 million must complete and file Schedule M-3 instead of Schedule M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return.
A corporation filing a non-consolidated Form 1120-PC that reports on Schedule L for Form 1120-PC total assets that equal or exceed $10 million must complete and file Schedule M-3 instead of Schedule M-1. The corporation must check box (1), Non-consolidated return, at the top of page 1 of Schedule M-3.
Any U.S. consolidated tax group consisting of a U.S. parent corporation and additional includible corporations listed on Form 851, Affiliations Schedule, required to file Form 1120-PC that reports on Schedule L of Form 1120-PC total consolidated assets at the end of the tax year that equal or exceed $10 million must complete and file Schedule M-3 instead of Schedule M-1, and must check box (2), Consolidated return (Form 1120-PC only), or (3), Mixed 1120/L/PC group, as applicable, at the top of page 1 of Schedule M-3.

Instructions for Schedule M-3 (Form 1120-PC) (Rev. 12-2025) Catalog Number 39943A Dec 16, 2025 Department of the Treasury Internal Revenue Service www.irs.gov

A U.S. property and casualty insurance company filing Form 1120-PC that is not required to file Schedule M-3 may voluntarily file Schedule M-3 in place of Schedule M-1. A property and casualty insurance company filing Schedule M-3 must check Item A, box 3, on Form 1120-PC, page 1, indicating that Schedule M-3 is attached, whether required or voluntary. A property and casualty insurance company filing Schedule M-3 must not file Schedule M-1.

Example 1.

U.S. corporation A owns U.S. subsidiary B and foreign subsidiary F. For its current tax year, A prepares consolidated financial statements with B and F that report total assets of $12 million. A files a consolidated U.S. income tax return with B and reports total consolidated assets on Schedule L of $8 million. A’s U.S. consolidated tax group is not required to file Schedule M-3 for the current tax year.
U.S. property and casualty insurance company C owns U.S. property and casualty insurance company D. For its current tax year, C prepares consolidated financial statements with D but C and D file separate U.S. income tax returns. The consolidated accrual basis financial statements for C and D report total assets at the end of the tax year of $12 million after intercompany eliminations. C reports separate company total year-end assets on its Schedule L of $7 million. D reports separate company total year-end assets on its Schedule L of $6 million. Neither C nor D is required to file Schedule M-3 for the current tax year.
Foreign corporation A owns 100% of both U.S. property and casualty insurance company B and U.S. property and casualty insurance company C. C owns 100% of U.S. property and casualty insurance company D. For its current tax year, A prepares a consolidated worldwide financial statement for the ABCD consolidated group. The ABCD consolidated financial statement reports total year-end assets of $25 million. A is not required to file a U.S. income tax return. B files a separate U.S. income tax return and reports separate company total year-end assets on its Schedule L of $12 million. C files a consolidated U.S. income tax return with D and, after eliminating intercompany transactions between C and D, reports consolidated total year-end assets on Schedule L of $8 million. B is required to file Schedule M-3 because its total year-end assets reported on Schedule L equal at least $10 million. The CD U.S. consolidated tax group is not required to file Schedule M-3 because its total year-end assets reported on Schedule L do not equal at least $10 million.

Special Filing Requirements for Mixed Groups If the parent company of a U.S. consolidated tax group files Form 1120-PC and files Schedule M-3, all members of the group must file Schedule M-3. However, if the parent corporation of a U.S. consolidated tax group files Form 1120-PC and any member of the group files a Form 1120 or Form 1120-L, U.S. Life Insurance Company Income Tax Return, that member must file a Form 1120 Schedule M-3 or a Form 1120-L Schedule M-3, respectively, and the group must comply with the mixed group consolidated Schedule M-3 reporting described

under Schedule M-3 Consolidation for Mixed Groups (1120/L/PC) , later. A mixed group must also file Form 8916, Reconciliation of Schedule M-3 Taxable Income With Tax Return Taxable Income for Mixed Groups, and, if applicable, Form 8916-A, Supplemental Attachment to Schedule M-3.

If the parent company of a U.S. consolidated tax group files Form 1120-PC, and any member of the group files Form 1120 or Form 1120-L, and the consolidated Schedule L reported in the return includes the assets of all of the companies (insurance companies as well as the non-insurance companies), in order to determine if the group meets the $10 million threshold test for the requirement to file Schedule M-3, use the amount of total assets reported on Schedule L of the consolidated return. If the parent company of a U.S. consolidated tax group files Form 1120-PC and any member of the group files Form 1120 or Form 1120-L, and the consolidated Schedule L reported in the return does not include the assets of one or more of the insurance companies in the U.S. consolidated tax group, in order to determine if the group meets the $10 million threshold test for the requirement to file Schedule M-3, use the sum of the amount of total assets reported on the consolidated Schedule L plus the amounts of all assets reported on Forms 1120 and 1120-L that are included in the consolidated return but not included on the consolidated Schedule L.

For insurance companies included in the consolidated U.S. income tax return, see instructions for Part I, lines 10a, 10b, 10c, and 11, and Part II, line 7, for guidance on Schedule M-3 reporting of intercompany dividends and statutory accounting adjustments.