1120-F Schedule M- Reconciliation of Income (Loss) and Analysis of Unapprop

Note: The draft you are looking for begins on the next page.

Caution: DRAFT—NOT FOR FILING

This is an early release draft of an IRS tax form, instructions, or publication,
which the IRS is providing for your information. Do not file draft forms and do
not rely on draft forms, instructions, and pubs for filing. We incorporate all
significant changes to forms posted with this coversheet. However, unexpected
issues occasionally arise, or legislation is passed—in this case, we will post a
new draft of the form to alert users that changes were made to the previously
posted draft. Thus, there are never any changes to the last posted draft of a
form and the final revision of the form. Forms and instructions are subject to
OMB approval before they can be officially released, so we post drafts of them
until they are approved. Drafts of instructions and pubs usually have some
additional changes before their final release. Early release drafts are at
IRS.gov/DraftForms and remain there after the final release is posted at
IRS.gov/LatestForms. Also see IRS.gov/Forms.
Most forms and publications have a page on IRS.gov: IRS.gov/Form1040 for
Form 1040; IRS.gov/Pub501 for Pub. 501; IRS.gov/W4 for Form W-4; and
IRS.gov/ScheduleA for Schedule A (Form 1040), for example, and similarly for
other forms, pubs, and schedules for Form 1040. When typing in a link, type it
into the address bar of your browser, not a Search box on IRS.gov.
If you wish, you can submit comments to the IRS about draft or final forms,
instructions, or pubs at IRS.gov/FormsComments. Include “NTF” followed by the
form or pub number (for example, “NTF1040”, “NTFW4”, “NTF501, etc.) in the
body of the message to route your message properly. We cannot respond to all
comments due to the high volume we receive and may not be able to consider
many suggestions until the subsequent revision of the product, but we will
review each “NTF” message. If you have comments on reducing paperwork and
respondent (filer) burden, with respect to draft or final forms, please respond to
the relevant information collection through the Federal Register process; for
more info, click here.

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

SCHEDULES M-1 and M-2

(Form 1120-F)

2023

Attach to Form 1120-F.
Go to www.irs.gov/Form1120F for the latest information.

Department of the Treasury
Internal Revenue Service
Name of corporation

Employer identification number

Reconciliation of Income (Loss) per Books With Income per Return
Note: The corporation may be required to file Schedule M-3 (see instructions).

TREASURY/IRS
AND OMB USE
ONLY DRAFT
July 7, 2023
DO NOT FILE

Schedule M-1
1
2
3
4

OMB No. 1545-0123

7

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):

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

8

5

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

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
1
2
3

4

.

.

.

.

.

.

9
10

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

.
.

.
.

.
.

.
.
.

.
.
.

6

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

7
8

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

Analysis of Unappropriated Retained Earnings per Books

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

Add lines 1, 2, and 3 .

.

.

.
.

.

Who Must File

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, the following
rules apply.
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.
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 may
voluntarily file Schedule M-3 instead of
Schedule M-1. See the Instructions for
Schedule M-3 (Form 1120-F) for more
information.

Foreign corporations that (a) are required
to file a Schedule M-3 (Form 1120-F) and
have less than $50 million in total assets at
the end of the tax year, or (b) are not
required to file a Schedule M-3 (Form
1120-F) and voluntarily file a Schedule M-3
(Form 1120-F) must either (1) complete
Schedule M-3 (Form 1120-F) entirely, or (2)
complete Schedule M-3 (Form 1120-F)
through Part I and complete Schedule M-1
instead of completing Parts II and III of

.
.

.

.
.

.

.
.

.

5

Distributions:

Schedule M-3 (Form 1120-F). If the foreign
corporation chooses (2), then Schedule
M-1, line 1, must equal Schedule M-3
(Form 1120-F), Part I, line 11. 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.

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(s) of books taken into account on
Schedule L.
Line 5c. Travel and entertainment
expenses. Include any of the following.
• Entertainment expenses not deductible
under section 274(a).
• Meal 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.

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

Cat. No. 49678K

• Employee achievement awards of nontangible property or of tangible property if
the value is over $400 ($1,600 if part of a
qualified plan).
• 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.
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) 2023