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Department of the Treasury 2020 Internal Revenue Service Instructions for Form 1120-S U.S. Income Tax Return for an S Corporation

Section references are to the Internal Revenue Contents Page Security Act (CARES Act) allows a new Code unless otherwise noted. Item J. Aggregation or employee retention credit for qualified Contents Page Grouping of Certain wages. Any qualified wages for which an Activities ...... 13 eligible employer claims against payroll Future Developments ...... 1 taxes for the employee retention credit What’s New ...... 1 Income ...... 13 Deductions ...... 14 may not be taken into account for Photographs of Missing Children ....1 purposes of determining certain other Tax and Payments ...... 20 The Taxpayer Advocate Service .....2 credits. Direct Deposit of Refund ...... 2 Schedule B. Other Information ..... 21 Schedules K and K-1 (General New items G and H added to Sched- How To Get Forms and ule K-1. Item G is added for the Publications ...... 2 Instructions) ...... 22 shareholder's number of shares and item General Instructions ...... 2 Specific Instructions (Schedule K-1 Only) ...... 23 H is added for loans from the shareholder. Purpose of Form ...... 2 Specific Instructions (Schedules K See Item G and Item H under Specific How To Make the Election ...... 2 and K-1, Part III) ...... 24 Instructions (Schedule K-1 Only), later. Who Must File ...... 2 Schedule L. Balance Sheets per Election for section 951A reporting. Termination of Election ...... 2 Books ...... 44 Notice 2020-69 provides an election to be Electronic Filing ...... 2 Schedule M-1. Reconciliation of treated as an entity for purposes of section When To File ...... 3 Income (Loss) per Books With 951A. See Other Forms and Statements Income (Loss) per Return ..... 44 Where To File ...... 3 That May Be Required and Statements Who Must Sign ...... 3 Schedule M-2. Analysis of AAA, and forms required of S corporations PTEP, Accumulated E&P, and Paid Preparer Authorization .....3 OAA ...... 45 electing to be treated as an entity under Notice 2020-69, later. Also see reporting Assembling the Return ...... 4 Principal Business Activity Codes ... 48 codes for Section 951A income (code E) Tax Payments ...... 4 Index ...... 51 Electronic Deposit under Line 10. Other Income (Loss), Requirement ...... 4 Future Developments Section 951A category (code D) and Estimated Tax Payments ...... 4 Section 951A category foreign source For the latest information about Interest and Penalties ...... 4 income (code K) under Line 14r. Other developments related to Form 1120-S and Foreign Tax Information. Accounting Methods ...... 5 its instructions, such as legislation Accounting Period ...... 5 enacted after they were published, go to Temporary allowance of 100% for Rounding Off to Whole IRS.gov/Form1120S. business meals. A corporation is Dollars ...... 5 allowed a 100% deduction for certain Recordkeeping ...... 6 What’s New business meals paid or incurred in 2021 Amended Return ...... 6 and 2022. See Travel, meals, and Other Forms and New payroll credit for paid sick leave entertainment. Statements That May Be or family leave. Under the Families First Required ...... 6 Coronavirus Response Act (FFCRA), as Reminders At-Risk Limitations ...... 7 amended, an eligible employer can take a credit against payroll taxes owed for Election by a small business corpora- Passive Activity Limitations .....7 tion. Don't file Form 1120-S unless the Net Investment Income Tax amounts paid for qualified sick leave or family leave if incurred during the allowed corporation has filed or is attaching Form Reporting Requirements .... 12 2553, Election by a Small Business Extraterritorial Income period, which starts in 2020 and ends March 31, 2021. The requirement that Corporation. For details, see the Exclusion ...... 12 Instructions for Form 2553. Specific Instructions ...... 12 employers provide the leave expired on Period Covered ...... 12 December 31, 2020, but the credit is still available through March 31, 2021. There Photographs of Name and Address ...... 12 is no double tax benefit allowed and the Missing Children Item B. Business Code ...... 13 amounts claimed are reportable as Item C. Schedule M-3 The Internal Revenue Service is a proud income on line 5. See Line 5. Other partner with the National Center for Information ...... 13 Income (Loss). Item D. Employer Missing & Exploited Children® (NCMEC). Identification Number Certain cash contributions made in Photographs of missing children selected (EIN) ...... 13 2020 or 2021. Code G of Schedule K-1 by the Center may appear in these Item F. Total Assets ...... 13 (Form 1120-S), box 12, is now used to instructions on pages that would otherwise Item H. Final Return, Name report certain cash contributions made in be blank. You can help bring these Change, Address calendar year 2020 or 2021. See children home by looking at the Change, Amended Line 12a. Charitable Contributions under photographs and calling 1-800-THE-LOST Return, or S Election Specific Instructions for Schedules K and (1-800-843-5678) if you recognize a child. Termination or K-1. Revocation ...... 13 New employee retention credit. The Coronavirus Aid, Relief, and Economic

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The Taxpayer Advocate forms mailed to it. The corporation should receipts from passive investment income receive its order within 10 business days. as defined in section 1362(d)(3)(C). The Service election terminates on the first day of the The Taxpayer Advocate Service (TAS) is first tax year beginning after the third an independent organization within the General Instructions consecutive tax year. The corporation IRS that helps taxpayers and protects must pay a tax for each year it has excess taxpayer rights. TAS's job is to ensure that Purpose of Form net passive income. See the line 22a every taxpayer is treated fairly and knows Use Form 1120-S to report the income, instructions for details on how to figure the and understands their rights under the gains, losses, deductions, credits, and tax. Taxpayer Bill of Rights. other information of a domestic 3. The election is revoked. An election corporation or other entity for any tax year As a taxpayer, the corporation has can be revoked only with the consent of covered by an election to be an S rights that the IRS must abide by in its shareholders who, at the time the corporation. dealings with the corporation. TAS can revocation is made, hold more than 50% help the corporation if: of the number of issued and outstanding • A problem is causing financial difficulty How To Make the Election shares of stock (including nonvoting for the business; For details about the election, see Form stock). The revocation can specify an • The business is facing an immediate 2553, Election by a Small Business effective revocation date that is on or after threat of adverse action; or Corporation, and the Instructions for Form the day the revocation is filed. If no date is • The corporation has tried repeatedly to 2553. specified, the revocation is effective at the contact the IRS but no one has start of the tax year if the revocation is responded, or the IRS hasn't responded Who Must File made on or before the 15th day of the 3rd month of that tax year. If no date is by the date promised. A corporation or other entity must file Form specified and the revocation is made after 1120-S if (a) it elected to be an S TAS has offices in every state, the the 15th day of the 3rd month of the tax corporation by filing Form 2553, (b) the District of Columbia, and Puerto Rico. year, the revocation is effective at the start IRS accepted the election, and (c) the Local advocates' numbers are in their of the next tax year. local directories and at election remains in effect. After filing Form TaxpayerAdvocate.IRS.gov. The 2553, you should have received To revoke the election, the corporation corporation can also call TAS at confirmation that Form 2553 was must file a statement with the appropriate 1-877-777-4778. accepted. If you didn't receive notification service center listed under Where To File of acceptance or nonacceptance of the in the Instructions for Form 2553. In the TAS also works to resolve large-scale election within 2 months of filing Form statement, the corporation must notify the or systemic problems that affect many 2553 (5 months if you checked box Q1 to IRS that it is revoking its election to be an taxpayers. If the corporation knows of one ask for a letter ruling), please follow up by S corporation. The statement must be of these broad issues, please report it to calling 1-800-829-4933. Don't file Form signed by each shareholder who consents TAS through the Systemic Advocacy 1120-S for any tax year before the year to the revocation and contain the Management System at IRS.gov/SAMS. the election takes effect. information required by Regulations section 1.1362-6(a)(3). For more information, go to IRS.gov/ Relief for late elections. If you haven't Advocate. filed Form 2553, or didn't file Form 2553 A revocation can be rescinded before it on time, you may be entitled to relief for a takes effect. See Regulations section Direct Deposit of Refund late-filed election to be an S corporation. 1.1362-6(a)(4) for details. See the Instructions for Form 2553 for For rules on allocating income and To request a direct deposit of the details. corporation's income tax refund into an deductions between an S corporation's account at a U.S. bank or other financial short year and a C corporation's short year institution, attach Form 8050, Direct Termination of Election and other special rules that apply when an Deposit of Corporate Tax Refund. See the Once the election is made, it stays in election is terminated, see section 1362(e) instructions for line 27. effect until it is terminated. If the election is and Regulations section 1.1362-3. terminated, the corporation (or a If an election was terminated under (1) How To Get Forms successor corporation) can make another or (2) above and the corporation believes election on Form 2553 only with IRS the termination was inadvertent, the and Publications consent for any tax year before the fifth tax corporation can ask for permission from Internet. You can access the IRS website year after the first tax year in which the the IRS to continue to be treated as an S 24 hours a day, 7 days a week, at IRS.gov termination took effect. See Regulations corporation. See Regulations section to: section 1.1362-5 for details. 1.1362-4 for the specific requirements that • Download forms, instructions, and An election terminates automatically in must be met to qualify for inadvertent publications; any of the following cases. termination relief. Order IRS products online; • 1. The corporation is no longer a small Research your tax questions online; • business corporation as defined in section Electronic Filing Search publications online by topic or • 1361(b). This kind of termination of an S Corporations can generally keyword; election is effective as of the day the electronically file (e-file) Form 1120-S, View Internal Revenue Bulletins (IRBs) • corporation no longer meets the definition related forms, schedules, statements, and published in recent years; and of a small business corporation. Attach to attachments; Form 7004 (automatic Sign up to receive local and national tax • Form 1120-S for the final year of the S extension of time to file); and Forms 940, news by email. corporation a statement notifying the IRS 941, and 944 (employment tax returns). Tax forms and publications. The of the termination and the date it occurred. Form 1099 and other information returns can also be electronically filed. The option corporation can download or print all of the 2. For each of 3 consecutive tax forms and publications it may need on to e-file doesn't, however, apply to certain years, the corporation (a) has returns. IRS.gov/FormsPubs. Otherwise, the accumulated earnings and profits (AE&P), corporation can go to IRS.gov/ and (b) derives more than 25% of its gross Certain corporations with total assets of OrderForms to place an order and have $10 million or more that file at least 250

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• Any other corporate officer (such as tax Where To File officer) authorized to sign. File the corporation's return at the applicable IRS address listed below. If a return is filed on behalf of a corporation by a receiver, trustee, or And the total assets at assignee, the fiduciary must sign the If the corporation's the end of the tax year return, instead of the corporate officer. principal business, office, (Form 1120-S, page 1, Returns and forms signed by a receiver or or agency is located in: item F) are: Use the following address: trustee in bankruptcy on behalf of a corporation must be accompanied by a Connecticut, Delaware, Department of the Treasury Less than $10 million and copy of the order or instructions of the District of Columbia, Georgia, Internal Revenue Service Center Schedule M-3 isn't filed court authorizing signing of the return or Illinois, Indiana, Kentucky, Kansas City, MO 64999-0013 form. Maine, Maryland, Massachusetts, Michigan, If an employee of the corporation New Hampshire, New Jersey, completes Form 1120-S, the paid preparer New York, North Carolina, $10 million or more, or Department of the Treasury space should remain blank. Anyone who Ohio, Pennsylvania, Rhode less than $10 million and Internal Revenue Service Center prepares Form 1120-S but doesn't charge Island, South Carolina, Schedule M-3 is filed Ogden, UT 84201-0013 the corporation shouldn't complete that Tennessee, Vermont, Virginia, section. Generally, anyone who is paid to West Virginia, Wisconsin prepare the return must sign it and fill in the “Paid Preparer Use Only” area. Alabama, Alaska, Arizona, Arkansas, California, The paid preparer must complete the Colorado, Florida, Hawaii, required preparer information and: Idaho, Iowa, Kansas, • Sign the return in the space provided Louisiana, Minnesota, Department of the Treasury for the preparer's signature, and Mississippi, Missouri, Any amount Internal Revenue Service Center • Give a copy of the return to the Montana, Nebraska, Nevada, Ogden, UT 84201-0013 taxpayer. New Mexico, North Dakota, Oklahoma, Oregon, South A paid preparer may sign original Dakota, Texas, Utah, TIP or amended returns by rubber Washington, Wyoming stamp, mechanical device, or computer software program. A foreign country or U.S. Internal Revenue Service Center possession Any amount P.O. Box 409101 Ogden, UT 84409 Paid Preparer Authorization If the corporation wants to allow the IRS to returns a year are required to e-file Form IRS to meet the “timely mailing as timely discuss its 2020 tax return with the paid 1120-S. See Regulations section filing” rule for tax returns. Go to preparer who signed it, check the “Yes” 301.6037-2. However, these corporations IRS.gov/PDS for the current list of box in the signature area of the return. can ask for a waiver of the electronic filing designated services. This authorization applies only to the requirements. See Notice 2010-13, individual whose signature appears in the 2010-4 I.R.B. 327. The PDS can tell you how to get written “Paid Preparer Use Only” section of the proof of the mailing date. return. It doesn't apply to the firm, if any, For more information, visit IRS.gov/ shown in that section. Businesses. For the IRS mailing address to use if you are using PDS, go to IRS.gov/ If the “Yes” box is checked, the When To File PDSStreetAddresses. corporation is authorizing the IRS to call Generally, an S corporation must file Form the paid preparer to answer any questions Private delivery services can't that may arise during the processing of its 1120-S by the 15th day of the 3rd month deliver items to P.O. boxes. You after the end of its tax year. For calendar ! return. The corporation is also authorizing CAUTION must use the U.S. Postal Service year corporations, the due date is March the paid preparer to: to mail any item to an IRS P.O. box • Give the IRS any information that is 15, 2021. A corporation that has dissolved address. must generally file by the 15th day of the missing from the return; 3rd month after the date it dissolved. • Call the IRS for information about the Extension of Time To File processing of the return or the status of If the due date falls on a Saturday, File Form 7004, Application for Automatic any related refund or payment(s); and Sunday, or legal holiday, the corporation Extension of Time To File Certain • Respond to certain IRS notices about can file on the next day that isn’t a Business Income Tax, Information, and math errors, offsets, and return Saturday, Sunday, or legal holiday. Other Returns, to ask for an extension of preparation. If the S corporation election was time to file. Generally, the corporation must file Form 7004 by the regular due The corporation isn't authorizing the terminated during the tax year and the paid preparer to receive any refund check, corporation reverts to a C corporation, file date of the return. See the Instructions for Form 7004. bind the corporation to anything (including Form 1120-S for the S corporation's short any additional tax liability), or otherwise year by the due date (including represent the corporation before the IRS. extensions) of the C corporation's short year return. Who Must Sign The authorization will automatically end The return must be signed and dated by: no later than the due date (excluding Private Delivery Services • The president, vice president, treasurer, extensions) for filing the corporation's Corporations can use certain private assistant treasurer, chief accounting 2021 tax return. If the corporation wants to delivery services (PDS) designated by the officer; or expand the paid preparer's authorization

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or revoke the authorization before it ends, the Electronic Federal Tax Payment corporation may be able to lower the see Pub. 947, Practice Before the IRS and System (EFTPS). However, if the amount of one or more installments by Power of Attorney. corporation doesn't want to use EFTPS, it using the annualized income installment can arrange for its tax professional, method or adjusted seasonal installment Assembling the Return financial institution, payroll service, or method under section 6655(e). other trusted third party to make deposits To ensure that the corporation's tax return For a calendar year corporation, the is correctly processed, attach all on its behalf. Also, it may arrange for its financial institution to submit a same-day payments are due for 2021 by April 15, schedules and other forms after page 5 of June 15, September 15, and December Form 1120-S in the following order. wire payment (discussed below) on its behalf. EFTPS is a free service provided 15. For a fiscal year corporation, they are 1. Schedule N (Form 1120), Foreign by the Department of the Treasury. due by the 15th day of the 4th, 6th, 9th, Operations of U.S. Corporations. Services provided by a tax professional, and 12th months of the year. If any date 2. Schedule D (Form 1120-S), Capital financial institution, payroll service, or falls on a Saturday, Sunday, or legal Gains and Losses and Built-in Gains. other third party may have a fee. holiday, the installment is due on the next day that isn't a Saturday, Sunday, or legal 3. Form 8949, Sales and Other To get more information about EFTPS holiday. Dispositions of Capital Assets. or to enroll in EFTPS, visit 4. Form 8996, Qualified Opportunity www.EFTPS.gov or call 1-800-555-4477 The corporation must make the Fund. (TTY/TDD 1-800-733-4829). payments using electronic funds transfers as described earlier. 5. Form 8825, Rental Real Estate Depositing on time. For any deposit Income and Expenses of a Partnership or made by EFTPS to be on time, the For information on penalties that may an S Corporation. corporation must submit the deposit by 8 apply if the corporation fails to make 6. Form 1125-A, Cost of Goods Sold. p.m. Eastern time the day before the date required payments, see the Instructions the deposit is due. If the corporation uses for Form 2220. 7. Form 8050, Direct Deposit of a third party to make deposits on its Corporate Tax Refund. behalf, they may have different cutoff Interest and Penalties 8. Form 4136, Credit for Federal Tax times. Paid on Fuels. If the corporation receives a notice Same-day wire payment option. If the about penalties after it files its 9. Form 8941, Credit for Small ! corporation fails to submit a deposit CAUTION return, send the IRS an Employer Health Insurance Premiums. transaction on EFTPS by 8 p.m. Eastern explanation and we will determine if the 10. Form 6252, Installment Sale time the day before the date a deposit is corporation meets reasonable-cause Income. due, it can still make its deposit on time by criteria. Don't attach an explanation when 11. Additional schedules in using the Federal Tax Collection Service the corporation's return is filed. alphabetical order. (FTCS). To use the same-day wire payment method, the corporation will need 12. Additional forms in numerical order. Interest. Interest is charged on taxes to make arrangements with its financial paid late even if an extension of time to file Complete every applicable entry space institution ahead of time regarding is granted. Interest is also charged on on Form 1120-S and Schedule K-1. Don't availability, deadlines, and costs. penalties imposed for failure to file, enter “See Attached” or “Available Upon Financial institutions may charge a fee for negligence, fraud, substantial valuation Request” instead of completing the entry payment made this way. To learn more misstatements, substantial spaces. If more space is needed on the about the information the corporation will understatements of tax, and reportable forms or schedules, attach separate need to provide to its financial institution to transaction understatements from the due sheets using the same size and format as make a same-day wire payment, go to date (including extensions) to the date of the printed forms. IRS.gov/SameDayWire. payment. The interest charge is figured at a rate determined under section 6621. If there are supporting statements and Estimated Tax Payments Late filing of return. A penalty may be attachments, arrange them in the same Generally, the corporation must make order as the schedules or forms they assessed if the return is filed after the due installment payments of estimated tax for date (including extensions) or the return support and attach them last. Show the the following taxes if the total of these totals on the printed forms. Enter the doesn't show all the information required, taxes is $500 or more: (a) the tax on unless each failure is due to reasonable corporation's name and EIN on each built-in gains, (b) the excess net passive supporting statement or attachment. cause. See Caution, earlier. For returns on income tax, and (c) the investment credit which no tax is due, the penalty is $210 for recapture tax, each discussed later. each month or part of a month (up to 12 Tax Payments The amount of estimated tax required months) the return is late or doesn't Generally, the corporation must pay any to be paid annually is the smaller of: (a) include the required information, multiplied tax due in full no later than the due date for the total of the above taxes shown on the by the total number of persons who were filing its tax return (not including return for the tax year (or if no return is shareholders in the corporation during any extensions). See the instructions for filed, the total of these taxes for the year), part of the corporation's tax year for which line 25. If the due date falls on a Saturday, or (b) the sum of (i) the investment credit the return is due. If tax is due, the penalty Sunday, or legal holiday, the payment is recapture tax and the built-in gains tax is the amount stated above plus 5% of the due on the next day that isn't a Saturday, shown on the return for the tax year (or if unpaid tax for each month or part of a Sunday, or legal holiday. no return is filed, the total of these taxes month the return is late, up to a maximum for the tax year), and (ii) any excess net of 25% of the unpaid tax. The minimum Electronic Deposit passive income tax shown on the penalty for a return that is more than 60 Requirement corporation's return for the preceding tax days late is the smaller of the tax due or $435. Corporations must use electronic funds year. If the preceding tax year was less transfers to make all federal tax deposits than 12 months, the estimated tax must be Late payment of tax. A corporation that (such as deposits of employment, excise, determined under (a). doesn't pay the tax when due generally and corporate income tax). Generally, The estimated tax is generally payable may be penalized 1/2 of 1% of the unpaid electronic funds transfers are made using in four equal installments. However, the tax for each month or part of a month the

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tax isn't paid, up to a maximum of 25% of The following rules apply. • An ownership tax year. the unpaid tax. The penalty won't be • Generally, an S corporation can't use • A tax year elected under section 444. imposed if the corporation can show that the cash method of accounting if it’s a tax • A 52-53-week tax year that ends with the failure to pay on time was due to shelter (as defined in section 448(d)(3)). reference to a year listed above. reasonable cause. See Caution, earlier. See section 448 for details. • Any other tax year (including a A corporation must use an accrual 52-53-week tax year) for which the Failure to furnish information timely. • method for sales and purchases of corporation establishes a business For each failure to furnish Schedule K-1 to inventory items unless it is a small purpose. a shareholder when due and each failure business taxpayer (defined later). See the to include on Schedule K-1 all the Form 1125-A instructions. If you are a A new S corporation must use Form information required to be shown (or the small business taxpayer, you can adopt or 2553 to elect a tax year. To later change inclusion of incorrect information), a $280 change your accounting method to the corporation's tax year, see Form 1128, penalty may be imposed with respect to account for inventories (i) in the same Application To Adopt, Change, or Retain a each Schedule K-1 for which a failure manner as materials and supplies that are Tax Year, and its instructions (unless the occurs. If the requirement to report correct non-incidental, or (ii) to conform to the corporation is making an election under information is intentionally disregarded, taxpayer’s treatment of inventories in an section 444, discussed next). each $280 penalty is increased to $560 or, applicable financial statement (as defined if greater, 10% of the aggregate amount of Electing a tax year under section 444. in section 451(b)(3)), or if the taxpayer items required to be reported. See Under the provisions of section 444, an S doesn’t have an applicable financial sections 6722 and 6724 for more corporation can elect to have a tax year statement, the method of accounting used information. other than a required year, but only if the in the taxpayer’s books and records deferral period of the tax year isn't longer The penalty won't be imposed if the prepared in accordance with the than the shorter of 3 months or the deferral corporation can show that not furnishing taxpayer’s accounting procedures. period of the tax year being changed. This information timely was due to reasonable Generally, IRS consent is required for election is made by filing Form 8716, cause. See Caution, earlier. changes in accounting methods. See Rev. Election To Have a Tax Year Other Than a Trust fund recovery penalty. This Proc. 2018-40 for the procedures by which Required Tax Year. a small business taxpayer may obtain penalty may apply if certain excise, An S corporation may not make or automatic consent to change its method of income, social security, and Medicare continue an election under section 444 if it accounting to reflect the statutory changes taxes that must be collected or withheld is a member of a tiered structure, other made in this area. Also, see Change in aren't collected or withheld, or these taxes than a tiered structure that consists accounting method, later. aren't paid. These taxes are generally entirely of partnerships and S corporations Special rules apply to long-term reported on: • that have the same tax year. For the S contracts. See section 460. • Form 720, Quarterly Federal Excise corporation to have a section 444 election Generally, dealers in securities must Tax Return; • in effect, it must make the payments use the mark-to-market accounting • Form 941, Employer's QUARTERLY required by section 7519. See Form 8752, method. Dealers in commodities and Federal Tax Return; Required Payment or Refund Under traders in securities and commodities can • Form 943, Employer's Annual Federal Section 7519. Tax Return for Agricultural Employees; elect to use the mark-to-market A section 444 election ends if an S Form 944, Employer's ANNUAL accounting method. See section 475. • corporation: Federal Tax Return; or Small business taxpayer. A small Changes its accounting period to a Form 945, Annual Return of Withheld • • business taxpayer is a taxpayer that (a) calendar year or some other permitted Federal Income Tax. has average annual gross receipts of $26 year, The trust fund recovery penalty may be million or less for the 3 prior tax years, and • Is penalized for willfully failing to comply imposed on all persons who are (b) isn’t a tax shelter (as defined in section with the requirements of section 7519, or determined by the IRS to have been 448(d)(3)). • Terminates its S election (unless it responsible for collecting, accounting for, Change in accounting method. immediately becomes a personal service or paying over these taxes, and who acted Generally, the corporation must get IRS corporation). willfully in not doing so. The penalty is consent to change either an overall If the termination results in a short tax equal to the full amount of the unpaid trust method of accounting or the accounting year, enter at the top of the first page of fund tax. See the Instructions for Form treatment of any material item for income Form 1120-S for the short tax year, 720, Pub. 15 (Circular E), Employer's Tax tax purposes. To obtain consent, the “SECTION 444 ELECTION Guide, or Pub. 51 (Circular A), Agricultural corporation must generally file Form 3115, TERMINATED.” Employer's Tax Guide, for details, Application for Change in Accounting including the definition of responsible Method, during the tax year for which the Rounding Off to persons. change is requested. See the Instructions Other penalties. Other penalties can be for Form 3115 and Pub. 538, Accounting Whole Dollars imposed for negligence, substantial Periods and Methods, for more The corporation may enter decimal points understatement of tax, reportable information and exceptions. and cents when completing its return. transaction understatements, and fraud. However, the corporation should round off See sections 6662, 6662A, and 6663. Accounting Period cents to whole dollars on its return, forms, and schedules to make completing its A corporation must figure its income on return easier. The corporation must either the basis of a tax year. A tax year is the Accounting Methods round off all amounts on its return to whole annual accounting period a corporation Figure income using the method of dollars, or use cents for all amounts. To uses to keep its records and report its accounting regularly used in keeping the round, drop amounts under 50 cents and income and expenses. corporation's books and records. The increase amounts from 50 to 99 cents to method used must clearly reflect income. An S corporation must use one of the the next dollar. For example, $8.40 rounds Permissible methods include cash, to $8 and $8.50 rounds to $9. accrual, or any other method authorized following tax years. by the Internal Revenue Code. • A tax year ending December 31. If two or more amounts must be added • A natural business year. to figure the amount to enter on a line,

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include cents when adding the amounts published guidance as a listed basis in the stock received instead of and round off only the total. transaction. reducing the acquiring corporation's basis 2. Any transaction offered under in the property transferred. Once made, Recordkeeping conditions of confidentiality for which the the election is irrevocable. For more Keep the corporation's records for as long corporation (or a related party) paid an information, see section 362(e)(2) and as they may be needed for the advisor a fee of at least $50,000. Regulations section 1.362-4. If an election is made, a statement must be filed in administration of any provision of the 3. Certain transactions for which the Internal Revenue Code. Usually, records accordance with Regulations section corporation (or a related party) has 1.362-4(d)(3). that support an item of income, deduction, contractual protection against or credit on the return must be kept for 3 disallowance of the tax benefits. Regulations section 1.1411-10(g) (sec- years from the date each shareholder's 4. Certain transactions resulting in a tion 1411 election with respect to return is due or filed, whichever is later. loss of at least $2 million in any single year CFCs and QEFs). A corporation that Keep records that verify the corporation's or $4 million in any combination of years. directly or indirectly owns stock of a basis in property for as long as they are controlled foreign corporation (CFC) needed to figure the basis of the original or 5. Any transaction identified by the (within the meaning of section 953(c)(1) replacement property. IRS by notice, regulation, or other (B) or section 957(a)) or a passive foreign published guidance as a “transaction of investment company (within the meaning The corporation should keep copies of interest.” of section 1297(a)) that the corporation all filed returns. They help in preparing treats as a qualified electing fund (QEF) future and amended returns. For more information, see Regulations section 1.6011-4. Also see the Instructions under section 1293 may make the election for Form 8886. provided in Regulations section Amended Return 1.1411-10(g). The election must be made To correct a previously filed Form 1120-S, Penalties. The corporation may have no later than the first tax year beginning file an amended Form 1120-S and check to pay a penalty if it is required to disclose after 2013 during which the corporation: (i) box H(4) on page 1. Attach a statement a reportable transaction under section includes an amount in gross income for that identifies the line number of each 6011 and fails to properly complete and chapter 1 purposes under section 951(a) amended item, the corrected amount or file Form 8886. Penalties may also apply or section 1293(a) for the CFC or QEF, treatment of the item, and an explanation under section 6707A if the corporation and (ii) has a direct or indirect owner that of the reasons for each change. fails to file Form 8886 with its corporate is subject to tax under section 1411 or return, fails to provide a copy of Form would have been if the election were If the income, deductions, credits, or 8886 to the Office of Tax Shelter Analysis made. This election must be made on an other information provided to any (OTSA), or files a form that fails to include entity-by-entity basis, and applies only to shareholder on Schedule K-1 is incorrect, all the information required (or includes the particular CFCs and QEFs for which file an amended Schedule K-1 (Form incorrect information). Other penalties, an election is made. In general, for 1120-S) for that shareholder with the such as an accuracy-related penalty under purposes of section 1411, if an election is amended Form 1120-S. Also give a copy section 6662A, may also apply. See the in effect for a CFC or QEF, the amounts of the amended Schedule K-1 to that Instructions for Form 8886 for details on included in income under section 951 and shareholder. Check the “Amended K-1” these and other penalties. section 1293 derived from the CFC or box at the top of the Schedule K-1 to Reportable transactions by material QEF are included in net investment indicate that it is an amended income, and distributions described in Schedule K-1. advisors. Material advisors to any reportable transaction must disclose section 959(d) or section 1293(c) are A change to the corporation's federal certain information about the reportable excluded from net investment income. An return may affect its state return. This transaction by filing Form 8918, Material election that is made under Regulations includes changes made as the result of an Advisor Disclosure Statement, with the section 1.1411-10(g) can't be revoked. For IRS examination. For more information, IRS. For details, see the Instructions for more information regarding this election, contact the state tax agency for the Form 8918. see Regulations section 1.1411-10(g). state(s) in which the corporation's return The election must be made in a was filed. Transfers to a corporation controlled statement that is filed with the by the transferor. Every significant corporation's original or amended return Other Forms and transferor (as defined in Regulations for the tax year in which the election is section 1.351-3(d)) that receives stock of made. An election can be made on an Statements That May Be a corporation in exchange for property in a amended return only if the tax year for Required nonrecognition event must include the which the election is made, and all tax statement required by Regulations section Reportable transaction disclosure years affected by the election, aren't 1.351-3(a) on or with the transferor's tax closed by the period of limitations on statement. Disclose information for each return for the tax year of the exchange. reportable transaction in which the assessments under section 6501. The The transferee corporation must include statement must include: corporation participated. Form 8886, the statement required by Regulations Reportable Transaction Disclosure • The name and EIN of the corporation section 1.351-3(b) on or with its return for making the election; Statement, must be filed for each tax year the tax year of the exchange, unless all the the corporation participated in the • A declaration that all of its shareholders required information is included in any consent to each election made in the transaction. The corporation may have to statement(s) provided by a significant pay a penalty if it is required to file Form statement; transferor that is attached to the same • A declaration that the corporation elects 8886 and doesn't do so. The following are return for the same section 351 exchange. reportable transactions. under Regulations section 1.1411-10(g) to Election to reduce basis under section apply the rules in Regulations section 1. Any listed transaction that is, a 362(e)(2)(C). If property is transferred to 1.1411-10(g) to the CFCs and QEFs transaction that is the same as or a corporation subject to section 362(e)(2), identified in the statement; and substantially similar to one of the types of the transferor and the acquiring • The following information for each CFC transactions that the IRS has determined corporation may elect, under section and QEF for which an election is made: (i) to be a tax avoidance transaction and 362(e)(2)(C), to reduce the transferor's the name of the CFC or QEF; and (ii) identified by notice, regulation, or other

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either the EIN of the CFC or QEF, or, if the For more information, see the Instructions 3. Leasing section 1245 property, CFC or QEF doesn't have an EIN, the for Form 8975. including personal property and certain reference ID number of the CFC or QEF. other tangible property that is depreciable Statements and forms required of S or amortizable. In addition, for each CFC or QEF held corporations electing to be treated as by the corporation for which an election an entity under Notice 2020-69. If the 4. Exploring for, or exploiting, oil and under Regulations section 1.1411-10(g) corporation is electing entity treatment for gas. has already been made by the purposes of section 951A under Notice 5. Exploring for, or exploiting, corporation, the statement should include: 2020-69 for the first tax year ending on or geothermal deposits (for wells started (i) the name of the CFC or QEF, and (ii) after September 1, 2020, the corporation after September 1978). either the EIN of the CFC or QEF, or, if the must attach a statement to its timely filed 6. Any other activity not included in (1) CFC or QEF doesn't have an EIN, the (including extensions) original return for reference ID number of the CFC or QEF. through (5) that is carried on as a trade or that year. For tax years of the corporation business or for the production of income. Annual information reporting by speci- ending before September 1, 2020, and fied domestic entities under section after June 21, 2019, the corporation and Aggregation of Activities all of its shareholders may elect for the 6038D. Certain domestic corporations Activities described in (6) under Activities corporation to be treated as an entity for that are formed or availed of to hold Covered by the At-Risk Rules, earlier, that purposes of section 951A by attaching a specified foreign financial assets constitute a trade or business are treated statement to their timely filed (including (“specified domestic entities”) must file as one activity if: extensions) original returns or on Form 8938, Statement of Specified You actively participate in the amended returns filed by March 15, 2021. • Foreign Financial Assets. Form 8938 must management of the trade or business, or In either case, the election statement be filed each year the value of the The trade or business is carried on by a must: (i) identify the election for the • corporation's specified foreign financial partnership or S corporation and 65% or corporation to be treated as an entity for assets meets or exceeds the reporting more of its losses for the tax year are purposes of section 951A pursuant to the threshold. For more information on allocable to persons who actively Notice; (ii) include the amount of the domestic corporations that are specified participate in the management of the trade corporation's transition AE&P (as domestic entities and the types of foreign or business. financial assets that must be reported, see described in section 3.02(3) of the Notice); the Instructions for Form 8938, generally, and (iii) be signed by a person authorized Similar rules apply to activities and in particular, Who Must File, Specified to sign the return required to be filed under described in (1) through (5) of that earlier Domestic Entity, Reporting Thresholds, section 6037. The corporation must also discussion. For more information, see Specified Foreign Financial Assets, prepare Form 1120-S, Schedules K-1 Pub. 925. If you aggregate your activities Interests in Specified Foreign Financial (Form 1120-S), and Form 8892, U.S. under these rules for section 465 Assets, Assets Not Required To Be Shareholder Calculation of Global purposes, check the appropriate box in Reported, and Exceptions to Reporting. Intangible Low-Taxed Income (GILTI) item J. consistent with the corporation's election In addition, a domestic corporation for shareholders to comply with section At-Risk Activity Reporting required to file Form 8938 with its Form 6037(c). 1120-S for the tax year should check Requirements “Yes” to Schedule N (Form 1120), Other forms and statements. See Pub. If the corporate items of income, loss, or question 8, and also include that schedule 542, Corporations, for a list of other forms deduction reported on Schedule K-1 are with its Form 1120-S. and statements a corporation may need to from more than one activity covered by the file in addition to the forms and statements at-risk rules, the corporation must report Certification as a qualified opportunity discussed throughout these instructions. information separately for each activity. fund. If the corporation is organized to invest in qualified opportunity zone At-Risk Limitations The following information must be property, it must attach Form 8996 to provided on an attachment to Form 1120-S to self-certify as a QOF. In In general, section 465 limits the amount Schedule K-1 for each activity. addition, the corporation files Form 8996 of deductible net losses shareholders can • A statement that the information is a annually to report that the QOF meets the claim from certain activities. The at-risk breakdown of the items of income, loss, or investment standard of section 1400Z-2 or limitations don't apply to the corporation, deduction by at-risk activity. to figure the penalty if it fails to meet the but instead apply to each shareholder's • The identity of the at-risk activity; the investment standard. The corporation share of net losses attributable to each items of income, loss, or deduction for the must also complete line 15 of Schedule B. activity. Because the treatment of each activity; other items of income, loss, or For more information, see the Instructions shareholder's share of corporate net deduction; and any other information that for Form 8996. losses depends on the nature of the relates to the activity (that is, distributions, activity that generated it, the corporation shareholder loans, etc.). Qualified opportunity fund investment. must report the items of income, loss, and If the corporation deferred a capital gain in deduction separately for each activity. See a qualified opportunity fund (QOF), the Pub. 925, Passive Activity and At-Risk Passive Activity corporation must file its return with Rules, for additional information. Limitations Schedule D (Form 1120-S), Form 8949, Activities Covered by the In general, section 469 limits the amount and Form 8997 attached. The corporation of losses, deductions, and credits that will need to file Form 8997 annually until it At-Risk Rules shareholders can claim from “passive disposes of the investment. See the If the S corporation is involved in one of activities.” The passive activity limitations instructions for Form 8997 for details. the following activities as a trade or don't apply to the corporation. Instead, Form 8975. Certain U.S. persons that business or for the production of income, they apply to each shareholder's share of are the ultimate parent entity of a U.S. the shareholder may be subject to the any income or loss and credit attributable multinational enterprise group with annual at-risk rules. to a passive activity. Because the revenue for the preceding reporting period 1. Holding, producing, or distributing treatment of each shareholder's share of of $850 million or more are required to file motion picture films or video tapes. corporate income or loss and credit Form 8975, Country-by-Country Report. depends on the nature of the activity that 2. Farming. generated it, the corporation must report

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income or loss and credits separately for b. The shareholder performed more ordinary business income (loss) is each activity. than 750 hours of services in real property reported on page 1 of Form 1120-S, the trades or businesses in which he or she specific income and deductions from each The following instructions and the materially participated. separate trade or business activity must instructions for Schedules K and K-1, be reported on attachments to Form later, explain the applicable passive For purposes of this rule, each interest 1120-S. Similarly, while each activity limitation rules and specify the type in rental real estate is a separate activity shareholder's allocable share of the of information the corporation must unless the shareholder elects to treat all corporation's ordinary business income provide to its shareholders for each interests in rental real estate as one (loss) is reported in box 1 of Schedule K-1, activity. If the corporation had more than activity. each shareholder's allocable share of the one activity, it must report information for If the shareholder is married filing income and deductions from each trade or each activity on an attachment to jointly, either the shareholder or his or her business activity must be reported on Schedules K and K-1. spouse must separately meet both of the statements attached to each Generally, passive activities include (a) above conditions, without taking into Schedule K-1. See Passive Activity activities that involve the conduct of a account services performed by the other Reporting Requirements, later, for more trade or business if the shareholder spouse. information. doesn't materially participate in the A real property trade or business is any activity, and (b) all rental activities (defined real property development, Rental Activities later) regardless of the shareholder's redevelopment, construction, Generally, except as noted below, if the participation. For exceptions, see reconstruction, acquisition, conversion, gross income from an activity consists of Activities That Are Not Passive Activities, rental, operation, management, leasing, or amounts paid principally for the use of real later. The level of each shareholder's brokerage trade or business. Services the or personal tangible property held by the participation in an activity must be shareholder performed as an employee corporation, the activity is a rental activity. determined by the shareholder. aren't treated as performed in a real property trade or business unless he or There are several exceptions to this The passive activity rules provide that she owned more than 5% of the stock in general rule. Under these exceptions, an losses and credits from passive activities the employer. activity involving the use of real or can generally be applied only against personal tangible property isn't a rental income and tax (respectively) from 3. The rental of a dwelling unit used activity if any of the following apply. passive activities. Thus, passive losses by a shareholder for personal purposes • The average period of customer use can't be applied against income from during the year for more than the greater (defined later) for such property is 7 days salaries, wages, professional fees, or a of 14 days or 10% of the number of days or less. business in which the shareholder that the residence was rented at fair rental • The average period of customer use for materially participates or against “portfolio value. such property is 30 days or less and income” (defined later). Passive credits 4. An activity of trading personal significant personal services (defined can't be applied against the tax related to property for the account of owners of later) are provided by or on behalf of the any of these types of income. interests in the activity. For purposes of corporation. Extraordinary personal services Special rules require that net income this rule, personal property means • (defined later) are provided by or on behalf from certain activities that would otherwise property that is actively traded, such as of the corporation. be treated as passive income must be stocks, bonds, and other securities. See The rental of such property is treated as recharacterized as nonpassive income for Temporary Regulations section • incidental to a nonrental activity of the purposes of the passive activity 1.469-1T(e)(6). corporation under Regulations section limitations. See Recharacterization of The section 469(c)(3) exception 1.469-1(e)(3)(vi). Passive Income, later. TIP for a working interest in oil and gas • The corporation customarily makes the To allow each shareholder to correctly properties doesn't apply to an S property available during defined business apply the passive activity limitations, the corporation because state law generally hours for nonexclusive use by various corporation must report income or loss limits the liability of shareholders. customers. and credits separately by activity for each • The corporation provides property for of the following. Trade or Business Activities use in a nonrental activity of a partnership • Trade or business activities. A trade or business activity is an activity in its capacity as an owner of an interest in • Rental real estate activities. (other than a rental activity or an activity such partnership. Whether the corporation • Rental activities other than rental real treated as incidental to an activity of provides property used in an activity of a estate. holding property for investment) that: partnership in the corporation's capacity • Portfolio income. 1. Involves the conduct of a trade or as an owner of an interest in the business (within the meaning of section partnership is determined on the basis of Activities That Are Not Passive all the facts and circumstances. Activities 162), 2. Is conducted in anticipation of In addition, a guaranteed payment The following aren't passive activities. starting a trade or business, or described in section 707(c) is never 1. Trade or business activities in 3. Involves research or experimental income from a rental activity. which the shareholder materially expenditures deductible under section participated for the tax year. Average period of customer use. 174 (or that would be if you chose to Figure the average period of customer use 2. Any rental real estate activity in deduct rather than capitalize them). for a class of property by dividing the total which the shareholder materially If the shareholder doesn't materially number of days in all rental periods by the participated if the shareholder met both of number of rentals during the tax year. If the following conditions for the tax year. participate in the activity, a trade or business activity of the corporation is a the activity involves renting more than one a. More than half of the personal passive activity for the shareholder. class of property, multiply the average services the shareholder performed in period of customer use of each class by trades or businesses were performed in Each shareholder must determine if he the ratio of the gross rental income from real property trades or businesses in or she materially participated in an activity. that class to the activity's total gross rental which he or she materially participated. As a result, while the corporation's income. The activity's average period of

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customer use equals the sum of these Rental of property is incidental to a Portfolio Income class-by-class average periods weighted trade or business activity if all of the Generally, portfolio income includes all by gross income. See Regulations section following apply. gross income, other than income derived 1.469-1(e)(3)(iii). The corporation owns an interest in the • in the ordinary course of a trade or trade or business at all times during the Significant personal services. Personal business, that is attributable to interest; year. services include only services performed dividends; royalties; income from a real The rental property was mainly used in by individuals. To determine if personal • estate investment trust, a regulated the trade or business activity during the services are significant personal services, investment company, a real estate tax year or during at least 2 of the 5 consider all the relevant facts and mortgage investment conduit, a common preceding tax years. circumstances. Relevant facts and trust fund, a controlled foreign corporation, The gross rental income from the circumstances include: • a qualified electing fund, or a cooperative; property for the tax year is less than 2% of How often the services are provided, income from the disposition of property • the smaller of the property's unadjusted The type and amount of labor required that produces income of a type defined as • basis or its FMV. to perform the services, and portfolio income; and income from the • The value of the services in relation to If the corporation sells or exchanges disposition of property held for investment. the amount charged for use of the property that is also rented during the tax See Self-Charged Interest, later, for an property. year (in which the gain or loss is exception. recognized), the rental is treated as The following services aren't incidental to the activity of dealing in Solely for purposes of the preceding considered in determining whether property if, at the time of the sale or paragraph, gross income derived in the personal services are significant. exchange, the property was held primarily ordinary course of a trade or business Services necessary to permit the lawful • for sale to customers in the ordinary includes (and portfolio income, therefore, use of the rental property. course of the corporation's trade or doesn't include) the following types of Services performed in connection with • business. income. improvements or repairs to the rental See Temporary Regulations section • Interest income on loans and property that extend the useful life of the investments made in the ordinary course property substantially beyond the average 1.469-1T(e)(3) and Regulations section 1.469-1(e)(3) for more information on the of a trade or business of lending money. rental period. • Interest on accounts receivable arising • Services provided in connection with definition of rental activities for purposes of the passive activity limitations. from the performance of services or the the use of any improved real property that sale of property in the ordinary course of a are similar to those commonly provided in Reporting of rental activities. In trade or business of performing such connection with long-term rentals of reporting the corporation's income or services or selling such property, but only high-grade commercial or residential losses and credits from rental activities, if credit is customarily offered to property. Examples include cleaning and the corporation must separately report customers of the business. maintenance of common areas, routine rental real estate activities and rental • Income from investments made in the repairs, trash collection, elevator service, activities other than rental real estate ordinary course of a trade or business of and security at entrances. activities. furnishing insurance or annuity contracts Extraordinary personal services. Shareholders who actively participate or reinsuring risks underwritten by Services provided in connection with in a rental real estate activity may be able insurance companies. making rental property available for to deduct part or all of their rental real • Income or gain derived in the ordinary customer use are extraordinary personal estate losses (and the deduction course of an activity of trading or dealing services only if the services are performed equivalent of rental real estate credits) in any property if such activity constitutes by individuals and the customers' use of against income (or tax) from nonpassive a trade or business (unless the dealer held the rental property is incidental to their activities. Generally, the combined amount the property for investment at any time receipt of the services. of rental real estate losses and the before such income or gain is recognized). For example, a patient's use of a deduction equivalent of rental real estate • Royalties derived by the taxpayer in the hospital room is generally incidental to the credits from all sources (including rental ordinary course of a trade or business of care received from the hospital's medical real estate activities not held through the licensing intangible property. staff. Similarly, a student's use of a corporation) that may be claimed is limited • Amounts included in the gross income dormitory room in a boarding school is to $25,000. of a patron of a cooperative by reason of any payment or allocation to the patron incidental to the personal services Report rental real estate activity income based on patronage occurring with provided by the school's teaching staff. (loss) on Form 8825 and line 2 of respect to a trade or business of the Schedule K and box 2 of Schedule K-1, Rental activity incidental to a nonren- patron. rather than on page 1 of Form 1120-S. tal activity. An activity isn't a rental Other income identified by the IRS as Report credits related to rental real estate • activity if the rental of the property is income derived by the taxpayer in the activities on lines 13c and 13d of incidental to a nonrental activity, such as ordinary course of a trade or business. the activity of holding property for Schedule K (box 13, codes E and F, of investment, a trade or business activity, or Schedule K-1) and low-income housing See Temporary Regulations section the activity of dealing in property. credits on lines 13a and 13b of 1.469-2T(c)(3) for more information on Schedule K (box 13, codes A, B, C, and D portfolio income. Rental of property is incidental to an of Schedule K-1). activity of holding property for investment Report portfolio income and related if both of the following apply. Report income (loss) from rental activities other than rental real estate on deductions on Schedule K rather than on • The main purpose for holding the page 1 of Form 1120-S. property is to realize a gain from the line 3 of Schedule K and credits related to appreciation of the property. rental activities other than rental real Self-Charged Interest estate on line 13e of Schedule K and in • The gross rental income from such Certain self-charged interest income and box 13, code G, of Schedule K-1. property for the tax year is less than 2% of deductions may be treated as passive the smaller of the property's unadjusted activity gross income and passive activity basis or its fair market value (FMV). deductions if the loan proceeds are used in a passive activity. Generally,

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self-charged interest income and • The corporation determines that the Recharacterization of Passive deductions result from loans between the original grouping was clearly Income corporation and its shareholders. inappropriate, or Self-charged interest also occurs in loans • A material change in the facts and Under Temporary Regulations section between the corporation and another S circumstances makes that grouping 1.469-2T(f) and Regulations section corporation or partnership if each owner in clearly inappropriate. 1.469-2(f), net passive income from the borrowing entity has the same certain passive activities must be treated proportional ownership interest in the The IRS may regroup the corporation's as nonpassive income. Net passive lending entity. activities if the corporation's grouping isn't income is the excess of an activity's an appropriate economic unit and one of passive activity gross income over its The self-charged interest rules don't the primary purposes for the grouping (or passive activity deductions (current year apply to a shareholder's interest in an S failure to regroup as required under deductions and prior year unallowed corporation if the S corporation makes an Regulations section 1.469-4(e)) is to avoid losses). election under Regulations section the passive activity limitations. If you Any net passive income 1.469-7(g) to avoid the application of group your activities under these rules for recharacterized as nonpassive income is these rules. To make the election, the S section 469 purposes, check the treated as investment income for corporation must attach to its original or appropriate box in item J. purposes of figuring investment interest amended Form 1120-S a statement that Limitation on grouping certain activi- expense limitations if it is from (a) an includes the name, address, EIN of the S ties. The following activities may not be activity of renting substantially corporation, and a declaration that the grouped together. nondepreciable property from an election is being made under Regulations equity-financed lending activity, or (b) an section 1.469-7(g). The election will apply 1. A rental activity with a trade or activity related to an interest in a to the tax year for which it was made and business activity unless the activities pass-through entity that licenses all subsequent tax years. Once made, the being grouped together make up an intangible property. election can only be revoked with the appropriate economic unit and: consent of the IRS. a. The rental activity is insubstantial The amount of income from the relative to the trade or business activity or activities in items (1) through (3) below For more details on the self-charged vice versa; or that any shareholder will be required to interest rules, see Regulations section b. Each owner of the trade or recharacterize as nonpassive income may 1.469-7. business activity has the same be limited under Temporary Regulations Grouping Activities proportionate ownership interest in the section 1.469-2T(f)(8). Because the rental activity. If so, the portion of the corporation won't have information Generally, one or more trade or business regarding all of a shareholder's activities, it or rental activities may be treated as a rental activity involving the rental of property to be used in the trade or must identify all corporate activities single activity if the activities make up an meeting the definitions in items (2) and (3) appropriate economic unit for business activity can be grouped with the trade or business activity. as activities that may be subject to measurement of gain or loss under the recharacterization. passive activity rules. Whether activities 2. An activity involving the rental of make up an appropriate economic unit real property with an activity involving the Income from the following six sources depends on all the relevant facts and rental of personal property (except is subject to recharacterization. circumstances. The factors given the personal property provided in connection 1. Significant participation passive greatest weight in determining whether with the real property or vice versa). activities. A significant participation activities make up an appropriate 3. Any activity with another activity in passive activity is any trade or business economic unit are: a different type of business and in which activity in which the shareholder • Similarities and differences in types of the corporation holds an interest as a participated for more than 100 hours trades or businesses, limited partner or as a limited entrepreneur during the tax year but didn't materially • The extent of common control, (as defined in section 461(k)(4)) if that participate. Because each shareholder • The extent of common ownership, other activity is holding, producing, or must determine his or her level of • Geographical location, and distributing motion picture films or participation, the corporation won't be able • Reliance between or among the videotapes; farming; leasing section 1245 to identify significant participation passive activities. property; or exploring for or exploiting oil activities. Example. The corporation has a and gas resources or geothermal 2. Certain nondepreciable rental significant ownership interest in a bakery deposits. property activities. Net passive income and a movie theater in Baltimore and a from a rental activity is nonpassive income bakery and a movie theater in Activities conducted through partner- if less than 30% of the unadjusted basis of Philadelphia. Depending on the relevant ships. Once a partnership determines its the property used or held for use by facts and circumstances, there may be activities under these rules, the customers in the activity is subject to more than one reasonable method for corporation as a partner can use these depreciation under section 167. grouping the corporation's activities. For rules to group those activities with: • Each other, 3. Passive equity-financed lending instance, the following groupings may or activities. If the corporation has net may not be permissible. • Activities conducted directly by the corporation, or income from a passive equity-financed • A single activity. lending activity, the smaller of the net • A movie theater activity and a bakery • Activities conducted through other partnerships. passive income or the equity-financed activity. interest income from the activity is • A Baltimore activity and a Philadelphia The corporation can't treat as separate nonpassive income. activity. activities those activities grouped together • Four separate activities. by a partnership. 4. Rental of property incidental to a development activity. Net rental Once the corporation chooses a activity income is the excess of passive grouping under these rules, it must activity gross income from renting or continue using that grouping in later tax disposing of property over passive activity years unless either: deductions (current year deductions and

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prior year unallowed losses) that are limitation rules, the corporation must do are clearly and directly allocable to reasonably allocable to the rented the following. portfolio income. property. Net rental activity income is 1. If the corporation carries on more 8. Identify the ratable portion of any nonpassive income for a shareholder if all than one activity, provide an attached section 481 adjustment (whether a net of the following apply. statement for each activity conducted positive or a net negative adjustment) a. The corporation recognizes gain through the corporation that identifies the allocable to each corporate activity. from the sale, exchange, or other type of activity conducted (trade or 9. Identify any gross income from disposition of the rental property during business, rental real estate, or rental sources specifically excluded from the tax year. activity other than rental real estate). See passive activity gross income, including: Grouping Activities, earlier. b. The use of the item of property in a. Income from intangible property, if the rental activity started less than 12 2. The attachment(s) must identify the shareholder is an individual whose months before the date of disposition. The each group. The attached group activity personal efforts significantly contributed to use of an item of rental property begins on description must be sufficient for the the creation of the property; the first day on which (a) the corporation shareholders to determine if their other owns an interest in the property, (b) activities qualify to be added to any b. Income from state, local, or foreign substantially all of the property is either groups provided by the corporation. income tax refunds; and rented or held out for rent and ready to be 3. On the attached statement for each c. Income from a covenant not to rented, and (c) no significant activity, provide a statement, using the compete, if the shareholder is an value-enhancing services remain to be same box numbers as shown on individual who contributed the covenant to performed. Schedule K-1, detailing the net income the corporation. c. The shareholder materially or (loss), credits, and all items required to be 10. Identify any deductions that aren't significantly participated for any tax year in separately stated under section 1366(a) passive activity deductions. an activity that involved performing (1) from each trade or business activity, 11. If the corporation makes a full or services to enhance the value of the from each rental real estate activity, from partial disposition of its interest in another property (or any other item of property, if each rental activity other than a rental real entity, identify the gain (loss) allocable to the basis of the property disposed of is estate activity, and from investments. each activity conducted through the entity, determined in whole or in part by 4. Identify the net income (loss) and and the gain allocable to a passive activity reference to the basis of that item of the shareholder's share of corporation that would have been recharacterized as property). interest expense from each activity of nonpassive gain had the corporation Because the corporation can't renting a dwelling unit that any disposed of its interest in property used in determine a shareholder's level of shareholder uses for personal purposes the activity (because the property was participation, the corporation must identify during the year for more than the greater substantially appreciated at the time of the net income from property described above of 14 days or 10% of the number of days disposition, and the gain represented (without regard to the shareholder's level that the residence is rented at fair rental more than 10% of the shareholder's total of participation) as income that may be value. gain from the disposition). subject to recharacterization. 5. Identify the net income (loss) and 12. Identify the following items from 5. Rental of property to a the shareholder's share of interest activities that may be subject to the nonpassive activity. If a taxpayer rents expense from each activity of trading recharacterization rules (see property to a trade or business activity in personal property conducted through the Recharacterization of Passive Income, which the taxpayer materially participates, corporation. earlier). the taxpayer's net rental activity income 6. For any gain (loss) from the a. Net income from an activity of (defined in item (4)) from the property is disposition of an interest in an activity or of renting substantially nondepreciable nonpassive income. an interest in property used in an activity property. 6. Acquisition of an interest in a (including dispositions before 1987 from b. The smaller of equity-financed pass-through entity that licenses which gain is being recognized after interest income or net passive income intangible property. Generally, net 1986): from an equity-financed lending activity. royalty income from intangible property is a. Identify the activity in which the c. Net rental activity income from nonpassive income if the taxpayer property was used at the time of property developed (by the shareholder or acquired an interest in the pass-through disposition; the corporation), rented, and sold within entity after the pass-through entity created b. If the property was used in more 12 months after the rental of the property the intangible property or performed than one activity during the 12 months commenced. substantial services or incurred substantial preceding the disposition, identify the d. Net rental activity income from the costs in developing or marketing the activities in which the property was used rental of property by the corporation to a intangible property. Net royalty income is and the adjusted basis allocated to each trade or business activity in which the the excess of passive activity gross activity; and shareholder had an interest (either directly income from licensing or transferring any or indirectly). right in intangible property over passive c. For gains only, if the property was activity deductions (current year substantially appreciated at the time of the e. Net royalty income from intangible deductions and prior year unallowed disposition and the applicable holding property if the shareholder acquired the losses) that are reasonably allocable to period specified in Regulations section shareholder's interest in the corporation the intangible property. See Temporary 1.469-2(c)(2)(iii)(A) wasn't satisfied, after the corporation created the intangible Regulations section 1.469-2T(f)(7)(iii) for identify the amount of the nonpassive gain property or performed substantial exceptions to this rule. and indicate whether or not the gain is services, or incurred substantial costs in investment income under Regulations developing or marketing the intangible Passive Activity Reporting section 1.469-2(c)(2)(iii)(F). property. Requirements 7. Specify the amount of gross 13. Identify separately the credits from To allow shareholders to correctly apply portfolio income, the interest expense each activity conducted by or through the the passive activity loss and credit properly allocable to portfolio income, and corporation. expenses other than interest expense that

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14. Identify the shareholder's pro rata passive activity loss rules (section 469)) in extraterritorial income exclusion as a share of the corporation's self-charged one or more of the trades or businesses nonseparately stated item on its return. interest income or expense (see (within the meaning of section 162) of the Instead, the corporation must report the Self-Charged Interest, earlier). corporation or a subsidiary pass-through following separately stated items to the a. Loans between a shareholder entity (other than trading in financial shareholders on Schedule K-1, box 14. instruments or commodities). and the corporation. Identify the lending • Foreign trading gross receipts (code S). or borrowing shareholder's share of the 3. The shareholder doesn't qualify for Report each shareholder's pro rata share self-charged interest income or expense. the optional simplified reporting method of foreign trading gross receipts from If the shareholder made the loan to the for figuring its net investment income line 15 of Form 8873 in box 14 using code corporation, also identify the activity in associated with the disposition of the S. which the loan proceeds were used. If the stock. For more information, see the • Extraterritorial income exclusion (code proceeds were used in more than one instructions for Form 8960, line 5c. T). Report each shareholder's pro rata activity, allocate the interest to each share of the extraterritorial income activity based on the amount of the Information to be provided to share- exclusion from line 52 of Form 8873 in proceeds used in each activity. holder. Generally, the corporation must box 14 using code T and identify on an b. Loans between the corporation provide the shareholder with its pro rata attached statement the activity to which and another S corporation or share of the net gain and loss from the the exclusion relates. If the corporation is partnership. If the corporation's deemed sale for fair market value of the required to complete more than one Form shareholders have the same proportional corporation's property, other than property 8873, combine the exclusions and report a ownership interest in the corporation and that relates to the trades or businesses in single exclusion amount in box 14. the other S corporation or partnership, which the shareholder materially Upon request of a shareholder, identify each shareholder's share of the participates, as determined under the the corporation should furnish a interest income or expense from the loan. passive activity loss rules applicable to the copy of the corporation's Form If the corporation was the borrower, also transfer of an interest in a pass-through 8873 if that shareholder has a reduction identify the activity in which the loan entity. For more information, see the for international boycott operations, illegal proceeds were used. If the proceeds were instructions for Form 8960, line 5c. bribes, kickbacks, etc. used in more than one activity, allocate If a shareholder, who qualifies for the interest to each activity based on the the optional simplified reporting amount of the proceeds used in each method, prefers to determine net activity. gain or loss under the general calculation, Specific Instructions the corporation may, but isn't obligated to, Net Investment Income provide the information to the shareholder Period Covered at the shareholder's request. File the 2020 return for calendar year 2020 Tax Reporting and fiscal years that begin in 2020 and Requirements Extraterritorial Income end in 2021. For a fiscal or short tax year The information described in this return, fill in the tax year space at the top TIP section should be given directly to Exclusion of the form. the shareholder and shouldn't be Generally, no exclusion is allowed The 2020 Form 1120-S can also be reported by the corporation to the IRS. ! for transactions after 2006. used if: To allow shareholders to correctly CAUTION However, transactions that meet • The corporation has a tax year of less figure the net investment income tax the transition rules may still be eligible for than 12 months that begins and ends in where a shareholder disposes of stock in the exclusion. See the Instructions for 2021, and the corporation during the tax year, the Form 8873 for details. • The 2021 Form 1120-S isn't available at corporation may be required to provide the For details and to figure the amount of the time the corporation is required to file shareholder with certain information. The the exclusion, see Form 8873, its return. net investment income tax is a tax Extraterritorial Income Exclusion, and its imposed on an individual's, trust's, or separate instructions. The corporation The corporation must show its 2021 tax estate's net investment income. Net must report the extraterritorial income year on the 2020 Form 1120-S and take investment income includes the net gains exclusion on its return as follows. into account any tax law changes that are or losses from the sale of stock in the effective for tax years beginning after 1. If the corporation met the foreign corporation. A shareholder who is actively December 31, 2020. economic process requirements explained involved in one or more of the corporation in the Instructions for Form 8873, it can or subsidiary pass-through entities' trades report the exclusion as a nonseparately Name and Address or businesses (other than trading in stated item on whichever of the following Enter the corporation's true name (as set financial instruments or commodities) can lines apply to that activity. forth in the charter or other legal document reduce the amount of the gain or loss Form 1120-S, page 1, line 19. creating it) and address on the appropriate included in its net investment income. • Form 8825, line 15. lines. Enter the address of the However, to figure its net investment • • Form 1120-S, Schedule K, line 3b. corporation's principal office or place of income, the active shareholder needs business. Include the suite, room, or other certain information from the corporation. In addition, the corporation must report unit number after the street address. If the as an item of information on Schedule K-1, post office doesn't deliver mail to the Generally, the corporation must provide box 14, using code S, the shareholder's certain information to the shareholder if street address and the corporation has a pro rata share of foreign trading gross P.O. box, show the box number instead. the corporation knows, or has reason to receipts from Form 8873, line 15. know, the following. 2. If the foreign trading gross receipts Don't use the address of the 1. The shareholder disposed of stock of the corporation for the tax year are $5 registered agent for the state in in the corporation. million or less and the corporation didn't which the corporation is incorporated. For example, if a business is 2. The shareholder materially meet the foreign economic process incorporated in Delaware or Nevada and participates (within the meaning of the requirements, it can't report the the corporation's principal office is located

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in Little Rock, Arkansas, the corporation “Applied for” and the date the corporation under At-Risk Limitations, earlier. For should enter the Little Rock address. applied in the space for the EIN. However, information about grouping passive if the corporation is filing its returns activities, see Grouping Activities under If the corporation receives its mail in electronically, an EIN is required at the Passive Activity Limitations, earlier. care of a third party (such as an time the return is filed. For more accountant or an attorney), enter “C/O” on information, see the Instructions for Form Income the street address line, followed by the SS-4. third party's name and street address or Report only trade or business P.O. box. Item F. Total Assets ! activity income on lines 1a through If the corporation has a foreign CAUTION 5. Don't report rental activity Enter the corporation's total assets (as income or portfolio income on these lines. address, include the city or town, state or determined by the accounting method province, country, and foreign postal See Passive Activity Limitations, earlier, regularly used in keeping the corporation's for definitions of rental income and code. Don't abbreviate the country name. books and records) at the end of the tax Follow the country's practice for entering portfolio income. Rental activity income year. If there were no assets at the end of and portfolio income are reported on the name of the state or province and the tax year, enter -0-. postal code. Schedules K and K-1. Rental real estate If the corporation is required to activities are also reported on Form 8825. Item B. Business Code complete Schedule L, enter total assets from Schedule L, line 15, column (d), on Tax-exempt income. Don't include any See Principal Business Activity Codes, page 1, item F. If the S election terminated tax-exempt income on lines 1a through 5. later. during the tax year, see the instructions for A corporation that receives any Schedule L, later, for special rules that tax-exempt income other than interest, or Item C. Schedule M-3 may apply when figuring the corporation's holds any property or engages in any Information year-end assets. activity that produces tax-exempt income, reports this income on line 16b of For 2020, a corporation that (a) is required Item H. Final Return, Name Schedule K and in box 16 of Schedule K-1 to file Schedule M-3 (Form 1120-S), Net using code B. Income (Loss) Reconciliation for S Change, Address Change, Corporations With Total Assets of $10 Report tax-exempt interest income, Million or More, and has less than $50 Amended Return, or S including exempt-interest dividends million total assets at the end of the tax Election Termination or received as a shareholder in a mutual fund year, or (b) isn't required to file Revocation or other regulated investment company, Schedule M-3 (Form 1120-S) and on line 16a of Schedule K and in box 16 of If this is the corporation's final return voluntarily files Schedule M-3 (Form • Schedule K-1 using code A. and it will no longer exist, check the “Final 1120-S), must either complete See Deductions, later, for information return” box. Also check the “Final K-1” box Schedule M-3 (Form 1120-S) entirely or on how to report expenses related to on each Schedule K-1. complete Schedule M-3 (Form 1120-S) tax-exempt income. If the corporation changed its name through Part I and complete Form 1120-S, • since it last filed a return, check the “Name Canceled debt exclusion. If the Schedule M-1, instead of completing Parts change” box. Generally, a corporation corporation has had debt discharged II and III of Schedule M-3 (Form 1120-S). must also have amended its articles of resulting from a title 11 bankruptcy If a corporation chooses to complete Form incorporation and filed the amendment proceeding or while insolvent, see Form 1120-S, Schedule M-1, instead of with the state in which it was incorporated. 982, Reduction of Tax Attributes Due to completing Parts II and III of Schedule M-3 If the corporation has changed its Discharge of Indebtedness, and Pub. 908, (Form 1120-S), line 1 of Form 1120-S, • address since it last filed a return Bankruptcy Tax Guide. Schedule M-1, must equal line 11 of Part I (including a change to an “in care of” of Schedule M-3 (Form 1120-S). address), check the “Address change” Line 1a. Gross Receipts or Any corporation that completes Parts II box. Sales and III of Schedule M-3 (Form 1120-S) • If this amends a previously filed return, Enter on line 1a gross receipts or sales must complete all columns, without check the “Amended return” box. If from all business operations except for exception. Schedules K-1 are also being amended, amounts that must be reported on lines 4 If you are filing Schedule M-3, check check the “Amended K-1” box on each and 5. the “Check if Sch. M-3 attached” box. See Schedule K-1. the Instructions for Schedule M-3 for more • If the corporation has terminated or Special rules apply to certain income, details. revoked its S election, check the “S as discussed below. election termination or revocation” box. Advance payments. In general, advance Item D. Employer See Termination of Election, earlier. payments are reported in the year of Identification Number If a change in address or receipt. For exceptions to this general rule TIP responsible party occurs after the for corporations that use an accrual (EIN) return is filed, use Form 8822-B, method of accounting, see the following. Enter the corporation's EIN. If the Change of Address or Responsible • To report income from long-term corporation doesn't have an EIN, it must Party — Business, to notify the IRS. See contracts, see section 460. apply for one. An EIN can be applied for in the Instructions for Form 8822-B for • For permissible methods for reporting the following ways. details. advance payments for goods and • Online—Go to IRS.gov/EIN. The EIN is services, see the “Applicability Dates” issued immediately once the application discussion in the final section 451(c) information is validated. Item J. Aggregation or regulations, T.D. 9941. • By faxing or mailing Form SS-4, Grouping of Certain • For information on adopting or Application for Employer Identification changing to a permissible method for Number. Activities reporting advance payments for goods For information about aggregating at-risk and services by an accrual method If the corporation hasn't received its activities, see Aggregation of Activities EIN by the time the return is due, enter

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corporation, see the Instructions for Form rental activity assets are reported amended. See Form 941, lines 11b and 3115. separately on line 19 of Form 8825, or 13c; Form 944, lines 8b and 10d; or Form line 3 of Schedule K, and box 3 of 943, lines 12b and 14d. Installment sales. Generally, the Schedule K-1, generally as a part of the installment method can't be used for net income (loss) from the rental activity. Don't include items requiring separate dealer dispositions of property. A “dealer computations by shareholders that must disposition” is any disposition of: A corporation that is a partner in a be reported on Schedules K and K-1. See • Personal property by a person who partnership must include on Form 4797, the instructions for Schedules K and K-1 regularly sells or otherwise disposes of Sales of Business Property, its share of later in these instructions. personal property of the same type on the ordinary gains (losses) from sales, installment plan, or exchanges, or involuntary conversions Ordinary Income (Loss) From a • Real property held for sale to customers (other than casualties or thefts) of the in the ordinary course of the taxpayer's partnership's trade or business assets. Partnership, Estate, or Trust trade or business. Enter the ordinary income (loss) shown on Corporations shouldn't use Form 4797 Schedule K-1 (Form 1065) or These restrictions on using the to report the sale or other disposition of Schedule K-1 (Form 1041), or other installment method don't apply to property if a section 179 expense ordinary income (loss) from a foreign dispositions of property used or produced deduction was previously passed through partnership, estate, or trust. Show the in a farming business or sales of to any of its shareholders for that property. partnership's, estate's, or trust's name, timeshares and residential lots for which Instead, report it in box 17 of address, and EIN on a separate statement the corporation elects to pay interest Schedule K-1 using code K. See attached to this return. If the amount under section 453(l)(3). Dispositions of property with section 179 entered is from more than one source, For sales of timeshares and residential deductions (code K), later, for details. lots reported under the installment identify the amount from each source. method, each shareholder's income tax is Line 5. Other Income (Loss) Don't include portfolio income or rental increased by the shareholder's pro rata Enter any other trade or business income activity income (loss) from a partnership, share of the interest payable under section (loss) not included on lines 1a through 4. estate, or trust on this line. Instead, report 453(l)(3). List the type and amount of income on an these amounts on Schedules K and K-1, attached statement. Enter on line 1a the gross profit on or on line 20a of Form 8825 if the amount collections from installment sales for any Examples of other income include the is from a rental real estate activity. of the following. following. • Dispositions of property used or • Interest income derived in the ordinary Ordinary income or loss from a produced in the trade or business of course of the corporation's trade or partnership that is a publicly traded farming. business, such as interest charged on partnership isn't reported on this line. • Certain dispositions of timeshares and receivable balances. See Temporary Instead, report the amount separately on residential lots reported under the Regulations section 1.469-2T(c)(3). line 10 of Schedule K and in box 10 of installment method. • Recoveries of bad debts deducted in Schedule K-1 using code H. Attach a statement showing the prior years under the specific charge-off following information for the current and method. Treat shares of other items separately the 3 preceding years. • Taxable income from insurance reported on Schedule K-1 issued by the • Gross sales. proceeds. other entity as if the items were realized or • Cost of goods sold. • Any amount included in income from incurred by this corporation. • Gross profits. line 2 of Form 6478, Biofuel Producer • Percentage of gross profits to gross Credit, if applicable. If there is a loss from a partnership, the sales. • Any amount included in income from amount of the loss that may be claimed by • Amount collected. line 8 of Form 8864, Biodiesel and the S corporation is subject to the basis • Gross profit on the amount collected. Renewable Diesel Fuels Credit, if limitations. applicable. Line 1b. Returns and • The recapture amount under section If the tax year of the S corporation Allowances 280F if the business use of listed property doesn't coincide with the tax year of the drops to 50% or less. To figure the partnership, estate, or trust, include the Enter cash and credit refunds the ordinary income (loss) from the other corporation made to customers for recapture amount, complete Part IV of Form 4797. entity in the tax year in which the other returned merchandise, rebates, and other entity's tax year ends. allowances made on gross receipts or • All section 481 income adjustments sales. resulting from changes in accounting methods. Show the computation of the Deductions Line 2. Cost of Goods Sold section 481 adjustments on an attached Report only trade or business Complete and attach Form 1125-A, Cost statement. activity deductions on lines 7 of Goods Sold, if applicable. Enter on • Part or all of the proceeds received through 19. line 2 the amount from Form 1125-A, from certain corporate-owned life line 8. See Form 1125-A and its insurance contracts issued after August Don't report the following expenses on instructions. 17, 2006. Corporations that own one or lines 7 through 19. more employer-owned life insurance • Rental activity expenses. Report these Line 4. Net Gain (Loss) From contracts issued after this date must file expenses on Form 8825 or line 3b of Form 4797 Form 8925, Report of Employer-Owned Schedule K. Life Insurance Contracts. See section • Deductions allocable to portfolio Include only ordinary gains or 101(j) for details. income. Report these deductions on ! losses from the sale, exchange, or • The amount of payroll tax credit taken line 12d of Schedule K and in box 12 of CAUTION involuntary conversion of assets by an employer for qualified paid sick Schedule K-1 using code I or L. used in a trade or business activity. leave and qualified paid family leave under • Nondeductible expenses (for example, Ordinary gains or losses from the sale, sections 7001 and 7003 of the Families expenses connected with the production exchange, or involuntary conversion of First Coronavirus Response Act, as of tax-exempt income). Report

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nondeductible expenses on line 16c of • Geological and geophysical costs report each shareholder's pro rata share in Schedule K and in box 16 of Schedule K-1 amortized under section 167(h). box 12 of Schedule K-1 using code M. using code C. • Certain plants bearing fruits and nuts See Uniform Capitalization Rules in • Qualified expenditures to which an depreciated under section 168(k)(5). chapter 6 of Pub. 225, Farmer's Tax election under section 59(e) may apply. The corporation must report the Guide, sections 263A(d) and (e), and The instructions for line 12c of Schedule K following costs separately to the Regulations section 1.263A-4 for and for Schedule K-1, box 12, code J, shareholders for purposes of definitions and other details. explain how to report these amounts. determinations under section 59(e). Transactions between related taxpay- • Items the corporation must state Research and experimental costs • ers. Generally, an accrual basis S separately that require separate under section 174. corporation can deduct business computations by the shareholders. Intangible drilling costs for oil, gas, and • expenses and interest owed to a related Examples include expenses incurred for geothermal property. party (including any shareholder) only in the production of income instead of in a Mining exploration and development • the tax year of the corporation that trade or business, charitable contributions, costs. foreign taxes paid or accrued, intangible includes the day on which the payment is drilling and development costs, soil and Indirect costs. Corporations subject includible in the income of the related water conservation expenditures, to the uniform capitalization rules are party. See section 267 for details. amortizable basis of reforestation required to capitalize not only direct costs Related party amounts paid or ac- expenditures, and exploration but an allocable part of most indirect costs crued in hybrid transactions or with expenditures. The pro rata shares of these (including taxes) that benefit the assets hybrid entities. A deduction for certain expenses are reported separately to each produced or acquired for resale, or are interest or royalty paid or accrued to a shareholder on Schedule K-1. incurred because of the performance of related party pursuant to a hybrid production or resale activities. Limitations on Deductions transaction or by, or to, a hybrid entity may For inventory, indirect costs that must be disallowed to the extent the related Section 263A uniform capitalization be capitalized include the following. party, under its tax laws, doesn’t include rules. The uniform capitalization rules of • Administration expenses. the amount in income or is allowed a section 263A generally require • Taxes. deduction with respect to the amount. See corporations to capitalize, or include in • Depreciation. section 267A for more information. inventory, certain costs incurred in • Insurance. connection with the following. • Compensation paid to officers Business interest. Business interest • The production of real property and attributable to services. expense may be limited. See section tangible personal property held in • Rework labor. 163(j) and Form 8990. Also see inventory or held for sale in the ordinary • Contributions to pension, stock bonus, Schedule B, questions 9 and 10, and the course of business. and certain profit-sharing, annuity, or related instructions for question 9 and • Real property or personal property deferred compensation plans. question 10, later. (tangible and intangible) acquired for Regulations section 1.263A-1(e)(3) Section 291 limitations. If the S resale. specifies other indirect costs that relate to corporation was a C corporation for any of • The production of real property and production or resale activities that must be the 3 immediately preceding years, the tangible personal property by a capitalized and those that may be corporation may be required to adjust corporation for use in its trade or business currently deductible. items such as deductions for depletion of or in an activity engaged in for profit. iron ore and coal, and the amortizable Interest expense paid or incurred basis of pollution control facilities. If this Tangible personal property produced during the production period of designated applies, see section 291 to figure the by a corporation includes a film, sound property must be capitalized and is adjustment. recording, videotape, book, or similar governed by special rules. For more property. details, see Regulations sections Business start-up and organizational The costs required to be capitalized 1.263A-8 through 1.263A-15. costs. A corporation can elect to deduct under section 263A aren't deductible until For more details on the uniform a limited amount of start-up and the property to which the costs relate is capitalization rules, see Regulations organizational costs it paid or incurred. sold, used, or otherwise disposed of by sections 1.263A-1 through 1.263A-3. Any remaining costs must generally be the corporation. amortized over a 180-month period. See Special rules for certain corporations sections 195 and 248 and the related Exceptions. Section 263A doesn't engaged in farming. For S corporations regulations. apply to the following. not required to use an accrual method of • Inventoriable items accounted for in the accounting, the rules of section 263A don't Time for making an election. The same manner as materials and supplies apply to expenses of raising any: corporation generally elects to deduct that aren't incidental. See Form 1125-A • Animal, or start-up or organizational costs by and its instructions for more details. • Plant that has a preproductive period of claiming the deduction on its income tax • A small business taxpayer (defined 2 years or less. return filed by the due date (including earlier) isn’t required to capitalize costs extensions) for the tax year in which the Shareholders of S corporations not under section 263A. A taxpayer that wants active trade or business begins. However, required to use an accrual method of to discontinue capitalizing costs under for start-up or organizational costs paid or accounting may elect to currently deduct section 263A must change its method of incurred before September 9, 2008, the the preproductive period expenses of accounting. See section 263A(i) and corporation is required to attach a certain plants that have a preproductive Change in accounting method, earlier. statement to its return to elect to deduct period of more than 2 years. Because Timber. such costs. • each shareholder makes the election to Most property produced under a • deduct these expenses, the corporation For more details, including special long-term contract. shouldn't capitalize them. Instead, the rules for costs paid or incurred before Certain property produced in a farming • corporation should report the expenses September 9, 2008, see the Instructions business. See Special rules for certain separately on line 12d of Schedule K and for Form 4562. Also see Pub. 535, corporations engaged in farming, later. Business Expenses.

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If the corporation timely filed its return If the corporation has any of the credits benefits of officers and employees owning for the year without making an election, it listed above, figure the current year credit 2% or less of the corporation's stock. can still make an election by filing an before figuring the deduction for expenses These amounts are reported on line 18. amended return within 6 months of the on which the credit is based. If the See the instructions for that line for due date of the return (excluding corporation capitalized any costs on which information on the types of expenditures extensions). Clearly indicate the election it figured the credit, it may need to reduce that are treated as fringe benefits and for on the amended return and write “Filed the amount capitalized by the credit the stock ownership rules. pursuant to section 301.9100-2” at the top attributable to these costs. Report amounts paid for health of the amended return. File the amended See the instructions for the form used insurance coverage for a more-than-2% return at the same address the corporation to figure the applicable credit for more shareholder (including that shareholder's filed its original return. The election details. applies when figuring taxable income for spouse, dependents, and any children the current tax year and all subsequent Line 7. Compensation of under age 27 who aren't dependents) as years. Officers and an information item in box 14 of that shareholder's Form W-2. A more-than-2% The corporation can choose to forgo Line 8. Salaries and Wages shareholder may be allowed to deduct the elections above by clearly electing to such amounts on Schedule 1 (Form capitalize its start-up or organizational Distributions and other payments 1040), line 16. To find out if the costs on its income tax return filed by the by an S corporation to a corporate ! shareholder can claim this deduction, see due date (including extensions) for the tax CAUTION officer must be treated as wages Self-Employed Health Insurance year in which the active trade or business to the extent the amounts are reasonable Deduction in chapter 6 of Pub. 535, begins. compensation for services rendered to the corporation. Business Expenses. The election to either amortize or TIP capitalize start-up costs is Enter on line 7 the total compensation of If a shareholder or a member of the irrevocable and applies to all all officers paid or incurred in the trade or family of one or more shareholders of the start-up costs that are related to the trade business activities of the corporation. The corporation renders services or furnishes or business. corporation determines who is an officer capital to the corporation for which under the laws of the state where it is reasonable compensation isn’t paid, the Report the deductible amount of incorporated. IRS may make adjustments in the items start-up and organizational costs and any taken into account by such individuals to amortization on line 19. For amortization Enter on line 8 the total salaries and reflect the value of such services or that begins during the current tax year, wages paid or incurred to employees capital. See section 1366(e). complete and attach Form 4562, (other than officers) during the tax year. Depreciation and Amortization. If the corporation claims a credit Line 9. Repairs and Maintenance Reducing certain expenses for which for any wages paid or incurred, it credits are allowable. If the corporation may need to reduce the amounts Enter the cost of repairs and maintenance claims certain credits, it may need to on lines 7 and 8. See Reducing certain not claimed elsewhere on the return, such reduce the otherwise allowable expenses for which credits are allowable, as labor and supplies, that don't add to the deductions for expenses used to figure the earlier. value of the property or appreciably credit. This applies to credits such as the prolong its life. The corporation can following. Also reduce the amounts reported deduct these repairs only to the extent • Work opportunity credit (Form 5884). on lines 7 and 8 by the they relate to a trade or business activity. • Employee retention credit (Form nonrefundable and refundable See Regulations section 1.162-4. The 5884-A). portions of the new CARES Act employee corporation may elect to capitalize certain • Credit for increasing research activities retention credit claimed on the repair and maintenance costs consistent (Form 6765). corporation's employment tax return(s). with its books and records. See Orphan drug credit (Form 8820). Regulations section 1.263(a)-3(n) for • Don't include salaries and wages Disabled access credit (Form 8826). information on how to make the election. • reported elsewhere on the return, such as Empowerment zone employment credit • amounts included in cost of goods sold, (Form 8844), if applicable. New buildings, machinery, or elective contributions to a section 401(k) Indian employment credit (Form 8845), permanent improvements that increase • cash or deferred arrangement, or amounts if applicable. the value of the property aren't deductible contributed under a salary reduction SEP Credit for employer social security and as repair and maintenance expenses. • agreement or a SIMPLE IRA plan. Medicare taxes paid on certain employee These expenses must be capitalized and tips (Form 8846). If the corporation's total receipts depreciated or amortized. However, • Credit for small employer pension plan (page 1, line 1a, plus lines 4 and 5; amounts paid for routine maintenance on startup costs and auto-enrollment (Form income reported on Schedule K, lines 3a, property, including buildings, may be 8881). 4, 5a, and 6; income or net gain reported deductible. See Regulations section • Credit for employer-provided childcare on Schedule K, lines 7, 8a, 9, and 10; and 1.263(a)-3(i). facilities and services (Form 8882). income or net gain reported on Form Line 10. Bad Debts Low sulfur diesel fuel production credit 8825, lines 2, 19, and 20a) are $500,000 • Enter the total debts that became (Form 8896). or more, complete Form 1125-E, worthless in whole or in part during the tax Mine rescue team training credit (Form Compensation of Officers. Enter on Form • year, but only to the extent such debts 8923), if applicable. 1120-S, line 7, the amount from Form relate to a trade or business activity. Credit for employer differential wage 1125-E, line 4. • Report deductible nonbusiness bad debts payments (Form 8932). Include fringe benefit expenditures as a short-term capital loss on Form 8949, Credit for small employer health • made on behalf of officers and employees Sales and Other Dispositions of Capital insurance premiums (Form 8941). owning more than 2% of the corporation's Assets. A corporation that uses the cash Employer credit for paid family and • stock. Also report these fringe benefits as method of accounting can't claim a bad medical leave (Form 8994). wages in box 1 of Form W-2. Don't include debt deduction unless the amount was amounts paid or incurred for fringe previously included in income.

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Line 11. Rents employee retention credit, and (2) the line 3c of Schedule K and in box 3 of nonrefundable and refundable portions of Schedule K-1. Enter rent paid on business property used the new FFCRA credits for qualified sick On debt used to buy property held for in a trade or business activity. Don't • and family leave wages. Instead, item (1) investment. Interest that is clearly and deduct rent for a dwelling unit occupied by reduces your deduction for wages on lines directly allocable to interest, dividend, any shareholder for personal use. 7 and 8, and item (2) must be reported as royalty, or annuity income not derived in If the corporation rented or leased a income on line 5. the ordinary course of a trade or business vehicle, enter the total annual rent or lease is reported on line 12b of Schedule K and expense paid or incurred in the trade or Don't deduct the following taxes on in box 12 of Schedule K-1 using code H. business activities of the corporation line 12. See the instructions for line 12b of during the tax year. Also complete Part V • Federal income taxes (except for the Schedule K; for box 12, code H of of Form 4562. If the corporation leased a portion of built-in gains tax allocable to Schedule K-1; and Form 4952, Investment vehicle for a term of 30 days or more, the ordinary income) or taxes reported Interest Expense Deduction, for more deduction for vehicle lease expense may elsewhere on the return. information on investment property. have to be reduced by including in gross • Section 901 foreign taxes. Report these • On debt proceeds allocated to income an amount called the “inclusion taxes on line 14p of Schedule K and in distributions made to shareholders during amount.” The corporation may have an box 14 of Schedule K-1 using codes P and the tax year. Instead, report such interest inclusion amount if: Q. on line 12d of Schedule K and in box 12 of • Taxes allocable to a rental activity. Schedule K-1 using code S. To determine And the vehicle's Report taxes allocable to a rental real the amount to allocate to distributions to FMV on the first estate activity on Form 8825. Report taxes shareholders, see Notice 89-35, 1989-1 day of the lease allocable to a rental activity other than a C.B. 675. The lease term began: exceeded: rental real estate activity on line 3b of • On debt required to be allocated to the Schedule K. production of designated property. Cars (excluding trucks • Taxes paid or incurred for the Designated property includes real and vans) production or collection of income, or for property, personal property that has a After 12/31/17 but before the management, conservation, or class life of 20 years or more, and other 1/1/21 ...... $50,000 maintenance of property held to produce tangible property requiring more than 2 years (1 year in the case of property with a After 12/31/12 but before income. Report these taxes separately on 1/1/18 ...... $19,000 line 12d of Schedule K and in box 12 of cost of more than $1 million) to produce or Schedule K-1 using code S. construct. Interest allocable to designated After 12/31/07 but before property produced by a corporation for its 1/1/13 ...... $18,500 See section 263A(a) for rules on own use or for sale must be capitalized. In Trucks and vans capitalization of allocable costs (including addition, a corporation must also taxes) for any property. capitalize any interest on debt allocable to After 12/31/17 but before an asset used to produce designated 1/1/21 ...... $50,000 • Taxes not imposed on the corporation. • Taxes, including state or local sales property. A shareholder may have to After 12/31/13 but before taxes, that are paid or incurred in capitalize interest that the shareholder 1/1/18 ...... $19,500 connection with an acquisition or incurs during the tax year for the S After 12/31/09 but before disposition of property (these taxes must corporation's production expenditures. 1/1/14 ...... $19,000 be treated as a part of the cost of the Similarly, interest incurred by an S acquired property or, in the case of a corporation may have to be capitalized by After 12/31/08 but before a shareholder for the shareholder's own 1/1/10 ...... $18,500 disposition, as a reduction in the amount realized on the disposition). production expenditures. The information After 12/31/07 but before • Taxes assessed against local benefits required by the shareholder to properly 1/1/09 ...... $19,000 that increase the value of the property capitalize interest for this purpose must be assessed (such as for paving, etc.). provided by the corporation on an attachment for box 17 of Schedule K-1 See Pub. 463, Travel, Gift, and Car See section 164(d) for information on using code P. See section 263A(f) and Expenses, for instructions on figuring the apportionment of taxes on real property Regulations sections 1.263A-8 through inclusion amount. between seller and purchaser. 1.263A-15. Special rules apply to the following. Note. The inclusion amount for lease Line 13. Interest Include only interest incurred in the trade • Allocating interest expense among terms beginning in 2021 will be published activities so that the limitations on passive in early 2021. or business activities of the corporation that isn't claimed elsewhere on the return. activity losses, investment interest, and Line 12. Taxes and Licenses personal interest can be properly figured. Don't include interest expense on the Generally, interest expense is allocated in Enter taxes and licenses paid or incurred following. the same manner as debt is allocated. in the trade or business activities of the On debt used to purchase rental Debt is allocated by tracing disbursements corporation, unless they are reflected • property or debt used in a rental activity. of the debt proceeds to specific elsewhere on the return. Federal import Interest allocable to a rental real estate expenditures. Temporary Regulations duties and federal excise and stamp taxes activity is reported on Form 8825 and is section 1.163-8T gives rules for tracing are deductible only if paid or incurred in used in arriving at net income (loss) from debt proceeds to expenditures. carrying on the trade or business of the rental real estate activities on line 2 of Prepaid interest, which generally can corporation. • Schedule K and in box 2 of Schedule K-1. only be deducted over the term of the Do not reduce your deduction for Interest allocable to a rental activity other debt. See Regulations sections 1.163-7, ! social security and Medicare taxes than a rental real estate activity is included 1.446-2, and 1.1273-2(g) for details. Also CAUTION by the following amounts claimed on line 3b of Schedule K and is used in see section 461(g). on the corporation's employment tax arriving at net income (loss) from a rental • Interest that is allocable to unborrowed returns: (1) the nonrefundable and activity (other than a rental real estate policy cash values of life insurance, refundable portions of the new CARES Act activity). This net amount is reported on endowment, or annuity contracts issued

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after June 8, 1997. See section 264(f). Line 15. Depletion 2% or less of the corporation's stock. Attach a statement showing the These fringe benefits include (a) employer If the corporation claims a deduction for computation of the deduction. contributions to certain accident and timber depletion, complete and attach Forgone interest on below-market-rate health plans, (b) the cost of up to $50,000 • Form T (Timber), Forest Activities loans (see section 7872). of group-term life insurance on an Schedule. employee's life, and (c) meals and lodging Limitation on deduction. Business Don't deduct depletion for oil and furnished for the employer's convenience. interest expense is generally limited to the gas properties. Each shareholder sum of business interest income, 30% of ! CAUTION figures depletion on oil and gas Don't deduct amounts that are an adjusted taxable income, and floor plan properties. See the instructions for incidental part of a pension, profit-sharing, financing interest. The CARES Act Schedule K-1, box 17, code R, for the etc., plan included on line 17 or amounts retroactively increases the amount of information on oil and gas depletion that reported elsewhere on the return or on business interest expense that may be must be supplied to the shareholders by Form 1125-A. deducted for tax years beginning in 2019 the corporation. and 2020 by figuring the section 163(j) Report amounts for fringe benefits paid limitation using 50% of your adjusted Line 17. Pension, on behalf of employees owning more than taxable income (ATI) instead of 30%. See 2% of the corporate stock on line 7 or 8 (or Form 8990, Limitation on Business Profit-Sharing, etc., Plans Form 1125-E), whichever applies. An Interest Expense Under Section 163(j), Enter the deductible contributions not employee is considered to own more than and its instructions for more information. claimed elsewhere on the return made by 2% of the corporation's stock if that person The limitation applies at the S corporation the corporation for its employees under a owns on any day during the tax year more level, and any excess business interest qualified pension, profit-sharing, annuity, than 2% of the outstanding stock of the expense is carried over at the corporate or simplified employee pension (SEP) or corporation or stock possessing more than level. SIMPLE IRA plan, or any other deferred 2% of the combined voting power of all Business interest expense includes compensation plan. stock of the corporation. See section 318 any interest paid or accrued on If the corporation contributes to an for attribution rules. indebtedness properly allocable to a trade individual retirement arrangement (IRA) Line 19. Other Deductions or business. A small business taxpayer is for employees, include the contribution in Enter the total allowable trade or business a taxpayer that isn’t a tax shelter (as salaries and wages on page 1, line 8, or deductions that aren't deductible defined in section 448(d)(3)) and has Form 1125-A, line 3, and not on line 17. average annual gross receipts of $26 elsewhere on page 1 of Form 1120-S. million or less for the 3 prior tax years Employers who maintain a pension, Attach a statement listing by type and under the gross receipts test of section profit-sharing, or other funded deferred amount each deduction included on this 448(c). Gross receipts include the compensation plan, whether or not the line. aggregate gross receipts from all persons plan is qualified under the Internal treated as a single employer, such as a Revenue Code and whether or not a Examples of other deductions include controlled group of corporations, deduction is claimed for the current tax the following. commonly controlled partnerships or year, must generally file the applicable • Amortization. See Part VI of Form 4562. proprietorships, and affiliated service form listed below. • Certain business start-up and groups. If the corporation fails to meet the • Form 5500, Annual Return/Report of organizational costs (discussed earlier). gross receipts test, Form 8990, Limitation Employee Benefit Plan. • Insurance premiums. on Business Interest Expense Under • Form 5500-SF, Short Form Annual • Legal and professional fees. Section 163(j), is generally required. Also Return/Report of Small Employee Benefit • Supplies used and consumed in the see Schedule B, questions 9 and 10. Plan. File this form instead of Form 5500 business. generally if there were under 100 • Travel, meal, and entertainment Line 14. Depreciation participants at the beginning of the plan expenses. Special rules apply (discussed Enter the depreciation claimed on assets year. later). used in a trade or business activity less • Form 5500-EZ, Annual Return of A • Utilities. any depreciation reported elsewhere (for One-Participant (Owners/Partners and • Deduction for certain costs of energy example, on Form 1125-A). See the Their Spouses) Retirement Plan or A efficient commercial building property. Instructions for Form 4562, or Pub. 946, Foreign Plan. File this form for a plan that See section 179D. How To Depreciate Property, to figure the only covers the owner (or the owner and • Any net negative section 481(a) amount of depreciation to enter on this his or her spouse) but only if the owner (or adjustment. line. the owner and his or her spouse) owns the entire business. Don't deduct the following on line 19. Complete and attach Form 4562 only if • Items that must be reported separately the corporation placed property in service Form 5500 and Form 5500-SF on Schedules K and K-1. during the tax year or claims depreciation TIP must be filed electronically under • Fines or similar penalties paid to or at on any car or other listed property. the computerized ERISA Filing the direction of a government or Don't include any section 179 expense Acceptance System (EFAST2). For more governmental entity for violating any law. deduction on this line. This amount isn't information, see the EFAST2 website at However, see exceptions (discussed deducted by the corporation. Instead, it is www.efast.dol.gov. later). Report these expenses on passed through to the shareholders in Schedule K, line 16c. box 11 of Schedule K-1. However, reduce There are penalties for not filing these • Expenses allocable to tax-exempt the basis of any asset of the S corporation forms on time and for overstating the income. Report these expenses on by the amount of section 179 expense pension plan deduction. See sections Schedule K, line 16c. elected by the S corporation, even if a 6652(e) and 6662(f). • Amounts paid or incurred for any portion of that amount can't be passed Line 18. Employee Benefit settlement, payout, or attorney fees through to its shareholders this year and related to sexual harassment or sexual must be carried forward because of Programs abuse, if such payments are subject to a limitations at the S corporation level. See Enter amounts for fringe benefits paid or nondisclosure agreement. See section Regulations section 1.179-1(f)(2). incurred on behalf of employees owning 162(q).

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Special Rules (4), there is no deduction allowed with allowed as a deduction if timely paid, and respect to QTFs provided by employers to the taxpayer establishes that the amount Commercial revitalization deduction. If their employees. QTFs are defined in paid or incurred was for restitution, the corporation qualified for a commercial section 132(f)(1) to include: remediation, or come into compliance. revitalization deduction for a building • Transportation in a commuter highway No deduction is allowed unless the constructed, purchased, or substantially vehicle between the employee's residence amounts are specifically identified in the rehabilitated in a renewal community and and place of employment, order or agreement and the taxpayer placed in service before 2010, and it • Any transit pass, and establishes that the amounts were paid for elected to amortize qualified capital • Qualified parking. that purpose. Also, any amount paid or expenditures, include any current year See section 274, Pub. 15-B, Employers incurred as reimbursement to the amortization deduction for a nonrental Tax Guide to Fringe Benefits, and Pub. government for the costs of any building on line 19. Include any current 535 for details. investigation or litigation are not eligible for year amortization deduction for a rental the exceptions and are nondeductible. real estate activity on Schedule K, Membership dues. The corporation See section 162(f). line 12d. See section 1400I (as in effect can generally deduct amounts paid or before its repeal on March 23, 2018) for incurred for membership dues in civic or Lobbying expenses. Generally, details. public service organizations, professional lobbying expenses aren't deductible. organizations (such as bar and medical Report nondeductible expenses on The commercial revitalization associations), business leagues, trade Schedule K, line 16c. These expenses TIP deduction isn't available for associations, chambers of commerce, include: buildings placed in service after boards of trade, and real estate boards. • Amounts paid or incurred in connection 2009. However, no deduction is allowed if a with influencing federal, state, or local legislation; or Travel, meals, and entertainment. principal purpose of the organization is to Amounts paid or incurred in connection Subject to limitations and restrictions entertain or provide entertainment facilities • with any communication with certain discussed below, a corporation can for members or their guests. In addition, federal executive branch officials in an deduct ordinary and necessary travel and corporations can't deduct membership attempt to influence the official actions or meal expenses paid or incurred in its trade dues in any club organized for business, positions of the officials. See Regulations or business. Generally, entertainment pleasure, recreation, or other social section 1.162-29 for the definition of expenses, membership dues, and purpose. This includes country clubs, golf “influencing legislation.” facilities used in connection with these and athletic clubs, airline and hotel clubs, activities can't be deducted. Generally, no and clubs operated to provide meals Dues and other similar amounts paid to deduction is allowed for qualified under conditions favorable to business certain tax-exempt organizations may not transportation fringe benefits. Also, discussion. be deductible. If certain in-house lobbying special rules apply to deductions for gifts, Entertainment facilities. The expenditures don't exceed $2,000, they luxury water travel, and convention corporation can't deduct an expense paid are deductible. For information on expenses. See section 274, Pub. 463, and or incurred for a facility (such as a yacht or contributions to charitable organizations Pub. 535 for details. hunting lodge) used for an activity usually that conduct lobbying activities, see section 170(f)(9). Travel. The corporation can't deduct considered entertainment, amusement, or travel expenses of any individual recreation. Certain corporations engaged in farm- ing. Section 464(d) limits the deduction accompanying a corporate officer or Amounts treated as compensation. for certain expenditures of S corporations employee, including a spouse or The corporation may be able to deduct engaged in farming if they use the cash dependent of the officer or employee, otherwise nondeductible entertainment, method of accounting, and their prepaid unless: amusement, or recreation expenses if the farm supplies are more than 50% of other • That individual is an employee of the amounts are treated as compensation to deductible farming expenses. corporation, and the recipient and reported on Form W-2 • His or her travel is for a bona fide for an employee or on Form 1099-NEC for Prepaid farm supplies include business purpose and would otherwise be an independent contractor. expenses for feed, seed, fertilizer, and deductible by that individual. similar farm supplies not used or However, if the recipient is an officer, consumed during the year. They also director, or beneficial owner (directly or Meals. Generally, the corporation can include the cost of poultry that would be indirectly) of more than 10% of the deduct only 50% of the amount otherwise allowable as a deduction in a later tax year corporation's stock, the deductible allowable for meal expenses paid or if the corporation were to (a) capitalize the expense is limited. See section 274(e)(2) incurred in its trade or business. However, cost of poultry bought for use in its farm and Regulations sections 1.274-9 and the corporation can deduct 100% of business and deduct it ratably over the 1.274-10. business meals if the meals are food and lesser of 12 months or the useful life of the beverages provided by a restaurant, and Fines and similar penalties. Generally, poultry, and (b) deduct the cost of poultry paid or incurred after December 31, 2020. no deduction is allowed for fines or similar bought for resale in the year it sells or In addition (subject to exceptions under penalties paid to or at the direction of a otherwise disposes of it. section 274(k)(2)): government or governmental entity for If the limit applies, the corporation can • Meals must not be lavish or violating any law except: extravagant, and deduct prepaid farm supplies that don't • Amounts that constitute restitution exceed 50% of its other deductible farm • An employee of the corporation must (including remediation of property), be present at the meal. expenses in the year of payment. The • Amounts paid to come into compliance excess is deductible only in the year the See section 274(n)(3) for a special rule with the law, corporation uses or consumes the that applies to expenses for meals • Amounts paid or incurred as the result supplies (other than poultry, which is consumed by individuals subject to the of orders or agreements in which no deductible as explained above). For hours of service limits of the Department government or governmental entity is a exceptions and more details on these of Transportation. party, and rules, see Pub. 225. Amounts paid or incurred for taxes due Qualified transportation fringes • to the extent the amount would have been (QTFs). Generally, under section 274(a)

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Reforestation expenditures. If the line 2 is greater than line 3 and the (not including extensions) of Form 1120-S corporation made an election to deduct a corporation has taxable income (see the for the 3 succeeding tax years. Include portion of its reforestation expenditures on instructions for line 9 of the worksheet), it this year's installment in the total amount line 12d of Schedule K, it must amortize must pay the tax. Complete a separate to be entered on line 22a. To the left of the over an 84-month period the portion of statement using the format of lines 1 total on line 22a, enter the installment these expenditures in excess of the through 11 of the worksheet to figure the amount and “LIFO tax.” amount deducted on Schedule K (see tax. Enter the tax on line 22a, page 1, section 194). Deduct on line 19 only the Form 1120-S, and attach the computation Line 22b. Tax From Schedule D amortization of these excess reforestation statement to Form 1120-S. (Form 1120-S) expenditures. See Reforestation expense Reduce each item of passive Enter the built-in gains tax from line 23 of deduction (code O), later. investment income passed through to Part III of Schedule D. See the instructions Line 21. Ordinary Business shareholders by its portion of any excess for Part III of Schedule D to determine if net passive income tax reported on the corporation is liable for the tax. Income (Loss) line 22a. See section 1366(f)(3). Enter this income or loss on line 1 of Line 22c Schedule K. Line 21 income is not used in LIFO recapture tax. The corporation Include the following in the total for figuring the excess net passive income or may be liable for the additional tax due to line 22c. built-in gains taxes. See the instructions LIFO recapture under Regulations section 1.1363-2 if: Investment credit recapture tax. The for line 22a for figuring taxable income for corporation is liable for any required purposes of these taxes. • The corporation used the LIFO inventory pricing method for its last tax investment credit recapture attributable to year as a C corporation, or credits allowed for tax years for which the Tax and Payments • A C corporation transferred LIFO corporation wasn't an S corporation. The Line 22a. Excess Net Passive inventory to the corporation in a corporation is also liable for any required nonrecognition transaction in which those qualifying therapeutic discovery project Income and LIFO Recapture assets were transferred basis property. grant recapture. Figure the corporation's investment credit recapture tax and Tax The additional tax due to LIFO qualifying therapeutic discovery project These taxes can apply if the corporation recapture is figured for the corporation's grant recapture tax by completing Form was previously a C corporation or if the last tax year as a C corporation or for the 4255, Recapture of Investment Credit. corporation engaged in a tax-free tax year of the transfer, whichever applies. See the Instructions for Form 4255. reorganization with a C corporation. See the Instructions for Form 1120 to To the left of the line 22c total, enter the Excess net passive income tax. If the figure the tax. amount of recapture tax and “Tax From corporation has AE&P at the close of its The tax is paid in four equal Form 4255.” Attach Form 4255 to Form tax year and has passive investment installments. The C corporation must pay 1120-S. income for the tax year that is in excess of the first installment by the due date (not 25% of gross receipts, the corporation including extensions) of Form 1120 for the Interest due under the look-back meth- must figure its excess net passive income corporation's last tax year as a C od—Completed long-term contracts. If and pay tax on it. To make this corporation or for the tax year of the the corporation owes this interest, attach determination, complete lines 1 through 3 transfer, whichever applies. The S Form 8697, Interest Computation Under and line 9 of the Excess Net Passive corporation must pay each of the the Look-Back Method for Completed Income Tax Worksheet for Line 22a. If remaining installments by the due date Long-Term Contracts. To the left of the

Excess Net Passive Income Tax Worksheet for Line 22a Keep for Your Records

1. Enter gross receipts for the tax year 4. Excess passive investment 8. Excess net passive (see section 1362(d)(3)(B) for gross income—Subtract line 3 from income—Multiply line 6 by receipts from the sale of capital line 2 ...... line 7 ...... assets)* ...... 5. Enter deductions directly connected 2. Enter passive investment income as 9. Enter taxable income (see with the production of the income defined in section instructions for taxable income listed on line 2 (see section 1362(d)(3)(C)* ...... below) ...... 1375(b)(2))* ...... 3. Multiply line 1 by 25% (0.25). (If line 2 is less than line 3, stop here. 6. Net passive income—Subtract line 5 10. Enter smaller of line 8 or You aren't liable for this tax.) ..... from line 2 ...... line 9 ...... 11. Excess net passive income tax—Multiply line 10 by 21% 7. Divide amount on line 4 by amount (0.21). Enter here and on Form on line 2 ...... % 1120-S, line 22a ......

*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 1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5. Line 9 of Worksheet—Taxable Income Taxable income, for this purpose, 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 1120-S. You don't 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.

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total on line 22c, enter the amount owed The corporation is liable for section and “From Form 8697.” Schedule B. Other 1374 tax if (a) and (b) above apply and it has a net recognized built-in gain (defined Interest due under the look-back meth- Information in section 1374(d)(2)) for its tax year. od—Property depreciated under the Complete all items that apply to the income forecast method. If the corporation. The corporation's net unrealized built-in corporation owes this interest, attach gain is the amount, if any, by which the Form 8866, Interest Computation Under Item 2 aggregate fair market value of the assets the Look-Back Method for Property See Principal Business Activity Codes at of the corporation at the beginning of its Depreciated Under the Income Forecast the end of these instructions and enter the first S corporation year (or as of the date Method. To the left of the total on line 22c, business activity and product or service. the assets were acquired, for any asset enter the amount owed and “From Form with a basis determined by reference to its 8866.” Question 4. Constructive basis (or the basis of any other property) Ownership of Other Entities Line 23e in the hands of a C corporation) exceeds For purposes of determining the the aggregate adjusted basis of such If the corporation is the beneficiary of a corporation's constructive ownership of assets at that time. trust, and the trust makes a section 643(g) other entities, the constructive ownership Enter the corporation's net unrealized election to credit its estimated tax rules of section 267(c) (excluding section built-in gain reduced by the net recognized payments to its beneficiaries, include the 267(c)(3)) apply to ownership of interests built-in gain from prior years. See sections corporation's share of the payment in the in partnerships and trusts as well as 1374(c)(2) and (d)(1). total for line 23e. Enter “T” and the amount corporate stock. Generally, if an entity (a on the dotted line to the left of the entry corporation, partnership, or trust) is If the corporation has more than one space. owned, directly or indirectly, by or for pool of assets (as defined in Regulations Line 24. Estimated Tax Penalty another entity (corporation, partnership, section 1.1374-3(b)(4)), attach a estate, or trust), the owned entity is statement showing for each pool of assets If Form 2220 is attached, check the box on considered to be owned proportionately the amount of the corporation's net line 24 and enter the amount of any by or for the owners (shareholders, unrealized built-in gain reduced by the net penalty on this line. partners, or beneficiaries) of the owning recognized built-in gain from prior years. entity. Line 25. Amount Owed Question 9. Business Interest If the corporation can't pay the full amount Maximum percentage owned in part- Expense Election of tax owed, it can apply for an installment nership profit, loss, or capital. For the agreement online. The corporation can purposes of question 4b, the term The limitation on business interest apply for an installment agreement online “maximum percentage owned” means the expense under section 163(j) applies to if: highest percentage of interest in a every taxpayer with a trade or business, • It can't pay the full amount shown on partnership's profit, loss, or capital as of unless the taxpayer meets certain line 25, the end of the partnership's tax year, as specified exceptions. A taxpayer may • The total amount owed is $25,000 or determined under the partnership elect out of the limitation for certain less, and agreement, when taking into account the businesses otherwise subject to the • The corporation can pay the liability in constructive ownership rules discussed business interest expense limitation. This full in 24 months. earlier. If the partnership agreement is an irrevocable election, see exception doesn't express the partner's share of below. To apply using the Online Payment profit, loss, and capital as fixed Certain real property trades or Agreement Application, go to IRS.gov/ percentages, use a reasonable method in OPA. businesses and farming businesses arriving at the percentage items for the qualify to make an election not to limit Under an installment agreement, the purposes of completing question 4b. Such business interest expense. This is an corporation can pay what it owes in method must be consistent with the irrevocable election. If you make this monthly installments. There are certain partnership agreement. The method used election, you are required to use the conditions that must be met to enter into to figure a percentage share of profit, loss, alternative depreciation system to and maintain an installment agreement, and capital must be applied consistently depreciate certain property. Also, you such as paying the liability within 24 from year to year. Maintain records to aren’t entitled to the special depreciation months and making all required deposits support the determination of the share of allowance for that property. For a taxpayer and timely filing tax returns during the profits, losses, and share of capital. with more than one qualifying business, length of the agreement. Question 6 the election is made with respect to each business. Additionally, see Rev. Proc. If the installment agreement is Answer “Yes” if the corporation filed, or is 2020-22, which provides an automatic accepted, the corporation will be charged required to file, Form 8918, Material extension of time for certain taxpayers to a fee and it will be subject to penalties and Advisor Disclosure Statement. For details, file a real property trade or business interest on the amount of tax not paid by see the Instructions for Form 8918. election or a farming business election for the due date of the return. Item 8 tax years 2018, 2019, or 2020. Rev. Proc. 2020-22 also provides an opportunity for Line 27 Complete item 8 if the corporation (a) was certain taxpayers to withdraw a prior a C corporation before it elected to be an Direct deposit of refund. If the election. Under Rev. Proc. 2020-22, in S corporation or the corporation acquired corporation wants its refund directly general, a taxpayer may make a late real an asset with a basis determined by deposited into its checking or savings property trade or business election, or a reference to its basis (or the basis of any account at any U.S. bank or other financial farming business election, or withdraw a other property) in the hands of a C institution instead of having a check sent prior election, by filing an amended corporation, and (b) has net unrealized to the corporation, complete Form 8050 income tax return on or before October 15, built-in gain (defined below) in excess of and attach it to the corporation's return. 2021, but in no event later than the the net recognized built-in gain from prior applicable period of limitations on years. assessment for the tax year for which the amended return is being filed. Rev. Proc.

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2020-22 does not apply to utility trades or Question 13 Substitute Forms businesses. Answer “Yes” if, during the tax year, the The corporation doesn't need IRS Check “Yes” if the taxpayer has an corporation revoked a qualified approval to use a substitute Schedule K-1 election in effect to exclude a real property subchapter S subsidiary (QSub) election if it is an exact copy of the IRS schedule. trade or business or a farming business or a QSub election of the corporation was The boxes must use the same numbers from section 163(j). For more information, terminated. If “Yes,” see Regulations and titles and must be in the same order see section 163(j) and the Instructions for section 1.1361-5 for additional and format as on the comparable IRS Form 8990. information. Schedule K-1. The substitute schedule must include the OMB number. The Question 10. Conditions for Questions 14a and 14b corporation must provide each Filing Form 8990 If the corporation made any payment in shareholder with the Shareholder's 2020 that would require it to file any Instructions for Schedule K-1 (Form A taxpayer that isn’t a small business Form(s) 1099, check the “Yes” box for 1120-S) or instructions that apply to the taxpayer (defined below) must generally question 14a and answer question 14b. specific items reported on the file Form 8990. In addition, any taxpayer Otherwise, check the “No” box for shareholder's Schedule K-1. that owns an interest in a partnership with question 14a and skip question 14b. See current year, or prior year carryover, Am I Required to File a Form 1099 or The corporation must ask for IRS excess business interest expense Other Information Return on IRS.gov. approval to use other substitute allocated from the partnership must file Schedules K-1. Form 8990. Question 15 Each shareholder's information must Exclusions from filing. A taxpayer isn’t To be certified as a qualified opportunity fund, the S corporation must file Form be on a separate sheet of paper. required to file Form 8990 if the taxpayer Therefore, separate all continuously is a small business taxpayer and doesn’t 1120-S and attach Form 8996, even if the corporation had no income or expenses to printed substitutes before you file them have excess business interest expense with the IRS. from a partnership. A taxpayer is also not report. If the S corporation is attaching required to file Form 8990 if the taxpayer Form 8996, check the “Yes” box and enter The corporation may be subject to a only has business interest expense from the amount from Form 8996, line 15, in the penalty if it files a substitute Schedule K-1 these excepted trades or businesses: entry space. See Certification as a that doesn't conform to the specifications • An electing real property trade or qualified opportunity fund, earlier. discussed in Pub. 1167, General Rules business, The penalty reported on this line from and Specifications for Substitute Forms • An electing farming business, or Form 8996, line 15, is not due with the and Schedules. • Certain utility businesses. filing of this form. The IRS will separately For more information, see Pub. 1167. Small business taxpayer. A small send you a notice setting forth the due business taxpayer isn’t subject to the date for the penalty payment and where Shareholder's Pro Rata Share business interest expense limitation and that payment should be sent. Items isn’t required to file Form 8990. A small business taxpayer is a taxpayer that (a) General Rule isn’t a tax shelter (as defined in section Schedules K and K-1 Items of income, gain, loss, deduction, or 448(d)(3)), and (b) meets the gross (General Instructions) credit are allocated to a shareholder on a receipts test of section 448(c), discussed daily basis, according to the number of next. Purpose of Schedules shares of stock held by the shareholder on Gross receipts test. A taxpayer meets The corporation is liable for taxes on lines each day of the corporation's tax year. the gross receipts test if the taxpayer has 22a, 22b, and 22c on page 1 of Form See the detailed instructions for item F in average annual gross receipts of $26 1120-S. Shareholders are liable for tax on Part II. Information About the Shareholder, million or less for the 3 prior tax years. A their shares of the corporation's income later. taxpayer's average annual gross receipts (reduced by any taxes paid by the for the 3 prior tax years is determined by corporation on income). Shareholders Shareholders who dispose of stock are adding the gross receipts for the 3 prior must include their share of the income on treated as shareholders for the day of their tax years and dividing the total by 3. Gross their tax return whether or not it is disposition. Shareholders who die are receipts include the aggregate gross distributed to them. Unlike most treated as shareholders for the day of their receipts from all persons treated as a partnership income, S corporation income death. single employer, such as a controlled isn't self-employment income and isn't group of corporations, commonly subject to self-employment tax. Special Rules controlled partnerships, or proprietorships, Schedule K. Schedule K is a summary Termination of shareholder's interest. and affiliated service groups. See section schedule of all shareholders' shares of the If a shareholder terminates his or her 448(c) and the Instructions for Form 8990 corporation's income, deductions, credits, interest in a corporation during the tax for additional information. etc. All corporations must complete year, the corporation, with the consent of Schedule K. Question 11 all affected shareholders (including those Total receipts is the sum of the following Schedule K-1. Schedule K-1 shows each whose interest is terminated), may elect to amounts. shareholder's separate share. Attach a allocate income and expenses, etc., as if • Gross receipts or sales (page 1, copy of each Schedule K-1 to the Form the corporation's tax year consisted of 2 line 1a). 1120-S filed with the IRS. Keep a copy for separate tax years, the first of which ends • All other income (page 1, lines 4 and 5). the corporation's records and give each on the date of the shareholder's • Income reported on Schedule K, lines shareholder a copy. termination. 3a, 4, 5a, and 6. Give each shareholder a copy of the To make the election, the corporation • Income or net gain reported on Shareholder's Instructions for must attach a statement to a timely filed Schedule K, lines 7, 8a, 9, and 10. Schedule K-1 (Form 1120-S) or specific original or amended Form 1120-S for the • Income or net gain reported on Form instructions for each item reported on the tax year for which the election is made. In 8825, lines 2, 19, and 20a. shareholder's Schedule K-1. the statement, the corporation must state

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that it is electing under section 1377(a)(2) each shareholder on or before the day on that may be required for each respective and Regulations section 1.1377-1(b) to which the corporation's Form 1120-S is box. See Pub. 4164, Modernized e-File treat the tax year as if it consisted of 2 required to be filed. (MeF) Guide for Software Developers and separate tax years. The statement must Transmitters, for more information. also explain how the shareholder's entire How To Complete Schedule K-1 interest was terminated (for example, sale or gift), and state that the corporation and If the return is for a fiscal year or a short Special Reporting Requirements each affected shareholder consent to the tax year, fill in the tax year space at the top for At-Risk Activities corporation making the election. A single of each Schedule K-1. On each If items of income, loss, or deduction from statement may be filed for all terminating Schedule K-1, enter the information about more than one at-risk activity are reported elections made for the tax year. If the the corporation and the shareholder in on Schedule K-1, the corporation must election is made, enter “Section 1377(a) Parts I and II (items A through F). In Part provide its shareholders with separate (2) Election Made” at the top of each III, enter the shareholder's pro rata share information for each activity. See At-Risk affected shareholder's Schedule K-1. of each item of income, deduction, and credit and any other information the Activity Reporting Requirements under For more details, see Regulations shareholder needs to prepare his or her At-Risk Limitations, earlier, for details. section 1.1377-1(b). tax return, including information needed to Qualifying dispositions. If a qualifying prepare state and local tax returns. Use Special Reporting Requirements disposition takes place during the tax 10-point Helvetica Light Standard font (if for Corporations With Multiple year, the corporation may make an possible) for all entries if you are typing or irrevocable election to allocate income using a computer to complete Activities and expenses, etc., as if the corporation's Schedule K-1. If items of income, loss, deduction, or tax year consisted of 2 tax years, the first credit from more than one activity Codes. In box 10 and boxes 12 through of which ends on the close of the day the (determined for purposes of the passive 17, identify each item by entering a code qualifying disposition occurs. activity loss and credit limitations) are in the left column of the entry space. reported on Schedule K-1, the corporation A qualifying disposition is: These codes are identified in these must provide information separately for instructions and on the List of Codes in the 1. A disposition by a shareholder of at each activity to its shareholders. See Shareholder's Instructions for least 20% of the corporation's outstanding Passive Activity Reporting Requirements, Schedule K-1 (Form 1120-S). stock in one or more transactions in any earlier, for details on the reporting 30-day period during the tax year, Attached statements. When attaching requirements. 2. A redemption treated as an statements to Schedule K-1 to report exchange under section 302(a) or 303(a) additional information to the shareholder, Part I. Information About the of at least 20% of the corporation's indicate there is a statement depending Corporation outstanding stock in one or more upon the following. On each Schedule K-1, enter the transactions in any 30-day period during • If an amount can be input on corporation's name, address, and the tax year, or Schedule K-1 but additional information is identifying number. 3. An issuance of stock that equals at required so the shareholder can determine the proper reporting, enter an asterisk (*) least 25% of the previously outstanding Item C stock to one or more new shareholders in after the code in the left column of the any 30-day period during the tax year. entry space. If the corporation is filing its return • For items that can't be reported as a electronically, enter “e-file.” Otherwise, To make the election, the corporation single dollar amount, enter the code and enter the name of the IRS service center must attach a statement to a timely filed asterisk (*) in the left column and enter where the corporation will file its return. original or amended Form 1120-S for the “STMT” in the right column to indicate that See Where To File, earlier. tax year for which the election is made. In the information is provided on an attached the statement, the corporation must state statement. Part II. Information About the that it is electing under Regulations • If the corporation has more coded items Shareholder section 1.1368-1(g)(2)(i) to treat the tax than the number of entry boxes (for On each Schedule K-1, enter the year as if it consisted of 2 separate tax example, boxes 10, 12, 13 or boxes 15 shareholder's name, address, identifying years, give the facts relating to the through 17), don't enter a code or dollar number, and percentage of stock qualifying disposition (for example, sale, amount in the last box. Instead, enter an ownership. gift, stock issuance, or redemption), and asterisk (*) in the left column and enter state that each shareholder who held “STMT” in the entry space to the right. Truncating recipient's identification stock in the corporation during the tax year number on Schedule K-1. The More than one attached statement can consents to the election. A single election corporation can truncate a shareholder's be placed on the same sheet of paper. statement may be filed for all qualifying identifying number on the Schedule K-1 The information included in the statement disposition elections for the tax year. the corporation sends to the shareholder. should be identified in alphanumeric order Truncation isn't allowed on the For more details, see Regulations by box number followed by the letter code section 1.1368-1(g)(2). Schedule K-1 the corporation files with the (if any), description, and dollar amount. IRS. Also, the corporation can't truncate its For example: “Box 13, code J—Work own identification number on any form. opportunity credit—$1,000.” This can be Specific Instructions followed with any additional information To truncate, where allowed, replace the (Schedule K-1 Only) that the shareholder needs to determine first five digits of the nine-digit number with the proper tax treatment of the item. asterisks (*) or Xs (for example, an SSN General Information xxx-xx-xxxx would appear as ***-**-xxxx or For electronically filed returns, the XXX-XX-xxxx). For more information, see Generally, the corporation is required to corporation must follow the prepare and give a Schedule K-1 to each ! Regulations section 301.6109-4. CAUTION instructions for attached person who was a shareholder in the statements as described in Pub. 4164 corporation at any time during the tax when reporting the additional information year. Schedule K-1 must be provided to

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Items D and E a b c (a × b) Specific Instructions For an individual shareholder, enter the % of total % of tax % of shareholder's social security number stock year held ownership (Schedules K and K-1, Part (SSN) or individual taxpayer identification owned for the year III) number (ITIN) in item D. For all other shareholders, enter the shareholder's EIN. A 50 50 25 Income (Loss) 40 50 +20 45 Reminder. Before entering income items If stock of the corporation is held by a B 50 50 25 on Schedule K or K-1, reduce each item of nominee, guardian, custodian, or an 40 50 +20 45 passive investment income (within the agent, enter the name, address, and C 20 50 10 10 meaning of section 1362(d)(3)(C)) by its identifying number of the person for whom proportionate share of the net passive the stock is held. Total ...... 100% income tax (Form 1120-S, page 1, line 22a). If S corporation stock is part of a • Each shareholder's pro rata share items decedent's estate, the executor of the Line 1. Ordinary Business Income estate should notify the S corporation of are generally figured by multiplying the the name and taxpayer identification Schedule K amount by the percentage in (Loss) number of the decedent's estate. See item F. However, if a shareholder Enter the amount from Form 1120-S, Pub. 559 for details. terminated his or her entire interest in the page 1, line 21. Enter the income (loss) corporation during the year or a qualifying without reference to the shareholder's: If a single-member limited liability disposition took place, the corporation • Basis in the stock of the corporation company (LLC) owns stock in the may elect to allocate income and and in any indebtedness of the corporation, and the LLC is treated as a expenses, etc., as if the tax year consisted corporation to the shareholders (section disregarded entity for federal income tax of 2 tax years, the first of which ends on 1366(d)), purposes, enter the LLC owner's the day of the termination or qualifying • At-risk limitations, and identifying number in item D and the LLC disposition. See Special Rules, earlier, for • Passive activity limitations. owner's name and address in item E. The more details. LLC’s owner must be eligible to be an S These limitations, if applicable, are corporation shareholder. An LLC that Item G determined at the shareholder level. elects to be treated as a corporation for Report the number of shares for purposes federal income tax purposes isn't eligible Line 1 shouldn't include rental activity of allocating items of income, loss, or income (loss) or portfolio income (loss). to be an S corporation shareholder. deduction at the beginning and end of the S corporation’s tax year. An entity without Schedule K-1. Enter each shareholder's Item F stock, such as an LLC, should enter the pro rata share of ordinary business income (loss) in box 1 of Schedule K-1. Each shareholder's pro rata share items number of units or other equivalent to S corporation stock (including ownership Identify on statements attached to are figured separately for each period on a Schedule K-1 any additional information daily basis, based on the percentage of percentages). Round the number of shares to the nearest whole number (but the shareholder needs to correctly apply stock held by the shareholder on each the passive activity limitations. For day. not below zero). For example, round 0.6315 up to 1. example, if the corporation has more than one trade or business activity, identify the If there was no change in shareholders Example. If shareholders X and Y amount from each activity. See Passive or in the relative interest in stock the each owned 50 shares for the entire tax Activity Reporting Requirements, earlier. shareholders owned during the tax year, year, enter 50 in item G for both the enter the percentage of total stock owned beginning and ending amounts for each by each shareholder during the tax year shareholder. However, if A and B each Line 2. Net Rental Real Estate (current year allocation percentage). For owned 50 shares of stock for the first half Income (Loss) example, if shareholders X and Y each the tax year and C purchased 10 shares of Enter the net income (loss) from rental real owned 50% for the entire tax year, enter A’s and B’s stock during the year, A’s and estate activities of the corporation from 50% in item F for each shareholder. Each B’s beginning of tax year number of Form 8825. Attach the form to Form shareholder's pro rata share items (boxes shares is 50, while C’s is 0, and the end of 1120-S. 1 through 17 of Schedule K-1) are figured tax year number of shares for A and B is by multiplying the corresponding 40, while C’s is 20. Schedule K-1. Enter each shareholder's Schedule K amount by the percentage in pro rata share of net rental real estate item F. Item H income (loss) in box 2 of Schedule K-1. Identify on statements attached to Report the amount of debt owed by the S If there was a change in shareholders Schedule K-1 any additional information corporation directly to the shareholder as the shareholder needs to correctly apply or in the relative interest in stock the of the beginning and end of the S shareholders owned during the tax year, the passive activity limitations. For corporation’s tax year. Generally, the example, if the corporation has more than figure the percentage as follows. amount reported on Schedule L, line 19, • Each shareholder's percentage of one rental real estate activity, identify the Loans from shareholder, should reconcile amount from each activity. Also, for ownership is weighted for the number of to the sum of all amounts reported on days in the tax year that stock was owned. example, identify certain items from any Schedules K-1. Do not include amounts rental real estate activities that may be For example, A and B each held 50% for for which the shareholder is a co-borrower half the tax year and A, B, and C held subject to the recharacterization rules. or guarantor of corporate level debt. Also See Passive Activity Reporting 40%, 40%, and 20%, respectively, for the do not include any intercompany debt. remaining half of the tax year. The Requirements, earlier. percentage of ownership for the year for A, B, and C is figured as presented in the illustration and is then entered in item F.

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Line 3. Other Net Rental Income directly or indirectly (through pass-through entitled to receive the next dividend (Loss) entities only) owns (within the meaning of payment. When counting the number of section 958(a)) stock in a foreign days the corporation held the stock, Enter on line 3a gross income from rental corporation may have income inclusions include the day the corporation disposed activities other than those reported on (for example, subpart F income and GILTI of the stock but not the day the Form 8825. Include on line 3a gain (loss) inclusions) with respect to the foreign corporation acquired it. from line 17 of Form 4797 that is corporation and, as a result, previously • Dividends attributable to periods attributable to the sale, exchange, or taxed earnings and profits (PTEP) in totaling more than 366 days that the involuntary conversion of an asset used in annual PTEP accounts with respect to the corporation received on any share of a rental activity other than a rental real foreign corporation. Do not include preferred stock held for less than 91 days estate activity. ordinary dividends or qualified dividends during the 181-day period that began 90 received from a foreign corporation to the days before the ex-dividend date. When Enter on line 3b the deductible extent that they are attributable to PTEP in determining the number of days the expenses of the activity. Attach a annual PTEP accounts of the S corporation held the stock, don't count statement of these expenses to Form corporation with respect to the foreign certain days during which the 1120-S. corporation. See Notice 2019-01. The corporation's risk of loss was diminished. amount by which ordinary dividends and Preferred dividends attributable to periods Enter on line 3c the net income (loss). qualified dividends are attributable to totaling less than 367 days are subject to PTEP in annual PTEP accounts of a the 61-day holding period rule above. See Rental Activities, earlier, and Pub. person other than the S corporation is not • Dividends that relate to payments that 925, for more information on rental relevant for purposes of determining the the corporation is obligated to make with activities. ordinary dividends to be entered on respect to short sales or positions in line 5a. substantially similar or related property. Schedule K-1. Enter in box 3 of • Dividends paid by a regulated Schedule K-1 each shareholder's pro rata Note. An annual PTEP account of the S investment company that aren't treated as share of other net rental income (loss) corporation is different than the qualified dividend income under section reported on line 3c of Schedule K. Identify shareholders’ undistributed taxable 854. on statements attached to Schedule K-1 income previously taxed account, as • Dividends paid by a real estate any additional information the shareholder discussed in the instructions to investment trust that aren't treated as needs to correctly apply the passive Schedule M-2, column (b). qualified dividend income under section activity limitations. For example, if the 857(c). corporation has more than one rental Schedule K-1. Enter each shareholder's activity reported in box 3, identify the pro rata share of ordinary dividends in See Pub. 550, Investment Income and amount from each activity. See Passive box 5a of Schedule K-1. Expenses, for more details. Activity Reporting Requirements, earlier. Qualified foreign corporation. A foreign Line 5b. Qualified Dividends corporation is a qualified foreign Portfolio Income Enter qualified dividends on line 5b. corporation if it is: See Portfolio Income, earlier, for a Except as provided below, qualified 1. Incorporated in a possession of the definition of portfolio income. dividends are dividends received from United States, or domestic corporations and qualified 2. Eligible for benefits of a Don't reduce portfolio income by foreign corporations. Do not include comprehensive income tax treaty with the deductions allocated to it. Report such qualified dividends to the extent that they United States that the Secretary deductions (other than interest expense) are attributable to PTEP in annual PTEP determines is satisfactory for this purpose on line 12d of Schedule K. Report each accounts of the S corporation. See Notice and that includes an exchange of shareholder's pro rata share of deductions 2019-01. The amount by which qualified information program. See Notice 2011-64, in box 12 of Schedule K-1 using codes I or dividends are attributable to PTEP in 2011-37 I.R.B. 231, for details. L. annual PTEP accounts of a person other than the S corporation is not relevant for If the foreign corporation doesn't meet either (1) or (2), then it may be treated as a Interest expense allocable to portfolio purposes of determining the qualified qualified foreign corporation for any income is generally investment interest dividends to be entered on line 5b. dividend paid by the corporation if the expense reported on line 12b of stock associated with the dividend paid is Schedule K. Report each shareholder's Note. An annual PTEP account of the S readily tradable on an established pro rata share of interest expense corporation is different than the securities market in the United States. allocable to portfolio income in box 12 of shareholders’ undistributed taxable Schedule K-1 using code H. income previously taxed account, as However, qualified dividends don't discussed in the instructions to include dividends paid by an entity which Schedule M-2, column (b). was a passive foreign investment Line 4. Interest Income Exceptions. The following dividends company (defined in section 1297) in Enter only taxable portfolio interest on this aren't qualified dividends. either the tax year of the distribution or the line. Taxable interest is interest from all • Dividends the corporation received on preceding tax year. sources except interest exempt from tax any share of stock held for less than 61 See Notice 2004-71, 2004-45 I.R.B. and interest on tax-free covenant bonds. days during the 121-day period that began 793, and Notice 2006-3, 2006-3 I.R.B. Schedule K-1. Enter each shareholder's 60 days before the ex-dividend date. 306, for more details. When determining the number of days the pro rata share of interest income in box 4 Schedule K-1. Enter each shareholder's corporation held the stock, don't count of Schedule K-1. pro rata share of qualified dividends in certain days during which the box 5b of Schedule K-1. corporation's risk of loss was diminished. Line 5a. Ordinary Dividends The ex-dividend date is the first date Enter only taxable ordinary dividends on following the declaration of a dividend on line 5a, including any qualified dividends which the purchaser of a stock isn't reported on line 5b. An S corporation that

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If any amounts from line 5b are Schedule K-1. Report each From an estate, trust, REIT, or RIC. If ! from foreign sources, see the shareholder's pro rata share of the the corporation received a Schedule K-1 CAUTION instructions for lines 14d through collectibles (28%) gain (loss) in box 8b of or Form 1099-DIV from an estate, a trust, 14h, later, for additional statements Schedule K-1. a real estate investment trust (REIT), or a required. regulated investment company (RIC) Line 8c. Unrecaptured Section reporting “unrecaptured section 1250 Line 6. Royalties gain,” don't add it to the corporation's own 1250 Gain unrecaptured section 1250 gain. Instead, Enter the royalties received by the The three types of unrecaptured section report it as a separate amount. For corporation. 1250 gain must be reported separately on example, if the corporation received a Schedule K-1. Enter each shareholder's an attached statement to Form 1120-S. Form 1099-DIV from a REIT with unrecaptured section 1250 gain, report it pro rata share of royalties in box 6 of From the sale or exchange of the cor- Schedule K-1. as “Unrecaptured section 1250 gain from poration's business assets. Figure this a REIT.” amount in Part III of Form 4797 for each Line 7. Net Short-Term Capital section 1250 property (except property for Schedule K-1. Report each shareholder's pro rata share of Gain (Loss) which gain is reported using the installment method on Form 6252) for unrecaptured section 1250 gain from the Enter the gain (loss) that is portfolio which you had an entry in Part I of Form sale or exchange of the corporation's income (loss) from Schedule D (Form 4797. Subtract line 26g of Form 4797 from business assets in box 8c of 1120-S), line 7. the smaller of line 22 or line 24. Figure the Schedule K-1. If the corporation is reporting unrecaptured section 1250 gain Schedule K-1. Enter each shareholder's total of these amounts for all section 1250 from an estate, trust, REIT, or RIC, or from pro rata share of net short-term capital properties. Generally, the result is the the corporation's sale or exchange of an gain (loss) in box 7 of Schedule K-1. corporation's unrecaptured section 1250 gain. However, if the corporation is interest in a partnership (as explained reporting gain on the installment method above), enter “STMT” in box 8c and an Line 8a. Net Long-Term Capital for a section 1250 property held more than asterisk (*) in the left column of the box Gain (Loss) 1 year, see the next paragraph. and attach a statement that separately identifies the amount of unrecaptured Enter the gain or loss that is portfolio The total unrecaptured section 1250 section 1250 gain from: income (loss) from Schedule D (Form gain for an installment sale of section 1250 The sale or exchange of the 1120-S), line 15. property held more than 1 year is figured • in a manner similar to that used in the corporation's business assets; Schedule K-1. Enter each shareholder's preceding paragraph. However, the total • The sale or exchange of an interest in a pro rata share of net long-term capital gain unrecaptured section 1250 gain must be partnership; and (loss) in box 8a of Schedule K-1. allocated to the installment payments • An estate, trust, REIT, or RIC. If any gain or loss from line 7 or 15 received from the sale. To do so, the If any amounts from line 8c are of Schedule D is from the corporation must generally treat the gain from foreign sources, see the disposition of nondepreciable allocable to each installment payment as instructions for lines 14d through personal property used in a trade or unrecaptured section 1250 gain until all 14h for additional statements required. business, it may not be treated as portfolio such gain has been used in full. Figure the income. Instead, report it on line 10 of unrecaptured section 1250 gain for Schedule K and report each shareholder's installment payments received during the Line 9. Net Section 1231 Gain pro rata share in box 10 of Schedule K-1 tax year as the smaller of (a) the amount (Loss) using code H. from line 26 or line 37 of Form 6252 (whichever applies), or (b) the total Enter the net section 1231 gain (loss) from unrecaptured section 1250 gain for the Form 4797, line 7. Line 8b. Collectibles (28%) Gain sale reduced by all gain reported in prior Don't include net gain or loss from (Loss) years (excluding section 1250 ordinary income recapture). involuntary conversions due to casualty or Figure the amount attributable to theft. Report net loss from involuntary collectibles from the amount reported on If the corporation chose not to conversions due to casualty or theft on Schedule D (Form 1120-S), line 15. A treat all of the gain from payments line 10 of Schedule K (box 10, code B, of collectibles gain (loss) is any long-term received after May 6, 1997, and Schedule K-1). See the instructions for gain or deductible long-term loss from the before August 24, 1999, as unrecaptured line 10 on how to report net gain from sale or exchange of a collectible that is a section 1250 gain, use only the amount involuntary conversions. capital asset. the corporation chose to treat as unrecaptured section 1250 gain for those Schedule K-1. Report each shareholder's pro rata share of net section Collectibles include works of art, rugs, payments to reduce the total unrecaptured section 1250 gain remaining to be 1231 gain (loss) in box 9 of Schedule K-1. antiques, metal (such as gold, silver, or If the corporation has more than one platinum bullion), gems, stamps, coins, reported for the sale. See Regulations section 1.453-12. rental, trade, or business activity, identify alcoholic beverages, and certain other on an attachment to Schedule K-1 the tangible property. From the sale or exchange of an inter- amount of section 1231 gain (loss) from est in a partnership. Also report as a each separate activity. See Passive Also include gain (but not loss) from the separate amount any gain from the sale or Activity Reporting Requirements, earlier. sale or exchange of an interest in a exchange of an interest in a partnership If any amounts from line 9 are from partnership or trust held for more than 1 attributable to unrecaptured section 1250 foreign sources, see the year and attributable to unrealized gain. See Regulations section 1.1(h)-1 instructions for lines 14d through appreciation of collectibles. For details, and attach the statement required under 14h for additional required statements. see Regulations section 1.1(h)-1. Also Regulations section 1.1(h)-1(e). attach the statement required under Regulations section 1.1(h)-1(e).

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Line 10. Other Income (Loss) Section 951A income (code E). If the corporation for more than 5 years. corporation (and its shareholders, as Additional limitations apply at the Enter any other item of income or loss not shareholder level. Report each included on lines 1 through 9. On the line applicable) has elected under Notice 2020-69 to be treated as an entity for shareholder's share of section 1202 gain to the left of the entry space for line 10, on Schedule K-1. Each shareholder will identify the type of income. If there is more purposes of section 951A, enter the global intangible low-taxed income amount determine if he or she qualifies for the than one type of income, attach a exclusion. Report on an attachment to statement to Form 1120-S that separately determined by the corporation here. See Form 8992, Part II, line 5. Schedule K-1 for each sale or exchange identifies each type and amount of income (a) the name of the corporation that issued for each of the following categories. The Provide information on line 10 the QSB stock, (b) the shareholder's pro codes needed for Schedule K-1 reporting ! using code E only if the rata share of the corporation's adjusted are provided for each category. CAUTION corporation (and its shareholders, basis and sales price of the QSB stock, Other portfolio income (loss) (code A). if applicable) has elected to be treated as and (c) the dates the QSB stock was Portfolio income not reported on lines 4 an entity for purposes of section 951A bought and sold. through 8. under Notice 2020-69. If no election has • Gain eligible for section 1045 rollover been made under the Notice, see (replacement stock purchased by the Report and identify other portfolio instructions for line 17d, code AD. income or loss on an attachment for corporation). Include only gain from the line 10. sale or exchange of QSB stock (as Reserved for future use (code F). defined in the Instructions for Schedule D) If the corporation holds a residual Code F is reserved for future use. that was deferred by the corporation under interest in a Real Estate Mortgage section 1045 and reported on Schedule D. Investment Conduit (REMIC), report on an Income under subpart F (other than in- clusions under section 951A) (code See the Instructions for Schedule D for attachment the shareholder's share of the more details. Additional limitations apply following. G). Provide the amount of the corporation's section 951(a) inclusions, at the shareholder level. Report each • Taxable income (net loss) from the shareholder's share of the gain eligible for REMIC (line 1b of Schedules Q (Form unless the corporation has chosen to apply the provisions of Proposed section 1045 rollover on Schedule K-1. 1066)). Each shareholder will determine if he or • Excess inclusion (line 2c of Schedules Regulations section 1.958-1(d) for the tax year. she qualifies for the rollover. Report on an Q (Form 1066)). attachment to Schedule K-1 for each sale • Section 212 expenses (line 3b of If the corporation has chosen to or exchange (a) the name of the Schedules Q (Form 1066)). apply the provisions of Proposed corporation that issued the QSB stock, (b) Because Schedule Q (Form 1066) is a Regulations section 1.958-1(d) for the shareholder's pro rata share of the quarterly statement, the corporation must the tax year, see instructions for line 17d, corporation's adjusted basis and sales follow the Schedule Q instructions to code AD. price of the QSB stock, and (c) the dates figure the amounts to report to the QSB stock was bought and sold. shareholders for the corporation's tax Other income (loss) (code H). Include • Gain eligible for section 1045 rollover year. any other type of income, such as the (replacement stock not purchased by the following. corporation). Include only gain from the Involuntary conversions (code B). • Recoveries of tax benefit items (section sale or exchange of QSB stock (as Report net loss from involuntary 111). defined in the Instructions for Schedule D) conversions due to casualty or theft. The • Gambling gains and losses subject to the corporation held for more than 6 amount for this item is shown on Form the limitations in section 165(d). Indicate months but that wasn't deferred by the 4684, Casualties and Thefts, line 38a or on an attached statement whether or not corporation under section 1045. See the 38b. the corporation is in the trade or business Instructions for Schedule D for more Each shareholder's pro rata share must of gambling. details. A shareholder may be eligible to be entered on Schedule K-1. • Disposition of an interest in oil, gas, defer his or her pro rata share of this gain Enter the net gain from involuntary geothermal, or other mineral properties. under section 1045 if he or she purchases conversions of property used in a trade or Report the following information on a other QSB stock during the 60-day period business (line 39 of Form 4684) on line 3 statement attached to Schedule K-1: (a) a that began on the date the QSB stock was of Form 4797. description of the property; (b) the sold by the corporation. Additional shareholder's share of the amount limitations apply at the shareholder level. If there was a gain (loss) from a realized on the sale, exchange, or casualty or theft to property not used in a Report on an attachment to Schedule K-1 involuntary conversion of each property for each sale or exchange (a) the name of trade or business or for income-producing (fair market value of the property for any purposes, notify the shareholder. The the corporation that issued the QSB stock, other disposition, such as a distribution); (b) the shareholder's pro rata share of the corporation shouldn't complete Form 4684 (c) the shareholder's share of the for this type of casualty or theft. Instead, corporation's adjusted basis and sales corporation's adjusted basis in the price of the QSB stock, and (c) the dates each shareholder will complete his or her property (except for oil or gas properties); own Form 4684. the QSB stock was bought and sold. and (d) total intangible drilling costs, • Any gain or loss from line 7 or 15 of Section 1256 contracts and straddles development costs, and mining Schedule D that isn't portfolio income (for (code C). Report any net gain or loss exploration costs (section 59(e) example, gain or loss from the disposition from section 1256 contracts from Form expenditures) passed through to the of nondepreciable personal property used 6781, Gains and Losses From Section shareholder for the property. See in a trade or business). 1256 Contracts and Straddles. Regulations section 1.1254-4 for more information. Schedule K-1. Enter each shareholder's Mining exploration costs recapture • Gain from the sale or exchange of pro rata share of the other income (code D). Provide the information qualified small business (QSB) stock (as categories listed above in box 10 of shareholders need to recapture certain defined in the Instructions for Schedule D) Schedule K-1. Enter the applicable code mining exploration expenditures. See that is eligible for the section 1202 A, B, C, D, E, F, G, or H (as shown Regulations section 1.617-3. exclusion. The section 1202 exclusion earlier). applies only to QSB stock held by the

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If you are reporting each shareholder's amount of section 179 deduction from and infants. The food must meet all the pro rata share of only one type of income each separate activity. See Passive quality and labeling standards imposed by under code H, enter the code with an Activity Reporting Requirements, earlier. federal, state, and local laws and asterisk (H*) and the dollar amount in the Don't complete box 11 of Schedule K-1 regulations. The charitable contribution for entry space in box 10 and attach a for any shareholder that is an estate or donated food inventory is the lesser of (a) statement that shows “Box 10, code H,” trust; estates and trusts aren't eligible for the basis of the donated food plus half of and the type of income. If you are the section 179 expense deduction. the appreciation (gain if the donated food reporting multiple types of income under were sold at fair market value (FMV) on code H, enter the code with an asterisk the date of the gift), or (b) twice the basis (H*) and enter “STMT” in the entry space Line 12a. Charitable Contributions of the donated food. A corporation that in box 10 and attach a statement that Cash contributions must be supported by doesn’t account for inventories and isn’t shows “Box 10, code H,” and the dollar a dated bank record or receipt. required to capitalize indirect costs under amount of each type of income. section 263A may elect to treat the basis If the corporation has more than one Generally, no deduction is allowed for of the donated food as equal to 25% of the trade or business or rental activity (for any contribution of $250 or more unless FMV of the food. See section 170(e)(3)(C) codes B through H), identify on an the corporation obtains a written for more details. attachment to Schedule K-1 the amount acknowledgment from the charitable • The shareholder's pro rata share of the from each separate activity. See Passive organization that shows the amount of net income for the tax year from the Activity Reporting Requirements, earlier. cash contributed, describes any property corporation's trades or businesses that contributed, and gives an estimate of the made the contributions of food inventory. Deductions value of any goods or services provided in Qualified conservation contributions. return for the contribution. The The AGI limit for qualified conservation Line 11. Section 179 Deduction acknowledgment must be obtained by the contributions under section 170(h) is due date (including extensions) of the A corporation can elect to expense part or generally 50%. However, if the corporation corporation's return, or, if earlier, the date is a qualified farmer or rancher (farm all of the cost of certain property the the return is filed. Don't attach the corporation purchased during the tax year income is more than 50% of gross acknowledgment to the tax return, but income), the AGI limit for qualified for use in its trade or business or certain keep it with the corporation's records. rental activities. See Pub. 946 for a conservation contributions of property These rules apply in addition to the filing used in agriculture or livestock production definition of what kind of property qualifies requirements for Form 8283, Noncash for the section 179 expense deduction and (or available for such production) is 100%. Charitable Contributions, described under The carryover period is 15 tax years. See the Instructions for Form 4562 for Contributions of property, later. limitations on the amount of the section section 170(b) and Notice 2007-50, 179 expense deduction. 2007-25 I.R.B. 1430, for details. Report Enter charitable contributions made qualified conservation contributions with a Complete Part I of Form 4562 to figure during the tax year. Attach a statement to 50% AGI limitation on Schedule K-1 in the corporation's section 179 expense Form 1120-S that separately identifies the box 12 using code C. Report qualified deduction. The corporation doesn't take corporation's contributions for each of the conservation contributions with a 100% the deduction itself, but instead passes it following categories. See Limits on AGI limitation on a statement attached to through to the shareholders. Attach Form Deductions in Pub. 526, Charitable Schedule K-1 using code G. Contributions, for information on adjusted 4562 to Form 1120-S and show the total Noncash contributions (30%) (code section 179 expense deduction on gross income (AGI) limitations on deductions for charitable contributions. D). Enter noncash contributions subject to Schedule K, line 11. the 30% AGI limitation. Although the corporation can't take the The codes needed for Schedule K-1 Capital gain property to a 50% organi- section 179 deduction, it must generally reporting are provided for each category. zation (30%) (code E). Enter capital gain property contributions subject to the still reduce the basis of the asset by the Cash contributions (60%) (code A). 30% AGI limitation. amount of the section 179 deduction it Enter cash contributions subject to the elected, regardless of whether any 60% AGI limitation. Don’t include in the Capital gain property (20%) (code F). shareholder can use the deduction. amount reported using code A the cash Enter capital gain property contributions However, the corporation doesn't reduce contributions reported using code G. For subject to the 20% AGI limitation. the basis for any section 179 deduction example, report certain cash contributions Contributions of property. See allocable to a trust or estate because they made in calendar year 2020 or 2021 using Contributions of Property in Pub. 526 and aren't eligible to take the section 179 code G. deduction. See Regulations section Pub. 561, Determining the Value of 1.179-1(f). Cash contributions (30%) (code B). Donated Property, for information on Enter cash contributions subject to the noncash contributions and contributions of See the instructions for line 17d of 30% AGI limitation. capital gain property. If the deduction claimed for noncash contributions Schedule K for sales or other dispositions Noncash contributions (50%) (code exceeds $500, complete Form 8283 and of property for which a section 179 C). Enter noncash contributions subject to attach it to Form 1120-S. deduction has passed through to the 50% AGI limitation. Don't include food shareholders and for the recapture rules if inventory contributions reported Shareholders can deduct their pro rata the business use of the property dropped separately on an attached statement. share of the FMV of property to 50% or less. contributions, but will only need to adjust Food inventory contributions. Provide their stock basis by their pro rata share of Schedule K-1. Report each the following information on a statement shareholder's pro rata share of the section the property's adjusted basis. Give each attached to Schedule K-1. shareholder a statement identifying their 179 expense deduction in box 11 of • The shareholder's pro rata share of the Schedule K-1. pro rata share of both the FMV and amount of the charitable contributions adjusted basis of the property. If the corporation has more than one under section 170(e)(3) for qualified food rental, trade, or business activity, identify inventory that was donated to charitable If the corporation made a qualified on an attachment to Schedule K-1 the organizations for the care of the ill, needy, conservation contribution under section

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170(h), also include the FMV of the remain available for such production. See • Mining exploration and development underlying property before and after the section 170(b) for details. costs. donation, as well as the type of legal Schedule K-1. Report each interest contributed, and describe the If a shareholder makes the election, shareholder's pro rata share of charitable conservation purpose furthered by the these items aren't treated as alternative contributions in box 12 of Schedule K-1 donation. Give a copy of this information minimum tax (AMT) tax preference items. using codes A through G for each of the to each shareholder. contribution categories shown earlier. See Because the shareholders make this If the corporation made a contribution Contributions of property, earlier, for election, the corporation can't deduct of real property located in a registered information on statements you may be these amounts or include them as AMT historic district, restrictions apply. required to attach to Schedule K-1. The items on Schedule K-1. Instead, the Generally, no deductions are allowed for corporation must attach a copy of its Form corporation passes through the structures or land (deductions are only 8283 to the Schedule K-1 of each information the shareholders need to allowed for buildings), and the charitable shareholder receiving an allocation of the figure their separate deductions. contribution may be reduced if contribution deduction shown in Section A rehabilitation credits were claimed for the or Section B of its Form 8283. building. A $500 filing fee may apply to On the dotted line to the left of the entry certain deductions over $10,000. See space for line 12c, enter the type of Pub. 526 for details. Line 12b. Investment Interest expenditures claimed on line 12c. Enter Expense on line 12c the qualified expenditures paid Nondeductible contributions. Certain or incurred during the tax year for which a contributions made to an organization Include on this line the interest properly shareholder may make an election under conducting lobbying activities aren't allocable to debt on property held for section 59(e). Enter this amount for all deductible. See section 170(f)(9) for more investment purposes. Property held for shareholders whether or not any details. Also see Contributions You Can’t investment includes property that shareholder makes an election under Deduct in Pub. 526 for more examples of produces income (unless derived in the section 59(e). nondeductible contributions. ordinary course of a trade or business) from interest, dividends, annuities, or On an attached statement, identify the An accrual basis S corporation royalties; and gains from the disposition of can't elect to treat a contribution property for which the expenditures were ! property that produces those types of paid or incurred. If the expenditures were CAUTION as having been paid in the tax year income or is held for investment. the board of directors authorizes the for intangible drilling or development costs for oil and gas properties, identify the payment if the contribution isn't actually Investment interest expense doesn't paid until the next tax year. month(s) in which the expenditures were include interest expense allocable to a paid or incurred. If there is more than one passive activity. Contributions (100%) (code G). Use type of expenditure or more than one code G to report the following amounts. property, provide the amounts (and the Investment income and investment months paid or incurred, if required) for Disaster relief. Enter cash expenses other than interest are reported each type of expenditure separately for contributions made before February 19, on lines 17a and 17b, respectively. This each property. 2020, for relief efforts in certain disaster information is needed by shareholders to areas. The corporation must obtain a determine the investment interest expense Schedule K-1. Report each statement that includes contemporaneous limitation (see Form 4952 for details). shareholder's pro rata share of section written acknowledgment from the qualified 59(e) expenditures in box 12 of Schedule K-1. Report each charitable organization that the Schedule K-1 using code J. Identify the shareholder's pro rata share of investment contribution was used (or will be used) for following information on an attached interest expense in box 12 of this purpose. See Pub. 526 for more statement. Schedule K-1 using code H. information. • The type of expenditure. • The property for which the expenditures Other cash contributions made in Line 12c. Section 59(e)(2) are paid or incurred. 2020 or 2021. For tax years ending after Expenditures • For oil and gas properties only, the 2019, individual taxpayers may elect to month in which intangible drilling costs deduct certain cash contributions in Generally, section 59(e) allows each and development costs were paid or amounts up to 100% of AGI. See Pub. 526 shareholder to make an election to deduct incurred. for details. their pro rata share of the corporation's If there is more than one type of otherwise deductible qualified Qualified conservation expenditure or the expenditures are for expenditures ratably over 10 years (3 more than one property, provide each contributions of property used in years for circulation expenditures). The agriculture or livestock production. If shareholder's pro rata share of the deduction is taken beginning with the tax amounts (and the months paid or incurred the corporation is a qualified farmer or year in which the expenditures were made rancher (farm income is more than 50% of for oil and gas properties) for each type of (or for intangible drilling and development expenditure separately for each property. gross income), attach a statement to costs, over the 60-month period beginning Schedule K-1 that shows the with the month in which such costs were shareholder's pro rata share of qualified paid or incurred). Line 12d. Other Deductions conservation contributions of property Enter deductions not included on line 11, used in agriculture or livestock production The term “qualified expenditures” 12a, 12b, 12c, or 14p. On the line to the (or available for such production). Don’t includes only the following types of left of the entry space for line 12d, identify include these contributions in the amounts expenditures paid or incurred during the the type of deduction. If there is more than reported in box 12 of Schedule K-1 tax year. one type of deduction, attach a statement because shareholders must separately Circulation expenditures. to Form 1120-S that separately identifies determine if they qualify for the 50% or • Research and experimental the type and amount of each deduction for 100% AGI limitation for these • expenditures. the following categories. The codes contributions. The contribution must be Intangible drilling and development needed for Schedule K-1 reporting are subject to a restriction that the property • costs. provided for each category.

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Deductions—Royalty income (code I). Other deductions (code S). Include any an asterisk (S*) and the dollar amount in Enter deductions related to royalty other deductions, such as the following. the entry space in box 12 and attach a income. • Amounts paid by the corporation that statement that shows the box number, would be allowed as itemized deductions code, and type of deduction. If you are Reserved for future use (code K). on any of the shareholders' income tax reporting multiple types of deductions Code K is reserved for future use. returns if they were paid directly by a under code S, enter the code with an Deductions—Portfolio (other) (code shareholder for the same purpose. These asterisk (S*), enter “STMT” in the dollar L). Enter any other deductions related to amounts include, but aren't limited to, amount entry space in box 12, and attach portfolio income. expenses under section 212 for the a statement that shows the box number, production of income other than from the code, and dollar amount of each type of No deduction is allowed under section deduction. 212 for expenses allocable to a corporation's trade or business. However, convention, seminar, or similar meeting. don't enter expenses related to portfolio If the corporation has more than one Because these expenses aren't deductible income or investment interest expense trade or business activity, identify on an by shareholders, the corporation doesn't reported on line 12b of Schedule K on this attachment to Schedule K-1 the amount report these expenses on line 12d of line. for each separate activity. See Passive Schedule K. The expenses are • Soil and water conservation Activity Reporting Requirements, earlier. expenditures (section 175). See Pub. 225. nondeductible and are reported as such Credits on line 16c of Schedule K and in box 16 of • Endangered species recovery Schedule K-1 using code C. expenditures (section 175). Don't attach Form 3800, General • Expenditures paid or incurred for the TIP Business Credit, to Form 1120-S. Preproductive period expenses (code removal of architectural and transportation M). If the corporation is required to use an barriers to the elderly and disabled that accrual method of accounting under the corporation has elected to treat as a section 448(a)(3), it must capitalize these current expense. See section 190. Low-Income Housing Credit expenses. If the corporation is permitted • Interest expense allocated to Section 42 provides a credit that can be to use the cash method, enter the amount debt-financed distributions. See Notice claimed by owners of low-income of preproductive period expenses that 89-35, 1989-1 C.B. 675, or Pub. 535, residential rental buildings. To qualify for qualify under section 263A(d). An election chapter 4, for more information. the credit, the corporation must file Form not to capitalize these expenses must be • Contributions to a capital construction 8609, Low-Income Housing Credit made at the shareholder level. See fund. See Pub. 595, Capital Construction Allocation and Certification, separately Uniform Capitalization Rules in Pub. 225. Fund for Commercial Fishermen. with the IRS. Don't attach Form 8609 to Commercial revitalization deduction • Any penalty on early withdrawal of Form 1120-S. Complete and attach Form from rental real estate activities (code savings because the corporation withdrew 8586, Low-Income Housing Credit, and N). Enter the commercial revitalization funds from its time savings deposit before Form 8609-A, Annual Statement for deduction on line 12d only if it is for a its maturity. Low-Income Housing Credit, to Form rental real estate activity. If the deduction • Film, television, and live theatrical 1120-S. is for a nonrental building, enter it on production expenses. The corporation can line 19 of Form 1120-S. See Special Rules elect to deduct certain costs of a qualified Line 13a. Low-Income Housing film, television, or live theatrical production under Line 19. Other Deductions, earlier, Credit (Section 42(j)(5)) for more information. commencing before January 1, 2026 (after December 31, 2015, and before January If the corporation invested in a partnership Reforestation expense deduction 1, 2026, for a live theatrical production), to which the provisions of section 42(j)(5) (code O). The corporation can elect to limited to $15 million of the aggregate apply, report on line 13a the credit deduct a limited amount of its reforestation production cost of the production. There is reported to the corporation in box 15 of expenditures paid or incurred during the a higher dollar limitation for productions in Schedule K-1 (Form 1065) using code A tax year. The amount the corporation can certain areas. A live theatrical or code C. elect to deduct is limited to $10,000 for performance commences on the date of each qualified timber property. See its first public performance for a paying Schedule K-1. Report in box 13 of section 194(c) for a definition of audience. Provide a description of the film, Schedule K-1 each shareholder's pro rata reforestation expenditures and qualified television, or live theatrical production on share of the low-income housing credit timber property. See Notice 2006-47, an attached statement. If the corporation reported on line 13a of Schedule K. Use 2006-20 I.R.B. 892, for details on making makes the election for more than one code A to report the portion of the credit the election. The corporation must production, attach a statement to attributable to buildings placed in service amortize over 84 months any amount not Schedule K-1 that shows each before 2008. Use code C to report the deducted. See Reforestation shareholder's pro rata share of the portion of the credit attributable to expenditures, earlier. qualified expenditures separately for each buildings placed in service after 2007. If the corporation has credits from more than Schedule K-1. Enter the production. The deduction is subject to recapture under section 1245 if the one activity, identify on an attachment to shareholder's pro rata share of allowable Schedule K-1 the amount for each reforestation expense in box 12 of election is voluntarily revoked or the production fails to meet the requirements separate activity. See Passive Activity Schedule K-1 using code O and attach a Reporting Requirements, earlier. statement that provides a description of for the deduction. See section 181 and the the qualified timber property. If the related regulations. Line 13b. Low-Income Housing corporation is electing to deduct amounts Schedule K-1. Enter each shareholder's from more than one qualified timber pro rata share of the deduction categories Credit (Other) property, provide a description and the listed above in box 12 of Schedule K-1 or Report on line 13b any low-income amount for each property. provide the required information on an housing credit not reported on line 13a. Codes P through R. Reserved for future attached statement. Enter the applicable This includes any credit reported to the use. code shown above. corporation in box 15 of Schedule K-1 If you are reporting only one type of (Form 1065) using code B or code D. deduction under code S, enter code S with

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Schedule K-1. Report in box 13 of F, enter the code with an asterisk (F*) and reported on line 13f using code I. If the Schedule K-1 each shareholder's pro rata the dollar amount in the entry space in corporation has credits from more than share of the low-income housing credit box 13 and attach a statement that shows one activity, identify on an attachment to reported on line 13b of Schedule K. Use “Box 13, code F” and the type of credit. If Schedule K-1 the amount for each code B to report the portion of the credit you are reporting multiple types of rental separate activity. See Passive Activity attributable to buildings placed in service real estate credit under code F, enter the Reporting Requirements, earlier. before 2008. Use code D to report the code with an asterisk (F*) and enter portion of the credit attributable to “STMT” in the entry space in box 13 and Line 13g. Other Credits buildings placed in service after 2007. If attach a statement that shows “Box 13, Enter on line 13g any other credit, except the corporation has credits from more than code F” and the dollar amount of each credits or expenditures shown or listed for one rental activity, identify on an type of credit. If the corporation has credits lines 13a through 13f or the credit for attachment to Schedule K-1 the amount from more than one rental real estate federal tax paid on fuels (which is reported for each separate activity. See Passive activity, identify on the attached statement on line 23c of page 1). On the line to the Activity Reporting Requirements, earlier. the amount of each type of credit for each separate activity. See Passive Activity left of the entry space for line 13g, identify Reporting Requirements, earlier. the type of credit. If there is more than one Line 13c. Qualified Rehabilitation type of credit, attach a statement to Form Expenditures (Rental Real Estate) 1120-S that separately identifies each Line 13e. Other Rental Credits type and amount of credit for the following Enter on line 13c the total qualified Enter on line 13e any other credit (other categories. The codes needed for box 13 rehabilitation expenditures related to than credits reported on lines 13a through of Schedule K-1 are provided in the rental real estate activities of the 13d) related to rental activities. On the heading of each category. corporation. See the Instructions for Form dotted line to the left of the entry space for Undistributed capital gains credit 3468 for details on qualified rehabilitation line 13e, identify the type of credit. If there (code H). This credit represents taxes expenditures. is more than one type of credit, attach a paid on undistributed capital gains by a statement to Form 1120-S that identifies Schedule K-1. Report each regulated investment company (RIC) or a the type and amount for each credit. shareholder's pro rata share of qualified real estate investment trust (REIT). As a These credits may include any type of rehabilitation expenditures related to shareholder of a RIC or REIT, the credit listed in the instructions for line 13g. rental real estate activities in box 13 of corporation will receive notice of the Schedule K-1 using code E. Attach a Schedule K-1. Report in box 13 of amount of tax paid on undistributed capital statement to Schedule K-1 that provides Schedule K-1 each shareholder's pro rata gains on Form 2439, Notice to the information and the shareholder's pro share of other rental credits using code G. Shareholder of Undistributed Long-Term rata share of the basis and expenditure If you are reporting each shareholder's pro Capital Gains. amounts the shareholder will need to rata share of only one type of rental credit Work opportunity credit (code J). figure the amounts to report on lines 11b under code G, enter the code with an Complete Form 5884 to figure the credit. through 11g of Form 3468, Investment asterisk (G*) and the dollar amount in the Attach it to Form 1120-S. Credit. See the Instructions for Form 3468 entry space in box 13 and attach a for details. If the corporation has statement that shows “Box 13, code G” Disabled access credit (code K). expenditures from more than one rental and the type of credit. If you are reporting Complete Form 8826 to figure the credit. real estate activity, identify on an multiple types of rental credit under code Attach it to Form 1120-S. attachment to Schedule K-1 the G, enter the code with an asterisk (G*) and Empowerment zone employment cred- information and amounts for each enter “STMT” in the entry space in box 13 it (code L). Complete Form 8844, if separate activity. See Passive Activity and attach a statement that shows “Box applicable, to figure the credit. Attach it to Reporting Requirements, earlier. 13, code G” and the dollar amount of each Form 1120-S. Qualified rehabilitation type of credit. If the corporation has credits ! expenditures for property not from more than one rental activity, identify Credit for increasing research activi- CAUTION related to rental real estate on the attached statement the amount of ties (code M). Complete Form 6765 to activities must be reported in box 17 using each type of credit for each separate figure the credit. Attach it to Form 1120-S. code C. activity. See Passive Activity Reporting For more information, see the Instructions Requirements, earlier. for Form 6765. Line 13d. Other Rental Real Estate The corporation should provide Line 13f. Biofuel Producer Credit TIP the information necessary for the Credits Enter on line 13f any biofuel producer shareholder to determine whether Enter on line 13d any other credit (other credit attributable to trade or business the corporation is an eligible small than credits reported on lines 13a through activities. If the credit is attributable to business under section 38(c)(5)(A). If the 13c) related to rental real estate activities. rental activities, enter the amount on shareholder and the corporation meet the On the dotted line to the left of the entry line 13d or 13e. requirements of section 38(c)(5)(A), the space for line 13d, identify the type of research credit may be treated as a credit. If there is more than one type of Figure this credit on Form 6478, if specified credit. credit, attach a statement to Form 1120-S applicable. Attach it to Form 1120-S. that identifies the type and amount for Include any amount shown on line 2 of Credit for employer social security and each credit. These credits may include Form 6478 in the corporation's income on Medicare taxes paid on certain em- any type of credit listed in the instructions line 5 of Form 1120-S. ployee tips (code N). Complete Form for line 13g. 8846 to figure the credit. Attach it to Form 1120-S. Schedule K-1. Report in box 13 of See section 40(f) for an election the Schedule K-1 each shareholder's pro rata corporation can make to have the credit Backup withholding (code O). This share of other rental real estate credits not apply. credit is for backup withholding on using code F. If you are reporting each Schedule K-1. Report in box 13 of dividends, interest, and other types of shareholder's pro rata share of only one Schedule K-1 each shareholder's pro rata income of the corporation. type of rental real estate credit under code share of the biofuel producer credit

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Other credits (code P). Attach a • Qualified zone academy bond credit If you are reporting each shareholder's statement to Form 1120-S that identifies (for bonds issued before October 4, 2008) pro rata share of only one type of credit the type and amount of any other credits (Form 8912). The amount of this credit is under code P, enter the code with an not reported elsewhere. Complete the reported as interest income on line 4 of asterisk (P*) and the dollar amount in the credit form identified below and attach it to Schedule K. In addition, the amount of this entry space in box 13 and attach a Form 1120-S. credit is reported on line 17d of statement that shows “Box 13, code P” • Unused investment credit from the Schedule K. and the type of credit. If you are reporting qualifying advanced coal project credit, • New clean renewable energy bond multiple types of credit under code P, qualifying gasification project credit, or credit (Form 8912). The amount of this enter the code with an asterisk (P*) and qualifying advanced energy project credit credit (excluding any credits from enter “STMT” in the entry space in box 13 allocated from cooperatives. partnerships, estates, and trusts) is and attach a statement that shows “Box • Unused investment credit from the reported as interest income on line 4 of 13, code P” and the dollar amount of each rehabilitation credit or energy credit Schedule K. In addition, the amount of this type of credit. If the corporation has credits allocated from cooperatives. credit is reported as a property distribution from more than one activity, identify on an • Employee retention credit (Form on line 16d of Schedule K. attachment to Schedule K-1 the amount of 5884-A), if applicable. • Qualified energy conservation bond each type of credit for each separate • Orphan drug credit (Form 8820). credit (Form 8912). The amount of this activity. See Passive Activity Reporting • Enhanced oil recovery credit (Form credit (excluding any credits from Requirements, earlier. partnerships, estates, and trusts) is 8830), if applicable. Foreign Transactions • Renewable electricity, refined coal, and reported as interest income on line 4 of Indian coal production credit (Form 8835). Schedule K. In addition, the amount of this Line 14b must be completed if a Attach a statement to Form 1120-S and credit is reported as a property distribution shareholder may need this information to Schedule K-1 showing the allocation of on line 16d of Schedule K. figure a foreign tax credit. Lines 14a and the credit for production during the 4-year • Qualified zone academy bond credit 14c through 14r must be completed if the period beginning on the date the facility (for bonds issued after October 3, 2008) corporation has foreign income, was placed in service and for production (Form 8912). The amount of this credit deductions, or losses, or has paid or after that period. (excluding any credits from partnerships, accrued foreign taxes. estates, and trusts) is reported as interest • Indian employment credit (Form 8845), On Schedule K-1, for items that require income on line 4 of Schedule K. In if applicable. an attached statement, enter the code addition, the amount of this credit is • Biodiesel and renewable diesel fuels followed by an asterisk and the reported as a property distribution on credit (Form 8864), if applicable. Include shareholder's pro rata share of the dollar line 16d of Schedule K. any amount from line 8 of Form 8864 in amount. Attach a statement to Qualified school construction bond the corporation's income on line 5 of Form • Schedule K-1 providing the information credit (Form 8912). The amount of this 1120-S. If this credit includes the small described below. If the corporation had credit (excluding any credits from agri-biodiesel producer credit, identify on income from, or paid or accrued taxes to, partnerships, estates, and trusts) is a statement attached to Schedule K-1 (a) more than one country or U.S. reported as interest income on line 4 of the small agri-biodiesel producer credit possession, see the requirement for an Schedule K. In addition, the amount of this included in the total credit allocated to the attached statement in the instructions for credit is reported as a property distribution shareholder, (b) the number of gallons for line 14a below. See Pub. 514, Foreign Tax on line 16d of Schedule K. which the corporation claimed the small Credit for Individuals, and the Instructions Build America bond credit (Form 8912). agri-biodiesel producer credit, and (c) the • for Form 1116, Foreign Tax Credit, for The amount of this credit (excluding any corporation's productive capacity for more information. agri-biodiesel. credits from partnerships, estates, and • New markets credit (Form 8874), if trusts) is reported as interest income on applicable. line 4 of Schedule K. In addition, the Line 14a. Name of Country or U.S. • Credit for small employer pension plan amount of this credit is reported as a Possession (Code A) startup costs and auto-enrollment (Form property distribution on line 16d of Schedule K. Enter the name of the foreign country or 8881). U.S. possession from which the • Credit for employer-provided childcare • Mine rescue team training credit (Form 8923), if applicable. corporation had income or to which the facilities and services (Form 8882). corporation paid or accrued taxes. If the • Low sulfur diesel fuel production credit • Credit for employer differential wage payments (Form 8932). corporation had income from, or paid or (Form 8896). accrued taxes to, more than one foreign • Qualified railroad track maintenance • Carbon oxide sequestration credit (Form 8933). country or U.S. possession, enter “See credit (Form 8900). attached” and attach a statement for each • Credit for oil and gas production from • Qualified plug-in electric drive motor vehicle credit (Form 8936). country for lines 14a through 14r (codes A marginal wells (Form 8904), if applicable. through R, code U, and code V of • Distilled spirits credit (Form 8906). • Qualified two-wheeled plug-in electric vehicle credit (Form 8936), if applicable. Schedule K-1). On Schedule K-1, if there • Energy efficient home credit (Form is more than one country, enter code A 8908), if applicable. • Credit for small employer health insurance premiums (Form 8941). followed by an asterisk (A*), enter • Alternative motor vehicle credit (Form “STMT,” and attach a statement to 8910), if applicable. • Employer credit for paid family and medical leave (Form 8994). Schedule K-1 for each country for the • Alternative fuel vehicle refueling information and amounts coded A through property credit (Form 8911), if applicable. Schedule K-1. Enter in box 13 of R, U, and V. • Clean renewable energy bond credit Schedule K-1 each shareholder's pro rata (Form 8912). The amount of this credit share of the credits listed above. See RIC pass-through amounts. Aggregate (excluding any credits from partnerships, additional Schedule K-1 reporting all income passed through from RICs and estates, and trusts) is reported as interest information provided in the instructions report the total on a single line. Enter “RIC” income on line 4 of Schedule K. In above. Enter the applicable code, H on line 14a and report the total on addition, the amount of this credit is through P, in the column to the left of the line 14b. Note that the totals are being reported on line 17d of Schedule K. dollar amount entry space. reported on a single line because it isn't

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necessary to report the RIC pass-through section 989(a)) in one or more foreign Line 14p. Total Foreign Taxes Paid amounts on a per-country basis. countries. Report all income that would be or Accrued foreign branch category income of its Line 14b. Gross Income From All shareholders if all of its shareholders were Enter in U.S. dollars the total foreign taxes U.S. persons that weren’t pass-through (described in section 901 or section 903) Sources (Code B) entities. that were paid or accrued according to the Enter the corporation's gross income from corporation's method of accounting for Line 14f. Passive category (code F). all sources (both U.S. and foreign). such taxes. Translate these amounts into Passive category foreign source income. U.S. dollars by using the applicable exchange rate (see Pub. 514). Line 14c. Gross Income Sourced at Line 14g. General category (code G). General category foreign source income. Shareholder Level (Code C) Foreign taxes paid (code P). If the Include all foreign income sourced at the corporation used the cash method of Enter the total gross income of the corporate level that isn't reported on lines accounting, check the “Paid” box and corporation that is required to be sourced 14d, 14e, 14f, and 14h. enter foreign taxes paid during the tax at the shareholder level. This includes Line 14h. Other (code H). Attach a year. Report each shareholder's pro rata income from the sale of most personal statement showing the amount of foreign share in box 14 of Schedule K-1 using property, other than inventory, depreciable source income included in section 901(j) code P. property, and certain intangible property. income.This other category will override See Pub. 514 and section 865 for details. Foreign taxes accrued (code Q). If the the initial categorization of such income. corporation used an accrual method of You must attach a statement to accounting, check the “Accrued” box and ! Form 1120-S showing the Lines 14i–14j. Deductions enter foreign taxes accrued. Report each CAUTION following information. Allocated and Apportioned at shareholder's pro rata share in box 14 of Schedule K-1 using code Q. Shareholder Level • The amount of this gross income A corporation reporting foreign taxes (without regard to its source) in each Line 14i. Interest expense (code I). using the cash method can make an category identified in the instructions for Enter the corporation's total interest irrevocable election to report the taxes lines 14d through 14h. expense (including interest equivalents using an accrual method for the year of • Specifically identify gains on the sale of under Temporary Regulations section the election and all future years. Make this personal property other than inventory, 1.861-9T(b)). Don't include interest election by reporting all foreign taxes depreciable property, and certain directly allocable under Temporary using an accrual method on line 14p and intangible property on which a foreign tax Regulations section 1.861-10T to income checking the “Accrued” box (see of 10% or more was paid or accrued. Also from a specific property. This type of Regulations section 1.905-1). list losses on the sale of such property if interest is allocated and apportioned at the Attach a statement reporting the the foreign country would have imposed a corporate level and is included on lines following information. 10% or higher tax had the sale resulted in 14k through 14o. 1. The total amount of foreign taxes a gain. In addition, separately identify the Line 14j. Other (code J). Enter the total (including foreign taxes on income amounts of such gains or losses within of all other deductions or losses that are sourced at the shareholder level) relating each separate limitation category that are required to be allocated at the shareholder to each category of income (see the long-term capital gains and losses or level. For example, include on line 14j instructions for lines 14d–14h). collectibles (28%) gains and losses. See research and experimental expenditures 2. The dates on which the taxes were Determining the Source of Income From (see Regulations section 1.861-17(f)). the Sales or Exchanges of Certain paid or accrued, the exchange rates used, Personal Property in Pub. 514 and section Line 14k. Reserved for future use. and the amounts in both foreign currency 865. and U.S. dollars, for the following: Lines 14k–14o. Deductions a. Taxes withheld at source on Lines 14d–14h. Foreign Gross Allocated and Apportioned at interest, Income Sourced at Corporate Corporate Level to Foreign Source b. Taxes withheld at source on dividends, Level Income c. Taxes withheld at source on rents Separately report gross income from Separately report corporate deductions and royalties, and sources outside the United States by that are apportioned at the corporate level d. Other foreign taxes paid or category of income as follows. See Pub. to: accrued. 514 and the Instructions for Form 1116 for • Foreign branch category foreign source more information on the categories of income, income. • Passive category foreign source Line 14q. Reduction in Taxes You must attach a statement to income, Available for Credit (Code R) • General category foreign source Form 1120-S that specifies foreign Enter the total reduction in taxes available source qualified dividends, income, and • Other foreign source income (see the for credit. Attach a statement showing the unrecaptured section 1250 gains, and net reductions for: section 1231 gain (loss). instructions for lines 14d–14h). Attach a statement showing the amount of • Taxes on foreign mineral income (section 901(e)), Line 14d. Reserved for future use. deductions allocated and apportioned at the corporate level to each of the listed • Taxes on foreign oil and gas extraction Line 14e. Foreign branch category categories from line 14h. See Pub. 514 income and foreign oil-related income (code E). Foreign branch category and the Instructions for Form 1116 for (section 907(a)), foreign source income. Foreign branch more information. • Taxes attributable to boycott operations income is defined under section 904(d)(2) (section 908), (J)(i) as the business profits of a U.S. • Failure to timely file (or furnish all of the person that are attributable to one or more information required on) Form 5471, qualified business units (as defined in Information Return of U.S. Persons With

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Respect to Certain Foreign Corporations, with respect to an entity that took into For property placed in service before and Form 8865, Return of U.S. Persons account related income from the 1999, refigure depreciation for the AMT as With Respect to Certain Foreign arrangement. Also indicate whether the follows (using the same convention used Partnerships, corporation has taken into account any for the regular tax). • Foreign income taxes paid or accrued related income from any such splitter • For section 1250 property (generally, during the current tax year that have been arrangement. (See section 909 and the residential rental and nonresidential real suspended under section 909, and regulations thereunder.) property), use the straight line method • Any other items (specify). over 40 years. Alternative Minimum Tax (AMT) • For tangible property (other than Line 14r. Other Foreign Tax Items section 1250 property) depreciated using the straight line method for the regular tax, Information Lines 15a through 15f must be completed for all shareholders. use the straight line method over the property's class life. Use 12 years if the Section 951A category (code D). This Enter items of income and deductions section 951A category includes any property has no class life. that are adjustments or tax preference • For any other tangible property, use the amount included in gross income under items for the AMT. For more information, section 951A (other than passive category 150% declining balance method, see Form 6251, Alternative Minimum switching to the straight line method the income). Section 951A defines global Tax—Individuals, or Schedule I (Form intangible low-taxed income. Attach a first tax year it gives a larger deduction, 1041), Alternative Minimum Tax—Estates over the property's AMT class life. Use 12 statement to provide code D information and Trusts. under line 14r. years if the property has no class life. Only attach a statement if the Don't include as a tax preference item See Pub. 946 for a table of class corporation (and its shareholders, any qualified expenditures to which an TIP lives. ! election under section 59(e) may apply. CAUTION if applicable) has elected to be treated as an entity for purposes of section Instead, report these expenditures on 951A under Notice 2020-69. If no election line 12c. Because these expenditures are For property placed in service after has been made under the Notice, see subject to an election by each 1998, refigure depreciation for the AMT instructions for line 17d, code AD. shareholder, the corporation can't figure only for property depreciated for the the amount of any tax preference related regular tax using the 200% declining Section 951A category foreign source to them. Instead, the corporation must balance method. For the AMT, use the income (code K). Attach a statement to pass through to each shareholder in 150% declining balance method, provide code K information under line 14r. box 12, code J of Schedule K-1, the switching to the straight line method the information needed to figure the first tax year it gives a larger deduction, Only attach a statement if the deduction. and the same convention and recovery corporation (and its shareholders, period used for the regular tax. if applicable) has elected to be Schedule K-1. Report each shareholder's pro rata share of amounts treated as an entity for purposes of section Figure the adjustment by subtracting reported on lines 15a through 15f in 951A under Notice 2020-69. If no election the AMT deduction for depreciation from box 15 of Schedule K-1 using codes A has been made under the Notice, see the regular tax deduction and enter the through F, respectively. instructions for line 17d, code AD. result on line 15a. If the AMT deduction is If the corporation is reporting items of more than the regular tax deduction, enter Foreign trading gross receipts (code income or deduction for oil, gas, and the difference as a negative amount. S). Report each shareholder's pro rata geothermal properties, you may be Depreciation capitalized to inventory must share of foreign trading gross receipts required to identify these items on a also be refigured using the AMT rules. from line 15 of Form 8873 in box 14 using statement attached to Schedule K-1 (see Include on this line the current year code S. See Extraterritorial Income the instructions for lines 15d and 15e). adjustment to income, if any, resulting Exclusion, earlier. Also see the requirement for an attached from the difference. statement in the instructions for line 15f. Extraterritorial income exclusion (code T). If the corporation isn't permitted Line 15b. Adjusted Gain or Loss Line 15a. Post-1986 Depreciation to deduct the extraterritorial income If the corporation disposed of any tangible exclusion as a nonseparately stated item, Adjustment property placed in service after 1986 (or attach a statement to Schedule K-1 Figure the adjustment for line 15a based after July 31, 1986, if an election was showing the shareholder's pro rata share only on tangible property placed in service made to use the General Depreciation of the extraterritorial income exclusion after 1986 (and tangible property placed in System), or if it disposed of a certified reported on line 52 of Form 8873. Also service after July 31, 1986, and before pollution control facility placed in service identify the activity to which the exclusion 1987, for which the corporation elected to after 1986, refigure the gain or loss from is related. use the Modified Accelerated Cost the disposition using the adjusted basis for Reserved for future use (code U). Recovery System (MACRS)). Don't make the AMT. The property's adjusted basis for Code U is reserved for future use. an adjustment for motion picture films, the AMT is its cost or other basis minus all videotapes, sound recordings, certain depreciation or amortization deductions Other foreign transactions (code V). public utility property (see section 168(f) allowed or allowable for the AMT during Report any other foreign transaction (2)), property depreciated under the the current tax year and previous tax information the shareholders need to unit-of-production method (or any other years. Enter on this line the difference prepare their tax returns. Attach a method not expressed in a term of years), between the regular tax gain (loss) and the statement that separately identifies any qualified Indian reservation property, AMT gain (loss). If the AMT gain is less arrangement, along with the taxes paid or property eligible for a special depreciation than the regular tax gain, or the AMT loss accrued in connection with the allowance, qualified revitalization is more than the regular tax loss, or there arrangement, in which the corporation expenditures, or the section 179 expense is an AMT loss and a regular tax gain, participates that would qualify as a splitter deduction. enter the difference as a negative amount. arrangement under section 909 if one or more shareholders are covered persons

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If any part of the adjustment is allocable Instructions for Schedule K-1 (Form amount in the entry space in box 15 and to net short-term capital gain (loss), net 1120-S) to adjust the amounts in box 15, attach a statement that shows the type of long-term capital gain (loss), or net section code D or E, for any other income or AMT item. If you are reporting multiple 1231 gain (loss), attach a statement that deductions from oil, gas, or geothermal types of AMT items under code F, enter identifies the amount of the adjustment properties included in boxes 2 through 12, the code with an asterisk (F*) and enter allocable to each type of gain or loss. 16, or 17 of Schedule K-1 in order to “STMT” in the entry space in box 15 and determine the total income and attach a statement that shows the dollar For a net long-term capital gain (loss), deductions from oil, gas, and geothermal amount of each type of AMT item. also identify the amount of the adjustment properties for the corporation. that is collectibles (28%) gain (loss). Items Affecting Shareholder Figure the amounts for lines 15d and Basis For a net section 1231 gain (loss), also 15e separately for oil and gas properties Line 16a. Tax-Exempt Interest identify the amount of adjustment that is that aren't geothermal deposits and for all unrecaptured section 1250 gain. properties that are geothermal deposits. Income Enter on line 16a tax-exempt interest Line 15c. Depletion (Other Than Oil Give each shareholder a statement that income, including any exempt-interest shows the separate amounts included in dividends received from a mutual fund or and Gas) the computation of the amounts on lines other regulated investment company. Don't include any depletion on oil and gas 15d and 15e of Schedule K. Individual shareholders must report this wells. The shareholders must figure their information on line 2a of Form 1040 or oil and gas depletion deductions and Line 15d. Oil, Gas, and Geothermal 1040-SR. Generally, under section preference items separately under section 1367(a)(1)(A), the basis of the 613A. Properties—Gross Income shareholder's stock is increased by the Enter the total amount of gross income amount shown on this line. Refigure the depletion deduction under (within the meaning of section 613(a)) section 611 for mines, wells (other than oil from all oil, gas, and geothermal Line 16b. Other Tax-Exempt and gas wells), and other natural deposits properties received or accrued during the for the AMT. Percentage depletion is tax year and included on page 1, Form Income limited to 50% of the taxable income from 1120-S. Enter on line 16b all income of the the property as figured under section corporation exempt from tax other than 613(a), using only income and deductions Line 15e. Oil, Gas, and Geothermal tax-exempt interest (for example, life for the AMT. Also, the deduction is limited insurance proceeds, but see section to the property's adjusted basis at the end Properties—Deductions 101(j) for limits and reporting of the year as figured for the AMT. Figure Enter any deductions allowed for the AMT requirements). Generally, under section this limit separately for each property. that are allocable to oil, gas, and 1367(a)(1)(A), the basis of the When refiguring the property's adjusted geothermal properties. shareholder's stock is increased by the basis, take into account any AMT amount shown on this line. adjustments made this year or in previous Line 15f. Other AMT Items years that affect basis (other than the Line 16c. Nondeductible Expenses current year's depletion). Attach a statement to Form 1120-S and Schedule K-1 that shows other items not Enter on line 16c nondeductible expenses Enter the difference between the shown on lines 15a through 15e that are paid or incurred by the corporation. regular tax and AMT deduction. If the AMT adjustments or tax preference items or deduction is greater, enter the difference that the shareholder needs to complete Don't include separately stated as a negative amount. Form 6251 or Schedule I (Form 1041). deductions shown elsewhere on See these forms and their instructions to Schedules K and K-1, capital determine the amount to enter. Oil, Gas, and Geothermal expenditures, or items for which the deduction is deferred to a later tax year. Properties—Gross Income and Other AMT items include the following. Deductions • Accelerated depreciation of real Generally, under section 1367(a)(2)(D), property under pre-1987 rules. Generally, the amounts to be entered on the basis of the shareholder's stock is Accelerated depreciation of leased lines 15d and 15e are only the income and • decreased by the amount shown on this personal property under pre-1987 rules. deductions for oil, gas, and geothermal line. Long-term contracts entered into after properties that are used to figure the • February 28, 1986. Except for certain corporation's ordinary business income home construction contracts, the taxable Line 16d. Distributions (loss) on line 21, page 1, Form 1120-S. income from these contracts must be Enter the total distributions (including figured using the percentage of If there are any items of income or cash) made to each shareholder other completion method of accounting for the deductions for oil, gas, and geothermal than dividends reported on line 17c of AMT. properties included in the amounts that Schedule K. Include the shareholder's pro Losses from tax shelter farm activities. are required to be passed through • rata share of any amounts included in No loss from any tax shelter farm activity separately to the shareholders on interest income with respect to new clean is allowed for the AMT. Schedule K-1 (items not reported in box 1 renewable energy, qualified energy Any amount from Form 6478 reported of Schedule K-1), give each shareholder a • conservation, qualified zone academy (for as other income on Form 1120-S, line 5. statement that shows, for the box in which bonds issued after October 3, 2008), Any amount from Form 8864 reported the income or deduction is included, the • qualified school construction, or build as other income on Form 1120-S, line 5. amount of income or deductions included America bonds. Distributions of in the total amount for that box. Don't Schedule K-1. If you are reporting each appreciated property are valued at fair include any of these direct pass-through shareholder's pro rata share of only one market value. If property other than cash amounts on line 15d or 15e. The type of AMT item under code F, enter the was distributed, attach a statement to shareholder is told in the Shareholder's code with an asterisk (F*) and the dollar provide the following information.

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• The date the property was acquired. reported on lines 17a and 17b (investment in the entry space for the dollar amount. • The date the property was distributed. income and expenses) in box 17 of Attach a statement to Schedule K-1 that • The property's FMV on the date of Schedule K-1 using codes A and B, provides the shareholder's pro rata share distribution. respectively. of the basis and capacity amounts the • The corporation's basis in the property. If there are other items of investment shareholder will need to figure the See Distributions, later, for the ordering income or expense included in the amounts to report on lines 12a–12f, 12h, rules. amounts that are required to be passed 12i, 12k, 12l, 12n, 12o,12q, 12r, 12t, 12u, through separately to the shareholders on 12w, and 12y–12gg of Form 3468. See the Line 16e. Repayment of Loans Schedule K-1, such as net short-term Instructions for Form 3468 for details. From Shareholders capital gain or loss, net long-term capital Recapture of low-income housing gain or loss, and other portfolio gains or credit (codes E and F). If recapture of Enter any repayments made to losses, give each shareholder a statement part or all of the low-income housing credit shareholders during the current tax year. identifying these amounts. is required because (a) the prior year Schedule K-1. Report each qualified basis of a building decreased, or shareholder's pro rata share of amounts Line 17c. Dividend Distributions (b) the corporation disposed of a building reported on lines 16a, 16b, and 16c Paid From Accumulated Earnings or part of its interest in a building, see (concerning items affecting shareholder Form 8611, Recapture of Low-Income basis) in box 16 of Schedule K-1 using and Profits (Schedule K Only) Housing Credit. Complete lines 1 through codes A through C, respectively. Report Enter total dividends paid to shareholders 7 of Form 8611 to figure the amount of the property distributions (line 16d) and from accumulated earnings and profits. credit to recapture. repayment of loans from shareholders Report these dividends to shareholders on Use code E on Schedule K-1 to report (line 16e) on the Schedule K-1 of the Form 1099-DIV. Don't report them on recapture of the low-income housing credit shareholder(s) that received the Schedule K-1. from a section 42(j)(5) partnership. Use distributions or repayments (using codes code F to report recapture of any other D and E). Line 17d. Other Items and low-income housing credit. See the Other Information Amounts instructions for lines 13a and 13b, earlier, for more information. Lines 17a and 17b. Investment Report the following information on a If a shareholder's ownership Income and Expenses statement attached to Form 1120-S. On Schedule K-1, enter the appropriate code interest in a building decreased Enter on line 17a the investment income in box 17 for each information item because of a transaction at the included on lines 4, 5a, 6, and 10 of followed by an asterisk in the left-hand shareholder level, the corporation must Schedule K. Don't include other portfolio column of the entry space (for example, provide the necessary information to the gains or losses on this line. C*). In the right-hand column, enter shareholder to enable the shareholder to “STMT.” The codes are provided for each figure the recapture. Enter on line 17b the investment information category. expense included on line 12d of The disposal of a building or an Schedule K. Qualified rehabilitation expenditures ! interest therein will generate a (other than rental real estate) (code C). CAUTION credit recapture unless it is Investment income includes gross Enter total qualified rehabilitation reasonably expected that the building will income from property held for investment, expenditures from activities other than continue to be operated as a qualified the excess of net gain attributable to the rental real estate activities. See the low-income building for the remainder of disposition of property held for investment Instructions for Form 3468 for details on the building's compliance period. over net capital gain from the disposition qualified rehabilitation expenditures. of property held for investment, any net See Form 8586, Form 8611, and Report qualified rehabilitation section 42 for more information. capital gain from the disposition of TIP expenditures related to rental real property held for investment that each estate activities on line 13c. Recapture of investment credit (code shareholder elects to include in G). Complete and attach Form 4255 if, investment income under section 163(d) Schedule K-1. Report each before the end of the recapture period, (4)(B)(iii), and any qualified dividend shareholder's pro rata share of qualified investment credit property is disposed of income that the shareholder elects to rehabilitation expenditures related to or no longer qualifies for the credit or if include in investment income. Generally, activities other than rental real estate credit recapture is otherwise required. See investment income and investment activities in box 17 of Schedule K-1 using the Instructions for Form 4255 for details expenses don't include any income or code C. Attach a statement to about when credit recapture is required. expenses from a passive activity. See Schedule K-1 that provides the State the type of property at the top of Regulations section 1.469-2(f)(10) for information and the shareholder's pro rata Form 4255, and complete lines 2, 3, 4, 10, exceptions. share of the basis and expenditure and 11, whether or not any shareholder is subject to recapture of the credit. Property subject to a net lease isn't amounts the shareholder will need to treated as investment property because it figure the amounts to report on lines 11b Attach to each Schedule K-1 a is subject to the passive loss rules. Don't through 11g of Form 3468. See the separate statement providing the reduce investment income by losses from Instructions for Form 3468 for details. If information the corporation is required to passive activities. the corporation has expenditures from show on Form 4255, but list only the more than one activity, identify on a shareholder's pro rata share of the basis Investment expenses are deductible statement attached to Schedule K-1 the of the property subject to recapture. Also expenses (other than interest) directly information and amounts for each indicate the lines of Form 4255 on which connected with the production of separate activity. See Passive Activity the shareholders should report these investment income. See the Instructions Reporting Requirements, earlier. amounts. for Form 4952 for more information. Basis of energy property (code D). In The corporation itself is liable for Schedule K-1. Report each box 17 of Schedule K-1, enter code D investment credit recapture in certain shareholder's pro rata share of amounts followed by an asterisk and enter “STMT”

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cases. See Investment credit recapture • Description of the property. Section 453A(c) information (code N). tax, earlier, for details. • Date the property was acquired and Supply any information needed by a placed in service. Recapture of other credits (code H). shareholder to figure the interest due Date of the sale or other disposition of On an attached statement to • under section 453A(c). This information the property. Schedule K-1, provide any information may include the following from each Form The shareholder's pro rata share of the shareholders will need to report recapture • 6252 where the selling price, including gross sales price or amount realized. of credits (other than recapture of mortgages and other debts, is greater than The shareholder's pro rata share of the low-income housing credit and investment • $150,000. cost or other basis plus expense of sale credit reported on Schedule K-1 using (reduced as explained in the instructions 1. Description of property. codes E, F, and G). The following are for Form 4797, line 21). 2. Date acquired. examples of credits subject to recapture The shareholder's pro rata share of the and reported using code H. • 3. Date property sold. depreciation allowed or allowable, The qualified plug-in electric drive 4. Selling price, including mortgages • determined as described in the motor vehicle credit. See section 30D(f)(5) and other debts (not including interest, instructions for Form 4797, line 22, but for details. whether stated or unstated), less excluding the section 179 deduction. The new markets credit. See Form mortgages, debts and other liabilities the • The shareholder's pro rata share of the 8874 and Form 8874-B, Notice of • buyer assumed or took the property section 179 deduction (if any) passed Recapture Event for New Markets Credit, subject to. through for the property and the for details. corporation's tax year(s) in which the 5. Gross profit. The Indian employment credit. See • amount was passed through. section 45A(d) for details. 6. Gross profit percentage. If the disposition is due to a casualty or The credit for employer-provided • 7. Contract price less (4) above, plus • theft, a statement indicating so, and any childcare facilities and services. See payments received during the year, not additional information needed by the section 45F(d) for details. including interest, whether stated or shareholder. The alternative motor vehicle credit. unstated. • For an installment sale, any information See section 30B(h)(8) for details. • the shareholder needs to complete Form 8. Payments received in prior years, The alternative fuel vehicle refueling • 6252. The corporation must also not including interest whether stated or property credit. See section 30C(e)(5) for separately report the shareholder's pro unstated. details. rata share of all payments received for the 9. Installment sale income. Look-back interest—Completed property in future tax years. (Installment 10. Character of the income—capital or long-term contracts (code I). If the payments received for installment sales ordinary. corporation is closely held (defined in made in prior tax years should be reported section 460(b)(4)(C)(iii)) and it entered in the same manner used in prior tax 11. Shareholder’s share of the deferred into any long-term contracts after February years.) See the Instructions for Form 6252 obligation. See computation below. 28, 1986, that are accounted for under for details. Schedule K-1 deferred obligation either the percentage of Recapture of section 179 deduction computation. For each Form 6252 completion-capitalized cost method or the (code L). This amount represents where line 5 is greater than $150,000, percentage of completion method, it must recapture of the section 179 deduction if figure the Schedule K-1 deferred attach a statement to Form 1120-S business use of the property dropped to obligation as follows. showing the information required in items 50% or less before the end of the • Line (4) from the list above, less the (a) and (b) of the instructions for lines 1 recapture period. If the business use of sum of lines (7) and (8). This equals the and 3 of Part II of Form 8697. It must also any property (placed in service after 1986) Schedule K deferred obligation. report the amounts for Part II, lines 1 and for which a section 179 deduction was • Multiply the Schedule K deferred 3, to its shareholders. See the Instructions passed through to shareholders dropped obligation by each shareholder’s current for Form 8697 for more information. to 50% or less (for a reason other than year allocation percentage. This equals Look-back interest—Income forecast disposition), the corporation must provide each shareholder’s share of the deferred method (code J). If the corporation is all the following information. obligation. closely held (defined in section 460(b)(4) • The shareholder's pro rata share of the If an obligation arising from the (C)(iii)) and it depreciated certain property original basis and depreciation allowed or disposition of property to which section placed in service after September 13, allowable (not including the section 179 453A applies is outstanding at the close of 1995, under the income forecast method, deduction). the year, each shareholder's tax liability it must attach to Form 1120-S the • The shareholder's pro rata share of the must be increased by the tax due under information specified in the instructions for section 179 deduction (if any) passed section 453A(c) on the shareholder's pro Form 8866, line 2, for the 3rd and 10th tax through for the property and the rata share of the tax deferred under the years beginning after the tax year the corporation's tax year(s) in which the installment method. property was placed in service. It must amount was passed through. Section 1260(b) information (code O). also report the line 2 amounts to its See Regulations section 1.179-1(e) for Supply any information needed by a shareholders. See the Instructions for details. shareholder to figure the interest due Form 8866 for more details. Section 453(l)(3) information (code M). under section 1260(b). If the corporation Dispositions of property with section Supply any information needed by a had gain from certain constructive 179 deductions (code K). This shareholder to figure the interest due ownership transactions, each represents gain or loss on the sale, under section 453(l)(3). If the corporation shareholder's tax liability must be exchange, or other disposition of property elected to report the dispositions of certain increased by the shareholder's pro rata for which a section 179 deduction has timeshares and residential lots on the share of interest due on any deferral of been passed through to shareholders. The installment method, each shareholder's gain recognition. See section 1260(b) for corporation must provide all the following tax liability must be increased by the details, including how to figure the interest. information with respect to such shareholder's pro rata share of the interest Interest allocable to production expen- dispositions (see the instructions for Form on tax attributable to the installment ditures (code P). Supply any information 1120-S, line 4, earlier). payments received during the tax year. needed by a shareholder to properly

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capitalize interest as required by section • If the corporation received a Form • Section 951(a) inclusions. 263A(f). See Section 263A uniform 1041, Schedule K-1, the amount of the • Section 1293(a)(1)(A) inclusions. capitalization rules, earlier, for more adjustment reported. • Section 1293(a)(1)(B) inclusions. information. In addition, Regulations section Section 1296 mark-to-market PFICs. CCF nonqualified withdrawal (code Q). 1.1411-10 provides special rules with In the case of stock of PFICs directly or Report nonqualified withdrawals by the respect to stock of CFCs and passive indirectly owned by the corporation for corporation from a capital construction foreign investment companies (PFICs) which an election under section 1296 is in fund. Attach a statement to the owned by the corporation. If the effect, the corporation must provide the shareholder's Schedule K-1 providing corporation owns, directly or indirectly, following information (to the extent such details of the withdrawal. See Pub. 595. stock of a CFC or PFIC, then additional information isn't otherwise identifiable reporting may be required under code U. Depletion information—Oil and gas elsewhere on Schedule K-1), on either an (code R). Report gross income and other CFCs and QEFs. In the case of stock aggregate basis or an entity-by-entity information relating to oil and gas well of CFCs and QEFs owned directly or basis (except as provided below). properties to shareholders to allow them to indirectly by the corporation, the • Amounts included in income under figure the depletion deduction for oil and corporation must provide the name and section 1296(a)(1). gas well properties. Allocate to each EIN (if one has been issued) for each CFC • Amounts deducted from income under shareholder a proportionate share of the and QEF the stock of which is owned by section 1296(a)(2). adjusted basis of each corporate oil or gas the corporation for which an election In the case of PFIC stock owned well property. See section 613A(c)(11) for under Regulations section 1.1411-10(g) is directly or indirectly by the corporation for details. not in effect and with respect to which the which an election under section 1296 is in The corporation can't deduct depletion corporation isn't engaged in a trade or effect and with respect to which the on oil and gas wells. Each shareholder business described in section 1411(c)(2). corporation is engaged in a trade or must determine the allowable amount to For each of these entities, the corporation business described in section 1411(c)(2), report on his or her return. See Pub. 535 must provide the following information on the corporation may aggregate this for more information. an entity-by-entity basis (to the extent information with other income derived by such information isn't otherwise the corporation that is net investment Reserved for future use (code T). identifiable elsewhere on Schedule K-1). income under section 1411(c)(1)(A)(ii). Code T is reserved for future use. • Section 951(a) inclusions. • Section 1293(a)(1)(A) inclusions. Section 1291 funds. In the case of Net investment income (code U). Use stock of PFICs directly or indirectly owned code U to report any information that may • Section 1293(a)(1)(B) inclusions. • Section 959(d) distributions subject to by the corporation with respect to which be relevant for shareholders to figure their direct or indirect shareholders are subject net investment income tax when the section 1411. • Section 1293(c) distributions subject to to section 1291, the corporation must information isn't otherwise identifiable provide the following information (to the elsewhere on Schedule K-1. Attach a section 1411. • Amount of gain or loss derived with extent such information isn't otherwise statement that shows a description and identifiable elsewhere on Schedule K-1), dollar amount of each relevant item. respect to dispositions of the stock of CFCs and QEFs that is taken into account on an entity-by-entity basis. Examples of items reported using code for section 1411 purposes. • Excess distributions made by a PFIC U may include the following. • Amounts that are derived with respect with respect to which the shareholder is • Net rental real estate income reported to the disposition of the stock of CFCs and subject to section 1291. on Form 1120-S, Schedule K, line 2, and QEFs and included in income as a • Gains derived with respect to the other net rental income reported on Form dividend under section 1248 for section disposition of stock of a PFIC with respect 1120-S, Schedule K, line 3c, derived from 1411 purposes. to which a shareholder is subject to a section 212 for-profit activity (and not section 1291. In the case of stock of CFCs and QEFs from a section 162 trade or business). Section 199A information (code V). • Gains and losses from dispositions of directly or indirectly owned by the corporation for which an election under The qualified business income (QBI) assets attributable to a section 212 deduction may be taken by eligible for-profit activity (and not from a section Regulations section 1.1411-10(g) is in effect, the corporation must provide the taxpayers, including individuals and some 162 trade or business). trusts and estates. The deduction is • Gain reported on the installment sale following information (to the extent such information isn't otherwise identifiable determined at the shareholder level. S basis (or attributable to a private annuity) corporations are required to report that is attributable to the disposition of elsewhere on Schedule K-1), on either an aggregate basis or an entity-by-entity information necessary for their property held in a trade or business. shareholders to figure the deduction. Use • Gain or loss from the disposition of a basis. • Section 951(a) inclusions. the code with an asterisk (V*) in box 17 on partnership interest, but only if such each shareholder’s Schedule K-1 and partnership was engaged, directly or • Section 1293(a)(1)(A) inclusions. • Section 1293(a)(1)(B) inclusions. enter “STMT” in the entry space to indirectly, in one or more trades or indicate that the information is provided on In the case of stock of CFCs and QEFs businesses, and at least one of those an attached statement separately directly or indirectly owned by the trades or businesses wasn't trading in identifying the shareholder’s pro rata corporation with respect to which the financial instruments or commodities. share of: corporation is engaged in a trade or • The shareholder’s pro rata share of Qualified items of income, gain, business described in section 1411(c)(2), • interest income, or interest expense, that deduction, and loss; the corporation must provide the following is attributable to a loan between the W-2 wages; information (to the extent such information • corporation and the shareholder Unadjusted basis immediately after isn't otherwise identifiable elsewhere on • (self-charged interest). acquisition (UBIA) of qualified property; the Schedule K-1), on either an aggregate • If the corporation received a Form Qualified publicly traded partnership or an entity-by-entity basis, or may • 1065, Schedule K-1, the detail and (PTP) items; and aggregate this information with other amounts reported to the corporation using Section 199A dividends, also known as income derived by the corporation that is • box 20, code Y. qualified real estate investment trust net investment income under section (REIT) dividends. 1411(c)(1)(A)(ii).

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Don’t add amounts into a single report each shareholder’s pro rata section reputation or skill of one or more of its ! number and report it in box 17 on 199A(g) deduction reported to the S employees or owners. The term “any trade CAUTION Schedule K-1. The section 199A corporation by the specified cooperative. or business” where the principal asset is information must be separately identified The S corporation must also report all the reputation or skill of one or more of its for each trade or business the S QBI information reported to it by any entity employees or owners means any trade or corporation directly conducts, including in which the S corporation has an business that consists of (i) a trade or specified service trades or businesses. ownership interest. business in which a person receives fees, compensation, or other income for The S corporation must make an initial Determining the S corporation’s endorsing products or services; (ii) a trade determination of which items are qualified qualified trades or businesses. The S or business in which a person licenses or items of income, gain, deduction, and loss corporation’s qualified trades or receives fees, compensation, or other at its level and report to each shareholder businesses include its section 162 trades income for the use of an individual’s their pro rata share of all items that may be or businesses, except for SSTBs, or the image, likeness, name, signature, voice, qualified items at the shareholder level. trade or business of providing services as trademark, or any other symbols These items must be separately stated an employee. A section 162 trade or associated with the individual’s identity; or where necessary for the shareholder to business generally includes any activity if (iii) receiving fees, compensation, or other figure the deduction. See Determining the the taxpayer’s primary purpose for income for appearing at an event or on S corporation’s QBI or qualified PTP engaging in the activity is for income or radio, television, or another media format. items, later. The shareholder must then profit and the S corporation is involved in determine whether each item is includible the activity with continuity and regularity. Note. S corporations must separately in its QBI. For more information on what qualifies as report QBI information for all trades or In addition, the S corporation must also a trade or business for purposes of section businesses engaged in by the S report whether any of its trades or 199A, see the instructions for Form 8995, corporation, including SSTBs, and must businesses are specified service trades or Qualified Business Income Deduction also identify which trades or businesses businesses (SSTBs) and identify on the Simplified Computation, or Form 8995-A, are SSTBs. statement any trades or businesses that Qualified Business Income Deduction. Aggregation of trades or are aggregated. Rental real estate. Rental real estate businesses. An S corporation engaged Note. The S corporation must report the may constitute a trade or business for in more than one trade or business may pro rata share of qualified items of income, purposes of the QBI deduction if the rental choose to aggregate multiple trades or gain, deduction, and loss from a PTP so real estate: businesses into a single trade or business that shareholders can determine their • Rises to the level of a trade or business for purposes of section 199A if it meets qualified PTP income. However, W-2 under section 162; the following requirements: wages and UBIA of qualified property from • Satisfies the requirements for the rental 1. The same person, or group of the PTP shouldn’t be reported because real estate safe harbor in Rev. Proc. persons, either directly or through shareholders can’t use that information in 2019-38, 2019-42 I.R.B. 942; or attribution, owns 50% or more of each figuring their QBI deduction. • Meets the self-rental exception (that is, trade or business for a majority of the tax the rental or licensing of property to a year, including the last day of the tax year, S corporations should use Statement commonly controlled trade or business and all trades or businesses use the same A—QBI Pass-Through Entity Reporting, or conducted by an individual or relevant tax year-end; a substantially similar statement, to report pass-through entity) described in each shareholder’s pro rata information Regulations section 1.199A-1(b)(14). 2. None of the trades or businesses is from each trade or business, including QBI an SSTB; and The determination of whether rental items, W-2 wages, UBIA of qualified 3. The trades or businesses to be property, qualified PTP items, and section real estate constitutes a trade or business for purposes of the QBI deduction is made aggregated meet at least two of the 199A dividends by attaching the following three factors: completed statement(s) to each by the S corporation. The S corporation a. They provide products, property, or shareholder’s Schedule K-1. The S must first make this determination and services that are the same or that are corporation should also use Statement A then only include the pro rata share of QBI customarily offered together; to report each shareholder’s pro rata information for rental real estate that share of QBI items, W-2 wages, UBIA of constitutes a trade or business on the b. They share facilities or share qualified property, qualified PTP items, statement provided to shareholders. significant centralized business elements, and section 199A dividends reported to Rental real estate that doesn’t meet any of such as personnel, accounting, legal, the S corporation by another entity. the three conditions noted above doesn’t manufacturing, purchasing, human constitute a trade or business for resources, or information technology S corporations should use Statement purposes of the QBI deduction and must resources; or B—QBI Pass-Through Entity Aggregation not be included in the QBI information c. They are operated in coordination Election(s), or a substantially similar provided to shareholders. statement, to report aggregated trades or with, or reliance upon, one or more of the businesses and provide supporting Specified service trades or businesses in the aggregated group. businesses excluded from qualified information to shareholders on each If the S corporation chooses to trades or businesses. SSTBs are Schedule K-1. aggregate multiple trades or businesses, it generally excluded from the definition of a S corporations should use Statement must report the aggregation on Statement qualified trade or business. An SSTB is C—QBI Pass-Through Entity B, or a substantially similar statement, and any trade or business providing services in Reporting—Patrons of Specified attach it to each Schedule K-1. The the fields of health, law, accounting, Agricultural and Horticultural statement must provide the information actuarial science, performing arts, Cooperatives, or a substantially similar necessary to identify each separate trade consulting, athletics, financial services, statement, to report pro rata QBI and W-2 or business included in each aggregation, brokerage services, investing and wages allocable to qualified payments a description of the aggregated trades or investment management, trading or from a specified agricultural or horticultural businesses, and an explanation of the dealing in securities, partnership interests, cooperative for each trade or business. factors met that allow the aggregation in or commodities, or any other trade or This statement should also be used to accordance with Regulations section business where the principal asset is the

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1.199A-4. The aggregation statement and loss from the S corporation’s trades or • Items that aren’t properly includible in must be completed each year to show the businesses that are effectively connected income; S corporation's trade or business with the conduct of a trade or business • Income that isn’t effectively connected aggregations. Failure to disclose the within the United States. This may include, with the conduct of business within the aggregations may cause them to be but isn’t limited to, items such as ordinary United States (go to IRS.gov/ECI for more disaggregated. business income or losses, section 1231 information); The S corporation's aggregations must gains or losses, section 179 deductions, • Items that are treated as capital gain or be reported consistently for all subsequent and interest from debt-financed loss under any provision of the Internal years, unless there is a change in facts distributions. Revenue Code; and circumstances that changes or QBI may also include rental income or • Dividends or dividend equivalents, disqualifies the aggregation. The S losses or royalty income, if the activity including qualified REIT dividends; corporation must provide a written rises to the level of a trade or business, or • Interest income (unless received in explanation for any changes to prior year is a qualified trade or business for connection with the trade or business); aggregations that describes the change in purposes of section 199A; and gambling • Wage income; facts and circumstances. gains or losses, but only if the S • Commodities transactions, or foreign corporation is engaged in the trade or currency gains or losses described in If the S corporation directly or indirectly sections 954(c)(1)(C) or (D); owns an interest in another relevant business of gambling. Whether an activity rises to the level of a trade or business • Income, loss, or deductions from pass-through entity (RPE) that aggregates notional principal contracts under section multiple trades or businesses, it must must be determined at the entity level and, once made, is binding on shareholders. 954(c)(1)(F); attach a copy of the RPE's aggregation to • Annuities (unless received in each Schedule K-1. The S corporation Qualified PTP items include the S connection with the trade or business); can’t break apart the aggregation of corporation’s share of qualified items of • Guaranteed payments described in another RPE, but it may add trades or income, gain, deduction, and loss from a section 707(c) received by the entity for businesses to the aggregation, assuming PTP and may also include gain or loss services rendered to a partnership; or the requirements above are satisfied. recognized on the disposition of the S • Payments described in section 707(a) corporation’s partnership interest that isn’t received by the entity for services Determining the S corporation’s treated as a capital gain or loss. QBI or qualified PTP items. The S rendered to a partnership. corporation’s items of QBI include QBI and qualified PTP items don’t qualified items of income, gain, deduction, include the following:

QBI Flowchart

S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to shareholders. Questions Yes No 1. Is the item effectively connected with the conduct of a trade or business within the United Continue to next question. Stop. This item isn’t QBI. States? 2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section Continue to next question. Stop. This item isn’t QBI. 179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not considered attributable to the trade or business at the entity level include gambling income (loss) where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc. 3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or Stop. This item isn’t QBI. Continue to next question. is it a dividend or dividend equivalent? 4. Is the item interest income other than interest income properly allocable to a trade or business? Stop. This item isn’t QBI. Continue to next question. (Note that interest income attributable to an investment of working capital, reserves, or similar accounts isn’t properly allocable to a trade or business). 5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn’t QBI. Continue to next question. 6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss Stop. This item isn’t QBI. Continue to next question. described in sections 954(c)(1)(C) or (D)? 7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn’t QBI. Continue to next question. 8. Is the item of income or loss from a qualified publicly traded partnership? This item is a qualified PTP This item is QBI. Report this item. Report this item as item as QBI subject to qualified PTP income or shareholder-specific loss, subject to determinations. shareholder-specific determinations, and check the PTP box.

Specific instructions for Statement businesses. It must then determine if any business (or aggregated trade or A—QBI Pass-Through Entity Report- of its trades or businesses are SSTBs. It business) or PTP interest reported. ing. must also determine whether it has qualified PTP items from an interest in a Note. SSTBs and PTPs can’t be QBI or qualified PTP items. The S PTP. It must indicate the status in the aggregated with any other trade or corporation must first determine if it is appropriate checkboxes for each trade or business. So, if the aggregation box is engaged in one or more trades or checked, the SSTB and PTP boxes for

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that specific aggregated trade or business share to each shareholder on Statement Section 199A dividends. The S shouldn’t be checked. A, or a substantially similar statement, corporation must report the pro rata share Next, the S corporation must report to attached to Schedule K-1. This includes of any section 199A dividends, also known each shareholder their pro rata share of all the pro rata share of W-2 wages and UBIA as qualified real estate investment trust items that are QBI or qualified PTP items of qualified property reported to the S (REIT) dividends, to each shareholder on for each trade or business the S corporation from any qualified trades or Statement A, or a substantially similar corporation owns directly or indirectly. Use businesses of an RPE the S corporation statement, attached to Schedule K-1. the QBI flowchart above to determine if an owns directly or indirectly. However, S Section 199A dividends don’t have to be item is reportable as a QBI item or corporations that own a direct or indirect separately reported by trades or qualified PTP item subject to interest in a PTP may not include any businesses and can be reported as a shareholder-specific determination. amounts for W-2 wages or UBIA of single amount to shareholders. Section qualified property from the PTP, as the 199A dividends include any dividend the S The descriptions on the statement W-2 wages and UBIA of qualified property corporation receives from a REIT held for generally match the descriptions reported from a PTP aren’t allowed in figuring the more than 45 days, for which the payment on Schedule K-1. So the amounts should W-2 wage and UBIA limitations. isn’t obligated to someone else, isn’t a reflect each trade or business’s portion of capital gain dividend under section 857(b) the qualified items of income, gain, The W-2 wages are amounts paid to employees described in sections 6051(a) (3), and isn’t a qualified dividend under deduction, or loss reported in the section 1(h)(11), plus any qualified REIT applicable box of the shareholder’s (3) and (8). If the S corporation conducts more than one trade or business, it must dividends received from a regulated Schedule K-1. For example, the amount investment company (RIC). reported on the “Ordinary business allocate the W-2 wages among its trades income (loss)” line of this statement or business. See Rev. Proc. 2019-11, Fiscal year S corporations. For should reflect the attributable portion of 2019-09 I.R.B. 742 for more information. purposes of determining the QBI or qualified items of income, gain, deduction, The unadjusted basis of qualified qualified PTP items, UBIA of qualified and loss for each trade or business property is figured by adding the property, and the aggregate amount of included in the “Ordinary business income unadjusted basis of all qualified assets qualified section 199A dividends, fiscal (loss)” reported in box 1 of the immediately after acquisition. Qualified year-end S corporations include all items shareholder’s Schedule K-1. Each item property includes all tangible property from the fiscal tax year. included under “Other income (loss)” and subject to depreciation under section 167 For purposes of determining W-2 “Other deductions” must be stated for which the depreciable period hasn’t wages, fiscal year-end S corporations separately, identifying the nature and ended that is held and used for the include amounts paid to employees under amount of each item. production of QBI by the trade or business sections 6051(a)(3) and (8) for the during the tax year and held on the last calendar year ended with or within the S W-2 wages and UBIA of qualified day of the tax year. The depreciable property. The S corporation must corporation’s tax year. If the S corporation period ends on the later of 10 years after conducts more than one trade or determine the W-2 wages and UBIA of the property is placed in service or the last qualified property properly allocable to business, it must allocate W-2 wages day of the full year for the applicable among its trades or businesses. See Rev. QBI for each qualified trade or business, recovery period under section 168. including SSTBs, and report the pro rata Proc. 2019-11 for more information.

Statement A—QBI Pass-Through Entity Reporting

Pass-through entity's name: Pass-through entity's EIN: Shareholder’s name: Shareholder’s identifying number:

Trade or Business 1 Trade or Business 2 Trade or Business 3

PTP PTP PTP Aggregated Aggregated Aggregated Shareholder’s share of: SSTB SSTB SSTB QBI or qualified PTP items subject to shareholder-specific determinations:

Ordinary business income (loss) ......

Rental income (loss) ......

Royalty income (loss) ......

Section 1231 gain (loss) ......

Other income (loss) ......

Section 179 deduction ......

Other deductions ......

W-2 wages ......

UBIA of qualified property ......

Section 199A dividends .....

Specific instructions for Statement or business that meets all the substantially similar statement, and attach B—QBI Pass-Through Entity Aggrega- requirements to aggregate, the S it to each Schedule K-1. The S corporation tion Election(s). If the S corporation corporation must report the aggregation to must indicate trades or businesses that elects to aggregate more than one trade shareholders on Statement B, or a were aggregated by checking the

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appropriate box on Statement A for each disaggregated. The S corporation's If the S corporation holds a direct or aggregated trade or business. The S aggregations must be reported indirect interest in an RPE that aggregates corporation must also provide a consistently for all subsequent years, multiple trades or businesses, the S description of the aggregated trade or unless there is a change in facts and corporation must also include a copy of business and an explanation of the factors circumstances that changes or disqualifies the RPE’s aggregations with each met that allow the aggregation. the aggregation. The S corporation must shareholder’s Schedule K-1. The S The aggregation statement must be provide a written explanation for any corporation can’t break apart the completed each year to show the S changes to prior year aggregations that aggregation of another RPE, but it may corporation's trade or business describes the change in facts and add trades or businesses to the aggregations. Failure to disclose the circumstances. aggregation, assuming the aggregation aggregations may cause them to be requirements are satisfied.

Statement B—QBI Pass-Through Entity Aggregation Election(s)

Pass-through entity's name: Pass-through entity's EIN: Trade or business aggregation 1* Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or businesses, attach a copy of the RPE's aggregations.

Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, disposed of, or ceased operations. If yes, explain.

* If the pass-through entity's has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.

Specific instructions for Statement trade or business to each of its corporation on Form 1099-PATR from the C—QBI Pass-Through Entity Report- shareholders on Statement C, or a cooperative. substantially similar statement, and attach ing—Patrons of Specified Agricultural Section 199A(g) deduction. The S and Horticultural Cooperatives. it to each Schedule K-1 so each shareholder can figure their patron corporation must report to its shareholders QBI items and W-2 wages allocable reduction under section 199A(b)(7). their pro rata share of any section 199A(g) to qualified payments. If the S deduction passed through from the QBI items and W-2 wages allocable to cooperative, as reported on Form corporation is a patron of a specified qualified payments include QBI items agricultural or horticultural cooperative, 1099-PATR. Section 199A(g) deductions included on Statement A that are allocable don’t have to be separately reported by the S corporation must provide the pro to the qualified payments reported to the S rata share of QBI items and W-2 wages trades or businesses and can be reported allocable to qualified payments from each as a single amount to shareholders.

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Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural Cooperatives

Pass-through entity's name: Pass-through entity's EIN: Shareholder’s name: Shareholder’s identifying number:

Trade or Business 1 Trade or Business 2 Trade or Business 3

PTP PTP PTP Aggregated Aggregated Aggregated Shareholder’s share of: SSTB SSTB SSTB QBI items allocable to qualified payments subject to shareholder-specific determinations:

Ordinary business income (loss) ......

Rental income (loss) ......

Royalty income (loss) ......

Section 1231 gain (loss) ......

Other income (loss) ......

Section 179 deduction ......

Other deductions ......

W-2 wages allocable to qualified payments ......

Section 199A(g) deduction ......

Excess taxable income (code AA). If 2. If the corporation is involved in a amounts the shareholder will need to the S corporation is required to file Form farming or fishing business, report the figure the amounts to report on lines 6a 8990, Limitation on Business Interest gross income and gains as well as losses and 6b of Form 3468. See the Instructions Expense Under Section 163(j), it may and deductions attributable to such for Form 3468 for details. determine it has excess taxable income. If business activities. See section 1301. 7. Basis in qualifying advanced so, enter the amount from Form 8990, Part 3. The shareholder's pro rata share of energy project property. Attach a III, line 41, for excess taxable income on any amount included in interest income on statement to Schedule K-1 that provides Schedule K. Report the shareholder's pro line 4 of Schedule K with respect to clean the shareholder's pro rata share of the rata share in box 17 of Schedule K-1. renewable energy or (for bonds issued basis amounts the shareholder will need before October 4, 2008) qualified zone to figure the amounts to report on line 7 of Excess business interest income academy bonds. Shareholders need this Form 3468. See the Instructions for Form (code AB). If the S corporation is information to properly adjust their stock 3468 for details. required to file Form 8990, it may basis. See Form 8912. determine it has excess business interest 8. Report section 965 foreign income income. If so, enter the amount from Form 4. Any income or gain reported on tax information for section 965(a) inclusion 8990, Part III, line 42, for excess taxable lines 1 through 10 of Schedule K that and section 965(c) deduction. Attach income on Schedule K. Report the qualifies as inversion gain, if the Form 965, including Schedules F and H, shareholder's pro rata share in box 17 of corporation is an expatriated entity or is a to the Schedule K-1. Schedule K-1. partner in an expatriated entity. For 9. If the corporation has not elected to details, see section 7874. Attach a be treated as an entity for purposes of Gross receipts for section 448(c) statement to Form 1120-S that shows the (code AC). Provide information section 951A under Notice 2020-69, amount of each type of income or gain provide the information shareholders need shareholders need to complete the gross included in the inversion gain. The receipts test for section 448(c) purposes. to figure their section 951A income. See corporation must report each the Instructions for Form 8992 for details. See the Instructions for Form 8990 for shareholder's pro rata share of the details. inversion gain in box 17 of Schedule K-1 10. If the corporation has chosen to apply the provisions of Proposed Other information (code AD). Report using code AD. Attach a statement to Schedule K-1 that shows the Regulations section 1.958-1(d) for the tax the following information to each year, provide information shareholders shareholder. shareholder's pro rata share of the amount of each type of income or gain included in need to figure their section 951(a) 1. If the corporation participates in a the inversion gain. inclusion. transaction that must be disclosed on 5. Basis in qualifying advanced coal 11. Any other information the Form 8886 (discussed earlier). Both the shareholders need to prepare their tax corporation and its shareholders may be project property. Attach a statement to Schedule K-1 that provides the returns, including information needed to required to file Form 8886. The prepare state and local tax returns. corporation must determine if any of its shareholder's pro rata share of the basis shareholders are required to disclose the amounts the shareholder will need to transaction and provide those figure the amounts to report on lines 5a, Line 18. More Than One At-Risk shareholders with information they will 5b, and 5c of Form 3468. See the Activity Instructions for Form 3468 for details. need to file Form 8886. This determination If the corporation entered into more than is based on the category(ies) under which 6. Basis in qualifying gasification one activity subject to the at-risk rules a transaction qualified for disclosures. See project property. Attach a statement to (at-risk activity), the corporation is the Instructions for Form 8886 for details. Schedule K-1 that provides the required to provide information separately shareholder's pro rata share of the basis for each at-risk activity to its shareholders.

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This information is reported on an accounting rules, the year-end balance total assets at the end of the tax year, or attachment to Schedule K-1. Check the sheet should agree with the books and (b) aren't required to file Schedule M-3 box to indicate there is more than one records at the end of the S short year. (Form 1120-S) and voluntarily file at-risk activity for which a statement is Schedule M-3 (Form 1120-S), must either attached. See At-Risk Activity Reporting Line 5. Tax-Exempt Securities (i) complete Schedule M-3 (Form 1120-S) Requirements under At-Risk Limitations, Include on this line: entirely, or (ii) complete Schedule M-3 earlier, for details. • State and local government obligations, (Form 1120-S) through Part I, and the interest on which is excludable from complete Form 1120-S, Schedule M-1, Line 19. More Than One Passive gross income under section 103(a); and instead of completing Parts II and III of • Stock in a mutual fund or other Schedule M-3 (Form 1120-S). If the Activity regulated investment company that corporation chooses to complete If the corporation entered into more than distributed exempt-interest dividends Schedule M-1 instead of completing Parts one activity (determined for purposes of during the tax year of the corporation. II and III of Schedule M-3, line 1 of the passive activity loss and credit Schedule M-1 must equal line 11 of Part I limitations), the corporation is required to Line 24. Retained Earnings of Schedule M-3. See the Instructions for provide information separately for each If the corporation maintains separate Schedule M-3 (Form 1120-S) for more activity to its shareholders. This accounts for appropriated and information. information is reported on an attachment unappropriated retained earnings, it may to Schedule K-1. Check the box to want to continue such accounting for Line 2 indicate there is more than one passive purposes of preparing its financial balance Report on this line income included on activity for which a statement is attached. sheet. Also, if the corporation converts to Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a, See Passive Activity Reporting C corporation status in a subsequent year, 9, and 10 not recorded on the books this Requirements under Passive Activity it will be required to report its appropriated year. Describe each such item of income. Limitations, earlier, for details. and unappropriated retained earnings on Attach a statement if necessary. separate lines of Schedule L of Form Reconciliation 1120. Line 3b. Travel and Entertainment Line 25. Adjustments to Line 18. Income/Loss Include any of the following applicable Reconciliation (Schedule K Shareholders' Equity expenses. Only) The following are some examples of • Entertainment expenses not deductible adjustments to report on this line. under section 274(a). To the extent the corporation has an • Unrealized gains and losses on • Meal expenses not deductible under amount on line 14p of Schedule K (foreign securities held “available for sale.” section 274(n). taxes paid and accrued), subtract that • Foreign currency translation • Qualified transportation fringes not amount for purposes of figuring the adjustments. deductible under section 274(a)(4). corporation's net income (loss). The • The excess of additional pension • Expenses for the use of an amount reported on line 18 must be the liability over unrecognized prior service entertainment facility. same as the amount reported on line 8 of cost. • The part of business gifts over $25. Schedule M-1 or line 26, column (d), in • Guarantees of employee stock • Expenses of an individual over $2,000 Part II of Schedule M-3 (Form 1120-S). ownership plan (ESOP) debt. that are allocable to conventions on cruise • Compensation related to employee ships. stock award plans. • Employee achievement awards of Schedule L. Balance nontangible property or tangible property If the total adjustment to be entered is a Sheets per Books over $400 ($1,600 if part of a qualified negative amount, enter the amount in plan). The balance sheets should agree with the parentheses. corporation's books and records. • The cost of skyboxes. Schedule L isn't required to be completed • The part of luxury water travel expenses if the corporation answered “Yes” to Schedule M-1. not deductible under section 274(m). question 11 on Schedule B. If the • Expenses for travel as a form of corporation is required to complete Reconciliation of Income education. Schedule L, include total assets reported (Loss) per Books With • Nondeductible club dues. on Schedule L, line 15, column (d), on Income (Loss) per Return • Other nondeductible travel and page 1, item F. entertainment expenses. In completing Schedule M-1, the following Corporations with total assets of $10 apply. For more information, see Pub. 535. million or more on the last day of the tax • Schedule M-1 isn't required to be If the corporation has an amount year must file Schedule M-3 (Form completed if the corporation answered TIP on line 14p of Schedule K (foreign 1120-S) instead of Schedule M-1. “Yes” to question 11 on Schedule B. taxes paid and accrued), take that However, see the instructions for • Corporations with total assets of $10 amount into account for purposes of Schedule M-1, later. See the separate million or more on the last day of the tax figuring expenses and deductions to enter Instructions for Schedule M-3 (Form year must file Schedule M-3 (Form on lines 3 and 6. 1120-S) for provisions that also affect 1120-S) instead of Schedule M-1. Schedule L. • A corporation filing Form 1120-S that isn't required to file Schedule M-3 may If the S election terminated during the voluntarily file Schedule M-3 instead of tax year and the corporation reverted to a Schedule M-1. See the Instructions for C corporation, the year-end balance sheet Schedule M-3 (Form 1120-S) for more should generally agree with the books and information. records at the end of the C short year. • For 2020, corporations that (a) are However, if the corporation elected under required to file Schedule M-3 (Form section 1362(e)(3) to have items assigned 1120-S) and have less than $50 million to each short year under normal tax

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1. Increase the AAA by income (other Column (b). Shareholders' Schedule M-2. Analysis of than tax-exempt income) and the excess Undistributed Taxable Income Accumulated Adjustments of the deduction for depletion over the basis of the property subject to depletion Previously Taxed Account, Shareholders' (unless the property is an oil and gas The shareholders' undistributed taxable Undistributed Taxable property the basis of which has been income previously taxed account, also Income Previously Taxed, allocated to shareholders). called previously taxed earnings and 2. Generally, decrease the AAA by profits (PTEP), is maintained only if the Accumulated Earnings deductible losses and expenses, corporation had a balance in this account and Profits, and Other nondeductible expenses (other than at the start of its 2020 tax year. If there is a Adjustments Account expenses related to tax-exempt income), beginning balance for the 2020 tax year, and the sum of the shareholders' no adjustments are made to the account Column (a). Accumulated deductions for depletion for any oil or gas except to reduce the account for Adjustments Account property held by the corporation as distributions made under section 1375(d) described in section 1367(a)(2)(E). If (as in effect before the enactment of the The accumulated adjustments account deductible losses and expenses include Subchapter S Revision Act of 1982). See (AAA) is an account of the S corporation the fair market value (FMV) of certain Distributions, later, for the order of that generally reflects the accumulated contributed property (discussed earlier), distributions from the account. undistributed net income of the further adjust AAA by adding back the corporation for the corporation's Each shareholder's right to nontaxable FMV of the contributed property and distributions from PTEP is personal and post-1982 years. S corporations with subtracting instead the property's adjusted accumulated earnings and profits (AE&P) can't be transferred to another person. basis. If the total decreases under (2) The corporation is required to keep must maintain the AAA to determine the exceed the total increases under (1) tax effect of distributions during years as records of each shareholder's net share of above, the excess is a “net negative PTEP. an S corporation, the post-termination adjustment.” If the corporation has a net transition period, and cash distributions negative adjustment, don't take it into Column (c). Accumulated following a post-termination transition account under (2). Instead, take it into Earnings and Profits period. An S corporation without AE&P account only under (4) below. doesn't need to maintain the AAA in order If the corporation was a C corporation in a to determine the tax effect of distributions. 3. Decrease AAA (but not below zero) prior year, or if it engaged in a tax-free Nevertheless, if an S corporation without by property distributions (other than reorganization with a C corporation, enter AE&P engages in certain transactions to dividend distributions from AE&P), unless the amount of any AE&P at the close of its which section 381(a) applies, such as a the corporation elects to reduce AE&P 2019 tax year on line 1 in column (c). For merger into an S corporation with AE&P, first. See Distributions, later, for definitions details on figuring AE&P, see section 312. the S corporation must be able to and other details. Estimates based on retained earnings at calculate its AAA at the time of the merger 4. Decrease AAA by any net negative the end of the tax year are acceptable. If for purposes of determining the tax effect adjustment. For adjustments to the AAA the corporation has AE&P, it may be liable of post-merger distributions. Therefore, it for redemptions, reorganizations, and for tax imposed on excess net passive is recommended that the AAA be corporate separations, see Regulations income. See Excess net passive income maintained by all S corporations. section 1.1368-2(d). tax, earlier, for details on this tax. On the first day of the corporation's first The AAA may have a negative Column (d). Other Adjustments tax year as an S corporation, the balance TIP balance at year end. See section Account of the AAA is zero. At the end of the tax 1368(e). The other adjustments account is adjusted year, adjust the AAA for the items as for tax-exempt income (and related explained below and in the order listed. expenses) and federal taxes attributable to a C corporation tax year. After these

Schedule M-2 Worksheet Keep for Your Records

(a) (b) (c) (d) Accumulated Shareholders' Accumulated Other adjustments adjustments account undistributed taxable earnings and profits account income previously taxed

1. Balance at beginning of tax -0- -0- year ......

2. Ordinary income from page 1, 10,000 line 21 ......

3. Other additions ...... 20,000 5,000

4. Loss from page 1, line 21 ...... ( )

5. Other reductions ...... (36,000) ( )

6. Combine lines 1 through 5 ...... (6,000) 5,000

7. Distributions ...... -0- 5,000

8. Balance at end of tax year. Subtract (6,000) -0- line 7 from line 6 ......

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adjustments are made, the account is distributions from the AAA, it may elect to items of income (loss), deductions, and reduced for any distributions made during do so with the consent of all its affected distributions reported on Form 1120-S. In the year. See Distributions next. shareholders (section 1368(e)(3)(B)). This this example, the corporation has no election is irrevocable and applies only for PTEP or AE&P. Distributions the tax year for which it is made. For Items per return are: General rule. Unless the corporation details on making the election, see makes one of the elections described Statement regarding elections, later. 1. Page 1, line 21 income—$10,000; 2. Schedule K, line 2 loss—($3,000); below, property distributions (including Election to make a deemed cash) are applied in the following order (to dividend. If the corporation wants to 3. Schedule K, line 4 reduce accounts of the S corporation that distribute all or part of its AE&P through a income—$4,000; are used to figure the tax effect of deemed dividend, it may elect to do so 4. Schedule K, line 5a distributions made by the corporation to its with the consent of all its affected income—$16,000; shareholders). shareholders (section 1368(e)(3)(B)). 5. Schedule K, line 12a 1. Reduce the AAA determined Under this election, the corporation will be deduction—$24,000; without regard to any net negative treated as also having made the election adjustment for the tax year (but not below to distribute AE&P first. The amount of the 6. Schedule K, line 12d zero). If distributions during the tax year deemed dividend can't exceed the AE&P deduction—$3,000; exceed the AAA at the close of the tax at the end of the tax year. The E&P at year 7. Schedule K, line 13g work year, determined without regard to any net end is first reduced by any actual opportunity credit—$6,000; negative adjustment for the tax year, the distributions of AE&P made during the tax 8. Schedule K, line 16a tax-exempt AAA is allocated pro rata to each year. A deemed dividend is treated as if it interest—$5,000; distribution made during the tax year. See were a pro rata distribution of money to section 1368. the shareholders, received by the 9. Schedule K, line 16c nondeductible expenses—$6,000 (reduction in salaries 2. Reduce shareholders' PTEP shareholders, and immediately contributed back to the corporation, all on and wages for work opportunity credit); account for any section 1375(d) (as in and effect before 1983) distributions. A the last day of the tax year. This election is distribution from the PTEP account is tax irrevocable and applies only for the tax 10. Schedule K, line 16d free to the extent of a shareholder's basis year for which it is made. For details on distributions—$65,000. making the election, see Statement in his or her stock in the corporation. Based on items (1) through (10) above regarding elections, later. 3. Reduce AE&P. Generally, the S and starting balances of zero, the columns corporation has AE&P only if it hasn't Election to forego PTEP. If the for the AAA and the other adjustments distributed E&P accumulated in prior years corporation wants to forego distributions of account are completed as shown in the when the S corporation was a C PTEP, it may elect to do so with the Schedule M-2 Worksheet. corporation (section 1361(a)(2)). See consent of all its affected shareholders For the AAA, the worksheet section 312 for information on E&P. The (section 1368(e)(3)(B)). Under this line 3—$20,000 amount is the total of the only adjustments that can be made to the election, item (2) under General rule, Schedule K, lines 4 and 5a income of AE&P of an S corporation are: earlier, doesn't apply to any distribution $4,000 and $16,000. The worksheet a. Reductions for dividend made during the tax year. This election is line 5—$36,000 amount is the total of the distributions; irrevocable and applies only for the tax Schedule K, line 2 loss of ($3,000), year for which it is made. For details on b. Adjustments for redemptions, line 12a (code A) deduction of $24,000, making the election, see Statement liquidations, reorganizations, etc.; and line 12d (code S) deduction of $3,000, regarding elections next. and the line 16c nondeductible expenses c. Reductions for investment credit Statement regarding elections. To of $6,000. The worksheet line 7 is zero. recapture tax for which the corporation is The AAA at the end of the tax year (figured liable. make any of the above elections, the corporation must attach a statement to a without regard to distributions and the net See section 1371(c) and (d)(3). timely filed original or amended Form negative adjustment of $6,000) is zero, 4. Reduce the other adjustments 1120-S for the tax year for which the and distributions can't reduce the AAA account (OAA). election is made. In the statement, the below zero. 5. Reduce any remaining corporation must identify the election it is For the other adjustments account, the shareholders' equity accounts. making and must state that each worksheet line 3 amount is the shareholder consents to the election. The Schedule K, line 16a, tax-exempt interest Elections relating to source of distri- statement of election to make a deemed income of $5,000. The worksheet line 7 butions. The corporation may modify the dividend must include the amount of the amount is $5,000, reducing the other above ordering rules by making one or deemed dividend distributed to each adjustments account to zero. The more of the following elections. shareholder. For more details on the remaining $60,000 of distributions aren't election, see Regulations section entered on Schedule M-2. Election to distribute AE&P first. If 1.1368-1(f)(5). the corporation has AE&P and wants to distribute from this account before making Example The following example shows how the Schedule M-2 accounts are adjusted for

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Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of December 2020, for taxpayers filing 2020 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic errors, implying lower post-filing burden. Tables 1, 2, and 3 below show the burden model estimates for each of the three classifications of business taxpayers: Partnerships (Table 1), corporations (Table 2), and S corporations (Table 3). As the tables show, the average filing compliance is different for the three forms of business. Showing a combined average burden for all businesses would understate the burden for corporations and overstate the burden for the two pass-through entities (partnerships and corporations). In addition, the burden for small and large businesses is shown separately for each type of business entity in order to clearly convey the substantially higher burden faced by the largest businesses.

Table 1 – Taxpayer Burden for Entities Taxed as Partnerships

Forms 1065, 1066, and all attachments Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer All Partnerships 4.5 290 $5,900 Small 4.2 270 $4,400 Large* 0.3 610 $29,000 *A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations

Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer All Taxable Corporations 2.1 335 $7,700 Small 2.0 280 $4,000 Large* 0.1 1,255 $70,200 *A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations

Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments Primary Form Filed or Type of Taxpayer Number of Returns (millions) Average Time per Taxpayer (hours) Average Cost per Taxpayer All Pass-Through Corporations 5.4 245 $3,500 Small 5.3 240 $3,100 Large* 0.1 610 $30,900 *A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through corporations. A small business is any business that does not meet the definition of a large business.

Note. The data shown are the best estimates for 2020 business entity income tax returns. Reported time and cost burdens are national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by taxpayer type. The estimates are subject to change as new forms and data become available. Comments. 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 send us comments from IRS.gov/FormComments. Or you can write to the Internal Revenue Service, Tax Forms and Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Don't send the form to this office.

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Principal Business Activity Codes largest percentage of its “total receipts.” Total receipts is company is considered a manufacturer and must use defined as the sum of gross receipts or sales (page 1, one of the manufacturing codes (311110-339900). This list of principal business activities and their line 1a); all other income (page 1, lines 4 and 5); income associated codes is designed to classify an enterprise reported on Schedule K, lines 4, 5a, and 6; income or Once the principal business activity is determined, by the type of activity in which it is engaged to facilitate net gain reported on Schedule K, lines 7, 8a, 9, and 10; enter the six-digit code from the list below on page 1, the administration of the Internal Revenue Code. These and income or net gain reported on Form 8825, lines 2, item B. Also enter the business activity on page 2, principal business activity codes are based on the North 19, and 20a. If the company purchases raw materials Schedule B, line 2(a) and a brief description of the American Industry Classification System. and supplies them to a subcontractor to produce the principal product or service of the business on line 2(b). finished product, but retains title to the product, the Using the list of activities and codes below, determine from which activity the company derives the Agriculture, Forestry, Fishing 238300 Building Finishing Contractors 325900 Other Chemical Product & 336990 Other Transportation Equipment (including drywall, insulation, Preparation Mfg Mfg and Hunting painting, wallcovering, flooring, Plastics and Rubber Products Furniture and Related Product Crop Production tile, & finish carpentry) Manufacturing Manufacturing 111100 Oilseed & Grain Farming 238900 Other Specialty Trade 326100 Plastics Product Mfg 337000 Furniture & Related Product Contractors (including site Manufacturing 111210 Vegetable & Melon Farming preparation) 326200 Rubber Product Mfg (including potatoes & yams) Nonmetallic Mineral Product Miscellaneous Manufacturing 111300 Fruit & Tree Nut Farming Manufacturing Manufacturing 339110 Medical Equipment & Supplies 111400 Greenhouse, Nursery, & Food Manufacturing 327100 Clay Product & Refractory Mfg Mfg Floriculture Production 311110 Animal Food Mfg 327210 Glass & Glass Product Mfg 339900 Other Miscellaneous Manufacturing 111900 Other Crop Farming (including 311200 Grain & Oilseed Milling 327300 Cement & Concrete Product Mfg tobacco, cotton, sugarcane, hay, Wholesale Trade peanut, sugar beet & all other 311300 Sugar & Confectionery Product 327400 Lime & Gypsum Product Mfg crop farming) Mfg 327900 Other Nonmetallic Mineral Merchant Wholesalers, Durable Goods Animal Production 311400 Fruit & Vegetable Preserving & Product Mfg 423100 Motor Vehicle & Motor Vehicle Specialty Food Mfg 112111 Beef Cattle Ranching & Farming Primary Metal Manufacturing Parts & Supplies 311500 Dairy Product Mfg 112112 Cattle Feedlots 331110 Iron & Steel Mills & Ferroalloy 423200 Furniture & Home Furnishings 311610 Animal Slaughtering and Mfg 112120 Dairy Cattle & Milk Production 423300 Lumber & Other Construction Processing 331200 Steel Product Mfg from Materials 112210 Hog & Pig Farming 311710 Seafood Product Preparation & Purchased Steel 423400 Professional & Commercial 112300 Poultry & Egg Production Packaging 331310 Alumina & Aluminum Production Equipment & Supplies 112400 Sheep & Goat Farming 311800 Bakeries, Tortilla, & Dry Pasta & Processing 423500 Metal & Mineral (except 112510 Aquaculture (including shellfish & Mfg 331400 Nonferrous Metal (except Petroleum) finfish farms & hatcheries) 311900 Other Food Mfg (including Aluminum) Production & 423600 Household Appliances & 112900 Other Animal Production coffee, tea, flavorings & Processing Electrical & Electronic Goods seasonings) Forestry and Logging 331500 Foundries 423700 Hardware, & Plumbing & Heating Beverage and Tobacco Product Fabricated Metal Product Equipment & Supplies 113110 Timber Tract Operations Manufacturing Manufacturing 423800 Machinery, Equipment, & 113210 Forest Nurseries & Gathering of 312110 Soft Drink & Ice Mfg Forest Products 332110 Forging & Stamping Supplies 312120 Breweries 113310 Logging 332210 Cutlery & Handtool Mfg 423910 Sporting & Recreational Goods & 312130 Wineries Supplies Fishing, Hunting and Trapping 332300 Architectural & Structural Metals 312140 Distilleries Mfg 423920 Toy & Hobby Goods & Supplies 114110 Fishing 312200 Tobacco Manufacturing 332400 Boiler, Tank, & Shipping 423930 Recyclable Materials 114210 Hunting & Trapping Textile Mills and Textile Product Mills Container Mfg 423940 Jewelry, Watch, Precious Stone, Support Activities for Agriculture and 332510 Hardware Mfg & Precious Metals Forestry 313000 Textile Mills 314000 Textile Product Mills 332610 Spring & Wire Product Mfg 423990 Other Miscellaneous Durable 115110 Support Activities for Crop Goods Production (including cotton Apparel Manufacturing 332700 Machine Shops; Turned Product; & Screw, Nut, & Bolt Mfg Merchant Wholesalers, Nondurable ginning, soil preparation, 315100 Apparel Knitting Mills planting, & cultivating) 332810 Coating, Engraving, Heat Goods 315210 Cut & Sew Apparel Contractors 115210 Support Activities for Animal Treating, & Allied Activities 424100 Paper & Paper Products Production 315220 Men's & Boys' Cut & Sew 332900 Other Fabricated Metal Product 424210 Drugs & Druggists' Sundries Apparel Mfg 115310 Support Activities For Forestry Mfg 424300 Apparel, Piece Goods, & Notions 315240 Women's, Girls', & Infants' Cut & Machinery Manufacturing Mining Sew Apparel Mfg 424400 Grocery & Related Products 333100 Agriculture, Construction, & 424500 Farm Product Raw Materials 211120 Crude Petroleum Extraction 315280 Other Cut & Sew Apparel Mfg Mining Machinery Mfg 424600 Chemical & Allied Products 211130 Natural Gas Extraction 315990 Apparel Accessories & Other 333200 Industrial Machinery Mfg Apparel Mfg 424700 Petroleum & Petroleum Products 212110 Coal Mining 333310 Commercial & Service Industry Leather and Allied Product Machinery Mfg 424800 Beer, Wine, & Distilled Alcoholic 212200 Metal Ore Mining Manufacturing Beverages 212310 Stone Mining & Quarrying 333410 Ventilation, Heating, 316110 Leather & Hide Tanning & Air-Conditioning, & Commercial 424910 Farm Supplies 212320 Sand, Gravel, Clay, & Ceramic & Finishing Refrigeration Equipment Mfg 424920 Book, Periodical, & Newspapers Refractory Minerals Mining & 316210 Footwear Mfg (including rubber Quarrying 333510 Metalworking Machinery Mfg 424930 Flower, Nursery Stock, & Florists' & plastics) Supplies 212390 Other Nonmetallic Mineral 333610 Engine, Turbine & Power 316990 Other Leather & Allied Product Transmission Equipment Mfg 424940 Tobacco & Tobacco Products Mining & Quarrying Mfg 333900 Other General Purpose 424950 Paint, Varnish, & Supplies 213110 Support Activities for Mining Wood Product Manufacturing Machinery Mfg 424990 Other Miscellaneous Nondurable Utilities 321110 Sawmills & Wood Preservation Computer and Electronic Product Goods 221100 Electric Power Generation, 321210 Veneer, Plywood, & Engineered Manufacturing Wholesale Electronic Markets and Transmission & Distribution Wood Product Mfg 334110 Computer & Peripheral Agents and Brokers 221210 Natural Gas Distribution 321900 Other Wood Product Mfg Equipment Mfg 425110 Business to Business Electronic 221300 Water, Sewage & Other Systems Paper Manufacturing 334200 Communications Equipment Mfg Markets 221500 Combination Gas & Electric 322100 Pulp, Paper, & Paperboard Mills 334310 Audio & Video Equipment Mfg 425120 Wholesale Trade Agents & Brokers Construction 322200 Converted Paper Product Mfg 334410 Semiconductor & Other Printing and Related Support Activities Electronic Component Mfg Retail Trade Construction of Buildings 323100 Printing & Related Support 334500 Navigational, Measuring, Motor Vehicle and Parts Dealers 236110 Residential Building Construction Activities Electromedical, & Control Instruments Mfg 441110 New Car Dealers 236200 Nonresidential Building Petroleum and Coal Products Construction Manufacturing 334610 Manufacturing & Reproducing 441120 Used Car Dealers Magnetic & Optical Media Heavy and Civil Engineering 324110 Petroleum Refineries (including 441210 Recreational Vehicle Dealers Construction integrated) Electrical Equipment, Appliance, and 441222 Boat Dealers Component Manufacturing 237100 Utility System Construction 324120 Asphalt Paving, Roofing, & 441228 Motorcycle, ATV, & All Other 237210 Land Subdivision Saturated Materials Mfg 335100 Electric Lighting Equipment Mfg Motor Vehicle Dealers 237310 Highway, Street, & Bridge 324190 Other Petroleum & Coal 335200 Major Household Appliance Mfg 441300 Automotive Parts, Accessories, Construction Products Mfg 335310 Electrical Equipment Mfg & Tire Stores 237990 Other Heavy & Civil Engineering Chemical Manufacturing 335900 Other Electrical Equipment & Furniture and Home Furnishings Stores Construction 325100 Basic Chemical Mfg Component Mfg 442110 Furniture Stores Specialty Trade Contractors 325200 Resin, Synthetic Rubber, & Transportation Equipment 442210 Floor Covering Stores 238100 Foundation, Structure, & Building Artificial & Synthetic Fibers & Manufacturing 442291 Window Treatment Stores Filaments Mfg Exterior Contractors (including 336100 Motor Vehicle Mfg 442299 All Other Home Furnishings framing carpentry, masonry, 325300 Pesticide, Fertilizer, & Other 336210 Motor Vehicle Body & Trailer Mfg Stores glass, roofing, & siding) Agricultural Chemical Mfg 336300 Motor Vehicle Parts Mfg Electronics and Appliance Stores 238210 Electrical Contractors 325410 Pharmaceutical & Medicine Mfg 336410 Aerospace Product & Parts Mfg 443141 Household Appliance Stores 238220 Plumbing, Heating, & 325500 Paint, Coating, & Adhesive Mfg Air-Conditioning Contractors 336510 Railroad Rolling Stock Mfg 443142 Electronics Stores (including 325600 Soap, Cleaning Compound, & 336610 Ship & Boat Building Audio, Video, Computer, & 238290 Other Building Equipment Toilet Preparation Mfg Camera Stores) Contractors

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Principal Business Activity Codes (Continued)

Building Material and Garden 484120 General Freight Trucking, Activities Related to Credit Accounting, Tax Preparation, Equipment and Supplies Dealers Long-distance Intermediation Bookkeeping, and Payroll Services 444110 Home Centers 484200 Specialized Freight Trucking 522300 Activities Related to Credit 541211 Offices of Certified Public 444120 Paint & Wallpaper Stores Transit and Ground Passenger Intermediation (including loan Accountants Transportation brokers, check clearing, & 541213 Tax Preparation Services 444130 Hardware Stores money transmitting) 485110 Urban Transit Systems 541214 Payroll Services 444190 Other Building Material Dealers Securities, Commodity Contracts, and 444200 Lawn & Garden Equipment & 485210 Interurban & Rural Bus Other Financial Investments and 541219 Other Accounting Services Supplies Stores Transportation Related Activities Architectural, Engineering, and Related Food and Beverage Stores 485310 Taxi & Ridesharing Services 523110 Investment Banking & Securities Services 445110 Supermarkets and Other 485320 Limousine Service Dealing 541310 Architectural Services Grocery (except Convenience) 485410 School & Employee Bus 523120 Securities Brokerage 541320 Landscape Architecture Services Stores Transportation 523130 Commodity Contracts Dealing 541330 Engineering Services 445120 Convenience Stores 485510 Charter Bus Industry 523140 Commodity Contracts Brokerage 541340 Drafting Services 445210 Meat Markets 485990 Other Transit & Ground 523210 Securities & Commodity 541350 Building Inspection Services Passenger Transportation 445220 Fish & Seafood Markets Exchanges 541360 Geophysical Surveying & 445230 Fruit & Vegetable Markets Pipeline Transportation 523900 Other Financial Investment Mapping Services 445291 Baked Goods Stores 486000 Pipeline Transportation Activities (including portfolio 541370 Surveying & Mapping (except Scenic & Sightseeing Transportation management & investment Geophysical) Services 445292 Confectionery & Nut Stores advice) 445299 All Other Specialty Food Stores 487000 Scenic & Sightseeing 541380 Testing Laboratories Transportation Insurance Carriers and Related 445310 Beer, Wine, & Liquor Stores Activities Specialized Design Services Support Activities for Transportation Health and Personal Care Stores 524140 Direct Life, Health, & Medical 541400 Specialized Design Services 488100 Support Activities for Air (including interior, industrial, 446110 Pharmacies & Drug Stores Insurance & Reinsurance Transportation Carriers graphic, & fashion design) 446120 Cosmetics, Beauty Supplies, & 488210 Support Activities for Rail Computer Systems Design and Related Perfume Stores 524150 Direct Insurance & Reinsurance Transportation (except Life, Health, & Medical) Services 446130 Optical Goods Stores 488300 Support Activities for Water Carriers 541511 Custom Computer Programming 446190 Other Health & Personal Care Transportation 524210 Insurance Agencies & Services Stores 488410 Motor Vehicle Towing Brokerages 541512 Computer Systems Design Gasoline Stations 488490 Other Support Activities for Road 524290 Other Insurance Related Services 447100 Gasoline Stations (including Transportation Activities (including third-party 541513 Computer Facilities Management convenience stores with gas) 488510 Freight Transportation administration of insurance and Services Clothing and Clothing Accessories Arrangement pension funds) 541519 Other Computer Related Stores 488990 Other Support Activities for Funds, Trusts, and Other Financial Services 448110 Men's Clothing Stores Transportation Vehicles Other Professional, Scientific, and 448120 Women's Clothing Stores Couriers and Messengers 525100 Insurance & Employee Benefit Technical Services Funds 448130 Children's & Infants' Clothing 492110 Couriers 541600 Management, Scientific, & Stores 525910 Open-End Investment Funds Technical Consulting Services 492210 Local Messengers & Local (Form 1120-RIC) 448140 Family Clothing Stores Delivery 541700 Scientific Research & 525920 Trusts, Estates, & Agency Development Services 448150 Clothing Accessories Stores Warehousing and Storage Accounts 541800 Advertising & Related Services 448190 Other Clothing Stores 493100 Warehousing & Storage (except 525990 Other Financial Vehicles lessors of miniwarehouses & 541910 Marketing Research & Public 448210 Shoe Stores (including mortgage REITs & Opinion Polling self-storage units) closed-end investment funds) 448310 Jewelry Stores 541920 Photographic Services Information “Offices of Bank Holding Companies” and 448320 Luggage & Leather Goods 541930 Translation & Interpretation Stores Publishing Industries (except Internet) “Offices of Other Holding Companies” are located under Management of Companies Services Sporting Goods, Hobby, Book, and 511110 Newspaper Publishers 541940 Veterinary Services Music Stores (Holding Companies) below. 511120 Periodical Publishers 541990 All Other Professional, Scientific, 451110 Sporting Goods Stores 511130 Book Publishers Real Estate and Rental and & Technical Services 451120 Hobby, Toy, & Game Stores 511140 Directory & Mailing List Leasing Management of Companies 451130 Sewing, Needlework, & Piece Publishers Goods Stores Real Estate (Holding Companies) 511190 Other Publishers 531110 Lessors of Residential Buildings 451140 Musical Instrument & Supplies 551111 Offices of Bank Holding Stores 511210 Software Publishers & Dwellings (including equity REITs) Companies 451211 Book Stores Motion Picture and Sound Recording Industries 531120 Lessors of Nonresidential 551112 Offices of Other Holding 451212 News Dealers & Newsstands Companies 512100 Motion Picture & Video Industries Buildings (except General Merchandise Stores (except video rental) Miniwarehouses) (including Administrative and Support and equity REITs) 452200 Department Stores 512200 Sound Recording Industries 531130 Lessors of Miniwarehouses & Waste Management and 452300 General Merchandise Stores, Broadcasting (except Internet) incl. Warehouse Clubs and Self-Storage Units (including Remediation Services 515100 Radio & Television Broadcasting Supercenters equity REITs) Administrative and Support Services 515210 Cable & Other Subscription Miscellaneous Store Retailers 531190 Lessors of Other Real Estate 561110 Office Administrative Services Programming Property (including equity REITs) 453110 Florists 561210 Facilities Support Services Telecommunications 531210 Offices of Real Estate Agents & 453210 Office Supplies & Stationery Brokers 561300 Employment Services Stores 517000 Telecommunications (including paging, cellular, satellite, cable & 531310 Real Estate Property Managers 561410 Document Preparation Services 453220 Gift, Novelty, & Souvenir Stores other program distribution, 531320 Offices of Real Estate Appraisers 561420 Telephone Call Centers 453310 Used Merchandise Stores resellers, other telecommunications, & Internet 531390 Other Activities Related to Real 561430 Business Service Centers 453910 Pet & Pet Supplies Stores Estate (including private mail centers & service providers) copy shops) 453920 Art Dealers Rental and Leasing Services Data Processing Services 561440 Collection Agencies 453930 Manufactured (Mobile) Home 532100 Automotive Equipment Rental & Dealers 518210 Data Processing, Hosting, & Related Services Leasing 561450 Credit Bureaus 453990 All Other Miscellaneous Store Other Information Services 532210 Consumer Electronics & 561490 Other Business Support Services Retailers (including tobacco, Appliances Rental (including repossession services, candle, & trophy shops) 519100 Other Information Services court reporting, & stenotype 532281 Formal Wear & Costume Rental Nonstore Retailers (including news syndicates, services) libraries, Internet publishing, & 532282 Video Tape & Disc Rental 454110 Electronic Shopping & broadcasting) 561500 Travel Arrangement & Mail-Order Houses 532283 Home Health Equipment Rental Reservation Services 454210 Vending Machine Operators Finance and Insurance 532284 Recreational Goods Rental 561600 Investigation & Security Services 454310 Fuel Dealers (including Heating Depository Credit Intermediation 532289 All Other Consumer Goods 561710 Exterminating & Pest Control Rental Oil & Liquefied Petroleum) 522110 Commercial Banking Services 532310 General Rental Centers 454390 Other Direct Selling 522120 Savings Institutions 561720 Janitorial Services Establishments (including 532400 Commercial & Industrial 561730 Landscaping Services door-to-door retailing, frozen 522130 Credit Unions Machinery & Equipment Rental & 522190 Other Depository Credit 561740 Carpet & Upholstery Cleaning food plan providers, party plan Leasing Services merchandisers, & coffee-break Intermediation Lessors of Nonfinancial Intangible service providers) Nondepository Credit Intermediation 561790 Other Services to Buildings & Assets (except copyrighted works) Dwellings 522210 Credit Card Issuing Transportation and 533110 Lessors of Nonfinancial 561900 Other Support Services 522220 Sales Financing Intangible Assets (except (including packaging & labeling Warehousing copyrighted works) 522291 Consumer Lending services, & convention & trade Air, Rail, and Water Transportation 522292 Real Estate Credit (including Professional, Scientific, and show organizers) 481000 Air Transportation mortgage bankers & originators) Technical Services Waste Management and Remediation 482110 Rail Transportation 522293 International Trade Financing Services Legal Services 483000 Water Transportation 522294 Secondary Market Financing 562000 Waste Management & 541110 Offices of Lawyers Remediation Services Truck Transportation 522298 All Other Nondepository Credit 484110 General Freight Trucking, Local Intermediation 541190 Other Legal Services

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Principal Business Activity Codes (Continued)

Other Ambulatory Health Care Services courses, skiing facilities, Automotive & Electronic) Repair Educational Services marinas, fitness centers, & & Maintenance 621900 Other Ambulatory Health Care bowling centers) 611000 Educational Services (including Services (including ambulance 811410 Home & Garden Equipment & schools, colleges, & universities) services & blood & organ banks) Accommodation and Food Appliance Repair & Maintenance Health Care and Social Hospitals Services 811420 Reupholstery & Furniture Repair 622000 Hospitals 811430 Footwear & Leather Goods Assistance Accommodation Repair Nursing and Residential Care Facilities Offices of Physicians and Dentists 721110 Hotels (except Casino Hotels) & 811490 Other Personal & Household 621111 Offices of Physicians (except 623000 Nursing & Residential Care Motels Goods Repair & Maintenance Facilities mental health specialists) 721120 Casino Hotels Personal and Laundry Services Social Assistance 621112 Offices of Physicians, Mental 721191 Bed & Breakfast Inns 812111 Barber Shops Health Specialists 624100 Individual & Family Services 721199 All Other Traveler 812112 Beauty Salons 621210 Offices of Dentists 624200 Community Food & Housing, & Accommodation 812113 Nail Salons Offices of Other Health Practitioners Emergency & Other Relief 721210 RV (Recreational Vehicle) Parks Services 812190 Other Personal Care Services 621310 Offices of Chiropractors & Recreational Camps 624310 Vocational Rehabilitation (including diet & weight reducing 621320 Offices of Optometrists 721310 Rooming & Boarding Houses, centers) Services Dormitories, & Workers' Camps 621330 Offices of Mental Health 624410 Child Day Care Services 812210 Funeral Homes & Funeral Practitioners (except Physicians) Food Services and Drinking Places Services 621340 Offices of Physical, Occupational Arts, Entertainment, and 722300 Special Food Services (including 812220 Cemeteries & Crematories food service contractors & & Speech Therapists, & Recreation 812310 Coin-Operated Laundries & Audiologists caterers) Performing Arts, Spectator Sports, and Drycleaners 621391 Offices of Podiatrists 722410 Drinking Places (Alcoholic Related Industries Beverages) 812320 Drycleaning & Laundry Services 621399 Offices of All Other (except Coin-Operated) 711100 Performing Arts Companies 722511 Full Service Restaurants Miscellaneous Health 812330 Linen & Uniform Supply Practitioners 711210 Spectator Sports (including 722513 Limited Service Restaurants sports clubs & racetracks) 812910 Pet Care (except Veterinary) Outpatient Care Centers 722514 Cafeterias & Buffets 711300 Promoters of Performing Arts, Services 621410 Family Planning Centers Sports, & Similar Events 722515 Snack & Non-alcoholic Beverage 812920 Photofinishing Bars 621420 Outpatient Mental Health & 711410 Agents & Managers for Artists, 812930 Parking Lots & Garages Substance Abuse Centers Athletes, Entertainers, & Other Other Services 812990 All Other Personal Services 621491 HMO Medical Centers Public Figures Repair and Maintenance Religious, Grantmaking, Civic, 621492 Kidney Dialysis Centers 711510 Independent Artists, Writers, & Professional, and Similar Organizations Performers 811110 Automotive Mechanical & 621493 Freestanding Ambulatory Electrical Repair & Maintenance 813000 Religious, Grantmaking, Civic, Surgical & Emergency Centers Museums, Historical Sites, and Similar Professional, & Similar Institutions 811120 Automotive Body, Paint, Interior, 621498 All Other Outpatient Care & Glass Repair Organizations (including Centers 712100 Museums, Historical Sites, & condominium and homeowners Similar Institutions 811190 Other Automotive Repair & associations) Medical and Diagnostic Laboratories Maintenance (including oil 621510 Medical & Diagnostic Amusement, Gambling, and Recreation change & lubrication shops & car Laboratories Industries washes) Home Health Care Services 713100 Amusement Parks & Arcades 811210 Electronic & Precision 621610 Home Health Care Services 713200 Gambling Industries Equipment Repair & 713900 Other Amusement & Recreation Maintenance Industries (including golf 811310 Commercial & Industrial Machinery & Equipment (except

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Index

Estimated tax penalty 21 Low-income housing credit Recordkeeping 6 A Expenses, nondeductible–Sch. recapture 36 Reforestation 20, 30 Accounting methods 5 K or K-1 35 Regulations section Accounting period 5 Extension of time to file 3 1.1411-10(g) 6 Accumulated adjustments Extraterritorial income M Related party transactions 15 account 45 exclusion 12 Multiple activities–reporting Rental activities, income and Amended return 6 requirements 23 expenses 24 Amortization 15 Rental deduction 17 Amount owed 21 F Return, amended 6 Assembling return 4 Farming, special rules 15 N Final return 13 Net investment income (code Foreign transactions–Sch. K or U) 38 S B K-1 32 Net investment income tax Salaries and wages 16 Bad debt deduction 16 Forms and Publications, how reporting requirements 12 Sales 13 Balance sheets–Sch. L 44 to get 2 Schedule L 44 Business startup expenses 15 Schedule M-1 44 O Schedule M-2 45 G Officer compensation 16 Schedule M-3 13 C Gain, ordinary 14 Section 1400Z-1 7 Change in accounting Gain (loss), section 1231–Sch. Section 1411 election with method 5 K or K-1 26 P respect to CFCs and Charitable contributions 28 Gross receipts 13 Passive activities–rental 8 QEFs 6 Cost of goods sold 14 Passive activities–reporting Section 179 expense 28 requirements 11 Section 199A information 38 I Passive activity limitations 7 Section 263A rules 15 Income 13 Penalties 4 Section 59(e)(2) D expenditures 29 Deductions 14, 28 Income, rental activities 24 Pension, profit-sharing, etc., Income, tax-exempt 35 plans 18 Self-charged interest 9 Deductions, limitations on 15 Substitute Sch. K-1 22 Deductions from oil and gas Income, trade or business Portfolio income 9, 25 properties 35 activities 24 Preparer, tax return 3 Depletion 18 Income from oil and gas Private delivery services 3 Depletion (other than oil and properties 35 Property distributions 35 T gas) 35 Installment sales 14 Taxes and licenses Depreciation 18 Interest deduction 17 deduction 17 Direct deposit of refund 2, 21 Interest due on tax payment 4 Q Taxes due 20 Distributions 46 Interest expense, Qualified business income Tax issues, unresolved 2 Distributions, property 35 investment 29 deduction 38 Termination of S election 2 Inventory 15 Qualified opportunity funds 7 Travel and entertainment Investment income and Qualified rehabilitation deduction 19 E expenses 36 expenditures 31 Election, termination of 2 Electronic filing 2 W Employee benefit L R When to file 3 programs 18 Loans from shareholders 36 Recapture, low-income Where to file 3 Employer identification number Lobbying expenses, housing credit 36 Who must file 2 (EIN) 13 nondeductible 19 Recapture, section 179 Who must sign 3 Estimated tax payment 4, 21 Low-income housing credit 30 deduction 37

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