Specific Instructions

Table of Contents

Period Covered

File the 2013 return for calendar year 2013 and fiscal years that begin in 2013 and end in 2014. For a fiscal or short tax year return, fill in the tax year space at the top of the form.

The 2013 Form 1120 can also be used if:

  • The corporation has a tax year of less than 12 months that begins and ends in 2014, and

  • The 2014 Form 1120 is not available at the time the corporation is required to file its return.

The corporation must show its 2014 tax year on the 2013 Form 1120 and take into account any tax law changes that are effective for tax years beginning after December 31, 2013.

Name and Address

Enter the corporation's true name (as set forth in the charter or other legal document creating it), address, and EIN on the appropriate lines. Enter the address of the corporation's principal office or place of business. Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the corporation has a P.O. box, show the box number instead.

Note.

Do not use the address of the registered agent for the state in which the corporation is incorporated. For example, if a business is incorporated in Delaware or Nevada and the corporation's principal office is located in Little Rock, AR, the corporation should enter the Little Rock address.

If the corporation receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line “C/O” followed by the third party's name and street address or P.O. box.

If the corporation has a foreign address, include the city or town, state or province, country, and foreign postal code. Do not abbreviate the country name. Follow the country's practice for entering the name of the state or province and postal code.

Item A. Identifying Information

Consolidated Return

Corporations filing a consolidated return must check Item A, box 1a, and attach Form 851, Affiliations Schedule, and other supporting statements to the return. Also, for the first year a subsidiary corporation is being included in a consolidated return, attach Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return, to the parent's consolidated return. Attach a separate Form 1122 for each new subsidiary being included in the consolidated return.

File supporting statements for each corporation included in the consolidated return. Do not use Form 1120 as a supporting statement. On the supporting statement, use columns to show the following, both before and after adjustments.

  1. Items of gross income and deductions.

  2. A computation of taxable income.

  3. Balance sheets as of the beginning and end of the tax year.

  4. A reconciliation of income per books with income per return.

  5. A reconciliation of retained earnings.

Enter on Form 1120 the totals for each item of income, gain, loss, expense, or deduction, net of eliminating entries for intercompany transactions between corporations within the consolidated group. Attach consolidated balance sheets and a reconciliation of consolidated retained earnings.

The corporation does not have to provide the information requested in (3), (4), and (5), above, if its total receipts (line 1a plus lines 4 through 10 on page 1 of the return) and its total assets at the end of the tax year (Schedule L, line 15(d)) are less than $250,000. See Schedule K, question 13.

For more information on consolidated returns, see the regulations under section 1502.

Life-Nonlife Consolidated Return

If Item A, box 1a, is checked and the corporation is the common parent of a consolidated group that includes a life-nonlife insurance company, also check box 1b. See Regulations section 1.1502-47(s) for the filing requirements of a life-nonlife consolidated return.

Personal Holding Company

A personal holding company must check Item A, box 2 and attach Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax. See the Instructions for Schedule PH (Form 1120) for details.

Personal Service Corporation

If the corporation is a personal service corporation, check Item A, box 3. A personal service corporation is a corporation whose principal activity for the testing period is the performance of personal services. The testing period for a tax year is generally the prior tax year unless the corporation has just been formed. Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, and the performing arts. The services must be substantially performed by employee-owners.

A personal service corporation must use a calendar tax year unless:

  • It elects to use a 52-53-week tax year that ends with reference to the calendar year or tax year elected under section 444;

  • It can establish a business purpose for a different tax year and obtains the approval of the IRS (see the Instructions for Form 1128 and Pub. 538); or

  • It elects under section 444 to have a tax year other than a calendar year. To make the election, use Form 8716, Election To Have a Tax Year Other Than a Required Tax Year.

If a corporation makes the section 444 election, its deduction for certain amounts paid to employee-owners may be limited. See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction.

If a section 444 election is terminated and the termination results in a short tax year, type or print at the top of the first page of Form 1120 for the short tax year “SECTION 444 ELECTION TERMINATED.

Schedule M-3 (Form 1120)

A corporation with total assets (non-consolidated or consolidated for all corporations included within a tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, instead of Schedule M-1. A corporation filing Form 1120 that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1.

If you are filing Schedule M-3, check Item A, box 4, to indicate that Schedule M-3 is attached. See the Instructions for Schedule M-3 for more details.

Item B. Employer Identification Number (EIN)

Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN can be applied for:

  • Online—Click on the Employer ID Numbers link at www.irs.gov/businesses. The EIN is issued immediately once the application information is validated.

  • By telephone at 1-800-829-4933, or at 1-800-829-4059 for individuals who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment.

  • By faxing or mailing Form SS-4, Application for Employer Identification Number.

    Corporations located in the United States or U.S. possessions can use the online application. Foreign corporations must use one of the other methods to apply.

EIN applied for, but not received.   If the corporation has not received its EIN by the time the return is due, enter “Applied For” and the date the corporation applied in the space for the EIN. However, if the corporation is filing its return electronically, an EIN is required at the time the return is filed. An exception applies to subsidiaries of corporations whose returns are filed with the parent's electronically filed consolidated Form 1120. These subsidiaries should enter “Applied For” in the space for the EIN on their returns. The subsidiaries' returns are identified under the parent corporation's EIN.

For more information, see the Instructions for Form SS-4.

Item D. Total Assets

Enter the corporation's total assets (as determined by the accounting method regularly used in keeping the corporation's books and records) at the end of the tax year. If there are no assets at the end of the tax year, enter -0-.

If the corporation is required to complete Schedule L, enter on page 1, Item D. Total assets from Schedule L, line 15, column (d). If filing a consolidated return, report total consolidated assets for all corporations joining in the return.

Item E. Initial Return, Final Return, Name Change, or Address Change

  • If this is the corporation's first return, check the “Initial return” box.

  • If this is the corporation's final return and it will no longer exist, check the “Final return” box.

  • If the corporation changed its name since it last filed a return, check the “Name change” box. Generally, a corporation also must have amended its articles of incorporation and filed the amendment with the state in which it was incorporated.

  • If the corporation has changed its address since it last filed a return (including a change to an “in care of” address), check the “Address change” box.

Note.

If a change in address or responsible party occurs after the return is filed, use Form 8822-B, Change of Address or Responsible Party— Business, to notify the IRS. See the instructions for Form 8822-B for details.

Income

Except as otherwise provided in the Internal Revenue Code, gross income includes all income from whatever source derived.

Exception for income from qualifying shipping activities.   Gross income does not include income from qualifying shipping activities if the corporation makes an election under section 1354 to be taxed on its notional shipping income (as defined in section 1353) at the highest corporate tax rate (35%). If the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. A corporation making this election also may elect to defer gain on the disposition of a qualifying vessel.

  Use Form 8902, Alternative Tax on Qualifying Shipping Activities, to figure the tax. Include the alternative tax on Schedule J, line 9e.

Line 1. Gross Receipts or Sales

Line 1a. Gross receipts or sales.   Enter on line 1a gross receipts or sales from all business operations, except for amounts that must be reported on lines 4 through 10.

  Special rules apply to certain income, as discussed below.

Advance payments.

In general, advance payments are reported in the year of receipt. For exceptions to this general rule for corporations that use the accrual method of accounting, see the following.

  • To report income from long-term contracts, see section 460.

  • For special rules for reporting certain advance payments for goods and long-term contracts, see Regulations section 1.451-5.

  • For rules that allow a limited deferral of advance payments beyond the current tax year, see Rev. Proc. 2004-34, 2004-22 I.R.B. 991. For rules for the deferral of advance payments from the sale of certain gift cards, see Rev. Proc. 2011-18, 2011-5 I.R.B. 443, as modified and clarified by Rev. Proc. 2013-29, 2013-33 I.R.B. 141.

  • For information on adopting or changing to a permissible method for reporting advance payments for services and certain goods by an accrual method corporation, see the Instructions for Form 3115.

Installment sales.

Generally, the installment method cannot be used for dealer dispositions of property. A “dealer disposition” is any disposition of: (a) personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan or (b) real property held for sale to customers in the ordinary course of the taxpayer's trade or business.

The restrictions on using the installment method do not apply to the following.

  • Dealer dispositions of property before March 1, 1986.

  • Dispositions of property used or produced in the trade or business of farming.

  • Certain dispositions of timeshares and residential lots reported under the installment method for which the corporation elects to pay interest under section 453(I)(3).

Enter on line 1a (and carry to line 3), the gross profit on collections from these installment sales. Attach a statement showing the following information for the current and the 3 preceding years: (a) gross sales, (b) cost of goods sold, (c) gross profits, (d) percentage of gross profits to gross sales, (e) amount collected, and (f) gross profit on the amount collected.

For sales of timeshares and residential lots reported under the installment method, if the corporation elects to pay interest under section 453(I)(3), the corporation's income tax is increased by the interest payable under section 453(l)(3). Report this addition to the tax on Schedule J, Part I, line 9f.

Nonaccrual experience method for service providers.

Accrual method corporations are not required to accrue certain amounts to be received from the performance of services that, on the basis of their experience, will not be collected, if:

  • The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, or

  • The corporation's average annual gross receipts have not exceeded $5 million for any prior 3-tax-year period. For more details, see Regulations sections 1.448-2(a)(2) and 1.448-1T(f)(2).

This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. See Regulations section 1.448-2 for information on the nonaccrual experience method, including information on safe harbor methods. See Rev. Proc. 2011-46, 2011-42 I.R.B. 518, for information on a book safe harbor method of accounting for corporations that use the nonaccrual experience method of accounting. Also, see Rev. Proc. 2011-46, for procedures to obtain automatic consent to change to this method or make certain changes within this method.

Corporations that qualify to use the nonaccrual experience method should attach a statement showing total gross receipts, the amount not accrued as a result of the application of section 448(d)(5), and the net amount accrued. Enter the net amount on line 1a.

Line 1b. Returns and allowances.    Enter cash and credit refunds the corporation made to customers for returned merchandise, rebates, and other allowances made on gross receipts or sales.

Line 2. Cost of Goods Sold

Complete and attach Form 1125-A, Cost of Goods Sold, if applicable. Enter on Form 1120, line 2, the amount from Form 1125-A, line 8. See Form 1125-A and its instructions.

Line 4. Dividends

See the instructions for Schedule C, later. Then, complete Schedule C and enter on line 4 the amount from Schedule C, line 19.

Line 5. Interest

Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, etc. Do not offset interest expense against interest income. Special rules apply to interest income from certain below-market-rate loans. See section 7872 for details.

Note.

Report tax-exempt interest income on Schedule K, item 9. Also, if required, include the same amount on Schedule M-1, line 7, or Schedule M-3 (Form 1120), Part II, line 13, if applicable.

Line 6. Gross Rents

Enter the gross amount received for the rental of property. Deduct expenses such as repairs, interest, taxes, and depreciation on the proper lines for deductions. A rental activity held by a closely held corporation or a personal service corporation may be subject to the passive activity loss rules. See Passive activity limitations, later.

Line 10. Other Income

Enter any other taxable income not reported on lines 1 through 9. List the type and amount of income on an attached statement. If the corporation has only one item of other income, describe it in parentheses on line 10.

Examples of other income to report on line 10 include the following.

  • Recoveries of bad debts deducted in prior years under the specific charge-off method.

  • The amount included in income from Form 6478, Biofuel Producer Credit.

  • The amount included in income from Form 8864, Biodiesel and Renewable Diesel Fuels Credit.

  • Refunds of taxes deducted in prior years to the extent they reduced the amount of tax imposed. See section 111 and the related regulations. Do not offset current year taxes against tax refunds.

  • Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 26. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.

  • Any LIFO recapture amount under section 1363(d). The corporation may have to include a LIFO recapture amount in income if it:

    1. Used the LIFO inventory method for its last tax year before the first tax year for which it elected to become an S corporation or

    2. Transferred LIFO inventory assets to an S corporation in a nonrecognition transaction in which those assets were transferred basis property.

    The LIFO recapture amount is the amount by which the C corporation's inventory under the FIFO method exceeds the inventory amount under the LIFO method at the close of the corporation's last tax year as a C corporation (or for the year of the transfer, if (2) above applies). Also see the instructions for Schedule J, Part I, line 11.

  • Any net positive section 481(a) adjustment.

  • Part or all of the proceeds received from certain corporate-owned life insurance contracts issued after August 17, 2006. Corporations that own one or more employer-owned life insurance contracts issued after this date must file Form 8925, Report of Employer-Owned Life Insurance Contracts. See section 101(j) for details.

  • Income from cancellation of debt (COD) for the repurchase of a debt instrument for less than its adjusted issue price. However, if a corporation elected under section 108(i), to defer the income from COD in connection with the reacquisition of an applicable debt instrument in 2009 and 2010, the income is deferred and ratably included in income over the 5-year period beginning with:

    1. For a reacquisition that occurred in 2009, the fifth tax year following the tax year in which the reacquisition occurred, and

    2. For a reacquisition that occurred in 2010, the fourth tax year following the tax year in which the reacquisition occurred.

Once made, the election is irrevocable and the exclusions for COD income under section 108(a)(1)(A), (B), (C), and (D) do not apply for the tax year of the election or any later tax year. An annual information statement, discussed earlier under Annual information statement for elections under section 108(i), is required. Also, any deferred COD income that has been accelerated because of certain events under section 108(i)(5)(D) must be included in income in the current year.

For more information, see section 108(i), Regulations section 1.108(i)-1, and Rev. Proc. 2009-37. If the corporation is a direct or indirect partner in a partnership, other special rules apply. See Regulations section 1.108(i)-2.

  • The corporation's share of the following income from Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund.

    1. Ordinary earnings of a qualified electing fund.

    2. Gain or loss from marking passive foreign investment company (PFIC) stock to market.

    3. Gain or loss from sale or other disposition of Section 1296 stock.

    4. Excess distributions from a section 1291 fund.

See Form 8621 and the Instructions for Form 8621 for details.

Deductions

Limitations on Deductions

Uniform capitalization rules.   The uniform capitalization rules of section 263A require corporations to capitalize, or include in inventory, certain costs. Corporations subject to the section 263A uniform capitalization rules are required to capitalize:
  1. Direct costs, and

  2. An allocable part of most indirect costs (including taxes) that (a) benefit the assets produced or acquired for resale, or (b) are incurred because of the performance of production or resale activities.

The costs required to be capitalized under section 263A are not deductible until the property (to which the costs relate) is sold, used, or otherwise disposed of by the corporation. You recover these costs through depreciation, amortization, or cost of goods sold.

For more details, including exceptions to the uniform capitalization rules, see Pub. 538. Also see Regulations sections 1.263A-1 through 1.263A-3. See Regulations section 1.263A-4 for rules for property produced in a farming business.

Transactions between related taxpayers.   Generally, an accrual basis taxpayer can only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. See sections 163(e)(3),163(j), and 267 for limitations on deductions for unpaid interest and expenses.

  Corporations use Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, to figure the amount of any corporate interest expense disallowed by section 163(j).

Section 291 limitations.   Corporations may be required to adjust deductions for depletion of iron ore and coal, intangible drilling and exploration and development costs, certain deductions for financial institutions, and the amortizable basis of pollution control facilities. See section 291 to determine the amount of the adjustment.

Election to deduct business start-up and organizational costs.   For 2013 a corporation can elect to deduct up to $5,000 of business start-up and up to $5,000 of organizational costs paid or incurred after October 22, 2004. Any remaining costs must be amortized ratably over an 180-month period. The $5,000 deduction is reduced (but not below zero) by the amount the total costs exceed $50,000. If the total costs are $55,000 or more, the deduction is reduced to zero.

Time for making an election.

The corporation generally elects to deduct start-up or organizational costs by claiming the deduction on its income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. However, for start-up or organizational costs paid or incurred before September 9, 2008, the corporation may be required to attach a statement to its return to elect to deduct such costs.

If the corporation timely filed its return for the year without making an election, it can still make an election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on the amended return and write “Filed pursuant to section 301.9100-2” at the top of the amended return. File the amended return at the same address the corporation filed its original return. The election applies when figuring taxable income for the current tax year and all subsequent years.

The corporation can choose to forgo the elections above by affirmatively electing to capitalize its start-up or organizational costs on its income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.

Note.

The election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to the trade or business.

Report the deductible amount of start-up and organizational costs and any amortization on line 26. For amortization that begins during the 2013 tax year, complete and attach Form 4562, Depreciation and Amortization.

For more details on business start-up and organizational costs, see the Instructions for Form 4562. Also see Pub. 535, Business Expenses.

Passive activity limitations.   Limitations on passive activity losses and credits under section 469 apply to personal service corporations (defined earlier) and closely held corporations (defined later).

  Generally, the two kinds of passive activities are:
  • Trade or business activities in which the corporation did not materially participate for the tax year; and

  • Rental activities, regardless of its participation.

For exceptions, see Form 8810, Corporate Passive Activity Loss and Credit Limitations.

  Corporations subject to the passive activity limitations must complete Form 8810 to compute their allowable passive activity loss and credit. Before completing Form 8810, see Temporary Regulations section 1.163-8T, which provides rules for allocating interest expense among activities. If a passive activity is also subject to the earnings stripping rules of section 163(j), the at-risk rules of section 465, or the tax-exempt use loss rules of section 470, those rules apply before the passive loss rules.

  For more information, see section 469, the related regulations, and Pub. 925, Passive Activity and At-Risk Rules.

Closely held corporations.

A corporation is a closely held corporation if:

  • At any time during the last half of the tax year more than 50% in value of its outstanding stock is directly or indirectly owned by or for not more than five individuals, and

  • The corporation is not a personal service corporation.

Certain organizations are treated as individuals for purposes of this test. See section 542(a)(2). For rules for determining stock ownership, see section 544 (as modified by section 465(a)(3)).

Reducing certain expenses for which credits are allowable.   If the corporation claims certain credits, it may need to reduce the otherwise allowable deductions for expenses used to figure the credit. This applies to credits such as the following.
  • Work opportunity credit (Form 5884).

  • Credit for increasing research activities (Form 6765).

  • Orphan drug credit (Form 8820).

  • Disabled access credit (Form 8826).

  • Empowerment zone employment credit (Form 8844).

  • Indian employment credit (Form 8845).

  • Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846).

  • Credit for small employer pension plan startup costs (Form 8881).

  • Credit for employer-provided childcare facilities and services (Form 8882).

  • Low sulfur diesel fuel production credit (Form 8896).

  • Mine rescue team training credit (Form 8923).

  • Credit for employer differential wage payments (Form 8932).

  • Credit for small employer health insurance premiums (Form 8941).

  If the corporation has any of these credits, figure the current year credit before figuring the deduction for expenses on which the credit is based. If the corporation capitalized any costs on which it figured the credit, it may need to reduce the amount capitalized by the credit attributable to these costs.

  See the instructions for the form used to figure the applicable credit for more details.

Limitations on deductions related to property leased to tax-exempt entities.   If a corporation leases property to a governmental or other tax-exempt entity, the corporation cannot claim deductions related to the property to the extent that they exceed the corporation's income from the lease payments. This disallowed tax-exempt use loss can be carried over to the next tax year and treated as a deduction with respect to the property for that tax year. See section 470(d) for exceptions.

Limitation on tax benefits for remuneration under the Patient Protection and Affordable Care Act.   The $1 million compensation limit is reduced to $500,000 for remuneration for services provided by individuals for or on behalf of certain health insurance providers in taxable years beginning after December 31, 2009. The $500,000 limitation applies to remuneration that is deductible in the taxable year during which the services were performed and remuneration for services during the year that is deductible in a future taxable year (called "deferred deduction remuneration"). The $500,000 limitation is reduced by any amounts disallowed as excess parachute payments. See section 162(m)(6) for definitions and other special rules. Also see Notice 2011-2, 2011-2 I.R.B. 260, for additional guidance.

Line 12. Compensation of Officers

Enter deductible officers' compensation on line 12. Do not include compensation deductible elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the corporation's total receipts (line 1a, plus lines 4 through 10) are $500,000 or more, complete Form 1125-E, Compensation of Officers. Enter on Form 1120, line 12, the amount from Form 1125-E, line 4.

Line 13. Salaries and Wages

Enter the total salaries and wages paid for the tax year. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers' compensation, cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the corporation claims a credit for any wages paid or incurred, it may need to reduce its deduction for officer's compensation and salaries and wages. See Reducing certain expenses for which credits are allowable, earlier.

If the corporation provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages the amount allocated for depreciation and other expenses claimed on lines 20 and 26.

Line 14. Repairs and Maintenance

Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that do not add to the value of the property or appreciably prolong its life. New buildings, machinery, or permanent improvements that increase the value of the property are not deductible. They must be depreciated or amortized.

Line 15. Bad Debts

Enter the total debts that became worthless in whole or in part during the tax year. A small bank or thrift institution using the reserve method of section 585 should attach a statement showing how it figured the current year's provision. A corporation that uses the cash method of accounting cannot claim a bad debt deduction unless the amount was previously included in income.

Line 16. Rents

If the corporation rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred during the year. Also complete Part V of Form 4562. If the corporation leased a vehicle for a term of 30 days or more, the deduction for vehicle lease expense may have to be reduced by an amount includible in income called the inclusion amount. The corporation may have an inclusion amount if:

The lease term began: And the vehicle's FMV on the first day of the lease exceeded:
Cars (excluding trucks and vans)  
After 12/31/12 but before 1/1/14 $19,000
After 12/31/07 but before 1/1/13 $18,500
Trucks and Vans  
After 12/31/09 but before 1/1/14 $19,000
After 12/31/08 but before 1/1/10 $18,500
After 12/31/07 but before 1/1/09 $19,000

 

See Pub. 463, Travel, Entertainment, Gift and Car Expenses, for instructions on figuring the inclusion amount. The inclusion amount for lease terms beginning in 2014 will be published in the Internal Revenue Bulletin in early 2014.

Line 17. Taxes and Licenses

Enter taxes paid or accrued during the tax year, but do not include the following.

  • Federal income taxes.

  • Foreign or U.S. possession income taxes if a foreign tax credit is claimed.

  • Taxes not imposed on the corporation.

  • Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property (these taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition).

  • Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).

  • Taxes deducted elsewhere on the return, such as those reflected in cost of goods sold.

See section 164(d) for information on apportionment of taxes on real property between seller and purchaser.

Line 18. Interest

Note.

Do not offset interest income against interest expense.

The corporation must make an interest allocation if the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire an interest in a passive activity). See Temporary Regulations section 1.163-8T for the interest allocation rules.

Mutual savings banks, building and loan associations, and cooperative banks can deduct the amounts paid or credited to the accounts of depositors as dividends, interest, or earnings. See section 591.

Do not deduct the following interest.

  • Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. See section 265(b) for special rules and exceptions for financial institutions. Also see section 265(b)(7) for a de minimis exception for financial institutions for certain tax-exempt bonds issued in 2009 and 2010.

  • For cash basis taxpayers, prepaid interest allocable to years following the current tax year. For example, a cash basis calendar year taxpayer who in 2013 prepaid interest allocable to any period after 2013 can deduct only the amount allocable to 2013.

  • Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g).

  • Interest on debt allocable to the production of designated property by a corporation for its own use or for sale. The corporation must capitalize this interest. Also capitalize any interest on debt allocable to an asset used to produce the property. See section 263A(f) and Regulations sections 1.263A-8 through 1.263A-15 for definitions and more information.

  • Interest paid or incurred on any portion of an underpayment of tax that is attributable to an understatement arising from an undisclosed listed transaction or an undisclosed reportable avoidance transaction (other than a listed transaction) entered into in tax years beginning after October 22, 2004.

Special rules apply to:

  • Disqualified interest on certain indebtedness under section 163(j). See Form 8926, and the related instructions.

  • Interest on which no tax is imposed (see section 163(j)). A corporation that owns an interest in a partnership, directly or indirectly, must treat its distributive share of the partnership liabilities, interest income, and interest expense as liabilities, income, and expenses of the corporation for purposes of applying the earnings stripping rules. For more details, see section 163(j)(8).

  • Forgone interest on certain below-market-rate loans (see section 7872).

  • Original issue discount (OID) on certain high-yield discount obligations. See section 163(e)(5) to determine the amount of the deduction for original issue discount that is deferred and the amount that is disallowed on a high-yield discount obligation. The rules under section 163(e)(5) do not apply to certain high-yield discount obligations issued after August 31, 2008 and before January 1, 2011. See section 163(e)(5)(F). Also see Notice 2010-11, 2010-4 I.R.B. 326.

  • Interest which is allocable to unborrowed policy cash values of life insurance, endowment, or annuity contracts issued after June 8, 1997. See section 264(f). Attach a statement showing the computation of the deduction.

  • Section 108(i) OID deduction. If the corporation issued a debt instrument with OID that is subject to section 108(i)(2) because of an election to defer the income from the cancellation of debt (COD), the interest deduction for this OID is deferred until the COD is includible in income. The accrued OID is allowed as a deduction ratably over the 5-year period that the income from COD is includible in income. The deduction is limited to the amount of COD subject to the section 108(i) election. In addition, a deferred COD deduction may be allowed as a deduction in the current year because of an accelerated event. See section 108(i)(5)(D).

Line 19. Charitable Contributions

Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused contributions carried over from prior years. Special rules and limits apply to contributions to organizations conducting lobbying activities. See section 170(f)(9).

Corporations reporting taxable income on the accrual method can elect to treat as paid during the tax year any contributions paid by the 15th day of the 3rd month after the end of the tax year if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. The declaration must include the date the resolution was adopted. See Regulations section 1.170A-11.

Limitation on deduction.   The total amount claimed cannot be more than 10% of taxable income (line 30) computed without regard to the following.
  • Any deduction for contributions.

  • The special deductions on line 29b.

  • The limitation under section 249 on the deduction for bond premium.

  • The domestic production activities deduction under section 199.

  • Any net operating loss (NOL) carryback to the tax year under section 172.

  • Any capital loss carryback to the tax year under section 1212(a)(1).

Suspension of 10% limitation for farmers and ranchers.

A corporation that is a qualified farmer or rancher (as defined in section 170(b)(1)(E)) that does not have publicly traded stock, can deduct contributions of qualified conservation property without regard to the general 10% limit. The total amount of the contribution claimed for the qualified conservation property cannot exceed 100% of the excess of the corporation's taxable income (as computed above substituting “100%” for “10%”) over all other allowable charitable contributions. Any excess qualified conservation contributions can be carried over to the next 15 years, subject to the 100% limitation. See section 170(b)(2)(B).

Carryover.   Charitable contributions over the 10% limitation cannot be deducted for the tax year but can be carried over to the next 5 tax years.

  Special rules apply if the corporation has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the current tax year, the 10% limit is applied using the taxable income after taking into account any deduction for the NOL.

  To figure the amount of any remaining NOL carryover to later years, taxable income must be modified (see section 172(b)). To the extent that contributions are used to reduce taxable income for this purpose and increase an NOL carryover, a contributions carryover is not allowed. See section 170(d)(2)(B).

Cash contributions.   For contributions of cash, check, or other monetary gifts (regardless of the amount), the corporation must maintain a bank record, or a receipt, letter, or other written communication from the donee organization indicating the name of the organization, the date of the contribution, and the amount of the contribution.

Contributions of $250 or more.   A corporation can deduct a contribution of $250 or more only if it gets a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed (but not its value), and, either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the corporation's return, or, if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with the corporation's records.

Contributions of property other than cash.   If a corporation (other than a closely held or personal service corporation) contributes property other than cash and claims over a $500 deduction for the property, it must attach a statement to the return describing the kind of property contributed and the method used to determine its fair market value (FMV). Closely held corporations and personal service corporations must complete Form 8283, Noncash Charitable Contributions, and attach it to their returns. All other corporations generally must complete and attach Form 8283 to their returns for contributions of property (other than money) if the total claimed deduction for all property contributed was more than $5,000. Special rules apply to the contribution of certain property. See the Instructions for Form 8283.

Qualified conservation contributions.

Special rules apply to qualified conservation contributions, including contributions of certain easements on buildings located in a registered historic district. See section 170(h) and Pub. 526, Charitable Contributions.

Other special rules.

The corporation must reduce its deduction for contributions of certain capital gain property. See sections 170(e)(1) and 170(e)(5).

A larger deduction is allowed for certain contributions including the following:

  • Inventory and other property to certain organizations for use in the care of the ill, needy, or infants (see section 170(e)(3)), including qualified contributions of “apparently wholesome food” made before January 1, 2014 (see section 170(e)(3)(C)).

  • Scientific equipment used for research to institutions of higher learning or to certain scientific research organizations (other than by personal holding companies and service organizations). See section 170(e)(4).

For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 and the related regulations and Pub. 526. For other special rules that apply to corporations, see Pub. 542.

Line 20. Depreciation

Include on line 20 depreciation and the cost of certain property that the corporation elected to expense under section 179. See Form 4562 and the Instructions for Form 4562.

Line 21. Depletion

See sections 613 and 613A for percentage depletion rates applicable to natural deposits. Also see section 291 for the limitation on the depletion deduction for iron ore and coal (including lignite).

Attach Form T (Timber), Forest Activities Schedule, if a deduction for depletion of timber is taken.

Foreign intangible drilling costs and foreign exploration and development costs must either be added to the corporation's basis for cost depletion purposes or be deducted ratably over a 10-year period. See sections 263(i), 616, and 617 for details.

See Pub. 535 for more information on depletion.

Line 23. Pension, Profit-Sharing, etc., Plans

Enter the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan generally must file one of the forms listed below unless exempt from filing under regulations or other applicable guidance, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the corporation does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f). Also see the instructions for the applicable form.

Form 5500,   Annual Return/Report of Employee Benefit Plan.

Form 5500-SF,   Short Form Annual Return/Report of Small Employee Benefit Plan, instead of Form 5500, generally if under 100 participants at the beginning of the plan year.

Note.

Form 5500 and Form 5500-SF must be filed electronically under the computerized ERISA Filing Acceptance System (EFAST2). For more information, see the EFAST2 website at www.efast.dol.gov.

Form 5500-EZ,   Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan. File this form for a plan that only covers the owner (or the owner and his or her spouse) but only if the owner (or the owner and his or her spouse) owns the entire business.

Line 24. Employee Benefit Programs

Enter contributions to employee benefit programs not claimed elsewhere on the return (for example, insurance, health and welfare programs, etc.) that are not an incidental part of a pension, profit-sharing, etc., plan included on line 23.

Line 26. Other Deductions

Attach a statement, listing by type and amount, all allowable deductions that are not deductible elsewhere on Form 1120. Enter the total on line 26.

Examples of other deductions include the following. See Pub. 535 for details on other deductions that may apply to corporations.

  • Amortization. See Part VI of Form 4562.

  • Certain costs of qualified film or television productions, commencing before January 1, 2014, that the corporation elects to deduct. See section 181 and the related regulations.

  • Certain business start-up and organizational costs (discussed earlier, under Limitations on Deductions).

  • Reforestation costs. The corporation can elect to deduct up to $10,000 of qualifying reforestation expenses for each qualified timber property. The corporation can elect to amortize over 84 months any amount not deducted. See Pub. 535.

  • Insurance premiums.

  • Legal and professional fees.

  • Supplies used and consumed in the business.

  • Travel, meals, and entertainment expenses. Special rules apply (discussed below).

  • Utilities.

  • Ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary income against ordinary losses. Instead, include the income on line 10. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount is from more than one partnership, identify the amount from each partnership.

  • Any extraterritorial income exclusion (from Form 8873).

  • Any negative net section 481(a) adjustment. See Section 481(a) adjustment, earlier.

  • Deduction for certain energy efficient commercial building property placed in service before January 1, 2014. See section 179D. Also see Notice 2006-52, 2006-26 I.R.B. 1175, as amplified and clarified by Notice 2008-40, 2008-14 I.R.B. 725, and as modified by Notice 2012-26, 2012-17 I.R.B. 847.

  • Dividends paid in cash on stock held by an employee stock ownership plan.

However, a deduction can only be taken for the dividends above if, according to the plan, the dividends are:

  1. Paid in cash directly to the plan participants or beneficiaries;

  2. Paid to the plan, which distributes them in cash to the plan participants or their beneficiaries no later than 90 days after the end of the plan year in which the dividends are paid;

  3. At the election of such participants or their beneficiaries (a) payable as provided under (1) or (2) above, or (b) paid to the plan and reinvested in qualifying employer securities; or

  4. Used to make payments on a loan described in section 404(a)(9).

See section 404(k) for more details and the limitation on certain dividends.

Do not deduct the following.

  • Fines or penalties paid to a government for violating any law.

  • Any amount that is allocable to a class of exempt income. See section 265(b) for exceptions.

  • Lobbying expenses. However, see exceptions (discussed below).

Travel, meals, and entertainment.    Subject to limitations and restrictions discussed below, a corporation can deduct ordinary and necessary travel, meals, and entertainment expenses paid or incurred in its trade or business. Also, special rules apply to deductions for gifts, skybox rentals, luxury water travel, convention expenses, and entertainment tickets. See section 274 and Pub. 463 for details.

Travel.

The corporation cannot deduct travel expenses of any individual accompanying a corporate officer or employee, including a spouse or dependent of the officer or employee, unless:

  • That individual is an employee of the corporation, and

  • His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual.

Meals and entertainment.

Generally, the corporation can deduct only 50% of the amount otherwise allowable for meals and entertainment expenses paid or incurred in its trade or business. In addition (subject to exceptions under section 274(k)(2)):

  • Meals must not be lavish or extravagant;

  • A bona fide business discussion must occur during, immediately before, or immediately after the meal; and

  • An employee of the corporation must be present at the meal.

See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the hours of service limits of the Department of Transportation.

Membership dues.

The corporation can deduct amounts paid or incurred for membership dues in civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However, no deduction is allowed if a principal purpose of the organization is to entertain, or provide entertainment facilities for, members or their guests. In addition, corporations cannot deduct membership dues in any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion.

Entertainment facilities.

The corporation cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for an activity usually considered entertainment, amusement, or recreation.

Amounts treated as compensation.

Generally, the corporation may be able to deduct otherwise nondeductible entertainment, amusement, or recreation expenses if the amounts are treated as compensation to the recipient and reported on Form W-2 for an employee or on Form 1099-MISC for an independent contractor.

However, if the recipient is an officer, director, beneficial owner (directly or indirectly), or other “specified individual” (as defined in section 274(e)(2)(B) and Regulations section 1.274-9(b)), special rules apply. See section 274(e)(2) and Regulations sections 1.274-9 and 1.274-10.

Lobbying expenses.    Generally, lobbying expenses are not deductible. These expenses include:
  • Amounts paid or incurred in connection with influencing federal or state legislation (but not local legislation) or

  • Amounts paid or incurred in connection with any communication with certain federal executive branch officials in an attempt to influence the official actions or positions of the officials. See Regulations section 1.162-29 for the definition of “influencing legislation.

   Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. See section 162(e)(3). If certain in-house lobbying expenditures do not exceed $2,000, they are deductible.

Line 28. Taxable Income Before NOL Deduction and Special Deductions

At-risk rules.   Generally, special at-risk rules under section 465 apply to closely held corporations (see Passive activity limitations, earlier) engaged in any activity as a trade or business or for the production of income. These corporations may have to adjust the amount on line 28. (See below.)

  The at-risk rules do not apply to:
  • Holding real property placed in service by the taxpayer before 1987;

  • Equipment leasing under sections 465(c)(4), (5), and (6); or

  • Any qualifying business of a qualified corporation under section 465(c)(7).

  However, the at-risk rules do apply to the holding of mineral property.

  If the at-risk rules apply, adjust the amount on this line for any section 465(d) losses. These losses are limited to the amount for which the corporation is at risk for each separate activity at the close of the tax year. If the corporation is involved in one or more activities, any of which incurs a loss for the year, report the losses for each activity separately. Attach Form 6198, At-Risk Limitations, showing the amount at risk and gross income and deductions for the activities with the losses.

  If the corporation sells or otherwise disposes of an asset or its interest (either total or partial) in an activity to which the at-risk rules apply, determine the net profit or loss from the activity by combining the gain or loss on the sale or disposition with the profit or loss from the activity. If the corporation has a net loss, it may be limited because of the at-risk rules.

  Treat any loss from an activity not allowed for the tax year as a deduction allocable to the activity in the next tax year.

Line 29a. Net Operating Loss Deduction

A corporation can use the NOL incurred in one tax year to reduce its taxable income in another tax year. Enter on line 29a the total NOL carryovers from other tax years, but do not enter more than the corporation's taxable income (after special deductions). Attach a statement showing the computation of the NOL deduction. Complete item 12 on Schedule K.

The following special rules apply.

  • A personal service corporation may not carry back or forward an NOL to or from any tax year to which an election under section 444 to have a tax year other than a required tax year applies.

  • A corporate equity reduction interest loss may not be carried back to a tax year preceding the year of the equity reduction transaction (see section 172(b)(1)(E)).

  • If an ownership change (described in section 382(g)) occurs, the amount of the taxable income of a loss corporation that may be offset by the pre-change NOL carryovers may be limited. See section 382 and the related regulations. A loss corporation must include the information statement as provided in Regulations section 1.382-11(a), with its income tax return for each tax year that it is a loss corporation in which an ownership shift, equity structures shift, or other transaction described in Temporary Regulations section 1.382-2T(a)(2)(i) occur. If the corporation makes the closing-of-the-books election, see Regulations section 1.382-6(b).

    The limitations under section 382 do not apply to certain ownership changes after February 17, 2009, made pursuant to a restructuring plan under the Emergency Economic Stabilization Act of 2008. See section 382(n).

    For guidance in applying section 382 to loss corporations whose instruments were acquired by Treasury under certain programs under the Emergency Economic Stabilization Act of 2008, see Notice 2010-2, 2010-2 I.R.B. 251.

  • If a corporation acquires control of another corporation (or acquires its assets in a reorganization), the amount of pre-acquisition losses that may offset recognized built-in gain may be limited (see section 384).

  • If a corporation elects the alternative tax on qualifying shipping activities under section 1354, no deduction is allowed for an NOL attributable to the qualifying shipping activities to the extent that the loss is carried forward from a tax year preceding the first tax year for which the alternative tax election was made. See section 1358(b)(2).

  • If a corporation has a loss attributable to a disaster, special rules apply. See the Instructions for Form 1139.

For more details on the NOL deduction, see section 172 and the Instructions for Form 1139.

Line 29b. Special Deductions

See the instructions for Schedule C.

Line 30. Taxable Income

Minimum taxable income.   The corporation's taxable income cannot be less than the largest of the following amounts.
  • The inversion gain of the corporation for the tax year, if the corporation is an expatriated entity or a partner in an expatriated entity. See section 7874(a).

  • The sum of the corporation's excess inclusions from its residual interest in a REMIC from Schedules Q (Form 1066), line 2c, and the corporation's taxable income determined solely with respect to its ownership and high-yield interests in FASITs. See sections 860E(a) and 860J (repealed).

Net operating loss (NOL).   If line 30 (figured without regard to the items listed above under minimum taxable income), is zero or less, the corporation may have an NOL that can be carried back or forward as a deduction to other tax years.

  Generally, a corporation first carries back an NOL 2 tax years. However, the corporation can elect to waive the carryback period and instead carry the NOL forward to future tax years. See the instructions for Schedule K, item 11 below.

  Special rules and exceptions to the 2-year carryback period apply to certain NOLs. See the Instructions for Form 1139 for details on these special rules and other elections that may be available.

Merchant Marine capital construction fund.   To take a deduction for amounts contributed to a capital construction fund (CCF), reduce the amount that would otherwise be entered on line 30 by the amount of the deduction. On the dotted line next to the entry space, enter “CCF” and the amount of the deduction. For more information, see section 7518.

Line 33. Estimated Tax Penalty

Generally, the corporation does not have to file Form 2220 because the IRS can figure the penalty amount, if any, and bill the corporation. However, even if the corporation does not owe the penalty, it must complete and attach Form 2220 if:

  • The annualized income or adjusted method is used, or

  • The corporation is a large corporation (as defined in the Instructions for Form 2220) computing its first required installment based on the prior year's tax.

If Form 2220 is attached, check the box on line 33, and enter any penalty on this line.

Line 36

Enter the amount of any overpayment that should be refunded or applied to next year's estimated tax.

Note.

This election to apply some or all of the overpayment amount to the corporation's 2014 estimated tax cannot be changed at a later date.

Direct deposit of refund.   If the corporation wants its refund directly deposited into its checking or savings account at any U.S. bank or other financial institution instead of having a check sent to the corporation, complete Form 8050 and attach it to the corporation's tax return.

Schedule C. Dividends and Special Deductions

For purposes of the 20% ownership test on lines 1 through 7, the percentage of stock owned by the corporation is based on voting power and value of the stock. Preferred stock described in section 1504(a)(4) is not taken into account.

Consolidated returns.   Corporations filing a consolidated return should see Regulations sections 1.1502-13, 1.1502-26, and 1.1502-27 before completing Schedule C.

  Corporations filing a consolidated return must not report as dividends on Schedule C any amounts received from corporations within the tax consolidation group. Such dividends are eliminated in consolidation rather than offset by the dividends-received deduction.

Line 1, Column (a)

Enter dividends (except those received on debt-financed stock acquired after July 18, 1984–see section 246A) that are:

  • Received from less-than-20%-owned domestic corporations subject to income tax, and

  • Qualified for the 70% deduction under section 243(a)(1).

Also include on line 1 the following.

  • Taxable distributions from an IC-DISC or former DISC that are designated as eligible for the 70% deduction and certain dividends of Federal Home Loan Banks. See section 246(a)(2).

  • Dividends (except those received on debt-financed stock acquired after July 18, 1984) from a regulated investment company (RIC). The amount of dividends eligible for the dividends-received deduction under section 243 is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.

Report so-called dividends or earnings received from mutual savings banks, etc., as interest. Do not treat them as dividends.

Line 2, Column (a)

Enter on line 2:

  • Dividends (except those received on debt-financed stock acquired after July 18, 1984) that are received from 20%-or-more-owned domestic corporations subject to income tax and that are subject to the 80% deduction under section 243(c), and

  • Taxable distributions from an IC-DISC or former DISC that are considered eligible for the 80% deduction.

Line 3, Column (a)

Enter the following.

  • Dividends received on debt-financed stock acquired after July 18, 1984, from domestic and foreign corporations subject to income tax that would otherwise be subject to the dividends-received deduction under section 243(a)(1), 243(c), or 245(a). Generally, debt-financed stock is stock that the corporation acquired by incurring a debt (for example, it borrowed money to buy the stock).

  • Dividends received from a RIC on debt-financed stock. The amount of dividends eligible for the dividends-received deduction is limited by section 854(b). The corporation should receive a notice from the RIC specifying the amount of dividends that qualify for the deduction.

Line 3, Columns (b) and (c)

Dividends received on debt-financed stock acquired after July 18, 1984, are not entitled to the full 70% or 80% dividends-received deduction. The 70% or 80% deduction is reduced by a percentage that is related to the amount of debt incurred to acquire the stock. See section 246A. Also see section 245(a) before making this computation for an additional limitation that applies to dividends received from foreign corporations. Attach a statement to Form 1120 showing how the amount on line 3, column (c), was figured.

Line 4, Column (a)

Enter dividends received on preferred stock of a less-than-20%-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 5, Column (a)

Enter dividends received on preferred stock of a 20%-or-more-owned public utility that is subject to income tax and is allowed the deduction provided in section 247 for dividends paid.

Line 6, Column (a)

Enter the U.S.-source portion of dividends that:

  • Are received from less-than-20%-owned foreign corporations, and

  • Qualify for the 70% deduction under section 245(a). To qualify for the 70% deduction, the corporation must own at least 10% of the stock of the foreign corporation by vote and value.

Also include dividends received from a less-than-20%-owned FSC that:

  • Are attributable to income treated as effectively connected with the conduct of a trade or business within the United States (excluding foreign trade income), and

  • Qualify for the 70% deduction under section 245(c)(1)(B).

Line 7, Column (a)

Enter the U.S.-source portion of dividends that:

  • Are received from 20%-or-more-owned foreign corporations, and

  • Qualify for the 80% deduction under section 245(a).

Also include dividends received from a 20%-or-more-owned FSC that:

  • Are attributable to income treated as effectively connected with the conduct of a trade or business within the United States (excluding foreign trade income), and

  • Qualify for the 80% deduction under section 245(c)(1)(B).

Line 8, Column (a)

Enter dividends received from wholly owned foreign subsidiaries that are eligible for the 100% deduction under section 245(b).

In general, the deduction under section 245(b) applies to dividends paid out of the earnings and profits of a foreign corporation for a tax year during which:

  • All of its outstanding stock is directly or indirectly owned by the domestic corporation receiving the dividends, and

  • All of its gross income from all sources is effectively connected with the conduct of a trade or business within the United States.

Line 9, Column (c)

Generally, line 9, column (c), cannot exceed the amount from the worksheet below. However, in a year in which an NOL occurs, this limitation does not apply even if the loss is created by the dividends-received deduction. See sections 172(d) and 246(b).

Line 10, Columns (a) and (c)

Small business investment companies operating under the Small Business Investment Act of 1958 (see 15 U.S.C. 661 and following) must enter dividends that are received from domestic corporations subject to income tax even though a deduction is allowed for the entire amount of those dividends. To claim the 100% deduction on line 10, column (c), the company must file with its return a statement that it was a federal licensee under the Small Business Investment Act of 1958 at the time it received the dividends.

Line 11, Columns (a) and (c)

Enter only dividends that qualify under section 243(b) for the 100% dividends-received deduction described in section 243(a)(3). Corporations taking this deduction are subject to the provisions of section 1561.

The 100% deduction does not apply to affiliated group members that are joining in the filing of a consolidated return.

Line 12, Column (a)

Enter dividends from FSCs that are attributable to foreign trade income and that are eligible for the 100% deduction provided in section 245(c)(1)(A).

Line 13, Column (a)

Enter foreign dividends not reportable on lines 3, 6, 7, 8, 11, or 12 of column (a). Include on line 13 the corporation's share of distributions from a section 1291 fund from Form 8621, to the extent that the amounts are taxed as dividends under section 301. See Form 8621 and the Instructions for Form 8621.

Line 14, Column (a)

Include income constructively received from CFCs under subpart F. This amount should equal the total subpart F income reported on Schedule I of Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations.

Line 15, Column (a)

Include gross-up for taxes deemed paid under sections 902 and 960.

Worksheet for Schedule C, line 9

1. Refigure line 28, page 1, Form 1120, without any domestic production activities deduction, any adjustment under section 1059, and without any capital loss carryback to the tax year under section 1212(a)(1) 1.  
2. Complete lines 10, 11, and 12, column (c), and enter the total here 2.  
3. Subtract line 2 from line 1 3.  
4. Multiply line 3 by 80% 4.  
5. Add lines 2, 5, 7, and 8, column (c), and the part of the deduction on line 3, column (c), that is attributable to dividends from 20%-or-more-owned corporations 5.  
6. Enter the smaller of line 4 or 5. If line 5 is greater than line 4, stop here; enter the amount from line 6 on line 9, column (c), and do not complete the rest of this worksheet 6.  
7. Enter the total amount of dividends from 20%-or-more-owned corporations that are included on lines 2, 3, 5, 7, and 8, column (a) 7.  
8. Subtract line 7 from line 3 8.  
9. Multiply line 8 by 70% 9.  
10. Subtract line 5 from line 9, column (c) 10.  
11. Enter the smaller of line 9 or line 10 11.  
12. Dividends-received deduction after limitation (sec. 246(b)). Add lines 6 and 11. Enter the result here and on line 9, column (c) 12.  

Line 16, Column (a)

Enter taxable distributions from an IC-DISC or former DISC that are designated as not eligible for a dividends-received deduction.

No deduction is allowed under section 243 for a dividend from an IC-DISC or former DISC (as defined in section 992(a)) to the extent the dividend:

  • Is paid out of the corporation's accumulated IC-DISC income or previously taxed income, or

  • Is a deemed distribution under section 995(b)(1).

Line 17, Column (a)

Include the following.

  1. Dividends (other than capital gain distributions reported on Schedule D (Form 1120) and exempt-interest dividends) that are received from RICs and that are not subject to the 70% deduction.

  2. Dividends from tax-exempt organizations.

  3. Dividends (other than capital gain distributions) received from a REIT that, for the tax year of the trust in which the dividends are paid, qualifies under sections 856 through 860.

  4. Dividends not eligible for a dividends-received deduction, which include the following.

    1. Dividends received on any share of stock held for less than 46 days during the 91-day period beginning 45 days before the ex-dividend date. When counting the number of days the corporation held the stock, you cannot count certain days during which the corporation's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details.

    2. Dividends attributable to periods totaling more than 366 days that the corporation received on any share of preferred stock held for less than 91 days during the 181-day period that began 90 days before the ex-dividend date. When counting the number of days the corporation held the stock, you cannot count certain days during which the corporation's risk of loss was diminished. See section 246(c)(4) and Regulations section 1.246-5 for more details. Preferred dividends attributable to periods totaling less than 367 days are subject to the 46-day holding period rule, above.

    3. Dividends on any share of stock to the extent the corporation is under an obligation (including a short sale) to make related payments with respect to positions in substantially similar or related property.

  5. Any other taxable dividend income not properly reported elsewhere on Schedule C.

If patronage dividends or per-unit retain allocations are included on line 17, identify the total of these amounts in a statement attached to Form 1120.

Line 18, Column (c)

Section 247 allows public utilities a deduction of 40% of the smaller of  
(a) dividends paid on their preferred stock during the tax year, or (b) taxable income computed without regard to this deduction. In a year in which an NOL occurs, compute the deduction without regard to section 247(a)(1)(B). See section 172(d).

Schedule J. Tax Computation and Payment

Part I–Tax Computation

Line 1

If the corporation is a member of a controlled group, check the box on line 1. Complete and attach Schedule O (Form 1120), Consent Plan and Apportionment Schedule for a Controlled Group. Component members of a controlled group must use Schedule O to report the apportionment of taxable income, income tax, and certain tax benefits between the members of the group. See Schedule O and the Instructions for Schedule O for more information.

Line 2

If the corporation is a member of a controlled group and is filing Schedule O (Form 1120), enter the corporation's tax from Part III of Schedule O. Most corporations that are not members of a controlled group and not filing a consolidated return figure their tax by using the Tax Rate Schedule below. Qualified personal service corporations should see instructions below.

Tax Rate Schedule

If taxable income (line 30, Form 1120) on page 1 is:
Over— But not over— Tax is: Of the amount over—
$0 $50,000 15% $0
50,000 75,000 $ 7,500 + 25% 50,000
75,000 100,000 13,750 + 34% 75,000
100,000 335,000 22,250 + 39% 100,000
335,000 10,000,000 113,900 + 34% 335,000
10,000,000 15,000,000 3,400,000 + 35% 10,000,000
15,000,000 18,333,333 5,150,000 + 38% 15,000,000
18,333,333 - - - - - 35% 0

Qualified personal service corporation.   A qualified personal service corporation is taxed at a flat rate of 35% on taxable income. If the corporation is a qualified personal service corporation, check the box on line 2 even if the corporation has no tax liability.

  A corporation is a qualified personal service corporation if it meets both of the following tests.
  1. Substantially all of the corporation's activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.

  2. At least 95% of the corporation's stock, by value, is directly or indirectly owned by

    1. Employees performing the services,

    2. Retired employees who had performed the services listed above,

    3. Any estate of an employee or retiree described above, or

    4. Any person who acquired the stock of the corporation as a result of the death of an employee or retiree (but only for the 2-year period beginning on the date of the employee's or retiree's death).

Mutual savings bank conducting life insurance business.    The tax under section 594 consists of the sum of (a), a partial tax computed on Form 1120 on the taxable income of the bank, determined without regard to income or deductions allocable to the life insurance department, and (b), a partial tax on the taxable income computed on Form 1120-L of the life insurance department. Enter the combined tax on line 2. Attach Form 1120-L as a schedule (and identify it as such), together with the annual statements and schedules required to be filed with Form 1120-L. See Regulations section 1.6012-2(c)(1)(ii).

Exception for insurance companies filing their Federal income tax returns electronically.

If an insurance company files its income tax return electronically, it should not include the annual statements and schedules required to be filed with Form 1120-L. However, such statements must be available at all times for inspection by the IRS and retained for so long as such statements may be material in the administration of any internal revenue law.

Deferred tax under section 1291.   If the corporation was a shareholder in a PFIC and received an excess distribution or disposed of its investment in the PFIC during the year, it must include the increase in taxes due under section 1291(c)(2) (from Form 8621) in the total for line 2. On the dotted line next to line 2, enter “Section 1291” and the amount.

  Do not include on line 2 any interest due under section 1291(c)(3). Instead, include the amount of interest owed on Schedule J, line 9f.

  For more information on reporting the deferred tax and interest, see the Instructions for Form 8621.

Additional tax under section 197(f).   A corporation that elects to recognize gain and pay tax on the sale of a section 197 intangible under the related person exception to the anti-churning rules should include any additional tax due in the total for line 2. On the dotted line next to line 2, enter “Section 197” and the amount. See section 197(f)(9)(B)(ii).

Line 3

A corporation that is not a small corporation exempt from the AMT may be required to file Form 4626, Alternative Minimum Tax—Corporations, if it claims certain credits, even though it does not owe any AMT. See the Instructions for Form 4626 for details.

Unless the corporation is treated as a small corporation exempt from the AMT, it may owe the AMT if it has any of the adjustments and tax preference items listed on Form 4626. The corporation must file Form 4626 if its taxable income (or loss) before the NOL deduction, combined with these adjustments and tax preference items is more than the smaller of $40,000 or the corporation's allowable exemption amount (from Form 4626). For this purpose, taxable income does not include the NOL deduction.

See Form 4626 for definitions and details on how to figure the tax.

Line 5

Line 5a.   To find out when a corporation can take the credit for payment of income tax to a foreign country or U.S. possession, see Form 1118, Foreign Tax Credit — Corporations.

Line 5b.   Enter any qualified electric vehicle passive activity credits from prior years allowed for the current tax year from Form 8834, Qualified Electric Vehicle Credit, line 7. Attach Form 8834. Include on line 5b any credits from Form 5735, American Samoa Economic Development Credit. See the Instructions for Form 5735. Attach Form 5735.

Line 5c.   Enter on line 5c the allowable credit from Form 3800, Part II, line 38.

  The corporation is required to file Form 3800, General Business Credit, to claim any of the business credits. See the Instructions for Form 3800 for exceptions. For a list of allowable credits, see Form 3800. Also, see the applicable credit form and its instructions.

Line 5d.    To figure the minimum tax credit and any carryforward of that credit, complete and attach Form 8827, Credit for Prior Year Minimum Tax—Corporations.

Line 5e.   Enter the allowable credits from Form 8912, Credit to Holders of Tax Credit Bonds, line 12.

Line 8

A corporation is taxed as a personal holding company under section 542 if:

  • At least 60% of its adjusted ordinary gross income for the tax year is personal holding company income, and

  • At any time during the last half of the tax year more than 50% in value of its outstanding stock is directly or indirectly owned by five or fewer individuals.

See Schedule PH (Form 1120) for definitions and details on how to figure the tax.

Line 9

Include any of the following taxes and interest.

Line 9a. Recapture of investment credit.   If the corporation disposed of investment credit property or changed its use before the end of its useful life or recovery period, or is required to recapture a qualifying therapeutic discovery project grant, enter the increase in tax from Form 4255, Recapture of Investment Credit.

Line 9b. Recapture of low-income housing credit.   If the corporation disposed of property (or there was a reduction in the qualified basis of the property) for which it took the low-income housing credit, and the corporation did not follow the procedures that would have prevented recapture of the credit, it may owe a tax. See Form 8611, Recapture of Low-Income Housing Credit.

Line 9c. Interest due under the look-back method-completed long-term contracts.   If the corporation used the look-back method under section 460(b)(2) for certain long-term contracts, use Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, to figure the interest the corporation may have to include. See the Instructions for Form 8697.

Line 9d. Interest due under the look-back method-income forecast method.   If the corporation used the look-back method for property depreciated under the income forecast method, use Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method to figure any interest due or to be refunded. See the Instructions for Form 8866.

Line 9e. Alternative tax on qualifying shipping activities.   Enter any alternative tax on qualifying shipping activities from Form 8902.

Line 9f. Other.    Include on line 9f additional taxes and interest such as the following. Attach a statement showing the computation of each item included in the total for line 9f and identify the applicable Code section and the type of tax or interest.
  • Recapture of Indian employment credit. Generally, if an employer terminates the employment of a qualified employee less than 1 year after the date of initial employment, any Indian employment credit allowed for a prior tax year because of wages paid or incurred to that employee must be recaptured. For details, see Form 8845 and section 45A.

  • Recapture of new markets credit (see Form 8874, New Markets Credit, and Form 8874-B, Notice of Recapture Event for New Markets Credit).

  • Recapture of employer-provided childcare facilities and services credit (see Form 8882).

  • Tax and interest on a nonqualified withdrawal from a capital construction fund (section 7518(g)).

  • Interest on deferred tax attributable to (a) installment sales of certain timeshares and residential lots (section 453(l)(3)) and (b) certain nondealer installment obligations (section 453A(c)).

  • Interest due on deferred gain (section 1260(b)).

  • Interest due under section 1291(c)(3). See Form 8621 and the Instructions for Form 8621.

Line 11

Include any deferred tax on the termination of a section 1294 election applicable to shareholders in a qualified electing fund in the amount entered on line 11.

Subtract the following amounts from the total for line 11.

  • Deferred tax on the corporation's share of undistributed earnings of a qualified electing fund. See the Instructions for Form 8621.

  • Deferred LIFO recapture tax (section 1363(d)). This tax is the part of the LIFO recapture tax that will be deferred and paid with Form 1120S in the future. To figure the deferred tax, first figure the total LIFO recapture tax. Follow the steps below to figure the total LIFO recapture tax and the deferred amount. Also see, Line 10, Other Income, earlier.

Step 1. Figure the tax on the corporation's income including the LIFO recapture amount. Complete Schedule J through line 10.

Step 2. Using a separate worksheet, complete Schedule J again, but do not include the LIFO recapture amount in the corporation's taxable income.

Step 3. Compare the tax in Step 2 to the tax in Step 1. The difference between the two is the LIFO recapture tax.

Step 4. Multiply the amount figured in Step 3 by 75%. The result is the deferred LIFO recapture tax.

How to report.   Attach a statement showing the computation of each item included in, or subtracted from, the total for line 11. On the dotted line next to line 11, specify (a) the applicable Code section, (b) the type of tax, and (c) enter the amount of tax. For example, if the corporation is deferring a $100 LIFO recapture tax, subtract this amount from the total on line 11, then enter “Section 1363-Deferred Tax-$100” on the dotted line next to line 11.

Part II– Payments and Refundable Credits

Line 13.   Enter any estimated tax payments the corporation made for the tax year.

Beneficiaries of trusts.   If the corporation is the beneficiary of a trust, and the trust makes a section 643(g) election to credit its estimated tax payments to its beneficiaries, include the corporation's share of the payment in the total for line 13. Enter “T” and the amount on the dotted line next to the entry space.

Special estimated tax payments for certain life insurance companies.   If the corporation is required to make or apply special estimated tax payments (SETP) under section 847 in addition to its regular estimated tax payments, enter on line 13, the corporation's total estimated tax payments. On the dotted line next to line 13, enter “Form 8816” and the amount. Attach a statement showing your computation of estimated tax payments. See Form 8816, Special Loss Discount Account and Special Estimated Tax Payments for Insurance Companies.

Line 14.    If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466. The overpayment must be at least 10% of the corporation's expected income tax liability and at least $500. File Form 4466 after the end of the corporation's tax year, and no later than the 15th day of the third month after the end of the tax year. Form 4466 must be filed before the corporation files its tax return.

Line 17.   If the corporation had federal income tax withheld from any payments it received because, for example, it failed to give the payer its correct EIN, include the amount withheld in the total for line 17.

Line 19. Refundable Credits

Line 19a. Credit from Form 2439.   Enter any credit from Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, for the corporation's share of the tax paid by a regulated investment company (RIC) or a real estate investment trust (REIT) on undistributed long-term capital gains included in the corporation's income. Attach Form 2439 to Form 1120.

Line 19b. Credit for federal tax on fuels.   Enter the total income tax credit claimed on Form 4136, Credit for Federal Tax Paid on Fuels. Attach Form 4136 to Form 1120.

Line 19c. Refundable credits from Form 8827.   If the corporation elected to claim certain unused minimum tax credits instead of claiming any additional first-year special depreciation allowance for eligible property, see the instructions for Form 8827. Enter on line 19c the amounts from Form 8827, line 8c.

Line 19d. Other.   Include on line 19d any other refundable credit the corporation is claiming, including the following. Attach a statement listing the type of credit and the amount of the credit.
  • Credit for tax on ozone-depleting chemicals. See section 4682(g)(2).

    • Credit under section 960(b). If an increase in the limitation under section 960(b) exceeds the total tax on Schedule J, line 11, for the tax year, the amount of the excess is deemed an overpayment of tax for the tax year. See section 960(b) for more information regarding the circumstances under which such an excess arises.

Schedule K. Other Information

Complete all items that apply to the corporation.

Question 2

See the list of Principal Business Activity Codes later in the instructions. Using the list of codes and activities, determine from which activity the corporation derives the highest percentage of its total receipts. Enter on lines 2a, 2b, and 2c the principal business activity code number, the corporation's business activity, and a description of the principal product or service of the corporation.

Question 3

Check the “Yes” box for question 3 if:

  • The corporation is a subsidiary in an affiliated group (defined below), but is not filing a consolidated return for the tax year with that group, or

  • The corporation is a subsidiary in a parent-subsidiary controlled group. For a definition of a parent-subsidiary controlled group, see the Instructions for Schedule O (Form 1120).

Any corporation that meets either of the requirements above should check the “Yes” box. This applies even if the corporation is a subsidiary member of one group and the parent corporation of another.

Note.

If the corporation is an “excluded member” of a controlled group (see definition in the Instructions for Schedule O (Form 1120)), it is still considered a member of a controlled group for this purpose.

Affiliated group.   An affiliated group is one or more chains of includible corporations (section 1504(a)) connected through stock ownership with a common parent corporation. The common parent must be an includible corporation and the following requirements must be met.
  1. The common parent must own directly stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of at least one of the other includible corporations.

  2. Stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of each of the other corporations (except for the common parent) must be owned directly by one or more of the other includible corporations.

  For this purpose, the term “stock” generally does not include any stock that  
(a) is nonvoting, (b) is nonconvertible,  
(c) is limited and preferred as to dividends and does not participate significantly in corporate growth, and (d) has redemption and liquidation rights that do not exceed the issue price of the stock (except for a reasonable redemption or liquidation premium). See section 1504(a)(4).

Question 4. Constructive Ownership of the Corporation

For purposes of question 4, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in corporate stock and ownership of interests in the profit, loss, or capital of a partnership. If the corporation checked “Yes” to question 4a or 4b, complete and attach Schedule G (Form 1120), Information on Certain Persons Owning the Corporation's Voting Stock.

Question 5. Constructive Ownership of Other Entities

For purposes of determining the corporation's constructive ownership of other entities, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in partnerships and trusts as well as corporate stock. Generally, if an entity (a corporation, partnership, or trust) is owned, directly or indirectly, by or for another entity (corporation, partnership, estate, or trust), the owned entity is considered to be owned proportionately by or for the owners (shareholders, partners, or beneficiaries) of the owning entity.

Question 5a

List each foreign or domestic corporation not included on Form 851, Affiliations Schedule, in which the corporation, at the end of the tax year, owned directly 20% or more, or owned, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote. Indicate the name of the corporation, EIN (if any), country of incorporation, and the percentage interest owned, directly or indirectly, in the total voting power. List the parent corporation of an affiliated group of corporations filing a consolidated tax return rather than the subsidiary members except for subsidiary members in which an interest is owned, directly or indirectly, independent of the interest owned, directly or indirectly, in the parent corporation. List a corporation owned through a disregarded entity rather than the disregarded entity.

Question 5b

List each foreign or domestic partnership in which the corporation, at the end of the tax year, owned directly an interest of 20% or more, or owned, directly or indirectly, an interest of 50% or more in the profit, loss, or capital of the partnership. List each trust in which the corporation, at the end of the tax year, owned directly an interest of 20% or more, or owned, directly or indirectly, an interest of 50% or more in the trust beneficial interest. Indicate the name, EIN (if any), country of organization, and the maximum percentage interest owned, directly or indirectly, in the profit, loss, or capital of the partnership at the end of the partnership tax year, or, for a trust, the percentage interest owned in the trust beneficial interest. List a partnership or trust owned through a disregarded entity rather than the disregarded entity.

Maximum percentage owned in partnership profit, loss, or capital.   For the purposes of question 5b, the term “maximum percentage owned” means the highest percentage of interest in a partnership's profit, loss, or capital as of the end of the partnership's tax year, as determined under the partnership agreement, when taking into account the constructive ownership rules earlier. If the partnership agreement does not express the partner's share of profit, loss, and capital as fixed percentages, use a reasonable method in arriving at the percentage items for the purposes of completing question 5b. Such method must be consistent with the partnership agreement. The method used to compute a percentage share of profit, loss, and capital must be applied consistently from year to year. Maintain records to support the determination of the share of profits, losses, and share of capital.

Example.

Corporation A owns, directly, a 50% interest in the profit, loss, or capital of Partnership B. Corporation A also owns, directly, a 15% interest in the profit, loss, or capital of Partnership C and owns, directly, 15% of the voting stock of Corporation D. Partnership B owns, directly, a 70% interest in the profit, loss, or capital of Partnership C and owns, directly, 70% of the voting stock of Corporation D. Corporation A owns, indirectly, through Partnership B, a 35% interest (50% of 70%) in the profit, loss, or capital of Partnership C and owns, indirectly, 35% of the voting stock of Corporation D. Corporation A owns, directly or indirectly, a 50% interest in the profit, loss, or capital of Partnership C (15% directly and 35% indirectly), and owns, directly or indirectly, 50% of the voting stock of Corporation D (15% directly and 35% indirectly).

Corporation A reports in its answer to question 5a that it owns, directly or indirectly, 50% of the voting stock of Corporation D. Corporation A reports in its answer to question 5b that it owns, directly, an interest of 50% in the profit, loss, or capital of Partnership B and owns, directly or indirectly, 50% of the profit, loss, or capital of Partnership C.

Question 7

Check the “Yes” box if one foreign person owned at least 25% of (a) the total voting power of all classes of stock of the corporation entitled to vote, or (b) the total value of all classes of stock of the corporation.

The constructive ownership rules of section 318 apply in determining if a corporation is foreign owned. See section 6038A(c)(5) and the related regulations.

Enter on line 7a the percentage owned by the foreign person specified in question 7. On line 7b, enter the name of the owner's country.

Note.

If there is more than one 25%-or-more foreign owner, complete lines 7a and 7b for the foreign person with the highest percentage of ownership.

Foreign person.   The term “foreign person” means:
  • An individual who is not a citizen or resident of the United States;

  • An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States;

  • Any partnership, association, company, or corporation that is not created or organized in the United States;

  • Any foreign estate or trust within the meaning of section 7701(a)(31); or

  • A foreign government (or one of its agencies or instrumentalities) to the extent that it is engaged in the conduct of a commercial activity as described in  
    section 892.

  However, the term "foreign person" does not include any foreign person who consents to the filing of a joint income tax return.

Owner's country.   For individuals, the term “owner's country” means the country of residence. For all others, it is the country where incorporated, organized, created, or administered.

Requirement to file Form 5472.   If the corporation checked “Yes,” it may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. Generally, a 25% foreign-owned corporation that had a reportable transaction with a foreign or domestic related party during the tax year must file Form 5472. See the Instructions for Form 5472, for filing instructions and penalties for failure to file.

Item 9

Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other RIC. Also, if required, include the same amount on Schedule M-1, line 7 (or Schedule M-3, Part II, line 13, if applicable).

Item 11

If the corporation has an NOL, it generally can elect to waive the entire carryback period for the NOL and instead carry the NOL forward to future tax years. To do so, check the box on line 11 and file the tax return by its due date, including extensions. Do not attach the statement described in Temporary Regulations section 301.9100-12T. Once made, the election is irrevocable.

Corporations filing a consolidated return that elect to waive the entire carryback period for the group must also attach the statement required by Regulations section 1.1502-21(b)(3) or the election will not be valid.

Item 12

Enter the amount of the NOL carryover to the tax year from prior years, even if some of the loss is used to offset income on this return. The amount to enter is the total of all NOLs generated in prior years but not used to offset income (either as a carryback or carryover) to a tax year prior to 2013. Do not reduce the amount by any NOL deduction reported on line 29a.

Question 14

A corporation that files Form 1120 must file Schedule UTP (Form 1120), Uncertain Tax Position Statement, with its 2013 income tax return if:

  • For 2013, the corporation has assets that equal or exceed $50 million;

  • The corporation or a related party issued audited financial statements reporting all or a portion of the corporation's operations for all or a portion of the corporation's tax year; and

  • The corporation has one or more tax positions that must be reported on Schedule UTP.

Attach Schedule UTP to the corporation's income tax return. Do not file it separately. A taxpayer that files a protective Form 1120 must also file Schedule UTP if it satisfies the requirements set forth, above.

For details, see the Instructions for Schedule UTP.

Schedule L. Balance Sheets per Books

The balance sheets should agree with the corporation's books and records.

Corporations with total receipts (line 1a plus lines 4 through 10 on page 1) and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2 if the “Yes” box on Schedule K, question 13, is checked.

Corporations with total assets non-consolidated (or consolidated for all corporations included within the tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120) instead of Schedule M-1. See the separate Instructions for Schedule M-3 (Form 1120) for provisions that also affect Schedule L.

If filing a consolidated return, report total consolidated assets, liabilities, and shareholder's equity for all corporations joining in the return. See Consolidated Return, earlier.

Line 1

Include certificates of deposit as cash on this line.

Line 5

Include on this line:

  • State and local government obligations, the interest on which is excludable from gross income under section 103(a), and

  • Stock in a mutual fund or other RIC that distributed exempt-interest dividends during the tax year of the corporation.

Line 26

Some examples of adjustments to report on this line include:

  • Unrealized gains and losses on securities held “available for sale.

  • Foreign currency translation adjustments.

  • The excess of additional pension liability over unrecognized prior service cost.

  • Guarantees of employee stock (ESOP) debt.

  • Compensation related to employee stock award plans.

If the total adjustment to be entered on line 26 is a negative amount, enter the amount in parentheses.

Schedule M-1. Reconciliation of Income (Loss) per Books With Income per Return

Corporations with total receipts (line 1a plus lines 4 through 10 on page 1) and total assets at the end of the tax year less than $250,000 are not required to complete Schedules L, M-1, and M-2 if the “Yes” box on Schedule K, question 13, is checked.

Corporations with total assets non-consolidated (or consolidated for all corporations included within the tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120) instead of Schedule M-1. A corporation filing Form 1120 that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1. See the Instructions for Schedule M-3 (Form 1120) for more information.

Line 5c

Include any of the following.

  • Meal and entertainment expenses not deductible under section 274(n).

  • Expenses for the use of an entertainment facility.

  • The part of business gifts over $25.

  • Expenses of an individual over $2,000, which are allocable to conventions on cruise ships.

  • Employee achievement awards over $400.

  • The cost of entertainment tickets over face value (also subject to 50% limit under section 274(n)).

  • The cost of skyboxes over the face value of nonluxury box seat tickets.

  • The part of luxury water travel expenses not deductible under section 274(m).

  • Expenses for travel as a form of education.

  • Other nondeductible travel and entertainment expenses.

For more information, see Pub. 535.

Line 7

Report any tax exempt interest received or accrued, including any exempt-interest dividends received as a shareholder in a mutual fund or other RIC. Also report this same amount on Schedule K, item 9.


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