Specific Instructions

Period Covered

Generally, file the 2013 return for calendar year 2013. However, if an insurance company joins in the filing of a consolidated return, it may adopt the tax year of the common parent corporation even if that year is not a calendar year. For a fiscal or short tax year return, fill in the tax year space at the top of the form.

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 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.

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.

Item A. Identifying Information

Consolidated Return

If an affiliated group of corporations includes one or more domestic life insurance companies taxed under section 801, the common parent may elect to treat those companies as includible corporations. The life insurance companies must have been members of the group for the 5 tax years immediately preceding the tax year for which the election is made. See section 1504(c)(2) and Regulations section 1.1502-47(d)(12).

Corporations filing a consolidated return must check box 1 of Item A 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-PC as a substitute for the 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-PC 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.

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

Note.

If a nonlife insurance company is a member of an affiliated group, file Form 1120-PC as an attachment to the consolidated return in addition to the supporting statements discussed, earlier. Across the top of page 1 of Form 1120-PC, write “Supporting Statement to Consolidated Return.

Life-Nonlife Consolidated Return

If the corporation is the common parent of a life-nonlife consolidated group, check boxes 1 and 2 of Item A.

Filing requirements.   The common parent of a life-nonlife consolidated group is required to do the following.
  • File the applicable consolidated corporate income tax return, as a Form 1120-L, U.S. Life Insurance Company Income Tax Return, where the common parent is a life insurance company; a Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, where the common parent is an insurance company, other than a life insurance company; or a Form 1120, U.S. Corporation Income Tax Return, where the common parent is any other type of corporation.

  • Indicate clearly on the face of this return that such corporate tax return is a life-nonlife return. This requirement is satisfied by checking boxes 1 and 2 of Item A on page 1.

  • Show any set offs required by paragraphs (g), (m), and (n) of Regulations section 1.1502-47;

  • Report separately the nonlife consolidated taxable income or loss, determined under Regulations section 1.1502-47(h), on a Form 1120 or 1120-PC (whether filed by the common parent or as an attachment to the consolidated return), for all nonlife members of the consolidated group.

  • Report separately the consolidated partial Life Insurance Company Taxable Income (as defined by Regulations section 1.1502-47(d)(3)) determined under Regulations section 1.1502-47, on a Form 1120-L (whether filed by the common parent or as an attachment to the consolidated return), for all life members of the consolidated group.

Schedule M-3 (Form 1120-PC)

A nonlife insurance company with total assets (non-consolidated or consolidated for all companies 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-PC), Net Income (Loss) Reconciliation for U.S. Property and Casualty Insurance Companies With Total Assets of $10 Million or More, instead of Schedule M-1. A corporation filing Form 1120-PC 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 (Form 1120-PC), check item A, box 3 at the top of page 1 of Form 1120-PC. See the Instructions for Schedule M-3 (Form 1120-PC) for more details.

Note.

If you do not file Schedule M-3 (Form 1120-PC) with Form 1120-PC, see Reconciliation under Statements, earlier.

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 (EINs) link at  
    www.irs.gov/businesses. The EIN is issued immediately once the application information is validated.

  • By telephone at 1-800-829-4933. People who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment can call 1-800-829-4059. Deaf or hard-of-hearing individuals can also contact the IRS through relay services such as the Federal Relay Service available at www.gsa.gov/fedrelay.

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

If the corporation has not received its EIN by the time the return is due, enter “Applied for” and the date you applied in the space for the EIN. For more information, see the Instructions for Form SS-4.

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.

Item D. Section 953 Elections

Check the applicable box if the corporation is a foreign corporation and elects under:

  1. Section 953(c)(3)(C) to treat its related person insurance income as effectively connected with the conduct of a trade or business in the United States or

  2. Section 953(d) to be treated as a domestic corporation.

Generally, a foreign corporation making either election must file its return with the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409. See Notice 87-50, 1987-2 C.B. 357, and Rev. Proc. 2003-47, 2003-28 I.R.B. 55, for the procedural rules, election statement formats, and filing addresses for making the respective elections under section 953(c)(3)(C) or section 953(d).

Note.

Once either election is made, it will apply to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. Also, any loss of a foreign corporation electing to be treated as a domestic insurance company under section 953(d) will be treated as a dual-consolidated loss and may not be used to reduce the taxable income of any other member of the affiliated group for this tax year or any other tax year.

Note.

If a section 953(d) election is made, include the additional tax required to be paid, on line 13, page 1. On the dotted line to the left of line 13, page 1, write “Section 953(d)” and the amount. Attach a statement showing the computation. See section 953(d) for more details.

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

Indicate a final return, name change, address change, or amended return by checking the appropriate 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.

Taxable Income

Line 1, Taxable income, and line 2, Taxable investment income.   If the corporation is a small company as defined in section 831(b)(2) and elects under section 831(b)(2)(A)(ii) to be taxed on taxable investment income, complete Schedule B (ignore Schedule A) and enter the amount from Schedule B, line 21, on line 2, page 1. All other corporations should complete Schedule A (ignore Schedule B) and enter on line 1, page 1, the amount from Schedule A, line 37.

Tax Computation and Payments

Line 3

If the corporation is a member of a controlled group, check the box on line 3. 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 4

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 are not filing a consolidated return figure their tax by using the Tax Rate Schedule below.

Tax Rate Schedule

If the amount on Form 1120-PC, page 1, line 1 or line 2 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

Deferred tax under section 1291.   If the corporation was a shareholder in a passive foreign investment company (PFIC) and received an excess distribution or disposed of its investment in the PFIC during the year, it must include the total increase in taxes due under section 1291(c)(2) (from Form 8621) in the amount entered on line 4. On the dotted line next to line 4, enter “Sec. 1291” and the amount.

  Do not include on line 4 any interest due under section 1291(c)(3). Instead, include the amount of interest owed on line 12.

  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 4. On the dotted line next to line 4, enter “Section 197” and the amount. See section 197(f)(9)(B)(ii).

Line 5. Enter amount of tax that a reciprocal must include.   A mutual insurance company that is an interinsurer or reciprocal underwriter may elect, under section 835, to limit the deduction for amounts paid or incurred to a qualifying attorney-in-fact to the amount of the deductions of the attorney-in-fact allocable to the income received by the attorney-in-fact from the reciprocal. If this election is made, any increase in taxable income of a reciprocal as a result of this limitation is taxed at the highest rate of tax specified in section 11(b).

  Make no entry on line 5 if the mutual insurance company's taxable income before including the section 835(b) amount is $100,000 or more. Otherwise, this tax is 35% of the section 835(b) amount. If an entry is made on line 5, attach a statement showing how the tax was computed.

  Reciprocal underwriters making the section 835(a) election are allowed a credit on line 14h for the amount of tax paid by the attorney-in-fact that is related to the income received by the attorney-in-fact from the reciprocal in the tax year.

  See section 835 and the related regulations for special rules and information regarding the statements required to be attached to the return.

Line 6. Alternative minimum tax (AMT).   
A corporation that is not a small corporation exempt from the AMT may be required to file Form 4626 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 8a. Foreign tax credit.   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 8b. Credit from Form 8834.   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. Also include on line 8b any credits from Form 5735, American Samoa Economic Development Credit. See the Instructions for Form 5735. Attach Form 5735, if applicable.

Line 8c. General business credit.   Enter on line 8c the allowable credit from Form 3800, Part II, line 38.

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

Line 8d. Credit for prior year minimum tax.   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 8e. Bond credits from Form 8912.   Enter the allowable credits from Form 8912, Credit to Holders of Tax Credit Bonds, line 12.

Line 10. Foreign corporations.   A foreign corporation carrying on an insurance business in the United States is taxed as a domestic insurance company on its income effectively connected with the conduct of a trade or business in the United States (see sections 864(c) and 897 for definition).

  Generally, any other U.S.-source income received by the foreign corporation is taxed at 30% (or at a lower treaty rate) under section 881. If the corporation has this income, attach a statement showing the kind and amount of income, the tax rate, and the amount of tax. Enter the tax on line 10. However, see Reduction of section 881 tax, later.

Note.

Interest received from certain portfolio debt investments that were issued after July 18, 1984, is not subject to the tax. See section 881(c).

  See section 842 for more information.

Minimum effectively connected net investment income.

See section 842(b) and Notice 89-96, 1989-2 C.B. 417, for the general rules for computing this amount. Also, see Rev. Proc. 2013-33, 2013-38 I.R.B. 209, for the domestic asset/liability percentages and domestic investment yields needed to compute this amount.

Any additional income required by section 842(b) must be included in taxable income (for example, Schedule A, line 13).

Reduction of section 881 tax.

Additional taxes resulting from the net investment income adjustment may offset a corporation's section 881 tax on U.S.-source income. The tax reduction is determined by multiplying the section 881 tax by the ratio of the amount of income adjustment to income subject to the section 881 tax, computed without the exclusion for interest on state and local bonds or income exempted from taxation by treaty. See section 842(c)(2). Attach a statement showing how the reduction under section 881 was figured. Enter the net tax imposed by section 881 on line 10.

Line 11. Personal holding company tax.   A corporation (other than a corporation described in section 542(c)) is taxed as a personal holding company (PHC) under section 542 if:
  • At least 60% of its adjusted ordinary gross income for the tax year is PHC 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), U.S. Personal Holding Company (PHC) Tax, for definitions and details on how to figure the tax.

Line 12. Other Taxes

Include any of the following taxes and interest in the total on line 12. Check the appropriate box(es) for the form, if any, used to compute the total.

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, it may owe a tax. See Form 4255, Recapture of Investment Credit.

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.

Other.   Additional taxes and interest amounts can be included in the total entered on line 12. Check the box for “Other” if the corporation includes any additional taxes and interest such as the items discussed below. See How to report below, for details on reporting these amounts on an attached statement.
  • 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. 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).

  • Interest on deferred tax attributable to 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.

  • Alternative tax on qualifying shipping activities (see Form 8902).

How to report.

If the corporation checked the “Other” box, attach a statement showing the computation of each item included in the total for line 12 and identify the applicable Code section and the type of tax or interest.

Line 13. Total Tax

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 13.

Subtract any deferred tax on the corporation's share of undistributed earnings of a qualified electing fund (see Form 8621).

How to report.   Attach a statement showing the computation of each item included in, or subtracted from, the total for line 13. On the dotted line next to line 13, specify (a) the applicable Code section, (b) the type of tax, and (c) the amount of tax.

Line 14b. Prior year(s) special estimated tax payments to be applied.   The amount entered on line 14b must agree with the amount(s) from Form 8816, Part III, line 11. See Form 8816 and section 847 for additional information.

Line 14c. Estimated tax payments.   Enter any estimated tax payments the corporation made for the tax year. Do not include any amount being applied on line 14d.

Line 14d. Special estimated tax payments.   If the deduction under section 847 is claimed on Schedule A, line 27, special estimated tax payments must be made in an amount equal to the tax benefit of the deduction. These payments must be made on or before the due date (without regard to extensions) of this tax return. See Form 8816 and section 847(2) for additional information.

Tax benefit rule.

Section 847(8) requires that if a corporation carries back net operating losses or capital losses that arise in years after a year in which a section 847 deduction was claimed, then the corporation must recompute the tax benefit attributable to the previously claimed section 847 deduction taking into account the loss carrybacks. Tax benefits also include those derived from filing a consolidated return with another insurance company (without regard to section 1503(c)).

Therefore, if the recomputation changes the amount of the section 847 tax benefit, then the taxpayer must provide a computation statement and attach it to Form 8816.

Line 14e. Overpaid estimated tax.   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 14h. Credit by reciprocal for tax paid by attorney-in-fact under section 835(d).   Enter the amount of tax paid by an attorney-in-fact as a result of income received by the attorney-in-fact from the reciprocal during the tax year. For more information, see section 835, the related regulations, and the instructions for line 5, earlier.

Line 14i. Other credits and payments.   Enter the amount of any other credits the corporation may take and/or payments made. Write an explanation of the entry to the left of the entry space.

Backup withholding.   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 14i. Write the amount withheld and the words “Backup Withholding” on the dotted line to the left of the entry space for line 14i.

Line 14j. 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 14j the amount from Form 8827, line 8c, if applicable. See the instructions for Form 8827, for more information.

Line 14k. Total payments.   Add the amounts on lines 14f through 14j and enter the total on line 14k.

Line 15. 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 15 and enter any penalty on this line. See Estimated tax penalty, under Estimated Tax Payments, earlier.

Line 18. Electronic deposit of tax refund of $1 million or more.   If the corporation is due a refund of $1 million or more and wants it electronically 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 8302 and attach it to the corporation's tax return.

Schedule A—Taxable Income

Gross income.   Under section 832, gross amounts of underwriting and investment income should be computed on the basis of the Statement of Income of the NAIC annual statement to the extent not inconsistent with the Internal Revenue Code and its Regulations.

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 Form 1120-PC, page 1, line 12.

Note.

In computing the amounts for lines 2, 3, and 4, take all interest, dividends, or rents received during the year, add interest, dividends, or rents due and accrued at the end of the tax year, and deduct interest, dividends, or rents due and accrued at the end of the preceding tax year. For rules regarding the accrual of dividends, see Regulations section 1.301-1(b).

Line 3a, column (a). Gross interest.   Enter the gross amount of interest income, including all tax-exempt interest.

Line 3b, column (a).   Section 103(a) excludes interest on state or local bonds from gross income.

  This exclusion does not apply to any:
  1. Private activity bond which is not a qualified bond as defined by section 141;

  2. Arbitrage bond as defined by section 148; or

  3. Bonds not meeting the requirements of section 149 (regarding the registration of tax-exempt bonds).

Lines 3a and 3b, column (b). Amortization of premium.    Enter on line 3a, column (b), the total amortization of bond premium, including amortization on tax-exempt bonds. Enter on line 3b, column (b), the amortization of bond premium on tax-exempt bonds only.

Note.

Insurance companies electing to amortize discount for tax purposes must reduce the amortization of premium by any amortization of discount.

Line 4. Gross rents.   Enter gross rents, computed as indicated under the instructions for Gross income, earlier. Deduct expenses, such as repairs, interest, taxes, and depreciation, on the proper lines for deductions.

Line 6. Capital gain net income.   Every sale or exchange of a capital asset must be reported in detail on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss.

  Generally, losses from sales or exchanges of capital assets are only allowed to the extent of gains. However, corporations taxed under section 831 may claim losses from capital assets sold or exchanged to get funds to meet abnormal insurance losses and to pay dividends and similar distributions to policyholders. Do not include those types of losses here, but instead, report them on Schedule G.

  The net capital loss for these corporations is the amount by which losses for the year from sales or exchanges of capital assets exceed the gains from these sales or exchanges plus the smaller of:
  1. Taxable income (computed without gains or losses from sales or exchanges of capital assets); or

  2. Losses from the sale or exchange of capital assets sold or exchanged to obtain funds to meet abnormal insurance losses and to provide for the payment of dividends and similar distributions to policyholders.

  Subject to the limitations in section 1212(a), a net capital loss can be carried back 3 years and forward 5 years as a short-term capital loss.

Line 8. Certain mutual fire or flood insurance company premiums.   A mutual fire or flood insurance company whose principal business is the issuance of policies (1) for which the premium deposits are the same (regardless of the length of the term the policies are written for) and (2) under which the unabsorbed portion of such premium deposits not required for losses, expenses, or establishment of reserves is returned or credited to the policyholder on cancellation or expiration of the policy, must include in income an amount equal to 2% of the premiums earned on insurance contracts during the tax year with respect to such policies after deduction of premium deposits returned or credited during the same tax year. See section 832(b)(1)(D).

Line 9. Income on account of special income and deduction accounts.   Corporations which write the kinds of insurance below must maintain the following special accounts. A corporation which writes:
  1. Mortgage guaranty insurance must maintain a mortgage guaranty account;

  2. Lease guaranty insurance must maintain a lease guaranty account; and

  3. Insurance on obligations the interest on which is excludable from gross income under section 103 must maintain an account with respect to insurance on state and local obligations.

  Amounts required to be subtracted from these accounts under sections 832(e)(5) and 832(e)(6) must be reported as income on line 9. See section 832(e) for more information.

Line 10. Income from protection against loss account.   Although section 1024 of P.L. 99-514 repealed section 824 relating to the protection against loss (PAL) account, PAL account balances are includible in income as though section 824 were still in effect. Attach a statement showing the computation.

Line 11. Mutual interinsurers or reciprocal underwriters—decrease in subscriber accounts.   Enter the decrease for the tax year in savings credited to subscriber accounts of a mutual insurance company that is an interinsurer or reciprocal underwriter.

Line 12. Income from a special loss discount account.   Enter the amount from Form 8816, Part II, line 6.

Line 13. Other Income.   Enter any other taxable income not reported on lines 1 through 12. 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 13. Examples of other income to report on line 13 include the following.
  • 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 income subject to 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 Form 1065-B)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 31. 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.

  • 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 August 17, 2006, must file Form 8925, Report of Employer-Owned Life Insurance Contracts.

  • Income from cancellation of debt (COD) for the repurchase of a debt instrument for less than its adjusted issue price. If the corporation elected to defer COD income from the reacquisition of an applicable debt instrument in 2009 or 2010, see section 108(i), Regulations section 1.108(i)-1, and Rev. Proc. 2009-37.

  • 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 (QEF).

    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

Section 263A uniform capitalization rules.   The uniform capitalization rules of section 263A require corporations to capitalize certain costs.

  See Regulations sections 1.263A-1 through 1.263A-3.

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 certain deductions. See section 291 to determine the amount of the adjustment.

Golden parachute payments.   A portion of the payments made by a corporation to key personnel that exceeds their usual compensation may not be deductible. This occurs when the corporation has an agreement (golden parachute) with these key employees to pay them these excess amounts if control of the corporation changes. See section 280G and Regulations section 1.280G-1. Also see the instructions for line 15.

Business start-up and organizational costs.   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 a 180-month period. The $5,000 deduction is reduced by the amount the total organizational 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 those 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 election 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 such costs and any amortization on Schedule A, line 31. 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.

Reducing certain expenses for which credits are allowable.   If the corporation claims any of the below credits, it may need to reduce the otherwise allowable deductions for expenses used to figure the credit.
  • Employment credits. See Employment credits, later.

  • Research credit.

  • Orphan drug credit (Form 8820).

  • Disabled access credit (Form 8826).

  • Employer credit for 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).

  • 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 tax years beginning after 2009. The $500,000 limitation applies to remuneration that is deductible in the tax year during which the services were performed and remuneration for services during the year that is deductible in a future tax 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 15. Compensation of officers.   Enter deductible officers' compensation on line 15. See Employment credits, later, for employment credits that may reduce your deduction for officers' compensation. Do not include compensation deductible elsewhere on the return, such as 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.

  Include only the deductible part of each officer's compensation on line 15. (See Disallowance of deduction for employee compensation in excess of $1 million below). Attach a statement for all officers using the following columns:
  1. Name of officer.

  2. Social security number.

  3. Percentage of time devoted to business.

  4. Amount of compensation.

  The corporation determines who is an officer under the laws of the state where it is incorporated.

  If a consolidated return is filed, each member of an affiliated group must furnish this information.

   Disallowance of deduction for employee compensation in excess of $1 million. Publicly held corporations cannot deduct compensation to a “covered employee” to the extent that the compensation exceeds $1 million. Generally, a covered employee is:
  • The principal executive officer of the corporation (or an individual acting in that capacity) as of the end of the tax year or

  • An employee whose total compensation must be reported to shareholders under the Securities Exchange Act of 1934 because the employee is among the three highest compensated officers for that tax year (other than the principal executive officer).

  For this purpose, compensation does not include the following.
  • Income from certain employee trusts, annuity plans, or pensions.

  • Any benefit paid to an employee that is excluded from the employee's income.

  The deduction limit does not apply to:
  • Commissions based on individual performance,

  • Qualified performance-based compensation, and

  • Income payable under a written, binding contract in effect on February 17, 1993.

  The $1 million limit is reduced by amounts disallowed as excess parachute payments under section 280G.

  See section 162(m) and Regulations section 1.162-27. Also see Notice 2007-49, 2007-25 I.R.B. 1429.

Limitations on tax benefits for executive compensation under the Treasury Troubled Asset Relief Program (TARP).    The $1 million compensation limit is reduced to $500,000 for executive remuneration and deferred deduction executive remuneration paid to covered executives by any entity that receives or has received financial assistance under TARP. The limit applies for each period in which obligations arising from financial assistance under TARP remain outstanding. The $500,000 is reduced by any amounts disallowed as excess parachute payments. See section 162(m)(5) for definitions and other special rules. Also see Notice 2008-94, 2008-44 I.R.B. 1070, for additional guidance.

  In addition, a portion of any parachute payments made to a covered executive by an applicable employer participating in a Treasury troubled asset relief program is not deductible as compensation if the payments are made because of a severance from employment during an applicable tax year. For this purpose, a parachute payment is any payment to a senior executive officer for departure from a company for any reason, except for payments for services performed or benefits accrued. These limits do not apply to a payment already treated as a parachute payment. See section 280G(e) and Notice 2008-94.

Line 16. 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, 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 provided taxable fringe benefits to its employees, such as the personal use of a car, do not deduct as wages the amount allocated for depreciation and other expenses that are claimed elsewhere on the return (for example, on Schedule A, line 22 or line 31).

Employment credits.   If the corporation claims a credit on any of the below forms, it may need to reduce its deduction for salaries and wages. See the applicable form(s), for details.
  • Form 5884, Work Opportunity Credit;

  • Form 8844, Empowerment Zone Employment Credit;

  • Form 8845, Indian Employment Credit; and

  • Form 8932, Credit for Employer Differential Wage Payments.

Line 18. 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 Form 4562, Depreciation and Amortization, Part V. If the corporation leased a vehicle for a term of 30 days or more, the deduction for the 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 19. 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 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.

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

Line 20a. 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.

  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 temporary de minimis exception for financial institutions for certain tax-exempt bonds issued in 2009 and 2010.

  • 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 section 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 disqualified 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 before January 1, 2011. See section 163(e)(5)(F), and 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 20b. Less tax-exempt interest expense.   Enter interest paid or accrued during the tax year on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. For exceptions, see section 265(b).

Line 21. Charitable contributions.   Include 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 37, Schedule A) computed without regard to the following.
  • Any deduction for contributions.

  • The deduction for dividends received.

  • 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).

   Carryover. Charitable contributions over the 10% limitation cannot be deducted for the tax year but may 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 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 gift 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 contributes property other than cash and claims over a $500 deduction for the property, it must, generally, attach a statement to the return describing the kind of property contributed and the method used to determine its fair market value (FMV). Generally, attach Form 8283, Noncash Charitable Contributions, to the return 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 of 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)).

  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 22. Depreciation.   Include on line 22 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 23. 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.

  See Pub. 535 for more information on depletion.

Line 24. 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. File this form instead of Form 5500, generally, if there are 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 25. 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 24.

Line 27. Additional deduction.   Enter on line 27 the total from Form 8816, Part II, line 5.

  Any insurance company taking the additional deduction must:
  • Make special estimated tax payments equal to the tax benefit from the deduction and

  • Establish and maintain a Special Loss Discount Account. See section 847 and Form 8816 for more information.

Line 29. Dividends to policyholders.   Enter the total dividends and similar distributions paid or declared to policyholders, as policyholders, except in the case of a mutual fire insurance company exclusively issuing perpetual policies. Whether dividends have been paid or declared should be determined according to the method of accounting employed by the insurance company.

Dividends and similar distributions   include amounts returned or credited to policyholders on cancellation or expiration of policies issued by a mutual fire or flood insurance company:
  1. Where the premium deposits for the policy are the same (regardless of the length of the policy) and

  2. The unabsorbed portion of the premium deposits not required for losses, expenses, or establishment of reserves is returned or credited to the policyholder on cancellation or expiration of the policy.

  In the case of a qualified group self-insurers fund, the fund's deduction for policyholder dividends is allowed no earlier than the date the state regulatory authority determines the amount of the policyholder dividend that may be paid. See section 6076 of the Technical and Miscellaneous Revenue Act of 1988.

Line 30. Mutual interinsurers or reciprocal underwriters—increase in subscriber accounts.   A mutual insurance company that is an interinsurer or reciprocal underwriter may deduct the increase in savings credited to subscriber accounts for the tax year.

  Savings credited to subscriber accounts means the surplus credited to the individual accounts of subscribers before the 16th day of the 3rd month following the close of the tax year. This is true only if the corporation would be required to pay this amount promptly to a subscriber if the subscriber ended the contract when the corporation's tax year ends. The corporation must notify the subscriber as required by Regulations section 1.823-6(c)(2)(v). The subscriber must treat any savings credited to the subscriber's account as a dividend paid or declared.

Line 31. Other deductions.   Attach a statement listing by type and amount all allowable deductions under sections 832(c)(1) and (10) (net of the annual statement change in undiscounted unpaid loss adjustment expenses) that are not deductible on lines 15 through 30.

   Examples of other deductions include the following. See Pub. 535 for details on other deductions that may apply to corporations.
  • The domestic production activities deduction. See Form 8903.

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

  • Legal and professional fees.

  • Supplies used and consumed in the business.

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

  • 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 13. 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 extraterritorial income exclusion from Form 8873, Extraterritorial Income Exclusion.

  • 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 may 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 the participants or their beneficiaries (i) payable as provided under a or b above or (ii) 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.

  • 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.

   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 32. Total deductions.   Insurance companies that issue specified insurance contracts (as defined in section 848(e)(1)) are generally required to amortize policy acquisition expenses on a straight-line basis over a period of 120 months beginning with the 1st month in the 2nd half of the tax year (section 848(a)). Reduce total deductions on line 32 by the amount required to be capitalized under section 848. Attach a statement showing all computations. See section 848 and its regulations for special rules, definitions, and exceptions. Also see Schedule G, Form 1120-L, and its instructions for more information.

Line 34b. Deduction on account of the special income and deduction accounts.   Enter the total of the amounts required to be added under sections 832(e)(4) and (6). However, no deduction is permitted unless tax and loss bonds are purchased in an amount equal to the tax benefit of the deduction. See section 832(e).

Note.

The deduction on account of the special income and deduction accounts is limited to taxable income for the tax year (computed without regard to this deduction or to any carryback of a net operating loss).

Line 36b. Net operating loss deduction.   A corporation can use the net operating loss (NOL) incurred in one tax year to reduce its taxable income in another tax year.

  Enter on line 36b the total NOL carryovers from other tax years, but do not enter more than the corporation's taxable income (after the dividends-received deduction). Attach a statement showing the computation of the NOL deduction. Also complete item 12 on Schedule I.

  The following special rules apply.
  • 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 occurs (described in section 382(g)), 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) occurs. See Regulations section 1.382-6(b) for details on how to make the closing-of-the-books election.

    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).

  • An NOL cannot be carried to or from any tax year for which the insurance company is not subject to tax under section 831(a), or to any tax year if, between the tax year from which the loss is being carried and such tax year, there is an intervening tax year for which the insurance company was not subject to tax imposed by section 831(a).

  • 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, section 844 and the Instructions for Form 1139, Corporation Application for Tentative Refund.

Line 37. Taxable income.   If line 37 (figured without regard to the items listed below 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 may elect to waive the carryback period and instead carry the NOL forward to future tax years. See the instructions for Schedule I, item 11, later.

  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.

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).

Schedule B, Part I—Taxable Investment Income of Electing Small Companies

Note.

(1) Once an election under section 831(b) is made to be taxed only on investment income, it can only be revoked with the consent of the Secretary, and (2) a corporation making this election must include on line 8, Gross investment income, any amount subtracted from a protection against loss account.

Income

Line 1a, column (a). Gross interest.   Enter the gross amount of interest income, including all tax-exempt interest income.

Line 1b, column (a). Interest exempt under section 103.    Enter the amount of interest on state and local bonds that is exempt from taxation under section 103. See the instructions for Schedule A, line 3b, column (a), for more information.

Lines 1a and 1b, column (b). Amortization of premium.    Enter on line 1a, column (b), the total amortization of premium on tax-exempt bonds.

  Enter on line 1b, column (b), the amortization of bond premium on tax-exempt bonds.

Note.

Insurance companies electing to amortize discount for tax purposes must reduce the amortization of premium by any amortization of discount.

Line 3. Gross rents.   Enter the gross rents received or accrued during the tax year. Deduct rental expenses such as repairs, interest, taxes, and depreciation on the proper lines in the Deductions section.

Line 5. Gross income from a trade or business, other than an insurance business, and from Form 4797.   Enter the gross income from a trade or business, other than an insurance business, carried on by the insurance company or by a partnership of which the insurance company is a partner. Include section 1245 and section 1250 gains (as modified by section 291) and other gains from Form 4797, Sales of Business Property, on investment assets only.

Line 6. Income from leases described in sections 834(b)(1)(B) and 834(b)(1)(C).   Enter gross income from entering into, changing, or ending any lease, mortgage, or other instrument or agreement from which the company earns interest, rents, or royalties.

Line 8. Gross investment income.   If gross investment income includes an amount subtracted from the protection against loss account, write on the dotted line next to line 8, “PAL” and the amount.

Deductions

Note.

See section 834(d)(1) regarding the limitation of expenses on real estate owned and occupied in part or in whole by a mutual insurance company.

Line 9. Real estate taxes.   Enter taxes paid or accrued on real estate owned by the corporation and deductible under section 164.

Line 10. Other real estate expenses.   Enter all ordinary and necessary real estate expenses, such as fire insurance, heat, light, and labor. Also enter the cost of incidental repairs, such as labor and supplies, that do not add to the property's value or appreciably prolong its life. Do not include any amount paid for new buildings or for permanent improvements or betterments made to increase the value of any property or any amount spent on foreclosed property before the property is held for rent.

Line 11. Depreciation.   Enter depreciation on assets only to the extent that the assets are used to produce gross investment income reported on Schedule B, lines 1 through 7. For more information, see the instructions for line 22, Schedule A.

Line 12. Depletion.   Enter any allowable depletion on royalty income reported on line 4, Schedule B. See the instructions for line 23, Schedule A, for more information.

Line 13. Trade or business deductions.   Enter the total deductions related to any trade or business income included in gross investment income under section 834(b)(2). Do not include deductions for any insurance business. Do not include losses from sales or exchanges of capital assets or property used in the business, or from the compulsory or involuntary conversion of property used in the trade or business.

Line 14. Interest.   See the instructions for lines 20a and 20b, Schedule A.

Line 17. Investment expenses.   Enter expenses that are properly chargeable as investment expenses. If general expenses are allocated to investment expenses, the total deduction cannot be more than the amount on Schedule B, Part II, line 39. Attach a statement showing the kind and amount of general expenses. Minor items may be grouped together.

  See section 267 for the limitation on deductions for unpaid expenses and interest in transactions between related taxpayers.

Schedule B, Part II—Invested Assets Book Values

Use Schedule B, Part II, to compute the limitation on investment expenses under section 834(c)(2) when any general expenses are in part assigned to, or included in, the investment expenses deducted on Schedule B, Part I, line 17.

Schedule C—Dividends and Special Deductions

Definitions

The acquisition date for investments acquired by direct purchase is the trade date rather than the settlement date. For investments not acquired by direct purchase (such as those acquired through transfers among affiliates, tax-free reorganizations, or the liquidation of a subsidiary, etc.), the actual acquisition date should be used regardless of the holding period determined under section 1223.

A special rule applies in determining the acquisition date of dividends received from affiliates. This rule provides that the portion of any 100% dividend which is related to prorated amounts be treated as received with respect to stock acquired on the later of:

(a) the date the payor acquired the stock or obligation to which the prorated amounts are attributable or

(b) the first day on which the payor and payee were members of the same affiliated group as defined in section 243(b).

Also, if the taxpayer is a member of an affiliated group filing a consolidated return, its determination of dividends received is made as if the group were not filing a consolidated return.

Prorated amounts   means tax-exempt interest and dividends for which a deduction is allowable under section 243, 244, or 245 (other than 100% dividends).

100% dividend   means any dividend if the percentage used for purposes of determining the deduction allowable under section 243, 244, or 245(b) is 100%. A special rule applies to certain dividends received by a foreign corporation.

Lines 1 through 25

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.

Lines 1 through 9, column (a).   Enter in column (a) of the appropriate line those dividends that are subject to the provisions of section 832(b)(5)(B).This will include:
  1. All dividends (other than 100% dividends) received on stock acquired after August 7, 1986, and

  2. 100% dividends received on stock acquired after August 7, 1986, to the extent that such dividends are attributable to prorated amounts (see definition earlier).

  In the case of an insurance company that files a consolidated return, the determination with respect to any dividend paid by a member to another member of the affiliated group is made as if no consolidated return was filed. See section 832(g).

Line 1.   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.   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.   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 4.   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.   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.   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 foreign sales corporation (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.   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 provided in section 245(c)(1)(B).

Line 8.   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.

  Also, include on line 8 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 9.   Enter only those 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 10, column (b).   Enter foreign dividends not reportable on lines 3, 6, 7, or 8 of column (b). Include on line 10 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 11, column (b).   Include income constructively received from controlled foreign corporations 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 12, column (b).   Include gross-up for taxes deemed paid under sections 902 and 960.

Worksheet for Schedule C, line 23

1. Refigure the amount from Schedule A, line 35 or Schedule B, line 19, whichever applies, 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)  
2. Enter the sum of the amounts from line 22, column (b) (without regard to wholly owned foreign subsidiary dividends) and line 9, column (b)  
3. Subtract line 2 from line 1  
4. Multiply line 3 by 80%  
5. Add lines 16, 19, 21, and 22 (without regard to FSC dividends), column (b), and the portion of the deduction on line 17, column (b), that is attributable to dividends received from 20%-or-more-owned corporations  
6. Enter the smaller of line 4 or line 5. If line 5 is greater than line 4, stop here; enter the amount from line 6 on line 23, column (b), and do not complete the rest of this worksheet  
7. Enter the total amount of dividends received from 20%-or-more-owned corporations that are included on lines 2, 3, 5, 7, and 8 (without regard to FSC dividends), column (b)  
8. Subtract line 7 from line 3  
9. Multiply line 8 by 70%  
10. Subtract line 5 from line 23, column (b) (without regard to FSC dividends)  
11. Enter the smaller of line 9 or line 10  
12. Dividends-received deduction after limitation (section 246(b)). Add lines 6 and 11. Enter the result here and on line 23, column (b)  
Line 13, column (b).   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.

Line 17.   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 showing how the amount on line 17 was figured.

Line 23, column (b).   Generally, line 23, column (b), cannot exceed the amount from the Worksheet for Schedule C, line 23, earlier. 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).

Schedule E—Premiums Earned

Definitions

Undiscounted unearned premiums   means the unearned premiums shown in the annual statement filed for the year ending with or in the tax year.

Applicable interest rate   means the annual rate determined under section 846(c)(2) for the calendar year the premiums are received.

Applicable statutory premium recognition pattern   means the statutory premium recognition pattern in effect for the calendar year the premiums are received, and is based on the statutory premium recognition pattern which applies to premiums received by the corporation in that calendar year. For purposes of the preceding sentence, premiums received during any calendar year will be treated as received in the middle of such year.

Medical loss ratio.   Section 833(c)(5) limits the 100% deduction of unearned premiums by Blue Cross and Blue Shield organizations described in section 833(c)(2), and other organizations described in section 833(c)(3), to those with an MLR of 85% or more. Organizations with an MLR less than 85% are allowed to deduct only 80% of unearned premiums. See section 833(c)(5) and Notice 2010-79 for more information. Also see Notice 2012-37 applicable to the first tax year beginning after December 31, 2012.

Line 1.   Enter gross premiums written on insurance contracts during the tax year, less return premiums and premiums paid for reinsurance. See Regulations section 1.832-4.

Lines 2a and 4a.   Include on lines 2a and 4a the following.
  1. All life insurance reserves, as defined in section 816(b) (but determined under section 807).

  2. Generally, all section 833 organizations with an MLR of 85% or more (discussed earlier) are permitted to enter 100% of unearned premiums on lines 2a and 4a. Section 833 organizations with an MLR of less than 85% must change to an 80% Unearned Premium Reserve. For more information, see Accounting Methods, earlier.

Lines 2b and 4b.   Include on lines 2b and 4b 90% of unearned premiums for insurance against default in the payment of principal or interest on securities described in section 165(g)(2)(C) (relating to worthless securities) with maturities of more than 5 years. See section 832(b)(7)(B).

Lines 2c and 4c.   The amount of discounted unearned premiums at the end of any tax year must be the present value of those premiums (as of such time and separately with respect to premiums received in each calendar year) determined by using:
  1. The amount of the undiscounted unearned premiums at such time;

  2. The applicable interest rate; and

  3. The applicable statutory premium recognition pattern.

Lines 2d and 4d.   Include on lines 2d and 4d 80% of the total of all unearned premiums not reported on lines 2a through 2c, or 4a through 4c, respectively.

  A reciprocal or interinsurer required under state law to reflect unearned premiums on its annual statement net of premium acquisition expenses should increase its unearned premiums by the amount of such acquisition expenses prior to making the computation on lines 2d and 4d. See section 832(b)(7)(E).

Line 6.   Transitional adjustments apply to companies which become taxable under section 831(a). See section 832(b)(7)(D).

Schedule F—Losses Incurred

Line 1. Losses paid.   Enter the total losses paid on insurance contracts during the tax year less salvage and reinsurance recovered during the tax year.

Lines 2a and 4a. Unpaid losses on life insurance contracts.   Unpaid losses must be adjusted for recoveries of reinsurance. The amounts of expected recoveries should be estimated based on the facts in each case and the corporation's experience with similar cases. See Regulations section 1.832-4(b).

Lines 2b and 4b. Discounted unpaid losses outstanding.   Enter all discounted unpaid losses as defined in section 846.

  Section 846 provides that the amount of discounted unpaid losses must be figured separately by each line of business (multiple peril lines must be treated as a single line of business) and by each accident year and must be equal to the present value of those losses determined by using the:
  1. Amount of the undiscounted unpaid losses,

  2. Applicable interest rate, and

  3. Applicable loss payment pattern.

  Special rules apply with respect to:
  • Unpaid losses related to disability insurance (other than credit disability insurance),

  • Noncancelable accident and health insurance,

  • Cancelable accident and health insurance, and

  • International and reinsurance lines of business.

  With regard to the special rules for discounting unpaid losses on accident and health insurance (other than disability income insurance), unpaid losses are assumed to be paid in the middle of the year following the accident year.

  Generally, the amount of undiscounted unpaid losses means the unpaid losses and unpaid loss adjustment expenses shown in the annual statement. However, see Regulations section 1.846-1(a)(1) referring to Regulations section 1.832-4(b) relating to the determination of unpaid losses.

   Under section 832(b)(5)(A), unpaid losses must be adjusted to take into account estimated recoveries due to salvage and reinsurance for those losses. If the amounts shown in the annual statement were determined on a discounted basis and if the extent to which these losses were discounted can be determined on the basis of information disclosed on or with the annual statement, the amount of the undiscounted unpaid losses must be recomputed to eliminate any reduction caused by such discounting. In no event can the amount of discounted unpaid losses with respect to any line of business for an accident year exceed the total amount of unpaid losses with respect to any line of business for an accident year as reported on the annual statement. Also see Regulations section 1.832-4(d) regarding increasing unpaid losses shown on the annual statement by salvage recoverable. Also see Rev. Proc. 92-77, 1992-2 C.B. 454.

  The applicable interest rate for each calendar year and the applicable loss payment pattern for each accident year for each line of business are determined by the IRS. The applicable interest rate and loss payment patterns for 2013 are published in Rev. Proc. 2013-36, 2013-49 I.R.B. 602. The applicable interest rate and loss payment patterns for 2011 and 2012 are published in Rev. Proc. 2011-53, 2011-46 I.R.B. 749, and Rev. Proc. 2012-44, 2012-49 I.R.B. 645, respectively.

  Corporations having sufficient historical experience to determine a loss payment pattern may, under certain circumstances, elect under section 846(e) to use their own historical experience (instead of the loss payment patterns determined by the IRS). If this election is made, the loss payment patterns will be based on the most recent calendar year for which an annual statement was filed before the beginning of the accident year. The election will not apply to any international or reinsurance line of business. If the corporation makes this election, check the “Yes” column for question 7 in Schedule I, Other Information. For more information, see section 846(e), Regulations section 1.846-2, and Rev. Proc. 92-76, 1992-2 C.B. 453.

Note.

There is a special application of the “fresh start” provision for an insurance company that is not subject to tax under section 831(a) for its first tax year beginning after December 31, 1986, because (1) it is described in section 501(c) or (2) it is subject to tax under section 831(b) on its investment income.

If the insurance company later becomes subject to tax under section 831(a), the rules relating to the fresh start under the discounting provisions are applied by treating the last tax year before the year in which the insurance company becomes subject to tax under section 831(a) as the insurance company's last tax year beginning before 1987. See section 1010(e) of the Technical and Miscellaneous Revenue Act of 1988 and Notice 88-100, 1988-2 C.B. 439.

Lines 6 and 7. Estimated salvage and reinsurance recoverable.   Enter on lines 6 and 7 the amount of estimated salvage and reinsurance recoverable. The amount of estimated salvage recoverable must be determined on a discounted basis. The salvage discount factors for 2013 are published in Rev. Proc. 2013-37, 2013-49 I.R.B. 612. The salvage discount factors for 2014 will be published in the Internal Revenue Bulletin when available. Also see Regulations section 1.832-4.

Line 9. Tax-exempt interest subject to section 832(b)(5)(B).   Enter the amount of tax-exempt interest received or accrued during the tax year on investments made after August 7, 1986. For information regarding the determination of the acquisition date of an investment, see the instructions for Schedule C.

Schedule G—Other Capital Losses

Capital assets are considered sold or exchanged to provide funds to meet abnormal insurance losses and to pay dividends and make similar distributions to policyholders to the extent that the gross receipts from their sale or exchange are not more than the amount by which the sum of dividends and similar distributions paid to policyholders, losses paid, and expenses paid for the tax year is more than the total on line 9, Schedule G.

Total gross receipts from sales of capital assets (line 12, column (c)) must not be more than line 10. If necessary, the corporation may report part of the gross receipts from a particular sale of a capital asset on this schedule and the rest on Schedule D (Form 1120). Otherwise, do not include on Schedule D (Form 1120) any sales reported on this schedule.

Schedule H—Special Deduction and Ending Adjusted Surplus for Section 833 Organizations

Section 833(c)(5) provides that section 833 does not apply to any organization with an MLR of less than 85%. See section 833(c)(5) and Notice 2010-79 for more information. Also see Notice 2012-37 applicable to the first tax year beginning after December 31, 2012.

Line 5. Beginning adjusted surplus.   If the corporation was a section 833 organization in 2012, it should enter the amount from its 2012 Form 1120-PC, Schedule H, line 10.

  Generally, the adjusted surplus as of the beginning of any tax year is an amount equal to the adjusted surplus as of the beginning of the preceding tax year:
  1. Increased by the amount of any adjusted taxable income for the preceding tax year or

  2. Decreased by the amount of any adjusted net operating loss for the preceding tax year.

  If 2013 is the first tax year the taxpayer qualifies as a section 833 organization, see section 833(c)(3)(C) to determine the adjusted surplus as of the beginning of the 2013 tax year.

  For purposes of the computation of the adjusted surplus, the terms “adjusted taxable income” and “adjusted net operating loss” mean the taxable income or the net operating loss, respectively, determined with the following modifications:
  1. Without regard to the deduction determined under section 833(b)(1);

  2. Without regard to any carryover or carryback to that tax year; and

  3. By increasing gross income by an amount equal to the net exempt income for the tax year.

Line 6. Special deduction.    The special deduction under section 833(b) cannot be taken if the MLR is less than 85%. If the MLR is less than 85%, enter zero on line 6 and Schedule A, line 34a.

Note.

The deduction for any tax year is limited to taxable income for that tax year determined without regard to this deduction.

Note.

Under section 833(b)(4), any determination under section 833(b) must be made by only taking into account items from the health-related business of the corporation.

Line 8a. Adjusted tax-exempt income.   Reduce the total tax-exempt interest received or accrued during the tax year by any amount (not otherwise deductible) which would have been allowable as a deduction for the tax year if such interest were not tax-exempt. Enter the result on line 8a.

Line 8b. Adjusted dividends-received deduction.   Reduce the total amount allowed as a deduction under sections 243, 244, and 245 by the amount of any decrease in deductions allowable for the tax year because of section 832(b)(5)(B) when the decrease is caused by the deductions under sections 243, 244, and 245. Enter the result on line 8b.

Schedule I—Other Information

The following instructions apply to Form 1120-PC, page 7. Complete all items that apply to the corporation.

Question 4

Check the “Yes” box 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 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 6

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 6a the percentage owned by the foreign person specified in question 6. On line 6b, enter the name of the owner's country.

Note.

If there is more than one 25%-or-more foreign owner, complete lines 6a and 6b 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 10

Show any tax-exempt interest received or accrued. Include any exempt-interest dividends received as a shareholder in a mutual fund or other RIC.

Item 11

If the corporation has an NOL, it generally can elect under section 172(b)(3) 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) in a tax year prior to 2013. Do not reduce the amount by any NOL deduction reported on Schedule A, line 36b.

Question 13

A corporation that files Form 1120-PC 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.

For details, see the Instructions for 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-PC must also file Schedule UTP if it satisfies the requirements set forth above.

Question 14

Section 833(c)(5) provides that section 833 does not apply to a Blue Cross or Blue Shield organization described in section 833(c)(2), or other organization described in section 833(c)(3), unless it has an MLR of 85% or more for the tax year.

For purposes of section 833(c)(5), the MLR is equal to the amount expended on reimbursement for clinical services provided to enrollees (as defined in 45 C.F.R. 158.140) under its policies during the tax year (section 833 MLR Numerator) divided by the total premium revenue (section 833 MLR Denominator). See section 833(c)(5) and Notice 2010-79 for more information. Also see Notice 2012-37 applicable to the first tax year beginning after December 31, 2012.

Check the “Yes” box if the corporation is a Blue Cross or Blue Shield organization described in section 833(c)(2), or other organization described in section 833(c)(3), that has satisfied the MLR requirements of section 833(c)(5).

If you checked “No” enter zero on Schedule H, line 6, and Schedule A, line 34a. You cannot take the special deduction. See the instructions for Schedule H.

Also, if you checked “No” your deduction of unearned premiums is limited. See the instructions for Schedule E for more information.

Schedule L—Balance Sheets per Books

Note.

All insurance companies required to file Form 1120-PC must complete Schedule L.

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

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.

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-PC) instead of Schedule M-1. See the separate instructions for Schedule M-3 (Form 1120-PC) for provisions that also affect Schedule L.

Line 1. Cash.   Include certificates of deposit as cash on this line.

Line 5. Tax-exempt securities.   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 18. Insurance liabilities.   Include on this line:
  • Undiscounted unpaid losses.

  • Loss adjustment expenses.

  • Unearned premiums.

  See section 846 for more information.

Line 27. Adjustments to shareholders' equity.   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 ownership plan (ESOP) debt.

  • Compensation related to employee stock award plans.

  If the total adjustment to be entered on line 27 is a negative amount, enter the amount in parentheses.

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

All insurance companies required to file Form 1120-PC, 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-PC) instead of Schedule M-1. See Schedule M-3 (Form 1120-PC), earlier. A corporation filing Form 1120-PC that is not required to file Schedule M-3 (Form 1120-PC) may voluntarily file Schedule M-3 (Form 1120-PC) instead of Schedule M-1. See the Instructions for Schedule M-3 (Form 1120-PC) for more information.

Line 5c. Travel and entertainment.   Include on line 5c any of the following.
  • Meals 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 7a. Tax-exempt interest.   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 I, item 10.


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