Instructions for Schedule D (Form 1120S) (2008)

IRS Resources

Specific Instructions

Table of Contents

Parts I and II

In Part I, report the sale, exchange, or distribution of capital assets held 1 year or less. In Part II, report the sale, exchange, or distribution of capital assets held more than 1 year. Use the trade dates for the dates of acquisition and sale of stocks and bonds traded on an exchange or over-the-counter market.

Column (b). Date Acquired

The acquisition date for an asset the corporation held on January 1, 2001, for which it made an election to recognize any gain on a deemed sale, is the date of the deemed sale and reacquisition.

Column (e). Cost or Other Basis

In general, the basis of property is its cost. See section 1012 and the related regulations. Special rules may apply to the receipt of certain distributions with respect to stock (section 301), liquidation of another corporation (334), transfer to another corporation (358), transfer from a shareholder or reorganization (362), bequest (1014), contribution or gift (1015), tax-free exchange (1031), involuntary conversion (1033), certain asset acquisitions (1060), or wash sale of stock (1091). Attach an explanation if the corporation uses a basis other than actual cost of the property. See Pub. 551, Basis of Assets, for more details.

Before making an entry in column (e), increase the cost or other basis by any expense of sale, such as broker's fees, commissions, state and local transfer taxes, and option premiums, unless the net sales price was reported in column (d).

If the corporation sold property in a bargain sale to a charitable organization, figure the adjusted basis for determining gain from the sale by dividing the amount realized by the fair market value and multiplying that result by the adjusted basis.

If the corporation elected to recognize gain on an asset held on January 1, 2001, its basis in the asset is its closing market price or fair market value, whichever applies, on the date of the deemed sale and reacquisition, whether the deemed sale resulted in a gain or unallowed loss.

See section 852(f) for the treatment of certain load charges incurred in acquiring stock in a mutual fund (or other regulated investment company) with a reinvestment right.

Column (f). Gain or (Loss)

Make a separate entry in this column for each transaction reported on lines 1 and 7 and any other line(s) that apply to the corporation. For lines 1 and 7, subtract the amount in column (e) from the amount in column (d). Enter negative amounts in parentheses.

Part III. Built-In Gains Tax

Section 1374 provides for a tax on built-in gains, without regard to when S corporation status was elected, if the corporation sold or exchanged an asset acquired from a C corporation with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation.

Line 14. Enter the amount that would be the taxable income of the corporation for the tax year if only recognized built-in gains (including any carryover of gain under section 1374(d)(2)(B)) and recognized built-in losses were taken into account.

Section 1374(d)(3) defines a recognized built-in gain as any gain recognized during the recognition period (the 10-year period beginning on the first day of the first tax year for which the corporation is an S corporation, or beginning the date the asset was acquired by the S corporation, for 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) on the sale or distribution (disposition) of any asset, except to the extent the corporation establishes that:

The asset was not held by the corporation as of the beginning of the first tax year the corporation was an S corporation (except this does not apply to an asset acquired by the S corporation with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation), or
The gain exceeds the excess of the fair market value of the asset as of the start of the first tax year (or as of the date the asset was acquired by the S corporation, for 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) over the adjusted basis of the asset at that time.

Certain transactions involving the disposal of timber, coal, or domestic iron ore under section 631 are not subject to the built-in gains tax. See Rev. Rul. 2001-50, 2001-43 I.R.B. 343.

Section 1374(d)(4) defines a recognized built-in loss as any loss recognized during the recognition period (defined above) on the disposition of any asset to the extent the corporation establishes that:

The asset was held by the corporation as of the beginning of the first tax year the corporation was an S corporation (except that this does not apply to an asset acquired by the S corporation with a basis determined by reference to its basis (or the basis of any other property) in the hands of a C corporation), and
The loss does not exceed the excess of the adjusted basis of the asset as of the beginning of the first tax year (or as of the date the asset was acquired by the S corporation, for 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), over the fair market value of the asset as of that time.

The corporation must show on an attachment its total net recognized built-in gain and list separately any capital gain or loss and ordinary gain or loss.

Line 15. Figure taxable income by completing lines 1 through 28 of Form 1120. Follow the instructions for Form 1120. Enter the amount from line 28 of Form 1120 on line 15 of Schedule D. Attach to Schedule D the Form 1120 computation or other worksheet used to figure taxable income.

Note.

Taxable income is defined in section 1375(b)(1)(B) and is generally figured in the same manner as taxable income for line 9 of the Excess Net Passive Income Tax Worksheet for Line 22a in the Instructions for Form 1120S.

Line 16. If for any tax year the amount on line 14 exceeds the taxable income on line 15, the excess is treated as a recognized built-in gain in the succeeding tax year. This carryover provision applies only in the case of an S corporation that made its election to be an S corporation after March 30, 1988. See section 1374(d)(2)(B).

Line 17. Enter the section 1374(b)(2) deduction. Generally, this is any net operating loss carryforward or capital loss carryforward (to the extent of net capital gain included in recognized built-in gain for the tax year) arising in tax years for which the corporation was a C corporation. See section 1374(b)(2) and Regulations section 1.1374-5.

Line 21. The built-in gains tax is treated as a loss sustained by the corporation during the same tax year. Deduct the tax attributable to:

Ordinary gain as a deduction for taxes on Form 1120S, line 12.
Short-term capital gain as short-term capital loss on Schedule D, line 5.
Long-term capital gain as long-term capital loss on Schedule D, line 12.

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