REV-961: Schedule A-2/Schedule A-3 (REV-961) (Revision 2015-06)
Pennsylvania · Pennsylvania DOR · Used for tax years 2024, 2025, 2026
REV-961 contains Schedule A-2, which reconciles beginning and ending retained earnings using net income per books, distributions and other changes. Schedule A-3 reports adjustments to net income per books, including certain subsidiary corporation and limited liability company amo
Who files this form
Schedule A-2 must be filed by taxpayers who file federal Form 1120S and whose net income per books differs from the change in retained earnings plus distributions.
For requirements to complete these schedules, the form refers taxpayers to the CT-1 Instructions, REV-1200, at www.revenue.pa.gov.
What you'll need
- Federal Form 1120S schedules: Schedule A-2 uses retained earnings from Schedule L, net income per books from Schedule M-1 or M-3, and distributions from Schedule K. The form requires corporations to complete federal Schedules L, M-1 and M-2 regardless of federal requirements. Schedule M-3 may replace Schedule M-1.
- Distributions payable support: If you adjust for beginning or ending distributions payable on Schedule A-2, include a schedule of beginning and ending liabilities reporting “Distributions Payable” with federal Form 1120S.
- Support for specified LLC adjustments: For Schedule A-3 adjustments marked with an asterisk, provide a copy of federal Schedule K-1 if the investee LLC files federal Form 1065. If the investee LLC is a disregarded entity, provide a reconciliation of its beginning and ending net worth.
- Materially participating member information: If claiming the Schedule A-3, Line 10 reduction, complete Part B with each member’s name, SSN or EIN, how the member qualifies as materially participating under IRC Section 469, and the distribution and reduction amounts requested. Attach additional schedules if necessary.
Common mistakes
- Skipping required federal schedules: The form’s “IMPORTANT” reminder says corporations must complete federal Schedules L, M-1 and M-2 regardless of federal requirements. Schedule M-3 may be used instead of Schedule M-1.
- Entering retained earnings that do not match Schedule L: Schedule A-2, Line 1 must equal Column B, Line 24 of federal Schedule L. Line 9 must equal Column D, Line 24.
- Leaving out support for distributions payable adjustments: The required schedule of beginning and ending liabilities reporting “Distributions Payable” must be included with federal Form 1120S.
- Claiming the materially participating member reduction without meeting its limits: The Schedule A-3, Line 10 reduction is only for LLCs and business trusts not taxed as corporations for federal income tax purposes. Claimants must complete Part B.
Questions people ask
When is Schedule A-2 required?
It is required for taxpayers filing federal Form 1120S whose net income per books differs from the change in retained earnings plus distributions.
Can federal Schedule M-3 replace Schedule M-1?
Yes. The form says federal Schedule M-3 may be provided instead of federal Schedule M-1.
How do I calculate ending retained earnings on Schedule A-2?
Subtract Line 8 from Line 4 and enter the result on Line 9. It must equal retained earnings on federal Form 1120S, Schedule L, Column D, Line 24.
Who can claim the reduction for distributions to materially participating members?
Only LLCs and business trusts not taxed as corporations for federal income tax purposes may claim this reduction. Taxpayers claiming it must complete Schedule A-3, Part B and carry the total reduction to Part A, Line 10.
Where does the form direct me for completion requirements?
It directs you to the CT-1 Instructions, REV-1200, at www.revenue.pa.gov.