The following information provides additional detail to be used in conjunction with the M-3 instructions for each particular form.
A. Consolidated Level Form 1120 Mixed Return
A.1. Form 1120 Schedule M-3 is required with a consolidated Part II that ties to a consolidated Schedule M-3, Part I, and a consolidated Form 8916, line 1.
A.1.1. Part I is completed in its entirety and Part II, lines 29a, 29b and 29c are completed for the total Mixed Return At the consolidated level, all columns in Part II are required (a, b, c & d) for lines 29a, 29b, 29c, and 30 even if this is the first year of the M-3 requirement.. No Part III is required at the consolidated level.
A.1.2. Part I, checkbox 3, Mixed 1120/L/PC group and Part II, checkbox 1, Consolidated Group and checkbox 5, Mixed 1120/L/PC group must be checked.
A.2. A consolidated eliminations return is optional but if one is included, an 1120 Schedule M-3 must also be completed and attached to the consolidated eliminations return with the 1120 M-3 Part II checkbox 3, Consolidated Eliminations and checkbox 5, Mixed 1120/L/PC group checked.
B. Mixed Return Subgroups
B.1. There are 3 subgroups possible in a Mixed Return - one subgroup for those corporations reporting on Form 1120 (1120 subgroup); one subgroup for those reporting on Form 1120-L (1120-L subgroup); and one subgroup for those corporations reporting on Form 1120-PC (1120-PC subgroup)
B.2. Each subgroup will require, in addition to the actual subsidiary returns [and for the 1120 subgroup - the actual parent return], a sub-consolidation return and eliminations return, as applicable. See C. Mixed Return Sub-consolidation Return(s) – Required for additional information.
B.3. Each subgroup uses its own Schedule M-3 form (1120, 1120-PC, 1120-L), Parts II and III, for each corporation within the subgroup and for the subgroup sub-consolidation and the subgroup eliminations, as applicable.
C. Mixed Return Sub-consolidation Return(s) - Required
C.1. Subgroup sub-consolidation returns are required as follows:
C.1.1. 1120 - When an 1120 Parent and 1 or more 1120 subsidiaries are included in the consolidated mixed return
C.1.2. 1120-L - When more than one 1120 -L subsidiary is included in the consolidated mixed return
C.1.3. 1120-PC - When more than one 1120-PC subsidiary is included in the consolidated mixed return
C.2. 1120 Sub-consolidation return
C.2.1. 1120 Schedule M-3 is required and must reflect the total net amounts for all of the returns included in the 1120 sub-consolidation group including returns for the parent, all of the 1120 subsidiaries, and the eliminations, as applicable.
C.2.1.1. Part II and Part III checkbox 5, Mixed 1120/L/PC group and checkbox 6, 1120 group must be checked
C.2.1.2. Part II through line 29(a) and Part III must be completed for all columns a, b, c & d if the Parent is required to complete all columns, otherwise only columns b & c are required except for Part II, line 29a, which must always be complete for columns a, b, c, and d.
C.2.2. The Form 1120 sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(a) column d amount must each tie to taxable income on the Form 1120 sub-consolidation return line 28.
C.3. 1120-L or 1120-PC Sub-consolidation return(s)
C.3.1. Applicable subgroup M-3 is required and must reflect the total net amounts for all of the subsidiary returns included in the subgroup, including the eliminations return
C.3.1.1. Part II and Part III checkbox 5, Mixed 1120/L/PC group and checkbox 6, 1120-L group or 1120-PC group, as applicable, must be checked.
C.3.1.2. Column a & d transition rule
C.3.1.2.1. Part II through line 29(a) and Part III must be completed for columns a, & d if the Parent 1120 is required to complete all columns
OR
C.3.1.2.2. Part II, line 29(a) columns a & d ONLY may be completed for the net totals for all subsidiaries
C.3.1.3. Columns b & c
C.3.1.3.1. Part II (through line 29a) and Part III must be completed for columns b & c for all lines on the applicable sub-consolidation M-3.
C.3.2. The Form 1120-L sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(c) column d amount must tie to taxable income on the Form 1120-L sub-consolidation return line 20.
C.3.3. The Form 1120-PC sub-consolidation Schedule M-3, Part II, line 29(a), column d amount and the Form 1120 consolidated Schedule M-3, Part II, line 29(b) column d amount must each tie to taxable income on the Form 1120-PC sub-consolidation return Schedule A, line 35.
D. Mixed Return Sub-Consolidation Returns – Not Required
D.1. 1120 subgroup (There is only a parent return – no 1120 subsidiaries)
D.1.1. Parent 1120 will in effect be the sub-consolidation.
D.1.2. Follow instructions E.1.1 – E.1.2 below under 1120 Parent Return
D.1.3. Form 1120 Schedule M-3 attached to the parent return - Part II and Part III checkbox 2, Parent corp, Part II & Part III checkbox 5, Mixed 1120/L/PC group and checkbox 6, 1120 group must be checked.
D.2. 1120-L and/or 1120-PC subgroup (Only one subsidiary 1120-L and/or one subsidiary PC)
D.2.1. Single 1120-L and/or single 1120-PC subsidiary will in effect be the sub-consolidation for that subgroup
D.2.2. Form 1120-L and/or 1120-PC Schedule M-3 Part II and Part III checkbox 4, Subsidiary corp, checkbox 5, Mixed 1120/L/PC and checkbox 6, 1120-L group or 1120-PC group must be completed, as applicable.
E. Mixed Return - 1120 Parent Return
E.1. 1120 M-3 must be attached
E.1.1. Part II and Part III are completed for all columns (a, b, c & d) unless this is the first year of the M-3 requirement, and then only columns b & c are required except for Part II, line 29a, which must always be complete for columns a, b, c, & d.
E.1.2. Part II is completed through line 29a
E.1.3. Part II and Part III checkbox 2, Parent corp and Part II & Part III checkbox 5, Mixed 1120/L/PC group must be checked
F. Mixed Return - All Subsidiary Returns
F.1. Applicable subgroup Schedule M-3 must be attached
F.1.1. Part II is completed through line 29a. Part II, line 29a, must be complete for columns a, b, c, & d. Columns a & d are not required for other lines if not required for the parent. Under the transition rule for 1120-L and 1120-PC subsidiaries, columns a & d are not required on other lines.
F.1.2. Part III is completed for all lines. Columns a & d are not required if not required for the parent. Under the transition rule for 1120-L and 1120-PC subsidiaries, columns a & d are not required.
F.1.3. Part II and Part III checkbox 4, Subsidiary corp and checkbox 5, Mixed 1120/L/PC group must be completed.
G. Form 8916 - Reconciliation of Schedule M-3 Taxable Income with Tax Return Taxable Income for Mixed Groups
G.1. Form 8916 is required to be completed and attached to the top consolidated 1120 return for every Mixed Return required to file an M-3.
G.2. Form 8916 is used to reconcile the consolidated Form 1120 Schedule M-3 taxable income reported on Part II line 30 column d to the taxable income reported on the consolidated Form 1120 income tax return, page 1, line 30.
G.2.1. The amount on Form 8916 line 1 must equal the amount reflected on the consolidated Form 1120 Schedule M-3 line 30, column d
G.2.2. The amount on Form 8916, line 8 must equal the taxable income reported on the consolidated Form 1120, line 30.
G.2.3. The mixed group consolidated Form 1120 page 1 lines 1-29 may be left blank. In particular, the consolidated amounts that would otherwise be reported on lines 28, 29a, and 29b are reported on Form 8916 lines 1 to 8 in a different format that takes into account the requirements of Section 1502 with respect to life/non-life limitations.
G.3. Any entry on Form 8916 line 7 must be supported by a short explanation. This explanation must be entered on the IRS schema OtherAdjustmentsToReconcileTaxableIncomeStatement and attached to the Form 8916.
G.4. Except for the explanation required for line 7 entries, no other supporting taxable income calculation workpapers or explanations are required to be attached to the Form 8916 but the workpapers must be retained and produced if requested. The taxpayer may provide additional PDF supporting attachments for any line of Form 8916 on a voluntary basis and for any line of any Schedule M-3.
H. Form 8916-A - Reconciliation of Cost of Goods Sold Reported on Schedule M-3
H.1. Form 8916-A is required to be completed and attached to every Form 1120 Schedule M-3 (consolidated, consolidated eliminations if applicable, sub-consolidation, parent, subsidiary, and eliminations) that is filed as part of a Mixed Return that includes Cost of Goods Sold.
H.2. Line 6 entry supporting detail is required to be attached to the Form 8916-A for the following M-3s, as applicable
H.2.1. Supporting detail for Line 6 will be provided on the IRS schema titled OtherItemsWithDifferencesSchedule
H.2.2. The OtherItemsWithDifferencesSchedule will be attached to the respective Form 8916-A that it supports.
H.3. No supporting Line 6 detail is required for the Forms 8916-A attached to the
H.4. Summarized (aggregated) data for each applicable line is required on the Form 8916-A attached to both the 1120 Sub-consolidation Schedule M-3 and the consolidated 1120 Schedule M-3.
Return to Tax Year 2006 Directions for Corporations Required to e-file
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