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Schedule M-3.

By the end of 2005, the IRS may require additional taxpayers to file a form containing the income or loss reconciliation concept of Schedule M-3, Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, according to IRS Senior Technical Adviser Bob Adams.

Taxpayers with assets exceeding $10 million who file Form 1120 are required to file Schedule M-3 for tax years beginning on or after Dec. 31, 2004. Taxpayers required to file Schedule M-3 no longer need to file Schedule M-1, Reconciliation of Income (Loss) per Books With Income (Loss) per Return.

The IRS unveiled Schedule M-3 on Jan. 28, 2004, hoping to increase the transparency between financial accounting net income and taxable income, identify taxpayers who may have engaged in aggressive transactions and target high-risk taxpayers for audit. (For background, see Reinstein, News Notes, "FinalVersion of Schedule M-3 Available," TTA, October 2004, p. 597.)

According to Adams, the Service is considering Schedule M-3's "future application" to other taxpayers. The filing requirement could take effect for tax years beginning on or after Dec. 31,2005.

It is not yet known whether additional taxpayers may need to file Schedule M-3 or a similar form. Taxpayers not currently required to file Schedule M-3 may be required to file forms disclosing information on income or loss reconciliation in the future.

Additional filers: The IRS is considering "moving the concept" of Schedule M-3 to additional entities, including taxpayers filing Form:

* 1065, U.S. Partnership Return of Income;

* 1120F, U.S. Income Tax Return of a Foreign Corporation;

* 1120L, U.S. Life Insurance Company Income Tax Return;

* 1120PC, U.S. Property and Casualty Insurance Company Income Tax Return; and

* 1120S, U.S. Income Tax Return for an S Corporation.

While any changes could take effect for tax seasons beginning after 2005, the IRS says it would allow "plenty of time for dialogue" with affected stakeholders.
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Title Annotation:FROM THE IRS
Author:Laffie, Leslie S.
Publication:The Tax Adviser
Date:Apr 1, 2005
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