1120-L Schedule M- Instructions for Form 1120-L Schedule M-3

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Instructions for
Schedule M-3 (Form 1120-L)

Department of the Treasury
Internal Revenue Service

(Rev. November 2023)

(For use with the December 2021 revision of Schedule M-3 (Form 1120-L))

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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.

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/Form1120L.

What’s New

Schedule M-3 (Form 1120–L).
Schedule M-3 (Form 1120-L) is not being
revised. Continue to use the December
2021 revision of Schedule M-3 (Form
1120-L) with these updated instructions.

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 Development Costs, later

General Instructions
Purpose of Schedule

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.
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
Oct 16, 2023

1120-L and all attachments and
schedules, including Schedule M-3 (Form
1120-L) at the following address.
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.
• 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.
• 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.
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.
Example 1.
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
Cat. No. 39945W

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.
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 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 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.

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 described in the section
Schedule M-3 Consolidation for Mixed
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.

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 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.

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.

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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
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).
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.

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 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.
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.

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,
-2-

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.
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.
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 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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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.

capital of the partnership on any day of the
tax year; and
• 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.
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 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.

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.
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.

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Consolidated Return
(Form 1120-L, Page 1)

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.

Entity Considerations for
Schedule M-3

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.

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

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.
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 ownership
interest in the partnership, if applicable.

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-3-

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 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.
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), 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.

Certain Allocations, Limitations, and
Carryovers, later.
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.

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.
The corporation must check the
applicable mixed group checkboxes on all
Schedules M-3, Parts I, II, and III, as
discussed below.

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Consolidated
Schedule M-3 Versus
Consolidating Schedules
M-3 for Form 1120-L
Groups

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 Mixed Groups (1120/L/
PC), later.

A U.S. consolidated tax group must file
a consolidated Schedule M-3. Parts I, II,
and III of the consolidated 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.
• One consolidated Schedule M-3 with
Parts I, II, and III 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.
• 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

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.

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 Schedule M-3, Part II, and one
Schedule M-3, Part III, for each subgroup's
sub-consolidation eliminations amounts.
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
-4-

Subgroup Sub-Consolidation:
1120 Subgroup, 1120-PC
Subgroup, and 1120-L Subgroup
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.
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
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 carryforward
used. See Life/Non-Life Loss Limitation
and Carryforward Used Calculations, later.
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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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.
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.

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, 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.

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.

Completion of
Schedule M-3 and Certain
Allocations, Limitations,
and Carryovers

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Reconciliation of Mixed Group
Subgroup 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.
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 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.

The 1120 subgroup sub-consolidation
Form 1120, 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,
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.

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.

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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-5-

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.
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.
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 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 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.
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).

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.

check “Yes” for Part I, line 1c, and use that
income statement for Schedule M-3.
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.
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.

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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.

Specific Instructions
for Part I
Part I. Financial
Information and Net
Income (Loss)
Reconciliation
When To Complete Part I

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

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.

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.

Lines 1a, 1b, and 1c
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
-6-

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 the books and records
of the U.S. life insurance company (or U.S.
consolidated tax group) on Part I, line 4a.
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, 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.

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

Line 2. Questions Regarding
Income Statement Period and
Restatements

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.

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 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.

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.

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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.

Line 3. Questions Regarding
Publicly Traded Voting
Common Stock

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).
If a life insurance company prepares
non-tax-basis financial statements, the

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.
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.
4. Other (specify).

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.

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 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.

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-7-

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.
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.
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).

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).

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

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).

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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.

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 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

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.

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
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
-8-

Line 8. Adjustment to
Eliminations of Transactions
Between Includible Entities and
Nonincludible Entities
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
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.
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 disregarded entities or other
includible entities reported on Part I,

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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.

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

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.

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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.
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.

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.

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.

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.)
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.
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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-9-

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 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.)
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.
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.

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.

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).
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 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).
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

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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.
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

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
-10-

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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).

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

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.

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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 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 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

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.

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,
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 Consolidating
Schedules M-3 for Form 1120-L Groups
and Schedule M-3 Consolidation for Mixed
Groups (1120/L/PC), 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 even if none is
required.

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-11-

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).
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.
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).

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 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.

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.

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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 should see Schedule M-3
Consolidation for 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.
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 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

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.
With limited exceptions, Part II includes
lines for specific items of income, gain, or
-12-

With limited exceptions, Part III
includes lines for specific items of expense
or deduction (expense items). (See Part
III, 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.
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.

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 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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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.

item reported on Part II, line 25, or Part III,
line 39.
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.

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 $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.

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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.

Required statements for Part II, line 25,
and Part III, line 39. A separate
statement must be attached to
Schedule M-3 (Form 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

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.
D must also provide a description for
each reserve that meets the requirements
for Part III, line 39, discussed earlier under
Required statements for Part II, line 25,
and Part III, line 39. In this example, an
acceptable description would be “Future
Office Closure Expense Reserve.”

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-13-

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.

Line 1. Income (Loss) From
Equity Method Foreign
Corporations

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
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.
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).

Line 5. Gross Foreign
Distributions Previously Taxed

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.)

security on which the dividends were paid,
(4) the amount of any net adjustment
included on Part I, line 10a, 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).

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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 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.

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 6. Income (Loss) From
Equity Method U.S.
Corporations

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.

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.)
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
-14-

Line 8. Minority Interest for
Includible Corporations

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,

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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).
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.

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).

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.

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Line 9. Income (Loss) From U.S.
Partnerships and Line 10.
Income (Loss) From Foreign
Partnerships

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 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 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.
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

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:
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
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 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 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.

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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-15-

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:
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.
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 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
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 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.

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.

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.

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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 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.

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.

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

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.
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).

Line 16. Mark-to-Market Income
(Loss)

Report on line 16 any amount representing
the mark-to-market income or loss for any
-16-

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-tomarket 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 17. Deferred and
Uncollected Premiums

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.

Line 18. Sale Versus Lease (for
Sellers and/or Lessors)

Note. Also see the instructions for Part III,
line 35, Purchase Versus Lease (for
Purchasers and/or Lessees), later.
Asset transfer transactions with
periodic payments 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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

cost of goods sold) from the sale of assets
and reports the periodic payments as
payments of principal and interest income.
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 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 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.
2. Section 807(f) adjustments for
changes in computing reserves that are
required to be reported on Part III, line 25.
3. Reserve Transition Relief
adjustments that are required to be
reported on Part III, line 25.

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.

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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 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).

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

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 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.

Line 20. Amortization of
Interest Maintenance Reserve

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.

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:
1. The excess of a debt instrument's
stated redemption price at maturity over its
issue price, as determined under section
1273;
2. Amounts that are imputed interest
on a deferred sales 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 rate rules under
section 7872.

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-17-

Line 23a. Income Statement
Gain/Loss on Sale, Exchange,
Abandonment, Worthlessness,
or Other Disposition of Assets
Other Than Pass-Through
Entities

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.

Line 23b. Gross Capital Gains
From Schedule D, Excluding
Amounts From Pass-Through
Entities

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 23d. Net Gain/Loss
Reported on Form 4797,
Line 17, Excluding Amounts
From Pass-Through Entities,
Abandonment Losses, and
Worthless Stock Losses

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.

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
Completion of Schedule M-3 and Certain
Allocations, Limitations, and Carryovers,
earlier.

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.
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.

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Note. Traders in securities or
commodities that have made a valid
election under section 475(f) to use the
mark-to-market method to account for
securities or commodities, see the
instructions for Part II, line 16, earlier.

Line 23e. Abandonment Losses
Report on line 23e any abandonment
losses, regardless of whether the loss is
characterized as an ordinary loss or a
capital loss.

Line 23f. Worthless Stock
Losses

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 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 24. Capital Loss Limitation
and Carryforward Used

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 described under
Completion of Schedule M-3 and Certain
Allocations, Limitations, and Carryovers,
earlier.

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.
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.
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.
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.”
-18-

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.”

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.

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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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 29a. Life Insurance
Subgroup Reconciliation Totals

For filers other than a mixed group,
combine lines 26 through 28 and skip lines
29b and 29c. On the sub-consolidated
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 line 30 of Part II. Part III is
not required to be completed for the
consolidated Schedule M-3 of a mixed
group.

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. 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.

amounts in columns (b) and (c), as
applicable.

Line 10. Amortization of
Deferred Acquisition Costs

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.

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Line 29b. 1120 Subgroup
Reconciliation Totals

Line 29b is used only by mixed groups.
See Schedule M-3 Consolidation for
Mixed Groups (1120/L/PC), earlier.

Line 29c. PC Insurance
Subgroup Reconciliation Totals

Line 29c is used only by mixed groups.
See Schedule M-3 Consolidation for
Mixed Groups (1120/L/PC), earlier.

Part III. Reconciliation of
Net Income (Loss) per
Income Statement of
Includible Corporations
With Taxable Income per
Return—Expense/
Deduction Items

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.
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

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 8. Equity-Based
Compensation

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 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.
If the amounts include incentive stock
options or nonqualified stock options,
attach a detailed statement separately
stating each.

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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-19-

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 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.
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.
Do not report on Part III, line 12,
amounts required to be reported in
accordance with instructions for Part III,
line 13.

Do not report on Part III, line 12,
amounts recovered from insurers or any
other indemnitors for any fines and
penalties described above.

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.

payments. See Regulations section
1.162-27(g) for the interaction between
sections 162(m) and 280G.

the carryforward utilized as a positive
amount on columns (b), (c), and (d), as
applicable.

Line 16. Pension and
Profit-Sharing

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 mixed group). See
Completion of Schedule M-3 and Certain
Allocations, Limitations, and Carryovers,
earlier.

Report on line 16 any amounts attributable
to the life insurance company's pension
plans, profit-sharing plans, and any other
retirement plans.

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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.
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 14. Parachute Payments

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 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

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.).

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 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. For example,
report originations and reversals of
deferred compensation subject to section
409A on line 18.

Line 20. Charitable
Contribution of Intangible
Property

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;
• Securities (including stocks and their
derivatives, stock options, and bonds);
• Conservation easements (including
scenic easements or air rights);
• Railroad rights of way;
• Mineral rights; and
• Other intangible property.

Line 21. Charitable
Contribution Limitation/
Carryforward

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.

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 23. Change in Section
807(c)(2) Tax Reserves

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.

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 25. Section 807(f) and
Reserve Transition Relief
Adjustments for Change in
Computing Reserves

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.

If the corporation utilizes a contribution
carryforward in the current tax year, report
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Instructions for Schedule M-3 (Form 1120-L) (11-2023)

Line 26. Section 807(a)(2)(B)
Tax Reserve Amount With
Respect to Policyholder Share
of Tax Exempt Interest

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.

Line 30. Other Amortization or
Impairment Write-Offs
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.

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.

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Line 27. Current Year
Acquisition/Reorganization
Costs

Report on line 27 any investment banking
fees, legal and accounting fees, and any
other fees paid or incurred in 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
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 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 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).

Line 33. Bad Debt Expense and
Agency Balances Written Off

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.

Line 35. Purchase Versus Lease
(for Purchasers and/or
Lessees)

Note. Also see the instructions for sellers
and/or lessors in the instructions for Part II,
line 18.
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.
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) gross rent
expense for a transaction treated as a
lease for statutory accounting purposes
but as a sale for U.S. income tax

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-21-

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.

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.
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.
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.

Line 37. Research and
Development Costs

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 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 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.

On the accompanying statement, also
identify any inducements that include
refundable or transferable tax credits,
including transferable credits that were
sold.
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.

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For tax years beginning after December
31, 2021, 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.

Report in column (a) the amount of
research and development expenditures
reported as a deduction in your financial
statements (or its books and records, if
applicable), on Part I, line 11. Report in
column (d) the amount of amortization
deductions of specified research or
experimental expenditures and research
or experimental expenditures included in
line 44 of Form 4562, Part VI and 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).

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

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.

Line 38. Section 118 Exclusion

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 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”).
-22-

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 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.
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

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

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.
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.”

be reported on Part III, line 33, Bad debt
expense/agency balances written off.
Report on Part III, line 39, the
amortization of various items of prepaid
expense, such as prepaid subscriptions
and license fees, prepaid insurance, etc.
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.

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.
Q also has a legal reserve where
$300,000 was expensed for financial
accounting purposes and a ($100,000)
temporary 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:

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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
Description

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

Column (a) Expense per Income
Statement

Column (b) Temporary Difference

Column (c) Permanent Difference

Column (d) Deduction per Tax
Return

Prepaid insurance premium expensed not
capitalized

$250,000

$250,000

-0-

$500,000

Legal expense reserve

$300,000

($100,000)

-0-

$200,000

Total Line 39

$550,000

$150,000

-0-

$700,000

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 III, line 40, column (a),
reflects an amount of $1 million, then

Instructions for Schedule M-3 (Form 1120-L) (11-2023)

-23-

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.