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:

1. Consolidated group,
2. Parent corporation,
3. Consolidated eliminations,
4. Subsidiary corporation, or
5. Mixed 1120/L/PC group.

Also, check the applicable box to indicate whether the Schedule M-3 is for a sub-consolidated (6) 1120 group, or (7) 1120 eliminations. See Consolidated Schedule M-3 Versus Consolidating Schedules M-3 for Form 1120 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 on Part I, line 11, and report in column (d) the amount included in taxable income on Form 1120, page 1, line 28.

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).

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

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

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

If the corporation does not prepare financial statements, or the financial statements are not prepared in accordance with GAAP, report in column (b) any difference that the corporation 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 corporation 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 corporation 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 7. Corporation B is a U.S. publicly traded corporation that files a consolidated U.S. income tax return and prepares consolidated 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 on Part III, line 28, 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 on Part III, line 26, and report $5,000 in column (a), a permanent difference of ($5,000) in column (c), and $0 in column (d).