Page 118 - BusinessStructures & Forms

16:38 - 30-Jan-2023
Page 24 of 31
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Question 26 Fileid: … ions/i1120/2022/a/xml/cycle08/source • Corporations with total receipts (page 1,
Check the “Yes” box if: Schedule L. line 1a plus lines 4 through 10) and total
assets at the end of the tax year less than
1. On or after December 22, 2017, a Balance Sheets per Books $250,000 are not required to complete
foreign corporation directly or indirectly The balance sheets should agree with the Schedules L, M-1, and M-2 if the “Yes”
acquired substantially all of the properties corporation's books and records. box on Schedule K, question 13, is
held directly or indirectly by the Corporations with total receipts checked.
corporation; and (page 1, line 1a plus lines 4 through 10) • Corporations with total assets
2. The ownership percentage with and total assets at the end of the tax year non-consolidated (or consolidated for all
respect to the acquisition was greater than less than $250,000 are not required to corporations included within the
50% (by vote or by value). complete Schedules L, M-1, and M-2 if the consolidated tax group) of $10 million or
If “Yes” is checked, also enter in the “Yes” box on Schedule K, question 13, is more on the last day of the tax year must
file Schedule M-3 (Form 1120) instead of
checked.
space provided the ownership percentage Schedule M-1.
both by vote and by value. If there are Corporations with total assets • A corporation filing Form 1120 that is
multiple acquisitions that must be non-consolidated (or consolidated for all not required to file Schedule M-3 may
reported, enter the ownership for the most corporations included within the voluntarily file Schedule M-3 instead of
recent acquisition. Attach a statement consolidated tax group) of $10 million or Schedule M-1. See the Instructions for
reporting the ownership percentage by more on the last day of the tax year must Schedule M-3 (Form 1120) for more
vote and by value for the other file Schedule M-3 (Form 1120) instead of information.
acquisitions. Schedule M-1. However, see the • Corporations that (a) are required to file
instructions for Schedule M-1 below. See
Section 7874 applies in certain cases the separate Instructions for Schedule M-3 Schedule M-3 (Form 1120) and have less
in which a foreign corporation directly or (Form 1120) for provisions that also affect than $50 million total assets at the end of
indirectly acquires substantially all of the Schedule L. the tax year, or (b) are not required to file
properties of a domestic corporation. Schedule M-3 (Form 1120) and voluntarily
If filing a consolidated return, report
Generally, it applies when three total consolidated assets, liabilities, and file Schedule M-3 (Form 1120), must
requirements are satisfied. shareholder's equity for all corporations either (i) complete Schedule M-3 (Form
1. Pursuant to a plan or series of joining in the return. See Consolidated 1120) entirely or (ii) complete
related transactions, a foreign corporation Return, earlier. Schedule M-3 (Form 1120) through Part I,
and complete Form 1120, Schedule M-1,
must acquire directly or indirectly instead of completing Parts II and III of
substantially all of the properties held Line 1 Schedule M-3 (Form 1120). If the
directly or indirectly by a domestic Include certificates of deposit as cash on corporation chooses to complete
corporation. this line. Schedule M-1 instead of completing Parts
2. After the acquisition, the ownership Line 5 II and III of Schedule M-3, the amount on
percentage (by vote or value) must be at Schedule M-1, line 1, must equal the
least 60%. Include on this line: amount on Schedule M-3, Part I, line 11.
3. After the acquisition, the expanded • State and local government obligations, See the Instructions for Schedule M-3
affiliated group that includes the foreign the interest on which is excludable from (Form 1120) for more information.
gross income under section 103(a), and
acquiring corporation must not have Line 5c
• Stock in a mutual fund or other RIC that
substantial business activities in the distributed exempt-interest dividends
foreign country in which the foreign during the tax year of the corporation. Include any of the following applicable
acquiring corporation is created or expenses.
• Entertainment expenses not deductible
organized. Line 26 under section 274(a).
When section 7874 applies, the tax Some examples of adjustments to report • Meal expenses not deductible under
treatment of the acquisition depends on on this line include: section 274(n).
the ownership percentage. If the • Unrealized gains and losses on • Qualified transportation fringes not
ownership percentage is at least 80%, securities held “available for sale,” deductible under 274(a)(4).
then the foreign acquiring corporation is • Foreign currency translation • Expenses for the use of an
treated as a domestic corporation for all adjustments, entertainment facility.
purposes of the Internal Revenue Code. • The excess of additional pension • The part of business gifts over $25.
See section 7874(b). If the ownership liability over unrecognized prior service • Expenses of an individual over $2,000,
percentage is at least 60% but less than cost, allocable to conventions on cruise ships.
80%, then the foreign acquiring • Guarantees of employee stock (ESOP) • Employee achievement awards of
corporation is respected as a foreign debt, and nontangible or tangible property over $400
corporation, but the domestic corporation • Compensation related to employee ($1,600 if part of a qualified plan).
and certain other persons are subject to stock award plans. • The cost of skyboxes.
special rules that reduce the tax benefits If the total adjustment to be entered on • Nondeductible club dues.
of the acquisition. See section 7874(a). line 26 is a negative amount, enter the • The part of luxury water travel expenses
See the regulations under section 7874 amount in parentheses. not deductible under section 274(m).
for rules regarding the computation of the • Expenses for travel as a form of
ownership percentage. See sections Schedule M-1. education.
59A(d)(4), 965(l), 4501(d), and 4985 for • Other nondeductible travel and
additional rules regarding the tax Reconciliation of Income entertainment expenses.
treatment of certain expatriated entities. (Loss) per Books With For more information, see Pub. 535.
Income per Return
In completing Schedule M-1, the following
apply.

-24- Instructions for Form 1120