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Common questions about the Schedule M-1 and M-3 (1120S) in ProConnect Tax

by Intuit• Updated 1 year ago

The Schedules M-1 and M-3 are used to reconcile book and tax income. Refer to the following information to help with questions about the Schedule M-1, M3 screen in Intuit ProConnect:

How do I complete Schedule M-3, Part 1 only and Schedule M-1?

Corporate:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet and choose Schedule M-1, M-3.
Select Schedule M-3.
Enter a 1 in Complete Schedule M-3, page 1 and Schedule M-1 when eligible: 1=yes, 2=no [Override].

Partnership:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet, M-1, M-2 and choose Sch M-1, M-3 (Book-Tax Adj.).
Select Schedule M-3.
Enter a 1 in Complete Schedule M-3, page 1 and Schedule M-1 when eligible: 1=yes, 2=no [Override].

S-Corporate:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet, M-1, M-2, M-3 and choose Schedule M-1, M-3.
Select Schedule M-3.
Enter a 1 in Complete Schedule M-3, page 1 and Schedule M-1 when eligible: 1=yes, 2=no [Override].

How do I generate or suppress Schedule M-3?

ProConnect will automatically generate the Schedule M-3 based on the requirements from the form instructions. Select the applicable tax type below for more information.

Corporate

Per the Corporate Schedule M-3 form instructions:

“Who must file

Any domestic corporation or group of corporations required to file Form 1120... that reports on Form 1120, Schedule K, Balance Sheets per Books, total assets at the end of the corporation's tax year that equal or exceed $10 million...
A corporation filing a non-consolidated Form 1120 that reports on Schedule L total assets that equal or exceed $10 million...
Any U.S. consolidated tax group consisting of a U.S. parent corporation and additional includible corporations listed on Form 851... required to file Form 1120, that reports on Schedule L total consolidated assets at the end of the tax year that equal or exceed $10 million…”

Follow these steps to force or suppress the Schedule M-3:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet and choose Schedule M-1, M-3.
Select Schedule M-3.
Enter a 1 or 2 in Schedule M-3: 1=force, 2=suppress.

Partnership

Per the Partnership Schedule M-3 form instructions:

“Who must file

The partnership's total assets at the end of the tax year are $10 million or more,
The partnership's adjusted total assets at the end of the tax year are $10 million or more,
An entity that is a reportable entity partner with respect to the partnership owns or is deemed to own an interest of 50 percent or more in the partnership’s capital, profit, or loss, on any day during the tax year of the partnership.”

Follow these steps to force or suppress the Schedule M-3:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet, M-1, M-2 and choose Sch M-1, M-3 (Book-Tax Adj.).
Select Schedule M-3.
Enter a 1 or 2 in Schedule M-3: 1=force, 2=suppress.

S-Corporate

Per the S-Corporate Schedule M-3 form instructions:

“Who must file

Any corporation required to file Form 1120S... that reports on Schedule L of Form 1120S total assets at the end of the corporation's tax year that equal or exceed $10 million…”

Follow these steps to force or suppress the Schedule M-3:

Go to the Input Return tab.
From the left of the screen, select Balance Sheet, M-1, M-2, M-3 and choose Schedule M-1, M-3.
Select Schedule M-3.
Enter a 1 or 2 in Schedule M-3: 1=force, 2=suppress.

How do I enter tax-exempt income for an S corporation?

Go to the Input Return tab.
From the left of the screen, select Balance Sheet, M-1, M-2, M-3 and choose Schedule M-1, M-3.
Select Schedule M-1.
Scroll down to the Income Recorded on Books Not Included on Schedule K (-) section.
Locate the Tax-exempt Income subsection.
Click inside of the Other (Click on button to expand) field.
Enter the Description.
Enter the amount in the Federal column.
Click OK.

This amount will flow to:

Form 1120S, Schedule K, line 16b,
Form 1120S, Schedule M-2, line 3.
Schedule K-1, line 16 with code B.

Per the Form 1120S instructions:

"Tax exempt income. Do not include any tax-exempt income on lines 1a through 5. A corporation that receives any tax-exempt income other than interest, or holds any property or engages in any activity that produces tax-exempt income, reports this income on line 16b of Schedule K and in box 16 of Schedule K-1 using code B.

Report tax-exempt interest income, including exempt-interest dividends received as a shareholder in a mutual fund or other regulated investment company, on line 16a of Schedule K and in box 16 of Schedule K-1 using code A.”

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