2011 Instruction 1120 S 1362 I1120s

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Page 1 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
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Department of the Treasury
Internal Revenue Service
2011
Instructions for Form 1120S
U.S. Income Tax Return for an S Corporation
Section references are to the Internal these children home by looking at the
Contents Page
Revenue Code unless otherwise noted. photographs and calling
Schedule M-1 .................35 1-800-THE-LOST (1-800-843-5678) if
Schedule M-2 .................35
Contents Page you recognize a child.
Principal Business Activity
Photographs of Missing Codes .....................39
Children .....................1 Index .......................42 Unresolved Tax Issues
Unresolved Tax Issues ...........1
Direct Deposit of Refund ..........1 The Taxpayer Advocate Service (TAS)
What’s New
How To Get Forms and is an independent organization within
Publications ..................1 the IRS whose employees assist
Merchant card and third-party taxpayers who are experiencing
General Instructions ............2 payments. For the 2011 tax year, the economic harm, who are seeking help
Purpose of Form ................2 IRS has deferred the requirement to in resolving tax problems that have not
Who Must File ..................2 separately report on the corporation’s been resolved through normal
Termination of Election ...........2 return the amount of merchant card and channels, or who believe that an IRS
Electronic Filing .................2 third party network payments from system or procedure is not working as it
When To File ..................2 Form 1099-K, Merchant Card and should. The service is free, confidential,
Third-Party Network Payments.
Where To File ..................3 tailored to meet your needs, and is
Instead, report gross receipts or sales
Who Must Sign .................3 available for businesses, as well as
from all business operations as
Paid Preparer Authorization ........3 individuals.
indicated in the instructions for lines 1a
Assembling the Return ...........3 through 1d. The corporation can contact the TAS
Tax Payments ..................4 as follows.
Cost of goods sold. We deleted
Electronic Deposit •Call the TAS toll-free line at
Schedule A (Cost of Goods Sold) from
Requirement .................4 1-877-777-4778 or TTY/TDD
Form 1120S. Cost of goods sold is now
Estimated Tax Payments ..........4 1-800-829-4059 to see if the
figured on Form 1125-A, Cost of Goods
Interest and Penalties ............4 corporation is eligible for assistance.
Sold.
Accounting Methods .............5 •Call or write the corporation’s local
Change of address. Form 8822-B,
Accounting Period ...............5 taxpayer advocate, whose phone
Change of Address—Business, has
Rounding Off to Whole Dollars .....5 number and address are listed in the
been created specifically for business
Recordkeeping .................5 local telephone directory and in Pub.
use. Corporations use this form to notify
Amended Return ................5 1546, Taxpayer Advocate Service –
the IRS of a new business address.
Other Forms and Statements Your Voice at the IRS.
See the instructions for Item H.
That May Be Required ..........6 •File Form 911, Request for Taxpayer
Form(s) 1099. On Schedule B, we Advocate Service Assistance (And
Passive Activity Limitations ........6 added new questions 10a and 10b Application for Taxpayer Assistance
Extraterritorial Income about Form(s) 1099. Order), or ask an IRS employee to
Exclusion ...................10 complete it on the corporation’s behalf.
Food inventory contributions. The
Specific Instructions ...........11 increased deduction for certain
Period Covered ................11 For more information, go to www.irs.
charitable contributions of food
Name and Address .............11 gov/advocate.
inventory expired for contributions
Business Code ................11 made after December 31, 2011. See
Schedule M-3 Information ........11 Direct Deposit of Refund
section 170(e)(3)(C).
Employer Identification To request a direct deposit of the
Future developments. The IRS has
Number (EIN) ...............11 corporation’s income tax refund into an
created a page on IRS.gov for
Total Assets ..................11 account at a U.S. bank or other
information about Form 1120S and its
Final Return, Name Change, financial institution, attach Form 8050,
instructions at www.irs.gov/form1120s.
Address Change, Amended Direct Deposit of Corporate Tax
Information about any future
Return, or S Election Refund. See the instructions for line 27.
developments affecting Form 1120S
Termination or Revocation ......11 (such as legislation enacted after we
Income ......................12 How To Get Forms
released it) will be posted on that page.
Deductions ...................13
Tax and Payments .............18 and Publications
Photographs of
Schedule B ..................19 Internet. You can access the IRS
Schedules K and K-1 Missing Children website 24 hours a day, 7 days a week,
(General Instructions) ........19 The Internal Revenue Service is a at IRS.gov to:
Specific Instructions proud partner with the National Center •Download forms, instructions, and
(Schedule K-1 Only) ..........20 for Missing and Exploited Children. publications;
Specific Instructions Photographs of missing children •Order IRS products online;
(Schedules K and K-1, Part selected by the Center may appear in •Research your tax questions online;
III) ........................21 these instructions on pages that would •Search publications online by topic or
Schedule L ...................35 otherwise be blank. You can help bring keyword;
Cat. No. 11515KJan 31, 2012
Page 2 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
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•
View Internal Revenue Bulletins 1120S for any tax year before the year the IRS that it is revoking its election to
(IRBs) published in recent years; and the election takes effect. be an S corporation. The statement
•
Sign up to receive local and national must be signed by each shareholder
If you have not filed Form 2553, or
tax news by email. who consents to the revocation and
did not file Form 2553 on time, you may contain the information required by
IRS Tax Products DVD. You can be entitled to relief for a late filed Regulations section 1.1362-6(a)(3).
order Pub. 1796, IRS Tax Products election to be an S corporation. See the A revocation can be rescinded
DVD, and obtain the following. Instructions for Form 2553 for details. before it takes effect. See Regulations
•
Current-year forms, instructions, and section 1.1362-6(a)(4) for details.
publications. Termination of Election
•
Prior-year forms, instructions, and For rules on allocating income and
Once the election is made, it stays in
publications. deductions between an S short year
effect until it is terminated. If the
•
Tax Map: an electronic research tool and a C short year and other special
election is terminated, the corporation
and finding aid. rules that apply when an election is
(or a successor corporation) can make
•
Tax law frequently asked questions terminated, see section 1362(e) and
another election on Form 2553 only
(FAQs). Regulations section 1.1362-3.
with IRS consent for any tax year
•
Tax Topics from the IRS telephone If an election was terminated under 1
before the 5th tax year after the first tax
response system. or 2 above, and the corporation
year in which the termination took
•
Internal Revenue Code—Title 26 of believes the termination was
effect. See Regulations section
the U.S. Code. inadvertent, the corporation can request
1.1362-5 for details.
•
Fill-in, print, and save features for permission from the IRS to continue to
An election terminates automatically
most tax forms. be treated as an S corporation. See
in any of the following cases.
•
Internal Revenue Bulletins. Regulations section 1.1362-4 for the
•
Toll-free and email technical support. 1. The corporation is no longer a specific requirements that must be met
•
Two releases during the year. small business corporation as defined to qualify for inadvertent termination
– The first release will ship in early in section 1361(b). This kind of relief.
January. termination of an election is effective as
– The final release will ship in early of the day the corporation no longer Electronic Filing
March. meets the definition of a small business Corporations can generally
corporation. Attach to Form 1120S for
Buy the DVD from the National electronically file (e-file) Form 1120S,
the final year of the S corporation a
Technical Information Service (NTIS) at related forms, schedules, and
statement notifying the IRS of the
www.irs.gov/cdorders for $30 (no attachments, Form 7004 (automatic
termination and the date it occurred.
handling fee) or call 1-877-233-6767 toll extension of time to file), and Forms
2. The corporation, for each of three
free to buy the DVD for $30 (plus a $6 940, 941, and 944 (employment tax
consecutive tax years, (a) has
handling fee). returns). Form 1099 and other
accumulated earnings and profits and
By phone and in person. You can information returns can also be
(b) derives more than 25% of its gross
order forms and publications by calling electronically filed.
receipts from passive investment
1-800-TAX-FORM (1-800-829-3676). Exceptions. The option to e-file
income as defined in section
You can also get most forms and generally does not apply to certain
1362(d)(3)(C). The election terminates
publications at your local IRS office. returns, including:
on the first day of the first tax year
•
Returns with precomputed penalty
beginning after the third consecutive tax and interest, and
year. The corporation must pay a tax
General Instructions •
Returns with request for
for each year it has excess net passive overpayment to be applied to another
income. See the line 22a instructions account.
for details on how to figure the tax.
Purpose of Form 3. The election is revoked. An Required e-filers. Certain
Use Form 1120S to report the income, election can be revoked only with the corporations with total assets of $10
gains, losses, deductions, credits, etc., consent of shareholders who, at the million or more that file at least 250
of a domestic corporation or other entity time the revocation is made, hold more returns a year are required to e-file
for any tax year covered by an election than 50% of the number of issued and Form 1120S, even if any of the above
to be an S corporation. For details outstanding shares of stock (including exceptions apply. See Regulations
about the election, see Form 2553, non-voting stock). The revocation can section 301.6037-2. However, these
Election by a Small Business specify an effective revocation date that corporations can request a waiver of
Corporation, and the Instructions for is on or after the day the revocation is the electronic filing requirements. See
Form 2553. filed. If no date is specified, the Notice 2010-13, 2010-4 I.R.B. 327.
revocation is effective at the start of the Visit www.irs.gov/efile for more
Who Must File tax year if the revocation is made on or information.
A corporation or other entity must file before the 15th day of the 3rd month of
Form 1120S if (a) it elected to be an S that tax year. If no date is specified and When To File
corporation by filing Form 2553, (b) the the revocation is made after the 15th Generally, an S corporation must file
IRS accepted the election, and (c) the day of the 3rd month of the tax year, Form 1120S by the 15th day of the 3rd
election remains in effect. After filing the revocation is effective at the start of month after the end of its tax year. For
Form 2553, you should have received the next tax year. calendar year corporations, the due
confirmation that Form 2553 was date is March 15, 2012. A corporation
accepted. If you did not receive To revoke the election, the that has dissolved must generally file by
notification of acceptance or corporation must file a statement with the 15th day of the 3rd month after the
nonacceptance of the election within 2 the appropriate service center listed date it dissolved.
months of filing Form 2553 (5 months if under Where To File in the
you checked box Q1 to request a letter Instructions for Form 2553, Election by If the due date falls on a Saturday,
ruling), take follow-up action by calling a Small Business Corporation. In the Sunday, or legal holiday, the
1-800-829-4933. Do not file Form statement, the corporation must notify corporation can file on the next day that
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Instructions for Form 1120S
Page 3 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
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is not a Saturday, Sunday, or legal Private delivery services cannot court authorizing signing of the return
deliver items to P.O. boxes. You or form.
holiday. must use the U.S. Postal
CAUTION
!
If an employee of the corporation
If the S corporation election was Service to mail any item to an IRS P.O. completes Form 1120S, the paid
terminated during the tax year and the box address. preparer space should remain blank.
corporation reverts to a C corporation, Anyone who prepares Form 1120S but
file Form 1120S for the S corporation’s
Extension of Time To File
does not charge the corporation should
short year by the due date (including File Form 7004, Application for not complete that section. Generally,
extensions) of the C corporation’s short Automatic Extension of Time To File anyone who is paid to prepare the
year return. Certain Business Income Tax, return must sign it and fill in the “Paid
Information, and Other Returns, to Preparer Use Only” area.
request a 6-month extension of time to
Private Delivery Services
The paid preparer must complete the
file. Generally, the corporation must file
Corporations can use certain private required preparer information and:
Form 7004 by the regular due date of
delivery services designated by the IRS
•
Sign the return in the space provided
the return. See the Instructions for
to meet the “timely mailing as timely for the preparer’s signature.
Form 7004.
filing ” rule for tax returns. These
•
Give a copy of the return to the
private delivery services include only taxpayer.
the following. Note. A paid preparer may sign
Who Must Sign
•
DHL Express (DHL): DHL Same Day original or amended returns by rubber
The return must be signed and dated
Service. stamp, mechanical device, or computer
by:
•
Federal Express (FedEx): FedEx software program.
•
The president, vice president,
Priority Overnight, FedEx Standard treasurer, assistant treasurer, chief
Overnight, FedEx 2Day, FedEx Paid Preparer
accounting officer; or
International Priority, and FedEx
•
Any other corporate officer (such as
International First. Authorization
tax officer) authorized to sign.
•
United Parcel Service (UPS): UPS If the corporation wants to allow the
Next Day Air, UPS Next Day Air Saver, If a return is filed on behalf of a IRS to discuss its 2011 tax return with
UPS 2nd Day Air, UPS 2nd Day Air corporation by a receiver, trustee, or the paid preparer who signed it, check
assignee, the fiduciary must sign the
A.M., UPS Worldwide Express Plus, the “Yes” box in the signature area of
return, instead of the corporate officer. the return. This authorization applies
and UPS Worldwide Express. Returns and forms signed by a receiver only to the individual whose signature
The private delivery service can tell or trustee in bankruptcy on behalf of a appears in the “Paid Preparer Use
you how to get written proof of the corporation must be accompanied by a Only” section of the return. It does not
mailing date. copy of the order or instructions of the apply to the firm, if any, shown in that
section.
If the “Yes” box is checked, the
corporation is authorizing the IRS to call
Where To File the paid preparer to answer any
questions that may arise during the
File the corporation’s return at the applicable IRS address listed below. processing of its return. The corporation
is also authorizing the paid preparer to:
If the corporation’s principal And the total assets at the
•
Give the IRS any information that is
business, office, or agency end of the tax year (Form missing from the return,
is located in: 1120S, page 1, item F) are:
•
Call the IRS for information about the
Use the following address: processing of the return or the status of
Connecticut, Delaware, District Department of the Treasury any related refund or payment(s), and
of Columbia, Georgia, Illinois, Internal Revenue Service
•
Respond to certain IRS notices about
Indiana, Kentucky, Maine, Less than $10 million and Center math errors, offsets, and return
Maryland, Massachusetts, Schedule M-3 is not filed Cincinnati, OH 45999-0013 preparation.
Michigan, New Hampshire,
New Jersey, New York, North The corporation is not authorizing
Carolina, Ohio, Pennsylvania, Department of the Treasury the paid preparer to receive any refund
Rhode Island, South Carolina, $10 million or more or Internal Revenue Service check, bind the corporation to anything
Tennessee, Vermont, Virginia, less than $10 million and Center (including any additional tax liability), or
West Virginia, Wisconsin Schedule M-3 is filed Ogden, UT 84201-0013 otherwise represent the corporation
Alabama, Alaska, Arizona, before the IRS.
Arkansas, California, The authorization will automatically
Colorado, Florida, Hawaii,
Idaho, Iowa, Kansas, end no later than the due date
Department of the Treasury
Louisiana, Minnesota, (excluding extensions) for filing the
Internal Revenue Service
Mississippi, Missouri, Any amount corporation’s 2012 tax return. If the
Center
Montana, Nebraska, Nevada, corporation wants to expand the paid
Ogden, UT 84201-0013
New Mexico, North Dakota, preparer’s authorization or revoke the
Oklahoma, Oregon, South authorization before it ends, see Pub.
Dakota, Texas, Utah, 947, Practice Before the IRS and
Washington, Wyoming Power of Attorney.
Internal Revenue Service
A foreign country or U.S. Center
Any amount Assembling the Return
possession P.O. Box 409101
Ogden, UT 84409 To ensure that the corporation’s tax
return is correctly processed, attach all
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Instructions for Form 1120S
Page 4 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
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schedules and other forms after page 4 8 p.m. Eastern time the day before the For information on penalties that
of Form 1120S in the following order. date the deposit is due. If the apply if the corporation fails to make
corporation uses a third party to make required payments, see the Instructions
1. Schedule N (Form 1120). deposits on its behalf, they may have for Form 2220.
2. Form 8825. different cutoff times.
3. Form 8050. Interest and Penalties
4. Form 1125-A. Same-day wire payment option. If
5. Form 4136. the corporation fails to initiate a deposit If the corporation receives a
6. Form 8941. transaction on EFTPS by 8 p.m. notice about interest and
7. Form 5884-B. Eastern time the day before the date a penalties after it files its return,
8. Additional schedules in
CAUTION
!
deposit is due, it can still make the respond with an explanation and we will
alphabetical order. deposit on time by using the Federal determine if the corporation meets
9. Additional forms in numerical Tax Application (FTA). Before using the reasonable-cause criteria. Do not
order. same-day wire payment option, the attach an explanation when the
corporation will need to make
Complete every applicable entry corporation’s return is filed.
arrangements with its financial
space on Form 1120S and Schedule institution ahead of time. Please check Interest. Interest is charged on taxes
K-1. Do not enter “See Attached” or with the financial institution regarding paid late even if an extension of time to
“Available Upon Request” instead of availability, deadlines, and costs. To file is granted. Interest is also charged
completing the entry spaces. If more learn more about making a same-day on penalties imposed for failure to file,
space is needed on the forms or wire payment and download the negligence, fraud, substantial valuation
schedules, attach separate sheets Same-Day Payment Worksheet, visit misstatements, substantial
using the same size and format as the www.eftps.gov. understatements of tax, and reportable
printed forms. transaction understatements from the
If there are supporting statements due date (including extensions) to the
Estimated Tax Payments
and attachments, arrange them in the date of payment. The interest charge is
Generally, the corporation must make
same order as the schedules or forms figured at a rate determined under
installment payments of estimated tax
they support and attach them last. section 6621.
for the following taxes if the total of
Show the totals on the printed forms. Late filing of return. A penalty may
these taxes is $500 or more: (a) the tax
Enter the corporation’s name and EIN be charged if the return is filed after the
on built-in gains, (b) the excess net
on each supporting statement or due date (including extensions) or the
passive income tax, and (c) the
attachment. return does not show all the information
investment credit recapture tax. required, unless each failure is due to
Tax Payments The amount of estimated tax reasonable cause. See Caution above.
required to be paid annually is the
The corporation must pay any tax due For returns on which no tax is due, the
smaller of: (a) the total of the above
in full no later than the 15th day of the penalty is $195 for each month or part
taxes shown on the return for the tax
3rd month after the end of the tax year. of a month (up to 12 months) the return
year (or if no return is filed, the total of is late or does not include the required
these taxes for the year) or (b) the sum information, multiplied by the total
Electronic Deposit of (i) the investment credit recapture tax number of persons who were
Requirement and the built-in gains tax shown on the shareholders in the corporation during
return for the tax year (or if no return is any part of the corporation’s tax year
Corporations must use electronic funds filed, the total of these taxes for the tax for which the return is due. If tax is due,
transfers to make all federal tax year) and (ii) any excess net passive the penalty is the amount stated above
deposits (such as deposits of income tax shown on the corporation’s plus 5% of the unpaid tax for each
employment, excise, and corporate return for the preceding tax year. If the month or part of a month the return is
income tax). Generally, electronic funds preceding tax year was less than 12 late, up to a maximum of 25% of the
transfers are made using the Electronic months, the estimated tax must be unpaid tax. The minimum penalty for a
Federal Tax Payment System (EFTPS). determined under (a). return that is more than 60 days late is
However, if the corporation does not the smaller of the tax due or $135.
want to use EFTPS, it can arrange for The estimated tax is generally
its tax professional, financial institution, Late payment of tax. A corporation
payable in four equal installments.
payroll service, or other trusted third that does not pay the tax when due
However, the corporation may be able
party to make deposits on its behalf. generally may be penalized
1
/
2
of 1% of
to lower the amount of one or more
Also, it may arrange for its financial the unpaid tax for each month or part of
installments by using the annualized
institution to initiate a same-day tax a month the tax is not paid, up to a
income installment method or adjusted
wire payment (discussed below) on its maximum of 25% of the unpaid tax.
seasonal installment method under
behalf. EFTPS is a free service The penalty will not be imposed if the
section 6655(e).
provided by the Department of the corporation can show that the failure to
Treasury. Services provided by a tax For a calendar year corporation, the pay on time was due to reasonable
professional, financial institution, payroll payments are due for 2012 by April 17, cause. See Caution above.
service, or other third party may have a June 15, September 17, and December Failure to furnish information timely.
fee. 17. For a fiscal year corporation, they For each failure to furnish Schedule K-1
are due by the 15th day of the 4th, 6th,
To get more information about to a shareholder when due and each
9th, and 12th months of the year. If any
EFTPS or to enroll in EFTPS, visit failure to include on Schedule K-1 all
date falls on a Saturday, Sunday, or
www.eftps.gov or call 1-800-555-4477. the information required to be shown
legal holiday, the installment is due on
Additional information about EFTPS is (or the inclusion of incorrect
the next day that is not a Saturday,
also available in Pub. 966, The Secure information), a $100 penalty may be
Sunday, or legal holiday.
Way to Pay Your Federal Taxes. imposed with respect to each Schedule
Depositing on time. For deposits The corporation must make the K-1 for which a failure occurs. If the
made by EFTPS to be on time, the payments using electronic funds requirement to report correct
corporation must initiate the deposit by transfers as described earlier. information is intentionally disregarded,
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Instructions for Form 1120S
Page 5 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
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each $100 penalty is increased to $250
•
Special rules apply to long-term Payment or Refund Under Section
or, if greater, 10% of the aggregate contracts. See section 460. 7519.
amount of items required to be
•
Generally, dealers in securities must A section 444 election ends if an S
reported. See sections 6722 and 6724 use the mark-to-market accounting corporation:
for more information. method. Dealers in commodities and
•
Changes its accounting period to a
traders in securities and commodities calendar year or some other permitted
The penalty will not be imposed if can elect to use the mark-to-market year,
the corporation can show that not accounting method. See section 475.
•
Is penalized for willfully failing to
furnishing information timely was due to Change in accounting method. comply with the requirements of section
reasonable cause. See Caution Generally, the corporation must get IRS 7519, or
above. consent to change the method of
•
Terminates its S election (unless it
Trust fund recovery penalty. This accounting used to report income (for immediately becomes a personal
penalty may apply if certain excise, income as a whole or for the treatment service corporation).
income, social security, and Medicare of any material item). To do so, the If the termination results in a short
taxes that must be collected or withheld corporation generally must file Form tax year, enter at the top of the first
are not collected or withheld, or these 3115, Application for Change in page of Form 1120S for the short tax
taxes are not paid. These taxes are Accounting Method. year, “SECTION 444 ELECTION
generally reported on: TERMINATED.”
See the Instructions for Form 3115
•
Form 720, Quarterly Federal Excise and Pub. 538, Accounting Periods and
Tax Return; Methods, for more information on Rounding Off to
•
Form 941, Employer’s QUARTERLY accounting methods.
Federal Tax Return; Whole Dollars
•
Form 943, Employer’s Annual The corporation can round off cents to
Accounting Period
Federal Tax Return for Agricultural whole dollars on its return and
Employees; A corporation must figure its income on schedules. If the corporation does
•
Form 944, Employer’s ANNUAL the basis of a tax year. A tax year is the round to whole dollars, it must round all
Federal Tax Return; or annual accounting period a corporation amounts. To round, drop amounts
•
Form 945, Annual Return of Withheld uses to keep its records and report its under 50 cents and increase amounts
Federal Income Tax. income and expenses. from 50 to 99 cents to the next dollar.
An S corporation must use one of
The trust fund recovery penalty may For example, $1.39 becomes $1 and
the following tax years.
be imposed on all persons who are $2.50 becomes $3.
•
A tax year ending December 31.
determined by the IRS to have been If two or more amounts must be
•
A natural business year.
responsible for collecting, accounting added to figure the amount to enter on
•
An ownership tax year.
for, and paying over these taxes, and a line, include cents when adding the
•
A tax year elected under section 444.
who acted willfully in not doing so. The amounts and round off only the total.
•
A 52-53 week tax year that ends with
penalty is equal to the full amount of reference to a year listed above.
the unpaid trust fund tax. See the Recordkeeping
•
Any other tax year (including a
Instructions for Form 720, Pub. 15 Keep the corporation’s records for as
52-53-week tax year) for which the
(Circular E), Employer’s Tax Guide, or long as they may be needed for the
corporation establishes a business
Pub. 51 (Circular A), Agricultural administration of any provision of the
purpose.
Employer’s Tax Guide, for details, Internal Revenue Code. Usually,
including the definition of responsible A new S corporation must use Form records that support an item of income,
persons. 2553 to elect a tax year. To later deduction, or credit on the return must
change the corporation’s tax year, see
Other penalties. Other penalties can be kept for 3 years from the date each
Form 1128, Application To Adopt,
be imposed for negligence, substantial shareholder’s return is due or filed,
Change, or Retain a Tax Year, and its
understatement of tax, reportable whichever is later. Keep records that
instructions (unless the corporation is
transaction understatements, and fraud. verify the corporation’s basis in property
making an election under section 444,
See sections 6662, 6662A, and 6663. for as long as they are needed to figure
discussed next). the basis of the original or replacement
Electing a tax year under section property.
Accounting Methods 444. Under the provisions of section The corporation should keep copies
Figure income using the method of 444, an S corporation can elect to have of all filed returns. They help in
accounting regularly used in keeping a tax year other than a required year, preparing future and amended returns.
the corporation’s books and records. but only if the deferral period of the tax
The method used must clearly reflect year is not longer than the shorter of 3
income. Permissible methods include Amended Return
months or the deferral period of the tax
cash, accrual, or any other method year being changed. This election is To correct a previously filed Form
authorized by the Internal Revenue made by filing Form 8716, Election To 1120S, file an amended Form 1120S
Code. Have a Tax Year Other Than a and check box H(4) on page 1. Attach a
Required Tax Year. statement that identifies the line
The following rules apply. number of each amended item, the
•
Generally, an S corporation cannot An S corporation may not make or corrected amount or treatment of the
use the cash method of accounting if it continue an election under section 444 item, and an explanation of the reasons
is a tax shelter (as defined in section if it is a member of a tiered structure, for each change.
448(d)(3)). See section 448 for details. other than a tiered structure that
•
Unless it is a qualifying taxpayer or a consists entirely of partnerships and S If the income, deductions, credits, or
qualifying small business taxpayer, a corporations that have the same tax other information provided to any
corporation must use the accrual year. For the S corporation to have a shareholder on Schedule K-1 is
method for sales and purchases of section 444 election in effect, it must incorrect, file an amended Schedule
inventory items. See the Form 1125-A make the payments required by section K-1 (Form 1120S) for that shareholder
instructions. 7519. See Form 8752, Required with the amended Form 1120S. Also
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give a copy of the amended Schedule under section 6662A, may also apply. it, the corporation must report income
K-1 to that shareholder. Check the See the Instructions for Form 8886 for or loss and credits separately for each
“Amended K-1” box at the top of the details on these and other penalties. activity.
Schedule K-1 to indicate that it is an Reportable transactions by material The following instructions and the
amended Schedule K-1. advisors. Material advisors to any instructions for Schedules K and K-1,
A change to the corporation’s federal reportable transaction must disclose later, explain the applicable passive
return may affect its state return. This certain information about the reportable activity limitation rules and specify the
includes changes made as the result of transaction by filing Form 8918, type of information the corporation must
an IRS examination. For more Material Advisor Disclosure Statement, provide to its shareholders for each
information, contact the state tax with the IRS. For details, see the activity. If the corporation had more
agency for the state(s) in which the Instructions for Form 8918. than one activity, it must report
corporation’s return was filed. information for each activity on an
Transfers to a corporation controlled attachment to Schedules K and K-1.
by the transferor. Every significant
Other Forms and transferor (as defined in Regulations Generally, passive activities include
section 1.351-3(d)) that receives stock (a) activities that involve the conduct of
Statements That May Be of a corporation in exchange for a trade or business if the shareholder
property in a nonrecognition event must
Required does not materially participate in the
include the statement required by activity and (b) all rental activities
Reportable transaction disclosure Regulations section 1.351-3(a) on or (defined later) regardless of the
statement. Disclose information for with the transferor’s tax return for the shareholder’s participation. For
each reportable transaction in which the tax year of the exchange. The exceptions, see Activities That Are Not
corporation participated. Form 8886, transferee corporation must include the Passive Activities, later. The level of
Reportable Transaction Disclosure statement required by Regulations each shareholder’s participation in an
Statement, must be filed for each tax section 1.351-3(b) on or with its return activity must be determined by the
year the corporation participated in the for the tax year of the exchange, unless shareholder.
transaction. The corporation may have all the required information is included The passive activity rules provide
to pay a penalty if it is required to file in any statement(s) provided by a that losses and credits from passive
Form 8886 and does not do so. The significant transferor that is attached to activities can generally be applied only
following are reportable transactions. the same return for the same section against income and tax (respectively)
1. Any listed transaction, which is a 351 exchange. from passive activities. Thus, passive
transaction that is the same as or Election to reduce basis under losses cannot be applied against
substantially similar to one of the types section 362(e)(2)(C). The transferor income from salaries, wages,
of transactions that the IRS has may make an election under section professional fees, or a business in
determined to be a tax avoidance 362(e)(2)(C) to limit the transferor’s which the shareholder materially
transaction and identified by notice, basis in the stock received instead of participates or against “portfolio
regulation, or other published guidance the transferor’s basis in the transferred income” (defined later). Passive credits
as a listed transaction. property. The transferor can make the cannot be applied against the tax
2. Any transaction offered under election by including the certification related to any of these types of income.
conditions of confidentiality for which provided in Notice 2005-70, 2005-41 Special rules require that net income
the corporation (or a related party) paid I.R.B. 694, on or with its tax return filed from certain activities that would
an advisor a fee of at least $50,000. by the due date (including extensions) otherwise be treated as passive income
3. Certain transactions for which the for the tax year in which the transaction must be recharacterized as nonpassive
corporation (or a related party) has occurred. income for purposes of the passive
contractual protection against If the election is made as described activity limitations. See
disallowance of the tax benefits. above, no election need be made by Recharacterization of Passive Income,
4. Certain transactions resulting in a the transferee. Once made, the election later.
loss of at least $2 million in any single is irrevocable. See section 362(e)(2)(C)
year or $4 million in any combination of To allow each shareholder to
and Notice 2005-70.
years. correctly apply the passive activity
Other forms and statements. See
5. Any transaction identified by the limitations, the corporation must report
Pub. 542, Corporations, for a list of
IRS by notice, regulation, or other income or loss and credits separately
other forms and statements a
published guidance as a “transaction of for each of the following: trade or
corporation may need to file in addition
interest.” business activities, rental real estate
to the forms and statements discussed activities, rental activities other than
For more information, see throughout these instructions. rental real estate, and portfolio income.
Regulations section 1.6011-4. Also see
the Instructions for Form 8886. Passive Activity
Activities That Are Not
Penalties. The corporation may
Passive Activities
Limitations
have to pay a penalty if it is required to The following are not passive activities.
disclose a reportable transaction under In general, section 469 limits the
section 6011 and fails to properly amount of losses, deductions, and 1. Trade or business activities in
complete and file Form 8886. Penalties credits that shareholders can claim which the shareholder materially
may also apply under section 6707A if from “passive activities.” The passive participated for the tax year.
the corporation fails to file Form 8886 activity limitations do not apply to the 2. Any rental real estate activity in
with its corporate return, fails to provide corporation. Instead, they apply to each which the shareholder materially
a copy of Form 8886 to the Office of shareholder’s share of any income or participated if the shareholder met both
Tax Shelter Analysis (OTSA), or files a loss and credit attributable to a passive of the following conditions for the tax
form that fails to include all the activity. Because the treatment of each year.
information required (or includes shareholder’s share of corporate a. More than half of the personal
incorrect information). Other penalties, income or loss and credit depends on services the shareholder performed in
such as an accuracy-related penalty the nature of the activity that generated trades or businesses were performed in
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real property trades or businesses in Each shareholder must determine if use for a class of property by dividing
which he or she materially participated. he or she materially participated in an the total number of days in all rental
b. The shareholder performed more activity. As a result, while the periods by the number of rentals during
than 750 hours of services in real corporation’s ordinary business income the tax year. If the activity involves
property trades or businesses in which (loss) is reported on page 1 of Form renting more than one class of
he or she materially participated. 1120S, the specific income and property, multiply the average period of
deductions from each separate trade or customer use of each class by the ratio
For purposes of this rule, each business activity must be reported on of the gross rental income from that
interest in rental real estate is a attachments to Form 1120S. Similarly, class to the activity’s total gross rental
separate activity unless the shareholder while each shareholder’s allocable income. The activity’s average period of
elects to treat all interests in rental real share of the corporation’s ordinary customer use equals the sum of these
estate as one activity. business income (loss) is reported in class-by-class average periods
If the shareholder is married filing box 1 of Schedule K-1, each weighted by gross income. See
jointly, either the shareholder or his or shareholder’s allocable share of the Regulations section 1.469-1(e)(3)(iii).
her spouse must separately meet both income and deductions from each trade Significant personal services.
of the above conditions, without taking or business activity must be reported on Personal services include only services
into account services performed by the attachments to each Schedule K-1. See performed by individuals. To determine
other spouse. Passive Activity Reporting if personal services are significant
A real property trade or business is Requirements, later, for more personal services, consider all the
any real property development, information. relevant facts and circumstances.
redevelopment, construction, Relevant facts and circumstances
reconstruction, acquisition, conversion,
Rental Activities
include:
rental, operation, management, leasing, Generally, except as noted below, if the
•
How often the services are provided,
or brokerage trade or business. gross income from an activity consists
•
The type and amount of labor
Services the shareholder performed as of amounts paid principally for the use required to perform the services, and
an employee are not treated as of real or personal tangible property
•
The value of the services in relation
performed in a real property trade or held by the corporation, the activity is a to the amount charged for use of the
business unless he or she owned more rental activity. property.
than 5% of the stock in the employer. The following services are not
There are several exceptions to this
3. The rental of a dwelling unit used considered in determining whether
general rule. Under these exceptions,
by a shareholder for personal purposes personal services are significant.
an activity involving the use of real or
during the year for more than the
•
Services necessary to permit the
personal tangible property is not a
greater of 14 days or 10% of the lawful use of the rental property.
rental activity if any of the following
number of days that the residence was
•
Services performed in connection
apply.
rented at fair rental value. with improvements or repairs to the
•
The average period of customer use
4. An activity of trading personal rental property that extend the useful
(defined later) for such property is 7
property for the account of owners of life of the property substantially beyond
days or less.
interests in the activity. For purposes of the average rental period.
•
The average period of customer use
this rule, personal property means
•
Services provided in connection with
for such property is 30 days or less and
property that is actively traded, such as the use of any improved real property
significant personal services (defined
stocks, bonds, and other securities. that are similar to those commonly
later) are provided by or on behalf of
See Temporary Regulations section provided in connection with long-term
the corporation.
1.469-1T(e)(6). rentals of high-grade commercial or
•
Extraordinary personal services residential property. Examples include
(defined later) are provided by or on
Note. The section 469(c)(3) exception cleaning and maintenance of common
behalf of the corporation.
for a working interest in oil and gas areas, routine repairs, trash collection,
•
Rental of the property is treated as
properties does not apply to an S elevator service, and security at
incidental to a nonrental activity of the
corporation because state law generally entrances.
corporation under Temporary
limits the liability of shareholders. Regulations section 1.469-1T(e)(3)(vi) Extraordinary personal services.
and Regulations section Services provided in connection with
Trade or Business Activities
1.469-1(e)(3)(vi). making rental property available for
A trade or business activity is an
•
The corporation customarily makes customer use are extraordinary
activity (other than a rental activity or the property available during defined personal services only if the services
an activity treated as incidental to an business hours for nonexclusive use by are performed by individuals and the
activity of holding property for various customers. customers’ use of the rental property is
investment) that:
•
The corporation provides property for incidental to their receipt of the
1. Involves the conduct of a trade or use in a nonrental activity of a services.
business (within the meaning of section partnership in its capacity as an owner For example, a patient’s use of a
162), of an interest in such partnership. hospital room generally is incidental to
2. Is conducted in anticipation of Whether the corporation provides the care received from the hospital’s
starting a trade or business, or property used in an activity of a medical staff. Similarly, a student’s use
3. Involves research or experimental partnership in the corporation’s capacity of a dormitory room in a boarding
expenditures deductible under section as an owner of an interest in the school is incidental to the personal
174 (or that would be if you chose to partnership is determined on the basis services provided by the school’s
deduct rather than capitalize them). of all the facts and circumstances. teaching staff.
In addition, a guaranteed payment
If the shareholder does not Rental activity incidental to a
described in section 707(c) is never
materially participate in the activity, a nonrental activity. An activity is not a
income from a rental activity.
trade or business activity of the rental activity if the rental of the
corporation is a passive activity for the Average period of customer use. property is incidental to a nonrental
shareholder. Figure the average period of customer activity, such as the activity of holding
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property for investment, a trade or Partnership or an S Corporation, and
•
Amounts included in the gross
business activity, or the activity of line 2 of Schedule K and box 2 of income of a patron of a cooperative by
dealing in property. Schedule K-1, rather than on page 1 of reason of any payment or allocation to
Form 1120S. Report credits related to the patron based on patronage
Rental of property is incidental to an rental real estate activities on lines 13c occurring with respect to a trade or
activity of holding property for and 13d of Schedule K (box 13, codes business of the patron.
investment if both of the following E and F, of Schedule K-1) and
•
Other income identified by the IRS as
apply. low-income housing credits on lines income derived by the taxpayer in the
•
The main purpose for holding the 13a and 13b of Schedule K (box 13, ordinary course of a trade or business.
property is to realize a gain from the codes A, B, C, and D of Schedule K-1). See Temporary Regulations section
appreciation of the property. 1.469-2T(c)(3) for more information on
•
The gross rental income from such Report income (loss) from rental portfolio income.
property for the tax year is less than 2% activities other than rental real estate
of the smaller of the property’s on line 3 of Schedule K and credits Report portfolio income and related
unadjusted basis or its fair market related to rental activities other than deductions on Schedule K rather than
value. rental real estate on line 13e of on page 1 of Form 1120S.
Schedule K and in box 13, code G, of
Rental of property is incidental to a
Self-Charged Interest
Schedule K-1.
trade or business activity if all of the
following apply. Certain self-charged interest income
Portfolio Income
•
The corporation owns an interest in and deductions may be treated as
the trade or business at all times during passive activity gross income and
Generally, portfolio income includes all
the year. passive activity deductions if the loan
gross income, other than income
•
The rental property was mainly used proceeds are used in a passive activity.
derived in the ordinary course of a
in the trade or business activity during Generally, self-charged interest income
trade or business, that is attributable to
the tax year or during at least 2 of the 5 and deductions result from loans
interest; dividends; royalties; income
preceding tax years. between the corporation and its
from a real estate investment trust, a
•
The gross rental income from the shareholders. Self-charged interest also
regulated investment company, a real
property for the tax year is less than 2% occurs in loans between the corporation
estate mortgage investment conduit, a
of the smaller of the property’s and another S corporation or
common trust fund, a controlled foreign
unadjusted basis or its fair market partnership if each owner in the
corporation, a qualified electing fund, or
value. borrowing entity has the same
a cooperative; income from the proportional ownership interest in the
disposition of property that produces
The sale or exchange of property lending entity.
income of a type defined as portfolio
that is also rented during the tax year income; and income from the The self-charged interest rules do
(in which the gain or loss is recognized) disposition of property held for not apply to a shareholder’s interest in
is treated as incidental to the activity of investment. See Self-Charged Interest,an S corporation if the S corporation
dealing in property if, at the time of the later, for an exception. makes an election under Regulations
sale or exchange, the property was section 1.469-7(g) to avoid the
held primarily for sale to customers in Solely for purposes of the preceding application of these rules. To make the
the ordinary course of the corporation’s paragraph, gross income derived in the election, the S corporation must attach
trade or business. ordinary course of a trade or business to its original or amended Form 1120S
See Temporary Regulations section includes (and portfolio income, a statement that includes the name,
1.469-1T(e)(3) and Regulations section therefore, does not include) the address, and EIN of the S corporation
1.469-1(e)(3) for more information on following types of income. and a declaration that the election is
the definition of rental activities for
•
Interest income on loans and being made under Regulations section
purposes of the passive activity investments made in the ordinary 1.469-7(g). The election will apply to
limitations. course of a trade or business of lending the tax year for which it was made and
money.
Reporting of rental activities. In all subsequent tax years. Once made,
•
Interest on accounts receivable
reporting the corporation’s income or the election can only be revoked with
arising from the performance of
losses and credits from rental activities, the consent of the IRS.
services or the sale of property in the
the corporation must separately report For more details on the self-charged
ordinary course of a trade or business
rental real estate activities and rental interest rules, see Regulations section
of performing such services or selling
activities other than rental real estate 1.469-7.
such property, but only if credit is
activities. customarily offered to customers of the
Shareholders who actively
Grouping Activities
business.
participate in a rental real estate activity
•
Income from investments made in Generally, one or more trade or
may be able to deduct part or all of their the ordinary course of a trade or business or rental activities may be
rental real estate losses (and the business of furnishing insurance or treated as a single activity if the
deduction equivalent of rental real annuity contracts or reinsuring risks activities make up an appropriate
estate credits) against income (or tax) underwritten by insurance companies. economic unit for measurement of gain
from nonpassive activities. Generally,
•
Income or gain derived in the or loss under the passive activity rules.
the combined amount of rental real ordinary course of an activity of trading Whether activities make up an
estate losses and the deduction or dealing in any property if such appropriate economic unit depends on
equivalent of rental real estate credits activity constitutes a trade or business all the relevant facts and
from all sources (including rental real (unless the dealer held the property for circumstances. The factors given the
estate activities not held through the investment at any time before such greatest weight in determining whether
corporation) that may be claimed is income or gain is recognized). activities make up an appropriate
limited to $25,000.
•
Royalties derived by the taxpayer in economic unit are:
Report rental real estate activity the ordinary course of a trade or
•
Similarities and differences in types
income (loss) on Form 8825, Rental business of licensing intangible of trades or businesses,
Real Estate Income and Expenses of a property.
•
The extent of common control,
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•
The extent of common ownership, motion picture films or videotapes; the equity-financed interest income
•
Geographical location, and farming; leasing section 1245 property; from the activity is nonpassive income.
•
Reliance between or among the or exploring for or exploiting oil and gas Note. The amount of income from the
activities. resources or geothermal deposits. activities in items 1 through 3 above
Example. The corporation has a that any shareholder will be required to
Activities conducted through
significant ownership interest in a recharacterize as nonpassive income
partnerships. Once a partnership
bakery and a movie theater in Baltimore may be limited under Temporary
determines its activities under these
and a bakery and a movie theater in Regulations section 1.469-2T(f)(8).
rules, the corporation as a partner can
Philadelphia. Depending on the Because the corporation will not have
use these rules to group those activities
relevant facts and circumstances, there information regarding all of a
with:
may be more than one reasonable shareholder’s activities, it must identify
•
Each other,
method for grouping the corporation’s all corporate activities meeting the
•
Activities conducted directly by the
activities. For instance, the following definitions in items 2 and 3 as activities
corporation, or
groupings may or may not be that may be subject to
•
Activities conducted through other
permissible. recharacterization.
partnerships.
•
A single activity. 4. Rental of property incidental to
The corporation cannot treat as
•
A movie theater activity and a bakery a development activity. Net rental
separate activities those activities
activity. activity income is the excess of passive
grouped together by a partnership.
•
A Baltimore activity and a activity gross income from renting or
Philadelphia activity. disposing of property over passive
Recharacterization of
•
Four separate activities. activity deductions (current year
Passive Income
Once the corporation chooses a deductions and prior year unallowed
Under Temporary Regulations section
grouping under these rules, it must losses) that are reasonably allocable to
1.469-2T(f) and Regulations section
continue using that grouping in later tax the rented property. Net rental activity
1.469-2(f), net passive income from
years unless either: income is nonpassive income for a
certain passive activities must be
•
The corporation determines that the shareholder if all of the following apply.
treated as nonpassive income. Net
original grouping was clearly a. The corporation recognizes gain
passive income is the excess of an
inappropriate; or from the sale, exchange, or other
activity’s passive activity gross income
•
A material change in the facts and disposition of the rental property during
over its passive activity deductions
circumstances makes that grouping the tax year.
(current year deductions and prior year
clearly inappropriate. b. The use of the item of property in
unallowed losses).
The IRS may regroup the the rental activity started less than 12
corporation’s activities if the Income from the following six months before the date of disposition.
corporation’s grouping is not an sources is subject to recharacterization. The use of an item of rental property
appropriate economic unit and one of begins on the first day on which (a) the
Note. Any net passive income
the primary purposes for the grouping corporation owns an interest in the
recharacterized as nonpassive income
(or failure to regroup as required under property, (b) substantially all of the
is treated as investment income for
Regulations section 1.469-4(e)) is to property is either rented or held out for
purposes of figuring investment interest
avoid the passive activity limitations. rent and ready to be rented, and (c) no
expense limitations if it is from (a) an
Limitation on grouping certain significant value-enhancing services
activity of renting substantially
activities. The following activities may remain to be performed.
nondepreciable property from an
not be grouped together. c. The shareholder materially or
equity-financed lending activity or (b) an significantly participated for any tax
activity related to an interest in a
1. A rental activity with a trade or year in an activity that involved
pass-through entity that licenses
business activity unless the activities performing services to enhance the
intangible property.
being grouped together make up an value of the property (or any other item
appropriate economic unit and: 1. Significant participation of property, if the basis of the property
a. The rental activity is insubstantial passive activities. A significant disposed of is determined in whole or in
relative to the trade or business activity participation passive activity is any part by reference to the basis of that
or vice versa or trade or business activity in which the item of property).
b. Each owner of the trade or shareholder participated for more than
business activity has the same Because the corporation cannot
100 hours during the tax year but did
proportionate ownership interest in the determine a shareholder’s level of
not materially participate. Because
rental activity. If so, the portion of the participation, the corporation must
each shareholder must determine his or
rental activity involving the rental of identify net income from property
her level of participation, the
property to be used in the trade or described above (without regard to the
corporation will not be able to identify
business activity can be grouped with shareholder’s level of participation) as
significant participation passive
the trade or business activity. income that may be subject to
activities. recharacterization.
2. An activity involving the rental of 2. Certain nondepreciable rental 5. Rental of property to a
real property with an activity involving property activities. Net passive nonpassive activity. If a taxpayer
the rental of personal property (except income from a rental activity is rents property to a trade or business
personal property provided in nonpassive income if less than 30% of activity in which the taxpayer materially
connection with the real property or vice the unadjusted basis of the property participates, the taxpayer’s net rental
versa). used or held for use by customers in activity income (defined in item 4) from
3. Any activity with another activity the activity is subject to depreciation the property is nonpassive income.
in a different type of business and in under section 167. 6. Acquisition of an interest in a
which the corporation holds an interest 3. Passive equity-financed pass-through entity that licenses
as a limited partner or as a limited lending activities. If the corporation intangible property. Generally, net
entrepreneur (as defined in section has net income from a passive royalty income from intangible property
464(e)(2)) if that other activity is equity-financed lending activity, the is nonpassive income if the taxpayer
holding, producing, or distributing smaller of the net passive income or
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acquired an interest in the pass-through c. For gains only, if the property d. Net rental activity income from
entity after the pass-through entity was substantially appreciated at the the rental of property by the corporation
created the intangible property or time of the disposition and the to a trade or business activity in which
performed substantial services or applicable holding period specified in the shareholder had an interest (either
incurred substantial costs in developing Regulations section 1.469-2(c)(2)(iii)(A) directly or indirectly).
or marketing the intangible property. was not satisfied, identify the amount of e. Net royalty income from
Net royalty income is the excess of the nonpassive gain and indicate intangible property if the shareholder
passive activity gross income from whether or not the gain is investment acquired the shareholder’s interest in
licensing or transferring any right in income under Regulations section the corporation after the corporation
intangible property over passive activity 1.469-2(c)(2)(iii)(F). created the intangible property or
deductions (current year deductions performed substantial services, or
6. Specify the amount of gross
and prior year unallowed losses) that incurred substantial costs in developing
portfolio income, the interest expense
are reasonably allocable to the or marketing the intangible property.
properly allocable to portfolio income,
intangible property. See Temporary and expenses other than interest 12. Identify separately the credits
Regulations section 1.469-2T(f)(7)(iii) expense that are clearly and directly from each activity conducted by or
for exceptions to this rule. allocable to portfolio income. through the corporation.
13. Identify the shareholder’s pro rata
7. Identify the ratable portion of any share of the corporation’s self-charged
section 481 adjustment (whether a net
Passive Activity Reporting
interest income or expense (see
positive or a net negative adjustment)
Requirements
Self-Charged Interest, earlier).
allocable to each corporate activity.
To allow shareholders to correctly apply a. Loans between a shareholder
8. Identify any gross income from
the passive activity loss and credit and the corporation. Identify the
sources specifically excluded from
limitation rules, any corporation that lending or borrowing shareholder’s
passive activity gross income,
carries on more than one activity must: share of the self-charged interest
including: income or expense. If the shareholder
1. Provide an attachment for each a. Income from intangible property, made the loan to the corporation, also
activity conducted through the if the shareholder is an individual identify the activity in which the loan
corporation that identifies the type of whose personal efforts significantly proceeds were used. If the proceeds
activity conducted (trade or business, contributed to the creation of the were used in more than one activity,
rental real estate, rental activity other property; allocate the interest to each activity
than rental real estate, or investment). b. Income from state, local, or based on the amount of the proceeds
2. On the attachment for each foreign income tax refunds; and used in each activity.
activity, provide a statement, using the c. Income from a covenant not to b. Loans between the corporation
same box numbers as shown on compete, if the shareholder is an and another S corporation or
Schedule K-1, detailing the net income individual who contributed the covenant partnership. If the corporation’s
(loss), credits, and all items required to to the corporation. shareholders have the same
be separately stated under section proportional ownership interest in the
9. Identify any deductions that are
1366(a)(1) from each trade or business corporation and the other S corporation
not passive activity deductions.
activity, from each rental real estate or partnership, identify each
activity, from each rental activity other 10. If the corporation makes a full or shareholder’s share of the interest
than a rental real estate activity, and partial disposition of its interest in income or expense from the loan. If the
from investments. another entity, identify the gain (loss) corporation was the borrower, also
allocable to each activity conducted
3. Identify the net income (loss) and identify the activity in which the loan
through the entity, and the gain
the shareholder’s share of corporation proceeds were used. If the proceeds
allocable to a passive activity that
interest expense from each activity of were used in more than one activity,
would have been recharacterized as
renting a dwelling unit that any allocate the interest to each activity
nonpassive gain had the corporation
shareholder uses for personal purposes based on the amount of the proceeds
disposed of its interest in property used
during the year for more than the used in each activity.
in the activity (because the property
greater of 14 days or 10% of the was substantially appreciated at the
number of days that the residence is time of the disposition, and the gain
rented at fair rental value. Extraterritorial Income
represented more than 10% of the
4. Identify the net income (loss) and shareholder’s total gain from the Exclusion
the shareholder’s share of interest disposition).
expense from each activity of trading Generally, no exclusion is
11. Identify the following items from
personal property conducted through allowed for transactions after
activities that may be subject to the
the corporation. 2006. However, transactions
recharacterization rules under
CAUTION
!
5. For any gain (loss) from the that meet the transition rules may still
Temporary Regulations section
disposition of an interest in an activity be eligible for the exclusion. See the
1.469-2T(f) and Regulations section
or of an interest in property used in an Instructions for Form 8873 for details.
1.469-2(f).
activity (including dispositions before a. Net income from an activity of
1987 from which gain is being For details and to figure the amount
renting substantially nondepreciable
recognized after 1986): of the exclusion, see Form 8873,
property. Extraterritorial Income Exclusion, and
a. Identify the activity in which the its separate instructions. The
b. The smaller of equity-financed
property was used at the time of corporation must report the
interest income or net passive income
disposition, extraterritorial income exclusion on its
from an equity-financed lending activity.
b. If the property was used in more return as follows.
than one activity during the 12 months c. Net rental activity income from
preceding the disposition, identify the property developed (by the shareholder 1. If the corporation met the foreign
activities in which the property was or the corporation), rented, and sold economic process requirements
used and the adjusted basis allocated within 12 months after the rental of the explained in the Instructions for Form
to each activity, and property commenced. 8873, it can report the exclusion as a
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Instructions for Form 1120S
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nonseparately stated item on whichever “Applied for” and the date the
Name and Address
of the following lines apply to that corporation applied in the space for the
Enter the corporation’s true name (as
activity. EIN. However, if the corporation is filing
set forth in the charter or other legal
•
Form 1120S, page 1, line 19. its returns electronically, an EIN is
document creating it), address, and EIN
•
Form 8825, line 15. required at the time the return is filed.
on the appropriate lines. Enter the
•
Form 1120S, Schedule K, line 3b. For more information, see the
address of the corporation’s principal
In addition, the corporation must Instructions for Form SS-4.
office or place of business. Include the
report as an item of information on suite, room, or other unit number after
Schedule K-1, box 14, using code O, the street address. If the post office Item F. Total Assets
the shareholder’s pro rata share of does not deliver mail to the street
foreign trading gross receipts from Enter the corporation’s total assets (as
address and the corporation has a P.O.
Form 8873, line 15. determined by the accounting method
box, show the box number instead.
2. If the foreign trading gross regularly used in keeping the
receipts of the corporation for the tax Note. Do not use the address of the corporation’s books and records) at the
year are $5 million or less and the registered agent for the state in which end of the tax year. If there were no
corporation did not meet the foreign the corporation is incorporated. For assets at the end of the tax year, enter
economic process requirements, it example, if a business is incorporated -0-.
cannot report the extraterritorial income in Delaware or Nevada and the
exclusion as a nonseparately stated corporation’s principal office is located If the corporation is required to
item on its return. Instead, the in Little Rock, AR, the corporation complete Schedule L, enter total assets
corporation must report the following should enter the Little Rock address. from Schedule L, line 15, column (d) on
separately stated items to the page 1, item F. If the S election
If the corporation receives its mail in
shareholders on Schedule K-1, box 14. terminated during the tax year, see the
care of a third party (such as an instructions for Schedule L, later, for
•
Foreign trading gross receipts (code accountant or an attorney), enter on the
O). Report each shareholder’s pro rata special rules that may apply when
street address line “C/O” followed by
share of foreign trading gross receipts figuring the corporation’s year-end
the third party’s name and street
from line 15 of Form 8873 in box 14 assets.
address or P.O. box.
using code O.
•
Extraterritorial income exclusion Item B. Business Code Item H. Final Return,
(code P). Report each shareholder’s See Principal Business Activity Codes,
pro rata share of the extraterritorial Name Change, Address
later.
income exclusion from line 52 of Form
8873 in box 14 using code P and Change, Amended
identify on an attached statement the Item C. Schedule M-3 Return, or S Election
activity to which the exclusion relates. If Information
the corporation is required to complete Termination or
A corporation with total assets of $10
more than one Form 8873, combine the million or more on the last day of the
exclusions and report a single exclusion Revocation
tax year must complete Schedule M-3
amount in box 14.
•
If this is the corporation’s final return
(Form 1120S), Net Income (Loss)
Note. Upon request of a shareholder, and it will no longer exist, check the
Reconciliation for S Corporations With
the corporation should furnish a copy of “Final return” box. Also check the “Final
Total Assets of $10 Million or More,
the corporation’s Form 8873 if that K-1” box on each Schedule K-1.
instead of Schedule M-1. A corporation
shareholder has a reduction for
•
If the corporation changed its name
filing Form 1120S that is not required to
international boycott operations, illegal since it last filed a return, check the
file Schedule M-3 may voluntarily file
bribes, kickbacks, etc. “Name change” box. Generally, a
Schedule M-3 instead of Schedule M-1. corporation also must have amended
If you are filing Schedule M-3, check its articles of incorporation and filed the
the “Check if Sch. M-3 attached” box. amendment with the state in which it
Specific Instructions
See the Instructions for Schedule M-3 was incorporated.
for more details.
•
If the corporation has changed its
Period Covered address since it last filed a return
Item D. Employer
File the 2011 return for calendar year (including a change to an “in care of”
2011 and fiscal years that begin in address), check the “Address change”
Identification Number
2011 and end in 2012. For a fiscal or box.
short tax year return, fill in the tax year (EIN)
•
If this amends a previously filed
space at the top of the form. Enter the corporation’s EIN. If the return, check the “Amended return”
corporation does not have an EIN, it
The 2011 Form 1120S can also be box. If Schedules K-1 are also being
must apply for one. An EIN can be
used if: amended, check the “Amended K-1”
applied for:
•
The corporation has a tax year of box on each Schedule K-1.
•
Online—Click on the EIN link at
less than 12 months that begins and
•
If the corporation has terminated or
www.irs.gov/businesses/small. The EIN
ends in 2012, and revoked its S election, check the “S
is issued immediately once the
•
The 2012 Form 1120S is not election termination or revocation” box.
application information is validated.
available at the time the corporation is See Termination of Election, earlier.
•
By telephone at 1-800-829-4933.
required to file its return.
•
By faxing or mailing Form SS-4, Note. If a change in address occurs
The corporation must show its 2012 Application for Employer Identification after the return is filed, use Form
tax year on the 2011 Form 1120S and Number. 8822-B, Change of
take into account any tax law changes Address—Business, to notify the IRS
that are effective for tax years If the corporation has not received its of the new address.
beginning after December 31, 2011. EIN by the time the return is due, enter
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Instructions for Form 1120S
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Discharge of Indebtedness (and For sales of timeshares and
Income Section 1082 Basis Adjustment), and residential lots reported under the
Pub. 908, Bankruptcy Tax Guide. installment method, each shareholder’s
Report only trade or business income tax is increased by the
activity income on lines 1a
Line 1a. Merchant Card and
shareholder’s pro rata share of the
through 5. Do not report rental
CAUTION
!
interest payable under section 453(l)(3).
Third-Party Payments
activity income or portfolio income on
these lines. See Passive Activity For the 2011 tax year, the IRS has Enter on line 1b the gross profit on
Limitations, earlier, for definitions of deferred the requirement to separately collections from installment sales for
rental income and portfolio income. report on your return the amount of any of the following.
Rental activity income and portfolio merchant card and third-party network
•
Dealer dispositions of property before
income are reported on Schedules K payments received. Therefore, enter March 1, 1986.
and K-1. Rental real estate activities zero (-0-) on line 1a.
•
Dispositions of property used or
are also reported on Form 8825. produced in the trade or business of
Line 1b. Gross Receipts or
farming.
Tax-exempt income. Do not include
•
Certain dispositions of timeshares
Sales not Reported on Line
any tax-exempt income on lines 1a and residential lots reported under the
through 5. A corporation that receives
1a
installment method.
any tax-exempt income other than Enter on line 1b gross receipts or sales
interest, or holds any property or Attach a statement showing the
from all business operations (including
engages in any activity that produces following information for the current and
gross receipts or sales included in any
tax-exempt income, reports this income the 3 preceding years: (a) gross sales,
amounts reported to the corporation on
on line 16b of Schedule K and in box (b) cost of goods sold, (c) gross profits,
Form(s) 1099-K, Merchant Card and
16 of Schedule K-1 using code B. (d) percentage of gross profits to gross
Third-Party Network Payments), except sales, (e) amount collected, and (f)
Report tax-exempt interest income, for amounts that must be reported on gross profit on the amount collected.
including exempt-interest dividends lines 4 and 5.
received as a shareholder in a mutual Note. Amounts reported on Form
Line 1d. Returns and
fund or other regulated investment 1099-K represent gross payments
company, on line 16a of Schedule K
Allowances Plus any Other
made to you (before reduction for any
and in box 16 of Schedule K-1 using
Adjustments
fees), and may include amounts that
code A. are not gross income to you. Enter cash and credit refunds the
See Deductions, later, for corporation made to customers for
Special rules apply to certain
information on how to report expenses returned merchandise, rebates, and
income, as discussed below.
related to tax-exempt income. other allowances made on gross
Advance payments. In general,
Election to defer income from receipts or sales.
advance payments are reported in the
canceled debt. Do not include any year of receipt. There are exceptions to
Line 2. Cost of Goods Sold
cancellation of debt (COD) income that this general rule for corporations that
is deferred under section 108(i) on lines Complete Form 1125-A, Cost of Goods
use an accrual method of accounting.
1a through 5. Report deferred COD Sold. Enter on line 2 the amount from
To report income from long-term
income that is required to be included Form 1125-A, line 8.
contracts, see section 460. For special
in income in the current year under rules for reporting certain advance
section 108(i) on line 10 of Schedule K
Line 4. Net Gain (Loss) From
payments for goods and long-term
and in box 10 of Schedule K-1 using
Form 4797
contracts, see Regulations section
code E (other income). See Other 1.451-5. For permissible methods for
income (loss) (code E), later, for details. Include only ordinary gains or
reporting advance payments for
If the corporation elected under losses from the sale, exchange,
services and certain goods by an
section 108(i) to defer COD income, the or involuntary conversion of
accrual method corporation, see Rev.
CAUTION
!
exclusions for COD income under assets used in a trade or business
Proc. 2004-34, 2004-22 I.R.B. 991,
section 108(a)(1)(A), (B), (C), and (D) activity. Ordinary gains or losses from
Rev. Proc. 2008-52, 2008-36 I.R.B.
do not apply to the deferred COD the sale, exchange, or involuntary
587, Rev. Proc. 2009-39, 2009-38
income for the tax year of the election conversion of rental activity assets are
I.R.B. 371, and Rev. Proc. 2011-14,
or any later year. reported separately on line 19 of Form
2011-4 I.R.B. 330. Also see the 8825 or line 3 of Schedule K and box 3
Instructions for Form 3115.
For more information, see section of Schedule K-1, generally as a part of
108(i); Rev. Proc. 2009-37, 2009-36 Installment sales. Generally, the the net income (loss) from the rental
I.R.B. 309; and Temporary Regulations installment method cannot be used for activity.
section 1.108(i)-2T. dealer dispositions of property. A A corporation that is a partner in a
“dealer disposition” is any disposition
A corporation that receives a partnership must include on Form 4797,
of: (a) personal property by a person
Schedule K-1 from a partnership Sales of Business Property, its share of
who regularly sells or otherwise
containing information relating to a ordinary gains (losses) from sales,
disposes of personal property of the
section 108(i) election must report on exchanges, or involuntary conversions
same type on the installment plan or (b)
the Schedules K-1 to its shareholders (other than casualties or thefts) of the
real property held for sale to customers
certain information relative to the partnership’s trade or business assets.
in the ordinary course of the taxpayer’s
section 108(i) election. See Rev. Proc. trade or business.
2009-37 for details. Also see Corporations should not use Form
Temporary Regulations section These restrictions on using the 4797 to report the sale or other
1.108(i)-2T. installment method do not apply to disposition of property if a section 179
Cancelled debt exclusion. If the dispositions of property used or expense deduction was previously
corporation has had debt discharged produced in a farming business or sales passed through to any of its
resulting from a title 11 bankruptcy of timeshares and residential lots for shareholders for that property. Instead,
proceeding or while insolvent, see Form which the corporation elects to pay report it in box 17 of Schedule K-1
982, Reduction of Tax Attributes Due to interest under section 453(l)(3). using code K. See the instructions for
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Dispositions of property with section Instead, report these amounts on
Limitations on Deductions
179 deductions (code K), later, for Schedules K and K-1, or on line 20a of Section 263A uniform capitalization
details. Form 8825 if the amount is from a rules. The uniform capitalization rules
rental real estate activity. of section 263A generally require
Line 5. Other Income (Loss)
Ordinary income or loss from a corporations to capitalize, or include in
Enter any other trade or business partnership that is a publicly traded inventory, certain costs incurred in
income (loss) not included on lines 1a partnership is not reported on this line. connection with the following.
through 4. List the type and amount of Instead, report the amount separately
•
The production of real property and
income on an attached statement. on line 10 of Schedule K and in box 10 tangible personal property held in
Examples of other income include of Schedule K-1 using code E. inventory or held for sale in the ordinary
the following. course of business.
Treat shares of other items
•
Interest income derived in the
•
Real property or personal property
separately reported on Schedule K-1
ordinary course of the corporation’s (tangible and intangible) acquired for
issued by the other entity as if the items
trade or business, such as interest resale.
were realized or incurred by this
charged on receivable balances. See
•
The production of real property and
corporation.
Temporary Regulations section tangible personal property by a
1.469-2T(c)(3). corporation for use in its trade or
If there is a loss from a partnership,
•
Recoveries of bad debts deducted in business or in an activity engaged in for
the amount of the loss that may be
prior years under the specific charge-off profit.
claimed is subject to the at-risk and
method. basis limitations as appropriate. Tangible personal property produced
•
Taxable income from insurance by a corporation includes a film, sound
proceeds. If the tax year of the S corporation recording, videotape, book, or similar
•
The amount included in income from does not coincide with the tax year of property.
line 7 of Form 6478, Alcohol and the partnership, estate, or trust, include The costs required to be capitalized
Cellulosic Biofuel Fuels Credit. the ordinary income (loss) from the under section 263A are not deductible
•
The amount included in income from other entity in the tax year in which the until the property to which the costs
line 8 of Form 8864, Biodiesel and other entity’s tax year ends. relate is sold, used, or otherwise
Renewable Diesel Fuels Credit. disposed of by the corporation.
•
The recapture amount under section Deductions
280F if the business use of listed Exceptions. Section 263A does
property drops to 50% or less. To figure not apply to the following.
Report only trade or business
the recapture amount, complete Part IV
•
Inventoriable items accounted for in
activity deductions on lines 7
of Form 4797. the same manner as materials and
through 19.
CAUTION
!
•
All section 481 income adjustments supplies that are not incidental. See the
resulting from changes in accounting Form 1125-A instructions.
Do not report the following expenses
methods. Show the computation of the
•
Personal property acquired for resale
on lines 7 through 19.
section 481 adjustments on an if the corporation’s (or any
•
Rental activity expenses. Report
attached statement. predecessor’s) average annual gross
these expenses on Form 8825 or line
•
Part or all of the proceeds received receipts for the 3 prior tax years were
3b of Schedule K.
from certain corporate-owned life $10 million or less.
•
Deductions allocable to portfolio
insurance contracts issued after August
•
Timber.
income. Report these deductions on
17, 2006. Corporations that own one or
•
Most property produced under a
line 12d of Schedule K and in box 12 of
more employer-owned life insurance long-term contract.
Schedule K-1 using code I, K, or L.
contracts issued after this date must file
•
Certain property produced in a
•
Nondeductible expenses (for
Form 8925, Report of Employer-Owned farming business. See Special rules for
example, expenses connected with the
Life Insurance Contracts. See section certain corporations engaged in
production of tax-exempt income).
101(j) for details. farming, later.
Report nondeductible expenses on line
•
Geological and geophysical costs
Do not include items requiring 16c of Schedule K and in box 16 of amortized under section 167(h).
separate computations by shareholders Schedule K-1 using code C.
•
Capital costs incurred to comply with
that must be reported on Schedules K
•
Qualified expenditures to which an EPA sulfur regulations.
and K-1. See the instructions for election under section 59(e) may apply.
Schedules K and K-1 later in these The corporation must report the
The instructions for line 12c of
instructions. following costs separately to the
Schedule K and for Schedule K-1, box shareholders for purposes of
12, code J explain how to report these
Ordinary Income (Loss) From a
determinations under section 59(e).
amounts.
Partnership, Estate, or Trust •
Research and experimental costs
•
Items the corporation must state
Enter the ordinary income (loss) shown under section 174.
separately that require separate
on Schedule K-1 (Form 1065) or
•
Intangible drilling costs for oil, gas,
computations by the shareholders.
Schedule K-1 (Form 1041), or other and geothermal property.
Examples include expenses incurred
ordinary income (loss) from a foreign
•
Mining exploration and development
for the production of income instead of
partnership, estate, or trust. Show the costs.
in a trade or business, charitable
partnership’s, estate’s, or trust’s name, contributions, foreign taxes paid or Indirect costs. Corporations
address, and EIN on a separate accrued, intangible drilling and subject to the uniform capitalization
statement attached to this return. If the development costs, soil and water rules are required to capitalize not only
amount entered is from more than one conservation expenditures, amortizable direct costs but an allocable part of
source, identify the amount from each basis of reforestation expenditures, and most indirect costs (including taxes)
source. exploration expenditures. The pro rata that benefit the assets produced or
Do not include portfolio income or shares of these expenses are reported acquired for resale, or are incurred
rental activity income (loss) from a separately to each shareholder on because of the performance of
partnership, estate, or trust on this line. Schedule K-1. production or resale activities.
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For inventory, indirect costs that of the 3 immediately preceding years, the Instructions for Form 4562. Also
must be capitalized include the the corporation may be required to see Pub. 535, Business Expenses.
following. adjust items such as deductions for Reducing certain expenses for which
•
Administration expenses. depletion of iron ore and coal, and the credits are allowable. If the
•
Taxes. amortizable basis of pollution control corporation claims any of the following
•
Depreciation. facilities. If this applies, see section 291 credits, it may need to reduce the
•
Insurance. to figure the adjustment. otherwise allowable deductions for
•
Compensation paid to officers Business start-up and organizational expenses used to figure the credit.
attributable to services. costs. A corporation can elect to
•
Work opportunity credit (Form 5884).
•
Rework labor. deduct up to $5,000 of business
•
Credit for increasing research
•
Contributions to pension, stock start-up and up to $5,000 of activities (Form 6765).
bonus, and certain profit-sharing, organizational costs paid or incurred
•
Orphan drug credit (Form 8820).
annuity, or deferred compensation after October 22, 2004. Any remaining
•
Disabled access credit (Form 8826).
plans. costs must be amortized ratably over a
•
Empowerment zone employment
180-month period. The $5,000
Regulations section 1.263A-1(e)(3) credit (Form 8844).
deduction is reduced (but not below
specifies other indirect costs that relate
•
Indian employment credit (Form
zero) by the amount the total costs
to production or resale activities that 8845).
exceed $50,000. If the total costs are
must be capitalized and those that may
•
Credit for employer social security
$55,000 or more, the deduction is
be currently deductible. and Medicare taxes paid on certain
reduced to zero. See sections 195(b) employee tips (Form 8846).
Interest expense paid or incurred and 248(a).
•
Credit for small employer pension
during the production period of plan startup costs (Form 8881).
Time for making an election. The
designated property must be capitalized
•
Credit for employer-provided
corporation generally elects to deduct
and is governed by special rules. For childcare facilities and services (Form
start-up or organizational costs by
more details, see Regulations sections 8882).
claiming the deduction on its income
1.263A-8 through 1.263A-15.
•
Low sulfur diesel fuel production
tax return filed by the due date
For more details on the uniform credit (Form 8896).
(including extensions) for the tax year in
capitalization rules, see Regulations
•
Mine rescue team training credit
which the active trade or business
sections 1.263A-1 through 1.263A-3. (Form 8923).
begins. However, for start-up or
Special rules for certain
•
Agricultural chemicals security credit
organizational costs paid or incurred
corporations engaged in farming. (Form 8931).
before September 9, 2008, the
For S corporations not required to use
•
Credit for employer differential wage
corporation may be required to attach a
the accrual method of accounting, the payments (Form 8932).
statement to its return to elect to deduct
rules of section 263A do not apply to
•
Credit for small employer health
such costs.
expenses of raising any: insurance premiums (Form 8941).
If the corporation timely filed its
•
Animal or return for the year without making an If the corporation has any of these
•
Plant that has a preproductive period election, it can still make an election by credits, figure the current year credit
of 2 years or less. filing an amended return within 6 before figuring the deduction for
Shareholders of S corporations not months of the due date of the return expenses on which the credit is based.
required to use the accrual method of (excluding extensions). Clearly indicate If the corporation capitalized any costs
accounting may elect to currently the election on the amended return and on which it figured the credit, it may
deduct the preproductive period write “Filed pursuant to section need to reduce the amount capitalized
expenses of certain plants that have a 301.9100-2” at the top of the amended by the credit attributable to these costs.
preproductive period of more than 2 return. File the amended return at the
years. Because each shareholder See the instructions for the form
same address the corporation filed its
makes the election to deduct these used to figure the applicable credit for
original return. The election applies
expenses, the corporation should not more details.
when figuring taxable income for the
capitalize them. Instead, the current tax year and all subsequent
corporation should report the expenses
Line 7. Compensation of
years.
separately on line 12d of Schedule K
Officers and
The corporation can choose to forgo
and report each shareholder’s pro rata the elections above by clearly electing
Line 8. Salaries and Wages
share in box 12 of Schedule K-1 using to capitalize its start-up or
code M. organizational costs on its income tax Distributions and other
See Uniform Capitalization Rules in return filed by the due date (including payments by an S corporation to
chapter 6 of Pub. 225, Farmer’s Tax extensions) for the tax year in which the a corporate officer must be
CAUTION
!
Guide, sections 263A(d) and (e), and active trade or business begins. treated as wages to the extent the
Regulations section 1.263A-4 for amounts are reasonable compensation
Note. The election to either amortize
definitions and other details. for services rendered to the
or capitalize start-up costs is
Transactions between related corporation.
irrevocable and applies to all start-up
taxpayers. Generally, an accrual costs that are related to the trade or Enter on line 7 the total
basis S corporation can deduct business. compensation of all officers paid or
business expenses and interest owed incurred in the trade or business
Report the deductible amount of
to a related party (including any activities of the corporation. The
start-up and organizational cost and
shareholder) only in the tax year of the corporation determines who is an
any amortization on line 19. For
corporation that includes the day on officer under the laws of the state
amortization that begins during the
which the payment is includible in the where it is incorporated.
2011 tax year, complete and attach
income of the related party. See section Form 4562.
267 for details. Enter on line 8 the total salaries and
Section 291 limitations. If the S For more details on business wages paid or incurred to employees
corporation was a C corporation for any start-up and organizational costs, see (other than officers) during the tax year.
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If the corporation claims a credit for tax year, but only to the extent such and in box 14 of Schedule K-1 using
any wages paid or incurred, it may debts relate to a trade or business codes L and M.
need to reduce the amounts on lines 7 activity. Report deductible nonbusiness
•
Taxes allocable to a rental activity.
and 8. See Reducing certain expenses bad debts as a short-term capital loss Report taxes allocable to a rental real
for which credits are allowable, earlier. on Schedule D (Form 1120S), Capital estate activity on Form 8825. Report
Gains and Losses and Built-in Gains. A taxes allocable to a rental activity other
Do not include salaries and wages corporation that uses the cash method than a rental real estate activity on line
reported elsewhere on the return, such of accounting cannot claim a bad debt 3b of Schedule K.
as amounts included in cost of goods deduction unless the amount was
•
Taxes allocable to portfolio income.
sold, elective contributions to a section previously included in income. Report these taxes on line 12d of
401(k) cash or deferred arrangement, Schedule K and in box 12 of Schedule
or amounts contributed under a salary
Line 11. Rents
K-1 using code K.
reduction SEP agreement or a SIMPLE
•
Taxes paid or incurred for the
Enter rent paid on business property
IRA plan. production or collection of income, or
used in a trade or business activity. Do
Include fringe benefit expenditures for the management, conservation, or
not deduct rent for a dwelling unit
made on behalf of officers and maintenance of property held to
occupied by any shareholder for
employees owning more than 2% of the produce income. Report these taxes
personal use.
corporation’s stock. Also report these separately on line 12d of Schedule K
If the corporation rented or leased a
fringe benefits as wages in box 1 of and in box 12 of Schedule K-1 using
vehicle, enter the total annual rent or
Form W-2. Do not include amounts paid code S.
lease expense paid or incurred in the
or incurred for fringe benefits of officers See section 263A(a) for rules on
trade or business activities of the
and employees owning 2% or less of capitalization of allocable costs
corporation during the tax year. Also
the corporation’s stock. These amounts (including taxes) for any property.
complete Part V of Form 4562. If the
are reported on line 18. See the corporation leased a vehicle for a term
instructions for that line for information
•
Taxes not imposed on the
of 30 days or more, the deduction for
on the types of expenditures that are corporation.
vehicle lease expense may have to be
treated as fringe benefits and for the
•
Taxes, including state or local sales
reduced by including in gross income
stock ownership rules. taxes, that are paid or incurred in
an amount called the inclusion amount. connection with an acquisition or
Report amounts paid for health The corporation may have an inclusion disposition of property (these taxes
insurance coverage for a more than 2% amount if: must be treated as a part of the cost of
shareholder (including that the acquired property or, in the case of
shareholder’s spouse, dependents, and And the a disposition, as a reduction in the
any children under age 27 who are not vehicle’s amount realized on the disposition).
dependents) as an information item in FMV on
•
Taxes assessed against local
box 14 of that shareholder’s Form W-2. the first benefits that increase the value of the
day of the
A more-than-2% shareholder may be lease property assessed (such as for paving,
allowed to deduct such amounts on The lease term began: exceeded: etc.).
Form 1040, line 29. To find out if the
shareholder can claim this deduction, See section 164(d) for information
After 12/31/07 but before 1/1/12 $18,500
see Self-Employed Health Insurance on apportionment of taxes on real
Deduction in chapter 6 of Pub. 535, After 12/31/06 but before 1/1/08 $15,500 property between seller and purchaser.
Business Expenses. After 12/31/04 but before 1/1/07 $15,200
Line 13. Interest
If a shareholder or a member of the After 12/31/03 but before 1/1/05 $17,500 Include only interest incurred in the
family of one or more shareholders of If the lease term began before January 1, 2004, see trade or business activities of the
the corporation renders services or Pub. 463, Travel, Entertainment, Gift, and Car corporation that is not claimed
furnishes capital to the corporation for Expenses, to find out if the corporation has an elsewhere on the return.
inclusion amount. The inclusion amount for lease
which reasonable compensation is not terms beginning in 2012 will be published in the
paid, the IRS may make adjustments in Do not include interest expense:
Internal Revenue Bulletin in early 2012.
the items taken into account by such
•
On debt used to purchase rental
individuals to reflect the value of such property or debt used in a rental
See Pub. 463 for instructions on
services or capital. See section activity. Interest allocable to a rental
figuring the inclusion amount.
1366(e). real estate activity is reported on Form
8825 and is used in arriving at net
Line 12. Taxes and Licenses
Line 9. Repairs and
income (loss) from rental real estate
Enter taxes and licenses paid or
Maintenance
activities on line 2 of Schedule K and in
incurred in the trade or business
Enter the cost of incidental repairs and box 2 of Schedule K-1. Interest
activities of the corporation, unless they
maintenance not claimed elsewhere on allocable to a rental activity other than a
are reflected elsewhere on the return.
the return, such as labor and supplies, rental real estate activity is included on
Federal import duties and federal
that do not add to the value of the line 3b of Schedule K and is used in
excise and stamp taxes are deductible
property or appreciably prolong its life. arriving at net income (loss) from a
only if paid or incurred in carrying on
The corporation can deduct these rental activity (other than a rental real
the trade or business of the
repairs only to the extent they relate to estate activity). This net amount is
corporation.
a trade or business activity. New reported on line 3c of Schedule K and
buildings, machinery, or permanent Do not deduct the following taxes on in box 3 of Schedule K-1.
improvements that increase the value line 12.
•
On debt used to buy property held for
of the property are not deductible. They
•
Federal income taxes (except for the investment. Interest that is clearly and
must be depreciated or amortized. portion of built-in gains tax allocable to directly allocable to interest, dividend,
ordinary income), or taxes reported royalty, or annuity income not derived in
Line 10. Bad Debts
elsewhere on the return. the ordinary course of a trade or
Enter the total debts that became
•
Section 901 foreign taxes. Report business is reported on line 12b of
worthless in whole or in part during the these taxes on line 14l of Schedule K Schedule K and in box 12 of Schedule
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Instructions for Form 1120S
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K-1 using code H. See the instructions Spouses) Retirement Plan. File this
Line 14. Depreciation
form for a plan that only covers the
for line 12b of Schedule K, for box 12, Enter the depreciation claimed on owner (or the owner and his or her
code H of Schedule K-1, and Form assets used in a trade or business spouse) but only if the owner (or the
4952, Investment Interest Expense activity less any depreciation reported owner and his or her spouse) owns the
Deduction, for more information on elsewhere (for example, on Form entire business.
investment property. 1125-A). See the Instructions for Form
•
On debt proceeds allocated to Note. Form 5500 and Form 5500-SF
4562 or Pub. 946, How To Depreciate
distributions made to shareholders must be filed electronically under the
Property, to figure the amount of
during the tax year. Instead, report computerized ERISA Filing Acceptance
depreciation to enter on this line.
such interest on line 12d of Schedule K System (EFAST2). For more
Complete and attach Form 4562 information, see the EFAST2 website at
and in box 12 of Schedule K-1 using only if the corporation placed property www.efast.dol.gov.
code S. To determine the amount to in service during the tax year or claims
allocate to distributions to shareholders, There are penalties for not filing
depreciation on any car or other listed
see Notice 89-35, 1989-1 C.B. 675. these forms on time and for overstating
property.
•
On debt required to be allocated to the pension plan deduction. See
Do not include any section 179
the production of designated property. sections 6652(e) and 6662(f).
expense deduction on this line. This
Designated property includes real amount is not deducted by the
property, personal property that has a
Line 18. Employee Benefit
corporation. Instead, it is passed
class life of 20 years or more, and other
Programs
through to the shareholders in box 11
tangible property requiring more than 2 of Schedule K-1. Enter amounts for fringe benefits paid
years (1 year in the case of property or incurred on behalf of employees
with a cost of more than $1 million) to
Line 15. Depletion
owning 2% or less of the corporation’s
produce or construct. Interest allocable If the corporation claims a deduction for stock. These fringe benefits include (a)
to designated property produced by a timber depletion, complete and attach employer contributions to certain
corporation for its own use or for sale Form T (Timber), Forest Activities accident and health plans, (b) the cost
must be capitalized. In addition, a Schedule. of up to $50,000 of group-term life
corporation must also capitalize any insurance on an employee’s life, and (c)
Do not deduct depletion for oil
interest on debt allocable to an asset meals and lodging furnished for the
and gas properties. Each
used to produce designated property. A employer’s convenience.
shareholder figures depletion on
shareholder may have to capitalize
CAUTION
!
Do not deduct amounts that are an
oil and gas properties. See the
interest that the shareholder incurs incidental part of a pension,
instructions for Schedule K-1, box 17,
during the tax year for the S profit-sharing, etc., plan included on line
code R, for the information on oil and
corporation’s production expenditures. 17 or amounts reported elsewhere on
gas depletion that must be supplied to
Similarly, interest incurred by an S the return or on Form 1125-A.
the shareholders by the corporation.
corporation may have to be capitalized
by a shareholder for the shareholder’s Report amounts for fringe benefits
Line 17. Pension,
own production expenditures. The paid on behalf of employees owning
Profit-Sharing, etc., Plans
information required by the shareholder more than 2% of the corporate stock on
to properly capitalize interest for this Enter the deductible contributions not line 7 or 8, whichever applies. An
purpose must be provided by the claimed elsewhere on the return made employee is considered to own more
corporation on an attachment for box by the corporation for its employees than 2% of the corporation’s stock if
17 of Schedule K-1 using code P. See under a qualified pension, that person owns on any day during the
section 263A(f) and Regulations profit-sharing, annuity, or simplified tax year more than 2% of the
sections 1.263A-8 through 1.263A-15. employee pension (SEP) or SIMPLE outstanding stock of the corporation or
IRA plan, or any other deferred stock possessing more than 2% of the
Special rules apply to: compensation plan. combined voting power of all stock of
•
Allocating interest expense among the corporation. See section 318 for
If the corporation contributes to an
activities so that the limitations on attribution rules.
individual retirement arrangement (IRA)
passive activity losses, investment for employees, include the contribution
Line 19. Other Deductions
interest, and personal interest can be in salaries and wages on page 1, line 8,
properly figured. Generally, interest Enter the total allowable trade or
or Form 1125-A, line 3, and not on line
expense is allocated in the same business deductions that are not
17.
manner as debt is allocated. Debt is deductible elsewhere on page 1 of
Employers who maintain a pension,
allocated by tracing disbursements of Form 1120S. Attach a statement listing
profit-sharing, or other funded deferred
the debt proceeds to specific by type and amount each deduction
compensation plan, whether or not the
expenditures. Temporary Regulations included on this line.
plan is qualified under the Internal
section 1.163-8T gives rules for tracing Revenue Code and whether or not a Examples of other deductions
debt proceeds to expenditures. deduction is claimed for the current tax include the following.
•
Prepaid interest, which generally can year, generally must file the applicable
•
Amortization. See Part VI of Form
only be deducted over the term of the form listed below. 4562.
debt. See Regulations sections
•
Form 5500, Annual Return/Report of
•
Certain business start-up and
1.163-7, 1.446-2, and 1.1273-2(g) for Employee Benefit Plan. organizational costs (discussed earlier).
details. See also section 461(g).
•
Form 5500-SF, Short Form Annual
•
Insurance premiums.
•
Interest which is allocable to Return/Report of Small Employee
•
Legal and professional fees.
unborrowed policy cash values of life Benefit Plan (generally filed instead of
•
Supplies used and consumed in the
insurance, endowment, or annuity Form 5500 if there are under 100 business.
contracts issued after June 8, 1997. participants at the beginning of the plan
•
Travel, meal, and entertainment
See section 264(f). Attach a statement year). expenses. Special rules apply
showing the computation of the
•
Form 5500-EZ, Annual Return of (discussed later).
deduction. One-Participant (Owners and Their
•
Utilities.
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Instructions for Form 1120S
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•
Deduction for certain energy efficient
•
A bona fide business discussion officials. See Regulations section
commercial building property placed in must occur during, immediately before, 1.162-29 for the definition of
service during the tax year. See section or immediately after the meal; and “influencing legislation.”
179D, Notice 2006-52, 2006-26 I.R.B.
•
An employee of the corporation must Dues and other similar amounts paid
1175, and Notice 2008-40, 2008-14 be present at the meal. to certain tax-exempt organizations
I.R.B. 725. See section 274(n)(3) for a special may not be deductible. See section
•
Any negative net section 481(a) rule that applies to expenses for meals 162(e)(3). If certain in-house lobbying
adjustment. consumed by individuals subject to the expenditures do not exceed $2,000,
hours of service limits of the
Do not deduct the following on line they are deductible. For information on
Department of Transportation.
19. contributions to charitable organizations
•
Items that must be reported Membership dues. The that conduct lobbying activities, see
separately on Schedules K and K-1. corporation can generally deduct section 170(f)(9).
•
Fines or penalties paid to a amounts paid or incurred for
government for violating any law. membership dues in civic or public Certain corporations engaged in
Report these expenses on Schedule K, service organizations, professional farming. Section 464(f) limits the
line 16c. organizations (such as bar and medical deduction for certain expenditures of S
•
Expenses allocable to tax-exempt associations), business leagues, trade corporations engaged in farming if they
income. Report these expenses on associations, chambers of commerce, use the cash method of accounting,
Schedule K, line 16c. boards of trade, and real estate boards. and their prepaid farm supplies are
However, no deduction is allowed if a more than 50% of other deductible
Special Rules
principal purpose of the organization is farming expenses.
to entertain, or provide entertainment
Commercial revitalization deduction. facilities for, members or their guests. Prepaid farm supplies include
If the corporation qualified for a In addition, corporations cannot deduct expenses for feed, seed, fertilizer, and
commercial revitalization deduction for membership dues in any club organized similar farm supplies not used or
a building constructed, purchased, or for business, pleasure, recreation, or consumed during the year. They also
substantially rehabilitated in a renewal other social purpose. This includes include the cost of poultry that would be
community and placed in service before country clubs, golf and athletic clubs, allowable as a deduction in a later tax
2010, and it elected to amortize airline and hotel clubs, and clubs year if the corporation were to (a)
qualified capital expenditures, include operated to provide meals under capitalize the cost of poultry bought for
any current year amortization deduction conditions favorable to business use in its farm business and deduct it
for a nonrental building on line 19. discussion. ratably over the lesser of 12 months or
Include any current year amortization the useful life of the poultry and (b)
deduction for a rental real estate Entertainment facilities. The deduct the cost of poultry bought for
activity on Schedule K, line 12d. See corporation cannot deduct an expense resale in the year it sells or otherwise
section 1400I for details. paid or incurred for a facility (such as a disposes of it.
yacht or hunting lodge) used for an
Note. The commercial revitalization activity usually considered
deduction is not available for buildings If the limit applies, the corporation
entertainment, amusement, or
placed in service after 2009. can deduct prepaid farm supplies that
recreation. do not exceed 50% of its other
Travel, meals, and entertainment. Amounts treated as deductible farm expenses in the year of
Subject to limitations and restrictions compensation. The corporation may payment. The excess is deductible only
discussed below, a corporation can be able to deduct otherwise in the year the corporation uses or
deduct ordinary and necessary travel, nondeductible entertainment, consumes the supplies (other than
meals, and entertainment expenses amusement, or recreation expenses if poultry, which is deductible as
paid or incurred in its trade or business. the amounts are treated as explained above). For exceptions and
Also, special rules apply to deductions compensation to the recipient and more details on these rules, see Pub.
for gifts, skybox rentals, luxury water reported on Form W-2 for an employee 225.
travel, convention expenses, and or on Form 1099-MISC for an
entertainment tickets. See section 274 independent contractor. Reforestation expenditures. If the
and Pub. 463 for details. However, if the recipient is an officer, corporation made an election to deduct
Travel. The corporation cannot director, or beneficial owner (directly or a portion of its reforestation
deduct travel expenses of any indirectly) of more than 10% of the expenditures on line 12d of Schedule
individual accompanying a corporate corporation’s stock, the deductible K, it must amortize over an 84-month
officer or employee, including a spouse expense is limited. See section period the portion of these expenditures
or dependent of the officer or 274(e)(2) and Notice 2005-45, 2005-24 in excess of the amount deducted on
employee, unless: I.R.B. 1228. Schedule K (see section 194). Deduct
•
That individual is an employee of the on line 19 only the amortization of
Lobbying expenses. Generally,
corporation, and these excess reforestation
lobbying expenses are not deductible.
•
His or her travel is for a bona fide expenditures. See Reforestation
Report nondeductible expenses on
business purpose and would otherwise expense deduction (code O), later.
Schedule K, line 16c. These expenses
be deductible by that individual. include:
Meals and entertainment.
•
Amounts paid or incurred in Do not deduct amortization of
Generally, the corporation can deduct connection with influencing federal or reforestation expenditures paid
only 50% of the amount otherwise state legislation (but not local or incurred before October 23,
CAUTION
!
allowable for meals and entertainment legislation) or 2004. If the corporation elected to
expenses paid or incurred in its trade or
•
Amounts paid or incurred in amortize these expenditures, report the
business. In addition (subject to connection with any communication amortizable basis on line 17d of
exceptions under section 274(k)(2)): with certain federal executive branch Schedule K. See Amortization of
•
Meals must not be lavish or officials in an attempt to influence the reforestation costs (code S), later, for
extravagant; official actions or positions of the details.
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Instructions for Form 1120S
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LIFO recapture tax. The corporation which the corporation was not an S
Line 21. Ordinary Business
may be liable for the additional tax due corporation. The corporation is also
Income (Loss)
to LIFO recapture under Regulations liable for any required qualifying
Enter this income or loss on line 1 of section 1.1363-2 if: therapeutic discovery project grant
Schedule K. Line 21 income is not
•
The corporation used the LIFO recapture. Figure the corporation’s
used in figuring the excess net passive inventory pricing method for its last tax investment credit recapture tax and
income or built-in gains taxes. See the year as a C corporation, or qualifying therapeutic discovery project
instructions for line 22a for figuring
•
A C corporation transferred LIFO grant recapture tax by completing Form
taxable income for purposes of these inventory to the corporation in a 4255, Recapture of Investment Credit.
taxes. nonrecognition transaction in which To the left of the line 22c total, enter
those assets were transferred basis the amount of recapture tax and “Tax
property. From Form 4255.” Attach Form 4255 to
Tax and Payments Form 1120S.
The additional tax due to LIFO
recapture is figured for the corporation’s Interest due under the look-back
Line 22a. Excess Net Passive
last tax year as a C corporation or for method for completed long-term
Income and LIFO Recapture
the tax year of the transfer, whichever contracts. If the corporation owes this
applies. See the Instructions for Form
Tax
interest, attach Form 8697. To the left
1120 to figure the tax. of the total on line 22c, enter the
These taxes can apply if the amount owed and “From Form 8697.”
The tax is paid in four equal
corporation was previously a C installments. The C corporation must
corporation or if the corporation Interest due under the look-back
pay the first installment by the due date
engaged in a tax-free reorganization method for property depreciated
(not including extensions) of Form 1120
with a C corporation. under the income forecast method.
for the corporation’s last tax year as a If the corporation owes this interest,
Excess net passive income tax. If C corporation or for the tax year of the attach Form 8866. To the left of the
the corporation has accumulated transfer, whichever applies. The S total on line 22c, enter the amount
earnings and profits (E&P) at the close corporation must pay each of the owed and “From Form 8866.”
of its tax year, has passive investment remaining installments by the due date
income for the tax year that is in excess
Line 23d
(not including extensions) of Form
of 25% of gross receipts, and has 1120S for the 3 succeeding tax years. If the corporation is the beneficiary of a
excess net passive income, the Include this year’s installment in the trust, and the trust makes a section
corporation must pay a tax on the total amount to be entered on line 22a. 643(g) election to credit its estimated
excess net passive income. Complete To the left of the total on line 22a, enter tax payments to its beneficiaries,
lines 1 through 3 and line 9 of the the installment amount and “LIFO tax.” include the corporation’s share of the
worksheet below to make this payment in the total for line 23d. Enter
Line 22b. Tax From Schedule
determination. If line 2 is greater than “T” and the amount on the dotted line to
line 3 and the corporation has taxable
D (Form 1120S)
the left of the entry space.
income (see instructions for line 9 of Enter the built-in gains tax from line 21
the worksheet), it must pay the tax.
Line 24. Estimated Tax
of Part III of Schedule D. See the
Complete a separate statement using
Penalty
instructions for Part III of Schedule D to
the format of lines 1 through 11 of the determine if the corporation is liable for If Form 2220 is attached, check the box
worksheet to figure the tax. Enter the the tax. on line 24 and enter the amount of any
tax on line 22a, page 1, Form 1120S, penalty on this line.
and attach the computation statement
Line 22c
to Form 1120S.
Line 27
Include the following in the total for line
22c.
Reduce each item of passive Direct deposit of refund. If the
investment income passed through to Investment credit recapture tax. The corporation wants its refund directly
shareholders by its portion of any corporation is liable for any required deposited into its checking or savings
excess net passive income tax reported investment credit recapture attributable account at any U.S. bank or other
on line 22a. See section 1366(f)(3). to credits allowed for tax years for financial institution instead of having a
1. Enter gross receipts for the tax year
(see section 1362(d)(3)(B) for gross
receipts from the sale of capital
assets)*
2. Enter passive investment income as
defined in section 1362(d)(3)(C)*
3. Enter 25% of line 1 (If line 2 is less than
line 3, stop here. You are not liable for
this tax.)
4. Excess passive investment income—
Subtract line 3 from line 2
5. Enter deductions directly connected
with the production of income on line
2 (see section 1375(b)(2))*
6. Net passive income—Subtract line 5
from line 2
7. Divide amount on line 4 by amount on
line 2 %
8. Excess net passive income—Multiply
line 6 by line 7
9. Enter taxable income (see instructions
for taxable income below)
10. Enter smaller of line 8 or line 9
11. Excess net passive income tax—Enter
35% of line 10. Enter here and on line
22a, page 1, Form 1120S
*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form 1120S, as
well as those reported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.
Line 9 of Worksheet—Taxable income
Line 9 taxable income is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form
1120, U.S. Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form
1120S. You do not have to attach the schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120
schedules, such as Schedule D (Form 1120), if you have capital gains or losses.
Excess Net Passive Income Tax Worksheet for Line 22a
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Instructions for Form 1120S
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check sent to the corporation, complete Schedule K. Schedule K is a
Item 7
summary schedule of all shareholders’
Form 8050 and attach it to the If the corporation was a C corporation shares of the corporation’s income,
corporation’s return. However, the in a prior year, or if it engaged in a deductions, credits, etc. All corporations
corporation cannot have its refund from tax-free reorganization with a C must complete Schedule K.
an amended return directly deposited. corporation, enter the amount of any Schedule K-1. Schedule K-1 shows
accumulated earnings and profits (E&P) each shareholder’s separate share.
at the close of its 2011 tax year. For Attach a copy of each Schedule K-1 to
details on figuring accumulated E&P,
Schedule B. Other the Form 1120S filed with the IRS.
see section 312. Estimates based on
Information Keep a copy for the corporation’s
retained earnings at the end of the tax records and give each shareholder a
Complete all items that apply to the year are acceptable. If the corporation copy.
corporation. has accumulated E&P, it may be liable
for tax imposed on excess net passive Give each shareholder a copy of the
income. See Excess net passive Shareholder’s Instructions for Schedule
Item 2
income tax, earlier, for details on this K-1 (Form 1120S) or specific
See Principal Business Activity Codes tax. instructions for each item reported on
at the end of these instructions and the shareholder’s Schedule K-1.
enter the business activity and product
Question 8
or service.
Substitute Forms
Total receipts is the sum of the The corporation does not need IRS
following amounts.
Question 4
approval to use a substitute Schedule
•
Gross receipts or sales (page 1, line
Answer “Yes” if the corporation filed, or K-1 if it is an exact copy of the IRS
1c).
is required to file, Form 8918, Material schedule. The boxes must use the
•
All other income (page 1, lines 4 and
Advisor Disclosure Statement. For same numbers and titles and must be
5).
details, see the Instructions for Form in the same order and format as on the
•
Income reported on Schedule K,
8918. comparable IRS Schedule K-1. The
lines 3a, 4, 5a, and 6. substitute schedule must include the
•
Income or net gain reported on
Item 6
OMB number. The corporation must
Schedule K, lines 7, 8a, 9, and 10. provide each shareholder with the
•
Income or net gain reported on Form
Complete item 6 if the corporation: (a) Shareholder’s Instructions for Schedule
8825, lines 2, 19, and 20a.
was a C corporation before it elected to K-1 (Form 1120S) or instructions that
be an S corporation or the corporation
Item 9
apply to the specific items reported on
acquired an asset with a basis the shareholder’s Schedule K-1.
determined by reference to its basis (or Answer “Yes” if, during the tax year, the
the basis of any other property) in the corporation revoked a qualified The corporation must request IRS
hands of a C corporation and (b) has subchapter S (QSub) election or a approval to use other substitute
net unrealized built-in gain (defined QSub election of the corporation was Schedules K-1. To request approval,
below) in excess of the net recognized terminated. If “Yes,” see Regulations write to Internal Revenue Service,
built-in gain from prior years. section 1.1361-5 for additional Attention: Substitute Forms Program,
information. SE:W:CAR:MP:T:M:S, 1111
The corporation is liable for section Constitution Avenue NW, IR-6526,
1374 tax if (a) and (b) above apply and
Questions 10a and 10b
Washington, DC 20224.
it has a net recognized built-in gain If the corporation made any payment in
(defined in section 1374(d)(2)) for its Each shareholder’s information must
2011 that would require it to file any
tax year. be on a separate sheet of paper.
Form(s) 1099, check the ‘‘Yes’’ box for Therefore, separate all continuously
The corporation’s net unrealized question 10a and answer question 10b. printed substitutes before you file them
built-in gain is the amount, if any, by Otherwise, check the ‘‘No’’ box. For with the IRS.
which the fair market value of the more information on the filing The corporation may be subject to a
assets of the corporation at the requirements for information returns, penalty if it files a substitute Schedule
beginning of its first S corporation year see the General Instructions for Certain K-1 that does not conform to the
(or as of the date the assets were Information Returns. specifications discussed in Pub. 1167,
acquired, for any asset with a basis General Rules and Specifications for
determined by reference to its basis (or Substitute Forms and Schedules.
the basis of any other property) in the Schedules K and K-1
hands of a C corporation) exceeds the
Shareholder’s Pro Rata
(General Instructions)
aggregate adjusted basis of such
Share Items
assets at that time.
Purpose of Schedules
Enter the corporation’s net
General Rule
The corporation is liable for taxes on
unrealized built-in gain reduced by the Items of income, gain, loss, deduction,
lines 22a, 22b, and 22c, on page 1 of
net recognized built-in gain from prior or credit are allocated to a shareholder
Form 1120S. Shareholders are liable
years. See sections 1374(c)(2) and on a daily basis, according to the
for tax on their shares of the
(d)(1). number of shares of stock held by the
corporation’s income (reduced by any shareholder on each day of the
If the corporation has more than one taxes paid by the corporation on corporation’s tax year. See the detailed
pool of assets (as defined in income). Shareholders must include instructions for item F in Part II.
Regulations section 1.1374-3(b)(4)), their share of the income on their tax Information About the Shareholder,
attach a statement showing for each return whether or not it is distributed to later.
pool of assets the amount of the them. Unlike most partnership income,
corporation’s net unrealized built-in gain S corporation income is not Shareholders who dispose of stock
reduced by the net recognized built-in self-employment income and is not are treated as shareholders for the day
gain from prior years. subject to self-employment tax. of their disposition. Shareholders who
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Instructions for Form 1120S
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die are treated as shareholders for the election is made. In the statement, the alphanumeric order by box number
day of their death. corporation must state that it is electing followed by the letter code (if any). For
under Regulations section example: “Box 17, code R—Depletion
Special Rules
1.1368-1(g)(2)(i) to treat the tax year as information—oil and gas” (followed by
if it consisted of two separate tax years, the information the shareholder needs).
Termination of shareholder’s give the facts relating to the qualifying
interest. If a shareholder terminates Too few entry spaces on Schedule
disposition (for example, sale, gift,
his or her interest in a corporation K-1? If the corporation has more
stock issuance, or redemption), and
during the tax year, the corporation, coded items than the number of entry
state that each shareholder who held
with the consent of all affected spaces in box 10, or boxes 12 through
stock in the corporation during the tax
shareholders (including those whose 17, do not enter a code or dollar
year consents to the election. A single
interest is terminated), may elect to amount in the last entry space of the
election statement may be filed for all
allocate income and expenses, etc., as box. In the last entry space, enter an
qualifying disposition elections for the
if the corporation’s tax year consisted of asterisk in the left column and enter
tax year.
2 separate tax years, the first of which “STMT” in the entry space to the right.
ends on the date of the shareholder’s For more details, see Regulations Report the additional items on an
termination. section 1.1368-1(g)(2). attached statement and provide the box
To make the election, the number, the code, description, and
corporation must attach a statement to dollar amount or information for each
a timely filed original or amended Form additional item. For example: “Box 13,
Specific Instructions
1120S for the tax year for which the code J—Work opportunity
election is made. In the statement, the credit—$1,000.”
(Schedule K-1 Only)
corporation must state that it is electing
under section 1377(a)(2) and
Special Reporting
General Information
Regulations section 1.1377-1(b) to treat
Requirements for Corporations
Generally, the corporation is required to
the tax year as if it consisted of 2
With Multiple Activities
prepare and give a Schedule K-1 to
separate tax years. The statement must If items of income, loss, deduction, or
each person who was a shareholder in
also explain how the shareholder’s credit from more than one activity
the corporation at any time during the
entire interest was terminated (for (determined for purposes of the passive
tax year. Schedule K-1 must be
example, sale or gift), and state that the activity loss and credit limitations) are
provided to each shareholder on or
corporation and each affected reported on Schedule K-1, the
before the day on which the
shareholder consent to the corporation corporation must provide information
corporation’s Form 1120S is required to
making the election. A single statement separately for each activity to its
be filed.
may be filed for all terminating elections shareholders. See Passive Activity
made for the tax year. If the election is
How To Complete Schedule K-1
Reporting Requirements, earlier, for
made, enter “Section 1377(a)(2) details on the reporting requirements.
If the return is for a fiscal year or a
Election Made” at the top of each short tax year, fill in the tax year space
affected shareholder’s Schedule K-1.
Special Reporting
at the top of each Schedule K-1. On
For more details, see Regulations
Requirements for At-Risk
each Schedule K-1, enter the
section 1.1377-1(b). information about the corporation and
Activities
Qualifying dispositions. If a the shareholder in Parts I and II (items If the corporation is involved in one or
qualifying disposition takes place during A through F). In Part III, enter the more at-risk activities for which a loss is
the tax year, the corporation may make shareholder’s pro rata share of each reported on Schedule K-1, the
an irrevocable election to allocate item of income, deduction, and credit corporation must report information
income and expenses, etc., as if the and any other information the separately for each activity. See section
corporation’s tax year consisted of 2 tax shareholder needs to prepare his or her 465(c) for a definition of activities.
years, the first of which ends on the tax return. Use 10-point Courier font (if
close of the day the qualifying The following information must be
possible) for all entries if you are typing
disposition occurs. provided on an attachment to Schedule
or using a computer to complete K-1 for each activity.
Schedule K-1.
A qualifying disposition is:
•
A statement that the information is a
1. A disposition by a shareholder of Codes. In box 10 and boxes 12 breakdown of at-risk activity loss
at least 20% of the corporation’s through 17, identify each item by amounts.
outstanding stock in one or more entering a code in the left column of the
•
The identity of the at-risk activity, the
transactions in any 30-day period entry space. These codes are identified loss amount for the activity, other
during the tax year, in these instructions and on the back of income and deductions, and any other
2. A redemption treated as an Schedule K-1. information that relates to the activity.
exchange under section 302(a) or Attached statements. Enter an
303(a) of at least 20% of the asterisk (*) after the code, if any, in the
corporation’s outstanding stock in one
Part I. Information About the
left column of the entry space for each
or more transactions in any 30-day
Corporation
item for which you have attached a
period during the tax year, or On each Schedule K-1, enter the
statement providing additional
3. An issuance of stock that equals corporation’s name, address, and
information. For items that cannot be
at least 25% of the previously identifying number.
reported as a single dollar amount,
outstanding stock to one or more new enter the code and asterisk in the left
shareholders in any 30-day period
Item C
column and enter “STMT” in the right
during the tax year. column to indicate that the information If the corporation is filing its return
To make the election, the is provided on an attached statement. electronically, enter “e-file.” Otherwise,
corporation must attach a statement to More than one attached statement can enter the name of the IRS service
a timely filed original or amended Form be placed on the same sheet of paper center where the corporation will file its
1120S for the tax year for which the and should be identified in return. See Where To File, earlier.
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Instructions for Form 1120S
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Line 2. Net Rental Real Estate
Part II. Information About the Income (Loss)
Shareholder
Enter the net income (loss) from rental
On each Schedule K-1, enter the real estate activities of the corporation
shareholder’s name, address, from Form 8825. Attach the form to
identifying number, and percentage of Form 1120S.
stock ownership. Schedule K-1. Enter each
Items D and E
shareholder’s pro rata share of net
rental real estate income (loss) in box 2
For an individual shareholder, enter the of Schedule K-1. If the corporation has
shareholder’s social security number
a b c (a ⫻b)
% of total
stock owned % of tax
year held % of ownership
for the year
A50 50 25
40 50 +20 45
B50 50 25
40 50 +20 45
C20 50 1010
Total 100%
more than one rental real estate
(SSN) or individual taxpayer
•
Each shareholder’s pro rata share activity, identify on an attachment to
identification number (ITIN) in item D. items generally are figured by Schedule K-1 the amount attributable to
For all other shareholders, enter the multiplying the Schedule K amount by each activity. See Passive Activity
shareholder’s EIN. the percentage in item F. However, if a Reporting Requirements, earlier.
If stock of the corporation is held by shareholder terminated his or her entire
a nominee, guardian, custodian, or an
Line 3. Other Net Rental Income
interest in the corporation during the
agent, enter the name, address, and year or a qualifying disposition took
(Loss)
identifying number of the person for place, the corporation may elect to Enter on line 3a gross income from
whom the stock is held. allocate income and expenses, etc., as rental activities other than those
if the tax year consisted of 2 tax years,
If a single member limited liability reported on Form 8825. Include on line
the first of which ends on the day of the
company (LLC) owns stock in the 3a gain (loss) from line 17 of Form
termination or qualifying disposition.
corporation, and the LLC is treated as a 4797 that is attributable to the sale,
disregarded entity for federal income exchange, or involuntary conversion of
See Special Rules, earlier, for more
tax purposes, enter the owner’s an asset used in a rental activity other
details.
identifying number in item D and the than a rental real estate activity.
owner’s name and address in item E. Enter on line 3b the deductible
The owner must be eligible to be an S expenses of the activity. Attach a
corporation shareholder. An LLC that Specific Instructions statement of these expenses to Form
elects to be treated as a corporation for 1120S.
(Schedules K and K-1,
federal income tax purposes is not Enter on line 3c the net income
eligible to be an S corporation Part III) (loss).
shareholder.
See Rental Activities, earlier, and
Income (Loss)
Item F
Pub. 925, Passive Activity and At-Risk
Each shareholder’s pro rata share Reminder: Before entering income Rules, for more information on rental
items are figured separately for each items on Schedule K or K-1, reduce activities.
period on a daily basis, based on the each item of passive investment Schedule K-1. Enter in box 3 of
percentage of stock held by the income (within the meaning of section Schedule K-1 each shareholder’s pro
shareholder on each day. 1362(d)(3)(C)) by its proportionate rata share of other net rental income
share of the net passive income tax
If there was no change in (loss) reported on line 3c of Schedule
(Form 1120S, page 1, line 22a).
shareholders or in the relative interest K. If the corporation has more than one
in stock the shareholders owned during rental activity reported in box 3, identify
Line 1. Ordinary Business
the tax year, enter the percentage of on an attachment to Schedule K-1 the
Income (Loss)
total stock owned by each shareholder amount from each activity. See Passive
during the tax year. For example, if Enter the amount from Form 1120S, Activity Reporting Requirements,
shareholders X and Y each owned 50% page 1, line 21. Enter the income (loss) earlier.
for the entire tax year, enter 50% in without reference to the shareholder’s:
Portfolio Income
item F for each shareholder. Each
•
Basis in the stock of the corporation See Portfolio Income, earlier, for a
shareholder’s pro rata share items and in any indebtedness of the definition of portfolio income.
(boxes 1 through 17 of Schedule K-1) corporation to the shareholders (section
are figured by multiplying the 1366(d)), Do not reduce portfolio income by
corresponding Schedule K amount by deductions allocated to it. Report such
•
At-risk limitations, and
the percentage in item F. deductions (other than interest
•
Passive activity limitations. expense) on line 12d of Schedule K.
If there was a change in These limitations, if applicable, are Report each shareholder’s pro rata
shareholders or in the relative interest determined at the shareholder level. share of deductions in box 12 of
in stock the shareholders owned during Schedule K-1 using codes I, K, and L.
the tax year, figure the percentage as Line 1 should not include rental
follows. Interest expense allocable to
activity income (loss) or portfolio
•
Each shareholder’s percentage of portfolio income is generally investment
income (loss).
ownership is weighted for the number interest expense reported on line 12b of
of days in the tax year that stock was Schedule K-1. Enter each Schedule K. Report each shareholder’s
owned. For example, A and B each shareholder’s pro rata share of ordinary pro rata share of interest expense
held 50% for half the tax year and A, B, business income (loss) in box 1 of allocable to portfolio income in box 12
and C held 40%, 40%, and 20%, Schedule K-1. If the corporation has of Schedule K-1 using code H.
respectively, for the remaining half of more than one trade or business
Line 4. Interest Income
the tax year. The percentage of activity, identify on an attachment to
ownership for the year for A, B, and C Schedule K-1 the amount from each Enter only taxable portfolio interest on
is figured as presented in the illustration separate activity. See Passive Activity this line. Taxable interest is interest
and is then entered in item F. Reporting Requirements, earlier. from all sources except interest exempt
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Instructions for Form 1120S
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from tax and interest on tax-free 1. Incorporated in a possession of If any gain or loss from lines 6
covenant bonds. the United States or or 13 of Schedule D is from the
2. Eligible for benefits of a disposition of nondepreciable
CAUTION
!
Schedule K-1. Enter each comprehensive income tax treaty with personal property used in a trade or
shareholder’s pro rata share of interest the United States that the Secretary business, it may not be treated as
income in box 4 of Schedule K-1. determines is satisfactory for this portfolio income. Instead, report it on
Line 5a. Ordinary Dividends
purpose and that includes an exchange line 10 of Schedule K and report each
of information program. See Notice shareholder’s pro rata share in box 10
Enter only taxable ordinary dividends 2006-101, 2006-47 I.R.B. 930, for of Schedule K-1 using code E.
on line 5a, including any qualified details.
dividends reported on line 5b.
Line 8b. Collectibles (28%) Gain
Schedule K-1. Enter each
(Loss)
If the foreign corporation does not
shareholder’s pro rata share of ordinary meet either 1 or 2, then it may be Figure the amount attributable to
dividends in box 5a of Schedule K-1. treated as a qualified foreign collectibles from the amount reported
corporation for any dividend paid by the on Schedule D (Form 1120S), line 13.
Line 5b. Qualified Dividends
corporation if the stock associated with A collectibles gain (loss) is any
Enter qualified dividends on line 5b. the dividend paid is readily tradable on long-term gain or deductible long-term
Except as provided below, qualified an established securities market in the loss from the sale or exchange of a
dividends are dividends received from United States. collectible that is a capital asset.
domestic corporations and qualified Collectibles include works of art,
foreign corporations. However, qualified dividends do not rugs, antiques, metal (such as gold,
include dividends paid by an entity
Exceptions. The following dividends silver, or platinum bullion), gems,
which was a passive foreign investment
are not qualified dividends. stamps, coins, alcoholic beverages,
company (defined in section 1297) in
•
Dividends the corporation received and certain other tangible property.
either the tax year of the distribution or
on any share of stock held for less than the preceding tax year. Also, include gain (but not loss) from
61 days during the 121-day period that the sale or exchange of an interest in a
began 60 days before the ex-dividend See Notice 2004-71, 2004-45 I.R.B. partnership or trust held for more than 1
date. When determining the number of 793, for more details. year and attributable to unrealized
days the corporation held the stock, do Schedule K-1. Enter each appreciation of collectibles. For details,
not count certain days during which the shareholder’s pro rata share of qualified see Regulations section 1.1(h)-1. Also
corporation’s risk of loss was dividends in box 5b of Schedule K-1. attach the statement required under
diminished. The ex-dividend date is the Regulations section 1.1(h)-1(e).
first date following the declaration of a If any amounts from line 5b are
dividend on which the purchaser of a Schedule K-1. Report each
from foreign sources, see the
stock is not entitled to receive the next shareholder’s pro rata share of the
instructions for line 14c and
CAUTION
!
dividend payment. When counting the collectibles (28%) gain (loss) in box 8b
lines 14d through 14f for additional
number of days the corporation held of Schedule K-1.
statements required.
the stock, include the day the
Line 8c. Unrecaptured Section
corporation disposed of the stock but
Line 6. Royalties 1250 Gain
not the day the corporation acquired it. Enter the royalties received by the
•
Dividends attributable to periods The three types of unrecaptured section
corporation.
totaling more than 366 days that the 1250 gain must be reported separately
Schedule K-1. Enter each
corporation received on any share of on an attached statement to Form
shareholder’s pro rata share of royalties
preferred stock held for less than 91 1120S.
in box 6 of Schedule K-1.
days during the 181-day period that From the sale or exchange of the
began 90 days before the ex-dividend corporation’s business assets.
Line 7. Net Short-Term Capital
date. When determining the number of Figure this amount in Part III of Form
Gain (Loss)
days the corporation held the stock, do 4797 for each section 1250 property
Enter the gain (loss) that is portfolio
not count certain days during which the (except property for which gain is
income (loss) from Schedule D (Form
corporation’s risk of loss was reported using the installment method
1120S), line 6.
diminished. Preferred dividends on Form 6252, Installment Sale
attributable to periods totaling less than Income) for which you had an entry in
Schedule K-1. Enter each
367 days are subject to the 61-day Part I of Form 4797. Subtract line 26g
shareholder’s pro rata share of net
holding period rule above. of Form 4797 from the smaller of line
short-term capital gain (loss) in box 7 of
•
Dividends that relate to payments 22 or line 24. Figure the total of these
Schedule K-1.
that the corporation is obligated to amounts for all section 1250 properties.
make with respect to short sales or
Line 8a. Net Long-Term Capital
Generally, the result is the corporation’s
positions in substantially similar or
Gain (Loss)
unrecaptured section 1250 gain.
related property. However, if the corporation is reporting
Enter the gain or loss that is portfolio
•
Dividends paid by a regulated gain on the installment method for a
income (loss) from Schedule D (Form
investment company that are not section 1250 property held more than 1
1120S), line 13.
treated as qualified dividend income year, see the next paragraph.
Schedule K-1. Enter each
under section 854. The total unrecaptured section 1250
shareholder’s pro rata share of net
•
Dividends paid by a real estate gain for an installment sale of section
long-term capital gain (loss) in box 8a
investment trust that are not treated as 1250 property held more than 1 year is
of Schedule K-1.
qualified dividend income under section figured in a manner similar to that used
857(c). If any amounts from line 8a are in the preceding paragraph. However,
See Pub. 550 for more details. from foreign sources, see the the total unrecaptured section 1250
Qualified foreign corporation. Ainstructions for line 14c and gain must be allocated to the
CAUTION
!
foreign corporation is a qualified foreign lines 14d through 14f for additional installment payments received from the
corporation if it is: statements required. sale. To do so, the corporation
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Instructions for Form 1120S
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generally must treat the gain allocable Each shareholder’s pro rata share
Line 9. Net Section 1231 Gain
must be entered on Schedule K-1.
to each installment payment as
(Loss)
unrecaptured section 1250 gain until all Enter the net gain from involuntary
Enter the net section 1231 gain (loss)
such gain has been used in full. Figure conversions of property used in a trade
from Form 4797, line 7.
the unrecaptured section 1250 gain for or business (line 39 of Form 4684) on
Do not include net gain or loss from
installment payments received during line 3 of Form 4797.
involuntary conversions due to casualty
the tax year as the smaller of (a) the If there was a gain (loss) from a
or theft. Report net loss from
amount from line 26 or line 37 of Form casualty or theft to property not used in
involuntary conversions due to casualty
6252 (whichever applies) or (b) the total a trade or business or for
or theft on line 10 of Schedule K (box
unrecaptured section 1250 gain for the income-producing purposes, notify the
10, code B, of Schedule K-1). See the
sale reduced by all gain reported in shareholder. The corporation should
instructions for line 10 on how to report
prior years (excluding section 1250 not complete Form 4684 for this type of
net gain from involuntary conversions.
ordinary income recapture). casualty or theft. Instead, each
Schedule K-1. Report each shareholder will complete his or her
If the corporation chose not to shareholder’s pro rata share of net own Form 4684.
treat all of the gain from section 1231 gain (loss) in box 9 of Section 1256 contracts and straddles
payments received after May 6, Schedule K-1. If the corporation has
CAUTION
!
(code C). Report any net gain or loss
1997, and before August 24, 1999, as more than one rental, trade, or from section 1256 contracts from Form
unrecaptured section 1250 gain, use business activity, identify on an 6781, Gains and Losses From Section
only the amount the corporation chose attachment to Schedule K-1 the amount 1256 Contracts and Straddles.
to treat as unrecaptured section 1250 of section 1231 gain (loss) from each Mining exploration costs recapture
gain for those payments to reduce the separate activity. See Passive Activity (code D). Provide the information
total unrecaptured section 1250 gain Reporting Requirements, earlier. shareholders need to recapture certain
remaining to be reported for the sale. If any amounts from line 9 are mining exploration expenditures. See
from foreign sources, see the
From the sale or exchange of an Regulations section 1.617-3.
instructions for line 14c and
interest in a partnership. Also report
CAUTION
!
Other income (loss) (code E).
lines 14d through 14f for additional
as a separate amount any gain from Include any other type of income, such
required statements.
the sale or exchange of an interest in a as:
partnership attributable to unrecaptured
•
Recoveries of tax benefit items
Line 10. Other Income (Loss)
section 1250 gain. See Regulations (section 111).
Enter any other item of income or loss
section 1.1(h)-1 and attach the
•
Gambling gains and losses subject to
not included on lines 1 through 9. On
statement required under Regulations the limitations in section 165(d).
the line to the left of the entry space for
section 1.1(h)-1(e). Indicate on an attached statement
line 10, identify the type of income. If whether or not the corporation is in the
there is more than one type of income,
From an estate, trust, REIT, or RIC. trade or business of gambling.
attach a statement to Form 1120S that
If the corporation received a Schedule
•
Disposition of an interest in oil, gas,
separately identifies each type and
K-1 or Form 1099-DIV from an estate, a geothermal, or other mineral properties.
amount of income for each of the
trust, a real estate investment trust Report the following information on a
following categories. The codes needed
(REIT), or a regulated investment statement attached to Schedule K-1: (a)
for Schedule K-1 reporting are provided
company (RIC) reporting “unrecaptured a description of the property, (b) the
for each category.
section 1250 gain,” do not add it to the shareholder’s share of the amount
corporation’s own unrecaptured section Other portfolio income (loss) (code realized on the sale, exchange, or
1250 gain. Instead, report it as a A). Portfolio income not reported on involuntary conversion of each property
separate amount. For example, if the lines 4 through 8. Report and identify (fair market value of the property for
corporation received a Form 1099-DIV other portfolio income or loss on an any other disposition, such as a
from a REIT with unrecaptured section attachment for line 10. distribution), (c) the shareholder’s share
1250 gain, report it as “Unrecaptured of the corporation’s adjusted basis in
If the corporation holds a residual
section 1250 gain from a REIT.” the property (except for oil or gas
interest in a REMIC, report on an properties), and (d) total intangible
attachment the shareholder’s share of
Schedule K-1. Report each drilling costs, development costs, and
the following.
shareholder’s pro rata share of mining exploration costs (section 59(e)
•
Taxable income (net loss) from the
unrecaptured section 1250 gain from expenditures) passed through to the
REMIC (line 1b of Schedules Q (Form
the sale or exchange of the shareholder for the property. See
1066)).
corporation’s business assets in box 8c Regulations section 1.1254-4 for more
•
Excess inclusion (line 2c of
of Schedule K-1. If the corporation is information.
Schedules Q (Form 1066)).
reporting unrecaptured section 1250
•
COD income deferred under section
•
Section 212 expenses (line 3b of
gain from an estate, trust, REIT, or RIC, 108(i). Report COD income deferred
Schedules Q (Form 1066)).
or from the corporation’s sale or under section 108(i) that must be
exchange of an interest in a partnership Because Schedule Q (Form 1066) is included in income in the current tax
(as explained above), enter “STMT” in a quarterly statement, the corporation year under section 108(i)(1) or section
box 8c and an asterisk (*) in the left must follow the Schedule Q instructions 108(i)(5)(D)(i) or (ii). For information on
column of the box and attach a to figure the amounts to report to events that will cause previously
statement that separately identifies the shareholders for the corporation’s tax deferred income to be reportable and
amount of unrecaptured section 1250 year. allocating deferred income to the
gain from: Involuntary conversions (code B). shareholders, see section 108(i); Rev.
•
The sale or exchange of the Report net loss from involuntary Proc. 2009-37, 2009-36 I.R.B. 309; and
corporation’s business assets. conversions due to casualty or theft. Temporary Regulations section
•
The sale or exchange of an interest The amount for this item is shown on 1.108(i)-2T.
in a partnership. Form 4684, Casualties and Thefts, line
•
Gain from the sale or exchange of
•
An estate, trust, REIT, or RIC. 38a or 38b. qualified small business (QSB) stock
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(as defined in the Instructions for (for example, gain or loss from the during the year that is qualified
Schedule D) that is eligible for the disposition of nondepreciable personal enterprise zone, qualified section 179
section 1202 exclusion. The section property used in a trade or business). Recovery Assistance, qualified section
1202 exclusion applies only to QSB 179 disaster assistance, or qualifed real
Schedule K-1. Enter each
stock held by the corporation for more property.
shareholder’s pro rata share of the
than 5 years. Additional limitations other income categories listed above in See the instructions for line 17d of
apply at the shareholder level. Report box 10 of Schedule K-1. Enter the Schedule K for sales or other
each shareholder’s share of section applicable code A, B, C, D, or E (as dispositions of property for which a
1202 gain on Schedule K-1. Each shown above). section 179 deduction has passed
shareholder will determine if he or she through to shareholders and for the
If you are reporting each
qualifies for the exclusion. Report on an recapture rules if the business use of
shareholder’s pro rata share of only
attachment to Schedule K-1 for each the property dropped to 50% or less.
one type of income under code E, enter
sale or exchange (a) the name of the the code with an asterisk (E*) and the Schedule K-1. Report each
corporation that issued the QSB stock, dollar amount in the entry space in box shareholder’s pro rata share of the
(b) the shareholder’s pro rata share of 10 and attach a statement that shows section 179 expense deduction in box
the corporation’s adjusted basis and “Box 10, code E,” and the type of 11 of Schedule K-1. If the corporation
sales price of the QSB stock, and (c) income. If you are reporting multiple has more than one rental, trade, or
the dates the QSB stock was bought types of income under code E, enter business activity, identify on an
and sold. the code with an asterisk (E*) and enter attachment to Schedule K-1 the amount
•
Gain eligible for section 1045 rollover “STMT” in the entry space in box 10 of section 179 deduction from each
(replacement stock purchased by the and attach a statement that shows “Box separate activity. See Passive Activity
corporation). Include only gain from the 10, code E,” and the dollar amount of Reporting Requirements, earlier.
sale or exchange of qualified small each type of income.
business (QSB) stock (as defined in the Do not complete box 11 of Schedule
If the corporation has more than one
Instructions for Schedule D) that was K-1 for any shareholder that is an
trade or business or rental activity (for
deferred by the corporation under estate or trust; estates and trusts are
codes B through E), identify on an
section 1045 and reported on Schedule not eligible for the section 179 expense
attachment to Schedule K-1 the amount
D. See the Instructions for Schedule D deduction.
from each separate activity. See
for more details. Additional limitations Passive Activity Reporting
apply at the shareholder level. Report
Line 12a. Charitable
Requirements, earlier.
each shareholder’s share of the gain
Contributions
eligible for section 1045 rollover on Cash contributions must be supported
Deductions
Schedule K-1. Each shareholder will by a dated bank record or receipt.
determine if he or she qualifies for the
Line 11. Section 179 Deduction
Generally, no deduction is allowed
rollover. Report on an attachment to for any contribution of $250 or more
Schedule K-1 for each sale or A corporation can elect to expense part unless the corporation obtains a written
exchange (a) the name of the of the cost of certain property the acknowledgment from the charitable
corporation that issued the QSB stock, corporation purchased during the tax organization that shows the amount of
(b) the shareholder’s pro rata share of year for use in its trade or business or cash contributed, describes any
the corporation’s adjusted basis and certain rental activities. See Pub. 946 property contributed, and gives an
sales price of the QSB stock, and (c) for a definition of what kind of property estimate of the value of any goods or
the dates the QSB stock was bought qualifies for the section 179 expense services provided in return for the
and sold. deduction and the Instructions for Form contribution. The acknowledgment must
4562 for limitations on the amount of
•
Gain eligible for section 1045 rollover be obtained by the due date (including
the section 179 expense deduction.
(replacement stock not purchased by extensions) of the corporation’s return,
the corporation). Include only gain from Complete Part I of Form 4562 to or if earlier, the date the return is filed.
the sale or exchange of qualified small figure the corporation’s section 179 Do not attach the acknowledgment to
business (QSB) stock (as defined in the expense deduction. The corporation the tax return, but keep it with the
Instructions for Schedule D) the does not take the deduction itself, but corporation’s records. These rules
corporation held for more than 6 instead passes it through to the apply in addition to the filing
months but that was not deferred by the shareholders. Attach Form 4562 to requirements for Form 8283, Noncash
corporation under section 1045. See Form 1120S and show the total section Charitable Contributions, described
the Instructions for Schedule D for more 179 expense deduction on Schedule K, under Contributions of property, later.
details. A shareholder may be eligible line 11.
to defer his or her pro rata share of this Enter charitable contributions made
Although the corporation cannot take
gain under section 1045 if he or she during the tax year. Attach a statement
the section 179 deduction, it generally
purchases other QSB stock during the to Form 1120S that separately identifies
must still reduce the basis of the asset
60-day period that began on the date the corporation’s contributions for each
by the amount of the section 179
the QSB stock was sold by the of the following categories. See Limits
deduction it elected, regardless of
corporation. Additional limitations apply on Deductions in Pub. 526, Charitable
whether any shareholder can use the
at the shareholder level. Report on an Contributions, for information on
deduction. However, the corporation
attachment to Schedule K-1 for each adjusted gross income (AGI) limitations
does not reduce the basis for any
sale or exchange (a) the name of the on deductions for charitable
section 179 deduction allocable to a
corporation that issued the QSB stock, contributions.
trust or estate because they are not
(b) the shareholder’s pro rata share of The codes needed for Schedule K-1
eligible to take the section 179
the corporation’s adjusted basis and reporting are provided for each
deduction. See Regulations section
sales price of the QSB stock, and (c) category.
1.179-1(f).
the dates the QSB stock was bought
and sold. Identify on an attachment to Cash contributions (50%) (code A).
•
Any gain or loss from lines 5 or 12 of Schedules K and K-1 the cost of any Enter cash contributions subject to the
Schedule D that is not portfolio income section 179 property placed in service 50% AGI limitation.
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Instructions for Form 1120S
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Cash contributions (30%) (code B). Contributions of property. See for each of the contribution categories
Enter cash contributions subject to the Contributions of Property in Pub. 526 shown earlier. See Contributions of
30% AGI limitation. and Pub. 561, Determining the Value of property, earlier, for information on
Donated Property, for information on statements you may be required to
Noncash contributions (50%) (code noncash contributions and contributions attach to Schedule K-1. The corporation
C). Enter noncash contributions of capital gain property. If the deduction must attach a copy of its Form 8283 to
subject to the 50% AGI limitation. Do claimed for noncash contributions the Schedule K-1 of each shareholder if
not include food inventory contributions exceeds $500, complete Form 8283 the deduction for any item or group of
reported separately on an attached and attach it to Form 1120S. similar items of contributed property
statement. If property other than cash is exceeds $5,000, even if the amount
contributed and the claimed deduction Shareholders can deduct their pro allocated to any shareholder is $5,000
for one item or group of similar items of rata share of the fair market value of or less.
property exceeds $5,000, the property contributions, but will only
corporation must give each shareholder need to adjust their stock basis by their
Line 12b. Investment Interest
a copy of Form 8283 to attach to the pro rata share of the property’s
Expense
shareholder’s return. Attach a adjusted basis. Give each shareholder Include on this line the interest properly
statement to Schedule K-1 that shows: a statement identifying their pro rata allocable to debt on property held for
•
The shareholder’s pro rata share of share of both the fair market value and investment purposes. Property held for
the amount of the charitable adjusted basis of the property. investment includes property that
contributions under section 170(e)(3) If the corporation made a qualified produces income (unless derived in the
for qualified food inventory that was conservation contribution under section ordinary course of a trade or business)
donated to charitable organizations 170(h), also include the fair market from interest, dividends, annuities, or
before January 1, 2012, for the care of value of the underlying property before royalties; and gains from the disposition
the ill, needy, and infants. The food and after the donation, as well as the of property that produces those types of
must meet all the quality and labeling type of legal interest contributed, and income or is held for investment.
standards imposed by federal, state, describe the conservation purpose
and local laws and regulations. The Investment interest expense does
furthered by the donation. Give a copy
charitable contribution for donated food not include interest expense allocable
of this information to each shareholder.
inventory is the lesser of (a) the basis to a passive activity.
If the corporation made a
of the donated food plus one-half of the contribution of real property located in a Investment income and investment
appreciation (gain if the donated food registered historic district, restrictions expenses other than interest are
were sold at fair market value on the apply. Generally, no deductions are reported on lines 17a and 17b
date of the gift) or (b) twice the basis of allowed for structures or land respectively. This information is needed
the donated food. See section (deductions are only allowed for by shareholders to determine the
170(e)(3)(C) for more details. buildings), and the charitable investment interest expense limitation
•
The shareholder’s pro rata share of contribution may be reduced if (see Form 4952 for details).
the net income for the tax year from the rehabilitation credits were claimed for
corporation’s trades or businesses that Schedule K-1. Report each
the building. A $500 filing fee may
made the contributions of food shareholder’s pro rata share of
apply to certain deductions over
inventory. investment interest expense in box 12
$10,000. See Pub. 526 for details. of Schedule K-1 using code H.
Qualified conservation Nondeductible contributions.
contributions. The AGI limit for
Lines 12c(1) and 12c(2). Section
Certain contributions made to an
qualified conservation contributions organization conducting lobbying
59(e)(2) Expenditures
under section 170(h) is generally 50%. activities are not deductible. See Generally, section 59(e) allows each
However, if the corporation is a section 170(f)(9) for more details. Also, shareholder to make an election to
qualified farmer or rancher (farm see Contributions You Cannot Deduct deduct their pro rata share of the
income is more than 50% of gross in Pub. 526 for more examples of corporation’s otherwise deductible
income), the AGI limit for qualified nondeductible contributions. qualified expenditures ratably over 10
conservation contributions of property years (3 years for circulation
used in agriculture or livestock An accrual basis S corporation expenditures). The deduction is taken
production (or available for such cannot elect to treat a beginning with the tax year in which the
production) is 100%. The carryover contribution as having been paid
CAUTION
!
expenditures were made (or for
period is 15 years. See section 170(b) in the tax year the board of directors intangible drilling and development
and Notice 2007-50, 2007-25 I.R.B. authorizes the payment if the costs, over the 60-month period
1430, for details. Report qualified contribution is not actually paid until the beginning with the month in which such
conservation contributions with a 50% next tax year. costs were paid or incurred).
AGI limitation on Schedule K-1 in box Contributions (100%) (code G). If the
12 using code C. Report qualified The term “qualified expenditures”
corporation is a qualified farmer or
conservation contributions with a 100% includes only the following types of
rancher (farm income is more than 50%
AGI limitation on Schedule K-1 in box expenditures paid or incurred during the
of gross income), enter qualified
12 using code G. tax year.
conservation contributions of property
Noncash contributions (30%) (code
•
Circulation expenditures.
used in agriculture or livestock
D). Enter noncash contributions
•
Research and experimental
production (or available for such
subject to the 30% AGI limitation. expenditures.
production). The contribution must be
•
Intangible drilling and development
Capital gain property to a 50% subject to a restriction that the property costs.
organization (30%) (code E). Enter remain available for such production.
•
Mining exploration and development
capital gain property contributions See section 170(b) for details. costs.
subject to the 30% AGI limitation. Schedule K-1. Report each
Capital gain property (20%) (code F). shareholder’s pro rata share of If a shareholder makes the election,
Enter capital gain property contributions charitable contributions in box 12 of these items are not treated as AMT tax
subject to the 20% AGI limitation. Schedule K-1 using codes A through G preference items.
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Instructions for Form 1120S
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Because the shareholders make this Deductions—portfolio (other) (code the following information to enable each
election, the corporation cannot deduct L). Enter any other deductions related shareholder to figure the domestic
these amounts or include them as AMT to portfolio income. production activities deduction. Identify
items on Schedule K-1. Instead, the any amounts from oil-related production
No deduction is allowed under
corporation passes through the activities and list them separately.
section 212 for expenses allocable to a
information the shareholders need to
•
Domestic production gross receipts
convention, seminar, or similar meeting.
figure their separate deductions. (DPGR).
Because these expenses are not
•
Gross receipts from all sources.
deductible by shareholders, the
On line 12c(1), enter the type of
•
Cost of goods sold allocable to
corporation does not report these
expenditures claimed on line 12c(2). DPGR.
expenses on line 12d of Schedule K.
Enter on line 12c(2) the qualified
•
Cost of goods sold from all sources.
The expenses are nondeductible and
expenditures paid or incurred during the
•
Total deductions, expenses, and
are reported as such on line 16c of
tax year for which a shareholder may losses directly allocable to DPGR.
Schedule K and in box 16 of Schedule
make an election under section 59(e).
•
Total deductions, expenses, and
K-1 using code C.
Enter this amount for all shareholders losses directly allocable to a non-DPGR
whether or not any shareholder makes Preproductive period expenses class of income.
an election under section 59(e). (code M). If the corporation is
•
Other deductions, expenses, and
required to use an accrual method of losses not directly allocable to DPGR or
On an attached statement, identify accounting under section 448(a)(3), it another class of income.
the property for which the expenditures must capitalize these expenses. If the
•
Form W-2 wages.
were paid or incurred. If the corporation is permitted to use the cash
•
Any other information a shareholder
expenditures were for intangible drilling method, enter the amount of using the section 861 method will need
or development costs for oil and gas preproductive period expenses that to allocate and apportion cost of goods
properties, identify the month(s) in qualify under Regulations section sold and deductions between domestic
which the expenditures were paid or 1.263A-4(d). An election not to production gross receipts and other
incurred. If there is more than one type capitalize these expenses must be receipts.
of expenditure or more than one made at the shareholder level. See
property, provide the amounts (and the Uniform Capitalization Rules in Pub. See Form 8903, Domestic
months paid or incurred, if required) for 225. Production Activities Deduction, and its
each type of expenditure separately for instructions for details. If the
Commercial revitalization deduction
each property. corporation is eligible and chooses to
from rental real estate activities
Schedule K-1. Report each figure QPAI at the corporate level, see
(code N). Enter the commercial
shareholder’s pro rata share of section the instructions below.
revitalization deduction on line 12d only
59(e) expenditures in box 12 of if it is for a rental real estate activity. If Qualified production activities
Schedule K-1 using code J. On an the deduction is for a nonrental income (code Q). If the corporation is
attached statement, identify (a) the type building, enter it on line 19 of Form eligible and chooses to figure qualified
of expenditure, (b) the property for 1120S. See Special Rules on page 18 production activities income (QPAI) at
which the expenditures are paid or for more information. the corporate level, use code Q to
incurred, and (c) for oil and gas Reforestation expense deduction report the shareholder’s pro rata share
properties only, the month in which (code O). The corporation can elect of the corporation’s QPAI. This amount
intangible drilling costs and to deduct a limited amount of its may be less than zero. If any portion of
development costs were paid or reforestation expenditures paid or QPAI is attributable to oil-related
incurred. If there is more than one type incurred during the tax year. The production activities, attach a separate
of expenditure or the expenditures are amount the corporation can elect to statement to identify the oil-related
for more than one property, provide deduct is limited to $10,000 for each portion. See the Instructions for Form
each shareholder’s pro rata share of qualified timber property. See section 8903 for details.
the amounts (and the months paid or 194(c) for a definition of reforestation
incurred for oil and gas properties) for Employer’s Form W-2 wages (code
expenditures and qualified timber
each type of expenditure separately for R). If the corporation is eligible and
property. See Notice 2006-47, 2006-20
each property. chooses to report QPAI with code Q,
I.R.B. 892, for details on making the use code R to report the shareholder’s
election. The corporation must amortize
Line 12d. Other Deductions
pro rata share of employer’s Form W-2
over 84 months any amount not
Enter deductions not included on lines wages properly allocable to domestic
deducted. See Reforestation
11, 12a, 12b, 12c(2), or 14l. On the line production gross receipts. See the
expenditures, earlier.
to the left of the entry space for line Instructions for Form 8903 for details.
Schedule K-1. Enter the
12d, identify the type of deduction. If shareholder’s pro rata share of Other deductions (code S). Include
there is more than one type of allowable reforestation expense in box any other deductions, such as:
deduction, attach a statement to Form 12 of Schedule K-1 using code O and
•
Amounts paid by the corporation that
1120S that separately identifies the attach a statement that provides a would be allowed as itemized
type and amount of each deduction for description of the qualified timber deductions on any of the shareholders’
the following categories. The codes property. If the corporation is electing to income tax returns if they were paid
needed for Schedule K-1 reporting are deduct amounts from more than one directly by a shareholder for the same
provided for each category. qualified timber property, provide a purpose. These amounts include, but
Deductions—royalty income (code description and the amount for each are not limited to, expenses under
I). Enter deductions related to royalty property. section 212 for the production of
income. Domestic production activities income other than from the
Deductions—portfolio (2% floor) information (code P). If the corporation’s trade or business.
(code K). Enter deductions related to corporation is not eligible or chooses However, do not enter expenses
portfolio income that are subject to the not to figure qualified production related to portfolio income or
2% of AGI floor (see the Instructions for activities income (QPAI) at the investment interest expense reported
Schedule A (Form 1040)). corporate level, attach a statement with on line 12b of Schedule K on this line.
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•
Soil and water conservation statement. Enter the applicable code corporation in box 15 of Schedule K-1
expenditures (section 175). See Pub. shown above. (Form 1065) using code B or code D.
225. Schedule K-1. Report in box 13 of
If you are reporting only one type of
•
Endangered species recovery Schedule K-1 each shareholder’s pro
deduction under code S, enter code S
expenditures (section 175). rata share of the low-income housing
with an asterisk (S*) and the dollar
•
Expenditures paid or incurred for the credit reported on line 13b of Schedule
amount in the entry space in box 12
removal of architectural and K. Use code B to report the portion of
and attach a statement that shows the
transportation barriers to the elderly the credit attributable to buildings
box number, code, and type of
and disabled that the corporation has placed in service before 2008. Use
deduction. If you are reporting multiple
elected to treat as a current expense. code D to report the portion of the
types of deductions under code S,
See section 190. credit attributable to buildings placed in
enter the code with an asterisk (S*), service after 2007. If the corporation
enter “STMT” in the dollar amount entry
•
Interest expense allocated to has credits from more than one rental
space in box 12, and attach a
debt-financed distributions. See Notice activity, identify on an attachment to
statement that shows the box number,
89-35, 1989-1 C.B. 675, or Pub. 535, Schedule K-1 the amount for each
code, and dollar amount of each type of
chapter 4, for more information. separate activity. See Passive Activity
deduction.
•
Contributions to a capital Reporting Requirements, earlier.
construction fund. See Pub. 595. If the corporation has more than one
trade or business activity, identify on an
•
Any penalty on early withdrawal of
Line 13c. Qualified
attachment to Schedule K-1 the amount
savings because the corporation
Rehabilitation Expenditures
for each separate activity. See Passive
withdrew funds from its time savings
(Rental Real Estate)
Activity Reporting Requirements,
deposit before its maturity. Enter on line 13c the total qualified
earlier.
•
Film and television production rehabilitation expenditures related to
expenses. The corporation can elect to
Credits
rental real estate activities of the
deduct certain costs of a qualified film corporation. See the Instructions for
Note. Do not attach Form 3800,
or television production commencing Form 3468 for details on qualified
General Business Credit, to Form
before January 1, 2012, if the rehabilitation expenditures.
1120S.
aggregate cost of the production does
not exceed $15 million. There is a Qualified rehabilitation
Low-Income Housing Credit
higher dollar limitation for productions in expenditures for property not
Section 42 provides a credit that can be
certain areas. Provide a description of related to rental real estate
CAUTION
!
claimed by owners of low-income
the film or television production on an activities must be reported in box 17
residential rental buildings. To qualify
attached statement. If the corporation using code C.
for the credit, the corporation must file
makes the election for more than one Schedule K-1. Report each
Form 8609, Low-Income Housing
film or television production, attach a shareholder’s pro rata share of qualified
Credit Allocation and Certification,
statement to Schedule K-1 that shows rehabilitation expenditures related to
separately with the IRS. Do not attach
each shareholder’s pro rata share of rental real estate activities in box 13 of
Form 8609 to Form 1120S. Complete
the qualified expenditures separately Schedule K-1 using code E. Attach a
and attach Form 8586, Low-Income
for each production. The deduction is statement to Schedule K-1 that
Housing Credit, and Form 8609-A,
subject to recapture under section 1245 provides the information and the
Annual Statement for Low-Income
if the election is voluntarily revoked or shareholder’s pro rata share of the
Housing Credit, to Form 1120S.
the production fails to meet the basis and expenditure amounts the
requirements for the deduction. See
Line 13a. Low-Income Housing
shareholder will need to figure the
section 181 and the related regulations.
Credit (Section 42(j)(5))
amounts to report on lines 10b through
•
Current year section 108(i) OID 10j and 10m of Form 3468. See the
If the corporation invested in a
deduction. In general, if the corporation Instructions for Form 3468 for details. If
partnership to which the provisions of
made a section 108(i) election for the corporation has expenditures from
section 42(j)(5) apply, report on line 13a
income from the cancellation of debt more than one rental real estate
the credit reported to the corporation in
(COD) attributable to the reacquisition activity, identify on an attachment to
box 15 of Schedule K-1 (Form 1065)
of an applicable debt instrument and Schedule K-1 the information and
using code A or code C.
the corporation issued a debt amounts for each separate activity. See
Schedule K-1. Report in box 13 of
instrument with original issue discount Passive Activity Reporting
Schedule K-1 each shareholder’s pro
(OID) that is subject to section 108(i)(2) Requirements, earlier.
rata share of the low-income housing
because of the election, the deduction credit reported on line 13a of Schedule
Line 13d. Other Rental Real
for all or a portion of the OID that K. Use code A to report the portion of
accrues before the first tax year the
Estate Credits
the credit attributable to buildings
COD is includible in income is deferred Enter on line 13d any other credit (other
placed in service before 2008. Use
until the COD is includible in income. than credits reported on lines 13a
code C to report the portion of the
The aggregate amount of OID that is through 13c) related to rental real
credit attributable to buildings placed in
deferred during this period is generally estate activities. On the dotted line to
service after 2007. If the corporation
allowed as a deduction ratably over the the left of the entry space for line 13d,
has credits from more than one activity,
5-year period the COD is includible in identify the type of credit. If there is
identify on an attachment to Schedule
income under section 108(i). The more than one type of credit, attach a
K-1 the amount for each separate
amount deferred is limited to the statement to Form 1120S that identifies
activity. See Passive Activity Reporting
amount of COD subject to the section the type and amount for each credit.
Requirements, earlier.
108(i) election. These credits may include any type of
Line 13b. Low-Income Housing
credit listed in the instructions for line
Schedule K-1. Enter each
Credit (Other)
13g.
shareholder’s pro rata share of the
deduction categories listed above in Report on line 13b any low-income Schedule K-1. Report in box 13 of
box 12 of Schedule K-1 or provide the housing credit not reported on line 13a. Schedule K-1 each shareholder’s pro
required information on an attached This includes any credit reported to the rata share of other rental real estate
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credits using code F. If you are See section 40(f) for an election the employee tips (code N). Complete
reporting each shareholder’s pro rata corporation can make to have the credit Form 8846 to figure the credit. Attach it
share of only one type of rental real not apply. to Form 1120S.
estate credit under code F, enter the Backup withholding (code O). This
Schedule K-1. Report in box 13 of
code with an asterisk (F*) and the dollar credit is for backup withholding on
Schedule K-1 each shareholder’s pro
amount in the entry space in box 13 dividends, interest, and other types of
rata share of the alcohol and cellulosic
and attach a statement that shows “Box income of the corporation.
biofuel fuels credit reported on line 13f
13, code F,” and the type of credit. If Other credits (code P). Attach a
using code I.
you are reporting multiple types of statement to Form 1120S that identifies
If this credit includes the small
rental real estate credit under code F, the type and amount of any other
ethanol producer credit, identify on a
enter the code with an asterisk (F*) and credits not reported elsewhere.
statement attached to each Schedule
enter “STMT” in the entry space in box Complete the credit form identified
K-1 (a) the amount of the small ethanol
13 and attach a statement that shows below and attach it to Form 1120S.
producer credit included in the total
“Box 13, code F” and the dollar amount
•
Unused investment credit from the
credit allocated to the shareholder, (b)
of each type of credit. If the corporation qualifying advanced coal project credit,
the number of gallons for which the
has credits from more than one rental qualifying gasification project credit,
corporation claimed the small ethanol
real estate activity, identify on the qualifying advanced energy project
producer credit, and (c) the
attached statement the amount of each credit, or qualifying therapeutic
corporation’s productive capacity for
type of credit for each separate activity. discovery project credit allocated from
alcohol. If the corporation has credits
See Passive Activity Reporting cooperatives.
from more than one activity, identify on
Requirements, earlier.
•
Unused investment credit from the
an attachment to Schedule K-1 the rehabilitation credit or energy credit
Line 13e. Other Rental Credits
amount for each separate activity. See allocated from cooperatives.
Passive Activity Reporting
Enter on line 13e any other credit (other
•
New hire retention credit (Form
Requirements, earlier.
than credits reported on lines 13a 5884-B).
through 13d) related to rental activities.
•
Orphan drug credit (Form 8820).
Line 13g. Other Credits
On the dotted line to the left of the entry
•
Qualified plug-in electric vehicle
Enter on line 13g any other credit,
space for line 13e, identify the type of credit (Form 8834).
except credits or expenditures shown or
credit. If there is more than one type of
•
Renewable electricity, refined coal,
listed for lines 13a through 13f or the
credit, attach a statement to Form and Indian coal production credit (Form
credit for federal tax paid on fuels
1120S that identifies the type and 8835). Attach a statement to Form
(which is reported on line 23c of page
amount for each credit. These credits 1120S and Schedule K-1 showing
1). On the line to the left of the entry
may include any type of credit listed in separately the amount of the credit
space for line 13g, identify the type of
the instructions for line 13g. from Part I and from Part II of Form
credit. If there is more than one type of 8835.
Schedule K-1. Report in box 13 of credit, attach a statement to Form
•
Indian employment credit (Form
Schedule K-1 each shareholder’s pro 1120S that separately identifies each 8845).
rata share of other rental credits using type and amount of credit for the
•
Biodiesel and renewable diesel fuels
code G. If you are reporting each following categories. The codes needed credit (Form 8864). Include the amount
shareholder’s pro rata share of only for box 13 of Schedule K-1 are from line 8 of Form 8864 in the
one type of rental credit under code G, provided in the heading of each corporation’s income on line 5 of Form
enter the code with an asterisk (G*) and category. 1120S. If this credit includes the small
the dollar amount in the entry space in Undistributed capital gains credit agri-biodiesel producer credit, identify
box 13 and attach a statement that (code H). This credit represents taxes on a statement attached to Schedule
shows “Box 13, code G” and the type of paid on undistributed capital gains by a K-1 (a) the small agri-biodiesel
credit. If you are reporting multiple regulated investment company (RIC) or producer credit included in the total
types of rental credit under code G, a real estate investment trust (REIT). credit allocated to the shareholder, (b)
enter the code with an asterisk (G*) and As a shareholder of a RIC or REIT, the the number of gallons for which the
enter “STMT” in the entry space in box corporation will receive notice of the corporation claimed the small
13 and attach a statement that shows amount of tax paid on undistributed agri-biodiesel producer credit, and (c)
“Box 13, code G” and the dollar amount capital gains on Form 2439, Notice to the corporation’s productive capacity for
of each type of credit. If the corporation Shareholder of Undistributed agri-biodiesel.
has credits from more than one rental Long-Term Capital Gains.
•
New markets credit (Form 8874).
activity, identify on the attached
•
Credit for small employer pension
statement the amount of each type of Work opportunity credit (code J). plan startup costs (Form 8881).
credit for each separate activity. See Complete Form 5884 to figure the
•
Credit for employer-provided
Passive Activity Reporting credit. Attach it to Form 1120S. childcare facilities and services (Form
Requirements, earlier. Disabled access credit (code K). 8882).
Complete Form 8826 to figure the
•
Low sulfur diesel fuel production
Line 13f. Alcohol and Cellulosic
credit. Attach it to Form 1120S. credit (Form 8896).
Biofuel Fuels Credit •
Qualified railroad track maintenance
Empowerment zone and renewal
Enter on line 13f the alcohol and credit (Form 8900).
community employment credit (code
cellulosic biofuel fuels credit attributable
•
Distilled spirits credit (Form 8906).
L). Complete Form 8844 to figure the
to trade or business activities. If the
•
Nonconventional source fuel credit
credit. Attach it to Form 1120S.
credit is attributable to rental activities, (Form 8907).
enter the amount on line 13d or 13e. Credit for increasing research
•
Energy efficient home credit (Form
activities (code M). Complete Form
Figure this credit on Form 6478. 8908).
6765 to figure the credit. Attach it to
Attach it to Form 1120S. Include the
•
Energy efficient appliance credit
Form 1120S.
amount shown on line 7 of Form 6478 (Form 8909).
in the corporation’s income on line 5 of Credit for employer social security
•
Alternative motor vehicle credit (Form
Form 1120S. and Medicare taxes paid on certain 8910).
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•
Alternative fuel vehicle refueling reported as a property distribution on possession, see the requirement for an
property credit (Form 8911). line 16d of Schedule K. attached statement in the instruction for
•
Build America bond credit (Form line 14a below. See Pub. 514, Foreign
•
Clean renewable energy bond credit 8912). The amount of this credit Tax Credit for Individuals, and the
(Form 8912). The amount of this credit (excluding any credits from Instructions for Form 1116, Foreign Tax
(excluding any credits from partnerships, estates, and trusts) must Credit, for more information.
partnerships, estates, and trusts) must also be reported as interest income on
also be reported as interest income on
Line 14a. Name of Country or
line 4 of Schedule K. In addition, the
line 4 of Schedule K. In addition, the
U.S. Possession (Code A)
amount of this credit must also be
amount of this credit must also be reported as a property distribution on Enter the name of the foreign country
reported on line 17d of Schedule K. line 16d of Schedule K. or U.S. possession from which the
•
Midwestern tax credit bond credit
•
Mine rescue team training credit corporation had income or to which the
(Form 8912). The amount of this credit (Form 8923). corporation paid or accrued taxes. If the
(excluding any credits from
•
Agricultural chemicals security credit corporation had income from, or paid or
partnerships, estates, and trusts) must (Form 8931). accrued taxes to, more than one
also be reported as interest income on
•
Credit for employer differential wage foreign country or U.S. possession,
line 4 of Schedule K. In addition, the payments (Form 8932). enter “See attached” and attach a
amount of this credit must also be
•
Carbon dioxide sequestration credit statement for each country for lines 14a
reported on line 17d of Schedule K. (Form 8933). through 14n (codes A through N and
•
Qualified zone academy bond credit
•
Qualified plug-in electric drive motor code Q of Schedule K-1). On Schedule
(for bonds issued before October 4, vehicle credit (Form 8936). K-1, if there is more than one country,
2008) (Form 8912). The amount of this
•
Credit for small employer health enter code A followed by an asterisk
credit must also be reported as interest insurance premiums (Form 8941). (A*), enter “STMT,” and attach a
income on line 4 of Schedule K. In
•
General credits from an electing statement to Schedule K-1 for each
addition, the amount of this credit must large partnership. country for the information and amounts
also be reported on line 17d of coded A through N and Q.
Schedule K-1. Enter in box 13 of
Schedule K. Schedule K-1 each shareholder’s pro
Line 14b. Gross Income From
•
New clean renewable energy bond rata share of the credits listed above.
credit (Form 8912). The amount of this
all Sources (Code B)
See additional Schedule K-1 reporting
credit (excluding any credits from Enter the corporation’s gross income
information provided in the instructions
partnerships, estates, and trusts) must from all sources (both U.S. and
above. Enter the applicable code, H
also be reported as interest income on foreign).
through P, in the column to the left of
line 4 of Schedule K. In addition, the the dollar amount entry space.
Line 14c. Gross Income
amount of this credit must also be
reported as a property distribution on If you are reporting each
Sourced at Shareholder Level
line 16d of Schedule K. shareholder’s pro rata share of only
(Code C)
one type of credit under code P, enter
•
Qualified energy conservation bond Enter the total gross income of the
the code with an asterisk (P*) and the
credit (Form 8912). The amount of this corporation that is required to be
dollar amount in the entry space in box
credit (excluding any credits from sourced at the shareholder level. This
13 and attach a statement that shows
partnerships, estates, and trusts) must includes income from the sale of most
“Box 13, code P” and the type of credit.
also be reported as interest income on personal property, other than inventory,
If you are reporting multiple types of
line 4 of Schedule K. In addition, the depreciable property, and certain
credit under code P, enter the code
amount of this credit must also be intangible property. See Pub. 514 and
with an asterisk (P*) and enter “STMT”
reported as a property distribution on section 865 for details.
in the entry space in box 13 and attach
line 16d of Schedule K. a statement that shows “Box 13, code You must attach a statement to
•
Qualified forestry conservation bond P” and the dollar amount of each type Form 1120S showing the
credit (Form 8912). The amount of this of credit. If the corporation has credits following information.
credit (excluding any credits from
CAUTION
!
from more than one activity, identify on
partnerships, estates, and trusts) must
•
The amount of this gross income
an attachment to Schedule K-1 the
also be reported as interest income on (without regard to its source) in each
amount of each type of credit for each
line 4 of Schedule K. In addition, the category identified in the instructions for
separate activity. See Passive Activity
amount of this credit must also be lines 14d, 14e, and 14f.
Reporting Requirements, earlier.
reported as a property distribution on
•
Specifically identify gains on the sale
line 16d of Schedule K. of personal property other than
Foreign Transactions
•
Qualified zone academy bond credit inventory, depreciable property, and
Line 14b must be completed if a
(for bonds issued after October 3, certain intangible property on which a
shareholder may need this information
2008) (Form 8912). The amount of this foreign tax of 10% or more was paid or
to figure a foreign tax credit. Lines 14a
credit (excluding any credits from accrued. Also list losses on the sale of
and 14c through 14n must be
partnerships, estates, and trusts) must such property if the foreign country
completed if the corporation has foreign
also be reported as interest income on would have imposed a 10% or higher
income, deductions, or losses, or has
line 4 of Schedule K. In addition, the tax had the sale resulted in a gain. See
paid or accrued foreign taxes.
amount of this credit must also be Determining the Source of Income
reported as a property distribution on On Schedule K-1, for items that From the Sales or Exchanges of
line 16d of Schedule K. require an attached statement, enter Certain Personal Property in Pub. 514
•
Qualified school construction bond the code followed by an asterisk and and section 865.
credit (Form 8912). The amount of this the shareholder’s pro rata share of the
•
Specify foreign source capital gains
credit (excluding any credits from dollar amount. Attach a statement to or losses within each separate limitation
partnerships, estates, and trusts) must Schedule K-1 providing the information category. Also separately identify
also be reported as interest income on described below. If the corporation had foreign source gains or losses within
line 4 of Schedule K. In addition, the income from, or paid or accrued taxes each separate limitation category that
amount of this credit must also be to, more than one country or U.S. are collectibles (28%) gains and losses
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or unrecaptured section 1250 gains. at the corporate level to each of the
•
Taxes attributable to boycott
Also separately identify qualified listed categories from line 14f. See operations (section 908).
dividends within each separate Pub. 514 for more information.
•
Failure to timely file (or furnish all of
limitation category. the information required on) Forms
Line 14l. Total Foreign Taxes
5471 and 8865.
Lines 14d–14f. Foreign Gross Paid or Accrued •
Any other items (specify).
Income Sourced at Corporate
Enter in U.S. dollars the total foreign
Level Line 14n. Other Foreign Tax
taxes (described in section 901 or
Information
Separately report gross income from section 903) that were paid or accrued
sources outside the United States by according to the corporation’s method
•
Foreign trading gross receipts
category of income as follows. See of accounting for such taxes. Translate (code O). Report each shareholder’s
Pub. 514 for more information on the these amounts into U.S. dollars by pro rata share of foreign trading gross
categories of income. using the applicable exchange rate (see receipts from line 15 of Form 8873 in
Pub. 514). box 14 using code O. See
You must attach a statement to Extraterritorial Income Exclusion on
Form 1120S that specifies Foreign taxes paid (code L). If the page 11.
foreign source qualified corporation used the cash method of
CAUTION
!
•
Extraterritorial income exclusion
dividends and foreign source capital accounting, check the “Paid” box and (code P). If the corporation is not
gains (losses) within each separate enter foreign taxes paid during the tax permitted to deduct the extraterritorial
limitation category. year. Report each shareholder’s pro income exclusion as a non-separately
rata share in box 14 of Schedule K-1
Line 14d. Passive category (code D). stated item, attach a statement to
using code L.
Passive category foreign source Schedule K-1 showing the
income. Foreign taxes accrued (code M). If shareholder’s pro rata share of the
Line 14e. General category (code E). the corporation used the accrual extraterritorial income exclusion
General category foreign source method of accounting, check the reported on line 52 of Form 8873. Also
income. Include all foreign income “Accrued” box and enter foreign taxes identify the activity to which the
sourced at the corporate level that is accrued. Report each shareholder’s pro exclusion is related.
not reported on lines 14d and 14f. rata share in box 14 of Schedule K-1
•
Other foreign transactions (code
using code M. Q). Report any other foreign transaction
Line 14f. Other (code F). Attach a information the shareholders need to
statement showing the amount of A corporation reporting foreign taxes prepare their tax returns. Attach a
foreign source income included in each using the cash method can make an statement that separately identifies any
of the following categories. irrevocable election to report the taxes arrangement, along with the taxes paid
•
Section 901(j) income. using the accrual method for the year of or accrued in connection with the
•
Income re-sourced by treaty. the election and all future years. Make arrangement, in which the corporation
this election by reporting all foreign
Lines 14g–14h. Deductions
participates that would qualify as a
taxes using the accrual method on line
Allocated and Apportioned at
splitter arrangement under Section 909
14l and checking the “Accrued” box
Shareholder Level
if one or more shareholders are
(see Regulations section 1.905-1). covered persons with respect to an
Line 14g. Interest expense (code G). Attach a statement reporting the entity that took into account related
Enter the corporation’s total interest following information. income from the arrangement. Also
expense (including interest equivalents indicate whether the corporation has
1. The total amount of foreign taxes
under Temporary Regulations section taken into account any related income
(including foreign taxes on income
1.861-9T(b)). Do not include interest from any such splitter arrangement.
sourced at the shareholder level)
directly allocable under Temporary (See section 909 and the regulations
relating to each category of income
Regulations section 1.861-10T to thereunder).
(see instructions for lines 14d-14f).
income from a specific property. This 2. The dates on which the taxes
type of interest is allocated and
Alternative Minimum Tax
were paid or accrued, the exchange
apportioned at the corporate level and rates used, and the amounts in both
(AMT) Items
is included on lines 14i through 14k. foreign currency and U.S. dollars, for Lines 15a through 15f must be
Line 14h. Other (code H). Enter the the following. completed for all shareholders.
total of all other deductions or losses a. Taxes withheld at source on
that are required to be allocated at the interest. Enter items of income and
shareholder level. For example, include b. Taxes withheld at source on deductions that are adjustments or tax
on line 14h research and experimental dividends. preference items for the AMT. For more
expenditures (see Regulations section c. Taxes withheld at source on rents information, see Form 6251, Alternative
1.861-17(f)). and royalties. Minimum Tax—Individuals, or
d. Other foreign taxes paid or
Lines 14i–14k. Deductions
Schedule I (Form 1041), Alternative
accrued. Minimum Tax—Estates and Trusts.
Allocated and Apportioned at
Corporate Level to Foreign
Do not include as a tax preference
Line 14m. Reduction in Taxes
Source Income
item any qualified expenditures to
Available for Credit (Code N)
Separately report corporate deductions which an election under section 59(e)
that are apportioned at the corporate Enter the total reduction in taxes may apply. Instead, report these
level to (a) passive category foreign available for credit. Attach a statement expenditures on line 12(c)(2). Because
source income, (b) general category showing the reductions for: these expenditures are subject to an
foreign source income, and (c) other
•
Taxes on foreign mineral income election by each shareholder, the
foreign source income (see the (section 901(e)). corporation cannot figure the amount of
instructions for lines 14d-14f). Attach a
•
Taxes on foreign oil and gas any tax preference related to them.
statement showing the amount of extraction income and foreign oil Instead, the corporation must pass
deductions allocated and apportioned related income (section 907(a)). through to each shareholder in box 12,
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code J, of Schedule K-1 the information Figure the adjustment by subtracting of the year as figured for the AMT.
needed to figure the deduction. the AMT deduction for depreciation Figure this limit separately for each
from the regular tax deduction and property. When refiguring the property’s
Schedule K-1. Report each enter the result on line 15a. If the AMT adjusted basis, take into account any
shareholder’s pro rata share of deduction is more than the regular tax AMT adjustments made this year or in
amounts reported on lines 15a through deduction, enter the difference as a previous years that affect basis (other
15f in box 15 of Schedule K-1 using negative amount. Depreciation than the current year’s depletion).
codes A through F respectively. capitalized to inventory must also be
If the corporation is reporting items Enter the difference between the
refigured using the AMT rules. Include
of income or deduction for oil, gas, and regular tax and AMT deduction. If the
on this line the current year adjustment
geothermal properties, you may be AMT deduction is greater, enter the
to income, if any, resulting from the
required to identify these items on a difference as a negative amount.
difference.
statement attached to Schedule K-1
(see the instructions for lines 15d and
Line 15b. Adjusted Gain or Oil, Gas, and Geothermal
15e). Also see the requirement for an
Loss Properties—Gross Income and
attached statement in the instructions
Deductions
If the corporation disposed of any
for line 15f. tangible property placed in service after Generally, the amounts to be entered
Line 15a. Post-1986
1986 (or after July 31, 1986, if an on lines 15d and 15e are only the
election was made to use the General
Depreciation Adjustment
income and deductions for oil, gas, and
Depreciation System), or if it disposed geothermal properties that are used to
Figure the adjustment for line 15a of a certified pollution control facility figure the corporation’s ordinary
based only on tangible property placed placed in service after 1986, refigure business income (loss) on line 21, page
in service after 1986 (and tangible the gain or loss from the disposition 1, Form 1120S.
property placed in service after July 31, using the adjusted basis for the AMT.
1986, and before 1987 for which the The property’s adjusted basis for the If there are any items of income or
corporation elected to use the General AMT is its cost or other basis minus all deductions for oil, gas, and geothermal
Depreciation System). Do not make an depreciation or amortization deductions properties included in the amounts that
adjustment for motion picture films, allowed or allowable for the AMT during are required to be passed through
videotapes, sound recordings, certain the current tax year and previous tax separately to the shareholders on
public utility property (see section years. Enter on this line the difference Schedule K-1 (items not reported on
168(f)(2)), property depreciated under between the regular tax gain (loss) and line 1 of Schedule K-1), give each
the unit-of-production method (or any the AMT gain (loss). If the AMT gain is shareholder a statement that shows, for
other method not expressed in a term less than the regular tax gain, or the the box in which the income or
of years), qualified Indian reservation AMT loss is more than the regular tax deduction is included, the amount of
property, property eligible for a special loss, or there is an AMT loss and a income or deductions included in the
depreciation allowance, qualified regular tax gain, enter the difference as total amount for that box. Do not
revitalization expenditures, or the a negative amount. include any of these direct
section 179 expense deduction. pass-through amounts on line 15d or
If any part of the adjustment is
For property placed in service before 15e. The shareholder is told in the
allocable to net short-term capital gain
1999, refigure depreciation for the AMT Shareholder’s Instructions for Schedule
(loss), net long-term capital gain (loss),
as follows (using the same convention K-1 (Form 1120S) to adjust the
or net section 1231 gain (loss), attach a
used for the regular tax). amounts in box 15, code D or E, for any
statement that identifies the amount of
•
For section 1250 property (generally, other income or deductions from oil,
the adjustment allocable to each type of
residential rental and nonresidential gas, or geothermal properties included
gain or loss.
real property), use the straight line in boxes 2 through 12, 16, or 17 of
method over 40 years. Schedule K-1 in order to determine the
For a net long-term capital gain
•
For tangible property (other than total income and deductions from oil,
(loss), also identify the amount of the
section 1250 property) depreciated gas, and geothermal properties for the
adjustment that is collectibles (28%)
using the straight line method for the corporation.
gain (loss).
regular tax, use the straight line method For a net section 1231 gain (loss),
over the property’s class life. Use 12 Figure the amounts for lines 15d and
also identify the amount of adjustment
years if the property has no class life. 15e separately for oil and gas
that is unrecaptured section 1250 gain.
•
For any other tangible property, use properties that are not geothermal
the 150% declining balance method, deposits and for all properties that are
Line 15c. Depletion (Other Than
switching to the straight line method the geothermal deposits.
Oil and Gas)
first tax year it gives a larger deduction,
over the property’s AMT class life. Use Give each shareholder a statement
Do not include any depletion on oil and
12 years if the property has no class that shows the separate amounts
gas wells. The shareholders must figure
life. included in the computation of the
their oil and gas depletion deductions amounts on lines 15d and 15e of
and preference items separately under
Note. See Pub. 946 for a table of Schedule K.
section 613A.
class lives.
For property placed in service after Refigure the depletion deduction
Line 15d. Oil, Gas, and
1998, refigure depreciation for the AMT under section 611 for mines, wells
Geothermal Properties—Gross
only for property depreciated for the (other than oil and gas wells), and other
Income
regular tax using the 200% declining natural deposits for the AMT.
balance method. For the AMT, use the Percentage depletion is limited to 50% Enter the total amount of gross income
150% declining balance method, of the taxable income from the property (within the meaning of section 613(a))
switching to the straight line method the as figured under section 613(a), using from all oil, gas, and geothermal
first tax year it gives a larger deduction, only income and deductions for the properties received or accrued during
and the same convention and recovery AMT. Also, the deduction is limited to the tax year and included on page 1,
period used for the regular tax. the property’s adjusted basis at the end Form 1120S.
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requirements). Generally, under section 10, of Schedule K. Do not include other
Line 15e. Oil, Gas, and
1367(a)(1)(A), the basis of the portfolio gains or losses on this line.
Geothermal
shareholder’s stock is increased by the Enter on line 17b the investment
Properties—Deductions
amount shown on this line. expense included on line 12d of
Enter any deductions allowed for the Schedule K.
AMT that are allocable to oil, gas, and
Line 16c. Nondeductible
geothermal properties. Investment income includes gross
Expenses
income from property held for
Line 15f. Other AMT Items
Enter on line 16c nondeductible investment, the excess of net gain
expenses paid or incurred by the
Attach a statement to Form 1120S and attributable to the disposition of
corporation.
Schedule K-1 that shows other items property held for investment over net
not shown on lines 15a through 15e capital gain from the disposition of
Do not include separately stated
that are adjustments or tax preference property held for investment, any net
deductions shown elsewhere on
items or that the shareholder needs to capital gain from the disposition of
Schedules K and K-1, capital
complete Form 6251 or Schedule I property held for investment that each
expenditures, or items for which the
(Form 1041). See these forms and their shareholder elects to include in
deduction is deferred to a later tax year.
instructions to determine the amount to investment income under section
Generally, under section
enter. 163(d)(4)(B)(iii), and any qualified
1367(a)(2)(D), the basis of the dividend income that the shareholder
Other AMT items include the shareholder’s stock is decreased by the elects to include in investment income.
following. amount shown on this line. Generally, investment income and
•
Accelerated depreciation of real investment expenses do not include
property under pre-1987 rules.
Line 16d. Distributions
any income or expenses from a passive
•
Accelerated depreciation of leased Enter the total distributions (including activity. See Regulations section
personal property under pre-1987 rules. cash) made to each shareholder other 1.469-2(f)(10) for exceptions.
•
Long-term contracts entered into than dividends reported on line 17c of
after February 28, 1986. Except for Property subject to a net lease is not
Schedule K. Include the shareholder’s
certain home construction contracts, treated as investment property because
pro rata share of any amounts included
the taxable income from these it is subject to the passive loss rules.
in interest income with respect to new
contracts must be figured using the Do not reduce investment income by
clean renewable energy, qualified
percentage of completion method of losses from passive activities.
energy conservation, qualified forestry
accounting for the AMT. conservation, qualified zone academy Investment expenses are deductible
•
Losses from tax shelter farm (for bonds issued after October 3, expenses (other than interest) directly
activities. No loss from any tax shelter 2008), qualified school construction, or connected with the production of
farm activity is allowed for the AMT. build America bonds. Distributions of investment income. See the instructions
Schedule K-1. If you are reporting appreciated property are valued at fair for Form 4952 for more information.
each shareholder’s pro rata share of market value. If property other than Schedule K-1. Report each
only one type of AMT item under code cash was distributed, attach a shareholder’s pro rata share of
F, enter the code with an asterisk (F*) statement to provide the following amounts reported on lines 17a and 17b
and the dollar amount in the entry information: (1) the date the property (investment income and expenses) in
space in box 15 and attach a statement was acquired, (2) the date the property box 17 of Schedule K-1 using codes A
that shows the type of AMT item. If you was distributed, (3) the property’s FMV and B respectively.
are reporting multiple types of AMT on the date of distribution, and (4) the
items under code F, enter the code with If there are other items of investment
corporation’s basis in the property. See
an asterisk (F*) and enter “STMT” in the income or expense included in the
Distributions, later, for the ordering
entry space in box 15 and attach a amounts that are required to be passed
rules.
statement that shows the dollar amount through separately to the shareholders
of each type of AMT item. on Schedule K-1, such as net
Line 16e. Repayment of Loans
short-term capital gain or loss, net
From Shareholders
Items Affecting Shareholder
long-term capital gain or loss, and other
Enter any repayments made to
Basis
portfolio gains or losses, give each
shareholders during the current tax shareholder a statement identifying
year.
Line 16a. Tax-Exempt Interest
these amounts.
Schedule K-1. Report each
Income Line 17c. Dividend Distributions
shareholder’s pro rata share of
Enter on line 16a tax-exempt interest
Paid From Accumulated
amounts reported on lines 16a, 16b,
income, including any exempt-interest
Earnings and Profits (Schedule
and 16c (concerning items affecting
dividends received from a mutual fund shareholder basis) in box 16 of
K Only)
or other regulated investment company. Schedule K-1 using codes A through C Enter total dividends paid to
Individual shareholders must report this respectively. Report property shareholders from accumulated
information on line 8b of Form 1040. distributions (line 16d) and repayment earnings and profits. Report these
Generally, under section 1367(a)(1)(A), of loans from shareholders (line 16e) on dividends to shareholders on Form
the basis of the shareholder’s stock is the Schedule K-1 of the shareholder(s) 1099-DIV. Do not report them on
increased by the amount shown on this that received the distributions or Schedule K-1.
line. repayments (using codes D and E).
Line 16b. Other Tax-Exempt Line 17d. Other Items and
Other Information
Income Amounts
Enter on line 16b all income of the Report the following information on a
Lines 17a and 17b. Investment
corporation exempt from tax other than statement attached to Form 1120S. On
Income and Expenses
tax-exempt interest (for example, life Schedule K-1, enter the appropriate
insurance proceeds, but see section Enter on line 17a the investment code in box 17 for each information
101(j) for limits and reporting income included on lines 4, 5a, 6, and item followed by an asterisk in the
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left-hand column of the entry space (for because of a transaction at the Look-back interest—completed
example, C*). In the right-hand column, shareholder level, the corporation must long-term contracts (code I). If the
enter “STMT.” The codes are provided provide the necessary information to corporation is closely held (defined in
for each information category. the shareholder to enable the section 460(b)(4)(C)(iii)) and it entered
shareholder to figure the recapture. into any long-term contracts after
Qualified rehabilitation expenditures February 28, 1986, that are accounted
(other than rental real estate) (code The disposal of a building or an for under either the percentage of
C). Enter total qualified rehabilitation interest therein will generate a completion-capitalized cost method or
expenditures from activities other than credit recapture unless it is
CAUTION
!
the percentage of completion method, it
rental real estate activities. See the reasonably expected that the building must attach a statement to Form 1120S
Instructions for Form 3468 for details on will continue to be operated as a showing the information required in
qualified rehabilitation expenditures. qualified low-income building for the items (a) and (b) of the instructions for
Note. Report qualified rehabilitation remainder of the building’s compliance lines 1 and 3 of Part II of Form 8697. It
expenditures related to rental real period. must also report the amounts for Part II,
estate activities on line 13c. lines 1 and 3, to its shareholders. See
See Form 8586, Form 8611, and the Instructions for Form 8697 for more
Schedule K-1. Report each section 42 for more information. information.
shareholder’s pro rata share of qualified Recapture of investment credit (code
rehabilitation expenditures related to Look-back interest—income
G). Complete and attach Form 4255 if,
activities other than rental real estate forecast method (code J). If the
before the end of the recapture period,
activities in box 17 of Schedule K-1 corporation is closely held (defined in
investment credit property is disposed
using code C. Attach a statement to section 460(b)(4)(C)(iii)) and it
of or no longer qualifies for the credit or
Schedule K-1 that provides the depreciated certain property placed in
if credit recapture is otherwise required.
information and the shareholder’s pro service after September 13, 1995,
See the Instructions for Form 4255 for
rata share of the basis and expenditure under the income forecast method, it
details about when credit recapture is
amounts the shareholder will need to must attach to Form 1120S the
required. State the type of property at
figure the amounts to report on lines information specified in the instructions
the top of Form 4255, and complete
11b through 11j and 11m of Form 3468. for Form 8866, line 2, for the 3rd and
lines 2, 4, and 5, whether or not any
See the Instructions for Form 3468 for 10th tax years beginning after the tax
shareholder is subject to recapture of
details. If the corporation has year the property was placed in service.
the credit.
expenditures from more than one It must also report the line 2 amounts to
Attach to each Schedule K-1 a
activity, identify on a statement its shareholders. See the Instructions
separate statement providing the
attached to Schedule K-1 the for Form 8866 for more details.
information the corporation is required
information and amounts for each Dispositions of property with section
to show on Form 4255, but list only the
separate activity. See Passive Activity 179 deductions (code K). This
shareholder’s pro rata share of the
Reporting Requirements, earlier. represents gain or loss on the sale,
basis of the property subject to
Basis of energy property (code D). exchange, or other disposition of
recapture. Also indicate the lines of
In box 17 of Schedule K-1, enter code property for which a section 179
Form 4255 on which the shareholders
D followed by an asterisk and enter deduction has been passed through to
should report these amounts.
“STMT” in the entry space for the dollar shareholders. The corporation must
The corporation itself is liable for
amount. Attach a statement to provide all the following information with
investment credit recapture in certain
Schedule K-1 that provides the respect to such dispositions (see the
cases. See Investment credit recapture
shareholder’s pro rata share of the instructions for Form 1120S, line 4,
tax, earlier, for details.
basis and capacity amounts the earlier).
shareholder will need to figure the Recapture of other credits (code H).
•
Description of the property.
amounts to report on lines 12a-d, 12f, On an attached statement to Schedule
•
Date the property was acquired and
12g, 12i, 12j, 12l, 12m, 12o, and K-1, provide any information placed in service.
12q-12s of Form 3468. See the shareholders will need to report
•
Date of the sale or other disposition
Instructions for Form 3468 for details. recapture of credits (other than of the property.
recapture of low-income housing credit
•
The shareholder’s pro rata share of
Recapture of low-income housing and investment credit reported on the gross sales price or amount
credit (codes E and F). If recapture Schedule K-1 using codes E, F, and G). realized.
of part or all of the low-income housing Examples of credits subject to
•
The shareholder’s pro rata share of
credit is required because (a) the prior recapture and reported using code H the cost or other basis plus expense of
year qualified basis of a building include: sale (reduced as explained in the
decreased or (b) the corporation
•
The qualified plug-in electric vehicle Instructions for Form 4797, line 21).
disposed of a building or part of its credit. See section 30(e)(5) for details.
•
The shareholder’s pro rata share of
interest in a building, see Form 8611,
•
The qualified plug-in electric drive the depreciation allowed or allowable,
Recapture of Low-Income Housing motor vehicle credit. See section determined as described in the
Credit. Complete lines 1 through 7 of 30D(e)(8) for details. Instructions for Form 4797, line 22, but
Form 8611 to figure the amount of the
•
The new markets credit. See Form excluding the section 179 deduction.
credit to recapture. 8874 for details.
•
The shareholder’s pro rata share of
Use code E on Schedule K-1 to
•
The Indian employment credit. See the section 179 deduction (if any)
report recapture of the low-income section 45A(d) for details. passed through for the property and the
housing credit from a section 42(j)(5)
•
The credit for employer-provided corporation’s tax year(s) in which the
partnership. Use code F to report childcare facilities and services. See amount was passed through.
recapture of any other low-income section 45F(d) for details.
•
If the disposition is due to a casualty
housing credit. See the instructions for
•
The alternative motor vehicle credit. or theft, a statement indicating so, and
lines 13a and 13b, earlier, for more See section 30B(h)(8) for details. any additional information needed by
information.
•
The alternative fuel vehicle refueling the shareholder.
Note. If a shareholder’s ownership property credit. See section 30C(e)(5)
•
For an installment sale made during
interest in a building decreased for details. the corporation’s tax year, any
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Instructions for Form 1120S
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
information the shareholder needs to for details, including how to figure the shareholders with information they will
complete Form 6252. The corporation interest. need to file Form 8886. This
also must separately report the determination is based on the
Interest allocable to production
shareholder’s pro rata share of all category(s) under which a transaction
expenditures (code P). Supply any
payments received for the property in qualified for disclosures. See the
information needed by a shareholder to
future tax years. (Installment payments Instructions for Form 8886 for details
properly capitalize interest as required
received for installment sales made in 2. If the corporation is involved in
by section 263A(f). See Section 263A
prior tax years should be reported in farming or fishing activities, report the
uniform capitalization rules, earlier, for
the same manner used in prior tax gross income from these activities.
more information.
years.) See the instructions for Form 3. If the corporation has deductions
CCF nonqualified withdrawal (code
6252 for details. attributable to a farming business and
Q). Report nonqualified withdrawals receives an applicable subsidy, report
Recapture of section 179 deduction by the corporation from a capital the aggregate gross income or gain
(code L). This amount represents construction fund. Attach a statement to and the aggregate deductions from the
recapture of the section 179 deduction the shareholder’s Schedule K-1 farming business. See section 461(j) for
if business use of the property dropped providing details of the withdrawal. See details.
to 50% or less before the end of the Pub. 595. 4. The shareholder’s pro rata share
recapture period. If the business use of Depletion information—oil and gas of any amount included in interest
any property (placed in service after (code R). Report gross income and income on line 4 with respect to clean
1986) for which a section 179 other information relating to oil and gas renewable energy, Midwestern tax
deduction was passed through to well properties to shareholders to allow credit, or (for bonds issued before
shareholders dropped to 50% or less them to figure the depletion deduction October 4, 2008) qualified zone
(for a reason other than disposition), for oil and gas well properties. Allocate academy bonds. Shareholders need
the corporation must provide all the to each shareholder a proportionate this information to properly adjust their
following information. share of the adjusted basis of each stock basis. See Form 8912.
•
The shareholder’s pro rata share of corporate oil or gas well property. See 5. Any income or gain reported on
the original basis and depreciation section 613A(c)(11) for details. lines 1 through 10 of Schedule K that
allowed or allowable (not including the The corporation cannot deduct qualifies as inversion gain, if the
section 179 deduction). depletion on oil and gas wells. Each corporation is an expatriated entity or is
•
The shareholder’s pro rata share of shareholder must determine the a partner in an expatriated entity. For
the section 179 deduction (if any) allowable amount to report on his or her details, see section 7874. Attach a
passed through for the property and the return. See Pub. 535 for more statement to Form 1120S that shows
corporation’s tax year(s) in which the information. the amount of each type of income or
amount was passed through. gain included in the inversion gain. The
Amortization of reforestation costs
See Regulations section 1.179-1(e) corporation must report each
(code S). Report the amortizable
for details. shareholder’s pro rata share of the
basis of reforestation expenditures paid inversion gain in box 17 of Schedule
or incurred before October 23, 2004, for
Section 453(l)(3) information (code K-1 using code U. Attach a statement
which the corporation elected
M). Supply any information needed by to Schedule K-1 that shows the
amortization and the tax year the
a shareholder to compute the interest shareholder’s pro rata share of the
amortization began for the current tax
due under section 453(l)(3). If the amount of each type of income or gain
year and the 7 preceding tax years.
corporation elected to report the included in the inversion gain.
The amortizable basis cannot exceed
dispositions of certain timeshares and 6. Basis in qualifying advanced coal
$10,000 for each of those tax years.
residential lots on the installment project property. Attach a statement to
method, each shareholder’s tax liability Section 108(i) information (code T). Schedule K-1 that provides the
must be increased by the shareholder’s Report the shareholder’s pro rata share shareholder’s pro rata share of the
pro rata share of the interest on tax of the following. basis amounts the shareholder will
attributable to the installment payments
•
Any COD income deferred under need to figure the amounts to report on
received during the tax year. section 108(i) that has not been lines 5a, 5b, and 5c of Form 3468. See
included in income in the current or
Section 453A(c) information (code the Instructions for Form 3468 for
prior tax years.
N). Supply any information needed by details.
•
Any OID deduction deferred under
a shareholder to compute the interest 7. Basis in qualifying gasification
section 108(i)(2)(A)(i) that has not been
due under section 453A(c). If an project property. Attach a statement to
deducted in the current or prior tax
obligation arising from the disposition of Schedule K-1 that provides the
years.
property to which section 453A applies shareholder’s pro rata share of the
For information on allocating these
is outstanding at the close of the year, basis amounts the shareholder will
items to shareholders, see section
each shareholder’s tax liability must be need to figure the amounts to report on
108(i); Rev. Proc. 2009-37, 2009-36
increased by the tax due under section lines 6a and 6b of Form 3468. See the
I.R.B. 309; and Temporary Regulations
453A(c) on the shareholder’s pro rata Instructions for Form 3468 for details.
section 1.108(i)-2T.
share of the tax deferred under the 8. Basis in qualifying advanced
installment method. Other information (code U). Report energy project property. Attach a
the following information to each statement to Schedule K-1 that
Section 1260(b) information (code shareholder. provides the shareholder’s pro rata
O). Supply any information needed by share of the basis amounts the
a shareholder to figure the interest due 1. If the corporation participates in a shareholder will need to figure the
under section 1260(b). If the transaction that must be disclosed on amounts to report on line 7 of Form
corporation had gain from certain Form 8886 (discussed earlier). Both the 3468. See the Instructions for Form
constructive ownership transactions, corporation and its shareholders may 3468 for details.
each shareholder’s tax liability must be be required to file Form 8886. The
increased by the shareholder’s pro rata corporation must determine if any of its 9. Any other information the
share of interest due on any deferral of shareholders are required to disclose shareholders need to prepare their tax
gain recognition. See section 1260(b) the transaction and provide those returns.
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Instructions for Form 1120S
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•
Expenses for the use of an
Line 24. Retained Earnings
entertainment facility.
Reconciliation If the corporation maintains separate
•
The part of business gifts over $25.
accounts for appropriated and
•
Expenses of an individual over
unappropriated retained earnings, it
Line 18. Income/Loss
$2,000, which are allocable to
may want to continue such accounting
Reconciliation (Schedule K
conventions on cruise ships.
for purposes of preparing its financial
•
Employee achievement awards over
Only)
balance sheet. Also, if the corporation $400.
To the extent the corporation has an converts to C corporation status in a
•
The cost of entertainment tickets
amount on line 12d for code P subsequent year, it will be required to over face value (also subject to 50%
(Domestic production activities report its appropriated and limit under section 274(n)).
information), Q (Qualified production unappropriated retained earnings on
•
The cost of skyboxes over the face
activities income), or R (Employer’s separate lines of Schedule L of Form value of nonluxury box seat tickets.
Form W-2 wages), exclude the 1120.
•
The part of luxury water travel
amount(s) from line 18. If the expenses not deductible under section
corporation has an amount on line 14l
Line 25. Adjustments to
274(m).
of Schedule K (foreign taxes paid and
Shareholders’ Equity •
Expenses for travel as a form of
accrued), add that amount for purposes Some examples of adjustments to education.
of computing the corporation’s net report on this line include:
•
Other nondeductible travel and
income (loss). The amount reported on
•
Unrealized gains and losses on entertainment expenses.
line 18 must be the same as the securities held “available for sale.” Note. If the corporation has an amount
amount reported on line 8 of Schedule
•
Foreign currency translation on line 14l of Schedule K (foreign taxes
M-1 or line 26, column d, in Part II of adjustments. paid and accrued), take that amount
Schedule M-3 (Form 1120S).
•
The excess of additional pension into account for purposes of figuring
liability over unrecognized prior service expenses and deductions to enter on
cost. lines 3 and 6.
Schedule L. Balance
•
Guarantees of employee stock
(ESOP) debt.
Sheets per Books
•
Compensation related to employee Schedule M-2. Analysis
The balance sheets should agree with stock award plans.
the corporation’s books and records. of Accumulated
If the total adjustment to be entered
Schedule L is not required to be is a negative amount, enter the amount
completed if the corporation answered Adjustments Account,
in parentheses.
“Yes” to question 8 on Schedule B. If Other Adjustments
the corporation is required to complete
Schedule L, include total assets Account, and
Schedule M-1.
reported on Schedule L, line 15, Shareholders’
column (d), on page 1, item F. Reconciliation of Income
Corporations with total assets of $10 Undistributed Taxable
(Loss) per Books With
million or more on the last day of the Income Previously
tax year must complete Schedule M-3 Income (Loss) per
(Form 1120S) instead of Schedule M-1. Taxed
Return
See the separate Instructions for
Schedule M-3 (Form 1120S) for Schedule M-1 is not required to be
Column (a). Accumulated
provisions that also affect Schedule L. completed if the corporation answered
Adjustments Account
“Yes” to question 8 on Schedule B.
If the S election terminated during The accumulated adjustments account
the tax year and the corporation Corporations with total assets of $10 (AAA) is an account of the S
reverted to a C corporation, the million or more on the last day of the corporation that generally reflects the
year-end balance sheet generally tax year must complete Schedule M-3 accumulated undistributed net income
should agree with the books and instead of Schedule M-1. See Item C. of the corporation for the corporation’s
records at the end of the C short year. Schedule M-3 Information, earlier. A post-1982 years. S corporations with
However, if the corporation elected corporation filing Form 1120S that is accumulated E&P must maintain the
under section 1362(e)(3) to have items not required to file Schedule M-3 may AAA to determine the tax effect of
assigned to each short year under voluntarily file Schedule M-3. See the distributions during S years and the
normal tax accounting rules, the Instructions for Schedule M-3 (Form post-termination transition period. An S
year-end balance sheet should agree 1120S) for more information. corporation without accumulated E&P
with the books and records at the end does not need to maintain the AAA in
Line 2
of the S short year. order to determine the tax effect of
Report on this line income included on distributions. Nevertheless, if an S
Line 5. Tax-Exempt
Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, corporation without accumulated E&P
8a, 9, and 10 not recorded on the
Securities
engages in certain transactions to
books this year. Describe each such
Include on this line: which section 381(a) applies, such as a
item of income. Attach a statement if
•
State and local government merger into an S corporation with
necessary.
obligations, the interest on which is accumulated E&P, the S corporation
excludable from gross income under must be able to calculate its AAA at the
Line 3b. Travel and
section 103(a), and time of the merger for purposes of
Entertainment
•
Stock in a mutual fund or other determining the tax effect of
regulated investment company that Include any of the following. post-merger distributions. Therefore, it
distributed exempt-interest dividends
•
Meal and entertainment expenses is recommended that the AAA be
during the tax year of the corporation. not deductible under section 274(n). maintained by all S corporations.
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Instructions for Form 1120S
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On the first day of the corporation’s to the AAA for redemptions,
Distributions
first tax year as an S corporation, the reorganizations, and corporate General rule. Unless the corporation
balance of the AAA is zero. At the end separations, see Regulations section makes one of the elections described
of the tax year, adjust the AAA for the 1.1368-2(d). below, property distributions (including
items as explained below and in the cash) are applied in the following order
order listed. Note. The AAA may have a negative (to reduce accounts of the S
balance at year end. See section
1. Increase the AAA by income corporation that are used to figure the
1368(e).
(other than tax-exempt income) and the tax effect of distributions made by the
excess of the deduction for depletion corporation to its shareholders):
Column (b). Other
over the basis of the property subject to 1. Reduce the AAA determined
depletion (unless the property is an oil
Adjustments Account
without regard to any net negative
and gas property the basis of which has The other adjustments account is adjustment for the tax year (but not
been allocated to shareholders). adjusted for tax-exempt income (and below zero). If distributions during the
2. Generally, decrease the AAA by related expenses) and federal taxes tax year exceed the AAA at the close of
deductible losses and expenses, attributable to a C corporation tax year. the tax year determined without regard
nondeductible expenses (other than After these adjustments are made, the to any net negative adjustment for the
expenses related to tax-exempt account is reduced for any distributions tax year, the AAA is allocated pro rata
income), and the sum of the made during the year. See to each distribution made during the tax
shareholders’ deductions for depletion Distributions, later. year. See section 1368.
for any oil or gas property held by the 2. Reduce shareholders’ PTI
corporation as described in section
Column (c). Shareholders’
account for any section 1375(d) (as in
1367(a)(2)(E). If deductible losses and
Undistributed Taxable
effect before 1983) distributions. A
expenses include the fair market value
Income Previously Taxed
distribution from the PTI account is tax
of certain contributed property free to the extent of a shareholder’s
(discussed earlier), further adjust AAA The shareholders’ undistributed taxable basis in his or her stock in the
by adding back the fair market value of income previously taxed account, also corporation.
the contributed property and subtracting called previously taxed income (PTI), is
instead the property’s adjusted basis. If maintained only if the corporation had a 3. Reduce accumulated E&P.
the total decreases under 2 exceed the balance in this account at the start of its Generally, the S corporation has
total increases under 1 above, the 2011 tax year. If there is a beginning accumulated E&P only if it has not
excess is a “net negative adjustment.” If balance for the 2011 tax year, no distributed E&P accumulated in prior
the corporation has a net negative adjustments are made to the account years when the S corporation was a C
adjustment, do not take it into account except to reduce the account for corporation (section 1361(a)(2)). See
under 2. Instead, take it into account distributions made under section section 312 for information on E&P.
only under 4 below. 1375(d) (as in effect before the The only adjustments that can be made
enactment of the Subchapter S to the accumulated E&P of an S
3. Decrease AAA (but not below Revision Act of 1982). See Distributions corporation are (a) reductions for
zero) by property distributions (other next for the order of distributions from dividend distributions; (b) adjustments
than dividend distributions from the account. for redemptions, liquidations,
accumulated E&P), unless the reorganizations, etc.; and (c) reductions
corporation elects to reduce Each shareholder’s right to for investment credit recapture tax for
accumulated E&P first. See nontaxable distributions from PTI is which the corporation is liable. See
Distributions, later, for definitions and personal and cannot be transferred to sections 1371(c) and (d)(3).
other details. another person. The corporation is
4. Decrease AAA by any net required to keep records of each 4. Reduce the other adjustments
negative adjustment. For adjustments shareholder’s net share of PTI. account (OAA).
Schedule M-2 Worksheet
Keep for Your Records
(a) Accumulated (b) Other adjustments (c) Shareholders’
adjustments account account undistributed taxable income
previously taxed
1. Balance at beginning of tax year .... -0- -0-
2Ordinary income from page 1, line 21 10,000
3Other additions ................ 20,000 5,000
4Loss from page 1, line 21 ......... ( )
5Other reductions ............... ( 36,000 ) ( )
6Combine line 1 through 5 ......... ( 6,000 ) 5,000
7Distributions other than dividend
distributions .................. -0- 5,000
8Balance at end of tax year. Subtract
line 7 from line 6 ............... ( 6,000 ) -0-
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Instructions for Form 1120S
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5. Reduce any remaining Election to forego PTI. If the 6. Schedule K, line 12d
corporation wants to forego deduction—$3,000
shareholders’ equity accounts. distributions of PTI, it may elect to do 7. Schedule K, line 13g work
so with the consent of all its affected
Elections relating to source of opportunity credit—$6,000
shareholders (section 1368(e)(3)(B)).
distributions. The corporation may 8. Schedule K, line 16a tax-exempt
Under this election, paragraph 2 under
modify the above ordering rules by interest—$5,000
General rule, earlier, does not apply to
making one or more of the following 9. Schedule K, line 16c
any distribution made during the tax
elections. nondeductible expenses—$6,000
year. This election is irrevocable and (reduction in salaries and wages for
Election to distribute accumulated applies only for the tax year for which it work opportunity credit), and
E&P first. If the corporation has is made. For details on making the 10. Schedule K, line 16d
accumulated E&P and wants to election, see Statement regarding distributions—$65,000.
distribute from this account before elections.
making distributions from the AAA, it Statement regarding elections. To
may elect to do so with the consent of Based on items 1 through 10 above
make any of the above elections, the
all its affected shareholders (section and starting balances of zero, the
corporation must attach a statement to
1368(e)(3)(B)). This election is columns for the AAA and the other
a timely filed original or amended Form
irrevocable and applies only for the tax adjustments account are completed as
1120S for the tax year for which the
year for which it is made. For details on shown in the Schedule M-2 Worksheet
election is made. In the statement, the
making the election, see Statement below.
corporation must identify the election it
regarding elections, later. is making and must state that each For the AAA, the worksheet line
shareholder consents to the election.
Election to make a deemed 3—$20,000 amount is the total of the
The statement of election to make a
dividend. If the corporation wants to Schedule K, lines 4 and 5a income of
deemed dividend must include the
distribute all or part of its accumulated $4,000 and $16,000. The worksheet
amount of the deemed dividend
E&P through a deemed dividend, it may line 5—$36,000 amount is the total of
distributed to each shareholder. For
elect to do so with the consent of all its the Schedule K, line 2 loss of ($3,000),
more details on the election, see
affected shareholders (section line 12a (code A) deduction of $24,000,
Regulations section 1.1368-1(f)(5).
1368(e)(3)(B)). Under this election, the line 12d (code R) deduction of $3,000,
corporation will be treated as also and the line 16c nondeductible
Example
having made the election to distribute expenses of $6,000. The worksheet line
The following example shows how the
accumulated E&P first. The amount of 7 is zero. The AAA at the end of the tax
Schedule M-2 accounts are adjusted for
the deemed dividend cannot exceed year (figured without regard to
items of income (loss), deductions, and
the accumulated E&P at the end of the distributions and the net negative
distributions reported on Form 1120S.
tax year. The E&P at year end is first adjustment of $6,000) is zero, and
In this example, the corporation has no
reduced by any actual distributions of distributions cannot reduce the AAA
PTI or accumulated E&P.
accumulated E&P made during the tax below zero.
Items per return are:
year. A deemed dividend is treated as if
it were a pro rata distribution of money 1. Page 1, line 21 income—$10,000 For the other adjustments account,
to the shareholders, received by the 2. Schedule K, line 2 the worksheet line 3 amount is the
shareholders, and immediately loss—($3,000) Schedule K, line 16a, tax-exempt
contributed back to the corporation, all 3. Schedule K, line 4 interest income of $5,000. The
on the last day of the tax year. This income—$4,000 worksheet line 7 amount is $5,000,
election is irrevocable and applies only 4. Schedule K, line 5a reducing the other adjustments account
for the tax year for which it is made. For income—$16,000 to zero. The remaining $60,000 of
details on making the election, see 5. Schedule K, line 12a distributions are not entered on
Statement regarding elections, later. deduction—$24,000 Schedule M-2.
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Instructions for Form 1120S
Page 38 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you are complying with these laws and
to allow us to figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless
the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long
as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return
information are confidential, as required by section 6103.
The time needed to complete and file the following forms will vary depending on individual circumstances. The estimated
average times are:
Learning about the Copying, assembling, and
Form Recordkeeping law or the form Preparing the form sending the form to the IRS
1120S 62 hr., 10 min. 30 hr., 28 min. 56 hr., 3 min. 6 hr., 42 min.
Sch. D (1120S) 7 hr., 53 min. 4 hr., 30 min. 6 hr., 42 min. 0 hr., 32 min.
Sch. K-1 (1120S) 8 hr., 15 min. 6 hr., 3 min. 10 hr., 22 min. 1 hr., 4 min.
Sch. M-3 (1120S) 63 hr., 51 min. 3 hr., 3 min. 5 hr., 9 min. 0 hr., 16 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making these forms simpler, we
would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee,
SE:W:CAR:MP:T:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this
address. Instead, see Where To File, earlier.
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Instructions for Form 1120S
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Using the list of activities and codes below, product, but retains title to the product, the company
Principal Business Activity determine from which activity the company derives is considered a manufacturer and must use one of
the largest percentage of its “total receipts.” Total the manufacturing codes (311110-339900).
Codes receipts is defined as the sum of gross receipts or Once the principal business activity is determined,
sales (page 1, line 1c); all other income (page 1,
This list of principal business activities and their enter the six-digit code from the list below on page 1,
lines 4 and 5); income reported on Schedule K, lines
associated codes is designed to classify an item B. Also enter the business activity on page 2,
4, 5a, and 6; income or net gain reported on
enterprise by the type of activity in which it is Schedule B, line 2(a) and a brief description of the
Schedule K, lines 7, 8a, 9 and 10; and income or net
engaged to facilitate the administration of the principal product or service of the business on line
gain reported on Form 8825, lines 2, 19 and 20a. If
Internal Revenue Code. These principal business 2(b).
the company purchases raw materials and supplies
activity codes are based on the North American them to a subcontractor to produce the finished
Industry Classification System.
Code Code Code Code
Heavy and Civil Engineering Wood Product Manufacturing 332810 Coating, Engraving, Heat
Agriculture, Forestry, Fishing Construction Treating, & Allied Activities
321110 Sawmills & Wood
and Hunting 237100 Utility System Construction Preservation 332900 Other Fabricated Metal
Crop Production Product Mfg
237210 Land Subdivision 321210 Veneer, Plywood, &
111100 Oilseed & Grain Farming Engineered Wood Product Machinery Manufacturing
237310 Highway, Street, & Bridge
111210 Vegetable & Melon Farming Mfg
Construction 333100 Agriculture, Construction, &
(including potatoes & yams) 321900 Other Wood Product Mfg Mining Machinery Mfg
237990 Other Heavy & Civil
111300 Fruit & Tree Nut Farming Engineering Construction Paper Manufacturing 333200 Industrial Machinery Mfg
111400 Greenhouse, Nursery, & Specialty Trade Contractors 322100 Pulp, Paper, & Paperboard 333310 Commercial & Service
Floriculture Production Mills Industry Machinery Mfg
238100 Foundation, Structure, &
111900 Other Crop Farming Building Exterior Contractors 322200 Converted Paper Product Mfg 333410 Ventilation, Heating,
(including tobacco, cotton, (including framing carpentry, Air-Conditioning, &
Printing and Related Support
sugarcane, hay, peanut, masonry, glass, roofing, & Commercial Refrigeration
Activities
sugar beet & all other crop siding) Equipment Mfg
323100 Printing & Related Support
farming) 238210 Electrical Contractors 333510 Metalworking Machinery Mfg
Activities
Animal Production 238220 Plumbing, Heating, & 333610 Engine, Turbine & Power
Petroleum and Coal Products
112111 Beef Cattle Ranching & Air-Conditioning Contractors Transmission Equipment Mfg
Manufacturing
Farming 238290 Other Building Equipment 333900 Other General Purpose
324110 Petroleum Refineries
112112 Cattle Feedlots Contractors Machinery Mfg
(including integrated)
112120 Dairy Cattle & Milk 238300 Building Finishing Computer and Electronic Product
324120 Asphalt Paving, Roofing, &
Production Contractors (including Manufacturing
Saturated Materials Mfg
112210 Hog & Pig Farming drywall, insulation, painting, 334110 Computer & Peripheral
324190 Other Petroleum & Coal
112300 Poultry & Egg Production wallcovering, flooring, tile, & Equipment Mfg
Products Mfg
finish carpentry)
112400 Sheep & Goat Farming 334200 Communications Equipment
Chemical Manufacturing
238900 Other Specialty Trade
112510 Aquaculture (including Mfg
325100 Basic Chemical Mfg
Contractors (including site
shellfish & finfish farms & 334310 Audio & Video Equipment
325200 Resin, Synthetic Rubber, &
preparation)
hatcheries) Mfg
Artificial & Synthetic Fibers &
112900 Other Animal Production 334410 Semiconductor & Other
Filaments Mfg
Manufacturing
Forestry and Logging Electronic Component Mfg
325300 Pesticide, Fertilizer, & Other
Food Manufacturing
113110 Timber Tract Operations 334500 Navigational, Measuring,
Agricultural Chemical Mfg
311110 Animal Food Mfg Electromedical, & Control
113210 Forest Nurseries & Gathering 325410 Pharmaceutical & Medicine Instruments Mfg
of Forest Products 311200 Grain & Oilseed Milling Mfg 334610 Manufacturing & Reproducing
113310 Logging 311300 Sugar & Confectionery 325500 Paint, Coating, & Adhesive Magnetic & Optical Media
Product Mfg
Fishing, Hunting and Trapping Mfg Electrical Equipment, Appliance, and
311400 Fruit & Vegetable Preserving
114110 Fishing 325600 Soap, Cleaning Compound, & Component Manufacturing
& Specialty Food Mfg Toilet Preparation Mfg
114210 Hunting & Trapping 335100 Electric Lighting Equipment
311500 Dairy Product Mfg 325900 Other Chemical Product &
Support Activities for Agriculture Mfg
311610 Animal Slaughtering and Preparation Mfg
and Forestry 335200 Household Appliance Mfg
Processing Plastics and Rubber Products
115110 Support Activities for Crop 335310 Electrical Equipment Mfg
311710 Seafood Product Preparation Manufacturing
Production (including cotton & Packaging 335900 Other Electrical Equipment &
ginning, soil preparation, 326100 Plastics Product Mfg Component Mfg
311800 Bakeries & Tortilla Mfg
planting, & cultivating) 326200 Rubber Product Mfg
311900 Other Food Mfg (including Transportation Equipment
115210 Support Activities for Animal Nonmetallic Mineral Product
coffee, tea, flavorings & Manufacturing
Production Manufacturing
seasonings) 336100 Motor Vehicle Mfg
115310 Support Activities For 327100 Clay Product & Refractory
Beverage and Tobacco Product
Forestry 336210 Motor Vehicle Body & Trailer
Mfg
Manufacturing Mfg
327210 Glass & Glass Product Mfg
312110 Soft Drink & Ice Mfg 336300 Motor Vehicle Parts Mfg
Mining 327300 Cement & Concrete Product
312120 Breweries 336410 Aerospace Product & Parts
211110 Oil & Gas Extraction Mfg Mfg
312130 Wineries
212110 Coal Mining 327400 Lime & Gypsum Product Mfg 336510 Railroad Rolling Stock Mfg
312140 Distilleries
212200 Metal Ore Mining 327900 Other Nonmetallic Mineral 336610 Ship & Boat Building
312200 Tobacco Manufacturing
212310 Stone Mining & Quarrying Product Mfg 336990 Other Transportation
Textile Mills and Textile Product
212320 Sand, Gravel, Clay, & Primary Metal Manufacturing Equipment Mfg
Mills
Ceramic & Refractory 331110 Iron & Steel Mills & Ferroalloy
Minerals Mining & Quarrying Furniture and Related Product
313000 Textile Mills Mfg Manufacturing
212390 Other Nonmetallic Mineral 314000 Textile Product Mills 331200 Steel Product Mfg from
Mining & Quarrying 337000 Furniture & Related Product
Apparel Manufacturing Purchased Steel Manufacturing
213110 Support Activities for Mining 315100 Apparel Knitting Mills 331310 Alumina & Aluminum Miscellaneous Manufacturing
Production & Processing
315210 Cut & Sew Apparel 339110 Medical Equipment &
Utilities Contractors 331400 Nonferrous Metal (except Supplies Mfg
221100 Electric Power Generation, Aluminum) Production &
315220 Men’s & Boys’ Cut & Sew 339900 Other Miscellaneous
Transmission & Distribution Processing
Apparel Mfg Manufacturing
221210 Natural Gas Distribution 331500 Foundries
315230 Women’s & Girls’ Cut & Sew
221300 Water, Sewage & Other Apparel Mfg Fabricated Metal Product Wholesale Trade
Systems Manufacturing
315290 Other Cut & Sew Apparel Mfg Merchant Wholesalers, Durable
221500 Combination Gas & Electric 332110 Forging & Stamping
315990 Apparel Accessories & Other Goods
Apparel Mfg 332210 Cutlery & Handtool Mfg 423100 Motor Vehicle & Motor
Construction Leather and Allied Product 332300 Architectural & Structural Vehicle Parts & Supplies
Manufacturing Metals Mfg
Construction of Buildings 423200 Furniture & Home
316110 Leather & Hide Tanning & 332400 Boiler, Tank, & Shipping
236110 Residential Building Furnishings
Finishing Container Mfg
Construction 423300 Lumber & Other Construction
316210 Footwear Mfg (including 332510 Hardware Mfg
236200 Nonresidential Building Materials
rubber & plastics)
Construction 332610 Spring & Wire Product Mfg 423400 Professional & Commercial
316990 Other Leather & Allied 332700 Machine Shops; Turned Equipment & Supplies
Product Mfg Product; & Screw, Nut, & Bolt
Mfg
-39-
Page 40 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Principal Business Activity Codes (continued)
Code Code Code Code
423500 Metal & Mineral (except 445120 Convenience Stores Truck Transportation Finance and Insurance
Petroleum) 445210 Meat Markets 484110 General Freight Trucking, Depository Credit Intermediation
423600 Electrical & Electronic Goods Local
445220 Fish & Seafood Markets 522110 Commercial Banking
423700 Hardware, & Plumbing & 484120 General Freight Trucking,
445230 Fruit & Vegetable Markets 522120 Savings Institutions
Heating Equipment & Long-distance
445291 Baked Goods Stores 522130 Credit Unions
Supplies 484200 Specialized Freight Trucking
445292 Confectionery & Nut Stores 522190 Other Depository Credit
423800 Machinery, Equipment, & Transit and Ground Passenger
445299 All Other Specialty Food Intermediation
Supplies Transportation
Stores Nondepository Credit Intermediation
423910 Sporting & Recreational 485110 Urban Transit Systems
445310 Beer, Wine, & Liquor Stores 522210 Credit Card Issuing
Goods & Supplies 485210 Interurban & Rural Bus
Health and Personal Care Stores 522220 Sales Financing
423920 Toy & Hobby Goods & Transportation
446110 Pharmacies & Drug Stores
Supplies 522291 Consumer Lending
485310 Taxi Service
446120 Cosmetics, Beauty Supplies,
423930 Recyclable Materials 522292 Real Estate Credit (including
485320 Limousine Service
& Perfume Stores mortgage bankers &
423940 Jewelry, Watch, Precious 485410 School & Employee Bus
446130 Optical Goods Stores originators)
Stone, & Precious Metals Transportation
446190 Other Health & Personal 522293 International Trade Financing
423990 Other Miscellaneous Durable 485510 Charter Bus Industry
Care Stores
Goods 522294 Secondary Market Financing
485990 Other Transit & Ground
Gasoline Stations
Merchant Wholesalers, Nondurable 522298 All Other Nondepository
Passenger Transportation
Goods 447100 Gasoline Stations (including Credit Intermediation
Pipeline Transportation
convenience stores with gas)
424100 Paper & Paper Products Activities Related to Credit
486000 Pipeline Transportation
Clothing and Clothing Accessories Intermediation
424210 Drugs & Druggists’ Sundries Scenic & Sightseeing Transportation
Stores 522300 Activities Related to Credit
424300 Apparel, Piece Goods, & 487000 Scenic & Sightseeing
448110 Men’s Clothing Stores Intermediation (including loan
Notions Transportation brokers, check clearing, &
448120 Women’s Clothing Stores
424400 Grocery & Related Products money transmitting)
Support Activities for Transportation
448130 Children’s & Infants’ Clothing
424500 Farm Product Raw Materials 488100 Support Activities for Air Securities, Commodity Contracts,
Stores
424600 Chemical & Allied Products Transportation and Other Financial Investments and
448140 Family Clothing Stores
424700 Petroleum & Petroleum Related Activities
488210 Support Activities for Rail
448150 Clothing Accessories Stores
Products Transportation 523110 Investment Banking &
448190 Other Clothing Stores
424800 Beer, Wine, & Distilled Securities Dealing
488300 Support Activities for Water
Alcoholic Beverages 448210 Shoe Stores Transportation 523120 Securities Brokerage
424910 Farm Supplies 448310 Jewelry Stores 488410 Motor Vehicle Towing 523130 Commodity Contracts
424920 Book, Periodical, & 448320 Luggage & Leather Goods Dealing
488490 Other Support Activities for
Newspapers Stores Road Transportation 523140 Commodity Contracts
424930 Flower, Nursery Stock, & Sporting Goods, Hobby, Book, and Brokerage
488510 Freight Transportation
Florists’ Supplies Music Stores Arrangement 523210 Securities & Commodity
424940 Tobacco & Tobacco Products 451110 Sporting Goods Stores Exchanges
488990 Other Support Activities for
424950 Paint, Varnish, & Supplies 451120 Hobby, Toy, & Game Stores Transportation 523900 Other Financial Investment
424990 Other Miscellaneous 451130 Sewing, Needlework, & Piece Activities (including portfolio
Couriers and Messengers
Nondurable Goods Goods Stores management & investment
492110 Couriers advice)
Wholesale Electronic Markets and 451140 Musical Instrument & 492210 Local Messengers & Local
Agents and Brokers Supplies Stores Insurance Carriers and Related
Delivery
425110 Business to Business Activities
451211 Book Stores Warehousing and Storage
Electronic Markets 524140 Direct Life, Health, & Medical
451212 News Dealers & Newsstands 493100 Warehousing & Storage
425120 Wholesale Trade Agents & Insurance & Reinsurance
451220 Prerecorded Tape, Compact (except lessors of
Brokers Carriers
Disc, & Record Stores miniwarehouses & 524150 Direct Insurance &
General Merchandise Stores self-storage units) Reinsurance (except Life,
Retail Trade 452110 Department Stores Health & Medical) Carriers
Motor Vehicle and Parts Dealers 452900 Other General Merchandise Information 524210 Insurance Agencies &
441110 New Car Dealers Stores Publishing Industries (except Brokerages
441120 Used Car Dealers Miscellaneous Store Retailers Internet) 524290 Other Insurance Related
441210 Recreational Vehicle Dealers 453110 Florists 511110 Newspaper Publishers Activities (including
441221 Motorcycle Dealers 453210 Office Supplies & Stationery 511120 Periodical Publishers third-party administration of
441222 Boat Dealers Stores insurance and pension funds)
511130 Book Publishers
441229 All Other Motor Vehicle 453220 Gift, Novelty, & Souvenir Funds, Trusts, and Other Financial
511140 Directory & Mailing List
Dealers Stores Vehicles
Publishers
441300 Automotive Parts, 453310 Used Merchandise Stores 525100 Insurance & Employee
511190 Other Publishers
Accessories, & Tire Stores Benefit Funds
453910 Pet & Pet Supplies Stores 511210 Software Publishers
Furniture and Home Furnishings 525910 Open-End Investment Funds
453920 Art Dealers Motion Picture and Sound
Stores (Form 1120-RIC)
453930 Manufactured (Mobile) Home Recording Industries
442110 Furniture Stores 525920 Trusts, Estates, & Agency
Dealers 512100 Motion Picture & Video Accounts
442210 Floor Covering Stores 453990 All Other Miscellaneous Store Industries (except video 525990 Other Financial Vehicles
Retailers (including tobacco,
442291 Window Treatment Stores rental) (including mortgage REITs &
candle, & trophy shops)
442299 All Other Home Furnishings 512200 Sound Recording Industries closed-end investment funds)
Stores Nonstore Retailers Broadcasting (except Internet) “Offices of Bank Holding Companies”
454110 Electronic Shopping &
Electronics and Appliance Stores 515100 Radio & Television and “Offices of Other Holding
Mail-Order Houses
443111 Household Appliance Stores Broadcasting Companies” are located under
454210 Vending Machine Operators
443112 Radio, Television, & Other 515210 Cable & Other Subscription Management of Companies (Holding
454311 Heating Oil Dealers
Electronics Stores Programming Companies) below.
454312 Liquefied Petroleum Gas
443120 Computer & Software Stores Telecommunications
(Bottled Gas) Dealers
443130 Camera & Photographic 517000 Telecommunications Real Estate and Rental and
454319 Other Fuel Dealers
Supplies Stores (including paging, cellular, Leasing
satellite, cable & other
454390 Other Direct Selling
Building Material and Garden Real Estate
program distribution,
Establishments (including
Equipment and Supplies Dealers resellers, other 531110 Lessors of Residential
door-to-door retailing, frozen
444110 Home Centers telecommunications, & Buildings & Dwellings
food plan providers, party
444120 Paint & Wallpaper Stores Internet service providers) (including equity REITs)
plan merchandisers, &
444130 Hardware Stores coffee-break service 531114 Cooperative Housing
Data Processing Services
444190 Other Building Material providers) (including equity REITs)
518210 Data Processing, Hosting, &
Dealers 531120 Lessors of Nonresidential
Related Services
444200 Lawn & Garden Equipment & Transportation and Buildings (except
Other Information Services
Supplies Stores Miniwarehouses) (including
Warehousing 519100 Other Information Services
Food and Beverage Stores equity REITs)
Air, Rail, and Water Transportation (including news syndicates,
445110 Supermarkets and Other 531130 Lessors of Miniwarehouses &
libraries, Internet publishing,
481000 Air Transportation
Grocery (except Self-Storage Units (including
& broadcasting)
482110 Rail Transportation
Convenience) Stores equity REITs)
483000 Water Transportation
-40-
Page 41 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Principal Business Activity Codes (continued)
Code Code Code Code
531190 Lessors of Other Real Estate 541920 Photographic Services 621391 Offices of Podiatrists 721120 Casino Hotels
Property (including equity 541930 Translation & Interpretation 621399 Offices of All Other 721191 Bed & Breakfast Inns
REITs) Services Miscellaneous Health 721199 All Other Traveler
531210 Offices of Real Estate Agents Practitioners
541940 Veterinary Services Accommodation
& Brokers Outpatient Care Centers
541990 All Other Professional, 721210 RV (Recreational Vehicle)
531310 Real Estate Property Scientific, & Technical Parks & Recreational Camps
621410 Family Planning Centers
Managers Services 721310 Rooming & Boarding Houses
621420 Outpatient Mental Health &
531320 Offices of Real Estate Substance Abuse Centers Food Services and Drinking Places
Appraisers Management of Companies 621491 HMO Medical Centers 722110 Full-Service Restaurants
531390 Other Activities Related to (Holding Companies) 621492 Kidney Dialysis Centers 722210 Limited-Service Eating
Real Estate 551111 Offices of Bank Holding 621493 Freestanding Ambulatory Places
Rental and Leasing Services Companies Surgical & Emergency 722300 Special Food Services
532100 Automotive Equipment Rental Centers
551112 Offices of Other Holding (including food service
& Leasing Companies 621498 All Other Outpatient Care contractors & caterers)
532210 Consumer Electronics & Centers 722410 Drinking Places (Alcoholic
Appliances Rental Beverages)
Administrative and Support Medical and Diagnostic Laboratories
532220 Formal Wear & Costume and Waste Management and 621510 Medical & Diagnostic
Rental Laboratories Other Services
Remediation Services
532230 Video Tape & Disc Rental Home Health Care Services Repair and Maintenance
Administrative and Support Services
532290 Other Consumer Goods 621610 Home Health Care Services 811110 Automotive Mechanical &
561110 Office Administrative
Rental Electrical Repair &
Services Other Ambulatory Health Care
532310 General Rental Centers Maintenance
Services
561210 Facilities Support Services
532400 Commercial & Industrial 811120 Automotive Body, Paint,
621900 Other Ambulatory Health
561300 Employment Services
Machinery & Equipment Interior, & Glass Repair
Care Services (including
561410 Document Preparation
Rental & Leasing ambulance services & blood 811190 Other Automotive Repair &
Services
Lessors of Nonfinancial Intangible & organ banks) Maintenance (including oil
561420 Telephone Call Centers
Assets (except copyrighted works) change & lubrication shops &
Hospitals
561430 Business Service Centers
533110 Lessors of Nonfinancial car washes)
622000 Hospitals
(including private mail centers
Intangible Assets (except 811210 Electronic & Precision
Nursing and Residential Care
& copy shops)
copyrighted works) Equipment Repair &
Facilities
561440 Collection Agencies Maintenance
623000 Nursing & Residential Care
561450 Credit Bureaus
Professional, Scientific, and 811310 Commercial & Industrial
Facilities
561490 Other Business Support Machinery & Equipment
Technical Services Social Assistance
Services (including (except Automotive &
Legal Services 624100 Individual & Family Services
repossession services, court Electronic) Repair &
541110 Offices of Lawyers reporting, & stenotype Maintenance
624200 Community Food & Housing,
541190 Other Legal Services services) & Emergency & Other Relief 811410 Home & Garden Equipment &
Accounting, Tax Preparation, Services
561500 Travel Arrangement & Appliance Repair &
Bookkeeping, and Payroll Services Reservation Services Maintenance
624310 Vocational Rehabilitation
541211 Offices of Certified Public Services
561600 Investigation & Security 811420 Reupholstery & Furniture
Accountants Services Repair
624410 Child Day Care Services
541213 Tax Preparation Services 561710 Exterminating & Pest Control 811430 Footwear & Leather Goods
541214 Payroll Services Services Repair
Arts, Entertainment, and
541219 Other Accounting Services 561720 Janitorial Services 811490 Other Personal & Household
Recreation Goods Repair & Maintenance
561730 Landscaping Services
Architectural, Engineering, and Performing Arts, Spectator Sports,
Related Services Personal and Laundry Services
561740 Carpet & Upholstery Cleaning and Related Industries
Services
541310 Architectural Services 812111 Barber Shops
711100 Performing Arts Companies
561790 Other Services to Buildings &
541320 Landscape Architecture 812112 Beauty Salons
711210 Spectator Sports (including
Dwellings
Services 812113 Nail Salons
sports clubs & racetracks)
561900 Other Support Services
541330 Engineering Services 812190 Other Personal Care
711300 Promoters of Performing Arts,
(including packaging &
541340 Drafting Services Services (including diet &
Sports, & Similar Events
labeling services, & weight reducing centers)
541350 Building Inspection Services 711410 Agents & Managers for
convention & trade show 812210 Funeral Homes & Funeral
Artists, Athletes, Entertainers,
541360 Geophysical Surveying & organizers) Services
& Other Public Figures
Mapping Services Waste Management and 812220 Cemeteries & Crematories
711510 Independent Artists, Writers,
541370 Surveying & Mapping (except Remediation Services & Performers
Geophysical) Services 812310 Coin-Operated Laundries &
562000 Waste Management & Drycleaners
541380 Testing Laboratories Museums, Historical Sites, and
Remediation Services Similar Institutions 812320 Drycleaning & Laundry
Specialized Design Services Services (except
712100 Museums, Historical Sites, &
541400 Specialized Design Services Educational Services Coin-Operated)
Similar Institutions
(including interior, industrial, 611000 Educational Services 812330 Linen & Uniform Supply
graphic, & fashion design) Amusement, Gambling, and
(including schools, colleges, 812910 Pet Care (except Veterinary)
Recreation Industries
Computer Systems Design and & universities) Services
713100 Amusement Parks & Arcades
Related Services 812920 Photofinishing
713200 Gambling Industries
541511 Custom Computer Health Care and Social 812930 Parking Lots & Garages
Programming Services 713900 Other Amusement &
Assistance 812990 All Other Personal Services
Recreation Industries
541512 Computer Systems Design Offices of Physicians and Dentists (including golf courses, skiing
Services Religious, Grantmaking, Civic,
621111 Offices of Physicians (except facilities, marinas, fitness
541513 Computer Facilities Professional, and Similar
mental health specialists) centers, & bowling centers)
Management Services Organizations
621112 Offices of Physicians, Mental
541519 Other Computer Related 813000 Religious, Grantmaking,
Health Specialists Accommodation and Food
Services Civic, Professional, & Similar
621210 Offices of Dentists Organizations (including
Services
Other Professional, Scientific, and condominium and
Offices of Other Health Practitioners
Technical Services Accommodation homeowners associations)
621310 Offices of Chiropractors
541600 Management, Scientific, & 721110 Hotels (except Casino Hotels)
Technical Consulting 621320 Offices of Optometrists & Motels
Services 621330 Offices of Mental Health
541700 Scientific Research & Practitioners (except
Development Services Physicians)
541800 Advertising & Related 621340 Offices of Physical,
Services Occupational & Speech
Therapists, & Audiologists
541910 Marketing Research & Public
Opinion Polling
-41-
Page 42 of 42 Instructions for Form 1120S 13:33 - 31-JAN-2012
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Index
AEmployee benefit Investment income and Recordkeeping .............5
programs ................16 expenses................32
Accounting methods ........5Reforestation ......17, 26, 34
Employer identification
Accounting period ..........5Related party
number (EIN) ............11 transactions .............14
Accumulated adjustments L
Estimated tax payment ....4,
account .................35 Rental activities, income and
Loans from
18 expenses................21
Amended return ............5shareholders ............32
Estimated tax penalty ......18 Rental deduction ..........15
Amortization ...............14 Lobbying expenses,
Expenses, Return, amended ...........5
nondeductibility ..........17
Assembling return ..........3nondeductible–Sch. K or Low-income housing
At-risk activities–reporting K-1 ......................32 credit ....................27
requirements ............20 S
Extension of time to file .....3Low-income housing credit Salaries and wages ........14
Extraterritorial income recapture ................33
BSales ......................12
exclusion ................10
Bad debt deduction ........15 Schedule L ................35
M
Balance sheets–Sch. Schedule M-1..............35
FMultiple activities–reporting
L........................35 Schedule M-2..............35
Farming, special rules .....14 requirements ............20
Business startup Schedule M-3..............11
Final return ................11
expenses................14 Section 179 expense ......24
Foreign transactions–Sch. K OSection 263A rules ........13
or K-1 ...................29 Officer compensation ......14
CSection 59(e)(2)
Forms and Publications, how expenditures ............25
Change in accounting to get ....................1
method ...................5Self-charged interest ........8
P
Charitable Substitute Sch. K-1 ........19
Passive activities–rental ....7
G
contributions ............24 Passive activities–reporting
Gain (loss), section
Cost of goods sold .........12 requirements ............10 T
1231–Sch. K or K-1 .....23 Passive activity Tax issues, unresolved .....1
Gain, ordinary .............12 limitations ................6
DTaxes and licenses
Gross receipts .............12 Penalties ...................4
Deductions ............13, 24 deduction ...............15
Pension, profit-sharing, etc.,
Deductions from oil and gas Taxes due .................18
Iplans ....................16
properties ...............31 Termination of S
Income ....................12 Portfolio income ........8, 21
Deductions, limitations election ..................2
Income from oil and gas
on .......................13 Preparer, tax return .........3Travel and entertainment
properties ...............31
Depletion ..................16 Private delivery services ....3deduction ...............17
Income, rental
Depletion (other than oil and Property distributions ......32
activities.................21
gas) .....................31 W
Income, tax-exempt ........32
Depreciation ...............16 QWhen to file ................2
Income, trade or business
Direct deposit of refund ....1,Qualified rehabilitation Where to file ................2
activities.................21
18 expenditures ............27 Who must file ...............2
Installment sales ...........12
Distributions ...............36 Who must sign .............3
Interest deduction .........15
Distributions, property......32 R
Interest due on tax
■
Recapture, low-income
payment..................4
Ehousing credit ...........33
Interest expense,
Election, termination of .....2Recapture, section 179
investment ..............25
Electronic filing .............2deduction ...............34
Inventory ..................13
-42-

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