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Screen Ms - Income Reconciliation, Accumulated and Other Adjustments (1120)
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Schedule M-1 - Reconciliation of Income (Loss)
Complete Schedule M-1 when not required
Schedule M-1 calculates automatically if total receipts and year-end assets are more than $250,000. Enter
X
in this field if total receipts and year-end assets are less than $250,000, and you want to calculate Schedule M-1 for this S corporation.This field won't be available if you've set the option to
Complete Schedule M-1 and C Corporation Schedule M-2 when receipts and assets are less than $250,000
for all clients. This global option to turn on or off is in tab.Net income (loss) per books from accounting product
The net income (loss) from the accounting application is displayed for informational purposes only. To use this amount on Schedule M-1, enter the amount displayed in the
Net income (loss) per books
field.Net income (loss) per books
The behavior of Schedule M-1, Net income (loss) per books differs depending on whether or not data is entered in this field.
- If this field has an entry, the application uses this amount for Net income (loss) per books on Schedule M-1, line 1, then adds and subtracts the adjustments to arrive at Income (loss) per Schedule K on Schedule M-1, line 8.
- If this field is blank, UltraTax CS /1120 automatically calculates Schedule M-1, Net income (loss) per books by adjusting the amount on Schedule K, Income (loss) by the Schedule M-1 adjustments.
UltraTax CS /1120 automatically adjusts the amount you enter by the federal income tax accrual adjustment if an
X
is entered in the Accrue federal income tax
field in the TaxAc1 screen in the Tax Accrual folder.UltraTax CS /1120 also automatically adjusts the amount entered by the state and city tax accrual adjustment if an
X
is entered in the Accrue state and city tax
and Adjust balance sheet and net income per books for state and city tax accrual adjustment
fields in the TaxAc1 screen in the Tax Accrual folder.Officer life insurance premiums / Schedule M-2 code
Per Revenue Ruling 2008-42, premiums paid by the S Corporation on an employer-owned life insurance contract, which the corporation owns and is a beneficiary of, doesn't reduce the S Corporation's Accumulated Adjustment Account (AAA). Similarly, the life insurance proceeds received by an S Corporation on the death of an individual employed by the S Corporation within the last 12 months or who is a director or highly compensated employee, don’t increase its AAA.
While the Revenue Ruling doesn't explain its reasoning, it would seem that even though no deduction is allowed for premiums paid on any life insurance policy where the taxpayer is directly or indirectly the beneficiary, the nondeductible expense doesn't reduce the S Corporation's AAA because it's related to tax-exempt income.
Therefore, UltraTax CS transfers amounts entered here to Schedule M-2, Other Adjustments Account (OAA) - Other reductions. If you want the amount to reduce AAA instead, enter code
A
in the Schedule M-2 code
. If you don't want to transfer the amount to Schedule M-2, leave this field blank. Instead, enter the amount in the
Book expenses not deducted
statement window and enter the code in the Schedule M-2
column.Cash surrender value - officer life / Schedule M-2 code
Per Revenue Ruling 2008-42, premiums paid by the S Corporation on an employer-owned life insurance contract, which the corporation owns and is a beneficiary of, doesn't reduce the S Corporation's Accumulated Adjustment Account (AAA). Similarly, the life insurance proceeds received by an S Corporation on the death of an individual employed by the S Corporation within the last 12 months or who is a director or highly compensated employee, don’t increase its AAA.
While the Revenue Ruling doesn't explain its reasoning, it would seem that even though no deduction is allowed for premiums paid on any life insurance policy where the taxpayer is directly or indirectly the beneficiary, the nondeductible expense doesn't reduce the S Corporation's AAA because it's related to tax-exempt income.
Therefore, UltraTax CS transfers amounts entered here to Schedule M-2, Other Adjustments Account (OAA) - Other additions. If you want the amount to reduce AAA instead, enter code
A
in the Schedule M-2 code
. If you don't want to transfer the amount to Schedule M-2, leave this field blank. Instead, enter the amount in the
Income on books not on return
statement window and enter the code in the Schedule M-2
column.PPP loan forgiveness
The amount of PPP loan forgiveness you enter here is excluded from taxable income. The expenses paid with the proceeds from the PPP loans are also tax deductible. In the case of an S Corporation, the loan forgiveness is treated as tax-exempt income and increased the shareholder’s basis in the S Corporation stock.
The PPP loan forgiveness is reported as income on books not on return on Schedule M-1, as Other tax-exempt income on Schedules K and K-1, as an Other addition on Schedule M-2, column (d), line 3, and as an increase on the Shareholder’s Basis Worksheet.
Depreciation
The application makes a Schedule M-1 adjustment only when tax depreciation and book depreciation are different. If both book fields are blank, the application assumes that book and tax are the same.
Section 179 expense
The application includes the tax section 179 when calculating the depreciation Schedule M-1 adjustment. If both book fields are blank, the application doesn’t assume that book and tax are the same.
Amortization
The application makes a Schedule M-1 adjustment only when tax amortization and book amortization are different. If both book fields are blank, the application assumes that book and tax are the same.
Organization or start-up expense deduction
The application makes a Schedule M-1 adjustment only when tax organization or start-up expense deduction and book organization or start-up expense deduction are different. If both book fields are blank, the application assumes that book and tax are the same.
4797 gain (loss)
The application makes a Schedule M-1 adjustment only when tax 4797 gain (loss) and book 4797 gain (loss) are different. If both book fields are blank, the application assumes that book and tax are the same.
note
- If you have a section 1231 gain or loss from a pass-through entity that is included in your book income, enter the total book gain or loss in theForcefield to prevent UltraTax CS /1120 from generating a Schedule M-1 adjustment.
- If you have a gain or loss on assets that were disposed of in a casualty or theft, or were traded in a like kind exchange, and the gain or loss is included in your book income, enter the total book gain or loss in theForcefield.
Depletion - Oil and gas
Enter the amount of book depletion from oil and gas properties. If book depletion is zero, enter
0
(zero). UltraTax CS /1120 generates a Schedule M-1 reconciling item of this amount. If this field is blank, UltraTax CS /1120 doesn’t make a Schedule M-1 reconciling item.Depletion - Other than oil and gas
If book depletion is zero, enter
0
(zero). The application generates a Schedule M-1 reconciling item, which is the difference between the tax depletion (entered in the Inc screen) and the amount of book depletion for properties other than oil and gas. If you leave this field blank, the application doesn’t generate a Schedule M-1 adjustment.If you don’t enter tax depletion for properties other than oil and gas in the Inc screen, the application places the amount from the
Depletion - other than oil and gas
field on the Depletion line of Page 1 of the return and doesn’t make a reconciling adjustment. Likewise, if you enter an amount for tax depletion for properties other than oil and gas in the Inc screen, and leave the Depletion - other than oil and gas
field blank, the application assumes that the amounts are the same and doesn’t generate a Schedule M-1 adjustment.Current year expenses paid with proceeds from forgiven PPP loans
The expenses paid with PPP loan proceeds are deductible for federal tax purposes. For the Schedule M-2, the expenses are reported as an Other reduction in the Other adjustments account column (d).
Because the expenses are deductible for federal tax purposes, they’ll be included in the Accumulated adjustments column (a) lines 2 or 4. UltraTax CS reclassifies these expenses by recording an Other increase in column (a) line 3, and reporting the expenses as an Other reduction in column (d) line 5.
Carry book/tax differences to Schedule M-2
If this field blank, the application uses the option selected in the
Carry Schedule M-1 book/tax differences to Schedule M-2
field in tab.Schedule M-2 - Analysis of Accumulated and Other Adjustments
Suppress printing of Schedule M-2
Schedule M-2 is not required if the corporation was an S Corporation from the beginning, however, it is recommended to print Schedule M-2 in case it is needed in a future year. Enter
X
to suppress the Schedule M-2 from printing. The application will continue to print Schedule M-2 if this field is marked and there is data entry in the Accumulated E&P column of the Ms
screen.Transfer basis adjustments to Timing Differences
Enter
X
to transfer the gain or loss from the disposition of section 179 assets and the tentative depletion adjustment to the Retained Earnings Timing Differences column in the Retained Earnings Worksheet.The adjustment is needed to balance ending Retained Earnings per Schedule M-2 and Schedule L, if you reconcile the 2 amounts on a tax basis.
If you reconcile ending Retained Earnings on a book basis, leave this field blank. You can either enter an amount (including zero) in the
Sale of Section 179 Assets
, Exchange of Section 179 Assets
, or Oil and Gas Depletion
fields in the StmtS3 screen in the Review folder, or enter a manual adjustment to the Accumulated Adjustments Account in the Ms screen.Balance at beginning of year
Enter balances at the beginning of the tax year in the
AAA, PTI, Accumulated E&P
, and /or the Timing Differences
fields. If you leave these fields blank, UltraTax CS /1120 uses the amounts entered in the L-2 screen. For returns that have been proforma'd, the Schedule M-2 end-of-year balances from the prior-year return are automatically entered in these fields.Distributions
If you enter an amount in this field and different amounts for each shareholder in the
Distributions including cash (Force)
field in the View, Shareholder Information, then Other Info tab, the amounts entered in the Ms screen transfer to Schedule M-2, and amounts entered for the shareholders transfer to Schedules K and K-1.Schedule M-2 and Schedule L Retained Earnings Reconciliation
Reconciling detail
Enter the detail of the prior year differences between the Schedule M-2 and Schedule L retained earnings accounts. UltraTax CS /1120 prints the detail and the current-year book / tax differences coded to the REU account in the
Schedule M-2 and Schedule L Ending Retained Earnings Reconciliation
statement.