# Schedule M-3 (Form 1120-L)

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## Record

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- **Document type:** Agency decision

## Text

Instructions for
Schedule M-3 (Form 1120-L)
(Rev. December 2025)

(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 otherwise noted.

Future Developments

For the latest information about developments related to
Schedule M-3 (Form 1120-L), and its instructions, such as
legislation enacted after they were published, go to
IRS.gov/Form1120L.

What’s New
Domestic research and experimental expenditures.
P.L. 119-21 adds new section 174A to the Internal
Revenue Code. Section 174A(a) allows corporations to
deduct amounts paid or incurred for domestic research
and experimental expenditures in tax years beginning
after December 31, 2024. Alternatively, under section
174A(c), a corporation may elect to charge such
expenditures to a capital account and amortize such
expenditures ratably over a period of not less than 60
months, beginning with the month in which the corporation
first realizes benefits from such expenditures. In addition,
section 70302(f) of P.L. 119-21 provides corporations with
various transition options that may be applied to recover
unamortized amounts paid or incurred in tax years
beginning after December 31, 2021, and before January
1, 2025, that were capitalized and amortized for such tax
years. See Rev. Proc. 2025-28 available at IRS.gov/irb/
2025-38_IRB#REV-PROC-2025-28, for information
regarding the transition options contained in section
70302(f) of P.L. 119-21, as well as the procedures to
follow to begin applying either section 174A(a) or (c) for
the corporation’s first tax year beginning after December
31, 2024. See Rev. Proc. 2025-28 for information
regarding both elections. Also, see the instructions for
Line 37. Research and Experimental Expenditures, later.

General Instructions
Purpose of Schedule

Schedule M-3, Part I, asks certain questions about the
corporation’s financial statements and reconciles financial
statement net income (loss) for the corporation (or
consolidated financial statement group, if applicable), as
reported on Schedule M-3, Part I, line 4a, to net income
(loss) of the corporation for U.S. taxable income purposes,
as reported on Schedule M-3, Part I, line 11.
Schedule M-3, Parts II and III, reconcile financial
statement net income (loss) for the U.S. corporation (or
consolidated tax group, if applicable), as reported on
Dec 15, 2025

Schedule M-3, Part I, line 11, to the subtotal on Form
1120-L, page 1, line 20. For life insurance companies that
prepare an annual statement, financial statement net
income (loss) should be reported on the statutory basis on
Schedule M-3, Part I, line 11.

Where To File

If the corporation is required to file (or voluntarily files)
Schedule M-3 (Form 1120-L), the corporation must file
Form 1120-L and all attachments and schedules,
including Schedule M-3 (Form 1120-L) at the following
address.
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0012

Who Must File

Generally, the following apply.
• Any domestic corporation or group of corporations
required to file Form 1120-L, U.S. Life Insurance Company
Income Tax Return, that reports on Schedule L, Part II,
line 2, column (b), of Form 1120-L total assets at the end
of the corporation’s tax year that equal or exceed $10
million must complete and file Schedule M-3.
• A corporation filing a non-consolidated Form 1120-L
that reports on Schedule L, Part II, line 2, column (b), of
Form 1120-L total assets that equal or exceed $10 million
must complete and file Schedule M-3 and must check box
(1) Non-consolidated return, at the top of page 1 of
Schedule M-3.
• Any U.S. consolidated tax group consisting of a U.S.
parent corporation and additional includible corporations
listed on Form 851, Affiliations Schedule, required to file
Form 1120-L that reports on Schedule L, Part II, line 2,
column (b), of Form 1120-L total consolidated assets at
the end of the tax year that equal or exceed $10 million
must complete and file Schedule M-3 and must check box
(2) Consolidated return (Form 1120-L only) or (3) Mixed
1120/L/PC group, as applicable, at the top of page 1 of
Schedule M-3.
A U.S. life insurance company filing Form 1120-L that is
not required to file Schedule M-3 may voluntarily file
Schedule M-3. A life insurance company filing
Schedule M-3 must check Item A, box 3, on Form 1120-L,
page 1, indicating that Schedule M-3 is attached, whether
required or voluntary.
Example 1.

Instructions for Schedule M-3 (Form 1120-L) (Rev. 12-2025) Catalog Number 39945W
Department of the Treasury Internal Revenue Service www.irs.gov

1. U.S. life insurance company A owns U.S. subsidiary
B and foreign subsidiary F. For its current tax year, A
prepares consolidated financial statements with B and F
that report total assets of $12 million. A files a
consolidated U.S. income tax return with B and reports
total consolidated assets on Schedule L, Part II, line 2,
column (b), of $8 million. A’s U.S. consolidated tax group
is not required to file Schedule M-3 for the current tax
year.
2. U.S. life insurance company C owns U.S. life
insurance company D. For its current tax year, C prepares
consolidated financial statements with D but C and D file
separate U.S. income tax returns. The consolidated
accrual basis financial statements for C and D report total
assets at the end of the tax year of $12 million after
intercompany eliminations. C reports separate company
total year-end assets on its Schedule L, Part II, line 2,
column (b), of $7 million. D reports separate company
total year-end assets on its Schedule L, Part II, line 2,
column (b), of $6 million. Neither C nor D is required to file
Schedule M-3 for the current tax year.
3. Foreign corporation F owns 100% of both U.S. life
insurance company B and U.S. life insurance company C.
C owns 100% of U.S. life insurance company D. For its
current tax year, F prepares a consolidated worldwide
financial statement for the FBCD consolidated group. The
FBCD consolidated financial statement reports total
year-end assets of $25 million. F is not required to file a
U.S. income tax return. B files a separate U.S. income tax
return and reports separate company total year-end
assets on its Schedule L, Part II, line 2, column (b), of $12
million. C files a consolidated U.S. income tax return with
D and, after eliminating intercompany transactions
between C and D, reports consolidated total year-end
assets on Schedule L, Part II, line 2, column (b), of $8
million. B is required to file Schedule M-3 because its total
year-end assets reported on Schedule L, Part II, line 2,
column (b), equal at least $10 million. The CD U.S.
consolidated tax group is not required to file Schedule M-3
because its total year-end assets reported on Schedule L,
Part II, line 2, column (b), do not equal at least $10 million.

Special Filing Requirements for Mixed Groups

If the parent corporation of a U.S. consolidated tax group
files Form 1120-L and files Schedule M-3, each member
of the group must file Schedule M-3. However, if the
parent corporation of a U.S. consolidated tax group files
Form 1120-L and any member of the group files Form
1120-PC, U.S. Property and Casualty Insurance Company
Income Tax Return, or Form 1120, that member must file a
Form 1120-PC Schedule M-3 or a Form 1120
Schedule M-3, respectively, and the group must comply
with the mixed group consolidated Schedule M-3
reporting described in the section Schedule M-3
Consolidation for Mixed Groups (1120/L/PC), later, in
these instructions. A mixed group must also file Form
8916, Reconciliation of Schedule M-3 Taxable Income
With Tax Return Taxable Income for Mixed Groups, and, if
applicable, Form 8916-A, Supplemental Attachment to
Schedule M-3.
If the parent corporation of a U.S. consolidated tax
group files Form 1120-L and any member of the group
2

files Form 1120-PC or Form 1120, and the consolidated
Schedule L, Part II, line 2, column (b), reported in the
return includes the assets of all of the corporations (the
insurance companies as well as the non-insurance
companies), in order to determine if the group meets the
$10 million threshold test for the requirement to file
Schedule M-3, use the amount of total assets reported on
Schedule L, Part II, line 2, column (b), of the consolidated
return. If the parent company of a U.S. consolidated tax
group files Form 1120-L and any member of the group
files Form 1120-PC or Form 1120 and the consolidated
Schedule L, Part II, line 2, column (b), reported in the
return does not include the assets of one or more of the
corporations in the U.S. consolidated tax group, in order to
determine if the group meets the $10 million threshold test
for the requirement to file Schedule M-3, use the sum of
the amount of total assets reported on the consolidated
Schedule L, Part II, line 2, column (b), plus the amounts of
all assets reported on Forms 1120-PC and 1120 that are
included in the consolidated return but not included on the
consolidated Schedule L, Part II, line 2, column (b).
For insurance companies included in the consolidated
U.S. income tax return, see the instructions for Part I, lines
10a, 10b, 10c, and 11, and Part II, line 7, for guidance on
Schedule M-3 reporting of intercompany dividends and
statutory accounting adjustments.

Other Issues Affecting Schedule M-3
Filing Requirements

If a life insurance company was required to file
Schedule M-3 for the preceding tax year but reports on
Schedule L, Part II, line 2, column (b), of Form 1120-L total
consolidated assets at the end of the current tax year of
less than $10 million, the life insurance company is not
required to file Schedule M-3 for the current tax year. The
life insurance company may voluntarily file Schedule M-3
for the current tax year. If for a subsequent tax year, the life
insurance company is required to file Schedule M-3, the
life insurance company must complete Schedule M-3 in its
entirety for that subsequent tax year.
In the case of a U.S. consolidated tax group, total
assets at the end of the tax year must be determined
based on the total year-end assets of all includible
corporations listed on Form 851, net of eliminations for
intercompany transactions and balances between the
includible corporations. In addition, for purposes of
determining for Schedule M-3 whether the corporation (or
U.S. consolidated tax group) has total assets at the end of
the current tax year of $10 million or more, the
corporation’s total consolidated assets must be
determined on an overall accrual method of accounting
unless both of the following apply: (a) the tax returns of all
includible corporations in the U.S. consolidated tax group
are prepared using an overall cash method of accounting,
and (b) no includible corporation in the U.S. consolidated
tax group prepares or is included in financial statements
prepared on an accrual basis.
Note: See the instructions for Part I, line 1, for a
discussion of non-tax-basis income statements and
related non-tax-basis balance sheets to be used in the
preparation of Schedule M-3 and Form 1120-L,
Schedule L.
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Other Form 1120-L Schedules
Affected by Schedule M-3
Requirements

Report on Schedule L and Form 1120-L, page 1, amounts
for the U.S. corporation or, if applicable, the U.S.
consolidated tax group.

accounting, including, if required by the corporation’s
reporting methodology, the equity method of accounting
for investments. If Schedule L is prepared on a tax basis,
an investment by the corporation in a partnership must be
shown as an asset and measured by the corporation’s
adjusted basis in its partnership interest. Any liabilities
contributing to such adjusted basis must be shown on
Schedule L as corporate liabilities.

Schedule L

Consolidated Return (Form 1120-L, Page 1)

If a non-tax-basis income statement and related
non-tax-basis balance sheet are prepared for any purpose
for a period ending with or within the tax year, the
Schedule L balance sheet must be prepared showing
non-tax-basis amounts. See the instructions for
Schedule M-3, Part I, line 1, for the discussion of
non-tax-basis income statements and related
non-tax-basis balance sheets prepared for any purpose
and the impact on the selection of the income statement
used for Schedule M-3 and the related non-tax-basis
balance sheet amounts that must be used for Schedule L.

Total assets shown on Schedule L, Part II, line 2,
column (b), must equal the total assets of the life
insurance company (or, in the case of a U.S. consolidated
tax group, the total assets of all members of the group
listed on Form 851) as of the last day of the tax year, and
must be the same total assets reported by the life
insurance company (or by each member of the U.S.
consolidated tax group) in the non-tax-basis financial
statements, if any, used for Schedule M-3. If the life
insurance company prepares non-tax-basis financial
statements, Schedule L, Part II, line 2, column (b), must
equal the sum of the non-tax-basis financial statement
total assets for each corporation listed on Form 851 and
included in the U.S. consolidated tax return (includible
corporation) net of eliminations for intercompany
transactions between includible corporations. If the life
insurance company does not prepare non-tax-basis
financial statements, Schedule L, Part II, line 2, column
(b), must be based on the life insurance company’s books
and records. The Schedule L balance sheet may show
tax-basis balance sheet amounts if the life insurance
company is allowed to use books and records for
Schedule M-3 and the life insurance company’s books
and records reflect only tax-basis amounts.
Generally, total assets at the beginning of the year
(Schedule L, Part II, line 2, column (a)) must equal total
assets at the close of the prior year (Schedule L, Part II,
line 2, column (b)). For each Schedule L balance sheet
item reported for which there is a difference between the
current opening balance sheet amount and the prior
closing balance sheet amount, attach a statement that
reports the balance sheet item, the prior closing amount,
the current opening amount, and a short explanation of
the change. Reasons for those differences include
mergers and acquisitions.
For purposes of measuring total assets at the end of
the year, the corporation’s assets may not be netted or
reduced by the corporation’s liabilities. In addition, total
assets may not be reported as a negative amount. If
Schedule L is prepared on a non-tax-basis method, an
investment in a partnership may be shown as appropriate
under the corporation’s non-tax-basis method of
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Report on Form 1120-L, page 1, each item of income,
gain, loss, expense, or deduction net of elimination entries
for intercompany transactions between includible
corporations. The corporation must not report as
dividends on Form 1120-L, Schedule A, any amounts
received from an includible corporation unless the
corporation receiving the intercompany dividends is an
insurance company and only to the extent that the
insurance company is required to include intercompany
dividends in taxable income. (See the instructions for Part
I, lines 10a, 10b, 10c, and 11, for a discussion of
intercompany dividends and insurance company statutory
accounting.) In general, dividends received from an
includible corporation must be eliminated in consolidation
rather than offset by the dividends-received deduction.

Entity Considerations for
Schedule M-3

For purposes of Schedule M-3, references to the
classification of an entity (for example, as a corporation, a
partnership, or a trust) are references to the treatment of
the entity for U.S. income tax purposes. An entity that is
generally regarded as separate from its owner for U.S.
income tax purposes (disregarded entity) must not be
separately reported on Schedule M-3 except, if required,
in Part I, line 7a or 7b. In Parts II and III, any item of
income, gain, loss, deduction, or credit of a disregarded
entity must be reported as an item of its owner. In
particular, the income or loss of a disregarded entity must
not be reported in Part II, line 9, 10, or 11 as a separate
partnership or other pass-through entity. The financial
statement income or loss of a disregarded entity is
included in Part I, line 7a or 7b, only if its financial
statement income or loss is included in Part I, line 11, but
not in Part I, line 4a.

Reportable Entity Partner Reporting
Responsibilities

A reportable entity partner with respect to a partnership
filing Form 1065 is an entity that:
• Owns or is deemed to own, directly or indirectly, under
these instructions a 50% or greater interest in the income,
loss, or capital of the partnership on any day of the tax
year; and
• Was required to file Schedule M-3 on its most recently
filed U.S. income tax return or return of income filed prior
to that day.
For the purposes of these instructions, the following
rules apply.
1. The parent corporation of a consolidated tax group
is deemed to own all corporate and partnership interests
3

owned or deemed to be owned under these instructions
by any member of the tax consolidated group.
2. The owner of a disregarded entity is deemed to own
all corporate and partnership interests owned or deemed
to be owned under these instructions by the disregarded
entity.
3. The owner of 50% or more of a corporation by vote
on any day of the corporation’s tax year is deemed to own
all corporate and partnership interests owned or deemed
to be owned under these instructions by the corporation
during the corporation’s tax year.
4. The owner of 50% or more of partnership income,
loss, or capital on any day of the partnership tax year is
deemed to own all corporate and partnership interests
owned or deemed to be owned under these instructions
by the partnership during the partnership tax year.
5. The beneficial owner of 50% or more of the
beneficial interest of a trust or nominee arrangement on
any day of the trust or nominee arrangement tax year is
deemed to own all corporate and partnership interests
owned or deemed to be owned under these instructions
by the trust or nominee arrangement.
A reportable entity partner with respect to a partnership
(as defined above) must report the following to the
partnership within 30 days of first becoming a reportable
entity partner and, after first reporting to the partnership
under these instructions, thereafter within 30 days of the
date of any change in the interest it owns or is deemed to
own, directly or indirectly, under these instructions, in the
partnership.
1. Name.
2. Mailing address.
3. Taxpayer identification number (TIN or EIN), if
applicable.
4. Entity or organization type.
5. State or country in which it is organized.
6. Date on which it first became a reportable entity
partner.
7. Date with respect to which it is reporting a change in
its ownership interest in the partnership, if applicable.
8. The interest in the partnership it owns or is deemed
to own in the partnership, directly or indirectly (as defined
under these instructions), as of the date with respect to
which it is reporting.
9. Any change in that interest as of the date with
respect to which it is reporting.
The reportable entity partner must retain copies of
required reports it makes to the partnerships under these
instructions. Each partnership must retain copies of the
required reports it receives under these instructions from
reportable entity partners.
Example 2.
1. A, an LLC filing a Form 1065 for 2025, is owned
50% by U.S. life insurance company Z. A owns 50% of B,
C, D, and E, which are also LLCs filing a Form 1065 for
calendar year 2025. Z was first required to file Form
1120-L, Schedule M-3, for its corporate tax year ending
December 31, 2024, and filed Schedule M-3 with its Form
4

1120-L for 2024, on October 15, 2025. As of October 16,
2025, Z was a reportable entity partner with respect to A
and, through A, with respect to B, C, D, and E. On
November 5, 2025, Z reports to A, B, C, D, and E, as it is
required to do within 30 days of October 16, that Z is a
reportable entity partner directly owning (with respect to
A) or deemed to own indirectly (with respect to B, C, D,
and E) a 50% interest. Therefore, because Z was a
reportable entity partner for 2025, each of A, B, C, D, and
E is required to file Form 1065, Schedule M-3, for 2025,
regardless of whether they would otherwise be required to
file Schedule M-3 for that year.
2. P, a U.S. life insurance company, is the parent of a
financial consolidation group with 50 domestic
subsidiaries, DS1 through DS50, and 50 foreign
subsidiaries, FS1 through FS50, all 100% owned on
October 16, 2025. On October 15, 2025, P filed a
consolidated tax return on Form 1120-L and was required
to file Schedule M-3 for the tax year ending December 31,
2024. On October 16, 2025, DS1, DS2, DS3, FS1, and
FS2 each acquire a 10% partnership interest in
partnership K, which files Form 1065 for the tax year
ending December 31, 2025. P is deemed to own, directly
or indirectly (under these instructions), all corporate and
partnership interests of DS1, DS2, and DS3, as the parent
of the tax consolidation group and, therefore is, deemed to
own 30% of K on October 16, 2025. P is deemed to own,
directly or indirectly (under these instructions), all
corporate and partnership interests of FS1 and FS2 as the
owner of 50% or more of each corporation by vote and,
therefore, is deemed to own 20% of K on October 16,
2025. P is therefore deemed to own 50% of K on October
16, 2025. Since P owns or is deemed to own, directly or
indirectly (under these instructions), 50% or more of K on
October 16, 2025, and was required to file Schedule M-3
with its most recently filed U.S. income tax return filed
prior to that date, P is a reportable entity partner of K as of
October 16, 2025. On November 5, 2025, P reports to K
that P is a reportable entity partner as of October 16,
2025, deemed to own (under these instructions) a 50%
interest in K. K is, therefore, required to file Schedule M-3
when it files its Form 1065 for its tax year ending
December 31, 2025.

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

A consolidated tax return group with a parent corporation
that files a Form 1120-L is a mixed group if any member is
a property and casualty insurance company (files Form
1120-PC) or is not an insurance company. See
Schedule M-3 Consolidation for Mixed Groups (1120/L/
PC), later.

A U.S. consolidated tax group must file a consolidated
Schedule M-3. Parts I, II, and III of the consolidated
Schedule M-3 must reflect the activity of the entire U.S.
consolidated tax group. The parent corporation must also
complete Parts II and III of a separate Schedule M-3 to
reflect the parent’s own activity. In addition, Parts II and III
of a separate Schedule M-3 must be completed by each
includible corporation to reflect the activity of that
includible corporation. Lastly, it will generally be
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

necessary to complete Parts II and III of a separate
Schedule M-3 for consolidation eliminations.
If a U.S. consolidated tax group that is not a mixed
group consists of four includible corporations (the parent
and three subsidiaries) all filing Form 1120-L, the U.S.
consolidated tax group must complete six Schedules M-3
as follows.
• One consolidated Schedule M-3 with Parts I, II, and III
completed to reflect the activity of the entire U.S.
consolidated tax group.
• Parts II and III of a separate Schedule M-3 for each of
the four includible corporations to reflect the activity of
each includible corporation.
• Parts II and III of a separate Schedule M-3 to eliminate
intercompany transactions between includible
corporations and to include limitations on deductions (for
example, charitable contribution limitations and capital
loss limitations) and carryover amounts (for example,
charitable contribution carryovers and capital loss
carryovers). See Completion of Schedule M-3 and Certain
Allocations, Limitations, and Carryovers, later.
Note: Complete only one Schedule M-3, Part I, for each
consolidated group. A subsidiary of a consolidated group
does not complete Schedule M-3, Part I. Enter in Part I the
name and EIN of the common parent of the consolidated
group.
Indicate on each Schedule M-3, Parts II and III, on the
line after the common parent’s name and EIN, whether the
Schedule M-3, Parts II and III, is for the (1) consolidated
group; (2) parent corporation; (3) consolidation
eliminations; or (4) subsidiary corporation, by checking
the appropriate box. If Parts II and III are for a subsidiary in
a consolidated return, also enter the name and EIN of the
subsidiary.

Schedule M-3 Consolidation for Mixed Groups
(1120/L/PC)

Special Schedule M-3 consolidation rules apply to a
mixed group, that is, a consolidated tax group that (1)
includes both a corporation that is an insurance company
and a corporation that is not an insurance company; or (2)
includes both a life insurance company and a property
and casualty insurance company; or (3) includes a life
insurance company, a property and casualty insurance
company, and a corporation that is not an insurance
company.
Mixed group consolidation for Schedule M-3, Parts II
and III, requires (1) subgroup sub-consolidation of the
1120 subgroup, the 1120-PC subgroup, and the 1120-L
subgroup, each with its own sub-consolidated
Schedule M-3, Parts II and III, and (2) consolidation of the
subgroup sub-consolidation totals on a consolidated
Schedule M-3, Part II, that ties to a consolidated
Schedule M-3, Part I, and a consolidated Form 8916.
In addition to one Schedule M-3, Part II, and one
Schedule M-3, Part III, for each corporation in the three
subgroup sub-consolidations, there will generally be a
total of six additional Schedule M-3, Parts II, and six
additional Schedule M-3, Parts III, for the subgroup
sub-consolidations. Specifically, there must be one
Schedule M-3, Part II, and one Schedule M-3, Part III, for
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

each subgroup’s sub-consolidated amounts and one
Schedule M-3, Part II, and one Schedule M-3, Part III, for
each subgroup’s sub-consolidation eliminations amounts.
At the mixed group consolidated level, there must be a
consolidated Schedule M-3, Part II, and, if applicable, a
Schedule M-3, Part II, for consolidation eliminations not
includible in the subgroup eliminations. At the
consolidated level, there must also be a consolidated
Schedule M-3, Part I, and a consolidated Form 8916. For
a mixed group, there is no Schedule M-3, Part III, at the
consolidated level. At the consolidated level, use the
Schedule M-3 (1120, 1120-PC, or 1120-L), Parts I and II,
that match the form on which the parent corporation
reports and the entire consolidated group files.
The corporation must check the applicable mixed group
checkboxes on all Schedules M-3, Parts I, II, and III, as
discussed below.

Subgroup Sub-Consolidation: 1120 Subgroup,
1120-PC Subgroup, and 1120-L Subgroup
A subgroup Schedule M-3, Parts II and III,
sub-consolidation must be prepared with all necessary
eliminations within the subgroup for each of the three
possible subgroups that are, in fact, present: one
subgroup for those corporations reporting on Form 1120,
one subgroup for those corporations reporting on Form
1120-PC, and one subgroup for those reporting on Form
1120-L. The parent corporation is included in the
subgroup that corresponds to the form on which it reports
and the entire consolidated group files. For example, in
the case of a Form 1120-L parent and Form 1120-L
consolidated group, the parent is included in the Form
1120-L subgroup sub-consolidation. Each subgroup uses
its own Schedule M-3 (1120, 1120-PC, or 1120-L), Parts II
and III, for each corporation within the subgroup and for
the subgroup sub-consolidation and the subgroup
eliminations.
The three subgroup sub-consolidation taxable income
calculations on Schedule M-3 must follow the separate
return requirements of the regulations under section 1502
and all other applicable regulations taking into account the
amounts separately reported on Form 8916. Capital loss
limitation and carryforward used and charitable deduction
limitation and carryforward used are not taken into
account in the determination of the three subgroup
sub-consolidated taxable incomes on Schedule M-3, but
are reflected on Form 8916 and in the calculation of the
life/non-life loss limitation and carryforward used. See
Life/Non-Life Loss Limitation and Carryforward Used
Calculations, later.
The reconciliation totals for book, temporary difference,
permanent difference, and taxable income for each
subgroup are reported on Form 1120, 1120-PC, or
1120-L, as applicable, Schedule M-3, Part II, line 29a,
columns (a), (b), (c), and (d), and equal the sum of the line
amounts in Part II, lines 26 through 28. For a mixed group,
Schedule M-3, Part II, lines 29b, 29c, and 30, are blank on
the Form 1120, 1120-PC, or 1120-L, as applicable, for the
separate corporations (parent and subsidiary) and for the
three subgroup sub-consolidations.
5

Note: A sub-consolidation is required for every subgroup,
even if the subgroup consists of only one corporation. In
addition, Form 8916-A, if applicable, is required at the
sub-consolidated level and the sub-consolidated
elimination level.

Reconciliation of Mixed Group Subgroup
Sub-Consolidation Amounts to Schedule M-3, Part
I, Line 11, and to Tax Return Taxable Income
At the consolidated level, use the Schedule M-3 (Form
1120, 1120-PC, or 1120-L), Parts I and II that matches the
form on which the parent corporation reports and the
entire consolidated group files. For a mixed group, on the
consolidated Schedule M-3, Part II, lines 29a, 29b, and
29c, report the applicable amounts from the three
subgroup sub-consolidation Part II, line 29a, amounts. (If a
consolidated level Part II for consolidation eliminations not
includible in the subgroup eliminations is applicable, the
applicable amounts must be adjusted by the applicable
elimination amounts.) The consolidated Schedule M-3,
Part II, line 30, amounts are the sum of the applicable
amounts on the consolidated Part II, lines 29a, 29b, and
29c. For a mixed group, the consolidated Part II, lines 1
through 28, are blank and no consolidated Part III is
required to be completed.
For mixed groups, the consolidated Part II, line 30,
column (a), must equal Part I, line 11, with appropriate
adjustments for statutory accounting requirements
reflected in Part I, lines 10a and 10b. The consolidated
taxable income indicated in Part II, line 30, column (d),
must equal the amount shown on Form 8916, line 1. Form
8916, line 8, must equal taxable income reported on the
tax return.

Completion of Mixed Group Checkboxes for
Schedule M-3, Part II and Part III
Note: The following discussion of checkboxes will assume
that the 1120-L subgroup includes the corporate parent of
the mixed group.
Forms 1120, 1120-PC, and 1120-L, Schedule M-3,
Parts II and III, each have a checkbox (5) at the top
indicating a mixed group. Checkbox (5) and one or more
other applicable checkboxes must be checked for a mixed
group.
For example, an 1120-L parent corporation included in
the 1120-L subgroup must check Form 1120-L,
Schedule M-3, Parts II and III, box (2) Parent corporation,
and box (5) Mixed 1120/L/PC group. An 1120-L subsidiary
corporation within the 1120-L subgroup must check Form
1120-L, Schedule M-3, Parts II and III, box (4) Subsidiary
corporation, and box (5) Mixed 1120/L/PC group. An
1120-PC subsidiary corporation within the 1120-PC
subgroup must check Form 1120-PC Schedule M-3, Parts
II and III, box (4) Subsidiary corporation, and box (5)
Mixed 1120/L/PC group. An 1120 subsidiary corporation
within the 1120 subgroup must check Form 1120,
Schedule M-3, Parts II and III, box (4) Subsidiary
corporation, and box (5) Mixed 1120/L/PC group.
6

The 1120 subgroup sub-consolidation Form 1120,
Schedule M-3, Parts II and III, must be indicated by
checking box (5) Mixed 1120/L/PC group, and box (6)
1120 group for the sub-consolidation, and by checking
box (5) Mixed 1120/L/PC group, and box (7) 1120
eliminations, for the eliminations. The 1120-PC subgroup
sub-consolidation Schedule M-3 (Form 1120-PC), Parts II
and III, must be indicated by checking box (5) Mixed
1120/L/PC group, and box (6) 1120-PC group for the
sub-consolidation and by checking box (5) Mixed
1120/L/PC group, and box (7) 1120-PC eliminations, for
the eliminations. The 1120-L subgroup sub-consolidation
Form 1120-L, Schedule M-3, Parts II and III, must be
indicated by checking box (5) Mixed 1120/L/PC group,
and box (6) 1120-L group for the sub-consolidation, and
by checking box (5) Mixed 1120/L/PC group, and box (7)
1120-L eliminations, for the eliminations.
A mixed group with a Form 1120-L parent corporation
completes a consolidated level Form 1120-L,
Schedule M-3, Parts I and II, and a consolidated Form
8916. The mixed group consolidated Schedule M-3, Part
II, must be indicated by checking box (1) Consolidated
group, and box (5) Mixed 1120/L/PC group. If a
consolidated level Part II for consolidation eliminations not
includible in the subgroup eliminations is applicable, that
Part II must be indicated by checking box (3) Consolidated
eliminations, and box (5) Mixed 1120/L/PC group.

Life/Non-Life Loss Limitation and Carryforward
Used Calculations
The applicable life/non-life loss limitation and all
carryforward used calculations are made using the
amounts determined for taxable income in the three
subgroup sub-consolidations and other applicable
amounts separately reported on Form 8916. The
calculated life/non-life loss limitation or carryforward used
amounts, if any, are not entered on Schedule M-3. The
calculated amounts, if any, are entered on Form 8916.

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

Generally, a corporation (or any member of a U.S.
consolidated tax group) required to file Schedule M-3
must complete the form in its entirety. In particular, a
corporation filing a non-consolidated return that meets the
filing requirements for Schedule M-3 must complete Parts
I, II, and III. Such a corporation does not check any of the
checkboxes at the top of Parts II and III. In the case of a
U.S. consolidated tax group, Part I must be completed
once, on the consolidated Schedule M-3, by the parent
corporation. Parts II and III must be completed by the
parent corporation, each includible corporation, and a
consolidating eliminations entity.
Except as otherwise provided in these instructions,
when a Schedule M-3 (Form 1120-L) is filed, all applicable
Part I questions must be answered; all applicable columns
in Parts II and III must be completed; all numerical data
required in Parts I, II, and III must be provided; and any
statement required to support a line item in Part I, II, or III
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

must be attached and must provide the information
required for that line item.
All detailed statements for Part II and Part III of
Schedule M-3 must be attached for each separate entity
included in the consolidated Part II and Part III, including
those for the parent company and the eliminations entity, if
applicable. It is not required that the same supporting
detailed information be presented for Part II and Part III of
the consolidated Schedule M-3.
If an item attributable to an includible corporation is not
shared by or allocated to the appropriate member of the
group but is retained in the parent corporation’s financial
statements (or books and records, if applicable), then the
item must be reported by the parent corporation in its
separate Schedule M-3. For example, if the parent of a
U.S. consolidated tax group prepares financial statements
that include all members of the U.S. consolidated tax
group and the parent does not allocate the group’s income
tax expense as reflected in the financial statements
among the members of the group but retains it in the
parent corporation, the parent corporation must report on
its separate Schedule M-3 the U.S. consolidated tax
group’s income tax expense as reflected in the financial
statements.
Any adjustments made at the consolidated group level
that are not attributable to any specific member of the U.S.
consolidated tax group (for example, disallowance of net
capital losses, contribution deduction carryovers, and
limitation of contribution deductions) must not be reported
on the separate consolidating parent or subsidiary
Schedules M-3 but rather on the consolidated
Schedule M-3 and on the consolidating Schedule M-3 for
consolidation eliminations (or on Form 8916 in the case of
a mixed group).
If an includible corporation has (1) no activity for the tax
year (for example, because the corporation is a dormant
or inactive corporation); (2) no amount for the corporation
was included in Part I, line 11; and (3) the corporation has
no amounts to report in Part II and Part III of Schedule M-3
for the tax year, the parent corporation of the U.S.
consolidated tax group may attach to the consolidated
Schedule M-3 a statement that provides the name and
employer identification number (EIN) of the includible
corporation instead of filing a blank Part II and Part III of
Schedule M-3 for the entity. On page 1, check box (4)
Dormant subsidiaries schedule attached.

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

Part I must be completed for any tax year for which the life
insurance company files Schedule M-3. At the top of
page 1, check either box (1) Non-consolidated return, (2)
Consolidated return (Form 1120-L only), or (3) Mixed
1120/L/PC group, as applicable. In addition, check box (4)
Dormant subsidiaries schedule attached, if applicable.
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Line 1. Questions Regarding the Type of Income
Statement Prepared

For Schedule M-3, Part I, lines 1 through 12, use only the
financial statements of the U.S. life insurance company
filing the U.S. income tax return (or the consolidated
financial statements for the U.S. parent corporation of a
U.S. consolidated tax group). If the U.S. life insurance
company filing a U.S. income tax return (or the U.S. parent
corporation of a U.S. consolidated tax group) prepares its
own financial statements but is controlled by another
corporation (U.S. or foreign) that prepares financial
statements that include the U.S. corporation, the U.S.
corporation (or the U.S. parent corporation of a U.S.
consolidated tax group) must use for its Schedule M-3,
Part I, its own financial statements and not the financial
statements of the controlling corporation.
If a non-publicly traded U.S. parent life insurance
company of a U.S. consolidated tax group prepares
financial statements and that group includes a publicly
traded subsidiary that files financial statements with the
Securities and Exchange Commission (SEC), the
consolidated financial statements of the parent life
insurance company are the appropriate financial
statements for purposes of completing Part I. Do not use
any separate company financial statements that might be
prepared for publicly traded subsidiaries.

Non-Tax-Basis Financial Statements and Tax-Basis
Financial Statements
A tax-basis income statement is allowed for Schedule M-3
and a tax-basis balance sheet for Schedule L only if no
non-tax-basis income statement and no non-tax-basis
balance sheet were prepared for any purpose and the
books and records of the corporation reflect only tax-basis
amounts. The corporation is deemed to have
non-tax-basis income statements and the related
non-tax-basis balance sheets for the current year for
purposes of Schedule M-3 and Schedule L if such
non-tax-basis financial statements were prepared for and
presented to management, creditors, shareholders,
government regulators, or any other third parties for a
period ending with or within the tax year.

Lines 1a, 1b, and 1c
If a Form 10-K is filed with the SEC for the period ending
with or within the tax year, the corporation must check
“Yes,” for Part I, line 1a, and use that income statement for
Schedule M-3. If Form 10-K is not filed and a
non-tax-basis income statement is prepared that is a
certified non-tax-basis income statement for the period
ending with or within the tax year, the corporation must
check “Yes,” for Part I, line 1b, and use that income
statement for Schedule M-3. If Form 10-K is not filed and
no certified non-tax-basis income statement is prepared
but an unaudited non-tax-basis income statement is
prepared for the period ending with or within the tax year,
the corporation must check “Yes” for Part I, line 1c, and
use that income statement for Schedule M-3.
Order of priority in accounting standards. If no Form
10-K is filed and two or more non-tax-basis income
7

statements are both certified non-tax-basis income
statements for the period, the income statement prepared
according to the following order of priority in accounting
standards must be used.
1. U.S. Generally Accepted Accounting Principles
(GAAP).
2. International Financial Reporting Standards (IFRS).
3. Any other International Accounting Standards (IAS).
4. Statutory accounting for insurance companies.
5. Other regulatory accrual accounting.
6. Any other accrual accounting standard.
7. Any fair market value standard.
8. Any cash basis standard.
If no non-tax-basis income statement is certified and
two or more non-tax-basis statements are prepared, the
income statement prepared according to the first listed of
the accounting standards above must be used.
If no non-tax-basis financial statements are prepared
for a U.S. life insurance company (or, in the case of a U.S.
consolidated tax group, for the U.S. parent corporation’s
consolidated group) filing Schedule M-3, the U.S. life
insurance company (or the U.S. parent corporation of a
U.S. consolidated tax group) must check “No” on
questions 1a, 1b, and 1c; skip Part I, lines 2a through 3c;
and enter the net income (loss) per the books and records
of the U.S. life insurance company (or U.S. consolidated
tax group) in Part I, line 4a.
If no non-tax-basis financial statements are prepared
for a U.S. life insurance company (or, in the case of a U.S.
consolidated tax group, for the U.S. parent corporation’s
consolidated group) filing Schedule M-3, and the U.S. life
insurance company is owned by a foreign corporation that
prepares financial statements that include the U.S. life
insurance company (or the U.S. parent corporation’s
consolidated group), the U.S. life insurance company (or
the U.S. parent corporation of the U.S. consolidated tax
group) must check “No” on questions 1a, 1b, and 1c, skip
Part I, lines 2a through 3c, and enter the net income (loss)
per the books and records of the U.S. corporation (or U.S.
consolidated tax group) in Part I, line 4a.

Line 2. Questions Regarding Income Statement
Period and Restatements

Enter the beginning and ending dates on line 2a for the life
insurance company’s annual income statement period
ending with or within this tax year.

The questions in Part I, lines 2b and 2c, regarding
income statement restatements, refer to the worldwide
consolidated income statement issued by the corporation
filing the U.S. income tax return (the consolidated financial
statements for the U.S. parent corporation of a U.S.
consolidated tax group) and used to prepare
Schedule M-3. Answer “Yes” on lines 2b and/or 2c if the
corporation’s annual income statement has been restated
for any reason. Attach a short explanation of the reasons
for the restatement in net income for each annual income
statement period that is restated, including the original
amount and restated amount of each annual statement
period’s net income. The attached statement is not
8

required to report restatements on an entity-by-entity
basis.

Line 3. Questions Regarding Publicly Traded
Voting Common Stock

The primary U.S. publicly traded voting common stock
class is the most widely held or most heavily traded within
the United States as determined by the life insurance
company. If the life insurance company has more than one
class of publicly traded voting common stock, attach a list
of the classes of publicly traded voting common stock and
the trading symbol and the nine-digit CUSIP number of
each class.

Line 4. Worldwide Consolidated Net Income
(Loss) per Income Statement

Report in Part I, line 4a, the worldwide consolidated net
income (loss) per the income statement (or books and
records, if applicable) of the corporation. A corporation
filing a non-consolidated Form 1120-L for itself must
report its worldwide income in Part I, line 4a.
In completing Schedule M-3, the life insurance
company must use financial statement amounts from the
financial statement type checked “Yes” in Part I, line 1, or
from its books and records if Part I, line 1c, is checked
“No.” If Part I, line 1a, is checked “Yes,” report in Part I,
line 4a, the net income amount reported in the income
statement presented to the SEC on the corporation’s Form
10-K (the Form 10-K for the security identified in Part I,
line 3b, if applicable).
If a life insurance company prepares non-tax-basis
financial statements, the amount in Part I, line 4a, must
equal the financial statement net income (loss) for the
income statement period ending with or within the tax year
as indicated in Part I, line 2a.
If the life insurance company prepares non-tax-basis
financial statements and the income statement period
differs from the life insurance company’s tax year, the
income statement period indicated in Part I, line 2a,
applies for purposes of Part I, lines 4a through 8.
If the life insurance company does not prepare
non-tax-basis financial statements, and has checked “No”
in Part I, line 1c, enter the net income (loss) per the books
and records of the U.S. life insurance company or the U.S.
consolidated tax group in Part I, line 4a.
Indicate in Part I, line 4b, which of the following
accounting standards were used for line 4a.
1. U.S. Generally Accepted Accounting Principles
(GAAP).
2. International Financial Reporting Standards (IFRS).
3. Statutory.
4. Other (specify).

Lines 5a Through 10
Report in Part I, lines 5a through 10, as instructed below,
all adjustment amounts required to adjust worldwide net
income (loss) reported on this Part I, line 4a (whether from
financial statements or books and records), to net income
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

(loss) of includible corporations that must be reported in
Part I, line 11.
Report on line 12a the worldwide consolidated total
assets and total liabilities amounts for the corporation
using the same financial statements (or books and
records) used for the worldwide consolidated income
(loss) amount reported in Part I, line 4a.
If a U.S. life insurance company (a) has net income
(loss) included in Part I, line 4a, and removed in Part I,
line 6a or 6b, on another U.S. corporation’s Schedule M-3;
(b) files its own Form 1120-L (separate or consolidated);
(c) does not have a separate non-tax-basis financial
statement (certified or otherwise) of its own; and (d)
reports on Schedule L, Part II, line 2, column (b), of its own
Form 1120-L total consolidated assets that equal or
exceed $10 million at the end of the corporation’s tax year,
the life insurance company must answer questions 1a, 1b,
and 1c, of Part I as appropriate for its own Form 1120-L
and must report in Part I, line 4a, the amount for the
corporation’s net income (loss) that is removed in Part I,
line 6a or 6b, of the other corporation’s Schedule M-3.
However, if in the circumstances described immediately
above, the life insurance company does have separate
non-tax-basis financial statements (certified or otherwise)
of its own, independent of the amount of the corporation’s
net income included in Part I, line 4a, of the other U.S.
corporation, the life insurance company must answer
questions 1a, 1b, and 1c, of Part I, as appropriate, for its
own Form 1120-L, based on its own separate income
statement, and must report in Part I, line 4a, the net
income amounts shown on its separate income statement.
Note: See the instructions for Part I, line 10, for
adjustments that may be necessary to reconcile financial
statement income to statutory income for the life
insurance company.

Line 5. Net Income (Loss) of Nonincludible
Foreign Entities

Remove the financial net income (line 5a) or loss (line 5b)
of each foreign entity that is included in Part I, line 4a, and
is not an includible corporation in the U.S. consolidated
tax group (nonincludible foreign entity). In addition, in Part
I, line 8, adjust for consolidation eliminations and correct
for minority interest and intercompany dividends between
any nonincludible foreign entity and any includible
corporation. Do not remove in Part I the financial net
income (loss) of any nonincludible foreign entity
accounted for in Part I, line 4a, using the equity method.
Attach a supporting statement that provides the name,
EIN (if applicable), and net income (loss) included in Part
I, line 4a, that is removed on line 5 for each separate
nonincludible foreign entity. Also, state the total assets
and total liabilities for each such separate nonincludible
foreign entity and include those assets and liabilities
amounts in the total assets and total liabilities reported in
Part I, line 12b. The amounts of income (loss) detailed on
the supporting statement should be reported for each
separate nonincludible foreign entity without regard to the
effect of consolidation or elimination entries. If there are
consolidation or elimination entries relating to
nonincludible foreign entities whose income (loss) is
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

reported on the attached statement that are not reportable
in Part I, line 8, the net amounts of all such consolidation
and elimination entries must be reported on a separate
line on the attached statement, so that the separate
financial accounting income (loss) of each nonincludible
foreign entity remains separately stated.
For example, if the net income (after consolidation and
elimination entries) of a nonincludible foreign
sub-consolidated group is being reported on line 5a, the
attached supporting statement should report the income
(loss) of each separate nonincludible foreign legal entity
from each such entity’s own financial accounting net
income statement or books and records, and any
consolidation or elimination entries (for intercompany
dividends, minority interests, etc.) not reportable in Part I,
line 8, should be reported on the attached supporting
statement as a net amount on a line separate and apart
from lines that report each nonincludible foreign entity’s
separate net income (loss).

Line 6. Net Income (Loss) of Nonincludible U.S.
Entities

Remove the financial net income (line 6a) or loss (line 6b)
included in Part I, line 4a, for each U.S. entity that is not an
includible corporation in the U.S. consolidated tax group
(nonincludible U.S. entity). In addition, in Part I, line 8,
adjust for consolidation eliminations and correct for
minority interest and intercompany dividends between any
nonincludible U.S. entity and any includible corporation.
Do not remove in Part I the financial net income (loss) of
any nonincludible U.S. entity accounted for in Part I,
line 4a, using the equity method.
Attach a supporting statement that provides the name,
EIN, and net income (loss) included in Part I, line 4a, that
is removed on line 6 for each separate nonincludible U.S.
entity. Also, state the total assets and total liabilities for
each such separate nonincludible U.S. entity and include
those assets and liabilities amounts in the total assets and
total liabilities reported in Part I, line 12c. The amounts of
income (loss) detailed on the supporting statement should
be reported for each separate nonincludible U.S. entity
without regard to the effect of consolidation or elimination
entries. If there are consolidation or elimination entries
relating to nonincludible U.S. entities whose income (loss)
is reported on the attached statement that are not
reportable in Part I, line 8, the net amounts of all such
consolidation and elimination entries must be reported on
a separate line on the attached statement so that the
separate financial accounting income (loss) of each
nonincludible U.S. entity remains separately stated. For
example, if the net income (after consolidation and
elimination entries) of a nonincludible U.S.
sub-consolidated group is being reported on line 6a, the
attached supporting statement should report the income
(loss) of each separate nonincludible U.S. legal entity from
each such entity’s own financial accounting net income
statement or books and records, and any consolidation or
elimination entries (for intercompany dividends, minority
interests, etc.) not reportable in Part I, line 8, should be
reported on the attached supporting statement as a net
amount on a line separate and apart from lines that report
each nonincludible U.S. entity’s separate net income
(loss).
9

Lines 7a, 7b, and 7c. Net Income (Loss) of Other
Foreign Disregarded Entities, Net Income (Loss)
of Other U.S. Disregarded Entities, and Net
Income (Loss) of Other Includible Entities

Include in Part I, line 7a, 7b, or 7c, the financial net income
or (loss) of each foreign or U.S. disregarded entity or other
includible corporation that is not included in the
consolidated financial group and, therefore, not included
in the income reported in Part I, line 4a. Include on line 7a
or 7b the financial net income or (loss) of any disregarded
entity that is not included in the income reported in Part I,
line 4a, but is included in Part I, line 11 (other disregarded
entities). Include on line 7c the financial net income or
(loss) of any entity not a disregarded entity that is not
included in the income reported in Part I, line 4a, but is
included on line 11 (other includible corporation). In
addition, in Part I, line 8, adjust for consolidation
eliminations and correct for minority interest and
intercompany dividends for any other includible
disregarded entity or other includible entities.
Attach a supporting statement that provides the name,
EIN, and net income (loss) per the financial statement or
books and records for each separate other disregarded
entity or other includible entity reported on line 7. Also,
state the total assets and total liabilities for each such
separate included entity and include those assets and
liabilities amounts in the total assets and total liabilities
reported in Part I, line 12d. The amounts of income (loss)
detailed on the supporting statement should be reported
for each separate other disregarded entity or other
includible entity without regard to the effect of
consolidation or elimination entries solely between or
among the entities listed. If there are consolidation or
elimination entries relating to such other disregarded
entity or other includible entities whose income (loss) is
reported on the attached statement that are not reportable
in Part I, line 8, the net amounts of all such consolidation
and elimination entries must be reported on a separate
line on the attached statement, so that the separate
financial accounting income (loss) of each other
disregarded entity or other includible entity remains
separately stated.
For example, if the net income (after consolidation and
elimination entries) of a sub-consolidated group of other
disregarded entities is being reported on line 7a or 7b, the
attached supporting statement should report the income
(loss) of each separate other disregarded entity from each
entity’s own financial accounting net income statement or
books and records, and any consolidation or elimination
entries (for intercompany dividends, minority interests,
etc.) not reportable in Part I, line 8, should be reported on
the attached supporting statement as a net amount on a
line separate and apart from lines that report each other
disregarded entity’s separate net income (loss).

Line 8. Adjustment to Eliminations of
Transactions Between Includible Entities and
Nonincludible Entities

Adjustments in Part I, line 8, to reverse certain financial
accounting consolidation or elimination entries are
necessary to ensure that transactions between includible
entities and nonincludible U.S. or foreign entities are not
10

eliminated, in order to report the correct total amount in
Part I, line 11. Also, additional consolidation entries and
elimination entries may be necessary in Part I, line 8,
related to transactions between includible entities that are
in the consolidated financial group and other disregarded
entities and other includible entities that are not in the
consolidated financial group but that are reported in Part I,
line 7a, 7b, or 7c, in order to report the correct total
amount in Part I, line 11.
Include in Part I, line 8, the total of the following: (a)
amounts of any adjustments to consolidation entries and
elimination entries that are contained in the amount
reported in Part I, line 4a, required as a result of removing
amounts in Part I, line 5 or 6; and (b) amounts of any
additional consolidation entries and elimination entries
that are required as a result of including amounts in Part I,
line 7a, 7b, or 7c. This is necessary in order that the
consolidation entries and intercompany elimination entries
included in the amount reported in Part I, line 11, are only
those applicable to the financial net income (loss) of
includible entities for the financial statement period.
For example, adjustments must be reported on line 8 to
remove minority interest and to reverse the elimination of
intercompany dividends included in Part I, line 4a, that
relate to the net income of entities removed in Part I, line 5
or 6, because the income to which the consolidation or
elimination entries relate has been removed. Also, for
example, consolidation or elimination entries must be
reported on line 8 to reflect any minority interest
ownership in the net income of other disregarded entities
or other includible entities reported in Part I, line 7a, 7b, or
7c. Consolidation and elimination entries must also be
reported on line 8 to eliminate any intercompany
dividends between entities whose income is included in
Part I, line 7a, 7b, or 7c, and other entities included in the
consolidated U.S. income tax return. See line 11,
examples 3, 4, and 5.
If a corporate owner of an interest in another entity (a)
accounts for the interest in the entity in the owner
corporation’s separate general ledger on the equity
method, and (b) fully consolidates the entity in the owner
corporation’s consolidated financial statements, but the
entity is not includible in the owner corporation’s
consolidated U.S. income tax return, then, as part of
reversing all consolidation and elimination entries for the
nonincludible entity, the corporate owner must reverse on
Schedule M-3, Part I, line 8, the elimination of the equity
income inclusion from the entity. If the owner corporation
does not account for the entity on the equity method on its
own general ledger, it will not have eliminated the equity
income for consolidated financial statement purposes,
and, therefore, will have no elimination of equity income to
reverse.
The attached supporting statement for Part I, line 8,
must identify the type (for example, minority interest,
intercompany dividends, etc.) and amount of
consolidation or elimination entries reported, as well as
the names of the entities to which they pertain. It is not
necessary, but it is permitted, to report intercompany
eliminations that net to zero in Part I, line 8, such as
intercompany interest income and expense.
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Line 9. Adjustment To Reconcile Income
Statement Period to Tax Year

Include on line 9 any adjustments necessary to the
income (loss) of includible corporations to reconcile
differences between the corporation’s income statement
period reported on line 2a and the corporation’s tax year.
Attach a statement describing the adjustment.
Statutory accounting for an insurance company
subsidiary acquired or merged may require the use of a
financial statement period for income reported in Part I,
line 11, that differs from the period reported in Part I,
line 4a or line 7. Report in Part I, line 10b, adjustments to
income because of the differences in accounting period.

Line 10a. Intercompany Dividend Adjustments
To Reconcile to Line 11,
Line 10b. Other Statutory Accounting
Adjustments To Reconcile to Line 11, and
Line 10c. Other Adjustments To Reconcile to
Amount on Line 11

Include on lines 10a, 10b, and 10c any other adjustments
to reconcile net income (loss) in Part I, line 4a, through
Part I, line 9, with net income (loss) in Part I, line 11.
Include on line 10a the amount of any intercompany
dividend adjustment required by statutory accounting.
Include on line 10b the amount of any other required
statutory accounting adjustment. Include on line 10c the
amount of any other adjustment not required by statutory
accounting.

Normally, all intercompany dividends will have been
eliminated or excluded from the financial accounting
consolidated net income (loss) reported in Part I, line 4a.
However, an insurance company may be required to
include certain intercompany dividends in Part I, line 11,
so that the amount reported in Part I, line 11, agrees with
statutory accounting net income (Annual Statement). If the
net income (loss) of a corporation that files Form 1120-PC
or Form 1120-L is included in Part I, line 4a or line 7, and
is computed on a basis other than statutory accounting,
include on line 10a the adjustments necessary such that
Part I, line 11, includes intercompany dividends in the net
income (loss) for the corporation to the extent required by
statutory accounting principles. (For insurance companies
included in the consolidated U.S. income tax return, see
instructions for Part I, line 11, and Part II, line 7.)
Statutory accounting for an insurance company
subsidiary acquired or merged may require the use of a
financial statement period for income reported in Part I,
line 11, that differs from the period reported in Part I, line 4
or line 7. Report in Part I, line 10b, adjustments to income
because of such differences in accounting period.
For any adjustments reported in Part I, lines 10a, 10b,
and 10c, attach a supporting statement that provides, for
each corporation to which an adjustment relates, the
name and EIN of the corporation; the amount of net
income included in Part I before any adjustments on
line 10; the amount of net income included in Part I,
line 11; the amount of the net adjustment that is
attributable to intercompany dividend adjustments
required to be reported by statutory accounting and
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

included in Part I, line 10a; the amount of the net
adjustment attributable to other statutory accounting
requirements and included in Part I, line 10b; and the
amount of the remainder of the net adjustment not
required because of statutory accounting and included in
Part I, line 10c. If any net adjustment is included for the
corporation in Part I, line 10b or 10c, attach a
supplemental supporting statement identifying the line
(10b or 10c), and the type and amount of each adjustment
included in the net adjustment.

Line 11. Net Income (Loss) per Income
Statement of Includible Corporations

Report on line 11 the net income (loss) per the income
statement (or books and records, if applicable) of the life
insurance company. In the case of a U.S. consolidated tax
group, report the consolidated income statement net
income (loss) of all corporations listed on Form 851 and
included in the consolidated U.S. income tax return for the
tax year. Amounts reported in Parts II and III, column (a)
(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 in Part I, line 11, which for insurance
companies is usually statutory accounting. (For insurance
companies included in the consolidated U.S. income tax
return, see instructions for Part I, line 10, and Part II,
line 7.)
Do not, in any event, report on line 11 the net income of
entities not listed on Form 851 and not included in the
consolidated U.S. income tax return for the tax year. For
example, it is not permissible to remove the income of
nonincludible entities on lines 5 and/or 6, discussed
earlier, then to add back such income on lines 7 through
10, such that the amount reported on line 11 includes the
net income of entities not includible in the consolidated
U.S. income tax return. A principal purpose of
Schedule M-3 is to report on this Part I, line 11, only the
financial accounting net income of only the corporations
included in the consolidated U.S. income tax return.
Whether or not the corporation prepares financial
statements, Part I, line 11, must include all items that
impact the net income (loss) of the corporation even if
they are not recorded in the profit and loss accounts in the
corporation’s general ledger, including, for example, all
post-closing adjusting entries (including workpaper
adjustments) and dividend income or other income
received from non-includible corporations.
Example 3.
1. U.S. life insurance company P is publicly traded and
files Form 10-K with the SEC. P owns 80% or more of the
stock of 75 U.S. corporations, DS1 through DS75;
between 51% and 79% of the stock of 25 U.S.
corporations, DS76 through DS100; and 100% of the
stock of 50 foreign subsidiaries, FS1 through FS50. P
eliminates all dividend income from DS1 through DS100
and FS1 through FS50 in financial statement
consolidation entries. Furthermore, P eliminates the
minority interest ownership, if any, of DS1 through DS100
in financial statement consolidation entries. P’s SEC Form
10-K includes P, DS1 through DS100, and FS1 through
11

FS50, on a fully consolidated basis. P files a consolidated
U.S. income tax return with DS1 through DS75.
P must check “Yes” in Part I, line 1a. In Part I, line 4a, P
must report the consolidated net income from the SEC
Form 10-K for the consolidated financial statement group
of P, DS1 through DS100, and FS1 through FS50. P must
remove the net income (loss) of FS1 through FS50 in Part
I, line 5a or 5b, as applicable. P must remove the net
income (loss) before minority interests of DS76 through
DS100 in Part I, line 6a or 6b, as applicable. P must
reverse in Part I, line 8:
a. The elimination of dividends received by P and DS1
through DS75 from DS76 through DS100 and FS1
through FS50, and
b. The recognition of minority interests’ share of the
net income (loss) of DS76 through DS100.
Note: The minority interests’ share, if any, of the
income of DS1 through DS75 must be reported in Part II,
line 8.
P reports in Part I, line 11, the consolidated financial
statement net income (loss) attributable to the includible
corporations. Intercompany transactions between the
includible corporations that had been eliminated in the net
income amount in Part I, line 4a, remain eliminated in the
net income amount on line 11. Transactions between the
includible corporations and the nonincludible entities that
are eliminated in the net income amount in Part I, line 4a,
are included in the net income amount on line 11 since the
elimination of those transactions was reversed on line 8.
2. Foreign corporation F owns 100% of the stock of
U.S. life insurance company P. P owns 100% of the stock
of DS1, 60% of the stock of DS2, and 100% of the stock of
FS1. F prepares certified audited financial statements. P
does not prepare any financial statements. P files a
consolidated U.S. income tax return with DS1.
P must not complete Schedule M-3, Part I, with
reference to the financial statements of its foreign parent F.
P must check “No” in 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 records of the includible
corporations (P and DS1) in Part I, line 4a. If the amount in
Part I, line 4a, includes the income (loss) of DS2 and FS1
or is not on the statutory basis, P must enter any
necessary adjustments on lines 5a through 10 in order for
Part I, line 11, to report the net income (loss) of includible
corporations P and DS1, net of eliminations for
transactions between P and DS1. In particular, P must
make any required adjustments in Part I, line 10, in order
for the net income on line 11 for life insurance companies
to be on the statutory basis.
Example 4.
1. U.S. life insurance company P owns 60% of
corporation DS1, which is fully consolidated in P’s
financial statements. P does not account for DS1 in P’s
separate general ledger on the equity method. DS1 has
net income of $100 (before minority interests) and pays
dividends of $50, of which P receives $30. The dividend is
eliminated in the consolidated financial statements. In its
financial statements, P consolidates DS1 and includes

12

$60 of net income ($100 less the minority interest of $40)
in Part I, line 4a.
P must remove the $100 net income of DS1 in Part I,
line 6a. P must reverse in Part I, line 8, the elimination of
the $40 minority interest net income of DS1. In addition, P
reverses its elimination of the $30 intercompany dividend
in its financial statements in Part I, line 8. The net result is
that P includes the $30 dividend from DS1 in Part I,
line 11, and in Part II, line 7, column (a). P’s dividend
income included on the tax return from DS1 must be
reported in Part II, line 7, column (d).
2. U.S. life insurance company C owns 60% of the
capital and profits interests in U.S. LLC N. C does not
account for N in C’s separate general ledger on the equity
method. N has net income of $100 (before minority
interests) and makes no distributions during the tax year.
C treats N as a corporation for financial statement
purposes and as a partnership for U.S. income tax
purposes. In its financial statements, C consolidates N
and includes $60 of net income ($100 less the minority
interest of $40) in Part I, line 4a.
C must remove the $100 net income of N in Part I,
line 6a. C must reverse in Part I, line 8, the elimination of
the $40 minority interest net income of N. The result is that
C includes no income for N either in Part I, line 11, or in
Part II, line 9, column (a). C’s taxable income from N must
be reported by C in Part II, line 9, column (d).
3. U.S. life insurance company P owns 60% of
corporation DS1, which is fully consolidated in P’s
financial statements. P accounts for DS1 in P’s separate
general ledger on the equity method. DS1 has net income
of $100 (before minority interests) and pays dividends of
$50, of which P receives $30. The dividend reduces P’s
investment in DS1 for equity method reporting on P’s
separate general ledger where P includes its 60% equity
share of DS1 income, which is $60. In its financial
statements, P eliminates the DS1 equity method income
of $60 and consolidates DS1, including $60 of net income
($100 less the minority interest of $40) in Part I, line 4a.
P must remove the $100 net income of DS1 in Part I,
line 6a. P must reverse in Part I, line 8, the elimination of
the $40 minority interest net income of DS1 and the
elimination of the $60 of DS1 equity income. The net
result is that P includes the $60 of equity method income
from DS1 in Part I, line 11, and in Part II, line 6, column (a).
P’s dividend income included on the tax return from its
investment in DS1 must be reported in Part II, line 7,
column (d).
4. U.S. life insurance company C owns 60% of the
capital and profits interests in U.S. LLC N. C accounts for
N in C’s separate general ledger on the equity method. N
has net income of $100 (before minority interests) and
makes no distributions during the tax year. C treats N as a
corporation for financial statement purposes and as a
partnership for U.S. income tax purposes. For equity
method reporting on C’s separate general ledger, C
includes its 60% equity share of N income, which is $60.
In its financial statements, C eliminates the $60 of N
equity method income and consolidates N, including $60
of net income ($100 less the minority interest of $40) in
Part I, line 4a.
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

C must remove the $100 net income of N in Part I,
line 6a. C must reverse in Part I, line 8, the elimination of
the $40 minority interest net income of N and the
elimination of the $60 of N equity method income. The
result is that C includes the $60 of equity method income
for N in Part I, line 11, and in Part II, line 9, column (a). C’s
taxable income from N must be reported by C in Part II,
line 9, column (d).
5. U.S. life insurance company C owns 60% of the
capital and profits interests in U.S. LLC N. C accounts for
N in C’s separate general ledger on the equity method. N
has net income of $100 (before minority interests) and
pays a $50 cash distribution, of which C receives $30. The
distribution reduces C’s investment in N for equity method
reporting on C’s separate general ledger. C treats N as a
corporation for financial statement purposes and as a
partnership for U.S. income tax purposes. For equity
method reporting on C’s separate general ledger, C
includes its 60% equity share of N income, which is $60.
In its financial statements, C eliminates the $60 of N
equity method income and consolidates N and includes
$60 of net income ($100 less the minority interest of $40)
in Part I, line 4a.
C must remove the $100 net income of N in Part I,
line 6a. C must reverse in Part I, line 8, the elimination of
the $40 minority interest net income of N and the
elimination of the $60 of N equity method income. The
result is that C includes the $60 of equity method income
for N in Part I, line 11, and in Part II, line 9, column (a). C’s
taxable income from N must be reported by C in Part II,
line 9, column (d).
Example 5. U.S. life insurance company P owns 80%
of the stock of corporation DS1. DS1 is included in P’s
consolidated U.S. income tax return, even though DS1 is
not included in P’s consolidated financial statements on
either a consolidated basis or on the equity method. DS1
has current year net income of $100 after taking into
account its $40 interest payment to P. P has net income of
$1,040 after recognition of the interest income from DS1.
Because DS1 is an includible corporation, 100% of the net
income of both P and DS1 must be reported on Form
1120-L, page 1, of the PDS consolidated U.S. income tax
return, and the intercompany interest income and expense
must be removed by consolidation elimination entries.
P must report its financial statement net income of
$1,040 in Part I, line 4a, and reports DS1’s net income of
$100 in Part I, line 7c. Then, in order to reflect the full
consolidation of the financial accounting net income of P
and DS1 at Part I, line 11, Net income (loss) per income
statement of includible corporations, the following
consolidation and elimination entries are reported in Part I,
line 8: (a) offsetting entries to remove the $40 of interest
income received from DS1 included by P on line 4a, and
to remove the $40 of interest expense of DS1 included on
line 7c for a net change of zero; and (b) an entry to reflect
the $20 minority interest in the net income of DS1 (DS1
net income of $100 times 20% minority interest). The
result is that Part I, line 11, reports $1,120: $1,040 from
line 4a, $100 from line 7c, and ($20) from line 8. Stated
another way, Part I, line 11, includes the entire $1,000 net
income of P, measured before recognition of the
intercompany interest income from DS1 and the
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

consolidation of DS1 operations, plus the entire $140 net
income of DS1, measured before interest expense to P,
less the minority interest ownership of $20 in DS1’s
separate net income ($100). The consolidated U.S.
income tax group is required to include on the attached
supporting statement for Part I, line 8, the details of the
adjustment to the minority interest in the net income of
DS1, but is not required to report the offsetting adjustment
to the intercompany elimination of interest income and
interest expense (though it is permitted to do so).

Line 12. Total Assets and Liabilities of Entities
Included or Removed in Part I, Lines 4, 5, 6, and
7

Line 12 must be completed by all corporations that file
Schedule M-3. Report on lines 12a, 12b, 12c, and 12d the
total amount (not just the corporation’s share) of assets
and liabilities of entities included or removed in Part I, lines
4, 5, 6, and 7. All assets and liabilities reported in Part I,
lines 12a, 12b, 12c, and 12d, must be reported as positive
amounts.
On line 12a, enter the worldwide consolidated total
assets and total liabilities of all of the entities included in
completing Part I, line 4a. On line 12b, enter the total
assets and total liabilities of the entities removed in
completing Part I, line 5. On line 12c, enter the total assets
and total liabilities removed in completing Part I, line 6. On
line 12d, enter total assets and total liabilities included in
completing Part I, line 7.

Specific Instructions for Parts II and
III

For consolidated U.S. income tax returns, file supporting
statements for each includible corporation. See
Consolidated Return in the Instructions for Form 1120-L.

General Format of Parts II and III

Check the applicable box(es) at the top of pages 2 and 3
of Schedule M-3 to indicate whether the Schedule M-3 is
for the:
1. Consolidated group,
2. Parent corporation,
3. Consolidated eliminations,
4. Subsidiary corporation, or
5. Mixed 1120/L/PC group.
Also, check the applicable box to indicate whether the
Schedule M-3 is for a sub-consolidated (6) 1120-L group;
or (7) 1120-L eliminations. See Consolidated
Schedule M-3 Versus Consolidating Schedules M-3 for
Form 1120-L Groups and Schedule M-3 Consolidation for
Mixed Groups (1120/L/PC), earlier.
For each line item in Parts II and III, report in column (a)
the amount of net income (loss) included in Part I, line 11,
and report in column (d) the amount included in the
subtotal on Form 1120-L, page 1, line 20.
Note: A statement or explanation may be attached to any
line even if none is required.
13

For any item of income, gain, loss, expense, or
deduction for which there is a difference between columns
(a) and (d), the portion of the difference that is temporary
must be entered in column (b) and the portion of the
difference that is permanent must be entered in column
(c).
If financial statements are prepared by the life
insurance company in accordance with statutory
accounting principles (SAP), differences that are treated
as temporary for SAP must be reported in column (b) and
differences that are permanent (that is, not temporary for
SAP) must be reported in column (c). Generally, pursuant
to SAP, a temporary difference affects (creates, increases,
or decreases) a deferred tax asset or liability.
If the life insurance company does not prepare financial
statements, or the financial statements are not prepared in
accordance with SAP, report in column (b) any difference
that the life insurance company believes will reverse in a
future tax year (that is, have an opposite effect on taxable
income in a future tax year (or years) due to the difference
in timing of recognition for financial accounting and U.S.
income tax purposes) or is the reversal of such a
difference that arose in a prior tax year. Report in column
(c) any difference that the life insurance company believes
will not reverse in a future tax year (and is not the reversal
of such a difference that arose in a prior tax year).
If the life insurance company is unable to determine
whether a difference between column (a) and column (d)
for an item will reverse in a future tax year or is the reversal
of a difference that arose in a prior tax year, report the
difference for that item in column (c).
Example 6. In its first year of operation, life insurance
company A is not required to file a Schedule M-3. If A
voluntarily files Schedule M-3, all applicable Part I
questions must be answered and all applicable columns in
Parts II and III must be completed.
Example 7. Life insurance company B is a U.S.
publicly traded corporation that files a consolidated U.S.
income tax return and prepares consolidated SAP/GAAP
financial statements. In prior years, B acquired intellectual
property (IP) and goodwill through several corporate
acquisitions. The IP is amortizable for both U.S. income
tax and financial statement purposes. In the current year,
B’s annual amortization expense for IP is $9,000 for U.S.
income tax purposes and $6,000 for financial statement
purposes. In its financial statements, B treats the
difference in IP amortization as a temporary difference.
The goodwill is not amortizable for U.S. income tax
purposes and is subject to impairment for financial
statement purposes. In the current year, B records an
impairment charge on the goodwill of $5,000. In its
financial statements, B treats the goodwill impairment as a
permanent difference. B must report the amortization
attributable to the IP in Part III, line 30, and report $6,000
in column (a), a temporary difference of $3,000 in column
(b), and $9,000 in column (d). B must report the goodwill
impairment in Part III, line 29, and report $5,000 in column
(a), a permanent difference of ($5,000) in column (c), and
$0 in column (d).

14

Reporting Requirements for Parts II
and III

Except for mixed group consolidation, the number of Parts
II must equal the number of Parts III filed by the
corporation. Mixed groups should see Schedule M-3
Consolidation for Mixed Groups (1120/L/PC), earlier.

General Reporting Requirements

If an amount is attributable to a reportable transaction
described in Regulations section 1.6011-4(b), the amount
must be reported in Part II, line 12, columns (a), (b), (c),
and (d), as applicable, regardless of whether the amount
would otherwise be reported on Schedule M-3, Part II or
Part III. Thus, if a taxpayer files Form 8886, Reportable
Transaction Disclosure Statement, the amounts
attributable to that reportable transaction must be
reported in Part II, line 12.
A life insurance company is required to report in Parts II
and III, column (a) the amount of any item specifically
listed on Schedule M-3 that is in any manner included in
the life insurance company’s current year annual
statement net income (loss) or in an income or expense
account maintained in the life insurance company’s books
and records, even if there is no difference between that
amount and the amount included in taxable income unless
(a) otherwise provided in these instructions, or (b) the
amount is attributable to a reportable transaction
described in Regulations section 1.6011-4(b) and is,
therefore, reported in Part II, line 12. For example, with the
exception of interest income reflected on a Schedule K-1
received by a life insurance company as a result of the life
insurance company’s investment in a partnership or other
pass-through entity, all interest income, whether from
unconsolidated affiliated companies, third parties, banks,
or other entities; whether from foreign or domestic
sources; whether taxable or exempt from tax; and
regardless of how or where the income is classified in the
life insurance company’s annual statement, must be
included in Part II, line 13, column (a). Likewise, all fines
and penalties paid to a government or other authority for
the violation of any law for which fines or penalties are
assessed must be included in Part III, line 12, column (a),
regardless of the government authority that imposed the
fines or penalties; regardless of whether the fines or
penalties are civil or criminal; regardless of the
classification, nomenclature, or terminology attached to
the fines or penalties by the imposing authority in its
actions or documents; and regardless of how or where the
fines or penalties are classified in the life insurance
company’s summary of operations or the income and
expense accounts maintained in the life insurance
company’s books and records.
If a life insurance company would be required to report
in Parts II and III, column (a), the amount of any item
specifically listed on Schedule M-3 in accordance with the
preceding paragraph, except that the life insurance
company has capitalized the item of income or expense
and reports the amount in its annual statement or in asset
and liability accounts maintained in the life insurance
company’s books and records, the life insurance company
must report the proper tax treatment of the item in
columns (b), (c), and (d), as applicable.
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Furthermore, in applying the two preceding paragraphs,
a life insurance company is required to report in Parts II
and III, column (a), the amount of any item specifically
listed on Schedule M-3 that is included in the life
insurance company’s annual statement or exists in the life
insurance company’s books and records, regardless of
the nomenclature associated with that item in the annual
statement or books and records. Accurate completion of
Schedule M-3 requires reporting amounts according to
the substantive nature of the specific line items included
on Schedule M-3 and consistent reporting of all
transactions of like substantive nature that occurred
during the tax year. For example, all expense amounts that
are included in the annual statement or exist in the books
and records that represent some form of “Bad debt
expense” must be reported in Part III, line 33, column (a),
regardless of whether the amounts are recorded or stated
under different nomenclature in the annual statement or
the books and records, such as “Provision for doubtful
accounts”; “Expense for uncollectible notes receivable”; or
“Impairment of trade accounts receivable.” Likewise, as
stated in the preceding paragraph, all fines and penalties
must be included in Part III, line 12, column (a), regardless
of the terminology or nomenclature attached to them by
the life insurance company in its books and records or
annual statement.
With limited exceptions, Part II includes lines for
specific items of income, gain, or loss (income items).
(See Part II, lines 1 through 24.) If an income item is
described in Part II, lines 1 through 24, report the amount
of the item on the applicable line, regardless of whether
there is a difference for the item. If there is a difference for
the income item, or only a portion of the income item has
a difference and a portion of the item does not have a
difference, and the item is not described in Part II, lines 1
through 24, report and describe the entire amount of the
item in Part II, line 25.
With limited exceptions, Part III includes lines for
specific items of expense or deduction (expense items).
(See Part III, lines 1 through 38.) If an expense item is
described in Part III, lines 1 through 38, report the amount
of the item on the applicable line, regardless of whether
there is a difference for the item. If there is a difference for
the expense item, or only a portion of the expense item
has a difference and a portion of the item does not have a
difference and the item is not described in Part III, lines 1
through 38, report and describe the entire amount of the
item in Part III, line 39.
If there is no difference between the annual statement
amount and the taxable amount of an entire item of
income, loss, expense, or deduction and the item is not
described or included in Part II, lines 1 through 24, or Part
III, lines 1 through 38, report the entire amount of the item
in Part II, line 28 columns (a) and (d).
Special instructions for Part II, lines 25 and 28, and
Part III, line 39. Whether an income (loss) item is
reported in Part II, line 25, or in Part II, line 28, or a given
expense/deduction item in Part III, line 39, or in Part II,
line 28, is determined separately by each member of the
U.S. consolidated tax group and not at the U.S.
consolidated tax group level. For example, U.S.
corporation P has two subsidiaries, A and B, that are
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

included in P’s consolidated financial statements and in
P’s consolidated U.S. income tax return. For financial
statement purposes, P, A, and B recognize real estate tax
expense when accrued. For U.S. income tax purposes, P
and A recognize such expense consistent with the method
used for financial statement purposes, whereas B
recognizes such deduction based on a method different
from that used for financial statement purposes. P and A
must report this expense/deduction in columns (a) and (d)
in Part II, line 28. B must report the following in Part III,
line 39, in column (a), B’s expense recognized in the
financial statements when accrued; in column (d), B’s real
estate tax expense recognized for U.S. income tax
purposes; and in column (b) or (c), as applicable, the
difference between B’s real estate tax expense in its
financial statements and its real estate tax deduction
recognized for U.S. taxable income purposes.
Separately stated and adequately disclosed. Each
difference reported in Parts II and III must be separately
stated and adequately disclosed. In general, a difference
is adequately disclosed if the difference is labeled in a
manner that clearly identifies the item or transaction from
which the difference arises. For further guidance about
adequate disclosure, see Regulations section 1.6662-4(f).
If a specific item of income, gain, loss, expense, or
deduction is described in Part II, lines 9 through 24, or Part
III, lines 1 through 38, and the line does not indicate to
“attach statement” and the specific instructions for the line
do not call for an attachment of a statement, then the item
is considered separately stated and adequately disclosed
if the item is reported on the applicable line and the
amount(s) of the item(s) are reported in the applicable
columns of the applicable line. See the instructions for
Part II, lines 1 through 8, later, for specific additional
information to be provided for these particular lines.
Note: A statement or explanation may be attached to any
line even if none is required.
Except as otherwise provided, differences for the same
item must be combined or netted together and reported as
one amount on the applicable line of Schedule M-3.
However, differences for separate items must not be
combined or netted together. Each item (and
corresponding amount attributable to that item) must be
separately stated and adequately disclosed on the
applicable line of Schedule M-3, or any statement
required to be attached, even if the amounts are below a
certain dollar amount.
Required statements for Part II, line 25, and Part III,
line 39. A separate statement must be attached to
Schedule M-3 (Form 1120-L) that includes a detailed
description of each item and adjustment entered in Part II,
line 25, and Part III, line 39.
The description for each amount entered in column (a)
must be readily identifiable to the name of the account in
the financial statements or books and records of the
taxpayer, under which the amount in column (a) was
recorded in the accounting records. Also, the description
for each amount entered in column (a) must include
detailed information supporting each adjustment reported
in columns (b) and (c), including how the adjustment is
identified in the accounting records. The entire description
15

is considered the tax description for the amount reported
in column (d) for each item reported in Part II, line 25, or
Part III, line 39.
Each description should adequately describe all four
columns of Part II, line 25, or Part III, line 39. If additional
information is required to provide an acceptable
description, attach a supporting statement.
Example 8. Life insurance company C is a calendar
year taxpayer that is required to file Schedule M-3 for its
current tax year. C placed in service 10 depreciable fixed
assets in previous years. C’s total depreciation expense
for its current tax year for five of the assets is $50,000 for
summary of operations purposes and $70,000 for U.S.
income tax purposes. C’s total annual depreciation
expense for its current tax year for the other five assets is
$40,000 for summary of operations purposes and $30,000
for U.S. income tax purposes. In its annual statement, C
treats the differences between annual statement and U.S.
income tax depreciation expense as giving rise to
temporary differences that will reverse in future years. C
must combine all of its depreciation adjustments.
Accordingly, C must report in Part III, line 32, for its current
tax year income statement depreciation expense of
$90,000 in column (a), a temporary difference of $10,000
in column (b), and U.S. income tax depreciation expense
of $100,000 in column (d).
Example 9. Life insurance company D is a calendar
year taxpayer that is required to file Schedule M-3 for its
current tax year. On December 31 of the current year, D
establishes two reserve accounts in the amount of
$100,000 for each account. One reserve account is an
allowance for agency balances that are estimated to be
uncollectible. The second reserve is an estimate of future
office closure expenses. In its annual statement, D treats
the two reserve accounts as giving rise to temporary
differences that will reverse in future years. The two
reserves are expenses in D’s current annual statement but
are not deductions for U.S. income tax purposes in the
current year. D must not combine the Schedule M-3
differences for the two reserve accounts. D must report
the amounts attributable to the allowance for bad debts in
Part III, line 33, Bad debt expense/agency balances
written off, and must separately state and adequately
disclose the amount attributable to the other reserve,
office closure costs, on a required, attached statement
that supports the amounts in Part III, line 39.
D must also provide a description for each reserve that
meets the requirements for Part III, line 39, discussed
earlier under Required statements for Part II, line 25, and
Part III, line 39. In this example, an acceptable description
would be “Future Office Closure Expense Reserve.”
Note: There is no need to add the title of the reserve
account to the description if the account name for the
amount in column (a) is already part of the adjustment
description.
Example 10. Life insurance company F had $100 of
meal expenses and $100 of entertainment expenses.
Therefore, F deducted $200 on its income statement. For
federal income tax purposes, the entire $100 of meal
expenses are subject to the 50% limitation under section
274(n). The $100 of entertainment expenses are
16

nondeductible under section 274(a). F must report in Part
III, line 11, $200 in column (a), $150 in column (c), and
$50 in column (d). F must report all its meal and
entertainment expenses only on this line whether there is
a difference or not because meal and entertainment
expenses are specifically described.

Part II. Reconciliation of Net Income
(Loss) per Income Statement of Life
Insurance Companies With Taxable
Income per Return
Lines 1 Through 8. Additional Information for
Each Life Insurance Company

For any item reported in Part II, lines 1, 3 through 6, or 8,
attach a supporting statement that provides the name of
the entity for which the item is reported, the type of entity
(corporation, partnership, etc.), the entity’s EIN (if
applicable), and the item amounts for columns (a) through
(d). See the instructions for Part II, lines 2 and 7, for the
specific information required for those particular lines.

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

Report on line 1, column (a), the financial income (loss)
included in Part I, line 11, for any foreign corporation
accounted for on the equity method and remove such
amount in column (b) or (c), as applicable. Report the
amount of dividends received and other taxable amounts
received or includible from foreign corporations in Part II,
lines 2 through 5, as applicable.

Line 2. Gross Foreign Dividends Not Previously
Taxed

Except as otherwise provided in this paragraph, report on
line 2, column (d), the amount (before any withholding tax)
of any foreign dividends included in the subtotal on Form
1120-L, page 1, line 20, and report on line 2, column (a),
the amount of dividends from any foreign corporation
included in Part I, line 11. Do not report in Part II, line 2,
any amounts that must be reported in Part II, line 3 or 4, or
dividends that were previously taxed and must be
reported in Part II, line 5. See the instructions for Part II,
lines 3, 4, and 5. Report amounts in columns (b) and (c),
as applicable.
For any dividends reported in Part II, line 2, that are
received on a class of voting stock of which the life
insurance company directly or indirectly owned 10% or
more of the outstanding shares of that class at any time
during the tax year, report on an attached supporting
statement for Part II, line 2 (1) the name of the dividend
payer, (2) the payer’s EIN (if applicable), (3) the class of
voting stock on which the dividend was paid, (4) the
percentage of the class directly or indirectly owned, and
(5) the amounts for columns (a) through (d).

Line 3. Subpart F, QEF, and Similar Income
Inclusions

Report on line 3, column (d), the amount included in
taxable income under section 951 (relating to Subpart F),
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

the amount included in income under section 951A
(relating to global intangible low-taxed income, or GILTI),
gains or other income inclusions resulting from elections
under sections 1291(d)(2) and 1298(b)(1), and any
amount included in taxable income pursuant to section
1293 (relating to qualified electing funds). The amount of
Subpart F income corresponds to the total of the amounts
reported by the life insurance company on line 6,
Schedule I, of all Forms 5471, Information Return of U.S.
Persons With Respect to Certain Foreign Corporations.
The amount of qualified electing fund (QEF) income
corresponds to the total of the amounts reported by the
life insurance company on all Forms 8621, Information
Return by a Shareholder of a Passive Foreign Investment
Company or Qualified Electing Fund.
Also, include on line 3 passive foreign investment
company mark-to-market gains and losses under section
1296. Do not report such gains and losses on
Schedule M-3, Part II, line 16.

Line 4. Gross-Up for Foreign Taxes Deemed Paid

Report on line 4, column (d), the amount of any gross-up
for foreign taxes deemed paid not included on Part II,
column (d), of lines 9, 10, and 11, Income (loss) from U.S.
partnerships, foreign partnerships, and
other pass-through entities. The gross-up amount on
line 4 must correspond to the total gross-up amounts for
foreign taxes deemed paid reported by the corporation on
all Forms 1118, Foreign Tax Credit—Corporations,
excluding the amounts reported in Schedule M-3, Part II,
lines 9, 10, and 11, column (d).

Line 5. Gross Foreign Distributions Previously
Taxed

Report on line 5, column (a), any distributions received
from foreign corporations that were included in Part I,
line 11, and that were previously taxed for U.S. income tax
purposes. For example, include in column (a) amounts
that are excluded from taxable income under sections 959
and 1293(c). Remove such amount in column (b) or (c), as
applicable. Report the full amount of the distribution
before any withholding tax. Since previously taxed foreign
distributions are not currently taxable, line 5, column (d), is
shaded. (Also see the instructions for Part II, line 2,
earlier.)

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

Report on line 6, column (a), the financial income (loss)
included in Part I, line 11, for any U.S. corporation
accounted for on the equity method and remove such
amount in column (b) or (c), as applicable. Report in Part
II, line 7, dividends received from any U.S. corporation
accounted for on the equity method.

Line 7. U.S. Dividends Not Eliminated in Tax
Consolidation

Report on line 7, column (a), the amount of dividends
included in Part I, line 11, that were received from any U.S.
corporation. Report on line 7, column (d), the amount of
any U.S. dividends included in the subtotal on Form
1120-L, page 1, line 20.

Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Usually, the amounts included on line 7, columns (a)
and (d), include only dividends received from U.S.
corporations that are not included in the U.S. consolidated
tax group because intercompany dividends (dividends
received from includible corporations listed on Form 851)
are eliminated or excluded for financial accounting
purposes and eliminated for the calculation of U.S. taxable
income. In the case of an insurance company included in
the consolidated U.S. income tax return required to report
intercompany dividends as part of statutory accounting
net income, include such intercompany dividends in Part
II, line 7, column (a), and the taxable amount of those
dividends in Part II, line 7, column (d). For insurance
companies included in the consolidated U.S. income tax
return, see instructions for Part I, lines 10a, 10b, 10c, and
11.
For any intercompany dividends (dividends received
from includible corporations listed on Form 851) included
in Part II, line 7, report on an attached supporting
statement for Part II, line 7 (1) the name of the dividend
payer, (2) the payer’s EIN, (3) the class of stock or security
on which the dividends were paid, (4) the amount of any
net adjustment included in Part I, line 10a, for such
dividends, and (5) the amounts for columns (a) through
(d).
For any dividends included in Part II, line 7, that are not
intercompany dividends (dividends received from
includible corporations listed on Form 851) that are
received on classes of voting stock in which the
corporation directly or indirectly owned 10% or more of the
outstanding shares of that class at any time during the tax
year, report on an attached supporting statement for Part
II, line 7 (1) the name of the dividend payer, (2) the payer’s
EIN (if applicable), (3) the class of voting stock on which
the dividend was paid, (4) the percentage of the class
directly or indirectly owned, and (5) the amounts for
columns (a) through (d).

Line 8. Minority Interest for Includible
Corporations

Report on line 8, column (a), the minority interest included
in the financial income (loss) in Part I, line 11, for any
member of the U.S. consolidated tax group that is less
than 100% owned.
Example 11. Life insurance company G is a calendar
year taxpayer that is required to file Schedule M-3 for its
current tax year. G owns 90% of the stock of U.S.
corporation DS1. G files a consolidated U.S. income tax
return with DS1 as the GDS1 U.S. consolidated group. G
prepares certified SAP/GAAP financial statements for the
consolidated financial statement group consisting of G
and DS1. G has no net income of its own, and G does not
report its equity interest in the income of DS1 on its
separate financial statements. DS1 has financial
statement net income (before minority interests) and
taxable income of $1,000 ($2,500 of revenue less $1,500
cost of goods sold).
On the consolidated Schedule M-3, Part I, line 4a,
Worldwide consolidated net income (loss) per income
statement, and on line 11, Net income (loss) per income
statement of includible corporations, the U.S.
consolidated tax group GDS1 must report $900 of
17

financial statement net income ($1,000 net income less
$100 minority interest).
The GDS1 group must prepare one consolidated
Schedule M-3, Parts II and III, and three additional
Schedules M-3, Parts II and III: one for G, one for DS1,
and one for consolidation eliminations.
On the Schedule M-3, Parts II and III, for DS1, $1,000 is
reported in Part II, line 28 and line 30, in both columns (a)
and (d). On G’s Schedule M-3, Parts II and III, zero is
reported in Part II, line 30, in both columns (a) and (d). On
the consolidation eliminations Schedule M-3, Parts II and
III, in Part II, line 8 and line 30, the minority interest
elimination for the U.S. consolidated tax group is reported
as ($100) in column (a), $100 in column (c), and $0 in
column (d).
On the Schedule M-3, Parts II and III, for the U.S.
consolidated tax group, in Part II, line 8, Minority interest
for includible corporations, ($100) is reported in column
(a), $100 in column (c), and $0 in column (d). In Part II,
line 28, the U.S. consolidated tax group reports $1,000 in
both columns (a) and (d). As a result, financial statement
net income in Part II, line 30, column (a), will total $900;
net permanent differences in Part II, line 30, column (c),
will total $100; and taxable income on line 30, column (d),
will total $1,000.

in accordance with SAP. In its annual statement, H treats
the difference between annual statement net income and
taxable income from its investment in USP as a
permanent difference. For its current tax year, H’s annual
statement net income includes $10,000 of income
attributable to its share of USP’s net income. H’s
Schedule K-1 from USP reports $5,000 of ordinary
income, $7,000 of long-term capital gains, $4,000 of
charitable contributions, and $200 of section 179
expense. H must report in Part II, line 9, $10,000 in
column (a), a permanent difference of ($2,200) in column
(c), and $7,800 in column (d).

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

For any interest in a pass-through entity (other than an
interest in a partnership reportable in Part II, line 9 or 10,
as applicable) owned by a member of the U.S.
consolidated tax group (other than an interest in a
disregarded entity), report the following on line 11.
1. In column (a) the sum of the corporation’s
distributive share of income or loss from the pass-through
entity that is included in Part I, line 11.
2. In column (b) or (c), as applicable, the sum of all
differences, if any, attributable to the pass-through entity.
3. In column (d) the sum of all taxable amounts of
income, gain, loss, or deduction reportable on the
corporation’s Schedules K-1 received from the
pass-through entity (if applicable).

For any interest owned by the corporation or a member of
the U.S. consolidated tax group that is treated as an
investment in a partnership for U.S. income tax purposes
(other than an interest in a disregarded entity), report
amounts in Part II, line 9 or 10, as described below.
1. In column (a), the sum of the corporation’s
distributive share of income or loss from a U.S. or foreign
partnership that is included in Part I, line 11.
2. In column (b) or (c), as applicable, the sum of all
differences, if any, attributable to the corporation’s
distributive share of income or loss from a U.S. or foreign
partnership.
3. In column (d) the sum of all amounts of income,
gain, loss, or deduction attributable to the corporation’s
distributive share of income or loss from a U.S. or foreign
partnership (that is, the sum of all amounts reportable on
the corporation’s Schedule(s) K-1 received from the
partnership (if applicable)), without regard to any
limitations computed at the partner level (for example,
limitations on utilization of charitable contributions, capital
losses, and interest expense).
For each partnership reported on line 9 or 10, attach a
supporting statement that provides the name, EIN (if
applicable), end of year profit-sharing percentage (if
applicable), end of year loss-sharing percentage (if
applicable), and the amount reported in column (a), (b),
(c), or (d) of line 9 or 10, as applicable.
Example 12. U.S. life insurance company H is a
calendar year taxpayer that is required to file
Schedule M-3 for its current tax year. H has an investment
in a U.S. partnership, USP. H prepares annual statements
18

Example 13. Assume the same facts as Example 12,
except that life insurance company H’s charitable
contribution deduction is wholly attributable to its
partnership interest in USP and is limited to $90 pursuant
to section 170(b)(2) due to other investment losses
incurred by H. In its financial statements, H treated this
limitation as a temporary difference. H must not report the
charitable contribution limitation of $3,910 ($4,000 − $90)
in Part II, line 9. H must report the limitation in Part III,
line 21, and report the disallowed charitable contributions
of ($3,910) in columns (b) and (d).

Line 11. Income (Loss) From Other
Pass-Through Entities

For each pass-through entity reported on line 11, attach
a supporting statement that provides that entity’s name,
EIN (if applicable), the life insurance company’s end of
year profit-sharing percentage (if applicable), the life
insurance company’s end of year loss-sharing percentage
(if applicable), and the amounts reported by the life
insurance company in column (a), (b), (c), or (d) of line 11,
as applicable.

Line 12. Items Relating to Reportable
Transactions

Any amounts attributable to any reportable transactions
(as described in Regulations section 1.6011-4) must be
included in Part II, line 12, regardless of whether the
difference, or differences, would otherwise be reported
elsewhere in Part II or Part III. Thus, if a taxpayer files
Form 8886 for any reportable transaction described in
Regulations section 1.6011-4, the amounts attributable to
that reportable transaction must be reported in Part II,
line 12. In addition, all income and expense amounts
attributable to a reportable transaction must be reported in
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

Part II, line 12, columns (a) and (d) even if there is no
difference between the annual statement amounts and the
taxable amounts.
Each difference attributable to a reportable transaction
must be separately stated and adequately disclosed. A life
insurance company will be considered to have separately
stated and adequately disclosed a reportable transaction
on line 12 if the life insurance company sequentially
numbers each Form 8886 and lists by identifying number
on the supporting statement for Part II, line 12, each
sequentially numbered reportable transaction and the
amounts required for Part II, line 12, columns (a) through
(d).
Instead of the requirements of the preceding
paragraph, a life insurance company will be considered to
have separately stated and adequately disclosed a
reportable transaction if the life insurance company
attaches a supporting statement that provides the
following for each reportable transaction.
1. A description of the reportable transaction disclosed
on Form 8886 for which amounts are reported in Part II,
line 12.
2. The name and reportable transaction or tax shelter
registration number, if applicable, as reported on Form
8886.
3. The type of reportable transaction (for example,
listed transaction, confidential transaction, transaction
with contractual protection, etc.) as reported on Form
8886.
If a transaction is a listed transaction described in
Regulations section 1.6011-4(b)(2), the description must
also include the published guidance number provided on
Form 8886. In addition, if the reportable transaction
involves an investment in the transaction through another
entity such as a partnership, the description must include
the name and EIN (if applicable) of that entity as reported
on Form 8886.
Example 14. Life insurance company J is a calendar
year taxpayer that is required to file Schedule M-3 for its
current tax year. J incurred seven different abandonment
losses during its current tax year. One loss of $12 million
results from a reportable transaction described in
Regulations section 1.6011-4(b)(5), another loss of $5
million results from a reportable transaction described in
Regulations section 1.6011-4(b)(4), and the remaining five
abandonment losses are not reportable transactions. J
discloses the reportable transactions giving rise to the $12
million and $5 million losses on separate Forms 8886 and
sequentially numbers them X1 and X2, respectively. J
must separately state and adequately disclose the $12
million and $5 million losses in Part II, line 12. The $12
million loss and the $5 million loss will be adequately
disclosed if J attaches a supporting statement for line 12
that lists each of the sequentially numbered forms, Form
8886-X1 and Form 8886-X2, and with respect to each
reportable transaction reports the appropriate amounts
required for Part II, line 12, columns (a) through (d).
Alternatively, J’s disclosures will be adequate if the
description provided for each loss on the supporting
statement includes the names and reportable transaction
or tax shelter registration numbers, if any, disclosed on the
Instructions for Schedule M-3 (Form 1120-L) (12-2025)

applicable Form 8886, identifies the type of reportable
transaction for the loss, and reports the appropriate
amounts required for Part II, line 12, columns (a) through
(d). J must report the losses attributable to the other five
abandonment losses in Part II, line 23e, regardless of
whether a difference exists for any or all of those
abandonment losses.
Example 15. Life insurance company K is a calendar
year taxpayer that is required to file Schedule M-3 for its
current tax year. K enters into a transaction with
contractual protection that is a reportable transaction
described in Regulations section 1.6011-4(b)(4). This
reportable transaction is the only reportable transaction
for K’s current tax year and results in a $7 million capital
loss for both statutory accounting purposes and U.S.
income tax purposes. Although the transaction does not
result in a difference, K is required to report in Part II,
line 12, the following amounts: ($7 million) in column (a),
zero in columns (b) and (c), and ($7 million) in column (d).
The transaction will be adequately disclosed if K attaches
a supporting statement for line 12 that (a) sequentially
numbers the Form 8886 and refers to the sequentially
numbered Form 8886-X1, and (b) reports the applicable
amounts required for line 12, columns (a) through (d).
Alternatively, the transaction will be adequately disclosed
if the supporting statement for line 12 includes a
description of the transaction, the name and tax shelter
registration number, if any, and the type of reportable
transaction disclosed on Form 8886.

Line 13. Interest Income

Report in Part II, line 13, column (a), the total amount of
interest income included in Part I, line 11. Report in Part II,
line 13, column (d), the total amount of interest income
included on Form 1120-L, page 1, line 20, that is not
required to be reported elsewhere on Schedule M-3. In
column (b) or (c), as applicable, adjust for any amounts
treated for U.S. income tax purposes as interest income
that are treated as some other form of income for statutory
accounting purposes, or vice versa. For example,
adjustments to interest income resulting from adjustments
made in accordance with instructions for Part II, line 18,
should be made in columns (b) and (c) of line 13.
Complete Part II of Form 8916-A. Enter the amounts
from Form 8916-A, Part II, line 6, columns (a) through (d),
in Schedule M-3, Part II, line 13, columns (a) through (d),
as applicable. Attach Form 8916-A.
Do not report on line 13 or include on Form 8916-A the
amounts reported in accordance with the instructions for
Part II, lines 9, 10, 11, 12, and 21.

Line 14. Accrual of Bond Discount

Report on line 14, column (a), the amount of accrued
bond discount included in Part I, line 11. Report on line 14,
column (d), the amount of accrued bond discount
included in the subtotal on Form 1120-L, page 1, line 20.
Report amounts in columns (b) and (c), as applicable.

Line 15. Hedging Transactions

Report in line 15, column (a), the net gain or loss from
hedging transactions included in Part I, line 11. Report in
column (d) the amount of taxable income from hedging
19

transactions as defined in section 1221(b)(2). Use
columns (b) and (c) to report all differences caused by
treating hedging transactions differently for statutory
accounting purposes and for U.S. income tax purposes.
For example, if a portion of a hedge is considered
ineffective under SAP but still is a valid hedge under
section 1221(b)(2), the difference must be reported on
line 15. The hedge of a capital asset, which is not a valid
hedge for U.S. income tax purposes but may be
considered a hedge for SAP purposes, must also be
reported here.
Report hedging gains and losses computed under the
mark-to-market method of accounting on line 15 and not
in Part II, line 16, Mark-to-market income (loss).

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

Report on line 16 any amount representing the
mark-to-market income or loss for any securities held by a
dealer in securities, a dealer in commodities having made
a valid election under section 475(e), or a trader in
securities or commodities having made a valid election
under section 475(f). “Securities” for these purposes are
securities described in section 475(c)(2) and commodities
described in section 475(e)(2). “Securities” do not include
any items specifically excluded from sections 475(c)(2)
and 475(e)(2), such as certain contracts to which section
1256(a) applies.
Report hedging gains and losses computed under the
mark-to-market method of accounting in Part II, line 15,
and not on line 16.
Traders in securities or commodities. For a trader in
securities or commodities that made a valid election under
section 475(f) to use the mark-to-market method to
account for securities or commodities held in connection
with a trading business that files Form 4797, any
Schedule M-3 entries required as a result of marking to
market these securities or commodities are reported as
follows: (a) mark-to- market gains and losses from Form
4797, line 10, are included in Part II, line 16, of
Schedule M-3 (Form 1120-L); and (b) any other
Schedule M-3 entries required based on other results
(non-mark-to-market gains and losses) included in the
total reported on Form 4797, line 17, should be reported in
Part II, line 23d, of Schedule M-3 (Form 1120-L), unless
the instructions for Schedule M-3 require the amounts to
be reported on another line.

Line 17. Deferred and Uncollected Premiums

Report on line 17, column (a), the amount of deferred and
uncollected premiums included in Part I, line 11. Report
on line 17, column (d), the amount of deferred and
uncollected premiums included in the subtotal on Form
1120-L, page 1, line 20. Report amounts in columns (b)
and (c), as applicable.

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

Note: Also, see the instructions for Part III, line 35,
Purchase Versus Lease (for Purchasers and/or Lessees)
Asset transfer transactions with periodic payments
characterized for statutory accounting purposes as either
a sale or a lease may, under some circumstances, be

20

characterized as the opposite for tax purposes. If the
transaction is treated as a lease, the seller/lessor reports
the periodic payments as gross rental income and also
reports depreciation expense or deduction. If the
transaction is treated as a sale, the seller/lessor reports
gross profit (sale price less

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A4a45b7dbfcc6d815. Public record. Not legal advice.