Schedule M-3 and Form 8916-A in UltraTax CS
UltraTax calculates much of Schedule M-3 and Form 8916-A automatically from the entries already in the return. Schedule M-3 replaces Schedule M-1 for larger filers, generally those with total assets of $10 million or more, and Form 8916-A is the supplemental attachment that breaks out cost of goods sold, interest income and interest expense.
- Folders
- Balance Sheet
- Screen Mc or the M-3 screens
| Trial balance account | UltraTax CS screen and field | Lands on |
|---|---|---|
| Book to tax differences | Computed from the return entries | Schedule M-3 Parts II and III |
| Cost of goods sold detail | Form 8916-A Part I | Form 8916-A |
| Interest income and expense detail | Form 8916-A Parts II and III | Form 8916-A |
| When M-3 replaces M-1 | Generally total assets of $10 million or more | Schedule M-3 instead of M-1 |
| Income reconciliation | Screen Mc on an 1120 | Schedules M-1 and M-2 |
| Rounding tolerance | $10 by default for new clients | Small differences absorbed |
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Try it freeSchedule M-3 and Form 8916-A in UltraTax CS on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold (the account this page is about) | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense | 21,500.00 | |
| 6900 | Other operating expenses | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Depreciation expense | 21,500.00 | |
| Accumulated depreciation | 21,500.00 |
What changes when M-3 applies
Schedule M-3 is the larger filer's version of Schedule M-1, generally required once total assets reach $10 million. It asks for far more than a reconciliation total: each difference is reported separately, with its book amount, its tax amount, and whether the difference is temporary or permanent.
Form 8916-A is the supplemental attachment that breaks out cost of goods sold, interest income and interest expense in the same book and tax format.
UltraTax calculates much of both automatically from the entries already in the return, which is the useful part. The work that remains is the part no software can do: identifying which account produced which difference, and whether it reverses.
Temporary or permanent is the question M-1 never asked
On Schedule M-1, a difference is just a difference. On Schedule M-3 it has a character.
Temporary differences reverse: depreciation timing, accrued expenses not yet deductible, deferred revenue. They affect which year the income lands in.
Permanent differences never reverse: the disallowed half of meals, penalties, officer life insurance where the company is the beneficiary, tax exempt interest.
Classifying them is an account by account exercise, and it is why an M-3 filer's trial balance needs to be understood rather than mapped. A single account holding both deductible and nondeductible items has to be split before either column can be filled in.
Cost of goods sold gets its own treatment
Form 8916-A Part I reports cost of goods sold on a book and tax basis with the differences broken out. For a manufacturer, that means the section 263A adjustments, inventory reserves and production costs all have to be identifiable rather than summarized.
This is where the inventory and depreciation controls on Screen A matter beyond page 1. A depreciation amount routed into Form 1125-A appears in a different place on 8916-A than one left on page 1.
Practical notes
The $10 default rounding tolerance for new clients still applies, so small differences may be absorbed rather than reported.
And the usual sequence holds: get the balance sheet to tie and the M-1 style differences identified first. An M-3 built on a balance sheet that does not foot is a much longer afternoon than one built on a trial balance that does.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Schedule M-3 and Form 8916-A instead of Schedule M-1 |
| Form 1120S | Schedule M-3 Part III, with Form 8916-A |
| Form 1065 | Schedule M-3 and Form 8916-A |
Common questions
When is Schedule M-3 required instead of Schedule M-1?
Generally once total assets reach $10 million, with other tests that can bring a filer in. Schedule M-3 reports each book to tax difference separately with its book amount, tax amount and whether it is temporary or permanent, rather than a single reconciliation.
What is Form 8916-A?
The supplemental attachment to Schedule M-3 that breaks out cost of goods sold, interest income and interest expense on a book and tax basis. UltraTax calculates much of it automatically from the entries already in the return.
What is the difference between a temporary and a permanent difference?
A temporary difference reverses in a later year, like depreciation timing or an accrual not yet deductible. A permanent difference never reverses, like the disallowed half of meals, penalties, or officer life insurance where the company is the beneficiary. Schedule M-3 requires the distinction; Schedule M-1 does not.
Does UltraTax compute Schedule M-3 automatically?
Much of it, from the entries already in the return. What it cannot do is decide which account produced a difference or whether that difference reverses, which is why an M-3 filer trial balance has to be understood account by account.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 18, 2026.