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Department of the Treasury 2018 Internal Revenue Service Instructions for Form 1120S U.S. Income Tax Return for an S Corporation

Section references are to the Internal Revenue Contents Page Inclusion of global intangible Code unless otherwise noted. Schedule B ...... 21 low-taxed income (GILTI). Section Contents Page Schedules K and K-1 (General 951A requires U.S. shareholders of Future Developments ...... 1 Instructions) ...... 22 controlled foreign corporations to What's New ...... 1 Specific Instructions determine and include their GILTI in Photographs of Missing Children ....2 (Schedule K-1 Only) ...... 22 taxable income every year. Section 951A is effective for tax years of foreign The Taxpayer Advocate Service .....2 Specific Instructions (Schedules K and K-1, Part III) ...... 24 corporations beginning after 2017, and tax Direct Deposit of Refund ...... 2 Schedule L ...... 39 years of U.S. shareholders in which or with How To Get Forms and which such tax years of foreign Publications ...... 2 Schedule M-1 ...... 40 Schedule M-2 ...... 40 corporations end. See section 951A for General Instructions ...... 2 more information. Purpose of Form ...... 2 Principal Business Activity Codes ... 44 How To Make the Election ...... 2 Index ...... 47 Qualified business income deduction. Who Must File ...... 2 For tax years beginning after 2017, Termination of Election ...... 2 Future Developments individuals, estates, and trusts may be entitled to a deduction of up to 20% of Electronic Filing ...... 3 For the latest information about developments related to Form 1120S and their qualified business income from a When To File ...... 3 its instructions, such as legislation trade or business, including income from a Where To File ...... 3 enacted after they were published, go to pass-through entity, but not from a C Who Must Sign ...... 3 IRS.gov/Form1120S. corporation, plus 20% of qualified real Paid Preparer Authorization .....4 estate investment trust (REIT) dividends Assembling the Return ...... 4 What's New and qualified publicly traded partnership Tax Payments ...... 4 (PTP) income. The deduction is subject to Electronic Deposit Address change for filing returns. The multiple limitations such as the type of Requirement ...... 4 filing address for corporations located in trade or business, the taxpayer's taxable Estimated Tax Payments ...... 4 certain states has changed. See Where income, the amount of W-2 wages paid Interest and Penalties ...... 5 To File, later. with respect to the trade or business, and Accounting Methods ...... 5 Business interest expense limitation. the unadjusted basis immediately after Accounting Period ...... 5 For tax years beginning in 2018, every acquisition of qualified property held by Rounding Off to Whole taxpayer who deducts business interest is the trade or business. The deduction can Dollars ...... 6 required to file Form 8990, Limitation on be taken in addition to the standard or Recordkeeping ...... 6 Business Interest Expense Under Section itemized deductions. For more Amended Return ...... 6 163(j), unless an exception for filing is information, see section 199A and Pub. 535, Business Expenses. Other Forms and met. See the instructions for Schedule B, Statements That May Be questions 9 and 10. For more information, Small business taxpayers. Effective for Required ...... 6 see Form 8990 and its instructions. tax years beginning after 2017, P.L. Passive Activity Limitations .....7 Credit for paid family and medical 115-97 expanded the eligibility of small Net Investment Income Tax business taxpayers to use the cash Reporting Requirements .... 11 leave. Eligible employers may qualify for a credit for wages paid in tax years method. See Accounting Methods, later. Extraterritorial Income Exclusion ...... 12 beginning after 2017 to qualifying Special rules for eligible gains inves- Specific Instructions ...... 12 employees on family and medical leave. ted in Qualified Opportunity Funds. See section 45S. Also see Form 8994 and Period Covered ...... 12 Effective December 22, 2017, section its instructions. 1400Z-2 provides shareholders investing Name and Address ...... 12 eligible gains in Qualified Opportunity Item B. Business Code ...... 12 Deduction disallowed under section 267A. Deduction for certain interest or Funds (QOF) tax-favored investments. If Item C. Schedule M-3 the corporation is operating as a QOF, see Information ...... 12 royalty paid or accrued to a related party pursuant to a hybrid transaction or by, or Other Forms and Statements That May Be Item D. Employer Required, later. For additional information, Identification Number to, a hybrid entity may be disallowed to the (EIN) ...... 13 extent the related party doesn’t include the see Opportunity Zones Frequently Asked Item F. Total Assets ...... 13 amount in income or is allowed a Questions on IRS.gov. Item H. Final Return, Name deduction with respect to the amount. See Treatment of deferred foreign income Change, Address section 267A for more information. upon transition to participation system Change, Amended Domestic production activities deduc- of taxation. U.S. shareholders of certain Return, or S Election specified foreign corporations (as defined Termination or tion (DPAD). The DPAD has been Revocation ...... 13 repealed for tax years beginning after under section 965(e), as amended by P.L. 115-97) may have an inclusion under Income ...... 13 2017, with limited exceptions. See Line 12d. Other Deductions, later. section 965 based on the post-1986 Deductions ...... 14 deferred foreign income of the specified Tax and Payments ...... 19

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foreign corporations determined as of and understands their rights under the November 2, 2017, or December 31, Taxpayer Bill of Rights. General Instructions 2017. The U.S. shareholders may elect to pay the liability under section 965 in eight As a taxpayer, the corporation has rights that the IRS must abide by in its Purpose of Form installments. See section 965, as Use Form 1120S to report the income, amended. dealings with the corporation. TAS can help the corporation if: gains, losses, deductions, credits, and At the time these instructions went • A problem is causing financial difficulty other information of a domestic ! to print, several credits and for the business; corporation or other entity for any tax year CAUTION deductions available to S • The business is facing an immediate covered by an election to be an S corporations expired December 31, 2017. threat of adverse action; or corporation. To find out if legislation extended the • The corporation has tried repeatedly to credits and deductions and made them contact the IRS but no one has How To Make the Election available for 2018, go to IRS.gov/ responded, or the IRS hasn't responded For details about the election, see Form Extenders. by the date promised. 2553, Election by a Small Business The TAS tax toolkit at Corporation, and the Instructions for Form Reminders TaxpayerAdvocate.IRS.gov can help the 2553. corporation understand these rights. Election by a small business corpora- Who Must File tion. Don't file Form 1120S unless the TAS has offices in every state, the A corporation or other entity must file Form corporation has filed or is attaching Form District of Columbia, and Puerto Rico. 1120S if (a) it elected to be an S 2553, Election by a Small Business Local advocates' numbers are in their corporation by filing Form 2553, (b) the Corporation. For details, see the local directories and at IRS accepted the election, and (c) the Instructions for Form 2553. TaxpayerAdvocate.IRS.gov. The election remains in effect. After filing Form corporation can also call TAS at Disaster relief. Code G of Schedule K-1 2553, you should have received 1-877-777-4778. (Form 1120S), box 12 is now used to confirmation that Form 2553 was report qualified cash contributions for relief TAS also works to resolve large-scale accepted. If you didn't receive notification efforts in certain disaster areas. See or systemic problems that affect many of acceptance or nonacceptance of the Line 12a. Charitable Contributions under taxpayers. If the corporation knows of one election within 2 months of filing Form the Specific Instructions for Schedules K of these broad issues, please report it to 2553 (5 months if you checked box Q1 to and K-1. TAS through the Systemic Advocacy ask for a letter ruling), take follow-up Eligible employers in certain disaster Management System at IRS.gov/SAMS. action by calling 1-800-829-4933. Don't areas can use Form 5884-A, Credits for file Form 1120S for any tax year before the For more information, go to IRS.gov/ year the election takes effect. Affected Disaster Area Employers, to Advocate. report the employee retention credit. Relief for late elections. If you haven't For more information on these and Direct Deposit of Refund filed Form 2553, or didn't file Form 2553 other disaster relief provisions, see Pub. on time, you may be entitled to relief for a To ask for a direct deposit of the 976, Disaster Relief. late filed election to be an S corporation. corporation's income tax refund into an See the Instructions for Form 2553 for Entertainment expenses, membership account at a U.S. bank or other financial details. dues, and facilities. No deduction is institution, attach Form 8050, Direct allowed for entertainment expenses, Deposit of Corporate Tax Refund. See the membership dues, and facilities used in instructions for line 27. Termination of Election connection with these activities for Once the election is made, it stays in amounts incurred or paid after 2017. See How To Get Forms effect until it is terminated. If the election is Travel, meals, and entertainment, later. terminated, the corporation (or a and Publications successor corporation) can make another Photographs of Internet. You can access the IRS website election on Form 2553 only with IRS 24 hours a day, 7 days a week, at IRS.gov consent for any tax year before the fifth tax Missing Children to: year after the first tax year in which the The Internal Revenue Service is a proud • Download forms, instructions, and termination took effect. See Regulations partner with the National Center for publications; section 1.1362-5 for details. Missing & Exploited Children® (NCMEC). • Order IRS products online; An election terminates automatically in Photographs of missing children selected • Research your tax questions online; any of the following cases. by the Center may appear in these Search publications online by topic or • 1. The corporation is no longer a small instructions on pages that would otherwise keyword; business corporation as defined in section be blank. You can help bring these View Internal Revenue Bulletins (IRBs) • 1361(b). This kind of termination of an children home by looking at the published in recent years; and election is effective as of the day the photographs and calling 1-800-THE-LOST Sign up to receive local and national tax • corporation no longer meets the definition (1-800-843-5678) if you recognize a child. news by email. of a small business corporation. Attach to The Taxpayer Advocate Tax forms and publications. The Form 1120S for the final year of the S corporation can download or print all of the corporation a statement notifying the IRS Service forms and publications it may need on of the termination and the date it occurred. The Taxpayer Advocate Service (TAS) is IRS.gov/FormsPubs. Otherwise, the 2. The corporation, for each of 3 an independent organization within the corporation can go to IRS.gov/ consecutive tax years (a) has IRS that helps taxpayers and protects OrderForms to place an order and have accumulated earnings and profits, and (b) taxpayer rights. TAS's job is to ensure that forms mailed to it. derives more than 25% of its gross every taxpayer is treated fairly and knows The corporation should receive its receipts from passive investment income order within 10 business days. as defined in section 1362(d)(3)(C). The

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electronically filed. The option to e-file Where To File doesn't, however, apply to certain returns.

File the corporation's return at the applicable IRS address listed below. Certain corporations with total assets of $10 million or more that file at least 250 And the total assets at returns a year are required to e-file Form If the corporation's the end of the tax year 1120S. See Regulations section principal business, office, (Form 1120S, page 1, 301.6037-2. However, these corporations or agency is located in: item F) are: Use the following address: can ask for a waiver of the electronic filing Connecticut, Delaware, Department of the Treasury requirements. See Notice 2010-13, Less than $10 million and District of Columbia, Georgia, Internal Revenue Service Center 2010-4 I.R.B. 327. Schedule M-3 isn't filed Illinois, Indiana, Kentucky, Kansas City, MO 64999-0013 For more information, visit IRS.gov/ Maine, Maryland, Massachusetts, Michigan, Businesses. New Hampshire, New Jersey, New York, North Carolina, $10 million or more, or Department of the Treasury When To File Ohio, Pennsylvania, Rhode less than $10 million and Internal Revenue Service Center Generally, an S corporation must file Form Island, South Carolina, Schedule M-3 is filed Ogden, UT 84201-0013 1120S by the 15th day of the 3rd month Tennessee, Vermont, Virginia, after the end of its tax year. For calendar West Virginia, Wisconsin year corporations, the due date is March Alabama, Alaska, Arizona, 15, 2019. A corporation that has dissolved Arkansas, California, must generally file by the 15th day of the Colorado, Florida, Hawaii, 3rd month after the date it dissolved. Idaho, Iowa, Kansas, If the due date falls on a Saturday, Louisiana, Minnesota, Department of the Treasury Sunday, or legal holiday, the corporation Mississippi, Missouri, Any amount Internal Revenue Service Center can file on the next day that is not a Montana, Nebraska, Nevada, Ogden, UT 84201-0013 Saturday, Sunday, or legal holiday. New Mexico, North Dakota, Oklahoma, Oregon, South If the S corporation election was Dakota, Texas, Utah, terminated during the tax year and the Washington, Wyoming corporation reverts to a C corporation, file A foreign country or U.S. Internal Revenue Service Center Form 1120S for the S corporation's short possession Any amount P.O. Box 409101 year by the due date (including Ogden, UT 84409 extensions) of the C corporation's short year return. Private Delivery Services election terminates on the first day of the to the revocation and contain the first tax year beginning after the third information required by Regulations Corporations can use certain private consecutive tax year. The corporation section 1.1362-6(a)(3). delivery services (PDS) designated by the must pay a tax for each year it has excess IRS to meet the “timely mailing as timely net passive income. See the line 22a A revocation can be rescinded before it filing” rule for tax returns. Go to IRS.gov/ instructions for details on how to figure the takes effect. See Regulations section PDS for the current list of designated tax. 1.1362-6(a)(4) for details. services. 3. The election is revoked. An election For rules on allocating income and The PDS can tell you how to get written can be revoked only with the consent of deductions between an S corporation's proof of the mailing date. shareholders who, at the time the short year and a C corporation's short year revocation is made, hold more than 50% For the IRS mailing address to use if and other special rules that apply when an of the number of issued and outstanding you're using PDS, go to IRS.gov/ election is terminated, see section 1362(e) shares of stock (including nonvoting PDSstreetAddresses. and Regulations section 1.1362-3. stock). The revocation can specify an Private delivery services can't effective revocation date that is on or after If an election was terminated under (1) deliver items to P.O. boxes. You the day the revocation is filed. If no date is ! or (2) above, and the corporation believes CAUTION must use the U.S. Postal Service specified, the revocation is effective at the the termination was inadvertent, the to mail any item to an IRS P.O. box start of the tax year if the revocation is corporation can ask for permission from address. made on or before the 15th day of the 3rd the IRS to continue to be treated as an S month of that tax year. If no date is corporation. See Regulations section Extension of Time To File specified and the revocation is made after 1.1362-4 for the specific requirements that the 15th day of the 3rd month of the tax File Form 7004, Application for Automatic must be met to qualify for inadvertent Extension of Time To File Certain year, the revocation is effective at the start termination relief. of the next tax year. Business Income Tax, Information, and Other Returns, to ask for an extension of To revoke the election, the corporation Electronic Filing time to file. Generally, the corporation must file a statement with the appropriate Corporations can generally electronically must file Form 7004 by the regular due service center listed under Where To File file (e-file) Form 1120S, related forms, date of the return. See the Instructions for in the Instructions for Form 2553. In the schedules, statements, and attachments, Form 7004. statement, the corporation must notify the Form 7004 (automatic extension of time to IRS that it is revoking its election to be an file), and Forms 940, 941, and 944 S corporation. The statement must be (employment tax returns). Form 1099 and Who Must Sign signed by each shareholder who consents other information returns can also be The return must be signed and dated by:

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• The president, vice president, treasurer, extensions) for filing the corporation's other trusted third party to make deposits assistant treasurer, chief accounting 2019 tax return. If the corporation wants to on its behalf. Also, it may arrange for its officer; or expand the paid preparer's authorization financial institution to submit a same-day • Any other corporate officer (such as tax or revoke the authorization before it ends, wire payment (discussed below) on its officer) authorized to sign. see Pub. 947, Practice Before the IRS and behalf. EFTPS is a free service provided If a return is filed on behalf of a Power of Attorney. by the Department of the Treasury. corporation by a receiver, trustee, or Services provided by a tax professional, assignee, the fiduciary must sign the Assembling the Return financial institution, payroll service, or return, instead of the corporate officer. To ensure that the corporation's tax return other third party may have a fee. Returns and forms signed by a receiver or is correctly processed, attach all To get more information about EFTPS trustee in bankruptcy on behalf of a schedules and other forms after page 5 of or to enroll in EFTPS, visit corporation must be accompanied by a Form 1120S in the following order. www.EFTPS.gov or call 1-800-555-4477 copy of the order or instructions of the 1. Schedule N (Form 1120), Foreign (TTY/TDD 1-800-733-4829). court authorizing signing of the return or Operations of U.S. Corporations. form. Depositing on time. For any deposit 2. Form 8825, Rental Real Estate made by EFTPS to be on time, the If an employee of the corporation Income and Expenses of a Partnership or corporation must submit the deposit by 8 completes Form 1120S, the paid preparer an S Corporation. p.m. Eastern time the day before the date space should remain blank. Anyone who 3. Form 8050, Direct Deposit of the deposit is due. If the corporation uses prepares Form 1120S but doesn't charge Corporate Tax Refund. a third party to make deposits on its the corporation shouldn't complete that behalf, they may have different cutoff 4. Form 1125-A, Cost of Goods Sold. section. Generally, anyone who is paid to times. prepare the return must sign it and fill in 5. Form 4136, Credit for Federal Tax the “Paid Preparer Use Only” area. Paid on Fuels. Same-day wire payment option. If the corporation fails to submit a deposit 6. Form 8941, Credit for Small The paid preparer must complete the transaction on EFTPS by 8 p.m. Eastern Employer Health Insurance Premiums. required preparer information and: time the day before the date a deposit is • Sign the return in the space provided 7. Additional schedules in due, it can still make its deposit on time by for the preparer's signature, and alphabetical order. using the Federal Tax Collection Service Give a copy of the return to the • 8. Additional forms in numerical order. (FTCS). To use the same-day wire taxpayer. payment method, the corporation will need A paid preparer may sign original Complete every applicable entry space to make arrangements with its financial TIP or amended returns by rubber on Form 1120S and Schedule K-1. Don't institution ahead of time regarding stamp, mechanical device, or enter “See Attached” or “Available Upon availability, deadlines, and costs. computer software program. Request” instead of completing the entry Financial institutions may charge a fee for spaces. If more space is needed on the payment made this way. To learn more forms or schedules, attach separate about the information the corporation will Paid Preparer sheets using the same size and format as need to provide to its financial institution to Authorization the printed forms. make a same-day wire payment, go to IRS.gov/SameDayWire. If the corporation wants to allow the IRS to If there are supporting statements and discuss its 2018 tax return with the paid attachments, arrange them in the same preparer who signed it, check the “Yes” order as the schedules or forms they Estimated Tax Payments box in the signature area of the return. support and attach them last. Show the Generally, the corporation must make This authorization applies only to the totals on the printed forms. Enter the installment payments of estimated tax for individual whose signature appears in the corporation's name and EIN on each the following taxes if the total of these “Paid Preparer Use Only” section of the supporting statement or attachment. taxes is $500 or more: (a) the tax on return. It doesn't apply to the firm, if any, built-in gains, (b) the excess net passive shown in that section. Tax Payments income tax, and (c) the investment credit recapture tax. If the “Yes” box is checked, the Generally, the corporation must pay any corporation is authorizing the IRS to call tax due in full no later than the due date for The amount of estimated tax required the paid preparer to answer any questions filing its tax return (not including to be paid annually is the smaller of: (a) that may arise during the processing of its extensions). See the instructions for the total of the above taxes shown on the return. The corporation is also authorizing line 25. If the due date falls on a Saturday, return for the tax year (or if no return is the paid preparer to: Sunday, or legal holiday, the payment is filed, the total of these taxes for the year), • Give the IRS any information that is due on the next day that isn't a Saturday, or (b) the sum of (i) the investment credit missing from the return; Sunday, or legal holiday. recapture tax and the built-in gains tax • Call the IRS for information about the shown on the return for the tax year (or if processing of the return or the status of Electronic Deposit no return is filed, the total of these taxes any related refund or payment(s); and Requirement for the tax year), and (ii) any excess net • Respond to certain IRS notices about passive income tax shown on the math errors, offsets, and return Corporations must use electronic funds corporation's return for the preceding tax preparation. transfers to make all federal tax deposits year. If the preceding tax year was less (such as deposits of employment, excise, The corporation isn't authorizing the than 12 months, the estimated tax must be and corporate income tax). Generally, determined under (a). paid preparer to receive any refund check, electronic funds transfers are made using bind the corporation to anything (including the Electronic Federal Tax Payment The estimated tax is generally payable any additional tax liability), or otherwise System (EFTPS). However, if the in four equal installments. However, the represent the corporation before the IRS. corporation doesn't want to use EFTPS, it corporation may be able to lower the The authorization will automatically end can arrange for its tax professional, amount of one or more installments by no later than the due date (excluding financial institution, payroll service, or using the annualized income installment

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method or adjusted seasonal installment imposed if the corporation can show that • Generally, an S corporation can't use method under section 6655(e). the failure to pay on time was due to the cash method of accounting if it’s a tax reasonable cause. See Caution, earlier. shelter (as defined in section 448(d)(3)). For a calendar year corporation, the See section 448 for details. payments are due for 2019 by April 15, Failure to furnish information timely. A corporation must use an accrual June 17, September 16, and December For each failure to furnish Schedule K-1 to • method for sales and purchases of 16. For a fiscal year corporation, they are a shareholder when due and each failure inventory items unless it is a small due by the 15th day of the 4th, 6th, 9th, to include on Schedule K-1 all the business taxpayer (defined later). See the and 12th months of the year. If any date information required to be shown (or the Form 1125-A instructions. For tax years falls on a Saturday, Sunday, or legal inclusion of incorrect information), a $270 beginning after 2017, if you are a small holiday, the installment is due on the next penalty may be imposed with respect to business taxpayer, you can adopt or day that isn't a Saturday, Sunday, or legal each Schedule K-1 for which a failure change your accounting method to holiday. occurs. If the requirement to report correct account for inventories (i) in the same information is intentionally disregarded, The corporation must make the manner as materials and supplies that are each $270 penalty is increased to $540 or, payments using electronic funds transfers non-incidental, or (ii) to conform to the if greater, 10% of the aggregate amount of as described earlier. taxpayer’s treatment of inventories in an items required to be reported. See applicable financial statement (as defined For information on penalties that may sections 6722 and 6724 for more in section 451(b)(3)), or if the taxpayer apply if the corporation fails to make information. does not have an applicable financial required payments, see the Instructions The penalty won't be imposed if the statement, the method of accounting used for Form 2220. corporation can show that not furnishing in the taxpayer’s books and records information timely was due to reasonable prepared in accordance with the Interest and Penalties cause. See Caution, earlier. taxpayer’s accounting procedures. If the corporation receives a notice Trust fund recovery penalty. This Generally, IRS consent is required for ! about penalties after it files its penalty may apply if certain excise, changes in accounting methods. See Rev. CAUTION return, send the IRS an income, social security, and Medicare Proc. 2018-40 for the procedures by which explanation and we will determine if the taxes that must be collected or withheld a small business taxpayer may obtain corporation meets reasonable-cause aren't collected or withheld, or these taxes automatic consent to change its method of criteria. Don't attach an explanation when aren't paid. These taxes are generally accounting to reflect the statutory changes the corporation's return is filed. reported on: made in this area. Also, see Change in • Form 720, Quarterly Federal Excise accounting method, later. Interest. Interest is charged on taxes Tax Return; • Special rules apply to long-term paid late even if an extension of time to file • Form 941, Employer's QUARTERLY contracts. See section 460. is granted. Interest is also charged on Federal Tax Return; • Generally, dealers in securities must penalties imposed for failure to file, • Form 943, Employer's Annual Federal use the mark-to-market accounting negligence, fraud, substantial valuation Tax Return for Agricultural Employees; method. Dealers in commodities and misstatements, substantial • Form 944, Employer's ANNUAL traders in securities and commodities can understatements of tax, and reportable Federal Tax Return; or elect to use the mark-to-market transaction understatements from the due • Form 945, Annual Return of Withheld accounting method. See section 475. date (including extensions) to the date of Federal Income Tax. Small business taxpayer. A small payment. The interest charge is figured at The trust fund recovery penalty may be business taxpayer is a taxpayer that (a) a rate determined under section 6621. imposed on all persons who are has average annual gross receipts of $25 Late filing of return. A penalty may be determined by the IRS to have been million or less for the 3 prior tax years and assessed if the return is filed after the due responsible for collecting, accounting for, (b) is not a tax shelter (as defined in date (including extensions) or the return or paying over these taxes, and who acted section 448(d)(3)). doesn't show all the information required, willfully in not doing so. The penalty is Change in accounting method. unless each failure is due to reasonable equal to the full amount of the unpaid trust Generally, the corporation must get IRS cause. See Caution, earlier. For returns on fund tax. See the Instructions for Form consent to change either an overall which no tax is due, the penalty is $200 for 720, Pub. 15 (Circular E), Employer's Tax method of accounting or the accounting each month or part of a month (up to 12 Guide, or Pub. 51 (Circular A), Agricultural treatment of any material item. To do so, months) the return is late or doesn't Employer's Tax Guide, for details, the corporation generally must file Form include the required information, multiplied including the definition of responsible 3115, Application for Change in by the total number of persons who were persons. Accounting Method. See the Instructions shareholders in the corporation during any Other penalties. Other penalties can be for Form 3115 for more information and part of the corporation's tax year for which imposed for negligence, substantial exceptions. Also see Rev. Proc. 2018-31, the return is due. If tax is due, the penalty understatement of tax, reportable 2018-22 I.R.B. 637 (or any successor), is the amount stated above plus 5% of the transaction understatements, and fraud. and Pub. 538, Accounting Periods and unpaid tax for each month or part of a See sections 6662, 6662A, and 6663. Methods. month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is more than 60 Accounting Methods Accounting Period days late is the smaller of the tax due or Figure income using the method of A corporation must figure its income on $210. accounting regularly used in keeping the the basis of a tax year. A tax year is the corporation's books and records. The annual accounting period a corporation Late payment of tax. A corporation that method used must clearly reflect income. uses to keep its records and report its doesn't pay the tax when due generally Permissible methods include cash, income and expenses. 1 may be penalized /2 of 1% of the unpaid accrual, or any other method authorized tax for each month or part of a month the by the Internal Revenue Code. An S corporation must use one of the tax isn't paid, up to a maximum of 25% of following tax years. the unpaid tax. The penalty won't be The following rules apply. • A tax year ending December 31.

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• A natural business year. Recordkeeping 2. Any transaction offered under An ownership tax year. conditions of confidentiality for which the • Keep the corporation's records for as long A tax year elected under section 444. corporation (or a related party) paid an • as they may be needed for the A 52-53-week tax year that ends with advisor a fee of at least $50,000. • administration of any provision of the reference to a year listed above. Internal Revenue Code. Usually, records 3. Certain transactions for which the Any other tax year (including a • that support an item of income, deduction, corporation (or a related party) has 52-53-week tax year) for which the or credit on the return must be kept for 3 contractual protection against corporation establishes a business years from the date each shareholder's disallowance of the tax benefits. purpose. return is due or filed, whichever is later. 4. Certain transactions resulting in a A new S corporation must use Form Keep records that verify the corporation's loss of at least $2 million in any single year 2553 to elect a tax year. To later change basis in property for as long as they are or $4 million in any combination of years. the corporation's tax year, see Form 1128, needed to figure the basis of the original or 5. Any transaction identified by the Application To Adopt, Change, or Retain a replacement property. IRS by notice, regulation, or other Tax Year, and its instructions (unless the The corporation should keep copies of published guidance as a “transaction of corporation is making an election under all filed returns. They help in preparing interest.” section 444, discussed next). future and amended returns. For more information, see Regulations Electing a tax year under section 444. section 1.6011-4. Also see the Instructions Under the provisions of section 444, an S Amended Return for Form 8886. corporation can elect to have a tax year To correct a previously filed Form 1120S, other than a required year, but only if the file an amended Form 1120S and check Penalties. The corporation may have deferral period of the tax year isn't longer box H(4) on page 1. Attach a statement to pay a penalty if it is required to disclose than the shorter of 3 months or the deferral that identifies the line number of each a reportable transaction under section period of the tax year being changed. This amended item, the corrected amount or 6011 and fails to properly complete and election is made by filing Form 8716, treatment of the item, and an explanation file Form 8886. Penalties may also apply Election To Have a Tax Year Other Than a of the reasons for each change. under section 6707A if the corporation Required Tax Year. fails to file Form 8886 with its corporate If the income, deductions, credits, or An S corporation may not make or return, fails to provide a copy of Form other information provided to any continue an election under section 444 if it 8886 to the Office of Tax Shelter Analysis shareholder on Schedule K-1 is incorrect, is a member of a tiered structure, other (OTSA), or files a form that fails to include file an amended Schedule K-1 (Form than a tiered structure that consists all the information required (or includes 1120S) for that shareholder with the entirely of partnerships and S corporations incorrect information). Other penalties, amended Form 1120S. Also give a copy of that have the same tax year. For the S such as an accuracy-related penalty under the amended Schedule K-1 to that corporation to have a section 444 election section 6662A, may also apply. See the shareholder. Check the “Amended K-1” in effect, it must make the payments Instructions for Form 8886 for details on box at the top of the Schedule K-1 to required by section 7519. See Form 8752, these and other penalties. indicate that it is an amended Required Payment or Refund Under Schedule K-1. Reportable transactions by material Section 7519. advisors. Material advisors to any A section 444 election ends if an S A change to the corporation's federal reportable transaction must disclose corporation: return may affect its state return. This certain information about the reportable • Changes its accounting period to a includes changes made as the result of an transaction by filing Form 8918, Material calendar year or some other permitted IRS examination. For more information, Advisor Disclosure Statement, with the year, contact the state tax agency for the IRS. For details, see the Instructions for • Is penalized for willfully failing to comply state(s) in which the corporation's return Form 8918. with the requirements of section 7519, or was filed. Transfers to a corporation controlled Terminates its S election (unless it • by the transferor. Every significant immediately becomes a personal service Other Forms and transferor (as defined in Regulations corporation). Statements That May Be section 1.351-3(d)) that receives stock of If the termination results in a short tax Required a corporation in exchange for property in a year, enter at the top of the first page of nonrecognition event must include the Form 1120S for the short tax year, Reportable transaction disclosure statement required by Regulations section “SECTION 444 ELECTION statement. Disclose information for each 1.351-3(a) on or with the transferor's tax TERMINATED.” reportable transaction in which the return for the tax year of the exchange. corporation participated. Form 8886, The transferee corporation must include Rounding Off to Reportable Transaction Disclosure the statement required by Regulations Whole Dollars Statement, must be filed for each tax year section 1.351-3(b) on or with its return for the corporation participated in the the tax year of the exchange, unless all the The corporation can round off cents to transaction. The corporation may have to required information is included in any whole dollars on its return and schedules. pay a penalty if it is required to file Form statement(s) provided by a significant If the corporation does round to whole 8886 and doesn't do so. The following are transferor that is attached to the same dollars, it must round all amounts. To reportable transactions. return for the same section 351 exchange. round, drop amounts under 50 cents and 1. Any listed transaction, which is a increase amounts from 50 to 99 cents to Election to reduce basis under section transaction that is the same as or the next dollar. For example, $1.49 362(e)(2)(C). If property is transferred to substantially similar to one of the types of becomes $1 and $2.50 becomes $3. a corporation subject to section 362(e)(2), transactions that the IRS has determined the transferor and the acquiring If two or more amounts must be added to be a tax avoidance transaction and corporation may elect, under section to figure the amount to enter on a line, identified by notice, regulation, or other 362(e)(2)(C), to reduce the transferor's 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.

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reducing the acquiring corporation's basis either the EIN of the CFC or QEF, or, if the Passive Activity in the property transferred. Once made, CFC or QEF doesn't have an EIN, the the election is irrevocable. For more reference ID number of the CFC or QEF. Limitations In general, section 469 limits the amount information, see section 362(e)(2) and In addition, for each CFC or QEF held of losses, deductions, and credits that Regulations section 1.362-4. If an election by the corporation for which an election shareholders can claim from “passive is made, a statement must be filed in under Regulations section 1.1411-10(g) activities.” The passive activity limitations accordance with Regulations section has already been made by the don't apply to the corporation. Instead, 1.362-4(d)(3). corporation, the statement should include: they apply to each shareholder's share of (i) the name of the CFC or QEF, and (ii) Regulations section 1.1411-10(g) (sec- any income or loss and credit attributable either the EIN of the CFC or QEF, or, if the tion 1411 election with respect to to a passive activity. Because the CFC or QEF doesn't have an EIN, the CFCs and QEFs). A corporation that treatment of each shareholder's share of reference ID number of the CFC or QEF. directly or indirectly owns stock of a corporate income or loss and credit controlled foreign corporation (CFC) Annual information reporting by speci- depends on the nature of the activity that (within the meaning of section 953(c)(1) fied domestic entities under section generated it, the corporation must report (B) or section 957(a)) or a passive foreign 6038D. For tax years beginning after income or loss and credits separately for investment company (within the meaning December 31, 2015, domestic each activity. of section 1297(a)) that the corporation corporations that are formed or availed of treats as a qualified electing fund (QEF) to hold specified foreign financial assets The following instructions and the under section 1293 may make the election (“specified domestic entities”) must file instructions for Schedules K and K-1, provided in Regulations section Form 8938. Form 8938 must be filed each later, explain the applicable passive 1.1411-10(g). The election must be made year the value of the corporation's activity limitation rules and specify the type no later than the first tax year beginning specified foreign financial assets meets or of information the corporation must after 2013 during which the corporation: (i) exceeds the reporting threshold. For more provide to its shareholders for each includes an amount in gross income for information on domestic corporations that activity. If the corporation had more than chapter 1 purposes under section 951(a) are specified domestic entities and the one activity, it must report information for or section 1293(a) for the CFC or QEF, types of foreign financial assets that must each activity on an attachment to and (ii) has a direct or indirect owner that be reported, see the Instructions for Form Schedules K and K-1. is subject to tax under section 1411 or 8938, generally, and in particular, Who would have been if the election were Generally, passive activities include (a) Must File, Specified Domestic Entity, activities that involve the conduct of a made. This election must be made on an Reporting Thresholds, Specified Foreign entity-by-entity basis, and applies only to trade or business if the shareholder Financial Assets, Interests in Specified doesn't materially participate in the the particular CFCs and QEFs for which Foreign Financial Assets, Assets Not an election is made. In general, for activity, and (b) all rental activities (defined Required to be Reported, and Exceptions later) regardless of the shareholder's purposes of section 1411, if an election is to Reporting. in effect for a CFC or QEF, the amounts participation. For exceptions, see included in income under section 951 and In addition, a domestic corporation Activities That Are Not Passive Activities, section 1293 derived from the CFC or required to file Form 8938 with its Form later. The level of each shareholder's QEF are included in net investment 1120S for the tax year should check "Yes" participation in an activity must be income, and distributions described in to Schedule N (Form 1120), question 8, determined by the shareholder. section 959(d) or section 1293(c) are and also include that schedule with its Form 1120S. The passive activity rules provide that excluded from net investment income. An losses and credits from passive activities election that is made under Regulations Certification as a Qualified Opportuni- can generally be applied only against section 1.1411-10(g) can't be revoked. For ty Fund. If the corporation is operating a income and tax (respectively) from more information regarding this election, Qualified Opportunity Fund (QOF), the passive activities. Thus, passive losses see Regulations section 1.1411-10(g). corporation must annually attach Form can't be applied against income from The election must be made in a 8996, self-certifying as a QOF. In addition, salaries, wages, professional fees, or a statement that is filed with the the corporation must complete line 15 of business in which the shareholder corporation's original or amended return Schedule B. For more information, see the materially participates or against “portfolio for the tax year in which the election is Instructions for Form 8996. income” (defined later). Passive credits made. An election can be made on an Form 8975. Certain U.S. persons that can't be applied against the tax related to amended return only if the tax year for are the ultimate parent entity of a U.S. any of these types of income. which the election is made, and all tax multinational enterprise group with annual years affected by the election, aren't Special rules require that net income revenue for the preceding reporting period from certain activities that would otherwise closed by the period of limitations on of $850 million or more are required to file assessments under section 6501. The be treated as passive income must be Form 8975. For more information, see the recharacterized as nonpassive income for statement must include: Instructions for Form 8975. • The name and EIN of the corporation purposes of the passive activity making the election; Form 8992. Use Form 8992 to figure the limitations. See Recharacterization of • A declaration that all of its shareholders domestic corporation's GILTI under Passive Income, later. section 951A and attach it to Form 1120S. consent to each election made in the To allow each shareholder to correctly statement; Other forms and statements. See Pub. apply the passive activity limitations, the • A declaration that the corporation elects 542, Corporations, for a list of other forms corporation must report income or loss under Regulations section 1.1411-10(g) to and statements a corporation may need to and credits separately by activity for each apply the rules in Regulations section file in addition to the forms and statements of the following. 1.1411-10(g) to the CFCs and QEFs discussed throughout these instructions. • Trade or business activities. identified in the statement; and • Rental real estate activities. • The following information for each CFC • Rental activities other than rental real and QEF for which an election is made: (i) estate. the name of the CFC or QEF; and (ii) • Portfolio income.

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Activities That Are Not Passive treated as incidental to an activity of such partnership. Whether the corporation Activities holding property for investment) that: provides property used in an activity of a 1. Involves the conduct of a trade or partnership in the corporation's capacity The following aren't passive activities. business (within the meaning of section as an owner of an interest in the 1. Trade or business activities in 162), partnership is determined on the basis of which the shareholder materially all the facts and circumstances. 2. Is conducted in anticipation of participated for the tax year. starting a trade or business, or In addition, a guaranteed payment 2. Any rental real estate activity in 3. Involves research or experimental described in section 707(c) is never which the shareholder materially expenditures deductible under section income from a rental activity. participated if the shareholder met both of 174 (or that would be if you chose to the following conditions for the tax year. Average period of customer use. deduct rather than capitalize them). a. More than half of the personal Figure the average period of customer use services the shareholder performed in If the shareholder doesn't materially for a class of property by dividing the total trades or businesses were performed in participate in the activity, a trade or number of days in all rental periods by the real property trades or businesses in business activity of the corporation is a number of rentals during the tax year. If which he or she materially participated. passive activity for the shareholder. the activity involves renting more than one class of property, multiply the average b. The shareholder performed more Each shareholder must determine if he period of customer use of each class by than 750 hours of services in real property or she materially participated in an activity. the ratio of the gross rental income from trades or businesses in which he or she As a result, while the corporation's that class to the activity's total gross rental materially participated. ordinary business income (loss) is income. The activity's average period of reported on page 1 of Form 1120S, the For purposes of this rule, each interest customer use equals the sum of these specific income and deductions from each in rental real estate is a separate activity class-by-class average periods weighted separate trade or business activity must unless the shareholder elects to treat all by gross income. See Regulations section be reported on attachments to Form interests in rental real estate as one 1.469-1(e)(3)(iii). activity. 1120S. Similarly, while each shareholder's allocable share of the corporation's Significant personal services. Personal If the shareholder is married filing ordinary business income (loss) is services include only services performed jointly, either the shareholder or his or her reported in box 1 of Schedule K-1, each by individuals. To determine if personal spouse must separately meet both of the shareholder's allocable share of the services are significant personal services, above conditions, without taking into income and deductions from each trade or consider all the relevant facts and account services performed by the other business activity must be reported on circumstances. Relevant facts and spouse. statements attached to each circumstances include: A real property trade or business is any Schedule K-1. See Passive Activity • How often the services are provided, real property development, Reporting Requirements, later, for more • The type and amount of labor required redevelopment, construction, information. to perform the services, and reconstruction, acquisition, conversion, • The value of the services in relation to rental, operation, management, leasing, or Rental Activities the amount charged for use of the brokerage trade or business. Services the Generally, except as noted below, if the property. shareholder performed as an employee gross income from an activity consists of The following services aren't aren't treated as performed in a real amounts paid principally for the use of real considered in determining whether property trade or business unless he or or personal tangible property held by the personal services are significant. she owned more than 5% of the stock in corporation, the activity is a rental activity. • Services necessary to permit the lawful the employer. There are several exceptions to this use of the rental property. 3. The rental of a dwelling unit used general rule. Under these exceptions, an • Services performed in connection with by a shareholder for personal purposes activity involving the use of real or improvements or repairs to the rental during the year for more than the greater personal tangible property isn't a rental property that extend the useful life of the of 14 days or 10% of the number of days activity if any of the following apply. property substantially beyond the average that the residence was rented at fair rental • The average period of customer use rental period. value. (defined later) for such property is 7 days • Services provided in connection with 4. An activity of trading personal or less. the use of any improved real property that property for the account of owners of • The average period of customer use for are similar to those commonly provided in interests in the activity. For purposes of such property is 30 days or less and connection with long-term rentals of this rule, personal property means significant personal services (defined high-grade commercial or residential property that is actively traded, such as later) are provided by or on behalf of the property. Examples include cleaning and stocks, bonds, and other securities. See corporation. maintenance of common areas, routine Temporary Regulations section • Extraordinary personal services repairs, trash collection, elevator service, 1.469-1T(e)(6). (defined later) are provided by or on behalf and security at entrances. of the corporation. Extraordinary personal services. The section 469(c)(3) exception • The rental of such property is treated as Services provided in connection with TIP for a working interest in oil and incidental to a nonrental activity of the making rental property available for gas properties doesn't apply to an corporation under Regulations section customer use are extraordinary personal S corporation because state law generally 1.469-1(e)(3)(vi). services only if the services are performed limits the liability of shareholders. • The corporation customarily makes the by individuals and the customers' use of property available during defined business the rental property is incidental to their Trade or Business Activities hours for nonexclusive use by various receipt of the services. A trade or business activity is an activity customers. (other than a rental activity or an activity • The corporation provides property for For example, a patient's use of a use in a nonrental activity of a partnership hospital room generally is incidental to the in its capacity as an owner of an interest in care received from the hospital's medical

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staff. Similarly, a student's use of a corporation) that may be claimed is limited any payment or allocation to the patron dormitory room in a boarding school is to $25,000. based on patronage occurring with incidental to the personal services Report rental real estate activity income respect to a trade or business of the provided by the school's teaching staff. (loss) on Form 8825 and line 2 of patron. Other income identified by the IRS as Rental activity incidental to a nonren- Schedule K and box 2 of Schedule K-1, • income derived by the taxpayer in the tal activity. An activity isn't a rental rather than on page 1 of Form 1120S. ordinary course of a trade or business. activity if the rental of the property is Report credits related to rental real estate activities on lines 13c and 13d of incidental to a nonrental activity, such as See Temporary Regulations section Schedule K (box 13, codes E and F, of the activity of holding property for 1.469-2T(c)(3) for more information on Schedule K-1) and low-income housing investment, a trade or business activity, or portfolio income. the activity of dealing in property. credits on lines 13a and 13b of Schedule K (box 13, codes A, B, C, and D Rental of property is incidental to an Report portfolio income and related of Schedule K-1). activity of holding property for investment deductions on Schedule K rather than on if both of the following apply. Report income (loss) from rental page 1 of Form 1120S. activities other than rental real estate on • The main purpose for holding the Self-Charged Interest 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 Certain self-charged interest income and • The gross rental income from such estate on line 13e of Schedule K and in deductions may be treated as passive property for the tax year is less than 2% of box 13, code G, of Schedule K-1. activity gross income and passive activity deductions if the loan proceeds are used the smaller of the property's unadjusted Portfolio Income basis or its fair market value (FMV). in a passive activity. Generally, Generally, portfolio income includes all self-charged interest income and Rental of property is incidental to a gross income, other than income derived deductions result from loans between the trade or business activity if all of the in the ordinary course of a trade or corporation and its shareholders. following apply. business, that is attributable to interest; Self-charged interest also occurs in loans The corporation owns an interest in the • dividends; royalties; income from a real between the corporation and another S trade or business at all times during the estate investment trust, a regulated corporation or partnership if each owner in year. investment company, a real estate the borrowing entity has the same The rental property was mainly used in • mortgage investment conduit, a common proportional ownership interest in the the trade or business activity during the trust fund, a controlled foreign corporation, lending entity. tax year or during at least 2 of the 5 a qualified electing fund, or a cooperative; preceding tax years. income from the disposition of property The self-charged interest rules don't • The gross rental income from the that produces income of a type defined as apply to a shareholder's interest in an S property for the tax year is less than 2% of portfolio income; and income from the corporation if the S corporation makes an the smaller of the property's unadjusted disposition of property held for investment. election under Regulations section basis or its fair market value. See Self-Charged Interest, later, for an 1.469-7(g) to avoid the application of The sale or exchange of property that exception. these rules. To make the election, the S is also rented during the tax year (in which corporation must attach to its original or the gain or loss is recognized) is treated Solely for purposes of the preceding amended Form 1120S a statement that as incidental to the activity of dealing in paragraph, gross income derived in the includes the name, address, EIN of the S property if, at the time of the sale or ordinary course of a trade or business corporation, and a declaration that the exchange, the property was held primarily includes (and portfolio income, therefore, election is being made under Regulations for sale to customers in the ordinary doesn't include) the following types of section 1.469-7(g). The election will apply course of the corporation's trade or income. to the tax year for which it was made and business. • Interest income on loans and all subsequent tax years. Once made, the investments made in the ordinary course See Temporary Regulations section election can only be revoked with the of a trade or business of lending money. consent of the IRS. 1.469-1T(e)(3) and Regulations section • Interest on accounts receivable arising 1.469-1(e)(3) for more information on the from the performance of services or the For more details on the self-charged definition of rental activities for purposes sale of property in the ordinary course of a interest rules, see Regulations section of the passive activity limitations. trade or business of performing such 1.469-7. Reporting of rental activities. In services or selling such property, but only reporting the corporation's income or if credit is customarily offered to Grouping Activities losses and credits from rental activities, customers of the business. Generally, one or more trade or business the corporation must separately report • Income from investments made in the or rental activities may be treated as a rental real estate activities and rental ordinary course of a trade or business of single activity if the activities make up an activities other than rental real estate furnishing insurance or annuity contracts appropriate economic unit for activities. or reinsuring risks underwritten by measurement of gain or loss under the Shareholders who actively participate insurance companies. passive activity rules. Whether activities in a rental real estate activity may be able • Income or gain derived in the ordinary make up an appropriate economic unit to deduct part or all of their rental real course of an activity of trading or dealing depends on all the relevant facts and estate losses (and the deduction in any property if such activity constitutes circumstances. The factors given the equivalent of rental real estate credits) a trade or business (unless the dealer held greatest weight in determining whether against income (or tax) from nonpassive the property for investment at any time activities make up an appropriate activities. Generally, the combined amount before such income or gain is recognized). economic unit are: of rental real estate losses and the • Royalties derived by the taxpayer in the • Similarities and differences in types of deduction equivalent of rental real estate ordinary course of a trade or business of trades or businesses, credits from all sources (including rental licensing intangible property. • The extent of common control, real estate activities not held through the • Amounts included in the gross income • The extent of common ownership, of a patron of a cooperative by reason of • Geographical location, and

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• Reliance between or among the and gas resources or geothermal from a rental activity is nonpassive income activities. deposits. if less than 30% of the unadjusted basis of Example. The corporation has a the property used or held for use by Activities conducted through partner- significant ownership interest in a bakery customers in the activity is subject to ships. Once a partnership determines its and a movie theater in Baltimore and a depreciation under section 167. activities under these rules, the bakery and a movie theater in 3. Passive equity-financed lending corporation as a partner can use these Philadelphia. Depending on the relevant activities. If the corporation has net rules to group those activities with: facts and circumstances, there may be income from a passive equity-financed Each other, more than one reasonable method for • lending activity, the smaller of the net Activities conducted directly by the grouping the corporation's activities. For • passive income or the equity-financed corporation, or instance, the following groupings may or interest income from the activity is Activities conducted through other may not be permissible. • nonpassive income. partnerships. • A single activity. 4. Rental of property incidental to • A movie theater activity and a bakery The corporation can't treat as separate a development activity. Net rental activity. activities those activities grouped together activity income is the excess of passive • A Baltimore activity and a Philadelphia by a partnership. activity gross income from renting or activity. Recharacterization of Passive disposing of property over passive activity • Four separate activities. Income deductions (current year deductions and Once the corporation chooses a prior year unallowed losses) that are grouping under these rules, it must Under Temporary Regulations section reasonably allocable to the rented continue using that grouping in later tax 1.469-2T(f) and Regulations section property. Net rental activity income is years unless either: 1.469-2(f), net passive income from nonpassive income for a shareholder if all • The corporation determines that the certain passive activities must be treated of the following apply. as nonpassive income. Net passive original grouping was clearly a. The corporation recognizes gain income is the excess of an activity's inappropriate, or from the sale, exchange, or other passive activity gross income over its • A material change in the facts and disposition of the rental property during passive activity deductions (current year circumstances makes that grouping the tax year. clearly inappropriate. deductions and prior year unallowed losses). b. The use of the item of property in The IRS may regroup the corporation's the rental activity started less than 12 activities if the corporation's grouping isn't Any net passive income months before the date of disposition. The an appropriate economic unit and one of recharacterized as nonpassive income is use of an item of rental property begins on the primary purposes for the grouping (or treated as investment income for the first day on which (a) the corporation failure to regroup as required under purposes of figuring investment interest owns an interest in the property, (b) Regulations section 1.469-4(e)) is to avoid expense limitations if it is from (a) an substantially all of the property is either the passive activity limitations. activity of renting substantially rented or held out for rent and ready to be nondepreciable property from an rented, and (c) no significant Limitation on grouping certain activi- equity-financed lending activity, or (b) an value-enhancing services remain to be ties. The following activities may not be activity related to an interest in a performed. grouped together. pass-through entity that licenses c. The shareholder materially or 1. A rental activity with a trade or intangible property. significantly participated for any tax year in business activity unless the activities an activity that involved performing being grouped together make up an The amount of income from the services to enhance the value of the appropriate economic unit and: activities in items (1) through (3) below property (or any other item of property, if a. The rental activity is insubstantial that any shareholder will be required to recharacterize as nonpassive income may the basis of the property disposed of is relative to the trade or business activity or determined in whole or in part by vice versa; or be limited under Temporary Regulations section 1.469-2T(f)(8). Because the reference to the basis of that item of b. Each owner of the trade or corporation won't have information property). business activity has the same regarding all of a shareholder's activities, it Because the corporation can't proportionate ownership interest in the must identify all corporate activities determine a shareholder's level of rental activity. If so, the portion of the meeting the definitions in items (2) and (3) participation, the corporation must identify rental activity involving the rental of as activities that may be subject to net income from property described above property to be used in the trade or recharacterization. (without regard to the shareholder's level business activity can be grouped with the of participation) as income that may be trade or business activity. Income from the following six sources subject to recharacterization. 2. An activity involving the rental of is subject to recharacterization. 5. Rental of property to a real property with an activity involving the 1. Significant participation passive nonpassive activity. If a taxpayer rents rental of personal property (except activities. A significant participation property to a trade or business activity in personal property provided in connection passive activity is any trade or business which the taxpayer materially participates, with the real property or vice versa). activity in which the shareholder the taxpayer's net rental activity income participated for more than 100 hours 3. Any activity with another activity in (defined in item (4)) from the property is during the tax year but didn't materially a different type of business and in which nonpassive income. the corporation holds an interest as a participate. Because each shareholder 6. Acquisition of an interest in a limited partner or as a limited entrepreneur must determine his or her level of pass-through entity that licenses (as defined in section 461(j)(4)) if that participation, the corporation won't be able intangible property. Generally, net other activity is holding, producing, or to identify significant participation passive royalty income from intangible property is distributing motion picture films or activities. nonpassive income if the taxpayer videotapes; farming; leasing section 1245 2. Certain nondepreciable rental acquired an interest in the pass-through property; or exploring for or exploiting oil property activities. Net passive income

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entity after the pass-through entity created and the adjusted basis allocated to each d. Net rental activity income from the the intangible property or performed activity; and rental of property by the corporation to a substantial services or incurred substantial c. For gains only, if the property was trade or business activity in which the costs in developing or marketing the substantially appreciated at the time of the shareholder had an interest (either directly intangible property. Net royalty income is disposition and the applicable holding or indirectly). the excess of passive activity gross period specified in Regulations section e. Net royalty income from intangible income from licensing or transferring any 1.469-2(c)(2)(iii)(A) wasn't satisfied, property if the shareholder acquired the right in intangible property over passive identify the amount of the nonpassive gain shareholder's interest in the corporation activity deductions (current year and indicate whether or not the gain is after the corporation created the intangible deductions and prior year unallowed investment income under Regulations property or performed substantial losses) that are reasonably allocable to section 1.469-2(c)(2)(iii)(F). services, or incurred substantial costs in the intangible property. See Temporary 6. Specify the amount of gross developing or marketing the intangible Regulations section 1.469-2T(f)(7)(iii) for property. exceptions to this rule. portfolio income, the interest expense properly allocable to portfolio income, and 12. Identify separately the credits from Passive Activity Reporting expenses other than interest expense that each activity conducted by or through the Requirements are clearly and directly allocable to corporation. portfolio income. 13. Identify the shareholder's pro rata To allow shareholders to correctly apply 7. Identify the ratable portion of any share of the corporation's self-charged the passive activity loss and credit section 481 adjustment (whether a net interest income or expense (see limitation rules, the corporation must do positive or a net negative adjustment) Self-Charged Interest, earlier). the following. allocable to each corporate activity. a. Loans between a shareholder 1. If the corporation carries on more 8. Identify any gross income from and the corporation. Identify the lending than one activity, provide an attached sources specifically excluded from or borrowing shareholder's share of the statement for each activity conducted passive activity gross income, including: self-charged interest income or expense. through the corporation that identifies the If the shareholder made the loan to the type of activity conducted (trade or a. Income from intangible property, if corporation, also identify the activity in business, rental real estate, rental activity the shareholder is an individual whose which the loan proceeds were used. If the other than rental real estate, or personal efforts significantly contributed to proceeds were used in more than one investment). See Grouping Activities, the creation of the property; activity, allocate the interest to each earlier. b. Income from state, local, or foreign activity based on the amount of the 2. On the attached statement for each income tax refunds; and proceeds used in each activity. activity, provide a statement, using the c. Income from a covenant not to b. Loans between the corporation same box numbers as shown on compete, if the shareholder is an and another S corporation or Schedule K-1, detailing the net income individual who contributed the covenant to partnership. If the corporation's (loss), credits, and all items required to be the corporation. shareholders have the same proportional separately stated under section 1366(a) 9. Identify any deductions that aren't ownership interest in the corporation and (1) from each trade or business activity, passive activity deductions. the other S corporation or partnership, from each rental real estate activity, from identify each shareholder's share of the each rental activity other than a rental real 10. If the corporation makes a full or interest income or expense from the loan. estate activity, and from investments. partial disposition of its interest in another entity, identify the gain (loss) allocable to If the corporation was the borrower, also 3. Identify the net income (loss) and each activity conducted through the entity, identify the activity in which the loan the shareholder's share of corporation and the gain allocable to a passive activity proceeds were used. If the proceeds were interest expense from each activity of that would have been recharacterized as used in more than one activity, allocate renting a dwelling unit that any nonpassive gain had the corporation the interest to each activity based on the shareholder uses for personal purposes disposed of its interest in property used in amount of the proceeds used in each during the year for more than the greater the activity (because the property was activity. of 14 days or 10% of the number of days substantially appreciated at the time of the that the residence is rented at fair rental disposition, and the gain represented Net Investment Income value. more than 10% of the shareholder's total 4. Identify the net income (loss) and Tax Reporting gain from the disposition). Requirements the shareholder's share of interest 11. Identify the following items from expense from each activity of trading activities that may be subject to the The information described in this personal property conducted through the recharacterization rules (see TIP section should be given directly to corporation. Recharacterization of Passive Income, the shareholder and shouldn't be 5. For any gain (loss) from the earlier). reported by the corporation to the IRS. disposition of an interest in an activity or of a. Net income from an activity of an interest in property used in an activity To allow shareholders to correctly renting substantially nondepreciable figure the net investment income tax (including dispositions before 1987 from property. which gain is being recognized after where a shareholder disposes of stock in 1986): b. The smaller of equity-financed the corporation during the tax year, the interest income or net passive income corporation may be required to provide the a. Identify the activity in which the from an equity-financed lending activity. shareholder with certain information. The property was used at the time of net investment income tax is a tax disposition; c. Net rental activity income from property developed (by the shareholder or imposed on an individual's, trust's, or b. If the property was used in more the corporation), rented, and sold within estate's net investment income. Net than one activity during the 12 months 12 months after the rental of the property investment income includes the net gains preceding the disposition, identify the commenced. or losses from the sale of stock in the activities in which the property was used corporation. A shareholder who is actively

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involved in one or more of the corporation 1. If the corporation met the foreign effective for tax years beginning after or subsidiary pass-through entities' trades economic process requirements explained December 31, 2018. or businesses (other than trading in in the Instructions for Form 8873, it can financial instruments or commodities) can report the exclusion as a nonseparately Name and Address reduce the amount of the gain or loss stated item on whichever of the following Enter the corporation's true name (as set included in its net investment income. lines apply to that activity. forth in the charter or other legal document However, to figure its net investment • Form 1120S, page 1, line 19. creating it) and address on the appropriate income, the active shareholder needs • Form 8825, line 15. lines. Enter the address of the certain information from the corporation. • Form 1120S, Schedule K, line 3b. corporation's principal office or place of Generally, the corporation must provide In addition, the corporation must report business. Include the suite, room, or other certain information to the shareholder if as an item of information on Schedule K-1, unit number after the street address. If the the corporation knows, or has reason to box 14, using code S, the shareholder's post office doesn't deliver mail to the know, the following. pro rata share of foreign trading gross street address and the corporation has a receipts from Form 8873, line 15. P.O. box, show the box number instead. 1. The shareholder disposed of stock in the corporation. 2. If the foreign trading gross receipts Don't use the address of the of the corporation for the tax year are $5 registered agent for the state in 2. The shareholder materially million or less and the corporation didn't participates (within the meaning of the which the corporation is meet the foreign economic process incorporated. For example, if a business is passive activity loss rules (section 469)) in requirements, it can't report the one or more of the trades or businesses incorporated in Delaware or Nevada and extraterritorial income exclusion as a the corporation's principal office is located (within the meaning of section 162) of the nonseparately stated item on its return. corporation or a subsidiary pass-through in Little Rock, Arkansas, the corporation Instead, the corporation must report the should enter the Little Rock address. entity (other than trading in financial following separately stated items to the instruments or commodities). shareholders on Schedule K-1, box 14. If the corporation receives its mail in 3. The shareholder doesn't qualify for care of a third party (such as an • Foreign trading gross receipts (code S). the optional simplified reporting method accountant or an attorney), enter “C/O” on Report each shareholder's pro rata share for figuring its net investment income the street address line, followed by the of foreign trading gross receipts from associated with the disposition of the third party's name and street address or line 15 of Form 8873 in box 14 using code stock. For more information, see the P.O. box. instructions for Form 8960, line 5c. S. • Extraterritorial income exclusion (code If the corporation has a foreign Information to be provided to share- T). Report each shareholder's pro rata address, include the city or town, state or holder. Generally, the corporation must share of the extraterritorial income province, country, and foreign postal provide the shareholder with its pro rata exclusion from line 52 of Form 8873 in code. Don't abbreviate the country name. share of the net gain and loss from the box 14 using code T and identify on an Follow the country's practice for entering deemed sale for fair market value of the attached statement the activity to which the name of the state or province and corporation's property, other than property the exclusion relates. If the corporation is postal code. that relates to the trades or businesses in required to complete more than one Form which the shareholder materially 8873, combine the exclusions and report a Item B. Business Code participates, as determined under the single exclusion amount in box 14. See Principal Business Activity Codes, passive activity loss rules applicable to the Upon request of a shareholder, later. transfer of an interest in a pass-through the corporation should furnish a entity. For more information, see the copy of the corporation's Form Item C. Schedule M-3 instructions for Form 8960, line 5c. 8873 if that shareholder has a reduction Information If a shareholder, who qualifies for for international boycott operations, illegal bribes, kickbacks, etc. For 2018, a corporation that (a) is required TIP the optional simplified reporting to file Schedule M-3 (Form 1120S) and method, prefers to determine net has less than $50 million total assets at gain or loss under the general calculation, the end of the tax year, or (b) isn't required the corporation may, but isn't obligated to, Specific Instructions to file Schedule M-3 (Form 1120S) and provide the information to the shareholder voluntarily files Schedule M-3 (Form at the shareholder's request. Period Covered 1120S), must either complete File the 2018 return for calendar year 2018 Schedule M-3 (Form 1120S) entirely or Extraterritorial Income and fiscal years that begin in 2018 and complete Schedule M-3 (Form 1120S) end in 2019. For a fiscal or short tax year through Part I and complete Form 1120S, Exclusion return, fill in the tax year space at the top Schedule M-1, instead of completing Parts Generally, no exclusion is allowed of the form. II and III of Schedule M-3 (Form 1120S). If ! for transactions after 2006. a corporation chooses to complete Form CAUTION However, transactions that meet The 2018 Form 1120S can also be 1120S, Schedule M-1, instead of the transition rules may still be eligible for used if: completing Parts II and III of Schedule M-3 the exclusion. See the Instructions for • The corporation has a tax year of less (Form 1120S), line 1 of Form 1120S, Form 8873 for details. than 12 months that begins and ends in Schedule M-1, must equal line 11 of Part I 2019, and of Schedule M-3 (Form 1120S). For details and to figure the amount of • The 2019 Form 1120S isn't available at the exclusion, see Form 8873, the time the corporation is required to file Any corporation that completes Parts II Extraterritorial Income Exclusion, and its its return. and III of Schedule M-3 (Form 1120S) separate instructions. The corporation must complete all columns, without must report the extraterritorial income The corporation must show its 2019 tax exception. exclusion on its return as follows. year on the 2018 Form 1120S and take If you are filing Schedule M-3, check into account any tax law changes that are the “Check if Sch. M-3 attached” box. See

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the Instructions for Schedule M-3 for more check the “Amended K-1” box on each Canceled debt exclusion. If the details. Schedule K-1. corporation has had debt discharged • If the corporation has terminated or resulting from a title 11 bankruptcy Item D. Employer revoked its S election, check the “S proceeding or while insolvent, see Form election termination or revocation” box. 982, Reduction of Tax Attributes Due to Identification Number See Termination of Election, earlier. (EIN) Discharge of Indebtedness, and Pub. 908, If a change in address or Bankruptcy Tax Guide. Enter the corporation's EIN. If the TIP responsible party occurs after the Line 1a. Gross Receipts or corporation doesn't have an EIN, it must return is filed, use Form 8822-B, apply for one. An EIN can be applied for in Change of Address or Responsible Sales the following ways. Party — Business, to notify the IRS. See Enter on line 1a gross receipts or sales • Online—Go to IRS.gov/EIN. The EIN is the Instructions for Form 8822-B for from all business operations except for issued immediately once the application details. amounts that must be reported on lines 4 information is validated. and 5. • By faxing or mailing Form SS-4, Application for Employer Identification Income Special rules apply to certain income, Number. as discussed below. Report only trade or business If the corporation hasn't received its ! activity income on lines 1a through Advance payments. In general, advance EIN by the time the return is due, enter CAUTION 5. Don't report rental activity payments are reported in the year of “Applied for” and the date the corporation income or portfolio income on these lines. receipt. There are exceptions to this applied in the space for the EIN. However, See Passive Activity Limitations, earlier, general rule for corporations that use an if the corporation is filing its returns for definitions of rental income and accrual method of accounting. To report electronically, an EIN is required at the portfolio income. Rental activity income income from long-term contracts, see time the return is filed. For more and portfolio income are reported on section 460. For rules that allow a limited information, see the Instructions for Form Schedules K and K-1. Rental real estate deferral of advance payments beyond the SS-4. activities are also reported on Form 8825. current tax year, see Rev. Proc. 2004-34, 2004-22 I.R.B. 991, and Notice 2018-35, Tax-exempt income. Don't include any 2018-18 I.R.B. 520 (or any successors). Item F. Total Assets tax-exempt income on lines 1a through 5. For rules for the deferral of advance Enter the corporation's total assets (as A corporation that receives any payments from the sale of certain gift determined by the accounting method tax-exempt income other than interest, or cards and further explanation of the tax regularly used in keeping the corporation's holds any property or engages in any treatments for advance payments, see books and records) at the end of the tax activity that produces tax-exempt income, Pub. 538, Accounting Periods and year. If there were no assets at the end of reports this income on line 16b of Methods. For information on adopting or the tax year, enter -0-. Schedule K and in box 16 of Schedule K-1 changing to a permissible method for using code B. reporting advance payments for goods If the corporation is required to and services by an accrual method complete Schedule L, enter total assets Report tax-exempt interest income, including exempt-interest dividends corporation, see the Instructions for Form from Schedule L, line 15, column (d), on 3115. page 1, item F. If the S election terminated received as a shareholder in a mutual fund during the tax year, see the instructions for or other regulated investment company, Installment sales. Generally, the Schedule L, later, for special rules that on line 16a of Schedule K and in box 16 of installment method can't be used for may apply when figuring the corporation's Schedule K-1 using code A. dealer dispositions of property. A “dealer year-end assets. See Deductions, later, for information disposition” is any disposition of: on how to report expenses related to • Personal property by a person who Item H. Final Return, Name tax-exempt income. regularly sells or otherwise disposes of personal property of the same type on the Change, Address Change, Election to defer income from can- installment plan, or Amended Return, or S celed debt. If the corporation elected • Real property held for sale to customers under section 108(i) to defer cancellation Election Termination or in the ordinary course of the taxpayer's of debt (COD) income, the exclusions for trade or business. Revocation COD income under section 108(a)(1)(A), (B), (C), and (D) don't apply to the These restrictions on using the • If this is the corporation's final return installment method don't apply to and it will no longer exist, check the “Final deferred COD income for the tax year of the election or any later year. dispositions of property used or produced return” box. Also check the “Final K-1” box in a farming business or sales of on each Schedule K-1. For more information, see section timeshares and residential lots for which • If the corporation changed its name 108(i); Regulations section 1.108(i)-1; the corporation elects to pay interest since it last filed a return, check the “Name Rev. Proc. 2009-37, 2009-36 I.R.B. 309; under section 453(l)(3). change” box. Generally, a corporation and Regulations section 1.108(i)-2. must also have amended its articles of For sales of timeshares and residential A corporation that receives a lots reported under the installment incorporation and filed the amendment Schedule K-1 from a partnership with the state in which it was incorporated. method, each shareholder's income tax is containing information relating to a section increased by the shareholder's pro rata • If the corporation has changed its 108(i) election must report on the address since it last filed a return share of the interest payable under section Schedules K-1 to its shareholders certain 453(l)(3). (including a change to an “in care of” information relative to the section 108(i) address), check the “Address change” election. See Rev. Proc. 2009-37 for Enter on line 1a the gross profit on box. details. Also see Regulations section collections from installment sales for any • If this amends a previously filed return, 1.108(i)-2. of the following. check the “Amended return” box. If Schedules K-1 are also being amended,

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• Dispositions of property used or Examples of other income include the line 10 of Schedule K and in box 10 of produced in the trade or business of following. Schedule K-1 using code H. farming. • Interest income derived in the ordinary • Certain dispositions of timeshares and course of the corporation's trade or Treat shares of other items separately residential lots reported under the business, such as interest charged on reported on Schedule K-1 issued by the installment method. receivable balances. See Temporary other entity as if the items were realized or Attach a statement showing the Regulations section 1.469-2T(c)(3). incurred by this corporation. following information for the current and • Recoveries of bad debts deducted in the 3 preceding years. prior years under the specific charge-off If there is a loss from a partnership, the • Gross sales. method. amount of the loss that may be claimed by • Cost of goods sold. • Taxable income from insurance the S corporation is subject to the basis • Gross profits. proceeds. limitations. • Percentage of gross profits to gross • Any amount included in income from line 2 of Form 6478, Biofuel Producer sales. If the tax year of the S corporation Credit, if applicable. • Amount collected. doesn't coincide with the tax year of the • Any amount included in income from • Gross profit on the amount collected. partnership, estate, or trust, include the line 8 of Form 8864, Biodiesel and ordinary income (loss) from the other Line 1b. Returns and Renewable Diesel Fuels Credit, if entity in the tax year in which the other applicable. Allowances entity's tax year ends. The recapture amount under section Enter cash and credit refunds the • 280F if the business use of listed property corporation made to customers for drops to 50% or less. To figure the Deductions returned merchandise, rebates, and other recapture amount, complete Part IV of allowances made on gross receipts or Report only trade or business Form 4797. sales. activity deductions on lines 7 • All section 481 income adjustments through 19. Line 2. Cost of Goods Sold resulting from changes in accounting Don't report the following expenses on Complete and attach Form 1125-A, Cost methods. Show the computation of the section 481 adjustments on an attached lines 7 through 19. of Goods Sold, if applicable. Enter on • Rental activity expenses. Report these line 2 the amount from Form 1125-A, statement. • Part or all of the proceeds received expenses on Form 8825 or line 3b of line 8. See Form 1125-A and its Schedule K. instructions. from certain corporate-owned life insurance contracts issued after August • Deductions allocable to portfolio Line 4. Net Gain (Loss) From 17, 2006. Corporations that own one or income. Report these deductions on Form 4797 more employer-owned life insurance line 12d of Schedule K and in box 12 of contracts issued after this date must file Schedule K-1 using code I or L. Include only ordinary gains or Form 8925, Report of Employer-Owned • Nondeductible expenses (for example, ! losses from the sale, exchange, or Life Insurance Contracts. See section expenses connected with the production CAUTION involuntary conversion of assets 101(j) for details. of tax-exempt income). Report used in a trade or business activity. nondeductible expenses on line 16c of Ordinary gains or losses from the sale, Don't include items requiring separate Schedule K and in box 16 of Schedule K-1 exchange, or involuntary conversion of computations by shareholders that must using code C. rental activity assets are reported be reported on Schedules K and K-1. See • Qualified expenditures to which an separately on line 19 of Form 8825, or the instructions for Schedules K and K-1 election under section 59(e) may apply. line 3 of Schedule K, and box 3 of later in these instructions. The instructions for line 12c of Schedule K Schedule K-1, generally as a part of the and for Schedule K-1, box 12, code J, net income (loss) from the rental activity. Ordinary Income (Loss) From a explain how to report these amounts. • Items the corporation must state A corporation that is a partner in a Partnership, Estate, or Trust separately that require separate partnership must include on Form 4797, Enter the ordinary income (loss) shown on computations by the shareholders. Sales of Business Property, its share of Schedule K-1 (Form 1065) or Examples include expenses incurred for ordinary gains (losses) from sales, Schedule K-1 (Form 1041), or other the production of income instead of in a exchanges, or involuntary conversions ordinary income (loss) from a foreign trade or business, charitable contributions, (other than casualties or thefts) of the partnership, estate, or trust. Show the foreign taxes paid or accrued, intangible partnership's trade or business assets. partnership's, estate's, or trust's name, drilling and development costs, soil and Corporations shouldn't use Form 4797 address, and EIN on a separate statement water conservation expenditures, to report the sale or other disposition of attached to this return. If the amount amortizable basis of reforestation property if a section 179 expense entered is from more than one source, expenditures, and exploration deduction was previously passed through identify the amount from each source. expenditures. The pro rata shares of these to any of its shareholders for that property. expenses are reported separately to each Instead, report it in box 17 of Don't include portfolio income or rental shareholder on Schedule K-1. Schedule K-1 using code K. See activity income (loss) from a partnership, Limitations on Deductions Dispositions of property with section 179 estate, or trust on this line. Instead, report deductions (code K), later, for details. these amounts on Schedules K and K-1, Section 263A uniform capitalization or on line 20a of Form 8825 if the amount rules. The uniform capitalization rules of Line 5. Other Income (Loss) is from a rental real estate activity. section 263A generally require Enter any other trade or business income corporations to capitalize, or include in (loss) not included on lines 1a through 4. Ordinary income or loss from a inventory, certain costs incurred in List the type and amount of income on an partnership that is a publicly traded connection with the following. attached statement. partnership isn't reported on this line. • The production of real property and Instead, report the amount separately on tangible personal property held in

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inventory or held for sale in the ordinary • Compensation paid to officers basis of pollution control facilities. If this course of business. attributable to services. applies, see section 291 to figure the • Real property or personal property • Rework labor. adjustment. (tangible and intangible) acquired for Contributions to pension, stock bonus, • Business start-up and organizational resale. and certain profit-sharing, annuity, or costs. A corporation can elect to deduct The production of real property and deferred compensation plans. • a limited amount of start-up and tangible personal property by a Regulations section 1.263A-1(e)(3) organizational costs it paid or incurred. corporation for use in its trade or business specifies other indirect costs that relate to Any remaining costs generally must be or in an activity engaged in for profit. production or resale activities that must be amortized over a 180-month period. See Tangible personal property produced capitalized and those that may be sections 195 and 248 and the related by a corporation includes a film, sound currently deductible. regulations. recording, videotape, book, or similar Interest expense paid or incurred Time for making an election. The property. during the production period of designated corporation generally elects to deduct The costs required to be capitalized property must be capitalized and is start-up or organizational costs by under section 263A aren't deductible until governed by special rules. For more claiming the deduction on its income tax the property to which the costs relate is details, see Regulations sections return filed by the due date (including sold, used, or otherwise disposed of by 1.263A-8 through 1.263A-15. extensions) for the tax year in which the the corporation. For more details on the uniform active trade or business begins. However, Exceptions. Section 263A doesn't capitalization rules, see Regulations for start-up or organizational costs paid or apply to the following. sections 1.263A-1 through 1.263A-3. incurred before September 9, 2008, the • Inventoriable items accounted for in the Special rules for certain corporations corporation is required to attach a same manner as materials and supplies engaged in farming. For S corporations statement to its return to elect to deduct that aren't incidental. See Form 1125-A not required to use an accrual method of such costs. and its instructions for more details. accounting, the rules of section 263A don't For more details including special rules • For tax years beginning after 2017, a apply to expenses of raising any: for costs paid or incurred before small business taxpayer (defined earlier) • Animal, or September 9, 2008, see the Instructions is not required to capitalize costs under • Plant that has a preproductive period of for Form 4562. Also see Pub. 535, section 263A. A taxpayer that wants to 2 years or less. Business Expenses. discontinue capitalizing costs under Shareholders of S corporations not If the corporation timely filed its return section 263A must change its method of required to use an accrual method of for the year without making an election, it accounting. See section 263A(i) and accounting may elect to currently deduct can still make an election by filing an Change in accounting method, earlier. the preproductive period expenses of amended return within 6 months of the Timber. • certain plants that have a preproductive due date of the return (excluding Most property produced under a • period of more than 2 years. Because extensions). Clearly indicate the election long-term contract. each shareholder makes the election to on the amended return and write “Filed Certain property produced in a farming • deduct these expenses, the corporation pursuant to section 301.9100-2” at the top business. See Special rules for certain shouldn't capitalize them. Instead, the of the amended return. File the amended corporations engaged in farming, later. corporation should report the expenses return at the same address the corporation Geological and geophysical costs • separately on line 12d of Schedule K and filed its original return. The election amortized under section 167(h). report each shareholder's pro rata share in applies when figuring taxable income for Certain plants bearing fruits and nuts • box 12 of Schedule K-1 using code M. the current tax year and all subsequent depreciated under section 168(k)(5). See Uniform Capitalization Rules in years. The corporation must report the chapter 6 of Pub. 225, Farmer's Tax The corporation can choose to forgo following costs separately to the Guide, sections 263A(d) and (e), and the elections above by clearly electing to shareholders for purposes of Regulations section 1.263A-4 for capitalize its start-up or organizational determinations under section 59(e). definitions and other details. costs on its income tax return filed by the Research and experimental costs • due date (including extensions) for the tax under section 174. Transactions between related taxpay- year in which the active trade or business Intangible drilling costs for oil, gas, and ers. Generally, an accrual basis S • begins. geothermal property. corporation can deduct business • Mining exploration and development expenses and interest owed to a related The election to either amortize or costs. party (including any shareholder) only in TIP capitalize start-up costs is the tax year of the corporation that irrevocable and applies to all Indirect costs. Corporations subject includes the day on which the payment is start-up costs that are related to the trade to the uniform capitalization rules are includible in the income of the related or business. required to capitalize not only direct costs party. See section 267 for details. but an allocable part of most indirect costs Report the deductible amount of (including taxes) that benefit the assets Business interest. Business interest start-up and organizational costs and any produced or acquired for resale, or are expense is limited for tax years beginning amortization on line 19. For amortization incurred because of the performance of after 2017. See section 163(j) for that begins during the current tax year, production or resale activities. limitations on deductions for business complete and attach Form 4562, For inventory, indirect costs that must interest. Depreciation and Amortization. be capitalized include the following. Section 291 limitations. If the S Reducing certain expenses for which • Administration expenses. corporation was a C corporation for any of credits are allowable. If the corporation • Taxes. the 3 immediately preceding years, the claims certain credits, it may need to • Depreciation. corporation may be required to adjust reduce the otherwise allowable • Insurance. items such as deductions for depletion of deductions for expenses used to figure the iron ore and coal, and the amortizable

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credit. This applies to credits such as the amounts included in cost of goods sold, New buildings, machinery, or following. elective contributions to a section 401(k) permanent improvements that increase • Work opportunity credit (Form 5884). cash or deferred arrangement, or amounts the value of the property aren't deductible • Credit for increasing research activities contributed under a salary reduction SEP as repair and maintenance expenses. (Form 6765). agreement or a SIMPLE IRA plan. These expenses must be capitalized and Orphan drug credit (Form 8820). depreciated or amortized. However, • If the corporation's total receipts Disabled access credit (Form 8826). amounts paid for routine maintenance on • (page 1, line 1a, plus lines 4 and 5; Empowerment zone employment credit property, including buildings, may be • income reported on Schedule K, lines 3a, (Form 8844), if applicable. deductible. See Regulations section 4, 5a, and 6; income or net gain reported Indian employment credit (Form 8845), 1.263(a)-3(i). • on Schedule K, lines 7, 8a, 9, and 10; and if applicable. income or net gain reported on Form Credit for employer social security and Line 10. Bad Debts • 8825, lines 2, 19, and 20a) are $500,000 Medicare taxes paid on certain employee Enter the total debts that became or more, complete Form 1125-E, tips (Form 8846). worthless in whole or in part during the tax Compensation of Officers. Enter on Form Credit for small employer pension plan year, but only to the extent such debts • 1120S, line 7, the amount from Form startup costs (Form 8881). relate to a trade or business activity. 1125-E, line 4. • Credit for employer-provided childcare Report deductible nonbusiness bad debts facilities and services (Form 8882). Include fringe benefit expenditures as a short-term capital loss on Form 8949, • Low sulfur diesel fuel production credit made on behalf of officers and employees Sales and Other Dispositions of Capital (Form 8896). owning more than 2% of the corporation's Assets. A corporation that uses the cash • Mine rescue team training credit (Form stock. Also report these fringe benefits as method of accounting can't claim a bad 8923), if applicable. wages in box 1 of Form W-2. Don't include debt deduction unless the amount was • Credit for employer differential wage amounts paid or incurred for fringe previously included in income. payments (Form 8932). benefits of officers and employees owning Line 11. Rents • Credit for small employer health 2% or less of the corporation's stock. insurance premiums (Form 8941). These amounts are reported on line 18. Enter rent paid on business property used • Employer credit for paid family and See the instructions for that line for in a trade or business activity. Don't medical leave (Form 8994). information on the types of expenditures deduct rent for a dwelling unit occupied by any shareholder for personal use. If the corporation has any of these that are treated as fringe benefits and for the stock ownership rules. credits, figure the current year credit If the corporation rented or leased a before figuring the deduction for expenses Report amounts paid for health vehicle, enter the total annual rent or lease on which the credit is based. If the insurance coverage for a more-than-2% expense paid or incurred in the trade or corporation capitalized any costs on which shareholder (including that shareholder's business activities of the corporation it figured the credit, it may need to reduce spouse, dependents, and any children during the tax year. Also complete Part V the amount capitalized by the credit under age 27 who aren't dependents) as of Form 4562. If the corporation leased a attributable to these costs. an information item in box 14 of that vehicle for a term of 30 days or more, the See the instructions for the form used shareholder's Form W-2. A more-than-2% deduction for vehicle lease expense may to figure the applicable credit for more shareholder may be allowed to deduct have to be reduced by including in gross details. such amounts on Schedule 1 (Form income an amount called the inclusion 1040), line 29. To find out if the amount. The corporation may have an Line 7. Compensation of shareholder can claim this deduction, see inclusion amount if: Officers and Self-Employed Health Insurance Line 8. Salaries and Wages Deduction in chapter 6 of Pub. 535, Business Expenses. Distributions and other payments by an S corporation to a corporate If a shareholder or a member of the ! family of one or more shareholders of the CAUTION officer must be treated as wages to the extent the amounts are reasonable corporation renders services or furnishes compensation for services rendered to the capital to the corporation for which corporation. reasonable compensation isn’t paid, the IRS may make adjustments in the items Enter on line 7 the total compensation of taken into account by such individuals to all officers paid or incurred in the trade or reflect the value of such services or business activities of the corporation. The capital. See section 1366(e). corporation determines who is an officer under the laws of the state where it is Line 9. Repairs and incorporated. Maintenance Enter the cost of repairs and maintenance Enter on line 8 the total salaries and not claimed elsewhere on the return, such wages paid or incurred to employees as labor and supplies, that don't add to the (other than officers) during the tax year. value of the property or appreciably If the corporation claims a credit prolong its life. The corporation can for any wages paid or incurred, it deduct these repairs only to the extent may need to reduce the amounts they relate to a trade or business activity. on lines 7 and 8. See Reducing certain See Regulations section 1.162-4. The expenses for which credits are allowable, corporation may elect to capitalize certain earlier. repair and maintenance costs consistent with its books and records. See Don't include salaries and wages Regulations section 1.263(a)-3(n) for reported elsewhere on the return, such as information on how to make the election.

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And the vehicle's See section 263A(a) for rules on construct. Interest allocable to designated FMV on the first capitalization of allocable costs (including property produced by a corporation for its day of the lease taxes) for any property. own use or for sale must be capitalized. In The lease term began: exceeded: addition, a corporation must also • Taxes not imposed on the corporation. capitalize any interest on debt allocable to Cars (excluding trucks • Taxes, including state or local sales an asset used to produce designated and vans) taxes, that are paid or incurred in property. A shareholder may have to After 12/31/17 but before connection with an acquisition or capitalize interest that the shareholder 1/1/19 ...... $50,000 disposition of property (these taxes must incurs during the tax year for the S be treated as a part of the cost of the corporation's production expenditures. After 12/31/12 but before acquired property or, in the case of a 1/1/18 ...... $19,000 Similarly, interest incurred by an S disposition, as a reduction in the amount corporation may have to be capitalized by After 12/31/07 but before realized on the disposition). a shareholder for the shareholder's own 1/1/13 ...... $18,500 • Taxes assessed against local benefits production expenditures. The information Trucks and vans that increase the value of the property required by the shareholder to properly assessed (such as for paving, etc.). After 12/31/17 but before capitalize interest for this purpose must be provided by the corporation on an 1/1/19 ...... $50,000 See section 164(d) for information on attachment for box 17 of Schedule K-1 apportionment of taxes on real property After 12/31/13 but before using code P. See section 263A(f) and 1/1/18 ...... $19,500 between seller and purchaser. Regulations sections 1.263A-8 through After 12/31/09 but before Line 13. Interest 1.263A-15. 1/1/14 ...... $19,000 Include only interest incurred in the trade Special rules apply to the following. After 12/31/08 but before or business activities of the corporation • Allocating interest expense among 1/1/10 ...... $18,500 that isn't claimed elsewhere on the return. activities so that the limitations on passive After 12/31/07 but before activity losses, investment interest, and Don't include interest expense on the 1/1/09 ...... $19,000 personal interest can be properly figured. following. Generally, interest expense is allocated in On debt used to purchase rental • the same manner as debt is allocated. property or debt used in a rental activity. Debt is allocated by tracing disbursements See Pub. 463, Travel, Gift, and Car Interest allocable to a rental real estate of the debt proceeds to specific Expenses, for instructions on figuring the activity is reported on Form 8825 and is expenditures. Temporary Regulations inclusion amount. used in arriving at net income (loss) from section 1.163-8T gives rules for tracing rental real estate activities on line 2 of debt proceeds to expenditures. Note. The inclusion amount for lease Schedule K and in box 2 of Schedule K-1. Prepaid interest, which generally can terms beginning in 2019 will be published Interest allocable to a rental activity other • only be deducted over the term of the in early 2019. than a rental real estate activity is included debt. See Regulations sections 1.163-7, on line 3b of Schedule K and is used in 1.446-2, and 1.1273-2(g) for details. Also Line 12. Taxes and Licenses arriving at net income (loss) from a rental see section 461(g). Enter taxes and licenses paid or incurred activity (other than a rental real estate Interest which is allocable to in the trade or business activities of the activity). This net amount is reported on • unborrowed policy cash values of life corporation, unless they are reflected line 3c of Schedule K and in box 3 of insurance, endowment, or annuity elsewhere on the return. Federal import Schedule K-1. contracts issued after June 8, 1997. See duties and federal excise and stamp taxes On debt used to buy property held for • section 264(f). Attach a statement are deductible only if paid or incurred in investment. Interest that is clearly and showing the computation of the deduction. carrying on the trade or business of the directly allocable to interest, dividend, Forgone interest on below-market-rate corporation. royalty, or annuity income not derived in • loans (see section 7872). the ordinary course of a trade or business Don't deduct the following taxes on is reported on line 12b of Schedule K and Limitation on deduction. Business line 12. in box 12 of Schedule K-1 using code H. interest expense is generally limited to the • Federal income taxes (except for the See the instructions for line 12b of sum of business interest income, 30% of portion of built-in gains tax allocable to Schedule K, for box 12, code H of the adjusted taxable income and floor plan ordinary income), or taxes reported Schedule K-1, and Form 4952, Investment financing interest. Business interest elsewhere on the return. Interest Expense Deduction, for more expense includes any interest paid or • Section 901 foreign taxes. Report these information on investment property. accrued on indebtedness properly taxes on line 14p of Schedule K and in • On debt proceeds allocated to allocable to a trade or business. A small box 14 of Schedule K-1 using codes P and distributions made to shareholders during business taxpayer is a taxpayer that is not Q. the tax year. Instead, report such interest a tax shelter (as defined in section 448(d) • Taxes allocable to a rental activity. on line 12d of Schedule K and in box 12 of (3)) and has average annual gross Report taxes allocable to a rental real Schedule K-1 using code S. To determine receipts of $25 million or less for the 3 estate activity on Form 8825. Report taxes the amount to allocate to distributions to prior tax years under the gross receipts allocable to a rental activity other than a shareholders, see Notice 89-35, 1989-1 test of section 448(c). Gross receipts rental real estate activity on line 3b of C.B. 675. include the aggregate gross receipts from Schedule K. • On debt required to be allocated to the all persons treated as a single employer • Taxes paid or incurred for the production of designated property. such as a controlled group of production or collection of income, or for Designated property includes real corporations, commonly controlled the management, conservation, or property, personal property that has a partnerships or proprietorships, and maintenance of property held to produce class life of 20 years or more, and other affiliated service groups. If the corporation income. Report these taxes separately on tangible property requiring more than 2 fails to meet the gross receipts test, Form line 12d of Schedule K and in box 12 of years (1 year in the case of property with a 8990, Limitation on Business Interest Schedule K-1 using code S. cost of more than $1 million) to produce or Expense Under Section 163(j), is

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generally required. Also see Schedule B, • Form 5500, Annual Return/Report of • Certain business start-up and questions 9 and 10. Employee Benefit Plan. organizational costs (discussed earlier). • Form 5500-SF, Short Form Annual • Insurance premiums. Line 14. Depreciation Return/Report of Small Employee Benefit • Legal and professional fees. Enter the depreciation claimed on assets Plan. File this form instead of Form 5500 • Supplies used and consumed in the used in a trade or business activity less generally if there were under 100 business. any depreciation reported elsewhere (for participants at the beginning of the plan • Travel, meal, and entertainment example, on Form 1125-A). See the year. expenses. Special rules apply (discussed Instructions for Form 4562, or Pub. 946, • Form 5500-EZ, Annual Return of A later). How To Depreciate Property, to figure the One-Participant (Owners/Partners and • Utilities. amount of depreciation to enter on this Their Spouses) Retirement Plan or A • Any net negative section 481(a) line. Foreign Plan. File this form for a plan that adjustment. only covers the owner (or the owner and Complete and attach Form 4562 only if his or her spouse) but only if the owner (or Don't deduct the following on line 19. the corporation placed property in service the owner and his or her spouse) owns the • Items that must be reported separately during the tax year or claims depreciation entire business. on Schedules K and K-1. on any car or other listed property. • Fines or penalties paid to a government Form 5500 and Form 5500-SF for violating any law. However, see Don't include any section 179 expense TIP must be filed electronically under exceptions (discussed later). Report these deduction on this line. This amount isn't the computerized ERISA Filing expenses on Schedule K, line 16c. deducted by the corporation. Instead, it is Acceptance System (EFAST2). For more • Expenses allocable to tax-exempt passed through to the shareholders in information, see the EFAST2 website at income. Report these expenses on box 11 of Schedule K-1. However, reduce www.efast.dol.gov. Schedule K, line 16c. the basis of any asset of the S corporation • Amounts paid or incurred for any by the amount of section 179 expense There are penalties for not filing these settlement, payout, or attorney fees elected by the S corporation, even if a forms on time and for overstating the related to sexual harassment or sexual portion of that amount can't be passed pension plan deduction. See sections abuse, if such payments are subject to a through to its shareholders this year and 6652(e) and 6662(f). nondisclosure agreement. See new must be carried forward because of section 162(q). limitations at the S corporation level. See Line 18. Employee Benefit Regulations section 1.179-1(f)(2). Programs Special Rules Line 15. Depletion Enter amounts for fringe benefits paid or incurred on behalf of employees owning Commercial revitalization deduction. If If the corporation claims a deduction for 2% or less of the corporation's stock. the corporation qualified for a commercial timber depletion, complete and attach These fringe benefits include (a) employer revitalization deduction for a building Form T (Timber), Forest Activities contributions to certain accident and constructed, purchased, or substantially Schedule. health plans, (b) the cost of up to $50,000 rehabilitated in a renewal community and Don't deduct depletion for oil and of group-term life insurance on an placed in service before 2010, and it ! gas properties. Each shareholder employee's life, and (c) meals and lodging elected to amortize qualified capital CAUTION figures depletion on oil and gas furnished for the employer's convenience. expenditures, include any current year properties. See the instructions for amortization deduction for a nonrental Schedule K-1, box 17, code R, for the Don't deduct amounts that are an building on line 19. Include any current information on oil and gas depletion that incidental part of a pension, profit-sharing, year amortization deduction for a rental must be supplied to the shareholders by etc., plan included on line 17 or amounts real estate activity on Schedule K, the corporation. reported elsewhere on the return or on line 12d. See section 1400I (as in effect Form 1125-A. before its repeal on March 23, 2018) for details. Line 17. Pension, Report amounts for fringe benefits paid Profit-Sharing, etc., Plans on behalf of employees owning more than The commercial revitalization Enter the deductible contributions not 2% of the corporate stock on line 7 or 8 (or deduction isn't available for claimed elsewhere on the return made by Form 1125-E), whichever applies. An buildings placed in service after the corporation for its employees under a employee is considered to own more than 2009. qualified pension, profit-sharing, annuity, 2% of the corporation's stock if that person Travel, meals, and entertainment. or simplified employee pension (SEP) or owns on any day during the tax year more Subject to limitations and restrictions SIMPLE IRA plan, or any other deferred than 2% of the outstanding stock of the discussed below, a corporation can compensation plan. corporation or stock possessing more than 2% of the combined voting power of all deduct ordinary and necessary travel and If the corporation contributes to an stock of the corporation. See section 318 meal expenses paid or incurred in its trade individual retirement arrangement (IRA) for attribution rules. or business. Generally, entertainment for employees, include the contribution in expenses, membership dues, and salaries and wages on page 1, line 8, or Line 19. Other Deductions facilities used in connection with these Form 1125-A, line 3, and not on line 17. Enter the total allowable trade or business activities can't be deducted. Also, special deductions that aren't deductible rules apply to deductions for gifts, luxury Employers who maintain a pension, elsewhere on page 1 of Form 1120S. water travel and convention expenses. profit-sharing, or other funded deferred Attach a statement listing by type and See section 274 and Pub. 463 for details. compensation plan, whether or not the amount each deduction included on this Travel. The corporation can't deduct plan is qualified under the Internal line. travel expenses of any individual Revenue Code and whether or not a accompanying a corporate officer or deduction is claimed for the current tax Examples of other deductions include employee, including a spouse or year, generally must file the applicable the following. form listed below. • Amortization. See Part VI of Form 4562.

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dependent of the officer or employee, specified nongovernmental entity for the exceed 50% of its other deductible farm unless: violation of any law except: expenses in the year of payment. The • That individual is an employee of the • Amounts that constitute restitution, excess is deductible only in the year the corporation, and • Amounts paid to come into compliance corporation uses or consumes the • His or her travel is for a bona fide with the law, supplies (other than poultry, which is business purpose and would otherwise be • Amounts paid or incurred as the result deductible as explained above). For deductible by that individual. of certain court orders in which no exceptions and more details on these government or specified nongovernmental rules, see Pub. 225. Meals. Generally, the corporation can agency is a party, and deduct only 50% of the amount otherwise • Amounts paid or incurred for taxes due Reforestation expenditures. If the allowable for meal expenses paid or to the extent the amount would have been corporation made an election to deduct a incurred in its trade or business. In allowed as a deduction if timely paid. portion of its reforestation expenditures on addition (subject to exceptions under line 12d of Schedule K, it must amortize section 274(k)(2)): No deduction is allowed for the over an 84-month period the portion of • Meals must not be lavish or restitution amount or amount paid to come these expenditures in excess of the extravagant, and into compliance with the law unless the amount deducted on Schedule K (see • An employee of the corporation must amounts are specifically identified in the section 194). Deduct on line 19 only the be present at the meal. settlement agreement or court order. Also, amortization of these excess reforestation any amount paid or incurred as See section 274(n)(3) for a special rule expenditures. See Reforestation expense reimbursement to the government for the deduction (code O), later. that applies to expenses for meals costs of any investigation or litigation are consumed by individuals subject to the not eligible for the exceptions and are Line 21. Ordinary Business hours of service limits of the Department nondeductible. See section 162(f). of Transportation. Income (Loss) Lobbying expenses. Generally, Enter this income or loss on line 1 of Membership dues. The corporation lobbying expenses aren't deductible. Schedule K. Line 21 income is not used in can generally deduct amounts paid or Report nondeductible expenses on figuring the excess net passive income or incurred for membership dues in civic or Schedule K, line 16c. These expenses built-in gains taxes. See the instructions public service organizations, professional include: for line 22a for figuring taxable income for organizations (such as bar and medical • Amounts paid or incurred in connection purposes of these taxes. associations), business leagues, trade with influencing federal, state, or local associations, chambers of commerce, legislation; or Tax and Payments boards of trade, and real estate boards. • Amounts paid or incurred in connection However, no deduction is allowed if a with any communication with certain Line 22a. Excess Net Passive principal purpose of the organization is to federal executive branch officials in an Income and LIFO Recapture entertain or provide entertainment facilities attempt to influence the official actions or Tax for members or their guests. In addition, positions of the officials. See Regulations corporations can't deduct membership section 1.162-29 for the definition of These taxes can apply if the corporation dues in any club organized for business, “influencing legislation.” was previously a C corporation or if the pleasure, recreation, or other social corporation engaged in a tax-free purpose. This includes country clubs, golf Dues and other similar amounts paid to reorganization with a C corporation. and athletic clubs, airline and hotel clubs, certain tax-exempt organizations may not Excess net passive income tax. If the and clubs operated to provide meals be deductible. If certain in-house lobbying corporation has accumulated earnings under conditions favorable to business expenditures don't exceed $2,000, they and profits (E&P) at the close of its tax discussion. are deductible. For information on contributions to charitable organizations year, has passive investment income for Entertainment facilities. The that conduct lobbying activities, see the tax year that is in excess of 25% of corporation can't deduct an expense paid section 170(f)(9). gross receipts, and has excess net or incurred for a facility (such as a yacht or passive income, the corporation must pay Certain corporations engaged in farm- hunting lodge) used for an activity usually a tax on the excess net passive income. ing. Section 464(d) limits the deduction considered entertainment, amusement, or To make this determination, complete for certain expenditures of S corporations recreation. lines 1 through 3 and line 9 of the Excess engaged in farming if they use the cash Net Passive Income Tax Worksheet for Amounts treated as compensation. method of accounting, and their prepaid Line 22a. If line 2 is greater than line 3 and The corporation may be able to deduct farm supplies are more than 50% of other the corporation has taxable income (see otherwise nondeductible entertainment, deductible farming expenses. the instructions for line 9 of the amusement, or recreation expenses if the Prepaid farm supplies include worksheet), it must pay the tax. Complete amounts are treated as compensation to expenses for feed, seed, fertilizer, and a separate statement using the format of the recipient and reported on Form W-2 similar farm supplies not used or lines 1 through 11 of the worksheet to for an employee or on Form 1099-MISC consumed during the year. They also figure the tax. Enter the tax on line 22a, for an independent contractor. include the cost of poultry that would be page 1, Form 1120S, and attach the However, if the recipient is an officer, allowable as a deduction in a later tax year computation statement to Form 1120S. director, or beneficial owner (directly or if the corporation were to (a) capitalize the Reduce each item of passive indirectly) of more than 10% of the cost of poultry bought for use in its farm investment income passed through to corporation's stock, the deductible business and deduct it ratably over the shareholders by its portion of any excess expense is limited. See section 274(e)(2) lesser of 12 months or the useful life of the net passive income tax reported on and Regulations sections 1.274-9 and poultry, and (b) deduct the cost of poultry line 22a. See section 1366(f)(3). 1.274-10. bought for resale in the year it sells or otherwise disposes of it. LIFO recapture tax. The corporation Fines and penalties. Generally, no may be liable for the additional tax due to deduction is allowed for fines and If the limit applies, the corporation can deduct prepaid farm supplies that don't LIFO recapture under Regulations section penalties paid to a government or 1.1363-2 if:

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• The corporation used the LIFO Investment credit recapture tax. The election to credit its estimated tax inventory pricing method for its last tax corporation is liable for any required payments to its beneficiaries, include the year as a C corporation, or investment credit recapture attributable to corporation's share of the payment in the • A C corporation transferred LIFO credits allowed for tax years for which the total for line 23e. Enter “T” and the amount inventory to the corporation in a corporation wasn't an S corporation. The on the dotted line to the left of the entry nonrecognition transaction in which those corporation is also liable for any required space. assets were transferred basis property. qualifying therapeutic discovery project Line 24. Estimated Tax Penalty The additional tax due to LIFO grant recapture. Figure the corporation's recapture is figured for the corporation's investment credit recapture tax and If Form 2220 is attached, check the box on last tax year as a C corporation or for the qualifying therapeutic discovery project line 24 and enter the amount of any tax year of the transfer, whichever applies. grant recapture tax by completing Form penalty on this line. See the Instructions for Form 1120 to 4255, Recapture of Investment Credit. Line 25. Amount Owed figure the tax. See the Instructions for Form 4255. If the corporation can't pay the full amount The tax is paid in four equal To the left of the line 22c total, enter the of tax owed, it can apply for an installment installments. The C corporation must pay amount of recapture tax and “Tax From agreement online. The corporation can the first installment by the due date (not Form 4255.” Attach Form 4255 to Form apply for an installment agreement online including extensions) of Form 1120 for the 1120S. if: corporation's last tax year as a C Interest due under the look-back meth- • It can't pay the full amount shown on corporation or for the tax year of the od—Completed long-term contracts. If line 25, transfer, whichever applies. The S the corporation owes this interest, attach • The total amount owed is $25,000 or corporation must pay each of the Form 8697, Interest Computation Under less, and remaining installments by the due date the Look-Back Method for Completed • The corporation can pay the liability in (not including extensions) of Form 1120S Long-Term Contracts. To the left of the full in 24 months. for the 3 succeeding tax years. Include total on line 22c, enter the amount owed this year's installment in the total amount and “From Form 8697.” To apply using the Online Payment to be entered on line 22a. To the left of the Agreement Application, go to IRS.gov/ total on line 22a, enter the installment Interest due under the look-back meth- OPA. amount and “LIFO tax.” od—Property depreciated under the income forecast method. If the Under an installment agreement, the Line 22b. Tax From Schedule D corporation owes this interest, attach corporation can pay what it owes in (Form 1120S) Form 8866, Interest Computation Under monthly installments. There are certain Enter the built-in gains tax from line 23 of the Look-Back Method for Property conditions that must be met to enter into Part III of Schedule D. See the instructions Depreciated Under the Income Forecast and maintain an installment agreement, for Part III of Schedule D to determine if Method. To the left of the total on line 22c, such as paying the liability within 24 the corporation is liable for the tax. enter the amount owed and “From Form months and making all required deposits 8866.” and timely filing tax returns during the Line 22c length of the agreement. Line 23e Include the following in the total for line 22c. If the corporation is the beneficiary of a If the installment agreement is trust, and the trust makes a section 643(g) accepted, the corporation will be charged a fee and it will be subject to penalties and

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 income on defined in section instructions for taxable income 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 ...... % 1120S, 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 1120S, 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 1120S. 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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interest on the amount of tax not paid by Advisor Disclosure Statement. For details, trade or business or a farming business the due date of the return. see the Instructions for Form 8918. from section 163(j). For more information, see section 163(j) and the Instructions for Line 27 Item 8 Form 8990. Complete item 8 if the corporation (a) was Direct deposit of refund. If the Question 10. Conditions for corporation wants its refund directly a C corporation before it elected to be an deposited into its checking or savings S corporation or the corporation acquired Filing Form 8990 account at any U.S. bank or other financial an asset with a basis determined by Generally, a taxpayer with a trade or institution instead of having a check sent reference to its basis (or the basis of any business must file Form 8990 to claim a to the corporation, complete Form 8050 other property) in the hands of a C deduction for business interest. In and attach it to the corporation's return. corporation, and (b) has net unrealized addition, Form 8990 must be filed by any built-in gain (defined below) in excess of taxpayer that owns an interest in a the net recognized built-in gain from prior partnership with current year, or prior year Schedule B. Other years. carryover, excess business interest Information The corporation is liable for section expense allocated from the partnership. Complete all items that apply to the 1374 tax if (a) and (b) above apply and it A pass-through entity allocating excess corporation. has a net recognized built-in gain (defined taxable income or excess business in section 1374(d)(2)) for its tax year. Item 2 interest income to its owners (i.e., a pass- through entity that is not a small business The corporation's net unrealized built-in See Principal Business Activity Codes at taxpayer) must file Form 8990, regardless gain is the amount, if any, by which the fair the end of these instructions and enter the of whether it has any interest expense. business activity and product or service. market value of the assets of the corporation at the beginning of its first S Exclusions from filing. A taxpayer is not Question 4. Constructive corporation year (or as of the date the required to file Form 8990 if the taxpayer Ownership of Other Entities assets were acquired, for any asset with a is a small business taxpayer and does not basis determined by reference to its basis have excess business interest expense For purposes of determining the (or the basis of any other property) in the from a partnership. A taxpayer is also not corporation's constructive ownership of hands of a C corporation) exceeds the required to file Form 8990 if the taxpayer other entities, the constructive ownership aggregate adjusted basis of such assets only has business interest expense from rules of section 267(c) (excluding section at that time. these excepted trades or businesses: 267(c)(3)) apply to ownership of interests An electing real property trade or in partnerships and trusts as well as • Enter the corporation's net unrealized business, corporate stock. Generally, if an entity (a built-in gain reduced by the net recognized An electing farming business, or corporation, partnership, or trust) is • built-in gain from prior years. See sections • Certain utility businesses. owned, directly or indirectly, by or for 1374(c)(2) and (d)(1). another entity (corporation, partnership, Small business taxpayer. A small estate, or trust), the owned entity is If the corporation has more than one business taxpayer is not subject to the considered to be owned proportionately pool of assets (as defined in Regulations business interest expense limitation and is by or for the owners (shareholders, section 1.1374-3(b)(4)), attach a not required to file Form 8990. A small partners, or beneficiaries) of the owning statement showing for each pool of assets business taxpayer is a taxpayer that (a) is entity. the amount of the corporation's net not a tax shelter (as defined in section unrealized built-in gain reduced by the net 448(d)(3)) and (b) meets the gross Maximum percentage owned in part- recognized built-in gain from prior years. receipts test of section 448(c), discussed nership profit, loss, or capital. For the next. purposes of question 4b, the term Question 9. Business Interest “maximum percentage owned” means the Expense Election Gross receipts test. A taxpayer meets highest percentage of interest in a the gross receipts test if the taxpayer has For tax years beginning after 2017, the partnership's profit, loss, or capital as of average annual gross receipts of $25 limitation on business interest expense the end of the partnership's tax year, as million or less for the 3 prior tax years. A applies to every taxpayer with a trade or determined under the partnership taxpayer's average annual gross receipts business, unless the taxpayer meets agreement, when taking into account the for the 3 prior tax years is determined by certain specified exceptions. A taxpayer constructive ownership rules discussed adding the gross receipts for the 3 prior may elect out of the limitation for certain earlier. If the partnership agreement tax years and dividing the total by 3. Gross businesses otherwise subject to the doesn't express the partner's share of receipts include the aggregate gross business interest expense limitation. profit, loss, and capital as fixed receipts from all persons treated as a percentages, use a reasonable method in Certain real property trades or single employer, such as a controlled arriving at the percentage items for the businesses and farming businesses group of corporations, commonly purposes of completing question 4b. Such qualify to make an election not to limit controlled partnerships, or proprietorships, method must be consistent with the business interest expense. This is an and affiliated service groups. See section partnership agreement. The method used irrevocable election. If you make this 448(c) and the Instructions for Form 8990 to figure a percentage share of profit, loss, election, you are required to use the for additional information. and capital must be applied consistently alternative depreciation system to Question 11 from year to year. Maintain records to depreciate certain property. Also, you are support the determination of the share of not entitled to the special depreciation Total receipts is the sum of the following profits, losses, and share of capital. allowance for that property. For a taxpayer amounts. • Gross receipts or sales (page 1, Question 6 with more than one qualifying business, the election is made with respect to each line 1a). Answer “Yes” if the corporation filed, or is business. • All other income (page 1, lines 4 and 5). required to file, Form 8918, Material • Income reported on Schedule K, lines Check “Yes” if the taxpayer has an 3a, 4, 5a, and 6. election in effect to exclude a real property

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• Income or net gain reported on Instructions for Schedule K-1 (Form election is made, enter “Section 1377(a) Schedule K, lines 7, 8a, 9, and 10. 1120S) or instructions that apply to the (2) Election Made” at the top of each • Income or net gain reported on Form specific items reported on the affected shareholder's Schedule K-1. 8825, lines 2, 19, and 20a. shareholder's Schedule K-1. For more details, see Regulations Question 13 The corporation must ask for IRS section 1.1377-1(b). Answer “Yes” if, during the tax year, the approval to use other substitute Qualifying dispositions. If a qualifying corporation revoked a qualified Schedules K-1. disposition takes place during the tax subchapter S (QSub) election or a QSub Each shareholder's information must year, the corporation may make an election of the corporation was terminated. be on a separate sheet of paper. irrevocable election to allocate income If “Yes,” see Regulations section 1.1361-5 Therefore, separate all continuously and expenses, etc., as if the corporation's for additional information. printed substitutes before you file them tax year consisted of 2 tax years, the first with the IRS. of which ends on the close of the day the Questions 14a and 14b qualifying disposition occurs. The corporation may be subject to a If the corporation made any payment in A qualifying disposition is: 2018 that would require it to file any penalty if it files a substitute Schedule K-1 1. A disposition by a shareholder of at Form(s) 1099, check the “Yes” box for that doesn't conform to the specifications least 20% of the corporation's outstanding question 14a and answer question 14b. discussed in Pub. 1167, General Rules stock in one or more transactions in any Otherwise, check the “No” box for and Specifications for Substitute Forms 30-day period during the tax year, question 14a and skip question 14b. See and Schedules. Am I Required to File a Form 1099 or For more information, see Pub. 1167. 2. A redemption treated as an Other Information Return on IRS.gov. exchange under section 302(a) or 303(a) Shareholder's Pro Rata Share of at least 20% of the corporation's Items outstanding stock in one or more Schedules K and K-1 transactions in any 30-day period during (General Instructions) General Rule the tax year, or Items of income, gain, loss, deduction, or 3. An issuance of stock that equals at Purpose of Schedules credit are allocated to a shareholder on a least 25% of the previously outstanding The corporation is liable for taxes on lines daily basis, according to the number of stock to one or more new shareholders in 22a, 22b, and 22c on page 1 of Form shares of stock held by the shareholder on any 30-day period during the tax year. 1120S. Shareholders are liable for tax on each day of the corporation's tax year. To make the election, the corporation their shares of the corporation's income See the detailed instructions for item F in must attach a statement to a timely filed (reduced by any taxes paid by the Part II. Information About the Shareholder, original or amended Form 1120S for the corporation on income). Shareholders later. tax year for which the election is made. In must include their share of the income on the statement, the corporation must state their tax return whether or not it is Shareholders who dispose of stock are that it is electing under Regulations distributed to them. Unlike most treated as shareholders for the day of their section 1.1368-1(g)(2)(i) to treat the tax partnership income, S corporation income disposition. Shareholders who die are year as if it consisted of 2 separate tax isn't self-employment income and isn't treated as shareholders for the day of their years, give the facts relating to the subject to self-employment tax. death. qualifying disposition (for example, sale, Schedule K. Schedule K is a summary gift, stock issuance, or redemption), and schedule of all shareholders' shares of the Special Rules state that each shareholder who held corporation's income, deductions, credits, Termination of shareholder's interest. stock in the corporation during the tax year etc. All corporations must complete If a shareholder terminates his or her consents to the election. A single election Schedule K. interest in a corporation during the tax statement may be filed for all qualifying disposition elections for the tax year. Schedule K-1. Schedule K-1 shows each year, the corporation, with the consent of shareholder's separate share. Attach a all affected shareholders (including those For more details, see Regulations copy of each Schedule K-1 to the Form whose interest is terminated), may elect to section 1.1368-1(g)(2). 1120S filed with the IRS. Keep a copy for allocate income and expenses, etc., as if the corporation's records and give each the corporation's tax year consisted of 2 shareholder a copy. separate tax years, the first of which ends Specific Instructions on the date of the shareholder's Give each shareholder a copy of the (Schedule K-1 Only) termination. Shareholder's Instructions for General Information Schedule K-1 (Form 1120S) or specific To make the election, the corporation instructions for each item reported on the must attach a statement to a timely filed Generally, the corporation is required to shareholder's Schedule K-1. original or amended Form 1120S for the prepare and give a Schedule K-1 to each tax year for which the election is made. In person who was a shareholder in the Substitute Forms the statement, the corporation must state corporation at any time during the tax The corporation doesn't need IRS that it is electing under section 1377(a)(2) year. Schedule K-1 must be provided to approval to use a substitute Schedule K-1 and Regulations section 1.1377-1(b) to each shareholder on or before the day on if it is an exact copy of the IRS schedule. treat the tax year as if it consisted of 2 which the corporation's Form 1120S is The boxes must use the same numbers separate tax years. The statement must required to be filed. and titles and must be in the same order also explain how the shareholder's entire and format as on the comparable IRS interest was terminated (for example, sale How To Complete Schedule K-1 Schedule K-1. The substitute schedule or gift), and state that the corporation and must include the OMB number. The each affected shareholder consent to the If the return is for a fiscal year or a short corporation must provide each corporation making the election. A single tax year, fill in the tax year space at the top shareholder with the Shareholder's statement may be filed for all terminating of each Schedule K-1. On each elections made for the tax year. If the Schedule K-1, enter the information about

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the corporation and the shareholder in Special Reporting Requirements If a single-member limited liability Parts I and II (items A through F). In Part for At-Risk Activities company (LLC) owns stock in the III, enter the shareholder's pro rata share corporation, and the LLC is treated as a of each item of income, deduction, and If the corporation is involved in one or disregarded entity for federal income tax credit and any other information the more at-risk activities for which a loss is purposes, enter the owner's identifying shareholder needs to prepare his or her reported on Schedule K-1, the corporation number in item D and the owner's name tax return. Use 10-point Helvetica Light must report information separately for and address in item E. The owner must be Standard font (if possible) for all entries if each activity. See section 465(c) for a eligible to be an S corporation you are typing or using a computer to definition of activities. shareholder. An LLC that elects to be complete Schedule K-1. treated as a corporation for federal income The following information must be tax purposes isn't eligible to be an S Codes. In box 10 and boxes 12 through provided on an attachment to corporation shareholder. 17, identify each item by entering a code Schedule K-1 for each activity. in the left column of the entry space. A statement that the information is a These codes are identified in these • Item F breakdown of at-risk activity loss amounts. instructions and on the back of The identity of the at-risk activity, the Each shareholder's pro rata share items Schedule K-1. • loss amount for the activity, other income are figured separately for each period on a Attached statements. Enter an asterisk and deductions, and any other information daily basis, based on the percentage of (*) after the code, if any, in the left column that relates to the activity. stock held by the shareholder on each of the entry space for each item for which day. you have attached a statement providing Part I. Information About the additional information. For items that can't Corporation If there was no change in shareholders or in the relative interest in stock the be reported as a single dollar amount, On each Schedule K-1, enter the shareholders owned during the tax year, enter the code and asterisk in the left corporation's name, address, and enter the percentage of total stock owned column and enter “STMT” in the right identifying number. column to indicate that the information is by each shareholder during the tax year. provided on an attached statement. More For example, if shareholders X and Y each than one attached statement can be Item C owned 50% for the entire tax year, enter placed on the same sheet of paper and If the corporation is filing its return 50% in item F for each shareholder. Each should be identified in alphanumeric order electronically, enter “e-file.” Otherwise, shareholder's pro rata share items (boxes by box number followed by the letter code enter the name of the IRS service center 1 through 17 of Schedule K-1) are figured (if any). For example: “Box 17, code where the corporation will file its return. by multiplying the corresponding X—Section 199A unadjusted basis” See Where To File, earlier. Schedule K amount by the percentage in (followed by the information the item F. shareholder needs). Part II. Information About the Shareholder If there was a change in shareholders Too few entry spaces on Sched- or in the relative interest in stock the On each Schedule K-1, enter the ule K-1? If the corporation has more shareholders owned during the tax year, shareholder's name, address, identifying coded items than the number of entry figure the percentage as follows. number, and percentage of stock spaces in box 10, or boxes 12 through 17, • Each shareholder's percentage of ownership. don't enter a code or dollar amount in the ownership is weighted for the number of last entry space of the box. In the last Truncating recipient's identification days in the tax year that stock was owned. entry space, enter an asterisk in the left number on Schedule K-1. The For example, A and B each held 50% for column and enter “STMT” in the entry corporation can truncate a shareholder's half the tax year and A, B, and C held space to the right. Report the additional identifying number on the Schedule K-1 40%, 40%, and 20%, respectively, for the items on an attached statement and the corporation sends to the shareholder. remaining half of the tax year. The provide the box number, the code, Truncation isn't allowed on the percentage of ownership for the year for description, and dollar amount or Schedule K-1 the corporation files with the A, B, and C is figured as presented in the information for each additional item. For IRS. Also, the corporation can't truncate its illustration and is then entered in item F. example: “Box 13, code J—Work own identification number on any form. opportunity credit—$1,000.” To truncate, where allowed, replace the a b c (a × b) first five digits of the nine-digit number with Special Reporting Requirements % of total % of tax % of asterisks (*) or Xs (for example, an SSN stock year held ownership for Corporations With Multiple xxx-xx-xxxx would appear as ***-**-xxxx or owned for the year Activities XXX-XX-xxxx). For more information, see Regulations section 301.6109-4. A 50 50 25 If items of income, loss, deduction, or 40 50 +20 45 credit from more than one activity Items D and E B 50 50 25 (determined for purposes of the passive activity loss and credit limitations) are For an individual shareholder, enter the 40 50 +20 45 reported on Schedule K-1, the corporation shareholder's social security number C 20 50 10 10 must provide information separately for (SSN) or individual taxpayer identification Total ...... 100% each activity to its shareholders. See number (ITIN) in item D. For all other Passive Activity Reporting Requirements, shareholders, enter the shareholder's EIN. earlier, for details on the reporting • Each shareholder's pro rata share items requirements. If stock of the corporation is held by a generally are figured by multiplying the nominee, guardian, custodian, or an Schedule K amount by the percentage in agent, enter the name, address, and item F. However, if a shareholder identifying number of the person for whom terminated his or her entire interest in the the stock is held. corporation during the year or a qualifying

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disposition took place, the corporation amount from each activity. Also, for Schedule K-1. Enter each shareholder's may elect to allocate income and example, identify certain items from any pro rata share of interest income in box 4 expenses, etc., as if the tax year consisted rental real estate activities that may be of Schedule K-1. of 2 tax years, the first of which ends on subject to the recharacterization rules. the day of the termination or qualifying See Passive Activity Reporting disposition. See Special Rules, earlier, for Requirements, earlier. Line 5a. Ordinary Dividends more details. Enter only taxable ordinary dividends on Line 3. Other Net Rental Income line 5a, including any qualified dividends reported on line 5b. Specific Instructions (Loss) Schedule K-1. Enter each shareholder's Enter on line 3a gross income from rental (Schedules K and K-1, Part pro rata share of ordinary dividends in activities other than those reported on box 5a of Schedule K-1. III) Form 8825. Include on line 3a gain (loss) Income (Loss) from line 17 of Form 4797 that is attributable to the sale, exchange, or Line 5b. Qualified Dividends Reminder. Before entering income items involuntary conversion of an asset used in Enter qualified dividends on line 5b. on Schedule K or K-1, reduce each item of a rental activity other than a rental real Except as provided below, qualified passive investment income (within the estate activity. dividends are dividends received from meaning of section 1362(d)(3)(C)) by its domestic corporations and qualified proportionate share of the net passive Enter on line 3b the deductible foreign corporations. income tax (Form 1120S, page 1, expenses of the activity. Attach a line 22a). statement of these expenses to Form Exceptions. The following dividends 1120S. aren't qualified dividends. Line 1. Ordinary Business Income • Dividends the corporation received on any share of stock held for less than 61 (Loss) Enter on line 3c the net income (loss). days during the 121-day period that began Enter the amount from Form 1120S, 60 days before the ex-dividend date. page 1, line 21. Enter the income (loss) See Rental Activities, earlier, and Pub. When determining the number of days the without reference to the shareholder's: 925, Passive Activity and At-Risk Rules, corporation held the stock, don't count • Basis in the stock of the corporation for more information on rental activities. certain days during which the and in any indebtedness of the Schedule K-1. Enter in box 3 of corporation's risk of loss was diminished. corporation to the shareholders (section Schedule K-1 each shareholder's pro rata The ex-dividend date is the first date 1366(d)), share of other net rental income (loss) following the declaration of a dividend on • At-risk limitations, and reported on line 3c of Schedule K. Identify which the purchaser of a stock isn't • Passive activity limitations. on statements attached to Schedule K-1 entitled to receive the next dividend any additional information the shareholder payment. When counting the number of These limitations, if applicable, are needs to correctly apply the passive days the corporation held the stock, determined at the shareholder level. activity limitations. For example, if the include the day the corporation disposed corporation has more than one rental of the stock but not the day the Line 1 shouldn't include rental activity activity reported in box 3, identify the corporation acquired it. income (loss) or portfolio income (loss). amount from each activity. See Passive • Dividends attributable to periods Activity Reporting Requirements, earlier. totaling more than 366 days that the Schedule K-1. Enter each shareholder's corporation received on any share of pro rata share of ordinary business preferred stock held for less than 91 days income (loss) in box 1 of Schedule K-1. Portfolio Income during the 181-day period that began 90 Identify on statements attached to See Portfolio Income, earlier, for a days before the ex-dividend date. When Schedule K-1 any additional information definition of portfolio income. determining the number of days the the shareholder needs to correctly apply corporation held the stock, don't count the passive activity limitations. For Don't reduce portfolio income by certain days during which the example, if the corporation has more than deductions allocated to it. Report such corporation's risk of loss was diminished. one trade or business activity, identify the deductions (other than interest expense) Preferred dividends attributable to periods amount from each activity. See Passive on line 12d of Schedule K. Report each totaling less than 367 days are subject to Activity Reporting Requirements, earlier. shareholder's pro rata share of deductions the 61-day holding period rule above. in box 12 of Schedule K-1 using codes I or • Dividends that relate to payments that Line 2. Net Rental Real Estate L. the corporation is obligated to make with Income (Loss) respect to short sales or positions in Interest expense allocable to portfolio substantially similar or related property. Enter the net income (loss) from rental real income is generally investment interest • Dividends paid by a regulated estate activities of the corporation from expense reported on line 12b of investment company that aren't treated as Form 8825. Attach the form to Form Schedule K. Report each shareholder's qualified dividend income under section 1120S. pro rata share of interest expense 854. Schedule K-1. Enter each shareholder's allocable to portfolio income in box 12 of • Dividends paid by a real estate pro rata share of net rental real estate Schedule K-1 using code H. investment trust that aren't treated as income (loss) in box 2 of Schedule K-1. qualified dividend income under section 857(c). Identify on statements attached to Line 4. Interest Income Schedule K-1 any additional information See Pub. 550, Investment Income and the shareholder needs to correctly apply Enter only taxable portfolio interest on this Expenses, for more details. the passive activity limitations. For line. Taxable interest is interest from all example, if the corporation has more than sources except interest exempt from tax one rental real estate activity, identify the and interest on tax-free covenant bonds.

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Qualified foreign corporation. A foreign If any gain or loss from line 7 or 15 unrecaptured section 1250 gain must be corporation is a qualified foreign of Schedule D is from the allocated to the installment payments corporation if it is: disposition of nondepreciable received from the sale. To do so, the personal property used in a trade or corporation generally must treat the gain 1. Incorporated in a possession of the business, it may not be treated as portfolio allocable to each installment payment as United States, or income. Instead, report it on line 10 of unrecaptured section 1250 gain until all 2. Eligible for benefits of a Schedule K and report each shareholder's such gain has been used in full. Figure the comprehensive income tax treaty with the pro rata share in box 10 of Schedule K-1 unrecaptured section 1250 gain for United States that the Secretary using code H. installment payments received during the determines is satisfactory for this purpose tax year as the smaller of (a) the amount and that includes an exchange of from line 26 or line 37 of Form 6252 information program. See Notice 2011-64, Line 8b. Collectibles (28%) Gain (whichever applies), or (b) the total 2011-37 I.R.B. 231, for details. (Loss) unrecaptured section 1250 gain for the sale reduced by all gain reported in prior If the foreign corporation doesn't meet Figure the amount attributable to years (excluding section 1250 ordinary either (1) or (2), then it may be treated as a collectibles from the amount reported on income recapture). qualified foreign corporation for any Schedule D (Form 1120S), line 15. A dividend paid by the corporation if the collectibles gain (loss) is any long-term If the corporation chose not to stock associated with the dividend paid is gain or deductible long-term loss from the treat all of the gain from payments readily tradable on an established sale or exchange of a collectible that is a received after May 6, 1997, and securities market in the United States. capital asset. before August 24, 1999, as unrecaptured However, qualified dividends don't section 1250 gain, use only the amount include dividends paid by an entity which Collectibles include works of art, rugs, the corporation chose to treat as was a passive foreign investment antiques, metal (such as gold, silver, or unrecaptured section 1250 gain for those company (defined in section 1297) in platinum bullion), gems, stamps, coins, payments to reduce the total unrecaptured either the tax year of the distribution or the alcoholic beverages, and certain other section 1250 gain remaining to be preceding tax year. tangible property. reported for the sale. See Regulations section 1.453-12. See Notice 2004-71, 2004-45 I.R.B. Also, include gain (but not loss) from 793, and Notice 2006-3, 2006-3 I.R.B. From the sale or exchange of an inter- 306, for more details. the sale or exchange of an interest in a partnership or trust held for more than 1 est in a partnership. Also report as a Schedule K-1. Enter each shareholder's year and attributable to unrealized separate amount any gain from the sale or pro rata share of qualified dividends in appreciation of collectibles. For details, exchange of an interest in a partnership box 5b of Schedule K-1. see Regulations section 1.1(h)-1. Also attributable to unrecaptured section 1250 gain. See Regulations section 1.1(h)-1 If any amounts from line 5b are attach the statement required under Regulations section 1.1(h)-1(e). and attach the statement required under ! from foreign sources, see the Regulations section 1.1(h)-1(e). CAUTION instructions for lines 14d through Schedule K-1. Report each 14h, later, for additional statements shareholder's pro rata share of the From an estate, trust, REIT, or RIC. If required. collectibles (28%) gain (loss) in box 8b of the corporation received a Schedule K-1 Schedule K-1. or Form 1099-DIV from an estate, a trust, a real estate investment trust (REIT), or a Line 6. Royalties regulated investment company (RIC) Line 8c. Unrecaptured Section Enter the royalties received by the reporting “unrecaptured section 1250 corporation. 1250 Gain gain,” don't add it to the corporation's own The three types of unrecaptured section unrecaptured section 1250 gain. Instead, Schedule K-1. Enter each shareholder's report it as a separate amount. For pro rata share of royalties in box 6 of 1250 gain must be reported separately on an attached statement to Form 1120S. example, if the corporation received a Schedule K-1. Form 1099-DIV from a REIT with From the sale or exchange of the cor- unrecaptured section 1250 gain, report it Line 7. Net Short-Term Capital poration's business assets. Figure this as “Unrecaptured section 1250 gain from amount in Part III of Form 4797 for each Gain (Loss) a REIT.” section 1250 property (except property for Enter the gain (loss) that is portfolio which gain is reported using the Schedule K-1. Report each income (loss) from Schedule D (Form installment method on Form 6252, shareholder's pro rata share of 1120S), line 7. Installment Sale Income) for which you unrecaptured section 1250 gain from the sale or exchange of the corporation's Schedule K-1. Enter each shareholder's had an entry in Part I of Form 4797. Subtract line 26g of Form 4797 from the business assets in box 8c of pro rata share of net short-term capital Schedule K-1. If the corporation is gain (loss) in box 7 of Schedule K-1. smaller of line 22 or line 24. Figure the total of these amounts for all section 1250 reporting unrecaptured section 1250 gain properties. Generally, the result is the from an estate, trust, REIT, or RIC, or from Line 8a. Net Long-Term Capital corporation's unrecaptured section 1250 the corporation's sale or exchange of an Gain (Loss) 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 Enter the gain or loss that is portfolio asterisk (*) in the left column of the box income (loss) from Schedule D (Form for a section 1250 property held more than 1 year, see the next paragraph. and attach a statement that separately 1120S), line 15. identifies the amount of unrecaptured The total unrecaptured section 1250 section 1250 gain from: Schedule K-1. Enter each shareholder's gain for an installment sale of section 1250 pro rata share of net long-term capital gain • The sale or exchange of the property held more than 1 year is figured corporation's business assets; (loss) in box 8a of Schedule K-1. in a manner similar to that used in the preceding paragraph. However, the total

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• The sale or exchange of an interest in a follow the Schedule Q instructions to description of the property; (b) the partnership; and figure the amounts to report to shareholder's share of the amount • An estate, trust, REIT, or RIC. shareholders for the corporation's tax realized on the sale, exchange, or year. involuntary conversion of each property If any amounts from line 8c are (fair market value of the property for any from foreign sources, see the Involuntary conversions (code B). ! other disposition, such as a distribution); CAUTION instructions for lines 14d through Report net loss from involuntary (c) the shareholder's share of the 14h for additional statements required. conversions due to casualty or theft. The corporation's adjusted basis in the amount for this item is shown on Form property (except for oil or gas properties); 4684, Casualties and Thefts, line 38a or and (d) total intangible drilling costs, Line 9. Net Section 1231 Gain 38b. development costs, and mining (Loss) Each shareholder's pro rata share must exploration costs (section 59(e) Enter the net section 1231 gain (loss) from be entered on Schedule K-1. expenditures) passed through to the Form 4797, line 7. Enter the net gain from involuntary shareholder for the property. See conversions of property used in a trade or Regulations section 1.1254-4 for more Don't include net gain or loss from business (line 39 of Form 4684) on line 3 information. involuntary conversions due to casualty or of Form 4797. • COD income deferred under section theft. Report net loss from involuntary If there was a gain (loss) from a 108(i). Report COD income deferred conversions due to casualty or theft on casualty or theft to property not used in a under section 108(i) that must be included line 10 of Schedule K (box 10, code B, of trade or business or for income-producing in income in the current tax year under Schedule K-1). See the instructions for purposes, notify the shareholder. The section 108(i)(1) or section 108(i)(5)(D)(i) line 10 on how to report net gain from corporation shouldn't complete Form 4684 or (ii). For information on events that will involuntary conversions. for this type of casualty or theft. Instead, cause previously deferred income to be Schedule K-1. Report each each shareholder will complete his or her reportable and allocating deferred income shareholder's pro rata share of net section own Form 4684. to the shareholders, see section 108(i); 1231 gain (loss) in box 9 of Schedule K-1. Regulations section 1.108(i)-1; Rev. Proc. Section 1256 contracts and straddles If the corporation has more than one 2009-37, 2009-36 I.R.B. 309; and (code C). Report any net gain or loss rental, trade, or business activity, identify Regulations section 1.108(i)-2. from section 1256 contracts from Form on an attachment to Schedule K-1 the • Gain from the sale or exchange of 6781, Gains and Losses From Section amount of section 1231 gain (loss) from qualified small business (QSB) stock (as 1256 Contracts and Straddles. each separate activity. See Passive defined in the Instructions for Schedule D) Activity Reporting Requirements, earlier. Mining exploration costs recapture that is eligible for the section 1202 (code D). Provide the information exclusion. The section 1202 exclusion If any amounts from line 9 are shareholders need to recapture certain applies only to QSB stock held by the from foreign sources, see the mining exploration expenditures. See corporation for more than 5 years. instructions for lines 14d through Regulations section 1.617-3. Additional limitations apply at the 14h for additional required statements. shareholder level. Report each Section 951A income (code E). Provide shareholder's share of section 1202 gain information shareholders need to figure on Schedule K-1. Each shareholder will Line 10. Other Income (Loss) the section 951A income. See the determine if he or she qualifies for the Enter any other item of income or loss not Instructions for Form 8992 for details. exclusion. Report on an attachment to included on lines 1 through 9. On the line Section 965(a) inclusion (code F). Schedule K-1 for each sale or exchange to the left of the entry space for line 10, Enter the section 965(a) inclusion amount (a) the name of the corporation that issued identify the type of income. If there is more from Form 965, line 3 on Schedule K, the QSB stock, (b) the shareholder's pro than one type of income, attach a line 10. You must also complete and rata share of the corporation's adjusted statement to Form 1120S that separately attach Form 965, Inclusion of Deferred basis and sales price of the QSB stock, identifies each type and amount of income Foreign Income Upon Transition to and (c) the dates the QSB stock was for each of the following categories. The Participation Exemption System and bought and sold. codes needed for Schedule K-1 reporting applicable schedules. • Gain eligible for section 1045 rollover are provided for each category. (replacement stock purchased by the Subpart F income other than sections corporation). Include only gain from the Other portfolio income (loss) (code A). 951A and 965 inclusion (code G). sale or exchange of QSB stock (as Portfolio income not reported on lines 4 Provide information shareholders need to defined in the Instructions for Schedule D) through 8. Report and identify other figure the subpart F income other than that was deferred by the corporation under portfolio income or loss on an attachment sections 951A and 965 inclusion. section 1045 and reported on Schedule D. for line 10. Other income (loss) (code H). Include See the Instructions for Schedule D for If the corporation holds a residual any other type of income, such as the more details. Additional limitations apply interest in a Real Estate Mortgage following. at the shareholder level. Report each Investment Conduit (REMIC), report on an Recoveries of tax benefit items (section shareholder's share of the gain eligible for attachment the shareholder's share of the • 111). section 1045 rollover on Schedule K-1. following. Gambling gains and losses subject to Each shareholder will determine if he or Taxable income (net loss) from the • • the limitations in section 165(d). Indicate she qualifies for the rollover. Report on an REMIC (line 1b of Schedules Q (Form on an attached statement whether or not attachment to Schedule K-1 for each sale 1066)). the corporation is in the trade or business or exchange (a) the name of the Excess inclusion (line 2c of Schedules • of gambling. corporation that issued the QSB stock, (b) Q (Form 1066)). Disposition of an interest in oil, gas, the shareholder's pro rata share of the Section 212 expenses (line 3b of • • geothermal, or other mineral properties. corporation's adjusted basis and sales Schedules Q (Form 1066)). Report the following information on a price of the QSB stock, and (c) the dates Because Schedule Q (Form 1066) is a statement attached to Schedule K-1: (a) a the QSB stock was bought and sold. quarterly statement, the corporation must

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• Gain eligible for section 1045 rollover Complete Part I of Form 4562 to figure acknowledgment to the tax return, but (replacement stock not purchased by the the corporation's section 179 expense keep it with the corporation's records. corporation). Include only gain from the deduction. The corporation doesn't take These rules apply in addition to the filing sale or exchange of QSB stock (as the deduction itself, but instead passes it requirements for Form 8283, Noncash defined in the Instructions for Schedule D) through to the shareholders. Attach Form Charitable Contributions, described under the corporation held for more than 6 4562 to Form 1120S and show the total Contributions of property, later. months but that wasn't deferred by the section 179 expense deduction on corporation under section 1045. See the Schedule K, line 11. Enter charitable contributions made Instructions for Schedule D for more during the tax year. Attach a statement to details. A shareholder may be eligible to Although the corporation can't take the Form 1120S that separately identifies the defer his or her pro rata share of this gain section 179 deduction, it generally must corporation's contributions for each of the under section 1045 if he or she purchases still reduce the basis of the asset by the following categories. See Limits on other QSB stock during the 60-day period amount of the section 179 deduction it Deductions in Pub. 526, Charitable that began on the date the QSB stock was elected, regardless of whether any Contributions, for information on adjusted sold by the corporation. Additional shareholder can use the deduction. gross income (AGI) limitations on limitations apply at the shareholder level. However, the corporation doesn't reduce deductions for charitable contributions. Report on an attachment to Schedule K-1 the basis for any section 179 deduction for each sale or exchange (a) the name of allocable to a trust or estate because they The codes needed for Schedule K-1 the corporation that issued the QSB stock, aren't eligible to take the section 179 reporting are provided for each category. (b) the shareholder's pro rata share of the deduction. See Regulations section Cash contributions (60%) (code A). corporation's adjusted basis and sales 1.179-1(f). Enter cash contributions subject to the price of the QSB stock, and (c) the dates 60% AGI limitation. Do not include in the the QSB stock was bought and sold. Identify on an attachment to Schedules amount reported using code A the cash • Any gain or loss from line 7 or 15 of K and K-1, the cost of any section 179 contributions reported using code G. Schedule D that isn't portfolio income (for property placed in service during the year example, gain or loss from the disposition that is qualified enterprise zone property. Cash contributions (30%) (code B). of nondepreciable personal property used See the Instructions for Form 4562 for Enter cash contributions subject to the in a trade or business). more details. 30% AGI limitation. Schedule K-1. Enter each shareholder's Noncash contributions (50%) (code pro rata share of the other income See the instructions for line 17d of C). Enter noncash contributions subject to categories listed above in box 10 of Schedule K for sales or other dispositions the 50% AGI limitation. Don't include food Schedule K-1. Enter the applicable code of property for which a section 179 inventory contributions reported A, B, C, D, E, F, G, or H (as shown deduction has passed through to separately on an attached statement. If earlier). shareholders and for the recapture rules if property other than cash is contributed the business use of the property dropped and the claimed deduction for one item or If you are reporting each shareholder's to 50% or less. group of similar items of property exceeds pro rata share of only one type of income $5,000, the corporation must give each under code H, enter the code with an Schedule K-1. Report each shareholder a copy of Form 8283 to attach asterisk (H*) and the dollar amount in the shareholder's pro rata share of the section to the shareholder's return. entry space in box 10 and attach a 179 expense deduction in box 11 of statement that shows “Box 10, code H,” Schedule K-1. Food inventory contributions. Provide and the type of income. If you are If the corporation has more than one the following information on a statement reporting multiple types of income under rental, trade, or business activity, identify attached to Schedule K-1. code H, enter the code with an asterisk on an attachment to Schedule K-1 the • The shareholder's pro rata share of the (H*) and enter “STMT” in the entry space amount of section 179 deduction from amount of the charitable contributions in box 10 and attach a statement that each separate activity. See Passive under section 170(e)(3) for qualified food shows “Box 10, code H,” and the dollar Activity Reporting Requirements, earlier. inventory that was donated to charitable amount of each type of income. organizations for the care of the ill, needy, Don't complete box 11 of Schedule K-1 and infants. The food must meet all the If the corporation has more than one for any shareholder that is an estate or trade or business or rental activity (for quality and labeling standards imposed by trust; estates and trusts aren't eligible for federal, state, and local laws and codes B through H), identify on an the section 179 expense deduction. attachment to Schedule K-1 the amount regulations. The charitable contribution for from each separate activity. See Passive donated food inventory is the lesser of (a) Activity Reporting Requirements, earlier. Line 12a. Charitable Contributions the basis of the donated food plus half of Cash contributions must be supported by the appreciation (gain if the donated food Deductions a dated bank record or receipt. were sold at fair market value on the date of the gift), or (b) twice the basis of the Line 11. Section 179 Deduction Generally, no deduction is allowed for donated food. A corporation that doesn’t any contribution of $250 or more unless account for inventories and isn’t required A corporation can elect to expense part or to capitalize indirect costs under section all of the cost of certain property the the corporation obtains a written acknowledgment from the charitable 263A may elect to treat the basis of the corporation purchased during the tax year donated food as equal to 25% of the fair for use in its trade or business or certain organization that shows the amount of cash contributed, describes any property market value of the food. See section rental activities. See Pub. 946 for a 170(e)(3)(C) for more details. definition of what kind of property qualifies contributed, and gives an estimate of the value of any goods or services provided in • The shareholder's pro rata share of the for the section 179 expense deduction and net income for the tax year from the the Instructions for Form 4562 for return for the contribution. The acknowledgment must be obtained by the corporation's trades or businesses that limitations on the amount of the section made the contributions of food inventory. 179 expense deduction. due date (including extensions) of the corporation's return, or if earlier, the date the return is filed. Don't attach the

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Qualified conservation contributions. Nondeductible contributions. Certain produces income (unless derived in the The AGI limit for qualified conservation contributions made to an organization ordinary course of a trade or business) contributions under section 170(h) is conducting lobbying activities aren't from interest, dividends, annuities, or generally 50%. However, if the corporation deductible. See section 170(f)(9) for more royalties; and gains from the disposition of is a qualified farmer or rancher (farm details. Also, see Contributions You Can’t property that produces those types of income is more than 50% of gross Deduct in Pub. 526 for more examples of income or is held for investment. income), the AGI limit for qualified nondeductible contributions. conservation contributions of property Investment interest expense doesn't An accrual basis S corporation used in agriculture or livestock production include interest expense allocable to a can't elect to treat a contribution (or available for such production) is 100%. ! passive activity. CAUTION as having been paid in the tax The carryover period is 15 tax years. See year the board of directors authorizes the section 170(b) and Notice 2007-50, Investment income and investment payment if the contribution isn't actually 2007-25 I.R.B. 1430, for details. Report expenses other than interest are reported paid until the next tax year. qualified conservation contributions with a on lines 17a and 17b, respectively. This information is needed by shareholders to 50% AGI limitation on Schedule K-1 in Contributions (100%) (code G). Enter determine the investment interest expense box 12 using code C. Report qualified cash contributions made before January limitation (see Form 4952 for details). conservation contributions with a 100% 1, 2019, for relief efforts in certain disaster AGI limitation on a statement attached to areas. The corporation must obtain a Schedule K-1. Report each Schedule K-1 using code G. statement which includes shareholder's pro rata share of investment Noncash contributions (30%) (code contemporaneous written interest expense in box 12 of D). Enter noncash contributions subject to acknowledgment from the qualified Schedule K-1 using code H. the 30% AGI limitation. charitable organization that the contribution was used (or will be used) for Capital gain property to a 50% organi- Lines 12c(1) and 12c(2). Section this purpose. See Pub. 976, Disaster zation (30%) (code E). Enter capital Relief, for more information. 59(e)(2) Expenditures gain property contributions subject to the Generally, section 59(e) allows each 30% AGI limitation. Qualified conservation contributions of property used in shareholder to make an election to deduct Capital gain property (20%) (code F). agriculture or livestock production. If their pro rata share of the corporation's Enter capital gain property contributions the corporation is a qualified farmer or otherwise deductible qualified subject to the 20% AGI limitation. rancher (farm income is more than 50% of expenditures ratably over 10 years (3 years for circulation expenditures). The Contributions of property. See gross income), attach a statement to deduction is taken beginning with the tax Contributions of Property in Pub. 526 and Schedule K-1 that shows the year in which the expenditures were made Pub. 561, Determining the Value of shareholder's pro rata share of qualified (or for intangible drilling and development Donated Property, for information on conservation contributions of property costs, over the 60-month period beginning noncash contributions and contributions of used in agriculture or livestock production with the month in which such costs were capital gain property. If the deduction (or available for such production). Do not paid or incurred). claimed for noncash contributions include these contributions in the amounts exceeds $500, complete Form 8283 and reported in box 12 of Schedule K-1 The term “qualified expenditures” attach it to Form 1120S. because shareholders must separately determine if they qualify for the 50% or includes only the following types of Shareholders can deduct their pro rata 100% AGI limitation for these expenditures paid or incurred during the share of the fair market value of property contributions. The contribution must be tax year. contributions, but will only need to adjust subject to a restriction that the property • Circulation expenditures. their stock basis by their pro rata share of remain available for such production. See • Research and experimental the property's adjusted basis. Give each section 170(b) for details. expenditures. shareholder a statement identifying their • Intangible drilling and development pro rata share of both the fair market value Schedule K-1. Report each costs. and adjusted basis of the property. shareholder's pro rata share of charitable • Mining exploration and development If the corporation made a qualified contributions in box 12 of Schedule K-1 costs. conservation contribution under section using codes A through G for each of the 170(h), also include the fair market value contribution categories shown earlier. See If a shareholder makes the election, of the underlying property before and after Contributions of property, earlier, for these items aren't treated as alternative the donation, as well as the type of legal information on statements you may be minimum tax (AMT) tax preference items. interest contributed, and describe the required to attach to Schedule K-1. The corporation must attach a copy of its Form conservation purpose furthered by the Because the shareholders make this 8283 to the Schedule K-1 of each donation. Give a copy of this information election, the corporation can't deduct shareholder if the deduction for any item to each shareholder. these amounts or include them as AMT or group of similar items of contributed items on Schedule K-1. Instead, the If the corporation made a contribution property exceeds $5,000, even if the corporation passes through the of real property located in a registered amount allocated to any shareholder is information the shareholders need to historic district, restrictions apply. $5,000 or less. Generally, no deductions are allowed for figure their separate deductions. structures or land (deductions are only allowed for buildings), and the charitable Line 12b. Investment Interest On line 12c(1), enter the type of contribution may be reduced if Expense expenditures claimed on line 12c(2). Enter rehabilitation credits were claimed for the Include on this line the interest properly on line 12c(2) the qualified expenditures building. A $500 filing fee may apply to allocable to debt on property held for paid or incurred during the tax year for certain deductions over $10,000. See investment purposes. Property held for which a shareholder may make an Pub. 526 for details. investment includes property that election under section 59(e). Enter this amount for all shareholders whether or not

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any shareholder makes an election under on line 16c of Schedule K and in box 16 of • Endangered species recovery section 59(e). Schedule K-1 using code C. expenditures (section 175). Expenditures paid or incurred for the Preproductive period expenses (code • On an attached statement, identify the removal of architectural and transportation M). If the corporation is required to use an property for which the expenditures were barriers to the elderly and disabled that accrual method of accounting under paid or incurred. If the expenditures were the corporation has elected to treat as a section 448(a)(3), it must capitalize these for intangible drilling or development costs current expense. See section 190. expenses. If the corporation is permitted for oil and gas properties, identify the Interest expense allocated to to use the cash method, enter the amount • month(s) in which the expenditures were debt-financed distributions. See Notice of preproductive period expenses that paid or incurred. If there is more than one 89-35, 1989-1 C.B. 675, or Pub. 535, qualify under section 263A(d). An election type of expenditure or more than one chapter 4, for more information. not to capitalize these expenses must be property, provide the amounts (and the Contributions to a capital construction made at the shareholder level. See • months paid or incurred, if required) for fund. See Pub. 595, Capital Construction Uniform Capitalization Rules in Pub. 225. each type of expenditure separately for Fund for Commercial Fishermen. each property. Commercial revitalization deduction • Any penalty on early withdrawal of Schedule K-1. Report each from rental real estate activities (code savings because the corporation withdrew shareholder's pro rata share of section N). Enter the commercial revitalization funds from its time savings deposit before 59(e) expenditures in box 12 of deduction on line 12d only if it is for a its maturity. Schedule K-1 using code J. Identify the rental real estate activity. If the deduction • Film, television, and live theatrical following information on an attached is for a nonrental building, enter it on production expenses. The corporation can statement. line 19 of Form 1120S. See Special Rules elect to deduct certain costs of a qualified • The type of expenditure. under Line 19. Other Deductions, earlier, film, television, or live theatrical production • The property for which the expenditures for more information. commencing before January 1, 2018 (after December 31, 2015, and before January are paid or incurred. Reforestation expense deduction 1, 2018, for a live theatrical production), if • For oil and gas properties only, the (code O). The corporation can elect to the aggregate cost of the production month in which intangible drilling costs deduct a limited amount of its reforestation doesn't exceed $15 million. There is a and development costs were paid or expenditures paid or incurred during the higher dollar limitation for productions in incurred. tax year. The amount the corporation can certain areas. A live theatrical elect to deduct is limited to $10,000 for If there is more than one type of performance commences on the date of each qualified timber property. See expenditure or the expenditures are for its first public performance for a paying section 194(c) for a definition of more than one property, provide each audience. Provide a description of the film, reforestation expenditures and qualified shareholder's pro rata share of the television, or live theatrical production on timber property. See Notice 2006-47, amounts (and the months paid or incurred an attached statement. If the corporation 2006-20 I.R.B. 892, for details on making for oil and gas properties) for each type of makes the election for more than one the election. The corporation must expenditure separately for each property. production, attach a statement to amortize over 84 months any amount not Schedule K-1 that shows each deducted. See Reforestation Line 12d. Other Deductions shareholder's pro rata share of the expenditures, earlier. Enter deductions not included on line 11, qualified expenditures separately for each 12a, 12b, 12c(2), or 14p. On the line to the Schedule K-1. Enter the production. The deduction is subject to left of the entry space for line 12d, identify shareholder's pro rata share of allowable recapture under section 1245 if the the type of deduction. If there is more than reforestation expense in box 12 of election is voluntarily revoked or the one type of deduction, attach a statement Schedule K-1 using code O and attach a production fails to meet the requirements to Form 1120S that separately identifies statement that provides a description of for the deduction. See section 181 and the the type and amount of each deduction for the qualified timber property. If the related regulations. the following categories. The codes corporation is electing to deduct amounts • Current year section 108(i) original needed for Schedule K-1 reporting are from more than one qualified timber issue discount (OID) deduction. In provided for each category. property, provide a description and the general, if the corporation made a section amount for each property. 108(i) election for income from the COD Deductions—Royalty income (code I). attributable to the reacquisition of an Codes P through R. Reserved for future Enter deductions related to royalty applicable debt instrument and the use. income. corporation issued a debt instrument with Section 965(c) deduction (code K). Other deductions (code S). Include any OID that is subject to section 108(i)(2) Enter the Section 965(c) deduction other deductions, such as the following. because of the election, the deduction for amount from Form 965, line 17, on • Amounts paid by the corporation that all or a portion of the OID that accrues Schedule K, line 12d. would be allowed as itemized deductions before the first tax year the COD is on any of the shareholders' income tax includible in income is deferred until the Deductions—Portfolio (other) (code returns if they were paid directly by a COD is includible in income. The L). Enter any other deductions related to shareholder for the same purpose. These aggregate amount of OID that is deferred portfolio income. amounts include, but aren't limited to, during this period is generally allowed as a No deduction is allowed under section expenses under section 212 for the deduction ratably over the 5-year period 212 for expenses allocable to a production of income other than from the the COD is includible in income under convention, seminar, or similar meeting. corporation's trade or business. However, section 108(i). The amount deferred is Because these expenses aren't deductible don't enter expenses related to portfolio limited to the amount of COD subject to by shareholders, the corporation doesn't income or investment interest expense the section 108(i) election. report these expenses on line 12d of reported on line 12b of Schedule K on this • Domestic production activities Schedule K. The expenses are line. deduction (DPAD). If the corporation is a nondeductible and are reported as such • Soil and water conservation recipient of the DPAD from a pass-through expenditures (section 175). See Pub. 225. entity (partnership, S corporation, estate, trust, or cooperative) with a tax year

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beginning before January 1, 2018, the one activity, identify on an attachment to space for line 13d, identify the type of DPAD can be taken in limited Schedule K-1 the amount for each credit. If there is more than one type of circumstances. See Form 8903 and its separate activity. See Passive Activity credit, attach a statement to Form 1120S instructions for details. Reporting Requirements, earlier. that identifies the type and amount for each credit. These credits may include Schedule K-1. Enter each shareholder's any type of credit listed in the instructions pro rata share of the deduction categories Line 13b. Low-Income Housing for line 13g. listed above in box 12 of Schedule K-1 or Credit (Other) provide the required information on an Schedule K-1. Report in box 13 of Report on line 13b any low-income attached statement. Enter the applicable Schedule K-1 each shareholder's pro rata housing credit not reported on line 13a. code shown above. share of other rental real estate credits This includes any credit reported to the using code F. If you are reporting each If you are reporting only one type of corporation in box 15 of Schedule K-1 shareholder's pro rata share of only one deduction under code S, enter code S with (Form 1065) using code B or code D. an asterisk (S*) and the dollar amount in type of rental real estate credit under code the entry space in box 12 and attach a Schedule K-1. Report in box 13 of F, enter the code with an asterisk (F*) and statement that shows the box number, Schedule K-1 each shareholder's pro rata the dollar amount in the entry space in code, and type of deduction. If you are share of the low-income housing credit box 13 and attach a statement that shows reporting multiple types of deductions reported on line 13b of Schedule K. Use “Box 13, code F” and the type of credit. If under code S, enter the code with an code B to report the portion of the credit you are reporting multiple types of rental asterisk (S*), enter “STMT” in the dollar attributable to buildings placed in service real estate credit under code F, enter the amount entry space in box 12, and attach before 2008. Use code D to report the code with an asterisk (F*) and enter a statement that shows the box number, portion of the credit attributable to “STMT” in the entry space in box 13 and code, and dollar amount of each type of buildings placed in service after 2007. If attach a statement that shows “Box 13, deduction. the corporation has credits from more than code F” and the dollar amount of each one rental activity, identify on an type of credit. If the corporation has credits If the corporation has more than one attachment to Schedule K-1 the amount from more than one rental real estate trade or business activity, identify on an for each separate activity. See Passive activity, identify on the attached statement attachment to Schedule K-1 the amount Activity Reporting Requirements, earlier. the amount of each type of credit for each for each separate activity. See Passive separate activity. See Passive Activity Activity Reporting Requirements, earlier. Line 13c. Qualified Rehabilitation Reporting Requirements, earlier. Credits Expenditures (Rental Real Estate) Line 13e. Other Rental Credits Don't attach Form 3800, General Enter on line 13c the total qualified TIP Business Credit, to Form 1120S. rehabilitation expenditures related to Enter on line 13e any other credit (other rental real estate activities of the than credits reported on lines 13a through corporation. See the Instructions for Form 13d) related to rental activities. On the Low-Income Housing Credit 3468 for details on qualified rehabilitation dotted line to the left of the entry space for expenditures. line 13e, identify the type of credit. If there Section 42 provides a credit that can be is more than one type of credit, attach a claimed by owners of low-income Schedule K-1. Report each statement to Form 1120S that identifies residential rental buildings. To qualify for shareholder's pro rata share of qualified the type and amount for each credit. the credit, the corporation must file Form rehabilitation expenditures related to These credits may include any type of 8609, Low-Income Housing Credit rental real estate activities in box 13 of credit listed in the instructions for line 13g. Allocation and Certification, separately Schedule K-1 using code E. Attach a with the IRS. Don't attach Form 8609 to statement to Schedule K-1 that provides Schedule K-1. Report in box 13 of Form 1120S. Complete and attach Form the information and the shareholder's pro Schedule K-1 each shareholder's pro rata 8586, Low-Income Housing Credit, and rata share of the basis and expenditure share of other rental credits using code G. Form 8609-A, Annual Statement for amounts the shareholder will need to If you are reporting each shareholder's pro Low-Income Housing Credit, to Form figure the amounts to report on lines 11b rata share of only one type of rental credit 1120S. through 11g and 11j of Form 3468. See under code G, enter the code with an the Instructions for Form 3468 for details. asterisk (G*) and the dollar amount in the entry space in box 13 and attach a Line 13a. Low-Income Housing If the corporation has expenditures from more than one rental real estate activity, statement that shows “Box 13, code G” Credit (Section 42(j)(5)) identify on an attachment to Schedule K-1 and the type of credit. If you are reporting If the corporation invested in a partnership the information and amounts for each multiple types of rental credit under code to which the provisions of section 42(j)(5) separate activity. See Passive Activity G, enter the code with an asterisk (G*) and apply, report on line 13a the credit Reporting Requirements, earlier. enter “STMT” in the entry space in box 13 reported to the corporation in box 15 of and attach a statement that shows “Box Qualified rehabilitation 13, code G” and the dollar amount of each Schedule K-1 (Form 1065) using code A expenditures for property not or code C. ! type of credit. If the corporation has credits CAUTION related to rental real estate from more than one rental activity, identify Schedule K-1. Report in box 13 of activities must be reported in box 17 using on the attached statement the amount of Schedule K-1 each shareholder's pro rata code C. each type of credit for each separate share of the low-income housing credit activity. See Passive Activity Reporting reported on line 13a of Schedule K. Use Requirements, earlier. code A to report the portion of the credit Line 13d. Other Rental Real Estate Credits attributable to buildings placed in service Line 13f. Biofuel Producer Credit before 2008. Use code C to report the Enter on line 13d any other credit (other Enter on line 13f the biofuel producer portion of the credit attributable to than credits reported on lines 13a through credit attributable to trade or business buildings placed in service after 2007. If 13c) related to rental real estate activities. activities. If the credit is attributable to the corporation has credits from more than On the dotted line to the left of the entry

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rental activities, enter the amount on business under section 38(c)(5)(A). If the • Distilled spirits credit (Form 8906). line 13d or 13e. shareholder and the corporation meet the • Energy efficient home credit (Form requirements of section 38(c)(5)(A), the 8908), if applicable. Figure this credit on Form 6478, if research credit may be treated as a • Alternative motor vehicle credit (Form applicable. Attach it to Form 1120S. specified credit. 8910). Include any amount shown on line 2 of • Alternative fuel vehicle refueling Form 6478 in the corporation's income on Credit for employer social security and property credit (Form 8911), if applicable. line 5 of Form 1120S. Medicare taxes paid on certain em- • Clean renewable energy bond credit ployee tips (code N). Complete Form (Form 8912). The amount of this credit See section 40(f) for an election the 8846 to figure the credit. Attach it to Form (excluding any credits from partnerships, corporation can make to have the credit 1120S. estates, and trusts) is reported as interest not apply. Backup withholding (code O). This income on line 4 of Schedule K. In Schedule K-1. Report in box 13 of credit is for backup withholding on addition, the amount of this credit is Schedule K-1 each shareholder's pro rata dividends, interest, and other types of reported on line 17d of Schedule K. share of the biofuel producer credit income of the corporation. • Qualified zone academy bond credit reported on line 13f using code I. If the (for bonds issued before October 4, 2008) Other credits (code P). Attach a corporation has credits from more than (Form 8912). The amount of this credit is statement to Form 1120S that identifies one activity, identify on an attachment to reported as interest income on line 4 of the type and amount of any other credits Schedule K-1 the amount for each Schedule K. In addition, the amount of this not reported elsewhere. Complete the separate activity. See Passive Activity credit is reported on line 17d of credit form identified below and attach it to Reporting Requirements, earlier. Schedule K. Form 1120S. • New clean renewable energy bond • Unused investment credit from the credit (Form 8912). The amount of this Line 13g. Other Credits qualifying advanced coal project credit, credit (excluding any credits from Enter on line 13g any other credit, except qualifying gasification project credit, or partnerships, estates, and trusts) is credits or expenditures shown or listed for qualifying advanced energy project credit reported as interest income on line 4 of lines 13a through 13f or the credit for allocated from cooperatives. Schedule K. In addition, the amount of this federal tax paid on fuels (which is reported • Unused investment credit from the credit is reported as a property distribution on line 23c of page 1). On the line to the rehabilitation credit or energy credit on line 16d of Schedule K. left of the entry space for line 13g, identify allocated from cooperatives. • Qualified energy conservation bond the type of credit. If there is more than one • Credits for affected disaster area credit (Form 8912). The amount of this type of credit, attach a statement to Form employers (Form 5884-A). credit (excluding any credits from 1120S that separately identifies each type • Orphan drug credit (Form 8820). partnerships, estates, and trusts) is and amount of credit for the following • Enhanced oil recovery credit (Form reported as interest income on line 4 of categories. The codes needed for box 13 8830). Schedule K. In addition, the amount of this of Schedule K-1 are provided in the • Renewable electricity, refined coal, and credit is reported as a property distribution heading of each category. Indian coal production credit (Form 8835). on line 16d of Schedule K. Attach a statement to Form 1120S and • Qualified zone academy bond credit Undistributed capital gains credit Schedule K-1 showing the allocation of (for bonds issued after October 3, 2008) (code H). This credit represents taxes the credit for production during the 4-year (Form 8912). The amount of this credit paid on undistributed capital gains by a period beginning on the date the facility (excluding any credits from partnerships, regulated investment company (RIC) or a was placed in service and for production estates, and trusts) is reported as interest real estate investment trust (REIT). As a after that period. income on line 4 of Schedule K. In shareholder of a RIC or REIT, the • Indian employment credit (Form 8845), addition, the amount of this credit is corporation will receive notice of the if applicable. reported as a property distribution on amount of tax paid on undistributed capital • Biodiesel and renewable diesel fuels line 16d of Schedule K. gains on Form 2439, Notice to credit (Form 8864), if applicable. Include • Qualified school construction bond Shareholder of Undistributed Long-Term any amount from line 8 of Form 8864 in credit (Form 8912). The amount of this Capital Gains. the corporation's income on line 5 of Form credit (excluding any credits from Work opportunity credit (code J). 1120S. If this credit includes the small partnerships, estates, and trusts) is Complete Form 5884 to figure the credit. agri-biodiesel producer credit, identify on reported as interest income on line 4 of Attach it to Form 1120S. a statement attached to Schedule K-1 (a) Schedule K. In addition, the amount of this the small agri-biodiesel producer credit credit is reported as a property distribution Disabled access credit (code K). included in the total credit allocated to the on line 16d of Schedule K. Complete Form 8826 to figure the credit. shareholder, (b) the number of gallons for • Build America bond credit (Form 8912). Attach it to Form 1120S. which the corporation claimed the small The amount of this credit (excluding any Empowerment zone employment cred- agri-biodiesel producer credit, and (c) the credits from partnerships, estates, and it (code L). Complete Form 8844, if corporation's productive capacity for trusts) is reported as interest income on applicable, to figure the credit. Attach it to agri-biodiesel. line 4 of Schedule K. In addition, the Form 1120S. • New markets credit (Form 8874). amount of this credit is reported as a • Credit for small employer pension plan property distribution on line 16d of Credit for increasing research activi- startup costs (Form 8881). Schedule K. ties (code M). Complete Form 6765 to • Credit for employer-provided childcare • Mine rescue team training credit (Form figure the credit. Attach it to Form 1120S. facilities and services (Form 8882). 8923), if applicable. For more information, see the Instructions • Low sulfur diesel fuel production credit • Credit for employer differential wage for Form 6765. (Form 8896). payments (Form 8932). The corporation should provide • Qualified railroad track maintenance • Carbon oxide sequestration credit TIP the information necessary for the credit (Form 8900), if applicable. (Form 8933). shareholder to determine whether • Credit for oil and gas production from • Qualified plug-in electric drive motor the corporation is an eligible small marginal wells (Form 8904). vehicle credit (Form 8936).

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• Qualified two-wheeled plug-in electric attached” and attach a statement for each 514 and the Instructions for Form 1116 for vehicle credit (Form 8936), if applicable. country for lines 14a through 14r (codes A more information on the categories of • Credit for small employer health through R, code U, and code V of income. insurance premiums (Form 8941). Schedule K-1). On Schedule K-1, if there You must attach a statement to Employer credit for paid family and is more than one country, enter code A • Form 1120S that specifies foreign medical leave (Form 8994). followed by an asterisk (A*), enter source qualified dividends, General credits from an electing large “STMT,” and attach a statement to • unrecaptured section 1250 gains, and net partnership. Schedule K-1 for each country for the section 1231 gain (loss). information and amounts coded A through Schedule K-1. Enter in box 13 of R, code U, and code V. Schedule K-1 each shareholder's pro rata Line 14d. Section 951A category (code share of the credits listed above. See RIC pass-through amounts. Aggregate D). Section 951A category foreign additional Schedule K-1 reporting all income passed through from RICs and source income. This category includes information provided in the instructions report the total on a single line. Enter “RIC” any amount included in gross income above. Enter the applicable code, H on line 14a and report the total on under section 951A (other than passive through P, in the column to the left of the line 14b. Note that the totals are being category income). Section 951A defines dollar amount entry space. reported on a single line because it isn't global intangible low-taxed income. If you are reporting each shareholder's necessary to report the RIC pass-through Line 14e. Foreign branch category pro rata share of only one type of credit amounts on a per-country basis. (code E). Foreign branch category under code P, enter the code with an foreign source income. Foreign branch asterisk (P*) and the dollar amount in the Line 14b. Gross Income From All income is defined under section 904(d)(2) entry space in box 13 and attach a Sources (Code B) (J)(i) as the business profits of a United statement that shows “Box 13, code P” States person which are attributable to and the type of credit. If you are reporting Enter the corporation's gross income from one or more qualified business units (as multiple types of credit under code P, all sources (both U.S. and foreign). defined in section 989(a)) in one or more enter the code with an asterisk (P*) and foreign countries. Report all income that enter “STMT” in the entry space in box 13 Line 14c. Gross Income Sourced at would be foreign branch category income and attach a statement that shows “Box Shareholder Level (Code C) of its shareholders if all of its shareholders 13, code P” and the dollar amount of each were U.S. persons that were not type of credit. If the corporation has credits Enter the total gross income of the pass-through entities. from more than one activity, identify on an corporation that is required to be sourced attachment to Schedule K-1 the amount of at the shareholder level. This includes Line 14f. Passive category (code F). each type of credit for each separate income from the sale of most personal Passive category foreign source income. activity. See Passive Activity Reporting property, other than inventory, depreciable Line 14g. General category (code G). Requirements, earlier. property, and certain intangible property. General category foreign source income. See Pub. 514 and section 865 for details. Foreign Transactions Include all foreign income sourced at the You must attach a statement to corporate level that isn't reported on lines Line 14b must be completed if a ! Form 1120S showing the following 14d , 14e, 14f, and 14h. shareholder may need this information to CAUTION information. figure a foreign tax credit. Lines 14a and Line 14h. Other (code H). Attach a 14c through 14r must be completed if the statement showing the amount of foreign corporation has foreign income, • The amount of this gross income source income included in section 901(j) deductions, or losses, or has paid or (without regard to its source) in each income.This other category will override accrued foreign taxes. category identified in the instructions for the initial categorization of such income. lines 14d through 14h. On Schedule K-1, for items that require Specifically identify gains on the sale of an attached statement, enter the code • Lines 14i–14j. Deductions personal property other than inventory, followed by an asterisk and the Allocated and Apportioned at depreciable property, and certain shareholder's pro rata share of the dollar intangible property on which a foreign tax Shareholder Level amount. Attach a statement to of 10% or more was paid or accrued. Also Schedule K-1 providing the information Line 14i. Interest expense (code I). list losses on the sale of such property if described below. If the corporation had Enter the corporation's total interest the foreign country would have imposed a income from, or paid or accrued taxes to, expense (including interest equivalents 10% or higher tax had the sale resulted in more than one country or U.S. under Temporary Regulations section a gain. In addition, separately identify the possession, see the requirement for an 1.861-9T(b)). Don't include interest amounts of such gains or losses within attached statement in the instructions for directly allocable under Temporary each separate limitation category that are line 14a below. See Pub. 514, Foreign Tax Regulations section 1.861-10T to income long-term capital gains and losses or Credit for Individuals, and the Instructions from a specific property. This type of collectibles (28%) gains and losses. See for Form 1116, Foreign Tax Credit, for interest is allocated and apportioned at the Determining the Source of Income From more information. corporate level and is included on lines the Sales or Exchanges of Certain 14k through 14o. Personal Property in Pub. 514 and section Line 14a. Name of Country or U.S. 865. Line 14j. Other (code J). Enter the total Possession (Code A) of all other deductions or losses that are Lines 14d–14h. Foreign Gross required to be allocated at the shareholder Enter the name of the foreign country or level. For example, include on line 14j U.S. possession from which the Income Sourced at Corporate research and experimental expenditures corporation had income or to which the Level (see Regulations section 1.861-17(f)). corporation paid or accrued taxes. If the corporation had income from, or paid or Separately report gross income from accrued taxes to, more than one foreign sources outside the United States by country or U.S. possession, enter “See category of income as follows. See Pub.

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Lines 14k–14o. Deductions and the amounts in both foreign currency more shareholders are covered persons Allocated and Apportioned at and U.S. dollars, for the following: with respect to an entity that took into account related income from the Corporate Level to Foreign Source a. Taxes withheld at source on interest, arrangement. Also indicate whether the Income corporation has taken into account any b. Taxes withheld at source on related income from any such splitter Separately report corporate deductions dividends, that are apportioned at the corporate level arrangement. (See section 909 and the c. Taxes withheld at source on rents to: regulations thereunder.) and royalties, and • Section 951A category foreign source Alternative Minimum Tax (AMT) d. Other foreign taxes paid or income, Items • Foreign branch category foreign source accrued. income, Lines 15a through 15f must be completed • Passive category foreign source Line 14q. Reduction in Taxes for all shareholders. income, Available for Credit (Code R) Enter items of income and deductions • General category foreign source that are adjustments or tax preference Enter the total reduction in taxes available income, and items for the AMT. For more information, for credit. Attach a statement showing the • Other foreign source income (see the see Form 6251, Alternative Minimum reductions for: instructions for lines 14d–14h). Tax—Individuals, or Schedule I (Form • Taxes on foreign mineral income Attach a statement showing the amount of 1041), Alternative Minimum Tax—Estates (section 901(e)), deductions allocated and apportioned at and Trusts. the corporate level to each of the listed • Taxes on foreign oil and gas extraction categories from line 14h. See Pub. 514 income and foreign oil-related income Don't include as a tax preference item and the Instructions for Form 1116 for (section 907(a)), any qualified expenditures to which an more information. • Taxes attributable to boycott operations election under section 59(e) may apply. (section 908), Instead, report these expenditures on Failure to timely file (or furnish all of the Line 14p. Total Foreign Taxes Paid • line 12(c)(2). Because these expenditures information required on) Forms 5471 and are subject to an election by each or Accrued 8865, shareholder, the corporation can't figure Enter in U.S. dollars the total foreign taxes • Foreign income taxes paid or accrued the amount of any tax preference related (described in section 901 or section 903) during the current tax year that have been to them. Instead, the corporation must that were paid or accrued according to the suspended under section 909, and pass through to each shareholder in corporation's method of accounting for • Any other items (specify). box 12, code J of Schedule K-1, the such taxes. Translate these amounts into information needed to figure the U.S. dollars by using the applicable Line 14r. Other Foreign Tax deduction. exchange rate (see Pub. 514). Information Schedule K-1. Report each Foreign taxes paid (code P). If the • Foreign trading gross receipts shareholder's pro rata share of amounts corporation used the cash method of (code S). Report each shareholder's pro reported on lines 15a through 15f in accounting, check the “Paid” box and rata share of foreign trading gross receipts box 15 of Schedule K-1 using codes A enter foreign taxes paid during the tax from line 15 of Form 8873 in box 14 using through F, respectively. year. Report each shareholder's pro rata code S. See Extraterritorial Income If the corporation is reporting items of share in box 14 of Schedule K-1 using Exclusion, earlier. income or deduction for oil, gas, and code P. • Extraterritorial income exclusion geothermal properties, you may be Foreign taxes accrued (code Q). If the (code T). If the corporation isn't permitted required to identify these items on a corporation used an accrual method of to deduct the extraterritorial income statement attached to Schedule K-1 (see accounting, check the “Accrued” box and exclusion as a nonseparately stated item, the instructions for lines 15d and 15e). enter foreign taxes accrued. Report each attach a statement to Schedule K-1 Also see the requirement for an attached shareholder's pro rata share in box 14 of showing the shareholder's pro rata share statement in the instructions for line 15f. Schedule K-1 using code Q. of the extraterritorial income exclusion reported on line 52 of Form 8873. Also A corporation reporting foreign taxes Line 15a. Post-1986 Depreciation identify the activity to which the exclusion using the cash method can make an Adjustment is related. irrevocable election to report the taxes Section 965 information (code U). Figure the adjustment for line 15a based using an accrual method for the year of • Report foreign income tax information for only on tangible property placed in service the election and all future years. Make this the calculation of creditable foreign after 1986 (and tangible property placed in election by reporting all foreign taxes income taxes related to the section 965(a) service after July 31, 1986, and before using an accrual method on line 14p and inclusion. Attach Form 965, including 1987 for which the corporation elected to checking the “Accrued” box (see Schedules F, G, and H, to the use the Modified Accelerated Cost Regulations section 1.905-1). Schedule K-1. Recovery System (MACRS)). Don't make Attach a statement reporting the • Other foreign transactions (code V). an adjustment for motion picture films, following information. Report any other foreign transaction videotapes, sound recordings, certain 1. The total amount of foreign taxes information the shareholders need to public utility property (see section 168(f) (including foreign taxes on income prepare their tax returns. Attach a (2)), property depreciated under the sourced at the shareholder level) relating statement that separately identifies any unit-of-production method (or any other to each category of income (see the arrangement, along with the taxes paid or method not expressed in a term of years), instructions for lines 14d–14h). accrued in connection with the qualified Indian reservation property, property eligible for a special depreciation 2. The dates on which the taxes were arrangement, in which the corporation allowance, qualified revitalization paid or accrued, the exchange rates used, participates that would qualify as a splitter arrangement under section 909 if one or expenditures, or the section 179 expense deduction.

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For property placed in service before If any part of the adjustment is allocable shareholder is told in the Shareholder's 1999, refigure depreciation for the AMT as to net short-term capital gain (loss), net Instructions for Schedule K-1 (Form follows (using the same convention used long-term capital gain (loss), or net section 1120S) to adjust the amounts in box 15, for the regular tax). 1231 gain (loss), attach a statement that code D or E, for any other income or • For section 1250 property (generally, identifies the amount of the adjustment deductions from oil, gas, or geothermal residential rental and nonresidential real allocable to each type of gain or loss. properties included in boxes 2 through 12, property), use the straight line method 16, or 17 of Schedule K-1 in order to over 40 years. For a net long-term capital gain (loss), determine the total income and • For tangible property (other than also identify the amount of the adjustment deductions from oil, gas, and geothermal section 1250 property) depreciated using that is collectibles (28%) gain (loss). properties for the corporation. the straight line method for the regular tax, use the straight line method over the For a net section 1231 gain (loss), also Figure the amounts for lines 15d and property's class life. Use 12 years if the identify the amount of adjustment that is 15e separately for oil and gas properties property has no class life. unrecaptured section 1250 gain. that aren't geothermal deposits and for all • For any other tangible property, use the properties that are geothermal deposits. 150% declining balance method, Line 15c. Depletion (Other Than Oil switching to the straight line method the Give each shareholder a statement that and Gas) first tax year it gives a larger deduction, shows the separate amounts included in over the property's AMT class life. Use 12 Don't include any depletion on oil and gas the computation of the amounts on lines years if the property has no class life. wells. The shareholders must figure their 15d and 15e of Schedule K. oil and gas depletion deductions and See Pub. 946 for a table of class preference items separately under section lives. Line 15d. Oil, Gas, and Geothermal TIP 613A. Properties—Gross Income Refigure the depletion deduction under Enter the total amount of gross income For property placed in service after section 611 for mines, wells (other than oil (within the meaning of section 613(a)) 1998, refigure depreciation for the AMT and gas wells), and other natural deposits from all oil, gas, and geothermal only for property depreciated for the for the AMT. Percentage depletion is properties received or accrued during the regular tax using the 200% declining limited to 50% of the taxable income from tax year and included on page 1, Form balance method. For the AMT, use the the property as figured under section 1120S. 150% declining balance method, 613(a), using only income and deductions switching to the straight line method the for the AMT. Also, the deduction is limited Line 15e. Oil, Gas, and Geothermal first tax year it gives a larger deduction, to the property's adjusted basis at the end and the same convention and recovery of the year as figured for the AMT. Figure Properties—Deductions period used for the regular tax. this limit separately for each property. Enter any deductions allowed for the AMT When refiguring the property's adjusted that are allocable to oil, gas, and Figure the adjustment by subtracting basis, take into account any AMT geothermal properties. the AMT deduction for depreciation from adjustments made this year or in previous the regular tax deduction and enter the years that affect basis (other than the Line 15f. Other AMT Items result on line 15a. If the AMT deduction is current year's depletion). more than the regular tax deduction, enter Attach a statement to Form 1120S and the difference as a negative amount. Enter the difference between the Schedule K-1 that shows other items not Depreciation capitalized to inventory must regular tax and AMT deduction. If the AMT shown on lines 15a through 15e that are also be refigured using the AMT rules. deduction is greater, enter the difference adjustments or tax preference items or Include on this line the current year as a negative amount. that the shareholder needs to complete adjustment to income, if any, resulting Form 6251 or Schedule I (Form 1041). See these forms and their instructions to from the difference. Oil, Gas, and Geothermal determine the amount to enter. Properties—Gross Income and Line 15b. Adjusted Gain or Loss Deductions Other AMT items include the following. If the corporation disposed of any tangible • Accelerated depreciation of real Generally, the amounts to be entered on property placed in service after 1986 (or property under pre-1987 rules. lines 15d and 15e are only the income and after July 31, 1986, if an election was • Accelerated depreciation of leased deductions for oil, gas, and geothermal made to use the General Depreciation personal property under pre-1987 rules. properties that are used to figure the System), or if it disposed of a certified • Long-term contracts entered into after corporation's ordinary business income pollution control facility placed in service February 28, 1986. Except for certain (loss) on line 21, page 1, Form 1120S. after 1986, refigure the gain or loss from home construction contracts, the taxable the disposition using the adjusted basis for income from these contracts must be If there are any items of income or the AMT. The property's adjusted basis for figured using the percentage of deductions for oil, gas, and geothermal the AMT is its cost or other basis minus all completion method of accounting for the properties included in the amounts that depreciation or amortization deductions AMT. are required to be passed through allowed or allowable for the AMT during Losses from tax shelter farm activities. separately to the shareholders on • the current tax year and previous tax No loss from any tax shelter farm activity Schedule K-1 (items not reported in box 1 years. Enter on this line the difference is allowed for the AMT. of Schedule K-1), give each shareholder a between the regular tax gain (loss) and the Any amount from Form 6478 reported statement that shows, for the box in which • AMT gain (loss). If the AMT gain is less as other income on Form 1120S, line 5. the income or deduction is included, the than the regular tax gain, or the AMT loss Any amount from Form 8864 reported amount of income or deductions included • is more than the regular tax loss, or there as other income on Form 1120S, line 5. in the total amount for that box. Don't is an AMT loss and a regular tax gain, include any of these direct pass-through Schedule K-1. If you are reporting each enter the difference as a negative amount. amounts on line 15d or 15e. The shareholder's pro rata share of only one

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type of AMT item under code F, enter the market value. If property other than cash investment income. See the Instructions code with an asterisk (F*) and the dollar was distributed, attach a statement to for Form 4952 for more information. amount in the entry space in box 15 and provide the following information. Schedule K-1. Report each attach a statement that shows the type of The date the property was acquired. • shareholder's pro rata share of amounts AMT item. If you are reporting multiple The date the property was distributed. • reported on lines 17a and 17b (investment types of AMT items under code F, enter The property's FMV on the date of • income and expenses) in box 17 of the code with an asterisk (F*) and enter distribution. Schedule K-1 using codes A and B, “STMT” in the entry space in box 15 and The corporation's basis in the property. • respectively. attach a statement that shows the dollar See Distributions, later, for the ordering amount of each type of AMT item. rules. If there are other items of investment income or expense included in the Items Affecting Shareholder amounts that are required to be passed Line 16e. Repayment of Loans Basis through separately to the shareholders on From Shareholders Schedule K-1, such as net short-term Line 16a. Tax-Exempt Interest Enter any repayments made to capital gain or loss, net long-term capital Income shareholders during the current tax year. gain or loss, and other portfolio gains or Enter on line 16a tax-exempt interest losses, give each shareholder a statement Schedule K-1. Report each identifying these amounts. income, including any exempt-interest shareholder's pro rata share of amounts dividends received from a mutual fund or reported on lines 16a, 16b, and 16c other regulated investment company. (concerning items affecting shareholder Line 17c. Dividend Distributions Individual shareholders must report this basis) in box 16 of Schedule K-1 using Paid From Accumulated Earnings information on line 2a of Form 1040. codes A through C, respectively. Report and Profits (Schedule K Only) Generally, under section 1367(a)(1)(A), property distributions (line 16d) and the basis of the shareholder's stock is repayment of loans from shareholders Enter total dividends paid to shareholders increased by the amount shown on this (line 16e) on the Schedule K-1 of the from accumulated earnings and profits. line. shareholder(s) that received the Report these dividends to shareholders on distributions or repayments (using codes Form 1099-DIV. Don't report them on Line 16b. Other Tax-Exempt D and E). Schedule K-1. Income Other Information Line 17d. Other Items and Enter on line 16b all income of the Lines 17a and 17b. Investment corporation exempt from tax other than Amounts tax-exempt interest (for example, life Income and Expenses Report the following information on a insurance proceeds, but see section Enter on line 17a the investment income statement attached to Form 1120S. On 101(j) for limits and reporting included on lines 4, 5a, 6, and 10 of Schedule K-1, enter the appropriate code requirements). Generally, under section Schedule K. Don't include other portfolio in box 17 for each information item 1367(a)(1)(A), the basis of the gains or losses on this line. followed by an asterisk in the left-hand shareholder's stock is increased by the column of the entry space (for example, amount shown on this line. Enter on line 17b the investment C*). In the right-hand column, enter expense included on line 12d of “STMT.” The codes are provided for each Line 16c. Nondeductible Expenses Schedule K. information category. Qualified rehabilitation expenditures Enter on line 16c nondeductible expenses Investment income includes gross paid or incurred by the corporation. (other than rental real estate) (code C). income from property held for investment, Enter total qualified rehabilitation the excess of net gain attributable to the expenditures from activities other than Don't include separately stated disposition of property held for investment rental real estate activities. See the deductions shown elsewhere on over net capital gain from the disposition Instructions for Form 3468 for details on Schedules K and K-1, capital of property held for investment, any net qualified rehabilitation expenditures. expenditures, or items for which the capital gain from the disposition of deduction is deferred to a later tax year. property held for investment that each Report qualified rehabilitation shareholder elects to include in TIP expenditures related to rental real Generally, under section 1367(a)(2)(D), investment income under section 163(d) estate activities on line 13c. the basis of the shareholder's stock is (4)(B)(iii), and any qualified dividend decreased by the amount shown on this income that the shareholder elects to Schedule K-1. Report each line. include in investment income. Generally, shareholder's pro rata share of qualified investment income and investment rehabilitation expenditures related to Line 16d. Distributions expenses don't include any income or activities other than rental real estate expenses from a passive activity. See activities in box 17 of Schedule K-1 using Enter the total distributions (including Regulations section 1.469-2(f)(10) for code C. Attach a statement to cash) made to each shareholder other exceptions. Schedule K-1 that provides the than dividends reported on line 17c of information and the shareholder's pro rata Schedule K. Include the shareholder's pro Property subject to a net lease isn't share of the basis and expenditure rata share of any amounts included in treated as investment property because it amounts the shareholder will need to interest income with respect to new clean is subject to the passive loss rules. Don't figure the amounts to report on lines 11b renewable energy, qualified energy reduce investment income by losses from through 11g, and 11j of Form 3468. See conservation, qualified zone academy (for passive activities. the Instructions for Form 3468 for details. bonds issued after October 3, 2008), If the corporation has expenditures from qualified school construction, or build Investment expenses are deductible more than one activity, identify on a America bonds. Distributions of expenses (other than interest) directly statement attached to Schedule K-1 the appreciated property are valued at fair connected with the production of

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information and amounts for each shareholder's pro rata share of the basis Dispositions of property with section separate activity. See Passive Activity of the property subject to recapture. Also 179 deductions (code K). This Reporting Requirements, earlier. indicate the lines of Form 4255 on which represents gain or loss on the sale, the shareholders should report these Basis of energy property (code D). In exchange, or other disposition of property amounts. box 17 of Schedule K-1, enter code D for which a section 179 deduction has followed by an asterisk and enter “STMT” The corporation itself is liable for been passed through to shareholders. The in the entry space for the dollar amount. investment credit recapture in certain corporation must provide all the following Attach a statement to Schedule K-1 that cases. See Investment credit recapture information with respect to such provides the shareholder's pro rata share tax, earlier, for details. dispositions (see the instructions for Form 1120S, line 4, earlier). of the basis and capacity amounts the Recapture of other credits (code H). Description of the property. shareholder will need to figure the On an attached statement to • Date the property was acquired and amounts to report on lines 12a–12d, 12f, Schedule K-1, provide any information • placed in service. 12g, 12i, 12j, 12l, 12m, 12o, and 12q–12v shareholders will need to report recapture Date of the sale or other disposition of of Form 3468. See the Instructions for of credits (other than recapture of • the property. Form 3468 for details. low-income housing credit and investment The shareholder's pro rata share of the credit reported on Schedule K-1 using • Recapture of low-income housing gross sales price or amount realized. codes E, F, and G). The following are credit (codes E and F). If recapture of The shareholder's pro rata share of the examples of credits subject to recapture • part or all of the low-income housing credit cost or other basis plus expense of sale and reported using code H. is required because (a) the prior year (reduced as explained in the instructions The qualified plug-in electric drive qualified basis of a building decreased or • for Form 4797, line 21). motor vehicle credit. See section 30D(f)(5) (b) the corporation disposed of a building The shareholder's pro rata share of the for details. • or part of its interest in a building, see depreciation allowed or allowable, The new markets credit. See Form Form 8611, Recapture of Low-Income • determined as described in the 8874 and Form 8874-B, Notice of Housing Credit. Complete lines 1 through instructions for Form 4797, line 22, but Recapture Event for New Markets Credit, 7 of Form 8611 to figure the amount of the excluding the section 179 deduction. for details. credit to recapture. The shareholder's pro rata share of the The Indian employment credit. See • Use code E on Schedule K-1 to report • section 179 deduction (if any) passed section 45A(d) for details. recapture of the low-income housing credit through for the property and the The credit for employer-provided from a section 42(j)(5) partnership. Use • corporation's tax year(s) in which the childcare facilities and services. See code F to report recapture of any other amount was passed through. section 45F(d) for details. low-income housing credit. See the If the disposition is due to a casualty or The alternative motor vehicle credit. • instructions for lines 13a and 13b, earlier, • theft, a statement indicating so, and any See section 30B(h)(8) for details. for more information. additional information needed by the The alternative fuel vehicle refueling • shareholder. If a shareholder's ownership property credit. See section 30C(e)(5) for For an installment sale made during the TIP interest in a building decreased details. • corporation's tax year, any information the because of a transaction at the Look-back interest—Completed shareholder needs to complete Form shareholder level, the corporation must long-term contracts (code I). If the 6252. The corporation must also provide the necessary information to the corporation is closely held (defined in separately report the shareholder's pro shareholder to enable the shareholder to section 460(b)(4)(C)(iii)) and it entered rata share of all payments received for the figure the recapture. into any long-term contracts after February property in future tax years. (Installment The disposal of a building or an 28, 1986, that are accounted for under payments received for installment sales interest therein will generate a either the percentage of made in prior tax years should be reported ! completion-capitalized cost method or the in the same manner used in prior tax CAUTION credit recapture unless it is reasonably expected that the building will percentage of completion method, it must years.) See the Instructions for Form 6252 continue to be operated as a qualified attach a statement to Form 1120S for details. showing the information required in items low-income building for the remainder of Recapture of section 179 deduction (a) and (b) of the instructions for lines 1 the building's compliance period. (code L). This amount represents and 3 of Part II of Form 8697. It must also recapture of the section 179 deduction if report the amounts for Part II, lines 1 and See Form 8586, Form 8611, and business use of the property dropped to 3, to its shareholders. See the Instructions section 42 for more information. 50% or less before the end of the for Form 8697 for more information. Recapture of investment credit (code recapture period. If the business use of G). Complete and attach Form 4255 if, Look-back interest—Income forecast any property (placed in service after 1986) before the end of the recapture period, method (code J). If the corporation is for which a section 179 deduction was investment credit property is disposed of closely held (defined in section 460(b)(4) passed through to shareholders dropped or no longer qualifies for the credit or if (C)(iii)) and it depreciated certain property to 50% or less (for a reason other than credit recapture is otherwise required. See placed in service after September 13, disposition), the corporation must provide the Instructions for Form 4255 for details 1995, under the income forecast method, all the following information. about when credit recapture is required. it must attach to Form 1120S the • The shareholder's pro rata share of the State the type of property at the top of information specified in the instructions for original basis and depreciation allowed or Form 4255, and complete lines 2, 3, 4, 10, Form 8866, line 2, for the 3rd and 10th tax allowable (not including the section 179 and 11, whether or not any shareholder is years beginning after the tax year the deduction). subject to recapture of the credit. property was placed in service. It must • The shareholder's pro rata share of the also report the line 2 amounts to its Attach to each Schedule K-1 a section 179 deduction (if any) passed shareholders. See the Instructions for separate statement providing the through for the property and the Form 8866 for more details. information the corporation is required to corporation's tax year(s) in which the show on Form 4255, but list only the amount was passed through.

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See Regulations section 1.179-1(e) for Section 108(i) information (code T). CFCs and QEFs. In the case of stock details. Report the shareholder's pro rata share of of CFCs and QEFs directly or indirectly owned by the corporation, the corporation Section 453(l)(3) information (code M). the following. must provide the name and EIN (if one Supply any information needed by a • Any COD income deferred under has been issued) for each CFC and QEF shareholder to figure the interest due section 108(i) that hasn't been included in the stock of which is owned by the under section 453(l)(3). If the corporation income in the current or prior tax years. corporation for which an election under elected to report the dispositions of certain • Any OID deduction deferred under Regulations section 1.1411-10(g) is not in timeshares and residential lots on the section 108(i)(2)(A)(i) that hasn't been effect and with respect to which the installment method, each shareholder's deducted in the current or prior tax years. corporation isn't engaged in a trade or tax liability must be increased by the For information on allocating these business described in section 1411(c)(2). shareholder's pro rata share of the interest items to shareholders, see section 108(i); For each of these entities, the corporation on tax attributable to the installment Regulations section 1.108(i)-1; Rev. Proc. must provide the following information on payments received during the tax year. 2009-37, 2009-36 I.R.B. 309; and an entity-by-entity basis (to the extent Section 453A(c) information (code N). Regulations section 1.108(i)-2. such information isn't otherwise Supply any information needed by a Net investment income (code U). Use identifiable elsewhere on Schedule K-1). shareholder to figure the interest due code U to report any information that may • Section 951(a) inclusions. under section 453A(c). If an obligation be relevant for shareholders to figure their • Section 951A inclusions. arising from the disposition of property to net investment income tax when the • Section 1293(a)(1)(A) inclusions. which section 453A applies is outstanding information isn't otherwise identifiable • Section 1293(a)(1)(B) inclusions. at the close of the year, each elsewhere on Schedule K-1. Attach a • Section 959(d) distributions subject to shareholder's tax liability must be statement that shows a description and section 1411. increased by the tax due under section dollar amount of each relevant item. • Section 1293(c) distributions subject to 453A(c) on the shareholder's pro rata Examples of items reported using code section 1411. share of the tax deferred under the U may include the following. • Amount of gain or loss derived with installment method. • Net rental real estate income reported respect to dispositions of the stock of CFCs and QEFs that is taken into account Section 1260(b) information (code O). on Form 1120S, Schedule K, line 2, and for section 1411 purposes. Supply any information needed by a other net rental income reported on Form Amounts that are derived with respect shareholder to figure the interest due 1120S, Schedule K, line 3c, derived from • to the disposition of the stock of CFCs and under section 1260(b). If the corporation a section 212 for-profit activity (and not QEFs and included in income as a had gain from certain constructive from a section 162 trade or business). dividend under section 1248 for section ownership transactions, each • Gains and losses from dispositions of 1411 purposes. shareholder's tax liability must be assets attributable to a section 212 increased by the shareholder's pro rata for-profit activity (and not from a section In the case of stock of CFCs and QEFs share of interest due on any deferral of 162 trade or business). directly or indirectly owned by the gain recognition. See section 1260(b) for • Gain reported on the installment sale corporation for which an election under details, including how to figure the interest. basis (or attributable to a private annuity) Regulations section 1.1411-10(g) is in that is attributable to the disposition of effect, the corporation must provide the Interest allocable to production expen- property held in a trade or business. following information (to the extent such ditures (code P). Supply any information • Gain or loss from the disposition of a information isn't otherwise identifiable needed by a shareholder to properly partnership interest, but only if such elsewhere on Schedule K-1), on either an capitalize interest as required by section partnership was engaged, directly or aggregate basis or an entity-by-entity 263A(f). See Section 263A uniform indirectly, in one or more trades or basis. capitalization rules, earlier, for more businesses, and at least one of those • Section 951(a) inclusions. information. trades or businesses wasn't trading in • Section 951A inclusions. CCF nonqualified withdrawal (code Q). financial instruments or commodities. • Section 1293(a)(1)(A) inclusions. Report nonqualified withdrawals by the • The shareholder’s pro rata share of • Section 1293(a)(1)(B) inclusions. corporation from a capital construction interest income, or interest expense, In the case of stock of CFCs and QEFs fund. Attach a statement to the which is attributable to a loan between the directly or indirectly owned by the shareholder's Schedule K-1 providing corporation and the shareholder corporation with respect to which the details of the withdrawal. See Pub. 595. (self-charged interest). corporation is engaged in a trade or • If the corporation received a Form business described in section 1411(c)(2), Depletion information—Oil and gas 1065, Schedule K-1, the detail and (code R). Report gross income and other the corporation must provide the following amounts reported to the corporation using information (to the extent such information information relating to oil and gas well box 20, code Y. properties to shareholders to allow them to isn't otherwise identifiable elsewhere on • If the corporation received a Form the Schedule K-1), on either an aggregate figure the depletion deduction for oil and 1065-B, Schedule K-1, the detail and gas well properties. Allocate to each or an entity-by-entity basis, or may amounts reported to the corporation. aggregate this information with other shareholder a proportionate share of the • If the corporation received a Form adjusted basis of each corporate oil or gas income derived by the corporation that is 1041, Schedule K-1, the amount of the net investment income under section well property. See section 613A(c)(11) for adjustment reported. details. 1411(c)(1)(A)(ii). In addition, Regulations section • Section 951(a) inclusions. The corporation can't deduct depletion 1.1411-10 provides special rules with • Section 951A inclusions. on oil and gas wells. Each shareholder respect to stock of CFCs and PFICs • Section 1293(a)(1)(A) inclusions. must determine the allowable amount to owned by the corporation. If the • Section 1293(a)(1)(B) inclusions. report on his or her return. See Pub. 535 corporation owns directly or indirectly Section 1296 mark-to-market PFICs. for more information. stock of a CFC or PFIC, then additional In the case of stock of PFICs directly or reporting may be required under code U. indirectly owned by the corporation for

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which an election under section 1296 is in b. They share facilities or share • Section 199A PTP income. effect, the corporation must provide the significant centralized business elements, If the S corporation only has one trade following information (to the extent such such as personnel, accounting, legal, or business or aggregation, then the S information isn't otherwise identifiable manufacturing, purchasing, human corporation enters each shareholder’s elsewhere on Schedule K-1), on either an resources, or information technology allocable share directly on that aggregate basis or an entity-by-entity resources. shareholder’s Schedule K-1 for codes V basis (except as provided below). c. They are operated in coordination through Z. • Amounts included in income under with, or reliance upon, one or more of the If the S corporation has more than one section 1296(a)(1). businesses in the aggregated group. • Amounts deducted from income under trade or business or aggregation, then section 1296(a)(2). If the S corporation chooses to enter an asterisk (*) on each shareholder’s Schedule K-1 next to code (V) and enter In the case of PFIC stock owned aggregate multiple trades or businesses, it must report the aggregation by filling out “STMT” in the right column to indicate that directly or indirectly by the corporation for the information is provided on an attached which an election under section 1296 is in Schedule B—Aggregation of Business Operations, under Worksheet 12-A statement. Do not sum the amounts from effect and with respect to which the multiple trades or businesses that are not corporation is engaged in a trade or Specific Instructions, in Pub. 535. However, since an S corporation can’t aggregated together into a single number business described in section 1411(c)(2), on Schedule K-1 for reporting purposes. the corporation may aggregate this claim the deduction, it can’t enter the total information with other income derived by of Schedule B, line 4, on Schedule C or Determining the S corporation’s the corporation that is net investment Parts II and IV of Worksheet 12-A. Instead, qualified trades or businesses. The S income under section 1411(c)(1)(A)(ii). the S corporation must attach a copy of corporation’s qualified trades and Schedule B to each of its shareholders' businesses include its section 162 trades Section 1291 funds. In the case of Schedules K-1. Each shareholder's or businesses, except for specified service stock of PFICs directly or indirectly owned Schedule K-1 will show the shareholder's trades or businesses. A section 162 trade by the corporation with respect to which pro rata share so each shareholder can or business generally includes any activity direct or indirect shareholders are subject properly report the aggregation on their carried on to make a profit. For more to section 1291, the corporation must income tax return. information on what qualifies as a trade or provide the following information (to the The S corporation's aggregations must business, see Pub. 535. extent such information isn't otherwise be reported consistently for all subsequent identifiable elsewhere on Schedule K-1), years, unless there is a change in facts Specified service trades or on an entity-by-entity basis. and circumstances that disqualify the businesses excluded from qualified • Excess distributions made by a PFIC aggregation. Schedule B must be trades or businesses. Specified service with respect to which the shareholder is completed each year to show the S trades or businesses are generally subject to section 1291. corporation's trade or business excluded from the definition of a qualified • Gains derived with respect to the aggregations. Failure to disclose the trade or business. A specified service disposition of stock of a PFIC with respect aggregations may cause them to be trade or business is any trade or business to which a shareholder is subject to disaggregated. providing services in the fields of health, section 1291. law, accounting, actuarial science, The S corporation must attach the performing arts, consulting, athletics, Qualified business income (QBI) de- Schedule B to each shareholder's financial services, brokerage services, or duction (codes V through Z). In the Schedule K-1, along with a statement any other trade or business where the case of an S corporation, the QBI showing the shareholder's pro rata share principal asset is the reputation or skill of deduction is determined at the from the Schedule B. The statement must one or more of its employees. In addition, shareholder level. To allow shareholders show the QBI, W-2 wages, and the trade or business of investing and to correctly figure their QBI deduction, the unadjusted basis immediately after investment management, trading or S corporation must attach a statement to acquisition (UBIA) of qualified property for dealing in securities, partnership interests, its Schedules K-1, separately identifying all aggregated trades or businesses so the or commodities is a specified trade or each trade or business and identifying any shareholders can properly apply the W-2 business. specified service trade or business. An S wage and UBIA limitations. Exceptions. If the shareholder’s corporation engaged in more than one If the S corporation directly or indirectly trade or business may choose to taxable income is equal to or less than the owns an interest in another pass-through threshold of $157,500 ($315,000 if aggregate multiple trades or businesses entity that aggregates multiple trades or into a single trade or business for married filing jointly), the specified service businesses, it must attach a copy of the items are treated as a qualified trade or purposes of section 199A if it meets the pass-through entity's aggregation. The S following requirements. business. If the shareholder’s taxable corporation can’t subtract from the trades income is between $157,501 and 1. The S corporation directly or or businesses aggregated by the $207,500 ($315,001 and $415,000 if indirectly owns 50% or more of each trade pass-through entity, but can add married filing jointly), an applicable or business for a majority of the tax year, additional trades or businesses to the percentage of the specified service trade including the last day of the tax year, and aggregation, assuming the rules above or business is treated as a qualified trade all trades or businesses use the same tax are followed. or business. Therefore, the Schedule K-1 year-end; For each trade or business or issued to each shareholder must 2. None of the trades or business are aggregation, the S corporation must state, separately identify each trade or business a specified service trade or business; and using the same box numbers as shown on and identify any specified service trade or 3. The trades or businesses to be Schedule K- 1, the amount of: business. • Section 199A qualified business aggregated meet at least 2 of the following Section 199A QBI (code V). 3 factors. income, Section 199A W-2 wages, Qualified business income includes items a. They provide products, property, or • Section 199A unadjusted basis of of income, gain, deduction, and loss from services that are the same or that are • qualified property, the S corporation’s trades or businesses. customarily offered together. • Section 199A REIT dividends, and

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However, qualified business income partnership interest that is not treated as a Schedule K-1 that shows the doesn’t include any of the following. capital gain or loss. shareholder's pro rata share of the amount Investment items such as capital gains of each type of income or gain included in • Excess taxable income (code AA). If or losses, dividends, or interest income. the inversion gain. the S corporation is required to file Form Wage income. • 8990, Limitation on Business Interest 6. Basis in qualifying advanced coal Income that is not effectively connected • Expense Under Section 163(j), it may project property. Attach a statement to with the conduct of business within the determine it has excess taxable income. If Schedule K-1 that provides the United States (for more information, go to so, enter the amount from Form 8990, Part shareholder's pro rata share of the basis IRS.gov and type in the key word III, line 41, for excess taxable income on amounts the shareholder will need to “effectively connected income.”) Schedule K. Report the shareholder's pro figure the amounts to report on lines 5a, Commodities transactions, or foreign • rata share in box 17 of Schedule K-1. 5b, and 5c of Form 3468. See the currency gains or losses described in Instructions for Form 3468 for details. section 954(c)(1)(C) or (D). Excess business interest income • Income, loss, or deductions from (code AB). If the S corporation is 7. Basis in qualifying gasification notional principal contracts under section required to file Form 8990, Limitation on project property. Attach a statement to 954(c)(1)(F). Business Interest Expense Under Section Schedule K-1 that provides the • Annuities (unless received in 163(j), it may determine it has excess shareholder's pro rata share of the basis connection with the trade or business). business interest income. If so, enter the amounts the shareholder will need to • Guaranteed payments received by the amount from Form 8990, Part III, line 42, figure the amounts to report on lines 6a entity. for excess taxable income on Schedule K. and 6b of Form 3468. See the Instructions • Payments received by the entity for Report the shareholder's pro rata share in for Form 3468 for details. services rendered to a partnership under box 17 of Schedule K-1. 8. Basis in qualifying advanced section 707(a). energy project property. Attach a Other information (code AC). Report Qualified REIT dividends. statement to Schedule K-1 that provides • the following information to each • Qualified PTP income. the shareholder's pro rata share of the shareholder. basis amounts the shareholder will need Section 199A W-2 wages (code W). 1. If the corporation participates in a to figure the amounts to report on line 7 of The W-2 wages include amounts paid to transaction that must be disclosed on Form 3468. See the Instructions for Form employees under section 6051(a)(3) and Form 8886 (discussed earlier). Both the 3468 for details. (8). If the S corporation conducts more corporation and its shareholders may be 9. If the corporation is a patron of an than one trade or business, it must required to file Form 8886. The allocate the W-2 wages among its trades agricultural or horticultural cooperative, corporation must determine if any of its attach a statement to Schedule K-1 or business. See Notice 2018–64 for more shareholders are required to disclose the information. showing the shareholder's pro rata share transaction and provide those of the qualified business income allocable Section 199A unadjusted basis of shareholders with information they will to qualified payments received from the qualified property (code X). The need to file Form 8886. This determination cooperative so the shareholder may figure unadjusted basis of qualified property is is based on the category(ies) under which the patron reduction under section figured by adding unadjusted basis of all a transaction qualified for disclosures. See 199A(b)(7). Also include any pass-through qualified assets immediately after the Instructions for Form 8886 for details. domestic production activities deduction acquisition. Qualified property includes all 2. If the corporation is involved in under section 199A(g)(2). tangible property subject to depreciation farming or fishing activities, report the 10. Any other information the under section 167 that is held and used by gross income from these activities. shareholders need to prepare their tax the trade or business during the tax year, 3. If the corporation has deductions returns. for which the depreciable period has not attributable to a farming business and ended. The depreciable period ends on receives an applicable subsidy, report the Reconciliation the later of 10 years after the property is aggregate gross income or gain and the placed in service or the last day of the full aggregate deductions from the farming Line 18. Income/Loss year for the applicable recovery period business. See section 461(j) for details. Reconciliation (Schedule K under section 168. 4. The shareholder's pro rata share of Only) any amount included in interest income on Section 199A REIT dividends (code To the extent the corporation has an line 4 with respect to clean renewable Y). Qualified REIT dividends include any amount on line 12d for code S for the energy or (for bonds issued before dividend the S corporation receives from a qualified production activities deduction October 4, 2008) qualified zone academy real estate investment trust held for more (DPAD), exclude the amount(s) from bonds. Shareholders need this information than 45 days and for which the payment is line 18. If the corporation has an amount to properly adjust their stock basis. See not obligated to someone else and that is on line 14p of Schedule K (foreign taxes Form 8912. not capital gain dividend under section paid and accrued), add that amount for 857(b)(3) and is not a qualified dividend 5. Any income or gain reported on purposes of figuring the corporation's net under section 1(h)(11), plus any qualified lines 1 through 10 of Schedule K that income (loss). The amount reported on REIT dividends received from a regulated qualifies as inversion gain, if the line 18 must be the same as the amount investment company (RIC). corporation is an expatriated entity or is a reported on line 8 of Schedule M-1 or Section 199A PTP income (code Z). partner in an expatriated entity. For line 26, column (d), in Part II of Qualified PTP income includes the S details, see section 7874. Attach a Schedule M-3 (Form 1120S). corporation’s share of qualified items of statement to Form 1120S that shows the income, gain, deduction, and loss from a amount of each type of income or gain publicly traded partnership. It also may included in the inversion gain. The Schedule L. Balance include gain or loss recognized on the corporation must report each Sheets per Books disposition of the S corporation’s shareholder's pro rata share of the inversion gain in box 17 of Schedule K-1 The balance sheets should agree with the using code AC. Attach a statement to corporation's books and records.

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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 Reconciliation of Income • Expenses for travel as a form of corporation is required to complete 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. In completing Schedule M-1, the following entertainment expenses. 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 completed if the corporation answered If the corporation has an amount year must file Schedule M-3 (Form 1120S) TIP on line 14p of Schedule K (foreign instead of Schedule M-1. However, see “Yes” to question 11 on Schedule B. • Corporations with total assets of $10 taxes paid and accrued), take that the instructions for Schedule M-1, later. amount into account for purposes of See the separate Instructions for million or more on the last day of the tax year must file Schedule M-3 (Form 1120S) figuring expenses and deductions to enter Schedule M-3 (Form 1120S) for provisions on lines 3 and 6. that also affect Schedule L. instead of Schedule M-1. • A corporation filing Form 1120S that If the S election terminated during the isn't required to file Schedule M-3 may tax year and the corporation reverted to a voluntarily file Schedule M-3 instead of Schedule M-2. Analysis of C corporation, the year-end balance sheet Schedule M-1. See the Instructions for Accumulated Adjustments generally should agree with the books and Schedule M-3 (Form 1120S) for more records at the end of the C short year. information. Account, Shareholders' However, if the corporation elected under • For 2018, corporations that (a) are Undistributed Taxable section 1362(e)(3) to have items assigned required to file Schedule M-3 (Form Income Previously Taxed, to each short year under normal tax 1120S) and have less than $50 million accounting rules, the year-end balance total assets at the end of the tax year, or Accumulated Earnings sheet should agree with the books and (b) aren't required to file Schedule M-3 and Profits, and Other records at the end of the S short year. (Form 1120S) and voluntarily file Schedule M-3 (Form 1120S), must either Adjustments Account Line 5. Tax-Exempt Securities (i) complete Schedule M-3 (Form 1120S) Column (a). Accumulated Include on this line: entirely or (ii) complete Schedule M-3 • State and local government obligations, (Form 1120S) through Part I, and Adjustments Account the interest on which is excludable from complete Form 1120S, Schedule M-1, The accumulated adjustments account gross income under section 103(a); and instead of completing Parts II and III of (AAA) is an account of the S corporation • Stock in a mutual fund or other Schedule M-3 (Form 1120S). If the that generally reflects the accumulated regulated investment company that corporation chooses to complete undistributed net income of the distributed exempt-interest dividends Schedule M-1 instead of completing Parts corporation for the corporation's during the tax year of the corporation. II and III of Schedule M-3, line 1 of post-1982 years. S corporations with Schedule M-1 must equal line 11 of Part I accumulated E&P must maintain the AAA Line 24. Retained Earnings of Schedule M-3. See the Instructions for to determine the tax effect of distributions If the corporation maintains separate Schedule M-3 (Form 1120S) for more during years as an S corporation, the accounts for appropriated and information. post-termination transition period, and unappropriated retained earnings, it may cash distributions following a post- want to continue such accounting for Line 2 termination transition period. An S purposes of preparing its financial balance Report on this line income included on corporation without accumulated E&P sheet. Also, if the corporation converts to Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a, doesn't need to maintain the AAA in order C corporation status in a subsequent year, 9, and 10 not recorded on the books this to determine the tax effect of distributions. it will be required to report its appropriated year. Describe each such item of income. Nevertheless, if an S corporation without and unappropriated retained earnings on Attach a statement if necessary. accumulated E&P engages in certain separate lines of Schedule L of Form transactions to which section 381(a) 1120. Line 3b. Travel and applies, such as a merger into an S Entertainment corporation with accumulated E&P, the S Line 25. Adjustments to Include any of the following applicable corporation must be able to calculate its Shareholders' Equity expenses. AAA at the time of the merger for The following are some examples of • Entertainment expenses not deductible purposes of determining the tax effect of adjustments to report on this line. under section 274(a). post-merger distributions. Therefore, it is • Unrealized gains and losses on • Meal expenses not deductible under recommended that the AAA be maintained securities held “available for sale.” section 274(n). by all S corporations. • Foreign currency translation • Expenses for the use of an On the first day of the corporation's first adjustments. entertainment facility. tax year as an S corporation, the balance • The excess of additional pension • The part of business gifts over $25. of the AAA is zero. At the end of the tax liability over unrecognized prior service • Expenses of an individual over $2,000, year, adjust the AAA for the items as cost. which are allocable to conventions on explained below and in the order listed. • Guarantees of employee stock cruise ships. ownership plan (ESOP) debt. • Employee achievement awards of 1. Increase the AAA by income (other • Compensation related to employee nontangible property or tangible property than tax-exempt income) and the excess stock award plans. over $400 ($1,600 if part of a qualified of the deduction for depletion over the plan). basis of the property subject to depletion If the total adjustment to be entered is a • The cost of skyboxes. (unless the property is an oil and gas negative amount, enter the amount in property the basis of which has been parentheses. allocated to shareholders).

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2. Generally, decrease the AAA by Furthermore, the aggregate amount of imposed on excess net passive income. deductible losses and expenses, the S corporation's section 965(a) See Excess net passive income tax, for nondeductible expenses (other than inclusions equal to the aggregate amount details on this tax. expenses related to tax-exempt income), of its section 965(c) deductions is treated and the sum of the shareholders' as income for purposes of calculating Column (d). Other Adjustments deductions for depletion for any oil or gas AAA. An example describing the Account property held by the corporation as application of these rules can be found in The other adjustments account is adjusted described in section 1367(a)(2)(E). If Regulations section 1.965-3(f)(2)(iii). for tax-exempt income (and related deductible losses and expenses include Column (b). Shareholders' expenses) and federal taxes attributable the fair market value of certain contributed to a C corporation tax year. After these property (discussed earlier), further adjust Undistributed Taxable Income adjustments are made, the account is AAA by adding back the fair market value Previously Taxed reduced for any distributions made during of the contributed property and subtracting The shareholders' undistributed taxable the year. See Distributions, next. instead the property's adjusted basis. If income previously taxed account, also the total decreases under (2) exceed the Distributions called previously taxed income (PTI), is total increases under (1) above, the maintained only if the corporation had a General rule. Unless the corporation excess is a “net negative adjustment.” If balance in this account at the start of its makes one of the elections described the corporation has a net negative 2018 tax year. If there is a beginning below, property distributions (including adjustment, don't take it into account balance for the 2018 tax year, no cash) are applied in the following order (to under (2). Instead, take it into account only adjustments are made to the account reduce accounts of the S corporation that under (4) below. except to reduce the account for are used to figure the tax effect of 3. Decrease AAA (but not below zero) distributions made under section 1375(d) distributions made by the corporation to its by property distributions (other than (as in effect before the enactment of the shareholders). dividend distributions from accumulated Subchapter S Revision Act of 1982). See 1. Reduce the AAA determined E&P), unless the corporation elects to Distributions next for the order of without regard to any net negative reduce accumulated E&P first. See distributions from the account. adjustment for the tax year (but not below Distributions, later, for definitions and zero). If distributions during the tax year other details. Each shareholder's right to nontaxable distributions from PTI is personal and can't exceed the AAA at the close of the tax 4. Decrease AAA by any net negative be transferred to another person. The year determined without regard to any net adjustment. For adjustments to the AAA corporation is required to keep records of negative adjustment for the tax year, the for redemptions, reorganizations, and each shareholder's net share of PTI. AAA is allocated pro rata to each corporate separations, see Regulations distribution made during the tax year. See section 1.1368-2(d). Column (c). Accumulated section 1368. The AAA may have a negative Earnings and Profits. 2. Reduce shareholders' PTI account TIP balance at year end. See section If the corporation was a C corporation in a for any section 1375(d) (as in effect before 1368(e). prior year, or if it engaged in a tax-free 1983) distributions. A distribution from the reorganization with a C corporation, enter PTI account is tax free to the extent of a Incorporating section 965 adjustments the amount of any accumulated earnings shareholder's basis in his or her stock in to AAA. The aggregate amount of the S and profits (E&P) at the close of its 2017 the corporation. corporation's section 965(a) inclusions tax year on line 1 in column (c). For details 3. Reduce accumulated E&P. reduced by the aggregate amount of its on figuring accumulated E&P, see section Generally, the S corporation has section 965(c) deductions is treated as a 312. Estimates based on retained accumulated E&P only if it hasn't separately stated combined net amount earnings at the end of the tax year are distributed E&P accumulated in prior years for purposes of calculating AAA. acceptable. If the corporation has when the S corporation was a C accumulated E&P, it may be liable for tax

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

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.

Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of December 2018, for taxpayers filing 2018 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120S, 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 do not 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.

Reported time and cost burdens are national averages and do not necessarily reflect a “typical” case. Most taxpayers experience lower than average burden, with taxpayer burden varying considerably by taxpayer type. For instance, the estimated average time

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burden for all taxpayers filing Forms 1065, 1066, or 1120 and related forms is 280 hours, with an average cost of $5,146 per return. This average includes all associated forms and schedules, across all preparation methods and taxpayer activities. The average burden for taxpayers filing Forms 1065, 1066, and related attachments is about 290 hours and $5,800; the average burden for taxpayers filing Form 1120 and associated forms is about 340 hours and $7,900; and the average for Forms 1120-REIT, 1120-RIC, 1120S, and all related attachments is 245 hours and $3,500. Within each of these estimates there is significant variation in taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these estimates.

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 4.2 290 $5,800 Small 4.0 270 $4,400 Large* 0.2 610 $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 2.0 340 $7,900 Small 1.9 380 $4,000 Large* 0.1 1,250 $69,100 *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, 1120S 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 5.0 245 $3,500 Small 4.9 240 $3,100 Large* 0.1 610 $30,800 *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.

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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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Index

Estimated tax payment 4, 20 Low-income housing credit Related party transactions 15 A Estimated tax penalty 20 recapture 36 Rental activities, income and Accounting methods 5 Expenses, nondeductible–Sch. expenses 24 Accounting period 5 K or K-1 35 Rental deduction 16 Accumulated adjustments Extension of time to file 3 M Return, amended 6 account 40 Extraterritorial income Multiple activities–reporting Amended return 6 exclusion 12 requirements 23 Amortization 15 S Amount owed 20 Salaries and wages 16 Assembling return 4 F N Sales 13 At-risk activities–reporting Farming, special rules 15 Net investment income (code Schedule L 39 requirements 23 Final return 13 U) 37 Schedule M-1 40 Foreign transactions–Sch. K or Net investment income tax Schedule M-2 40 K-1 32 reporting requirements 11 Schedule M-3 12 B Forms and Publications, how Section 1411 election with Bad debt deduction 16 to get 2 respect to CFCs and Balance sheets–Sch. L 39 O QEFs 7 Business startup expenses 15 Officer compensation 16 Section 179 expense 27 G Section 263A rules 14 Gain, ordinary 14 Section 59(e)(2) C Gain (loss), section 1231–Sch. P expenditures 28 Change in accounting K or K-1 26 Passive activities–rental 8 Self-charged interest 9 method 5 Gross receipts 13 Passive activities–reporting Substitute Sch. K-1 22 Charitable contributions 27 requirements 11 Cost of goods sold 14 Passive activity limitations 7 I Penalties 5 T Income 13 Pension, profit-sharing, etc., Taxes and licenses D Income, rental activities 24 plans 18 deduction 17 Deductions 14, 27 Income, tax-exempt 35 Portfolio income 9, 24 Taxes due 19 Deductions, limitations on 14 Income, trade or business Preparer, tax return 4 Tax issues, unresolved 2 Deductions from oil and gas activities 24 Private delivery services 3 Termination of S election 2 properties 34 Income from oil and gas Property distributions 35 Travel and entertainment Depletion 18 properties 34 deduction 18 Depletion (other than oil and Installment sales 13 gas) 34 Interest deduction 17 Q Depreciation 18 Interest due on tax payment 5 Qualified rehabilitation W Direct deposit of refund 2, 21 Interest expense, expenditures 30 When to file 3 Distributions 41 investment 28 Where to file 3 Distributions, property 35 Inventory 14 Who must file 2 Investment income and R Who must sign 3 expenses 35 Recapture, low-income E housing credit 36 Election, termination of 2 Recapture, section 179 Electronic filing 3 L deduction 36 Employee benefit Loans from shareholders 35 Recordkeeping 6 programs 18 Lobbying expenses, Reforestation 19, 29 Employer identification number nondeductible 19 Regulations section (EIN) 13 Low-income housing credit 30 1.1411-10(g) 7

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