A First Look at 2004 Schedule M-3: Reporting By Large Corporations

Posted: 7 Sep 2006

See all articles by Charles Boynton

Charles Boynton

U.S. Department of Treasury - Office of Tax Analysis (OTA)

Portia DeFilippes

U.S. Department of the Treasury, Office of Tax Analysis (OTA)

Ellen Legel

U.S. Internal Revenue Service - Statistics of Income Division

Abstract

For most publicly traded and many privately held corporations with assets of $10 million or more, the new Schedule M-3 book-tax reconciliation replaced the four-decade old Schedule M-1 effective December 2004. The authors examine Form 1120 corporate tax return data for December 2004 through June 2005 from the 2004 SOI advance corporate file and identify 35,386 tax returns potentially subject to Schedule M-3. Data for 100 large returns were not yet available. The authors find 30,430 (86 percent) returns with a Schedule M-3 that passes some reconciliation tests. Those 30,430 tax returns represent approximately 89 percent of the aggregate tax after credits for the tax returns potentially subject to the 2004 Schedule M-3. The unavailable 100 returns represent approximately 6 percent of the aggregate tax after credits. The 4,856 returns with either reconciliation problems (2,438 or approximately 7 percent) or no Schedule M-3 data (2,418 or approximately 7 percent) represent in total approximately 5 percent of the aggregate tax after credits for the 35,386 tax returns. Further, the authors discuss the need to convert Schedule M-3 data to pretax differences by backing out the effects of federal tax expense, and that adjustment to a common pretax base for both book and tax is consistent with the literature since Talisman (2000). For the 30,430 returns, total worldwide income is $568,010 million; book income for the tax group is $515,421 million. Pretax book is $707,092 million, and M-3 tax income is $575,375 million, resulting in a pretax total difference of ($131,718) million of which ($81,587) million is temporary (62 percent) and ($50,131) million is permanent (38 percent).

JEL Classification: H25, M41

Suggested Citation

Boynton, Charles and DeFilippes, Portia and Legel, Ellen, A First Look at 2004 Schedule M-3: Reporting By Large Corporations. Tax Notes, Vol. 112, No. 11, September 11, 2006, Available at SSRN: https://ssrn.com/abstract=929030

Charles Boynton (Contact Author)

U.S. Department of Treasury - Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Portia DeFilippes

U.S. Department of the Treasury, Office of Tax Analysis (OTA) ( email )

1500 Pennsylvania Ave. NW
Washington, DC 20220
United States

Ellen Legel

U.S. Internal Revenue Service - Statistics of Income Division ( email )

1111 Constitution Avenue, NW
Washington, DC 20224
United States

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