The Evolving Schedule M–3: A New Era of Corporate Show and Tell?

Abstract

This paper supplements the arguments for replacing Schedule M-1 and outlines the main features of the proposed Schedule M-3. We examine the magnitude of reported book-tax differences and provide evidence of consolidation issues affecting Schedules M-1, L, and Form 1120. Features of the new Schedule M-3 are designed to standardize reporting across firms and distinguish permanent from temporary book-tax differences. Overall, comments received by IRS and Treasury from private industry generally support the proposed changes, with some concerns regarding scope, the size threshold, the need to determine book income on a transaction basis, and effective date.