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Schedule B (Form 1120) (Rev. 12-2018) Page 2
General Instructions Question 5. Changes in Accounting Principle
Section references are to the Internal Revenue Code The term “change in accounting principle,” means a
unless otherwise noted. change from one generally accepted accounting principle
to another generally accepted accounting principle as
Future Developments described in Statement of Financial Accounting
Standards (SFAS) No. 154—Accounting Changes and
For the latest information about developments related to
Error Corrections.
Schedule B (Form 1120) and its instructions, such as
legislation enacted after they were published, go to Answer “Yes” if a change in accounting principle
www.irs.gov/Form1120. occurred during the tax year that affected (or is expected
to affect) the amount of income reported for financial
What’s New statement purposes.
After December 22, 2017, the following nonshareholder If the corporation has audited financial
contributions to the capital of a corporation are not statements, any changes in accounting principle
TIP
eligible for exclusion under section 118. should be identified in footnotes to those
• Any contribution by any civic group; or statements.
• Any contribution by any governmental entity, except any Question 6. Change in Method of Accounting
contribution that was made after December 22, 2017,
according to a master development plan that was Corporations are generally required to file Form 3115,
approved prior to December 22, 2017, by a governmental Application for Change in Accounting Method, or a
entity. statement in lieu of Form 3115, to request a change in a
method of accounting. See the Instructions for Form
Purpose of Form 3115 for information on requesting a change in
accounting method.
Use Schedule B (Form 1120) to provide answers to
additional questions for filers of Schedule M-3 (Form Question 7. Voluntary Employees’ Beneficiary
1120). Association Trusts
Who Must File Employers that establish and fund welfare benefit plans
on behalf of their employees do so through a tax-exempt
Generally, filers of Form 1120 that file Schedule M-3 trust that is referred to as a voluntary employees’
(Form 1120), must complete and file Schedule B (Form beneficiary association (VEBA). See section 501(c)(9) and
1120). However, filers that (a) are required to file Schedule Regulations sections 1.501(c)(9)-1 through 1.501(c)(9)-8
M-3 and have less than $50 million in total assets at the for details.
end of the tax year or (b) are not required to file Schedule
M-3 and voluntarily file Schedule M-3, are not required to Answer “Yes” if the corporation owned any VEBA trusts
file Schedule B (Form 1120). See the Instructions for that were used to hold funds designated for employee
Schedule M-3 (Form 1120) for more information. benefits.
In the case of a consolidated group, a parent Question 8. Indirect Costs
corporation files one Schedule B for the entire group. Section 446(a) and Regulations section 1.446-1(a)(1)
generally provide that taxable income shall be figured
Specific Instructions under the method of accounting on the basis of which the
corporation regularly figures its income in keeping its
Question 1. Partnership Allocations
books. An exception applies if book income does not
Answer “Yes” if this corporation is a partner in a clearly reflect income.
partnership and has received special allocations of
Answer “Yes” if the corporation, during the tax year,
income, gain, loss, deduction, or credit from such
used an allocation method for indirect costs capitalized
partnership.
to self-constructed assets that varied from its financial
Example. P, a corporation, joins with B, anindividual, statement method of accounting. Otherwise, answer
in forming the PB Partnership. P and B eachcontribute “No.” Also answer “No” if the corporation used the same
$50,000 in cash to PB Partnership. Profitsand losses are method of allocating indirect costs to self-constructed
allocated equally, with the exception ofdepreciation, assets, but capitalized a different amount due to
which is allocated 99% to P and 1% toB. differences in the amount of costs which are includible
P answers “Yes” to question 1 because its 99% in the computation of income for the tax year.
allocation of depreciation deductions from PB Partnership Question 9. Mixed–Service Costs
is disproportionate to its ratio of sharing other items of
income, gain, loss, deduction, or credit from PB Answer “Yes” if the corporation, during the tax year,
Partnership. treated purchasing, handling, and storage, as discussed
in Regulations sections 1.263A-3(c)(1) through (5), and as
defined in Regulations sections 1.263A-1(e)(3)(ii)(F), (G),
and (H), as mixed-service costs as defined in Regulations
section 1.263A-1(e)(4)(ii)(C). Otherwise, answer “No.”
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