Consolidated Schedule — 0625 Inst 1120 (Schedule M-3) (PDF)

A consolidated tax return group with a parent corporation that files a Form 1120 is a mixed group if any member is a life insurance company (files using Form 1120-L) or a property and casualty insurance company (files using Form 1120-PC). See Schedule M-3 Consolidation for Mixed Groups (1120/L/ PC), later.

A U.S. consolidated tax group must file a consolidated Schedule M-3. Parts I, II, and III of the consolidated Schedule M-3 must reflect the activity of the entire U.S. consolidated tax group. The parent corporation must also complete Parts II and III of a separate Schedule M-3 to reflect the parent's own activity. In addition, Parts II and III of a separate Schedule M-3 must be completed by each includible corporation to reflect the activity of that includible corporation. Lastly, it will generally be necessary to complete Parts II and III of a separate Schedule M-3 for consolidation eliminations.

(1) consolidated group, (2) parent corporation, (3) consolidation eliminations, or (4) subsidiary corporation, by checking the appropriate box. If Schedule M-3, Parts II and III, are for a subsidiary in a consolidated return, also enter the name and EIN of the subsidiary.

Schedule M-3 Consolidation for Mixed Groups (1120/L/PC) Special Schedule M-3 consolidation rules apply to a mixed group, that is, a consolidated tax group that includes (a) both a corporation that is an insurance company and a corporation that is not an insurance company; or (b) both a life insurance company and a property and casualty insurance company; or (c) a life insurance company, a property and casualty insurance company, and a corporation that is not an insurance company.

Mixed group consolidation for Schedule M-3, Parts II and III, requires (a) subgroup sub-consolidation of the 1120 subgroup, the 1120-PC subgroup, and the 1120-L subgroup, each with its own sub-consolidated Schedule M-3, Parts II and III; and (b) consolidation of the subgroup sub-consolidation totals on a consolidated Schedule M-3, Part II, that ties to a consolidated Schedule M-3, Part I, and a consolidated Form 8916.

In addition to one Schedule M-3, Part II, and one Schedule M-3, Part III, for each corporation in the three subgroup sub-consolidations, there will generally be a total of six additional Schedules M-3, Part II, and six additional Schedules M-3, Part III, for the subgroup sub-consolidations. Specifically, there must be one Schedule M-3, Part II and one Schedule M-3, Part III for each subgroup's sub-consolidated amounts and one Schedule M-3, Part II, and one Schedule M-3, Part III, for each subgroup's sub-consolidation eliminations amounts.

At the mixed group consolidated level, there must be a consolidated Schedule M-3, Part II, and, if applicable, a Schedule M-3, Part II for consolidation eliminations not includible in the subgroup eliminations. At the consolidated level, there must also be a consolidated Schedule M-3, Part I, and a consolidated Form 8916. For a mixed group, there is no Schedule M-3, Part III, at the consolidated level.

The corporation must check the applicable mixed group checkboxes on all Schedules M-3, Parts I, II, and III, as discussed below.

Subgroup Sub-Consolidation: 1120 Subgroup, 1120-PC Subgroup, and 1120-L Subgroup

A subgroup Schedule M-3, Parts II and III, sub-consolidation must be prepared with all necessary eliminations within the subgroup for each of the three possible subgroups that are in fact present: one subgroup for those corporations reporting on Form 1120, one subgroup for those corporations reporting on Form 1120-PC, and one subgroup for those reporting on Form 1120-L. The parent corporation is included in the subgroup that corresponds to the form on which it reports and the entire consolidated group files. For example, in the case of a Form 1120 parent and Form 1120 consolidated group, the parent is included in the Form 1120 subgroup sub-consolidation. Each subgroup uses its own Schedule M-3 (Form 1120, 1120-PC, or 1120-L), Parts II and III, for each corporation within the subgroup and for the subgroup sub-consolidation and the subgroup eliminations.

If a U.S. consolidated tax group that is not a mixed group consists of four includible corporations (the parent and three subsidiaries) all filing Form 1120, the U.S. consolidated tax group must complete six Schedules M-3 as follows.

One consolidated Schedule M-3 with Parts I, II, and III completed to reflect the activity of the entire U.S. consolidated tax group.
Parts II and III of a separate Schedule M-3 for each of the four includible corporations to reflect the activity of each includible corporation.
Parts II and III of a separate Schedule M-3 to eliminate intercompany transactions between includible corporations and to include limitations on deductions (charitable contribution limitations and capital loss limitations) and carryover amounts (charitable contribution carryovers and capital loss carryovers). See Completing Schedule M-3 and Certain Allocations, Limitations, and Carryovers , earlier.

Note. Complete only one Schedule M-3, Part I, for each consolidated group. A subsidiary of a consolidated group does not complete Schedule M-3, Part I. Enter on Schedule M-3, Part I, the name and EIN of the common parent of the consolidated group. Indicate on Schedule M-3, Parts II and III, on the line after the common parent's name and EIN, whether the Schedule M-3, Parts II and III, is for the

Instructions for Schedule M-3 (Form 1120) (Rev. 6-2025) 5

The three subgroup sub-consolidation taxable income calculations on Schedule M-3 must follow the separate return requirements of the regulation under section 1502 and all other applicable regulations, taking into account the amounts separately reported on Form 8916. Capital loss limitation and carryforward used and charitable deduction limitation and carryforward used are not taken into account in the determination of the three subgroup sub-consolidated taxable incomes on Schedule M-3, but are reflected on Form 8916 and in the calculation of the life/non-life loss limitation and carryforward used. See Life/Non-Life Loss Limitation and Carryforward Used Calculations , later.

The reconciliation totals for book, temporary difference, permanent difference, and taxable income for each subgroup are reported on Form 1120, 1120-PC, or 1120-L, as applicable, Schedule M-3, Part II, line 29a, columns (a), (b), (c), and (d), and equal the sum of the line amounts on Part II, lines 26 through 28. For a mixed group, Schedule M-3, Part II, lines 29b, 29c, and 30 are blank on the Form 1120, 1120-PC, or 1120-L, as applicable, for the separate corporations (parent and subsidiary) and for the three subgroup sub-consolidations.

Note. A sub-consolidation is required for every subgroup, even if the subgroup consists of only one corporation. In addition, Form 8916-A, if applicable, is required at the sub-consolidated level and the sub-consolidated elimination level.

Reconciliation of Mixed Group Subgroup Sub-Consolidation Amounts to Schedule M-3, Part I, Line 11, and to Tax Return Taxable Income

At the consolidated level, use the Schedule M-3 (Form 1120, 1120-PC, or 1120-L), Parts I and II, that matches the form on which the parent corporation reports and the entire consolidated group files. For a mixed group, on the consolidated Schedule M-3, Part II, lines 29a, 29b, and 29c, report the applicable amounts from the three subgroup sub-consolidation Part II, line 29a, amounts. (If a consolidated level Part II for consolidation eliminations not includible in the subgroup eliminations is applicable, the applicable amounts must be adjusted by the applicable elimination amounts.) The consolidated Schedule M-3, Part II, line 30, amounts are the sum of the applicable amounts on the consolidated Part II, lines 29a, 29b, and 29c. For a mixed group, the consolidated Part II, lines 1 through 28, are blank and no consolidated Part III is required to be completed.

For mixed groups, the consolidated Part II, line 30, column (a), must equal Part I, line 11, with appropriate adjustments for statutory accounting requirements reflected on Part I, lines 10a and 10b. The consolidated taxable income indicated on Part II, line 30, column (d), must equal the amount shown on Form 8916, line 1. Form 8916, line 8, must equal taxable income reported on the tax return.

Completion of Mixed Group Checkboxes for Schedule M-3, Part II and Part III

Note. The following discussion of checkboxes will assume that the 1120 subgroup includes the corporate parent of the mixed group.

Forms 1120, 1120-PC, and 1120-L, Schedule M-3, Parts II and III, each have a checkbox (5) at the top indicating a mixed group. Checkbox (5) and one or more other applicable checkboxes must be checked.

For example, an 1120 parent corporation included in the 1120 subgroup must check Schedule M-3 (Form 1120), Parts II and III, box (2) Parent corporation, and box (5) Mixed 1120/L/PC group. An 1120 subsidiary corporation within the 1120 subgroup must check Schedule M-3 (Form 1120), Parts II and III, box (4) Subsidiary corporation, and box (5) Mixed 1120/L/PC group. An 1120-PC subsidiary corporation within the 1120-PC subgroup must check Schedule M-3 (Form 1120-PC), Parts II and III, box (4) Subsidiary corporation, and box (5) Mixed 1120/L/PC group. An 1120-L subsidiary corporation within the 1120-L subgroup must check Schedule M-3 (Form 1120-L), Parts II and III, box (4) Subsidiary corporation, and box (5) Mixed 1120/L/PC group.

The 1120 subgroup sub-consolidation Schedule M-3 (Form 1120), Parts II and III, must be indicated by checking box (5) Mixed 1120/L/PC group, and box (6) 1120 group for the sub-consolidation, and by checking box (5) Mixed 1120/L/PC group, and box (7) 1120 eliminations for the eliminations. The 1120-PC subgroup sub-consolidation Schedule M-3 (Form 1120-PC), Parts II and III, must be indicated by checking box (5) Mixed 1120/L/PC group, and box (6) 1120-PC group for the sub-consolidation, and by checking box (5) Mixed 1120/L/PC group, and box (7) 1120-PC eliminations for the eliminations. The 1120-L subgroup sub-consolidation Schedule M-3 (Form 1120-L), Parts II and III, must be indicated by checking box (5) Mixed 1120/L/PC group, and box (6) 1120-L group for the sub-consolidation, and by checking box (5) Mixed 1120/L/PC group, and box (7) 1120-L eliminations for the eliminations.

A mixed group with a Form 1120 parent corporation completes a consolidated level Schedule M-3 (Form 1120), Parts I and II, and a consolidated Form 8916. The mixed group consolidated Schedule M-3, Part II, must be indicated by checking box (1) Consolidated group, and box (5) Mixed 1120/L/PC group. (If a consolidated level Part II for consolidation eliminations not includible in the subgroup eliminations is applicable, that Part II must be indicated by checking box (3) Consolidated eliminations, and box (5) Mixed 1120/L/PC group.)

Life/Non-Life Loss Limitation and Carryforward Used Calculations

The applicable life/non-life loss limitation and all carryforward used calculations are made using the amounts determined for taxable income in the three subgroup sub-consolidations and other applicable amounts separately reported on Form 8916. The calculated life/non-life loss limitation or carryforward used amounts, if any, are not entered on Schedule M-3. The calculated amounts, if any, are entered on Form 8916.

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