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フォーム1120-L スケジュールM-3の指示

スケジュールM-3(Form 1120-L)、Net Income(Losss)の手順は、米国生命保険会社に対し、総額$10万以上の資産を有する

2020年1月改定

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Department of the Treasury  
Internal Revenue Service  
Instructions for  
Schedule M-3 (Form 1120-L)  
(Rev. January 2024)  
(For use with the December 2021 revision of Schedule M-3 (Form 1120-L))  
Net Income (Loss) Reconciliation for U.S. Life Insurance Companies With Total  
Assets of $10 Million or More  
Section references are to the Internal Revenue Code unless  
otherwise noted.  
A corporation filing a non-consolidated Form 1120-L that  
reports on Schedule L, Part II, line 2, column (b), of Form 1120-L  
total assets that equal or exceed $10 million must complete and  
file Schedule M-3 and must check box (1) Non-consolidated  
return, at the top of page 1 of Schedule M-3.  
Future Developments  
For the latest information about developments related to  
Schedule M-3 (Form 1120-L), and its instructions, such as  
legislation enacted after they were published, go to IRS.gov/  
Any U.S. consolidated tax group consisting of a U.S. parent  
corporation and additional includible corporations listed on Form  
851, Affiliations Schedule, required to file Form 1120-L that  
reports on Schedule L, Part II, line 2, column (b), of Form 1120-L  
total consolidated assets at the end of the tax year that equal or  
exceed $10 million must complete and file Schedule M-3 and  
must check box (2) Consolidated return (Form 1120-L only) or  
(3) Mixed 1120/L/PC group, as applicable, at the top of page 1 of  
Schedule M-3.  
What’s New  
Amortization of research and development costs. Specified  
research or developmental costs paid or incurred in tax years  
beginning after December 31, 2021, must be capitalized and  
amortized. See the instructions for Line 37. Research and  
A U.S. life insurance company filing Form 1120-L that is not  
required to file Schedule M-3 may voluntarily file Schedule M-3.  
A life insurance company filing Schedule M-3 must check Item A,  
box 3, on Form 1120-L, page 1, indicating that Schedule M-3 is  
attached, whether required or voluntary.  
General Instructions  
Purpose of Schedule  
Example 1.  
Schedule M-3, Part I, asks certain questions about the  
corporation's financial statements and reconciles financial  
statement net income (loss) for the corporation (or consolidated  
financial statement group, if applicable), as reported on  
Schedule M-3, Part I, line 4a, to net income (loss) of the  
corporation for U.S. taxable income purposes, as reported on  
Schedule M-3, Part I, line 11.  
1. U.S. life insurance company 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, Part II, line 2, column (b), 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. life insurance company C owns U.S. life insurance  
company 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, Part  
II, line 2, column (b), of $7 million. D reports separate company  
total year-end assets on its Schedule L, Part II, line 2, column  
(b), of $6 million. Neither C nor D is required to file Schedule M-3  
for the current tax year.  
Schedule M-3, Parts II and III, reconcile financial statement  
net income (loss) for the U.S. corporation (or consolidated tax  
group, if applicable), as reported on Schedule M-3, Part I,  
line 11, to the subtotal on Form 1120-L, page 1, line 20. For life  
insurance companies that prepare an annual statement, financial  
statement net income (loss) should be reported on the statutory  
basis on Schedule M-3, Part I, line 11.  
Where To File  
If the corporation is required to file (or voluntarily files)  
Schedule M-3 (Form 1120-L), the corporation must file Form  
1120-L and all attachments and schedules, including  
Schedule M-3 (Form 1120-L) at the following address.  
3. Foreign corporation A owns 100% of both U.S. life  
insurance company B and U.S. life insurance company C. C  
owns 100% of U.S. life insurance company D. For its current tax  
year, A prepares a consolidated worldwide financial statement  
for the ABCD consolidated group. The ABCD consolidated  
financial statement reports total year-end assets of $25 million.  
A 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, Part II, line 2, column  
(b), of $12 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  
Department of the Treasury  
Internal Revenue Service Center  
Ogden, UT 84201-0012  
Who Must File  
Generally, the following apply.  
Any domestic corporation or group of corporations required to  
file Form 1120-L, U.S. Life Insurance Company Income Tax  
Return, that reports on Schedule L, Part II, line 2, column (b), of  
Form 1120-L total assets at the end of the corporation's tax year  
that equal or exceed $10 million must complete and file  
Schedule M-3.  
Schedule L, Part II, line 2, column (b), of $8 million. B is required  
to file Schedule M-3 because its total year-end assets reported  
on Schedule L, Part II, line 2, column (b), equal at least $10  
Feb 1, 2024  
Cat. No. 39945W  
million. The CD U.S. consolidated tax group is not required to file  
Schedule M-3 because its total year-end assets reported on  
Schedule L, Part II, line 2, column (b), do not equal at least $10  
million.  
tax year of $10 million or more, the corporation's total  
consolidated assets must be determined on an overall accrual  
method of accounting unless both of the following apply: (a) the  
tax returns of all includible corporations in the U.S. consolidated  
tax group are prepared using an overall cash method of  
accounting, and (b) no includible corporation in the U.S.  
consolidated tax group prepares or is included in financial  
statements prepared on an accrual basis.  
Special Filing Requirements for Mixed Groups  
If the parent corporation of a U.S. consolidated tax group files  
Form 1120-L and files Schedule M-3, each member of the group  
must file Schedule M-3. However, if the parent corporation of a  
U.S. consolidated tax group files Form 1120-L and any member  
of the group files Form 1120-PC, U.S. Property and Casualty  
Insurance Company Income Tax Return, or Form 1120, that  
member must file a Form 1120-PC Schedule M-3 or a Form  
1120 Schedule M-3, respectively, and the group must comply  
with the mixed group consolidated Schedule M-3 reporting  
Groups (1120/L/PC), later, in these instructions. A mixed group  
must also file Form 8916, Reconciliation of Schedule M-3  
Taxable Income With Tax Return Taxable Income for Mixed  
Groups, and, if applicable, Form 8916-A, Supplemental  
Attachment to Schedule M-3.  
Note. See the instructions for Part I, line 1, for a discussion of  
non-tax-basis income statements and related non-tax-basis  
balance sheets to be used in the preparation of Schedule M-3  
and Form 1120-L, Schedule L.  
Other Form 1120-L Schedules  
Affected by Schedule M-3  
Requirements  
Report on Schedule L and Form 1120-L, page 1, amounts for the  
U.S. corporation or, if applicable, the U.S. consolidated tax  
group.  
If the parent corporation of a U.S. consolidated tax group files  
Form 1120-L and any member of the group files Form 1120-PC  
or Form 1120, and the consolidated Schedule L, Part II, line 2,  
column (b), reported in the return includes the assets of all of the  
corporations (the insurance companies as well as the  
Schedule L  
If a non-tax-basis income statement and related non-tax-basis  
balance sheet are prepared for any purpose for a period ending  
with or within the tax year, Schedule L must be prepared  
showing non-tax-basis amounts. See the instructions for  
Schedule M-3, Part I, line 1, for the discussion of non-tax-basis  
income statements and related non-tax-basis balance sheets  
prepared for any purpose and the impact on the selection of the  
income statement used for Schedule M-3 and the related  
non-tax-basis balance sheet amounts that must be used for  
Schedule L.  
non-insurance companies), in order to determine if the group  
meets the $10 million threshold test for the requirement to file  
Schedule M-3, use the amount of total assets reported on  
Schedule L, Part II, line 2, column (b), of the consolidated return.  
If the parent company of a U.S. consolidated tax group files Form  
1120-L and any member of the group files Form 1120-PC or  
Form 1120 and the consolidated Schedule L, Part II, line 2,  
column (b), reported in the return does not include the assets of  
one or more of the corporations in the U.S. consolidated tax  
group, in order to determine if the group meets the $10 million  
threshold test for the requirement to file Schedule M-3, use the  
sum of the amount of total assets reported on the consolidated  
Schedule L, Part II, line 2, column (b), plus the amounts of all  
assets reported on Forms 1120-PC and 1120 that are included  
in the consolidated return but not included on the consolidated  
Schedule L, Part II, line 2, column (b).  
Total assets shown on Schedule L, Part II, line 2, column (b),  
must equal the total assets of the life insurance company (or, in  
the case of a U.S. consolidated tax group, the total assets of all  
members of the group listed on Form 851) as of the last day of  
the tax year, and must be the same total assets reported by the  
life insurance company (or by each member of the U.S.  
consolidated tax group) in the non-tax-basis financial  
statements, if any, used for Schedule M-3. If the life insurance  
company prepares non-tax-basis financial statements,  
Schedule L, Part II, line 2, column (b), must equal the sum of the  
non-tax-basis financial statement total assets for each  
corporation listed on Form 851 and included in the U.S.  
consolidated tax return (includible corporation) net of  
eliminations for intercompany transactions between includible  
corporations. If the life insurance company does not prepare  
non-tax-basis financial statements, Schedule L, Part II, line 2,  
column (b), must be based on the life insurance company's  
books and records. The Schedule L balance sheet may show  
tax-basis balance sheet amounts if the life insurance company is  
allowed to use books and records for Schedule M-3 and the life  
insurance company's books and records reflect only tax-basis  
amounts.  
For insurance companies included in the consolidated U.S.  
income tax return, see the instructions for Part I, lines 10a, 10b,  
10c, and 11, and Part II, line 7, for guidance on Schedule M-3  
reporting of intercompany dividends and statutory accounting  
adjustments.  
Other Issues Affecting Schedule M-3  
Filing Requirements  
If a life insurance company was required to file Schedule M-3 for  
the preceding tax year but reports on Schedule L, Part II, line 2,  
column (b), of Form 1120-L total consolidated assets at the end  
of the current tax year of less than $10 million, the life insurance  
company is not required to file Schedule M-3 for the current tax  
year. The life insurance company may voluntarily file  
Generally, total assets at the beginning of the year  
(Schedule L, Part II, line 2, column (a)) must equal total assets at  
the close of the prior year (Schedule L, Part II, line 2, column  
(b)). For each Schedule L balance sheet item reported for which  
there is a difference between the current opening balance sheet  
amount and the prior closing balance sheet amount, attach a  
statement that reports the balance sheet item, the prior closing  
amount, the current opening amount, and a short explanation of  
the change. Reasons for those differences include mergers and  
acquisitions.  
Schedule M-3 for the current tax year. If for a subsequent tax  
year the life insurance company is required to file Schedule M-3,  
the life insurance company must complete Schedule M-3 in its  
entirety for that subsequent tax year.  
In the case of a U.S. consolidated tax group, total assets at  
the end of the tax year must be determined based on the total  
year-end assets of all includible corporations listed on Form 851,  
net of eliminations for intercompany transactions and balances  
between the includible corporations. In addition, for purposes of  
determining for Schedule M-3 whether the corporation (or U.S.  
consolidated tax group) has total assets at the end of the current  
For purposes of measuring total assets at the end of the year,  
the corporation's assets may not be netted or reduced by the  
corporation's liabilities. In addition, total assets may not be  
2
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
reported as a negative amount. If Schedule L is prepared on a  
non-tax-basis method, an investment in a partnership may be  
shown as appropriate under the corporation's non-tax-basis  
method of accounting, including, if required by the corporation's  
reporting methodology, the equity method of accounting for  
investments. If Schedule L is prepared on a tax basis, an  
investment by the corporation in a partnership must be shown as  
an asset and measured by the corporation's adjusted basis in its  
partnership interest. Any liabilities contributing to such adjusted  
basis must be shown on Schedule L as corporate liabilities.  
these instructions by the corporation during the corporation’s tax  
year.  
4. The owner of 50% or more of partnership income, loss, or  
capital on any day of the partnership tax year is deemed to own  
all corporate and partnership interests owned or deemed to be  
owned under these instructions by the partnership during the  
partnership tax year.  
5. The beneficial owner of 50% or more of the beneficial  
interest of a trust or nominee arrangement on any day of the trust  
or nominee arrangement tax year is deemed to own all corporate  
and partnership interests owned or deemed to be owned under  
these instructions by the trust or nominee arrangement.  
Consolidated Return  
(Form 1120-L, Page 1)  
A reportable entity partner with respect to a partnership (as  
defined above) must report the following to the partnership within  
30 days of first becoming a reportable entity partner and, after  
first reporting to the partnership under these instructions,  
thereafter within 30 days of the date of any change in the interest  
it owns or is deemed to own, directly or indirectly, under these  
instructions, in the partnership.  
Report on Form 1120-L, page 1, each item of income, gain, loss,  
expense, or deduction net of elimination entries for intercompany  
transactions between includible corporations. The corporation  
must not report as dividends on Form 1120-L, Schedule A, any  
amounts received from an includible corporation unless the  
corporation receiving the intercompany dividends is an  
insurance company and only to the extent that the insurance  
company is required to include intercompany dividends in  
taxable income. (See the instructions for Part I, lines 10a, 10b,  
10c, and 11, for a discussion of intercompany dividends and  
insurance company statutory accounting.) In general, dividends  
received from an includible corporation must be eliminated in  
consolidation rather than offset by the dividends-received  
deduction.  
1. Name.  
2. Mailing address.  
3. Taxpayer identification number (TIN or EIN), if applicable.  
4. Entity or organization type.  
5. State or country in which it is organized.  
6. Date on which it first became a reportable entity partner.  
7. Date with respect to which it is reporting a change in its  
Entity Considerations for  
Schedule M-3  
ownership interest in the partnership, if applicable.  
8. The interest in the partnership it owns or is deemed to  
own in the partnership, directly or indirectly (as defined under  
these instructions), as of the date with respect to which it is  
reporting.  
For purposes of Schedule M-3, references to the classification of  
an entity (for example, as a corporation, a partnership, or a trust)  
are references to the treatment of the entity for U.S. income tax  
purposes. An entity that is generally regarded as separate from  
its owner for U.S. income tax purposes (disregarded entity) must  
not be separately reported on Schedule M-3 except, if required,  
on Part I, line 7a or 7b. On Parts II and III, any item of income,  
gain, loss, deduction, or credit of a disregarded entity must be  
reported as an item of its owner. In particular, the income or loss  
of a disregarded entity must not be reported on Part II, line 9, 10,  
or 11 as a separate partnership or other pass-through entity. The  
financial statement income or loss of a disregarded entity is  
included on Part I, line 7a or 7b, only if its financial statement  
income or loss is included on Part I, line 11, but not on Part I,  
line 4a.  
9. Any change in that interest as of the date with respect to  
which it is reporting.  
The reportable entity partner must retain copies of required  
reports it makes to the partnerships under these instructions.  
Each partnership must retain copies of the required reports it  
receives under these instructions from reportable entity partners.  
Example 2.  
1. A, an LLC filing a Form 1065 for 2023, is owned 50% by  
U.S. life insurance company Z. A owns 50% of B, C, D, and E,  
which are also LLCs filing a Form 1065 for calendar year 2023. Z  
was first required to file Form 1120-L, Schedule M-3, for its  
corporate tax year ending December 31, 2022 and filed  
Schedule M-3 with its Form 1120-L for 2022, on October 15,  
2023. As of October 16, 2023, Z was a reportable entity partner  
with respect to A and, through A, with respect to B, C, D, and E.  
On November 5, 2023, Z reports to A, B, C, D, and E, as it is  
required to do within 30 days of October 16, that Z is a  
Reportable Entity Partner Reporting  
Responsibilities  
A reportable entity partner with respect to a partnership filing  
Form 1065 is an entity that:  
Owns or is deemed to own, directly or indirectly, under these  
instructions a 50% or greater interest in the income, loss, or  
capital of the partnership on any day of the tax year; and  
reportable entity partner directly owning (with respect to A) or  
deemed to own indirectly (with respect to B, C, D, and E) a 50%  
interest. Therefore, because Z was a reportable entity partner for  
2023, each of A, B, C, D, and E is required to file Form 1065,  
Schedule M-3, for 2023, regardless of whether they would  
otherwise be required to file Schedule M-3 for that year.  
Was required to file Schedule M-3 on its most recently filed  
U.S. income tax return or return of income filed prior to that day.  
For the purposes of these instructions, the following rules  
apply.  
2. P, a U.S. life insurance company, is the parent of a  
financial consolidation group with 50 domestic subsidiaries, DS1  
through DS50, and 50 foreign subsidiaries, FS1 through FS50,  
all 100% owned on October 16, 2023. On October 15, 2023, P  
filed a consolidated tax return on Form 1120-L and was required  
to file Schedule M-3 for the tax year ending December 31, 2022.  
On October 16, 2023, DS1, DS2, DS3, FS1, and FS2 each  
acquire a 10% partnership interest in partnership K, which files  
Form 1065 for the tax year ending December 31, 2023. P is  
deemed to own, directly or indirectly (under these instructions),  
1. The parent corporation of a consolidated tax group is  
deemed to own all corporate and partnership interests owned or  
deemed to be owned under these instructions by any member of  
the tax consolidated group.  
2. The owner of a disregarded entity is deemed to own all  
corporate and partnership interests owned or deemed to be  
owned under these instructions by the disregarded entity.  
3. The owner of 50% or more of a corporation by vote on any  
day of the corporation’s tax year is deemed to own all corporate  
and partnership interests owned or deemed to be owned under  
3
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
 
all corporate and partnership interests of DS1, DS2, and DS3, as  
the parent of the tax consolidation group and therefore is  
deemed to own 30% of K on October 16, 2023. P is deemed to  
own, directly or indirectly (under these instructions), all corporate  
and partnership interests of FS1 and FS2 as the owner of 50% or  
more of each corporation by vote and therefore is deemed to  
own 20% of K on October 16, 2023. P is therefore deemed to  
own 50% of K on October 16, 2023. Since P owns or is deemed  
to own, directly or indirectly (under these instructions), 50% or  
more of K on October 16, 2023, and was required to file  
Schedule M-3 with its most recently filed U.S. income tax return  
filed prior to that date, P is a reportable entity partner of K as of  
October 16, 2023. On November 5, 2023, P reports to K that P is  
a reportable entity partner as of October 16, 2023, deemed to  
own (under these instructions) a 50% interest in K. K is,  
therefore, required to file Schedule M-3 when it files its Form  
1065 for its tax year ending December 31, 2023.  
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 (1) includes both a  
corporation that is an insurance company and a corporation that  
is not an insurance company; or (2) includes both a life  
insurance company and a property and casualty insurance  
company; or (3) includes 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 (1) 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 (2)  
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.  
Consolidated Schedule M-3 Versus  
Consolidating Schedules M-3 for  
Form 1120-L Groups  
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  
Schedule M-3, Parts II, and six additional Schedule M-3, Parts  
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  
A consolidated tax return group with a parent corporation that  
files a Form 1120-L is a mixed group if any member is a property  
and casualty insurance company (files Form 1120-PC) or is not  
an insurance company. See Schedule M-3 Consolidation for  
Schedule M-3, Part II, and one Schedule M-3, Part III, for each  
subgroup's sub-consolidation eliminations amounts.  
A U.S. consolidated tax group must file a consolidated  
Schedule M-3. Parts I, II, and III of the consolidated  
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. At the  
consolidated level, use the Schedule M-3 (1120, 1120-PC, or  
1120-L), Parts I and II, that match the form on which the parent  
corporation reports and the entire consolidated group files.  
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.  
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-L, the U.S. consolidated tax  
group must complete six Schedules M-3 as follows.  
The corporation must check the applicable mixed group  
checkboxes on all Schedules M-3, Parts I, II, and III, as  
discussed below.  
One consolidated Schedule M-3 with Parts I, II, and III  
Subgroup Sub-Consolidation: 1120 Subgroup,  
1120-PC Subgroup, and 1120-L Subgroup  
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.  
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-L parent and Form 1120-L consolidated group, the parent  
is included in the Form 1120-L subgroup sub-consolidation.  
Each subgroup uses its own Schedule M-3 (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.  
Parts II and III of a separate Schedule M-3 to eliminate  
intercompany transactions between includible corporations and  
to include limitations on deductions (for example, charitable  
contribution limitations and capital loss limitations) and carryover  
amounts (for example, charitable contribution carryovers and  
capital loss carryovers). See Completion of Schedule M-3 and  
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 Part I the name and  
EIN of the common parent of the consolidated group.  
Indicate on each 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 (1) consolidated group;  
(2) parent corporation; (3) consolidation eliminations; or (4)  
subsidiary corporation, by checking the appropriate box. If Parts  
II and III are for a subsidiary in a consolidated return, also enter  
the name and EIN of the subsidiary.  
The three subgroup sub-consolidation taxable income  
calculations on Schedule M-3 must follow the separate return  
requirements of the regulations 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  
4
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
   
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  
Parts II and III, box (4) Subsidiary corporation, and box (5) Mixed  
1120/L/PC group. An 1120 subsidiary corporation within the  
1120 subgroup must check Form 1120, Schedule M-3, Parts II  
and III, box (4) Subsidiary corporation, and box (5) Mixed  
1120/L/PC group.  
The 1120 subgroup sub-consolidation Form 1120,  
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.  
Schedule M-3, 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 Form 1120-PC,  
Schedule M-3, 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 Form 1120-L,  
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.  
Schedule M-3, 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.  
Reconciliation of Mixed Group Subgroup  
A mixed group with a Form 1120-L parent corporation  
completes a consolidated level Form 1120-L, Schedule M-3,  
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.  
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.  
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.  
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 Schedule M-3 and  
Certain Allocations, Limitations, and  
Carryovers  
Generally, a corporation (or any member of a U.S. consolidated  
tax group) required to file Schedule M-3 must complete the form  
in its entirety. In particular, a corporation filing a non-consolidated  
return that meets the filing requirements for Schedule M-3 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.  
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-L 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 a mixed group.  
Except as otherwise provided in these instructions, when a  
Schedule M-3 (Form 1120-L) is filed, all applicable Part I  
questions must be answered; all applicable columns in Parts II  
and III must be completed; all numerical data required in Parts I,  
II, and III must be provided; and any statement required to  
support a line item in Part I, II, or III must be attached and must  
provide the information required for that line item.  
For example, an 1120-L parent corporation included in the  
1120-L subgroup must check Form 1120-L, Schedule M-3, Parts  
II and III, box (2) Parent corporation, and box (5) Mixed  
1120/L/PC group. An 1120-L subsidiary corporation within the  
1120-L subgroup must check Form 1120-L, Schedule M-3, 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 Form 1120-PC Schedule M-3,  
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  
5
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
   
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.  
If a non-publicly traded U.S. parent life insurance company of  
a U.S. consolidated tax group prepares financial statements and  
that group includes a publicly traded subsidiary that files  
financial statements with the Securities and Exchange  
Commission (SEC), the consolidated financial statements of the  
parent life insurance company are the appropriate financial  
statements for purposes of completing Part I. Do not use any  
separate company financial statements that might be prepared  
for publicly traded subsidiaries.  
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.  
Non-Tax-Basis Financial Statements and Tax-Basis  
Financial Statements  
A tax-basis income statement is allowed for Schedule M-3 and a  
tax-basis balance sheet for Schedule L only if no non-tax-basis  
income statement and no non-tax-basis balance sheet were  
prepared for any purpose and the books and records of the  
corporation reflect only tax-basis amounts. The corporation is  
deemed to have non-tax-basis income statements and the  
related non-tax-basis balance sheets for the current year for  
purposes of Schedule M-3 and Schedule L if such non-tax-basis  
financial statements were prepared for and presented to  
management, creditors, shareholders, government regulators, or  
any other third parties for a period ending with or within the tax  
year.  
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).  
Lines 1a, 1b, and 1c  
If an includible corporation has (1) no activity for the tax year  
(for example, because the corporation is a dormant or inactive  
corporation); (2) no amount for the corporation was included on  
Part I, line 11; and (3) the corporation has 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 instead of filing a blank Part II and Part III of  
Schedule M-3 for the entity. On Part I, check box (4) Dormant  
subsidiaries schedule attached.  
If a Form 10-K is filed with the SEC for the period ending with or  
within the tax year, the corporation must check “Yes,” for Part I,  
line 1a, and use that income statement for Schedule M-3. If Form  
10-K is not filed and a non-tax-basis income statement is  
prepared that is a certified non-tax-basis income statement for  
the period ending with or within the tax year, the corporation  
must check “Yes,” for Part I, line 1b, and use that income  
statement for Schedule M-3. If Form 10-K is not filed and no  
certified non-tax-basis income statement is prepared but an  
unaudited non-tax-basis income statement is prepared for the  
period ending with or within the tax year, the corporation must  
check “Yes” for Part I, line 1c, and use that income statement for  
Schedule M-3.  
Specific Instructions for Part I  
Part I. Financial Information and Net  
Income (Loss) Reconciliation  
Order of priority in accounting standards. If no Form 10-K is  
filed and two or more non-tax-basis income statements are both  
certified non-tax-basis income statements for the period, the  
income statement prepared according to the following order of  
priority in accounting standards must be used.  
When To Complete Part I  
1. U.S. Generally Accepted Accounting Principles (GAAP).  
2. International Financial Reporting Standards (IFRS).  
3. Any other International Accounting Standards (IAS).  
4. Statutory accounting for insurance companies.  
5. Other regulatory accrual accounting.  
6. Any other accrual accounting standard.  
7. Any fair market value standard.  
8. Any cash basis standard.  
Part I must be completed for any tax year for which the life  
insurance company files Schedule M-3. Check either box (1)  
Non-consolidated return, (2) Consolidated return (Form 1120-L  
only), or (3) Mixed 1120/L/PC group, as applicable. In addition,  
check box (4) Dormant subsidiaries schedule attached, if  
applicable.  
Line 1. Questions Regarding the Type of Income  
Statement Prepared  
For Schedule M-3, Part I, lines 1 through 12, use only the  
financial statements of the U.S. life insurance company filing the  
U.S. income tax return (or the consolidated financial statements  
for the U.S. parent corporation of a U.S. consolidated tax group).  
If the U.S. life insurance company filing a U.S. income tax return  
(or the U.S. parent corporation of a U.S. consolidated tax group)  
prepares its own financial statements but is controlled by another  
corporation (U.S. or foreign) that prepares financial statements  
that include the U.S. corporation, the U.S. corporation (or the  
U.S. parent corporation of a U.S. consolidated tax group) must  
use for its Schedule M-3, Part I, its own financial statements and  
not the financial statements of the controlling corporation.  
If no non-tax-basis income statement is certified and two or  
more non-tax-basis statements are prepared, the income  
statement prepared according to the first listed of the accounting  
standards above must be used.  
If no non-tax-basis financial statements are prepared for a  
U.S. life insurance company (or, in the case of a U.S.  
consolidated tax group, for the U.S. parent corporation's  
consolidated group) filing Schedule M-3, the U.S. life insurance  
company (or the U.S. parent corporation of a U.S. consolidated  
tax group) must check “No” on questions 1a, 1b, and 1c, skip  
Part I, lines 2a through 3c, and enter the net income (loss) per  
6
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
the books and records of the U.S. life insurance company (or  
U.S. consolidated tax group) on Part I, line 4a.  
insurance company's tax year, the income statement period  
indicated on Part I, line 2a, applies for purposes of Part I, lines 4a  
through 8.  
If no non-tax-basis financial statements are prepared for a  
U.S. life insurance company (or, in the case of a U.S.  
If the life insurance company does not prepare non-tax-basis  
financial statements, and has checked “No” on Part I, line 1c,  
enter the net income (loss) per the books and records of the U.S.  
life insurance company or the U.S. consolidated tax group on  
Part I, line 4a.  
consolidated tax group, for the U.S. parent corporation's  
consolidated group) filing Schedule M-3, and the U.S. life  
insurance company is owned by a foreign corporation that  
prepares financial statements that include the U.S. life insurance  
company (or the U.S. parent corporation's consolidated group),  
the U.S. life insurance company (or the U.S. parent corporation  
of the U.S. consolidated tax group) must check “No” on  
questions 1a, 1b, and 1c, skip Part I, lines 2a through 3c, and  
enter the net income (loss) per the books and records of the U.S.  
corporation (or U.S. consolidated tax group) on Part I, line 4a.  
Indicate on Part I, line 4b, which of the following accounting  
standards were used for line 4a.  
1. U.S. Generally Accepted Accounting Principles (GAAP).  
2. International Financial Reporting Standards (IFRS).  
3. Statutory.  
Line 2. Questions Regarding Income Statement  
Period and Restatements  
4. Other (specify).  
Enter the beginning and ending dates on line 2a for the life  
insurance company's annual income statement period ending  
with or within this tax year.  
Lines 5a through 10  
Report on Part I, lines 5a through 10, as instructed below, all  
adjustment amounts required to adjust worldwide net income  
(loss) reported on this Part I, line 4a (whether from financial  
statements or books and records), to net income (loss) of  
includible corporations that must be reported on Part I, line 11.  
The questions on Part I, lines 2b and 2c, regarding income  
statement restatements, refer to the worldwide consolidated  
income statement issued by the corporation filing the U.S.  
income tax return (the consolidated financial statements for the  
U.S. parent corporation of a U.S. consolidated tax group) and  
used to prepare Schedule M-3. Answer “Yes” on lines 2b and/or  
2c if the corporation's annual income statement has been  
restated for any reason. Attach a short explanation of the  
reasons for the restatement in net income for each annual  
income statement period that is restated, including the original  
amount and restated amount of each annual statement period's  
net income. The attached statement is not required to report  
restatements on an entity-by-entity basis.  
Report on line 12a the worldwide consolidated total assets  
and total liabilities amounts for the corporation using the same  
financial statements (or books and records) used for the  
worldwide consolidated income (loss) amount reported on Part I,  
line 4a.  
If a U.S. life insurance company (a) has net income (loss)  
included on Part I, line 4a, and removed on Part I, line 6a or 6b,  
on another U.S. corporation's Schedule M-3; (b) files its own  
Form 1120-L (separate or consolidated); (c) does not have a  
separate non-tax-basis financial statement (certified or  
Line 3. Questions Regarding Publicly Traded  
Voting Common Stock  
otherwise) of its own; and (d) reports on Schedule L, Part II,  
line 2, column (b), of its own Form 1120-L total consolidated  
assets that equal or exceed $10 million at the end of the  
corporation's tax year, the life insurance company must answer  
questions 1a, 1b, and 1c, of Part I as appropriate for its own  
Form 1120-L and must report on Part I, line 4a, the amount for  
the corporation's net income (loss) that is removed on Part I,  
line 6a or 6b, of the other corporation's Schedule M-3. However,  
if in the circumstances described immediately above, the life  
insurance company does have separate non-tax-basis financial  
statements (certified or otherwise) of its own, independent of the  
amount of the corporation's net income included on Part I,  
line 4a, of the other U.S. corporation, the life insurance company  
must answer questions 1a, 1b, and 1c, of Part I, as appropriate,  
for its own Form 1120-L, based on its own separate income  
statement, and must report on Part I, line 4a, the net income  
amounts shown on its separate income statement.  
The primary U.S. publicly traded voting common stock class is  
the most widely held or most heavily traded within the United  
States as determined by the life insurance company. If the life  
insurance company has more than one class of publicly traded  
voting common stock, attach a list of the classes of publicly  
traded voting common stock and the trading symbol and the  
nine-digit CUSIP number of each class.  
Line 4. Worldwide Consolidated Net Income  
(Loss) per Income Statement  
Report on Part I, line 4a, the worldwide consolidated net income  
(loss) per the income statement (or books and records, if  
applicable) of the corporation. A corporation filing a  
non-consolidated Form 1120-L for itself must report its  
worldwide income on Part I, line 4a.  
In completing Schedule M-3, the life insurance company must  
use financial statement amounts from the financial statement  
type checked “Yes” on Part I, line 1, or from its books and  
records if Part I, line 1c, is checked “No.If Part I, line 1a, is  
checked “Yes,” report on Part I, line 4a, the net income amount  
reported in the income statement presented to the SEC on the  
corporation's Form 10-K (the Form 10-K for the security  
identified on Part I, line 3b, if applicable).  
Note. See the instructions for Part I, line 10, for adjustments that  
may be necessary to reconcile financial statement income to  
statutory income for the life insurance company.  
Line 5. Net Income (Loss) of Nonincludible  
Foreign Entities  
Remove the financial net income (line 5a) or loss (line 5b) of  
each foreign entity that is included on Part I, line 4a, and is not an  
includible corporation in the U.S. consolidated tax group  
(nonincludible foreign entity). In addition, on Part I, line 8, adjust  
for consolidation eliminations and correct for minority interest  
and intercompany dividends between any nonincludible foreign  
entity and any includible corporation. Do not remove in Part I the  
financial net income (loss) of any nonincludible foreign entity  
accounted for on Part I, line 4a, using the equity method.  
If a life insurance company prepares non-tax-basis financial  
statements, the amount on Part I, line 4a, must equal the  
financial statement net income (loss) for the income statement  
period ending with or within the tax year as indicated on Part I,  
line 2a.  
If the life insurance company prepares non-tax-basis financial  
statements and the income statement period differs from the life  
7
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
Attach a supporting statement that provides the name, EIN (if  
applicable), and net income (loss) included on Part I, line 4a, that  
is removed on line 5 for each separate nonincludible foreign  
entity. Also state the total assets and total liabilities for each such  
separate nonincludible foreign entity and include those assets  
and liabilities amounts in the total assets and total liabilities  
reported on Part I, line 12b. The amounts of income (loss)  
detailed on the supporting statement should be reported for  
each separate nonincludible foreign entity without regard to the  
effect of consolidation or elimination entries. If there are  
consolidation or elimination entries relating to nonincludible  
foreign entities whose income (loss) is reported on the attached  
statement that are not reportable on Part I, line 8, the net  
amounts of all such consolidation and elimination entries must  
be reported on a separate line on the attached statement, so that  
the separate financial accounting income (loss) of each  
nonincludible foreign entity remains separately stated.  
Lines 7a, 7b, and 7c. Net Income (Loss) of Other  
Foreign Disregarded Entities, Net Income (Loss)  
of Other U.S. Disregarded Entities, and Net  
Income (Loss) of Other Includible Entities  
Include on Part I, line 7a, 7b, or 7c, the financial net income or  
(loss) of each foreign or U.S. disregarded entity or other  
includible corporation that is not included in the consolidated  
financial group and therefore not included in the income reported  
on Part I, line 4a. Include on line 7a or 7b the financial net  
income or (loss) of any disregarded entity that is not included in  
the income reported on Part I, line 4a, but is included on Part I,  
line 11 (other disregarded entities). Include on line 7c the  
financial net income or (loss) of any entity not a disregarded  
entity that is not included in the income reported on Part I,  
line 4a, but is included on line 11 (other includible corporation).  
In addition, on Part I, line 8, adjust for consolidation eliminations  
and correct for minority interest and intercompany dividends for  
any other includible disregarded entity or other includible  
entities.  
For example, if the net income (after consolidation and  
elimination entries) of a nonincludible foreign sub-consolidated  
group is being reported on line 5a, the attached supporting  
statement should report the income (loss) of each separate  
nonincludible foreign legal entity from each such entity's own  
financial accounting net income statement or books and records,  
and any consolidation or elimination entries (for intercompany  
dividends, minority interests, etc.) not reportable on Part I, line 8,  
should be reported on the attached supporting statement as a  
net amount on a line separate and apart from lines that report  
each nonincludible foreign entity's separate net income (loss).  
Attach a supporting statement that provides the name, EIN,  
and net income (loss) per the financial statement or books and  
records for each separate other disregarded entity or other  
includible entity reported on line 7. Also state the total assets  
and total liabilities for each such separate included entity and  
include those assets and liabilities amounts in the total assets  
and total liabilities reported on Part I, line 12d. The amounts of  
income (loss) detailed on the supporting statement should be  
reported for each separate other disregarded entity or other  
includible entity without regard to the effect of consolidation or  
elimination entries solely between or among the entities listed. If  
there are consolidation or elimination entries relating to such  
other disregarded entity or other includible entities whose  
income (loss) is reported on the attached statement that are not  
reportable on Part I, line 8, the net amounts of all such  
Line 6. Net Income (Loss) of Nonincludible U.S.  
Entities  
Remove the financial net income (line 6a) or loss (line 6b)  
included on Part I, line 4a, for each U.S. entity that is not an  
includible corporation in the U.S. consolidated tax group  
(nonincludible U.S. entity). In addition, on Part I, line 8, adjust for  
consolidation eliminations and correct for minority interest and  
intercompany dividends between any nonincludible U.S. entity  
and any includible corporation. Do not remove in Part I the  
financial net income (loss) of any nonincludible U.S. entity  
accounted for on Part I, line 4a, using the equity method.  
consolidation and elimination entries must be reported on a  
separate line on the attached statement, so that the separate  
financial accounting income (loss) of each other disregarded  
entity or other includible entity remains separately stated.  
For example, if the net income (after consolidation and  
elimination entries) of a sub-consolidated group of other  
disregarded entities is being reported on line 7a or 7b, the  
attached supporting statement should report the income (loss) of  
each separate other disregarded entity from each entity's own  
financial accounting net income statement or books and records,  
and any consolidation or elimination entries (for intercompany  
dividends, minority interests, etc.) not reportable on Part I, line 8,  
should be reported on the attached supporting statement as a  
net amount on a line separate and apart from lines that report  
each other disregarded entity's separate net income (loss).  
Attach a supporting statement that provides the name, EIN,  
and net income (loss) included on Part I, line 4a, that is removed  
on line 6 for each separate nonincludible U.S. entity. Also state  
the total assets and total liabilities for each such separate  
nonincludible U.S. entity and include those assets and liabilities  
amounts in the total assets and total liabilities reported on Part I,  
line 12c. The amounts of income (loss) detailed on the  
supporting statement should be reported for each separate  
nonincludible U.S. entity without regard to the effect of  
consolidation or elimination entries. If there are consolidation or  
elimination entries relating to nonincludible U.S. entities whose  
income (loss) is reported on the attached statement that are not  
reportable on Part I, line 8, the net amounts of all such  
Line 8. Adjustment to Eliminations of  
Transactions Between Includible Entities and  
Nonincludible Entities  
consolidation and elimination entries must be reported on a  
separate line on the attached statement so that the separate  
financial accounting income (loss) of each nonincludible U.S.  
entity remains separately stated. For example, if the net income  
(after consolidation and elimination entries) of a nonincludible  
U.S. sub-consolidated group is being reported on line 6a, the  
attached supporting statement should report the income (loss) of  
each separate nonincludible U.S. legal entity from each such  
entity's own financial accounting net income statement or books  
and records, and any consolidation or elimination entries (for  
intercompany dividends, minority interests, etc.) not reportable  
on Part I, line 8, should be reported on the attached supporting  
statement as a net amount on a line separate and apart from  
lines that report each nonincludible U.S. entity's separate net  
income (loss).  
Adjustments on Part I, line 8, to reverse certain financial  
accounting consolidation or elimination entries are necessary to  
ensure that transactions between includible entities and  
nonincludible U.S. or foreign entities are not eliminated, in order  
to report the correct total amount on Part I, line 11. Also,  
additional consolidation entries and elimination entries may be  
necessary on Part I, line 8, related to transactions between  
includible entities that are in the consolidated financial group and  
other disregarded entities and other includible entities that are  
not in the consolidated financial group but that are reported on  
Part I, line 7a, 7b, or 7c, in order to report the correct total  
amount on Part I, line 11.  
Include on Part I, line 8, the total of the following: (a) amounts  
of any adjustments to consolidation entries and elimination  
8
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
entries that are contained in the amount reported on Part I,  
line 4a, required as a result of removing amounts on Part I, line 5  
or 6; and (b) amounts of any additional consolidation entries and  
elimination entries that are required as a result of including  
amounts on Part I, line 7a, 7b, or 7c. This is necessary in order  
that the consolidation entries and intercompany elimination  
entries included in the amount reported on Part I, line 11, are  
only those applicable to the financial net income (loss) of  
includible entities for the financial statement period.  
Line 10a. Intercompany Dividend Adjustments  
To Reconcile to Line 11 and  
Line 10b. Other Statutory Accounting  
Adjustments To Reconcile to Line 11 and  
Line 10c. Other Adjustments To Reconcile to  
Amount on Line 11  
Include on lines 10a, 10b, and 10c any other adjustments to  
reconcile net income (loss) on Part I, line 4a, through Part I,  
line 9, with net income (loss) on Part I, line 11. Include on  
line 10a the amount of any intercompany dividend adjustment  
required by statutory accounting. Include on line 10b the amount  
of any other required statutory accounting adjustment. Include  
on line 10c the amount of any other adjustment not required by  
statutory accounting.  
For example, adjustments must be reported on line 8 to  
remove minority interest and to reverse the elimination of  
intercompany dividends included on Part I, line 4a, that relate to  
the net income of entities removed on Part I, line 5 or 6, because  
the income to which the consolidation or elimination entries  
relate has been removed. Also, for example, consolidation or  
elimination entries must be reported on line 8 to reflect any  
minority interest ownership in the net income of other  
Normally, all intercompany dividends will have been  
eliminated or excluded from the financial accounting  
consolidated net income (loss) reported on Part I, line 4a.  
However, an insurance company may be required to include  
certain intercompany dividends on Part I, line 11, so that the  
amount reported on Part I, line 11, agrees with statutory  
accounting net income (Annual Statement). If the net income  
(loss) of a corporation that files Form 1120-PC or Form 1120-L is  
included on Part I, line 4a or line 7, and is computed on a basis  
other than statutory accounting, include on line 10a the  
adjustments necessary such that Part I, line 11, includes  
intercompany dividends in the net income (loss) for the  
corporation to the extent required by statutory accounting  
principles. (For insurance companies included in the  
consolidated U.S. income tax return, see instructions for Part I,  
line 11, and Part II, line 7.)  
disregarded entities or other includible entities reported on Part I,  
line 7a, 7b, or 7c. Consolidation and elimination entries must  
also be reported on line 8 to eliminate any intercompany  
dividends between entities whose income is included on Part I,  
line 7a, 7b, or 7c, and other entities included in the consolidated  
U.S. income tax return. See line 11, examples 3, 4, and 5.  
If a corporate owner of an interest in another entity (a)  
accounts for the interest in the entity in the owner corporation's  
separate general ledger on the equity method, and (b) fully  
consolidates the entity in the owner corporation's consolidated  
financial statements, but the entity is not includible in the owner  
corporation's consolidated U.S. income tax return, then, as part  
of reversing all consolidation and elimination entries for the  
nonincludible entity, the corporate owner must reverse on  
Schedule M-3, Part I, line 8, the elimination of the equity income  
inclusion from the entity. If the owner corporation does not  
account for the entity on the equity method on its own general  
ledger, it will not have eliminated the equity income for  
consolidated financial statement purposes, and therefore will  
have no elimination of equity income to reverse.  
Statutory accounting for an insurance company subsidiary  
acquired or merged may require the use of a financial  
statement period for income reported on Part I, line 11, that  
differs from the period reported on Part I, line 4 or line 7. Report  
on Part I, line 10b, adjustments to income because of such  
differences in accounting period.  
The attached supporting statement for Part I, line 8, must  
identify the type (for example, minority interest, intercompany  
dividends, etc.) and amount of consolidation or elimination  
entries reported, as well as the names of the entities to which  
they pertain. It is not necessary, but it is permitted, to report  
intercompany eliminations that net to zero on Part I, line 8, such  
as intercompany interest income and expense.  
For any adjustments reported on Part I, lines 10a, 10b, and  
10c, attach a supporting statement that provides, for each  
corporation to which an adjustment relates, the name and EIN of  
the corporation; the amount of net income included in Part I  
before any adjustments on line 10; the amount of net income  
included on Part I, line 11; the amount of the net adjustment that  
is attributable to intercompany dividend adjustments required to  
be reported by statutory accounting and included on Part I,  
line 10a; the amount of the net adjustment attributable to other  
statutory accounting requirements and included on Part I,  
line 10b; and the amount of the remainder of the net adjustment  
not required because of statutory accounting and included on  
Part I, line 10c. If any net adjustment is included for the  
corporation on Part I, line 10b or 10c, attach a supplemental  
supporting statement identifying the line (10b or 10c), and the  
type and amount of each adjustment included in the net  
adjustment.  
Line 9. Adjustment To Reconcile Income  
Statement Period to Tax Year  
Include on line 9 any adjustments necessary to the income (loss)  
of includible corporations to reconcile differences between the  
corporation's income statement period reported on line 2a and  
the corporation's tax year. Attach a statement describing the  
adjustment.  
Statutory accounting for an insurance company subsidiary  
acquired or merged may require the use of a financial  
statement period for income reported on Part I, line 11, that  
differs from the period reported on Part I, line 4a or line 7. Report  
on Part I, line 10b, adjustments to income because of the  
differences in accounting period.  
Line 11. Net Income (Loss) per Income  
Statement of Includible Corporations  
Report on line 11 the net income (loss) per the income statement  
(or books and records, if applicable) of the life insurance  
company. In the case of a U.S. consolidated tax group, report the  
consolidated income statement net income (loss) of all  
corporations listed on Form 851 and included in the consolidated  
U.S. income tax return for the tax year. Amounts reported in  
column (a) of Parts II and III (see instructions, later) must be  
reported on the same accounting method used to report the  
amount of net income (loss) per income statement of includible  
corporations on Part I, line 11, which for insurance companies is  
9
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
usually statutory accounting. (For insurance companies included  
in the consolidated U.S. income tax return, see instructions for  
Part I, line 10, and Part II, line 7.)  
P must not complete Schedule M-3, Part I, with reference to  
the financial statements of its foreign parent F. P must check  
“No” on Part I, lines 1a, 1b, and 1c, skip lines 2a through 3c of  
Part I, and enter worldwide net income (loss) per the books and  
records of the includible corporations (P and DS1) on Part I,  
line 4a. If the amount on Part I, line 4a, includes the income  
(loss) of DS2 and FS1 or is not on the statutory basis, P must  
enter any necessary adjustments on lines 5a through 10 in order  
for Part I, line 11, to report the net income (loss) of includible  
corporations P and DS1, net of eliminations for transactions  
between P and DS1. In particular, P must make any required  
adjustments on Part I, line 10, in order for the net income on  
line 11 for life insurance companies to be on the statutory basis.  
Do not, in any event, report on line 11 the net income of  
entities not listed on Form 851 and not included in the  
consolidated U.S. income tax return for the tax year. For  
example, it is not permissible to remove the income of  
nonincludible entities on lines 5 and/or 6, discussed earlier, then  
to add back such income on lines 7 through 10, such that the  
amount reported on line 11 includes the net income of entities  
not includible in the consolidated U.S. income tax return. A  
principal purpose of Schedule M-3 is to report on this Part I,  
line 11, only the financial accounting net income of only the  
corporations included in the consolidated U.S. income tax return.  
Example 4.  
1. U.S. life insurance company P owns 60% of corporation  
DS1, which is fully consolidated in P's financial statements. P  
does not account for DS1 in P's separate general ledger on the  
equity method. DS1 has net income of $100 (before minority  
interests) and pays dividends of $50, of which P receives $30.  
The dividend is eliminated in the consolidated financial  
statements. In its financial statements, P consolidates DS1 and  
includes $60 of net income ($100 less the minority interest of  
$40) on Part I, line 4a.  
P must remove the $100 net income of DS1 on Part I, line 6a.  
P must reverse on Part I, line 8, the elimination of the $40  
minority interest net income of DS1. In addition, P reverses its  
elimination of the $30 intercompany dividend in its financial  
statements on Part I, line 8. The net result is that P includes the  
$30 dividend from DS1 on Part I, line 11, and on Part II, line 7,  
column (a). P's dividend income included on the tax return from  
DS1 must be reported on Part II, line 7, column (d).  
2. U.S. life insurance company C owns 60% of the capital  
and profits interests in U.S. LLC N. C does not account for N in  
C's separate general ledger on the equity method. N has net  
income of $100 (before minority interests) and makes no  
distributions during the tax year. C treats N as a corporation for  
financial statement purposes and as a partnership for U.S.  
income tax purposes. In its financial statements, C consolidates  
N and includes $60 of net income ($100 less the minority interest  
of $40) on Part I, line 4a.  
C must remove the $100 net income of N on Part I, line 6a. C  
must reverse on Part I, line 8, the elimination of the $40 minority  
interest net income of N. The result is that C includes no income  
for N either on Part I, line 11, or on Part II, line 9, column (a). C's  
taxable income from N must be reported by C on Part II, line 9,  
column (d).  
3. U.S. life insurance company P owns 60% of corporation  
DS1, which is fully consolidated in P's financial statements. P  
accounts for DS1 in P's separate general ledger on the equity  
method. DS1 has net income of $100 (before minority interests)  
and pays dividends of $50, of which P receives $30. The  
dividend reduces P's investment in DS1 for equity method  
reporting on P's separate general ledger where P includes its  
60% equity share of DS1 income, which is $60. In its financial  
statements, P eliminates the DS1 equity method income of $60  
and consolidates DS1, including $60 of net income ($100 less  
the minority interest of $40) on Part I, line 4a.  
P must remove the $100 net income of DS1 on Part I, line 6a.  
P must reverse on Part I, line 8, the elimination of the $40  
minority interest net income of DS1 and the elimination of the  
$60 of DS1 equity income. The net result is that P includes the  
$60 of equity method income from DS1 on Part I, line 11, and on  
Part II, line 6, column (a). P's dividend income included on the  
tax return from its investment in DS1 must be reported on Part II,  
line 7, column (d).  
Whether or not the corporation prepares financial statements,  
Part I, line 11, must include all items that impact the net income  
(loss) of the corporation even if they are not recorded in the profit  
and loss accounts in the corporation's general ledger, including,  
for example, all post-closing adjusting entries (including  
workpaper adjustments) and dividend income or other income  
received from non-includible corporations.  
Example 3.  
1. U.S. life insurance company P is publicly traded and files  
Form 10-K with the SEC. P owns 80% or more of the stock of 75  
U.S. corporations, DS1 through DS75; between 51% and 79% of  
the stock of 25 U.S. corporations, DS76 through DS100; and  
100% of the stock of 50 foreign subsidiaries, FS1 through FS50.  
P eliminates all dividend income from DS1 through DS100 and  
FS1 through FS50 in financial statement consolidation entries.  
Furthermore, P eliminates the minority interest ownership, if any,  
of DS1 through DS100 in financial statement consolidation  
entries. P's SEC Form 10-K includes P, DS1 through DS100, and  
FS1 through FS50, on a fully consolidated basis. P files a  
consolidated U.S. income tax return with DS1 through DS75.  
P must check “Yes” on Part I, line 1a. On Part I, line 4a, P  
must report the consolidated net income from the SEC Form  
10-K for the consolidated financial statement group of P, DS1  
through DS100, and FS1 through FS50. P must remove the net  
income (loss) of FS1 through FS50 on Part I, line 5a or 5b, as  
applicable. P must remove the net income (loss) before minority  
interests of DS76 through DS100 on Part I, line 6a or 6b, as  
applicable. P must reverse on Part I, line 8:  
a. The elimination of dividends received by P and DS1  
through DS75 from DS76 through DS100 and FS1 through  
FS50; and  
b. The recognition of minority interests' share of the net  
income (loss) of DS76 through DS100. Note. The minority  
interests' share, if any, of the income of DS1 through DS75 must  
be reported on Part II, line 8.  
P reports on Part I, line 11, the consolidated financial  
statement net income (loss) attributable to the includible  
corporations. Intercompany transactions between the includible  
corporations that had been eliminated in the net income amount  
on Part I, line 4a, remain eliminated in the net income amount on  
line 11. Transactions between the includible corporations and  
the nonincludible entities that are eliminated in the net income  
amount on Part I, line 4a, are included in the net income amount  
on line 11 since the elimination of those transactions was  
reversed on line 8.  
2. Foreign corporation F owns 100% of the stock of U.S. life  
insurance company P. P owns 100% of the stock of DS1, 60% of  
the stock of DS2, and 100% of the stock of FS1. F prepares  
certified audited financial statements. P does not prepare any  
financial statements. P files a consolidated U.S. income tax  
return with DS1.  
4. U.S. life insurance company C owns 60% of the capital  
and profits interests in U.S. LLC N. C accounts for N in C's  
10  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
separate general ledger on the equity method. N has net income  
of $100 (before minority interests) and makes no distributions  
during the tax year. C treats N as a corporation for financial  
statement purposes and as a partnership for U.S. income tax  
purposes. For equity method reporting on C's separate general  
ledger, C includes its 60% equity share of N income, which is  
$60. In its financial statements, C eliminates the $60 of N equity  
method income and consolidates N, including $60 of net income  
($100 less the minority interest of $40) on Part I, line 4a.  
C must remove the $100 net income of N on Part I, line 6a. C  
must reverse on Part I, line 8, the elimination of the $40 minority  
interest net income of N and the elimination of the $60 of N  
equity method income. The result is that C includes the $60 of  
equity method income for N on Part I, line 11, and on Part II,  
line 9, column (a). C's taxable income from N must be reported  
by C on Part II, line 9, column (d).  
include on the attached supporting statement for Part I, line 8,  
the details of the adjustment to the minority interest in the net  
income of DS1, but is not required to report the offsetting  
adjustment to the intercompany elimination of interest income  
and interest expense (though it is permitted to do so).  
Line 12. Total Assets and Liabilities of Entities  
Included or Removed on Part I, Lines 4, 5, 6, and  
7
Line 12 must be completed by all corporations that file  
Schedule M-3. Report on lines 12a, 12b, 12c, and 12d the total  
amount (not just the corporation's share) of assets and liabilities  
of entities included or removed on Part I, lines 4, 5, 6, and 7. All  
assets and liabilities reported on Part I, lines 12a through 12d,  
must be reported as positive amounts.  
On line 12a, enter the worldwide consolidated total assets  
and total liabilities of all of the entities included in completing  
Part I, line 4a. On line 12b, enter the total assets and total  
liabilities of the entities removed in completing Part I, line 5. On  
line 12c, enter the total assets and total liabilities removed in  
completing Part I, line 6. On line 12d, enter total assets and total  
liabilities included in completing Part I, line 7.  
5. U.S. life insurance company C owns 60% of the capital  
and profits interests in U.S. LLC N. C accounts for N in C's  
separate general ledger on the equity method. N has net income  
of $100 (before minority interests) and pays a $50 cash  
distribution, of which C receives $30. The distribution reduces  
C's investment in N for equity method reporting on C's separate  
general ledger. C treats N as a corporation for financial  
statement purposes and as a partnership for U.S. income tax  
purposes. For equity method reporting on C's separate general  
ledger, C includes its 60% equity share of N income, which is  
$60. In its financial statements, C eliminates the $60 of N equity  
method income and consolidates N and includes $60 of net  
income ($100 less the minority interest of $40) on Part I, line 4a.  
C must remove the $100 net income of N on Part I, line 6a. C  
must reverse on Part I, line 8, the elimination of the $40 minority  
interest net income of N and the elimination of the $60 of N  
equity method income. The result is that C includes the $60 of  
equity method income for N on Part I, line 11, and on Part II,  
line 9, column (a). C's taxable income from N must be reported  
by C on Part II, line 9, column (d).  
Specific Instructions for Parts II and  
III  
For consolidated U.S. income tax returns, file supporting  
statements for each includible corporation. See Consolidated  
Return in the Instructions for Form 1120-L.  
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,  
Example 5. U.S. life insurance company P owns 80% of the  
stock of corporation DS1. DS1 is included in P's consolidated  
U.S. income tax return, even though DS1 is not included in P's  
consolidated financial statements on either a consolidated basis  
or on the equity method. DS1 has current year net income of  
$100 after taking into account its $40 interest payment to P. P  
has net income of $1,040 after recognition of the interest income  
from DS1. Because DS1 is an includible corporation, 100% of  
the net income of both P and DS1 must be reported on Form  
1120-L, page 1, of the PDS consolidated U.S. income tax return,  
and the intercompany interest income and expense must be  
removed by consolidation elimination entries.  
P must report its financial statement net income of $1,040 on  
Part I, line 4a, and reports DS1's net income of $100 on Part I,  
line 7c. Then, in order to reflect the full consolidation of the  
financial accounting net income of P and DS1 at Part I, line 11,  
Net income (loss) per income statement of includible  
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-L group; or (7)  
1120-L eliminations. See Consolidated Schedule M-3 Versus  
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 the subtotal on Form  
1120-L, page 1, line 20.  
Note. A statement or explanation may be attached to any line  
corporations, the following consolidation and elimination entries  
are reported on Part I, line 8: (a) offsetting entries to remove the  
$40 of interest income received from DS1 included by P on  
line 4a, and to remove the $40 of interest expense of DS1  
included in line 7c for a net change of zero; and (b) an entry to  
reflect the $20 minority interest in the net income of DS1 (DS1  
net income of $100 times 20% minority interest). The result is  
that Part I, line 11, reports $1,120: $1,040 from line 4a, $100  
from line 7c, and ($20) from line 8. Stated another way, Part I,  
line 11, includes the entire $1,000 net income of P, measured  
before recognition of the intercompany interest income from DS1  
and the consolidation of DS1 operations, plus the entire $140 net  
income of DS1, measured before interest expense to P, less the  
minority interest ownership of $20 in DS1's separate net income  
($100). The consolidated U.S. income tax group is required to  
even if none is required.  
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).  
If financial statements are prepared by the life insurance  
company in accordance with statutory accounting principles  
(SAP), differences that are treated as temporary for SAP must be  
reported in column (b) and differences that are permanent (that  
is, not temporary for SAP) must be reported in column (c).  
Generally, pursuant to SAP, a temporary difference affects  
(creates, increases, or decreases) a deferred tax asset or  
liability.  
11  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
If the life insurance company does not prepare financial  
statements, or the financial statements are not prepared in  
accordance with SAP, report in column (b) any difference that the  
life insurance company 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 life insurance company  
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).  
amount is attributable to a reportable transaction described in  
Regulations section 1.6011-4(b) and is therefore reported on  
Part II, line 12. For example, with the exception of interest  
income reflected on a Schedule K-1 received by a life insurance  
company as a result of the life insurance company's investment  
in a partnership or other pass-through entity, all interest income,  
whether from unconsolidated affiliated companies, third parties,  
banks, or other entities; whether from foreign or domestic  
sources; whether taxable or exempt from tax; and regardless of  
how or where the income is classified in the life insurance  
company's annual statement, must be included on Part II,  
line 13, column (a). Likewise, all fines and penalties paid to a  
government or other authority for the violation of any law for  
which fines or penalties are assessed must be included on Part  
III, line 12, column (a), regardless of the government authority  
that imposed the fines or penalties; regardless of whether the  
fines or penalties are civil or criminal; regardless of the  
If the life insurance company 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 6. In its first year of operation, life insurance  
company A is not required to file a Schedule M-3. If A voluntarily  
files Schedule M-3, all applicable Part I questions must be  
answered and all applicable columns in Parts II and III must be  
completed.  
classification, nomenclature, or terminology attached to the fines  
or penalties by the imposing authority in its actions or  
documents; and regardless of how or where the fines or  
penalties are classified in the life insurance company's summary  
of operations or the income and expense accounts maintained in  
the life insurance company's books and records.  
Example 7. Life insurance company B is a U.S. publicly  
traded corporation that files a consolidated U.S. income tax  
return and prepares consolidated SAP/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 30, 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 29, and report $5,000 in column (a), a  
permanent difference of ($5,000) in column (c), and $0 in  
column (d).  
If a life insurance company would be required to report in  
Parts II and III, column (a), the amount of any item specifically  
listed on Schedule M-3 in accordance with the preceding  
paragraph, except that the life insurance company has  
capitalized the item of income or expense and reports the  
amount in its annual statement or in asset and liability accounts  
maintained in the life insurance company's books and records,  
the life insurance company must report the proper tax treatment  
of the item in columns (b), (c), and (d), as applicable.  
Furthermore, in applying the two preceding paragraphs, a life  
insurance company is required to report in Parts II and III,  
column (a), the amount of any item specifically listed on  
Schedule M-3 that is included in the life insurance company's  
annual statement or exists in the life insurance company's books  
and records, regardless of the nomenclature associated with that  
item in the annual statement or books and records. Accurate  
completion of Schedule M-3 requires reporting amounts  
according to the substantive nature of the specific line items  
included in Schedule M-3 and consistent reporting of all  
transactions of like substantive nature that occurred during the  
tax year. For example, all expense amounts that are included in  
the annual statement or exist in the books and records that  
represent some form of “Bad debt expense” must be reported on  
Part III, line 33, column (a), regardless of whether the amounts  
are recorded or stated under different nomenclature in the  
annual statement or the books and records, such as “Provision  
for doubtful accounts”; “Expense for uncollectible notes  
receivable”; or “Impairment of trade accounts receivable.”  
Likewise, as stated in the preceding paragraph, all fines and  
penalties must be included on Part III, line 12, column (a),  
regardless of the terminology or nomenclature attached to them  
by the life insurance company in its books and records or annual  
statement.  
Reporting Requirements for Parts II  
and III  
Except for mixed group consolidation, the number of Parts II  
must equal the number of Parts III filed by the corporation. Mixed  
Groups (1120/L/PC), earlier.  
General Reporting Requirements  
If an amount is attributable to a reportable transaction described  
in Regulations section 1.6011-4(b), the amount must be reported  
in columns (a), (b), (c), and (d), as applicable, of Part II, line 12,  
regardless of whether the amount would otherwise be reported  
on Part II or Part III of Schedule M-3. Thus, if a taxpayer files  
Form 8886, Reportable Transaction Disclosure Statement, the  
amounts attributable to that reportable transaction must be  
reported on Part II, line 12.  
With limited exceptions, Part II includes lines for specific items  
of income, gain, or loss (income items). (See Part II, lines 1  
through 24.) If an income item is described in Part II, lines 1  
through 24, report the amount of the item on the applicable line,  
regardless of whether there is a difference for the item. If there is  
a difference for the income item, or only a portion of the income  
item has a difference and a portion of the item does not have a  
difference, and the item is not described in Part II, lines 1 through  
24, report and describe the entire amount of the item on Part II,  
line 25.  
A life insurance company is required to report in column (a) of  
Parts II and III the amount of any item specifically listed on  
Schedule M-3 that is in any manner included in the life insurance  
company's current year annual statement net income (loss) or in  
an income or expense account maintained in the life insurance  
company's books and records, even if there is no difference  
between that amount and the amount included in taxable income  
unless (a) otherwise provided in these instructions, or (b) the  
With limited exceptions, Part III includes lines for specific  
items of expense or deduction (expense items). (See Part III,  
12  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
lines 1 through 38.) If an expense item is described on Part III,  
lines 1 through 38, report the amount of the item on the  
applicable line, regardless of whether there is a difference for the  
item. If there is a difference for the expense item, or only a  
portion of the expense item has a difference and a portion of the  
item does not have a difference and the item is not described in  
Part III, lines 1 through 38, report and describe the entire amount  
of the item on Part III, line 39.  
1120-L) that includes a detailed description of each item and  
adjustment entered on Part II, line 25, and Part III, line 39.  
The description for each amount entered in column (a) must  
be readily identifiable to the name of the account in the financial  
statements or books and records of the taxpayer, under which  
the amount in column (a) was recorded in the accounting  
records. Also, the description for each amount entered in column  
(a) must include detailed information supporting each  
adjustment reported in columns (b) and (c), including how the  
adjustment is identified in the accounting records. The entire  
description is considered the tax description for the amount  
reported in column (d) for each item reported on Part II, line 25,  
or Part III, line 39.  
If there is no difference between the annual statement amount  
and the taxable amount of an entire item of income, loss,  
expense, or deduction and the item is not described or included  
in Part II, lines 1 through 24, or Part III, lines 1 through 38, report  
the entire amount of the item in columns (a) and (d) of Part II,  
line 28.  
Each description should adequately describe all four columns  
of Part II, line 25, or Part III, line 39. If additional information is  
required to provide an acceptable description, attach a  
supporting statement.  
Special instructions for Part II, lines 25 and 28, and Part III,  
line 39. Whether an income (loss) item is reported on Part II,  
line 25, or on Part II, line 28, or a given expense/deduction item  
on Part III, line 39, or on Part II, line 28, is determined separately  
by each member of the U.S. consolidated tax group and not at  
the U.S. consolidated tax group level. For example, U.S.  
corporation P has two subsidiaries, A and B, that are included in  
P's consolidated financial statements and in P's consolidated  
U.S. income tax return. For financial statement purposes, P, A,  
and B recognize real estate tax expense when accrued. For U.S.  
income tax purposes, P and A recognize such expense  
Example 8. Life insurance company C is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. C placed in service 10 depreciable fixed assets in previous  
years. C's total depreciation expense for its current tax year for  
five of the assets is $50,000 for summary of operations purposes  
and $70,000 for U.S. income tax purposes. C's total annual  
depreciation expense for its current tax year for the other five  
assets is $40,000 for summary of operations purposes and  
$30,000 for U.S. income tax purposes. In its annual statement, C  
treats the differences between annual statement and U.S.  
income tax depreciation expense as giving rise to temporary  
differences that will reverse in future years. C must combine all of  
its depreciation adjustments. Accordingly, C must report on Part  
III, line 32, for its current tax year income statement depreciation  
expense of $90,000 in column (a), a temporary difference of  
$10,000 in column (b), and U.S. income tax depreciation  
expense of $100,000 in column (d).  
Example 9. Life insurance company D is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. On December 31 of the current year, D establishes two  
reserve accounts in the amount of $100,000 for each account.  
One reserve account is an allowance for agency balances that  
are estimated to be uncollectible. The second reserve is an  
estimate of future office closure expenses. In its annual  
statement, D treats the two reserve accounts as giving rise to  
temporary differences that will reverse in future years. The two  
reserves are expenses in D's current annual statement but are  
not deductions for U.S. income tax purposes in the current year.  
D must not combine the Schedule M-3 differences for the two  
reserve accounts. D must report the amounts attributable to the  
allowance for bad debts on Part III, line 33, Bad debt expense/  
agency balances written off, and must separately state and  
adequately disclose the amount attributable to the other reserve,  
office closure costs, on a required, attached statement that  
supports the amounts on Part III, line 39.  
consistent with the method used for financial statement  
purposes, whereas B recognizes such deduction based on a  
method different from that used for financial statement purposes.  
P and A must report this expense/deduction in columns (a) and  
(d) on Part II, line 28. B must report the following on Part III,  
line 39, in column (a), B's expense recognized in the financial  
statements when accrued; in column (d), B's real estate tax  
expense recognized for U.S. income tax purposes; and in  
column (b) or (c), as applicable, the difference between B's real  
estate tax expense in its financial statements and its real estate  
tax deduction recognized for U.S. taxable income purposes.  
Separately stated and adequately disclosed. Each  
difference reported in Parts II and III must be separately stated  
and adequately disclosed. In general, a difference is adequately  
disclosed if the difference is labeled in a manner that clearly  
identifies the item or transaction from which the difference  
arises. For further guidance about adequate disclosure, see  
Regulations section 1.6662-4(f). If a specific item of income,  
gain, loss, expense, or deduction is described on Part II, lines 9  
through 24, or Part III, lines 1 through 38, and the line does not  
indicate to “attach statement” and the specific instructions for the  
line do not call for an attachment of a statement, then the item is  
considered separately stated and adequately disclosed if the  
item is reported on the applicable line and the amount(s) of the  
item(s) are reported in the applicable columns of the applicable  
line. See the instructions for Part II, lines 1 through 8, later, for  
specific additional information to be provided for these particular  
lines.  
D must also provide a description for each reserve that meets  
the requirements for Part III, line 39, discussed earlier under  
this example, an acceptable description would be “Future Office  
Closure Expense Reserve.”  
Note. A statement or explanation may be attached to any line  
even if none is required.  
Except as otherwise provided, differences for the same item  
must be combined or netted together and reported as one  
amount on the applicable line of Schedule M-3. However,  
differences for separate items must not be combined or netted  
together. Each item (and corresponding amount attributable to  
that item) must be separately stated and adequately disclosed  
on the applicable line of Schedule M-3, or any statement  
required to be attached, even if the amounts are below a certain  
dollar amount.  
Note. There is no need to add the title of the reserve account to  
the description if the account name for the amount in column (a)  
is already part of the adjustment description.  
Example 10. Life insurance company F had $100 of meal  
expenses and $100 of entertainment expenses. Therefore, F  
deducted $200 on its income statement. For federal income tax  
purposes, the entire $100 of meal expenses are subject to the  
50% limitation under section 274(n). The $100 of entertainment  
expenses are nondeductible under section 274(a). F must report  
on Part III, line 11, $200 in column (a), $150 in column (c), and  
Required statements for Part II, line 25, and Part III, line 39.  
A separate statement must be attached to Schedule M-3 (Form  
13  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
   
$50 in column (d). F must report all its meal and entertainment  
expenses only on this line whether there is a difference or not  
because meal and entertainment expenses are specifically  
described.  
amount of qualified electing fund (QEF) income corresponds to  
the total of the amounts reported by the life insurance company  
on all Forms 8621, Information Return by a Shareholder of a  
Passive Foreign Investment Company or Qualified Electing  
Fund.  
Part II. Reconciliation of Net Income  
(Loss) per Income Statement of Life  
Insurance Companies With Taxable  
Income per Return  
Lines 1 Through 8. Additional Information for  
Each Life Insurance Company  
For any item reported on Part II, lines 1, 3 through 6, or 8, attach  
a supporting statement that provides the name of the entity for  
which the item is reported, the type of entity (corporation,  
partnership, etc.), the entity's EIN (if applicable), and the item  
amounts for columns (a) through (d). See the instructions for Part  
II, lines 2 and 7, for the specific information required for those  
particular lines.  
Also include on line 3 passive foreign investment company  
mark-to-market gains and losses under section 1296. Do not  
report such gains and losses on Schedule M-3, Part II, line 16.  
Line 4. Gross-Up for Foreign Taxes Deemed Paid  
Report on line 4, column (d), the amount of any gross-up for  
foreign taxes deemed paid not included on Part II, column (d), of  
lines 9, 10, and 11, Income (loss) from U.S. partnerships, foreign  
partnerships, and other pass-through entities. The gross-up  
amount on line 4 must correspond to the total gross-up amounts  
for foreign taxes deemed paid reported by the corporation on all  
Forms 1118, Foreign Tax Credit—Corporations, excluding the  
amounts reported on Schedule M-3, Part II, column (d), of lines  
9, 10, and 11.  
Line 5. Gross Foreign Distributions Previously  
Taxed  
Line 1. Income (Loss) From Equity Method  
Foreign Corporations  
Report on line 5, column (a), any distributions received from  
foreign corporations that were included on Part I, line 11, and  
that were previously taxed for U.S. income tax purposes. For  
example, include in column (a) amounts that are excluded from  
taxable income under sections 959 and 1293(c). Remove such  
amount in column (b) or (c), as applicable. Report the full  
amount of the distribution before any withholding tax. Since  
previously taxed foreign distributions are not currently taxable,  
line 5, column (d), is shaded. (Also see the instructions for Part  
II, line 2, earlier.)  
Report on line 1, column (a), the financial income (loss) included  
on Part I, line 11, for any foreign corporation accounted for on the  
equity method and remove such amount in column (b) or (c), as  
applicable. Report the amount of dividends received and other  
taxable amounts received or includible from foreign corporations  
on Part II, lines 2 through 5, as applicable.  
Line 2. Gross Foreign Dividends Not Previously  
Taxed  
Line 6. Income (Loss) From Equity Method U.S.  
Corporations  
Except as otherwise provided in this paragraph, report on line 2,  
column (d), the amount (before any withholding tax) of any  
foreign dividends included in the subtotal on Form 1120-L,  
page 1, line 20, and report on line 2, column (a), the amount of  
dividends from any foreign corporation included on Part I,  
line 11. Do not report on Part II, line 2, any amounts that must be  
reported on Part II, line 3 or 4, or dividends that were previously  
taxed and must be reported on Part II, line 5. See the instructions  
below for Part II, lines 3, 4, and 5. Report amounts in columns (b)  
and (c), as applicable.  
Report on line 6, column (a), the financial income (loss) included  
on Part I, line 11, for any U.S. corporation accounted for on the  
equity method and remove such amount in column (b) or (c), as  
applicable. Report on Part II, line 7, dividends received from any  
U.S. corporation accounted for on the equity method.  
Line 7. U.S. Dividends Not Eliminated in Tax  
Consolidation  
Report on line 7, column (a), the amount of dividends included  
on Part I, line 11, that were received from any U.S. corporation.  
Report on line 7, column (d), the amount of any U.S. dividends  
included in the subtotal on Form 1120-L, page 1, line 20.  
For any dividends reported on Part II, line 2, that are received  
on a class of voting stock of which the life insurance company  
directly or indirectly owned 10% or more of the outstanding  
shares of that class at any time during the tax year, report on an  
attached supporting statement for Part II, line 2 (1) the name of  
the dividend payer, (2) the payer's EIN (if applicable), (3) the  
class of voting stock on which the dividend was paid, (4) the  
percentage of the class directly or indirectly owned, and (5) the  
amounts for columns (a) through (d).  
Usually, the amounts included on line 7, columns (a) and (d),  
include only dividends received from U.S. corporations that are  
not included in the U.S. consolidated tax group because  
intercompany dividends (dividends received from includible  
corporations listed on Form 851) are eliminated or excluded for  
financial accounting purposes and eliminated for the calculation  
of U.S. taxable income. In the case of an insurance company  
included in the consolidated U.S. income tax return required to  
report intercompany dividends as part of statutory accounting  
net income, include such intercompany dividends on Part II,  
line 7, column (a), and the taxable amount of those dividends on  
Part II, line 7, column (d). (For insurance companies included in  
the consolidated U.S. income tax return, see instructions for Part  
I, lines 10a, 10b, 10c, and 11.)  
Line 3. Subpart F, QEF, and Similar Income  
Inclusions  
Report on line 3, column (d), the amount included in taxable  
income under section 951 (relating to Subpart F), the amount  
included in income under section 951A (relating to global  
intangible low-taxed income, or GILTI), gains or other income  
inclusions resulting from elections under sections 1291(d)(2)  
and 1298(b)(1), and any amount included in taxable income  
pursuant to section 1293 (relating to qualified electing funds).  
The amount of Subpart F income corresponds to the total of the  
amounts reported by the life insurance company on line 6,  
Schedule I, of all Forms 5471, Information Return of U.S.  
Persons With Respect to Certain Foreign Corporations. The  
For any intercompany dividends (dividends received from  
includible corporations listed on Form 851) included on Part II,  
line 7, report on an attached supporting statement for Part II,  
line 7 (1) the name of the dividend payer, (2) the payer's EIN, (3)  
the class of stock or security on which the dividends were paid,  
14  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
(4) the amount of any net adjustment included on Part I, line 10a,  
in a disregarded entity), report amounts on Part II, line 9 or 10, as  
described below:  
1. In column (a), the sum of the corporation's distributive  
share of income or loss from a U.S. or foreign partnership that is  
included on Part I, line 11;  
2. In column (b) or (c), as applicable, the sum of all  
differences, if any, attributable to the corporation's distributive  
share of income or loss from a U.S. or foreign partnership; and  
3. In column (d) the sum of all amounts of income, gain,  
loss, or deduction attributable to the corporation's distributive  
share of income or loss from a U.S. or foreign partnership (that  
is, the sum of all amounts reportable on the corporation's  
Schedule(s) K-1 received from the partnership (if applicable)),  
without regard to any limitations computed at the partner level  
(for example, limitations on utilization of charitable contributions,  
capital losses, and interest expense).  
for such dividends, and (5) the amounts for columns (a) through  
(d).  
For any dividends included on Part II, line 7, that are not  
intercompany dividends (dividends received from includible  
corporations listed on Form 851) that are received on classes of  
voting stock in which the corporation directly or indirectly owned  
10% or more of the outstanding shares of that class at any time  
during the tax year, report on an attached supporting statement  
for Part II, line 7 (1) the name of the dividend payer, (2) the  
payer's EIN (if applicable), (3) the class of voting stock on which  
the dividend was paid, (4) the percentage of the class directly or  
indirectly owned, and (5) the amounts for columns (a) through  
(d).  
Line 8. Minority Interest for Includible  
Corporations  
For each partnership reported on line 9 or 10, attach a  
supporting statement that provides the name, EIN (if applicable),  
end of year profit-sharing percentage (if applicable), end of year  
loss-sharing percentage (if applicable), and the amount reported  
in column (a), (b), (c), or (d) of line 9 or 10, as applicable.  
Report on line 8, column (a), the minority interest included in the  
financial income (loss) on Part I, line 11, for any member of the  
U.S. consolidated tax group that is less than 100% owned.  
Example 11. Life insurance company G is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. G owns 90% of the stock of U.S. corporation DS1. G files a  
consolidated U.S. income tax return with DS1 as the GDS1 U.S.  
consolidated group. G prepares certified SAP/GAAP financial  
statements for the consolidated financial statement group  
consisting of G and DS1. G has no net income of its own, and G  
does not report its equity interest in the income of DS1 on its  
separate financial statements. DS1 has financial statement net  
income (before minority interests) and taxable income of $1,000  
($2,500 of revenue less $1,500 cost of goods sold).  
On the consolidated Schedule M-3, Part I, line 4a, Worldwide  
consolidated net income (loss) per income statement, and on  
line 11, Net income (loss) per income statement of includible  
corporations, the U.S. consolidated tax group GDS1 must report  
$900 of financial statement net income ($1,000 net income less  
$100 minority interest).  
The GDS1 group must prepare one consolidated  
Schedule M-3, Parts II and III, and three additional Schedules  
M-3, Parts II and III: one for G, one for DS1, and one for  
consolidation eliminations.  
On the Schedule M-3, Parts II and III, for DS1, $1,000 is  
reported on Part II, line 28 and line 30, in both columns (a) and  
(d). On G's Schedule M-3, Parts II and III, zero is reported on  
Part II, line 30, in both columns (a) and (d). On the consolidation  
eliminations Schedule M-3, Parts II and III, on Part II, line 8 and  
line 30, the minority interest elimination for the U.S. consolidated  
tax group is reported as ($100) in column (a), $100 in column  
(c), and $0 in column (d).  
Example 12. U.S. life insurance company H is a calendar  
year taxpayer that is required to file Schedule M-3 for its current  
tax year. H has an investment in a U.S. partnership, USP. H  
prepares annual statements in accordance with SAP. In its  
annual statement, H treats the difference between annual  
statement net income and taxable income from its investment in  
USP as a permanent difference. For its current tax year, H's  
annual statement net income includes $10,000 of income  
attributable to its share of USP's net income. H's Schedule K-1  
from USP reports $5,000 of ordinary income, $7,000 of  
long-term capital gains, $4,000 of charitable contributions, and  
$200 of section 179 expense. H must report on Part II, line 9,  
$10,000 in column (a), a permanent difference of ($2,200) in  
column (c), and $7,800 in column (d).  
Example 13. Assume the same facts as Example 12, except  
that life insurance company H's charitable contribution deduction  
is wholly attributable to its partnership interest in USP and is  
limited to $90 pursuant to section 170(b)(2) due to other  
investment losses incurred by H. In its financial statements, H  
treated this limitation as a temporary difference. H must not  
report the charitable contribution limitation of $3,910 ($4,000 −  
$90) on Part II, line 9. H must report the limitation on Part III,  
line 21, and report the disallowed charitable contributions of  
($3,910) in columns (b) and (d).  
Line 11. Income (Loss) From Other  
Pass-Through Entities  
For any interest in a pass-through entity (other than an interest in  
a partnership reportable on Part II, line 9 or 10, as applicable)  
owned by a member of the U.S. consolidated tax group (other  
than an interest in a disregarded entity), report the following on  
line 11:  
On the Schedule M-3, Parts II and III, for the U.S.  
consolidated tax group, on Part II, line 8, Minority interest for  
includible corporations, ($100) is reported in column (a), $100 in  
column (c), and $0 in column (d). On Part II, line 28, the U.S.  
consolidated tax group reports $1,000 in both columns (a) and  
(d). As a result, financial statement net income on Part II, line 30,  
column (a), will total $900; net permanent differences on Part II,  
line 30, column (c), will total $100; and taxable income on  
line 30, column (d), will total $1,000.  
1. In column (a) the sum of the corporation's distributive  
share of income or loss from the pass-through entity that is  
included on Part I, line 11;  
2. In column (b) or (c), as applicable, the sum of all  
differences, if any, attributable to the pass-through entity; and  
Line 9. Income (Loss) From U.S. Partnerships  
and Line 10. Income (Loss) From Foreign  
Partnerships  
3. In column (d) the sum of all taxable amounts of income,  
gain, loss, or deduction reportable on the corporation's  
Schedules K-1 received from the pass-through entity (if  
applicable).  
For any interest owned by the corporation or a member of the  
U.S. consolidated tax group that is treated as an investment in a  
partnership for U.S. income tax purposes (other than an interest  
For each pass-through entity reported on line 11, attach a  
supporting statement that provides that entity's name, EIN (if  
applicable), the life insurance company's end of year  
15  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
profit-sharing percentage (if applicable), the life insurance  
company's end of year loss-sharing percentage (if applicable),  
and the amounts reported by the life insurance company in  
column (a), (b), (c), or (d) of line 11, as applicable.  
names and reportable transaction or tax shelter registration  
numbers, if any, disclosed on the applicable Form 8886,  
identifies the type of reportable transaction for the loss, and  
reports the appropriate amounts required for Part II, line 12,  
columns (a) through (d). J must report the losses attributable to  
the other five abandonment losses on Part II, line 23e,  
regardless of whether a difference exists for any or all of those  
abandonment losses.  
Example 15. Life insurance company K is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. K enters into a transaction with contractual protection that  
is a reportable transaction described in Regulations section  
1.6011-4(b)(4). This reportable transaction is the only reportable  
transaction for K's current tax year and results in a $7 million  
capital loss for both statutory accounting purposes and U.S.  
income tax purposes. Although the transaction does not result in  
a difference, K is required to report on Part II, line 12, the  
Line 12. Items Relating to Reportable  
Transactions  
Any amounts attributable to any reportable transactions (as  
described in Regulations section 1.6011-4) must be included on  
Part II, line 12, regardless of whether the difference, or  
differences, would otherwise be reported elsewhere in Part II or  
Part III. Thus, if a taxpayer files Form 8886 for any reportable  
transaction described in Regulations section 1.6011-4, the  
amounts attributable to that reportable transaction must be  
reported on Part II, line 12. In addition, all income and expense  
amounts attributable to a reportable transaction must be  
reported on Part II, line 12, columns (a) and (d) even if there is no  
difference between the annual statement amounts and the  
taxable amounts.  
following amounts: ($7 million) in column (a), zero in columns (b)  
and (c), and ($7 million) in column (d). The transaction will be  
adequately disclosed if K attaches a supporting statement for  
line 12 that (a) sequentially numbers the Form 8886 and refers to  
the sequentially numbered Form 8886-X1, and (b) reports the  
applicable amounts required for line 12, columns (a) through (d).  
Alternatively, the transaction will be adequately disclosed if the  
supporting statement for line 12 includes a description of the  
transaction, the name and tax shelter registration number, if any,  
and the type of reportable transaction disclosed on Form 8886.  
Each difference attributable to a reportable transaction must  
be separately stated and adequately disclosed. A life insurance  
company will be considered to have separately stated and  
adequately disclosed a reportable transaction on line 12 if the  
life insurance company sequentially numbers each Form 8886  
and lists by identifying number on the supporting statement for  
Part II, line 12, each sequentially numbered reportable  
transaction and the amounts required for Part II, line 12, columns  
(a) through (d).  
Instead of the requirements of the preceding paragraph, a life  
insurance company will be considered to have separately stated  
and adequately disclosed a reportable transaction if the life  
insurance company attaches a supporting statement that  
provides the following for each reportable transaction:  
Line 13. Interest Income  
Report on Part II, line 13, column (a), the total amount of interest  
income included on Part I, line 11. Report on Part II, line 13,  
column (d), the total amount of interest income included on Form  
1120-L, page 1, line 20, that is not required to be reported  
elsewhere on Schedule M-3. In column (b) or (c), as applicable,  
adjust for any amounts treated for U.S. income tax purposes as  
interest income that are treated as some other form of income for  
statutory accounting purposes, or vice versa. For example,  
adjustments to interest income resulting from adjustments made  
in accordance with instructions for Part II, line 18, should be  
made in columns (b) and (c) of line 13.  
1. A description of the reportable transaction disclosed on  
Form 8886 for which amounts are reported on Part II, line 12;  
2. The name and reportable transaction or tax shelter  
registration number, if applicable, as reported on Form 8886; and  
3. The type of reportable transaction (for example, listed  
transaction, confidential transaction, transaction with contractual  
protection, etc.) as reported on Form 8886.  
Complete Part II of Form 8916-A. Enter the amounts from  
Form 8916-A, Part II, line 6, columns (a) through (d), on  
Schedule M-3, Part II, line 13, columns (a) through (d), as  
applicable. Attach Form 8916-A.  
Do not report on line 13 or include on Form 8916-A the  
amounts reported in accordance with the instructions for Part II,  
lines 9, 10, 11, 12, and 21.  
If a transaction is a listed transaction described in  
Regulations section 1.6011-4(b)(2), the description must also  
include the description provided on Form 8886. In addition, if the  
reportable transaction involves an investment in the transaction  
through another entity such as a partnership, the description  
must include the name and EIN (if applicable) of that entity as  
reported on Form 8886.  
Example 14. Life insurance company J is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. J incurred seven different abandonment losses during its  
current tax year. One loss of $12 million results from a reportable  
transaction described in Regulations section 1.6011-4(b)(5),  
another loss of $5 million results from a reportable transaction  
described in Regulations section 1.6011-4(b)(4), and the  
remaining five abandonment losses are not reportable  
Line 14. Accrual of Bond Discount  
Report on line 14, column (a), the amount of accrued bond  
discount included on Part I, line 11. Report on line 14, column  
(d), the amount of accrued bond discount included in the  
subtotal on Form 1120-L, page 1, line 20. Report amounts in  
columns (b) and (c), as applicable.  
Line 15. Hedging Transactions  
transactions. J discloses the reportable transactions giving rise  
to the $12 million and $5 million losses on separate Forms 8886  
and sequentially numbers them X1 and X2, respectively. J must  
separately state and adequately disclose the $12 million and $5  
million losses on Part II, line 12. The $12 million loss and the $5  
million loss will be adequately disclosed if J attaches a  
Report on line 15, column (a), the net gain or loss from hedging  
transactions included on Part I, line 11. Report in column (d) the  
amount of taxable income from hedging transactions as defined  
in section 1221(b)(2). Use columns (b) and (c) to report all  
differences caused by treating hedging transactions differently  
for statutory accounting purposes and for U.S. income tax  
purposes. For example, if a portion of a hedge is considered  
ineffective under SAP but still is a valid hedge under section  
1221(b)(2), the difference must be reported on line 15. The  
hedge of a capital asset, which is not a valid hedge for U.S.  
income tax purposes but may be considered a hedge for SAP  
purposes, must also be reported here.  
supporting statement for line 12 that lists each of the sequentially  
numbered forms, Form 8886-X1 and Form 8886-X2, and with  
respect to each reportable transaction reports the appropriate  
amounts required for Part II, line 12, columns (a) through (d).  
Alternatively, J's disclosures will be adequate if the description  
provided for each loss on the supporting statement includes the  
16  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
Report hedging gains and losses computed under the  
mark-to-market method of accounting on line 15 and not on Part  
II, line 16, Mark-to-market income (loss).  
Example 16. Life insurance company M sells and leases  
property to customers. M is a calendar year taxpayer that is  
required to file Schedule M-3 for its current tax year. For statutory  
accounting purposes, M accounts for each transaction as a sale.  
For U.S. income tax purposes, each of M's transactions must be  
treated as a lease. In its annual statement, M treats the  
Line 16. Mark-to-Market Income (Loss)  
Report on line 16 any amount representing the mark-to-market  
income or loss for any securities held by a dealer in securities, a  
dealer in commodities having made a valid election under  
section 475(e), or a trader in securities or commodities having  
made a valid election under section 475(f). “Securities” for these  
purposes are securities described in section 475(c)(2) and  
commodities described in section 475(e)(2). “Securities” do not  
include any items specifically excluded from sections 475(c)(2)  
and 475(e)(2), such as certain contracts to which section  
1256(a) applies.  
difference in the statutory accounting and the U.S. income tax  
treatment of these transactions as temporary. During its current  
tax year, M reports in its annual statement $1,000 of sales and  
$700 of cost of goods sold with respect to current year lease  
transactions. M receives periodic payments of $500 in its current  
year with respect to these current year transactions and similar  
transactions from prior years and treats $400 as principal and  
$100 as interest income. For statutory accounting purposes, M  
reports gross profit of $300 ($1,000 − $700) and interest income  
of $100 from these transactions. For U.S. income tax purposes,  
M reports $500 of gross rental income (the periodic payments)  
and (based on other facts) $200 of depreciation deduction on  
the property. On Schedule M-3, M must report on Part II, line 13,  
$100 in column (a), ($100) in column (b), and zero in column (d).  
In addition, M must report on Part II, line 18, $300 of gross profit  
in column (a), $200 in column (b), and $500 of gross rental  
income in column (d). Lastly, M must report on Part III, line 32,  
$200 in column (b) and (d).  
Report hedging gains and losses computed under the  
mark-to-market method of accounting on Part II, line 15, and not  
on line 16.  
Traders in securities or commodities. For a trader in  
securities or commodities that made a valid election under  
section 475(f) to use the mark-to-market method to account for  
securities or commodities held in connection with a trading  
business that files Form 4797, any Schedule M-3 entries  
required as a result of marking to market these securities or  
commodities are reported as follows: (a) mark-to- market gains  
and losses from Form 4797, line 10, are included on Part II,  
line 16, of Schedule M-3 (Form 1120-L); and (b) any other  
Schedule M-3 entries required based on other results  
(non-mark-to-market gains and losses) included in the total  
reported on Form 4797, line 17, should be reported on Part II,  
line 23d, of Schedule M-3 (Form 1120-L), unless the instructions  
for Schedule M-3 require the amounts to be reported on another  
line.  
Line 19. Section 481(a) Adjustments  
Any difference between an income or expense item attributable  
to an authorized (or unauthorized) change in method of  
accounting made for U.S. income tax purposes that results in a  
section 481(a) adjustment must be reported on Part II, line 19,  
regardless of whether a separate line for that income or expense  
item exists in Part II or Part III. The following section 481(a)  
adjustments, however, should not be reported on Part II, line 19.  
1. Adjustments for reportable transactions that are required  
to be reported on Part II, line 12.  
Line 17. Deferred and Uncollected Premiums  
2. Section 807(f) adjustments for changes in computing  
reserves that are required to be reported on Part III, line 25.  
Report on line 17, column (a), the amount of deferred and  
uncollected premiums included on Part I, line 11. Report on  
line 17, column (d), the amount of deferred and uncollected  
premiums included in the subtotal on Form 1120-L, page 1,  
line 20. Report amounts in columns (b) and (c), as applicable.  
3. Reserve Transition Relief adjustments that are required to  
be reported on Part III, line 25.  
Example 17. Life insurance company N is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. N was depreciating certain fixed assets over an erroneous  
recovery period and, effective for its current tax year, N receives  
IRS consent to change its method of accounting for the  
Line 18. Sale Versus Lease (for Sellers and/or  
Lessors)  
Note. Also see the instructions for Part III, line 35, Purchase  
Asset transfer transactions with periodic payments  
depreciable fixed assets and begins using the proper recovery  
period. The change in method of accounting results in a positive  
section 481(a) adjustment of $100,000 that is required to be  
spread over 4 tax years, beginning with the current tax year. In its  
annual statement, N treats the section 481(a) adjustment as a  
temporary difference. N must report on Part II, line 19, $25,000 in  
columns (b) and (d) for its current tax year and each of the  
subsequent 3 tax years (unless N is otherwise required to  
recognize the remainder of the 481(a) adjustment earlier). N  
must not report the section 481(a) adjustment on Part III, line 32.  
characterized for statutory accounting purposes as either a sale  
or a lease may, under some circumstances, be characterized as  
the opposite for tax purposes. If the transaction is treated as a  
lease, the seller/lessor reports the periodic payments as gross  
rental income and also reports depreciation expense or  
deduction. If the transaction is treated as a sale, the seller/lessor  
reports gross profit (sale price less cost of goods sold) from the  
sale of assets and reports the periodic payments as payments of  
principal and interest income.  
Line 20. Amortization of Interest Maintenance  
Reserve  
On Part II, line 18, column (a), report the gross profit or gross  
rental income for statutory accounting purposes for all sale or  
lease transactions that must be given the opposite  
Report on line 20, column (a), the amount of interest  
maintenance reserve amortization included on Part I, line 11.  
Report amounts in columns (b) and (c), as applicable.  
characterization for U.S. income tax purposes. On Part II, line 18,  
column (d), report the gross profit or gross rental income for U.S.  
income tax purposes. Interest income amounts for such  
transactions must be reported on Part II, line 13, in column (a) or  
(d), as applicable. Depreciation expense for such transactions  
must be reported on Part III, line 32, in column (a) or (d), as  
applicable. Use columns (b) and (c) of Part II, lines 13 and 18,  
and Part III, line 32, as applicable, to report the differences  
between columns (a) and (d).  
Line 21. Original Issue Discount and Other  
Imputed Interest  
Report on line 21 any amounts of original issue discount (OID)  
and imputed interest. The term “original issue discount and other  
imputed interest” includes, but is not limited to:  
17  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
1. The excess of a debt instrument's stated redemption price  
at maturity over its issue price, as determined under section  
1273;  
method to account for securities or commodities, see the  
instructions for Part II, line 16, earlier.  
Line 23e. Abandonment Losses  
2. Amounts that are imputed interest on a deferred sales  
Report on line 23e any abandonment losses, regardless of  
whether the loss is characterized as an ordinary loss or a capital  
loss.  
contract under section 483;  
3. Amounts treated as interest or OID under the stripped  
bond rules under section 1286; and  
4. Amounts treated as OID under the below-market interest  
Line 23f. Worthless Stock Losses  
rate rules under section 7872.  
Report on line 23f any worthless stock loss, regardless of  
whether the loss is characterized as an ordinary loss or a capital  
loss. Attach a statement that separately states and adequately  
discloses each transaction that gives rise to a worthless stock  
loss and the amount of each loss.  
Line 22. Market Discount Reclassification  
Report on line 22 the amount of market discount reclassification  
included on Part I, line 11. Report on line 22 the amount of  
market discount reclassification included in the subtotal on Form  
1120-L, page 1, line 20. Report amounts in columns (b) and (c),  
as applicable.  
Line 23g. Other Gain/Loss on Disposition of  
Assets  
Report on line 23g any gains or losses from the sale or exchange  
of property that are not reported on lines 23b through 23f.  
Line 23a. Income Statement Gain/Loss on Sale,  
Exchange, Abandonment, Worthlessness, or  
Other Disposition of Assets Other Than  
Pass-Through Entities  
Line 24. Capital Loss Limitation and  
Carryforward Used  
Report on line 23a, column (a), all gains and losses on the  
disposition of assets except for gains and losses allocated to the  
life insurance company from a pass-through entity (for example,  
on Schedule K-1) that are included in the net income (loss) of  
includible corporations reported on Part I, line 11. Reverse the  
amount reported in column (a) in column (b) or (c), as  
applicable. The corresponding gains and losses for U.S. income  
tax purposes are reported on Part II, lines 23b through 23g, as  
applicable.  
Report as a positive amount on line 24, column (b) or (c), as  
applicable, and (d) the excess of the net capital losses over the  
net capital gains reported on Schedule D, Capital Gains and  
Losses, by the corporation. For a U.S. consolidated tax group,  
the Schedule M-3 adjustment for the amount of the consolidated  
net capital loss that is disallowed should not be made on the  
separate consolidating Schedules M-3 of the includible  
corporations, but on the separate Schedule M-3 for consolidated  
eliminations (or on Form 8916 in the case of a mixed group) as  
Line 23b. Gross Capital Gains From Schedule D,  
Excluding Amounts From Pass-Through Entities  
If the corporation utilizes a capital loss carryforward on  
Schedule D in the current tax year, report the carryforward  
utilized as a negative amount on Part II, line 24, column (b) or (c),  
as applicable, and column (d). For a U.S. consolidated tax group,  
the Schedule M-3 adjustment for the amount of the consolidated  
capital loss carryforward should not be made on the separate  
consolidating Schedules M-3 of the includible corporations, but  
on the separate Schedule M-3 for consolidation eliminations (or  
on Form 8916 in the case of a mixed group) as described under  
Report on line 23b gross capital gains reported on Schedule D,  
excluding capital gains from pass-through entities, which must  
be reported on Part II, line 9, 10, or 11, as applicable.  
Line 23c. Gross Capital Losses From  
Schedule D, Excluding Amounts From  
Pass-Through Entities, Abandonment Losses,  
and Worthless Stock Losses  
Report on line 23c gross capital losses reported on Schedule D,  
excluding capital losses from (a) pass-through entities, which  
must be reported on Part II, line 9, 10, or 11, as applicable; (b)  
abandonment losses, which must be reported on Part II,  
line 23e; and (c) worthless stock losses, which must be reported  
on Part II, line 23f. Do not report on line 23c capital losses  
carried over from a prior tax year and utilized in the current tax  
year. See the instructions for Part II, line 24, regarding the  
reporting requirements for capital loss carryovers utilized in the  
current tax year.  
Line 25. Other Income (Loss) Items With  
Differences  
Separately state and adequately disclose on Part II, line 25, all  
items of income (loss) with differences that are not otherwise  
listed on Part II, lines 1 through 24. Attach a statement that  
describes and itemizes the type of income (loss) and the amount  
of each item and provides a description that states the income  
(loss) name for book purposes for the amount recorded in  
column (a) and describes the adjustment being recorded in  
column (b) or (c). The entire description completes the tax  
description for the amount included in column (d) for each item  
separately stated on this line.  
Line 23d. Net Gain/Loss Reported on Form  
4797, Line 17, Excluding Amounts From  
Pass-Through Entities, Abandonment Losses,  
and Worthless Stock Losses  
The attached statement should have five columns. The first  
column has the description for the next four columns. The  
second column is column (a) income (loss) per income  
statement; the third column is column (b) temporary difference;  
the fourth column is column (c) permanent difference; and the  
fifth column is column (d) income (loss) per tax return. Every  
item listed on the attached statement for line 25 always must  
have columns (a) + (b) + (c) = (d). Each item with amounts in  
columns (a), (b), (c), and (d) will be totaled and included as one  
line on Part II, line 25.  
Report on line 23d the net gain or loss reported on line 17 of  
Form 4797, Sales of Business Property, excluding amounts from  
(a) pass-through entities, which must be reported on Part II,  
line 9, 10, or 11, as applicable; (b) abandonment losses, which  
must be reported on Part II, line 23e; and (c) worthless stock  
losses, which must be reported on Part II, line 23f.  
Note. Traders in securities or commodities that have made a  
valid election under section 475(f) to use the mark-to-market  
18  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
For insurance companies included in the consolidated U.S.  
income tax return, see instructions for Part I, lines 10a, 10b, 10c,  
and 11, and Part II, line 7, for guidance on the treatment of  
intercompany dividends and statutory accounting.  
line 30 of Part II. Part III is not required to be completed for the  
consolidated Schedule M-3 of a mixed group.  
Line 29b. 1120 Subgroup Reconciliation Totals  
Line 29b is used only by mixed groups. See Schedule M-3  
If any “comprehensive income” as defined by Statement of  
Financial Accounting Standards (SFAS) No. 130 is reported on  
this line, describe the item(s) in detail. Examples of sufficiently  
detailed descriptions include “foreign currency translation  
adjustments—comprehensive income” and “gains and losses on  
available-for-sale securities—comprehensive income.”  
Line 29c. PC Insurance Subgroup Reconciliation  
Totals  
Line 29c is used only by mixed groups. See Schedule M-3  
Whether an item of income (loss) is reported on line 25, or is  
reported on Part II, line 28, is determined separately by each  
member of the U.S. consolidated tax group and not at the U.S.  
consolidated tax group level.  
Part III. Reconciliation of Net Income  
(Loss) per Income Statement of  
Includible Corporations With Taxable  
Income per Return—Expense/  
Deduction Items  
Example 18. U.S. corporation P has two subsidiaries,  
corporations A and B, that are included in P's consolidated  
financial statements and in P's consolidated U.S. income tax  
return. For financial statement purposes, P, A, and B recognize  
revenue from the sale of inventory upon delivery to the customer.  
For U.S. income tax purposes, P and A recognize such revenue  
consistent with the method used for financial statement  
purposes, whereas B recognizes such revenue based upon  
customer acceptance. P and A must report this revenue in  
columns (a) and (d) on Part II, line 28. B must report the following  
on Part II, line 25: in column (a), B's revenue recognized in the  
financial statements based upon delivery to the customer; in  
column (d), B's revenue recognized for U.S. income tax  
purposes based upon customer acceptance; and in column (b)  
or (c), as applicable, the difference between B's revenue  
recognized in its financial statements and in its U.S. taxable  
income.  
Note. Expense amounts that reduce financial accounting  
income must be reported on Part III, column (a), as positive  
amounts. Deduction amounts that reduce taxable income must  
be reported on Part III, column (d), as positive amounts.  
Amounts reported on Part II, line 27, must be the negative of the  
amounts reported on Part III, line 40.  
Lines 1 Through 6. Income Tax Expense  
If the life insurance company does not distinguish between  
current and deferred income tax expense in its annual statement  
(or its books and records, if applicable), report income tax  
expense as current income tax expense using lines 1, 3, and 5,  
as applicable.  
Note. In this example, the first column of the attached statement  
for Part II, line 25, discussed earlier, must include an adequate  
description, such as “Inventory Sales Revenue recognized upon  
acceptance, not delivery.”  
A U.S. consolidated tax group must complete lines 1 through  
6 in accordance with the allocation of tax expense among the  
members of the U.S. consolidated tax group in the financial  
statements (or its books and records, if applicable). If the current  
and deferred U.S., state, and foreign income tax expense for the  
U.S. consolidated tax group (income tax expense) is allocated  
among the members of the U.S. consolidated tax group in the  
group's financial statements (or its books and records, if  
applicable), then each member must report its allocated income  
tax expense on Part III, lines 1 through 6, of that member's  
separate Schedule M-3. However, if the income tax expense is  
not shared or allocated among members of the U.S.  
Line 27. Total Expense/ Deduction Items  
Report on Part II, line 27, columns (a) through (d), as applicable,  
the negative of the amounts reported on Part III, line 40, columns  
(a) through (d). For example, if Part III, line 40, column (a),  
reflects an amount of $1 million, then report on Part II, line 27,  
column (a), ($1 million). Similarly, if Part III, line 40, column (b),  
reflects an amount of ($50,000), then report on Part II, line 27,  
column (b), $50,000.  
consolidated tax group but is retained in the parent corporation's  
financial statements (or books and records, if applicable), then  
amounts are reported only on Part III, lines 1 through 6, of the  
parent's separate Schedule M-3.  
Line 28. Other Items With No Differences  
If there is no difference between the statutory accounting amount  
and the taxable amount of an entire item of income, gain, loss,  
expense, or deduction and the item is not described or included  
on Part II, lines 1 through 25, or Part III, lines 1 through 39, report  
the entire amount of the item in columns (a) and (d) of line 28. If  
a portion of an item of income, loss, expense, or deduction has a  
difference and a portion of the item does not have a difference,  
do not report any portion of the item on line 28. Instead, report  
the entire amount of the item (for example, both the portion with  
a difference and the portion without a difference) on the  
applicable line of Part II, lines 1 through 25, or Part III, lines 1  
through 39. See Example 10, earlier.  
Line 7. Foreign Withholding Taxes  
Report on line 7, column (a), the amount of foreign withholding  
taxes included in statutory accounting net income on Part I,  
line 11. If the life insurance company is deducting foreign tax,  
use column (b) or (c), as applicable, to correct for any difference  
between foreign withholding tax included in statutory accounting  
net income and the amount of foreign withholding taxes being  
deducted in the return. If the life insurance company is crediting  
foreign withholding taxes against the U.S. income tax liability,  
use column (b) or (c), as applicable, to negate the amount  
reported in column (a).  
Line 29a. Life Insurance Subgroup  
Reconciliation Totals  
Line 8. Equity-Based Compensation  
For filers other than a mixed group, combine lines 26 through 28  
and skip lines 29b and 29c. On the sub-consolidated  
Report on line 8 any amounts for equity-based compensation or  
consideration that are reflected as expense for statutory  
accounting purposes (column (a)) or deducted in the U.S.  
income tax return (column (d)) other than amounts reportable  
Schedule M-3 for a mixed group, combine lines 26 through 28  
and skip lines 29b and 29c. For the consolidated Schedule M-3  
of a mixed group, complete only lines 29a through 29c and  
19  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
elsewhere on Schedule M-3, Parts II and III. Examples of  
amounts reportable on line 8 include incentive stock options,  
nonqualified stock options, payments attributable to employee  
stock purchase plans (ESPPs), phantom stock options, phantom  
stock units, stock warrants, stock appreciation rights, and  
restricted stock, regardless of whether such payments are made  
to employees or non-employees, or as payment for property or  
compensation for services.  
Line 13. Judgments, Damages, Awards, and  
Similar Costs  
Report on line 13, column (a), the amount of any estimated or  
actual judgments, damages, awards, settlements, and similar  
costs, however named or classified, included in financial  
accounting income, regardless of whether the amount deducted  
was attributable to an estimate of future anticipated payments or  
actual payments. Also report on line 13, column (a), the reversal  
of any overaccrual of any amount described in this paragraph.  
If the amounts include incentive stock options or nonqualified  
stock options, attach a detailed statement separately stating  
each.  
Report on line 13, column (d), any such amounts as are  
described in the preceding paragraph that are includible in  
taxable income, regardless of the financial accounting period in  
which such amounts were or are included in financial accounting  
net income. Complete columns (b) and (c) as appropriate.  
Line 9. Capitalization of Deferred Acquisition  
Costs  
Report on line 9, column (d), the amount of deferred acquisition  
costs capitalized and taken into account in the subtotal on Form  
1120-L, page 1, line 20. Report amounts in columns (b) and (c),  
as applicable.  
Do not report on Part III, line 13, amounts required to be  
reported in accordance with instructions for Part III, line 12.  
Do not report on Part III, line 13, amounts recovered from  
insurers or any other indemnitors for any judgments, damages,  
awards, or similar costs described above.  
Line 10. Amortization of Deferred Acquisition  
Costs  
Line 14. Parachute Payments  
Report on line 10, column (d), the amount of deferred acquisition  
costs amortized and taken into account in the subtotal on Form  
1120-L, page 1, line 20. Report amounts in columns (b) and (c),  
as applicable.  
Report on line 14, column (a), the total expense included in  
statutory accounting net income on Part I, line 11, that is subject  
to section 280G. Report in column (b) or (c), as applicable, the  
amount of nondeductible parachute payments pursuant to  
section 280G, and report in column (d) the deductible amount of  
compensation after any excess parachute payment limitations  
under section 280G. If a payment is subject to limitation under  
both sections 162(m) and 280G, report the total payment on  
line 14.  
Line 11. Meals and Entertainment  
Report on line 11, column (a), any amounts paid or accrued by  
the life insurance company during the tax year for meals,  
beverages, and entertainment that are accounted for in statutory  
accounting income, regardless of the classification,  
nomenclature, or terminology used for such amounts, and  
regardless of how or where such amounts are classified in the  
life insurance company's statutory income statement or the  
income and expense accounts maintained in the life insurance  
company's books and records. Report only amounts not  
otherwise reportable elsewhere on Schedule M-3, Parts II and III.  
Line 15. Compensation With Section 162(m)  
Limitation  
Report on line 15, column (a), the total amount of  
non-performance-based current compensation expense for the  
corporate officers to whom section 162(m) applies. Report in  
column (b) or (c), as applicable, the nondeductible amount of  
current compensation in excess of $1 million ($500,000 if the  
corporation receives or has received financial assistance under  
the Treasury Troubled Asset Relief Program (TARP)). Report the  
deductible compensation in column (d). If a payment is subject  
to limitation under both sections 162(m) and 280G, report the  
total payment on Part III, line 14, Parachute payments. See  
Regulations section 1.162-27(g) for the interaction between  
sections 162(m) and 280G.  
Line 12. Fines and Penalties  
Report on line 12 any fines or similar penalties paid to a  
government or other authority for the violation of any law for  
which fines or penalties are assessed. All fines and penalties  
expensed in financial accounting income (paid or accrued) must  
be included on line 12, column (a), regardless of the government  
or other authority that imposed the fines or penalties; regardless  
of whether the fines and penalties are civil or criminal; regardless  
of the classification, nomenclature, or terminology used for the  
fines or penalties by the imposing authority in its actions or  
documents; and regardless of how or where the fines or  
penalties are classified in the corporation's financial income  
statement or the income and expense accounts maintained in  
the corporation's books and records. Also report on line 12,  
column (a), the reversal of any overaccrual of any amount  
described in this paragraph. See section 162(f) for additional  
guidance.  
Line 16. Pension and Profit-Sharing  
Report on line 16 any amounts attributable to the life insurance  
company's pension plans, profit-sharing plans, and any other  
retirement plans.  
Line 17. Other Post-Retirement Benefits  
Report on line 17 any amounts attributable to other  
post-retirement benefits not otherwise includible on Part III,  
line 16 (for example, retiree health and life insurance coverage,  
dental coverage, etc.).  
Report on line 12, column (d), any such amounts as  
described in the preceding paragraph that are includible in  
taxable income, regardless of the financial accounting period in  
which such amounts were or are included in financial accounting  
net income. Complete columns (b) and (c) as appropriate.  
Line 18. Deferred Compensation  
Report on line 18, column (a), any compensation expense  
included in the net income (loss) amount reported on Part I,  
line 11, that is not deductible for U.S. income tax purposes in the  
current tax year and that was not reported elsewhere on  
Do not report on Part III, line 12, amounts required to be  
reported in accordance with instructions for Part III, line 13.  
Schedule M-3. Report on line 18, column (d), any compensation  
deductible in the current tax year that was not included in the net  
income (loss) amount reported on Part I, line 11, for the current  
tax year and that is not reportable elsewhere on Schedule M-3.  
Do not report on Part III, line 12, amounts recovered from  
insurers or any other indemnitors for any fines and penalties  
described above.  
20  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
For example, report originations and reversals of deferred  
compensation subject to section 409A on line 18.  
Line 25. Section 807(f) and Reserve Transition  
Relief Adjustments for Change in Computing  
Reserves  
Line 20. Charitable Contribution of Intangible  
Property  
Report on line 25, column (d), the section 807(f) and Reserve  
Transition Relief adjustments included in the subtotal on Form  
1120-L, page 1, line 20. Report amounts in columns (b) and (c),  
as applicable.  
Report on line 20 any charitable contribution of intangible  
property, for example, contributions of:  
Intellectual property, patents (including any amounts of  
additional contributions allowable by virtue of income earned by  
donees subsequent to the year of donation), copyrights, and  
trademarks;  
Line 26. Section 807(a)(2)(B) Tax Reserve  
Amount With Respect to Policyholder Share of  
Tax Exempt Interest  
Securities (including stocks and their derivatives, stock  
options, and bonds);  
Conservation easements (including scenic easements or air  
Report on line 26, column (d), the change in section 807(a)(2)(B)  
tax reserve amount with respect to policyholder share of tax  
exempt interest included in the subtotal on Form 1120-L, page 1,  
line 20. Report amounts in columns (b) and (c), as applicable.  
rights);  
Railroad rights of way;  
Mineral rights; and  
Other intangible property.  
Line 27. Current Year Acquisition/  
Reorganization Costs  
Line 21. Charitable Contribution Limitation/  
Carryforward  
Report on line 27 any investment banking fees, legal and  
accounting fees, and any other fees paid or incurred in  
Report as a negative amount on line 21, columns (b), (c), and  
(d), as applicable, the excess of charitable contributions made  
during the tax year over the amount of the charitable contribution  
limitation amount.  
connection with a taxable or tax-free acquisition of property (for  
example, stock or assets) or a tax-free reorganization. Report on  
this line any investment banking fees, legal and accounting fees,  
and any other fees paid or incurred at any stage of the  
acquisition or reorganization process including, for example, fees  
paid or incurred to evaluate whether to investigate an acquisition,  
fees to conduct an actual investigation, and fees to complete the  
acquisition. Also include on this line any investment banking  
fees, legal and accounting fees, and any other fees paid or  
incurred in connection with the liquidation of a subsidiary, a  
spin-off of a subsidiary, or an initial public stock offering. Attach a  
statement separately stating acquisition/reorganization  
If the corporation utilizes a contribution carryforward in the  
current tax year, report the carryforward utilized as a positive  
amount on columns (b), (c), and (d), as applicable.  
When a consolidated income tax return is being filed,  
Schedule M-3 adjustments for the amount of charitable  
contributions in excess of the limitation, or for charitable  
contribution carryforward utilized, should not be made on the  
separate consolidating Schedules M-3 of the includible  
corporations, but on the separate consolidating Schedule M-3  
for consolidation eliminations (or on Form 8916 in the case of a  
investment banking fees, legal and accounting fees, and other  
costs. Report amounts in columns (b) and (c), as applicable.  
Line 28. Amortization of Acquisition,  
Reorganization, and Start-Up Costs  
Report on line 28 amortization of acquisition, reorganization, and  
start-up costs. For purposes of columns (b), (c), and (d), include  
amounts amortizable under section 167, 195, or 248.  
Line 22. Change in Section 807(c)(1) Tax  
Reserves  
Report on line 22, column (a), the change in section 807(c)(1)  
life insurance reserves included on Part I, line 11. Report on  
line 22, column (d), the change in section 807(c)(1) life  
insurance reserves included in the subtotal on Form 1120-L,  
page 1, line 20. Report amounts in columns (b) and (c), as  
applicable.  
Line 29. Amortization/Impairment of Goodwill,  
Insurance in Force, and Ceding Commissions  
Report on line 29 amortization of goodwill, insurance in force and  
ceding commissions or amounts attributable to the impairment of  
goodwill, and insurance in force and ceding commissions. Attach  
a statement separately stating the amounts for each item.  
Line 23. Change in Section 807(c)(2) Tax  
Reserves  
Line 30. Other Amortization or Impairment  
Write-Offs  
Report on line 23, column (a), the change in section 807(c)(2)  
unearned premiums and unpaid losses included on Part I,  
line 11. Report on line 23, column (d), the change in section  
807(c)(2) unearned premiums and unpaid losses included in the  
subtotal on Form 1120-L, page 1, line 20. Report amounts in  
columns (b) and (c), as applicable.  
Report on line 30 any amortization or impairment write-offs not  
otherwise includible on Schedule M-3.  
Line 31. Section 846 Amount  
Report on line 31, column (d), the section 846 amount included  
in the subtotal on Form 1120-L, page 1, line 20. Report amounts  
in columns (b) and (c), as applicable.  
Line 24. Change in All Other Section 807(c) Tax  
Reserves  
Report on line 24, column (a), the change in all other section  
807(c) reserves included on Part I, line 11. Report on line 24,  
column (d), the change in all other section 807(c) reserves  
included in the subtotal on Form 1120-L, page 1, line 20. Report  
amounts in columns (b) and (c), as applicable.  
Line 32. Depreciation  
Report on line 32 any depreciation expense that is not required  
to be reported elsewhere on Schedule M-3 (for example, on Part  
II, line 9, 10, or 11).  
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Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
Line 33. Bad Debt Expense and Agency  
Balances Written Off  
Line 36. Interest Expense  
Report on Part III, line 36, column (a), the total amount of interest  
expense included on Part I, line 11, and report on Part III, line 36,  
column (d), the total amount of interest deduction included on  
Form 1120-L, page 1, line 20, that is not required to be reported  
elsewhere on Schedule M-3. In column (b) or (c), as applicable,  
include any adjustments for any amounts treated for U.S. income  
tax purposes as interest deduction that are treated as some  
other form of expense for statutory accounting purposes, or vice  
versa. For example, adjustments to interest expense/deduction  
resulting from adjustments made in accordance with the  
instructions for Part III, line 35, Purchase versus lease (for  
purchasers and/or lessees), should be made in column (b) or (c),  
as applicable, on line 36.  
Report on line 33, column (a), any amounts attributable to an  
allowance for uncollectible accounts receivable or actual  
write-offs of accounts receivable included on Part I, line 11. Also  
report on this line agency balances written off per the annual  
statement. Report in column (d) the amount of bad debt expense  
deductible for federal income tax purposes in accordance with  
section 166.  
Line 34. Corporate-Owned Life Insurance  
Premiums  
Report on line 34 all amounts of insurance premiums attributable  
to any life insurance policy if the life insurance company is  
directly or indirectly a beneficiary under the policy or if the policy  
has a cash value. Report in column (d) the amount of the  
premiums that are deductible for federal income tax purposes.  
Complete Part III of Form 8916-A. Enter the amounts from  
Form 8916-A, line 5, columns (a) through (d), on Schedule M-3,  
Part III, line 36, columns (a) through (d), as applicable. Attach  
Form 8916-A.  
Line 35. Purchase Versus Lease (for Purchasers  
and/or Lessees)  
Do not report on Form 8916-A and line 36 the amounts  
reported in accordance with the instructions for Part II, lines 9,  
10, 11, and 12.  
Note. Also see the instructions for sellers and/or lessors in the  
instructions for Part II, line 18.  
Line 37. Research and Development Costs  
Asset transfer transactions with periodic payments  
characterized for statutory accounting purposes as either a  
purchase or a lease may, under some circumstances, be  
characterized as the opposite for tax purposes.  
For U.S. income tax purposes, research and experimental  
expenditures paid or incurred by a taxpayer in connection with  
the taxpayer's trade or business must be amortized. The  
expenditures must be amortized ratably over the 5-year period  
(15-year period for specified expenditures attributable to foreign  
research), beginning with the midpoint of the tax year in which  
the expenses are paid or incurred. See section 174.  
If a transaction is treated as a lease, the purchaser/lessee  
reports the periodic payments as gross rental expense. If the  
transaction is treated as a purchase, the purchaser/lessee  
reports the periodic payments as payments of principal and  
interest and also reports depreciation expense or deduction with  
respect to the purchased asset.  
Report in column (a) the amount of research and  
development expenditures reported as a deduction in the  
corporation’s financial statements (or books and records, if  
applicable). Report in column (d) the amount of amortization  
deductions of specified research or experimental expenditures  
and other research or experimental expenditures included on  
Form 4562, Part VI, line 44, or in the other deductions on Form  
1120-L, page1, line 18. If properly adopted or elected under  
section 174(b) and section 174(f) (prior to amendment by P.L.  
115-97) and section 59(e), any amortization otherwise allowable  
related to such costs is reported in column (b).  
Report in column (a) gross rent expense for a transaction  
treated as a lease for statutory accounting purposes but as a  
sale for U.S. income tax purposes. Report in column (d) gross  
rental deductions for a transaction treated as a lease for U.S.  
income tax purposes but as a purchase for statutory accounting  
purposes. Report interest expense for such transactions on Part  
III, line 36, in column (a) or (d), as applicable. Report  
depreciation expense or deductions for such transactions on  
Part III, line 32, in column (a) or (d), as applicable. Use columns  
(b) and (c) of Part III, lines 32, 35, and 36, as applicable, to report  
the differences between columns (a) and (d) for such  
recharacterized transactions.  
In column (c), as applicable, include any adjustments for any  
amounts treated for U.S. income tax purposes as research or  
experimental expenditures that are treated as some other form of  
expense for financial accounting purposes, or vice versa. Report  
any difference in timing recognition in column (b). For example, if  
the taxpayer's financial accounting method does not specify  
otherwise, column (b) adjustments include adjustments for  
timing differences between financial and tax accounting for (1)  
deferral and amortization of research expenditures, (2) a section  
59(e) election, (3) reduction of section 174 expenditures under  
section 280C or section 482, (4) costs attributable to obtaining a  
patent, (5) research in social sciences, and (6) cost elements for  
property of a character subject to depreciation.  
Example 20. Corporation X is a calendar year taxpayer that  
is required to file Schedule M-3 for its current tax year. During its  
current tax year, X incurred $100,000 of research and  
development costs that X recognized as an expense in its  
financial statements. In compliance with section 174, X  
amortizes research and experimental expenditures for U.S.  
income tax purposes. Accordingly, X must report $100,000 in  
column (a), ($90,000) in column (b), and $10,000 (($100,000/5  
years) x 1/2) in column (d).  
Example 19. U.S. life insurance company X acquired  
property in a transaction that, for statutory accounting purposes,  
X treats as a lease. X is a calendar year taxpayer that is required  
to file Schedule M-3 for its current tax year. Because of its terms,  
the transaction is treated for U.S. income tax purposes as a  
purchase and X must treat the periodic payments it makes  
partially as payment of principal and partially as payment of  
interest. In its annual statement, X treats the difference between  
the statutory accounting and U.S. income tax treatment of this  
transaction as a temporary difference. During its current tax year,  
X reports in its annual statement $1,000 of gross rental expense  
that, for U.S. income tax purposes, is recharacterized as a $700  
payment of principal and a $300 payment of interest,  
accompanied by a depreciation deduction of $1,200 (based on  
other facts). On Schedule M-3, X must report the following on  
Part III, line 35: column (a), $1,000, its statutory accounting  
gross rental expense; column (b), ($1,000); and column (d),  
zero. On Part III, line 36, X reports $300 in columns (b) and (d)  
for the interest deduction. On Part III, line 32, X reports $1,200 in  
columns (b) and (d) for the depreciation deduction.  
Example 21. Corporation X is a calendar year taxpayer that  
is required to file Schedule M-3 for its current tax year. During its  
current tax year, X incurred $10,000 of research and  
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Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
   
development costs related to social sciences that it recognized  
as an expense in its financial statements. X amortizes research  
and experimental expenditures for U.S. income tax purposes.  
Because such costs are not allowable costs under section 174,  
X must report $10,000 in column (a), permanent difference  
($10,000) in column (c), and $0 in column (d). If such costs are  
otherwise deductible for U.S. income tax purposes, X must  
report this item of expense on Part III, line 39, Other expense/  
deduction items with differences.  
expenses for a discontinued operation as a single amount, and  
its general ledger or other books, records, and workpapers  
provide details for the anticipated expenses under more  
explanatory and defined categories such as employee  
termination costs, lease cancellation costs, loss on sale of  
equipment, etc., a supporting statement that lists those  
categories of expenses and their details will satisfy the  
requirement to separately state and adequately disclose. In  
order to separately state and adequately disclose the employee  
termination costs, it is not required that an anticipated  
termination cost amount be listed for each employee, or that  
each asset (or category of asset) be listed along with the  
anticipated loss on disposition.  
Example 22. Corporation X is a calendar year taxpayer that  
is required to file Schedule M-3 for its current tax year. During its  
current tax year, X paid $75,000 to acquire or in-license  
intangible assets under a collaborative arrangement with another  
company that X recognized as a research and development  
expense in its financial statements. X amortizes research and  
experimental expenditures for U.S. income tax purposes.  
Because payments made to acquire rights to a product or  
technology are excluded costs from the definition of research  
and experimental expenditures, X must report $75,000 in column  
(a), ($75,000) in column (c), and $0 in column (d). X must report  
any amortization otherwise allowable related to the payments on  
Part III, line 30, Other amortization or impairment write-offs.  
The attached statement should have five columns. The first  
column has the description for the next four columns. The  
second column is column (a) expense per income statement, the  
third column is column (b) temporary difference, the fourth  
column is column (c) permanent difference, and the fifth column  
is column (d) deduction per tax return. Every item listed on the  
attached statement for line 39 must always have columns (a) +  
(b) + (c) = (d). Each item with amounts in columns (a), (b), (c),  
and (d) will be totaled and included as one line on Part III,  
line 39.  
Line 38. Section 118 Exclusion  
Comprehensive income. If any “comprehensive income” as  
defined by SFAS No. 130 is reported on this line, describe the  
item(s) in detail as, for example, “foreign currency translation  
adjustments—comprehensive income” and “gains and losses on  
available-for-sale securities—comprehensive income.”  
Report on line 38 any inducements received in the current year  
and treated as contributions to the capital of a corporation by a  
non-shareholder. Report in column (a) any income amount as a  
negative number and any expense amount as a positive number.  
Corporations must identify on an accompanying statement  
referencing line 38 the fair market value of land or other property  
(including cash) provided to the corporation by any  
Reserves and contingent liabilities. Report on line 39  
amounts related to the change in each reserve or contingent  
liability that is not required to be reported elsewhere on  
Schedule M-3. For example: (1) amounts relating to changes in  
reserves for litigation must be reported on Part III, line 13,  
Judgments, damages, awards, and similar costs; and (2)  
amounts relating to changes in reserves for uncollectible  
accounts receivable must be reported on Part III, line 33, Bad  
debt expense/agency balances written off.  
non-shareholder, including a governmental unit or civic group, as  
an inducement, or for any other purpose. Include inducements  
for the corporation to locate its business in a particular state,  
municipality, community, or locality for the purpose of enabling  
the corporation to expand its existing operating facilities,  
including corporate headquarters, distribution center(s), or  
factory(ies) (“inducements”).  
Report on Part III, line 39, the amortization of various items of  
prepaid expense, such as prepaid subscriptions and license  
fees, prepaid insurance, etc.  
On the accompanying statement, also identify any  
inducements that include refundable or transferable tax credits,  
including transferable credits that were sold.  
Report on line 39, column (a), expenses included in net  
income reported on Part I, line 11, that are related to reserves  
and contingent liabilities. Report on line 39, column (d), amounts  
related to liabilities for reserves and contingent liabilities that are  
deductible in the current tax year for U.S. income tax purposes.  
Examples of reserves that are allowed for book purposes, but  
not for tax purposes, include restructuring reserves, reserves for  
discontinued operations, and reserves for acquisitions and  
dispositions. Only report on line 39 items that are not required to  
be reported elsewhere on Schedule M-3, Parts II and III.  
Example 23. Life insurance company Q is a calendar year  
taxpayer that is required to file Schedule M-3 for its current tax  
year. On July 1 of each year, Q has a fixed liability for its annual  
insurance premiums on its home office building that provides a  
12-month coverage period beginning July 1 through June 30. In  
addition, Q historically prepays 12 months of advertising  
expense on July 1. On July 1, Q prepays its insurance premium  
of $500,000 and advertising expenses of $800,000. For statutory  
accounting purposes, Q capitalizes and amortizes the prepaid  
insurance and advertising over 12 months. For U.S. income tax  
purposes, Q deducts the insurance premium when paid and  
amortizes the advertising over the 12-month period. In its annual  
statement, Q treats the differences attributable to the annual  
statement treatment and U.S. income tax treatment of the  
prepaid insurance and advertising as temporary differences.  
The statement must separately state, adequately disclose,  
and identify all of the dollar amounts summarized by this line. An  
accompanying statement is required even if there are no dollar  
amounts reported on line 38.  
Line 39. Other Expense/Deduction Items With  
Differences  
Separately state and adequately disclose on Part III, line 39, all  
items of expense/deduction that are not otherwise listed on Part  
III, lines 1 through 38.  
Attach a statement that describes and itemizes the type of  
expense/deduction and the amount of each item, and that  
provides a description that states the expense/deduction name  
for book purposes for the amount recorded in column (a) and  
describes the adjustment being recorded in column (b) or (c).  
The entire description completes the tax description for the  
amount included in column (d) for each item separately stated  
on this line.  
The statement of details attached to the Schedule M-3 for  
line 39 must separately state and adequately disclose the nature  
and amount of the expense related to each reserve and/or  
contingent liability. The appropriate level of disclosure depends  
upon each taxpayer’s operational activity and the nature of its  
accounting records. For example, if a corporation’s net income  
amount reported in the income statement includes anticipated  
Q also has a legal reserve where $300,000 was expensed for  
financial accounting purposes and a ($100,000) temporary  
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Instructions for Schedule M-3 (Form 1120-L) (1-2024)  
difference was calculated to arrive at the income tax deduction of  
$200,000. The statement attached to Q's return for Part III,  
line 39, must be separately stated and adequately disclosed as  
follows:  
Column (a) Expense per Income  
Column (d) Deduction per Tax  
Description  
Statement  
Column (b) Temporary Difference Column (c) Permanent Difference  
Return  
Prepaid insurance premium expensed not  
capitalized  
$250,000  
$300,000  
$550,000  
$250,000  
($100,000)  
$150,000  
-0-  
-0-  
-0-  
$500,000  
$200,000  
$700,000  
Legal expense reserve  
Total Line 39  
III, line 40, column (a), reflects an amount of $1 million, then  
report on Part II, line 27, column (a), ($1 million). Similarly, if Part  
III, line 40, column (b), reflects an amount of ($50,000), then  
report on Part II, line 27, column (b), $50,000.  
Line 40. Total Expense/Deduction Items  
Report on Part II, line 27, columns (a) through (d), as applicable,  
the negative of the amounts reported on Part III, line 40, columns  
(a) through (d), as applicable. Report positive amounts as  
negative and negative amounts as positive. For example, if Part  
24  
Instructions for Schedule M-3 (Form 1120-L) (1-2024)