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Form 1120FM1: 1120-F Schedules M-1, M-2
IRS Form 1120-F Schedules M-1, M-2 is used by foreign corporations to reconcile net income per books with income per return and analyze unappropriated retained earnings. Foreign corporations required to file Form 1120-F Section II must complete these schedules unless total assets are under $25,000. If assets are $10 million or more, Schedule M-3 must be used instead of M-1.
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IRS Form 1120FM1 - 1120-F Schedules M-1, M-2
IRS Form 1120-F Schedules M-1, M-2 is used by foreign corporations to reconcile net income per books with income per return and analyze unappropriated retained earnings. Foreign corporations required to file Form 1120-F Section II must complete these schedules unless total assets are under $25,000. If assets are $10 million or more, Schedule M-3 must be used instead of M-1.
Risk Radar
Scan points- 1Filing Schedule M-1 when total assets are $10 million or more instead of Schedule M-3.
- 2Completing Schedule M-1 when total assets are $10 million or more (must use M-3).
- 3Not completing Schedule M-2 when filing Schedule M-3 in lieu of M-1.
- 4Entering net income per books on line 1 that does not match Schedule L.
- 5Omitting tax-exempt interest on line 7a and item P of Form 1120-F.
Plain English
This form helps a foreign corporation explain the differences between its own accounting records and what it reports on its tax return. It also tracks how the company's retained earnings change over the year, including profits, distributions, and other adjustments. If the company has $10 million or more in assets, it must use a different schedule (M-3) instead of M-1.
Submission Date
- Filing date: 2025-12-22 12:10:42
- Preparation window: collect IDs, supporting records, and signatures in advance.
- Final review: verify names, dates, and required fields before submission.
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Glossary Terms
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What this form is for
- Use this form when you are a foreign corporation required to complete Form 1120-F, Section II, and your total assets at the end of the tax year are $25,000 or more.
- Do not use it when your total assets at the end of the tax year are less than $25,000 (do not complete Schedules M-1, M-2, or M-3).
- Check Schedule M-3 (Form 1120-F) instead when your total assets at the end of the tax year are $10 million or more (you must complete Schedule M-3 in lieu of Schedule M-1).
Form selector
Use this form or another form?
Situation
Why it matters
✓ Check before you continue
Total assets at end of tax year are $10 million or more
Must complete Schedule M-3 instead of Schedule M-1; Schedule M-2 is still required.
✓ Confirm total assets on Schedule L, line 17, column (d).
Total assets at end of tax year are less than $25,000
Do not complete Schedules M-1, M-2, or M-3.
✓ Verify asset amount on Schedule L.
Foreign corporation not required to file Schedule M-3 but chooses to file voluntarily
May voluntarily file Schedule M-3 instead of Schedule M-1; Schedule M-2 still required.
✓ See Instructions for Schedule M-3 (Form 1120-F).
Foreign corporation required to file Schedule M-3 and has less than $50 million in assets, or voluntarily files M-3
Must either complete entire M-3 or complete Part I and Schedule M-1 (line 1 must equal M-3 Part I line 11).
✓ Check asset threshold and election.
Schedule M-3 (Form 1120-F) with option to complete only Part I and Schedule M-1
Deadline or filing window
The filing deadline for Schedules M-1 and M-2 is the same as for Form 1120-F. The source does not specify a separate deadline; refer to Form 1120-F instructions. Extensions may be available through Form 7004.
Checklist
What you need before filling it out
Field or section
Document or info needed · Usually found in
Schedule M-1, line 1 (Net income per books)
Net income per set(s) of books used on Schedule L · Financial statements or accounting records
Schedule M-1, line 2 (Federal income tax per books)
Federal income tax expense recorded in books · Income statement or tax provision workpapers
Schedule M-1, line 5c (Travel and entertainment)
Nondeductible entertainment, meals, gifts over $25, etc. · Expense reports, receipts, and tax adjustment schedules
Schedule M-1, line 7a (Tax-exempt interest)
Tax-exempt interest received or accrued, including exempt-interest dividends · Investment statements, mutual fund reports
Schedule M-2, line 1 (Beginning balance)
Unappropriated retained earnings per books at start of year · Prior year Schedule M-2 line 8 or balance sheet
Schedule M-2, line 5 (Distributions)
Cash, stock, and property distributions · Board minutes, dividend records
Before you submit
- 1Attach Schedules M-1 and M-2 to Form 1120-F.
- 2Verify total assets on Schedule L to confirm you are not exempt.
- 3If assets are $10 million or more, complete Schedule M-3 instead of M-1.
- 4If assets are less than $25,000, do not complete any of these schedules.
- 5Enter net income per books on line 1 from the set(s) of books used on Schedule L.
- 6Itemize expenses on line 5c including nondeductible entertainment, meals, gifts over $25, etc.
- 7Report tax-exempt interest on line 7a and also on page 2 of Form 1120-F item P.
- 8Complete Schedule M-2 analysis of unappropriated retained earnings.
- 9Ensure Schedule M-1 line 1 equals Schedule M-3 Part I line 11 if using the partial M-3 option.
- 10Keep a copy for your records.
How to file this form
- 1Determine if you must file Schedules M-1 and M-2 based on total assets.
- 2If required, complete Schedule M-1: reconcile net income per books to income per return.
- 3Complete Schedule M-2: analyze unappropriated retained earnings.
- 4Attach the completed schedules to Form 1120-F.
- 5File Form 1120-F with the attached schedules by the due date (see Form 1120-F instructions).
- 6Retain a copy of the filed return and schedules.
Known limitations
- 1Do not complete Schedules M-1 and M-2 if total assets at end of tax year are less than $25,000.
- 2Must complete Schedule M-3 instead of Schedule M-1 if total assets are $10 million or more.
- 3Foreign corporations not required to file Form 1120-F Section II do not need to complete these schedules.
- 4If voluntarily filing Schedule M-3, you may still need to complete Schedule M-1 under certain conditions (see instructions).
Field map
Compact field-by-field guide
Entity Info
2 items
Full legal name of the corporation and its Employer Identification Number.
Current mailing address and date of incorporation.
Income
3 items
Total revenue from business operations before deducting costs.
Direct costs attributable to producing goods sold by the corporation.
Gross receipts minus cost of goods sold and returns/allowances.
Deductions
1 items
Sum of all business expenses including compensation, rent, interest, taxes, and depreciation.
Tax
2 items
Total income minus total deductions.
Tax calculated on taxable income using the applicable corporate tax rate, minus any credits.
Signatures
1 items
An authorized corporate officer must sign and date the return.
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Fillable formOpen in Editor->The current edition is revision December 2025. The IRS directs filers to www.irs.gov/Form1120F for the latest information; no specific changes are noted in the source.
What changed or needs a fresh check
- Edition date — Confirm the revision date reads 'Rev. December 2025'.
- Fee — Not stated in the official source — verify on the agency site.
- Mailing address — Not stated in the official source — verify on the agency site.
- Signature — Not stated in the official source — verify on the agency site.
- Asset threshold — Confirm total assets on Schedule L, line 17, column (d) to determine if you must file Schedule M-3 or are exempt.
- OMB number — Confirm OMB No. 1545-0123 is present.
Quick Facts
Downloads
After you file
- 1Retain a copy of the filed Form 1120-F and schedules for at least 3 years.
- 2If you discover an error, file an amended return using Form 1120-X (if applicable).
- 3Monitor IRS correspondence for any notices regarding the return.
- 4Check the IRS website for any updates to the form instructions.
- 5If you used the partial M-3 option, ensure Schedule M-1 line 1 matches M-3 Part I line 11 for consistency.
Sources
- SRCForm p.1 — Who Must File: foreign corporation required to complete Form 1120-F Section II must complete Schedules M-1 and M-2.
- SRCForm p.1 — Do not complete if total assets less than $25,000.
- SRCForm p.1 — Complete Schedule M-3 if assets $10 million or more.
- SRCForm p.1 — Line 1: net income per books from set(s) of books on Schedule L.
- SRCForm p.1 — Line 5c: include nondeductible entertainment, meals, gifts over $25, etc.
- SRCForm p.1 — Line 7a: report tax-exempt interest and also on page 2 of Form 1120-F item P.
- SRCForm p.1 — Schedule M-2 line 1: beginning balance per books on Schedule L.
- SRCForm p.1 — OMB No. 1545-0123, Cat. No. 49678K.
- SRCForm p.1 — Note: If Schedule M-3 is completed in lieu of M-1, Schedule M-2 is still required.
- SRCForm p.1 — Option for partial M-3: complete Part I and Schedule M-1 instead of Parts II and III.
Common confusion points
Confusion
Why it happens
→ Safe check
When to use Schedule M-1 vs M-3?
Asset thresholds are not always clear.
→ Check total assets on Schedule L line 17 column (d); if $10M or more, use M-3; if under $25K, skip both.
What to include on line 5c?
Many nondeductible items are listed.
→ Review the list in the instructions: entertainment, meals, gifts over $25, cruise ship conventions, etc.
Do I need to complete Schedule M-2 if I file Schedule M-3?
Yes, Schedule M-2 is still required even if M-3 is filed instead of M-1.
→ Confirm that Schedule M-2 is attached to Form 1120-F.
How to report tax-exempt interest?
Must be reported in two places.
→ Report on line 7a and also on page 2 of Form 1120-F, item P.
What if my books are not in U.S. GAAP?
The form asks for 'per books' without specifying accounting standard.
→ Use the same set(s) of books as reported on Schedule L.
What is the beginning balance for Schedule M-2?
It should match the ending balance from the prior year's Schedule M-2 line 8.
→ Refer to prior year return or accounting records.
Workflow map
Related forms and next steps
Before
Current
After
Often used with
⚠ If something goes wrong
- Instructions for Form 1120-F — for correction procedures.
Questions about IRS Form 1120FM1
What is IRS Form 1120FM1 used for?
This form helps a foreign corporation explain the differences between its own accounting records and what it reports on its tax return. It also tracks how the company's retained earnings change over the year, including profits, distributions, and other adjustments. If the company has $10 million or more in assets, it must use a different schedule (M-3) instead of M-1.
Who must file IRS Form 1120FM1?
Foreign corporations that are required to complete Form 1120-F, Section II, must complete Schedules M-1 and M-2, unless total assets at the end of the tax year are less than $25,000.
What information does IRS Form 1120FM1 require?
Schedule M-1 reconciles net income (loss) per books with income per return, listing items like federal income tax, capital losses, and nondeductible expenses (e.g., depreciation, charitable contributions, travel and entertainment). Schedule M-2 analyzes unappropriated retained earnings, showing beginning balance, net income, other increases, distributions (cash, stock, property), and other decreases to arrive at ending balance.
Where do I file IRS Form 1120FM1?
Send with Form 1120-F to the appropriate IRS service center; no separate mailing address is provided for these schedules.
How do I complete IRS Form 1120FM1?
Complete Schedule M-1 by entering net income per books, then adding federal income tax, capital losses, and other adjustments to reconcile to income per return. Then complete Schedule M-2 by entering beginning retained earnings, net income, other increases, distributions, and other decreases to arrive at ending balance. Sign and attach to Form 1120-F.
What happens if IRS Form 1120FM1 is filed incorrectly?
Failure to attach these schedules to Form 1120-F may result in processing delays or additional IRS inquiries.
Confusion — what should I check?
Why it happens Safe check
When to use Schedule M-1 vs M-3?
Asset thresholds are not always clear. Check total assets on Schedule L line 17 column (d); if $10M or more, use M-3; if under $25K, skip both.
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