Completing Schedule M-3

A corporation (or any member of a U.S. consolidated tax group) that is required to file Schedule M-3 and has at least $50 million total assets at the end of the tax year must complete the schedule in its entirety. In particular, a corporation filing a non-consolidated return that has at least $50 million total assets at the end of the tax year must complete Parts I, II, and III. Such a corporation does not check any of the checkboxes at the top of Parts II and III. In the case of a U.S. consolidated tax group, Part I must be completed once, on the consolidated Schedule M-3, by the parent corporation. Parts II and III must be completed by the parent corporation, each includible corporation, and a consolidating eliminations entity.

Form 1120 and Form 1120-C filers that (a) are required to file Schedule M-3 (Form 1120) and have less than $50 million total assets at the end of the tax year, or (b) are not required to file Schedule M-3 (Form 1120) and voluntarily file

Schedule M-3 (Form 1120), must either (i) complete Schedule M-3 (Form 1120) entirely, or (ii) complete Schedule M-3 (Form 1120) through Part I, and complete Schedule M-1 of Form 1120 (or Form 1120-C, if applicable) instead of completing Parts II and III of Schedule M-3 (Form 1120). If the filer chooses to complete Schedule M-1 instead of completing Parts II and III of Schedule M-3, line 1 of the applicable Schedule M-1 must equal line 11 of Part I of Schedule M-3.

Note. In the case of an 1120 mixed group, Parts II and III of Schedule M-3 (Form 1120) must be completed for all members of the mixed group whether Schedule M-3 (Form 1120) is required or voluntarily filed.

For any part of Schedule M-3 (Form 1120) that is completed, all applicable questions must be answered on Part I, all columns must be completed on Parts II and III, and all numerical data required by Schedule M-3 must be provided. Any statement required to support a line item on Schedule M-3 must be attached at the time Schedule M-3 is filed and must provide the information required for that line item.

All detailed statements for Part II and Part III of Schedule M-3 must be attached for each separate entity included in the consolidated Part II and Part III, including those for the parent company and the eliminations entity, if applicable. It is not required that the same supporting detailed information be presented for Part II and Part III of the consolidated Schedule M-3.

Example 1.

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.

2. U.S. corporation C owns U.S. subsidiary 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.

3. Foreign corporation F owns 100% of both U.S. corporation B and U.S. corporation C. C owns 100% of U.S. corporation D. For its current tax year, F prepares a consolidated worldwide financial statement for the FBCD consolidated group. The FBCD consolidated financial statement reports total year-end assets of $65 million. F 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 $52 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 exceed $50 million. The CD U.S. consolidated tax group is not required to file Schedule M-3 because its total year-end assets do not exceed $10 million.

2 Instructions for Schedule M-3 (Form 1120) (Rev. 6-2025)

Example 2. At the end of Corporation A's current tax year, A's total assets were less than $10 million. A is not required to file Schedule M-3 for any reason. A may elect to file Schedule M-3 instead of completing Schedule M-1 of Form 1120. If A elects to file Schedule M-3, A must either (i) complete Schedule M-3 entirely, or (ii) complete Schedule M-3 through Part I and complete Schedule M-1 instead of completing Parts II and III of Schedule M-3. If A elects to complete Schedule M-3 entirely, A must complete all columns of Parts II and III.

Certain Allocations, Limitations, and Carryovers If an item attributable to an includible corporation is not shared by or allocated to the appropriate member of the group but is retained in the parent corporation's financial statements (or books and records, if applicable), then the item must be reported by the parent corporation in its separate Schedule M-3. For example, if the parent of a U.S. consolidated tax group prepares financial statements that include all members of the U.S. consolidated tax group and the parent does not allocate the group's income tax expense as reflected in the financial statements among the members of the group but retains it in the parent corporation, the parent corporation must report on its separate Schedule M-3 the U.S. consolidated tax group's income tax expense as reflected in the financial statements.

Any adjustments made at the consolidated group level that are not attributable to any specific member of the U.S. consolidated tax group (for example, disallowance of net capital losses, contribution deduction carryovers, and limitation of contribution deductions) must not be reported on the separate consolidating parent or subsidiary Schedules M-3 but rather on the consolidated Schedule M-3 and on the consolidating Schedule M-3 for consolidation eliminations (or on Form 8916 in the case of a mixed group).

If an includible corporation has (1) no activity for the tax year (for example, because the corporation is dormant or inactive); (2) no amount for the corporation to include in Part I, line 11; and (3) no amounts to report on Part II and Part III of Schedule M-3 for the tax year, the parent corporation of the U.S. consolidated tax group may attach to the consolidated Schedule M-3 a statement that provides the name and employer identification number (EIN) of the includible corporation in lieu of filing a blank Part II and Part III of Schedule M-3 for the entity. On page 1, check box (4) Dormant subsidiaries schedule attached.