PDF document

- 1 -

                 Userid: CPM                         Schema: instrx Leadpct: 100%    Pt. size: 9  Draft               Ok to Print
AH XSL/XML       Fileid: … 0lschm-3/202311/a/xml/cycle04/source                                  (Init. & Date) _______

Page 1 of 24                                                                                     9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

                                                                                                 Department of the Treasury
                                                                                                 Internal Revenue Service
Instructions for 

Schedule M-3 (Form 1120-L)

(Rev. January 2024)

(For use with the December 2021 revision of Schedule M-3 (Form 1120-L))
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              • A corporation filing a non-consolidated Form 1120-L that 
otherwise noted.                                                        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 
Future Developments                                                     file Schedule M-3 and must check box (1) Non-consolidated 
For the latest information about developments related to                return, at the top of page 1 of Schedule M-3.
Schedule M-3 (Form 1120-L), and its instructions, such as               • Any U.S. consolidated tax group consisting of a U.S. parent 
legislation enacted after they were published, go to IRS.gov/           corporation and additional includible corporations listed on Form 
Form1120L.                                                              851, Affiliations Schedule, required to file Form 1120-L that 
                                                                        reports on Schedule L, Part II, line 2, column (b), of Form 1120-L 
What’s New                                                              total consolidated assets at the end of the tax year that equal or 
                                                                        exceed $10 million must complete and file Schedule M-3 and 
Amortization of research and development costs.               Specified must check box (2) Consolidated return (Form 1120-L only) or 
research or developmental costs paid or incurred in tax years           (3) Mixed 1120/L/PC group, as applicable, at the top of page 1 of 
beginning after December 31, 2021, must be capitalized and              Schedule M-3.
amortized. See the instructions for Line 37. Research and 
Development Costs, later.                                                 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, 
General Instructions                                                    box 3, on Form 1120-L, page 1, indicating that Schedule M-3 is 
                                                                        attached, whether required or voluntary.
Purpose of Schedule
Schedule M-3, Part I, asks certain questions about the                    Example 1. 
corporation's financial statements and reconciles financial               1. U.S. life insurance company A owns U.S. subsidiary B 
statement net income (loss) for the corporation (or consolidated        and foreign subsidiary F. For its current tax year, A prepares 
financial statement group, if applicable), as reported on               consolidated financial statements with B and F that report total 
Schedule M-3, Part I, line 4a, to net income (loss) of the              assets of $12 million. A files a consolidated U.S. income tax 
corporation for U.S. taxable income purposes, as reported on            return with B and reports total consolidated assets on 
Schedule M-3, Part I, line 11.                                          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 
  Schedule M-3, Parts II and III, reconcile financial statement         the current tax year.
net income (loss) for the U.S. corporation (or consolidated tax 
group, if applicable), as reported on Schedule M-3, Part I,               2. U.S. life insurance company C owns U.S. life insurance 
line 11, to the subtotal on Form 1120-L, page 1, line 20. For life      company D. For its current tax year, C prepares consolidated 
insurance companies that prepare an annual statement, financial         financial statements with D but C and D file separate U.S. 
statement net income (loss) should be reported on the statutory         income tax returns. The consolidated accrual basis financial 
basis on Schedule M-3, Part I, line 11.                                 statements for C and D report total assets at the end of the tax 
                                                                        year of $12 million after intercompany eliminations. C reports 
Where To File                                                           separate company total year-end assets on its Schedule L, Part 
                                                                        II, line 2, column (b), of $7 million. D reports separate company 
If the corporation is required to file (or voluntarily files)           total year-end assets on its Schedule L, Part II, line 2, column 
Schedule M-3 (Form 1120-L), the corporation must file Form              (b), of $6 million. Neither C nor D is required to file Schedule M-3 
1120-L and all attachments and schedules, including                     for the current tax year.
Schedule M-3 (Form 1120-L) at the following address.
                                                                          3. Foreign corporation A owns 100% of both U.S. life 
  Department of the Treasury                                            insurance company B and U.S. life insurance company C. C 
  Internal Revenue Service Center                                       owns 100% of U.S. life insurance company D. For its current tax 
  Ogden, UT 84201-0012                                                  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.  
Who Must File                                                           A is not required to file a U.S. income tax return.  B files a 
Generally, the following apply.                                         separate U.S. income tax return and reports separate company 
• Any domestic corporation or group of corporations required to         total year-end assets on its Schedule L, Part II, line 2, column 
file Form 1120-L, U.S. Life Insurance Company Income Tax                (b), of $12 million. C files a consolidated U.S. income tax return 
Return, that reports on Schedule L, Part II, line 2, column (b), of     with D and, after eliminating intercompany transactions between 
Form 1120-L total assets at the end of the corporation's tax year       C and D, reports consolidated total year-end assets on 
that equal or exceed $10 million must complete and file                 Schedule L, Part II, line 2, column (b), of $8 million. B is required 
Schedule M-3.                                                           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 

Feb 1, 2024                                                   Cat. No. 39945W

- 2 -

Page 2 of 24        Fileid: … 0lschm-3/202311/a/xml/cycle04/source                               9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

million. The CD U.S. consolidated tax group is not required to file  tax year of $10 million or more, the corporation's total 
Schedule M-3 because its total year-end assets reported on           consolidated assets must be determined on an overall accrual 
Schedule L, Part II, line 2, column (b), do not equal at least $10   method of accounting unless both of the following apply: (a) the 
million.                                                             tax returns of all includible corporations in the U.S. consolidated 
                                                                     tax group are prepared using an overall cash method of 
Special Filing Requirements for Mixed Groups                         accounting, and (b) no includible corporation in the U.S. 
If the parent corporation of a U.S. consolidated tax group files     consolidated tax group prepares or is included in financial 
Form 1120-L and files Schedule M-3, each member of the group         statements prepared on an accrual basis.
must file Schedule M-3. However, if the parent corporation of a 
U.S. consolidated tax group files Form 1120-L and any member         Note. See the instructions for Part I, line 1, for a discussion of 
of the group files Form 1120-PC, U.S. Property and Casualty          non-tax-basis income statements and related non-tax-basis 
Insurance Company Income Tax Return, or Form 1120, that              balance sheets to be used in the preparation of Schedule M-3 
member must file a Form 1120-PC Schedule M-3 or a Form               and Form 1120-L, Schedule L.
1120 Schedule M-3, respectively, and the group must comply 
with the mixed group consolidated Schedule M-3 reporting             Other Form 1120-L Schedules 
described in the section Schedule M-3 Consolidation for Mixed        Affected by Schedule M-3 
Groups (1120/L/PC), later, in these instructions. A mixed group 
must also file Form 8916, Reconciliation of Schedule M-3             Requirements
Taxable Income With Tax Return Taxable Income for Mixed              Report on Schedule L and Form 1120-L, page 1, amounts for the 
Groups, and, if applicable, Form 8916-A, Supplemental                U.S. corporation or, if applicable, the U.S. consolidated tax 
Attachment to Schedule M-3.                                          group.

  If the parent corporation of a U.S. consolidated tax group files   Schedule L
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,      If a non-tax-basis income statement and related non-tax-basis 
column (b), reported in the return includes the assets of all of the balance sheet are prepared for any purpose for a period ending 
corporations (the insurance companies as well as the                 with or within the tax year, Schedule L must be prepared 
non-insurance companies), in order to determine if the group         showing non-tax-basis amounts. See the instructions for 
meets the $10 million threshold test for the requirement to file     Schedule M-3, Part I, line 1, for the discussion of non-tax-basis 
Schedule M-3, use the amount of total assets reported on             income statements and related non-tax-basis balance sheets 
Schedule L, Part II, line 2, column (b), of the consolidated return. prepared for any purpose and the impact on the selection of the 
If the parent company of a U.S. consolidated tax group files Form    income statement used for Schedule M-3 and the related 
1120-L and any member of the group files Form 1120-PC or             non-tax-basis balance sheet amounts that must be used for 
Form 1120 and the consolidated Schedule L, Part II, line 2,          Schedule L.
column (b), reported in the return does not include the assets of    Total assets shown on Schedule L, Part II, line 2, column (b), 
one or more of the corporations in the U.S. consolidated tax         must equal the total assets of the life insurance company (or, in 
group, in order to determine if the group meets the $10 million      the case of a U.S. consolidated tax group, the total assets of all 
threshold test for the requirement to file Schedule M-3, use the     members of the group listed on Form 851) as of the last day of 
sum of the amount of total assets reported on the consolidated       the tax year, and must be the same total assets reported by the 
Schedule L, Part II, line 2, column (b), plus the amounts of all     life insurance company (or by each member of the U.S. 
assets reported on Forms 1120-PC and 1120 that are included          consolidated tax group) in the non-tax-basis financial 
in the consolidated return but not included on the consolidated      statements, if any, used for Schedule M-3. If the life insurance 
Schedule L, Part II, line 2, column (b).                             company prepares non-tax-basis financial statements, 
  For insurance companies included in the consolidated U.S.          Schedule L, Part II, line 2, column (b), must equal the sum of the 
income tax return, see the instructions for Part I, lines 10a, 10b,  non-tax-basis financial statement total assets for each 
10c, and 11, and Part II, line 7, for guidance on Schedule M-3       corporation listed on Form 851 and included in the U.S. 
reporting of intercompany dividends and statutory accounting         consolidated tax return (includible corporation) net of 
adjustments.                                                         eliminations for intercompany transactions between includible 
                                                                     corporations. If the life insurance company does not prepare 
Other Issues Affecting Schedule M-3                                  non-tax-basis financial statements, Schedule L, Part II, line 2, 
                                                                     column (b), must be based on the life insurance company's 
Filing Requirements                                                  books and records. The Schedule L balance sheet may show 
If a life insurance company was required to file Schedule M-3 for    tax-basis balance sheet amounts if the life insurance company is 
the preceding tax year but reports on Schedule L, Part II, line 2,   allowed to use books and records for Schedule M-3 and the life 
column (b), of Form 1120-L total consolidated assets at the end      insurance company's books and records reflect only tax-basis 
of the current tax year of less than $10 million, the life insurance amounts.
company is not required to file Schedule M-3 for the current tax     Generally, total assets at the beginning of the year 
year. The life insurance company may voluntarily file                (Schedule L, Part II, line 2, column (a)) must equal total assets at 
Schedule M-3 for the current tax year. If for a subsequent tax       the close of the prior year (Schedule L, Part II, line 2, column 
year the life insurance company is required to file Schedule M-3,    (b)). For each Schedule L balance sheet item reported for which 
the life insurance company must complete Schedule M-3 in its         there is a difference between the current opening balance sheet 
entirety for that subsequent tax year.                               amount and the prior closing balance sheet amount, attach a 
                                                                     statement that reports the balance sheet item, the prior closing 
  In the case of a U.S. consolidated tax group, total assets at 
                                                                     amount, the current opening amount, and a short explanation of 
the end of the tax year must be determined based on the total 
                                                                     the change. Reasons for those differences include mergers and 
year-end assets of all includible corporations listed on Form 851, 
                                                                     acquisitions.
net of eliminations for intercompany transactions and balances 
between the includible corporations. In addition, for purposes of    For purposes of measuring total assets at the end of the year, 
determining for Schedule M-3 whether the corporation (or U.S.        the corporation's assets may not be netted or reduced by the 
consolidated tax group) has total assets at the end of the current   corporation's liabilities. In addition, total assets may not be 

2                                                                          Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 3 -

Page 3 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

reported as a negative amount. If Schedule L is prepared on a these instructions by the corporation during the corporation’s tax
non-tax-basis method, an investment in a partnership may be year.
shown as appropriate under the corporation's non-tax-basis 4. The owner of 50% or more of partnership income, loss, or
method of accounting, including, if required by the corporation's capital on any day of the partnership tax year is deemed to own
reporting methodology, the equity method of accounting for all corporate and partnership interests owned or deemed to be
investments. If Schedule L is prepared on a tax basis, an owned under these instructions by the partnership during the
investment by the corporation in a partnership must be shown as partnership tax year.
an asset and measured by the corporation's adjusted basis in its
partnership interest. Any liabilities contributing to such adjusted 5. The beneficial owner of 50% or more of the beneficial
basis must be shown on Schedule L as corporate liabilities. interest of a trust or nominee arrangement on any day of the trust
or nominee arrangement tax year is deemed to own all corporate
Consolidated Return and partnership interests owned or deemed to be owned under
these instructions by the trust or nominee arrangement.
(Form 1120-L, Page 1)
Report on Form 1120-L, page 1, each item of income, gain, loss, A reportable entity partner with respect to a partnership (as
expense, or deduction net of elimination entries for intercompany defined above) must report the following to the partnership within
transactions between includible corporations. The corporation 30 days of first becoming a reportable entity partner and, after
must not report as dividends on Form 1120-L, Schedule A, any first reporting to the partnership under these instructions,
amounts received from an includible corporation unless the thereafter within 30 days of the date of any change in the interest
corporation receiving the intercompany dividends is an it owns or is deemed to own, directly or indirectly, under these
insurance company and only to the extent that the insurance instructions, in the partnership.
company is required to include intercompany dividends in 1. Name.
taxable income. (See the instructions for Part I, lines 10a, 10b, 2. Mailing address.
10c, and 11, for a discussion of intercompany dividends and
insurance company statutory accounting.) In general, dividends 3. Taxpayer identification number (TIN or EIN), if applicable.
received from an includible corporation must be eliminated in 4. Entity or organization type.
consolidation rather than offset by the dividends-received 5. State or country in which it is organized.
deduction. 6. Date on which it first became a reportable entity partner.
Entity Considerations for 7. Date with respect to which it is reporting a change in its
ownership interest in the partnership, if applicable.
Schedule M-3 8. The interest in the partnership it owns or is deemed to
For purposes of Schedule M-3, references to the classification of own in the partnership, directly or indirectly (as defined under
an entity (for example, as a corporation, a partnership, or a trust) these instructions), as of the date with respect to which it is
are references to the treatment of the entity for U.S. income tax reporting.
purposes. An entity that is generally regarded as separate from 9. Any change in that interest as of the date with respect to
its owner for U.S. income tax purposes (disregarded entity) must which it is reporting.
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, The reportable entity partner must retain copies of required
gain, loss, deduction, or credit of a disregarded entity must be reports it makes to the partnerships under these instructions.
reported as an item of its owner. In particular, the income or loss Each partnership must retain copies of the required reports it
of a disregarded entity must not be reported on Part II, line 9, 10, receives under these instructions from reportable entity partners.
or 11 as a separate partnership or other pass-through entity. The Example 2.
financial statement income or loss of a disregarded entity is
included on Part I, line 7a or 7b, only if its financial statement 1. A, an LLC filing a Form 1065 for 2023, is owned 50% by
income or loss is included on Part I, line 11, but not on Part I, U.S. life insurance company Z. A owns 50% of B, C, D, and E,
line 4a. 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
Reportable Entity Partner Reporting corporate tax year ending December 31, 2022 and filed
Schedule M-3 with its Form 1120-L for 2022, on October 15,
Responsibilities 2023. As of October 16, 2023, Z was a reportable entity partner
A reportable entity partner with respect to a partnership filing with respect to A and, through A, with respect to B, C, D, and E.
Form 1065 is an entity that: On November 5, 2023, Z reports to A, B, C, D, and E, as it is
• Owns or is deemed to own, directly or indirectly, under these required to do within 30 days of October 16, that Z is a
instructions a 50% or greater interest in the income, loss, or reportable entity partner directly owning (with respect to A) or
capital of the partnership on any day of the tax year; and deemed to own indirectly (with respect to B, C, D, and E) a 50%
• Was required to file Schedule M-3 on its most recently filed interest. Therefore, because Z was a reportable entity partner for
U.S. income tax return or return of income filed prior to that day. 2023, each of A, B, C, D, and E is required to file Form 1065,
For the purposes of these instructions, the following rules Schedule M-3, for 2023, regardless of whether they would
apply. otherwise be required to file Schedule M-3 for that year.
1. The parent corporation of a consolidated tax group is 2. P, a U.S. life insurance company, is the parent of a
deemed to own all corporate and partnership interests owned or financial consolidation group with 50 domestic subsidiaries, DS1
deemed to be owned under these instructions by any member of through DS50, and 50 foreign subsidiaries, FS1 through FS50,
the tax consolidated group. all 100% owned on October 16, 2023. On October 15, 2023, P
2. The owner of a disregarded entity is deemed to own all filed a consolidated tax return on Form 1120-L and was required
corporate and partnership interests owned or deemed to be to file Schedule M-3 for the tax year ending December 31, 2022.
owned under these instructions by the disregarded entity. On October 16, 2023, DS1, DS2, DS3, FS1, and FS2 each
acquire a 10% partnership interest in partnership K, which files
3. The owner of 50% or more of a corporation by vote on any Form 1065 for the tax year ending December 31, 2023. P is
day of the corporation’s tax year is deemed to own all corporate deemed to own, directly or indirectly (under these instructions),
and partnership interests owned or deemed to be owned under
Instructions for Schedule M-3 (Form 1120-L) (1-2024) 3

- 4 -

Page 4 of 24  Fileid: … 0lschm-3/202311/a/xml/cycle04/source                                 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

all corporate and partnership interests of DS1, DS2, and DS3, as        Schedule M-3 Consolidation for Mixed Groups 
the parent of the tax consolidation group and therefore is 
                                                                        (1120/L/PC)
deemed to own 30% of K on October 16, 2023. P is deemed to 
own, directly or indirectly (under these instructions), all corporate   Special Schedule M-3 consolidation rules apply to a mixed 
and partnership interests of FS1 and FS2 as the owner of 50% or         group, that is, a consolidated tax group that (1) includes both a 
more of each corporation by vote and therefore is deemed to             corporation that is an insurance company and a corporation that 
own 20% of K on October 16, 2023. P is therefore deemed to              is not an insurance company; or (2) includes both a life 
own 50% of K on October 16, 2023. Since P owns or is deemed             insurance company and a property and casualty insurance 
to own, directly or indirectly (under these instructions), 50% or       company; or (3) includes a life insurance company, a property 
more of K on October 16, 2023, and was required to file                 and casualty insurance company, and a corporation that is not 
Schedule M-3 with its most recently filed U.S. income tax return        an insurance company.
filed prior to that date, P is a reportable entity partner of K as of   Mixed group consolidation for Schedule M-3, Parts II and III, 
October 16, 2023. On November 5, 2023, P reports to K that P is         requires (1) subgroup sub-consolidation of the 1120 subgroup, 
a reportable entity partner as of October 16, 2023, deemed to           the 1120-PC subgroup, and the 1120-L subgroup, each with its 
own (under these instructions) a 50% interest in K. K is,               own sub-consolidated Schedule M-3, Parts II and III, and (2) 
therefore, required to file Schedule M-3 when it files its Form         consolidation of the subgroup sub-consolidation totals on a 
1065 for its tax year ending December 31, 2023.                         consolidated Schedule M-3, Part II, that ties to a consolidated 
                                                                        Schedule M-3, Part I, and a consolidated Form 8916.
Consolidated Schedule M-3 Versus 
                                                                        In addition to one Schedule M-3, Part II, and one 
Consolidating Schedules M-3 for                                         Schedule M-3, Part III, for each corporation in the three subgroup 
Form 1120-L Groups                                                      sub-consolidations, there will generally be a total of six additional 
                                                                        Schedule M-3, Parts II, and six additional Schedule M-3, Parts 
A consolidated tax return group with a parent corporation that          III, for the subgroup sub-consolidations. Specifically, there must 
files a Form 1120-L is a mixed group if any member is a property        be one Schedule M-3, Part II, and one Schedule M-3, Part III, for 
and casualty insurance company (files Form 1120-PC) or is not           each subgroup's sub-consolidated amounts and one 
an insurance company. See Schedule M-3 Consolidation for                Schedule M-3, Part II, and one Schedule M-3, Part III, for each 
Mixed Groups (1120/L/PC), later.                                        subgroup's sub-consolidation eliminations amounts.
  A U.S. consolidated tax group must file a consolidated 
                                                                        At the mixed group consolidated level, there must be a 
Schedule M-3. Parts I, II, and III of the consolidated 
                                                                        consolidated Schedule M-3, Part II, and, if applicable, a 
Schedule M-3 must reflect the activity of the entire U.S. 
                                                                        Schedule M-3, Part II, for consolidation eliminations not 
consolidated tax group. The parent corporation must also 
                                                                        includible in the subgroup eliminations. At the consolidated level, 
complete Parts II and III of a separate Schedule M-3 to reflect the 
                                                                        there must also be a consolidated Schedule M-3, Part I, and a 
parent's own activity. In addition, Parts II and III of a separate 
                                                                        consolidated Form 8916. For a mixed group, there is no 
Schedule M-3 must be completed by each includible corporation 
                                                                        Schedule M-3, Part III, at the consolidated level. At the 
to reflect the activity of that includible corporation. Lastly, it will 
                                                                        consolidated level, use the Schedule M-3 (1120, 1120-PC, or 
generally be necessary to complete Parts II and III of a separate 
                                                                        1120-L), Parts I and II, that match the form on which the parent 
Schedule M-3 for consolidation eliminations.
                                                                        corporation reports and the entire consolidated group files.
  If a U.S. consolidated tax group that is not a mixed group 
consists of four includible corporations (the parent and three          The corporation must check the applicable mixed group 
subsidiaries) all filing Form 1120-L, the U.S. consolidated tax         checkboxes on all Schedules M-3, Parts I, II, and III, as 
group must complete six Schedules M-3 as follows.                       discussed below.
• One consolidated Schedule M-3 with Parts I, II, and III 
completed to reflect the activity of the entire U.S. consolidated       Subgroup Sub-Consolidation: 1120 Subgroup, 
tax group.                                                              1120-PC Subgroup, and 1120-L Subgroup
• Parts II and III of a separate Schedule M-3 for each of the four 
includible corporations to reflect the activity of each includible      A subgroup Schedule M-3, Parts II and III, sub-consolidation 
corporation.                                                            must be prepared with all necessary eliminations within the 
• Parts II and III of a separate Schedule M-3 to eliminate              subgroup for each of the three possible subgroups that are in 
intercompany transactions between includible corporations and           fact present: one subgroup for those corporations reporting on 
to include limitations on deductions (for example, charitable           Form 1120, one subgroup for those corporations reporting on 
contribution limitations and capital loss limitations) and carryover    Form 1120-PC, and one subgroup for those reporting on Form 
amounts (for example, charitable contribution carryovers and            1120-L. The parent corporation is included in the subgroup that 
capital loss carryovers). See Completion of Schedule M-3 and            corresponds to the form on which it reports and the entire 
Certain Allocations, Limitations, and Carryovers, later.                consolidated group files. For example, in the case of a Form 
                                                                        1120-L parent and Form 1120-L consolidated group, the parent 
Note. Complete only one Schedule M-3, Part I, for each                  is included in the Form 1120-L subgroup sub-consolidation. 
consolidated group. A subsidiary of a consolidated group does           Each subgroup uses its own Schedule M-3 (1120, 1120-PC, or 
not complete Schedule M-3, Part I. Enter on Part I the name and         1120-L), Parts II and III, for each corporation within the subgroup 
EIN of the common parent of the consolidated group.                     and for the subgroup sub-consolidation and the subgroup 
  Indicate on each Schedule M-3, Parts II and III, on the line          eliminations.
after the common parent's name and EIN, whether the 
Schedule M-3, Parts II and III, is for the (1) consolidated group;      The three subgroup sub-consolidation taxable income 
(2) parent corporation; (3) consolidation eliminations; or (4)          calculations on Schedule M-3 must follow the separate return 
subsidiary corporation, by checking the appropriate box. If Parts       requirements of the regulations under section 1502 and all other 
II and III are for a subsidiary in a consolidated return, also enter    applicable regulations taking into account the amounts 
the name and EIN of the subsidiary.                                     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 

4                                                                       Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 5 -

Page 5 of 24   Fileid: … 0lschm-3/202311/a/xml/cycle04/source                         9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

determination of the three subgroup sub-consolidated taxable         Parts II and III, box (4) Subsidiary corporation, and box (5) Mixed 
incomes on Schedule M-3, but are reflected on Form 8916 and          1120/L/PC group. An 1120 subsidiary corporation within the 
in the calculation of the life/non-life loss limitation and          1120 subgroup must check Form 1120, Schedule M-3, Parts II 
carryforward used. See Life/Non-Life Loss Limitation and             and III, box (4) Subsidiary corporation, and box (5) Mixed 
Carryforward Used Calculations, later.                               1120/L/PC group.
The reconciliation totals for book, temporary difference,            The 1120 subgroup sub-consolidation Form 1120, 
permanent difference, and taxable income for each subgroup are       Schedule M-3, Parts II and III, must be indicated by checking box 
reported on Form 1120, 1120-PC, or 1120-L, as applicable,            (5) Mixed 1120/L/PC group, and box (6) 1120 group for the 
Schedule M-3, Part II, line 29a, columns (a), (b), (c), and (d), and sub-consolidation, and by checking box (5) Mixed 1120/L/PC 
equal the sum of the line amounts on Part II, lines 26 through 28.   group, and box (7) 1120 eliminations, for the eliminations. The 
For a mixed group, Schedule M-3, Part II, lines 29b, 29c, and 30,    1120-PC subgroup sub-consolidation Form 1120-PC, 
are blank on the Form 1120, 1120-PC, or 1120-L, as applicable,       Schedule M-3, Parts II and III, must be indicated by checking box 
for the separate corporations (parent and subsidiary) and for the    (5) Mixed 1120/L/PC group, and box (6) 1120-PC group for the 
three subgroup sub-consolidations.                                   sub-consolidation and by checking box (5) Mixed 1120/L/PC 
                                                                     group, and box (7) 1120-PC eliminations, for the eliminations. 
Note. A sub-consolidation is required for every subgroup, even       The 1120-L subgroup sub-consolidation Form 1120-L, 
if the subgroup consists of only one corporation. In addition,       Schedule M-3, Parts II and III, must be indicated by checking box 
Form 8916-A, if applicable, is required at the sub-consolidated      (5) Mixed 1120/L/PC group, and box (6) 1120-L group for the 
level and the sub-consolidated elimination level.                    sub-consolidation, and by checking box (5) Mixed 1120/L/PC 
                                                                     group, and box (7) 1120-L eliminations, for the eliminations.
Reconciliation of Mixed Group Subgroup 
                                                                     A mixed group with a Form 1120-L parent corporation 
Sub-Consolidation Amounts to Schedule M-3, Part                      completes a consolidated level Form 1120-L, Schedule M-3, 
I, Line 11, and to Tax Return Taxable Income                         Parts I and II, and a consolidated Form 8916. The mixed group 
                                                                     consolidated Schedule M-3, Part II, must be indicated by 
At the consolidated level, use the Schedule M-3 (Form 1120,          checking box (1) Consolidated group, and box (5) Mixed 
1120-PC, or 1120-L), Parts I and II that matches the form on         1120/L/PC group. If a consolidated level Part II for consolidation 
which the parent corporation reports and the entire consolidated     eliminations not includible in the subgroup eliminations is 
group files. For a mixed group, on the consolidated                  applicable, that Part II must be indicated by checking box (3) 
Schedule M-3, Part II, lines 29a, 29b, and 29c, report the           Consolidated eliminations, and box (5) Mixed 1120/L/PC group.
applicable amounts from the three subgroup sub-consolidation 
Part II, line 29a, amounts. (If a consolidated level Part II for     Life/Non-Life Loss Limitation and Carryforward 
consolidation eliminations not includible in the subgroup 
eliminations is applicable, the applicable amounts must be           Used Calculations
adjusted by the applicable elimination amounts.) The 
consolidated Schedule M-3, Part II, line 30, amounts are the sum     The applicable life/non-life loss limitation and all carryforward 
of the applicable amounts on the consolidated Part II, lines 29a,    used calculations are made using the amounts determined for 
29b, and 29c. For a mixed group, the consolidated Part II, lines 1   taxable income in the three subgroup sub-consolidations and 
through 28, are blank and no consolidated Part III is required to    other applicable amounts separately reported on Form 8916. 
be completed.                                                        The calculated life/non-life loss limitation or carryforward used 
                                                                     amounts, if any, are not entered on Schedule M-3. The 
For mixed groups, the consolidated Part II, line 30, column          calculated amounts, if any, are entered on Form 8916.
(a), must equal Part I, line 11, with appropriate adjustments for 
statutory accounting requirements reflected on Part I, lines 10a     Completion of Schedule M-3 and 
and 10b. The consolidated taxable income indicated on Part II,       Certain Allocations, Limitations, and 
line 30, column (d), must equal the amount shown on Form 
8916, line 1. Form 8916, line 8, must equal taxable income           Carryovers
reported on the tax return.                                          Generally, a corporation (or any member of a U.S. consolidated 
                                                                     tax group) required to file Schedule M-3 must complete the form 
Completion of Mixed Group Checkboxes for                             in its entirety. In particular, a corporation filing a non-consolidated 
Schedule M-3, Part II and Part III                                   return that meets the filing requirements for Schedule M-3 must 
                                                                     complete Parts I, II, and III.  Such a corporation does not check 
Note. The following discussion of checkboxes will assume that        any of the checkboxes at the top of Parts II and III.   In the case of 
the 1120-L subgroup includes the corporate parent of the mixed       a U.S. consolidated tax group, Part I must be completed once, 
group.                                                               on the consolidated Schedule M-3, by the parent corporation.  
                                                                     Parts II and III must be completed by the parent corporation, 
Forms 1120, 1120-PC, and 1120-L, Schedule M-3, Parts II              each includible corporation, and a consolidating eliminations 
and III, each have a checkbox (5) at the top indicating a mixed      entity.
group. Checkbox (5) and one or more other applicable                 Except as otherwise provided in these instructions, when a 
checkboxes must be checked for a mixed group.                        Schedule M-3 (Form 1120-L) is filed, all applicable Part I 
                                                                     questions must be answered; all applicable columns in Parts II 
For example, an 1120-L parent corporation included in the            and III must be completed; all numerical data required in Parts I, 
1120-L subgroup must check Form 1120-L, Schedule M-3, Parts          II, and III must be provided; and any statement required to 
II and III, box (2) Parent corporation, and box (5) Mixed            support a line item in Part I, II, or III must be attached and must 
1120/L/PC group. An 1120-L subsidiary corporation within the         provide the information required for that line item.
1120-L subgroup must check Form 1120-L, Schedule M-3, Parts 
II and III, box (4) Subsidiary corporation, and box (5) Mixed        All detailed statements for Part II and Part III of Schedule M-3 
1120/L/PC group. An 1120-PC subsidiary corporation within the        must be attached for each separate entity included in the 
1120-PC subgroup must check Form 1120-PC Schedule M-3,               consolidated Part II and Part III, including those for the parent 
Instructions for Schedule M-3 (Form 1120-L) (1-2024)                                                                                     5

- 6 -

Page 6 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

company and the eliminations entity, if applicable. It is not If a non-publicly traded U.S. parent life insurance company of
required that the same supporting detailed information be a U.S. consolidated tax group prepares financial statements and
presented for Part II and Part III of the consolidated that group includes a publicly traded subsidiary that files
Schedule M-3. financial statements with the Securities and Exchange
Commission (SEC), the consolidated financial statements of the
If an item attributable to an includible corporation is not parent life insurance company are the appropriate financial
shared by or allocated to the appropriate member of the group statements for purposes of completing Part I. Do not use any
but is retained in the parent corporation's financial statements (or separate company financial statements that might be prepared
books and records, if applicable), then the item must be reported for publicly traded subsidiaries.
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. Non-Tax-Basis Financial Statements and Tax-Basis
consolidated tax group and the parent does not allocate the Financial Statements
group's income tax expense as reflected in the financial
statements among the members of the group but retains it in the A tax-basis income statement is allowed for Schedule M-3 and a
parent corporation, the parent corporation must report on its tax-basis balance sheet for Schedule L only if no non-tax-basis
separate Schedule M-3 the U.S. consolidated tax group's income statement and no non-tax-basis balance sheet were
income tax expense as reflected in the financial statements. prepared for any purpose and the books and records of the
corporation reflect only tax-basis amounts. The corporation is
Any adjustments made at the consolidated group level that deemed to have non-tax-basis income statements and the
are not attributable to any specific member of the U.S. related non-tax-basis balance sheets for the current year for
consolidated tax group (for example, disallowance of net capital purposes of Schedule M-3 and Schedule L if such non-tax-basis
losses, contribution deduction carryovers, and limitation of financial statements were prepared for and presented to
contribution deductions) must not be reported on the separate management, creditors, shareholders, government regulators, or
consolidating parent or subsidiary Schedules M-3 but rather on any other third parties for a period ending with or within the tax
the consolidated Schedule M-3 and on the consolidating year.
Schedule M-3 for consolidation eliminations (or on Form 8916 in
the case of a mixed group). Lines 1a, 1b, and 1c

If an includible corporation has (1) no activity for the tax year If a Form 10-K is filed with the SEC for the period ending with or
(for example, because the corporation is a dormant or inactive within the tax year, the corporation must check “Yes,” for Part I,
corporation); (2) no amount for the corporation was included on line 1a, and use that income statement for Schedule M-3. If Form
Part I, line 11; and (3) the corporation has no amounts to report 10-K is not filed and a non-tax-basis income statement is
on Part II and Part III of Schedule M-3 for the tax year, the parent prepared that is a certified non-tax-basis income statement for
corporation of the U.S. consolidated tax group may attach to the the period ending with or within the tax year, the corporation
consolidated Schedule M-3 a statement that provides the name must check “Yes,” for Part I, line 1b, and use that income
and employer identification number (EIN) of the includible statement for Schedule M-3. If Form 10-K is not filed and no
corporation instead of filing a blank Part II and Part III of certified non-tax-basis income statement is prepared but an
Schedule M-3 for the entity. On Part I, check box (4) Dormant unaudited non-tax-basis income statement is prepared for the
subsidiaries schedule attached. period ending with or within the tax year, the corporation must
check “Yes” for Part I, line 1c, and use that income statement for
Schedule M-3.
Specific Instructions for Part I
Order of priority in accounting standards. If no Form 10-K is
Part I. Financial Information and Net filed and two or more non-tax-basis income statements are both
certified non-tax-basis income statements for the period, the
Income (Loss) Reconciliation income statement prepared according to the following order of
priority in accounting standards must be used.
When To Complete Part I 1. U.S. Generally Accepted Accounting Principles (GAAP).
Part I must be completed for any tax year for which the life
insurance company files Schedule M-3. Check either box (1) 2. International Financial Reporting Standards (IFRS).
Non-consolidated return, (2) Consolidated return (Form 1120-L 3. Any other International Accounting Standards (IAS).
only), or (3) Mixed 1120/L/PC group, as applicable. In addition, 4. Statutory accounting for insurance companies.
check box (4) Dormant subsidiaries schedule attached, if 5. Other regulatory accrual accounting.
applicable.
6. Any other accrual accounting standard.
Line 1. Questions Regarding the Type of Income 7. Any fair market value standard.
Statement Prepared 8. Any cash basis standard.
For Schedule M-3, Part I, lines 1 through 12, use only the If no non-tax-basis income statement is certified and two or
financial statements of the U.S. life insurance company filing the more non-tax-basis statements are prepared, the income
U.S. income tax return (or the consolidated financial statements statement prepared according to the first listed of the accounting
for the U.S. parent corporation of a U.S. consolidated tax group). standards above must be used.
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 tax group) If no non-tax-basis financial statements are prepared for a
prepares its own financial statements but is controlled by another U.S. life insurance company (or, in the case of a U.S.
corporation (U.S. or foreign) that prepares financial statements consolidated tax group, for the U.S. parent corporation's
that include the U.S. corporation, the U.S. corporation (or the consolidated group) filing Schedule M-3, the U.S. life insurance
U.S. parent corporation of a U.S. consolidated tax group) must company (or the U.S. parent corporation of a U.S. consolidated
use for its Schedule M-3, Part I, its own financial statements and tax group) must check “No” on questions 1a, 1b, and 1c, skip
not the financial statements of the controlling corporation. Part I, lines 2a through 3c, and enter the net income (loss) per

6 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 7 -

Page 7 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

the books and records of the U.S. life insurance company (or insurance company's tax year, the income statement period
U.S. consolidated tax group) on Part I, line 4a. indicated on Part I, line 2a, applies for purposes of Part I, lines 4a
through 8.
If no non-tax-basis financial statements are prepared for a
U.S. life insurance company (or, in the case of a U.S. If the life insurance company does not prepare non-tax-basis
consolidated tax group, for the U.S. parent corporation's financial statements, and has checked “No” on Part I, line 1c,
consolidated group) filing Schedule M-3, and the U.S. life enter the net income (loss) per the books and records of the U.S.
insurance company is owned by a foreign corporation that life insurance company or the U.S. consolidated tax group on
prepares financial statements that include the U.S. life insurance Part I, line 4a.
company (or the U.S. parent corporation's consolidated group),
the U.S. life insurance company (or the U.S. parent corporation Indicate on Part I, line 4b, which of the following accounting
of the U.S. consolidated tax group) must check “No” on standards were used for line 4a.
questions 1a, 1b, and 1c, skip Part I, lines 2a through 3c, and 1. U.S. Generally Accepted Accounting Principles (GAAP).
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. 2. International Financial Reporting Standards (IFRS).
3. Statutory.
Line 2. Questions Regarding Income Statement 4. Other (specify).
Period and Restatements
Enter the beginning and ending dates on line 2a for the life Lines 5a through 10
insurance company's annual income statement period ending
with or within this tax year. Report on Part I, lines 5a through 10, as instructed below, all
The questions on Part I, lines 2b and 2c, regarding income adjustment amounts required to adjust worldwide net income
statement restatements, refer to the worldwide consolidated (loss) reported on this Part I, line 4a (whether from financial
income statement issued by the corporation filing the U.S. statements or books and records), to net income (loss) of
income tax return (the consolidated financial statements for the includible corporations that must be reported on Part I, line 11.
U.S. parent corporation of a U.S. consolidated tax group) and Report on line 12a the worldwide consolidated total assets
used to prepare Schedule M-3. Answer “Yes” on lines 2b and/or and total liabilities amounts for the corporation using the same
2c if the corporation's annual income statement has been financial statements (or books and records) used for the
restated for any reason. Attach a short explanation of the worldwide consolidated income (loss) amount reported on Part I,
reasons for the restatement in net income for each annual line 4a.
income statement period that is restated, including the original
amount and restated amount of each annual statement period's If a U.S. life insurance company (a) has net income (loss)
net income. The attached statement is not required to report included on Part I, line 4a, and removed on Part I, line 6a or 6b,
restatements on an entity-by-entity basis. on another U.S. corporation's Schedule M-3; (b) files its own
Form 1120-L (separate or consolidated); (c) does not have a
Line 3. Questions Regarding Publicly Traded separate non-tax-basis financial statement (certified or
Voting Common Stock otherwise) of its own; and (d) reports on Schedule L, Part II,
The primary U.S. publicly traded voting common stock class is line 2, column (b), of its own Form 1120-L total consolidated
the most widely held or most heavily traded within the United assets that equal or exceed $10 million at the end of the
States as determined by the life insurance company. If the life corporation's tax year, the life insurance company must answer
insurance company has more than one class of publicly traded questions 1a, 1b, and 1c, of Part I as appropriate for its own
voting common stock, attach a list of the classes of publicly Form 1120-L and must report on Part I, line 4a, the amount for
traded voting common stock and the trading symbol and the the corporation's net income (loss) that is removed on Part I,
nine-digit CUSIP number of each class. line 6a or 6b, of the other corporation's Schedule M-3. However,
if in the circumstances described immediately above, the life
Line 4. Worldwide Consolidated Net Income insurance company does have separate non-tax-basis financial
statements (certified or otherwise) of its own, independent of the
(Loss) per Income Statement amount of the corporation's net income included on Part I,
Report on Part I, line 4a, the worldwide consolidated net income line 4a, of the other U.S. corporation, the life insurance company
(loss) per the income statement (or books and records, if must answer questions 1a, 1b, and 1c, of Part I, as appropriate,
applicable) of the corporation. A corporation filing a for its own Form 1120-L, based on its own separate income
non-consolidated Form 1120-L for itself must report its statement, and must report on Part I, line 4a, the net income
worldwide income on Part I, line 4a. amounts shown on its separate income statement.
In completing Schedule M-3, the life insurance company must Note. See the instructions for Part I, line 10, for adjustments that
use financial statement amounts from the financial statement may be necessary to reconcile financial statement income to
type checked “Yes” on Part I, line 1, or from its books and statutory income for the life insurance company.
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
Line 5. Net Income (Loss) of Nonincludible
reported in the income statement presented to the SEC on the
corporation's Form 10-K (the Form 10-K for the security Foreign Entities
identified on Part I, line 3b, if applicable). 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
If a life insurance company prepares non-tax-basis financial
includible corporation in the U.S. consolidated tax group
statements, the amount on Part I, line 4a, must equal the
(nonincludible foreign entity). In addition, on Part I, line 8, adjust
financial statement net income (loss) for the income statement
for consolidation eliminations and correct for minority interest
period ending with or within the tax year as indicated on Part I,
and intercompany dividends between any nonincludible foreign
line 2a.
entity and any includible corporation. Do not remove in Part I the
If the life insurance company prepares non-tax-basis financial financial net income (loss) of any nonincludible foreign entity
statements and the income statement period differs from the life accounted for on Part I, line 4a, using the equity method.
Instructions for Schedule M-3 (Form 1120-L) (1-2024) 7

- 8 -

Page 8 of 24    Fileid: … 0lschm-3/202311/a/xml/cycle04/source                                    9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

  Attach a supporting statement that provides the name, EIN (if         Lines 7a, 7b, and 7c. Net Income (Loss) of Other 
applicable), and net income (loss) included on Part I, line 4a, that 
                                                                        Foreign Disregarded Entities, Net Income (Loss) 
is removed on line 5 for each separate nonincludible foreign 
entity. Also state the total assets and total liabilities for each such of Other U.S. Disregarded Entities, and Net 
separate nonincludible foreign entity and include those assets          Income (Loss) of Other Includible Entities
and liabilities amounts in the total assets and total liabilities       Include on Part I, line 7a, 7b, or 7c, the financial net income or 
reported on Part I, line 12b. The amounts of income (loss)              (loss) of each foreign or U.S. disregarded entity or other 
detailed on the supporting statement should be reported for             includible corporation that is not included in the consolidated 
each separate nonincludible foreign entity without regard to the        financial group and therefore not included in the income reported 
effect of consolidation or elimination entries. If there are            on Part I, line 4a. Include on line 7a or 7b the financial net 
consolidation or elimination entries relating to nonincludible          income or (loss) of any disregarded entity that is not included in 
foreign entities whose income (loss) is reported on the attached        the income reported on Part I, line 4a, but is included on Part I, 
statement that are not reportable on Part I, line 8, the net            line 11 (other disregarded entities). Include on line 7c the 
amounts of all such consolidation and elimination entries must          financial net income or (loss) of any entity not a disregarded 
be reported on a separate line on the attached statement, so that       entity that is not included in the income reported on Part I, 
the separate financial accounting income (loss) of each                 line 4a, but is included on line 11 (other includible corporation). 
nonincludible foreign entity remains separately stated.                 In addition, on Part I, line 8, adjust for consolidation eliminations 
                                                                        and correct for minority interest and intercompany dividends for 
  For example, if the net income (after consolidation and 
                                                                        any other includible disregarded entity or other includible 
elimination entries) of a nonincludible foreign sub-consolidated 
                                                                        entities.
group is being reported on line 5a, the attached supporting 
statement should report the income (loss) of each separate              Attach a supporting statement that provides the name, EIN, 
nonincludible foreign legal entity from each such entity's own          and net income (loss) per the financial statement or books and 
financial accounting net income statement or books and records,         records for each separate other disregarded entity or other 
and any consolidation or elimination entries (for intercompany          includible entity reported on line 7. Also state the total assets 
dividends, minority interests, etc.) not reportable on Part I, line 8,  and total liabilities for each such separate included entity and 
should be reported on the attached supporting statement as a            include those assets and liabilities amounts in the total assets 
net amount on a line separate and apart from lines that report          and total liabilities reported on Part I, line 12d. The amounts of 
each nonincludible foreign entity's separate net income (loss).         income (loss) detailed on the supporting statement should be 
                                                                        reported for each separate other disregarded entity or other 
Line 6. Net Income (Loss) of Nonincludible U.S.                         includible entity without regard to the effect of consolidation or 
Entities                                                                elimination entries solely between or among the entities listed. If 
                                                                        there are consolidation or elimination entries relating to such 
Remove the financial net income (line 6a) or loss (line 6b)             other disregarded entity or other includible entities whose 
included on Part I, line 4a, for each U.S. entity that is not an        income (loss) is reported on the attached statement that are not 
includible corporation in the U.S. consolidated tax group               reportable on Part I, line 8, the net amounts of all such 
(nonincludible U.S. entity). In addition, on Part I, line 8, adjust for consolidation and elimination entries must be reported on a 
consolidation eliminations and correct for minority interest and        separate line on the attached statement, so that the separate 
intercompany dividends between any nonincludible U.S. entity            financial accounting income (loss) of each other disregarded 
and any includible corporation. Do not remove in Part I the             entity or other includible entity remains separately stated.
financial net income (loss) of any nonincludible U.S. entity 
accounted for on Part I, line 4a, using the equity method.              For example, if the net income (after consolidation and 
                                                                        elimination entries) of a sub-consolidated group of other 
  Attach a supporting statement that provides the name, EIN,            disregarded entities is being reported on line 7a or 7b, the 
and net income (loss) included on Part I, line 4a, that is removed      attached supporting statement should report the income (loss) of 
on line 6 for each separate nonincludible U.S. entity. Also state       each separate other disregarded entity from each entity's own 
the total assets and total liabilities for each such separate           financial accounting net income statement or books and records, 
nonincludible U.S. entity and include those assets and liabilities      and any consolidation or elimination entries (for intercompany 
amounts in the total assets and total liabilities reported on Part I,   dividends, minority interests, etc.) not reportable on Part I, line 8, 
line 12c. The amounts of income (loss) detailed on the                  should be reported on the attached supporting statement as a 
supporting statement should be reported for each separate               net amount on a line separate and apart from lines that report 
nonincludible U.S. entity without regard to the effect of               each other disregarded entity's separate net income (loss).
consolidation or elimination entries. If there are consolidation or 
elimination entries relating to nonincludible U.S. entities whose       Line 8. Adjustment to Eliminations of 
income (loss) is reported on the attached statement that are not        Transactions Between Includible Entities and 
reportable on Part I, line 8, the net amounts of all such               Nonincludible Entities
consolidation and elimination entries must be reported on a 
separate line on the attached statement so that the separate            Adjustments on Part I, line 8, to reverse certain financial 
financial accounting income (loss) of each nonincludible U.S.           accounting consolidation or elimination entries are necessary to 
entity remains separately stated. For example, if the net income        ensure that transactions between includible entities and 
(after consolidation and elimination entries) of a nonincludible        nonincludible U.S. or foreign entities are not eliminated, in order 
U.S. sub-consolidated group is being reported on line 6a, the           to report the correct total amount on Part I, line 11. Also, 
attached supporting statement should report the income (loss) of        additional consolidation entries and elimination entries may be 
each separate nonincludible U.S. legal entity from each such            necessary on Part I, line 8, related to transactions between 
entity's own financial accounting net income statement or books         includible entities that are in the consolidated financial group and 
and records, and any consolidation or elimination entries (for          other disregarded entities and other includible entities that are 
intercompany dividends, minority interests, etc.) not reportable        not in the consolidated financial group but that are reported on 
on Part I, line 8, should be reported on the attached supporting        Part I, line 7a, 7b, or 7c, in order to report the correct total 
statement as a net amount on a line separate and apart from             amount on Part I, line 11.
lines that report each nonincludible U.S. entity's separate net         Include on Part I, line 8, the total of the following: (a) amounts 
income (loss).                                                          of any adjustments to consolidation entries and elimination 

8                                                                       Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 9 -

Page 9 of 24  Fileid: … 0lschm-3/202311/a/xml/cycle04/source                                           9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

entries that are contained in the amount reported on Part I,          Line 10a. Intercompany Dividend Adjustments 
line 4a, required as a result of removing amounts on Part I, line 5 
                                                                      To Reconcile to Line 11 and
or 6; and (b) amounts of any additional consolidation entries and 
elimination entries that are required as a result of including        Line 10b. Other Statutory Accounting 
amounts on Part I, line 7a, 7b, or 7c. This is necessary in order     Adjustments To Reconcile to Line 11 and
that the consolidation entries and intercompany elimination           Line 10c. Other Adjustments To Reconcile to 
entries included in the amount reported on Part I, line 11, are 
only those applicable to the financial net income (loss) of           Amount on Line 11
includible entities for the financial statement period.               Include on lines 10a, 10b, and 10c any other adjustments to 
                                                                      reconcile net income (loss) on Part I, line 4a, through Part I, 
For example, adjustments must be reported on line 8 to                line 9, with net income (loss) on Part I, line 11. Include on 
remove minority interest and to reverse the elimination of            line 10a the amount of any intercompany dividend adjustment 
intercompany dividends included on Part I, line 4a, that relate to    required by statutory accounting. Include on line 10b the amount 
the net income of entities removed on Part I, line 5 or 6, because    of any other required statutory accounting adjustment. Include 
the income to which the consolidation or elimination entries          on line 10c the amount of any other adjustment not required by 
relate has been removed. Also, for example, consolidation or          statutory accounting.
elimination entries must be reported on line 8 to reflect any 
minority interest ownership in the net income of other                Normally, all intercompany dividends will have been 
disregarded entities or other includible entities reported on Part I, eliminated or excluded from the financial accounting 
line 7a, 7b, or 7c. Consolidation and elimination entries must        consolidated net income (loss) reported on Part I, line 4a. 
also be reported on line 8 to eliminate any intercompany              However, an insurance company may be required to include 
dividends between entities whose income is included on Part I,        certain intercompany dividends on Part I, line 11, so that the 
line 7a, 7b, or 7c, and other entities included in the consolidated   amount reported on Part I, line 11, agrees with statutory 
U.S. income tax return. See line 11, examples 3, 4, and 5.            accounting net income (Annual Statement). If the net income 
                                                                      (loss) of a corporation that files Form 1120-PC or Form 1120-L is 
If a corporate owner of an interest in another entity (a)             included on Part I, line 4a or line 7, and is computed on a basis 
accounts for the interest in the entity in the owner corporation's    other than statutory accounting, include on line 10a the 
separate general ledger on the equity method, and (b) fully           adjustments necessary such that Part I, line 11, includes 
consolidates the entity in the owner corporation's consolidated       intercompany dividends in the net income (loss) for the 
financial statements, but the entity is not includible in the owner   corporation to the extent required by statutory accounting 
corporation's consolidated U.S. income tax return, then, as part      principles. (For insurance companies included in the 
of reversing all consolidation and elimination entries for the        consolidated U.S. income tax return, see instructions for Part I, 
nonincludible entity, the corporate owner must reverse on             line 11, and Part II, line 7.)
Schedule M-3, Part I, line 8, the elimination of the equity income 
inclusion from the entity. If the owner corporation does not          Statutory accounting for an insurance company subsidiary 
account for the entity on the equity method on its own general        acquired or merged may require the use of a financial 
ledger, it will not have eliminated the equity income for             statement period for income reported on Part I, line 11, that 
consolidated financial statement purposes, and therefore will         differs from the period reported on Part I, line 4 or line 7. Report 
have no elimination of equity income to reverse.                      on Part I, line 10b, adjustments to income because of such 
                                                                      differences in accounting period.
The attached supporting statement for Part I, line 8, must 
identify the type (for example, minority interest, intercompany       For any adjustments reported on Part I, lines 10a, 10b, and 
dividends, etc.) and amount of consolidation or elimination           10c, attach a supporting statement that provides, for each 
entries reported, as well as the names of the entities to which       corporation to which an adjustment relates, the name and EIN of 
they pertain. It is not necessary, but it is permitted, to report     the corporation; the amount of net income included in Part I 
intercompany eliminations that net to zero on Part I, line 8, such    before any adjustments on line 10; the amount of net income 
as intercompany interest income and expense.                          included on Part I, line 11; the amount of the net adjustment that 
                                                                      is attributable to intercompany dividend adjustments required to 
Line 9. Adjustment To Reconcile Income                                be reported by statutory accounting and included on Part I, 
Statement Period to Tax Year                                          line 10a; the amount of the net adjustment attributable to other 
                                                                      statutory accounting requirements and included on Part I, 
Include on line 9 any adjustments necessary to the income (loss)      line 10b; and the amount of the remainder of the net adjustment 
of includible corporations to reconcile differences between the       not required because of statutory accounting and included on 
corporation's income statement period reported on line 2a and         Part I, line 10c. If any net adjustment is included for the 
the corporation's tax year. Attach a statement describing the         corporation on Part I, line 10b or 10c, attach a supplemental 
adjustment.                                                           supporting statement identifying the line (10b or 10c), and the 
Statutory accounting for an insurance company subsidiary              type and amount of each adjustment included in the net 
acquired or merged may require the use of a financial                 adjustment.
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 Line 11. Net Income (Loss) per Income 
on Part I, line 10b, adjustments to income because of the             Statement of Includible Corporations
differences in accounting period.                                     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 
Instructions for Schedule M-3 (Form 1120-L) (1-2024)                                                                                    9

- 10 -

Page 10 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

usually statutory accounting. (For insurance companies included P must not complete Schedule M-3, Part I, with reference to
in the consolidated U.S. income tax return, see instructions for the financial statements of its foreign parent F. P must check
Part I, line 10, and Part II, line 7.) “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 and
Do not, in any event, report on line 11 the net income of records of the includible corporations (P and DS1) on Part I,
entities not listed on Form 851 and not included in the line 4a. If the amount on Part I, line 4a, includes the income
consolidated U.S. income tax return for the tax year. For (loss) of DS2 and FS1 or is not on the statutory basis, P must
example, it is not permissible to remove the income of enter any necessary adjustments on lines 5a through 10 in order
nonincludible entities on lines 5 and/or 6, discussed earlier, then for Part I, line 11, to report the net income (loss) of includible
to add back such income on lines 7 through 10, such that the corporations P and DS1, net of eliminations for transactions
amount reported on line 11 includes the net income of entities between P and DS1. In particular, P must make any required
not includible in the consolidated U.S. income tax return. A adjustments on Part I, line 10, in order for the net income on
principal purpose of Schedule M-3 is to report on this Part I, line 11 for life insurance companies to be on the statutory basis.
line 11, only the financial accounting net income of only the
corporations included in the consolidated U.S. income tax return. Example 4.
Whether or not the corporation prepares financial statements, 1. U.S. life insurance company P owns 60% of corporation
Part I, line 11, must include all items that impact the net income DS1, which is fully consolidated in P's financial statements. P
(loss) of the corporation even if they are not recorded in the profit does not account for DS1 in P's separate general ledger on the
and loss accounts in the corporation's general ledger, including, equity method. DS1 has net income of $100 (before minority
for example, all post-closing adjusting entries (including interests) and pays dividends of $50, of which P receives $30.
workpaper adjustments) and dividend income or other income The dividend is eliminated in the consolidated financial
received from non-includible corporations. statements. In its financial statements, P consolidates DS1 and
includes $60 of net income ($100 less the minority interest of
Example 3. $40) on Part I, line 4a.
1. U.S. life insurance company P is publicly traded and files P must remove the $100 net income of DS1 on Part I, line 6a.
Form 10-K with the SEC. P owns 80% or more of the stock of 75 P must reverse on Part I, line 8, the elimination of the $40
U.S. corporations, DS1 through DS75; between 51% and 79% of minority interest net income of DS1. In addition, P reverses its
the stock of 25 U.S. corporations, DS76 through DS100; and elimination of the $30 intercompany dividend in its financial
100% of the stock of 50 foreign subsidiaries, FS1 through FS50. statements on Part I, line 8. The net result is that P includes the
P eliminates all dividend income from DS1 through DS100 and $30 dividend from DS1 on Part I, line 11, and on Part II, line 7,
FS1 through FS50 in financial statement consolidation entries. column (a). P's dividend income included on the tax return from
Furthermore, P eliminates the minority interest ownership, if any, DS1 must be reported on Part II, line 7, column (d).
of DS1 through DS100 in financial statement consolidation
entries. P's SEC Form 10-K includes P, DS1 through DS100, and 2. U.S. life insurance company C owns 60% of the capital
FS1 through FS50, on a fully consolidated basis. P files a and profits interests in U.S. LLC N. C does not account for N in
consolidated U.S. income tax return with DS1 through DS75. C's separate general ledger on the equity method. N has net
income of $100 (before minority interests) and makes no
P must check “Yes” on Part I, line 1a. On Part I, line 4a, P distributions during the tax year. C treats N as a corporation for
must report the consolidated net income from the SEC Form financial statement purposes and as a partnership for U.S.
10-K for the consolidated financial statement group of P, DS1 income tax purposes. In its financial statements, C consolidates
through DS100, and FS1 through FS50. P must remove the net N and includes $60 of net income ($100 less the minority interest
income (loss) of FS1 through FS50 on Part I, line 5a or 5b, as of $40) on Part I, line 4a.
applicable. P must remove the net income (loss) before minority
interests of DS76 through DS100 on Part I, line 6a or 6b, as C must remove the $100 net income of N on Part I, line 6a. C
applicable. P must reverse on Part I, line 8: 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
a. The elimination of dividends received by P and DS1 for N either on Part I, line 11, or on Part II, line 9, column (a). C's
through DS75 from DS76 through DS100 and FS1 through taxable income from N must be reported by C on Part II, line 9,
FS50; and column (d).
b. The recognition of minority interests' share of the net 3. U.S. life insurance company P owns 60% of corporation
income (loss) of DS76 through DS100. Note. The minority DS1, which is fully consolidated in P's financial statements. P
interests' share, if any, of the income of DS1 through DS75 must accounts for DS1 in P's separate general ledger on the equity
be reported on Part II, line 8. method. DS1 has net income of $100 (before minority interests)
P reports on Part I, line 11, the consolidated financial and pays dividends of $50, of which P receives $30. The
statement net income (loss) attributable to the includible dividend reduces P's investment in DS1 for equity method
corporations. Intercompany transactions between the includible reporting on P's separate general ledger where P includes its
corporations that had been eliminated in the net income amount 60% equity share of DS1 income, which is $60. In its financial
on Part I, line 4a, remain eliminated in the net income amount on statements, P eliminates the DS1 equity method income of $60
line 11. Transactions between the includible corporations and and consolidates DS1, including $60 of net income ($100 less
the nonincludible entities that are eliminated in the net income the minority interest of $40) on Part I, line 4a.
amount on Part I, line 4a, are included in the net income amount P must remove the $100 net income of DS1 on Part I, line 6a.
on line 11 since the elimination of those transactions was P must reverse on Part I, line 8, the elimination of the $40
reversed on line 8. minority interest net income of DS1 and the elimination of the
2. Foreign corporation F owns 100% of the stock of U.S. life $60 of DS1 equity income. The net result is that P includes the
insurance company P. P owns 100% of the stock of DS1, 60% of $60 of equity method income from DS1 on Part I, line 11, and on
the stock of DS2, and 100% of the stock of FS1. F prepares Part II, line 6, column (a). P's dividend income included on the
certified audited financial statements. P does not prepare any tax return from its investment in DS1 must be reported on Part II,
financial statements. P files a consolidated U.S. income tax line 7, column (d).
return with DS1. 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

10 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 11 -

Page 11 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

separate general ledger on the equity method. N has net income include on the attached supporting statement for Part I, line 8,
of $100 (before minority interests) and makes no distributions the details of the adjustment to the minority interest in the net
during the tax year. C treats N as a corporation for financial income of DS1, but is not required to report the offsetting
statement purposes and as a partnership for U.S. income tax adjustment to the intercompany elimination of interest income
purposes. For equity method reporting on C's separate general and interest expense (though it is permitted to do so).
ledger, C includes its 60% equity share of N income, which is
$60. In its financial statements, C eliminates the $60 of N equity Line 12. Total Assets and Liabilities of Entities
method income and consolidates N, including $60 of net income Included or Removed on Part I, Lines 4, 5, 6, and
($100 less the minority interest of $40) on Part I, line 4a.
7
C must remove the $100 net income of N on Part I, line 6a. C
Line 12 must be completed by all corporations that file
must reverse on Part I, line 8, the elimination of the $40 minority
Schedule M-3. Report on lines 12a, 12b, 12c, and 12d the total
interest net income of N and the elimination of the $60 of N
amount (not just the corporation's share) of assets and liabilities
equity method income. The result is that C includes the $60 of
of entities included or removed on Part I, lines 4, 5, 6, and 7. All
equity method income for N on Part I, line 11, and on Part II,
assets and liabilities reported on Part I, lines 12a through 12d,
line 9, column (a). C's taxable income from N must be reported
must be reported as positive amounts.
by C on Part II, line 9, column (d).
5. U.S. life insurance company C owns 60% of the capital On line 12a, enter the worldwide consolidated total assets
and profits interests in U.S. LLC N. C accounts for N in C's and total liabilities of all of the entities included in completing
separate general ledger on the equity method. N has net income Part I, line 4a. On line 12b, enter the total assets and total
of $100 (before minority interests) and pays a $50 cash liabilities of the entities removed in completing Part I, line 5. On
distribution, of which C receives $30. The distribution reduces line 12c, enter the total assets and total liabilities removed in
C's investment in N for equity method reporting on C's separate completing Part I, line 6. On line 12d, enter total assets and total
general ledger. C treats N as a corporation for financial liabilities included in completing Part I, line 7.
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 Specific Instructions for Parts II and
$60. In its financial statements, C eliminates the $60 of N equity III
method income and consolidates N and includes $60 of net For consolidated U.S. income tax returns, file supporting
income ($100 less the minority interest of $40) on Part I, line 4a. statements for each includible corporation. See Consolidated
C must remove the $100 net income of N on Part I, line 6a. C Return in the Instructions for Form 1120-L.
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 General Format of Parts II and III
equity method income. The result is that C includes the $60 of Check the applicable box(es) at the top of pages 2 and 3 of
equity method income for N on Part I, line 11, and on Part II, Schedule M-3 to indicate whether the Schedule M-3 is for the:
line 9, column (a). C's taxable income from N must be reported
by C on Part II, line 9, column (d). 1. Consolidated group,
2. Parent corporation,
Example 5. U.S. life insurance company P owns 80% of the
stock of corporation DS1. DS1 is included in P's consolidated 3. Consolidated eliminations,
U.S. income tax return, even though DS1 is not included in P's 4. Subsidiary corporation, or
consolidated financial statements on either a consolidated basis 5. Mixed 1120/L/PC group.
or on the equity method. DS1 has current year net income of
$100 after taking into account its $40 interest payment to P. P Also check the applicable box to indicate whether the
has net income of $1,040 after recognition of the interest income Schedule M-3 is for a sub-consolidated (6) 1120-L group; or (7)
from DS1. Because DS1 is an includible corporation, 100% of 1120-L eliminations. See Consolidated Schedule M-3 Versus
the net income of both P and DS1 must be reported on Form Consolidating Schedules M-3 for Form 1120-L Groups and
1120-L, page 1, of the PDS consolidated U.S. income tax return, Schedule M-3 Consolidation for Mixed Groups (1120/L/PC),
and the intercompany interest income and expense must be earlier.
removed by consolidation elimination entries. For each line item in Parts II and III, report in column (a) the
P must report its financial statement net income of $1,040 on amount of net income (loss) included on Part I, line 11, and
Part I, line 4a, and reports DS1's net income of $100 on Part I, report in column (d) the amount included in the subtotal on Form
line 7c. Then, in order to reflect the full consolidation of the 1120-L, page 1, line 20.
financial accounting net income of P and DS1 at Part I, line 11,
Net income (loss) per income statement of includible Note. A statement or explanation may be attached to any line
corporations, the following consolidation and elimination entries even if none is required.
are reported on Part I, line 8: (a) offsetting entries to remove the
$40 of interest income received from DS1 included by P on For any item of income, gain, loss, expense, or deduction for
line 4a, and to remove the $40 of interest expense of DS1 which there is a difference between columns (a) and (d), the
included in line 7c for a net change of zero; and (b) an entry to portion of the difference that is temporary must be entered in
reflect the $20 minority interest in the net income of DS1 (DS1 column (b) and the portion of the difference that is permanent
net income of $100 times 20% minority interest). The result is must be entered in column (c).
that Part I, line 11, reports $1,120: $1,040 from line 4a, $100 If financial statements are prepared by the life insurance
from line 7c, and ($20) from line 8. Stated another way, Part I, company in accordance with statutory accounting principles
line 11, includes the entire $1,000 net income of P, measured (SAP), differences that are treated as temporary for SAP must be
before recognition of the intercompany interest income from DS1 reported in column (b) and differences that are permanent (that
and the consolidation of DS1 operations, plus the entire $140 net is, not temporary for SAP) must be reported in column (c).
income of DS1, measured before interest expense to P, less the Generally, pursuant to SAP, a temporary difference affects
minority interest ownership of $20 in DS1's separate net income (creates, increases, or decreases) a deferred tax asset or
($100). The consolidated U.S. income tax group is required to liability.
Instructions for Schedule M-3 (Form 1120-L) (1-2024) 11

- 12 -

Page 12 of 24      Fileid: … 0lschm-3/202311/a/xml/cycle04/source                9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

If the life insurance company does not prepare financial               amount is attributable to a reportable transaction described in 
statements, or the financial statements are not prepared in            Regulations section 1.6011-4(b) and is therefore reported on 
accordance with SAP, report in column (b) any difference that the      Part II, line 12. For example, with the exception of interest 
life insurance company believes will reverse in a future tax year      income reflected on a Schedule K-1 received by a life insurance 
(that is, have an opposite effect on taxable income in a future tax    company as a result of the life insurance company's investment 
year (or years) due to the difference in timing of recognition for     in a partnership or other pass-through entity, all interest income, 
financial accounting and U.S. income tax purposes) or is the           whether from unconsolidated affiliated companies, third parties, 
reversal of such a difference that arose in a prior tax year. Report   banks, or other entities; whether from foreign or domestic 
in column (c) any difference that the life insurance company           sources; whether taxable or exempt from tax; and regardless of 
believes will not reverse in a future tax year (and is not the         how or where the income is classified in the life insurance 
reversal of such a difference that arose in a prior tax year).         company's annual statement, must be included on Part II, 
                                                                       line 13, column (a). Likewise, all fines and penalties paid to a 
If the life insurance company is unable to determine whether           government or other authority for the violation of any law for 
a difference between column (a) and column (d) for an item will        which fines or penalties are assessed must be included on Part 
reverse in a future tax year or is the reversal of a difference that   III, line 12, column (a), regardless of the government authority 
arose in a prior tax year, report the difference for that item in      that imposed the fines or penalties; regardless of whether the 
column (c).                                                            fines or penalties are civil or criminal; regardless of the 
Example 6.  In its first year of operation, life insurance             classification, nomenclature, or terminology attached to the fines 
company A is not required to file a Schedule M-3. If A voluntarily     or penalties by the imposing authority in its actions or 
files Schedule M-3, all applicable Part I questions must be            documents; and regardless of how or where the fines or 
answered and all applicable columns in Parts II and III must be        penalties are classified in the life insurance company's summary 
completed.                                                             of operations or the income and expense accounts maintained in 
Example 7.  Life insurance company B is a U.S. publicly                the life insurance company's books and records.
traded corporation that files a consolidated U.S. income tax           If a life insurance company would be required to report in 
return and prepares consolidated SAP/GAAP financial                    Parts II and III, column (a), the amount of any item specifically 
statements. In prior years, B acquired intellectual property (IP)      listed on Schedule M-3 in accordance with the preceding 
and goodwill through several corporate acquisitions. The IP is         paragraph, except that the life insurance company has 
amortizable for both U.S. income tax and financial statement           capitalized the item of income or expense and reports the 
purposes. In the current year, B's annual amortization expense         amount in its annual statement or in asset and liability accounts 
for IP is $9,000 for U.S. income tax purposes and $6,000 for           maintained in the life insurance company's books and records, 
financial statement purposes. In its financial statements, B treats    the life insurance company must report the proper tax treatment 
the difference in IP amortization as a temporary difference. The       of the item in columns (b), (c), and (d), as applicable.
goodwill is not amortizable for U.S. income tax purposes and is 
subject to impairment for financial statement purposes. In the         Furthermore, in applying the two preceding paragraphs, a life 
current year, B records an impairment charge on the goodwill of        insurance company is required to report in Parts II and III, 
$5,000. In its financial statements, B treats the goodwill             column (a), the amount of any item specifically listed on 
impairment as a permanent difference. B must report the                Schedule M-3 that is included in the life insurance company's 
amortization attributable to the IP on Part III, line 30, and report   annual statement or exists in the life insurance company's books 
$6,000 in column (a), a temporary difference of $3,000 in column       and records, regardless of the nomenclature associated with that 
(b), and $9,000 in column (d). B must report the goodwill              item in the annual statement or books and records. Accurate 
impairment on Part III, line 29, and report $5,000 in column (a), a    completion of Schedule M-3 requires reporting amounts 
permanent difference of ($5,000) in column (c), and $0 in              according to the substantive nature of the specific line items 
column (d).                                                            included in Schedule M-3 and consistent reporting of all 
                                                                       transactions of like substantive nature that occurred during the 
Reporting Requirements for Parts II                                    tax year. For example, all expense amounts that are included in 
                                                                       the annual statement or exist in the books and records that 
and III                                                                represent some form of “Bad debt expense” must be reported on 
Except for mixed group consolidation, the number of Parts II           Part III, line 33, column (a), regardless of whether the amounts 
must equal the number of Parts III filed by the corporation. Mixed     are recorded or stated under different nomenclature in the 
groups should see Schedule M-3 Consolidation for Mixed                 annual statement or the books and records, such as “Provision 
Groups (1120/L/PC), earlier.                                           for doubtful accounts”; “Expense for uncollectible notes 
                                                                       receivable”; or “Impairment of trade accounts receivable.” 
General Reporting Requirements                                         Likewise, as stated in the preceding paragraph, all fines and 
If an amount is attributable to a reportable transaction described     penalties must be included on Part III, line 12, column (a), 
in Regulations section 1.6011-4(b), the amount must be reported        regardless of the terminology or nomenclature attached to them 
in columns (a), (b), (c), and (d), as applicable, of Part II, line 12, by the life insurance company in its books and records or annual 
regardless of whether the amount would otherwise be reported           statement.
on Part II or Part III of Schedule M-3. Thus, if a taxpayer files      With limited exceptions, Part II includes lines for specific items 
Form 8886, Reportable Transaction Disclosure Statement, the            of income, gain, or loss (income items). (See Part II, lines 1 
amounts attributable to that reportable transaction must be            through 24.) If an income item is described in Part II, lines 1 
reported on Part II, line 12.                                          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 life insurance company is required to report in column (a) of        a difference for the income item, or only a portion of the income 
Parts II and III the amount of any item specifically listed on         item has a difference and a portion of the item does not have a 
Schedule M-3 that is in any manner included in the life insurance      difference, and the item is not described in Part II, lines 1 through 
company's current year annual statement net income (loss) or in        24, report and describe the entire amount of the item on Part II, 
an income or expense account maintained in the life insurance          line 25.
company's books and records, even if there is no difference 
between that amount and the amount included in taxable income          With limited exceptions, Part III includes lines for specific 
unless (a) otherwise provided in these instructions, or (b) the        items of expense or deduction (expense items). (See Part III, 

12                                                                     Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 13 -

Page 13 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

lines 1 through 38.) If an expense item is described on Part III, 1120-L) that includes a detailed description of each item and
lines 1 through 38, report the amount of the item on the adjustment entered on Part II, line 25, and Part III, line 39.
applicable line, regardless of whether there is a difference for the The description for each amount entered in column (a) must
item. If there is a difference for the expense item, or only a be readily identifiable to the name of the account in the financial
portion of the expense item has a difference and a portion of the statements or books and records of the taxpayer, under which
item does not have a difference and the item is not described in the amount in column (a) was recorded in the accounting
Part III, lines 1 through 38, report and describe the entire amount records. Also, the description for each amount entered in column
of the item on Part III, line 39. (a) must include detailed information supporting each
If there is no difference between the annual statement amount adjustment reported in columns (b) and (c), including how the
and the taxable amount of an entire item of income, loss, adjustment is identified in the accounting records. The entire
expense, or deduction and the item is not described or included description is considered the tax description for the amount
in Part II, lines 1 through 24, or Part III, lines 1 through 38, report reported in column (d) for each item reported on Part II, line 25,
the entire amount of the item in columns (a) and (d) of Part II, or Part III, line 39.
line 28. Each description should adequately describe all four columns
of Part II, line 25, or Part III, line 39. If additional information is
Special instructions for Part II, lines 25 and 28, and Part III,
required to provide an acceptable description, attach a
line 39. Whether an income (loss) item is reported on Part II,
supporting statement.
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 Example 8. Life insurance company C is a calendar year
by each member of the U.S. consolidated tax group and not at taxpayer that is required to file Schedule M-3 for its current tax
the U.S. consolidated tax group level. For example, U.S. year. C placed in service 10 depreciable fixed assets in previous
corporation P has two subsidiaries, A and B, that are included in years. C's total depreciation expense for its current tax year for
P's consolidated financial statements and in P's consolidated five of the assets is $50,000 for summary of operations purposes
U.S. income tax return. For financial statement purposes, P, A, and $70,000 for U.S. income tax purposes. C's total annual
and B recognize real estate tax expense when accrued. For U.S. depreciation expense for its current tax year for the other five
income tax purposes, P and A recognize such expense assets is $40,000 for summary of operations purposes and
consistent with the method used for financial statement $30,000 for U.S. income tax purposes. In its annual statement, C
purposes, whereas B recognizes such deduction based on a treats the differences between annual statement and U.S.
method different from that used for financial statement purposes. income tax depreciation expense as giving rise to temporary
P and A must report this expense/deduction in columns (a) and differences that will reverse in future years. C must combine all of
(d) on Part II, line 28. B must report the following on Part III, its depreciation adjustments. Accordingly, C must report on Part
line 39, in column (a), B's expense recognized in the financial III, line 32, for its current tax year income statement depreciation
statements when accrued; in column (d), B's real estate tax expense of $90,000 in column (a), a temporary difference of
expense recognized for U.S. income tax purposes; and in $10,000 in column (b), and U.S. income tax depreciation
column (b) or (c), as applicable, the difference between B's real expense of $100,000 in column (d).
estate tax expense in its financial statements and its real estate Example 9. Life insurance company D is a calendar year
tax deduction recognized for U.S. taxable income purposes. taxpayer that is required to file Schedule M-3 for its current tax
Separately stated and adequately disclosed. Each year. On December 31 of the current year, D establishes two
difference reported in Parts II and III must be separately stated reserve accounts in the amount of $100,000 for each account.
and adequately disclosed. In general, a difference is adequately One reserve account is an allowance for agency balances that
disclosed if the difference is labeled in a manner that clearly are estimated to be uncollectible. The second reserve is an
identifies the item or transaction from which the difference estimate of future office closure expenses. In its annual
arises. For further guidance about adequate disclosure, see statement, D treats the two reserve accounts as giving rise to
Regulations section 1.6662-4(f). If a specific item of income, temporary differences that will reverse in future years. The two
gain, loss, expense, or deduction is described on Part II, lines 9 reserves are expenses in D's current annual statement but are
through 24, or Part III, lines 1 through 38, and the line does not not deductions for U.S. income tax purposes in the current year.
indicate to “attach statement” and the specific instructions for the D must not combine the Schedule M-3 differences for the two
line do not call for an attachment of a statement, then the item is reserve accounts. D must report the amounts attributable to the
considered separately stated and adequately disclosed if the allowance for bad debts on Part III, line 33, Bad debt expense/
item is reported on the applicable line and the amount(s) of the agency balances written off, and must separately state and
item(s) are reported in the applicable columns of the applicable adequately disclose the amount attributable to the other reserve,
line. See the instructions for Part II, lines 1 through 8, later, for office closure costs, on a required, attached statement that
specific additional information to be provided for these particular supports the amounts on Part III, line 39.
lines. D must also provide a description for each reserve that meets
the requirements for Part III, line 39, discussed earlier under
Note. A statement or explanation may be attached to any line Required statements for Part II, line 25, and Part III, line 39. In
even if none is required. this example, an acceptable description would be “Future Office
Except as otherwise provided, differences for the same item Closure Expense Reserve.”
must be combined or netted together and reported as one
amount on the applicable line of Schedule M-3. However, Note. There is no need to add the title of the reserve account to
differences for separate items must not be combined or netted the description if the account name for the amount in column (a)
together. Each item (and corresponding amount attributable to is already part of the adjustment description.
that item) must be separately stated and adequately disclosed Example 10. Life insurance company F had $100 of meal
on the applicable line of Schedule M-3, or any statement expenses and $100 of entertainment expenses. Therefore, F
required to be attached, even if the amounts are below a certain deducted $200 on its income statement. For federal income tax
dollar amount. purposes, the entire $100 of meal expenses are subject to the
Required statements for Part II, line 25, and Part III, line 39. 50% limitation under section 274(n). The $100 of entertainment
A separate statement must be attached to Schedule M-3 (Form expenses are nondeductible under section 274(a). F must report
on Part III, line 11, $200 in column (a), $150 in column (c), and

Instructions for Schedule M-3 (Form 1120-L) (1-2024) 13

- 14 -

Page 14 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

$50 in column (d). F must report all its meal and entertainment amount of qualified electing fund (QEF) income corresponds to
expenses only on this line whether there is a difference or not the total of the amounts reported by the life insurance company
because meal and entertainment expenses are specifically on all Forms 8621, Information Return by a Shareholder of a
described. Passive Foreign Investment Company or Qualified Electing
Fund.
Part II. Reconciliation of Net Income Also include on line 3 passive foreign investment company
mark-to-market gains and losses under section 1296. Do not
(Loss) per Income Statement of Life report such gains and losses on Schedule M-3, Part II, line 16.
Insurance Companies With Taxable
Line 4. Gross-Up for Foreign Taxes Deemed Paid
Income per Return 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 1 Through 8. Additional Information for lines 9, 10, and 11, Income (loss) from U.S. partnerships, foreign
Each Life Insurance Company partnerships, and other pass-through entities. The gross-up
For any item reported on Part II, lines 1, 3 through 6, or 8, attach amount on line 4 must correspond to the total gross-up amounts
a supporting statement that provides the name of the entity for for foreign taxes deemed paid reported by the corporation on all
which the item is reported, the type of entity (corporation, Forms 1118, Foreign Tax Credit—Corporations, excluding the
partnership, etc.), the entity's EIN (if applicable), and the item amounts reported on Schedule M-3, Part II, column (d), of lines
amounts for columns (a) through (d). See the instructions for Part 9, 10, and 11.
II, lines 2 and 7, for the specific information required for those
particular lines. Line 5. Gross Foreign Distributions Previously
Taxed
Line 1. Income (Loss) From Equity Method Report on line 5, column (a), any distributions received from
Foreign Corporations foreign corporations that were included on Part I, line 11, and
Report on line 1, column (a), the financial income (loss) included that were previously taxed for U.S. income tax purposes. For
on Part I, line 11, for any foreign corporation accounted for on the example, include in column (a) amounts that are excluded from
equity method and remove such amount in column (b) or (c), as taxable income under sections 959 and 1293(c). Remove such
applicable. Report the amount of dividends received and other amount in column (b) or (c), as applicable. Report the full
taxable amounts received or includible from foreign corporations amount of the distribution before any withholding tax. Since
on Part II, lines 2 through 5, as applicable. previously taxed foreign distributions are not currently taxable,
line 5, column (d), is shaded. (Also see the instructions for Part
Line 2. Gross Foreign Dividends Not Previously II, line 2, earlier.)

Taxed Line 6. Income (Loss) From Equity Method U.S.
Except as otherwise provided in this paragraph, report on line 2,
Corporations
column (d), the amount (before any withholding tax) of any
foreign dividends included in the subtotal on Form 1120-L, Report on line 6, column (a), the financial income (loss) included
page 1, line 20, and report on line 2, column (a), the amount of on Part I, line 11, for any U.S. corporation accounted for on the
dividends from any foreign corporation included on Part I, equity method and remove such amount in column (b) or (c), as
line 11. Do not report on Part II, line 2, any amounts that must be applicable. Report on Part II, line 7, dividends received from any
reported on Part II, line 3 or 4, or dividends that were previously U.S. corporation accounted for on the equity method.
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) Line 7. U.S. Dividends Not Eliminated in Tax
and (c), as applicable. Consolidation
For any dividends reported on Part II, line 2, that are received Report on line 7, column (a), the amount of dividends included
on a class of voting stock of which the life insurance company on Part I, line 11, that were received from any U.S. corporation.
directly or indirectly owned 10% or more of the outstanding Report on line 7, column (d), the amount of any U.S. dividends
shares of that class at any time during the tax year, report on an included in the subtotal on Form 1120-L, page 1, line 20.
attached supporting statement for Part II, line 2 (1) the name of Usually, the amounts included on line 7, columns (a) and (d),
the dividend payer, (2) the payer's EIN (if applicable), (3) the include only dividends received from U.S. corporations that are
class of voting stock on which the dividend was paid, (4) the not included in the U.S. consolidated tax group because
percentage of the class directly or indirectly owned, and (5) the intercompany dividends (dividends received from includible
amounts for columns (a) through (d). corporations listed on Form 851) are eliminated or excluded for
financial accounting purposes and eliminated for the calculation
Line 3. Subpart F, QEF, and Similar Income of U.S. taxable income. In the case of an insurance company
Inclusions included in the consolidated U.S. income tax return required to
Report on line 3, column (d), the amount included in taxable report intercompany dividends as part of statutory accounting
income under section 951 (relating to Subpart F), the amount net income, include such intercompany dividends on Part II,
included in income under section 951A (relating to global line 7, column (a), and the taxable amount of those dividends on
intangible low-taxed income, or GILTI), gains or other income Part II, line 7, column (d). (For insurance companies included in
inclusions resulting from elections under sections 1291(d)(2) the consolidated U.S. income tax return, see instructions for Part
and 1298(b)(1), and any amount included in taxable income I, lines 10a, 10b, 10c, and 11.)
pursuant to section 1293 (relating to qualified electing funds).
The amount of Subpart F income corresponds to the total of the For any intercompany dividends (dividends received from
amounts reported by the life insurance company on line 6, includible corporations listed on Form 851) included on Part II,
Schedule I, of all Forms 5471, Information Return of U.S. line 7, report on an attached supporting statement for Part II,
Persons With Respect to Certain Foreign Corporations. The line 7 (1) the name of the dividend payer, (2) the payer's EIN, (3)
the class of stock or security on which the dividends were paid,

14 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 15 -

Page 15 of 24             Fileid: … 0lschm-3/202311/a/xml/cycle04/source                              9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

(4) the amount of any net adjustment included on Part I, line 10a,    in a disregarded entity), report amounts on Part II, line 9 or 10, as 
for such dividends, and (5) the amounts for columns (a) through       described below:
(d).                                                                  1. In column (a), the sum of the corporation's distributive 
For any dividends included on Part II, line 7, that are not           share of income or loss from a U.S. or foreign partnership that is 
intercompany dividends (dividends received from includible            included on Part I, line 11;
corporations listed on Form 851) that are received on classes of      2. In column (b) or (c), as applicable, the sum of all 
voting stock in which the corporation directly or indirectly owned    differences, if any, attributable to the corporation's distributive 
10% or more of the outstanding shares of that class at any time       share of income or loss from a U.S. or foreign partnership; and
during the tax year, report on an attached supporting statement       3. In column (d) the sum of all amounts of income, gain, 
for Part II, line 7 (1) the name of the dividend payer, (2) the       loss, or deduction attributable to the corporation's distributive 
payer's EIN (if applicable), (3) the class of voting stock on which   share of income or loss from a U.S. or foreign partnership (that 
the dividend was paid, (4) the percentage of the class directly or    is, the sum of all amounts reportable on the corporation's 
indirectly owned, and (5) the amounts for columns (a) through         Schedule(s) K-1 received from the partnership (if applicable)), 
(d).                                                                  without regard to any limitations computed at the partner level 
                                                                      (for example, limitations on utilization of charitable contributions, 
Line 8. Minority Interest for Includible                              capital losses, and interest expense).
Corporations
                                                                      For each partnership reported on line 9 or 10, attach a 
Report on line 8, column (a), the minority interest included in the   supporting statement that provides the name, EIN (if applicable), 
financial income (loss) on Part I, line 11, for any member of the     end of year profit-sharing percentage (if applicable), end of year 
U.S. consolidated tax group that is less than 100% owned.             loss-sharing percentage (if applicable), and the amount reported 
Example 11. Life insurance company G is a calendar year               in column (a), (b), (c), or (d) of line 9 or 10, as applicable.
taxpayer that is required to file Schedule M-3 for its current tax    Example 12.     U.S. life insurance company H is a calendar 
year. G owns 90% of the stock of U.S. corporation DS1. G files a      year taxpayer that is required to file Schedule M-3 for its current 
consolidated U.S. income tax return with DS1 as the GDS1 U.S.         tax year. H has an investment in a U.S. partnership, USP. H 
consolidated group. G prepares certified SAP/GAAP financial           prepares annual statements in accordance with SAP. In its 
statements for the consolidated financial statement group             annual statement, H treats the difference between annual 
consisting of G and DS1. G has no net income of its own, and G        statement net income and taxable income from its investment in 
does not report its equity interest in the income of DS1 on its       USP as a permanent difference. For its current tax year, H's 
separate financial statements. DS1 has financial statement net        annual statement net income includes $10,000 of income 
income (before minority interests) and taxable income of $1,000       attributable to its share of USP's net income. H's Schedule K-1 
($2,500 of revenue less $1,500 cost of goods sold).                   from USP reports $5,000 of ordinary income, $7,000 of 
On the consolidated Schedule M-3, Part I, line 4a, Worldwide          long-term capital gains, $4,000 of charitable contributions, and 
consolidated net income (loss) per income statement, and on           $200 of section 179 expense. H must report on Part II, line 9, 
line 11, Net income (loss) per income statement of includible         $10,000 in column (a), a permanent difference of ($2,200) in 
corporations, the U.S. consolidated tax group GDS1 must report        column (c), and $7,800 in column (d).
$900 of financial statement net income ($1,000 net income less        Example 13.     Assume the same facts as Example 12, except 
$100 minority interest).                                              that life insurance company H's charitable contribution deduction 
The GDS1 group must prepare one consolidated                          is wholly attributable to its partnership interest in USP and is 
Schedule M-3, Parts II and III, and three additional Schedules        limited to $90 pursuant to section 170(b)(2) due to other 
M-3, Parts II and III: one for G, one for DS1, and one for            investment losses incurred by H. In its financial statements, H 
consolidation eliminations.                                           treated this limitation as a temporary difference. H must not 
On the Schedule M-3, Parts II and III, for DS1, $1,000 is             report the charitable contribution limitation of $3,910 ($4,000 − 
reported on Part II, line 28 and line 30, in both columns (a) and     $90) on Part II, line 9. H must report the limitation on Part III, 
(d). On G's Schedule M-3, Parts II and III, zero is reported on       line 21, and report the disallowed charitable contributions of 
Part II, line 30, in both columns (a) and (d). On the consolidation   ($3,910) in columns (b) and (d).
eliminations Schedule M-3, Parts II and III, on Part II, line 8 and 
line 30, the minority interest elimination for the U.S. consolidated  Line 11. Income (Loss) From Other 
tax group is reported as ($100) in column (a), $100 in column         Pass-Through Entities
(c), and $0 in column (d).                                            For any interest in a pass-through entity (other than an interest in 
On the Schedule M-3, Parts II and III, for the U.S.                   a partnership reportable on Part II, line 9 or 10, as applicable) 
consolidated tax group, on Part II, line 8, Minority interest for     owned by a member of the U.S. consolidated tax group (other 
includible corporations, ($100) is reported in column (a), $100 in    than an interest in a disregarded entity), report the following on 
column (c), and $0 in column (d). On Part II, line 28, the U.S.       line 11:
consolidated tax group reports $1,000 in both columns (a) and         1. In column (a) the sum of the corporation's distributive 
(d). As a result, financial statement net income on Part II, line 30, share of income or loss from the pass-through entity that is 
column (a), will total $900; net permanent differences on Part II,    included on Part I, line 11;
line 30, column (c), will total $100; and taxable income on 
line 30, column (d), will total $1,000.                               2. In column (b) or (c), as applicable, the sum of all 
                                                                      differences, if any, attributable to the pass-through entity; and
Line 9. Income (Loss) From U.S. Partnerships                          3. In column (d) the sum of all taxable amounts of income, 
and Line 10. Income (Loss) From Foreign                               gain, loss, or deduction reportable on the corporation's 
                                                                      Schedules K-1 received from the pass-through entity (if 
Partnerships                                                          applicable).
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     For each pass-through entity reported on line 11, attach a 
partnership for U.S. income tax purposes (other than an interest      supporting statement that provides that entity's name, EIN (if 
                                                                      applicable), the life insurance company's end of year 

Instructions for Schedule M-3 (Form 1120-L) (1-2024)                                                                                      15

- 16 -

Page 16 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

profit-sharing percentage (if applicable), the life insurance names and reportable transaction or tax shelter registration
company's end of year loss-sharing percentage (if applicable), numbers, if any, disclosed on the applicable Form 8886,
and the amounts reported by the life insurance company in identifies the type of reportable transaction for the loss, and
column (a), (b), (c), or (d) of line 11, as applicable. reports the appropriate amounts required for Part II, line 12,
columns (a) through (d). J must report the losses attributable to
Line 12. Items Relating to Reportable the other five abandonment losses on Part II, line 23e,
Transactions regardless of whether a difference exists for any or all of those
abandonment losses.
Any amounts attributable to any reportable transactions (as
described in Regulations section 1.6011-4) must be included on Example 15. Life insurance company K is a calendar year
Part II, line 12, regardless of whether the difference, or taxpayer that is required to file Schedule M-3 for its current tax
differences, would otherwise be reported elsewhere in Part II or year. K enters into a transaction with contractual protection that
Part III. Thus, if a taxpayer files Form 8886 for any reportable is a reportable transaction described in Regulations section
transaction described in Regulations section 1.6011-4, the 1.6011-4(b)(4). This reportable transaction is the only reportable
amounts attributable to that reportable transaction must be transaction for K's current tax year and results in a $7 million
reported on Part II, line 12. In addition, all income and expense capital loss for both statutory accounting purposes and U.S.
amounts attributable to a reportable transaction must be income tax purposes. Although the transaction does not result in
reported on Part II, line 12, columns (a) and (d) even if there is no a difference, K is required to report on Part II, line 12, the
difference between the annual statement amounts and the following amounts: ($7 million) in column (a), zero in columns (b)
taxable amounts. and (c), and ($7 million) in column (d). The transaction will be
adequately disclosed if K attaches a supporting statement for
Each difference attributable to a reportable transaction must
line 12 that (a) sequentially numbers the Form 8886 and refers to
be separately stated and adequately disclosed. A life insurance
the sequentially numbered Form 8886-X1, and (b) reports the
company will be considered to have separately stated and
applicable amounts required for line 12, columns (a) through (d).
adequately disclosed a reportable transaction on line 12 if the
Alternatively, the transaction will be adequately disclosed if the
life insurance company sequentially numbers each Form 8886
supporting statement for line 12 includes a description of the
and lists by identifying number on the supporting statement for
transaction, the name and tax shelter registration number, if any,
Part II, line 12, each sequentially numbered reportable
and the type of reportable transaction disclosed on Form 8886.
transaction and the amounts required for Part II, line 12, columns
(a) through (d).
Line 13. Interest Income
Instead of the requirements of the preceding paragraph, a life Report on Part II, line 13, column (a), the total amount of interest
insurance company will be considered to have separately stated income included on Part I, line 11. Report on Part II, line 13,
and adequately disclosed a reportable transaction if the life column (d), the total amount of interest income included on Form
insurance company attaches a supporting statement that 1120-L, page 1, line 20, that is not required to be reported
provides the following for each reportable transaction: elsewhere on Schedule M-3. In column (b) or (c), as applicable,
1. A description of the reportable transaction disclosed on adjust for any amounts treated for U.S. income tax purposes as
Form 8886 for which amounts are reported on Part II, line 12; interest income that are treated as some other form of income for
2. The name and reportable transaction or tax shelter statutory accounting purposes, or vice versa. For example,
registration number, if applicable, as reported on Form 8886; and adjustments to interest income resulting from adjustments made
3. The type of reportable transaction (for example, listed in accordance with instructions for Part II, line 18, should be
transaction, confidential transaction, transaction with contractual made in columns (b) and (c) of line 13.
protection, etc.) as reported 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
If a transaction is a listed transaction described in Schedule M-3, Part II, line 13, columns (a) through (d), as
Regulations section 1.6011-4(b)(2), the description must also applicable. Attach Form 8916-A.
include the description provided on Form 8886. In addition, if the
reportable transaction involves an investment in the transaction Do not report on line 13 or include on Form 8916-A the
through another entity such as a partnership, the description amounts reported in accordance with the instructions for Part II,
must include the name and EIN (if applicable) of that entity as lines 9, 10, 11, 12, and 21.
reported on Form 8886.
Line 14. Accrual of Bond Discount
Example 14. Life insurance company J is a calendar year
taxpayer that is required to file Schedule M-3 for its current tax Report on line 14, column (a), the amount of accrued bond
year. J incurred seven different abandonment losses during its discount included on Part I, line 11. Report on line 14, column
current tax year. One loss of $12 million results from a reportable (d), the amount of accrued bond discount included in the
transaction described in Regulations section 1.6011-4(b)(5), subtotal on Form 1120-L, page 1, line 20. Report amounts in
another loss of $5 million results from a reportable transaction columns (b) and (c), as applicable.
described in Regulations section 1.6011-4(b)(4), and the
remaining five abandonment losses are not reportable Line 15. Hedging Transactions
transactions. J discloses the reportable transactions giving rise Report on line 15, column (a), the net gain or loss from hedging
to the $12 million and $5 million losses on separate Forms 8886 transactions included on Part I, line 11. Report in column (d) the
and sequentially numbers them X1 and X2, respectively. J must amount of taxable income from hedging transactions as defined
separately state and adequately disclose the $12 million and $5 in section 1221(b)(2). Use columns (b) and (c) to report all
million losses on Part II, line 12. The $12 million loss and the $5 differences caused by treating hedging transactions differently
million loss will be adequately disclosed if J attaches a for statutory accounting purposes and for U.S. income tax
supporting statement for line 12 that lists each of the sequentially purposes. For example, if a portion of a hedge is considered
numbered forms, Form 8886-X1 and Form 8886-X2, and with ineffective under SAP but still is a valid hedge under section
respect to each reportable transaction reports the appropriate 1221(b)(2), the difference must be reported on line 15. The
amounts required for Part II, line 12, columns (a) through (d). hedge of a capital asset, which is not a valid hedge for U.S.
Alternatively, J's disclosures will be adequate if the description income tax purposes but may be considered a hedge for SAP
provided for each loss on the supporting statement includes the purposes, must also be reported here.

16 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 17 -

Page 17 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Report hedging gains and losses computed under the Example 16. Life insurance company M sells and leases
mark-to-market method of accounting on line 15 and not on Part property to customers. M is a calendar year taxpayer that is
II, line 16, Mark-to-market income (loss). required to file Schedule M-3 for its current tax year. For statutory
accounting purposes, M accounts for each transaction as a sale.
Line 16. Mark-to-Market Income (Loss) For U.S. income tax purposes, each of M's transactions must be
Report on line 16 any amount representing the mark-to-market treated as a lease. In its annual statement, M treats the
income or loss for any securities held by a dealer in securities, a difference in the statutory accounting and the U.S. income tax
dealer in commodities having made a valid election under treatment of these transactions as temporary. During its current
section 475(e), or a trader in securities or commodities having tax year, M reports in its annual statement $1,000 of sales and
made a valid election under section 475(f). “Securities” for these $700 of cost of goods sold with respect to current year lease
purposes are securities described in section 475(c)(2) and transactions. M receives periodic payments of $500 in its current
commodities described in section 475(e)(2). “Securities” do not year with respect to these current year transactions and similar
include any items specifically excluded from sections 475(c)(2) transactions from prior years and treats $400 as principal and
and 475(e)(2), such as certain contracts to which section $100 as interest income. For statutory accounting purposes, M
1256(a) applies. reports gross profit of $300 ($1,000 − $700) and interest income
of $100 from these transactions. For U.S. income tax purposes,
Report hedging gains and losses computed under the M reports $500 of gross rental income (the periodic payments)
mark-to-market method of accounting on Part II, line 15, and not and (based on other facts) $200 of depreciation deduction on
on line 16. 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).
Traders in securities or commodities. For a trader in In addition, M must report on Part II, line 18, $300 of gross profit
securities or commodities that made a valid election under in column (a), $200 in column (b), and $500 of gross rental
section 475(f) to use the mark-to-market method to account for income in column (d). Lastly, M must report on Part III, line 32,
securities or commodities held in connection with a trading $200 in column (b) and (d).
business that files Form 4797, any Schedule M-3 entries
required as a result of marking to market these securities or Line 19. Section 481(a) Adjustments
commodities are reported as follows: (a) mark-to- market gains
and losses from Form 4797, line 10, are included on Part II, Any difference between an income or expense item attributable
line 16, of Schedule M-3 (Form 1120-L); and (b) any other to an authorized (or unauthorized) change in method of
Schedule M-3 entries required based on other results accounting made for U.S. income tax purposes that results in a
(non-mark-to-market gains and losses) included in the total section 481(a) adjustment must be reported on Part II, line 19,
reported on Form 4797, line 17, should be reported on Part II, regardless of whether a separate line for that income or expense
line 23d, of Schedule M-3 (Form 1120-L), unless the instructions item exists in Part II or Part III. The following section 481(a)
for Schedule M-3 require the amounts to be reported on another adjustments, however, should not be reported on Part II, line 19.
line. 1. Adjustments for reportable transactions that are required
to be reported on Part II, line 12.
Line 17. Deferred and Uncollected Premiums 2. Section 807(f) adjustments for changes in computing
Report on line 17, column (a), the amount of deferred and reserves that are required to be reported on Part III, line 25.
uncollected premiums included on Part I, line 11. Report on 3. Reserve Transition Relief adjustments that are required to
line 17, column (d), the amount of deferred and uncollected be reported on Part III, line 25.
premiums included in the subtotal on Form 1120-L, page 1,
line 20. Report amounts in columns (b) and (c), as applicable. Example 17. Life insurance company N is a calendar year
taxpayer that is required to file Schedule M-3 for its current tax
Line 18. Sale Versus Lease (for Sellers and/or year. N was depreciating certain fixed assets over an erroneous
Lessors) recovery period and, effective for its current tax year, N receives
IRS consent to change its method of accounting for the
Note. Also see the instructions for Part III, line 35, Purchase depreciable fixed assets and begins using the proper recovery
Versus Lease (for Purchasers and/or Lessees), later. period. The change in method of accounting results in a positive
Asset transfer transactions with periodic payments section 481(a) adjustment of $100,000 that is required to be
characterized for statutory accounting purposes as either a sale spread over 4 tax years, beginning with the current tax year. In its
or a lease may, under some circumstances, be characterized as annual statement, N treats the section 481(a) adjustment as a
the opposite for tax purposes. If the transaction is treated as a temporary difference. N must report on Part II, line 19, $25,000 in
lease, the seller/lessor reports the periodic payments as gross columns (b) and (d) for its current tax year and each of the
rental income and also reports depreciation expense or subsequent 3 tax years (unless N is otherwise required to
deduction. If the transaction is treated as a sale, the seller/lessor recognize the remainder of the 481(a) adjustment earlier). N
reports gross profit (sale price less cost of goods sold) from the must not report the section 481(a) adjustment on Part III, line 32.
sale of assets and reports the periodic payments as payments of
principal and interest income. Line 20. Amortization of Interest Maintenance
On Part II, line 18, column (a), report the gross profit or gross Reserve
rental income for statutory accounting purposes for all sale or Report on line 20, column (a), the amount of interest
lease transactions that must be given the opposite maintenance reserve amortization included on Part I, line 11.
characterization for U.S. income tax purposes. On Part II, line 18, Report amounts in columns (b) and (c), as applicable.
column (d), report the gross profit or gross rental income for U.S.
income tax purposes. Interest income amounts for such Line 21. Original Issue Discount and Other
transactions must be reported on Part II, line 13, in column (a) or Imputed Interest
(d), as applicable. Depreciation expense for such transactions
must be reported on Part III, line 32, in column (a) or (d), as Report on line 21 any amounts of original issue discount (OID)
applicable. Use columns (b) and (c) of Part II, lines 13 and 18, and imputed interest. The term “original issue discount and other
and Part III, line 32, as applicable, to report the differences imputed interest” includes, but is not limited to:
between columns (a) and (d).
Instructions for Schedule M-3 (Form 1120-L) (1-2024) 17

- 18 -

Page 18 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

1. The excess of a debt instrument's stated redemption price method to account for securities or commodities, see the
at maturity over its issue price, as determined under section instructions for Part II, line 16, earlier.
1273;
2. Amounts that are imputed interest on a deferred sales Line 23e. Abandonment Losses
contract under section 483; Report on line 23e any abandonment losses, regardless of
3. Amounts treated as interest or OID under the stripped whether the loss is characterized as an ordinary loss or a capital
bond rules under section 1286; and loss.

4. Amounts treated as OID under the below-market interest Line 23f. Worthless Stock Losses
rate rules under section 7872.
Report on line 23f any worthless stock loss, regardless of
Line 22. Market Discount Reclassification whether the loss is characterized as an ordinary loss or a capital
loss. Attach a statement that separately states and adequately
Report on line 22 the amount of market discount reclassification discloses each transaction that gives rise to a worthless stock
included on Part I, line 11. Report on line 22 the amount of loss and the amount of each loss.
market discount reclassification included in the subtotal on Form
1120-L, page 1, line 20. Report amounts in columns (b) and (c), Line 23g. Other Gain/Loss on Disposition of
as applicable.
Assets
Line 23a. Income Statement Gain/Loss on Sale, Report on line 23g any gains or losses from the sale or exchange
Exchange, Abandonment, Worthlessness, or of property that are not reported on lines 23b through 23f.

Other Disposition of Assets Other Than Line 24. Capital Loss Limitation and
Pass-Through Entities Carryforward Used
Report on line 23a, column (a), all gains and losses on the Report as a positive amount on line 24, column (b) or (c), as
disposition of assets except for gains and losses allocated to the applicable, and (d) the excess of the net capital losses over the
life insurance company from a pass-through entity (for example, net capital gains reported on Schedule D, Capital Gains and
on Schedule K-1) that are included in the net income (loss) of Losses, by the corporation. For a U.S. consolidated tax group,
includible corporations reported on Part I, line 11. Reverse the the Schedule M-3 adjustment for the amount of the consolidated
amount reported in column (a) in column (b) or (c), as net capital loss that is disallowed should not be made on the
applicable. The corresponding gains and losses for U.S. income separate consolidating Schedules M-3 of the includible
tax purposes are reported on Part II, lines 23b through 23g, as corporations, but on the separate Schedule M-3 for consolidated
applicable. eliminations (or on Form 8916 in the case of a mixed group) as
described under Completion of Schedule M-3 and Certain
Line 23b. Gross Capital Gains From Schedule D, Allocations, Limitations, and Carryovers, earlier.
Excluding Amounts From Pass-Through Entities
If the corporation utilizes a capital loss carryforward on
Report on line 23b gross capital gains reported on Schedule D, Schedule D in the current tax year, report the carryforward
excluding capital gains from pass-through entities, which must utilized as a negative amount on Part II, line 24, column (b) or (c),
be reported on Part II, line 9, 10, or 11, as applicable. as applicable, and column (d). For a U.S. consolidated tax group,
the Schedule M-3 adjustment for the amount of the consolidated
Line 23c. Gross Capital Losses From capital loss carryforward should not be made on the separate
Schedule D, Excluding Amounts From consolidating Schedules M-3 of the includible corporations, but
Pass-Through Entities, Abandonment Losses, on the separate Schedule M-3 for consolidation eliminations (or
on Form 8916 in the case of a mixed group) as described under
and Worthless Stock Losses Completion of Schedule M-3 and Certain Allocations,
Report on line 23c gross capital losses reported on Schedule D, Limitations, and Carryovers, earlier.
excluding capital losses from (a) pass-through entities, which
must be reported on Part II, line 9, 10, or 11, as applicable; (b) Line 25. Other Income (Loss) Items With
abandonment losses, which must be reported on Part II,
line 23e; and (c) worthless stock losses, which must be reported Differences
on Part II, line 23f. Do not report on line 23c capital losses Separately state and adequately disclose on Part II, line 25, all
carried over from a prior tax year and utilized in the current tax items of income (loss) with differences that are not otherwise
year. See the instructions for Part II, line 24, regarding the listed on Part II, lines 1 through 24. Attach a statement that
reporting requirements for capital loss carryovers utilized in the describes and itemizes the type of income (loss) and the amount
current tax year. of each item and provides a description that states the income
(loss) name for book purposes for the amount recorded in
Line 23d. Net Gain/Loss Reported on Form column (a) and describes the adjustment being recorded in
column (b) or (c). The entire description completes the tax
4797, Line 17, Excluding Amounts From description for the amount included in column (d) for each item
Pass-Through Entities, Abandonment Losses, separately stated on this line.
and Worthless Stock Losses The attached statement should have five columns. The first
Report on line 23d the net gain or loss reported on line 17 of column has the description for the next four columns. The
Form 4797, Sales of Business Property, excluding amounts from second column is column (a) income (loss) per income
(a) pass-through entities, which must be reported on Part II, statement; the third column is column (b) temporary difference;
line 9, 10, or 11, as applicable; (b) abandonment losses, which the fourth column is column (c) permanent difference; and the
must be reported on Part II, line 23e; and (c) worthless stock fifth column is column (d) income (loss) per tax return. Every
losses, which must be reported on Part II, line 23f. item listed on the attached statement for line 25 always must
have columns (a) + (b) + (c) = (d). Each item with amounts in
Note. Traders in securities or commodities that have made a columns (a), (b), (c), and (d) will be totaled and included as one
valid election under section 475(f) to use the mark-to-market line on Part II, line 25.

18 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 19 -

Page 19 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

For insurance companies included in the consolidated U.S. line 30 of Part II. Part III is not required to be completed for the
income tax return, see instructions for Part I, lines 10a, 10b, 10c, consolidated Schedule M-3 of a mixed group.
and 11, and Part II, line 7, for guidance on the treatment of
intercompany dividends and statutory accounting. Line 29b. 1120 Subgroup Reconciliation Totals
Line 29b is used only by mixed groups. See Schedule M-3
If any “comprehensive income” as defined by Statement of Consolidation for Mixed Groups (1120/L/PC), earlier.
Financial Accounting Standards (SFAS) No. 130 is reported on
this line, describe the item(s) in detail. Examples of sufficiently Line 29c. PC Insurance Subgroup Reconciliation
detailed descriptions include “foreign currency translation
adjustments—comprehensive income” and “gains and losses on Totals
available-for-sale securities—comprehensive income.” Line 29c is used only by mixed groups. See Schedule M-3
Consolidation for Mixed Groups (1120/L/PC), 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. Part III. Reconciliation of Net Income
consolidated tax group level. (Loss) per Income Statement of
Example 18. U.S. corporation P has two subsidiaries,
corporations A and B, that are included in P's consolidated Includible Corporations With Taxable
financial statements and in P's consolidated U.S. income tax
return. For financial statement purposes, P, A, and B recognize Income per Return—Expense/
revenue from the sale of inventory upon delivery to the customer. Deduction Items
For U.S. income tax purposes, P and A recognize such revenue Note. Expense amounts that reduce financial accounting
consistent with the method used for financial statement income must be reported on Part III, column (a), as positive
purposes, whereas B recognizes such revenue based upon amounts. Deduction amounts that reduce taxable income must
customer acceptance. P and A must report this revenue in be reported on Part III, column (d), as positive amounts.
columns (a) and (d) on Part II, line 28. B must report the following Amounts reported on Part II, line 27, must be the negative of the
on Part II, line 25: in column (a), B's revenue recognized in the amounts reported on Part III, line 40.
financial statements based upon delivery to the customer; in
column (d), B's revenue recognized for U.S. income tax Lines 1 Through 6. Income Tax Expense
purposes based upon customer acceptance; and in column (b)
or (c), as applicable, the difference between B's revenue If the life insurance company does not distinguish between
recognized in its financial statements and in its U.S. taxable current and deferred income tax expense in its annual statement
income. (or its books and records, if applicable), report income tax
expense as current income tax expense using lines 1, 3, and 5,
Note. In this example, the first column of the attached statement as applicable.
for Part II, line 25, discussed earlier, must include an adequate
description, such as “Inventory Sales Revenue recognized upon A U.S. consolidated tax group must complete lines 1 through
acceptance, not delivery.” 6 in accordance with the allocation of tax expense among the
members of the U.S. consolidated tax group in the financial
Line 27. Total Expense/ Deduction Items statements (or its books and records, if applicable). If the current
and deferred U.S., state, and foreign income tax expense for the
Report on Part II, line 27, columns (a) through (d), as applicable, U.S. consolidated tax group (income tax expense) is allocated
the negative of the amounts reported on Part III, line 40, columns among the members of the U.S. consolidated tax group in the
(a) through (d). For example, if Part III, line 40, column (a), group's financial statements (or its books and records, if
reflects an amount of $1 million, then report on Part II, line 27, applicable), then each member must report its allocated income
column (a), ($1 million). Similarly, if Part III, line 40, column (b), tax expense on Part III, lines 1 through 6, of that member's
reflects an amount of ($50,000), then report on Part II, line 27, separate Schedule M-3. However, if the income tax expense is
column (b), $50,000. not shared or allocated among members of the U.S.
consolidated tax group but is retained in the parent corporation's
Line 28. Other Items With No Differences financial statements (or books and records, if applicable), then
If there is no difference between the statutory accounting amount amounts are reported only on Part III, lines 1 through 6, of the
and the taxable amount of an entire item of income, gain, loss, parent's separate Schedule M-3.
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 Line 7. Foreign Withholding Taxes
the entire amount of the item in columns (a) and (d) of line 28. If Report on line 7, column (a), the amount of foreign withholding
a portion of an item of income, loss, expense, or deduction has a taxes included in statutory accounting net income on Part I,
difference and a portion of the item does not have a difference, line 11. If the life insurance company is deducting foreign tax,
do not report any portion of the item on line 28. Instead, report use column (b) or (c), as applicable, to correct for any difference
the entire amount of the item (for example, both the portion with between foreign withholding tax included in statutory accounting
a difference and the portion without a difference) on the net income and the amount of foreign withholding taxes being
applicable line of Part II, lines 1 through 25, or Part III, lines 1 deducted in the return. If the life insurance company is crediting
through 39. See Example 10, earlier. foreign withholding taxes against the U.S. income tax liability,
use column (b) or (c), as applicable, to negate the amount
Line 29a. Life Insurance Subgroup reported in column (a).
Reconciliation Totals
For filers other than a mixed group, combine lines 26 through 28 Line 8. Equity-Based Compensation
and skip lines 29b and 29c. On the sub-consolidated Report on line 8 any amounts for equity-based compensation or
Schedule M-3 for a mixed group, combine lines 26 through 28 consideration that are reflected as expense for statutory
and skip lines 29b and 29c. For the consolidated Schedule M-3 accounting purposes (column (a)) or deducted in the U.S.
of a mixed group, complete only lines 29a through 29c and income tax return (column (d)) other than amounts reportable

Instructions for Schedule M-3 (Form 1120-L) (1-2024) 19

- 20 -

Page 20 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

elsewhere on Schedule M-3, Parts II and III. Examples of Line 13. Judgments, Damages, Awards, and
amounts reportable on line 8 include incentive stock options,
Similar Costs
nonqualified stock options, payments attributable to employee
stock purchase plans (ESPPs), phantom stock options, phantom Report on line 13, column (a), the amount of any estimated or
stock units, stock warrants, stock appreciation rights, and actual judgments, damages, awards, settlements, and similar
restricted stock, regardless of whether such payments are made costs, however named or classified, included in financial
to employees or non-employees, or as payment for property or accounting income, regardless of whether the amount deducted
compensation for services. was attributable to an estimate of future anticipated payments or
actual payments. Also report on line 13, column (a), the reversal
If the amounts include incentive stock options or nonqualified of any overaccrual of any amount described in this paragraph.
stock options, attach a detailed statement separately stating Report on line 13, column (d), any such amounts as are
each. described in the preceding paragraph that are includible in
taxable income, regardless of the financial accounting period in
Line 9. Capitalization of Deferred Acquisition which such amounts were or are included in financial accounting
Costs net income. Complete columns (b) and (c) as appropriate.
Report on line 9, column (d), the amount of deferred acquisition
costs capitalized and taken into account in the subtotal on Form Do not report on Part III, line 13, amounts required to be
1120-L, page 1, line 20. Report amounts in columns (b) and (c), reported in accordance with instructions for Part III, line 12.
as applicable. Do not report on Part III, line 13, amounts recovered from
insurers or any other indemnitors for any judgments, damages,
Line 10. Amortization of Deferred Acquisition awards, or similar costs described above.
Costs
Report on line 10, column (d), the amount of deferred acquisition Line 14. Parachute Payments
costs amortized and taken into account in the subtotal on Form Report on line 14, column (a), the total expense included in
1120-L, page 1, line 20. Report amounts in columns (b) and (c), statutory accounting net income on Part I, line 11, that is subject
as applicable. to section 280G. Report in column (b) or (c), as applicable, the
amount of nondeductible parachute payments pursuant to
Line 11. Meals and Entertainment section 280G, and report in column (d) the deductible amount of
Report on line 11, column (a), any amounts paid or accrued by compensation after any excess parachute payment limitations
the life insurance company during the tax year for meals, under section 280G. If a payment is subject to limitation under
beverages, and entertainment that are accounted for in statutory both sections 162(m) and 280G, report the total payment on
accounting income, regardless of the classification, line 14.
nomenclature, or terminology used for such amounts, and
regardless of how or where such amounts are classified in the Line 15. Compensation With Section 162(m)
life insurance company's statutory income statement or the Limitation
income and expense accounts maintained in the life insurance Report on line 15, column (a), the total amount of
company's books and records. Report only amounts not non-performance-based current compensation expense for the
otherwise reportable elsewhere on Schedule M-3, Parts II and III. corporate officers to whom section 162(m) applies. Report in
column (b) or (c), as applicable, the nondeductible amount of
Line 12. Fines and Penalties current compensation in excess of $1 million ($500,000 if the
Report on line 12 any fines or similar penalties paid to a corporation receives or has received financial assistance under
government or other authority for the violation of any law for the Treasury Troubled Asset Relief Program (TARP)). Report the
which fines or penalties are assessed. All fines and penalties deductible compensation in column (d). If a payment is subject
expensed in financial accounting income (paid or accrued) must to limitation under both sections 162(m) and 280G, report the
be included on line 12, column (a), regardless of the government total payment on Part III, line 14, Parachute payments. See
or other authority that imposed the fines or penalties; regardless Regulations section 1.162-27(g) for the interaction between
of whether the fines and penalties are civil or criminal; regardless sections 162(m) and 280G.
of the classification, nomenclature, or terminology used for the
fines or penalties by the imposing authority in its actions or Line 16. Pension and Profit-Sharing
documents; and regardless of how or where the fines or Report on line 16 any amounts attributable to the life insurance
penalties are classified in the corporation's financial income company's pension plans, profit-sharing plans, and any other
statement or the income and expense accounts maintained in retirement plans.
the corporation's books and records. Also report on line 12,
column (a), the reversal of any overaccrual of any amount Line 17. Other Post-Retirement Benefits
described in this paragraph. See section 162(f) for additional Report on line 17 any amounts attributable to other
guidance. post-retirement benefits not otherwise includible on Part III,
Report on line 12, column (d), any such amounts as line 16 (for example, retiree health and life insurance coverage,
described in the preceding paragraph that are includible in dental coverage, etc.).
taxable income, regardless of the financial accounting period in
which such amounts were or are included in financial accounting Line 18. Deferred Compensation
net income. Complete columns (b) and (c) as appropriate. Report on line 18, column (a), any compensation expense
included in the net income (loss) amount reported on Part I,
Do not report on Part III, line 12, amounts required to be line 11, that is not deductible for U.S. income tax purposes in the
reported in accordance with instructions for Part III, line 13. current tax year and that was not reported elsewhere on
Schedule M-3. Report on line 18, column (d), any compensation
Do not report on Part III, line 12, amounts recovered from deductible in the current tax year that was not included in the net
insurers or any other indemnitors for any fines and penalties income (loss) amount reported on Part I, line 11, for the current
described above. tax year and that is not reportable elsewhere on Schedule M-3.

20 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 21 -

Page 21 of 24         Fileid: … 0lschm-3/202311/a/xml/cycle04/source                      9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

For example, report originations and reversals of deferred         Line 25. Section 807(f) and Reserve Transition 
compensation subject to section 409A on line 18.
                                                                   Relief Adjustments for Change in Computing 
Line 20. Charitable Contribution of Intangible                     Reserves
Property                                                           Report on line 25, column (d), the section 807(f) and Reserve 
                                                                   Transition Relief adjustments included in the subtotal on Form 
Report on line 20 any charitable contribution of intangible 
                                                                   1120-L, page 1, line 20. Report amounts in columns (b) and (c), 
property, for example, contributions of:
                                                                   as applicable.
• Intellectual property, patents (including any amounts of 
additional contributions allowable by virtue of income earned by 
                                                                   Line 26. Section 807(a)(2)(B) Tax Reserve 
donees subsequent to the year of donation), copyrights, and 
trademarks;                                                        Amount With Respect to Policyholder Share of 
• Securities (including stocks and their derivatives, stock        Tax Exempt Interest
options, and bonds);                                               Report on line 26, column (d), the change in section 807(a)(2)(B) 
• Conservation easements (including scenic easements or air        tax reserve amount with respect to policyholder share of tax 
rights);                                                           exempt interest included in the subtotal on Form 1120-L, page 1, 
• Railroad rights of way;                                          line 20. Report amounts in columns (b) and (c), as applicable.
• Mineral rights; and
• Other intangible property.                                       Line 27. Current Year Acquisition/
Line 21. Charitable Contribution Limitation/                       Reorganization Costs
Carryforward                                                       Report on line 27 any investment banking fees, legal and 
                                                                   accounting fees, and any other fees paid or incurred in 
Report as a negative amount on line 21, columns (b), (c), and      connection with a taxable or tax-free acquisition of property (for 
(d), as applicable, the excess of charitable contributions made    example, stock or assets) or a tax-free reorganization. Report on 
during the tax year over the amount of the charitable contribution this line any investment banking fees, legal and accounting fees, 
limitation amount.                                                 and any other fees paid or incurred at any stage of the 
  If the corporation utilizes a contribution carryforward in the   acquisition or reorganization process including, for example, fees 
current tax year, report the carryforward utilized as a positive   paid or incurred to evaluate whether to investigate an acquisition, 
amount on columns (b), (c), and (d), as applicable.                fees to conduct an actual investigation, and fees to complete the 
                                                                   acquisition. Also include on this line any investment banking 
  When a consolidated income tax return is being filed,            fees, legal and accounting fees, and any other fees paid or 
Schedule M-3 adjustments for the amount of charitable              incurred in connection with the liquidation of a subsidiary, a 
contributions in excess of the limitation, or for charitable       spin-off of a subsidiary, or an initial public stock offering. Attach a 
contribution carryforward utilized, should not be made on the      statement separately stating acquisition/reorganization 
separate consolidating Schedules M-3 of the includible             investment banking fees, legal and accounting fees, and other 
corporations, but on the separate consolidating Schedule M-3       costs. Report amounts in columns (b) and (c), as applicable.
for consolidation eliminations (or on Form 8916 in the case of a 
mixed group). See Completion of Schedule M-3 and Certain           Line 28. Amortization of Acquisition, 
Allocations, Limitations, and Carryovers, earlier.                 Reorganization, and Start-Up Costs
Line 22. Change in Section 807(c)(1) Tax                           Report on line 28 amortization of acquisition, reorganization, and 
                                                                   start-up costs. For purposes of columns (b), (c), and (d), include 
Reserves                                                           amounts amortizable under section 167, 195, or 248.
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 29. Amortization/Impairment of Goodwill, 
line 22, column (d), the change in section 807(c)(1) life          Insurance in Force, and Ceding Commissions
insurance reserves included in the subtotal on Form 1120-L, 
page 1, line 20. Report amounts in columns (b) and (c), as         Report on line 29 amortization of goodwill, insurance in force and 
applicable.                                                        ceding commissions or amounts attributable to the impairment of 
                                                                   goodwill, and insurance in force and ceding commissions. Attach 
Line 23. Change in Section 807(c)(2) Tax                           a statement separately stating the amounts for each item.

Reserves                                                           Line 30. Other Amortization or Impairment 
Report on line 23, column (a), the change in section 807(c)(2)     Write-Offs
unearned premiums and unpaid losses included on Part I, 
line 11. Report on line 23, column (d), the change in section      Report on line 30 any amortization or impairment write-offs not 
807(c)(2) unearned premiums and unpaid losses included in the      otherwise includible on Schedule M-3.
subtotal on Form 1120-L, page 1, line 20. Report amounts in 
columns (b) and (c), as applicable.                                Line 31. Section 846 Amount
                                                                   Report on line 31, column (d), the section 846 amount included 
Line 24. Change in All Other Section 807(c) Tax                    in the subtotal on Form 1120-L, page 1, line 20. Report amounts 
Reserves                                                           in columns (b) and (c), as applicable.

Report on line 24, column (a), the change in all other section     Line 32. Depreciation
807(c) reserves included on Part I, line 11. Report on line 24, 
column (d), the change in all other section 807(c) reserves        Report on line 32 any depreciation expense that is not required 
included in the subtotal on Form 1120-L, page 1, line 20. Report   to be reported elsewhere on Schedule M-3 (for example, on Part 
amounts in columns (b) and (c), as applicable.                     II, line 9, 10, or 11).

Instructions for Schedule M-3 (Form 1120-L) (1-2024)                                                                              21

- 22 -

Page 22 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Line 33. Bad Debt Expense and Agency Line 36. Interest Expense
Balances Written Off Report on Part III, line 36, column (a), the total amount of interest
Report on line 33, column (a), any amounts attributable to an expense included on Part I, line 11, and report on Part III, line 36,
allowance for uncollectible accounts receivable or actual column (d), the total amount of interest deduction included on
write-offs of accounts receivable included on Part I, line 11. Also Form 1120-L, page 1, line 20, that is not required to be reported
report on this line agency balances written off per the annual elsewhere on Schedule M-3. In column (b) or (c), as applicable,
statement. Report in column (d) the amount of bad debt expense include any adjustments for any amounts treated for U.S. income
deductible for federal income tax purposes in accordance with tax purposes as interest deduction that are treated as some
section 166. other form of expense for statutory accounting purposes, or vice
versa. For example, adjustments to interest expense/deduction
Line 34. Corporate-Owned Life Insurance resulting from adjustments made in accordance with the
instructions for Part III, line 35, Purchase versus lease (for
Premiums purchasers and/or lessees), should be made in column (b) or (c),
Report on line 34 all amounts of insurance premiums attributable as applicable, on line 36.
to any life insurance policy if the life insurance company is
directly or indirectly a beneficiary under the policy or if the policy Complete Part III of Form 8916-A. Enter the amounts from
has a cash value. Report in column (d) the amount of the Form 8916-A, line 5, columns (a) through (d), on Schedule M-3,
premiums that are deductible for federal income tax purposes. Part III, line 36, columns (a) through (d), as applicable. Attach
Form 8916-A.
Line 35. Purchase Versus Lease (for Purchasers Do not report on Form 8916-A and line 36 the amounts
and/or Lessees) reported in accordance with the instructions for Part II, lines 9,
Note. Also see the instructions for sellers and/or lessors in the 10, 11, and 12.
instructions for Part II, line 18.
Asset transfer transactions with periodic payments Line 37. Research and Development Costs
characterized for statutory accounting purposes as either a For U.S. income tax purposes, research and experimental
purchase or a lease may, under some circumstances, be expenditures paid or incurred by a taxpayer in connection with
characterized as the opposite for tax purposes. the taxpayer's trade or business must be amortized. The
If a transaction is treated as a lease, the purchaser/lessee expenditures must be amortized ratably over the 5-year period
reports the periodic payments as gross rental expense. If the (15-year period for specified expenditures attributable to foreign
transaction is treated as a purchase, the purchaser/lessee research), beginning with the midpoint of the tax year in which
reports the periodic payments as payments of principal and the expenses are paid or incurred. See section 174.
interest and also reports depreciation expense or deduction with Report in column (a) the amount of research and
respect to the purchased asset. development expenditures reported as a deduction in the
Report in column (a) gross rent expense for a transaction corporation’s financial statements (or books and records, if
treated as a lease for statutory accounting purposes but as a applicable). Report in column (d) the amount of amortization
sale for U.S. income tax purposes. Report in column (d) gross deductions of specified research or experimental expenditures
rental deductions for a transaction treated as a lease for U.S. and other research or experimental expenditures included on
income tax purposes but as a purchase for statutory accounting Form 4562, Part VI, line 44, or in the other deductions on Form
purposes. Report interest expense for such transactions on Part 1120-L, page1, line 18. If properly adopted or elected under
III, line 36, in column (a) or (d), as applicable. Report section 174(b) and section 174(f) (prior to amendment by P.L.
depreciation expense or deductions for such transactions on 115-97) and section 59(e), any amortization otherwise allowable
Part III, line 32, in column (a) or (d), as applicable. Use columns related to such costs is reported in column (b).
(b) and (c) of Part III, lines 32, 35, and 36, as applicable, to report In column (c), as applicable, include any adjustments for any
the differences between columns (a) and (d) for such amounts treated for U.S. income tax purposes as research or
recharacterized transactions. experimental expenditures that are treated as some other form of
Example 19. U.S. life insurance company X acquired expense for financial accounting purposes, or vice versa. Report
property in a transaction that, for statutory accounting purposes, any difference in timing recognition in column (b). For example, if
X treats as a lease. X is a calendar year taxpayer that is required the taxpayer's financial accounting method does not specify
to file Schedule M-3 for its current tax year. Because of its terms, otherwise, column (b) adjustments include adjustments for
the transaction is treated for U.S. income tax purposes as a timing differences between financial and tax accounting for (1)
purchase and X must treat the periodic payments it makes deferral and amortization of research expenditures, (2) a section
partially as payment of principal and partially as payment of 59(e) election, (3) reduction of section 174 expenditures under
interest. In its annual statement, X treats the difference between section 280C or section 482, (4) costs attributable to obtaining a
the statutory accounting and U.S. income tax treatment of this patent, (5) research in social sciences, and (6) cost elements for
transaction as a temporary difference. During its current tax year, property of a character subject to depreciation.
X reports in its annual statement $1,000 of gross rental expense Example 20. Corporation X is a calendar year taxpayer that
that, for U.S. income tax purposes, is recharacterized as a $700 is required to file Schedule M-3 for its current tax year. During its
payment of principal and a $300 payment of interest, current tax year, X incurred $100,000 of research and
accompanied by a depreciation deduction of $1,200 (based on development costs that X recognized as an expense in its
other facts). On Schedule M-3, X must report the following on financial statements. In compliance with section 174, X
Part III, line 35: column (a), $1,000, its statutory accounting amortizes research and experimental expenditures for U.S.
gross rental expense; column (b), ($1,000); and column (d), income tax purposes. Accordingly, X must report $100,000 in
zero. On Part III, line 36, X reports $300 in columns (b) and (d) column (a), ($90,000) in column (b), and $10,000 (($100,000/5
for the interest deduction. On Part III, line 32, X reports $1,200 in years) x 1/2) in column (d).
columns (b) and (d) for the depreciation deduction.
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

22 Instructions for Schedule M-3 (Form 1120-L) (1-2024)

- 23 -

Page 23 of 24 Fileid: … 0lschm-3/202311/a/xml/cycle04/source 9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

development costs related to social sciences that it recognized expenses for a discontinued operation as a single amount, and
as an expense in its financial statements. X amortizes research its general ledger or other books, records, and workpapers
and experimental expenditures for U.S. income tax purposes. provide details for the anticipated expenses under more
Because such costs are not allowable costs under section 174, explanatory and defined categories such as employee
X must report $10,000 in column (a), permanent difference termination costs, lease cancellation costs, loss on sale of
($10,000) in column (c), and $0 in column (d). If such costs are equipment, etc., a supporting statement that lists those
otherwise deductible for U.S. income tax purposes, X must categories of expenses and their details will satisfy the
report this item of expense on Part III, line 39, Other expense/ requirement to separately state and adequately disclose. In
deduction items with differences. order to separately state and adequately disclose the employee
Example 22. Corporation X is a calendar year taxpayer that termination costs, it is not required that an anticipated
is required to file Schedule M-3 for its current tax year. During its termination cost amount be listed for each employee, or that
current tax year, X paid $75,000 to acquire or in-license each asset (or category of asset) be listed along with the
intangible assets under a collaborative arrangement with another anticipated loss on disposition.
company that X recognized as a research and development The attached statement should have five columns. The first
expense in its financial statements. X amortizes research and column has the description for the next four columns. The
experimental expenditures for U.S. income tax purposes. second column is column (a) expense per income statement, the
Because payments made to acquire rights to a product or third column is column (b) temporary difference, the fourth
technology are excluded costs from the definition of research column is column (c) permanent difference, and the fifth column
and experimental expenditures, X must report $75,000 in column is column (d) deduction per tax return. Every item listed on the
(a), ($75,000) in column (c), and $0 in column (d). X must report attached statement for line 39 must always have columns (a) +
any amortization otherwise allowable related to the payments on (b) + (c) = (d). Each item with amounts in columns (a), (b), (c),
Part III, line 30, Other amortization or impairment write-offs. and (d) will be totaled and included as one line on Part III,
line 39.
Line 38. Section 118 Exclusion
Report on line 38 any inducements received in the current year Comprehensive income. If any “comprehensive income” as
and treated as contributions to the capital of a corporation by a defined by SFAS No. 130 is reported on this line, describe the
non-shareholder. Report in column (a) any income amount as a item(s) in detail as, for example, “foreign currency translation
negative number and any expense amount as a positive number. adjustments—comprehensive income” and “gains and losses on
available-for-sale securities—comprehensive income.”
Corporations must identify on an accompanying statement
referencing line 38 the fair market value of land or other property Reserves and contingent liabilities. Report on line 39
(including cash) provided to the corporation by any amounts related to the change in each reserve or contingent
non-shareholder, including a governmental unit or civic group, as liability that is not required to be reported elsewhere on
an inducement, or for any other purpose. Include inducements Schedule M-3. For example: (1) amounts relating to changes in
for the corporation to locate its business in a particular state, reserves for litigation must be reported on Part III, line 13,
municipality, community, or locality for the purpose of enabling Judgments, damages, awards, and similar costs; and (2)
the corporation to expand its existing operating facilities, amounts relating to changes in reserves for uncollectible
including corporate headquarters, distribution center(s), or accounts receivable must be reported on Part III, line 33, Bad
factory(ies) (“inducements”). debt expense/agency balances written off.
Report on Part III, line 39, the amortization of various items of
On the accompanying statement, also identify any prepaid expense, such as prepaid subscriptions and license
inducements that include refundable or transferable tax credits, fees, prepaid insurance, etc.
including transferable credits that were sold.
Report on line 39, column (a), expenses included in net
The statement must separately state, adequately disclose, income reported on Part I, line 11, that are related to reserves
and identify all of the dollar amounts summarized by this line. An and contingent liabilities. Report on line 39, column (d), amounts
accompanying statement is required even if there are no dollar related to liabilities for reserves and contingent liabilities that are
amounts reported on line 38. deductible in the current tax year for U.S. income tax purposes.
Examples of reserves that are allowed for book purposes, but
Line 39. Other Expense/Deduction Items With not for tax purposes, include restructuring reserves, reserves for
Differences discontinued operations, and reserves for acquisitions and
dispositions. Only report on line 39 items that are not required to
Separately state and adequately disclose on Part III, line 39, all be reported elsewhere on Schedule M-3, Parts II and III.
items of expense/deduction that are not otherwise listed on Part
III, lines 1 through 38. Example 23. Life insurance company Q is a calendar year
taxpayer that is required to file Schedule M-3 for its current tax
Attach a statement that describes and itemizes the type of year. On July 1 of each year, Q has a fixed liability for its annual
expense/deduction and the amount of each item, and that insurance premiums on its home office building that provides a
provides a description that states the expense/deduction name 12-month coverage period beginning July 1 through June 30. In
for book purposes for the amount recorded in column (a) and addition, Q historically prepays 12 months of advertising
describes the adjustment being recorded in column (b) or (c). expense on July 1. On July 1, Q prepays its insurance premium
The entire description completes the tax description for the of $500,000 and advertising expenses of $800,000. For statutory
amount included in column (d) for each item separately stated accounting purposes, Q capitalizes and amortizes the prepaid
on this line. insurance and advertising over 12 months. For U.S. income tax
The statement of details attached to the Schedule M-3 for purposes, Q deducts the insurance premium when paid and
line 39 must separately state and adequately disclose the nature amortizes the advertising over the 12-month period. In its annual
and amount of the expense related to each reserve and/or statement, Q treats the differences attributable to the annual
contingent liability. The appropriate level of disclosure depends statement treatment and U.S. income tax treatment of the
upon each taxpayer’s operational activity and the nature of its prepaid insurance and advertising as temporary differences.
accounting records. For example, if a corporation’s net income Q also has a legal reserve where $300,000 was expensed for
amount reported in the income statement includes anticipated financial accounting purposes and a ($100,000) temporary
Instructions for Schedule M-3 (Form 1120-L) (1-2024) 23

- 24 -

Page 24 of 24          Fileid: … 0lschm-3/202311/a/xml/cycle04/source                                    9:25 - 1-Feb-2024

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

difference was calculated to arrive at the income tax deduction of   line 39, must be separately stated and adequately disclosed as 
$200,000. The statement attached to Q's return for Part III,         follows:
                                       Column (a) Expense per Income                                                                 Column (d) Deduction per Tax 
Description                            Statement                     Column (b) Temporary Difference Column (c) Permanent Difference 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                               III, line 40, column (a), reflects an amount of $1 million, then 
Report on Part II, line 27, columns (a) through (d), as applicable,  report on Part II, line 27, column (a), ($1 million). Similarly, if Part 
the negative of the amounts reported on Part III, line 40, columns   III, line 40, column (b), reflects an amount of ($50,000), then 
(a) through (d), as applicable. Report positive amounts as           report on Part II, line 27, column (b), $50,000.
negative and negative amounts as positive. For example, if Part 

24                                                                              Instructions for Schedule M-3 (Form 1120-L) (1-2024)

PDF file checksum: 4095367470

(Plugin #1/9.12/13.0)