Reconsiliation of Income (Loss) and Analysis of Unappropriated Retained Earnings per Books

Version A, Cycle 1

SCHEDULES M-1 and M-2

(Form 1120-F)

Reconciliation of Income (Loss) and Analysis of
Unappropriated Retained Earnings per Books

Department of the Treasury
Internal Revenue Service
Name of corporation

Schedule M-1
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2
3
4

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OMB No. 1545-0126

2010

Attach to Form 1120-F.

Employer identification number

Reconciliation of Income (Loss) per Books With Income per Return
Note: Schedule M-3 may be required instead of Schedule M-1—see instructions.
7

Income recorded on books this year
not included on this return (itemize):
a Tax-exempt interest $
b Other (itemize):

Net income (loss) per books . . . . .
Federal income tax per books . . . .
Excess of capital losses over capital gains
Income subject to tax not recorded on
books this year (itemize):

8

Deductions on this return not charged
against book income this year (itemize):
a Depreciation . . $
b Charitable contributions $
c Other (itemize):

5

Expenses recorded on books this year not
deducted on this return (itemize):
$
a Depreciation . . . .
b Charitable contributions $
c Travel and entertainment $
d Other (itemize):

6

Add lines 1 through 5 .

Schedule M-2
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2
3

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10

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Add lines 7 and 8 . . . .
Income—line 6 less line 9 .

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6

a Cash . .
b Stock . .
c Property .
Other decreases (itemize):

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8

Add lines 5 and 6 . . . . . . .
Balance at end of year (line 4 less line 7) .

Analysis of Unappropriated Retained Earnings per Books

DRAFT AS OF
May 6, 2010

Balance at beginning of year
Net income (loss) per books .
Other increases (itemize):

Add lines 1, 2, and 3 .

Who Must File

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Generally, any foreign corporation that is
required to complete Form 1120-F,
Section II must complete Schedules M-1
and M-2 (Form 1120-F). However, under
some circumstances, a foreign
corporation is required to complete (or
may voluntarily complete) Schedule M-3
(Form 1120-F) in lieu of Schedule M-1.
Complete Schedule M-3 in lieu of
Schedule M-1 if total assets at the end
of the tax year that are reportable on
Schedule L are $10 million or more. A
corporation filing Form 1120-F that is not
required to file Schedule M-3 (Form
1120-F) may voluntarily file Schedule
M-3 instead of Schedule M-1. See the
Instructions for Schedule M-3 (Form
1120-F) for more information.
Note. If Schedule M-3 is completed in
lieu of Schedule M-1, the corporation is
still required to complete Schedule M-2.
Do not complete Schedules M-1, M-2,
and M-3 if total assets at the end of the
tax year (Schedule L, line 17, column (d))
are less than $25,000.

For Paperwork Reduction Act Notice, see the
Instructions for Form 1120-F.

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Distributions:

Specific Instructions
Schedule M-1

Line 1. Net income (loss) per books.
The foreign corporation must report on
line 1 of Schedule M-1 the net income
(loss) per the set or sets of books taken
into account on Schedule L.
Line 5c. Travel and entertainment
expenses. Include any of the following:
• Meal and entertainment expenses not
deductible under section 274(n).
• Expenses for the use of an
entertainment facility.
• The part of business gifts over $25.
• Expenses of an individual over $2,000
that are allocable to conventions on
cruise ships.
• Employee achievement awards over
$400.
• The cost of entertainment tickets over
face value (also subject to the 50% limit
under section 274(n)).
• The cost of skyboxes over the face
value of nonluxury box seat tickets.
Cat. No. 49678K

• The part of luxury water travel
expenses not deductible under section
274(m).
• Expenses for travel as a form of
education.
• Other nondeductible travel and
entertainment expenses.
For more information, see Pub. 542.
Line 7a. Tax-exempt interest. Report
any tax-exempt interest received or
accrued, including any exempt-interest
dividends received as a shareholder in a
mutual fund or other regulated
investment company. Also report this
same amount in item P at the top of
page 2 of Form 1120-F.

Schedule M-2
Line 1. Beginning balance of
unappropriated retained earnings.
Enter the beginning balance of
unappropriated retained earnings per the
set(s) of books taken into account on
Schedule L.
Note. For additional information for
Schedule M-2 reporting, see the
Instructions for Schedule M-3 (Form
1120-F).
Schedules M-1 and M-2 (Form 1120-F) 2010