Department of the Treasury

Simplify Schedule M-3 on tax forms

Schedule M-3 was created to provide transparency on the tax returns such as on Form 1120. It is essentially a deferred tax computation scheudle.

It does not provide enough transparency, it is a nightmare to map for taxpayers and tax preparers and can be a time sucking form to analyze for examiners. If the form would be revamped so that the lines on the Sch M-3 would correspond to the lines on page one of the tax returns, it would save several hours per return for each taxpayer and cut examination time by several hours per return. An couple examples would be. Make the depreciation difference on line 20 Sch M-3 to correspond to line 20 on the page one of the tax return. A gross reciepts adjustment would go on line 1 to correspond to line 1 of the tax return. Also lines with multiple transactions should be created on a feeder schedule so that if you have, say 10 items on gross receipts it would list all 10 changes and subtotal it and then feed it to line 1. You could go even as far as making the m-3 sch on page 1 of the tax return with the columns starting with book, timing, permanent and then the tax amount being on the far right column. Right now, we see far too much being put in the "other" lines and the transparency is lost. In my talks with tax preparers and taxpayers, they all agree that this would greatly simplify the form and cut numberous hours. This is a tough savings to quantify but the savings could average somewhere to $1000 to $10000 per agent in a year. If there are 5000 examining agents the savings could be somewhere between 5 million and 50 million dollars in additional revenue brought in as auditing of the returns would be more transparent and the preparers and taxpayers would have a much easier time in completing the return.

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Idea No. 18582