2023

Instructions for Form 1120-S

U.S. Income Tax Return for an S Corporation

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code unless 

otherwise noted.

Contents Page

What’s New ............................... 1

Photographs of Missing Children ................ 2

The Taxpayer Advocate Service ................. 2

Direct Deposit of Refund ...................... 2

How To Get Forms and Publications .............. 2

General Instructions ......................... 2

Purpose of Form ......................... 2

How To Make the Election .................. 2

Who Must File .......................... 2

Termination of Election .................... 2

Electronic Filing ......................... 3

When To File ........................... 3

Where To File ........................... 4

Who Must Sign .......................... 3

Paid Preparer Authorization ................. 3

Assembling the Return .................... 4

Tax Payments ........................... 4

Electronic Deposit Requirement .............. 4

Estimated Tax Payments ................... 5

Interest and Penalties ..................... 5

Accounting Methods ...................... 6

Accounting Period ....................... 6

Rounding Off to Whole Dollars ............... 6

Recordkeeping .......................... 6

Amended Return ........................ 6

Other Forms and Statements That May Be 

Required ............................ 7

At-Risk Limitations ....................... 8

Passive Activity Limitations ................. 8

Net Investment Income Tax Reporting 

Requirements ........................ 13

Specific Instructions ........................ 13

Income .............................. 14

Deductions ........................... 16

Tax and Payments ...................... 21

Schedule B. Other Information .............. 22

Schedules K and K-1 (General Instructions) .... 24

Specific Instructions (Schedule K-1 Only) ...... 25

Part I. Information About the Corporation ...... 25

Part II. Information About the Shareholder ...... 25

Specific Instructions (Schedules K and K-1, 

Part III) ............................. 26

Schedule L. Balance Sheets per Books ....... 47

Schedule M-1. Reconciliation of Income 

(Loss) per Books With Income (Loss) per 

Return ............................. 48

Contents Page

Schedule M-2. Analysis of AAA, PTEP, 

Accumulated E&P, and OAA ............. 48

Principal Business Activity Codes .............. 52

Index ................................... 55

Future Developments

For the latest information about developments related to Form 

1120-S and its instructions, such as legislation enacted after 

they were published, go to IRS.gov/Form1120S.

What’s New

Electronically filed returns. The electronic filing threshold for 

corporate returns required to be filed on or after January 1, 2024, 

has decreased to 10 or more returns. See Electronic Filing, later.

Increase in penalty for failure to file. For tax returns required 

to be filed in 2024, the minimum penalty for failure to file a return 

that is more than 60 days late has increased to the smaller of the 

tax due or $485. See Late filing of return, later.

Deduction for certain energy efficient commercial building 

property. For tax years beginning in 2023, corporations filing 

Form 1120-S and claiming the energy efficient commercial 

buildings deduction should report the deduction on line 19. See 

the instructions for line 19.

Expiration of 100% business meal expense deduction. The 

temporary 100% business meal expense deduction for food and 

beverages provided by a restaurant does not apply to amounts 

paid or incurred after 2022.

Elective payment election. Applicable entities and electing 

taxpayers can elect to treat certain credits as elective payments. 

See the instructions for line 24d and the Instructions for Form 

3800.

Digital assets. Digital assets are required to be reported. See 

new question 16 on Schedule B, later.

Schedules K and K-1 reporting codes. Separate reporting 

codes are assigned to items grouped under code H for Other 

income (loss), code S for Other deductions, code P for Other 

credits, and code AD for Other information in prior years. See the 

List of Codes in the Shareholder's Instructions for Schedule K-1 

(Form 1120-S).

The following new reporting credit codes are added to 

line 13g.

• Code A. Zero-emission nuclear power production credit.

• Code B. Production from advanced nuclear power facilities 

credit.

• Code AG. Credit for military spouse participation.

• Code AX. Carbon oxide sequestration credit recapture.

• Code AY. New clean vehicle credit.

• Code BC. Eligible credits from transferor(s) under section 

6418.

Reminder

Election by a small business corporation. Don't file Form 

1120-S unless the corporation has filed or is attaching Form 

Jan 17, 2024 Cat. No. 11515K
2553, Election by a Small Business Corporation. For details, see 

the Instructions for Form 2553.

Photographs of

Missing Children

The Internal Revenue Service is a proud partner with the 

National Center for Missing & Exploited Children® (NCMEC). 

Photographs of missing children selected by the Center may 

appear in instructions on pages that would otherwise be blank. 

You can help bring these children home by looking at the 

photographs and calling 1-800-THE-LOST (1-800-843-5678) if 

you recognize a child.

The Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent 

organization within the IRS that helps taxpayers and protects 

taxpayer rights. TAS strives to ensure that every taxpayer is 

treated fairly and knows and understands their rights under the 

Taxpayer Bill of Rights.

As a taxpayer, the corporation has rights that the IRS must 

abide by in its dealings with the corporation. TAS can help the 

corporation if:

• A problem is causing financial difficulty for the business;

• The business is facing an immediate threat of adverse action; 

or

• The corporation has tried repeatedly to contact the IRS but no 

one has responded, or the IRS hasn't responded by the date 

promised.

TAS has offices in every state, the District of Columbia, and 

Puerto Rico. Local advocates' numbers are in their local 

directories and at TaxpayerAdvocate.IRS.gov. The corporation 

can also call TAS at 877-777-4778.

TAS also works to resolve large-scale or systemic problems 

that affect many taxpayers. If the corporation knows of one of 

these broad issues, please report it to TAS through the Systemic 

Advocacy Management System at IRS.gov/SAMS.

For more information, go to IRS.gov/Advocate.

Direct Deposit of Refund

To request a direct deposit of the corporation's income tax refund 

into an account at a U.S. bank or other financial institution, attach 

Form 8050, Direct Deposit of Corporate Tax Refund. See the 

instructions for line 28.

How To Get Forms and Publications

Internet. You can access the IRS website 24 hours a day, 7 

days a week, at IRS.gov to:

• Download forms, instructions, and publications;

• Order IRS products online;

• Research your tax questions online;

• Search publications online by topic or keyword;

• View Internal Revenue Bulletins (IRBs) published in recent 

years; and

• Sign up to receive local and national tax news by email.

Tax forms and publications. The corporation can view, print, 

or download all of the forms and publications it may need on 

IRS.gov/FormsPubs. Otherwise, the corporation can go to 

IRS.gov/OrderForms to place an order and have forms mailed to 

it.

General Instructions

Purpose of Form

Use Form 1120-S to report the income, gains, losses, 

deductions, credits, and other information of a domestic 

corporation or other entity for any tax year covered by an election 

to be an S corporation.

How To Make the Election

For details about the election, see Form 2553, Election by a 

Small Business Corporation, and the Instructions for Form 2553.

Who Must File

A corporation or other entity must file Form 1120-S if (a) it 

elected to be an S corporation by filing Form 2553, (b) the IRS 

accepted the election, and (c) the election remains in effect. 

After filing Form 2553, you should have received confirmation 

that Form 2553 was accepted. If you didn't receive notification of 

acceptance or nonacceptance of the election within 2 months of 

filing Form 2553 (5 months if you checked box Q1 to ask for a 

letter ruling), please follow up by calling 800-829-4933. Don't file 

Form 1120-S for any tax year before the year the election takes 

effect.

Relief for late elections. If you haven't filed Form 2553, or 

didn't file Form 2553 on time, you may be entitled to relief for a 

late-filed election to be an S corporation. See the Instructions for 

Form 2553 for details.

Termination of Election

Once the election is made, it stays in effect until it is terminated. 

If the election is terminated, the corporation (or a successor 

corporation) can make another election on Form 2553 only with 

IRS consent for any tax year before the fifth tax year after the first 

tax year in which the termination took effect. See Regulations 

section 1.1362-5 for details.

An election terminates automatically in any of the following 

cases.

1. The corporation is no longer a small business corporation 

as defined in section 1361(b). This kind of termination of an 

election is effective as of the day the corporation no longer 

meets the definition of a small business corporation. Attach to 

Form 1120-S for the final year of the S corporation a statement 

notifying the IRS of the termination and the date it occurred.

2. For each of 3 consecutive tax years, the corporation (a) 

has accumulated earnings and profits (AE&P), and (b) derives 

more than 25% of its gross receipts from passive investment 

income as defined in section 1362(d)(3)(C). The election 

terminates on the first day of the 1st tax year beginning after the 

3rd consecutive tax year. The corporation must pay a tax for 

each year it has excess net passive income. See the line 23a 

instructions for details on how to figure the tax.

3. The election is revoked. An election can be revoked only 

with the consent of shareholders who, at the time the revocation 

is made, hold more than 50% of the number of issued and 

outstanding shares of stock (including nonvoting stock). The 

revocation can specify an effective revocation date that is on or 

after the day the revocation is filed. If no date is specified, the 

revocation is effective at the start of the tax year if the revocation 

is made on or before the 15th day of the 3rd month of that tax 

year. If no date is specified and the revocation is made after the 

15th day of the 3rd month of the tax year, the revocation is 

effective at the start of the next tax year.

To revoke the election, the corporation must file a statement 

with the appropriate service center listed under Where To File in 

the Instructions for Form 2553. In the statement, the corporation 

must notify the IRS that it is revoking its election to be an S 

corporation. The statement must be signed by each shareholder 

who consents to the revocation and contain the information 

required by Regulations section 1.1362-6(a)(3).

A revocation can be rescinded before it takes effect. See 

Regulations section 1.1362-6(a)(4) for details.

2 Instructions for Form 1120-S (2023)
For rules on allocating income and deductions between an S 

corporation's short year and a C corporation's short year and 

other special rules that apply when an election is terminated, see 

section 1362(e) and Regulations section 1.1362-3.

If an election was terminated under (1) or (2) above and the 

corporation believes the termination was inadvertent, the 

corporation can ask for permission from the IRS to continue to 

be treated as an S corporation. See Regulations section 

1.1362-4 for the specific requirements that must be met to 

qualify for inadvertent termination relief.

Electronic Filing

S corporations can generally electronically file (e-file) Form 

1120-S, related forms, schedules, statements, and attachments; 

Form 7004 (automatic extension of time to file); and Forms 940, 

941, and 944 (employment tax returns). Form 1099 and other 

information returns can also be electronically filed. The option to 

e-file doesn't, however, apply to certain returns.

For returns filed on or after January 1, 2024, S corporations 

that file 10 or more returns are required to e-file Form 1120-S. 

See Regulations section 301.6037-2. However, these 

corporations can request a waiver of the electronic filing 

requirements.

For more information on e-filing, see E-file for Business and 

Self Employed Taxpayers on IRS.gov.

Exclusions From Electronic Filing Requirement

Waivers. The IRS may waive the electronic filing rules if the S 

corporation demonstrates that a hardship would result if it were 

required to file its return electronically. A corporation interested in 

requesting a waiver of the mandatory electronic filing 

requirement must file a written request, and request one in the 

manner prescribed by the IRS. All written requests for waivers 

should be mailed to:

Internal Revenue Service

Ogden Submission Processing Center

Attn: Form 1120 e-file Waiver Request

Mail Stop 1057

Ogden, UT 84201

If using a delivery service, requests for waivers should be 

mailed to:

Internal Revenue Service

Ogden Submission Processing Center

Attn: Form 1120 e-file Waiver Request

Mail Stop 1057

1973 N. Rulon White Blvd.

Ogden, UT 84404

Waiver requests can also be faxed to 877-477-0575. Contact 

the e-Help Desk at 866-255-0654 for questions regarding the 

waiver procedures or process.

Exemptions. The IRS may provide exemptions from the 

requirements to electronically file. If using the technology 

required to electronically file conflicts with religious beliefs, the 

corporation is exempt from the requirement. Clearly indicate the 

exemption on the corporation’s return. Write “Religious 

Exemption” at the top of the Form 1120-S. File the return at the 

applicable IRS address. See Where To File, later. For more 

information, see Notice 2024-18.

When To File

Generally, an S corporation must file Form 1120-S by the 15th 

day of the 3rd month after the end of its tax year. For calendar 

year corporations, the due date is March 15, 2024. A corporation 

that has dissolved must generally file by the 15th day of the 3rd 

month after the date it dissolved.

If the due date falls on a Saturday, Sunday, or legal holiday, 

the corporation can file on the next day that isn’t a Saturday, 

Sunday, or legal holiday.

If the S corporation election was terminated during the tax 

year and the corporation reverts to a C corporation, file Form 

1120-S for the S corporation's short year by the due date 

(including extensions) of the C corporation's short year return.

Private Delivery Services

Corporations can use certain private delivery services (PDS) 

designated by the IRS to meet the “timely mailing as timely filing” 

rule for tax returns. Go to IRS.gov/PDS for the current list of 

designated services.

The PDS can tell you how to get written proof of the mailing 

date.

For the IRS mailing address to use if you are using a PDS, go 

to IRS.gov/PDSStreetAddresses.

Private delivery services can't deliver items to P.O. 

boxes. You must use the U.S. Postal Service to mail any 

item to an IRS P.O. box address.

Extension of Time To File

File Form 7004, Application for Automatic Extension of Time To 

File Certain Business Income Tax, Information, and Other 

Returns, to ask for an extension of time to file. Generally, the 

corporation must file Form 7004 by the regular due date of the 

return. See the Instructions for Form 7004.

Who Must Sign

The return must be signed and dated by:

• The president, vice president, treasurer, assistant treasurer, 

chief accounting officer; or

• Any other corporate officer (such as tax officer) authorized to 

sign.

If a return is filed on behalf of a corporation by a receiver, 

trustee, or assignee, the fiduciary must sign the return instead of 

the corporate officer. Returns and forms signed by a receiver or 

trustee in bankruptcy on behalf of a corporation must be 

accompanied by a copy of the order or instructions of the court 

authorizing signing of the return or form.

If an employee of the corporation completes Form 1120-S, 

the paid preparer space should remain blank. Anyone who 

prepares Form 1120-S but doesn't charge the corporation 

shouldn't complete that section. Generally, anyone who is paid to 

prepare the return must sign it and fill in the “Paid Preparer Use 

Only” area.

The paid preparer must complete the required preparer 

information and:

• Sign the return in the space provided for the preparer's 

signature,

• Include their Preparer Tax Identification Number (PTIN), and

• Give a copy of the return to the taxpayer.

A paid preparer may sign original or amended returns by 

rubber stamp, mechanical device, or computer software 

program.

Paid Preparer Authorization

If the corporation wants to allow the IRS to discuss its 2023 tax 

return with the paid preparer who signed it, check the “Yes” box 

in the signature area of the return. This authorization applies only 

to the individual whose signature appears in the “Paid Preparer 

CAUTION

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TIP

Instructions for Form 1120-S (2023) 3
Use Only” section of the return. It doesn't apply to the firm, if any, 

shown in that section.

If the “Yes” box is checked, the corporation is authorizing the 

IRS to call the paid preparer to answer any questions that may 

arise during the processing of its return. The corporation is also 

authorizing the paid preparer to:

• Give the IRS any information that is missing from the return;

• Call the IRS for information about the processing of the return 

or the status of any related refund or payment(s); and

• Respond to certain IRS notices about math errors, offsets, 

and return preparation.

The corporation isn't authorizing the paid preparer to receive 

any refund check, bind the corporation to anything (including any 

additional tax liability), or otherwise represent the corporation 

before the IRS.

The authorization will automatically end no later than the due 

date (excluding extensions) for filing the corporation's 2024 tax 

return. If the corporation wants to expand the paid preparer's 

authorization or revoke the authorization before it ends, see Pub. 

947, Practice Before the IRS and Power of Attorney.

Assembling the Return

To ensure that the corporation's tax return is correctly processed, 

attach all schedules and other forms after page 5 of Form 

1120-S in the following order.

1. Schedule N (Form 1120), Foreign Operations of U.S. 

Corporations.

2. Schedule D (Form 1120-S), Capital Gains and Losses 

and Built-in Gains.

3. Form 4797, Sales of Business Property.

4. Form 8949, Sales and Other Dispositions of Capital 

Assets.

5. Form 8996, Qualified Opportunity Fund.

6. Form 8825, Rental Real Estate Income and Expenses of 

a Partnership or an S Corporation.

7. Form 1125-A, Cost of Goods Sold.

8. Form 8050, Direct Deposit of Corporate Tax Refund.

9. Form 4136, Credit for Federal Tax Paid on Fuels.

10. Form 8941, Credit for Small Employer Health Insurance 

Premiums.

11. Form 3800, General Business Credit.

12. Form 8997, Initial and Annual Statement of Qualified 

Opportunity Fund (QOF) Investments.

13. Form 6252, Installment Sale Income.

14. Schedule A (Form 8936), Clean Vehicle Credit Amount.

15. Schedules K-1 (Form 1120-S), Shareholder's Share of 

Income, Deductions, Credits, etc.

16. Form 8938, Statement of Specified Foreign Financial 

Assets.

17. Additional schedules in alphabetical order, including 

Schedule K-2 (Form 1120-S), Shareholders' Pro Rata Share 

Items—International, and Schedules K-3 (Form 1120-S), 

Shareholder's Share of Income, Deductions, Credits, 

etc.—International.

18. Additional forms in numerical order.

Complete every applicable entry space on Form 1120-S and 

Schedule K-1. Don't enter “See Attached” or “Available Upon 

Request” instead of completing the entry spaces. If more space 

is needed on the forms or schedules, attach separate sheets 

using the same size and format as the printed forms.

If there are supporting statements and attachments, arrange 

them in the same order as the schedules or forms they support 

and attach them last. Show the totals on the printed forms. Enter 

the corporation's name and EIN on each supporting statement or 

attachment.

Tax Payments

Generally, the corporation must pay any tax due in full no later 

than the due date for filing its tax return (not including 

extensions). See the instructions for line 26. If the due date falls 

on a Saturday, Sunday, or legal holiday, the payment is due on 

the next day that isn't a Saturday, Sunday, or legal holiday.

Electronic Deposit Requirement

Corporations must use electronic funds transfers to make all 

federal tax deposits (such as deposits of employment, excise, 

and corporate income tax). Generally, electronic funds transfers 

are made using the Electronic Federal Tax Payment System 

Where To File

File the corporation's return at the applicable IRS address listed below.

If the corporation's principal business, 

office, or agency is located in:

And the total assets at the end of the tax 

year (Form 1120-S, page 1, item F) are: Use the following address:

Connecticut, Delaware, District of Columbia, 

Georgia, Illinois, Indiana, Kentucky, Maine, 

Maryland, Massachusetts, Michigan, New 

Hampshire, New Jersey, New York, North 

Carolina, Ohio, Pennsylvania, Rhode Island, 

South Carolina, Tennessee, Vermont, Virginia, 

West Virginia, Wisconsin 

Less than $10 million and

Schedule M-3 isn't filed

Department of the Treasury

Internal Revenue Service Center

Kansas City, MO 64999-0013

$10 million or more, or

less than $10 million and

Schedule M-3 is filed

Department of the Treasury

Internal Revenue Service Center

Ogden, UT 84201-0013

Alabama, Alaska, Arizona, Arkansas, California, 

Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, 

Louisiana, Minnesota, Mississippi, Missouri, 

Montana, Nebraska, Nevada, New Mexico, 

North Dakota, Oklahoma, Oregon, South 

Dakota, Texas, Utah, Washington, Wyoming

Any amount

Department of the Treasury

Internal Revenue Service Center

Ogden, UT 84201-0013

A foreign country or U.S. territory Any amount

Internal Revenue Service Center

P.O. Box 409101

Ogden, UT 84409

4 Instructions for Form 1120-S (2023)
(EFTPS). However, if the corporation doesn't want to use 

EFTPS, it can arrange for its tax professional, financial 

institution, payroll service, or other trusted third party to make 

deposits on its behalf. Also, it may arrange for its financial 

institution to submit a same-day wire payment (discussed below) 

on its behalf. EFTPS is a free service provided by the 

Department of the Treasury. Services provided by a tax 

professional, financial institution, payroll service, or other third 

party may have a fee.

To get more information about EFTPS or to enroll in EFTPS, 

visit www.EFTPS.gov or call 800-555-4477. To contact EFTPS 

using the Telecommunications Relay Services (TRS), for people 

who are deaf, hard of hearing, or have a speech disability, dial 

711 and provide the TRS assistant the 800-555-4477 number 

above or 800-733-4829.

Depositing on time. For any deposit made by EFTPS to be on 

time, the corporation must submit the deposit by 8 p.m. Eastern 

time the day before the date the deposit is due. If the corporation 

uses a third party to make deposits on its behalf, they may have 

different cutoff times.

Same-day wire payment option. If the corporation fails to 

submit a deposit transaction on EFTPS by 8 p.m. Eastern time 

the day before the date a deposit is due, it can still make its 

deposit on time by using the Federal Tax Collection Service 

(FTCS). To use the same-day wire payment method, the 

corporation will need to make arrangements with its financial 

institution ahead of time regarding availability, deadlines, and 

costs. Financial institutions may charge a fee for payment made 

this way. To learn more about the information the corporation will 

need to provide to its financial institution to make a same-day 

wire payment, go to IRS.gov/SameDayWire.

Estimated Tax Payments

Generally, the corporation must make installment payments of 

estimated tax for the following taxes if the total of these taxes is 

$500 or more: (a) the tax on built-in gains, (b) the excess net 

passive income tax, and (c) the investment credit recapture tax, 

each discussed later.

The amount of estimated tax required to be paid annually is 

the smaller of (a) the total of the above taxes shown on the return 

for the tax year (or if no return is filed, the total of these taxes for 

the year), or (b) the sum of (i) the investment credit recapture tax 

and the built-in gains tax shown on the return for the tax year (or 

if no return is filed, the total of these taxes for the tax year), and 

(ii) any excess net passive income tax shown on the 

corporation's return for the preceding tax year. If the preceding 

tax year was less than 12 months, the estimated tax must be 

determined under (a).

The estimated tax is generally payable in four equal 

installments. However, the corporation may be able to lower the 

amount of one or more installments by using the annualized 

income installment method or adjusted seasonal installment 

method under section 6655(e).

For a calendar year corporation, the payments are due for 

2024 by April 15, June 15, September 15, and December 15. For 

a fiscal year corporation, they are due by the 15th day of the 4th, 

6th, 9th, and 12th months of the year. If any date falls on a 

Saturday, Sunday, or legal holiday, the installment is due on the 

next day that isn't a Saturday, Sunday, or legal holiday.

The corporation must make the payments using electronic 

funds transfers as described earlier.

For information on penalties that may apply if the corporation 

fails to make required payments, see the Instructions for Form 

2220.

Interest and Penalties

If the corporation receives a notice about penalties after 

it files its return, send the IRS an explanation and we will 

determine if the corporation meets reasonable-cause 

criteria. Don't attach an explanation when the corporation's 

return is filed.

Interest. Interest is charged on taxes paid late even if an 

extension of time to file is granted. Interest is also charged on 

penalties imposed for failure to file, negligence, fraud, substantial 

valuation misstatements, substantial understatements of tax, 

and reportable transaction understatements from the due date 

(including extensions) to the date of payment. The interest 

charge is figured at a rate determined under section 6621.

Late filing of return. A penalty may be assessed if the return is 

filed after the due date (including extensions) or the return 

doesn't show all the information required, unless each failure is 

due to reasonable cause. See Caution, earlier. For returns on 

which no tax is due, the penalty is $235 for each month or part of 

a month (up to 12 months) the return is late or doesn't include 

the required information, multiplied by the total number of 

persons who were shareholders in the corporation during any 

part of the corporation's tax year for which the return is due. If tax 

is due, the penalty is the amount stated above plus 5% of the 

unpaid tax for each month or part of a month the return is late, up 

to a maximum of 25% of the unpaid tax. The minimum penalty 

for a tax return required to be filed in 2024 that is more than 60 

days late is the smaller of the tax due or $485.

Late payment of tax. A corporation that doesn't pay the tax 

when due may generally be penalized 1/2 of 1% of the unpaid tax 

for each month or part of a month the tax isn't paid, up to a 

maximum of 25% of the unpaid tax. The penalty won't be 

imposed if the corporation can show that the failure to pay on 

time was due to reasonable cause. See Caution, earlier.

Failure to furnish information timely. For each failure to 

furnish Schedule K-1 (and Schedule K-3, if applicable) to a 

shareholder when due and each failure to include on 

Schedule K-1 (and Schedule K-3, if applicable) all the 

information required to be shown (or the inclusion of incorrect 

information), a $310 penalty may be imposed with respect to 

each Schedule K-1 (and Schedule K-3, if applicable) for which a 

failure occurs. If the requirement to report correct information is 

intentionally disregarded, each $310 penalty is increased to 

$630 or, if greater, 10% of the aggregate amount of items 

required to be reported. See sections 6722 and 6724 for more 

information.

The penalty won't be imposed if the corporation can show 

that not furnishing information timely was due to reasonable 

cause. See Caution, earlier.

Trust fund recovery penalty. This penalty may apply if certain 

excise, income, social security, and Medicare taxes that must be 

collected or withheld aren't collected or withheld, or these taxes 

aren't paid. These taxes are generally reported on:

• Form 720, Quarterly Federal Excise Tax Return;

• Form 941, Employer's QUARTERLY Federal Tax Return;

• Form 943, Employer's Annual Federal Tax Return for 

Agricultural Employees;

• Form 944, Employer's ANNUAL Federal Tax Return; or

• Form 945, Annual Return of Withheld Federal Income Tax.

The trust fund recovery penalty may be imposed on all 

persons who are determined by the IRS to have been 

responsible for collecting, accounting for, or paying over these 

taxes, and who acted willfully in not doing so. The penalty is 

equal to the full amount of the unpaid trust fund tax. See the 

Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax 

Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax 

CAUTION

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Instructions for Form 1120-S (2023) 5
Guide, for details, including the definition of “responsible 

persons.”

Other penalties. Other penalties can be imposed for 

negligence, substantial understatement of tax, reportable 

transaction understatements, and fraud. See sections 6662, 

6662A, and 6663.

Accounting Methods

Figure income using the method of accounting regularly used in 

keeping the corporation's books and records. The method used 

must clearly reflect income. Permissible methods include cash, 

accrual, or any other method authorized by the Internal Revenue 

Code.

The following rules apply.

• Generally, an S corporation can't use the cash method of 

accounting if it’s a tax shelter (as defined in section 448(d)(3)). 

See section 448 for details.

• A corporation must use an accrual method for sales and 

purchases of inventory items unless it is a small business 

taxpayer (defined later). See the Form 1125-A instructions. If you 

are a small business taxpayer, you can adopt or change your 

accounting method to account for inventories (i) in the same 

manner as materials and supplies that are non-incidental, or (ii) 

to conform to the taxpayer’s treatment of inventories in an 

applicable financial statement (as defined in section 451(b)(3)) 

or, if the taxpayer doesn’t have an applicable financial statement, 

the method of accounting used in the taxpayer’s books and 

records prepared in accordance with the taxpayer’s accounting 

procedures. Generally, IRS consent is required for changes in 

accounting methods. See Rev. Proc. 2018-40 for the procedures 

by which a small business taxpayer may obtain automatic 

consent to change its method of accounting to reflect the 

statutory changes made in this area. Also, see Change in 

accounting method, later.

• Special rules apply to long-term contracts. See section 460.

• Generally, dealers in securities must use the mark-to-market 

accounting method. Dealers in commodities and traders in 

securities and commodities can elect to use the mark-to-market 

accounting method. See section 475.

Small business taxpayer. A small business taxpayer is a 

taxpayer that (a) has average annual gross receipts of $29 

million or less for the 3 prior tax years, and (b) isn’t a tax shelter 

(as defined in section 448(d)(3)).

Change in accounting method. Generally, the corporation 

must get IRS consent to change either an overall method of 

accounting or the accounting treatment of any material item for 

income tax purposes. To obtain consent, the corporation must 

generally file Form 3115, Application for Change in Accounting 

Method, during the tax year for which the change is requested. 

See the Instructions for Form 3115 and Pub. 538, Accounting 

Periods and Methods, for more information and exceptions. See 

also the Instructions for Form 3115 for procedures that may 

apply for obtaining automatic consent to change certain 

methods of accounting, non-automatic change procedures, and 

reduced Form 3115 filing requirements.

Accounting Period

A corporation must figure its income on the basis of a tax year. A 

tax year is the annual accounting period a corporation uses to 

keep its records and report its income and expenses.

An S corporation must use one of the following tax years.

• A tax year ending December 31.

• A natural business year.

• An ownership tax year.

• A tax year elected under section 444.

• A 52-53-week tax year that ends with reference to a year 

listed above.

• Any other tax year (including a 52-53-week tax year) for which 

the corporation establishes a business purpose.

A new S corporation must use Form 2553 to elect a tax year. 

To later change the corporation's tax year, see Form 1128, 

Application To Adopt, Change, or Retain a Tax Year, and its 

instructions (unless the corporation is making an election under 

section 444, discussed next).

Electing a tax year under section 444. Under the provisions 

of section 444, an S corporation can elect to have a tax year 

other than a required year, but only if the deferral period of the 

tax year isn't longer than the shorter of 3 months or the deferral 

period of the tax year being changed. This election is made by 

filing Form 8716, Election To Have a Tax Year Other Than a 

Required Tax Year.

An S corporation may not make or continue an election under 

section 444 if it is a member of a tiered structure, other than a 

tiered structure that consists entirely of partnerships and S 

corporations that have the same tax year. For the S corporation 

to have a section 444 election in effect, it must make the 

payments required by section 7519. See Form 8752, Required 

Payment or Refund Under Section 7519.

A section 444 election ends if an S corporation:

• Changes its accounting period to a calendar year or some 

other permitted year,

• Is penalized for willfully failing to comply with the requirements 

of section 7519, or

• Terminates its S election (unless it immediately becomes a 

personal service corporation).

If the termination results in a short tax year, enter at the top of 

the first page of Form 1120-S for the short tax year, “SECTION 

444 ELECTION TERMINATED.”

Rounding Off to Whole Dollars

The corporation may enter decimal points and cents when 

completing its return. However, the corporation should round off 

cents to whole dollars on its return, forms, and schedules to 

make completing its return easier. The corporation must either 

round off all amounts on its return to whole dollars, or use cents 

for all amounts. To round, drop amounts under 50 cents and 

increase amounts from 50 to 99 cents to the next dollar. For 

example, $8.40 rounds to $8 and $8.50 rounds to $9.

If two or more amounts must be added to figure the amount to 

enter on a line, include cents when adding the amounts and 

round off only the total.

Recordkeeping

Keep the corporation's records for as long as they may be 

needed for the administration of any provision of the Internal 

Revenue Code. Usually, records that support an item of income, 

deduction, or credit on the return must be kept for 3 years from 

the date each shareholder's return is due or filed, whichever is 

later. Keep records that verify the corporation's basis in property 

for as long as they are needed to figure the basis of the original 

or replacement property.

The corporation should keep copies of all filed returns. They 

help in preparing future and amended returns.

Amended Return

To correct a previously filed Form 1120-S, file an amended Form 

1120-S and check box H(4) on page 1. Attach a statement that 

identifies the line number of each amended item, the corrected 

amount or treatment of the item, and an explanation of the 

reasons for each change.

If the income, deductions, credits, or other information 

provided to any shareholder on Schedule K-1 or K-3 is incorrect, 

file an amended Schedule K-1 or K-3 (Form 1120-S) for that 

6 Instructions for Form 1120-S (2023)
shareholder with the amended Form 1120-S. Also give a copy of 

the amended Schedule K-1 or K-3 to that shareholder. Check 

the “Amended K-1” or “Amended K-3” box at the top of the 

Schedule K-1 or K-3 to indicate that it is an amended 

Schedule K-1 or K-3.

A change to the corporation's federal return may affect its 

state return. This includes changes made as the result of an IRS 

examination. For more information, contact the state tax agency 

for the state(s) in which the corporation's return was filed.

Other Forms and Statements That 

May Be Required

Reportable transaction disclosure statement. Disclose 

information for each reportable transaction in which the 

corporation participated. Form 8886, Reportable Transaction 

Disclosure Statement, must be filed for each tax year the 

corporation participated in the transaction. The corporation may 

have to pay a penalty if it is required to file Form 8886 and 

doesn't do so. The following are reportable transactions.

1. Any listed transaction, which is a transaction that is the 

same as or substantially similar to one of the types of 

transactions that the IRS has determined to be a tax avoidance 

transaction and identified by notice, regulation, or other 

published guidance as a listed transaction.

2. Any transaction offered under conditions of confidentiality 

for which the corporation (or a related party) paid an advisor a 

fee of at least $50,000.

3. Certain transactions for which the corporation (or a 

related party) has contractual protection against disallowance of 

the tax benefits.

4. Certain transactions resulting in a loss of at least $2 

million in any single year or $4 million in any combination of 

years.

5. Any transaction identified by the IRS by notice, regulation, 

or other published guidance as a “transaction of interest.”

For more information, see Regulations section 1.6011-4. Also 

see the Instructions for Form 8886.

Penalties. The corporation may have to pay a penalty if it is 

required to disclose a reportable transaction under section 6011 

and fails to properly complete and file Form 8886. Penalties may 

also apply under section 6707A if the corporation fails to file 

Form 8886 with its corporate return, fails to provide a copy of 

Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a 

form that fails to include all the information required (or includes 

incorrect information). Other penalties, such as an 

accuracy-related penalty under section 6662A, may also apply. 

See the Instructions for Form 8886 for details on these and other 

penalties.

Reportable transactions by material advisors. Material 

advisors to any reportable transaction must disclose certain 

information about the reportable transaction by filing Form 8918, 

Material Advisor Disclosure Statement, with the IRS. For details, 

see the Instructions for Form 8918.

Transfers to a corporation controlled by the transferor. 

Every significant transferor (as defined in Regulations section 

1.351-3(d)) that receives stock of a corporation in exchange for 

property in a nonrecognition event must include the statement 

required by Regulations section 1.351-3(a) on or with the 

transferor's tax return for the tax year of the exchange. The 

transferee corporation must include the statement required by 

Regulations section 1.351-3(b) on or with its return for the tax 

year of the exchange, unless all the required information is 

included in any statement(s) provided by a significant transferor 

that is attached to the same return for the same section 351 

exchange.

Election to reduce basis under section 362(e)(2)(C). If 

property is transferred to a corporation subject to section 362(e)

(2), the transferor and the acquiring corporation may elect, under 

section 362(e)(2)(C), to reduce the transferor's basis in the stock 

received instead of reducing the acquiring corporation's basis in 

the property transferred. Once made, the election is irrevocable. 

For more information, see section 362(e)(2) and Regulations 

section 1.362-4. If an election is made, a statement must be filed 

in accordance with Regulations section 1.362-4(d)(3).

Regulations section 1.1411-10(g) (section 1411 election 

with respect to CFCs and QEFs). A corporation that directly 

or indirectly owns stock of a controlled foreign corporation (CFC) 

(within the meaning of section 953(c)(1)(B) or section 957(a)) or 

a passive foreign investment company (within the meaning of 

section 1297(a)) that the corporation treats as a qualified 

electing fund (QEF) under section 1293 may make the election 

provided in Regulations section 1.1411-10(g). The election must 

be made no later than the first tax year beginning after 2013 

during which the corporation (i) includes an amount in gross 

income for chapter 1 purposes under section 951(a) or section 

1293(a) for the CFC or QEF, and (ii) has a direct or indirect 

owner that is subject to tax under section 1411 or would have 

been if the election were made. This election must be made on 

an entity-by-entity basis, and applies only to the particular CFCs 

and QEFs for which an election is made. In general, for purposes 

of section 1411, if an election is in effect for a CFC or QEF, the 

amounts included in income under section 951 and section 1293 

derived from the CFC or QEF are included in net investment 

income, and distributions described in section 959(d) or section 

1293(c) are excluded from net investment income. Additionally, if 

the corporation elected to be treated as owning stock of a foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2), and an election 

under Regulations section 1.1411-10(g) is in effect for a CFC, 

the amount of global intangible low-taxed income included in 

income under section 951A is included in net investment income 

to the extent that it is allocated to the CFC under section 951A(f)

(2). An election that is made under Regulations section 

1.1411-10(g) can't be revoked. For more information regarding 

this election, see Regulations section 1.1411-10(g).

The election must be made in a statement that is filed with the 

corporation's original or amended return for the tax year in which 

the election is made. An election can be made on an amended 

return only if the tax year for which the election is made, and all 

tax years affected by the election, aren't closed by the period of 

limitations on assessments under section 6501. The statement 

must include:

• The name and EIN of the corporation making the election;

• A declaration that all of its shareholders consent to each 

election made in the statement;

• A declaration that the corporation elects under Regulations 

section 1.1411-10(g) to apply the rules in Regulations section 

1.1411-10(g) to the CFCs and QEFs identified in the statement; 

and

• The following information for each CFC and QEF for which an 

election is made (i) the name of the CFC or QEF; and (ii) either 

the EIN of the CFC or QEF, or, if the CFC or QEF doesn't have an 

EIN, the reference ID number of the CFC or QEF.

In addition, for each CFC or QEF held by the corporation for 

which an election under Regulations section 1.1411-10(g) has 

already been made by the corporation, the statement should 

include (i) the name of the CFC or QEF; and (ii) either the EIN of 

the CFC or QEF, or, if the CFC or QEF doesn't have an EIN, the 

reference ID number of the CFC or QEF.

Annual information reporting by specified domestic entities under section 6038D. Certain domestic corporations that 

are formed or availed of to hold specified foreign financial assets 

(“specified domestic entities”) must file Form 8938, Statement of 

Instructions for Form 1120-S (2023) 7
Specified Foreign Financial Assets. Form 8938 must be filed 

each year the value of the corporation's specified foreign 

financial assets meets or exceeds the reporting threshold. For 

more information on domestic corporations that are specified 

domestic entities and the types of foreign financial assets that 

must be reported, see the Instructions for Form 8938, generally, 

and in particular, Who Must File, Specified Domestic Entity, 

Types of Reporting Thresholds, Specified Foreign Financial 

Assets, Interests in Specified Foreign Financial Assets, Assets 

Not Required To Be Reported, and Exceptions to Reporting.

In addition, a domestic corporation required to file Form 8938 

with its Form 1120-S for the tax year should check “Yes” to 

Schedule N (Form 1120), question 8, and also include that 

schedule with its Form 1120-S.

Certification as a qualified opportunity fund. If the 

corporation is organized to invest in qualified opportunity zone 

property, it must attach Form 8996 to Form 1120-S to self-certify 

as a QOF. In addition, the corporation files Form 8996 annually 

to report that the QOF meets the investment standard of section 

1400Z-2 or to figure the penalty if it fails to meet the investment 

standard. The corporation must also complete line 15 of 

Schedule B. For more information, see the Instructions for Form 

8996.

Qualified opportunity fund investment. If the corporation 

deferred a capital gain in a qualified opportunity fund (QOF), the 

corporation must file its return with Schedule D (Form 1120-S), 

Form 8949, and Form 8997 attached. The corporation will need 

to file Form 8997 annually until it disposes of the investment. See 

the instructions for Form 8997 for details.

Form 8975, Country-by-Country Report. Certain U.S. 

persons that are the ultimate parent entity of a U.S. multinational 

enterprise group with annual revenue for the preceding reporting 

period of $850 million or more are required to file Form 8975. For 

more information, see the Instructions for Form 8975.

Other forms and statements. See Pub. 542, Corporations, for 

a list of other forms and statements a corporation may need to 

file in addition to the forms and statements discussed throughout 

these instructions.

At-Risk Limitations

In general, section 465 limits the amount of deductible net losses 

shareholders can claim from certain activities. The at-risk 

limitations don't apply to the corporation, but instead apply to 

each shareholder's share of net losses attributable to each 

activity. Because the treatment of each shareholder's share of 

corporate net losses depends on the nature of the activity that 

generated it, the corporation must report the items of income, 

loss, and deduction separately for each activity. See Pub. 925, 

Passive Activity and At-Risk Rules, for additional information.

Activities Covered by the At-Risk Rules

If the S corporation is involved in one of the following activities as 

a trade or business or for the production of income, the 

shareholder may be subject to the at-risk rules.

1. Holding, producing, or distributing motion picture films or 

video tapes.

2. Farming.

3. Leasing section 1245 property, including personal 

property and certain other tangible property that is depreciable 

or amortizable.

4. Exploring for, or exploiting, oil and gas.

5. Exploring for, or exploiting, geothermal deposits (for wells 

started after September 1978).

6. Any other activity not included in (1) through (5) that is 

carried on as a trade or business or for the production of income.

Aggregation of Activities

Activities described in (6) under Activities Covered by the At-Risk 

Rules, earlier, that constitute a trade or business are treated as 

one activity if:

• You actively participate in the management of the trade or 

business, or

• The trade or business is carried on by a partnership or S 

corporation and 65% or more of its losses for the tax year are 

allocable to persons who actively participate in the management 

of the trade or business.

Similar rules apply to activities described in (1) through (5) of 

that earlier discussion. For more information, see Pub. 925. If 

you aggregate your activities under these rules for section 465 

purposes, check the appropriate box in item J.

At-Risk Activity Reporting Requirements

If the corporate items of income, loss, or deduction reported on 

Schedule K-1 are from more than one activity covered by the 

at-risk rules, the corporation must report information separately 

for each activity.

The following information must be provided on an attachment 

to Schedule K-1 for each activity.

• A statement that the information is a breakdown of the items 

of income, loss, or deduction by at-risk activity.

• The identity of the at-risk activity; the items of income, loss, or 

deduction for the activity; other items of income, loss, or 

deduction; and any other information that relates to the activity 

(that is, distributions, shareholder loans, etc.).

Passive Activity Limitations

In general, section 469 limits the amount of losses, deductions, 

and credits that shareholders can claim from “passive activities.” 

The passive activity limitations don't apply to the corporation. 

Instead, they apply to each shareholder's share of any income or 

loss and credit attributable to a passive activity. Because the 

treatment of each shareholder's share of corporate income or 

loss and credit depends on the nature of the activity that 

generated it, the corporation must report income or loss and 

credits separately for each activity.

The following instructions and the instructions for Schedules 

K and K-1, later, explain the applicable passive activity limitation 

rules and specify the type of information the corporation must 

provide to its shareholders for each activity. If the corporation 

had more than one activity, it must report information for each 

activity on an attachment to Schedules K and K-1.

Generally, passive activities include (a) activities that involve 

the conduct of a trade or business if the shareholder doesn't 

materially participate in the activity, and (b) all rental activities 

(defined later) regardless of the shareholder's participation. For 

exceptions, see Activities That Are Not Passive Activities, later. 

The level of each shareholder's participation in an activity must 

be determined by the shareholder.

The passive activity rules provide that losses and credits from 

passive activities can generally be applied only against income 

and tax (respectively) from passive activities. Thus, passive 

losses can't be applied against income from salaries, wages, 

professional fees, or a business in which the shareholder 

materially participates or against “portfolio income” (defined 

later). Passive credits can't be applied against the tax related to 

any of these types of income.

Special rules require that net income from certain activities 

that would otherwise be treated as passive income must be 

recharacterized as nonpassive income for purposes of the 

passive activity limitations. See Recharacterization of Passive 

Income, later.

8 Instructions for Form 1120-S (2023)
To allow each shareholder to correctly apply the passive 

activity limitations, the corporation must report income or loss 

and credits separately by activity for each of the following.

• Trade or business activities.

• Rental real estate activities.

• Rental activities other than rental real estate.

• Portfolio income.

Activities That Are Not Passive Activities

The following aren't passive activities.

1. Trade or business activities in which the shareholder 

materially participated for the tax year.

2. Any rental real estate activity in which the shareholder 

materially participated if the shareholder met both of the 

following conditions for the tax year.

a. More than half of the personal services the shareholder 

performed in trades or businesses were performed in real 

property trades or businesses in which the shareholder 

materially participated.

b. The shareholder performed more than 750 hours of 

services in real property trades or businesses in which the 

shareholder materially participated.

For purposes of this rule, each interest in rental real estate is 

a separate activity unless the shareholder elects to treat all 

interests in rental real estate as one activity.

If the shareholder is married filing jointly, either the 

shareholder or the shareholder’s spouse must separately meet 

both of the above conditions, without taking into account 

services performed by the other spouse.

A real property trade or business is any real property 

development, redevelopment, construction, reconstruction, 

acquisition, conversion, rental, operation, management, leasing, 

or brokerage trade or business. Services the shareholder 

performed as an employee aren't treated as performed in a real 

property trade or business unless the shareholder owned more 

than 5% of the stock in the employer.

3. The rental of a dwelling unit used by a shareholder for 

personal purposes during the year for more than the greater of 

14 days or 10% of the number of days that the residence was 

rented at fair rental value.

4. An activity of trading personal property for the account of 

owners of interests in the activity. For purposes of this rule, 

personal property means property that is actively traded, such as 

stocks, bonds, and other securities. See Temporary Regulations 

section 1.469-1T(e)(6).

The section 469(c)(3) exception for a working interest in 

oil and gas properties doesn't apply to an S corporation 

because state law generally limits the liability of 

shareholders.

Trade or Business Activities

A trade or business activity is an activity (other than a rental 

activity or an activity treated as incidental to an activity of holding 

property for investment) that:

1. Involves the conduct of a trade or business (within the 

meaning of section 162),

2. Is conducted in anticipation of starting a trade or 

business, or

3. Involves research or experimental expenditures under 

section 174.

If the shareholder doesn't materially participate in the activity, 

a trade or business activity of the corporation is a passive activity 

for the shareholder.

TIP

Each shareholder must determine if he or she materially 

participated in an activity. As a result, while the corporation's 

ordinary business income (loss) is reported on page 1 of Form 

1120-S, the specific income and deductions from each separate 

trade or business activity must be reported on attachments to 

Form 1120-S. Similarly, while each shareholder's allocable share 

of the corporation's ordinary business income (loss) is reported 

in box 1 of Schedule K-1, each shareholder's allocable share of 

the income and deductions from each trade or business activity 

must be reported on statements attached to each Schedule K-1. 

See Passive Activity Reporting Requirements, later, for more 

information.

Rental Activities

Generally, except as noted below, if the gross income from an 

activity consists of amounts paid principally for the use of real or 

personal tangible property held by the corporation, the activity is 

a rental activity.

There are several exceptions to this general rule. Under these 

exceptions, an activity involving the use of real or personal 

tangible property isn't a rental activity if any of the following 

apply.

• The average period of customer use (defined later) for such 

property is 7 days or less.

• The average period of customer use for such property is 30 

days or less and significant personal services (defined later) are 

provided by or on behalf of the corporation.

• Extraordinary personal services (defined later) are provided 

by or on behalf of the corporation.

• The rental of such property is treated as incidental to a 

nonrental activity of the corporation under Regulations section 

1.469-1(e)(3)(vi).

• The corporation customarily makes the property available 

during defined business hours for nonexclusive use by various 

customers.

• The corporation provides property for use in a nonrental 

activity of a partnership in its capacity as an owner of an interest 

in such partnership. Whether the corporation provides property 

used in an activity of a partnership in the corporation's capacity 

as an owner of an interest in the partnership is determined on 

the basis of all the facts and circumstances.

In addition, a guaranteed payment described in section 

707(c) is never income from a rental activity.

Average period of customer use. Figure the average period 

of customer use for a class of property by dividing the total 

number of days in all rental periods by the number of rentals 

during the tax year. If the activity involves renting more than one 

class of property, multiply the average period of customer use of 

each class by the ratio of the gross rental income from that class 

to the activity's total gross rental income. The activity's average 

period of customer use equals the sum of these class-by-class 

average periods weighted by gross income. See Regulations 

section 1.469-1(e)(3)(iii).

Significant personal services. Personal services include only 

services performed by individuals. To determine if personal 

services are significant personal services, consider all the 

relevant facts and circumstances. Relevant facts and 

circumstances include:

• How often the services are provided,

• The type and amount of labor required to perform the 

services, and

• The value of the services in relation to the amount charged for 

use of the property.

The following services aren't considered in determining 

whether personal services are significant.

• Services necessary to permit the lawful use of the rental 

property.

Instructions for Form 1120-S (2023) 9
• Services performed in connection with improvements or 

repairs to the rental property that extend the useful life of the 

property substantially beyond the average rental period.

• Services provided in connection with the use of any improved 

real property that are similar to those commonly provided in 

connection with long-term rentals of high-grade commercial or 

residential property. Examples include cleaning and 

maintenance of common areas, routine repairs, trash collection, 

elevator service, and security at entrances.

Extraordinary personal services. Services provided in 

connection with making rental property available for customer 

use are extraordinary personal services only if the services are 

performed by individuals and the customers' use of the rental 

property is incidental to their receipt of the services.

For example, a patient's use of a hospital room is generally 

incidental to the care received from the hospital's medical staff. 

Similarly, a student's use of a dormitory room in a boarding 

school is incidental to the personal services provided by the 

school's teaching staff.

Rental activity incidental to a nonrental activity. An activity 

isn't a rental activity if the rental of the property is incidental to a 

nonrental activity, such as the activity of holding property for 

investment, a trade or business activity, or the activity of dealing 

in property.

Rental of property is incidental to an activity of holding 

property for investment if both of the following apply.

• The main purpose for holding the property is to realize a gain 

from the appreciation of the property.

• The gross rental income from such property for the tax year is 

less than 2% of the smaller of the property's unadjusted basis or 

its fair market value (FMV).

Rental of property is incidental to a trade or business activity 

if all of the following apply.

• The corporation owns an interest in the trade or business at all 

times during the year.

• The rental property was mainly used in the trade or business 

activity during the tax year or during at least 2 of the 5 preceding 

tax years.

• The gross rental income from the property for the tax year is 

less than 2% of the smaller of the property's unadjusted basis or 

its FMV.

If the corporation sells or exchanges property that is also 

rented during the tax year (in which the gain or loss is 

recognized), the rental is treated as incidental to the activity of 

dealing in property if, at the time of the sale or exchange, the 

property was held primarily for sale to customers in the ordinary 

course of the corporation's trade or business.

See Temporary Regulations section 1.469-1T(e)(3) and 

Regulations section 1.469-1(e)(3) for more information on the 

definition of rental activities for purposes of the passive activity 

limitations.

Reporting of rental activities. In reporting the corporation's 

income or losses and credits from rental activities, the 

corporation must separately report rental real estate activities 

and rental activities other than rental real estate activities.

Shareholders who actively participate in a rental real estate 

activity may be able to deduct part or all of their rental real estate 

losses (and the deduction equivalent of rental real estate credits) 

against income (or tax) from nonpassive activities. Generally, the 

combined amount of rental real estate losses and the deduction 

equivalent of rental real estate credits from all sources (including 

rental real estate activities not held through the corporation) that 

may be claimed is limited to $25,000.

Report rental real estate activity income (loss) on Form 8825 

and line 2 of Schedule K and box 2 of Schedule K-1, rather than 

on page 1 of Form 1120-S. Report credits related to rental real 

estate activities on lines 13c and 13d of Schedule K (box 13, 

codes E and F, of Schedule K-1) and low-income housing credits 

on lines 13a and 13b of Schedule K (box 13, codes C and D of 

Schedule K-1).

Report income (loss) from rental activities other than rental 

real estate on line 3 of Schedule K and credits related to rental 

activities other than rental real estate on line 13e of Schedule K 

and in box 13, code G, of Schedule K-1.

Portfolio Income

Generally, portfolio income includes all gross income, other than 

income derived in the ordinary course of a trade or business, 

that is attributable to interest; dividends; royalties; income from a 

real estate investment trust, a regulated investment company, a 

real estate mortgage investment conduit, a common trust fund, a 

controlled foreign corporation, a qualified electing fund, or a 

cooperative; income from the disposition of property that 

produces income of a type defined as portfolio income; and 

income from the disposition of property held for investment. See 

Self-Charged Interest, later, for an exception.

Solely for purposes of the preceding paragraph, gross 

income derived in the ordinary course of a trade or business 

includes (and portfolio income, therefore, doesn't include) the 

following types of income.

• Interest income on loans and investments made in the 

ordinary course of a trade or business of lending money.

• Interest on accounts receivable arising from the performance 

of services or the sale of property in the ordinary course of a 

trade or business of performing such services or selling such 

property, but only if credit is customarily offered to customers of 

the business.

• Income from investments made in the ordinary course of a 

trade or business of furnishing insurance or annuity contracts or 

reinsuring risks underwritten by insurance companies.

• Income or gain derived in the ordinary course of an activity of 

trading or dealing in any property if such activity constitutes a 

trade or business (unless the dealer held the property for 

investment at any time before such income or gain is 

recognized).

• Royalties derived by the taxpayer in the ordinary course of a 

trade or business of licensing intangible property.

• Amounts included in the gross income of a patron of a 

cooperative by reason of any payment or allocation to the patron 

based on patronage occurring with respect to a trade or 

business of the patron.

• Other income identified by the IRS as income derived by the 

taxpayer in the ordinary course of a trade or business.

See Temporary Regulations section 1.469-2T(c)(3) for more 

information on portfolio income.

Report portfolio income and related deductions on 

Schedule K rather than on page 1 of Form 1120-S.

Self-Charged Interest

Certain self-charged interest income and deductions may be 

treated as passive activity gross income and passive activity 

deductions if the loan proceeds are used in a passive activity. 

Generally, self-charged interest income and deductions result 

from loans between the corporation and its shareholders. 

Self-charged interest also occurs in loans between the 

corporation and another S corporation or partnership if each 

owner in the borrowing entity has the same proportional 

ownership interest in the lending entity.

The self-charged interest rules don't apply to a shareholder's 

interest in an S corporation if the S corporation makes an 

election under Regulations section 1.469-7(g) to avoid the 

application of these rules. To make the election, the S 

corporation must attach to its original or amended Form 1120-S 

10 Instructions for Form 1120-S (2023)
a statement that includes the name, address, EIN of the S 

corporation, and a declaration that the election is being made 

under Regulations section 1.469-7(g). The election will apply to 

the tax year for which it was made and all subsequent tax years. 

Once made, the election can only be revoked with the consent of 

the IRS.

For more details on the self-charged interest rules, see 

Regulations section 1.469-7.

Grouping Activities

Generally, one or more trade or business or rental activities may 

be treated as a single activity if the activities make up an 

appropriate economic unit for measurement of gain or loss under 

the passive activity rules. Whether activities make up an 

appropriate economic unit depends on all the relevant facts and 

circumstances. The factors given the greatest weight in 

determining whether activities make up an appropriate economic 

unit are:

• Similarities and differences in types of trades or businesses,

• The extent of common control,

• The extent of common ownership,

• Geographical location, and

• Reliance between or among the activities.

Example. The corporation has a significant ownership 

interest in a bakery and a movie theater in Baltimore and a 

bakery and a movie theater in Philadelphia. Depending on the 

relevant facts and circumstances, there may be more than one 

reasonable method for grouping the corporation's activities. For 

instance, the following groupings may or may not be permissible.

• A single activity.

• A movie theater activity and a bakery activity.

• A Baltimore activity and a Philadelphia activity.

• Four separate activities.

Once the corporation chooses a grouping under these rules, 

it must continue using that grouping in later tax years unless 

either:

• The corporation determines that the original grouping was 

clearly inappropriate, or

• A material change in the facts and circumstances makes that 

grouping clearly inappropriate.

The IRS may regroup the corporation's activities if the 

corporation's grouping isn't an appropriate economic unit and 

one of the primary purposes for the grouping (or failure to 

regroup as required under Regulations section 1.469-4(e)) is to 

avoid the passive activity limitations. If you group your activities 

under these rules for section 469 purposes, check the 

appropriate box in item J.

Limitation on grouping certain activities. The following 

activities may not be grouped together.

1. A rental activity with a trade or business activity unless 

the activities being grouped together make up an appropriate 

economic unit and:

a. The rental activity is insubstantial relative to the trade or 

business activity or vice versa; or

b. Each owner of the trade or business activity has the same 

proportionate ownership interest in the rental activity. If so, the 

portion of the rental activity involving the rental of property to be 

used in the trade or business activity can be grouped with the 

trade or business activity.

2. An activity involving the rental of real property with an 

activity involving the rental of personal property (except personal 

property provided in connection with the real property or vice 

versa).

3. Any activity with another activity in a different type of 

business and in which the corporation holds an interest as a 

limited partner or as a limited entrepreneur (as defined in section 

461(k)(4)) if that other activity is holding, producing, or 

distributing motion picture films or videotapes; farming; leasing 

section 1245 property; or exploring for or exploiting oil and gas 

resources or geothermal deposits.

Activities conducted through partnerships. Once a 

partnership determines its activities under these rules, the 

corporation as a partner can use these rules to group those 

activities with:

• Each other,

• Activities conducted directly by the corporation, or

• Activities conducted through other partnerships.

The corporation can't treat as separate activities those 

activities grouped together by a partnership.

Recharacterization of Passive Income

Under Temporary Regulations section 1.469-2T(f) and 

Regulations section 1.469-2(f), net passive income from certain 

passive activities must be treated as nonpassive income. Net 

passive income is the excess of an activity's passive activity 

gross income over its passive activity deductions (current year 

deductions and prior year unallowed losses).

Any net passive income recharacterized as nonpassive 

income is treated as investment income for purposes of figuring 

investment interest expense limitations if it is from (a) an activity 

of renting substantially nondepreciable property from an 

equity-financed lending activity, or (b) an activity related to an 

interest in a pass-through entity that licenses intangible property.

The amount of income from the activities in items (1) through 

(3) below that any shareholder will be required to recharacterize 

as nonpassive income may be limited under Temporary 

Regulations section 1.469-2T(f)(8). Because the corporation 

won't have information regarding all of a shareholder's activities, 

it must identify all corporate activities meeting the definitions in 

items (2) and (3) as activities that may be subject to 

recharacterization.

Income from the following six sources is subject to 

recharacterization.

1. Significant participation passive activities. A 

significant participation passive activity is any trade or business 

activity in which the shareholder participated for more than 100 

hours during the tax year but didn't materially participate. 

Because each shareholder must determine the shareholder's 

level of participation, the corporation won't be able to identify 

significant participation passive activities.

2. Certain nondepreciable rental property activities. 

Net passive income from a rental activity is nonpassive income if 

less than 30% of the unadjusted basis of the property used or 

held for use by customers in the activity is subject to 

depreciation under section 167.

3. Passive equity-financed lending activities. If the 

corporation has net income from a passive equity-financed 

lending activity, the smaller of the net passive income or the 

equity-financed interest income from the activity is nonpassive 

income.

4. Rental of property incidental to a development 

activity. Net rental activity income is the excess of passive 

activity gross income from renting or disposing of property over 

passive activity deductions (current year deductions and prior 

year unallowed losses) that are reasonably allocable to the 

rented property. Net rental activity income is nonpassive income 

for a shareholder if all of the following apply.

a. The corporation recognizes gain from the sale, exchange, 

or other disposition of the rental property during the tax year.

b. The use of the item of property in the rental activity 

started less than 12 months before the date of disposition. The 

Instructions for Form 1120-S (2023) 11
use of an item of rental property begins on the first day on which 

(a) the corporation owns an interest in the property, (b) 

substantially all of the property is either rented or held out for rent 

and ready to be rented, and (c) no significant value-enhancing 

services remain to be performed.

c. The shareholder materially or significantly participated for 

any tax year in an activity that involved performing services to 

enhance the value of the property (or any other item of property, 

if the basis of the property disposed of is determined in whole or 

in part by reference to the basis of that item of property).

Because the corporation can't determine a shareholder's level 

of participation, the corporation must identify net income from 

property described above (without regard to the shareholder's 

level of participation) as income that may be subject to 

recharacterization.

5. Rental of property to a nonpassive activity. If a 

taxpayer rents property to a trade or business activity in which 

the taxpayer materially participates, the taxpayer's net rental 

activity income (defined in item (4)) from the property is 

nonpassive income.

6. Acquisition of an interest in a pass-through entity 

that licenses intangible property. Generally, net royalty 

income from intangible property is nonpassive income if the 

taxpayer acquired an interest in the pass-through entity after the 

pass-through entity created the intangible property or performed 

substantial services or incurred substantial costs in developing 

or marketing the intangible property. Net royalty income is the 

excess of passive activity gross income from licensing or 

transferring any right in intangible property over passive activity 

deductions (current year deductions and prior year unallowed 

losses) that are reasonably allocable to the intangible property. 

See Temporary Regulations section 1.469-2T(f)(7)(iii) for 

exceptions to this rule.

Passive Activity Reporting Requirements

To allow shareholders to correctly apply the passive activity loss 

and credit limitation rules, the corporation must do the following.

1. If the corporation carries on more than one activity, 

provide an attached statement for each activity conducted 

through the corporation that identifies the type of activity 

conducted (trade or business, rental real estate, or rental activity 

other than rental real estate). See Grouping Activities, earlier.

2. The attachment(s) must identify each group. The 

attached group activity description must be sufficient for the 

shareholders to determine if their other activities qualify to be 

added to any groups provided by the corporation.

3. On the attached statement for each activity, provide a 

statement using the same box numbers as shown on 

Schedule K-1 and detailing the net income (loss), credits, and all 

items required to be separately stated under section 1366(a)(1) 

from each trade or business activity, from each rental real estate 

activity, from each rental activity other than a rental real estate 

activity, and from investments.

4. Identify the net income (loss) and the shareholder's share 

of corporation interest expense from each activity of renting a 

dwelling unit that any shareholder uses for personal purposes 

during the year for more than the greater of 14 days or 10% of 

the number of days that the residence is rented at fair rental 

value.

5. Identify the net income (loss) and the shareholder's share 

of interest expense from each activity of trading personal 

property conducted through the corporation.

6. For any gain (loss) from the disposition of an interest in an 

activity or of an interest in property used in an activity (including 

dispositions before 1987 from which gain is being recognized 

after 1986):

a. Identify the activity in which the property was used at the 

time of disposition;

b. If the property was used in more than one activity during 

the 12 months preceding the disposition, identify the activities in 

which the property was used and the adjusted basis allocated to 

each activity; and

c. For gains only, if the property was substantially 

appreciated at the time of the disposition and the applicable 

holding period specified in Regulations section 1.469-2(c)(2)(iii)

(A) wasn't satisfied, identify the amount of the nonpassive gain 

and indicate whether or not the gain is investment income under 

Regulations section 1.469-2(c)(2)(iii)(F).

7. Specify the amount of gross portfolio income, the interest 

expense properly allocable to portfolio income, and expenses 

other than interest expense that are clearly and directly allocable 

to portfolio income.

8. Identify the ratable portion of any section 481 adjustment 

(whether a net positive or a net negative adjustment) allocable to 

each corporate activity.

9. Identify any gross income from sources specifically 

excluded from passive activity gross income, including:

a. Income from intangible property, if the shareholder is an 

individual whose personal efforts significantly contributed to the 

creation of the property;

b. Income from state, local, or foreign income tax refunds; 

and

c. Income from a covenant not to compete, if the 

shareholder is an individual who contributed the covenant to the 

corporation.

10. Identify any deductions that aren't passive activity 

deductions.

11. If the corporation makes a full or partial disposition of its 

interest in another entity, identify the gain (loss) allocable to each 

activity conducted through the entity, and the gain allocable to a 

passive activity that would have been recharacterized as 

nonpassive gain had the corporation disposed of its interest in 

property used in the activity (because the property was 

substantially appreciated at the time of the disposition, and the 

gain represented more than 10% of the shareholder's total gain 

from the disposition).

12. Identify the following items from activities that may be 

subject to the recharacterization rules (see Recharacterization of 

Passive Income, earlier).

a. Net income from an activity of renting substantially 

nondepreciable property.

b. The smaller of equity-financed interest income or net 

passive income from an equity-financed lending activity.

c. Net rental activity income from property developed (by the 

shareholder or the corporation), rented, and sold within 12 

months after the rental of the property commenced.

d. Net rental activity income from the rental of property by 

the corporation to a trade or business activity in which the 

shareholder had an interest (either directly or indirectly).

e. Net royalty income from intangible property if the 

shareholder acquired the shareholder's interest in the 

corporation after the corporation created the intangible property 

or performed substantial services, or incurred substantial costs 

in developing or marketing the intangible property.

13. Identify separately the credits from each activity 

conducted by or through the corporation.

14. Identify the shareholder's pro rata share of the 

corporation's self-charged interest income or expense (see 

Self-Charged Interest, earlier).

12 Instructions for Form 1120-S (2023)
a. Loans between a shareholder and the corporation. 

Identify the lending or borrowing shareholder's share of the 

self-charged interest income or expense. If the shareholder 

made the loan to the corporation, also identify the activity in 

which the loan proceeds were used. If the proceeds were used 

in more than one activity, allocate the interest to each activity 

based on the amount of the proceeds used in each activity.

b. Loans between the corporation and another S 

corporation or partnership. If the corporation's shareholders 

have the same proportional ownership interest in the corporation 

and the other S corporation or partnership, identify each 

shareholder's share of the interest income or expense from the 

loan. If the corporation was the borrower, also identify the activity 

in which the loan proceeds were used. If the proceeds were 

used in more than one activity, allocate the interest to each 

activity based on the amount of the proceeds used in each 

activity.

Net Investment Income Tax Reporting 

Requirements

The information described in this section should be 

given directly to the shareholder and shouldn't be 

reported by the corporation to the IRS.

To allow shareholders to correctly figure the net investment 

income tax where a shareholder disposes of stock in the 

corporation during the tax year, the corporation may be required 

to provide the shareholder with certain information. The net 

investment income tax is a tax imposed on an individual's, 

trust's, or estate's net investment income. Net investment income 

includes the net gains or losses from the sale of stock in the 

corporation. A shareholder who is actively involved in one or 

more of the corporation or subsidiary pass-through entities' 

trades or businesses (other than trading in financial instruments 

or commodities) can reduce the amount of the gain or loss 

included in its net investment income. However, to figure its net 

investment income, the active shareholder needs certain 

information from the corporation.

Generally, the corporation must provide certain information to 

the shareholder if the corporation knows, or has reason to know, 

the following.

1. The shareholder disposed of stock in the corporation.

2. The shareholder materially participates (within the 

meaning of the passive activity loss rules (section 469)) in one or 

more of the trades or businesses (within the meaning of section 

162) of the corporation or a subsidiary pass-through entity (other 

than trading in financial instruments or commodities).

3. The shareholder doesn't qualify for the optional simplified 

reporting method for figuring its net investment income 

associated with the disposition of the stock. For more 

information, see the instructions for Form 8960, line 5c.

Information to be provided to shareholder. Generally, the 

corporation must provide the shareholder with its pro rata share 

of the net gain and loss from the deemed sale for fair market 

value of the corporation's property, other than property that 

relates to the trades or businesses in which the shareholder 

materially participates, as determined under the passive activity 

loss rules applicable to the transfer of an interest in a 

pass-through entity. For more information, see the instructions 

for Form 8960, line 5c.

If a shareholder, who qualifies for the optional simplified 

reporting method, prefers to determine net gain or loss 

under the general calculation, the corporation may, but 

isn't obligated to, provide the information to the shareholder at 

the shareholder's request.

TIP TIP

Specific Instructions

Period Covered

File the 2023 return for calendar year 2023 and fiscal years that 

begin in 2023 and end in 2024. For a fiscal or short tax year 

return, fill in the tax year space at the top of the form.

The 2023 Form 1120-S can also be used if:

• The corporation has a tax year of less than 12 months that 

begins and ends in 2024, and

• The 2024 Form 1120-S isn't available at the time the 

corporation is required to file its return.

The corporation must show its 2024 tax year on the 2023 

Form 1120-S and take into account any tax law changes that are 

effective for tax years beginning after December 31, 2023.

Name and Address

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 doesn't deliver mail to 

the street address and the corporation has a P.O. box, show the 

box number instead.

Don't 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, Arkansas, 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 “C/O” on the street 

address line, followed by the third party's name and street 

address or P.O. box.

If the corporation has a foreign address, include the city or 

town, state or province, country, and foreign postal code. Don't 

abbreviate the country name. Follow the country's practice for 

entering the name of the state or province and postal code.

Item B. Business Code

See Principal Business Activity Codes, later. For nonstore 

retailers, select the principal business activity (PBA) code by the 

primary product that your establishment sells. For example, 

establishments primarily selling prescription and 

non-prescription drugs, select PBA code 456110 Pharmacies & 

Drug Retailers.

Item C. Schedule M-3 Information

For 2023, a corporation that (a) is required to file Schedule M-3 

(Form 1120-S), Net Income (Loss) Reconciliation for S 

Corporations With Total Assets of $10 Million or More, and has 

less than $50 million total assets at the end of the tax year, or (b) 

isn't required to file Schedule M-3 (Form 1120-S) and voluntarily 

files Schedule M-3 (Form 1120-S), must either complete 

Schedule M-3 (Form 1120-S) entirely or complete Schedule M-3 

(Form 1120-S) through Part I and complete Form 1120-S, 

Schedule M-1, instead of completing Parts II and III of 

Schedule M-3 (Form 1120-S). If a corporation chooses to 

complete Form 1120-S, Schedule M-1, instead of completing 

Parts II and III of Schedule M-3 (Form 1120-S), line 1, of Form 

1120-S, Schedule M-1, must equal line 11 of Part I of 

Schedule M-3 (Form 1120-S).

Any corporation that completes Parts II and III of 

Schedule M-3 (Form 1120-S) must complete all columns, 

without exception.

TIP

Instructions for Form 1120-S (2023) 13
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.

Item D. Employer Identification 

Number (EIN)

Enter the corporation's EIN. If the corporation doesn't have an 

EIN, it must apply for one. An EIN can be applied for in the 

following ways.

• Online—Go to IRS.gov/EIN. The EIN is issued immediately 

once the application information is validated.

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

Identification Number.

If the corporation hasn't 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.

Item F. Total Assets

Enter the corporation's total assets (as determined by the 

accounting method regularly used in keeping the corporation's 

books and records) at the end of the tax year. If there 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.

Item G. Electing To Be an S 

Corporation

If “Yes,” attach Form 2553 if not already filed. Form 2553 must 

generally be filed no more than 2 months and 15 days after the 

beginning of the tax year the election is to take effect. A Form 

2553 filed with Form 1120-S will generally be a late election. But 

with reasonable cause you may be able to request relief for the 

late election on Form 2553. See “Relief for Late Elections” in the 

Instructions for Form 2553.

Item H. Final Return, Name Change, 

Address Change, Amended Return, or 

S Election Termination

• 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.

• If the corporation changed its name since it last filed a return, 

check the “Name change” box. Generally, a corporation must 

also have amended its articles of incorporation and filed the 

amendment with the state in which it was incorporated.

• If the corporation has changed its address since it last filed a 

return (including a change to an “in care of” address), check the 

“Address change” box.

• 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.

• If the corporation has terminated its S election, check the “S 

election termination” box. See Termination of Election, earlier.

If a change in address or responsible party occurs after 

the return is filed, use Form 8822-B, Change of Address 

or Responsible Party — Business, to notify the IRS. See 

the Instructions for Form 8822-B for details.

TIP

Item J. Aggregation or Grouping of 

Certain Activities

For information about aggregating at-risk activities, see 

Aggregation of Activities under At-Risk Limitations, earlier. For 

information about grouping passive activities, see Grouping 

Activities under Passive Activity Limitations, earlier.

Income

Report only trade or business activity income on lines 1a 

through 5. Don't report rental activity income or portfolio 

income on these lines. See Passive Activity Limitations, 

earlier, for definitions of rental income and portfolio income. 

Rental activity income and portfolio income are reported on 

Schedules K and K-1. Rental real estate activities are also 

reported on Form 8825.

Tax-exempt income. Don't include any tax-exempt income on 

lines 1a through 5. A corporation that receives any tax-exempt 

income other than interest, or holds any property or engages in 

any activity that produces tax-exempt income, reports this 

income on line 16b of Schedule K and in box 16 of Schedule K-1 

using code B.

Report tax-exempt interest income, including exempt-interest 

dividends received as a shareholder in a mutual fund or other 

regulated investment company, on line 16a of Schedule K and in 

box 16 of Schedule K-1 using code A.

See Deductions, later, for information on how to report 

expenses related to tax-exempt income.

Canceled debt exclusion. If the corporation has had debt 

discharged resulting from a title 11 bankruptcy proceeding or 

while insolvent, see Form 982, Reduction of Tax Attributes Due 

to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax 

Guide.

Line 1a. Gross Receipts or Sales

Enter on line 1a gross receipts or sales from all business 

operations except for amounts that must be reported on lines 4 

and 5. If a cost offset method under section 451(b) or (c) is 

elected, the resulting gross income is reported on line 1a.

Special rules apply to certain income, as discussed below.

Advance payments. In general, advance payments are 

reported in the year of receipt. For exceptions to this general rule 

for corporations that use an accrual method of accounting, see 

the following.

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

• For rules that allow a limited deferral of advance payments 

beyond the current tax year, see section 451(c) and Regulations 

section 1.451-8.

• For information on adopting or changing to a permissible 

method for reporting advance payments for goods and services 

by an accrual method corporation, see the Instructions for Form 

3115.

Installment sales. Generally, the installment method can't be 

used for dealer dispositions of property. A “dealer disposition” is 

any disposition of:

• Personal property by a person who regularly sells or otherwise 

disposes of personal property of the same type on the 

installment plan, or

• Real property held for sale to customers in the ordinary 

course of the taxpayer's trade or business.

These restrictions on using the installment method don't 

apply to dispositions of property used or produced in a farming 

business or sales of timeshares and residential lots for which the 

corporation elects to pay interest under section 453(l)(3).

CAUTION

!

14 Instructions for Form 1120-S (2023)
For sales of timeshares and residential lots reported under 

the installment method, each shareholder's income tax is 

increased by the shareholder's pro rata share of the interest 

payable under section 453(l)(3).

Enter on line 1a the gross profit on collections from 

installment sales for any of the following.

• Dispositions of property used or produced in the trade or 

business of farming.

• Certain dispositions of timeshares and residential lots 

reported under the installment method.

Attach a statement showing the following information for the 

current and the 3 preceding years.

• Gross sales.

• Cost of goods sold.

• Gross profits.

• Percentage of gross profits to gross sales.

• Amount collected.

• Gross profit on the amount collected.

Line 1b. Returns and Allowances

Enter cash and credit refunds the corporation made to 

customers for returned merchandise, rebates, and other 

allowances made on gross receipts or sales.

Line 2. Cost of Goods Sold

Complete and attach Form 1125-A, Cost of Goods Sold, if 

applicable. Enter on line 2 the amount from Form 1125-A, line 8. 

See Form 1125-A and its instructions.

Line 4. Net Gain (Loss) From Form 4797

Include only ordinary gains or losses from the sale, 

exchange, or involuntary conversion of assets used in a 

trade or business activity. Ordinary gains or losses from 

the sale, exchange, or involuntary conversion of rental activity 

assets are reported separately on line 19 of Form 8825, or line 3 

of Schedule K, and box 3 of Schedule K-1, generally as a part of 

the net income (loss) from the rental activity.

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 shouldn't 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.

Line 5. Other Income (Loss)

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.

• 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).

• Recoveries of bad debts deducted in prior years under the 

specific charge-off method.

• Taxable income from insurance proceeds.

• Any amount included in income from line 2 of Form 6478, 

Biofuel Producer Credit.

• Any amount included in income from line 10 of Form 8864, 

Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels 

Credit.

CAUTION

!

• 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.

• The ratable portion of any positive section 481(a) adjustments 

resulting from changes in accounting methods. Show the 

computation of the positive section 481(a) adjustments on an 

attached statement. In the statement, include, for each section 

481(a) adjustment, the total section 481(a) adjustment, the 

ratable portion included in current year taxable income, and a 

brief description of the changes in methods of accounting to 

which the section 481(a) adjustment relates. See Rev. Proc. 

2015-13, 2015-5 I.R.B. 419, available at IRS.gov/irb/

2015-5_IRB#RP-2015-13.

• 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 Form 

8925.

• Any payroll tax credit taken by an employer on its 2023 

employment tax returns (Forms 941, 943, and 944) for qualified 

paid sick and qualified paid family leave under FFCRA and ARP 

(both the nonrefundable and refundable portions). The 

corporation must include the full amount of the credit for qualified 

sick and family leave wages in gross income for the tax year that 

includes the last day of the calendar quarter in which the credit is 

allowed.

Note. A credit is available only if the leave was taken after 

March 31, 2020, and before October 1, 2021, and only after the 

qualified leave wages were paid, which might, under certain 

circumstances, not occur until a quarter after September 30, 

2021, including quarters in 2023.

Don't 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.

Ordinary Income (Loss) From a Partnership, 

Estate, or Trust

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.

Don't 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 isn't 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 ZZ.

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 by the S corporation is subject to the basis 

limitations.

If the tax year of the S corporation doesn't coincide with the 

tax year of the partnership, estate, or trust, include the ordinary 

Instructions for Form 1120-S (2023) 15
income (loss) from the other entity in the tax year in which the 

other entity's tax year ends.

Deductions

Report only trade or business activity deductions on 

lines 7 through 20.

Don't report the following expenses on lines 7 through 20.

• Rental activity expenses. Report these expenses on Form 

8825 or line 3b of Schedule K.

• 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 or L.

• 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.

• 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.

• 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.

Limitations on Deductions

Section 263A uniform capitalization rules. The uniform 

capitalization rules of section 263A generally require 

corporations to capitalize, or include in inventory, certain costs 

incurred in connection with the following.

• The production of real property and tangible personal property 

held in inventory or held for sale in the ordinary course of 

business.

• Real property or personal property (tangible and intangible) 

acquired for resale.

• 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.

Tangible personal property produced by a corporation 

includes a film, sound recording, videotape, book, or similar 

property.

The costs required to be capitalized under section 263A 

aren't deductible until the property to which the costs relate is 

sold, used, or otherwise disposed of by the corporation.

Exceptions. Section 263A doesn't apply to the following.

• Inventoriable items accounted for in the same manner as 

materials and supplies that aren't incidental. See Form 1125-A 

and its instructions for more details.

• A small business taxpayer (defined earlier) isn’t required to 

capitalize costs under section 263A. A taxpayer that wants to 

discontinue capitalizing costs under section 263A must change 

its method of accounting. See section 263A(i) and the 

Instructions for Form 3115.

• Timber.

• Most property produced under a long-term contract.

• Certain property produced in a farming business. See Special 

rules for certain corporations engaged in farming, later.

• Geological and geophysical costs amortized under section 

167(h).

• Certain plants bearing fruits and nuts depreciated under 

section 168(k)(5).

CAUTION

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The corporation must report the following costs separately to 

the shareholders for purposes of determinations under section 

59(e).

• Research and experimental costs under section 174.

• Intangible drilling costs for oil, gas, and geothermal property.

• Mining exploration and development costs.

Indirect 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.

• Administration expenses.

• Taxes.

• Depreciation.

• Insurance.

• Compensation paid to officers attributable to services.

• Rework labor.

• 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.

For more details on the uniform capitalization rules, see 

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

Special rules for certain corporations engaged in farming. 

For S corporations not required to use an accrual method of 

accounting, the rules of section 263A don't apply to expenses of 

raising any:

• Animal, or

• Plant that has a preproductive period of 2 years or less.

Shareholders of S corporations not required to use an accrual 

method of accounting may elect to currently deduct the 

preproductive period expenses of certain plants that have a 

preproductive period of more than 2 years. Because each 

shareholder makes the election to deduct these expenses, the 

corporation shouldn't capitalize them. Instead, the corporation 

should report the expenses separately on line 12d of Schedule K 

and report each shareholder's pro rata share in box 12 of 

Schedule K-1 using code M.

See Uniform Capitalization Rules in chapter 6 of Pub. 225, 

Farmer's Tax Guide, sections 263A(d) and (e), and Regulations 

section 1.263A-4 for definitions and other details.

Transactions between related taxpayers. Generally, an 

accrual basis S corporation can deduct business expenses and 

interest owed to a related party (including any shareholder) only 

in the tax year of the corporation that includes the day on which 

the payment is includible in the income of the related party. See 

section 267 for details.

Business interest. Business interest expense may be limited. 

See section 163(j) and Form 8990. Also see Schedule B, 

questions 9 and 10, and the related instructions for question 9 

and question 10, later.

Section 291 limitations. If the S corporation was a C 

corporation for any of the 3 immediately preceding years, the 

corporation may be required to adjust items such as deductions 

for depletion of iron ore and coal, and the amortizable basis of 

pollution control facilities. If this applies, see section 291 to figure 

the adjustment.

16 Instructions for Form 1120-S (2023)
Business start-up and organizational costs. A corporation 

can elect to deduct a limited amount of start-up and 

organizational costs it paid or incurred. Any remaining costs 

must generally be amortized over a 180-month period. See 

sections 195 and 248 and the related regulations.

Time for making an election. The corporation generally 

elects to deduct start-up or organizational costs by claiming the 

deduction on its income tax return filed by the due date 

(including extensions) for the tax year in which the active trade or 

business begins. For more details, see the Instructions for Form 

4562.

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 enter “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.

The election to either amortize or capitalize start-up 

costs is irrevocable and applies to all start-up costs that 

are related to the trade or business.

Report the deductible amount of start-up and organizational 

costs and any amortization on line 20. For amortization that 

begins during the current tax year, complete and attach Form 

4562, Depreciation and Amortization.

Reducing certain expenses for which credits are allowable. 

If the corporation claims certain credits, it may need to reduce 

the otherwise allowable deductions for expenses used to figure 

the credit. This applies to credits such as the following.

• Work opportunity credit (Form 5884).

• Credit for increasing research activities (Form 6765).

• Orphan drug credit (Form 8820).

• Disabled access credit (Form 8826).

• Empowerment zone employment credit (Form 8844).

• Credit for employer social security and Medicare taxes paid 

on certain employee tips (Form 8846).

• Credit for small employer pension plan startup costs, 

auto-enrollment, and military spouse participation (Form 8881).

• Credit for employer-provided childcare facilities and services 

(Form 8882).

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

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

• Credit for small employer health insurance premiums (Form 

8941).

• Employer credit for paid family and medical leave (Form 

8994).

If the corporation has any of the credits listed above, figure 

the current year credit before figuring the deduction for expenses 

on which the credit is based. If the corporation capitalized any 

costs on which it figured the credit, it may need to reduce the 

amount capitalized by the credit attributable to these costs.

See the instructions for the form used to figure the applicable 

credit for more details.

TIP

Line 7. Compensation of Officers and

Line 8. Salaries and Wages

Distributions and other payments by an S corporation to 

a corporate officer must be treated as wages to the 

extent the amounts are reasonable compensation for 

services rendered to the corporation.

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.

Don't 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.

If the corporation's total receipts (page 1, line 1a, plus lines 4 

and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6; 

income or net gain reported on Schedule K, lines 7, 8a, 9, and 

10; and income or net gain reported on Form 8825, lines 2, 19, 

and 20a) are $500,000 or more, complete Form 1125-E, 

Compensation of Officers. Enter on Form 1120-S, line 7, the 

amount from Form 1125-E, line 4.

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. 

Don't 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 aren't 

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 Schedule 1 (Form 1040), 

line 17.

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 

isn’t 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).

Line 9. Repairs and Maintenance

Enter the cost of repairs and maintenance not claimed 

elsewhere on the return, such as labor and supplies, that don't 

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. See Regulations section 

1.162-4. The corporation may elect to capitalize certain repair 

and maintenance costs consistent with its books and records. 

See Regulations section 1.263(a)-3(n) for information on how to 

make the election.

New buildings, machinery, or permanent improvements that 

increase the value of the property aren't deductible as repair and 

CAUTION

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CAUTION

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Instructions for Form 1120-S (2023) 17
maintenance expenses. These expenses must be capitalized 

and depreciated or amortized. However, amounts paid for 

routine maintenance on property, including buildings, may be 

deductible. See Regulations section 1.263(a)-3(i).

Line 10. Bad Debts

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 can't claim a bad debt deduction 

unless the amount was previously included in income.

Line 11. Rents

Enter rent paid on business property used in a trade or business 

activity. Don't 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 12/31/22 but before 1/1/24 ............ $60,000

After 12/31/21 but before 1/1/23 ............ $56,000

After 12/31/20 but before 1/1/22 ........... $51,000

After 12/31/17 but before 1/1/21 ........... $50,000

After 12/31/12 but before 1/1/18 ............ $19,000

Trucks and vans

After 12/31/22 but before 1/1/24 ............ $60,000

After 12/31/21 but before 1/1/23 ............ $56,000

After 12/31/20 but before 1/1/22 ............ $51,000

After 12/31/17 but before 1/1/21 ............ $50,000

After 12/31/13 but before 1/1/18 ............ $19,500

After 12/31/09 but before 1/1/14 ............ $19,000

See Pub. 463, Travel, Gift, and Car Expenses, for instructions 

on figuring the inclusion amount.

Note. The inclusion amount for lease terms beginning in 2024 

will be published in the Internal Revenue Bulletin in early 2024.

Line 12. Taxes and Licenses

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.

Foreign taxes are included on line 12 only if they are 

deductible and not creditable taxes under sections 901 and 903. 

See Schedule K-2 (Form 1120-S), Part II, Section 2, line 45, 

column (g).

Do not reduce the corporation’s deduction for social 

security and Medicare taxes by the nonrefundable and 

refundable portions of any FFCRA and ARP credits for 

qualified sick and family leave wages claimed on its employment 

tax returns. Instead, report this amount as income on line 5.

Don't deduct the following taxes on line 12.

• Federal income taxes (except for the portion of built-in gains 

tax allocable to ordinary income) or taxes reported elsewhere on 

the return.

• Creditable foreign taxes under sections 901 and 903. Report 

these taxes on line 16f of Schedule K and in box 16 of 

Schedule K-1 using code F.

• 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.

• 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 ZZ.

See section 263A(a) for rules on capitalization of allocable 

costs (including taxes) for any property.

• Taxes not imposed on the corporation.

• Taxes, including state or local sales taxes, that are paid or 

incurred in connection with an acquisition or disposition of 

property (these taxes must be treated as a part of the cost of the 

acquired property or, in the case of a disposition, as a reduction 

in the amount realized on the disposition).

• Taxes assessed against local benefits that increase the value 

of the property assessed (such as for paving, etc.).

See section 164(d) for information on apportionment of taxes 

on real property between seller and purchaser.

Line 13. Interest

Include only interest incurred in the trade or business activities of 

the corporation that isn't claimed elsewhere on the return.

Don't include interest expense on the following.

• 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.

• 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.

• 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 AC. To determine the amount to allocate to distributions to 

shareholders, see Notice 89-35, 1989-1 C.B. 675.

• 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 

CAUTION

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18 Instructions for Form 1120-S (2023)
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 the following.

• 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.

• Prepaid interest, which can generally 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. Also see section 461(g).

• Interest that 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.

• Forgone interest on below-market-rate loans (see section 

7872).

Limitation on deduction. Business interest expense is 

generally limited to the sum of business interest income, 30% of 

adjusted taxable income, and floor plan financing interest. See 

Form 8990, Limitation on Business Interest Expense Under 

Section 163(j), and its instructions for more information. The 

limitation applies at the S corporation level, and any excess 

business interest expense is carried over at the corporate level.

Business interest expense includes any interest paid or 

accrued on indebtedness properly allocable to a trade or 

business. A small business taxpayer is a taxpayer that isn’t a tax 

shelter (as defined in section 448(d)(3)) and has average annual 

gross receipts of $29 million or less for the 3 prior tax years 

under the gross receipts test of section 448(c). Gross receipts 

include the aggregate gross receipts from all persons treated as 

a single employer, such as a controlled group of corporations, 

commonly controlled partnerships or proprietorships, and 

affiliated service groups. If the corporation fails to meet the gross 

receipts test, Form 8990 is generally required. Also see 

Schedule B, questions 9 and 10.

Line 14. Depreciation

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.

Don't include any section 179 expense deduction on this line. 

This amount isn't 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 can't 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).

Line 15. Depletion

If the corporation claims a deduction for timber depletion, 

complete and attach Form T (Timber), Forest Activities 

Schedule.

Don't deduct depletion for oil and gas properties. Each 

shareholder figures depletion on oil and gas properties. 

See the instructions for Schedule K-1, box 17, code R, 

for the information on oil and gas depletion that must be supplied 

to the shareholders by the corporation.

Line 17. Pension, Profit-Sharing, etc., Plans

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, must generally file 

the applicable form listed below.

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

• Form 5500-SF, Short Form Annual Return/Report of Small 

Employee Benefit Plan. File this form instead of Form 5500 

generally if there were under 100 participants at the beginning of 

the plan year.

• Form 5500-EZ, Annual Return of A One-Participant (Owners/

Partners and Their Spouses) Retirement Plan or A Foreign Plan. 

File this form for a plan that only covers the owner (or the owner 

and the owner's spouse) but only if the owner (or the owner and 

the owner's spouse) owns the entire business.

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).

Line 18. Employee Benefit Programs

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.

Don't 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 (or Form 1125-E), 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.

CAUTION

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TIP

Instructions for Form 1120-S (2023) 19
Line 19. Energy Efficient Commercial Buildings 

Deduction

Complete and attach Form 7205 if claiming the energy efficient 

commercial building deduction. See the Instructions for Form 

7205 for more information. Also, see section 179D.

Line 20. Other Deductions

Enter the total allowable trade or business deductions that aren't 

deductible elsewhere on page 1 of Form 1120-S. Attach a 

statement listing by type and amount each deduction included 

on this line.

Examples of other deductions include the following.

• Amortization. See Part VI of Form 4562.

• Certain business start-up and organizational costs (discussed 

earlier).

• Insurance premiums.

• Legal and professional fees.

• Supplies used and consumed in the business.

• Travel, meal, and entertainment expenses. Special rules apply 

(discussed later).

• Utilities.

• Any negative section 481(a) adjustments resulting from 

changes in accounting methods. Show the computation of the 

negative section 481(a) adjustments on an attached statement. 

In the statement, for each section 481(a) adjustment, include the 

total section 481(a) adjustment and a brief description of the 

changes in methods of accounting to which the section 481(a) 

adjustment relates. See Rev. Proc. 2015-13.

Don't deduct the following on line 20.

• Amounts paid or incurred for any settlement, payout, or 

attorney fees related to sexual harassment or sexual abuse, if 

such payments are subject to a nondisclosure agreement. See 

section 162(q).

• Expenses allocable to tax-exempt income. Report these 

expenses on Schedule K, line 16c.

• Fines or similar penalties paid to or at the direction of a 

government or governmental entity for violating any law. 

However, see exceptions (discussed later). Report these 

expenses on Schedule K, line 16c.

• Items that must be reported separately on Schedules K and 

K-1.

Special Rules

Travel, meals, and entertainment. Subject to limitations and 

restrictions discussed below, a corporation can deduct ordinary 

and necessary travel and meal expenses paid or incurred in its 

trade or business. Generally, entertainment expenses, 

membership dues, and facilities used in connection with these 

activities can't be deducted. Generally, no deduction is allowed 

for qualified transportation fringe benefits. Also, special rules 

apply to deductions for gifts, luxury water travel, and convention 

expenses. See section 274 and Pub. 463 for details.

Travel. The corporation can't deduct travel expenses of any 

individual accompanying a corporate officer or employee, 

including a spouse or dependent of the officer or employee, 

unless:

• That individual is an employee of the corporation, and

• The travel is for a bona fide business purpose and would 

otherwise be deductible by that individual.

Meals. Generally, the corporation can deduct only 50% of the 

amount otherwise allowable for meal expenses paid or incurred 

in its trade or business. In addition (subject to exceptions under 

section 274(k)(2)):

• Meals must not be lavish or extravagant, and

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

See section 274(n)(3) for a special rule that applies to 

expenses for meals consumed by individuals subject to the 

hours of service limits of the Department of Transportation.

Qualified transportation fringes (QTFs). Generally, under 

section 274(a)(4), there is no deduction allowed with respect to 

QTFs provided by employers to their employees. QTFs are 

defined in section 132(f)(1) to include:

• Transportation in a commuter highway vehicle between the 

employee's residence and place of employment,

• Any transit pass, and

• Qualified parking.

See section 274 and Pub. 15-B, Employer’s Tax Guide to 

Fringe Benefits, for details.

Membership dues. 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 can't deduct membership dues in any club 

organized for business, pleasure, recreation, or other social 

purpose. This includes country clubs, golf and athletic clubs, 

airline and hotel clubs, and clubs operated to provide meals 

under conditions favorable to business discussion.

Entertainment facilities. The corporation can't deduct an 

expense paid or incurred for a facility (such as a yacht or hunting 

lodge) used for an activity usually considered entertainment, 

amusement, or recreation.

Amounts treated as compensation. 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-NEC 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 Regulations sections 1.274-9 and 

1.274-10.

Fines and similar penalties. Generally, no deduction is 

allowed for fines or similar penalties paid to or at the direction of 

a government or governmental entity for violating any law except:

• Amounts that constitute restitution (including remediation of 

property),

• Amounts paid to come into compliance with the law,

• Amounts paid or incurred as the result of orders or 

agreements in which no government or governmental entity is a 

party, and

• Amounts paid or incurred for taxes due to the extent the 

amount would have been allowed as a deduction if timely paid, 

and the taxpayer establishes that the amount paid or incurred 

was for restitution, remediation, or to come into compliance.

No deduction is allowed unless the amounts are specifically 

identified in the order or agreement and the taxpayer establishes 

that the amounts were paid for a purpose mentioned above. 

Also, any amount paid or incurred as reimbursement to the 

government for the costs of any investigation or litigation are not 

eligible for the exceptions and are nondeductible. See section 

162(f). Also see Regulations section 1.162-21.

Lobbying expenses. Generally, lobbying expenses aren't 

deductible. Report nondeductible expenses on Schedule K, 

line 16c. These expenses include:

• Amounts paid or incurred in connection with influencing 

federal, state, or local legislation; or

20 Instructions for Form 1120-S (2023)
• Amounts paid or incurred in connection with any 

communication with certain federal executive branch officials in 

an attempt to influence the official actions or positions of the 

officials. See Regulations section 1.162-29 for the definition of 

“influencing legislation.”

Dues and other similar amounts paid to certain tax-exempt 

organizations may not be deductible. If certain in-house lobbying 

expenditures don't exceed $2,000, they are deductible. For 

information on contributions to charitable organizations that 

conduct lobbying activities, see section 170(f)(9).

Certain corporations engaged in farming. Section 464(d) 

limits the deduction for certain expenditures of S corporations 

engaged in farming if they use the cash method of accounting, 

and their prepaid farm supplies are more than 50% of other 

deductible farming expenses.

Prepaid farm supplies include expenses for feed, seed, 

fertilizer, and similar farm supplies not used or consumed during 

the year. They also include the cost of poultry that would be 

allowable as a deduction in a later tax year if the corporation 

were to (a) capitalize the cost of poultry bought for use in its farm 

business and deduct it ratably over the lesser of 12 months or 

the useful life of the poultry, and (b) deduct the cost of poultry 

bought for resale in the year it sells or otherwise disposes of it.

If the limit applies, the corporation can deduct prepaid farm 

supplies that don't exceed 50% of its other deductible farm 

expenses in the year of payment. The excess is deductible only 

in the year the corporation uses or consumes the supplies (other 

than poultry, which is deductible, as explained above). For 

exceptions and more details on these rules, see Pub. 225.

Reforestation expenditures. 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 20 

only the amortization of these excess reforestation expenditures. 

See Reforestation expense deduction (code O), later.

Line 22. Ordinary Business Income (Loss)

Enter this income or loss on line 1 of Schedule K. Line 22 

income is not used in figuring the excess net passive income or 

built-in gains taxes. See the instructions for line 23a for figuring 

taxable income for purposes of these taxes.

Tax and Payments

Line 23a. Excess Net Passive Income and LIFO 

Recapture Tax

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.

Excess net passive income tax. If the corporation has AE&P 

at the close of its tax year and has passive investment income for 

the tax year that is in excess of 25% of gross receipts, the 

corporation must figure its excess net passive income and pay 

tax on it. To make this determination, complete lines 1 through 3 

and line 9 of the Excess Net Passive Income Tax Worksheet for 

Line 23a. If line 2 is greater than line 3 and the corporation has 

taxable income (see the instructions for line 9 of the worksheet), 

it must pay the tax. Complete a separate statement using the 

format of lines 1 through 11 of the worksheet to figure the tax. 

Enter the tax on line 23a, page 1, Form 1120-S, and attach the 

computation statement to Form 1120-S.

Reduce each item of passive investment income passed 

through to shareholders by its portion of any excess net passive 

income tax reported on line 23a. See section 1366(f)(3).

LIFO recapture tax. The corporation may be liable for the 

additional tax due to LIFO recapture under Regulations section 

1.1363-2 if:

• The corporation used the LIFO inventory pricing method for its 

last tax year as a C corporation, or

• A C corporation transferred LIFO inventory to the corporation 

in a nonrecognition transaction in which those assets were 

transferred basis property.

The additional tax due to LIFO recapture is figured for the 

corporation's last tax year as a C corporation or for the tax year 

of the transfer, whichever applies. See the Instructions for Form 

1120 to figure the tax.

The tax is paid in four equal installments. The C corporation 

must pay the first installment by the due date (not including 

extensions) of Form 1120 for the corporation's last tax year as a 

C corporation or for the tax year of the transfer, whichever 

applies. The S corporation must pay each of the remaining 

installments by the due date (not including extensions) of Form 

1120-S for the 3 succeeding tax years. Include this year's 

Excess Net Passive Income Tax Worksheet for Line 23a Keep for Your Records

1. Enter gross receipts for the tax year (see section 

1362(d)(3)(B) for gross receipts from the sale of 

capital assets)* ..........................

6. Net passive income—Subtract line 5 from 

line 2 .................................

7. Divide amount on line 4 by amount on line 2 ...... %

2. Enter passive investment income as defined in 

section 1362(d)(3)(C)* .....................

8. Excess net passive income—Multiply line 6 by 

line 7 .................................

3. Multiply line 1 by 25% (0.25). (If line 2 is less than 

line 3, stop here. You aren't liable for this tax.) .....

9. Enter taxable income (see instructions for taxable 

income below) ..........................

4. Excess passive investment income—Subtract line 3 

from line 2 .............................

10. Enter smaller of line 8 or line 9 ................

5. Enter deductions directly connected with the 

production of the income listed on line 2 (see section 

1375(b)(2))* ............................

11. Excess net passive income tax—Multiply line 10 by 

21% (0.21). Enter here and on Form 1120-S, 

line 23a ...............................

*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form 

1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.

Line 9 of Worksheet—Taxable Income

Taxable income, for this purpose, is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form 1120, U.S. 

Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form 1120-S. You don't have to attach the 

schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120 schedules, such as Schedule D (Form 1120), if you have 

capital gains or losses.

Instructions for Form 1120-S (2023) 21
installment in the total amount to be entered on line 23a. To the 

left of the total on line 23a, enter the installment amount and 

“LIFO tax.”

Line 23b. Tax From Schedule D (Form 1120-S)

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.

Line 23c

Include the following in the total for line 23c.

Investment credit recapture tax. The corporation is liable for 

any required investment credit recapture attributable to credits 

allowed for tax years for which the corporation wasn't an S 

corporation. The corporation is also liable for any required 

qualifying therapeutic discovery project grant recapture. Figure 

the corporation's investment credit recapture tax and qualifying 

therapeutic discovery project grant recapture tax by completing 

Form 4255, Recapture of Investment Credit. See the Instructions 

for Form 4255.

To the left of the line 23c total, enter the amount of recapture 

tax and “Tax From Form 4255.” Attach Form 4255 to Form 

1120-S.

Interest due under the look-back method—Completed 

long-term contracts. If the corporation owes this interest, 

attach Form 8697, Interest Computation Under the Look-Back 

Method for Completed Long-Term Contracts. To the left of the 

total on line 23c, enter the amount owed and “From Form 8697.”

Interest due under the look-back method—Property depreciated under the income forecast method. If the corporation 

owes this interest, attach Form 8866, Interest Computation 

Under the Look-Back Method for Property Depreciated Under 

the Income Forecast Method. To the left of the total on line 23c, 

enter the amount owed and “From Form 8866.”

Line 24d. Elective Payment Election Amount 

From Form 3800

Enter the total gross elective payment election amount from 

Form 3800, Part III, line 6, column (h). See the Instructions for 

Form 3800 for more information.

Line 24z

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 24z. Enter “T” and the amount of the payment 

on the dotted line to the left of the entry space.

Line 25. Estimated Tax Penalty

If Form 2220 is attached, check the box on line 25 and enter the 

amount of any penalty on this line.

Line 26. Amount Owed

If the corporation can't pay the full amount of tax owed, it can 

apply for an installment agreement online. The corporation can 

apply for an installment agreement online if:

• It can't pay the full amount shown on line 26,

• The total amount owed is $25,000 or less, and

• The corporation can pay the liability in full in 24 months.

To apply using the Online Payment Agreement Application, 

go to IRS.gov/OPA.

Under an installment agreement, the corporation can pay 

what it owes in monthly installments. There are certain 

conditions that must be met to enter into and maintain an 

installment agreement, such as paying the liability within 24 

months and making all required deposits and timely filing tax 

returns during the length of the agreement.

If the installment agreement is accepted, the corporation will 

be charged a fee and it will be subject to penalties and interest 

on the amount of tax not paid by the due date of the return.

Line 28

Direct deposit of refund. If the corporation wants its refund 

directly deposited into its checking or savings account at any 

U.S. bank or other financial institution instead of having a check 

sent to the corporation, complete Form 8050 and attach it to the 

corporation's return.

Schedule B. Other Information

Complete all items that apply to the corporation.

Item 2

See Principal Business Activity Codes at the end of these 

instructions and enter the business activity and product or 

service. For nonstore retailers, select the PBA code by the 

primary product that your establishment sells. For example, 

establishments primarily selling prescription and 

non-prescription drugs, select PBA code 456110 Pharmacies & 

Drug Retailers.

Question 4. Constructive Ownership of Other 

Entities

For purposes of determining the corporation's constructive 

ownership of other entities, the constructive ownership rules of 

section 267(c) (excluding section 267(c)(3)) apply to ownership 

of interests in partnerships and trusts as well as corporate stock. 

Generally, if an entity (a corporation, partnership, or trust) is 

owned, directly or indirectly, by or for another entity (corporation, 

partnership, estate, or trust), the owned entity is considered to 

be owned proportionately by or for the owners (shareholders, 

partners, or beneficiaries) of the owning entity.

Maximum percentage owned in partnership profit, loss, or 

capital. For the purposes of question 4b, the term “maximum 

percentage owned” means the highest percentage of interest in 

a partnership's profit, loss, or capital as of the end of the 

partnership's tax year, as determined under the partnership 

agreement, when taking into account the constructive ownership 

rules discussed earlier. If the partnership agreement doesn't 

express the partner's share of profit, loss, and capital as fixed 

percentages, use a reasonable method in arriving at the 

percentage items for the purposes of completing question 4b. 

Such method must be consistent with the partnership 

agreement. The method used to figure a percentage share of 

profit, loss, and capital must be applied consistently from year to 

year. Maintain records to support the determination of the share 

of profits, losses, and share of capital.

Question 6

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.

Item 8

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.

22 Instructions for Form 1120-S (2023)
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 aggregate 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.

Question 9. Business Interest Expense Election

The limitation on business interest expense under section 163(j) 

applies to every taxpayer with a trade or business, unless the 

taxpayer meets certain specified exceptions. A taxpayer may 

elect out of the limitation for certain businesses otherwise 

subject to the business interest expense limitation. This is an 

irrevocable election.

Certain real property trades or businesses and farming 

businesses qualify to make an election not to limit business 

interest expense. This is an irrevocable election. If you make this 

election, you are required to use the alternative depreciation 

system to depreciate certain property. Also, you aren’t entitled to 

the special depreciation allowance for that property. For a 

taxpayer with more than one qualifying business, the election is 

made with respect to each business.

Check “Yes” if the taxpayer has an election in effect to 

exclude a real property trade or business or a farming business 

from section 163(j). For more information, see the Instructions for 

Form 8990.

Question 10. Conditions for Filing Form 8990

A taxpayer that isn’t a small business taxpayer (defined below) 

must generally file Form 8990. In addition, any taxpayer that 

owns an interest in a partnership with current year, or prior year 

carryover, excess business interest expense allocated from the 

partnership must file Form 8990.

A taxpayer who is a U.S. shareholder of an applicable CFC 

that has business interest expense, disallowed business interest 

expense carryforward, or is part of a CFC group must generally 

apply section 163(j) to each applicable CFC and attach a Form 

8990 with each Form 5471.

Exclusions from filing. A taxpayer isn’t required to file Form 

8990 if the taxpayer is a small business taxpayer and doesn’t 

have excess business interest expense from a partnership. A 

taxpayer is also not required to file Form 8990 if the taxpayer 

only has business interest expense from these excepted trades 

or businesses:

• The trade or business of providing services as an employee,

• An electing real property trade or business,

• An electing farming business, or

• Certain regulated utility businesses.

Small business taxpayer. A small business taxpayer isn’t 

subject to the business interest expense limitation and isn’t 

required to file Form 8990. A small business taxpayer is a 

taxpayer that (a) isn’t a tax shelter (as defined in section 448(d)

(3)), and (b) meets the gross receipts test of section 448(c), 

discussed next.

Gross receipts test. A taxpayer meets the gross receipts test if 

the taxpayer has average annual gross receipts of $29 million or 

less for the 3 prior tax years. A taxpayer's average annual gross 

receipts for the 3 prior tax years is determined by adding the 

gross receipts for the 3 prior tax years and dividing the total by 3. 

Gross receipts include the aggregate gross receipts from all 

persons treated as a single employer, such as a controlled group 

of corporations, commonly controlled partnerships, or 

proprietorships, and affiliated service groups. See section 448(c) 

and the Instructions for Form 8990 for additional information.

Question 11

Total receipts is the sum of the following amounts.

• Gross receipts or sales (page 1, line 1a).

• All other income (page 1, lines 4 and 5).

• Income reported on Schedule K, lines 3a, 4, 5a, and 6.

• Income or net gain reported on Schedule K, lines 7, 8a, 9, and 

10.

• Income or net gain reported on Form 8825, lines 2, 19, and 

20a.

Question 12

Amounts related to the forgiveness of PPP loans are disregarded 

for purposes of this question.

Question 13

Answer “Yes” if, during the tax year, the corporation revoked a 

qualified subchapter S subsidiary (QSub) election or a QSub 

election of the corporation was terminated. If “Yes,” see 

Regulations section 1.1361-5 for additional information.

Questions 14a and 14b

If the corporation made any payment in 2023 that would require it 

to file any Form(s) 1099, check the “Yes” box for question 14a 

and answer question 14b. Otherwise, check the “No” box for 

question 14a and skip question 14b. See Am I Required to File a 

Form 1099 or Other Information Return on IRS.gov.

Question 15

To be certified as a qualified opportunity fund, the S corporation 

must file Form 1120-S and attach Form 8996, even if the 

corporation had no income or expenses to report. If the S 

corporation is attaching Form 8996, check the “Yes” box and 

enter the amount from Form 8996, line 15, in the entry space. 

See Certification as a qualified opportunity fund, earlier.

The penalty reported on this line from Form 8996, line 15, is 

not due with the filing of this form. The IRS will separately send 

you a notice setting forth the due date for the penalty payment 

and where that payment should be sent.

Question 16

Digital assets are any digital representations of value that are 

recorded on a cryptographically secured distributed ledger or 

any similar technology. For example, digital assets include 

non-fungible tokens (NFTs) and virtual currencies, such as 

cryptocurrencies and stablecoins. If a particular asset has the 

characteristics of a digital asset, it will be treated as a digital 

asset for federal income tax purposes.

Check the “Yes” box if at any time during the tax year, the S 

corporation (a) received (as a reward, award, or payment for 

property or services); or (b) sold, exchanged, or otherwise 

disposed of a digital asset (or any financial interest in any digital 

asset).

For example, check “Yes” if at any time during the tax year, 

the S corporation:

• Received digital assets as payment for property or services 

provided;

Instructions for Form 1120-S (2023) 23
• Received digital assets as a result of a reward or award;

• Received new digital assets as a result of mining, staking, and 

similar activities;

• Received digital assets as a result of a hard fork;

• Disposed of digital assets in exchange for property or 

services;

• Disposed of a digital asset in exchange or trade for another 

digital asset;

• Sold a digital asset; or

• Otherwise disposed of any other financial interest in a digital 

asset.

The S corporation has a financial interest in a digital asset if it 

is the owner of record of a digital asset, or has an ownership 

stake in an account that holds one or more digital assets, 

including the rights and obligations to acquire a financial interest, 

or owns a wallet that holds digital assets.

The following actions or transactions in the tax year, alone, 

generally do not require the S corporation to check “Yes.”

• Holding a digital asset in a wallet or account;

• Transferring a digital asset from one wallet or account the S 

corporation owns or controls to another wallet or account that it 

owns or controls; or

• Purchasing digital assets using U.S. or other real currency, 

including through the use of electronic platforms such as PayPal 

and Venmo.

Do not leave the question unanswered. The S corporation 

must answer “Yes” or “No” by checking the appropriate box. For 

more information, go to IRS.gov/virtualcurrencyfaqs.

If the S corporation disposed of any digital asset that was 

held as a capital asset, through a sale, trade, exchange, 

payment, or other transfer, use Form 8949 to calculate the 

capital gain or loss and report that gain or loss on Schedule D 

(Form 1120-S). If the S corporation received any digital asset as 

compensation for services or disposed of any digital asset that 

was held for sale to customers in a trade or business, it must 

report the income as it would report other income of the same 

type.

Schedules K and K-1 (General 

Instructions)

Purpose of Schedules

The corporation is liable for taxes on lines 23a, 23b, and 23c on 

page 1 of Form 1120-S. 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 isn't self-employment income and isn't 

subject to self-employment tax.

Schedule K. Schedule K is a summary schedule of all 

shareholders' shares of the corporation's income, deductions, 

credits, etc. All corporations must complete Schedule K.

Schedule K-1. Schedule K-1 shows each shareholder's 

separate share. Attach a copy of each Schedule K-1 to the Form 

1120-S filed with the IRS. Keep a copy for the corporation's 

records and give each shareholder a copy.

Give each shareholder a copy of the Shareholder's 

Instructions for Schedule K-1 (Form 1120-S) or specific 

instructions for each item reported on the shareholder's 

Schedule K-1.

Substitute Forms

The corporation doesn't 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 1120-S) or 

instructions that apply to the specific items reported on the 

shareholder's Schedule K-1.

The corporation must ask for IRS approval to use other 

substitute Schedules K-1.

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 doesn't conform to the 

specifications discussed in Pub. 1167, General Rules and 

Specifications for Substitute Forms and Schedules.

For more information, see Pub. 1167.

Shareholder's Pro Rata Share Items

General Rule

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 G 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.

Special Rules

Termination of shareholder's interest. If a shareholder 

terminates shareholder’s interest in a corporation during the tax 

year, the corporation, with the consent of all affected 

shareholders (including those whose interest is terminated), may 

elect to allocate income and expenses, etc., as if the 

corporation's tax year consisted of 2 separate tax years, the first 

of which ends on the date of the shareholder's termination.

To make the election, the corporation must attach a statement 

to a timely filed original or amended Form 1120-S for the tax year 

for which the election is made. In the statement, the corporation 

must state that it is electing under section 1377(a)(2) and 

Regulations section 1.1377-1(b) to treat the tax year as if it 

consisted of 2 separate tax years. The statement must also 

explain how the shareholder's entire interest was terminated (for 

example, sale or gift), and state that the corporation and each 

affected shareholder consent to the corporation making the 

election. A single statement may be filed for all terminating 

elections made for the tax year. If the election is made, enter 

“Section 1377(a)(2) Election Made” at the top of each affected 

shareholder's Schedule K-1.

For more details, see Regulations section 1.1377-1(b).

Qualifying dispositions. If a qualifying disposition takes place 

during the tax year, the corporation may make an irrevocable 

election to allocate income and expenses, etc., as if the 

corporation's tax year consisted of 2 tax years, the first of which 

ends on the close of the day the qualifying disposition occurs.

A qualifying disposition is:

1. 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,

2. A redemption treated as an exchange under section 

302(a) or 303(a) of at least 20% of the corporation's outstanding 

24 Instructions for Form 1120-S (2023)
stock in one or more transactions in any 30-day period during the 

tax year, or

3. 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.

To make the election, the corporation must attach a statement 

to a timely filed original or amended Form 1120-S for the tax year 

for which the election is made. In the statement, the corporation 

must state that it is electing under Regulations section 

1.1368-1(g)(2)(i) to treat the tax year as if it consisted of 2 

separate tax years, give the facts relating to the qualifying 

disposition (for example, sale, gift, stock issuance, or 

redemption), and state that each shareholder who held stock in 

the corporation during the tax year consents to the election. A 

single election statement may be filed for all qualifying 

disposition elections for the tax year.

For more details, see Regulations section 1.1368-1(g)(2).

Specific Instructions (Schedule K-1 

Only)

General Information

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 1120-S is required to be filed.

How To Complete Schedule K-1

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 I). 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 the shareholder's tax return, including 

information needed to prepare state and local tax returns. Use 

10-point Helvetica Light Standard font (if possible) for all entries 

if you are typing or using a computer to complete Schedule K-1.

Codes. In boxes 10, 12, 13, and boxes 15 through 17, identify 

each item by entering a code in the left column of the entry 

space. These codes are identified in these instructions and on 

the List of Codes in the Shareholder's Instructions for 

Schedule K-1 (Form 1120-S).

Attached statements. When attaching statements to 

Schedule K-1 to report additional information to the shareholder, 

indicate there is a statement depending upon the following.

• If an amount can be input on Schedule K-1 but additional 

information is required so the shareholder can determine the 

proper reporting, enter an asterisk (*) after the code in the left 

column of the entry space.

• For items that can't be reported as a single dollar amount, 

enter the code and asterisk (*) in the left column and enter 

“STMT” in the right column to indicate that the information is 

provided on an attached statement.

• If the corporation has more coded items than the number of 

entry boxes (for example, boxes 10, 12, 13, or boxes 15 through 

17), don't enter a code or dollar amount in the last box. Instead, 

enter an asterisk (*) in the left column and enter “STMT” in the 

entry space to the right.

More than one attached statement can be placed on the 

same sheet of paper. The information included in the statement 

should be identified in alphanumeric order by box number 

followed by the letter code (if any), description, and dollar 

amount. For example: “Box 13, code J—Work opportunity 

credit—$1,000.” This can be followed with any additional 

information that the shareholder needs to determine the proper 

tax treatment of the item.

For electronically filed returns, the corporation must 

follow the instructions for attached statements as 

described in Pub. 4164 when reporting the additional 

information that may be required for each respective box. See 

Pub. 4164, Modernized e-File (MeF) Guide for Software 

Developers and Transmitters, for more information.

Special Reporting Requirements for At-Risk 

Activities

If items of income, loss, or deduction from more than one at-risk 

activity are reported on Schedule K-1, the corporation must 

provide its shareholders with separate information for each 

activity. See At-Risk Activity Reporting Requirements under 

At-Risk Limitations, earlier, for details.

Special Reporting Requirements for Corporations 

With Multiple Activities

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.

Part I. Information About the Corporation

On each Schedule K-1, enter the corporation's name, address, 

and identifying number.

Item C

If the corporation is filing its return electronically, enter “e-file.” 

Otherwise, enter the name of the IRS service center where the 

corporation will file its return. See Where To File, earlier.

Item D

Report the total number of shares issued and outstanding at the 

beginning and end of the S corporation’s tax year. An entity 

without stock, such as an LLC, should enter the number of units 

or other equivalent to S corporation stock. Round the number of 

shares to the nearest whole number (but not below zero). For 

example, round 0.6315 up to 1.

Part II. Information About the Shareholder

On each Schedule K-1, enter the shareholder's name, address, 

identifying number, and percentage of stock ownership.

Truncating recipient's identification number on Schedule K-1. The corporation can truncate a shareholder's 

identifying number on the Schedule K-1 the corporation sends to 

the shareholder. Truncation isn't allowed on the Schedule K-1 

the corporation files with the IRS. Also, the corporation can't 

truncate its own identification number on any form.

To truncate, where allowed, replace the first five digits of the 

nine-digit number with asterisks (*) or Xs (for example, an SSN 

xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For 

more information, see Regulations section 301.6109-4.

CAUTION

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Instructions for Form 1120-S (2023) 25
Items E and F

For an individual shareholder, enter the shareholder's social 

security number (SSN) or individual taxpayer identification 

number (ITIN) in item E. 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 S corporation stock is part of a decedent's estate, the 

executor of the estate should notify the S corporation of the 

name and taxpayer identification number of the decedent's 

estate. See Pub. 559 for details.

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 LLC owner's 

identifying number in item E and the LLC owner's name and 

address in item F. The LLC’s 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 isn't eligible to be an 

S corporation shareholder.

Item G

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 (current year allocation percentage). For 

example, if shareholders X and Y each owned 50% for the entire 

tax year, enter 50% in item G 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 G.

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.

• 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 G.

a b c (a × b)

% of total stock 

owned

% of tax year held % of ownership for 

the year

A 50 50 25

40 50 +20 45

B 50 50 25

40 50 +20 45

C 20 50 10 10

Total ................................. 100%

• Each shareholder's pro rata share items are generally figured 

by multiplying the Schedule K amount by the percentage in item 

G. However, if a shareholder terminated the shareholder’s 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.

Item H

Report the number of shares for purposes of allocating items of 

income, loss, or deduction at the beginning and end of the S 

corporation’s tax year. An entity without stock, such as an LLC, 

should enter the number of units or other equivalent to S 

corporation stock (including ownership percentages). Round the 

number of shares to the nearest whole number (but not below 

zero). For example, round 0.6315 up to 1.

Example. If shareholders X and Y each owned 50 shares for 

the entire tax year, enter 50 in item H for both the beginning and 

ending amounts for each shareholder. However, if A and B each 

owned 50 shares of stock for the first half of the tax year and C 

purchased 10 shares of A’s and B’s stock during the year, A’s 

and B’s beginning of tax year number of shares is 50, while C’s is 

0, and the end of tax year number of shares for A and B is 40, 

while C’s is 20.

Item I

Report the amount of debt owed by the S corporation directly to 

the shareholder as of the beginning and end of the S 

corporation’s tax year. Generally, the amount reported on 

Schedule L, line 19, Loans from shareholder, should reconcile to 

the sum of all amounts reported on Schedules K-1. Do not 

include amounts for which the shareholder is a co-borrower or 

guarantor of corporate level debt. Also do not include any 

intercompany debt.

Specific Instructions (Schedules K 

and K-1, Part III)

Income (Loss)

Reminder. Before entering income items on Schedule K or K-1, 

reduce each item of passive investment income (within the 

meaning of section 1362(d)(3)(C)) by its proportionate share of 

the net passive income tax (Form 1120-S, page 1, line 23a).

Line 1. Ordinary Business Income (Loss)

Enter the amount from Form 1120-S, page 1, line 22. Enter the 

income (loss) without reference to the shareholder's:

• Basis in the stock of the corporation and in any indebtedness 

of the corporation to the shareholders (section 1366(d)),

• At-risk limitations, and

• Passive activity limitations.

These limitations, if applicable, are determined at the 

shareholder level.

Line 1 shouldn't include rental activity income (loss) or 

portfolio income (loss).

Schedule K-1. Enter each shareholder's pro rata share of 

ordinary business income (loss) in box 1 of Schedule K-1. 

Identify on statements attached to Schedule K-1 any additional 

information the shareholder needs to correctly apply the passive 

activity limitations. For example, if the corporation has more than 

one trade or business activity, identify the amount from each 

activity. See Passive Activity Reporting Requirements, earlier.

26 Instructions for Form 1120-S (2023)
Line 2. Net Rental Real Estate Income (Loss)

Enter the net income (loss) from rental real estate activities of the 

corporation from Form 8825. Attach the form to Form 1120-S.

Schedule K-1. Enter each shareholder's pro rata share of net 

rental real estate income (loss) in box 2 of Schedule K-1. Identify 

on statements attached to Schedule K-1 any additional 

information the shareholder needs to correctly apply the passive 

activity limitations. For example, if the corporation has more than 

one rental real estate activity, identify the amount from each 

activity. Also, for example, identify certain items from any rental 

real estate activities that may be subject to the recharacterization 

rules. See Passive Activity Reporting Requirements, earlier.

Line 3. Other Net Rental Income (Loss)

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 1120-S.

Enter on line 3c the net income (loss).

See Rental Activities, earlier, and Pub. 925, for more 

information on rental activities.

Schedule K-1. Enter in box 3 of Schedule K-1 each 

shareholder's pro rata share of other net rental income (loss) 

reported on line 3c of Schedule K. Identify on statements 

attached to Schedule K-1 any additional information the 

shareholder needs to correctly apply the passive activity 

limitations. For example, if the corporation has more than one 

rental activity reported in box 3, identify the amount from each 

activity. See Passive Activity Reporting Requirements, earlier.

Portfolio Income

See Portfolio Income, earlier, for a definition of portfolio income.

Don't 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 or 

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.

Line 4. Interest Income

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.

Schedule K-1. Enter each shareholder's pro rata share of 

interest income in box 4 of Schedule K-1.

Line 5a. Ordinary Dividends

Enter only taxable ordinary dividends on line 5a, including any 

qualified dividends reported on line 5b. An S corporation that 

directly or indirectly (through pass-through entities only) owns 

(within the meaning of section 958(a)) stock in a foreign 

corporation may have income inclusions (for example, subpart F 

income and GILTI inclusions) with respect to the foreign 

corporation and, as a result, previously taxed earnings and 

profits (PTEP) in annual PTEP accounts with respect to the 

foreign corporation. Do not include ordinary dividends or 

qualified dividends received from a foreign corporation to the 

extent that they are attributable to PTEP in annual PTEP 

accounts of the S corporation with respect to the foreign 

corporation. See Notice 2019-01. The amount by which ordinary 

dividends and qualified dividends are attributable to PTEP in 

annual PTEP accounts of a person other than the S corporation 

(for example, a shareholder) is not relevant for purposes of 

determining the ordinary dividends to be entered on line 5a.

Note. An annual PTEP account of the S corporation is different 

than the shareholders’ undistributed taxable income previously 

taxed account, as discussed in the instructions to Schedule M-2, 

column (b).

Schedule K-1. Enter each shareholder's pro rata share of 

ordinary dividends in box 5a of Schedule K-1.

Line 5b. Qualified Dividends

Enter qualified dividends on line 5b. Except as provided below, 

qualified dividends are dividends received from domestic 

corporations and qualified foreign corporations. Do not include 

qualified dividends to the extent that they are attributable to 

PTEP in annual PTEP accounts of the S corporation. See Notice 

2019-01. The amount by which qualified dividends are 

attributable to PTEP in annual PTEP accounts of a person other 

than the S corporation (for example, a shareholder) is not 

relevant for purposes of determining the qualified dividends to be 

entered on line 5b.

Note. An annual PTEP account of the S corporation is different 

than the shareholders’ undistributed taxable income previously 

taxed account, as discussed in the instructions to Schedule M-2, 

column (b).

Exceptions. The following dividends aren't qualified dividends.

• 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, don't 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 isn't 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.

• 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, don't 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.

• 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.

• Dividends paid by a regulated investment company that aren't 

treated as qualified dividend income under section 854.

• Dividends paid by a real estate investment trust that aren't 

treated as qualified dividend income under section 857(c).

Instructions for Form 1120-S (2023) 27
See Pub. 550, Investment Income and Expenses, for more 

details.

Qualified foreign corporation. A foreign corporation is a 

qualified foreign corporation if it is:

1. Incorporated in a territory of the United States, or

2. 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.

If the foreign corporation doesn't meet either (1) or (2), then it 

may be treated as a qualified foreign corporation for any dividend 

paid by the corporation if the stock associated with the dividend 

paid is readily tradable on an established securities market in the 

United States.

However, qualified dividends don't include dividends paid by 

an entity that was a passive foreign investment company 

(defined in section 1297) in either the tax year of the distribution 

or the preceding tax year.

See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3, 

2006-3 I.R.B. 306, for more details.

Schedule K-1. Enter each shareholder's pro rata share of 

qualified dividends in box 5b of Schedule K-1.

If any amounts from line 5b are from foreign sources, see 

the instructions for Schedule K-2 (Form 1120-S) and 

Schedule K-3 (Form 1120-S).

Line 6. Royalties

Enter the royalties received by the corporation.

Schedule K-1. Enter each shareholder's pro rata share of 

royalties in box 6 of Schedule K-1.

Line 7. Net Short-Term Capital Gain (Loss)

Enter the gain (loss) that is portfolio income (loss) from 

Schedule D (Form 1120-S), line 7.

Schedule K-1. Enter each shareholder's pro rata share of net 

short-term capital gain (loss) in box 7 of Schedule K-1.

Line 8a. Net Long-Term Capital Gain (Loss)

Enter the gain or loss that is portfolio income (loss) from 

Schedule D (Form 1120-S), line 15.

Schedule K-1. Enter each shareholder's pro rata share of net 

long-term capital gain (loss) in box 8a of Schedule K-1.

If any gain or loss from line 7 or 15 of Schedule D is from 

the disposition of nondepreciable personal property 

used in a trade or business, it may not be treated as 

portfolio income. Instead, report it on line 10 of Schedule K and 

report each shareholder's pro rata share in box 10 of 

Schedule K-1 using code ZZ.

Line 8b. Collectibles (28%) Gain (Loss)

Figure the amount attributable to collectibles from the amount 

reported on Schedule D (Form 1120-S), 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.

CAUTION

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CAUTION

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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).

Schedule K-1. Report each shareholder's pro rata share of the 

collectibles (28%) gain (loss) in box 8b of Schedule K-1.

Line 8c. Unrecaptured Section 1250 Gain

The three types of unrecaptured section 1250 gain must be 

reported separately on an attached statement to Form 1120-S.

From the sale or exchange of the corporation's business 

assets. Figure this amount in Part III of Form 4797 for each 

section 1250 property (except property for which gain is reported 

using the installment method on Form 6252) for which you had 

an entry in Part I of Form 4797. Subtract line 26g of Form 4797 

from the smaller of line 22 or line 24. Figure the total of these 

amounts for all section 1250 properties. Generally, the result is 

the corporation's unrecaptured section 1250 gain. However, if 

the corporation is reporting gain on the installment method for a 

section 1250 property held more than 1 year, see the next 

paragraph.

The total unrecaptured section 1250 gain for an installment 

sale of section 1250 property held more than 1 year is figured in 

a manner similar to that used in the preceding paragraph. 

However, the total unrecaptured section 1250 gain must be 

allocated to the installment payments received from the sale. To 

do so, the corporation must generally treat the gain allocable to 

each installment payment as unrecaptured section 1250 gain 

until all such gain has been used in full. Figure the unrecaptured 

section 1250 gain for installment payments received during the 

tax year as the smaller of (a) the amount from line 26 or line 37 of 

Form 6252 (whichever applies), or (b) the total unrecaptured 

section 1250 gain for the sale reduced by all gain reported in 

prior years (excluding section 1250 ordinary income recapture).

If the corporation chose not to treat all of the gain from 

payments received after May 6, 1997, and before August 

24, 1999, as unrecaptured section 1250 gain, use only 

the amount the corporation chose to treat as unrecaptured 

section 1250 gain for those payments to reduce the total 

unrecaptured section 1250 gain remaining to be reported for the 

sale. See Regulations section 1.453-12.

From the sale or exchange of an interest in a partnership. 

Also report as a separate amount any gain from the sale or 

exchange of an interest in a partnership attributable to 

unrecaptured section 1250 gain. See Regulations section 

1.1(h)-1 and attach the statement required under Regulations 

section 1.1(h)-1(e).

From an estate, trust, REIT, or RIC. If the corporation received 

a Schedule K-1 or Form 1099-DIV from an estate, a trust, a real 

estate investment trust (REIT), or a regulated investment 

company (RIC) reporting “unrecaptured section 1250 gain,” don't 

add it to the corporation's own unrecaptured section 1250 gain. 

Instead, report it as a separate amount. For example, if the 

corporation received a Form 1099-DIV from a REIT with 

unrecaptured section 1250 gain, report it as “Unrecaptured 

section 1250 gain from a REIT.”

Schedule K-1. Report each shareholder's pro rata share of 

unrecaptured section 1250 gain from the sale or exchange of the 

corporation's business assets in box 8c of Schedule K-1. If the 

corporation is reporting unrecaptured section 1250 gain from an 

CAUTION

!

28 Instructions for Form 1120-S (2023)
estate, trust, REIT, or RIC, or from the corporation's sale or 

exchange of an interest in a partnership (as explained above), 

enter “STMT” in box 8c and an asterisk (*) in the left column of 

the box and attach a statement that separately identifies the 

amount of unrecaptured section 1250 gain from:

• The sale or exchange of the corporation's business assets;

• The sale or exchange of an interest in a partnership; and

• An estate, trust, REIT, or RIC.

If any amounts from line 8c are from foreign sources, see 

the instructions for Schedule K-2 (Form 1120-S) and 

Schedule K-3 (Form 1120-S).

Line 9. Net Section 1231 Gain (Loss)

Enter the net section 1231 gain (loss) from Form 4797, line 7.

Don't 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.

Schedule K-1. Report each shareholder's pro rata share of net 

section 1231 gain (loss) in box 9 of Schedule K-1. If the 

corporation has more than one rental, trade, or business activity, 

identify on an attachment to Schedule K-1 the amount of section 

1231 gain (loss) from each separate activity. See Passive Activity 

Reporting Requirements, earlier.

If any amounts from line 9 are from foreign sources, see 

the instructions for Schedule K-2 (Form 1120-S) and 

Schedule K-3 (Form 1120-S).

Line 10. Other Income (Loss)

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 1120-S 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.

Other portfolio income (loss) (code A). Portfolio income not 

reported on lines 4 through 8.

Report and identify other portfolio income or loss on an 

attachment for line 10.

If the corporation holds a residual interest in a Real Estate 

Mortgage Investment Conduit (REMIC), report on an attachment 

the shareholder's share of the following.

• Taxable income (net loss) from the REMIC (line 1b of 

Schedules Q (Form 1066)).

• Excess inclusion (line 2c of Schedules Q (Form 1066)).

• Section 212 expenses (line 3b of Schedules Q (Form 1066)).

Because Schedule Q (Form 1066) is a quarterly statement, 

the corporation must follow the Schedule Q instructions to figure 

the amounts to report to shareholders for the corporation's tax 

year.

Involuntary conversions (code B). Report net loss from 

involuntary conversions due to casualty or theft. The amount for 

this item is shown on Form 4684, Casualties and Thefts, line 38a 

or 38b.

Each shareholder's pro rata share must be entered on 

Schedule K-1.

Enter the net gain from involuntary conversions of property 

used in a trade or business (line 39 of Form 4684) on line 3 of 

Form 4797.

CAUTION

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CAUTION

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If there was a gain (loss) from a casualty or theft to property 

not used in a trade or business or for income-producing 

purposes, notify the shareholder. The corporation shouldn't 

complete Form 4684 for this type of casualty or theft. Instead, 

each shareholder will complete the shareholder's own Form 

4684.

Section 1256 contracts and straddles (code C). Report any 

net gain or loss from section 1256 contracts from Form 6781, 

Gains and Losses From Section 1256 Contracts and Straddles.

Mining exploration costs recapture (code D). Provide the 

information shareholders need to recapture certain mining 

exploration expenditures. See Regulations section 1.617-3.

Section 951A(a) income inclusions (code E). If the S 

corporation elected to be treated as owning stock of a CFC 

within the meaning of section 958(a) under Proposed 

Regulations section 1.958-1(e)(2), and the S corporation is a 

U.S. shareholder of a CFC, then the S corporation determines its 

section 951A inclusion amount. Report the corporation's section 

951A inclusion and its shareholders' pro rata shares of the 

section 951A inclusions using code E. See Form 8992, Part II, 

line 5.

Provide information on line 10 using code E only if the 

corporation (and its shareholders, if applicable) has 

elected to be treated as owning stock of a foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2). If no election has 

been made, see instructions for Part V of the Schedule K-2 

(Form 1120-S).

Inclusions of subpart F income (code F). The S corporation 

should report its subpart F income inclusions and its 

shareholders’ pro rata shares of its subpart F income inclusions. 

An S corporation does not have subpart F income inclusions with 

respect to a foreign corporation for tax years of the foreign 

corporation beginning on or after January 25, 2022, under 

Regulations section 1.958-1(d)(1) if the S corporation did not 

make an election to be treated as owning stock of the foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2). An S corporation 

does not have subpart F income inclusions with respect to a 

foreign corporation for tax years of the foreign corporation 

beginning before January 25, 2022, if the S corporation did not 

make an election to be treated as owning stock of a foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2) and, pursuant to 

Regulations section 1.958-1(d)(4)(i), applies Regulations section 

1.958-1(d)(1) through (3) to such tax years.

Section 951(a)(1)(B) inclusions (code G). The S corporation 

should report its section 951(a)(1)(B) inclusions and its 

shareholders’ pro rata shares of its section 951(a)(1)(B) 

inclusions. An S corporation does not have section 951(a)(1)(B) 

inclusions with respect to a foreign corporation for tax years of 

the foreign corporation beginning on or after January 25, 2022, 

under Regulations section 1.958-1(d)(1) if the S corporation did 

not make an election to be treated as owning stock of the foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2). An S corporation 

does not have section 951(a)(1)(B) inclusions with respect to a 

foreign corporation for tax years of the foreign corporation 

beginning before January 25, 2022, if the S corporation did not 

make an election to be treated as owning stock of a foreign 

corporation within the meaning of section 958(a) under 

Proposed Regulations section 1.958-1(e)(2) and, pursuant to 

Regulations section 1.958-1(d)(4)(i), applies Regulations section 

1.958-1(d)(1) through (3) to such tax years.

CAUTION

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Instructions for Form 1120-S (2023) 29
If the corporation does not have subpart F income 

inclusions or section 951(a)(1)(B) inclusions with respect 

to a foreign corporation, stock of which it owns within the 

meaning of section 958(a) and without regard to Regulations 

section 1.958-1(d), see instructions for Part V of the 

Schedule K-2 (Form 1120-S) for reporting of information related 

to subpart F income inclusions and section 951(a)(1)(B) 

inclusions of shareholders with respect to the foreign 

corporation.

Code H. Reserved for future use.

Gain (loss) from disposition of oil, gas, geothermal, or other mineral properties (code I). 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.

Recoveries of tax benefit items (code J). Recoveries of tax 

benefit items (section 111).

Gambling gains and losses (code K). 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.

Code L. Reserved for future use.

Gain eligible for section 1045 rollover (replacement stock 

purchased by the corporation) (code M). Include only gain 

from the sale or exchange of 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 they qualify 

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.

Gain eligible for section 1045 rollover (replacement stock 

not purchased by the corporation) (code N). Include only 

gain from the sale or exchange of QSB stock (as defined in the 

Instructions for Schedule D) the corporation held for more than 6 

months but that wasn't deferred by the corporation under section 

1045. See the Instructions for Schedule D for more details. A 

shareholder may be eligible to defer the shareholder’s pro rata 

share of this gain under section 1045 if the shareholder 

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.

Sale or exchange of QSB stock with section 1202 exclusion 

(code O). 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 

CAUTION

!

the shareholder level. Report each shareholder's share of 

section 1202 gain on Schedule K-1. Each shareholder will 

determine if they qualify 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.

Codes P through R. Reserved for future use.

Non-portfolio capital gain (loss) (code S). Any gain or loss 

from line 7 or 15 of Schedule D that isn't portfolio income (for 

example, gain or loss from the disposition of nondepreciable 

personal property used in a trade or business).

Codes T through X. Reserved for future use.

Other income (loss) (code ZZ). Include any other type of 

income (loss) not reported using codes A through S.

Schedule K-1. Enter each shareholder's pro rata share of the 

other income categories listed above in box 10 of Schedule K-1. 

Enter the applicable code A through ZZ (as shown earlier).

If you are reporting each shareholder's pro rata share of only 

one type of income under code ZZ, enter the code with an 

asterisk (ZZ*) and the dollar amount in the entry space in box 10 

and attach a statement that shows “Box 10, code ZZ,” and the 

type of income. If you are reporting multiple types of income 

under code ZZ, enter the code with an asterisk (ZZ*) and enter 

“STMT” in the entry space in box 10 and attach a statement that 

shows “Box 10, code ZZ,” and the dollar amount of each type of 

income.

If the corporation has more than one trade or business or 

rental activity (for codes B through ZZ), identify on an attachment 

to Schedule K-1 the amount from each separate activity. See 

Passive Activity Reporting Requirements, earlier.

Deductions

Line 11. Section 179 Deduction

A corporation can elect to expense part or all 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 doesn't take 

the deduction itself, but instead passes it through to the 

shareholders. Attach Form 4562 to Form 1120-S and show the 

total section 179 expense deduction on Schedule K, line 11.

Although the corporation can't take the section 179 

deduction, it must generally 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 doesn't reduce the basis for any section 179 

deduction allocable to a trust or estate because they aren't 

eligible to take the section 179 deduction. See Regulations 

section 1.179-1(f).

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.

Schedule K-1. Report each shareholder's pro rata share of the 

section 179 expense deduction in box 11 of Schedule K-1.

30 Instructions for Form 1120-S (2023)
If the corporation has more than one rental, trade, or business 

activity, identify on an attachment to Schedule K-1 the amount of 

section 179 deduction from each separate activity. See Passive 

Activity Reporting Requirements, earlier.

Don't complete box 11 of Schedule K-1 for any shareholder 

that is an estate or trust; estates and trusts aren't eligible for the 

section 179 expense deduction.

Line 12a. Charitable Contributions

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 or states that no goods or 

services were provided. 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. Don't 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 1120-S 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.

Cash contributions (60%) (code A). Enter cash contributions 

subject to the 60% AGI limitation.

Cash contributions (30%) (code B). Enter cash contributions 

subject to the 30% AGI limitation.

Noncash contributions (50%) (code C). Enter noncash 

contributions subject to the 50% AGI limitation. Don't include 

food inventory contributions reported separately on an attached 

statement.

Food inventory contributions. Provide the following 

information on a statement attached to Schedule K-1.

• 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 half of the appreciation (gain if the donated 

food were sold at fair market value (FMV) on the date of the gift), 

or (b) twice the basis of the donated food. The aggregate 

amount of such contributions shall not exceed 15% of the 

taxpayer's aggregate net income from all trades or businesses 

from which such contributions were made. A corporation that 

doesn’t account for inventories and isn’t required to capitalize 

indirect costs under section 263A may elect to treat the basis of 

the donated food as equal to 25% of the FMV of the food. See 

section 170(e)(3)(C) for more details.

• 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.

Qualified conservation contributions. The AGI limit for 

qualified conservation contributions under section 170(h) is 

generally 50%. However, if the corporation is a qualified farmer 

or rancher (farm income is more than 50% of gross income), the 

AGI limit for qualified conservation contributions of property used 

in agriculture or livestock production (or available for such 

production) is 100%. The carryover period is 15 tax years. See 

section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for 

details. Report qualified conservation contributions with a 50% 

AGI limitation on Schedule K-1 in box 12 using code C. Report 

qualified conservation contributions with a 100% AGI limitation 

on a statement attached to Schedule K-1 using code G. See 

Contributions of property, later, for special rules applicable to 

qualified conservation contributions.

Noncash contributions (30%) (code D). Enter noncash 

contributions subject to the 30% AGI limitation.

Capital gain property to a 50% limit organization (30%) 

(code E). Enter capital gain property contributions subject to 

the 30% AGI limitation.

Capital gain property (20%) (code F). Enter capital gain 

property contributions subject to the 20% AGI limitation.

Contributions of property. See Contributions of Property in 

Pub. 526 and Pub. 561, Determining the Value of Donated 

Property, for information on noncash contributions and 

contributions of capital gain property. If the deduction claimed for 

noncash contributions exceeds $500, complete Form 8283 and 

attach it to Form 1120-S.

Shareholders may deduct their pro rata share of the FMV of 

property contributions, but will only need to adjust their stock 

basis by their pro rata share of the property's adjusted basis. 

Give each shareholder a statement identifying their pro rata 

share of both the FMV and adjusted basis of the property.

If the corporation made a qualified conservation contribution 

under section 170(h), also include the FMV of the underlying 

property before and after the donation, as well as the type of 

legal interest contributed, and describe the conservation 

purpose furthered by the donation. Give a copy of this 

information to each shareholder.

If the corporation made a qualified conservation contribution 

for the preservation of an historic building, there are additional 

requirements that may apply to obtain a charitable deduction. 

This charitable deduction may be reduced if rehabilitation credits 

were claimed for the historic building. This charitable deduction 

may be denied if the corporation does not comply with section 

170(f)(19). A $500 filing fee may apply to certain deductions over 

$10,000. See the Instructions for Form 8283 and Pub. 526 for 

details.

A corporation's charitable conservation contribution (or a 

corporation's distributive share of a charitable conservation 

contribution from a lower-tier partnership) is not treated as a 

qualified conservation contribution if the amount of such 

contribution (or such distributive share) exceeds 2.5 times the 

sum of each shareholder's relevant basis in the corporation. In 

an attachment to each Schedule K-1 issued to a shareholder, 

report the shareholder's relevant basis allocable to the portion of 

the real property or historic building on which the qualified 

conservation contribution was made. The corporation should 

coordinate with each shareholder in calculating relevant basis. 

See Qualified Conservation Contribution in Pub. 526 and 

Disallowance of Conservation Contribution deductions by certain 

pass-through entities in the Instructions for Form 8283.

Nondeductible contributions. Certain contributions made to 

an organization conducting lobbying activities aren't deductible. 

See section 170(f)(9) for more details. Also see Contributions 

You Can’t Deduct in Pub. 526 for more examples of 

nondeductible contributions.

Instructions for Form 1120-S (2023) 31
An accrual basis S corporation can't elect to treat a 

contribution as having been paid in the tax year the 

board of directors authorizes the payment if the 

contribution isn't actually paid until the next tax year.

Contributions (100%) (code G). If the corporation is a 

qualified farmer or rancher (farm income is more than 50% of 

gross income), attach a statement to Schedule K-1 that shows 

the shareholder's pro rata share of qualified conservation 

contributions of property used in agriculture or livestock 

production (or available for such production). Don’t include these 

contributions in the amounts reported in box 12 of Schedule K-1 

because shareholders must separately determine if they qualify 

for the 50% or 100% AGI limitation for these contributions. The 

contribution must be subject to a restriction that the property 

remain available for such production. See section 170(b) for 

details.

Schedule K-1. Report each shareholder's pro rata share of 

charitable contributions in box 12 of Schedule K-1 using codes A 

through G for each of the contribution categories shown earlier. 

See Contributions of property, earlier, for information on 

statements you may be required to attach to Schedule K-1. The 

corporation must attach a copy of its Form 8283 to the 

Schedule K-1 of each shareholder receiving an allocation of the 

contribution deduction shown in Section A or Section B of its 

Form 8283.

Line 12b. Investment Interest Expense

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 doesn't 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).

Schedule K-1. Report each shareholder's pro rata share of 

investment interest expense in box 12 of Schedule K-1 using 

code H.

Line 12c. Section 59(e)(2) Expenditures

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.

• Circulation expenditures.

• Research and experimental expenditures.

• Intangible drilling and development costs.

• Mining exploration and development costs.

CAUTION

!

If a shareholder makes the election, these items aren't treated 

as alternative minimum tax (AMT) tax preference items.

Because the shareholders make this election, the corporation 

can't 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 the dotted line to the left of the entry space for line 12c, 

enter the type of expenditures claimed on line 12c. Enter on 

line 12c 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.

Schedule K-1. Report each shareholder's pro rata share of 

section 59(e) expenditures in box 12 of Schedule K-1 using 

code J. Identify the following information on an attached 

statement.

• The type of expenditure.

• The property for which the expenditures are paid or incurred.

• For oil and gas properties only, the month in which intangible 

drilling costs and development costs were paid or incurred.

If there is more than one type of expenditure or the 

expenditures are for more than one property, provide each 

shareholder's pro rata share of the amounts (and the months 

paid or incurred for oil and gas properties) for each type of 

expenditure separately for each property.

Line 12d. Other Deductions

Enter deductions not included on line 11, 12a, 12b, 12c, or 16f. 

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 1120-S 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.

Deductions—Royalty income (code I). Enter deductions 

related to royalty income.

Code K. Reserved for future use.

Deductions—Portfolio income (other) (code L). Enter any 

other deductions related to portfolio income.

No deduction is allowed under section 212 for expenses 

allocable to a convention, seminar, or similar meeting. Because 

these expenses aren't deductible by shareholders, the 

corporation doesn't report these expenses on line 12d of 

Schedule K. The expenses are nondeductible and are reported 

as such on line 16c of Schedule K and in box 16 of Schedule K-1 

using code C.

Preproductive period expenses (code M). If the corporation 

is required to use an accrual method of accounting under section 

448(a)(3), it must capitalize these expenses. If the corporation is 

permitted to use the cash method, enter the amount of 

preproductive period expenses that qualify under section 

263A(d). An election not to capitalize these expenses must be 

made at the shareholder level. See Uniform Capitalization Rules 

in Pub. 225.

32 Instructions for Form 1120-S (2023)
Code N. Reserved for future use.

Reforestation expense deduction (code O). The corporation 

can elect to deduct a limited amount of its reforestation 

expenditures paid or incurred during the tax year. The amount 

the corporation can elect to deduct is limited to $10,000 for each 

qualified timber property. See section 194(c) for a definition of 

reforestation expenditures and qualified timber property. See 

Notice 2006-47, 2006-20 I.R.B. 892, for details on making the 

election. The corporation must amortize over 84 months any 

amount not deducted. See Reforestation expenditures, earlier.

Schedule K-1. 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.

Codes P through V. Reserved for future use.

Soil and water conservation (code W). Enter amounts for soil 

and water conservation expenditures, and endangered species 

recovery expenditures. See Pub. 225.

Film, television, and theatrical production expenditures 

(code X). Film, television, and live theatrical production 

expenses. The corporation can elect to deduct certain costs of a 

qualified film, television, or live theatrical production 

commencing before January 1, 2026 (after December 31, 2015, 

and before January 1, 2026, for a live theatrical production), 

limited to $15 million of the aggregate production cost of the 

production. There is a higher dollar limitation for productions in 

certain areas. A live theatrical performance commences on the 

date of its first public performance for a paying audience. Provide 

a description of the film, television, or live theatrical production 

on an attached statement. If the corporation makes the election 

for more than one 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.

Expenditures for removal of barriers (code Y). Enter 

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.

Itemized deductions (code Z). Enter 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 aren't limited to, expenses under section 212 for the 

production of income other than from the corporation's trade or 

business. However, don't enter expenses related to portfolio 

income or investment interest expense reported on line 12b of 

Schedule K on this line.

Contributions to a capital construction fund (CCF) (code 

AA). Enter amount of contributions made to a capital 

construction fund. See Pub. 595, Capital Construction Fund for 

Commercial Fishermen.

Penalty on early withdrawal of savings (code AB). Enter 

any penalty on early withdrawal of savings because the 

corporation withdrew funds from its time savings deposit before 

its maturity.

Interest expense allocated to debt financed distributions 

(code AC). Enter interest expense allocated to debt-financed 

distributions. See Notice 89-35, 1989-1 C.B. 675 for more 

information.

Codes AD through AJ. Reserved for future use.

Other deductions (code ZZ). Include any other deductions not 

reported using codes A through AC.

Schedule K-1. Enter each shareholder's pro rata share of the 

deduction categories listed above in box 12 of Schedule K-1 or 

provide the required information on an attached statement. Enter 

the applicable code shown above.

If you are reporting only one type of deduction under code 

ZZ, enter code ZZ with an asterisk (ZZ*) and the dollar amount in 

the entry space in box 12 and attach a statement that shows the 

box number, code, and type of deduction. If you are reporting 

multiple types of deductions under code ZZ, enter the code with 

an asterisk (ZZ*), enter “STMT” in the dollar amount entry space 

in box 12, and attach a statement that shows the box number, 

code, and dollar amount of each type of deduction.

If the corporation has more than one trade or business 

activity, identify on an attachment to Schedule K-1 the amount 

for each separate activity. See Passive Activity Reporting 

Requirements, earlier.

Credits

Low-Income Housing Credit

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. Don't attach 

Form 8609 to Form 1120-S. Complete and attach Form 8586, 

Low-Income Housing Credit, and Form 8609-A, Annual 

Statement for Low-Income Housing Credit, to Form 1120-S.

Line 13a. Low-Income Housing Credit (Section 

42(j)(5))

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 C.

Schedule K-1. Report in box 13 of Schedule K-1 each 

shareholder's pro rata share of the low-income housing credit 

reported on line 13a of Schedule K. Use code C to report the 

portion of the credit attributable to buildings placed in service 

after 2007. If the corporation has credits from more than one 

activity, identify on an attachment to Schedule K-1 the amount 

for each separate activity. See Passive Activity Reporting 

Requirements, earlier.

Line 13b. Low-Income Housing Credit (Other)

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 D.

Schedule K-1. Report in box 13 of Schedule K-1 each 

shareholder's pro rata share of the low-income housing credit 

reported on line 13b of Schedule K. Use code D to report the 

portion of the credit attributable to buildings placed in service 

after 2007. If the corporation has credits from more than one 

rental activity, identify on an attachment to Schedule K-1 the 

amount for each separate activity. See Passive Activity Reporting 

Requirements, earlier.

Instructions for Form 1120-S (2023) 33
Line 13c. Qualified Rehabilitation Expenditures 

(Rental Real Estate)

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.

Schedule K-1. Report each shareholder's pro rata share of 

qualified rehabilitation expenditures related to rental real estate 

activities in box 13 of Schedule K-1 using code E. 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 in Part VII of Form 3468, Investment Credit. See the 

Instructions for Form 3468 for details. If the corporation has 

expenditures from more than one rental real estate activity, 

identify on an attachment to Schedule K-1 the information and 

amounts for each separate activity. See Passive Activity 

Reporting Requirements, earlier.

Qualified rehabilitation expenditures for property not 

related to rental real estate activities must be reported in 

box 17 using code C.

Line 13d. Other Rental Real Estate Credits

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 1120-S that identifies the type and amount 

for each credit. These credits may include any type of credit 

listed in the instructions for line 13g.

Schedule K-1. Report in box 13 of Schedule K-1 each 

shareholder's pro rata share of other rental real estate credits 

using code F. If you are reporting each shareholder's pro rata 

share of only one type of rental real estate credit under code F, 

enter the code with an asterisk (F*) and the dollar amount in the 

entry space in box 13 and attach a statement that shows “Box 

13, code F” and the type of credit. If you are reporting multiple 

types of rental real estate credit under code F, enter the code 

with an asterisk (F*) and enter “STMT” in the entry space in 

box 13 and attach a statement that shows “Box 13, code F” and 

the dollar amount of each type of credit. If the corporation has 

credits from more than one rental real estate activity, identify on 

the attached statement the amount of each type of credit for 

each separate activity. See Passive Activity Reporting 

Requirements, earlier.

Line 13e. Other Rental Credits

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 1120-S that identifies the type and amount for each 

credit. These credits may include any type of credit listed in the 

instructions for line 13g.

Schedule K-1. Report in box 13 of Schedule K-1 each 

shareholder's pro rata share of other rental credits using code 

G. If you are reporting each shareholder's pro rata share of only 

one type of rental credit under code G, enter the code with an 

asterisk (G*) and the dollar amount in the entry space in box 13 

and attach a statement that shows “Box 13, code G” and the 

type of credit. If you are reporting multiple types of rental credit 

under code G, enter the code with an asterisk (G*) and enter 

“STMT” in the entry space in box 13 and attach a statement that 

CAUTION

!

shows “Box 13, code G” and the dollar amount of each type of 

credit. If the corporation has credits from more than one rental 

activity, identify on the attached statement the amount of each 

type of credit for each separate activity. See Passive Activity 

Reporting Requirements, earlier.

Line 13f. Biofuel Producer Credit

Enter on line 13f any biofuel producer 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, if applicable. Attach it to 

Form 1120-S. Include any amount shown on line 2 of Form 6478 

in the corporation's income on line 5 of Form 1120-S.

See section 40(f) for an election the corporation can make to 

have the credit not apply.

Schedule K-1. Report in box 13 of Schedule K-1 each 

shareholder's pro rata share of the biofuel producer credit 

reported on line 13f using code I. If the corporation has credits 

from more than one activity, identify on an attachment to 

Schedule K-1 the amount for each separate activity. See Passive 

Activity Reporting Requirements, earlier.

Line 13g. Other Credits

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 24c 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 1120-S 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.

Zero-emission nuclear power production credit (code A). 

Complete Form 7213, Nuclear Power Production Credit, Part II, 

to figure the credit. Attach it to Form 1120-S.

Production from advanced nuclear power facilities credit 

(code B). Complete Form 7213, Part I, to figure the credit. 

Attach it to Form 1120-S.

Undistributed capital gains credit (code H). This credit 

represents taxes paid on undistributed capital gains by a 

regulated investment company (RIC) or a real estate investment 

trust (REIT). As a shareholder of a RIC or REIT, the corporation 

will receive notice of the amount of tax paid on undistributed 

capital gains on Form 2439, Notice to Shareholder of 

Undistributed Long-Term Capital Gains.

Work opportunity credit (code J). Complete Form 5884 to 

figure the credit. Attach it to Form 1120-S.

Disabled access credit (code K). Complete Form 8826 to 

figure the credit. Attach it to Form 1120-S.

Empowerment zone employment credit (code L). Complete 

Form 8844 to figure the credit. Attach it to Form 1120-S.

Credit for increasing research activities (code M). 

Complete Form 6765 to figure the credit. Attach it to Form 

1120-S. For more information, see the Instructions for Form 

6765.

34 Instructions for Form 1120-S (2023)
The corporation should provide the information 

necessary for the shareholder to determine whether the 

corporation is an eligible small business under section 

38(c)(5)(A). If the shareholder and the corporation meet the 

requirements of section 38(c)(5)(A), the research credit may be 

treated as a specified credit.

Credit for employer social security and Medicare taxes 

paid on certain employee tips (code N). Complete Form 

8846 to figure the credit. Attach it to Form 1120-S.

Backup withholding (code O). This credit is for backup 

withholding on dividends, interest, and other types of income of 

the corporation.

Unused investment credit from the qualifying advanced 

coal project credit or qualifying gasification project credit 

allocated from cooperatives (code P). See the Instructions 

for Form 3468.

Unused investment credit from the qualifying advanced energy project credit allocated from cooperatives (code Q). 

See the Instructions for Form 3468.

Unused investment credit from the advanced manufacturing investment credit allocated from cooperatives (code 

R). See the Instructions for Form 3468.

Code S. Reserved for future use.

Unused investment credit from the energy credit allocated 

from cooperatives (code T). See the Instructions for Form 

3468.

Unused investment credit from the rehabilitation credit allocated from cooperatives (code U). See the Instructions for 

Form 3468.

Advanced manufacturing production credit (code V). 

Complete Form 7207, Advanced Manufacturing Production 

Credit, to figure the credit. Attach it to Form 1120-S.

Codes W and X. Reserved for future use.

Clean hydrogen production credit (code Y). Complete Form 

7210, Clean Hydrogen Production Credit, to figure the credit. 

Attach it to Form 1120-S.

Orphan drug credit (code Z). Complete Form 8820, Orphan 

Drug Credit, to figure the credit. Attach it to Form 1120-S.

Enhanced oil recovery credit (code AA). Complete Form 

8830, Enhanced Oil Recovery Credit, to figure the credit. Attach 

it to Form 1120-S.

Renewable electricity production credit (code AB). 

Complete Form 8835, Renewable Electricity Production Credit, if 

applicable. Attach a statement to Form 1120-S and 

Schedule K-1 showing the allocation of the credit for production 

during the 4-year period beginning on the date the facility was 

placed in service and for production after that period.

Biodiesel, renewable diesel, or sustainable aviation fuels 

credit (code AC). Complete Form 8864, Biodiesel, Renewable 

Diesel, or Sustainable Aviation Fuels Credit. Include any amount 

from line 10 of Form 8864 in the corporation's income on line 5 of 

Form 1120-S. 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. Also report separately on 

an attached statement the amount of any sustainable aviation 

fuel credit.

TIP

New markets credit (code AD). Complete Form 8874, New 

Markets Credit.

Credit for small employer pension plan startup costs (code 

AE). Complete Form 8881, Credit for Small Employer Pension 

Plan Startup Costs, Auto-Enrollment, and Military Spouse 

Participation, Part I.

Credit for small employer auto-enrollment (code AF). 

Complete Form 8881, Part II.

Credit for military spouse participation (code AG). 

Complete Form 8881, Part III.

Credit for employer-provided childcare facilities and services (code AH). Complete Form 8882, Credit for 

Employer-Provided Childcare Facilities and Services.

Low sulfur diesel fuel production credit (code AI). 

Complete Form 8896, Low Sulfur Diesel Fuel Production Credit.

Qualified railroad track maintenance credit (code AJ). 

Complete Form 8900, Qualified Railroad Track Maintenance 

Credit.

Credit for oil and gas production from marginal wells (code 

AK). Complete Form 8904, Credit for Oil and Gas Production 

From Marginal Wells, if applicable.

Distilled spirits credit (code AL). Complete Form 8906, 

Distilled Spirits Credit.

Energy efficient home credit (code AM). Complete Form 

8908, Energy Efficient Home Credit.

Alternative motor vehicle credit (code AN). Complete Form 

8910, Alternative Motor Vehicle Credit, if applicable.

Alternative fuel vehicle refueling property credit (code AO). 

Complete Form 8911, Alternative Fuel Vehicle Refueling 

Property Credit.

Clean renewable energy bond credit (code AP). The 

amount of this credit (excluding any credits from partnerships, 

estates, and trusts) is reported as interest income on line 4 of 

Schedule K. In addition, the amount of this credit is reported on 

line 16d of Schedule K. See the Instructions for Form 8912.

New clean renewable energy bond credit (code AQ). The 

amount of this credit (excluding any credits from partnerships, 

estates, and trusts) is reported as interest income on line 4 of 

Schedule K. In addition, the amount of this credit is reported as a 

property distribution on line 16d of Schedule K. See the 

Instructions for Form 8912.

Qualified energy conservation bond credit (code AR). The 

amount of this credit (excluding any credits from partnerships, 

estates, and trusts) is reported as interest income on line 4 of 

Schedule K. In addition, the amount of this credit is reported as a 

property distribution on line 16d of Schedule K. See the 

Instructions for Form 8912.

Qualified zone academy bond credit (code AS). The amount 

of this credit (excluding any credits from partnerships, estates, 

and trusts) is reported as interest income on line 4 of 

Schedule K. In addition, the amount of this credit is reported on 

line 16d of Schedule K. See the Instructions for Form 8912.

Qualified school construction bond credit (code AT). The 

amount of this credit (excluding any credits from partnerships, 

estates, and trusts) is reported as interest income on line 4 of 

Schedule K. In addition, the amount of this credit is reported as a 

property distribution on line 16d of Schedule K. See the 

Instructions for Form 8912.

Build America bond credit (code AU). The amount of this 

credit (excluding any credits from partnerships, estates, and 

trusts) is reported as interest income on line 4 of Schedule K. In 

Instructions for Form 1120-S (2023) 35
addition, the amount of this credit is reported as a property 

distribution on line 16d of Schedule K. See the Instructions for 

Form 8912.

Credit for employer differential wage payments (code AV). 

Complete Form 8932, Credit for Employer Differential Wage 

Payments.

Carbon oxide sequestration credit (code AW). Complete 

Form 8933, Carbon Oxide Sequestration Credit, to figure the 

credit. Attach it to Form 1120-S.

Carbon oxide sequestration credit recapture (code AX). 

Complete Form 8933 to figure the credit recapture. Attach it to 

Form 1120-S. Report the carbon oxide sequestration credit 

recapture amount from Form 8933, line 22.

New clean vehicle credit (code AY). Complete Form 8936, 

Clean Vehicle Credits, Part II.

Qualified commercial clean vehicle credit (code AZ). 

Complete Form 8936, Part V.

Credit for small employer health insurance premiums 

(code BA). Complete Form 8941, Credit for Small Employer 

Health Insurance Premiums.

Employer credit for paid family and medical leave (code 

BB). Complete Form 8994, Employer Credit for Paid Family and 

Medical Leave.

Eligible credits from transferor(s) under section 6418 

(code BC). Enter the total amount of eligible credits received 

from transferor(s) included in Part III, line 6, column (g), of your 

Form 3800. Also, enter the total of the shareholder’s pro rata 

share of all eligible credits received from transferor(s) that were 

received from another pass-through entity. See required 

statement below.

Partnership and S corporation pass-through entities that 

transferred eligible credits from an unrelated person for 

cash under section 6418 must use Form 3800, Part III 

and Part V (if applicable), to report such credits. See the 

Instructions for Form 3800 for reporting and other requirements.

Schedule K-1. Enter the shareholder’s pro rata share of all 

eligible credits transferred from one or more unrelated 

transferors pursuant to a transfer election under section 6418. 

This amount must include the shareholder’s pro rata share of all 

eligible credits from transferors that were received from another 

pass-through entity. Enter the code BC and an asterisk (*) (BC*) 

in the left column and enter “STMT” in the entry space to the 

right. Attach a statement that contains the following information 

for each purchased credit.

Attached statement. Attach a statement to Schedule K-1 

that provides the source credit information and the pro rata share 

of eligible credits received from transferor(s), including any share 

of eligible credits from transferor(s) that were received from 

another pass-through entity.

The statement must identify the amount and information for 

each eligible credit so each shareholder can complete their Form 

3800. For each eligible credit, you must provide:

• The shareholder’s pro rata share of the eligible credits 

received from transferor(s) reported on the applicable line, 

column (g) of your Part III or Part V (if applicable) of Form 3800.

• The name of the credit form in column (a) of the applicable 

line of Part III or Part V (if applicable).

• Source information for each eligible credit shown in Part III or 

Part V (if applicable), including:

1. IRS-issued registration number for transfers in column (b) 

of Part III and Part V, and

2. The transferor’s EIN in column (d) of Part III or column (c) 

of Part V.

CAUTION

!

• If a shareholder’s pro rata share includes an allocation of 

eligible credits purchased by a lower tier pass-through entity and 

reported on Schedule K-1, you must provide the EIN of such 

transferee shareholder or S corporation and the source 

information that was provided to you by such entity.

See the Instructions for Form 3800 for additional details.

Codes BD through BG. Reserved for future use.

Other credits (code ZZ) Include any other type of credits not 

listed on lines 13a through 13f, or reported using codes A, B, H 

through BC.

Schedule K-1. Enter in box 13 of Schedule K-1 each 

shareholder's pro rata share of the credits listed above. See 

additional Schedule K-1 reporting information provided in the 

instructions above. Enter the applicable code, A, B, H, J through 

BC, in the column to the left of the dollar amount entry space.

If you are reporting each shareholder's pro rata share of only 

one type of credit under code ZZ, enter the code with an asterisk 

(ZZ*) and the dollar amount in the entry space in box 13 and 

attach a statement that shows “Box 13, code ZZ” and the type of 

credit. If you are reporting multiple types of credit under code ZZ, 

enter the code with an asterisk (ZZ*) and enter “STMT” in the 

entry space in box 13 and attach a statement that shows “Box 

13, code ZZ” and the dollar amount of each type of credit. If the 

corporation has credits from more than one activity, identify on 

an attachment to Schedule K-1 the amount of each type of credit 

for each separate activity. See Passive Activity Reporting 

Requirements, earlier.

International Transactions

Check the box on line 14 if you are reporting items of 

international tax relevance. See the Instructions for Schedule K-2 

(Form 1120-S) to determine if you need to attach Schedules K-2 

and K-3. If you satisfy the domestic filing exception to filing 

Schedule K-3, you must provide notification to the shareholder 

either through an attachment to the Schedule K-1, or a separate 

statement prior to filing the Form 1120-S. If you satisfy an 

exception to filing Schedule K-2 (Form 1120-S), you may also 

attach a statement to the Form 1120-S that states “Qualified for 

exception to filing Schedule K-2.”

Alternative Minimum Tax (AMT) Items

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.

Don't 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 12c. Because these 

expenditures are subject to an election by each shareholder, the 

corporation can't 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.

Schedule K-1. Report each shareholder's pro rata share of 

amounts reported on lines 15a through 15f in box 15 of 

Schedule K-1 using codes A through F, respectively.

If the corporation is reporting items of income or deduction for 

oil, gas, and geothermal properties, you may be required to 

identify these items on a statement attached to Schedule K-1 

(see the instructions for lines 15d and 15e). Also see the 

requirement for an attached statement in the instructions for 

line 15f.

36 Instructions for Form 1120-S (2023)
Line 15a. Post-1986 Depreciation Adjustment

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 Modified Accelerated Cost 

Recovery System (MACRS)). Don't 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.

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.

Line 15b. Adjusted Gain or Loss

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.

TIP

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.

Line 15c. Depletion (Other Than Oil and Gas)

Don't 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.

Oil, Gas, and Geothermal Properties—Gross 

Income and Deductions

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 22, page 1, Form 1120-S.

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 in box 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. Don't 

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 1120-S) 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 aren't 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.

Line 15d. Oil, Gas, and Geothermal 

Properties—Gross Income

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 1120-S.

Instructions for Form 1120-S (2023) 37
Line 15e. Oil, Gas, and Geothermal 

Properties—Deductions

Enter any deductions allowed for the AMT that are allocable to 

oil, gas, and geothermal properties.

Line 15f. Other AMT Items

Attach a statement to Form 1120-S 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.

• Any amount from Form 6478 reported as other income on 

Form 1120-S, line 5.

• Any amount from Form 8864 reported as other income on 

Form 1120-S, line 5.

Schedule K-1. If you are reporting each shareholder's pro rata 

share of only one type of AMT item under code F, enter the code 

with an asterisk (F*) and the dollar amount in the entry space in 

box 15 and attach a statement that shows the type of AMT item. 

If you are reporting multiple types of AMT items under code F, 

enter the code with an asterisk (F*) and enter “STMT” in the 

entry space in box 15 and attach a statement that shows the 

dollar amount of each type of AMT item.

Items Affecting Shareholder Basis

Line 16a. Tax-Exempt Interest Income

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 2a of Form 1040 or 1040-SR. 

Generally, under section 1367(a)(1)(A), the basis of the 

shareholder's stock is increased by the amount shown on this 

line.

Line 16b. Other Tax-Exempt Income

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.

Tax-exempt income from transfer election. Enter the total 

consideration received by the transferor S corporation as a result 

of a transfer election under section 6418. If the S corporation is 

allocated tax-exempt income from a pass-through entity (or 

lower-tier pass-through entity) making a transfer election to 

transfer its credits, include those amounts in code B as well.

Schedule K-1. This amount includes the shareholder’s pro 

rata share of tax-exempt income allocated by the transferor S 

corporation related to proceeds received by the S corporation as 

a result of the S corporation making a transfer election to transfer 

its credits under section 6418. This amount also includes the 

shareholder’s pro rata share of allocations made to the transferor 

S corporation from a pass-through entity for which the S 

corporation was a partner related to the pass-through entity (or 

lower-tier pass-through entity) making a transfer election to 

transfer its credits.

Tax-exempt income from elective payment election. Enter 

the amount from page 1, line 24d. This is the total amount of 

credits determined by the S corporation for which an elective 

payment election is being made.

Schedule K-1. The S corporation has claimed an amount on 

page 1, line 24d, which is treated as tax-exempt income for 

purposes of S corporation allocations. The amount listed on 

line 16 as code B includes the shareholder’s pro rata share of 

tax-exempt income as a result of the S corporation making an 

elective payment election under section 6417. This amount also 

includes the shareholder’s pro rata share of allocations to the S 

corporation from a pass-through entity (or lower-tier 

pass-through entity) that made an elective payment election.

Paycheck Protection Program (PPP) reporting. Report 

tax-exempt income resulting from the forgiveness of a PPP loan 

on this line. Attach a statement to the S corporation return for 

each tax year in which the S corporation is applying Rev. Proc. 

2021-48, sections 3.01(1), (2), or (3). The statement should also 

include the following information for each PPP loan.

1. The S corporation’s name, address, and EIN;

2. A statement that the S corporation is applying section 

3.01(1), (2), or (3) of Rev. Proc. 2021-48, as applicable;

3. The amount of tax-exempt income from forgiveness of the 

PPP loan that the S corporation is treating as received or 

accrued during the tax year; and

4. Whether forgiveness of the PPP loan has been granted as 

of the date the return is filed.

An S corporation that didn’t report tax-exempt income from a 

PPP loan on its 2020 return may file an amended return to apply 

Rev. Proc. 2021-48 and should do so according to these 

instructions. An S corporation that reported tax-exempt income 

from a PPP loan on its 2020 return, the timing of which 

corresponds to one of the options presented in Rev. Proc. 

2021-48, need not file an amended return solely to attach the 

statement that is described in the instructions for Schedule K, 

line 16(b).

As explained in section 3.03 of Rev. Proc. 2021-48, if an S 

corporation treats tax-exempt income resulting from a PPP loan 

as received or accrued prior to when forgiveness of the PPP loan 

is granted and the amount of forgiveness granted is less than the 

amount of tax-exempt income that was previously treated as 

received or accrued, the S corporation must make appropriate 

adjustments (if any) on an amended return for the tax year in 

which the S corporation treated the tax-exempt income as 

received or accrued. The S corporation should attach a 

statement to such amended return that includes the following 

information.

1. The S corporation’s name, address, and EIN;

2. A statement that the S corporation is making adjustments 

in accordance with section 3.03 of Rev. Proc. 2021-48; and

3. The tax year in which tax-exempt income was originally 

reported, the amount of tax-exempt income that was originally 

reported in such tax year, and the amount of tax-exempt income 

being adjusted on the amended return.

38 Instructions for Form 1120-S (2023)
Line 16c. Nondeductible Expenses

Enter on line 16c nondeductible expenses paid or incurred by 

the corporation.

Payments made by transferee S corporations to eligible 

taxpayers for the purchase of eligible credits as a result of a 

transfer election under section 6418 are treated as 

nondeductible expenses and are reported on this line 16c.

Don't 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.

Line 16d. Distributions

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.

• The date the property was acquired.

• The date the property was distributed.

• The property's FMV on the date of distribution.

• The corporation's basis in the property.

See Distributions, later, for the ordering rules.

Line 16e. Repayment of Loans From Shareholders

Enter any repayments made to shareholders during the current 

tax year.

Line 16f. Foreign Taxes Paid or Accrued

Enter in U.S. dollars the total creditable 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, Foreign Tax Credit for 

Individuals.

Schedule K-1. Report each shareholder's pro rata share of 

amounts reported on lines 16a, 16b, 16c, and 16f (concerning 

items affecting shareholder basis) in box 16 of Schedule K-1 

using codes A, B, C, and F, respectively. Report property 

distributions (line 16d) and repayment of loans from 

shareholders (line 16e) on the Schedule K-1 of the 

shareholder(s) that received the distributions or repayments 

(using codes D and E).

Other Information

Lines 17a and 17b. Investment Income and 

Expenses

Enter on line 17a the investment income included on lines 4, 5a, 

6, and 10 of Schedule K. Don't 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 

don't 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 isn't treated as investment 

property because it is subject to the passive loss rules. Don't 

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.

Schedule K-1. Report each shareholder's pro rata share of 

amounts reported on lines 17a and 17b (investment income and 

expenses) in box 17 of Schedule K-1 using codes A and B, 

respectively.

If there are other items of investment income or expense 

included in the amounts that are required to be passed through 

separately to the shareholders on Schedule K-1, such as net 

short-term capital gain or loss, net long-term capital gain or loss, 

and other portfolio gains or losses, give each shareholder a 

statement identifying these amounts.

Line 17c. Dividend Distributions Paid From 

Accumulated Earnings and Profits (Schedule K 

Only)

Enter total dividends paid to shareholders from accumulated 

earnings and profits. Report these dividends to shareholders on 

Form 1099-DIV. Don't report them on Schedule K-1.

Line 17d. Other Items and Amounts

Report the following information on a statement attached to Form 

1120-S. 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.

Qualified rehabilitation expenditures (other than rental real 

estate) (code C). Enter total qualified rehabilitation 

expenditures from activities other than rental real estate 

activities. See the Instructions for Form 3468 for details on 

qualified rehabilitation expenditures.

Report qualified rehabilitation expenditures related to 

rental real estate activities on line 13c.

Schedule K-1. 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 in Part VII 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.

TIP

Instructions for Form 1120-S (2023) 39
Basis of energy property (code D). In box 17 of 

Schedule K-1, enter code D followed by an asterisk and enter 

“STMT” in the entry space for the dollar amount. Attach a 

statement to Schedule K-1 that provides the shareholder's pro 

rata share of the basis and capacity amounts the shareholder 

will need to figure the amounts to report on Part VI, lines 1a, 3a, 

3e, 5a, 5f, 5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e, 

19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 29a of Form 3468. 

See the Instructions for Form 3468 for details.

Recapture of low-income housing credit (codes E and F). If 

recapture of part or all of the low-income housing credit is 

required because (a) the prior year qualified basis of a building 

decreased, or (b) the corporation disposed of a building or part 

of its interest in a building, see Form 8611, Recapture of 

Low-Income Housing Credit. Complete lines 1 through 7 of Form 

8611 to figure the amount of the credit to recapture.

Use code E on Schedule K-1 to report recapture of the 

low-income housing credit from a section 42(j)(5) partnership. 

Use code F to report recapture of any other low-income housing 

credit. See the instructions for lines 13a and 13b, earlier, for 

more information.

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 disposal of a building or an interest therein will 

generate a credit recapture unless it is reasonably 

expected that the building will continue to be operated 

as a qualified low-income building for the remainder of the 

building's compliance period.

See Form 8586, Form 8611, and section 42 for more 

information.

Recapture of investment credit (code G). Complete and 

attach Form 4255 if, before the end of the recapture period, 

investment credit property is disposed of or no longer qualifies 

for the credit or if credit recapture is otherwise required. See the 

Instructions for Form 4255 for details about when credit 

recapture is required. State the type of property at the top of 

Form 4255, and complete lines 2, 3, 4, 10, and 11, whether or 

not any shareholder is subject to recapture of the credit.

Attach to each Schedule K-1 a separate statement providing 

the information the corporation is required to show on Form 

4255, but list only the shareholder's pro rata share of the basis of 

the property subject to recapture. Also indicate the lines of Form 

4255 on which the shareholders should report these amounts.

The corporation itself is liable for investment credit recapture 

in certain cases. See Investment credit recapture tax, earlier, for 

details.

Recapture of other credits (code H). On an attached 

statement to Schedule K-1, provide any information 

shareholders will need to report recapture of credits (other than 

recapture of low-income housing credit and investment credit 

reported on Schedule K-1 using codes E, F, and G). The 

following are examples of credits subject to recapture and 

reported using code H.

• The new clean 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 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.

TIP

CAUTION

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• The alternative fuel vehicle refueling property credit. See 

section 30C(e)(5) for details.

Look-back interest—Completed long-term contracts (code 

I). If the corporation is closely held (defined in section 460(b)(4)

(C)(iii)) and it entered into any long-term contracts after February 

28, 1986, that are accounted for under either the percentage of 

completion-capitalized cost method or the percentage of 

completion method, it must attach a statement to Form 1120-S 

showing the information required in items (a) and (b) of the 

instructions for lines 1 and 3 of Part II of Form 8697. It must also 

report the amounts for Part II, lines 1 and 3, to its shareholders. 

See the Instructions for Form 8697 for more information.

Look-back interest—Income forecast method (code J). If 

the corporation is closely held (defined in section 460(b)(4)(C)

(iii)) and it depreciated certain property placed in service after 

September 13, 1995, under the income forecast method, it must 

attach to Form 1120-S the information specified in the 

instructions for Form 8866, line 2, for the 3rd and 10th tax years 

beginning after the tax year the property was placed in service. It 

must also report the line 2 amounts to its shareholders. See the 

Instructions for Form 8866 for more details.

Dispositions of property with section 179 deductions 

(code K). This represents gain or loss on the sale, exchange, or 

other disposition of property for which a section 179 deduction 

has been passed through to shareholders. The corporation must 

provide all the following information with respect to such 

dispositions (see the instructions for Form 1120-S, line 4, 

earlier).

• 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, any information the shareholder 

needs to complete Form 6252. The corporation must also 

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.

Recapture of section 179 deduction (code L). This amount 

represents recapture of the section 179 deduction if business 

use of the property dropped to 50% or less before the end of the 

recapture period. If the business use of any property for which a 

section 179 deduction was passed through to shareholders 

dropped to 50% or less (for a reason other than disposition), the 

corporation must provide all the following information.

• 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.

See Regulations section 1.179-1(e) for details.

40 Instructions for Form 1120-S (2023)
Section 453(l)(3) information (code M). Supply any 

information needed by a shareholder to figure the interest due 

under section 453(l)(3). If the corporation elected to report the 

dispositions of certain timeshares and residential lots on the 

installment method, each shareholder's tax liability must be 

increased by the shareholder's pro rata share of the interest on 

tax attributable to the installment payments received during the 

tax year.

Section 453A(c) information (code N). Supply any 

information shareholders need to figure the interest charge 

under section 453A(c). See Pub. 537, Installment Sales. This 

information must include the following from each Form 6252 

where the shareholder's pro rata share of the selling price, 

including mortgages and other debts, is greater than $150,000.

• Description of property.

• Date acquired.

• Date property sold.

• Selling price, including mortgages and other debts (not 

including interest, whether stated or unstated).

• Mortgages, debts, and other liabilities the buyer assumed or 

took the property subject to.

• Gross profit.

• Contract price.

• Gross profit percentage.

• Current year payments and deemed payments received 

during the year, not including interest whether stated or unstated.

• Origination year payments and deemed payments received 

during the year, not including interest whether stated or unstated.

• Payments received in prior years, not including interest 

whether stated or unstated.

• Installment sale income.

• Character of the income—capital or ordinary.

See section 453A(c) for information on how to compute the 

interest charge on the deferred tax liability. The section 453A 

interest charge is reported on the other tax line of the 

shareholder's tax return. See Interest on Deferred Tax in Pub. 

537 for additional details on how to compute the section 453A(c) 

interest.

Section 1260(b) information (code O). Supply any 

information needed by a shareholder to figure the interest due 

under section 1260(b). If the corporation had gain from certain 

constructive ownership transactions, each shareholder's tax 

liability must be increased by the shareholder's pro rata share of 

interest due on any deferral of gain recognition. See section 

1260(b) for details, including how to figure the interest.

Interest allocable to production expenditures (code P). 

Supply any information needed by a shareholder to properly 

capitalize interest as required by section 263A(f). See Section 

263A uniform capitalization rules, earlier, for more information.

CCF nonqualified withdrawals (code Q). Report nonqualified 

withdrawals by the corporation from a capital construction fund. 

Attach a statement to the shareholder's Schedule K-1 providing 

details of the withdrawal. See Pub. 595.

Depletion information—Oil and gas (code R). Report gross 

income and other information relating to oil and gas well 

properties to shareholders to allow them to figure the depletion 

deduction for oil and gas well properties. Allocate to each 

shareholder a proportionate share of the adjusted basis of each 

corporate oil or gas well property. See section 613A(c)(11) for 

details.

The corporation can't deduct depletion on oil and gas wells. 

Each shareholder must determine the allowable amount to report 

on the shareholder's return.

Codes S and T. Reserved for future use.

Net investment income (code U). Use code U to report any 

information that may be relevant for shareholders to figure their 

net investment income tax when the information isn't otherwise 

identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach 

a statement that shows a description and dollar amount of each 

relevant item.

Examples of items reported using code U may include the 

following.

• Net rental real estate income reported on Form 1120-S, 

Schedule K, line 2, and other net rental income reported on 

Form 1120-S, Schedule K, line 3c, derived from a section 212 

for-profit activity (and not from a section 162 trade or business).

• Gains and losses from dispositions of assets attributable to a 

section 212 for-profit activity (and not from a section 162 trade or 

business).

• Gain reported on the installment sale basis (or attributable to 

a private annuity) that is attributable to the disposition of property 

held in a trade or business.

• Gain or loss from the disposition of a partnership interest, but 

only if such partnership was engaged, directly or indirectly, in 

one or more trades or businesses, and at least one of those 

trades or businesses wasn't trading in financial instruments or 

commodities.

• The shareholder’s pro rata share of interest income, or interest 

expense, that is attributable to a loan between the corporation 

and the shareholder (self-charged interest).

• If the corporation received a Form 1065, Schedule K-1, the 

detail and amounts reported to the corporation using box 20, 

code Y.

• If the corporation received a Form 1041, Schedule K-1, the 

amount of the adjustment reported.

In addition, Regulations section 1.1411-10 provides special 

rules with respect to stock of CFCs and passive foreign 

investment companies (PFICs) owned by the corporation. If the 

corporation owns, directly or indirectly, stock of a CFC or PFIC, 

then additional reporting may be required under code U.

CFCs and QEFs. In the case of stock of CFCs and QEFs 

owned directly or indirectly by the corporation, the corporation 

must provide the name and EIN (if one has been issued) for 

each CFC and QEF the stock of which is owned by the 

corporation for which an election under Regulations section 

1.1411-10(g) is not in effect and with respect to which the 

corporation isn't engaged in a trade or business described in 

section 1411(c)(2). For each of these entities, the corporation 

must provide the following information on an entity-by-entity 

basis (to the extent such information isn't otherwise identifiable 

on Schedule K-3).

• Section 951(a) inclusions.

• Section 951A inclusions to the extent allocated to the CFC 

under section 951A(f)(2) if the corporation has elected entity 

treatment under Notice 2020-60, 2020-39 I.R.B. 604.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

• Section 959(d) distributions subject to section 1411.

• Section 1293(c) distributions subject to section 1411.

• Amount of gain or loss derived with respect to dispositions of 

the stock of CFCs and QEFs that is taken into account for 

section 1411 purposes.

• Amounts that are derived with respect to the disposition of the 

stock of CFCs and QEFs and included in income as a dividend 

under section 1248 for section 1411 purposes.

In the case of stock of CFCs and QEFs directly or indirectly 

owned by the corporation for which an election under 

Regulations section 1.1411-10(g) is in effect, the corporation 

must provide the following information (to the extent such 

information isn't otherwise identifiable on Schedule K-3), on 

either an aggregate basis or an entity-by-entity basis.

• Section 951(a) inclusions.

Instructions for Form 1120-S (2023) 41
• Section 951A inclusions to the extent allocated to the CFC 

under section 951A(f)(2) if the corporation has elected entity 

treatment under Notice 2020-60.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

In the case of stock of CFCs and QEFs directly or indirectly 

owned by the corporation with respect to which the corporation 

is engaged in a trade or business described in section 1411(c)

(2), the corporation must provide the following information (to the 

extent such information isn't otherwise identifiable on the 

Schedule K-3), on either an aggregate or an entity-by-entity 

basis, or may aggregate this information with other income 

derived by the corporation that is net investment income under 

section 1411(c)(1)(A)(ii).

• Section 951(a) inclusions.

• Section 951A inclusions to the extent allocated to the CFC 

under section 951A(f)(2) if the corporation has elected entity 

treatment under Notice 2020-60.

• Section 1293(a)(1)(A) inclusions.

• Section 1293(a)(1)(B) inclusions.

Section 1296 mark-to-market PFICs. In the case of stock of 

PFICs directly or indirectly owned by the corporation for which an 

election under section 1296 is in effect, the corporation must 

provide the following information (to the extent such information 

isn't otherwise identifiable on Schedule K-3), on either an 

aggregate basis or an entity-by-entity basis (except as provided 

below).

• Amounts included in income under section 1296(a)(1).

• Amounts deducted from income under section 1296(a)(2).

In the case of PFIC stock owned directly or indirectly by the 

corporation for which an election under section 1296 is in effect 

and with respect to which the corporation is engaged in a trade 

or business described in section 1411(c)(2), the corporation may 

aggregate this information with other income derived by the 

corporation that is net investment income under section 1411(c)

(1)(A)(ii).

Section 1291 funds. In the case of stock of PFICs directly or 

indirectly owned by the corporation with respect to which direct 

or indirect shareholders are subject to section 1291, the 

corporation must provide the following information (to the extent 

such information isn't otherwise identifiable on Schedule K-3), on 

an entity-by-entity basis.

• Excess distributions made by a PFIC with respect to which the 

shareholder is subject to section 1291.

• Gains derived with respect to the disposition of stock of a 

PFIC with respect to which a shareholder is subject to section 

1291.

Section 199A information (code V). The qualified business 

income (QBI) deduction may be taken by eligible taxpayers, 

including individuals and some trusts and estates. The 

deduction is determined at the shareholder level. S corporations 

are required to report information necessary for their 

shareholders to figure the deduction. Use the code with an 

asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and 

enter “STMT” in the entry space to indicate that the information is 

provided on an attached statement separately identifying the 

shareholder’s pro rata share of:

• Qualified items of income, gain, deduction, and loss;

• W-2 wages;

• Unadjusted basis immediately after acquisition (UBIA) of 

qualified property;

• Qualified publicly traded partnership (PTP) items; and

• Section 199A dividends, also known as qualified real estate 

investment trust (REIT) dividends.

Don’t add amounts into a single number and report it in 

box 17 on Schedule K-1. The section 199A information 

must be separately identified for each trade or business 

the S corporation directly conducts, including specified service 

trades or businesses.

The S corporation must make an initial determination of which 

items are qualified items of income, gain, deduction, and loss at 

its level and report to each shareholder their pro rata share of all 

items that may be qualified items at the shareholder level. These 

items must be separately stated where necessary for the 

shareholder to figure the deduction. See Determining the S 

corporation’s QBI or qualified PTP items, later. The shareholder 

must then determine whether each item is includible in its QBI.

In addition, the S corporation must also report whether any of 

its trades or businesses are specified service trades or 

businesses (SSTBs) and identify on the statement any trades or 

businesses that are aggregated.

Note. The S corporation must report the pro rata share of 

qualified items of income, gain, deduction, and loss from a PTP 

so that shareholders can determine their qualified PTP income. 

However, W-2 wages and UBIA of qualified property from the 

PTP shouldn’t be reported because shareholders can’t use that 

information in figuring their QBI deduction.

S corporations should use Statement A—QBI Pass-Through 

Entity Reporting, or a substantially similar statement, to report 

each shareholder’s pro rata information from each trade or 

business, including QBI items, W-2 wages, UBIA of qualified 

property, qualified PTP items, and section 199A dividends by 

attaching the completed statement(s) to each shareholder’s 

Schedule K-1. The S corporation should also use Statement A to 

report each shareholder’s pro rata share of QBI items, W-2 

wages, UBIA of qualified property, qualified PTP items, and 

section 199A dividends reported to the S corporation by another 

entity.

S corporations should use Statement B—QBI Pass-Through 

Entity Aggregation Election(s), or a substantially similar 

statement, to report aggregated trades or businesses and 

provide supporting information to shareholders on each 

Schedule K-1.

S corporations should use Statement C—QBI Pass-Through 

Entity Reporting—Patrons of Specified Agricultural and 

Horticultural Cooperatives, or a substantially similar statement, 

to report pro rata QBI and W-2 wages allocable to qualified 

payments from a specified agricultural or horticultural 

cooperative for each trade or business. This statement should 

also be used to report each shareholder’s pro rata section 

199A(g) deduction reported to the S corporation by the specified 

cooperative.

The S corporation must also report all QBI information 

reported to it by any entity in which the S corporation has an 

ownership interest.

Determining the S corporation’s qualified trades or 

businesses. The S corporation’s qualified trades or businesses 

include its section 162 trades or businesses, except for SSTBs, 

or the trade or business of providing services as an employee. A 

section 162 trade or business generally includes any activity if 

the taxpayer’s primary purpose for engaging in the activity is for 

income or profit and the S corporation is involved in the activity 

with continuity and regularity. For more information on what 

qualifies as a trade or business for purposes of section 199A, 

see the instructions for Form 8995, Qualified Business Income 

Deduction Simplified Computation, or Form 8995-A, Qualified 

Business Income Deduction.

Rental real estate. Rental real estate may constitute a trade 

or business for purposes of the QBI deduction if the rental real 

estate:

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42 Instructions for Form 1120-S (2023)
• Rises to the level of a trade or business under section 162;

• Satisfies the requirements for the rental real estate safe 

harbor in Rev. Proc. 2019-38, 2019-42 I.R.B. 942; or

• Meets the self-rental exception (that is, the rental or licensing 

of property to a commonly controlled trade or business 

conducted by an individual or relevant pass-through entity) 

described in Regulations section 1.199A-1(b)(14).

The determination of whether rental real estate constitutes a 

trade or business for purposes of the QBI deduction is made by 

the S corporation. The S corporation must first make this 

determination and then only include the pro rata share of QBI 

information for rental real estate that constitutes a trade or 

business on the statement provided to shareholders. Rental real 

estate that doesn’t meet any of the three conditions noted above 

doesn’t constitute a trade or business for purposes of the QBI 

deduction and must not be included in the QBI information 

provided to shareholders.

Specified service trades or businesses excluded from 

qualified trades or businesses. SSTBs are generally 

excluded from the definition of a qualified trade or business. An 

SSTB is any trade or business providing services in the fields of 

health, law, accounting, actuarial science, performing arts, 

consulting, athletics, financial services, brokerage services, 

investing and investment management, trading or dealing in 

securities, partnership interests, or commodities, or any other 

trade or business where the principal asset is the reputation or 

skill of one or more of its employees or owners. The term “any 

trade or business” where the principal asset is the reputation or 

skill of one or more of its employees or owners means any trade 

or business that consists of (i) a trade or business in which a 

person receives fees, compensation, or other income for 

endorsing products or services; (ii) a trade or business in which 

a person licenses or receives fees, compensation, or other 

income for the use of an individual’s image, likeness, name, 

signature, voice, trademark, or any other symbols associated 

with the individual’s identity; or (iii) receiving fees, compensation, 

or other income for appearing at an event or on radio, television, 

or another media format.

Note. S corporations must separately report QBI information for 

all trades or businesses engaged in by the S corporation, 

including SSTBs, and must also identify which trades or 

businesses are SSTBs.

Aggregation of trades or businesses. An S corporation 

engaged in more than one trade or business may choose to 

aggregate multiple trades or businesses into a single trade or 

business for purposes of section 199A if it meets the following 

requirements:

1. The same person, or group of persons, either directly or 

through attribution, owns 50% or more of each trade or business 

for a majority of the tax year, including the last day of the tax 

year, and all trades or businesses use the same tax year-end;

2. None of the trades or businesses is an SSTB; and

3. The trades or businesses to be aggregated meet at least 

two of the following three factors:

a. They provide products, property, or services that are the 

same or that are customarily offered together;

b. They share facilities or share significant centralized 

business elements, such as personnel, accounting, legal, 

manufacturing, purchasing, human resources, or information 

technology resources; or

c. They are operated in coordination with, or reliance upon, 

one or more of the businesses in the aggregated group.

If the S corporation chooses to aggregate multiple trades or 

businesses, it must report the aggregation on Statement B, or a 

substantially similar statement, and attach it to each 

Schedule K-1. The statement must provide the information 

necessary to identify each separate trade or business included 

in each aggregation, a description of the aggregated trades or 

businesses, and an explanation of the factors met that allow the 

aggregation in accordance with Regulations section 1.199A-4. 

The aggregation statement must be completed each year to 

show the S corporation's trade or business aggregations. Failure 

to disclose the aggregations may cause them to be 

disaggregated.

The S corporation's aggregations must be reported 

consistently for all subsequent years, unless there is a change in 

facts and circumstances that changes or disqualifies the 

aggregation. The S corporation must provide a written 

explanation for any changes to prior year aggregations that 

describes the change in facts and circumstances.

If the S corporation directly or indirectly owns an interest in 

another relevant pass-through entity (RPE) that aggregates 

multiple trades or businesses, it must attach a copy of the RPE's 

aggregation to each Schedule K-1. The S corporation can’t 

break apart the aggregation of another RPE, but it may add 

trades or businesses to the aggregation, assuming the 

requirements above are satisfied.

Determining the S corporation’s QBI or qualified PTP 

items. The S corporation’s items of QBI include qualified items 

of income, gain, deduction, and loss from the S corporation’s 

trades or businesses that are effectively connected with the 

conduct of a trade or business within the United States. This may 

include, but isn’t limited to, items such as ordinary business 

income or losses, section 1231 gains or losses, section 179 

deductions, and interest from debt-financed distributions.

QBI may also include rental income or losses or royalty 

income, if the activity rises to the level of a trade or business, or 

is a qualified trade or business for purposes of section 199A; and 

gambling gains or losses, but only if the S corporation is 

engaged in the trade or business of gambling. Whether an 

activity rises to the level of a trade or business must be 

determined at the entity level and, once made, is binding on 

shareholders.

Qualified PTP items include the S corporation’s share of 

qualified items of income, gain, deduction, and loss from a PTP 

and may also include gain or loss recognized on the disposition 

of the S corporation’s partnership interest that isn’t treated as a 

capital gain or loss.

QBI and qualified PTP items don’t include the following:

• Items that aren’t properly includible in income;

• Income that isn’t effectively connected with the conduct of 

business within the United States (go to IRS.gov/ECI for more 

information);

• Items that are treated as capital gain or loss under any 

provision of the Internal Revenue Code;

• Dividends or dividend equivalents, including qualified REIT 

dividends;

• Interest income (unless received in connection with the trade 

or business);

• Wage income;

• Commodities transactions, or foreign currency gains or losses 

described in sections 954(c)(1)(C) or (D);

• Income, loss, or deductions from notional principal contracts 

under section 954(c)(1)(F);

• Annuities (unless received in connection with the trade or 

business);

• Guaranteed payments described in section 707(c) received 

by the entity for services rendered to a partnership; or

• Payments described in section 707(a) received by the entity 

for services rendered to a partnership.

Instructions for Form 1120-S (2023) 43
QBI Flowchart

S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to 

shareholders.

Questions Yes No

1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question. Stop. This item isn’t QBI.

2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section 

179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not 

considered attributable to the trade or business at the entity level include gambling income (loss) 

where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation 

properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc. 

Continue to next question. Stop. This item isn’t QBI.

3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or 

is it a dividend or dividend equivalent? 

Stop. This item isn’t QBI. Continue to next question. 

4. Is the item interest income other than interest income properly allocable to a trade or business? 

(Note that interest income attributable to an investment of working capital, reserves, or similar 

accounts isn’t properly allocable to a trade or business). 

Stop. This item isn’t QBI. Continue to next question. 

5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn’t QBI. Continue to next question. 

6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss 

described in sections 954(c)(1)(C) or (D)? 

Stop. This item isn’t QBI. Continue to next question. 

7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn’t QBI. Continue to next question. 

8. Is the item of income or loss from a qualified publicly traded partnership? This item is a qualified PTP 

item. Report this item as 

qualified PTP income or 

loss, subject to 

shareholder-specific 

determinations, and check 

the PTP box.

This item is QBI. Report this 

item as QBI subject to 

shareholder-specific 

determinations.

Specific instructions for Statement A—QBI Pass-Through 

Entity Reporting. 

QBI or qualified PTP items. The S corporation must first 

determine if it is engaged in one or more trades or businesses. It 

must then determine if any of its trades or businesses are 

SSTBs. It must also determine whether it has qualified PTP 

items from an interest in a PTP. It must indicate the status in the 

appropriate checkboxes for each trade or business (or 

aggregated trade or business) or PTP interest reported.

Note. SSTBs and PTPs can’t be aggregated with any other 

trade or business. So, if the aggregation box is checked, the 

SSTB and PTP boxes for that specific aggregated trade or 

business shouldn’t be checked.

Next, the S corporation must report to each shareholder their 

pro rata share of all items that are QBI or qualified PTP items for 

each trade or business the S corporation owns directly or 

indirectly. Use the QBI flowchart above to determine if an item is 

reportable as a QBI item or qualified PTP item subject to 

shareholder-specific determination.

The descriptions on the statement generally match the 

descriptions reported on Schedule K-1. So the amounts should 

reflect each trade or business’s portion of the qualified items of 

income, gain, deduction, or loss reported in the applicable box of 

the shareholder’s Schedule K-1. For example, the amount 

reported on the “Ordinary business income (loss)” line of this 

statement should reflect the attributable portion of qualified items 

of income, gain, deduction, and loss for each trade or business 

included in the “Ordinary business income (loss)” reported in 

box 1 of the shareholder’s Schedule K-1. Each item included 

under “Other income (loss)” and “Other deductions” must be 

stated separately, identifying the nature and amount of each 

item.

W-2 wages and UBIA of qualified property. The S 

corporation must determine the W-2 wages and UBIA of 

qualified property properly allocable to QBI for each qualified 

trade or business, including SSTBs, and report the pro rata 

share to each shareholder on Statement A, or a substantially 

similar statement, attached to Schedule K-1. This includes the 

pro rata share of W-2 wages and UBIA of qualified property 

reported to the S corporation from any qualified trades or 

businesses of an RPE the S corporation owns directly or 

indirectly. However, S corporations that own a direct or indirect 

interest in a PTP may not include any amounts for W-2 wages or 

UBIA of qualified property from the PTP, as the W-2 wages and 

UBIA of qualified property from a PTP aren’t allowed in figuring 

the W-2 wage and UBIA limitations.

The W-2 wages are amounts paid to employees described in 

sections 6051(a)(3) and (8). If the S corporation conducts more 

than one trade or business, it must allocate the W-2 wages 

among its trades or businesses. See Rev. Proc. 2019-11, 

2019-09 I.R.B. 742 for more information.

The unadjusted basis of qualified property is figured by 

adding the unadjusted basis of all qualified assets immediately 

after acquisition. Qualified property includes all tangible property 

subject to depreciation under section 167 for which the 

depreciable period hasn’t ended that is held and used for the 

production of QBI by the trade or business during the tax year 

and held on the last day of the tax year. The depreciable period 

ends on the later of 10 years after the property is placed in 

service or the last day of the full year for the applicable recovery 

period under section 168.

Section 199A dividends. The S corporation must report the 

pro rata share of any section 199A dividends, also known as 

qualified real estate investment trust (REIT) dividends, to each 

shareholder on Statement A, or a substantially similar statement, 

attached to Schedule K-1. Section 199A dividends don’t have to 

be separately reported by trades or businesses and can be 

reported as a single amount to shareholders. Section 199A 

dividends include any dividend the S corporation receives from a 

REIT held for more than 45 days, for which the payment isn’t 

obligated to someone else, isn’t a capital gain dividend under 

section 857(b)(3), and isn’t a qualified dividend under section 

1(h)(11), plus any qualified REIT dividends received from a 

regulated investment company (RIC).

Fiscal year S corporations. For purposes of determining the 

QBI or qualified PTP items, UBIA of qualified property, and the 

44 Instructions for Form 1120-S (2023)
aggregate amount of qualified section 199A dividends, fiscal 

year-end S corporations include all items from the fiscal tax year.

For purposes of determining W-2 wages, fiscal year-end S 

corporations include amounts paid to employees under sections 

6051(a)(3) and (8) for the calendar year ended with or within the 

S corporation’s tax year. If the S corporation conducts more than 

one trade or business, it must allocate W-2 wages among its 

trades or businesses. See Rev. Proc. 2019-11 for more 

information.

Statement A—QBI Pass-Through Entity Reporting

S corporation's name: S corporation's EIN:

Shareholder’s name: Shareholder’s identifying number:

Shareholder’s share of:

Trade or Business 1 Trade or Business 2 Trade or Business 3

 PTP

 Aggregated

 SSTB 

 PTP

 Aggregated

 SSTB 

 PTP

 Aggregated

 SSTB 

QBI or qualified PTP items subject to shareholder-specific determinations:

 Ordinary business income (loss) ...............

Rental income (loss) .....................

Royalty income (loss) ....................

Section 1231 gain (loss) ...................

Other income (loss) .....................

Section 179 deduction ....................

Other deductions .......................

W-2 wages ........................................

UBIA of qualified property ..............................

Section 199A dividends.....

Specific instructions for Statement B—QBI Pass-Through 

Entity Aggregation Election(s). If the S corporation elects to 

aggregate more than one trade or business that meets all the 

requirements to aggregate, the S corporation must report the 

aggregation to shareholders on Statement B, or a substantially 

similar statement, and attach it to each Schedule K-1. The S 

corporation must indicate trades or businesses that were 

aggregated by checking the appropriate box on Statement A for 

each aggregated trade or business. The S corporation must also 

provide a description of the aggregated trade or business and an 

explanation of the factors met that allow the aggregation.

The aggregation statement must be completed each year to 

show the S corporation's trade or business aggregations. Failure 

to disclose the aggregations may cause them to be 

disaggregated. The S corporation's aggregations must be 

reported consistently for all subsequent years, unless there is a 

change in facts and circumstances that changes or disqualifies 

the aggregation. The S corporation must provide a written 

explanation for any changes to prior year aggregations that 

describes the change in facts and circumstances.

If the S corporation holds a direct or indirect interest in an 

RPE that aggregates multiple trades or businesses, the S 

corporation must also include a copy of the RPE’s aggregations 

with each shareholder’s Schedule K-1. The S corporation can’t 

break apart the aggregation of another RPE, but it may add 

trades or businesses to the aggregation, assuming the 

aggregation requirements are satisfied.

Instructions for Form 1120-S (2023) 45
Statement B—QBI Pass-Through Entity Aggregation Election(s)

S corporation's name: S corporation's EIN:

Trade or business aggregation 1*

Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations 

section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or 

businesses, attach a copy of the RPE's aggregations.

Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, 

or disposed of, or having ceased operations. If yes, explain.

* If the S corporation has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.

Specific instructions for Statement C—QBI Pass-Through 

Entity Reporting—Patrons of Specified Agricultural and 

Horticultural Cooperatives. 

QBI items and W-2 wages allocable to qualified 

payments. If the S corporation is a patron of a specified 

agricultural or horticultural cooperative, the S corporation must 

provide the pro rata share of QBI items and W-2 wages allocable 

to qualified payments from each trade or business to each of its 

shareholders on Statement C, or a substantially similar 

statement, and attach it to each Schedule K-1 so each 

shareholder can figure their patron reduction under section 

199A(b)(7).

QBI items and W-2 wages allocable to qualified payments 

include QBI items included on Statement A that are allocable to 

the qualified payments reported to the S corporation on Form 

1099-PATR from the cooperative.

Section 199A(g) deduction. The S corporation must report 

to its shareholders their pro rata share of any section 199A(g) 

deduction passed through from the cooperative, as reported on 

Form 1099-PATR. Section 199A(g) deductions don’t have to be 

separately reported by trades or businesses and can be 

reported as a single amount to shareholders.

Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural 

Cooperatives

S corporation's name: S corporation's EIN:

Shareholder’s name: Shareholder’s identifying number:

Shareholder’s share of:

Trade or Business 1 Trade or Business 2 Trade or Business 3

 PTP

 Aggregated

 SSTB 

 PTP

 Aggregated

 SSTB 

 PTP

 Aggregated

 SSTB 

QBI items allocable to qualified payments subject to shareholder-specific determinations:

 Ordinary business income (loss) ...............

Rental income (loss) ......................

Royalty income (loss) .....................

Section 1231 gain (loss) ....................

Other income (loss) ......................

Section 179 deduction .....................

Other deductions ........................

W-2 wages allocable to qualified payments ....................

Section 199A(g) deduction ................

Codes W through Z. Reserved for future use.

Excess taxable income (code AA). If the S corporation is 

required to file Form 8990, Limitation on Business Interest 

Expense Under Section 163(j), it may determine it has excess 

taxable income. If so, enter the amount from Form 8990, Part III, 

line 41, for excess taxable income on Schedule K. Report the 

shareholder's pro rata share in box 17 of Schedule K-1.

Excess business interest income (code AB). If the S 

corporation is required to file Form 8990, it may determine it has 

excess business interest income. If so, enter the amount from 

46 Instructions for Form 1120-S (2023)
Form 8990, Part III, line 42, for excess taxable income on 

Schedule K. Report the shareholder's pro rata share in box 17 of 

Schedule K-1.

Gross receipts for section 448(c) (code AC). Provide 

information shareholders need to complete the gross receipts 

test for section 448(c) purposes. See the Instructions for Form 

8990 for details.

Codes AD through AI. Reserved for future use.

Excess business loss limitation (code AJ). If the corporation 

has deductions attributable to a business activity, provide a 

statement showing the aggregate gross income or gain and the 

aggregate deductions from the business activity that 

shareholders need to figure any excess business loss limitation. 

See section 461(l) and the Instructions for Form 461 for details.

Codes AK through AM. Reserved for future use.

Farming and fishing business (code AN). In box 17 of 

Schedule K-1, enter code AN followed by an asterisk and enter 

“STMT” in the entry space for the dollar amount. Attach a 

statement to Schedule K-1 that provides the shareholder's pro 

rata share of the following amounts.

1. Gross farming and fishing income the shareholder will 

need to report on line 42 of Schedule E (Form 1040). See the 

Instructions for Schedule E (Form 1040) for details.

2. Gross farming and fishing income and gains as well as 

losses and deductions attributable to farming and fishing 

business activities the shareholder may need to figure the 

amounts to report on Schedule J (Form 1040). See section 

1301.

Code AO. Reserved for future use.

Inversion gain (code AP). 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 1120-S 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 AP. 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.

Codes AQ and AR. Reserved for future use.

Qualifying advanced coal project property and qualifying 

gasification project property (code AS). Basis in qualifying 

advanced coal project property and qualifying gasification or 

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 Part II, lines 1a, 2a, and 3a; or lines 4a and 

5a of Form 3468. See the Instructions for Form 3468 for details.

Qualifying advanced energy project property (code AT). 

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 Part III, line 1a, of Form 3468. 

See the Instructions for Form 3468 for details.

Advanced manufacturing investment property (code AU). 

Basis in advanced manufacturing investment facility 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 Part IV, 

line 1b, of Form 3468. See the Instructions for Form 3468 for 

details.

Code AV. Reserved for future use.

Reportable transactions (code AW). 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(ies) under which a transaction qualified for 

disclosures. See the Instructions for Form 8886 for details.

Codes AX through BD. Reserved for future use.

Other information (code ZZ). Any other information the 

shareholders need to prepare their tax returns, including 

information needed to prepare state and local tax returns.

Line 18. More Than One At-Risk Activity

If the corporation entered into more than one activity subject to 

the at-risk rules (at-risk activity), the corporation is required to 

provide information separately for each at-risk activity to its 

shareholders. This information is reported on an attachment to 

Schedule K-1. Check the box to indicate there is more than one 

at-risk activity for which a statement is attached. See At-Risk 

Activity Reporting Requirements under At-Risk Limitations, 

earlier, for details.

Line 19. More Than One Passive Activity

If the corporation entered into more than one activity 

(determined for purposes of the passive activity loss and credit 

limitations), the corporation is required to provide information 

separately for each activity to its shareholders. This information 

is reported on an attachment to Schedule K-1. Check the box to 

indicate there is more than one passive activity for which a 

statement is attached. See Passive Activity Reporting 

Requirements under Passive Activity Limitations, earlier, for 

details.

Reconciliation

Line 18. Income/Loss Reconciliation 

(Schedule K Only)

To the extent the corporation has an amount on line 16f of 

Schedule K (foreign taxes paid and accrued), subtract that 

amount for purposes of figuring 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 1120-S).

Schedule L. Balance Sheets per 

Books

The balance sheets should agree with the corporation's books 

and records. Schedule L isn't required to be completed if the 

corporation answered “Yes” to question 11 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 file Schedule M-3 (Form 1120-S) 

instead of Schedule M-1. However, see the instructions for 

Schedule M-1, later. See the separate Instructions for 

Schedule M-3 (Form 1120-S) 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 should generally agree with the books and records at the 

Instructions for Form 1120-S (2023) 47
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.

Line 5. Tax-Exempt Securities

Include on this line:

• State and local government obligations, the interest on which 

is excludable from gross income under section 103(a); and

• Stock in a mutual fund or other regulated investment company 

that distributed exempt-interest dividends during the tax year of 

the corporation.

Line 24. Retained Earnings

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.

Line 25. Adjustments to Shareholders' Equity

The following are some examples of adjustments to report on 

this line.

• Unrealized gains and losses on securities held “available for 

sale.”

• Foreign currency translation adjustments.

• The excess of additional pension liability over unrecognized 

prior service cost.

• Guarantees of employee stock ownership plan (ESOP) debt.

• Compensation related to employee stock award plans.

If the total adjustment to be entered is a negative amount, 

enter the amount in parentheses.

Schedule M-1. Reconciliation of 

Income (Loss) per Books With 

Income (Loss) per Return

In completing Schedule M-1, the following apply.

• Schedule M-1 isn't required to be completed if the corporation 

answered “Yes” to question 11 on Schedule B.

• Corporations with total assets of $10 million or more on the 

last day of the tax year must file Schedule M-3 (Form 1120-S) 

instead of Schedule M-1.

• A corporation filing Form 1120-S that isn't required to file 

Schedule M-3 may voluntarily file Schedule M-3 instead of 

Schedule M-1. See the Instructions for Schedule M-3 (Form 

1120-S) for more information.

• For 2023, corporations that (a) are required to file 

Schedule M-3 (Form 1120-S) and have less than $50 million 

total assets at the end of the tax year, or (b) aren't required to file 

Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3 

(Form 1120-S), must either (i) complete Schedule M-3 (Form 

1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S) 

through Part I, and complete Form 1120-S, Schedule M-1, 

instead of completing Parts II and III of Schedule M-3 (Form 

1120-S). If the corporation chooses to complete Schedule M-1 

instead of completing Parts II and III of Schedule M-3, line 1 of 

Schedule M-1 must equal line 11 of Part I of Schedule M-3. See 

the Instructions for Schedule M-3 (Form 1120-S) for more 

information.

Line 2

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.

Line 3b. Travel and Entertainment

Include any of the following applicable expenses.

• Entertainment expenses not deductible under section 274(a).

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

• Qualified transportation fringes not deductible under section 

274(a)(4).

• Expenses for the use of an entertainment facility.

• The part of business gifts over $25.

• Expenses of an individual over $2,000 that are allocable to 

conventions on cruise ships.

• Employee achievement awards of nontangible property or 

tangible property over $400 ($1,600 if part of a qualified plan).

• The cost of skyboxes.

• The part of luxury water travel expenses not deductible under 

section 274(m).

• Expenses for travel as a form of education.

• Nondeductible club dues.

• Other nondeductible travel and entertainment expenses.

An S corporation should include tax-exempt income from 

the forgiveness of PPP loans on line 5 of the 

Schedule M-1 (if it was included on line 1 of the 

Schedule M-1), or on Part II, line 22, of the Schedule M-3, 

column (c), as a negative number (if it was included on line 22 in 

column (a) as income per income statement).

If the corporation has an amount on line 16f 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.

Schedule M-2. Analysis of 

Accumulated Adjustments Account, 

Shareholders' Undistributed Taxable 

Income Previously Taxed, 

Accumulated Earnings and Profits, 

and Other Adjustments Account

Column (a). Accumulated Adjustments Account

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 earnings and 

profits (AE&P) must maintain the AAA to determine the tax effect 

of distributions during years as an S corporation, the 

post-termination transition period, and cash distributions 

following a post-termination transition period. An S corporation 

without AE&P doesn't need to maintain the AAA in order to 

determine the tax effect of distributions. Nevertheless, if an S 

corporation without AE&P engages in certain transactions to 

which section 381(a) applies, such as a merger into an S 

corporation with AE&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.

1. Increase the AAA by income (other than tax-exempt 

income) and the excess of the deduction for depletion over the 

TIP TIP

48 Instructions for Form 1120-S (2023)
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).

2. 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 (FMV) of 

certain contributed property (discussed earlier), further adjust 

AAA by adding back the FMV 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, don't take it into account under (2). 

Instead, take it into account only under (4) below.

3. Decrease AAA (but not below zero) by property 

distributions (other than dividend distributions from AE&P), 

unless the corporation elects to reduce AE&P first. See 

Distributions, later, for definitions and other details.

4. 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).

The AAA may have a negative balance at year end. See 

section 1368(e).

Column (b). Shareholders' Undistributed 

Taxable Income Previously Taxed

The shareholders' undistributed taxable income previously taxed 

account, also called previously taxed earnings and profits 

(PTEP), is maintained only if the corporation had a balance in 

this account at the start of its 2023 tax year. If there is a 

beginning balance for the 2023 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, later, for the order of distributions from the account.

Each shareholder's right to nontaxable distributions from 

PTEP is personal and can't be transferred to another person. 

The corporation is required to keep records of each 

shareholder's net share of PTEP.

TIP

Column (c). Accumulated Earnings and Profits

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 AE&P at the close of its 2022 tax year on 

line 1 in column (c). For details on figuring AE&P, see section 

312. Estimates based on retained earnings at the end of the tax 

year are acceptable. If the corporation has AE&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.

Column (d). Other Adjustments Account

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.

PPP loans. An S corporation should include tax-exempt 

income from the forgiveness of PPP loans in column (d) 

on line 3 of the Schedule M-2.

An S corporation should report expenses paid this year with 

proceeds from PPP loans that were forgiven this year in column 

(d) on line 5 of the Schedule M-2.

If column (a) on line 2 or line 4 of the Schedule M-2 includes 

expenses paid with proceeds from forgiven PPP loans, an S 

corporation should report that amount in column (a) on line 3 and 

in column (d) on line 5 of the Schedule M-2.

If column (a) on line 1 of the Schedule M-2 includes expenses 

that were paid in a prior year with proceeds from PPP loans that 

were forgiven this year, an S corporation should report that 

amount in column (a) on line 3 and in column (d) on line 5 of the 

Schedule M-2.

Distributions

General rule. Unless the corporation makes one of the 

elections described below, property distributions (including 

cash) are applied in the following order (to reduce accounts of 

the S corporation that are used to figure the tax effect of 

distributions made by the corporation to its shareholders).

1. 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 

TIP

Schedule M-2 Worksheet Keep for Your Records

(a)

Accumulated 

adjustments account

(b)

Shareholders' 

undistributed taxable 

income previously taxed

(c)

Accumulated

earnings and profits

(d)

Other adjustments

 account

1. Balance at beginning of tax 

year .....................

-0- -0-

2. Ordinary income from page 1, 

line 22 ...................

10,000

3. Other additions ............. 20,000 5,000

4. Loss from page 1, line 22 ....... ( )

5. Other reductions ............ (36,000) ( )

6. Combine lines 1 through 5 ...... (6,000) 5,000

7. Distributions ............... -0- 5,000

8. Balance at end of tax year. Subtract 

line 7 from line 6 .............

(6,000) -0-

Instructions for Form 1120-S (2023) 49
adjustment for the tax year, the AAA is allocated pro rata to each 

distribution made during the tax year. See section 1368.

2. Reduce shareholders' PTEP account for any section 

1375(d) (as in effect before 1983) distributions. A distribution 

from the PTEP account is tax free to the extent of a 

shareholder's basis in the shareholder's stock in the corporation.

3. Reduce AE&P. Generally, the S corporation has AE&P 

only if it hasn't 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 AE&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 section 1371(c) and (d)(3).

4. Reduce the other adjustments account (OAA).

5. Reduce any remaining shareholders' equity accounts.

Elections relating to source of distributions. The 

corporation may modify the above ordering rules by making one 

or more of the following elections.

Election to distribute AE&P first. If the corporation has 

AE&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.

Election to make a deemed dividend. If the corporation 

wants to distribute all or part of its AE&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 AE&P first. The amount of the deemed dividend can't 

exceed the AE&P at the end of the tax year. The E&P at year end 

is first reduced by any actual distributions of AE&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.

Election to forego PTEP. If the corporation wants to forego 

distributions of PTEP, 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, doesn't 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.

Statement regarding elections. To make any of the above 

elections, the corporation must attach a statement to a timely 

filed original or amended Form 1120-S for the tax year for which 

the election is made. In the statement, the corporation must 

identify the election it is making and must state that each 

shareholder consents to the election. The statement of election 

to make a deemed dividend must include the amount of the 

deemed dividend distributed to each shareholder. For more 

details on the election, see Regulations section 1.1368-1(f)(5).

Example

The following example shows how the Schedule M-2 accounts 

are adjusted for items of income (loss), deductions, and 

distributions reported on Form 1120-S. In this example, the 

corporation has no PTEP or AE&P.

Items per return are: 

1. Page 1, line 22 income—$10,000;

2. Schedule K, line 2 loss—($3,000);

3. Schedule K, line 4 income—$4,000;

4. Schedule K, line 5a income—$16,000;

5. Schedule K, line 12a deduction—$24,000;

6. Schedule K, line 12d deduction—$3,000;

7. Schedule K, line 13g work opportunity credit—$6,000;

8. Schedule K, line 16a tax-exempt interest—$5,000;

9. Schedule K, line 16c nondeductible expenses—$6,000 

(reduction in salaries and wages for work opportunity credit); and

10. Schedule K, line 16d distributions—$65,000.

Based on items (1) through (10) above and starting balances 

of zero, the columns for the AAA and the other adjustments 

account are completed as shown in the Schedule M-2 

Worksheet.

For the AAA, the worksheet line 3—$20,000 amount is the 

total of the Schedule K, lines 4 and 5a income of $4,000 and 

$16,000. The worksheet line 5—$36,000 amount is the total of 

the Schedule K, line 2 loss of ($3,000), line 12a (code A) 

deduction of $24,000, line 12d (code ZZ) deduction of $3,000, 

and the line 16c nondeductible expenses of $6,000. The 

worksheet line 7 is zero. The AAA at the end of the tax year 

(figured without regard to distributions and the net negative 

adjustment of $6,000) is zero, and distributions can't reduce the 

AAA below zero.

For the other adjustments account, the worksheet line 3 

amount is the Schedule K, line 16a, tax-exempt interest income 

of $5,000. The worksheet line 7 amount is $5,000, reducing the 

other adjustments account to zero. The remaining $60,000 of 

distributions aren't entered on Schedule M-2.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United 

States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to 

figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form 

displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents 

may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, 

as required by section 6103.

Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of 

December 2023, for taxpayers filing 2023 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC, 

1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented 

separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs 

include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and 

submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden 

50 Instructions for Form 1120-S (2023)
associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic 

errors, implying lower post-filing burden.

Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience 

lower than average burden, with taxpayer burden varying considerably by taxpayer type.

The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden 

for corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT, 

1120-RIC, 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates there is significant variation in 

taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, 

the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these 

estimates.

Table 1 – Taxpayer Burden for Entities Taxed as Partnerships

Forms 1065, 1066, and all attachments

Primary Form Filed or Type of 

Taxpayer

Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Partnerships 5.3 60 5,000 8,700

Small 4.9 50 3,200 5,200

Large* 0.4 200 27,800 50,800

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 

pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations

Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments

Primary Form Filed or Type of 

Taxpayer

Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Taxable Corporations 2.1 105 6,700 14,900

Small 2.0 55 3,600 6,200

Large* 0.1 830 53,800 149,000

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 

pass-through corporations. A small business is any business that does not meet the definition of a large business. 

Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations

Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments

Primary Form Filed or Type of 

Taxpayer

Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Pass-Through Corporations 5.8 65 4,400 7,500

Small 5.7 60 3,800 6,400

Large* 0.1 295 37,700 71,800

*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 

pass-through corporations. A small business is any business that does not meet the definition of a large business. 

Note.The data shown are the best estimates for 2023 business entity income tax returns. Reported time and cost burdens are 

national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by 

taxpayer type. The estimates are subject to change as new forms and data become available.

Comments and suggestions. We welcome your comments about these forms and suggestions for future editions.

You can send us comments through IRS.gov/FormComments. Or you can write to the Internal Revenue Service, Tax Forms and 

Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your 

comments and suggestions as we revise our tax forms, instructions, and publications. Don't send tax questions, tax returns, or 

payments to the above address.

Instructions for Form 1120-S (2023) 51
Principal Business Activity Codes

This list of principal business activities and their 

associated codes is designed to classify an enterprise 

by the type of activity in which it is engaged to facilitate 

the administration of the Internal Revenue Code. These 

principal business activity codes are based on the North 

American Industry Classification System.

Using the list of activities and codes below, 

determine from which activity the company derives the 

largest percentage of its “total receipts.” Total receipts is 

defined as the sum of gross receipts or sales (page 1, 

line 1a); all other income (page 1, lines 4 and 5); income 

reported on Schedule K, lines 4, 5a, and 6; income or 

net gain reported on Schedule K, lines 7, 8a, 9, and 10; 

and income or net gain reported on Form 8825, lines 2, 

19, and 20a. If the company purchases raw materials 

and supplies them to a subcontractor to produce the 

finished product, but retains title to the product, the 

company is considered a manufacturer and must use 

one of the manufacturing codes (311110-339900).

Once the principal business activity is determined, 

enter the six-digit code from the list below on page 1, 

item B. Also enter the business activity on page 2, 

Schedule B, line 2(a) and a brief description of the 

principal product or service of the business on line 2(b).

Agriculture, Forestry, Fishing 

and Hunting

Crop Production

111100 Oilseed & Grain Farming

111210 Vegetable & Melon Farming 

(including potatoes & yams)

111300 Fruit & Tree Nut Farming

111400 Greenhouse, Nursery, & 

Floriculture Production

111900 Other Crop Farming (including 

tobacco, cotton, sugarcane, hay, 

peanut, sugar beet & all other 

crop farming)

Animal Production

112111 Beef Cattle Ranching & Farming

112112 Cattle Feedlots

112120 Dairy Cattle & Milk Production

112210 Hog & Pig Farming

112300 Poultry & Egg Production

112400 Sheep & Goat Farming

112510 Aquaculture (including shellfish & 

finfish farms & hatcheries)

112900 Other Animal Production

Forestry and Logging

113110 Timber Tract Operations

113210 Forest Nurseries & Gathering of 

Forest Products

113310 Logging

Fishing, Hunting and Trapping

114110 Fishing

114210 Hunting & Trapping

Support Activities for Agriculture and 

Forestry

115110 Support Activities for Crop 

Production (including cotton 

ginning, soil preparation, 

planting, & cultivating)

115210 Support Activities for Animal 

Production (including farriers)

115310 Support Activities For Forestry

Mining

211120 Crude Petroleum Extraction

211130 Natural Gas Extraction

212110 Coal Mining

212200 Metal Ore Mining

212310 Stone Mining & Quarrying

212320 Sand, Gravel, Clay, & Ceramic & 

Refractory Minerals Mining & 

Quarrying

212390 Other Nonmetallic Mineral 

Mining & Quarrying

213110 Support Activities for Mining

Utilities

221100 Electric Power Generation, 

Transmission & Distribution

221210 Natural Gas Distribution

221300 Water, Sewage & Other Systems

221500 Combination Gas & Electric

Construction

Construction of Buildings

236110 Residential Building Construction

236200 Nonresidential Building 

Construction

Heavy and Civil Engineering 

Construction

237100 Utility System Construction

237210 Land Subdivision

237310 Highway, Street, & Bridge 

Construction

237990 Other Heavy & Civil Engineering 

Construction

Specialty Trade Contractors

238100 Foundation, Structure, & Building 

Exterior Contractors (including 

framing carpentry, masonry, 

glass, roofing, & siding)

238210 Electrical Contractors

238220 Plumbing, Heating, & 

Air-Conditioning Contractors

238290 Other Building Equipment 

Contractors

238300 Building Finishing Contractors 

(including drywall, insulation, 

painting, wallcovering, flooring, 

tile, & finish carpentry)

238900 Other Specialty Trade 

Contractors (including site 

preparation)

Manufacturing

Food Manufacturing

311110 Animal Food Mfg

311200 Grain & Oilseed Milling

311300 Sugar & Confectionery Product 

Mfg

311400 Fruit & Vegetable Preserving & 

Specialty Food Mfg

311500 Dairy Product Mfg

311610 Animal Slaughtering & 

Processing

311710 Seafood Product Preparation & 

Packaging

311800 Bakeries, Tortilla, & Dry Pasta 

Mfg

311900 Other Food Mfg (including 

coffee, tea, flavorings & 

seasonings)

Beverage and Tobacco Product 

Manufacturing

312110 Soft Drink & Ice Mfg

312120 Breweries

312130 Wineries

312140 Distilleries

312200 Tobacco Manufacturing

Textile Mills and Textile Product Mills

313000 Textile Mills

314000 Textile Product Mills

Apparel Manufacturing

315100 Apparel Knitting Mills

315210 Cut & Sew Apparel Contractors

315250 Cut & Sew Apparel Mfg (except 

Contractors)

315990 Apparel Accessories & Other 

Apparel Mfg

Leather and Allied Product 

Manufacturing

316110 Leather & Hide Tanning & 

Finishing

316210 Footwear Mfg (including rubber & 

plastics)

316990 Other Leather & Allied Product 

Mfg

Wood Product Manufacturing

321110 Sawmills & Wood Preservation

321210 Veneer, Plywood, & Engineered 

Wood Product Mfg

321900 Other Wood Product Mfg

Paper Manufacturing

322100 Pulp, Paper, & Paperboard Mills

322200 Converted Paper Product Mfg

Printing and Related Support Activities

323100 Printing & Related Support 

Activities

Petroleum and Coal Products 

Manufacturing

324110 Petroleum Refineries (including 

integrated)

324120 Asphalt Paving, Roofing, & 

Saturated Materials Mfg

324190 Other Petroleum & Coal Products 

Mfg

Chemical Manufacturing

325100 Basic Chemical Mfg

325200 Resin, Synthetic Rubber, & 

Artificial & Synthetic Fibers & 

Filaments Mfg

325300 Pesticide, Fertilizer, & Other 

Agricultural Chemical Mfg

325410 Pharmaceutical & Medicine Mfg

325500 Paint, Coating, & Adhesive Mfg

325600 Soap, Cleaning Compound, & 

Toilet Preparation Mfg

325900 Other Chemical Product & 

Preparation Mfg

Plastics and Rubber Products 

Manufacturing

326100 Plastics Product Mfg

326200 Rubber Product Mfg

Nonmetallic Mineral Product 

Manufacturing

327100 Clay Product & Refractory Mfg

327210 Glass & Glass Product Mfg

327300 Cement & Concrete Product Mfg

327400 Lime & Gypsum Product Mfg

327900 Other Nonmetallic Mineral 

Product Mfg

Primary Metal Manufacturing

331110 Iron & Steel Mills & Ferroalloy 

Mfg

331200 Steel Product Mfg from 

Purchased Steel

331310 Alumina & Aluminum Production 

& Processing

331400 Nonferrous Metal (except 

Aluminum) Production & 

Processing

331500 Foundries

Fabricated Metal Product 

Manufacturing

332110 Forging & Stamping

332210 Cutlery & Handtool Mfg

332300 Architectural & Structural Metals 

Mfg

332400 Boiler, Tank, & Shipping 

Container Mfg

332510 Hardware Mfg

332610 Spring & Wire Product Mfg

332700 Machine Shops; Turned Product; 

& Screw, Nut, & Bolt Mfg

332810 Coating, Engraving, Heat 

Treating, & Allied Activities

332900 Other Fabricated Metal Product 

Mfg

Machinery Manufacturing

333100 Agriculture, Construction, & 

Mining Machinery Mfg

333200 Industrial Machinery Mfg

333310 Commercial & Service Industry 

Machinery Mfg

333410 Ventilation, Heating, 

Air-Conditioning, & Commercial 

Refrigeration Equipment Mfg

333510 Metalworking Machinery Mfg

333610 Engine, Turbine & Power 

Transmission Equipment Mfg

333900 Other General Purpose 

Machinery Mfg

Computer and Electronic Product 

Manufacturing

334110 Computer & Peripheral 

Equipment Mfg

334200 Communications Equipment Mfg

334310 Audio & Video Equipment Mfg

334410 Semiconductor & Other 

Electronic Component Mfg

334500 Navigational, Measuring, 

Electromedical, & Control 

Instruments Mfg

334610 Manufacturing & Reproducing 

Magnetic & Optical Media

Electrical Equipment, Appliance, and 

Component Manufacturing

335100 Electric Lighting Equipment Mfg

335200 Household Appliance Mfg

335310 Electrical Equipment Mfg

335900 Other Electrical Equipment & 

Component Mfg

Transportation Equipment 

Manufacturing

336100 Motor Vehicle Mfg

336210 Motor Vehicle Body & Trailer Mfg

336300 Motor Vehicle Parts Mfg

336410 Aerospace Product & Parts Mfg

336510 Railroad Rolling Stock Mfg

336610 Ship & Boat Building

336990 Other Transportation Equipment 

Mfg

Furniture and Related Product 

Manufacturing

337000 Furniture & Related Product 

Manufacturing

Miscellaneous Manufacturing

339110 Medical Equipment & Supplies 

Mfg

339900 Other Miscellaneous 

Manufacturing

Wholesale Trade

Merchant Wholesalers, Durable Goods

423100 Motor Vehicle & Motor Vehicle 

Parts & Supplies

423200 Furniture & Home Furnishings

423300 Lumber & Other Construction 

Materials

423400 Professional & Commercial 

Equipment & Supplies

423500 Metal & Mineral (except 

Petroleum)

423600 Household Appliances & 

Electrical & Electronic Goods

423700 Hardware, & Plumbing & Heating 

Equipment & Supplies

423800 Machinery, Equipment, & 

Supplies

423910 Sporting & Recreational Goods & 

Supplies

423920 Toy & Hobby Goods & Supplies

423930 Recyclable Materials

423940 Jewelry, Watch, Precious Stone, 

& Precious Metals

423990 Other Miscellaneous Durable 

Goods

Merchant Wholesalers, Nondurable 

Goods

424100 Paper & Paper Products

424210 Drugs & Druggists' Sundries

424300 Apparel, Piece Goods, & Notions

424400 Grocery & Related Products

424500 Farm Product Raw Materials

424600 Chemical & Allied Products

424700 Petroleum & Petroleum Products

424800 Beer, Wine, & Distilled Alcoholic 

Beverages

424910 Farm Supplies

424920 Book, Periodical, & Newspapers

424930 Flower, Nursery Stock, & Florists' 

Supplies

424940 Tobacco Products & Electronic 

Cigarettes

424950 Paint, Varnish, & Supplies

424990 Other Miscellaneous Nondurable 

Goods

Wholesale Trade Agents & Brokers

425120 Wholesale Trade Agents & 

Brokers

Retail Trade

Motor Vehicle and Parts Dealers

441110 New Car Dealers

441120 Used Car Dealers

441210 Recreational Vehicle Dealers

441222 Boat Dealers

441227 Motorcycle, ATV, & All Other 

Motor Vehicle Dealers

441300 Automotive Parts, Accessories, & 

Tire Retailers

Building Material and Garden 

Equipment and Supplies Dealers

444110 Home Centers

444120 Paint & Wallpaper Retailers

444140 Hardware Retailers

444180 Other Building Material Dealers

444200 Lawn & Garden Equipment & 

Supplies Retailers

Food and Beverage Retailers

445110 Supermarkets & Other Grocery 

Retailers (except Convenience)

445131 Convenience Retailers

52
Principal Business Activity Codes (Continued)

445132 Vending Machine Operators

445230 Fruit & Vegetable Retailers

445240 Meat Retailers

445250 Fish & Seafood Retailers

445291 Baked Goods Retailers

445292 Confectionery & Nut Retailers

445298 All Other Specialty Food 

Retailers

445320 Beer, Wine, & Liquor Retailers

Furniture and Home Furnishings 

Retailers

449110 Furniture Retailers

449121 Floor Covering Retailers

449122 Window Treatment Retailers

449129 All Other Home Furnishings 

Retailers

Electronics and Appliance Retailers

449210 Electronics & Appliance Retailers 

(including computers)

General Merchandise Retailers

455110 Department Stores

455210 Warehouse Clubs, Supercenters, 

& Other General Merch. Retailers

Health and Personal Care Retailers

456110 Pharmacies & Drug Retailers

456120 Cosmetics, Beauty Supplies, & 

Perfume Retailers

456130 Optical Goods Retailers

456190 Other Health & Personal Care 

Retailers

Gasoline Stations & Fuel Dealers

457100 Gasoline Stations (including 

convenience stores with gas)

457210 Fuel Dealers (including heating 

oil & liquefied petroleum)

Clothing and Accessories Retailers

458110 Clothing & Clothing Accessories 

Retailers

458210 Shoe Retailers

458310 Jewelry Retailers

458320 Luggage & Leather Goods 

Retailers

Sporting, Hobby, Book, Musical 

Instrument, & Miscellaneous Retailers

459110 Sporting Goods Retailers

459120 Hobby, Toy, & Game Retailers

459130 Sewing, Needlework, & Piece 

Goods Retailers

459140 Musical Instrument & Supplies 

Retailers

459210 Book Retailers & News Dealers 

(including newsstands)

459310 Florists

459410 Office Supplies & Stationery 

Retailers

459420 Gift, Novelty, & Souvenir 

Retailers

459510 Used Merchandise Retailers

459910 Pet & Pet Supplies Retailers

459920 Art Dealers

459930 Manufactured (Mobile) Home 

Dealers

459990 All Other Miscellaneous Retailers 

(including tobacco, candle, & 

trophy retailers)

Nonstore Retailers

Nonstore Retailers sell all types 

of merchandise using such 

methods as Internet, mail-order 

catalogs, interactive television, or 

direct sales. These types of 

Retailers should select the PBA 

associated with their primary line 

of products sold. For example, 

establishments primarily selling 

prescription and non-prescription 

drugs, select PBA code 456110 

Pharmacies & Drug Retailers.

Transportation and 

Warehousing

Air, Rail, and Water Transportation

481000 Air Transportation

482110 Rail Transportation

483000 Water Transportation

Truck Transportation

484110 General Freight Trucking, Local

484120 General Freight Trucking, 

Long-Distance

484200 Specialized Freight Trucking

Transit and Ground Passenger 

Transportation

485110 Urban Transit Systems

485210 Interurban & Rural Bus 

Transportation

485310 Taxi & Ridesharing Services

485320 Limousine Service

485410 School & Employee Bus 

Transportation

485510 Charter Bus Industry

485990 Other Transit & Ground 

Passenger Transportation

Pipeline Transportation

486000 Pipeline Transportation

Scenic & Sightseeing Transportation

487000 Scenic & Sightseeing 

Transportation

Support Activities for Transportation

488100 Support Activities for Air 

Transportation

488210 Support Activities for Rail 

Transportation

488300 Support Activities for Water 

Transportation

488410 Motor Vehicle Towing

488490 Other Support Activities for Road 

Transportation

488510 Freight Transportation 

Arrangement

488990 Other Support Activities for 

Transportation

Couriers and Messengers

492110 Couriers & Express Delivery 

Services

492210 Local Messengers & Local 

Delivery

Warehousing and Storage

493100 Warehousing & Storage (except 

lessors of miniwarehouses & 

self-storage units)

Information

Motion Picture and Sound Recording 

Industries

512100 Motion Picture & Video Industries 

(except video rental)

512200 Sound Recording Industries

Publishing Industries

513110 Newspaper Publishers

513120 Periodical Publishers

513130 Book Publishers

513140 Directory & Mailing List 

Publishers

513190 Other Publishers

513210 Software Publishers

Broadcasting & Content Providers & 

Telecommunications

516100 Radio & Television Broadcasting 

Stations

516210 Media Streaming, Social 

Networks, & Other Content 

Providers

517000 Telecommunications (including 

wired, wireless, satellite, cable & 

other program distribution, 

resellers, agents, other 

telecommunications, & Internet 

service providers)

Data Processing, Web Search Portals, & 

Other Information Services

518210 Computing Infrastructure 

Providers, Data Processing, Web 

Hosting, & Related Services

519200 Web Search Portals, Libraries, 

Archives, & Other Info. Services

Finance and Insurance

Depository Credit Intermediation

522110 Commercial Banking

522130 Credit Unions

522180 Savings Institutions & Other 

Depository Credit Intermediation

Nondepository Credit Intermediation

522210 Credit Card Issuing

522220 Sales Financing

522291 Consumer Lending

522292 Real Estate Credit (including 

mortgage bankers & originators)

522299 Intl, Secondary Market, & Other 

Nondepos. Credit Intermediation

Activities Related to Credit 

Intermediation

522300 Activities Related to Credit 

Intermediation (including loan 

brokers, check clearing, & money 

transmitting)

Securities, Commodity Contracts, and 

Other Financial Investments and 

Related Activities

523150 Investment Banking & Securities 

Intermediation

523160 Commodity Contracts 

Intermediation

523210 Securities & Commodity 

Exchanges

523900 Other Financial Investment 

Activities (including portfolio 

management & investment 

advice)

Insurance Carriers and Related 

Activities

524110 Direct Life, Health, & Medical 

Insurance Carriers

524120 Direct Insurance (except Life, 

Health, & Medical) Carriers

524210 Insurance Agencies & 

Brokerages

524290 Other Insurance Related 

Activities (including third-party 

administration of insurance & 

pension funds)

Funds, Trusts, and Other Financial 

Vehicles

525100 Insurance & Employee Benefit 

Funds

525910 Open-End Investment Funds 

(Form 1120-RIC)

525920 Trusts, Estates, & Agency 

Accounts

525990 Other Financial Vehicles 

(including mortgage REITs & 

closed-end investment funds)

Real Estate and Rental and 

Leasing

Real Estate

531110 Lessors of Residential Buildings 

& Dwellings (including equity 

REITs)

531120 Lessors of Nonresidential 

Buildings (except 

Miniwarehouses) (including 

equity REITs)

531130 Lessors of Miniwarehouses & 

Self-Storage Units (including 

equity REITs)

531190 Lessors of Other Real Estate 

Property (including equity REITs)

531210 Offices of Real Estate Agents & 

Brokers

531310 Real Estate Property Managers

531320 Offices of Real Estate Appraisers

531390 Other Activities Related to Real 

Estate

Rental and Leasing Services

532100 Automotive Equipment Rental & 

Leasing

532210 Consumer Electronics & 

Appliances Rental

532281 Formal Wear & Costume Rental

532282 Video Tape & Disc Rental

532283 Home Health Equipment Rental

532284 Recreational Goods Rental

532289 All Other Consumer Goods 

Rental

532310 General Rental Centers

532400 Commercial & Industrial 

Machinery & Equipment Rental & 

Leasing

Lessors of Nonfinancial Intangible 

Assets (except copyrighted works)

533110 Lessors of Nonfinancial 

Intangible Assets (except 

copyrighted works)

Professional, Scientific, and 

Technical Services

Legal Services

541110 Offices of Lawyers

541190 Other Legal Services

Accounting, Tax Preparation, 

Bookkeeping, and Payroll Services

541211 Offices of Certified Public 

Accountants

541213 Tax Preparation Services

541214 Payroll Services

541219 Other Accounting Services

Architectural, Engineering, and Related 

Services

541310 Architectural Services

541320 Landscape Architecture Services

541330 Engineering Services

541340 Drafting Services

541350 Building Inspection Services

541360 Geophysical Surveying & 

Mapping Services

541370 Surveying & Mapping (except 

Geophysical) Services

541380 Testing Laboratories & Services

Specialized Design Services

541400 Specialized Design Services 

(including interior, industrial, 

graphic, & fashion design)

Computer Systems Design and Related 

Services

541511 Custom Computer Programming 

Services

541512 Computer Systems Design 

Services

541513 Computer Facilities Management 

Services

541519 Other Computer Related 

Services

Other Professional, Scientific, and 

Technical Services

541600 Management, Scientific, & 

Technical Consulting Services

541700 Scientific Research & 

Development Services

541800 Advertising, Public Relations, & 

Related Services

541910 Marketing Research & Public 

Opinion Polling

541920 Photographic Services

541930 Translation & Interpretation 

Services

541940 Veterinary Services

541990 All Other Professional, Scientific, 

& Technical Services

Management of Companies 

(Holding Companies)

551111 Offices of Bank Holding 

Companies

551112 Offices of Other Holding 

Companies

Administrative and Support and 

Waste Management and 

Remediation Services

Administrative and Support Services

561110 Office Administrative Services

561210 Facilities Support Services

561300 Employment Services

561410 Document Preparation Services

561420 Telephone Call Centers

561430 Business Service Centers 

(including private mail centers & 

copy shops)

561440 Collection Agencies

561450 Credit Bureaus

561490 Other Business Support 

Services (including repossession 

services, court reporting, & 

stenotype services)

561500 Travel Arrangement & 

Reservation Services

561600 Investigation & Security Services

561710 Exterminating & Pest Control 

Services

561720 Janitorial Services

561730 Landscaping Services

561740 Carpet & Upholstery Cleaning 

Services

561790 Other Services to Buildings & 

Dwellings

561900 Other Support Services 

(including packaging & labeling 

services, & convention & trade 

show organizers)

Waste Management and Remediation 

Services

562000 Waste Management & 

Remediation Services

Educational Services

611000 Educational Services (including 

schools, colleges, & universities)

Health Care and Social 

Assistance

Offices of Physicians and Dentists

621111 Offices of Physicians (except 

mental health specialists)

621112 Offices of Physicians, Mental 

Health Specialists

53
Principal Business Activity Codes (Continued)

621210 Offices of Dentists

Offices of Other Health Practitioners

621310 Offices of Chiropractors

621320 Offices of Optometrists

621330 Offices of Mental Health 

Practitioners (except Physicians)

621340 Offices of Physical, Occupational 

& Speech Therapists, & 

Audiologists

621391 Offices of Podiatrists

621399 Offices of All Other 

Miscellaneous Health 

Practitioners

Outpatient Care Centers

621410 Family Planning Centers

621420 Outpatient Mental Health & 

Substance Abuse Centers

621491 HMO Medical Centers

621492 Kidney Dialysis Centers

621493 Freestanding Ambulatory 

Surgical & Emergency Centers

621498 All Other Outpatient Care 

Centers

Medical and Diagnostic Laboratories

621510 Medical & Diagnostic 

Laboratories

Home Health Care Services

621610 Home Health Care Services

Other Ambulatory Health Care Services

621900 Other Ambulatory Health Care 

Services (including ambulance 

services & blood & organ banks)

Hospitals

622000 Hospitals

Nursing and Residential Care Facilities

623000 Nursing & Residential Care 

Facilities

Social Assistance

624100 Individual & Family Services

624200 Community Food & Housing, & 

Emergency & Other Relief 

Services

624310 Vocational Rehabilitation 

Services

624410 Childcare Services

Arts, Entertainment, and 

Recreation

Performing Arts, Spectator Sports, and 

Related Industries

711100 Performing Arts Companies

711210 Spectator Sports (including 

sports clubs & racetracks)

711300 Promoters of Performing Arts, 

Sports, & Similar Events

711410 Agents & Managers for Artists, 

Athletes, Entertainers, & Other 

Public Figures

711510 Independent Artists, Writers, & 

Performers

Museums, Historical Sites, and Similar 

Institutions

712100 Museums, Historical Sites, & 

Similar Institutions

Amusement, Gambling, and Recreation 

Industries

713100 Amusement Parks & Arcades

713200 Gambling Industries

713900 Other Amusement & Recreation 

Industries (including golf 

courses, skiing facilities, 

marinas, fitness centers, & 

bowling centers)

Accommodation and Food 

Services

Accommodation

721110 Hotels (except Casino Hotels) & 

Motels

721120 Casino Hotels

721191 Bed & Breakfast Inns

721199 All Other Traveler 

Accommodation

721210 RV (Recreational Vehicle) Parks 

& Recreational Camps

721310 Rooming & Boarding Houses, 

Dormitories, & Workers' Camps

Food Services and Drinking Places

722300 Special Food Services (including 

food service contractors & 

caterers)

722410 Drinking Places (Alcoholic 

Beverages)

722511 Full-Service Restaurants

722513 Limited-Service Restaurants

722514 Cafeterias, Grill Buffets, & Buffets

722515 Snack & Non-Alcoholic Beverage 

Bars

Other Services

Repair and Maintenance

811110 Automotive Mechanical & 

Electrical Repair & Maintenance

811120 Automotive Body, Paint, Interior, 

& Glass Repair

811190 Other Automotive Repair & 

Maintenance (including oil 

change & lubrication shops & car 

washes)

811210 Electronic & Precision Equipment 

Repair & Maintenance

811310 Commercial & Industrial 

Machinery & Equipment (except 

Automotive & Electronic) Repair 

& Maintenance

811410 Home & Garden Equipment & 

Appliance Repair & Maintenance

811420 Reupholstery & Furniture Repair

811430 Footwear & Leather Goods 

Repair

811490 Other Personal & Household 

Goods Repair & Maintenance

Personal and Laundry Services

812111 Barber Shops

812112 Beauty Salons

812113 Nail Salons

812190 Other Personal Care Services 

(including diet & weight reducing 

centers)

812210 Funeral Homes & Funeral 

Services

812220 Cemeteries & Crematories

812310 Coin-Operated Laundries & 

Drycleaners

812320 Drycleaning & Laundry Services 

(except Coin-Operated)

812330 Linen & Uniform Supply

812910 Pet Care (except Veterinary) 

Services

812920 Photofinishing

812930 Parking Lots & Garages

812990 All Other Personal Services

Religious, Grantmaking, Civic, 

Professional, and Similar Organizations

813000 Religious, Grantmaking, Civic, 

Professional, & Similar 

Organizations (including 

condominium & homeowners 

associations)

Other

999000 Unclassified Establishments 

(unable to classify)

54
Index

A

Accounting methods 6

Accounting period 6

Accumulated adjustments 

account 48

Amended return 6

Amortization 17

Amount owed 22

Assembling return 4

B

Bad debt deduction 18

Balance sheets–Sch. L 47

Business startup expenses 17

C

Change in accounting method 6

Charitable contributions 31

Conservation contributions 31

Cost of goods sold 15

D

Deductions 16, 30

Deductions from oil and gas 

properties 37

Deductions, limitations on 16

Depletion 19

Depletion (other than oil and gas) 37

Depreciation 19

Digital assets 23

Direct deposit of refund 2, 22

Distributions 49

Distributions, property 39

E

Election, termination of 2

Elective payment election 22

Electronic filing 3

Electronic filing waiver 3

Employee benefit programs 19

Employer identification number 

(EIN) 14

Energy efficient commercial buildings 

deduction 20

Estimated tax payment 5, 22

Estimated tax penalty 22

Exception to filing Schedule K-2 36

Exemptions 3

Expenses, nondeductible–Sch. K or 

K-1 39

Extension of time to file 3

F

Farming, special rules 16

Final return 14

Forgiveness of PPP loans 49

Forms and Publications, how to get 2

G

Gain (loss), section 1231–Sch. K or 

K-1 29

Gain, ordinary 15

Gross receipts 14

I

Income 14

Income from oil and gas 

properties 37

Income, rental activities 27

Income, tax-exempt 38

Income, trade or business 

activities 26

Installment sales 14

Interest deduction 18

Interest due on tax payment 5

Interest expense, investment 32

International transactions 36

Inventory 16

Investment income and expenses 39

L

Loans from shareholders 39

Lobbying expenses, 

nondeductible 20

Low-income housing credit 33

Low-income housing credit 

recapture 40

M

Multiple activities–reporting 

requirements 25

N

Net investment income (code U) 41

Net investment income tax reporting 

requirements 13

O

Officer compensation 17

P

Passive activities–rental 9

Passive activities–reporting 

requirements 12

Passive activity limitations 8

Penalties 5

Pension, profit-sharing, etc., plans 19

Portfolio income 10, 27

PPP loan forgiveness 23, 49

PPP reporting 38

Preparer, tax return 3

Private delivery services 3

Property distributions 39

Q

Qualified business income 

deduction 42

Qualified opportunity funds 8

Qualified rehabilitation 

expenditures 34

R

Recapture, low-income housing 

credit 40

Recapture, section 179 deduction 40

Recordkeeping 6

Reforestation 21, 33

Regulations section 1.1411-10(g) 7

Related party transactions 16

Religious exemption 3

Rental activities, income and 

expenses 27

Rental deduction 18

Return, amended 6

S

Salaries and wages 17

Sales 14

Schedule K-2 36

Schedule K-3 36

Schedule L 47

Schedule M-1 48

Schedule M-2 48

Schedule M-3 13

Section 1400Z-1 8

Section 1411 election with respect to 

CFCs and QEFs 7

Section 179 expense 30

Section 199A information 42

Section 263A rules 16

Section 59(e)(2) expenditures 32

Self-charged interest 10

Substitute Sch. K-1 24

T

Tax issues, unresolved 2

Taxes and licenses deduction 18

Taxes due 21

Termination of S election 2

Travel and entertainment 

deduction 20

W

When to file 3

Where to file 4

Who must file 2

Who must sign 3

55