Table of Contents
- Period Covered
- Name and Address
- Item B. Business Code
- Item C. Schedule M-3 Information
- Item D. Employer Identification Number (EIN)
- Item F. Total Assets
- Item H. Final Return, Name Change, Address Change, Amended Return, or S Election Termination or Revocation
- Income
- Deductions
- Limitations on Deductions
- Line 7. Compensation of Officers and Line 8. Salaries and Wages
- Line 9. Repairs and Maintenance
- Line 10. Bad Debts
- Line 11. Rents
- Line 12. Taxes and Licenses
- Line 13. Interest
- Line 14. Depreciation
- Line 15. Depletion
- Line 17. Pension, Profit-Sharing, etc., Plans
- Line 18. Employee Benefit Programs
- Line 19. Other Deductions
- Reforestation expenditures.
- Line 21. Ordinary Business Income (Loss)
- Tax and Payments
- Schedule B. Other Information
- Schedules K and K-1 (General Instructions)
- Specific Instructions (Schedule K-1 Only)
- Specific Instructions (Schedules K and K-1, Part III)
- Reconciliation
- Schedule L. Balance Sheets per Books
- Schedule M-1. Reconciliation of Income (Loss) per Books With Income (Loss) per Return
- Schedule M-2. Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders' Undistributed Taxable Income Previously Taxed
File the 2012 return for calendar year 2012 and fiscal years that begin in 2012 and end in 2013. For a fiscal or short tax year return, fill in the tax year space at the top of the form.
The 2012 Form 1120S can also be used if:
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The corporation has a tax year of less than 12 months that begins and ends in 2013, and
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The 2013 Form 1120S is not available at the time the corporation is required to file its return.
The corporation must show its 2013 tax year on the 2012 Form 1120S and take into account any tax law changes that are effective for tax years beginning after December 31, 2012.
Enter the corporation's true name (as set forth in the charter or other legal document creating it) and address on the appropriate lines. Enter the address of the corporation's principal office or place of business. Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the corporation has a P.O. box, show the box number instead.
Note.
Do not use the address of the registered agent for the state in which the corporation is incorporated. For example, if a business is incorporated in Delaware or Nevada and the corporation's principal office is located in Little Rock, AR, the corporation should enter the Little Rock address.
If the corporation receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line “C/O” followed by the third party's name and street address or P.O. box.
A corporation with total assets of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120S), Net Income (Loss) Reconciliation for S Corporations With Total Assets of $10 Million or More, instead of Schedule M-1. A corporation filing Form 1120S that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1.
If you are filing Schedule M-3, check the “Check if Sch. M-3 attached” box. See the Instructions for Schedule M-3 for more details.
Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN can be applied for:
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Online—Click on the EIN link at www.irs.gov/businesses/small. The EIN is issued immediately once the application information is validated.
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By telephone at 1-800-829-4933, or at 1-800-829-4059 for individuals who are deaf, hard of hearing, or have a speech disability and who have access to TTY/TDD equipment.
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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 the corporation applied in the space for the EIN. However, if the corporation is filing its returns electronically, an EIN is required at the time the return is filed. For more information, see the Instructions for Form SS-4.
Enter the corporation's total assets (as determined by the accounting method regularly used in keeping the corporation's books and records) at the end of the tax year. If there were no assets at the end of the tax year, enter -0-.
If the corporation is required to complete Schedule L, enter total assets from Schedule L, line 15, column (d) on page 1, item F. If the S election terminated during the tax year, see the instructions for Schedule L, later, for special rules that may apply when figuring the corporation's year-end assets.
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If this is the corporation's final return and it will no longer exist, check the “Final return” box. Also check the “Final K-1” box on each Schedule K-1.
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If the corporation changed its name since it last filed a return, check the “Name change” box. Generally, a corporation also must have amended its articles of incorporation and filed the amendment with the state in which it was incorporated.
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If the corporation has changed its address since it last filed a return (including a change to an “in care of” address), check the “Address change” box.
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If this amends a previously filed return, check the “Amended return” box. If Schedules K-1 are also being amended, check the “Amended K-1” box on each Schedule K-1.
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If the corporation has terminated or revoked its S election, check the “S election termination or revocation” box. See Termination of Election, earlier.
Note.
If a change in address occurs after the return is filed, use Form 8822-B, Change of Address — Business, to notify the IRS of the new address.
Enter on line 1a gross receipts or sales from all business operations except for amounts that must be reported on lines 4 and 5.
Special rules apply to certain income, as discussed below.
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Personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan, or
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Real property held for sale to customers in the ordinary course of the taxpayer's trade or business.
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Dealer dispositions of property before March 1, 1986.
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Dispositions of property used or produced in the trade or business of farming.
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Certain dispositions of timeshares and residential lots reported under the installment method.
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Gross sales.
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Cost of goods sold.
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Gross profits.
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Percentage of gross profits to gross sales.
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Amount collected.
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Gross profit on the amount collected.
Enter cash and credit refunds the corporation made to customers for returned merchandise, rebates, and other allowances made on gross receipts or sales.
Complete Form 1125-A, Cost of Goods Sold. Enter on line 2 the amount from Form 1125-A, line 8. See Form 1125-A and its instructions.
A corporation that is a partner in a partnership must include on Form 4797, Sales of Business Property, its share of ordinary gains (losses) from sales, exchanges, or involuntary conversions (other than casualties or thefts) of the partnership's trade or business assets.
Corporations should not use Form 4797 to report the sale or other disposition of property if a section 179 expense deduction was previously passed through to any of its shareholders for that property. Instead, report it in box 17 of Schedule K-1 using code K. See Dispositions of property with section 179 deductions (code K), later, for details.
Enter any other trade or business income (loss) not included on lines 1a through 4. List the type and amount of income on an attached statement.
Examples of other income include the following.
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Interest income derived in the ordinary course of the corporation's trade or business, such as interest charged on receivable balances. See Temporary Regulations section 1.469-2T(c)(3).
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Recoveries of bad debts deducted in prior years under the specific charge-off method.
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Taxable income from insurance proceeds.
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The amount included in income from line 7 of Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit.
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The amount included in income from line 8 of Form 8864, Biodiesel and Renewable Diesel Fuels Credit.
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The recapture amount under section 280F if the business use of listed property drops to 50% or less. To figure the recapture amount, complete Part IV of Form 4797.
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All section 481 income adjustments resulting from changes in accounting methods. Show the computation of the section 481 adjustments on an attached statement.
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Part or all of the proceeds received from certain corporate-owned life insurance contracts issued after August 17, 2006. Corporations that own one or more employer-owned life insurance contracts issued after this date must file Form 8925, Report of Employer-Owned Life Insurance Contracts. See section 101(j) for details.
Do not include items requiring separate computations by shareholders that must be reported on Schedules K and K-1. See the instructions for Schedules K and K-1 later in these instructions.
Enter the ordinary income (loss) shown on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1041), or other ordinary income (loss) from a foreign partnership, estate, or trust. Show the partnership's, estate's, or trust's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one source, identify the amount from each source.
Do not include portfolio income or rental activity income (loss) from a partnership, estate, or trust on this line. Instead, report these amounts on Schedules K and K-1, or on line 20a of Form 8825 if the amount is from a rental real estate activity.
Ordinary income or loss from a partnership that is a publicly traded partnership is not reported on this line. Instead, report the amount separately on line 10 of Schedule K and in box 10 of Schedule K-1 using code E.
Treat shares of other items separately reported on Schedule K-1 issued by the other entity as if the items were realized or incurred by this corporation.
If there is a loss from a partnership, the amount of the loss that may be claimed is subject to the at-risk and basis limitations as appropriate.
If the tax year of the S corporation does not coincide with the tax year of the partnership, estate, or trust, include the ordinary income (loss) from the other entity in the tax year in which the other entity's tax year ends.
Do not report the following expenses on lines 7 through 19.
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Rental activity expenses. Report these expenses on Form 8825 or line 3b of Schedule K.
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Deductions allocable to portfolio income. Report these deductions on line 12d of Schedule K and in box 12 of Schedule K-1 using code I, K, or L.
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Nondeductible expenses (for example, expenses connected with the production of tax-exempt income). Report nondeductible expenses on line 16c of Schedule K and in box 16 of Schedule K-1 using code C.
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Qualified expenditures to which an election under section 59(e) may apply. The instructions for line 12c of Schedule K and for Schedule K-1, box 12, code J explain how to report these amounts.
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Items the corporation must state separately that require separate computations by the shareholders. Examples include expenses incurred for the production of income instead of in a trade or business, charitable contributions, foreign taxes paid or accrued, intangible drilling and development costs, soil and water conservation expenditures, amortizable basis of reforestation expenditures, and exploration expenditures. The pro rata shares of these expenses are reported separately to each shareholder on Schedule K-1.
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The production of real property and tangible personal property held in inventory or held for sale in the ordinary course of business.
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Real property or personal property (tangible and intangible) acquired for resale.
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The production of real property and tangible personal property by a corporation for use in its trade or business or in an activity engaged in for profit.
Section 263A does not apply to the following.
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Inventoriable items accounted for in the same manner as materials and supplies that are not incidental. See Form 1125-A and its instructions for more details.
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Personal property acquired for resale if the corporation's (or any predecessor's) average annual gross receipts for the 3 prior tax years were $10 million or less.
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Timber.
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Most property produced under a long-term contract.
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Certain property produced in a farming business. See Special rules for certain corporations engaged in farming, later.
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Geological and geophysical costs amortized under section 167(h).
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Capital costs incurred to comply with EPA sulfur regulations.
The corporation must report the following costs separately to the shareholders for purposes of determinations under section 59(e).
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Research and experimental costs under section 174.
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Intangible drilling costs for oil, gas, and geothermal property.
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Mining exploration and development costs.
Corporations subject to the uniform capitalization rules are required to capitalize not only direct costs but an allocable part of most indirect costs (including taxes) that benefit the assets produced or acquired for resale, or are incurred because of the performance of production or resale activities.
For inventory, indirect costs that must be capitalized include the following.
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Administration expenses.
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Taxes.
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Depreciation.
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Insurance.
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Compensation paid to officers attributable to services.
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Rework labor.
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Contributions to pension, stock bonus, and certain profit-sharing, annuity, or deferred compensation plans.
Regulations section 1.263A-1(e)(3) specifies other indirect costs that relate to production or resale activities that must be capitalized and those that may be currently deductible.
Interest expense paid or incurred during the production period of designated property must be capitalized and is governed by special rules. For more details, see Regulations sections 1.263A-8 through 1.263A-15.
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Animal or
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Plant that has a preproductive period of 2 years or less.
The corporation generally elects to deduct start-up or organizational costs by claiming the deduction on its income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. However, for start-up or organizational costs paid or incurred before September 9, 2008, the corporation may be required to attach a statement to its return to elect to deduct such costs.
If the corporation timely filed its return for the year without making an election, it can still make an election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on the amended return and write “Filed pursuant to section 301.9100-2” at the top of the amended return. File the amended return at the same address the corporation filed its original return. The election applies when figuring taxable income for the current tax year and all subsequent years.
The corporation can choose to forgo the elections above by clearly electing to capitalize its start-up or organizational costs on its income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.
Note.
The election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to the trade or business.
Report the deductible amount of start-up and organizational cost and any amortization on line 19. For amortization that begins during the 2012 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.
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Work opportunity credit (Form 5884).
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Credit for increasing research activities (Form 6765).
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Orphan drug credit (Form 8820).
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Disabled access credit (Form 8826).
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Empowerment zone employment credit (Form 8844).
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Indian employment credit (Form 8845).
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Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846).
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Credit for small employer pension plan startup costs (Form 8881).
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Credit for employer-provided childcare facilities and services (Form 8882).
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Low sulfur diesel fuel production credit (Form 8896).
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Mine rescue team training credit (Form 8923).
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Agricultural chemicals security credit (Form 8931).
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Credit for employer differential wage payments (Form 8932).
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Credit for small employer health insurance premiums (Form 8941).
Enter on line 7 the total compensation of all officers paid or incurred in the trade or business activities of the corporation. The corporation determines who is an officer under the laws of the state where it is incorporated.
Enter on line 8 the total salaries and wages paid or incurred to employees (other than officers) during the tax year.
If the corporation claims a credit for any wages paid or incurred, it may need to reduce the amounts on lines 7 and 8. See Reducing certain expenses for which credits are allowable, earlier.
Do not include salaries and wages reported elsewhere on the return, such as amounts included in cost of goods sold, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.
Include fringe benefit expenditures made on behalf of officers and employees owning more than 2% of the corporation's stock. Also report these fringe benefits as wages in box 1 of Form W-2. Do not include amounts paid or incurred for fringe benefits of officers and employees owning 2% or less of the corporation's stock. These amounts are reported on line 18. See the instructions for that line for information on the types of expenditures that are treated as fringe benefits and for the stock ownership rules.
Report amounts paid for health insurance coverage for a more than 2% shareholder (including that shareholder's spouse, dependents, and any children under age 27 who are not dependents) as an information item in box 14 of that shareholder's Form W-2. A more-than-2% shareholder may be allowed to deduct such amounts on Form 1040, line 29. To find out if the shareholder can claim this deduction, see Self-Employed Health Insurance Deduction in chapter 6 of Pub. 535, Business Expenses.
If a shareholder or a member of the family of one or more shareholders of the corporation renders services or furnishes capital to the corporation for which reasonable compensation is not paid, the IRS may make adjustments in the items taken into account by such individuals to reflect the value of such services or capital. See section 1366(e).
Enter the cost of incidental repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that do not add to the value of the property or appreciably prolong its life. The corporation can deduct these repairs only to the extent they relate to a trade or business activity. New buildings, machinery, or permanent improvements that increase the value of the property are not deductible. They must be depreciated or amortized.
Enter the total debts that became worthless in whole or in part during the tax year, but only to the extent such debts relate to a trade or business activity. Report deductible nonbusiness bad debts as a short-term capital loss on Form 8949, Sales and Other Dispositions of Capital Assets. A corporation that uses the cash method of accounting cannot claim a bad debt deduction unless the amount was previously included in income.
Enter rent paid on business property used in a trade or business activity. Do not deduct rent for a dwelling unit occupied by any shareholder for personal use.
If the corporation rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred in the trade or business activities of the corporation during the tax year. Also complete Part V of Form 4562. If the corporation leased a vehicle for a term of 30 days or more, the deduction for vehicle lease expense may have to be reduced by including in gross income an amount 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 12/31/07 but before 1/1/13 | $18,500 |
| Trucks and Vans | |
| After 12/31/09 but before 1/1/13 | $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 2013 will be published in the Internal Revenue Bulletin in early 2013.
Enter taxes and licenses paid or incurred in the trade or business activities of the corporation, unless they are reflected elsewhere on the return. Federal import duties and federal excise and stamp taxes are deductible only if paid or incurred in carrying on the trade or business of the corporation.
Do not deduct the following taxes on line 12.
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Federal income taxes (except for the portion of built-in gains tax allocable to ordinary income), or taxes reported elsewhere on the return.
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Section 901 foreign taxes. Report these taxes on line 14l of Schedule K and in box 14 of Schedule K-1 using codes L and M.
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Taxes allocable to a rental activity. Report taxes allocable to a rental real estate activity on Form 8825. Report taxes allocable to a rental activity other than a rental real estate activity on line 3b of Schedule K.
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Taxes allocable to portfolio income. Report these taxes on line 12d of Schedule K and in box 12 of Schedule K-1 using code K.
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Taxes paid or incurred for the production or collection of income, or for the management, conservation, or maintenance of property held to produce income. Report these taxes separately on line 12d of Schedule K and in box 12 of Schedule K-1 using code S.
See section 263A(a) for rules on capitalization of allocable costs (including taxes) for any property.
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Taxes not imposed on the corporation.
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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).
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Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).
See section 164(d) for information on apportionment of taxes on real property between seller and purchaser.
Include only interest incurred in the trade or business activities of the corporation that is not claimed elsewhere on the return.
Do not include interest expense:
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On debt used to purchase rental property or debt used in a rental activity. Interest allocable to a rental real estate activity is reported on Form 8825 and is used in arriving at net income (loss) from rental real estate activities on line 2 of Schedule K and in box 2 of Schedule K-1. Interest allocable to a rental activity other than a rental real estate activity is included on line 3b of Schedule K and is used in arriving at net income (loss) from a rental activity (other than a rental real estate activity). This net amount is reported on line 3c of Schedule K and in box 3 of Schedule K-1.
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On debt used to buy property held for investment. Interest that is clearly and directly allocable to interest, dividend, royalty, or annuity income not derived in the ordinary course of a trade or business is reported on line 12b of Schedule K and in box 12 of Schedule K-1 using code H. See the instructions for line 12b of Schedule K, for box 12, code H of Schedule K-1, and Form 4952, Investment Interest Expense Deduction, for more information on investment property.
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On debt proceeds allocated to distributions made to shareholders during the tax year. Instead, report such interest on line 12d of Schedule K and in box 12 of Schedule K-1 using code S. To determine the amount to allocate to distributions to shareholders, see Notice 89-35, 1989-1 C.B. 675.
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On debt required to be allocated to the production of designated property. Designated property includes real property, personal property that has a class life of 20 years or more, and other tangible property requiring more than 2 years (1 year in the case of property with a cost of more than $1 million) to produce or construct. Interest allocable to designated property produced by a corporation for its own use or for sale must be capitalized. In addition, a corporation must also capitalize any interest on debt allocable to an asset used to produce designated property. A shareholder may have to capitalize interest that the shareholder incurs during the tax year for the S corporation's production expenditures. Similarly, interest incurred by an S corporation may have to be capitalized by a shareholder for the shareholder's own production expenditures. The information required by the shareholder to properly capitalize interest for this purpose must be provided by the corporation on an attachment for box 17 of Schedule K-1 using code P. See section 263A(f) and Regulations sections 1.263A-8 through 1.263A-15.
Special rules apply to:
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Allocating interest expense among activities so that the limitations on passive activity losses, investment interest, and personal interest can be properly figured. Generally, interest expense is allocated in the same manner as debt is allocated. Debt is allocated by tracing disbursements of the debt proceeds to specific expenditures. Temporary Regulations section 1.163-8T gives rules for tracing debt proceeds to expenditures.
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Prepaid interest, which generally can only be deducted over the term of the debt. See Regulations sections 1.163-7, 1.446-2, and 1.1273-2(g) for details. See also section 461(g).
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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.
Enter the depreciation claimed on assets used in a trade or business activity less any depreciation reported elsewhere (for example, on Form 1125-A). See the Instructions for Form 4562 or Pub. 946, How To Depreciate Property, to figure the amount of depreciation to enter on this line.
Complete and attach Form 4562 only if the corporation placed property in service during the tax year or claims depreciation on any car or other listed property.
Do not include any section 179 expense deduction on this line. This amount is not deducted by the corporation. Instead, it is passed through to the shareholders in box 11 of Schedule K-1. However, reduce the basis of any asset of the S corporation by the amount of section 179 expense elected by the S corporation, even if a portion of that amount cannot be passed through to its shareholders this year and must be carried forward because of limitations at the S corporation level. See Regulations section 1.179-1(f)(2).
If the corporation claims a deduction for timber depletion, complete and attach Form T (Timber), Forest Activities Schedule.
Enter the deductible contributions not claimed elsewhere on the return made by the corporation for its employees under a qualified pension, profit-sharing, annuity, or simplified employee pension (SEP) or SIMPLE IRA plan, or any other deferred compensation plan.
If the corporation contributes to an individual retirement arrangement (IRA) for employees, include the contribution in salaries and wages on page 1, line 8, or Form 1125-A, line 3, and not on line 17.
Employers who maintain a pension, profit-sharing, or other funded deferred compensation plan, whether or not the plan is qualified under the Internal Revenue Code and whether or not a deduction is claimed for the current tax year, generally must file the applicable form listed below.
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Form 5500, Annual Return/Report of Employee Benefit Plan.
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Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan (generally filed instead of Form 5500 if there are under 100 participants at the beginning of the plan year).
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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.
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.
There are penalties for not filing these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f).
Enter amounts for fringe benefits paid or incurred on behalf of employees owning 2% or less of the corporation's stock. These fringe benefits include (a) employer contributions to certain accident and health plans, (b) the cost of up to $50,000 of group-term life insurance on an employee's life, and (c) meals and lodging furnished for the employer's convenience.
Do not deduct amounts that are an incidental part of a pension, profit-sharing, etc., plan included on line 17 or amounts reported elsewhere on the return or on Form 1125-A.
Report amounts for fringe benefits paid on behalf of employees owning more than 2% of the corporate stock on line 7 or 8, whichever applies. An employee is considered to own more than 2% of the corporation's stock if that person owns on any day during the tax year more than 2% of the outstanding stock of the corporation or stock possessing more than 2% of the combined voting power of all stock of the corporation. See section 318 for attribution rules.
Enter the total allowable trade or business deductions that are not deductible elsewhere on page 1 of Form 1120S. Attach a statement listing by type and amount each deduction included on this line.
Examples of other deductions include the following.
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Amortization. See Part VI of Form 4562.
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Certain business start-up and organizational costs (discussed earlier).
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Insurance premiums.
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Legal and professional fees.
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Supplies used and consumed in the business.
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Travel, meal, and entertainment expenses. Special rules apply (discussed later).
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Utilities.
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Deduction for certain energy efficient commercial building property placed in service during the tax year. See section 179D, Notice 2006-52, 2006-26 I.R.B. 1175, as clarified and amplified by Notice 2008-40, 2008-14 I.R.B. 725, as modified by Notice 2012-26, 2012-17 I.R.B. 847.
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Any negative net section 481(a) adjustment.
Do not deduct the following on line 19.
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Items that must be reported separately on Schedules K and K-1.
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Fines or penalties paid to a government for violating any law. Report these expenses on Schedule K, line 16c.
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Expenses allocable to tax-exempt income. Report these expenses on Schedule K, line 16c.
Note.
The commercial revitalization deduction is not available for buildings placed in service after 2009.
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:
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That individual is an employee of the corporation, and
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His or her travel is for a bona fide business purpose and would otherwise be deductible by that individual.
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)):
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Meals must not be lavish or extravagant;
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A bona fide business discussion must occur during, immediately before, or immediately after the meal; and
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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.
The corporation can generally 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.
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.
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, or beneficial owner (directly or indirectly) of more than 10% of the corporation's stock, the deductible expense is limited. See section 274(e)(2) and Notice 2005-45, 2005-24 I.R.B. 1228. For tax years beginning after August 1, 2012, see Regulations sections 1.274-9 and 1.274-10.
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Amounts paid or incurred in connection with influencing federal or state legislation (but not local legislation) or
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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.”
Excess net passive income tax worksheet
If the corporation made an election to deduct a portion of its reforestation expenditures on line 12d of Schedule K, it must amortize over an 84-month period the portion of these expenditures in excess of the amount deducted on Schedule K (see section 194). Deduct on line 19 only the amortization of these excess reforestation expenditures. See Reforestation expense deduction (code O), later.
These taxes can apply if the corporation was previously a C corporation or if the corporation engaged in a tax-free reorganization with a C corporation.
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The corporation used the LIFO inventory pricing method for its last tax year as a C corporation, or
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A C corporation transferred LIFO inventory to the corporation in a nonrecognition transaction in which those assets were transferred basis property.
Enter the built-in gains tax from line 23 of Part III of Schedule D. See the instructions for Part III of Schedule D to determine if the corporation is liable for the tax.
Include the following in the total for line 22c.
If the corporation is the beneficiary of a trust, and the trust makes a section 643(g) election to credit its estimated tax payments to its beneficiaries, include the corporation's share of the payment in the total for line 23d. Enter “T” and the amount on the dotted line to the left of the entry space.
If Form 2220 is attached, check the box on line 24 and enter the amount of any penalty on this line.
Complete all items that apply to the corporation.
See Principal Business Activity Codes at the end of these instructions and enter the business activity and product or service.
For purposes of determining the corporation's constructive ownership of other entities, the constructive ownership rules of section 267(c) (excluding section 267(c)(3)) apply to ownership of interests in partnerships and trusts as well as corporate stock. Generally, if an entity (a corporation, partnership, or trust) is owned, directly or indirectly, by or for another entity (corporation, partnership, estate, or trust), the owned entity is considered to be owned proportionately by or for the owners (shareholders, partners, or beneficiaries) of the owning entity.
Answer “Yes” if the corporation filed, or is required to file, Form 8918, Material Advisor Disclosure Statement. For details, see the Instructions for Form 8918.
Complete item 8 if the corporation: (a) was a C corporation before it elected to be an S corporation or the corporation acquired an asset with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation and (b) has net unrealized built-in gain (defined below) in excess of the net recognized built-in gain from prior years.
The corporation is liable for section 1374 tax if (a) and (b) above apply and it has a net recognized built-in gain (defined in section 1374(d)(2)) for its tax year.
The corporation's net unrealized built-in gain is the amount, if any, by which the fair market value of the assets of the corporation at the beginning of its first S corporation year (or as of the date the assets were acquired, for any asset with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation) exceeds the aggregate adjusted basis of such assets at that time.
Enter the corporation's net unrealized built-in gain reduced by the net recognized built-in gain from prior years. See sections 1374(c)(2) and (d)(1).
If the corporation has more than one pool of assets (as defined in Regulations section 1.1374-3(b)(4)), attach a statement showing for each pool of assets the amount of the corporation's net unrealized built-in gain reduced by the net recognized built-in gain from prior years.
If the corporation was a C corporation in a prior year, or if it engaged in a tax-free reorganization with a C corporation, enter the amount of any accumulated earnings and profits (E&P) at the close of its 2012 tax year. For details on figuring accumulated E&P, see section 312. Estimates based on retained earnings at the end of the tax year are acceptable. If the corporation has accumulated E&P, it may be liable for tax imposed on excess net passive income. See Excess net passive income tax, earlier, for details on this tax.
Total receipts is the sum of the following amounts.
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Gross receipts or sales (page 1, line 1a).
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All other income (page 1, lines 4 and 5).
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Income reported on Schedule K, lines 3a, 4, 5a, and 6.
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Income or net gain reported on Schedule K, lines 7, 8a, 9, and 10.
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Income or net gain reported on Form 8825, lines 2, 19, and 20a.
The corporation is liable for taxes on lines 22a, 22b, and 22c, on page 1 of Form 1120S. Shareholders are liable for tax on their shares of the corporation's income (reduced by any taxes paid by the corporation on income). Shareholders must include their share of the income on their tax return whether or not it is distributed to them. Unlike most partnership income, S corporation income is not self-employment income and is not subject to self-employment tax.
The corporation does not need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule. The boxes must use the same numbers and titles and must be in the same order and format as on the comparable IRS Schedule K-1. The substitute schedule must include the OMB number. The corporation must provide each shareholder with the Shareholder's Instructions for Schedule K-1 (Form 1120S) or instructions that apply to the specific items reported on the shareholder's Schedule K-1.
The corporation must request IRS approval to use other substitute Schedules K-1. To request approval, write to Internal Revenue Service, Attention: Substitute Forms Program, SE:W:CAR:MP:T:M:S, 1111 Constitution Avenue NW, IR-6526, Washington, DC 20224.
Each shareholder's information must be on a separate sheet of paper. Therefore, separate all continuously printed substitutes before you file them with the IRS.
The corporation may be subject to a penalty if it files a substitute Schedule K-1 that does not conform to the specifications discussed in Pub. 1167, General Rules and Specifications for Substitute Forms and Schedules.
Items of income, gain, loss, deduction, or credit are allocated to a shareholder on a daily basis, according to the number of shares of stock held by the shareholder on each day of the corporation's tax year. See the detailed instructions for item F in Part II. Information About the Shareholder, later.
Shareholders who dispose of stock are treated as shareholders for the day of their disposition. Shareholders who die are treated as shareholders for the day of their death.
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A disposition by a shareholder of at least 20% of the corporation's outstanding stock in one or more transactions in any 30-day period during the tax year,
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A redemption treated as an exchange under section 302(a) or 303(a) of at least 20% of the corporation's outstanding stock in one or more transactions in any 30-day period during the tax year, or
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An issuance of stock that equals at least 25% of the previously outstanding stock to one or more new shareholders in any 30-day period during the tax year.
Generally, the corporation is required to prepare and give a Schedule K-1 to each person who was a shareholder in the corporation at any time during the tax year. Schedule K-1 must be provided to each shareholder on or before the day on which the corporation's Form 1120S is required to be filed.
If the return is for a fiscal year or a short tax year, fill in the tax year space at the top of each Schedule K-1. On each Schedule K-1, enter the information about the corporation and the shareholder in Parts I and II (items A through F). In Part III, enter the shareholder's pro rata share of each item of income, deduction, and credit and any other information the shareholder needs to prepare his or her tax return. Use 10-point Courier font (if possible) for all entries if you are typing or using a computer to complete Schedule K-1.
If items of income, loss, deduction, or credit from more than one activity (determined for purposes of the passive activity loss and credit limitations) are reported on Schedule K-1, the corporation must provide information separately for each activity to its shareholders. See Passive Activity Reporting Requirements, earlier, for details on the reporting requirements.
If the corporation is involved in one or more at-risk activities for which a loss is reported on Schedule K-1, the corporation must report information separately for each activity. See section 465(c) for a definition of activities.
The following information must be provided on an attachment to Schedule K-1 for each activity.
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A statement that the information is a breakdown of at-risk activity loss amounts.
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The identity of the at-risk activity, the loss amount for the activity, other income and deductions, and any other information that relates to the activity.
On each Schedule K-1, enter the corporation's name, address, and identifying number.
On each Schedule K-1, enter the shareholder's name, address, identifying number, and percentage of stock ownership.
For an individual shareholder, enter the shareholder's social security number (SSN) or individual taxpayer identification number (ITIN) in item D. For all other shareholders, enter the shareholder's EIN.
If stock of the corporation is held by a nominee, guardian, custodian, or an agent, enter the name, address, and identifying number of the person for whom the stock is held.
If a single member limited liability company (LLC) owns stock in the corporation, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner's identifying number in item D and the owner's name and address in item E. The owner must be eligible to be an S corporation shareholder. An LLC that elects to be treated as a corporation for federal income tax purposes is not eligible to be an S corporation shareholder.
Each shareholder's pro rata share items are figured separately for each period on a daily basis, based on the percentage of stock held by the shareholder on each day.
If there was no change in shareholders or in the relative interest in stock the shareholders owned during the tax year, enter the percentage of total stock owned by each shareholder during the tax year. For example, if shareholders X and Y each owned 50% for the entire tax year, enter 50% in item F for each shareholder. Each shareholder's pro rata share items (boxes 1 through 17 of Schedule K-1) are figured by multiplying the corresponding Schedule K amount by the percentage in item F.
If there was a change in shareholders or in the relative interest in stock the shareholders owned during the tax year, figure the percentage as follows.
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Each shareholder's percentage of ownership is weighted for the number of days in the tax year that stock was owned. For example, A and B each held 50% for half the tax year and A, B, and C held 40%, 40%, and 20%, respectively, for the remaining half of the tax year. The percentage of ownership for the year for A, B, and C is figured as presented in the illustration and is then entered in item F.
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Each shareholder's pro rata share items generally are figured by multiplying the Schedule K amount by the percentage in item F. However, if a shareholder terminated his or her entire interest in the corporation during the year or a qualifying disposition took place, the corporation may elect to allocate income and expenses, etc., as if the tax year consisted of 2 tax years, the first of which ends on the day of the termination or qualifying disposition. See Special Rules, earlier, for more details.
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Enter the amount from Form 1120S, page 1, line 21. Enter the income (loss) without reference to the shareholder's:
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Basis in the stock of the corporation and in any indebtedness of the corporation to the shareholders (section 1366(d)),
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At-risk limitations, and
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Passive activity limitations.
These limitations, if applicable, are determined at the shareholder level.
Line 1 should not include rental activity income (loss) or portfolio income (loss).
Enter the net income (loss) from rental real estate activities of the corporation from Form 8825. Attach the form to Form 1120S.
Enter on line 3a gross income from rental activities other than those reported on Form 8825. Include on line 3a gain (loss) from line 17 of Form 4797 that is attributable to the sale, exchange, or involuntary conversion of an asset used in a rental activity other than a rental real estate activity.
Enter on line 3b the deductible expenses of the activity. Attach a statement of these expenses to Form 1120S.
Enter on line 3c the net income (loss).
See Rental Activities, earlier, and Pub. 925, Passive Activity and At-Risk Rules, for more information on rental activities.
See Portfolio Income, earlier, for a definition of portfolio income.
Do not reduce portfolio income by deductions allocated to it. Report such deductions (other than interest expense) on line 12d of Schedule K. Report each shareholder's pro rata share of deductions in box 12 of Schedule K-1 using codes I, K, and L.
Interest expense allocable to portfolio income is generally investment interest expense reported on line 12b of Schedule K. Report each shareholder's pro rata share of interest expense allocable to portfolio income in box 12 of Schedule K-1 using code H.
Enter only taxable portfolio interest on this line. Taxable interest is interest from all sources except interest exempt from tax and interest on tax-free covenant bonds.
Enter only taxable ordinary dividends on line 5a, including any qualified dividends reported on line 5b.
Enter qualified dividends on line 5b. Except as provided below, qualified dividends are dividends received from domestic corporations and qualified foreign corporations.
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Dividends the corporation received on any share of stock held for less than 61 days during the 121-day period that began 60 days before the ex-dividend date. When determining the number of days the corporation held the stock, do not count certain days during which the corporation's risk of loss was diminished. The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. When counting the number of days the corporation held the stock, include the day the corporation disposed of the stock but not the day the corporation acquired it.
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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 determining the number of days the corporation held the stock, do not count certain days during which the corporation's risk of loss was diminished. Preferred dividends attributable to periods totaling less than 367 days are subject to the 61-day holding period rule above.
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Dividends that relate to payments that the corporation is obligated to make with respect to short sales or positions in substantially similar or related property.
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Dividends paid by a regulated investment company that are not treated as qualified dividend income under section 854.
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Dividends paid by a real estate investment trust that are not treated as qualified dividend income under section 857(c).
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Incorporated in a possession of the United States or
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Eligible for benefits of a comprehensive income tax treaty with the United States that the Secretary determines is satisfactory for this purpose and that includes an exchange of information program. See Notice 2011-64, 2011-37 I.R.B. 231, for details.
Enter the royalties received by the corporation.
Enter the gain (loss) that is portfolio income (loss) from Schedule D (Form 1120S), line 7.
Enter the gain or loss that is portfolio income (loss) from Schedule D (Form 1120S), line 15.
Figure the amount attributable to collectibles from the amount reported on Schedule D (Form 1120S), line 15. A collectibles gain (loss) is any long-term gain or deductible long-term loss from the sale or exchange of a collectible that is a capital asset.
Collectibles include works of art, rugs, antiques, metal (such as gold, silver, or platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.
Also, include gain (but not loss) from the sale or exchange of an interest in a partnership or trust held for more than 1 year and attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement required under Regulations section 1.1(h)-1(e).
The three types of unrecaptured section 1250 gain must be reported separately on an attached statement to Form 1120S.
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The sale or exchange of the corporation's business assets.
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The sale or exchange of an interest in a partnership.
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An estate, trust, REIT, or RIC.
Enter the net section 1231 gain (loss) from Form 4797, line 7.
Do not include net gain or loss from involuntary conversions due to casualty or theft. Report net loss from involuntary conversions due to casualty or theft on line 10 of Schedule K (box 10, code B, of Schedule K-1). See the instructions for line 10 on how to report net gain from involuntary conversions.
Enter any other item of income or loss not included on lines 1 through 9. On the line to the left of the entry space for line 10, identify the type of income. If there is more than one type of income, attach a statement to Form 1120S that separately identifies each type and amount of income for each of the following categories. The codes needed for Schedule K-1 reporting are provided for each category.
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Taxable income (net loss) from the REMIC (line 1b of Schedules Q (Form 1066)).
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Excess inclusion (line 2c of Schedules Q (Form 1066)).
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Section 212 expenses (line 3b of Schedules Q (Form 1066)).
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Recoveries of tax benefit items (section 111).
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Gambling gains and losses subject to the limitations in section 165(d). Indicate on an attached statement whether or not the corporation is in the trade or business of gambling.
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Disposition of an interest in oil, gas, geothermal, or other mineral properties. Report the following information on a statement attached to Schedule K-1: (a) a description of the property; (b) the shareholder's share of the amount realized on the sale, exchange, or involuntary conversion of each property (fair market value of the property for any other disposition, such as a distribution); (c) the shareholder's share of the corporation's adjusted basis in the property (except for oil or gas properties); and (d) total intangible drilling costs, development costs, and mining exploration costs (section 59(e) expenditures) passed through to the shareholder for the property. See Regulations section 1.1254-4 for more information.
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COD income deferred under section 108(i). Report COD income deferred under section 108(i) that must be included in income in the current tax year under section 108(i)(1) or section 108(i)(5)(D)(i) or (ii). For information on events that will cause previously deferred income to be reportable and allocating deferred income to the shareholders, see section 108(i); Rev. Proc. 2009-37, 2009-36 I.R.B. 309; and Temporary Regulations section 1.108(i)-2T.
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Gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D) that is eligible for the section 1202 exclusion. The section 1202 exclusion applies only to QSB stock held by the corporation for more than 5 years. Additional limitations apply at the shareholder level. Report each shareholder's share of section 1202 gain on Schedule K-1. Each shareholder will determine if he or she qualifies for the exclusion. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder's pro rata share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold.
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Gain eligible for section 1045 rollover (replacement stock purchased by the corporation). Include only gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D) that was deferred by the corporation under section 1045 and reported on Schedule D. See the Instructions for Schedule D for more details. Additional limitations apply at the shareholder level. Report each shareholder's share of the gain eligible for section 1045 rollover on Schedule K-1. Each shareholder will determine if he or she qualifies for the rollover. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder's pro rata share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold.
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Gain eligible for section 1045 rollover (replacement stock not purchased by the corporation). Include only gain from the sale or exchange of qualified small business (QSB) stock (as defined in the Instructions for Schedule D) the corporation held for more than 6 months but that was not deferred by the corporation under section 1045. See the Instructions for Schedule D for more details. A shareholder may be eligible to defer his or her pro rata share of this gain under section 1045 if he or she purchases other QSB stock during the 60-day period that began on the date the QSB stock was sold by the corporation. Additional limitations apply at the shareholder level. Report on an attachment to Schedule K-1 for each sale or exchange (a) the name of the corporation that issued the QSB stock, (b) the shareholder's pro rata share of the corporation's adjusted basis and sales price of the QSB stock, and (c) the dates the QSB stock was bought and sold.
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Any gain or loss from lines 7 or 15 of Schedule D that is not portfolio income (for example, gain or loss from the disposition of nondepreciable personal property used in a trade or business).
A corporation can elect to expense part of the cost of certain property the corporation purchased during the tax year for use in its trade or business or certain rental activities. See Pub. 946 for a definition of what kind of property qualifies for the section 179 expense deduction and the Instructions for Form 4562 for limitations on the amount of the section 179 expense deduction.
Complete Part I of Form 4562 to figure the corporation's section 179 expense deduction. The corporation does not take the deduction itself, but instead passes it through to the shareholders. Attach Form 4562 to Form 1120S and show the total section 179 expense deduction on Schedule K, line 11.
Although the corporation cannot take the section 179 deduction, it generally must still reduce the basis of the asset by the amount of the section 179 deduction it elected, regardless of whether any shareholder can use the deduction. However, the corporation does not reduce the basis for any section 179 deduction allocable to a trust or estate because they are not eligible to take the section 179 deduction. See Regulations section 1.179-1(f).
Identify on an attachment to Schedules K and K-1 the cost of any section 179 property placed in service during the year that is qualified enterprise zone property, qualified section 179 disaster assistance property, or qualified real property. See the Instructions for Form 4562 for more details.
See the instructions for line 17d of Schedule K for sales or other dispositions of property for which a section 179 deduction has passed through to shareholders and for the recapture rules if the business use of the property dropped to 50% or less.
Cash contributions must be supported by a dated bank record or receipt.
Generally, no deduction is allowed for any contribution of $250 or more unless the corporation obtains a written acknowledgment from the charitable organization that shows the amount of cash contributed, describes any property contributed, and gives an estimate of the value of any goods or services 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. These rules apply in addition to the filing requirements for Form 8283, Noncash Charitable Contributions, described under Contributions of property, later.
Enter charitable contributions made during the tax year. Attach a statement to Form 1120S that separately identifies the corporation's contributions for each of the following categories. See Limits on Deductions in Pub. 526, Charitable Contributions, for information on adjusted gross income (AGI) limitations on deductions for charitable contributions.
The codes needed for Schedule K-1 reporting are provided for each category.
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The shareholder's pro rata share of the amount of the charitable contributions under section 170(e)(3) for qualified food inventory that was donated to charitable organizations for the care of the ill, needy, and infants. The food must meet all the quality and labeling standards imposed by federal, state, and local laws and regulations. The charitable contribution for donated food inventory is the lesser of (a) the basis of the donated food plus one-half of the appreciation (gain if the donated food were sold at fair market value on the date of the gift) or (b) twice the basis of the donated food. See section 170(e)(3)(C) for more details.
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The shareholder's pro rata share of the net income for the tax year from the corporation's trades or businesses that made the contributions of food inventory.
Include on this line the interest properly allocable to debt on property held for investment purposes. Property held for investment includes property that produces income (unless derived in the ordinary course of a trade or business) from interest, dividends, annuities, or royalties; and gains from the disposition of property that produces those types of income or is held for investment.
Investment interest expense does not include interest expense allocable to a passive activity.
Investment income and investment expenses other than interest are reported on lines 17a and 17b respectively. This information is needed by shareholders to determine the investment interest expense limitation (see Form 4952 for details).
Generally, section 59(e) allows each shareholder to make an election to deduct their pro rata share of the corporation's otherwise deductible qualified expenditures ratably over 10 years (3 years for circulation expenditures). The deduction is taken beginning with the tax year in which the expenditures were made (or for intangible drilling and development costs, over the 60-month period beginning with the month in which such costs were paid or incurred).
The term “qualified expenditures” includes only the following types of expenditures paid or incurred during the tax year.
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Circulation expenditures.
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Research and experimental expenditures.
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Intangible drilling and development costs.
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Mining exploration and development costs.
If a shareholder makes the election, these items are not treated as AMT tax preference items.
Because the shareholders make this election, the corporation cannot deduct these amounts or include them as AMT items on Schedule K-1. Instead, the corporation passes through the information the shareholders need to figure their separate deductions.
On line 12c(1), enter the type of expenditures claimed on line 12c(2). Enter on line 12c(2) the qualified expenditures paid or incurred during the tax year for which a shareholder may make an election under section 59(e). Enter this amount for all shareholders whether or not any shareholder makes an election under section 59(e).
On an attached statement, identify the property for which the expenditures were paid or incurred. If the expenditures were for intangible drilling or development costs for oil and gas properties, identify the month(s) in which the expenditures were paid or incurred. If there is more than one type of expenditure or more than one property, provide the amounts (and the months paid or incurred, if required) for each type of expenditure separately for each property.
Enter deductions not included on lines 11, 12a, 12b, 12c(2), or 14l. On the line to the left of the entry space for line 12d, identify the type of deduction. If there is more than one type of deduction, attach a statement to Form 1120S that separately identifies the type and amount of each deduction for the following categories. The codes needed for Schedule K-1 reporting are provided for each category.
Enter the shareholder's pro rata share of allowable reforestation expense in box 12 of Schedule K-1 using code O and attach a statement that provides a description of the qualified timber property. If the corporation is electing to deduct amounts from more than one qualified timber property, provide a description and the amount for each property.
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Domestic production gross receipts (DPGR).
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Gross receipts from all sources.
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Cost of goods sold allocable to DPGR.
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Cost of goods sold from all sources.
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Total deductions, expenses, and losses directly allocable to DPGR.
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Total deductions, expenses, and losses directly allocable to a non-DPGR class of income.
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Other deductions, expenses, and losses not directly allocable to DPGR or another class of income.
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Form W-2 wages.
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Any other information a shareholder using the section 861 method will need to allocate and apportion cost of goods sold and deductions between domestic production gross receipts and other receipts.
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Amounts paid by the corporation that would be allowed as itemized deductions on any of the shareholders' income tax returns if they were paid directly by a shareholder for the same purpose. These amounts include, but are not limited to, expenses under section 212 for the production of income other than from the corporation's trade or business. However, do not enter expenses related to portfolio income or investment interest expense reported on line 12b of Schedule K on this line.
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Soil and water conservation expenditures (section 175). See Pub. 225.
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Endangered species recovery expenditures (section 175).
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Expenditures paid or incurred for the removal of architectural and transportation barriers to the elderly and disabled that the corporation has elected to treat as a current expense. See section 190.
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Interest expense allocated to debt-financed distributions. See Notice 89-35, 1989-1 C.B. 675, or Pub. 535, chapter 4, for more information.
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Contributions to a capital construction fund. See Pub. 595, Capital Construction Fund for Commercial Fisherman.
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Any penalty on early withdrawal of savings because the corporation withdrew funds from its time savings deposit before its maturity.
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Film and television production expenses. The corporation can elect to deduct certain costs of a qualified film or television production if the aggregate cost of the production does not exceed $15 million. There is a higher dollar limitation for productions in certain areas. Provide a description of the film or television production on an attached statement. If the corporation makes the election for more than one film or television production, attach a statement to Schedule K-1 that shows each shareholder's pro rata share of the qualified expenditures separately for each production. The deduction is subject to recapture under section 1245 if the election is voluntarily revoked or the production fails to meet the requirements for the deduction. See section 181 and the related regulations.
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Current year section 108(i) original issue discount (OID) deduction. In general, if the corporation made a section 108(i) election for income from the cancellation of debt (COD) attributable to the reacquisition of an applicable debt instrument and the corporation issued a debt instrument with OID that is subject to section 108(i)(2) because of the election, the deduction for all or a portion of the OID that accrues before the first tax year the COD is includible in income is deferred until the COD is includible in income. The aggregate amount of OID that is deferred during this period is generally allowed as a deduction ratably over the 5-year period the COD is includible in income under section 108(i). The amount deferred is limited to the amount of COD subject to the section 108(i) election.
Note.
Do not attach Form 3800, General Business Credit, to Form 1120S.
Section 42 provides a credit that can be claimed by owners of low-income residential rental buildings. To qualify for the credit, the corporation must file Form 8609, Low-Income Housing Credit Allocation and Certification, separately with the IRS. Do not attach Form 8609 to Form 1120S. Complete and attach Form 8586, Low-Income Housing Credit, and Form 8609-A, Annual Statement for Low-Income Housing Credit, to Form 1120S.
If the corporation invested in a partnership to which the provisions of section 42(j)(5) apply, report on line 13a the credit reported to the corporation in box 15 of Schedule K-1 (Form 1065) using code A or code C.
Report on line 13b any low-income housing credit not reported on line 13a. This includes any credit reported to the corporation in box 15 of Schedule K-1 (Form 1065) using code B or code D.
Enter on line 13c the total qualified rehabilitation expenditures related to rental real estate activities of the corporation. See the Instructions for Form 3468 for details on qualified rehabilitation expenditures.
Enter on line 13d any other credit (other than credits reported on lines 13a through 13c) related to rental real estate activities. On the dotted line to the left of the entry space for line 13d, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120S that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 13g.
Enter on line 13e any other credit (other than credits reported on lines 13a through 13d) related to rental activities. On the dotted line to the left of the entry space for line 13e, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120S that identifies the type and amount for each credit. These credits may include any type of credit listed in the instructions for line 13g.
Enter on line 13f the alcohol and cellulosic biofuel fuels credit attributable to trade or business activities. If the credit is attributable to rental activities, enter the amount on line 13d or 13e.
Figure this credit on Form 6478. Attach it to Form 1120S. Include the amount shown on line 7 of Form 6478 in the corporation's income on line 5 of Form 1120S.
See section 40(f) for an election the corporation can make to have the credit not apply.
Enter on line 13g any other credit, except credits or expenditures shown or listed for lines 13a through 13f or the credit for federal tax paid on fuels (which is reported on line 23c of page 1). On the line to the left of the entry space for line 13g, identify the type of credit. If there is more than one type of credit, attach a statement to Form 1120S that separately identifies each type and amount of credit for the following categories. The codes needed for box 13 of Schedule K-1 are provided in the heading of each category.
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Unused investment credit from the qualifying advanced coal project credit, qualifying gasification project credit, qualifying advanced energy project credit, or qualifying therapeutic discovery project credit allocated from cooperatives.
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Unused investment credit from the rehabilitation credit or energy credit allocated from cooperatives.
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New hire retention credit (Form 5884-B).
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Orphan drug credit (Form 8820).
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Qualified plug-in electric vehicle credit (Form 8834).
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Renewable electricity, refined coal, and Indian coal production credit (Form 8835). Attach a statement to Form 1120S and Schedule K-1 showing separately the amount of the credit from Part I and from Part II of Form 8835.
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Indian employment credit (Form 8845).
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Biodiesel and renewable diesel fuels credit (Form 8864). Include the amount from line 8 of Form 8864 in the corporation's income on line 5 of Form 1120S. If this credit includes the small agri-biodiesel producer credit, identify on a statement attached to Schedule K-1 (a) the small agri-biodiesel producer credit included in the total credit allocated to the shareholder, (b) the number of gallons for which the corporation claimed the small agri-biodiesel producer credit, and (c) the corporation's productive capacity for agri-biodiesel.
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New markets credit (Form 8874).
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Credit for small employer pension plan startup costs (Form 8881).
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Credit for employer-provided childcare facilities and services (Form 8882).
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Low sulfur diesel fuel production credit (Form 8896).
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Qualified railroad track maintenance credit (Form 8900).
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Distilled spirits credit (Form 8906).
-
Nonconventional source fuel credit (Form 8907).
-
Energy efficient home credit (Form 8908).
-
Energy efficient appliance credit (Form 8909).
-
Alternative motor vehicle credit (Form 8910).
-
Alternative fuel vehicle refueling property credit (Form 8911).
-
Clean renewable energy bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported on line 17d of Schedule K.
-
Midwestern tax credit bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported on line 17d of Schedule K.
-
Qualified zone academy bond credit (for bonds issued before October 4, 2008) (Form 8912). The amount of this credit must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported on line 17d of Schedule K.
-
New clean renewable energy bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported as a property distribution on line 16d of Schedule K.
-
Qualified energy conservation bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported as a property distribution on line 16d of Schedule K.
-
Qualified zone academy bond credit (for bonds issued after October 3, 2008) (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported as a property distribution on line 16d of Schedule K.
-
Qualified school construction bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported as a property distribution on line 16d of Schedule K.
-
Build America bond credit (Form 8912). The amount of this credit (excluding any credits from partnerships, estates, and trusts) must also be reported as interest income on line 4 of Schedule K. In addition, the amount of this credit must also be reported as a property distribution on line 16d of Schedule K.
-
Mine rescue team training credit (Form 8923).
-
Agricultural chemicals security credit (Form 8931).
-
Credit for employer differential wage payments (Form 8932).
-
Carbon dioxide sequestration credit (Form 8933).
-
Qualified plug-in electric drive motor vehicle credit (Form 8936).
-
Credit for small employer health insurance premiums (Form 8941).
-
General credits from an electing large partnership.
Line 14b must be completed if a shareholder may need this information to figure a foreign tax credit. Lines 14a and 14c through 14n must be completed if the corporation has foreign income, deductions, or losses, or has paid or accrued foreign taxes.
On Schedule K-1, for items that require an attached statement, enter the code followed by an asterisk and the shareholder's pro rata share of the dollar amount. Attach a statement to Schedule K-1 providing the information described below. If the corporation had income from, or paid or accrued taxes to, more than one country or U.S. possession, see the requirement for an attached statement in the instruction for line 14a below. See Pub. 514, Foreign Tax Credit for Individuals, and the Instructions for Form 1116, Foreign Tax Credit, for more information.
Enter the name of the foreign country or U.S. possession from which the corporation had income or to which the corporation paid or accrued taxes. If the corporation had income from, or paid or accrued taxes to, more than one foreign country or U.S. possession, enter “See attached” and attach a statement for each country for lines 14a through 14n (codes A through N and code Q of Schedule K-1). On Schedule K-1, if there is more than one country, enter code A followed by an asterisk (A*), enter “STMT,” and attach a statement to Schedule K-1 for each country for the information and amounts coded A through N and Q.
Enter the corporation's gross income from all sources (both U.S. and foreign).
Enter the total gross income of the corporation that is required to be sourced at the shareholder level. This includes income from the sale of most personal property, other than inventory, depreciable property, and certain intangible property. See Pub. 514 and section 865 for details.
-
The amount of this gross income (without regard to its source) in each category identified in the instructions for lines 14d, 14e, and 14f.
-
Specifically identify gains on the sale of personal property other than inventory, depreciable property, and certain intangible property on which a foreign tax of 10% or more was paid or accrued. Also list losses on the sale of such property if the foreign country would have imposed a 10% or higher tax had the sale resulted in a gain. In addition, separately identify the amounts of such gains or losses within each separate limitation category that are long term capital gains and losses or collectibles (28%) gains and losses. See Determining the Source of Income From the Sales or Exchanges of Certain Personal Property in Pub. 514 and section 865.
Separately report gross income from sources outside the United States by category of income as follows. See Pub. 514 for more information on the categories of income.
Separately report corporate deductions that are apportioned at the corporate level to (a) passive category foreign source income, (b) general category foreign source income, and (c) other foreign source income (see the instructions for lines 14d-14f). Attach a statement showing the amount of deductions allocated and apportioned at the corporate level to each of the listed categories from line 14f. See Pub. 514 for more information.
Enter in U.S. dollars the total foreign taxes (described in section 901 or section 903) that were paid or accrued according to the corporation's method of accounting for such taxes. Translate these amounts into U.S. dollars by using the applicable exchange rate (see Pub. 514).
-
The total amount of foreign taxes (including foreign taxes on income sourced at the shareholder level) relating to each category of income (see instructions for lines 14d-14f).
-
The dates on which the taxes were paid or accrued, the exchange rates used, and the amounts in both foreign currency and U.S. dollars, for the following.
-
Taxes withheld at source on interest.
-
Taxes withheld at source on dividends.
-
Taxes withheld at source on rents and royalties.
-
Other foreign taxes paid or accrued.
-
Enter the total reduction in taxes available for credit. Attach a statement showing the reductions for:
-
Taxes on foreign mineral income (section 901(e)).
-
Taxes on foreign oil and gas extraction income and foreign oil related income (section 907(a)).
-
Taxes attributable to boycott operations (section 908).
-
Failure to timely file (or furnish all of the information required on) Forms 5471 and 8865.
-
Foreign income taxes paid or accrued during the current tax year that have been suspended under section 909.
-
Any other items (specify).
-
Foreign trading gross receipts (code O). Report each shareholder's pro rata share of foreign trading gross receipts from line 15 of Form 8873 in box 14 using code O. See Extraterritorial Income Exclusion, earlier.
-
Extraterritorial income exclusion (code P). If the corporation is not permitted to deduct the extraterritorial income exclusion as a non-separately stated item, attach a statement to Schedule K-1 showing the shareholder's pro rata share of the extraterritorial income exclusion reported on line 52 of Form 8873. Also identify the activity to which the exclusion is related.
-
Other foreign transactions (code Q). Report any other foreign transaction information the shareholders need to prepare their tax returns. Attach a statement that separately identifies any arrangement, along with the taxes paid or accrued in connection with the arrangement, in which the corporation participates that would qualify as a splitter arrangement under section 909 if one or more shareholders are covered persons with respect to an entity that took into account related income from the arrangement. Also indicate whether the corporation has taken into account any related income from any such splitter arrangement. (See section 909 and the regulations thereunder).
Lines 15a through 15f must be completed for all shareholders.
Enter items of income and deductions that are adjustments or tax preference items for the AMT. For more information, see Form 6251, Alternative Minimum Tax—Individuals, or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts.
Do not include as a tax preference item any qualified expenditures to which an election under section 59(e) may apply. Instead, report these expenditures on line 12(c)(2). Because these expenditures are subject to an election by each shareholder, the corporation cannot figure the amount of any tax preference related to them. Instead, the corporation must pass through to each shareholder in box 12, code J, of Schedule K-1 the information needed to figure the deduction.
Figure the adjustment for line 15a based only on tangible property placed in service after 1986 (and tangible property placed in service after July 31, 1986, and before 1987 for which the corporation elected to use the General Depreciation System). Do not make an adjustment for motion picture films, videotapes, sound recordings, certain public utility property (see section 168(f)(2)), property depreciated under the unit-of-production method (or any other method not expressed in a term of years), qualified Indian reservation property, property eligible for a special depreciation allowance, qualified revitalization expenditures, or the section 179 expense deduction.
For property placed in service before 1999, refigure depreciation for the AMT as follows (using the same convention used for the regular tax).
-
For section 1250 property (generally, residential rental and nonresidential real property), use the straight line method over 40 years.
-
For tangible property (other than section 1250 property) depreciated using the straight line method for the regular tax, use the straight line method over the property's class life. Use 12 years if the property has no class life.
-
For any other tangible property, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, over the property's AMT class life. Use 12 years if the property has no class life.
Note.
See Pub. 946 for a table of class lives.
For property placed in service after 1998, refigure depreciation for the AMT only for property depreciated for the regular tax using the 200% declining balance method. For the AMT, use the 150% declining balance method, switching to the straight line method the first tax year it gives a larger deduction, and the same convention and recovery period used for the regular tax.
Figure the adjustment by subtracting the AMT deduction for depreciation from the regular tax deduction and enter the result on line 15a. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount. Depreciation capitalized to inventory must also be refigured using the AMT rules. Include on this line the current year adjustment to income, if any, resulting from the difference.
If the corporation disposed of any tangible property placed in service after 1986 (or after July 31, 1986, if an election was made to use the General Depreciation System), or if it disposed of a certified pollution control facility placed in service after 1986, refigure the gain or loss from the disposition using the adjusted basis for the AMT. The property's adjusted basis for the AMT is its cost or other basis minus all depreciation or amortization deductions allowed or allowable for the AMT during the current tax year and previous tax years. Enter on this line the difference between the regular tax gain (loss) and the AMT gain (loss). If the AMT gain is less than the regular tax gain, or the AMT loss is more than the regular tax loss, or there is an AMT loss and a regular tax gain, enter the difference as a negative amount.
If any part of the adjustment is allocable to net short-term capital gain (loss), net long-term capital gain (loss), or net section 1231 gain (loss), attach a statement that identifies the amount of the adjustment allocable to each type of gain or loss.
For a net long-term capital gain (loss), also identify the amount of the adjustment that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also identify the amount of adjustment that is unrecaptured section 1250 gain.
Do not include any depletion on oil and gas wells. The shareholders must figure their oil and gas depletion deductions and preference items separately under section 613A.
Refigure the depletion deduction under section 611 for mines, wells (other than oil and gas wells), and other natural deposits for the AMT. Percentage depletion is limited to 50% of the taxable income from the property as figured under section 613(a), using only income and deductions for the AMT. Also, the deduction is limited to the property's adjusted basis at the end of the year as figured for the AMT. Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments made this year or in previous years that affect basis (other than the current year's depletion).
Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.
Generally, the amounts to be entered on lines 15d and 15e are only the income and deductions for oil, gas, and geothermal properties that are used to figure the corporation's ordinary business income (loss) on line 21, page 1, Form 1120S.
If there are any items of income or deductions for oil, gas, and geothermal properties included in the amounts that are required to be passed through separately to the shareholders on Schedule K-1 (items not reported on line 1 of Schedule K-1), give each shareholder a statement that shows, for the box in which the income or deduction is included, the amount of income or deductions included in the total amount for that box. Do not include any of these direct pass-through amounts on line 15d or 15e. The shareholder is told in the Shareholder's Instructions for Schedule K-1 (Form 1120S) to adjust the amounts in box 15, code D or E, for any other income or deductions from oil, gas, or geothermal properties included in boxes 2 through 12, 16, or 17 of Schedule K-1 in order to determine the total income and deductions from oil, gas, and geothermal properties for the corporation.
Figure the amounts for lines 15d and 15e separately for oil and gas properties that are not geothermal deposits and for all properties that are geothermal deposits.
Give each shareholder a statement that shows the separate amounts included in the computation of the amounts on lines 15d and 15e of Schedule K.
Enter the total amount of gross income (within the meaning of section 613(a)) from all oil, gas, and geothermal properties received or accrued during the tax year and included on page 1, Form 1120S.
Enter any deductions allowed for the AMT that are allocable to oil, gas, and geothermal properties.
Attach a statement to Form 1120S and Schedule K-1 that shows other items not shown on lines 15a through 15e that are adjustments or tax preference items or that the shareholder needs to complete Form 6251 or Schedule I (Form 1041). See these forms and their instructions to determine the amount to enter.
Other AMT items include the following.
-
Accelerated depreciation of real property under pre-1987 rules.
-
Accelerated depreciation of leased personal property under pre-1987 rules.
-
Long-term contracts entered into after February 28, 1986. Except for certain home construction contracts, the taxable income from these contracts must be figured using the percentage of completion method of accounting for the AMT.
-
Losses from tax shelter farm activities. No loss from any tax shelter farm activity is allowed for the AMT.
Enter on line 16a tax-exempt interest income, including any exempt-interest dividends received from a mutual fund or other regulated investment company. Individual shareholders must report this information on line 8b of Form 1040. Generally, under section 1367(a)(1)(A), the basis of the shareholder's stock is increased by the amount shown on this line.
Enter on line 16b all income of the corporation exempt from tax other than tax-exempt interest (for example, life insurance proceeds, but see section 101(j) for limits and reporting requirements). Generally, under section 1367(a)(1)(A), the basis of the shareholder's stock is increased by the amount shown on this line.
Enter on line 16c nondeductible expenses paid or incurred by the corporation.
Do not include separately stated deductions shown elsewhere on Schedules K and K-1, capital expenditures, or items for which the deduction is deferred to a later tax year.
Generally, under section 1367(a)(2)(D), the basis of the shareholder's stock is decreased by the amount shown on this line.
Enter the total distributions (including cash) made to each shareholder other than dividends reported on line 17c of Schedule K. Include the shareholder's pro rata share of any amounts included in interest income with respect to new clean renewable energy, qualified energy conservation, qualified zone academy (for bonds issued after October 3, 2008), qualified school construction, or build America bonds. Distributions of appreciated property are valued at fair market value. If property other than cash was distributed, attach a statement to provide the following information: (1) the date the property was acquired, (2) the date the property was distributed, (3) the property's FMV on the date of distribution, and (4) the corporation's basis in the property. See Distributions, later, for the ordering rules.
Enter on line 17a the investment income included on lines 4, 5a, 6, and 10, of Schedule K. Do not include other portfolio gains or losses on this line.
Enter on line 17b the investment expense included on line 12d of Schedule K.
Investment income includes gross income from property held for investment, the excess of net gain attributable to the disposition of property held for investment over net capital gain from the disposition of property held for investment, any net capital gain from the disposition of property held for investment that each shareholder elects to include in investment income under section 163(d)(4)(B)(iii), and any qualified dividend income that the shareholder elects to include in investment income. Generally, investment income and investment expenses do not include any income or expenses from a passive activity. See Regulations section 1.469-2(f)(10) for exceptions.
Property subject to a net lease is not treated as investment property because it is subject to the passive loss rules. Do not reduce investment income by losses from passive activities.
Investment expenses are deductible expenses (other than interest) directly connected with the production of investment income. See the instructions for Form 4952 for more information.
Enter total dividends paid to shareholders from accumulated earnings and profits. Report these dividends to shareholders on Form 1099-DIV. Do not report them on Schedule K-1.
Report the following information on a statement attached to Form 1120S. On Schedule K-1, enter the appropriate code in box 17 for each information item followed by an asterisk in the left-hand column of the entry space (for example, C*). In the right-hand column, enter “STMT.” The codes are provided for each information category.
Note.
Report qualified rehabilitation expenditures related to rental real estate activities on line 13c.
Report each shareholder's pro rata share of qualified rehabilitation expenditures related to activities other than rental real estate activities in box 17 of Schedule K-1 using code C. Attach a statement to Schedule K-1 that provides the information and the shareholder's pro rata share of the basis and expenditure amounts the shareholder will need to figure the amounts to report on lines 11b through 11j and 11m of Form 3468. See the Instructions for Form 3468 for details. If the corporation has expenditures from more than one activity, identify on a statement attached to Schedule K-1 the information and amounts for each separate activity. See Passive Activity Reporting Requirements, earlier.
Note.
If a shareholder's ownership interest in a building decreased because of a transaction at the shareholder level, the corporation must provide the necessary information to the shareholder to enable the shareholder to figure the recapture.
-
The qualified plug-in electric vehicle credit. See section 30(e)(5) for details.
-
The qualified plug-in electric drive motor vehicle credit. See section 30D(f)(5) for details.
-
The new markets credit. See Form 8874 and Form 8874-B, Notice of Recapture Event for New Markets Credit, for details.
-
The Indian employment credit. See section 45A(d) for details.
-
The credit for employer-provided childcare facilities and services. See section 45F(d) for details.
-
The alternative motor vehicle credit. See section 30B(h)(8) for details.
-
The alternative fuel vehicle refueling property credit. See section 30C(e)(5) for details.
-
Description of the property.
-
Date the property was acquired and placed in service.
-
Date of the sale or other disposition of the property.
-
The shareholder's pro rata share of the gross sales price or amount realized.
-
The shareholder's pro rata share of the cost or other basis plus expense of sale (reduced as explained in the Instructions for Form 4797, line 21).
-
The shareholder's pro rata share of the depreciation allowed or allowable, determined as described in the Instructions for Form 4797, line 22, but excluding the section 179 deduction.
-
The shareholder's pro rata share of the section 179 deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through.
-
If the disposition is due to a casualty or theft, a statement indicating so, and any additional information needed by the shareholder.
-
For an installment sale made during the corporation's tax year, any information the shareholder needs to complete Form 6252. The corporation also must separately report the shareholder's pro rata share of all payments received for the property in future tax years. (Installment payments received for installment sales made in prior tax years should be reported in the same manner used in prior tax years.) See the instructions for Form 6252 for details.
-
The shareholder's pro rata share of the original basis and depreciation allowed or allowable (not including the section 179 deduction).
-
The shareholder's pro rata share of the section 179 deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through.
-
Any COD income deferred under section 108(i) that has not been included in income in the current or prior tax years.
-
Any OID deduction deferred under section 108(i)(2)(A)(i) that has not been deducted in the current or prior tax years.
-
If the corporation participates in a transaction that must be disclosed on Form 8886 (discussed earlier). Both the corporation and its shareholders may be required to file Form 8886. The corporation must determine if any of its shareholders are required to disclose the transaction and provide those shareholders with information they will need to file Form 8886. This determination is based on the category(s) under which a transaction qualified for disclosures. See the Instructions for Form 8886 for details.
-
If the corporation is involved in farming or fishing activities, report the gross income from these activities.
-
If the corporation has deductions attributable to a farming business and receives an applicable subsidy, report the aggregate gross income or gain and the aggregate deductions from the farming business. See section 461(j) for details.
-
The shareholder's pro rata share of any amount included in interest income on line 4 with respect to clean renewable energy, Midwestern tax credit, or (for bonds issued before October 4, 2008) qualified zone academy bonds. Shareholders need this information to properly adjust their stock basis. See Form 8912.
-
Any income or gain reported on lines 1 through 10 of Schedule K that qualifies as inversion gain, if the corporation is an expatriated entity or is a partner in an expatriated entity. For details, see section 7874. Attach a statement to Form 1120S that shows the amount of each type of income or gain included in the inversion gain. The corporation must report each shareholder's pro rata share of the inversion gain in box 17 of Schedule K-1 using code U. Attach a statement to Schedule K-1 that shows the shareholder's pro rata share of the amount of each type of income or gain included in the inversion gain.
-
Basis in qualifying advanced coal project property. Attach a statement to Schedule K-1 that provides the shareholder's pro rata share of the basis amounts the shareholder will need to figure the amounts to report on lines 5a, 5b, and 5c of Form 3468. See the Instructions for Form 3468 for details.
-
Basis in qualifying gasification project property. Attach a statement to Schedule K-1 that provides the shareholder's pro rata share of the basis amounts the shareholder will need to figure the amounts to report on lines 6a and 6b of Form 3468. See the Instructions for Form 3468 for details.
-
Basis in qualifying advanced energy project property. Attach a statement to Schedule K-1 that provides the shareholder's pro rata share of the basis amounts the shareholder will need to figure the amounts to report on line 7 of Form 3468. See the Instructions for Form 3468 for details.
-
Any other information the shareholders need to prepare their tax returns.
To the extent the corporation has an amount on line 12d for code P (Domestic production activities information), Q (Qualified production activities income), or R (Employer's Form W-2 wages), exclude the amount(s) from line 18. If the corporation has an amount on line 14l of Schedule K (foreign taxes paid and accrued), add that amount for purposes of computing the corporation's net income (loss). The amount reported on line 18 must be the same as the amount reported on line 8 of Schedule M-1 or line 26, column d, in Part II of Schedule M-3 (Form 1120S).
The balance sheets should agree with the corporation's books and records. Schedule L is not required to be completed if the corporation answered “Yes” to question 10 on Schedule B. If the corporation is required to complete Schedule L, include total assets reported on Schedule L, line 15, column (d), on page 1, item F.
Corporations with total assets of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120S) instead of Schedule M-1. See the separate Instructions for Schedule M-3 (Form 1120S) for provisions that also affect Schedule L.
If the S election terminated during the tax year and the corporation reverted to a C corporation, the year-end balance sheet generally should agree with the books and records at the end of the C short year. However, if the corporation elected under section 1362(e)(3) to have items assigned to each short year under normal tax accounting rules, the year-end balance sheet should agree with the books and records at the end of the S short year.
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 regulated investment company that distributed exempt-interest dividends during the tax year of the corporation.
If the corporation maintains separate accounts for appropriated and unappropriated retained earnings, it may want to continue such accounting for purposes of preparing its financial balance sheet. Also, if the corporation converts to C corporation status in a subsequent year, it will be required to report its appropriated and unappropriated retained earnings on separate lines of Schedule L of Form 1120.
Some examples of adjustments to report on this line include:
-
Unrealized gains and losses on securities held “available for sale.”
-
Foreign currency translation adjustments.
-
The excess of additional pension liability over unrecognized prior service cost.
-
Guarantees of employee stock (ESOP) debt.
-
Compensation related to employee stock award plans.
If the total adjustment to be entered is a negative amount, enter the amount in parentheses.
Schedule M-1 is not required to be completed if the corporation answered “Yes” to question 10 on Schedule B.
Corporations with total assets of $10 million or more on the last day of the tax year must complete Schedule M-3 instead of Schedule M-1. See Item C. Schedule M-3 Information, earlier. A corporation filing Form 1120S that is not required to file Schedule M-3 may voluntarily file Schedule M-3. See the Instructions for Schedule M-3 (Form 1120S) for more information.
Report on this line income included on Schedule K, lines 1, 2, 3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year. Describe each such item of income. Attach a statement if necessary.
Include any of the following.
-
Meal and entertainment expenses not deductible under section 274(n).
-
Expenses for the use of an entertainment facility.
-
The part of business gifts over $25.
-
Expenses of an individual over $2,000, which are allocable to conventions on cruise ships.
-
Employee achievement awards over $400.
-
The cost of entertainment tickets over face value (also subject to 50% limit under section 274(n)).
-
The cost of skyboxes over the face value of nonluxury box seat tickets.
-
The part of luxury water travel expenses not deductible under section 274(m).
-
Expenses for travel as a form of education.
-
Other nondeductible travel and entertainment expenses.
For more information, see Pub. 535.
Note.
If the corporation has an amount on line 14l of Schedule K (foreign taxes paid and accrued), take that amount into account for purposes of figuring expenses and deductions to enter on lines 3 and 6.
The accumulated adjustments account (AAA) is an account of the S corporation that generally reflects the accumulated undistributed net income of the corporation for the corporation's post-1982 years. S corporations with accumulated E&P must maintain the AAA to determine the tax effect of distributions during S years and the post-termination transition period. An S corporation without accumulated E&P does not need to maintain the AAA in order to determine the tax effect of distributions. Nevertheless, if an S corporation without accumulated E&P engages in certain transactions to which section 381(a) applies, such as a merger into an S corporation with accumulated E&P, the S corporation must be able to calculate its AAA at the time of the merger for purposes of determining the tax effect of post-merger distributions. Therefore, it is recommended that the AAA be maintained by all S corporations.
On the first day of the corporation's first tax year as an S corporation, the balance of the AAA is zero. At the end of the tax year, adjust the AAA for the items as explained below and in the order listed.
-
Increase the AAA by income (other than tax-exempt income) and the excess of the deduction for depletion over the basis of the property subject to depletion (unless the property is an oil and gas property the basis of which has been allocated to shareholders).
-
Generally, decrease the AAA by deductible losses and expenses, nondeductible expenses (other than expenses related to tax-exempt income), and the sum of the shareholders' deductions for depletion for any oil or gas property held by the corporation as described in section 1367(a)(2)(E). If deductible losses and expenses include the fair market value of certain contributed property (discussed earlier), further adjust AAA by adding back the fair market value of the contributed property and subtracting instead the property's adjusted basis. If the total decreases under (2) exceed the total increases under (1) above, the excess is a “net negative adjustment.” If the corporation has a net negative adjustment, do not take it into account under (2). Instead, take it into account only under (4) below.
-
Decrease AAA (but not below zero) by property distributions (other than dividend distributions from accumulated E&P), unless the corporation elects to reduce accumulated E&P first. See Distributions, later, for definitions and other details.
-
Decrease AAA by any net negative adjustment. For adjustments to the AAA for redemptions, reorganizations, and corporate separations, see Regulations section 1.1368-2(d).
Note.
The AAA may have a negative balance at year end. See section 1368(e).
| (a) Accumulated adjustments account |
(b) Other adjustments account |
(c) Shareholders' undistributed taxable income previously taxed |
||
|---|---|---|---|---|
| 1. | Balance at beginning of tax year | -0- | -0- | |
| 2. | Ordinary income from page 1, line 21 | 10,000 | ||
| 3. | Other additions | 20,000 | 5,000 | |
| 4. | Loss from page 1, line 21 | () | ||
| 5. | Other reductions | (36,000) | () | |
| 6. | Combine line 1 through 5 | (6,000) | 5,000 | |
| 7. | Distributions other than dividend distributions | -0- | 5,000 | |
| 8. | Balance at end of tax year. Subtract line 7 from line 6 | (6,000) | -0- |
The other adjustments account is adjusted for tax-exempt income (and related expenses) and federal taxes attributable to a C corporation tax year. After these adjustments are made, the account is reduced for any distributions made during the year. See Distributions, later.
The shareholders' undistributed taxable income previously taxed account, also called previously taxed income (PTI), is maintained only if the corporation had a balance in this account at the start of its 2012 tax year. If there is a beginning balance for the 2012 tax year, no adjustments are made to the account except to reduce the account for distributions made under section 1375(d) (as in effect before the enactment of the Subchapter S Revision Act of 1982). See Distributions next for the order of distributions from the account.
Each shareholder's right to nontaxable distributions from PTI is personal and cannot be transferred to another person. The corporation is required to keep records of each shareholder's net share of PTI.
-
Reduce the AAA determined without regard to any net negative adjustment for the tax year (but not below zero). If distributions during the tax year exceed the AAA at the close of the tax year determined without regard to any net negative adjustment for the tax year, the AAA is allocated pro rata to each distribution made during the tax year. See section 1368.
-
Reduce shareholders' PTI account for any section 1375(d) (as in effect before 1983) distributions. A distribution from the PTI account is tax free to the extent of a shareholder's basis in his or her stock in the corporation.
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Reduce accumulated E&P. Generally, the S corporation has accumulated E&P only if it has not distributed E&P accumulated in prior years when the S corporation was a C corporation (section 1361(a)(2)). See section 312 for information on E&P. The only adjustments that can be made to the accumulated E&P of an S corporation are (a) reductions for dividend distributions; (b) adjustments for redemptions, liquidations, reorganizations, etc.; and (c) reductions for investment credit recapture tax for which the corporation is liable. See sections 1371(c) and (d)(3).
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Reduce the other adjustments account (OAA).
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Reduce any remaining shareholders' equity accounts.
If the corporation has accumulated E&P and wants to distribute from this account before making distributions from the AAA, it may elect to do so with the consent of all its affected shareholders (section 1368(e)(3)(B)). This election is irrevocable and applies only for the tax year for which it is made. For details on making the election, see Statement regarding elections, later.
If the corporation wants to distribute all or part of its accumulated E&P through a deemed dividend, it may elect to do so with the consent of all its affected shareholders (section 1368(e)(3)(B)). Under this election, the corporation will be treated as also having made the election to distribute accumulated E&P first. The amount of the deemed dividend cannot exceed the accumulated E&P at the end of the tax year. The E&P at year end is first reduced by any actual distributions of accumulated E&P made during the tax year. A deemed dividend is treated as if it were a pro rata distribution of money to the shareholders, received by the shareholders, and immediately contributed back to the corporation, all on the last day of the tax year. This election is irrevocable and applies only for the tax year for which it is made. For details on making the election, see Statement regarding elections, later.
If the corporation wants to forego distributions of PTI, it may elect to do so with the consent of all its affected shareholders (section 1368(e)(3)(B)). Under this election, item (2) under General rule, earlier, does not apply to any distribution made during the tax year. This election is irrevocable and applies only for the tax year for which it is made. For details on making the election, see Statement regarding elections next.
The following example shows how the Schedule M-2 accounts are adjusted for items of income (loss), deductions, and distributions reported on Form 1120S. In this example, the corporation has no PTI or accumulated E&P.
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Page 1, line 21 income—$10,000;
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Schedule K, line 2 loss—($3,000);
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Schedule K, line 4 income—$4,000;
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Schedule K, line 5a income—$16,000;
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Schedule K, line 12a deduction—$24,000;
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Schedule K, line 12d deduction—$3,000;
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Schedule K, line 13g work opportunity credit—$6,000;
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Schedule K, line 16a tax-exempt interest—$5,000;
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Schedule K, line 16c nondeductible expenses—$6,000 (reduction in salaries and wages for work opportunity credit); and
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Schedule K, line 16d distributions—$65,000.
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