Why am I getting an M-3 instead of an M-1 on my 1065, 1120, or 1120-S return?
Form 1065
Any entity that files Form 1065 must file Schedule M-3 (Form 1065) if any of the following are true:
- amount of total assets at the end of the tax year reported on Schedule L, line 14, column (d), is equal to $10 million or more.
- amount of adjusted total assets for the tax year is equal to $10 million or more.
- amount of total receipts for the tax year is equal to $35 million or more.
- An entity that is a reportable entity partner with respect to the partnership (as defined under these instructions) owns or is deemed to own, directly or indirectly, an interest of 50% or more in the partnership's capital, profit, or loss on any day during the tax year of the partnership.
Partnerships not required to file Schedule M-3 may voluntarily file Schedule M-3.
Form 1120
If the total assets at the end of the corporation's tax year equal or exceed $10 million, the corporation must file Schedule M-3.
A corporation filing Form 1120 (or Form 1120-C) that is not required to file Schedule M-3 may voluntarily file Schedule M-3.
Form 1120-S
If the total assets at the end of the corporation's tax year equal or exceed $10 million, the corporation must file Schedule M-3.
A U.S. corporation filing Form 1120-S that isn't required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1.
Notes:
- Certain income and deduction amounts and adjustments flow to Schedule M-3, but all other M-3 data must be entered manually. If Schedule M-3 is present in a return, no Schedule M-1 is generated.
- If the return does not meet the criteria to file an M-3, check for entries made on any of the Schedule M-3 screens which should not be there.
- Wks M1C explains the adjustments flowing to Schedules M-1 and M-3 for the 1120.
- Wks M1S explains the adjustments flowing to Schedules M-1 and M-3 for the 1120S.
- When an M-3 is required but total assets at tax-year-end are less than $50 million, then
- The taxpayer must either:
- Complete Schedule M-3 entirely.
- Or complete Schedule M-3 through Part I and complete Schedule M-1 instead of completing Parts II and III of Schedule M-3 (in which case, line 1 of Schedule M-1 must equal line 11 of Schedule M-3).
- The taxpayer is not required to file Schedule C (Form 1065), Schedule B (Form 1120) or Form 8916-A.
- In Drake Tax, to voluntarily file Schedule M-3, make the appropriate selection from the Force Print Schedule M-3 (1065), Force Print M3 (1120-S), or Voluntarily File M-3 (1120) drop list at the top of the M3 screen.
See the following IRS resources for details: