IRS revises Schedule M-3 for C corps.The Internal Revenue Service (IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. ) released a new version of Schedule M-3, effective for tax years ending on or after Dec. 31, 2004. The new three-page form is a reconciliation of financial statement income to taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. , with permanent and book-tax differences adequately disclosed. It is designed to increase the transparency (1) The quality of being able to see through a material. The terms transparency and translucency are often used synonymously; however, transparent would technically mean "seeing through clear glass," while translucent would mean "seeing through frosted glass." See alpha blending. between financial statement income and tax return income and to help the IRS identify tax returns for examination. Schedule M-3 applies to C corporations with $10 million or more of total assets, generally determined on an accrual basis A method of accounting that reflects expenses incurred and income earned for Income Tax purposes for any one year. Taxpayers who use the accrual method must include in their taxable income any money that they have the right to receive as payment for services, once it as of the end of the tax year. However, the IRS has granted a partial reprieve reprieve (rĭprēv`): in law, see pardon. for the first year that a corporation's assets reach or exceed the $10 million mark. In that year, the corporation can list each temporary or permanent book-tax difference without preparing a detailed reconciliation of financial statement income to tax return income. This reprieve resulted from correspondence the IRS received from Grant Thornton and other firms requesting that assets be measured at the beginning rather than the end of the year so that taxpayers would know up front whether they would be subject to the tough reporting obligations required by the form. The IRS has indicated that it plans to develop a similar Schedule M-3 for partnerships, S corporations and certain other taxpayers that do not file Form 1120. Thus, other taxpayers can expect to face a similar reporting burden at a later date. Also, the IRS indicated that taxpayers who are not subject to Schedule M-3 may opt to use the form as a way to satisfy their obligation to disclose to the IRS certain reportable transactions in which they have participated. Adequate disclosure on Schedule M-3 will satisfy the disclosure requirements of Regulation Section 1.6011-4 (see newly released Rev. Proc. 2004-45 for more information on the IRS Web site at www.irs.gov). In addition to the new form, the IRS also released a series of explanatory ex·plan·a·to·ry adj. Serving or intended to explain: an explanatory paragraph. ex·plan documents to help taxpayers understand their new reporting obligations. These are also available on the IRS Web site, by searching Schedule M-3. Contributed by Mel Schwarz., National Tax Office Practice Leader for Legislativel Regulatory Matters, Grant Thornton LLP  This article or section is written like an .Please help [ rewrite this article] from a neutral point of view. Mark blatant advertising for , using . . |
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