Who Must File

Any corporation required to file Form 1120-S, U.S. Income Tax Return for an S Corporation, that reports on Schedule L of Form 1120-S total assets at the end of the corporation's tax year that equal or exceed $10 million must file Schedule M-3 (Form 1120-S). A corporation or group of corporations that completes Parts II and III of Schedule M-3, isn't required to complete Form 1120-S, Schedule M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return.

A U.S. corporation filing Form 1120-S that isn't required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1.

Any corporation filing Schedule M-3 must check the box on Form 1120-S, item C, indicating that Schedule M-3 is attached (whether required or voluntary).

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 U.S. income tax return with B (a corporation that has made a qualified subchapter S subsidiary election) and reports total assets on Schedule L of $8 million. A's U.S. tax group isn't required to file Schedule M-3 for the current tax year. A may voluntarily file Schedule M-3 for the current tax year. If A doesn't file Schedule M-3, it must file Schedule M-1. If A files Schedule M-3, it 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.

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

Nov 21, 2019 Cat. No. 48245B