US Treasury And IRS Release Draft Version Of Schedule M-3

by Mike Godfrey, Tax-News.com, Washington

27 June 2005

The United States Treasury Department and Internal Revenue Service have released a draft version of the 2005 Schedule M-3, Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More, and related instructions for use by certain corporate taxpayers filing Form 1120, US Corporation Income Tax Return.

The 2005 Form 1120 Schedule M-3 is for use with Form 1120 returns filed for calendar year 2005, fiscal years that begin in 2005 and end in 2006, and tax years of less than twelve months that begin and end in 2006.

Schedule M-3, “Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More” is filed by affected corporations to reconcile financial accounting income to taxable income. The IRS has estimated that approximately 50,000 large and mid-size corporations are now required to use the schedule.

“Schedule M-3 is a very significant change for taxpayers and the IRS,” Deborah M. Nolan, Commissioner of the IRS Large and Midsize Business Division, noted in April.

“It will provide important tax accounting information at time of filing that previously required extensive time to develop during a tax examination. We sought corporate taxpayer input in the scope and design of the Schedule M-3 and we’re continuing that collaboration to ensure understanding of the requirements of the new form,” she went on to add.

The draft 2005 Schedule M-3 includes two new line items – one line for the new domestic production activities deduction and another line for interest expense. The draft 2005 Schedule M-3 also reflects other minor modifications to the 2004 Schedule M-3 that are described in the "What's New" section of the draft 2005 Schedule M-3 instructions.

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