Department of the Treasury 2008 Internal Revenue Service

Instructions for Form 1120

U.S. Corporation Income Tax Return

Section references are to the Internal What’s New Photographs of missing children selected

Revenue Code unless otherwise noted. by the Center may appear in instructions

on pages that would otherwise be blank. Contents Page • The filing address for certain You can help bring these children home Photographs of Missing Children .... 1 corporations whose principal business by looking at the photographs and calling Unresolved Tax Issues office or agency is located in Georgia or ............ 1 1-800-THE-LOST (1-800-843-5678) if you Tennessee has changed. See Where To Direct Deposit of Refund ........... 1 recognize a child. File on page 3. How To Make a Contribution To • A corporation can elect to claim Reduce Debt Held by the additional research and minimum tax Unresolved Tax Issues

Public ...................... 1 credits in lieu of claiming any additional The Taxpayer Advocate Service (TAS) is How To Get Forms and first-year special depreciation allowance an independent organization within the Publications .................. 2 for eligible qualified property. See the IRS whose employees assist taxpayers

General Instructions ............. 2 instructions for line 32g. who are experiencing economic harm,

Purpose of Form ................ 2 • For returns required to be filed after who are seeking help in resolving tax

Who Must File .................. 2 December 31, 2008, the minimum penalty problems that have not been resolved for failure to file a return that is over 60 through normal channels, or who believe Electronic Filing ................. 2 days late has increased to the smaller of that an IRS system or procedure is not When To File ................... 3 the tax due or $135. See page 4 of the working as it should. The service is free, Where To File .................. 3 Instructions. confidential, tailored to meet your needs,

Who Must Sign ................. 3 • For business start-up and and is available for businesses, as well as

Paid Preparer Authorization ........ 3 organizational costs paid or incurred after individuals.

September 8, 2008, a corporation is no Assembling the Return ............ 4 The corporation can contact the TAS longer required to attach a statement to Depository Methods of Tax as follows. its return or specifically identify the Payment .................... 4 • Call the TAS toll-free case intake line at amount deducted as organizational or Estimated Tax Payments .......... 4 1-877-777-4778 or TTY/TDD start-up costs for the election under 1-800-829-4059 to see if the corporation Interest and Penalties ............. 4 sections 195(b) or 248(a) to be effective. is eligible for assistance. Accounting Methods .............. 5 See page 9 of the instructions. • Call or write the corporation’s local Accounting Period • For tax years ending after May 22, ............... 5 taxpayer advocate, whose phone number 2008, and beginning before May 23, Rounding Off To Whole Dollars . . .... 5 and address are listed in the local 2009, a maximum 15% alternative tax will Recordkeeping .................. 5 telephone directory and in Pub. 1546, apply to the corporation’s qualified timber Other Forms and Statements Taxpayer Advocate Service – Your Voice gain (as defined under section That May Be Required at the IRS. .......... 5 1201(b)(2)). The alternative tax applies • File Form 911, Request for Taxpayer Specific Instructions ............ 6 for both the regular tax and the alternative Advocate Assistance (And Application for Period Covered ................. 6 minimum tax. See the instructions for Taxpayer Assistance Order), or ask an Name and Address Schedule J, line 2. .............. 6 IRS employee to complete it on the • All general business credits allowed Identifying Information ............ 6 corporation’s behalf. against the alternative minimum tax are Employer Identification Number claimed on Form 3800. See the For more information, go to www.irs. (EIN) ....................... 7 instructions for Schedule J, line 5c, on gov/advocate. Total Assets ................... 7 page 17, and Form 3800.

Initial Return, Final Return, • For information on temporary tax relief Direct Deposit of Refund Name Change, Address for certain taxpayers in Kiowa County, To request a direct deposit of the Change ..................... 7 Kansas, and surrounding areas, see Pub. corporation’s income tax refund into an Income ....................... 7 4492-A, Information for Taxpayers account at a U.S. bank or other financial Affected by the May 4, 2007, Kansas Deductions .................... 8 institution, attach Form 8050, Direct Storms and Tornadoes. Tax and Payments . . . . . . . . . . . . . . 13 Deposit of Corporate Tax Refund. See • For information on tax relief granted to Schedule A. Cost of Goods Sold . . . 14 the instructions for line 36 on page 14. certain taxpayers in the Midwestern Schedule C. Dividends and disaster areas that were affected by

Special Deductions . . . . . . . . . . . . 15 floods between May and August 2008 How To Make a

Worksheet for Schedule C . . . . . . . . 16 and declared eligible for federal Contribution To Reduce

Schedule J. Tax Computation . . . . . . 17 assistance, see Pub. 4492-B, Information

for Affected Taxpayers in the Midwestern Debt Held by the Public Schedule K. Other Information . . . . . 18 Disaster Areas. To help reduce debt held by the public, Schedule L. Balance Sheets per make a check payable to “Bureau of the Books . . . . . . . . . . . . . . . . . . . . . 20 Photographs of Public Debt.” Send it to Bureau of the Schedule M-1. Reconciliation of Public Debt, Department G, P.O. Box Income . . . . . . . . . . . . . . . . . . . . . 20 Missing Children 2188, Parkersburg, WV 26106-2188. Or, Principal Business Activity The Internal Revenue Service is a proud enclose a check with the income tax Codes . . . . . . . . . . . . . . . . . . . . . 22 partner with the National Center for return. Contributions to reduce debt held

Index . . . . . . . . . . . . . . . . . . . . . . . . 25 Missing and Exploited Children. by the public are deductible subject to the

Cat. No. 11455T
rules and limitations for charitable Limited liability companies. If an entity Visit www.irs.gov/efile for details.

contributions. with more than one owner was formed as

a limited liability company (LLC) under

state law, it generally is treated as a Special Returns for How To Get Forms partnership for federal income tax Certain Organizations and Publications purposes and files Form 1065, U.S. Instead of filing Form 1120, certain Return of Partnership Income. Generally, Internet. You can access the IRS organizations, as shown below, have to a single-member LLC is disregarded as website 24 hours a day, 7 days a week, at file special returns. an entity separate from its owner and www.irs.gov to: reports its income and deductions on its • Download forms, instructions, and

publications; owner’s federal income tax return. The If the organization is a: File Form

LLC can file a Form 1120 only if it has • Order IRS products online; filed Form 8832, Entity Classification • Research your tax questions online;

• Search publications online by topic or Election, to elect to be treated as an Exempt organization with association taxable as a corporation. For keyword; and unrelated trade or business 990-T more information about LLCs, see Pub. • Sign up to receive local and national income 3402, Tax Issues for Limited Liability tax news by email. Companies. Religious or apostolic IRS Tax Products DVD. You can order Corporations engaged in farming. A organization exempt under 1065 Pub. 1796, IRS Tax Products DVD, and corporation (other than a corporation that section 501(d) obtain: is a subchapter T cooperative) that

engages in farming should use Form • Current-year forms, instructions, and Entity formed as a limited 1120 to report the income (loss) from publications. such activities. Enter the income and liability company under state • Prior-year forms, instructions, and deductions of the corporation according to law and treated as a 1065 publications. partnership for federal the instructions for lines 1 through 10 and • Tax Map: an electronic research tool 12 through 29. income tax purposes and finding aid.

• Tax law frequently asked questions Ownership interest in a Financial

Asset Securitization Investment Trust Subchapter T cooperative (FAQs).

• Tax Topics from the IRS telephone (FASIT). Special rules apply to a FASIT association (including a 1120-C

in existence on October 22, 2004, to the farmers’ cooperative) response system.

• Internal Revenue Code – Title 26. extent that regular interests issued by the

• Fill-in, print, and save features for most FASIT before October 22, 2004, continue Entity that elects to be treated

tax forms. to remain outstanding in accordance with as a real estate mortgage their original terms. 1066 • Internal Revenue Bulletins. investment conduit (REMIC) • Toll-free and email technical support. If a corporation holds an ownership under section 860D • Two releases during the year. interest in a FASIT to which these special

– The first release will ship early in rules apply, it must report all items of Interest charge domestic January 2009. income, gain, deductions, losses, and international sales 1120-IC-DISC – The final release will ship early in credits on the corporation’s income tax corporation (section 992) March 2009. return (except as provided in section

860H). Show a breakdown of the items on Purchase the DVD from the National Foreign corporation (other an attached schedule. For more Technical Information Service (NTIS) at than life and property and information, see sections 860H and 860L. www.irs.gov/cdorders for $30 (no casualty insurance company 1120-F

handling fee) or call 1-877-233-6767 toll Electronic Filing filing Form 1120-L or Form free to buy the DVD for $30 (plus a $6 Corporations can generally electronically 1120-PC) handling fee). file (e-file) Form 1120, related forms,

By phone and in person. You can schedules, and attachments, Form 7004, Foreign sales corporation Form 940 and Form 941 employment tax 1120-FSC order forms and publications by calling (section 922) returns. If there is a balance due, the 1-800-TAX-FORM (1-800-829-3676). You corporation can authorize an electronic can also get most forms and publications Condominium management, funds withdrawal while e-filing. Form 1099 at your local IRS office. residential real estate and other information returns can also be management, or timeshare electronically filed. 1120-H association that elects to be

However, the option to e-file does not General Instructions treated as a homeowners apply to certain returns, including: association under section 528 • Returns with precomputed penalty and Purpose of Form interest, Life insurance company Use Form 1120, U.S. Corporation Income • Returns with reasonable cause for 1120-L (section 801) Tax Return, to report the income, gains, failing to file timely,

losses, deductions, credits, and to figure • Returns with reasonable cause for

the income tax liability of a corporation. failing to pay timely, and Fund set up to pay for

• Returns with request for overpayment nuclear decommissioning 1120-ND

Who Must File to be applied to another account. costs (section 468A)

Unless exempt under section 501, all Required filers. Certain corporations

domestic corporations (including with total assets of $10 million or more Property and casualty

corporations in bankruptcy) must file an that file at least 250 returns a year are insurance company 1120-PC

income tax return whether or not they required to e-file Form 1120. See (section 831)

have taxable income. Domestic Regulations section 301.6011-5.

corporations must file Form 1120 unless However, these corporations can request Political organization they are required to file a special return. a waiver of the electronic filing 1120-POL (section 527) See Special Returns for Certain requirements. See Notice 2005-88,

Organizations below. 2005-48 I.R.B. 1060.

-2- Instructions for Form 1120
 If a return is filed on behalf of a box in the signature area of the return. Real estate investment trust 1120-REIT corporation by a receiver, trustee, or This authorization applies only to the (section 856) assignee, the fiduciary must sign the individual whose signature appears in the

return, instead of the corporate officer. “Paid Preparer’s Use Only” section of the Regulated investment Returns and forms signed by a receiver or return. It does not apply to the firm, if any, 1120-RIC company (section 851) trustee in bankruptcy on behalf of a shown in that section.

corporation must be accompanied by a If the “Yes,” box is checked, the S corporation (section 1361) 1120S copy of the order or instructions of the corporation is authorizing the IRS to call court authorizing signing of the return or the paid preparer to answer any form. Settlement fund 1120-SF questions that may arise during the (section 468B) If an employee of the corporation processing of its return. The corporation completes Form 1120, the paid preparer’s is also authorizing the paid preparer to: space should remain blank. Anyone who • Give the IRS any information that is When To File prepares Form 1120 but does not charge missing from the return, the corporation should not complete that Generally, a corporation must file its • Call the IRS for information about the section. Generally, anyone who is paid to processing of the return or the status of income tax return by the 15th day of the prepare the return must sign it and fill in 3rd month after the end of its tax year. A any related refund or payment(s), and the “Paid Preparer’s Use Only” area. new corporation filing a short-period • Respond to certain IRS notices about

return must generally file by the 15th day The paid preparer must complete the math errors, offsets, and return

of the 3rd month after the short period required preparer information and: preparation.

ends. A corporation that has dissolved • Sign the return in the space provided The corporation is not authorizing the must generally file by the 15th day of the for the preparer’s signature. paid preparer to receive any refund 3rd month after the date it dissolved. • Give a copy of the return to the check, bind the corporation to anything taxpayer. If the due date falls on a Saturday, (including any additional tax liability), or Sunday, or legal holiday, the corporation Note. A paid preparer may sign original otherwise represent the corporation or amended returns by rubber stamp, can file on the next business day. before the IRS. mechanical device, or computer software Private Delivery Services program. The authorization will automatically

Corporations can use certain private end no later than the due date (excluding

delivery services designated by the IRS to Paid Preparer extensions) for filing the corporation’s

meet the “timely mailing as timely filing/ 2009 tax return. If the corporation wants

paying” rule for tax returns and payments. Authorization to expand the paid preparer’s

These private delivery services include If the corporation wants to allow the IRS authorization or revoke the authorization

only the following. to discuss its 2008 tax return with the paid before it ends, see Pub. 947, Practice

preparer who signed it, check the “Yes,” Before the IRS and Power of Attorney. • DHL Express (DHL): DHL Same Day

Service, DHL Next Day 10:30 am, DHL

Next Day 12:00 pm, DHL Next Day 3:00

pm, and DHL 2nd Day Service.

• Federal Express (FedEx): FedEx Where To File

Priority Overnight, FedEx Standard File the corporation’s return at the applicable IRS address listed below. Overnight, FedEx 2Day, FedEx

International Priority, and FedEx If the corporation’s principal And the total assets at

International First. business, office, or agency the end of the tax year

• United Parcel Service (UPS): UPS Next is located in: are: Use the following address:

Day Air, UPS Next Day Air Saver, UPS Connecticut, Delaware, District Less than $10 million and Department of the Treasury 2nd Day Air, UPS 2nd Day Air A.M., UPS of Columbia, Georgia, Illinois, Schedule M-3 is not filed Internal Revenue Service Center Worldwide Express Plus, and UPS Indiana, Kentucky, Maine, Cincinnati, OH 45999-0012 Worldwide Express. Maryland, Massachusetts,

The private delivery service can tell Michigan, New Hampshire,

you how to get written proof of the mailing New Jersey, New York, North

date. Carolina, Ohio, Pennsylvania, $10 million or more or Department of the Treasury Rhode Island, South Carolina, Private delivery services cannot less than $10 million and Internal Revenue Service Center Tennessee, Vermont, Virginia, deliver items to P.O. boxes. You West Virginia, Wisconsin Schedule M-3 is filed Ogden, UT 84201-0012

CAUTION must use the U.S. Postal Service

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Alabama, Alaska, Arizona, to mail any item to an IRS P.O. box Arkansas, California, Colorado, address.

Florida, Hawaii, Idaho, Iowa,

Extension of Time To File Kansas, Louisiana, Minnesota, Department of the Treasury File Form 7004, Application for Automatic Mississippi, Missouri, Montana, Any amount Internal Revenue Service Center Extension of Time To File Certain Nebraska, Nevada, New Ogden, UT 84201-0012 Mexico, North Dakota, Business Income Tax, Information, and Oklahoma, Oregon, South Other Returns, to request a 6-month Dakota, Texas, Utah, extension of time to file. Generally, the Washington, Wyoming corporation must file Form 7004 by the

regular due date of the return. Internal Revenue Service Center

A foreign country or U.S. Any amount P.O. Box 409101

Who Must Sign possession Ogden, UT 84409

The return must be signed and dated by:

• The president, vice president, A group of corporations with members located in more than one service center area

treasurer, assistant treasurer, chief will often keep all the books and records at the principal office of the managing

accounting officer; or corporation. In this case, the tax returns of the corporations may be filed with the

• Any other corporate officer (such as tax service center for the area in which the principal office of the managing corporation is

officer) authorized to sign. located.

Instructions for Form 1120 -3-
 Do not send deposits directly to an See section 6655 for details and Assembling the Return IRS office; otherwise, the corporation may exceptions, including special rules for To ensure that the corporation’s tax return have to pay a penalty. Mail or deliver the large corporations. is correctly processed, attach all completed Form 8109 with the payment schedules and other forms after page 5 of Use Form 2220, Underpayment of to an authorized depositary (a commercial Form 1120 in the following order. Estimated Tax by Corporations, to see if bank or other financial institution the corporation owes a penalty and to 1. Schedule N (Form 1120). authorized to accept federal tax deposits). figure the amount of the penalty. 2. Schedule O (Form 1120). Make checks or money orders payable to Generally, the corporation does not have 3. Form 4626. the depositary. to file this form because the IRS can 4. Form 8050. If the corporation prefers, it can mail figure the amount of any penalty and bill 5. Form 4136. the coupon and payment to: Financial the corporation for it. However, even if the 6. Form 851. Agent, Federal Tax Deposit Processing, corporation does not owe the penalty, 7. Additional schedules in alphabetical P.O. Box 970030, St. Louis, MO 63197. complete and attach Form 2220 if: order. Make the check or money order payable • The annualized income or adjusted 8. Additional forms in numerical order. to “Financial Agent.” seasonal installment method is used, or

Complete every applicable entry space To help ensure proper crediting, enter • The corporation is a large corporation

the corporation’s EIN, the tax period to computing its first required installment on Form 1120. Do not enter “See

Attached” instead of completing the entry which the deposit applies, and “Form based on the prior year’s tax. See the

1120” on the check or money order. Instructions for Form 2220 for the spaces. If more space is needed on the Darken the “1120” box under “Type of definition of a large corporation. forms or schedules, attach separate Tax” and the appropriate “Quarter” box Also, see the instructions for line 33. sheets using the same size and format as under “Tax Period” on the coupon. the printed forms. If there are supporting Records of these deposits will be sent to statements and attachments, arrange Interest and Penalties the IRS. For more information, see them in the same order as the schedules “Marking the Proper Tax Period” in the Interest. Interest is charged on taxes or forms they support and attach them Instructions for Form 8109. paid late even if an extension of time to last. Show the totals on the printed forms. file is granted. Interest is also charged on Enter the corporation’s name and EIN on For more information on deposits, see penalties imposed for failure to file, each supporting statement or attachment. the instructions in the coupon booklet negligence, fraud, substantial valuation (Form 8109) and Pub. 583, Starting a misstatements, substantial Depository Methods Business and Keeping Records. understatements of tax, and reportable If the corporation owes tax when it of Tax Payment transaction understatements from the due

files Form 1120, do not include the date (including extensions) to the date of The corporation must pay any tax due in payment with the tax return. payment. The interest charge is figured at CAUTION

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full no later than the 15th day of the 3rd

month after the end of the tax year. The Instead, mail or deliver the payment with a rate determined under section 6621.

Form 8109 to an authorized depositary, or two methods of depositing taxes are Late filing of return. A corporation that use EFTPS, if applicable. discussed below. does not file its tax return by the due date,

Estimated Tax Payments including extensions, may be penalized Electronic Deposit Requirement 5% of the unpaid tax for each month or The corporation must make electronic Generally, the following rules apply to the part of a month the return is late, up to a deposits of all depository taxes (such as corporation’s payments of estimated tax. maximum of 25% of the unpaid tax. The employment tax, excise tax, and • The corporation must make installment minimum penalty for a return that is over corporate income tax) using the payments of estimated tax if it expects its 60 days late is the smaller of the tax due Electronic Federal Tax Payment System total tax for the year (less applicable or $135. The penalty will not be imposed (EFTPS) in 2009 if: credits) to be $500 or more. if the corporation can show that the failure • The total deposits of such taxes in • The installments are due by the 15th to file on time was due to reasonable 2007 were more than $200,000 or day of the 4th, 6th, 9th, and 12th months cause. Corporations that file late should • The corporation was required to use of the tax year. If any date falls on a attach a statement explaining the EFTPS in 2008. Saturday, Sunday, or legal holiday, the reasonable cause. installment is due on the next regular If the corporation is required to use business day. Late payment of tax. A corporation that EFTPS and fails to do so, it may be • Use Form 1120-W, Estimated Tax for does not pay the tax when due generally subject to a 10% penalty. If the may be penalized 1 Corporations, as a worksheet to compute /2 of 1% of the unpaid corporation is not required to use EFTPS, estimated tax. tax for each month or part of a month the it can participate voluntarily. To enroll in

or get more information about EFTPS, • If the corporation does not use EFTPS, tax is not paid, up to a maximum of 25%

use the deposit coupons (Forms 8109) to of the unpaid tax. The penalty will not be call 1-800-555-4477. To enroll online, visit make deposits of estimated tax. imposed if the corporation can show that www.eftps.gov. • If the corporation overpaid estimated the failure to pay on time was due to Depositing on time. For EFTPS tax, it may be able to get a quick refund reasonable cause.

deposits to be made timely, the by filing Form 4466, Corporation corporation must initiate the transaction at Trust fund recovery penalty. This Application for Quick Refund of penalty may apply if certain excise, least 1 business day before the date the Overpayment of Estimated Tax. deposit is due. income, social security, and Medicare See the instructions for lines 32b and taxes that must be collected or withheld Deposits With Form 8109 32c. are not collected or withheld, or these

If the corporation does not use EFTPS, Estimated tax penalty. A corporation taxes are not paid. These taxes are

deposit corporation income tax payments that does not make estimated tax generally reported on:

(and estimated tax payments) with Form payments when due may be subject to an • Form 720, Quarterly Federal Excise

8109, Federal Tax Deposit Coupon. If you underpayment penalty for the period of Tax Return;

do not have a preprinted Form 8109, use underpayment. Generally, a corporation is • Form 941, Employer’s QUARTERLY

Form 8109-B to make deposits. You can subject to the penalty if its tax liability is Federal Tax Return;

get this form by calling 1-800-829-4933 or $500 or more and it did not timely pay the • Form 943, Employer’s Annual Federal

visiting an IRS taxpayer assistance smaller of: Tax Return for Agricultural Employees; or

center. Have your EIN ready when you • Its tax liability for 2008 or • Form 945, Annual Return of Withheld

call or visit. • Its prior year’s tax. Federal Income Tax.

-4- Instructions for Form 1120
The trust fund recovery penalty may corporation is affected by its participation Accounting Period be imposed on all persons who are in the transaction. The following are

determined by the IRS to have been reportable transactions. A corporation must figure its taxable

responsible for collecting, accounting for, income on the basis of a tax year. A tax 1. Any listed transaction, which is a and paying over these taxes, and who year is the annual accounting period a transaction that is the same as or

acted willfully in not doing so. The penalty corporation uses to keep its records and substantially similar to tax avoidance report its income and expenses. is equal to the unpaid trust fund tax. See transactions identified by the IRS. the Instructions for Form 720, Pub. 15 Generally, corporations can use a 2. Any transaction offered under calendar year or a fiscal year. Personal (Circular E), Employer’s Tax Guide, or conditions of confidentiality for which the Pub. 51 (Circular A), Agricultural service corporations, however, must use corporation paid an advisor a fee of at Employer’s Tax Guide, for details, a calendar year unless they meet one of least $250,000. the exceptions discussed on page 6. including the definition of responsible 3. Certain transactions for which the

persons. Change of tax year. Generally, a corporation has contractual protection corporation, including a personal service against disallowance of the tax benefits. Other penalties. Other penalties can be corporation, must get the consent of the 4. Certain transactions resulting in a imposed for negligence, substantial IRS before changing its tax year by filing loss of at least $10 million in any single understatement of tax, reportable Form 1128, Application To Adopt, year or $20 million in any combination of transaction understatements, and fraud. Change, or Retain a Tax Year. However, years. See sections 6662, 6662A, and 6663. under certain conditions, a corporation 5. Any transaction identified by the can change its tax year without getting IRS in published guidance as a consent. Accounting Methods “transaction of interest” (a transaction that

See the Instructions for Form 1128 the IRS believes has a potential for tax Figure taxable income using the method and Pub. 538 for more information on avoidance or evasion, but has not yet of accounting regularly used in keeping accounting periods and tax years. been identified as a listed transaction). the corporation’s books and records. In all

cases, the method used must clearly Rounding Off To For more information, see Regulations

show taxable income. Permissible section 1.6011-4 and the Instructions for

methods include cash, accrual, or any Whole Dollars Form 8886.

other method authorized by the Internal The corporation can round off cents to Penalties. The corporation may have Revenue Code. whole dollars on its return and schedules. to pay a penalty if it is required to disclose

If the corporation does round to whole a reportable transaction under section Generally, the following rules apply. dollars, it must round all amounts. To 6011 and fails to properly complete and • A corporation (other than a qualified round, drop amounts under 50 cents and file Form 8886. Penalties may also apply personal service corporation) must use increase amounts from 50 to 99 cents to under section 6707A if the corporation the accrual method of accounting if its the next dollar. For example, $1.39 fails to file Form 8886 with its corporate average annual gross receipts exceed $5 becomes $1 and $2.50 becomes $3. return, fails to provide a copy of Form million. However, see Nonaccrual If two or more amounts must be added 8886 to the Office of Tax Shelter Analysis experience method on page 7. to figure the amount to enter on a line, (OTSA), or files a form that fails to include • Unless it is a qualifying taxpayer or a include cents when adding the amounts all the information required (or includes qualifying small business taxpayer, a and round off only the total. incorrect information). Other penalties, corporation must use the accrual method such as an accuracy-related penalty for sales and purchases of inventory Recordkeeping under section 6662A, may also apply. items. See Schedule A. Cost of Goods See the Instructions for Form 8886 for

Sold on page 14. Keep the corporation’s records for as long details on these and other penalties. as they may be needed for the • A corporation engaged in farming must Reportable transactions by material administration of any provision of the use the accrual method. For exceptions, advisors. Material advisors to any Internal Revenue Code. Usually, records see section 447. reportable transaction must disclose that support an item of income, deduction, • Special rules apply to long-term certain information about the reportable or credit on the return must be kept for 3 contracts. See section 460. transaction by filing Form 8918, Material years from the date the return is due or • Dealers in securities must use the Advisor Disclosure Statement, with the filed, whichever is later. Keep records that mark-to-market accounting method. IRS. verify the corporation’s basis in property Dealers in commodities and traders in for as long as they are needed to figure Transfers to a corporation controlled securities and commodities can elect to the basis of the original or replacement by the transferor. Every significant use the mark-to-market accounting property. transferor (as defined in Regulations method. See section 475. section 1.351-3(d)) that receives stock of The corporation should keep copies of a corporation in exchange for property in Change in accounting method. all filed returns. They help in preparing a nonrecognition event must attach the Generally, the corporation must get IRS future and amended returns.

statement required by Regulations consent to change the method of Other Forms and section 1.351-3(a) to its return for the tax accounting used to report taxable income year of the exchange. The transferee (for income as a whole or for the Statements That May Be corporation must include the statement treatment of any material item). To do so, required by Regulations section the corporation generally must file Form Required 1.351-3(b) for the tax year of the 3115, Application for Change in Amended return. Use Form 1120X, exchange, unless all the required Accounting Method. See Form 3115 and Amended U.S. Corporation Income Tax information is included in any Pub. 538, Accounting Periods and Return, to correct a previously filed Form statement(s) provided by a significant Methods, for more information. 1120. transferor that is attached to the same

There are some instances when the Reportable transaction disclosure return for the same section 351

exchange. corporation can obtain automatic consent statement. Disclose information for each

from the IRS to change to certain reportable transaction in which the Distributions under section 355. Every

accounting methods. See Rev. Proc. corporation participated. Form 8886, corporation that makes a distribution of

2008-52, 2008-36 I.R.B. 587, as modified Reportable Transaction Disclosure stock or securities of a controlled

by Announcement 2008-84, 2008-38 Statement, must be filed for each tax year corporation, as described in section 355

I.R.B. 748. that the federal income tax liability of the (or so much of section 356 as it relates to

Instructions for Form 1120 -5-
section 355), must attach the statement document creating it), address, and EIN The corporation does not have to

required by Regulations section 1.355-5 on the appropriate lines. Enter the complete lines 3, 4, and 5 above,

to its return for the year of the distribution. address of the corporation’s principal if its total receipts (line 1a plus

TIP

If the distributing corporation is a office or place of business. Include the lines 4 through 10 on page 1 of the

controlled foreign corporation, each U.S. suite, room, or other unit number after the return) and its total assets at the end of

shareholder (within the meaning of street address. If the post office does not the tax year are less than $250,000.

section 951(b)), must include the deliver mail to the street address and the For more information on consolidated statement on or with its return. corporation has a P.O. box, show the box returns, see the regulations under section Dual consolidated losses. number instead. If a 1502. domestic corporation incurs a dual Note. Do not use the address of the consolidated loss (as defined in registered agent for the state in which the Life-Nonlife Consolidated Regulations section 1.1503-2(c)(5)), the corporation is incorporated. For example, Return corporation (or consolidated group) may

need to attach an elective relief if a business is incorporated in Delaware If the corporation is the common parent of

agreement and/or an annual certification or Nevada and the corporation’s principal a consolidated group that includes a

as provided in Regulations section office is located in Little Rock, AR, the life-nonlife insurance company, check box

1.1503-2(g)(2). corporation should enter the Little Rock 1b of Item A. See Temporary Regulations address. section 1.1502-47T(s). Election to reduce basis under section

362(e)(2)(C). The transferor and If the corporation receives its mail in Personal Holding Company transferee in certain section 351 care of a third party (such as an transactions can make a joint election A personal holding company must attach accountant or an attorney), enter on the under section 362(e)(2)(C) to limit the to Form 1120 a Schedule PH (Form street address line “C/O” followed by the 1120), U.S. Personal Holding Company transferor’s basis in the stock received third party’s name and street address or (PHC) Tax. See the Instructions for instead of the transferee’s basis in the P.O. box. Schedule PH (Form 1120) for details. transferred property. The transferor and

transferee may make the election by If the corporation received a Form attaching the statement as provided in Personal Service Corporation 1120 tax package, use the preprinted Notice 2005-70, 2005-41 I.R.B. 694, to label. Cross out any errors and print the A personal service corporation is a

their tax returns filed by the due date correct information on the label. corporation whose principal activity for the

(including extensions) for the tax year in testing period (generally the prior tax year

which the transaction occurred. If the unless the corporation has just been

transferor is a controlled foreign Item A. Identifying formed) for tax year is the performance of

corporation, its controlling U.S. personal services. Personal services

shareholder(s) can make the election. Information include any activity performed in the fields

The common parent of a consolidated of accounting, actuarial science, Consolidated Return group can make the election for the architecture, consulting, engineering,

group. Corporations filing a consolidated return health, law, and the performing arts. The

Once made, the election is irrevocable. must attach Form 851, Affiliations services must be substantially performed Schedule, and other supporting by employee-owners. See section 362(e)(2)(C) and Notice statements to the return. Also, for the first 2005-70. year a subsidiary corporation is being A personal service corporation must

Other forms and statements. See Pub. use a calendar tax year unless: included in a consolidated return, attach 542 for a list of other forms and Form 1122, Authorization and Consent of • It elects to use a 52-53-week tax year

statements a corporation may need to file Subsidiary Corporation To Be Included in that ends with reference to the calendar

in addition to the forms and statements a Consolidated Income Tax Return, to the year or tax year elected under section

discussed throughout these instructions. parent’s consolidated return. Attach a 444;

separate Form 1122 for each subsidiary • It can establish a business purpose for

being included in the consolidated return. a different tax year and obtains the

Specific Instructions approval of the IRS (see the Instructions

File supporting statements for each for Form 1128 and Pub. 538); or

corporation included in the consolidated • It elects under section 444 to have a Period Covered return. Do not use Form 1120 as a tax year other than a calendar year. To

File the 2008 return for calendar year supporting statement. On the supporting make the election, use Form 8716,

2008 and fiscal years that begin in 2008 statement, use columns to show the Election To Have a Tax Year Other Than

and end in 2009. For a fiscal or short tax following, both before and after a Required Tax Year.

year return, fill in the tax year space at the adjustments. If a corporation makes the section 444 top of the form. 1. Items of gross income and election, its deduction for certain amounts deductions. The 2008 Form 1120 can also be paid to employee-owners may be limited. used if: 2. A computation of taxable income. See Schedule H (Form 1120), Section • The corporation has a tax year of less 3. Balance sheets as of the beginning 280H Limitations for a Personal Service

than 12 months that begins and ends in and end of the tax year. Corporation (PSC), to figure the 2009, and 4. A reconciliation of income per maximum deduction. • The 2009 Form 1120 is not available at books with income per return. the time the corporation is required to file If a section 444 election is terminated 5. A reconciliation of retained

its return. and the termination results in a short tax earnings. year, type or print at the top of the first The corporation must show its 2009 page of Form 1120 for the short tax year tax year on the 2008 Form 1120 and take Enter on Form 1120 the totals for each “SECTION 444 ELECTION into account any tax law changes that are item of income, gain, loss, expense, or TERMINATED.” See Temporary effective for tax years beginning after deduction, net of eliminating entries for Regulations section 1.444-1T(a)(5) for December 31, 2008. intercompany transactions between more information. corporations within the consolidated Name and Address group. Attach consolidated balance For more information regarding a

Enter the corporation’s true name (as set sheets and a reconciliation of personal service corporation, see Pub.

forth in the charter or other legal consolidated retained earnings. 542.

-6- Instructions for Form 1120
Schedule M-3 (Form 1120) incorporation and filed the amendment increased by the interest payable under

with the state in which it was section 453(l)(3). Report this addition to A corporation with total assets incorporated. the tax on line 9, Schedule J. (non-consolidated or consolidated for all • If the corporation has changed its corporations included within a tax Enter on line 1 (and carry to line 3), the address since it last filed a return consolidation group) of $10 million or gross profit on collections from installment (including a change to an “in care of” more on the last day of the tax year must sales for any of the following. address), check the “Address change” complete Schedule M-3 (Form 1120), Net • Dealer dispositions of property before

Income (Loss) Reconciliation for box. March 1, 1986.

Corporations With Total Assets of $10 Note. If a change in address occurs after • Dispositions of property used or

Million or More, instead of Schedule M-1. the return is filed, use Form 8822, produced in the trade or business of

A corporation filing Form 1120 that is not Change of Address, to notify the IRS of farming.

required to file Schedule M-3 may the new address. • Certain dispositions of timeshares and

voluntarily file Schedule M-3 instead of residential lots reported under the

Schedule M-1. Income installment method.

If you are filing Schedule M-3, check Except as otherwise provided in the Attach a schedule showing the

box 4 of Item A to indicate that Schedule Internal Revenue Code, gross income following information for the current and

M-3 is attached. See the Instructions for includes all income from whatever source the 3 preceding years: (a) gross sales, (b)

Schedule M-3 for more details. derived. cost of goods sold, (c) gross profits, (d)

percentage of gross profits to gross sales, Income from qualifying shipping Item B. Employer (e) amount collected, and (f) gross profit activities. Gross income does not on the amount collected. Identification Number (EIN) include income from qualifying shipping

activities if the corporation makes an Enter the corporation’s EIN. If the Nonaccrual experience method. election under section 1354 to be taxed corporation does not have an EIN, it must Accrual method corporations are not on its notional shipping income (as apply for one. An EIN can be applied for: required to accrue certain amounts to be defined in section 1353) at the highest • Online—Click on the EIN link at www. received from the performance of corporate tax rate (35%). If the election is irs.gov/businesses/small. The EIN is services that, on the basis of their made, the corporation generally may not issued immediately once the application experience, will not be collected, if: claim any loss, deduction, or credit with information is validated. • The services are in the fields of health, respect to qualifying shipping activities. A • By telephone at 1-800-829-4933 from law, engineering, architecture, corporation making this election also may 7:00 a.m. to 10:00 p.m. in the accounting, actuarial science, performing elect to defer gain on the disposition of a corporation’s local time zone. arts, or consulting, or qualifying vessel. • By mailing or faxing Form SS-4, • The corporation’s average annual

Application for Employer Identification Use Form 8902, Alternative Tax on gross receipts for the 3 prior tax years

Number. Qualifying Shipping Activities, to figure does not exceed $5 million.

the tax. Include the alternative tax on If the corporation has not received its This provision does not apply to any Schedule J, line 9. EIN by the time the return is due, enter amount if interest is required to be paid

“Applied for” and the date you applied in Line 1. Gross Receipts or Sales on the amount or if there is any penalty

the space for the EIN. For more details, for failure to timely pay the amount. For Enter gross receipts or sales from all see the Instructions for Form SS-4. more information, see Regulations business operations except those that Note. Only corporations located in the must be reported on lines 4 through 10. In section 1.448-2.

United States or U.S. possessions can general, advance payments are reported Corporations that qualify to use the use the online application. Foreign in the year of receipt. To report income nonaccrual experience method should corporations must use one of the other from long-term contracts, see section attach a schedule showing total gross methods to apply. 460. For special rules for reporting certain receipts, the amount not accrued as a

advance payments for goods and result of the application of section Item D. Total Assets long-term contracts, see Regulations 448(d)(5), and the net amount accrued.

Enter the corporation’s total assets (as section 1.451-5. For permissible methods Enter the net amount on line 1a.

determined by the accounting method for reporting advance payments for Line 2. Cost of Goods Sold services and certain goods by an accrual regularly used in keeping the method corporation, see Rev. Proc. Enter the cost of goods sold on line 2, corporation’s books and records) at the 2004-34, 2004-22 I.R.B. 991. page 1. Before making this entry, end of the tax year. If there are no assets

at the end of the tax year, enter -0-. complete Schedule A on page 2 of Form Installment sales. Generally, the 1120. See the Schedule A instructions on installment method cannot be used for If the corporation is required to page 14. complete Schedule L, enter total assets dealer dispositions of property. A “dealer

disposition” is any disposition of: (a) from Schedule L, line 15, column (d) on Line 4. Dividends

page 1, item D. If filing a consolidated personal property by a person who See the instructions for Schedule C. regularly sells or otherwise disposes of return, report total consolidated assets for Then, complete Schedule C and enter on all corporations joining in the return. personal property of the same type on the line 4 the amount from Schedule C, line installment plan or (b) real property held 19. for sale to customers in the ordinary Item E. Initial Return, Final course of the taxpayer’s trade or Line 5. Interest Return, Name Change, or business. Enter taxable interest on U.S. obligations

Address Change These restrictions on using the and on loans, notes, mortgages, bonds,

installment method do not apply to bank deposits, corporate bonds, tax • If this is the corporation’s first return, dispositions of property used or produced refunds, etc. Do not offset interest check the “Initial return” box. in a farming business or sales of expense against interest income. Special • If this is the corporation’s final return timeshares and residential lots for which rules apply to interest income from certain and it will no longer exist, check the “Final the corporation elects to pay interest below-market-rate loans. See section return” box. under section 453(l)(3). 7872 for details. • If the corporation changed its name

since it last filed a return, check “Name For sales of timeshares and residential Note. Report tax-exempt interest income

change” box. Generally, a corporation lots reported under the installment on Schedule K, item 9. Also, if required,

also must have amended its articles of method, the corporation’s income tax is include the same amount on Schedule

Instructions for Form 1120 -7-
M-1, line 7, or Schedule M-3 (Form 1120), 1.1363-2 and Rev. Proc. 94-61, 1994-2 • Contributions to pension, stock bonus,

Part II, line 13, if applicable. C.B. 775. Also see the instructions for and certain profit-sharing, annuity, or

Schedule J, line 10. deferred compensation plans. Line 6. Gross Rents 8. Any net positive section 481(a) Regulations section 1.263A-1(e)(3) Enter the gross amount received for the adjustment. The corporation may have to specifies other indirect costs that relate to rental of property. Deduct expenses such make an adjustment under section 481(a) production or resale activities that must as repairs, interest, taxes, and to prevent amounts of income or expense be capitalized and those that may be depreciation on the proper lines for from being duplicated or omitted. The currently deductible. deductions. A rental activity held by a section 481(a) adjustment period is

generally 1 year for a net negative Interest expense paid or incurred closely held corporation or a personal adjustment and 4 years for a net positive during the production period of service corporation may be subject to the adjustment. However, a corporation can designated property must be capitalized passive activity loss rules. See Passive

elect to use a 1-year adjustment period if and is governed by special rules. For activity limitations on page 9. the net section 481(a) adjustment for the more details, see Regulations sections

Line 10. Other Income change is less than $25,000. The 1.263A-8 through 1.263A-15.

Enter any other taxable income not corporation must complete the The costs required to be capitalized

reported on lines 1 through 9. List the appropriate lines of Form 3115 to make under section 263A are not deductible

this election. Also, under certain other type and amount of income on an until the property (to which the costs

attached schedule. If the corporation has conditions, the corporation can modify the relate) is sold, used, or otherwise

only one item of other income, describe it period for taking into account a net disposed of by the corporation. positive section 481 adjustment. See Rev. in parentheses on line 10. Exceptions. Section 263A does not Proc. 2007-67, 2007-48 I.R.B. 1072. If the Examples of other income to report on apply to the following. net section 481(a) adjustment is negative, line 10 include the following. • Personal property acquired for resale if report it on line 26. the corporation’s (or any of its 1. Recoveries of bad debts deducted 9. Part or all of the proceeds received predecessors) average annual gross in prior years under the specific from certain corporate-owned life receipts for the 3 prior tax years were $10 charge-off method. insurance contracts issued after August million or less. 2. The amount included in income 17, 2006. See section 101(j) for details. • Timber. from Form 6478, Alcohol and Cellulosic

Biofuel Fuels Credit. • Most property produced under a

Deductions long-term contract. 3. The amount included in income • Certain property produced in a farming from Form 8864, Biodiesel and

Renewable Diesel Fuels Credit. Limitations on Deductions business.

• Research and experimental costs 4. Refunds of taxes deducted in prior Section 263A uniform capitalization under section 174. years to the extent they reduced income rules. The uniform capitalization rules of • Geological and geophysical costs subject to tax in the year deducted (see section 263A generally require amortized under section 167(h). section 111). Do not offset current year corporations to capitalize, or include in • Capital costs incurred to comply with taxes against tax refunds. inventory, certain costs incurred in EPA sulfur regulations. 5. Any recapture amount under connection with: • Intangible drilling costs for oil, gas, and section 179A for certain clean-fuel vehicle • The production of real property and geothermal property. property (or clean-fuel vehicle refueling tangible personal property held in • Mining exploration and development property) that ceases to qualify. See inventory or held for sale in the ordinary Regulations section 1.179A-1 for details. costs. course of business. • Inventoriable items accounted for in the 6. Ordinary income from trade or • Real property or personal property same manner as materials and supplies business activities of a partnership (from (tangible and intangible) acquired for Schedule K-1 (Form 1065 or 1065-B)). Do that are not incidental. See Cost of Goods resale. Sold on page 14. not offset ordinary losses against ordinary • The production of real property and income. Instead, include the losses on tangible personal property by a For more details on the uniform

line 26. Show the partnership’s name, corporation for use in its trade or business capitalization rules, see Regulations

address, and EIN on a separate or in an activity engaged in for profit. sections 1.263A-1 through 1.263A-3. See

statement attached to this return. If the Regulations section 1.263A-4 for rules for Tangible personal property produced amount entered is from more than one property produced in a farming business. by a corporation includes a film, sound partnership, identify the amount from recording, videotape, book, or similar Transactions between related each partnership. property. taxpayers. Generally, an accrual basis 7. Any LIFO recapture amount under taxpayer can only deduct business section 1363(d). The corporation may Corporations subject to the section expenses and interest owed to a related have to include a LIFO recapture amount 263A uniform capitalization rules are party in the year the payment is included in income if it: required to capitalize: in the income of the related party. See a. Used the LIFO inventory method 1. Direct costs and sections 163(e)(3),163(j), and 267 for for its last tax year before the first tax year 2. An allocable part of most indirect limitations on deductions for unpaid for which it elected to become an S costs (including taxes) that (a) benefit the interest and expenses. corporation or assets produced or acquired for resale or Corporations use Form 8926, b. Transferred LIFO inventory assets (b) are incurred because of the Disqualified Corporate Interest Expense to an S corporation in a nonrecognition performance of production or resale Disallowed Under Section 163(j) and transaction in which those assets were activities. Related Information, to figure the amount transferred basis property. of any corporate interest expense The LIFO recapture amount is the For inventory, some of the indirect disallowed by section 163(j). amount by which the C corporation’s expenses that must be capitalized are:

inventory under the FIFO method • Administration expenses; Section 291 limitations. Corporations

exceeds the inventory amount under the • Taxes; may be required to adjust deductions for

LIFO method at the close of the • Depreciation; depletion of iron ore and coal, intangible

corporation’s last tax year as a C • Insurance; drilling and exploration and development

corporation (or for the year of the transfer, • Compensation paid to officers costs, certain deductions for financial

if (b) above applies). For more attributable to services; institutions, and the amortizable basis of

information, see Regulations section • Rework labor; and pollution control facilities. See section 291

-8- Instructions for Form 1120
to determine the amount of the For more details on business start-up and • Mine rescue team training credit.

adjustment. Also see section 43. organization costs, see Pub 535. • Agricultural chemicals security credit.

Passive activity limitations. • Credit for employer differential wage Golden parachute payments. A portion Limitations

payments. of the payments made by a corporation to on passive activity losses and credits

key personnel that exceeds their usual under section 469 apply to personal If the corporation has any of these

compensation may not be deductible. service corporations (defined on page 6) credits, figure each current year credit

This occurs when the corporation has an and closely held corporations (defined before figuring the deduction for

agreement (golden parachute) with these below). expenses on which the credit is based. If

key employees to pay them these excess Generally, the two kinds of passive the corporation capitalized any costs on

amounts if control of the corporation which it figured the credit, reduce the activities are:

changes. See section 280G and amount capitalized by the credit • Trade or business activities in which

Regulations section 1.280G-1. Also see attributable to these costs. the corporation did not materially the instructions for line 12. participate for the tax year; and See the instructions for the form used

Business start-up and organizational • Rental activities, regardless of its to figure the applicable credit.

costs. For business start-up and participation. Limitations on deductions related to

organization costs paid or incurred after For exceptions, see Form 8810, property leased to tax-exempt entities. September 8, 2008, a corporation can Corporate Passive Activity Loss and If a corporation leases property to a deduct up to $5,000 of such costs for the Credit Limitations. governmental or other tax-exempt entity, year it begins business (unless the Corporations subject to the passive the corporation cannot claim deductions

corporation elects to capitalize all such activity limitations must complete Form related to the property to the extent that costs). The $5,000 deduction is reduced 8810 to compute their allowable passive they exceed the corporation’s income

by the amount the total costs exceed activity loss and credit. Before completing from the lease payments (tax-exempt use $50,000. If the total costs are $55,000 or Form 8810, see Temporary Regulations loss). Amounts disallowed may be carried

more, the deduction is reduced to zero. section 1.163-8T, which provides rules for over to the next tax year and treated as a

Any cost not deducted must be amortized allocating interest expense among deduction with respect to the property for

ratably over a 180-month period, activities. If a passive activity is also that tax year. See section 470 for more

beginning with the month the corporation subject to the earnings stripping rules of details and exceptions.

begins business. The corporation is not section 163(j), the at-risk rules of section Line 12. Compensation of required to attach a statement or 465, or the tax-exempt use loss rules of specifically identify the amount deducted section 470, those rules apply before the Officers

in order for the election to be effective. passive loss rules. Enter deductible officers’ compensation The corporation can choose to forgo the on line 12. Do not include compensation For more information, see section 469, deduction and instead elect to capitalize deductible elsewhere on the return, such the related regulations, and Pub. 925, all such costs. The election to deduct or as amounts included in cost of goods Passive Activity and At-Risk Rules. capitalize costs is irrevocable. See sold, elective contributions to a section

Temporary Regulations sections 1.195-1T Closely held corporations. A 401(k) cash or deferred arrangement, or corporation is a closely held corporation and 1.248-1T. amounts contributed under a salary if: reduction SEP agreement or a SIMPLE For business start-up and organization • At any time during the last half of the IRA plan. costs paid after October 22, 2004, and tax year more than 50% in value of its before September 9, 2008, a corporation Complete Schedule E if the total outstanding stock is directly or indirectly can elect to deduct up to $5,000 of such receipts (line 1a, plus lines 4 through 10) owned by or for not more than five costs for the year it begins business are $500,000 or more. Include only the individuals, and (otherwise the corporation must capitalize deductible part of each officer’s • The corporation is not a personal all such costs). The $5,000 deduction is compensation on Schedule E. See service corporation. reduced by the amount the total costs Disallowance of deduction for employee Certain organizations are treated as exceed $50,000. If the total costs are compensation in excess of $1 million individuals for purposes of this test. See $55,000 or more, the deduction is below. Complete Schedule E, line 1, section 542(a)(2). For rules for reduced to zero. Any costs not deducted columns (a) through (f), for all officers. determining stock ownership, see section must be amortized ratably over a The corporation determines who is an 544 (as modified by section 465(a)(3)). 180-month period, beginning with the officer under the laws of the state where it

month the corporation begins business. If Reducing certain expenses for which is incorporated.

the election is made, the corporation must credits are allowable. If the corporation If a consolidated return is filed, each attach any statement required by claims certain credits, it may need to member of an affiliated group must Regulations sections 1.195-1(b) and reduce the otherwise allowable furnish this information. 1.248-1(c). However, the corporation can deductions for expenses used to figure Disallowance of deduction for apply the provisions of Temporary the credit. The following are examples of employee compensation in excess of Regulations sections 1.195-1T and such credits. $1 million. Publicly held corporations 1.248-1T to all expenses paid or incurred • Work opportunity credit. cannot deduct compensation to a after October 22, 2004, provided the • Credits for affected Midwestern “covered employee” to the extent that the period of limitations on assessment has disaster area employers. compensation exceeds $1 million. not expired for the year of the election. • Empowerment zone and renewal Generally, a covered employee is: Otherwise the provisions under community credit. • The principal executive officer of the Regulations sections 1.195-1(b) and • Indian employment credit. corporation (or an individual acting in that 1.248-1(c) will apply. • Welfare-to-work credit. capacity) as of the end of the tax year or • Research credit. For business start-up and organization • An employee whose total • Orphan drug credit. costs paid or incurred before October 23, compensation must be reported to • Disabled access credit. 2004, a corporation can elect to amortize shareholders under the Securities • Employer credit for social security and such costs over a period of 60-months or Medicare taxes paid on certain employee Exchange Act of 1934 because the

more. employee is among the three highest tips.

Report the deductible amount of such compensated officers for that tax year • Credit for small employer pension plan (other than the principal executive officer). costs and any amortization on line 26. For startup costs.

amortization that begins during the 2008 • Credit for employer-provided childcare For this purpose, compensation does

tax year, complete and attach Form 4562. facilities and services. not include the following.

Instructions for Form 1120 -9-
• Income from certain employee trusts, Line 14. Repairs and • Taxes assessed against local benefits

annuity plans, or pensions. that increase the value of the property Maintenance • Any benefit paid to an employee that is assessed (such as for paving, etc.). Enter the cost of incidental repairs and excluded from the employee’s income. • Taxes deducted elsewhere on the maintenance not claimed elsewhere on return, such as those reflected in cost of The deduction limit does not apply to: the return, such as labor and supplies, goods sold. • Commissions based on individual that do not add to the value of the

performance, See section 164(d) for apportionment property or appreciably prolong its life. • Qualified performance-based New buildings, machinery, or permanent of taxes on real property between seller

compensation, and and purchaser. improvements that increase the value of • Income payable under a written, the property are not deductible. They Line 18. Interest binding contract in effect on February 17, must be depreciated or amortized. Note. Do not offset interest income 1993. against interest expense. Line 15. Bad Debts The $1 million limit is reduced by The corporation must make an interest amounts disallowed as excess parachute Enter the total debts that became allocation if the proceeds of a loan were payments under section 280G. worthless in whole or in part during the used for more than one purpose (for tax year. A small bank or thrift institution See section 162(m) and Regulations example, to purchase a portfolio using the reserve method of section 585 section 1.162-27. Also see Notice investment and to acquire an interest in a should attach a schedule showing how it 2007-49, 2007-25 I.R.B. 1429. passive activity). See Temporary figured the current year’s provision. A Regulations section 1.163-8T for the Limitations on tax benefits for cash basis taxpayer cannot claim a bad interest allocation rules. executive compensation under a debt deduction unless the amount was

Treasury troubled asset relief program. previously included in income. Mutual savings banks, building and

The $1 million compensation limit is loan associations, and cooperative banks

reduced to $500,000 for executive can deduct the amounts paid or credited

remuneration and deferred deduction Line 16. Rents to the accounts of depositors as

executive remuneration paid to covered If the corporation rented or leased a dividends, interest, or earnings. See

executives during an applicable tax year vehicle, enter the total annual rent or section 591.

by an applicable employer under a lease expense paid or incurred during the Do not deduct the following interest.

troubled asset relief program. The year. Also complete Part V of Form 4562, • Interest on indebtedness incurred or

$500,000 is reduced by any amounts Depreciation and Amortization. If the continued to purchase or carry obligations

disallowed as excess parachute corporation leased a vehicle for a term of if the interest is wholly exempt from

payments. See section 162(m)(5) for 30 days or more, the deduction for vehicle income tax. For exceptions, see section

definitions and other special rules. Also lease expense may have to be reduced 265(b).

see Notice 2008-94, 2008-44 I.R.B. 1070, by an amount called the inclusion • For cash basis taxpayers, prepaid

for additional guidance. amount. The corporation may have an interest allocable to years following the

inclusion amount if: current tax year. For example, a cash In addition, a portion of any parachute basis calendar year taxpayer who in 2008 payments made to a covered executive And the prepaid interest allocable to any period by an applicable employer participating in vehicle’s after 2008 can deduct only the amount a Treasury troubled asset relief program FMV on allocable to 2008. is not deductible as compensation if the the first • Interest and carrying charges on payments are made because of a day of straddles. Generally, these amounts must severance from employment during an the lease be capitalized. See section 263(g). applicable tax year. For this purpose, The lease term began: exceeded: • Interest on debt allocable to the applicable employer, covered executive, production of designated property by a and applicable tax year have the same After 12/31/07 but before 1/1/09 . . $18,500 meaning as under section 162(m)(5). corporation for its own use or for sale.

After 12/31/06 but before 1/1/08 . . $15,500 The corporation must capitalize this These limits do not apply to a payment interest. Also capitalize any interest on already treated as a parachute payment. After 12/31/04 but before 1/1/07 . . $15,200 debt allocable to an asset used to See section 280G(e) and Notice 2008-94. After 12/31/03 but before 1/1/05 . . $17,500 produce the property. See section 263A(f) If the lease term began before January 1, 2004, see Line 13. Salaries and Wages and Regulations sections 1.263A-8 Pub. 463, Travel, Entertainment, Gift, and Car through 1.263A-15 for definitions and Enter the total salaries and wages paid Expenses, to find out if the corporation has an more information. for the tax year. Do not include salaries inclusion amount. The inclusion amount for lease

terms beginning in 2009 will be published in the • Interest paid or incurred on any portion and wages deductible elsewhere on the Internal Revenue Bulletin in early 2009. of an underpayment of tax that is return, such as amounts included in attributable to an understatement arising officers’ compensation, cost of goods See Pub. 463 for instructions on from an undisclosed listed transaction or sold, elective contributions to a section figuring the inclusion amount. an undisclosed reportable avoidance 401(k) cash or deferred arrangement, or transaction (other than a listed amounts contributed under a salary Line 17. Taxes and Licenses transaction) entered into in tax years reduction SEP agreement or a SIMPLE

Enter taxes paid or accrued during the tax beginning after October 22, 2004. IRA plan.

year, but do not include the following. Special rules apply to: If the corporation claims a credit for • Federal income taxes. • Disqualified interest on certain any wages paid or incurred, it may need • Foreign or U.S. possession income indebtedness under section 163(j). See to reduce its deduction for officer’s taxes if a foreign tax credit is claimed. Form 8926, Disqualified Corporate compensation and salaries and wages. • Taxes not imposed on the corporation. Interest Expense Disallowed Under See Reducing certain expenses for which • Taxes, including state or local sales Section 163(j) and Related Information, credits are allowable on page 9. taxes, that are paid or incurred in and the related Instructions.

If the corporation provided taxable connection with an acquisition or • Interest on which no tax is imposed

fringe benefits to its employees, such as disposition of property (these taxes must (see section 163(j)). A corporation that

personal use of a car, do not deduct as be treated as a part of the cost of the owns an interest in a partnership, directly

wages the amount allocated for acquired property or, in the case of a or indirectly, must treat its distributive

depreciation and other expenses claimed disposition, as a reduction in the amount share of the partnership liabilities, interest

on lines 20 and 26. realized on the disposition). income, and interest expense as

-10- Instructions for Form 1120
liabilities, income, and expenses of the next 15 years subject to the 100% contributed, and, either gives a

corporation for purposes of applying the limitation. See section 170(b)(2)(B). description and a good faith estimate of

earnings stripping rules. For more details, the value of any goods or services Certain contributions of food made see section 163(j)(8). provided in return for the contribution or after October 2, 2008, and before January • Foregone interest on certain states that no goods or services were 1, 2009, are treated as a qualified below-market-rate loans (see section provided in return for the contribution. The contribution for purposes of the 7872). acknowledgment must be obtained by the suspension of the 10% limit. See section • Original issue discount on certain due date (including extensions) of the 170(b)(3). high-yield discount obligations. (See corporation’s return, or, if earlier, the date

section 163(e) to figure the disqualified the return is filed. Do not attach the Temporary suspension of 10% limit

portion.) for contributions to Midwestern acknowledgment to the tax return, but

• Interest which is allocable to keep it with the corporation’s records. disaster area. A corporation can elect to

unborrowed policy cash values of life deduct qualified cash contributions

without regard to the general 10% limit, if Contributions of property other than insurance, endowment, or annuity cash. If a corporation (other than a contracts issued after June 8, 1997. See the contributions were paid after May 1, closely held or personal service section 264(f). Attach a statement 2008, and before January 1, 2009, to a corporation) contributes property other showing the computation of the qualified charitable organization as than cash and claims over a $500 deduction. defined in section 170(b)(1)(A) (except for deduction for the property, it must attach contributions to a section 509(a)(3) Line 19. Charitable a schedule to the return describing the organization or a donor advised fund (as Contributions kind of property contributed and the defined in section 4966(d)(2))), and were method used to determine its fair market Enter contributions or gifts actually paid for relief efforts in one or more

Midwestern disaster areas. The value (FMV). Closely held corporations within the tax year to or for the use of and personal service corporations must charitable and governmental corporation must obtain complete Form 8283, Noncash Charitable organizations described in section 170(c) contemporaneous written Contributions, and attach it to their and any unused contributions carried over acknowledgment from the organization returns. All other corporations generally from prior years. Special rules and limits that the contribution was used (or will be must complete and attach Form 8283 to apply to contributions to organizations used) for relief efforts in one or more

Midwestern disaster areas. The total their returns for contributions of property conducting lobbying activities. See (other than money) if the total claimed section 170(f)(9). amount claimed cannot exceed 100% of deduction for all property contributed was the excess of the corporation’s taxable Corporations reporting taxable income more than $5,000. Special rules apply to income (as computed under Limitation on on the accrual method can elect to treat the contribution of certain property. See deduction above, substituting “100%” for as paid during the tax year any the Instructions for Form 8283. “10%”) over the corporation’s deduction contributions paid by the 15th day of the

3rd month after the end of the tax year if for all other charitable contributions. Any Qualified conservation excess contributions can be carried over the contributions were authorized by the contributions. Special rules apply to to the next 5 years. For more information, board of directors during the tax year. qualified conservation contributions, see Pub. 4492-B. Attach a declaration to the return stating including contributions of certain

that the resolution authorizing the Carryover. Charitable contributions over easements on buildings located in a

contributions was adopted by the board of the 10% limitation cannot be deducted for registered historic district. See section

directors during the tax year. The the tax year but can be carried over to the 170(h) and Pub. 526, Charitable

declaration must include the date the next 5 tax years. Contributions.

resolution was adopted. See Regulations Special rules apply if the corporation Other special rules. The corporation section 1.170A-11. has an NOL carryover to the tax year. In must reduce its deduction for

Limitation on deduction. The total figuring the charitable contributions contributions of certain capital gain

amount claimed cannot be more than deduction for the current tax year, the property. See sections 170(e)(1) and

10% of taxable income (line 30) 10% limit is applied using the taxable 170(e)(5).

computed without regard to the following. income after taking into account any A larger deduction is allowed for • Any deduction for contributions. deduction for the NOL. certain contributions of: • The special deductions on line 29b. To figure the amount of any remaining • Inventory and other property to certain • The deduction allowed under section NOL carryover to later years, taxable organizations for use in the care of the ill, 249. income must be modified (see section needy, or infants (see section 170(e)(3)), • The domestic production activities 172(b)). To the extent that contributions including contributions of “apparently deduction under section 199. are used to reduce taxable income for this wholesome food” (see section • Any net operating loss (NOL) carryback purpose and increase an NOL carryover, 170(e)(3)(C)), and contributions of to the tax year under section 172. a contributions carryover is not allowed. qualified book inventory to public schools • Any capital loss carryback to the tax See section 170(d)(2)(B). (see section 170(e)(3)(D)), year under section 1212(a)(1).

Cash contributions. For contributions • Scientific equipment used for research Suspension of 10% limitation for of cash, check, or other monetary gifts to institutions of higher learning or to farmers and ranchers. A corporation (regardless of the amount), the certain scientific research organizations that is a qualified farmer or rancher (as corporation must maintain a bank record, (other than by personal holding defined in section 170(b)(1)(E)) that does or a receipt, letter, or other written companies and service organizations not have publicly traded stock, can deduct communication from the donee (section 170(e)(4)), and contributions of qualified conservation organization indicating the name of the • Computer technology and equipment property without regard to the general organization, the date of the contribution, for educational purposes (section 10% limit. The total amount of the and the amount of the contribution. 170(e)(6)). contribution claimed for the qualified

conservation property cannot exceed Contributions of $250 or more. For more information on charitable

100% of the excess of the corporation’s Generally, no deduction is allowed for any contributions, including substantiation and

taxable income (as computed above contribution of $250 or more unless the recordkeeping requirements, see section

substituting “100%” for “10%”) over all corporation gets a written 170 and the related regulations and Pub.

other allowable charitable contributions. acknowledgment from the donee 526, Charitable Contributions. For other

Any excess qualified conservation organization that shows the amount of special rules that apply to corporations,

contributions can be carried over to the cash contributed, describes any property see Pub. 542.

Instructions for Form 1120 -11-
Line 20. Depreciation • Amortization. See Part VI of Form See section 404(k) for more details and

4562. the limitation on certain dividends. Include on line 20 depreciation and the • Certain costs of qualified film or cost of certain property that the Do not deduct the following. television productions that the corporation corporation elected to expense under • Fines or penalties paid to a government elects to deduct. See section 181 and section 179. See Form 4562 and its for violating any law. Temporary Regulations section 1.181-1T. Instructions. • Any amount that is allocable to a class • Certain business start-up and of exempt income. See section 265(b) for Line 21. Depletion organizational costs. See page 9 of the exceptions. See sections 613 and 613A for instructions. • Lobbying expenses. However, see percentage depletion rates applicable to • Qualified demolition and clean-up costs exceptions (discussed later). natural deposits. Also see section 291 for attributable to damage from storms and Travel, meals, and entertainment. the limitation on the depletion deduction tornadoes in the Kansas and Midwestern

disaster areas. See Pubs. 4492-A and Subject to limitations and restrictions for iron ore and coal (including lignite).

4492-B. discussed below, a corporation can Attach Form T (Timber), Forest deduct ordinary and necessary travel, • Certain environmental remediation Activities Schedule, if a deduction for meals, and entertainment expenses paid costs. See section 1400N(g) and Pub. depletion of timber is taken. or incurred in its trade or business. Also, 4492-B.

Foreign intangible drilling costs and special rules apply to deductions for gifts, • Certain qualified disaster expenses that skybox rentals, luxury water travel, foreign exploration and development the corporation elects to deduct. See costs must either be added to the convention expenses, and entertainment section 198A.

corporation’s basis for cost depletion tickets. See section 274 and Pub. 463 for • Reforestation costs. The corporation purposes or be deducted ratably over a details. can elect to deduct up to $10,000 of 10-year period. See sections 263(i), 616, qualifying reforestation expenses for each Travel. The corporation cannot and 617 for details. qualified timber property. The corporation deduct travel expenses of any individual

See Pub. 535 for more information on can elect to amortize over 84 months any accompanying a corporate officer or

depletion. amount not deducted. See Pub. 535. employee, including a spouse or

• Insurance premiums. dependent of the officer or employee, Line 23. Pension, • Legal and professional fees. unless:

Profit-Sharing, etc., Plans • That individual is an employee of the • Supplies used and consumed in the

Enter the deduction for contributions to corporation, and business.

qualified pension, profit-sharing, or other • His or her travel is for a bona fide • Travel, meals, and entertainment

funded deferred compensation plans. business purpose and would otherwise be expenses. Special rules apply (discussed Employers who maintain such a plan deductible by that individual. below). generally must file one of the forms listed • Utilities. Meals and entertainment. Generally, below, even if the plan is not a qualified • Ordinary losses from trade or business the corporation can deduct only 50% of plan under the Internal Revenue Code. activities of a partnership (from Schedule the amount otherwise allowable for meals

The filing requirement applies even if the K-1 (Form 1065 or 1065-B)). Do not offset and entertainment expenses paid or corporation does not claim a deduction for ordinary income against ordinary losses. incurred in its trade or business. In

the current tax year. There are penalties Instead, include the income on line 10. addition (subject to exceptions under for failure to file these forms on time and Show the partnership’s name, address, section 274(k)(2)): for overstating the pension plan and EIN on a separate statement • Meals must not be lavish or

deduction. See sections 6652(e) and attached to this return. If the amount is extravagant; 6662(f). from more than one partnership, identify • A bona fide business discussion must

Form 5500, Annual Return/Report of the amount from each partnership. occur during, immediately before, or

Employee Benefit Plan. File this form for • Any extraterritorial income exclusion immediately after the meal; and

a plan that is not a one-participant plan (from Form 8873, line 52). • An employee of the corporation must

(see below). • Any negative net section 481(a) be present at the meal.

Form 5500-EZ, Annual Return of adjustment. See the instructions for line See section 274(n)(3) for a special rule

One-Participant (Owners and Their 10. that applies to expenses for meals

Spouses) Retirement Plan. File this form • Deduction for certain energy efficient consumed by individuals subject to the

for a plan that only covers the owner (or commercial building property placed in hours of service limits of the Department

the owner and his or her spouse) but only service. See section 179D, Notice of Transportation.

if the owner (or the owner and his or her 2008-40, 2008-14 I.R.B. 725, and Notice Membership dues. The corporation spouse) owns the entire business. 2006-52, 2006-26 I.R.B. 1175. can deduct amounts paid or incurred for • Dividends paid in cash on stock held by Line 24. Employee Benefit membership dues in civic or public an employee stock ownership plan.

Programs service organizations, professional However, a deduction can only be taken organizations (such as bar and medical Enter contributions to employee benefit for the dividends above if, according to associations), business leagues, trade programs not claimed elsewhere on the the plan, the dividends are: associations, chambers of commerce, return (for example, insurance, health and 1. Paid in cash directly to the plan boards of trade, and real estate boards. welfare programs, etc.) that are not an participants or beneficiaries; However, no deduction is allowed if a incidental part of a pension, profit-sharing, 2. Paid to the plan, which distributes principal purpose of the organization is to etc., plan included on line 23. them in cash to the plan participants or entertain, or provide entertainment

Line 26. Other Deductions their beneficiaries no later than 90 days facilities for, members or their guests. In after the end of the plan year in which the addition, corporations cannot deduct Attach a schedule, listing by type and dividends are paid; membership dues in any club organized amount, all allowable deductions that are 3. At the election of such participants for business, pleasure, recreation, or not deductible elsewhere on Form 1120. or their beneficiaries (a) payable as other social purpose. This includes Enter the total on line 26. provided under 1or 2 above or (b) paid to country clubs, golf and athletic clubs,

Examples of other deductions include airline and hotel clubs, and clubs the plan and reinvested in qualifying

the following. See Pub. 535 and Pub. 542 operated to provide meals under employer securities; or

for details on other deductions that may 4. Used to make payments on a loan conditions favorable to business

apply to corporations. described in section 404(a)(9). discussion.

-12- Instructions for Form 1120
Entertainment facilities. The deductions for the activities with the loss is carried forward from a tax year

corporation cannot deduct an expense losses. preceding the first tax year for which the

paid or incurred for a facility (such as a alternative tax election was made. See If the corporation sells or otherwise yacht or hunting lodge) used for an section 1358(b)(2). disposes of an asset or its interest (either activity usually considered entertainment, • If a corporation has a loss attributable total or partial) in an activity to which the amusement, or recreation. to a disaster, special rules apply. See the at-risk rules apply, determine the net Instructions for Form 1139. Amounts treated as compensation. profit or loss from the activity by

Generally, the corporation may be able to combining the gain or loss on the sale or For more details on the NOL

deduct otherwise nondeductible disposition with the profit or loss from the deduction, see section 172, the

entertainment, amusement, or recreation activity. If the corporation has a net loss, it Instructions for Form 1139, and Pub. 542.

expenses if the amounts are treated as may be limited because of the at-risk Line 29b. Special Deductions compensation to the recipient and rules.

reported on Form W-2 for an employee or See the instructions for Schedule C Treat any loss from an activity not on Form 1099-MISC for an independent beginning on page 15. allowed for the tax year as a deduction contractor. allocable to the activity in the next tax Tax and Payments

However, if the recipient is an officer, year.

director, or beneficial owner (directly or Line 30. Taxable Income Line 29a. Net Operating Loss indirectly) of more than 10% of any class Deduction Minimum taxable income. The of stock, the deductible expense is corporation’s taxable income cannot be limited. See section 274(e)(2) and Notice A corporation can use the NOL incurred less than the largest of the following 2005-45, 2005-24 I.R.B. 1228. in one tax year to reduce its taxable amounts. income in another tax year. Enter on line Lobbying expenses. Generally, • The inversion gain of the corporation 29a the total NOL carryovers from other lobbying expenses are not deductible. for the tax year, if the corporation is an tax years, but do not enter more than the These expenses include: expatriated entity or a partner in an corporation’s taxable income (after • Amounts paid or incurred in connection expatriated entity. For details, see section special deductions). Attach a schedule with influencing federal or state legislation 7874. showing the computation of the NOL (but not local legislation) or • The sum of the corporation’s excess deduction. Complete item 12 on Schedule • Amounts paid or incurred in connection inclusions from Schedules Q (Form K. with any communication with certain 1066), line 2c, and the corporation’s The following special rules apply. federal executive branch officials in an taxable income determined solely with

attempt to influence the official actions or • A personal service corporation may not respect to its ownership and high-yield

positions of the officials. See Regulations carry back an NOL to or from any tax year interests in FASITs. For details, see

section 1.162-29 for the definition of to which an election under section 444 to sections 860E(a) and 860J.

“influencing legislation.” have a tax year other than a required tax Net operating loss (NOL). If line 30 year applies. Dues and other similar amounts paid (figured without regard to the items listed • A corporate equity reduction interest to certain tax-exempt organizations may above under minimum taxable income), is loss may not be carried back to a tax year not be deductible. See section 162(e)(3). zero or less, the corporation may have an preceding the year of the equity reduction If certain in-house lobbying expenditures NOL that can be carried back or forward transaction (see section 172(b)(1)(E)). do not exceed $2,000, they are as a deduction to other tax years. • If an ownership change occurs, the deductible. Generally, a corporation first carries back amount of the taxable income of a loss an NOL 2 tax years. However, the Line 28. Taxable Income Before corporation that may be offset by the corporation can elect to waive the pre-change NOL carryovers may be NOL Deduction and Special carryback period and instead carry the limited. See section 382 and the related Deductions NOL forward to future tax years. To make regulations. A loss corporation must the election, see the instructions for At-risk rules. Generally, special at-risk include the information statement as Schedule K, item 11 on page 20. rules under section 465 apply to closely provided in Regulations section

1.382-11(a), with its income tax return for See Form 1139 for details, including held corporations (see Passive activity

each tax year that it is a loss corporation other elections that may be available, limitations on page 9) engaged in any

in which an ownership shift, equity which must be made no later than 6 activity as a trade or business or for the

structures shift, or other transaction months after the due date (excluding production of income. These corporations

may have to adjust the amount on line 28. described in Temporary Regulations extensions) of the corporation’s tax

section 1.382-2T(a)(2)(i) occur. If the return. (See below.)

corporation makes the Merchant Marine capital construction The at-risk rules do not apply to: closing-of-the-books election, see fund. To take a deduction for amounts • Holding real property placed in service Regulations section 1.382-6(b). contributed to a capital construction fund by the taxpayer before 1987; For guidance in applying section 382 (CCF), reduce the amount that would • Equipment leasing under sections to loss corporations whose instruments otherwise be entered on line 30 by the 465(c)(4), (5), and (6); or were acquired by Treasury under the amount of the deduction. On the dotted • Any qualifying business of a qualified Capital Purchase Program under the line next to the entry space, enter “CCF” corporation under section 465(c)(7). Emergency Economic Stabilization Act of and the amount of the deduction. For

However, the at-risk rules do apply to 2008, see Notice 2008-100, 2008-44 more information, see section 7518.

the holding of mineral property. I.R.B. 1081. Line 32b. Estimated Tax If the at-risk rules apply, adjust the • If a corporation acquires control of Payments amount on this line for any section 465(d) another corporation (or acquires its

losses. These losses are limited to the assets in a reorganization), the amount of Enter any estimated tax payments the

amount for which the corporation is at risk pre-acquisition losses that may offset corporation made for the tax year.

for each separate activity at the close of recognized built-in gain may be limited Beneficiaries of trusts. If the

the tax year. If the corporation is involved (see section 384). corporation is the beneficiary of a trust,

in one or more activities, any of which • If a corporation elects the alternative and the trust makes a section 643(g)

incurs a loss for the year, report the tax on qualifying shipping activities under election to credit its estimated tax

losses for each activity separately. Attach section 1354, no deduction is allowed for payments to its beneficiaries, include the

Form 6198, At-Risk Limitations, showing an NOL attributable to the qualifying corporation’s share of the payment in the

the amount at risk and gross income and shipping activities to the extent that the total for line 32b. Enter “T” and the

Instructions for Form 1120 -13-
amount on the dotted line next to the payments it received because, for uniform capitalization rules on page 8

entry space. example, it failed to give the payer its before completing Schedule A.

Special estimated tax payments for correct EIN, include the amount withheld

in the total for line 32h. Enter the amount Line 1. Inventory at Beginning certain life insurance companies. If

withheld and the words “Backup of Year the corporation is required to make or

apply special estimated tax payments Withholding” in the blank space above If the corporation is changing its method

(SETP) under section 847 in addition to line 32h. of accounting for the current tax year, it

its regular estimated tax payments, enter must refigure last year’s closing inventory Line 33. Estimated Tax Penalty on line 32b, the corporation’s total using its new method of accounting and

estimated tax payments. In the margin If Form 2220 is attached, check the box enter the result on line 1. If there is a

near line 32b, enter “Form 8816” and the on line 33, and enter the amount of any difference between last year’s closing penalty on this line. amount. Attach a schedule showing your inventory and the refigured amount,

computation of estimated tax payments. attach an explanation and take it into Line 36 See sections 847(2) and 847(8) and Form account when figuring the corporation’s

8816, Special Loss Discount Account and Direct deposit of refund. If the section 481(a) adjustment.

Special Estimated Tax Payments for corporation wants its refund directly

Insurance Companies, for more deposited into its checking or savings Line 4. Additional Section 263A

information. account at any U.S. bank or other Costs

financial institution instead of having a An entry is required on this line only for Line 32c. Overpaid estimated check sent to the corporation, complete corporations that have elected a tax Form 8050 and attach it to the simplified method of accounting. corporation’s tax return. If the corporation overpaid estimated tax, For corporations that have elected the it may be able to get a quick refund by simplified production method, additional filing Form 4466. The overpayment must section 263A costs are generally those be at least 10% of the corporation’s Schedule A. costs, other than interest, that were not expected income tax liability and at least Cost of Goods Sold capitalized under the corporation’s $500. File Form 4466 after the end of the method of accounting immediately prior to corporation’s tax year, and no later than Generally, inventories are required at the the effective date of section 263A but are the 15th day of the third month after the beginning and end of each tax year if the now required to be capitalized under end of the tax year. Form 4466 must be production, purchase, or sale of section 263A. For details, see filed before the corporation files its tax merchandise is an income-producing Regulations section 1.263A-2(b). return. factor. For corporations that have elected the Line 32f However, if the corporation is a simplified resale method, additional

Credit from Form 2439. Enter any qualifying taxpayer or a qualifying small section 263A costs are generally those

credit from Form 2439, Notice to business taxpayer, it can adopt or change costs incurred with respect to the

Shareholder of Undistributed Long-Term its accounting method to account for following categories.

Capital Gains, for the corporation’s share inventoriable items in the same manner • Off-site storage or warehousing.

of the tax paid by a regulated investment as materials and supplies that are not • Purchasing.

incidental, unless its business is a tax • Handling, such as processing, company (RIC) or a real estate

investment trust (REIT) on undistributed shelter as defined in section 448(d)(3). assembling, repackaging, and

transporting. long-term capital gains included in the A qualifying taxpayer is a taxpayer • General and administrative costs corporation’s income. Attach Form 2439 that, for each prior tax year ending after (mixed service costs). to Form 1120. December 16, 1998, has average annual

Credit for federal tax on fuels. Enter gross receipts of $1 million or less for the For details, see Regulations section

any credit from Form 4136, Credit for 3 prior tax years. 1.263A-3(d).

Federal Tax Paid on Fuels. Attach Form A qualifying small business taxpayer is Enter on line 4 the balance of section 4136 to Form 1120. a taxpayer (a) that, for each prior tax year 263A costs paid or incurred during the tax

Credit for tax on ozone-depleting ending on or after December 31, 2000, year not includible on lines 2, 3, and 5.

chemicals. Include on line 32f any credit has average annual gross receipts of $10

the corporation is claiming under section million or less for the 3 prior tax years, Line 5. Other Costs

4682(g)(2) for tax on ozone-depleting and (b) whose principal business activity Enter on line 5 any costs paid or incurred

chemicals. Enter “ODC” next to the entry is not an ineligible activity. during the tax year not entered on lines 2

space. through 4. Under this accounting method,

Line 32g. Refundable Credits inventory costs for raw materials Line 7. Inventory at End of Year purchased for use in producing finished From Forms 3800 and 8827 See Regulations sections 1.263A-1 goods and merchandise purchased for The corporation can elect to claim certain through 1.263A-3 for details on figuring resale are deductible in the year the unused research and minimum tax credits the amount of additional section 263A finished goods or merchandise are sold instead of claiming any additional costs to be included in ending inventory. If (but not before the year the corporation first-year special depreciation allowance the corporation accounts for inventoriable paid for the raw materials or for eligible qualified property. If the merchandise, if it is also using the cash items in the same manner as materials

corporation makes the election, enter on method). For additional guidance on this and supplies that are not incidental, enter

line 32g the amounts from line 19c of method of accounting for inventoriable on line 7 the portion of its raw materials

Form 3800 and line 8c of Form 8827, if and merchandise purchased for resale items, see Pub. 538 and the Instructions applicable. See the instructions for these that is included on line 6 and was not sold for Form 3115. forms. Also, see Rev. Proc. 2008-65, during the year.

2008-44 I.R.B. 1082. Enter amounts paid for all raw

materials and merchandise during the tax Lines 9a Through 9f. Line 32h. Total Payments year on line 2. The amount the Inventory Valuation Methods

Add the amounts on lines 32d through corporation can deduct for the tax year is Inventories can be valued at:

32g and enter the total on line 32h. figured on line 8. • Cost;

Backup withholding. If the corporation All filers not using the cash method of • Cost or market value (whichever is

had federal income tax withheld from any accounting should see Section 263A lower); or

-14- Instructions for Form 1120
• Any other method approved by the IRS write up the opening inventory to cost in 20%-or-more-owned domestic

that conforms to the requirements of the the year of election, report the effect of corporations subject to income tax and

applicable regulations cited below. the write-up as other income (line 10, that are subject to the 80% deduction

However, if the corporation is using the page 1), proportionately over a 3-year under section 243(c), and

cash method of accounting, it is required period that begins with the year of the • Taxable distributions from an IC-DISC

LIFO election (section 472(d)). or former DISC that are considered to use cost.

Note. Corporations using the LIFO eligible for the 80% deduction. Corporations that account for method that make an S corporation inventoriable items in the same manner Line 3, Column (a)

as materials and supplies that are not election or transfer LIFO inventory to an S Enter the following. corporation in a nonrecognition incidental can currently deduct • Dividends received on debt-financed transaction may be subject to an expenditures for direct labor and all stock acquired after July 18, 1984, from indirect costs that would otherwise be additional tax attributable to the LIFO domestic and foreign corporations subject recapture amount. See the instructions for included in inventory costs. to income tax that would otherwise be Schedule J, line 10, on page 18, and line Generally, the average cost (rolling subject to the dividends-received 10, Other Income, on page 8. average) method of valuing inventories deduction under section 243(a)(1),

does not conform to the requirements of For more information on inventory 243(c), or 245(a). Generally,

the regulations. See Rev. Rul. 71-234, valuation methods, see Pub. 538. debt-financed stock is stock that the

1971-1 C.B. 148. However, if a corporation acquired by incurring a debt

corporation uses the average cost Schedule C. Dividends (for example, it borrowed money to buy

method for financial accounting purposes, the stock). and Special Deductions there are two safe harbors under which • Dividends received from a RIC on

this method will be deemed to clearly For purposes of the 20% ownership test debt-financed stock. The amount of

reflect income for federal income tax on lines 1 through 7, the percentage of dividends eligible for the

purposes. See Rev. Proc. 2008-43, stock owned by the corporation is based dividends-received deduction is limited by

2008-30 I.R.B. 186, for details. on voting power and value of the stock. section 854(b). The corporation should

Corporations that use erroneous Preferred stock described in section receive a notice from the RIC specifying 1504(a)(4) is not taken into account. the amount of dividends that qualify for valuation methods must change to a

method permitted for federal income tax Corporations filing a consolidated return the deduction.

should see Regulations sections purposes. Use Form 3115 to make this 1.1502-13, 1.1502-26, and 1.1502-27 Line 3, Columns (b) and (c) change. before completing Schedule C. Dividends received on debt-financed

On line 9a, check the method(s) used Corporations filing a consolidated stock acquired after July 18, 1984, are not for valuing inventories. Under lower of return must not report as dividends on entitled to the full 70% or 80%

cost or market, the term “market” (for Schedule C any amounts received from dividends-received deduction. The 70%

normal goods) means the current bid or 80% deduction is reduced by a corporations within the tax consolidation price prevailing on the inventory valuation percentage that is related to the amount group. Such dividends are eliminated in date for the particular merchandise in the of debt incurred to acquire the stock. See consolidation rather than offset by the volume usually purchased by the section 246A. Also see section 245(a) dividends-received deduction. taxpayer. For a manufacturer, market before making this computation for an applies to the basic elements of Line 1, Column (a) additional limitation that applies to cost—raw materials, labor, and burden. If Enter dividends (except those received on dividends received from foreign section 263A applies to the taxpayer, the debt-financed stock acquired after July corporations. Attach a schedule to Form basic elements of cost must reflect the 18, 1984–see section 246A) that are: 1120 showing how the amount on line 3, current bid price of all direct costs and all • Received from less-than-20%-owned column (c), was figured. indirect costs properly allocable to goods domestic corporations subject to income on hand at the inventory date. Line 4, Column (a) tax, and Enter dividends received on preferred Inventory may be valued below cost • Qualified for the 70% deduction under

when the merchandise is unsalable at stock of a less-than-20%-owned public section 243(a)(1). utility that is subject to income tax and is normal prices or unusable in the normal Also include on line 1 the following. way because the goods are subnormal allowed the deduction provided in section • Taxable distributions from an IC-DISC 247 for dividends paid. due to damage, imperfections, shopwear, or former DISC that are designated as etc., within the meaning of Regulations eligible for the 70% deduction and certain Line 5, Column (a) section 1.471-2(c). The goods may be dividends of Federal Home Loan Banks. Enter dividends received on preferred valued at the bona fide selling price, See section 246(a)(2). stock of a 20%-or-more-owned public minus direct cost of disposition (but not • Dividends (except those received on utility that is subject to income tax and is less than scrap value). Bona fide selling debt-financed stock acquired after July allowed the deduction provided in section price means actual offering of goods 18, 1984) from a regulated investment 247 for dividends paid. during a period ending not later than 30 company (RIC). The amount of dividends days after inventory date. Line 6, Column (a) eligible for the dividends-received If this is the first year the Last-in, deduction under section 243 is limited by Enter the U.S.-source portion of dividends

First-out (LIFO) inventory method was section 854(b). The corporation should that:

either adopted or extended to inventory receive a notice from the RIC specifying • Are received from

goods not previously valued under the the amount of dividends that qualify for less-than-20%-owned foreign

LIFO method provided in section 472, the deduction. corporations, and

attach Form 970, Application To Use • Qualify for the 70% deduction under Report so-called dividends or earnings LIFO Inventory Method, or a statement received from mutual savings banks, etc., section 245(a). To qualify for the 70%

with the information required by Form deduction, the corporation must own at as interest. Do not treat them as 970. Also check the LIFO box on line 9c. least 10% of the stock of the foreign dividends. On line 9d, enter the amount or the corporation by vote and value.

percent of total closing inventories Line 2, Column (a) Also include dividends received from

covered under section 472. Estimates are Enter on line 2: a less-than-20%-owned FSC that:

acceptable. • Dividends (except those received on • Are attributable to income treated as

If the corporation changed or extended debt-financed stock acquired after July effectively connected with the conduct of

its inventory method to LIFO and had to 18, 1984) that are received from a trade or business within the United

Instructions for Form 1120 -15-
States (excluding foreign trade income), Line 10, Columns (a) and (c) Line 14, Column (a) and Small business investment companies Include income constructively received • Qualify for the 70% deduction under operating under the Small Business from CFCs under subpart F. This amount section 245(c)(1)(B). Investment Act of 1958 (see 15 U.S.C. should equal the total subpart F income

Line 7, Column (a) 661 and following) must enter dividends reported on Schedule I of Form 5471,

that are received from domestic Information Return of U.S. Persons With Enter the U.S.-source portion of dividends corporations subject to income tax even Respect to Certain Foreign Corporations. that: though a deduction is allowed for the • Are received from 20%-or-more-owned entire amount of those dividends. To Line 15, Column (a) foreign corporations, and claim the 100% deduction on line 10, • Qualify for the 80% deduction under Include gross-up for taxes deemed paid

section 245(a). column (c), the company must file with its under sections 902 and 960.

return a statement that it was a federal Also include dividends received from a licensee under the Small Business Line 16, Column (a) 20%-or-more-owned FSC that: Investment Act of 1958 at the time it Enter taxable distributions from an • Are attributable to income treated as received the dividends. IC-DISC or former DISC that are effectively connected with the conduct of designated as not eligible for a a trade or business within the United Line 11, Columns (a) and (c) dividends-received deduction. States (excluding foreign trade income), Enter only dividends that qualify under and section 243(b) for the 100% No deduction is allowed under section • Qualify for the 80% deduction under dividends-received deduction described in 243 for a dividend from an IC-DISC or

section 245(c)(1)(B). section 243(a)(3). Corporations taking this former DISC (as defined in section

deduction are subject to the provisions of 992(a)) to the extent the dividend: Line 8, Column (a) section 1561. • Is paid out of the corporation’s Enter dividends received from wholly accumulated IC-DISC income or owned foreign subsidiaries that are The 100% deduction does not apply to previously taxed income, or eligible for the 100% deduction under affiliated group members that are joining • Is a deemed distribution under section section 245(b). in the filing of a consolidated return. 995(b)(1).

In general, the deduction under section Line 12, Column (a) 245(b) applies to dividends paid out of the Line 17, Column (a) Enter dividends from FSCs that are earnings and profits of a foreign Include the following. attributable to foreign trade income and corporation for a tax year during which: that are eligible for the 100% deduction 1. Dividends (other than capital gain • All of its outstanding stock is directly or provided in section 245(c)(1)(A). distributions reported on Schedule D indirectly owned by the domestic (Form 1120) and exempt-interest corporation receiving the dividends, and Line 13, Column (a) dividends) that are received from RICs • All of its gross income from all sources Enter foreign dividends not reportable on and that are not subject to the 70% is effectively connected with the conduct deduction. of a trade or business within the United lines 3, 6, 7, 8, 11, or 12 of column (a). 2. Dividends from tax-exempt States. Include on line 13 the corporation’s share

of the ordinary earnings of a qualified organizations.

Line 9, Column (c) electing fund from line 1c of Form 8621, 3. Dividends (other than capital gain

Generally, line 9, column (c), cannot Return by a Shareholder of a Passive distributions) received from a REIT that,

exceed the amount from the worksheet Foreign Investment Company or for the tax year of the trust in which the

below. However, in a year in which an Qualifying Electing Fund. Exclude dividends are paid, qualifies under

NOL occurs, this limitation does not apply distributions of amounts constructively sections 856 through 860.

even if the loss is created by the taxed in the current year or in prior years 4. Dividends not eligible for a

dividends-received deduction. See under subpart F (sections 951 through dividends-received deduction, which

sections 172(d) and 246(b). 964). include the following.

a. Dividends received on any share of

stock held for less than 46 days during

the 91-day period beginning 45 days Keep for Your

Worksheet for Schedule C, line 9 before the ex-dividend date. When Records counting the number of days the

corporation held the stock, you cannot

1. Refigure line 28, page 1, Form 1120, without any domestic count certain days during which the

production activities deduction, any adjustment under section 1059, corporation’s risk of loss was diminished.

and without any capital loss carryback to the tax year under section See section 246(c)(4) and Regulations

1212(a)(1) ...................................... 1. section 1.246-5 for more details.

2. Complete lines 10, 11, and 12, column (c), and enter the total here 2. b. Dividends attributable to periods

3. Subtract line 2 from line 1 ........................... 3. totaling more than 366 days that the

4. Multiply line 3 by 80% .............................. 4. corporation received on any share of

5. Add lines 2, 5, 7, and 8, column (c), and the part of the deduction preferred stock held for less than 91 days

on line 3, column (c), that is attributable to dividends from during the 181-day period that began 90

20%-or-more-owned corporations ...................... 5. days before the ex-dividend date. When

6. Enter the smaller of line 4 or 5. If line 5 is greater than line 4, stop counting the number of days the

here; enter the amount from line 6 on line 9, column (c), and do not corporation held the stock, you cannot complete the rest of this worksheet ..................... 6. count certain days during which the

7. Enter the total amount of dividends from 20%-or-more-owned corporation’s risk of loss was diminished. corporations that are included on lines 2, 3, 5, 7, and 8, column (a) 7. See section 246(c)(4) and Regulations

8. Subtract line 7 from line 3 ........................... 8. section 1.246-5 for more details.

9. Multiply line 8 by 70% .............................. 9. Preferred dividends attributable to periods

10. Subtract line 5 above from line 9, column (c) ............... 10. totaling less than 367 days are subject to

11. Enter the smaller of line 9 or line 10 ..................... 11. the 46-day holding period rule above.

12. Dividends-received deduction after limitation (sec. 246(b)). Add c. Dividends on any share of stock to

lines 6 and 11. Enter the result here and on line 9, column (c) . . . 12. the extent the corporation is under an

obligation (including a short sale) to make

-16- Instructions for Form 1120
related payments with respect to positions 1. Substantially all of the corporation’s dotted line next to line 2, enter “Section

in substantially similar or related property. activities involve the performance of 197” and the amount.

5. Any other taxable dividend income services in the fields of health, law, Line 3 not properly reported above. engineering, architecture, accounting,

actuarial science, performing arts, or A corporation that is not a small If patronage dividends or per-unit consulting. corporation exempt from the AMT retain allocations are included on line 17, 2. At least 95% of the corporation’s CAUTION may be required to file Form 4626

!

identify the total of these amounts in a stock, by value, is directly or indirectly if it claims certain credits, even though it schedule attached to Form 1120. owned by does not owe any AMT. See Form 4626

Line 18, Column (c) a. Employees performing the for details. services, Section 247 allows public utilities a Unless the corporation is treated as a b. Retired employees who had deduction of 40% of the smaller of small corporation exempt from the AMT, it performed the services listed above, (a) dividends paid on their preferred stock may owe the AMT if it has any of the c. Any estate of an employee or during the tax year, or (b) taxable income adjustments and tax preference items retiree described above, or computed without regard to this listed on Form 4626. The corporation d. Any person who acquired the stock deduction. In a year in which an NOL must file Form 4626 if its taxable income of the corporation as a result of the death occurs, compute the deduction without (or loss) before the NOL deduction, of an employee or retiree (but only for the regard to section 247(a)(1)(B). See combined with these adjustments and tax 2-year period beginning on the date of the section 172(d). preference items is more than the smaller employee’s or retiree’s death). of $40,000 or the corporation’s allowable

Schedule J. Alternative tax for corporations with exemption amount (from Form 4626). For

qualified timber gains. A corporation this purpose, taxable income does not Tax Computation include the NOL deduction. that has net capital gain and qualified

timber gain (as defined in section See Form 4626 for definitions and Line 1 1201(b)(2)) is subject to an alternative tax details on how to figure the tax. If the corporation is a member of a computation. The alternative tax applies controlled group, check the box on line 1. Line 5a for tax years ending after May 22, 2008, Complete and attach Schedule O (Form and beginning before May 23, 2009. The To find out when a corporation can take 1120), Consent Plan and Apportionment tax is figured on Schedule D (Form 1120), the credit for payment of income tax to a Schedule for a Controlled Group. Part IV. Enter on Schedule J, line 2, the foreign country or U.S. possession, see Members of a controlled group must use tax from Schedule D, Part IV, line 26. Form 1118, Foreign Tax Credit – Schedule O to report the apportionment Corporations. Mutual savings bank conducting life of taxable income, income tax, and

certain tax benefits between the members insurance business. The tax under Line 5b

section 594 consists of the sum of (a) a of the group. See Schedule O and its Enter the amount of any credit from Form partial tax computed on Form 1120 on the Instructions for more information. 8834, Qualified Electric Vehicle Credit, for taxable income of the bank determined qualified electric vehicle passive activity Line 2 without regard to income or deductions credits from prior years allowed on Form allocable to the life insurance department, If the corporation is a member of a 8810 for the current tax year. Also include and (b) a partial tax on the taxable controlled group, enter the corporation’s on line 5b any credits from Form 5735, income computed on Form 1120-L of the tax from Part III of Schedule O (Form American Samoa Economic Development life insurance department. Enter the 1120). Most corporations that are not Credit. See the Instructions for Form

members of a controlled group and not combined tax on line 2. Attach Form 5735. 1120-L as a schedule (and identify it as filing a consolidated return figure their tax such), together with the annual Line 5c by using the Tax Rate Schedule below.

Qualified personal service corporations statements and schedules required to be Enter on line 5c the allowable credit from

should see the instructions later. filed with Form 1120-L. See Regulations Form 3800, Part II, line 32. section 1.6012-2(c)(1)(ii). An exception Tax Rate Schedule The corporation is required to file Form applies for insurance companies that 3800, General Business Credit, to claim electronically file their returns. See If taxable income (line 30, Form 1120) on page 1 most business credits. For a list of Regulations section 1.6012-2(c)(4). is: allowable credits, see Form 3800. Also, Deferred tax under section 1291. If the see the applicable credit form and its

Of the corporation was a shareholder in a instructions.

But not amount passive foreign investment company Over — over — Tax is: over — (PFIC) and received an excess Line 5d

distribution or disposed of its investment To figure the minimum tax credit and any $0 $50,000 15% $0

50,000 75,000 $ 7,500 + 25% 50,000 in the PFIC during the year, it must carryforward of that credit, use Form

75,000 100,000 13,750 + 34% 75,000 include the increase in taxes due under 8827, Credit for Prior Year Minimum

100,000 335,000 22,250 + 39% 100,000 section 1291(c)(2) in the total for line 2. Tax—Corporations.

335,000 10,000,000 113,900 + 34% 335,000 On the dotted line next to line 2, enter Line 5e 10,000,000 15,000,000 3,400,000 + 35% 10,000,000 “Section 1291” and the amount.

15,000,000 18,333,333 5,150,000 + 38% 15,000,000 Enter the allowable credits from Form Do not include on line 2 any interest 18,333,333 - - - - - 35% 0 8912, Credit to Holders of Tax Credit due under section 1291(c)(3). Instead, Bonds, line 17. show the amount of interest owed in the

Qualified personal service corporation. bottom margin of page 1, Form 1120, and Line 8

A qualified personal service corporation enter “Section 1291 interest.” For details, A corporation is taxed as a personal is taxed at a flat rate of 35% on taxable see Form 8621. holding company under section 542 if: income. If the corporation is a qualified Additional tax under section 197(f). A • At least 60% of its adjusted ordinary personal service corporation, check the corporation that elects to pay tax on the gross income for the tax year is personal box on line 2 even if the corporation has gain from the sale of an intangible under holding company income, and no tax liability. the related person exception to the • At any time during the last half of the

A corporation is a qualified personal anti-churning rules should include any tax year more than 50% in value of its

service corporation if it meets both of the additional tax due under section outstanding stock is directly or indirectly

following tests. 197(f)(9)(B) in the total for line 2. On the owned by five or fewer individuals.

Instructions for Form 1120 -17-
See Schedule PH (Form 1120) for • Tax and interest on a nonqualified

definitions and details on how to figure withdrawal from a capital construction Schedule K.

the tax. fund (section 7518(g)). 

• Interest on deferred tax attributable to Other Information

Line 9 (a) installment sales of certain timeshares Complete all items that apply to the

Include any of the following taxes and and residential lots (section 453(l)(3)) and corporation.

interest in the total on line 9. Check the

appropriate box(es) for the form, if any, (b) certain nondealer installment Question 3 obligations (section 453A(c)). used to compute the total. Check the “Yes” box for question 3 if: • Interest due on deferred gain (section • The corporation is a subsidiary in an Recapture of investment credit. If the 1260(b)). affiliated group (defined below), but is not corporation disposed of investment credit filing a consolidated return for the tax year property or changed its use before the How to report. If the corporation with that group, or end of its useful life or recovery period, it checked the “Other” box, attach a

may owe a tax. See Form 4255, • The corporation is a subsidiary in a schedule showing the computation of parent-subsidiary controlled group. For a Recapture of Investment Credit. each item included in the total for line 9 definition of a parent-subsidiary controlled Recapture of low-income housing and identify the applicable Code section group, see the Instructions for Schedule and the type of tax or interest. credit. If the corporation disposed of O (Form 1120). property (or there was a reduction in the Line 10 Any corporation that meets either of qualified basis of the property) for which it the requirements above should check the took the low-income housing credit, it may Include any deferred tax on the “Yes” box. This applies even if the owe a tax. See Form 8611, Recapture of termination of a section 1294 election corporation is a subsidiary member of one Low-Income Housing Credit. applicable to shareholders in a qualified group and the parent corporation of Interest due under the look-back electing fund in the amount entered on another.

methods. If the corporation used the line 10. See Form 8621, Part V, and How

to report, below. Note. If the corporation is an “excluded look-back method for certain long-term member” of a controlled group (see contracts, see Form 8697, Interest Subtract the following amounts from section 1563(b)(2)), it is still considered a Computation Under the Look-Back

Method for Completed Long-Term the total for line 10. member of a controlled group for this

purpose. Contracts, for information on figuring the • Deferred tax on the corporation’s share

interest the corporation may have to of undistributed earnings of a qualified Affiliated group. An affiliated group is

include. electing fund (see Form 8621, Part II). one or more chains of includible

• Deferred LIFO recapture tax (section corporations (section 1504(a)) connected The corporation may also have to 1363(d)). This tax is the part of the LIFO through stock ownership with a common include interest due under the look-back

method for property depreciated under recapture tax that will be deferred and parent corporation. The common parent

paid with Form 1120S in the future. To must be an includible corporation and the the income forecast method. See Form following requirements must be met. 8866, Interest Computation Under the figure the deferred tax, first figure the total

Look-Back Method for Property LIFO recapture tax. Follow the steps 1. The common parent must own

Depreciated Under the Income Forecast below to figure the total LIFO recapture directly stock that represents at least 80%

Method. tax and the deferred amount. Also see the of the total voting power and at least 80%

instructions regarding LIFO recapture of the total value of the stock of at least Alternative tax on qualifying shipping amount on page 8 under Line 10. Other one of the other includible corporations. activities. Enter any alternative tax on Income. 2. Stock that represents at least 80% qualifying shipping activities from Form of the total voting power and at least 80% 8902. Check the box for Form 8902. Step 1. Figure the tax on the of the total value of the stock of each of

Other. Additional taxes and interest corporation’s income including the LIFO the other corporations (except for the amounts can be included in the total recapture amount. (Complete Schedule J common parent) must be owned directly entered on line 9. Check the box for through line 9, but do not enter a total on by one or more of the other includible “Other” if the corporation includes any line 10 yet.) corporations. additional taxes and interest such as the

items discussed below. See How to report Step 2. Using a separate worksheet, For this purpose, the term “stock”

below for details on reporting these complete Schedule J again, but do not generally does not include any stock that

amounts on an attached schedule. include the LIFO recapture amount in the (a) is nonvoting, (b) is nonconvertible, • Recapture of qualified electric vehicle corporation’s taxable income. (c) is limited and preferred as to dividends

(QEV) credit. The corporation must and does not participate significantly in

recapture part of the QEV credit it claimed Step 3. Compare the tax in Step 2 to corporate growth, and (d) has redemption

in a prior year if, within 3 years of the date the tax in Step 1. (The difference between and liquidation rights that do not exceed

the vehicle was placed in service, it the two is the LIFO recapture tax.) the issue price of the stock (except for a

ceases to qualify for the credit. See reasonable redemption or liquidation

Regulations section 1.30-1 for details on Step 4. Multiply the amount figured in premium). See section 1504(a)(4). See

how to figure the recapture. Step 3 by 75%. (The result is the deferred section 1563(d)(1) for the definition of • Recapture of Indian employment credit. LIFO recapture tax.) stock for purposes of determining stock

Generally, if an employer terminates the ownership above.

employment of a qualified employee less How to report. Attach a schedule

than 1 year after the date of initial showing the computation of each item Question 4

employment, any Indian employment included in, or subtracted from, the total

for line 10. On the dotted line next to line Constructive Ownership of the credit allowed for a prior tax year because

of wages paid or incurred to that 10, specify (a) the applicable Code Corporation

employee must be recaptured. For For purposes of question 4, the section, (b) the type of tax, and (c) enter

details, see Form 8845 and section 45A. constructive ownership rules of section the amount of tax. For example, if the

• Recapture of new markets credit (see 267(c) (excluding section 267(c)(3)) apply corporation is deferring a $100 LIFO

Form 8874). recapture tax, subtract this amount from to ownership of interests in corporate

• Recapture of employer-provided stock and ownership of interests in the the total on line 10, then enter “Section

childcare facilities and services credit profit, loss, or capital of a partnership. An 1363-Deferred Tax-$100” on the dotted

(see Form 8882). line next to line 10. interest in the corporation owned directly

-18- Instructions for Form 1120
or indirectly by or for another entity indirectly, through Partnership B, a 35% Question 5a

(corporation, partnership, estate, or trust) interest (50% of 70%) in the profit, loss, or List each foreign or domestic corporation is considered to be owned proportionately capital of Partnership C and owns, not included on Form 851, Affiliations by the owners (shareholders, partners, or indirectly, 35% of the voting stock of Schedule, in which the corporation, at the beneficiaries) of the owning entity. Also, Corporation D. Corporation A owns, end of the tax year, owned directly 20% under section 267(c), an individual is directly or indirectly, a 50% interest in the or more, or owned, directly or indirectly, considered to own an interest owned profit, loss, or capital of Partnership C 50% or more of the total voting power of directly or indirectly by or for his or her (15% directly and 35% indirectly), and all classes of stock entitled to vote.

family. The family of an individual owns, directly or indirectly, 50% of the Indicate the name of the corporation, EIN includes only that individual’s spouse, voting stock of Corporation D (15% (if any), country of incorporation, and the brothers, sisters, ancestors, and lineal directly and 35% indirectly). percentage interest owned, directly or descendants. An interest will be attributed indirectly, in the total voting power. List from an individual under the family Corporation D reports in its answer to the parent corporation of an affiliated attribution rules only if the person to question 4a that its voting stock is owned, group of corporations filing a consolidated whom the interest is attributed owns a directly or indirectly, 50% by Corporation tax return rather than the subsidiary direct or an indirect interest in the A and is owned, directly, 70% by members except for subsidiary members corporation under section 267(c)(1) or (5). Partnership B. in which an interest is owned, directly or However, for purposes of these indirectly, independent of the interest Example 2. A owns, directly, 50% of instructions, an individual will not be owned, directly or indirectly, in the parent considered to own, under section the voting stock of Corporation X. B, the corporation. List a corporation owned 267(c)(2), an interest in the corporation daughter of A, does not own, directly, any through a disregarded entity rather than owned, directly or indirectly, by a family interest in Corporation X and does not the disregarded entity. member unless the individual also owns own, indirectly, any interest in Corporation

an interest in the corporation either X through any entity (corporation, Question 5b

directly or indirectly through a corporation, partnership, trust, or estate). Therefore, List each foreign or domestic partnership partnership or trust. the family attribution rules do not apply in which the corporation, at the end of the and, for the purposes of question 4b, the Constructive ownership examples for tax year, owned directly an interest of 50% interest of A in Corporation X is not questions 4 and 5 follow the instructions 20% or more, or owned, directly or attributed to B. for questions 4b and 5b. indirectly, an interest of 50% or more in

the profit, loss, or capital of the Question 4a Example 3. A owns, directly, 50% of partnership. List each trust in which the the voting stock of Corporation X. B, the List each foreign or domestic corporation, corporation, at the end of the tax year, daughter of A, does not own, directly, any partnership, or trust owning, at the end of owned directly an interest of 20% or the tax year, directly 20% or more, or interest in X but does own, indirectly, 10% more, or owned, directly or indirectly, an owning, directly or indirectly, 50% or more of the voting stock of Corporation X interest of 50% or more in the trust through Trust T of which she is the sole of the total voting power of all classes of beneficial interest. Indicate the name, EIN

the corporation’s stock entitled to vote. beneficiary. No other family member of A (if any), country of organization, and the or B owns, directly, any interest in Indicate the name of the entity, EIN (if maximum percentage interest owned, Corporation X nor does any own, any), type of entity (corporation, directly or indirectly, in the profit, loss, or partnership, or trust), country of indirectly, any interest in Corporation X capital of the partnership at the end of the through any entity. Neither A nor B owns organization, and the percentage owned, partnership tax year, or, for a trust, the directly or indirectly, of the voting stock of any other interest in Corporation X percentage interest owned in the trust through any entity. the corporation. For an affiliated group beneficial interest. List a partnership or filing a consolidated tax return, list the trust owned through a disregarded entity For the purposes of question 4b, the parent corporation rather than the rather than the disregarded entity. 50% interest of A in the voting stock of subsidiary members. List the entity owner Corporation X is attributed to B and the Maximum percentage owned in of a disregarded entity rather than the 10% interest of B in the voting stock of partnership profit, loss, or capital. For disregarded entity. If the owner of a

disregarded entity is an individual rather Corporation X is attributed to A. A owns, the purposes of question 5b, the term

directly or indirectly, 60% of the voting “maximum percentage owned” means the than an entity, list the individual under stock of Corporation X, 50% directly and highest percentage of interest in a question 4b. 10% indirectly through B. B owns, directly partnership’s profit, loss, or capital as of Question 4b or indirectly, 60% of the voting stock of the end of the partnership’s tax year, as

List each individual or estate owning, at Corporation X (50% indirectly through A determined under the partnership

the end of the tax year, directly 20% or and 10% indirectly through Trust T). agreement, when taking into account the

more, or owning, directly or indirectly, constructive ownership rules above. If the

50% or more, of the total voting power of Question 5 partnership agreement does not express

all classes of the corporation’s stock the partner’s share of profit, loss, and

entitled to vote. Indicate the name of the Constructive Ownership of Other capital as fixed percentages, use a

individual or estate, TIN (if any), country Entities reasonable method in arriving at the

of citizenship (for an estate, the percentage items for the purposes of For purposes of determining the citizenship of the decedent), and the completing question 5b. Such method corporation’s constructive ownership of percentage owned, directly or indirectly of must be consistent with the partnership other entities, the constructive ownership the voting stock of the corporation. agreement. The method used to compute rules of section 267(c) (excluding section a percentage share of profit, loss, and Example 1. Corporation A owns, 267(c)(3)) apply to ownership of interests

in partnerships and trusts as well as capital must be applied consistently from directly, a 50% interest in the profit, loss, year to year. Maintain records to support or capital of Partnership B. Corporation A corporate stock. Generally, if an entity (a the determination of the share of profits, also owns, directly, a 15% interest in the corporation, partnership, or trust) is losses, and share of capital. profit, loss, or capital of Partnership C and owned, directly or indirectly, by or for

owns, directly, 15% of the voting stock of another entity (corporation, partnership, Example 4. Assuming the same facts

Corporation D. Partnership B owns, as Example 1, Corporation A reports in its estate, or trust), the owned entity is

directly, a 70% interest in the profit, loss, answer to question 5a that it owns, considered to be owned proportionately

or capital of Partnership C and owns, directly or indirectly, 50% of the voting by or for the owners (shareholders,

directly, 70% of the voting stock of stock of Corporation D. Corporation A partners, or beneficiaries) of the owning

Corporation D. Corporation A owns, reports in its answer to question 5b that it entity.

Instructions for Form 1120 -19-
owns, directly, an interest of 50% in the including extensions. Do not attach the • The excess of additional pension

profit, loss, or capital of Partnership B and statement described in Temporary liability over unrecognized prior service

owns, directly or indirectly, 50% of the Regulations section 301.9100-12T. Once cost.

profit, loss, or capital of Partnership C. made, the election is irrevocable. See • Guarantees of employee stock (ESOP)

Form 1139 for more details. debt. Question 7

Corporations filing a consolidated • Compensation related to employee Check the “Yes,” box if one foreign stock award plans. return must also attach the statement person owned at least 25% of (a) the total required by Regulations section voting power of all classes of stock of the If the total adjustment to be entered on 1.1502-21(b)(3). corporation entitled to vote, or (b) the total line 26 is a negative amount, enter the

value of all classes of stock of the amount in parentheses. Item 12

corporation. Enter the amount of the NOL carryover to The constructive ownership rules of the tax year from prior years, even if section 318 apply in determining if a some of the loss is used to offset income Schedule M-1. corporation is foreign owned. See section on this return. The amount to enter is the

6038A(c)(5) and the related regulations. total of all NOLs generated in prior years Reconciliation of Income

Enter on line 7a the percentage owned but not used to offset income (either as a (Loss) per Books With by the foreign person specified in carryback or carryover) to a tax year prior

question 7. On line 7b, enter the name of to 2008. Do not reduce the amount by Income per Return

the owner’s country. any NOL deduction reported on line 29a. Corporations with total receipts (line 1a

Note. If there is more than one plus lines 4 through 10 on page 1) and

25%-or-more foreign owner, complete total assets at the end of the tax year less

lines 7a and 7b for the foreign person with Schedule L. than $250,000 are not required to

complete Schedules L, M-1, and M-2 if the highest percentage of ownership. Balance Sheet per Books the “Yes” box on Schedule K, question Foreign person. The term “foreign The balance sheet should agree with the 13, is checked. person” means: corporation’s books and records. • A foreign citizen or nonresident alien, Corporations with total assets Corporations with total receipts (line 1a • An individual who is a citizen of a U.S. non-consolidated (or consolidated for all plus lines 4 through 10 on page 1) and possession (but who is not a U.S. citizen corporations included within the tax total assets at the end of the tax year less or resident), consolidation group) of $10 million or than $250,000 are not required to • A foreign partnership, more on the last day of the tax year must complete Schedules L, M-1, and M-2 if • A foreign corporation, complete Schedule M-3 (Form 1120) the “Yes” box on Schedule K, question • Any foreign estate or trust within the instead of Schedule M-1. A corporation meaning of section 7701(a)(31), or 13, is checked. If the corporation is filing Form 1120 that is not required to file required to complete Schedule L, include • A foreign government (or one of its Schedule M-3 may voluntarily file total assets reported on Schedule L, line agencies or instrumentalities) to the Schedule M-3 instead of Schedule M-1. 15, column (d), on page 1, item D. extent that it is engaged in the conduct of See the Instructions for Schedule M-3

a commercial activity as described in Corporations with total assets (Form 1120) for more information. section 892. non-consolidated (or consolidated for all

Owner’s country. For individuals, the corporations included within the tax Line 5c

consolidation group) of $10 million or term “owner’s country” means the country Include any of the following. of residence. For all others, it is the more on the last day of the tax year must • Meal and entertainment expenses not country where incorporated, organized, complete Schedule M-3 (Form 1120) deductible under section 274(n). created, or administered. instead of Schedule M-1. See the • Expenses for the use of an separate Instructions for Schedule M-3 Requirement to file Form 5472. If the entertainment facility. (Form 1120) for provisions that also affect corporation checked “Yes,” it may have to • The part of business gifts over $25. Schedule L. file Form 5472, Information Return of a • Expenses of an individual over $2,000, 25% Foreign Owned U.S. Corporation or If filing a consolidated return, report which are allocable to conventions on

a Foreign Corporation Engaged in a U.S. total consolidated assets, liabilities, and cruise ships. Trade or Business. Generally, a 25% shareholder’s equity for all corporations • Employee achievement awards over foreign-owned corporation that had a joining in the return. See Consolidated $400. reportable transaction with a foreign or Return on page 6 of these instructions. • The cost of entertainment tickets over domestic related party during the tax year Line 1 face value (also subject to 50% limit must file Form 5472. See Form 5472 for under section 274(n)). filing instructions and penalties for failure Include certificates of deposit as cash on • The cost of skyboxes over the face this line. to file. value of nonluxury box seat tickets.

Item 9 Line 5 • The part of luxury water travel

Show any tax-exempt interest received or Include on this line: expenses not deductible under section

accrued. Include any exempt-interest • State and local government obligations, 274(m).

dividends received as a shareholder in a the interest on which is excludable from • Expenses for travel as a form of

mutual fund or other RIC. Also, if gross income under section 103(a) and education.

required, include the same amount on • Stock in a mutual fund or other RIC that • Other nondeductible travel and

Schedule M-1, line 7 (or Schedule M-3, distributed exempt-interest dividends entertainment expenses.

Part II, line 13, if applicable). during the tax year of the corporation. For more information, see Pub. 542.

Item 11 Line 26

If the corporation has an NOL for its 2008 Some examples of adjustments to report Line 7

tax year, it can elect to waive the entire on this line include: Report any tax exempt interest received

carryback period for the NOL and instead • Unrealized gains and losses on or accrued, including any exempt-interest

carry the NOL forward to future tax years. securities held “available for sale.” dividends received as a shareholder in a

To do so, check the box on line 11 and • Foreign currency translation mutual fund or other RIC. Also report this

file the tax return by its due date, adjustments. same amount on Schedule K, item 9.

-20- Instructions for Form 1120
Privacy Act and 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. Section 6109 requires return preparers to provide their identifying

numbers on the return.

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.

The time needed to complete and file the following forms will vary depending on individual circumstances. The estimated average

times are:

Copying,

assembling,

Learning about and sending the

Form Recordkeeping the law or the form Preparing the form form to the IRS

1120 67 hr., 40 min. 40 hr., 54 min. 69 hr., 51 min. 7 hr., 30 min.

Sch B (1120) 2hr., 37 min. 35 min. 40 min. - - - - -

Sch. D (1120) 9 hr., 05 min. 3 hr., 55 min. 6 hr., 5 min. 32 min.

Sch. H (1120) 5 hr., 58 min. 35 min. 43 min. - - - - -

Sch. M-3 (1120) 79 hr., 52 min. 3 hr., 40 min. 5 hr., 8 min. - - - - -

Sch. N (1120) 3 hr., 21 min. 1 hr., 30 min. 4 hr., 24 min. 48 min.

Sch. O (1120) 12 hr., 40 min. 2 hr., 5 min. 2 hr., 22 min. - - - - -

Sch. PH (1120) 12 hr., 54 min. 4 hr., 18 min. 6 hr., 34 min. 32 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related

schedules simpler, we would be happy to hear from you. You can write to Internal Revenue Service, Tax Products Coordinating

Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this

address. Instead, see Where To File on page 3.

Instructions for Form 1120 -21-
Using the list of activities and codes below, Once the principal business activity is determined, Principal Business Activity determine from which activity the company derives entries must be made on Form 1120, Schedule K, Codes the largest percentage of its “total receipts.” Total lines 2a, 2b, and 2c. For the business activity code

receipts is defined as the sum of gross receipts or number, enter the six digit code selected from the list

sales (page 1, line 1a) plus all other income (page 1, below. On the next line (Form 1120, Schedule K, line This list of principal business activities and their lines 4 through 10). If the company purchases raw 2b), enter a brief description of the company’s associated codes is designed to classify an materials and supplies them to a subcontractor to business activity. Finally, enter a description of the enterprise by the type of activity in which it is

engaged to facilitate the administration of the produce the finished product, but retains title to the principal product or service of the company on Form

product, the company is considered a manufacturer 1120, Schedule K, line 2c. Internal Revenue Code. These principal business and must use one of the manufacturing codes activity codes are based on the North American (311110-339900). Industry Classification System.

Code Code Code Code

Agriculture, Forestry, Fishing Heavy and Civil Engineering Wood Product Manufacturing 332810 Coating, Engraving, Heat

Construction 321110 Sawmills & Wood Treating, & Allied Activities and Hunting 237100 Utility System Construction Preservation 332900 Other Fabricated Metal Crop Production 237210 Land Subdivision 321210 Veneer, Plywood, & Product Mfg 111100 Oilseed & Grain Farming 237310 Highway, Street, & Bridge Engineered Wood Product Machinery Manufacturing 111210 Vegetable & Melon Farming Construction Mfg 333100 Agriculture, Construction, & (including potatoes & yams) 237990 Other Heavy & Civil 321900 Other Wood Product Mfg Mining Machinery Mfg 111300 Fruit & Tree Nut Farming Engineering Construction Paper Manufacturing 333200 Industrial Machinery Mfg 111400 Greenhouse, Nursery, & Specialty Trade Contractors 322100 Pulp, Paper, & Paperboard 333310 Commercial & Service Floriculture Production 238100 Foundation, Structure, & Mills Industry Machinery Mfg 111900 Other Crop Farming Building Exterior Contractors 322200 Converted Paper Product Mfg 333410 Ventilation, Heating, (including tobacco, cotton,

sugarcane, hay, peanut, (including framing carpentry, Air-Conditioning, & Printing and Related Support

sugar beet & all other crop masonry, glass, roofing, & Commercial Refrigeration Activities

siding) Equipment Mfg farming) 323100 Printing & Related Support

Animal Production 238210 Electrical Contractors 333510 Metalworking Machinery Mfg Activities

112111 Beef Cattle Ranching & 238220 Plumbing, Heating, & 333610 Engine, Turbine & Power Petroleum and Coal Products

Farming Air-Conditioning Contractors Transmission Equipment Mfg Manufacturing 238290 Other Building Equipment 333900 Other General Purpose 112112 Cattle Feedlots 324110 Petroleum Refineries Contractors Machinery Mfg (including integrated) 112120 Dairy Cattle & Milk 238300 Building Finishing 324120 Asphalt Paving, Roofing, & Computer and Electronic Product Production Contractors (including Saturated Materials Mfg Manufacturing 112210 Hog & Pig Farming drywall, insulation, painting, 324190 Other Petroleum & Coal 334110 Computer & Peripheral 112300 Poultry & Egg Production wallcovering, flooring, tile, & Products Mfg Equipment Mfg 112400 Sheep & Goat Farming finish carpentry) Chemical Manufacturing 334200 Communications Equipment 112510 Aquaculture (including 238900 Other Specialty Trade Mfg Contractors (including site 325100 Basic Chemical Mfg shellfish & finfish farms & 334310 Audio & Video Equipment hatcheries) preparation) 325200 Resin, Synthetic Rubber, & Mfg Artificial & Synthetic Fibers & 112900 Other Animal Production 334410 Semiconductor & Other Manufacturing Filaments Mfg Forestry and Logging Electronic Component Mfg 325300 Pesticide, Fertilizer, & Other 113110 Timber Tract Operations Food Manufacturing Agricultural Chemical Mfg 334500 Navigational, Measuring,

113210 Forest Nurseries & Gathering 311110 Animal Food Mfg Electromedical, & Control 325410 Pharmaceutical & Medicine of Forest Products 311200 Grain & Oilseed Milling Instruments Mfg Mfg 113310 Logging 311300 Sugar & Confectionery 334610 Manufacturing & 325500 Paint, Coating, & Adhesive Product Mfg Reproducing Magnetic & Fishing, Hunting and Trapping Mfg Optical Media 114110 Fishing 311400 Fruit & Vegetable Preserving 325600 Soap, Cleaning Compound, & & Specialty Food Mfg Electrical Equipment, Appliance, and 114210 Hunting & Trapping Toilet Preparation Mfg 311500 Dairy Product Mfg Component Manufacturing Support Activities for Agriculture 325900 Other Chemical Product &

311610 Animal Slaughtering and 335100 Electric Lighting Equipment and Forestry Preparation Mfg Processing Mfg 115110 Support Activities for Crop Plastics and Rubber Products

311710 Seafood Product Preparation 335200 Household Appliance Mfg Production (including cotton Manufacturing & Packaging 335310 Electrical Equipment Mfg ginning, soil preparation, 326100 Plastics Product Mfg planting, & cultivating) 311800 Bakeries & Tortilla Mfg 335900 Other Electrical Equipment & 326200 Rubber Product Mfg 311900 Other Food Mfg (including Component Mfg 115210 Support Activities for Animal Nonmetallic Mineral Product Production coffee, tea, flavorings & Transportation Equipment Manufacturing seasonings) Manufacturing 115310 Support Activities For 327100 Clay Product & Refractory Forestry Beverage and Tobacco Product 336100 Motor Vehicle Mfg Mfg Manufacturing 336210 Motor Vehicle Body & Trailer 327210 Glass & Glass Product Mfg Mining 312110 Soft Drink & Ice Mfg Mfg 327300 Cement & Concrete Product 211110 Oil & Gas Extraction 312120 Breweries 336300 Motor Vehicle Parts Mfg Mfg 212110 Coal Mining 312130 Wineries 336410 Aerospace Product & Parts 327400 Lime & Gypsum Product Mfg 312140 Distilleries Mfg 212200 Metal Ore Mining 327900 Other Nonmetallic Mineral

312200 Tobacco Manufacturing 336510 Railroad Rolling Stock Mfg 212310 Stone Mining & Quarrying Product Mfg 336610 Ship & Boat Building 212320 Sand, Gravel, Clay, & Textile Mills and Textile Product Primary Metal Manufacturing Ceramic & Refractory Mills 336990 Other Transportation 331110 Iron & Steel Mills & Ferroalloy Minerals Mining & Quarrying Equipment Mfg 313000 Textile Mills Mfg 212390 Other Nonmetallic Mineral 314000 Textile Product Mills Furniture and Related Product 331200 Steel Product Mfg from Mining & Quarrying Manufacturing Apparel Manufacturing Purchased Steel

213110 Support Activities for Mining 337000 Furniture & Related Product 315100 Apparel Knitting Mills 331310 Alumina & Aluminum Manufacturing 315210 Cut & Sew Apparel Production & Processing Utilities Miscellaneous Manufacturing Contractors 331400 Nonferrous Metal (except

221100 Electric Power Generation, Aluminum) Production & 339110 Medical Equipment & 315220 Men’s & Boys’ Cut & Sew Transmission & Distribution Processing Supplies Mfg Apparel Mfg

221210 Natural Gas Distribution 331500 Foundries 339900 Other Miscellaneous 315230 Women’s & Girls’ Cut & Sew Manufacturing 221300 Water, Sewage & Other Apparel Mfg Fabricated Metal Product

Systems 315290 Other Cut & Sew Apparel Mfg Manufacturing

221500 Combination Gas & Electric Wholesale Trade 315990 Apparel Accessories & Other 332110 Forging & Stamping

Apparel Mfg Merchant Wholesalers, Durable 332210 Cutlery & Handtool Mfg

Construction Goods Leather and Allied Product 332300 Architectural & Structural

Manufacturing Metals Mfg 423100 Motor Vehicle & Motor Construction of Buildings Vehicle Parts & Supplies 236110 Residential Building 316110 Leather & Hide Tanning & 332400 Boiler, Tank, & Shipping 423200 Furniture & Home Construction Finishing Container Mfg Furnishings 236200 Nonresidential Building 316210 Footwear Mfg (including 332510 Hardware Mfg 423300 Lumber & Other Construction Construction rubber & plastics) 332610 Spring & Wire Product Mfg Materials 316990 Other Leather & Allied 332700 Machine Shops; Turned 423400 Professional & Commercial Product Mfg Product; & Screw, Nut, & Bolt Equipment & Supplies Mfg

-22- Instructions for Form 1120
Principal Business Activity Codes (continued)

Code Code Code Code

423500 Metal & Mineral (except 445120 Convenience Stores Truck Transportation Finance and Insurance

Petroleum) 445210 Meat Markets 484110 General Freight Trucking, Depository Credit Intermediation 423600 Electrical & Electronic Goods Local 445220 Fish & Seafood Markets 522110 Commercial Banking 423700 Hardware, & Plumbing & 484120 General Freight Trucking, 445230 Fruit & Vegetable Markets 522120 Savings Institutions Heating Equipment & Long-distance 445291 Baked Goods Stores Supplies 522130 Credit Unions 484200 Specialized Freight Trucking 445292 Confectionery & Nut Stores 522190 Other Depository Credit 423800 Machinery, Equipment, & Transit and Ground Passenger Supplies 445299 All Other Specialty Food Intermediation Transportation

423910 Sporting & Recreational Stores Nondepository Credit Intermediation 485110 Urban Transit Systems 445310 Beer, Wine, & Liquor Stores Goods & Supplies 522210 Credit Card Issuing 485210 Interurban & Rural Bus Health and Personal Care Stores 423920 Toy & Hobby Goods & 522220 Sales Financing Transportation Supplies 446110 Pharmacies & Drug Stores 522291 Consumer Lending 485310 Taxi Service

423930 Recyclable Materials 446120 Cosmetics, Beauty Supplies, 522292 Real Estate Credit (including 485320 Limousine Service

423940 Jewelry, Watch, Precious & Perfume Stores mortgage bankers & 485410 School & Employee Bus Stone, & Precious Metals 446130 Optical Goods Stores originators) Transportation 423990 Other Miscellaneous Durable 446190 Other Health & Personal 522293 International Trade Financing 485510 Charter Bus Industry Goods Care Stores 522294 Secondary Market Financing 485990 Other Transit & Ground Merchant Wholesalers, Nondurable Gasoline Stations Passenger Transportation 522298 All Other Nondepository

Goods 447100 Gasoline Stations (including Credit Intermediation Pipeline Transportation 424100 Paper & Paper Products convenience stores with gas) Activities Related to Credit 486000 Pipeline Transportation 424210 Drugs & Druggists’ Sundries Clothing and Clothing Accessories Intermediation

Stores Scenic & Sightseeing Transportation 424300 Apparel, Piece Goods, & 522300 Activities Related to Credit

Notions 448110 Men’s Clothing Stores 487000 Scenic & Sightseeing Intermediation (including loan

424400 Grocery & Related Products 448120 Women’s Clothing Stores Transportation brokers, check clearing, &

Support Activities for Transportation money transmitting) 424500 Farm Product Raw Materials 448130 Children’s & Infants’ Clothing

Stores 488100 Support Activities for Air Securities, Commodity Contracts, 424600 Chemical & Allied Products

448140 Family Clothing Stores Transportation and Other Financial Investments and 424700 Petroleum & Petroleum 488210 Support Activities for Rail Related Activities Products 448150 Clothing Accessories Stores Transportation 523110 Investment Banking & 424800 Beer, Wine, & Distilled 448190 Other Clothing Stores 488300 Support Activities for Water Securities Dealing Alcoholic Beverages 448210 Shoe Stores Transportation 523120 Securities Brokerage 424910 Farm Supplies 448310 Jewelry Stores 488410 Motor Vehicle Towing 523130 Commodity Contracts 424920 Book, Periodical, & 448320 Luggage & Leather Goods 488490 Other Support Activities for Dealing Newspapers Stores Road Transportation 523140 Commodity Contracts 424930 Flower, Nursery Stock, & Sporting Goods, Hobby, Book, and 488510 Freight Transportation Brokerage Florists’ Supplies Music Stores Arrangement 523210 Securities & Commodity 424940 Tobacco & Tobacco Products 451110 Sporting Goods Stores 488990 Other Support Activities for Exchanges 424950 Paint, Varnish, & Supplies 451120 Hobby, Toy, & Game Stores Transportation 523900 Other Financial Investment

424990 Other Miscellaneous 451130 Sewing, Needlework, & Piece Couriers and Messengers Activities (including portfolio Nondurable Goods Goods Stores management & investment 492110 Couriers Wholesale Electronic Markets and 451140 Musical Instrument & advice) 492210 Local Messengers & Local Agents and Brokers Supplies Stores Delivery Insurance Carriers and Related

425110 Business to Business 451211 Book Stores Activities Warehousing and Storage Electronic Markets 451212 News Dealers & Newsstands 524140 Direct Life, Health, & Medical 493100 Warehousing & Storage 425120 Wholesale Trade Agents & 451220 Prerecorded Tape, Compact Insurance & Reinsurance (except lessors of Brokers Disc, & Record Stores Carriers miniwarehouses &

General Merchandise Stores 524150 Direct Insurance & self-storage units) Retail Trade Reinsurance (except Life, 452110 Department Stores Health & Medical) Carriers Motor Vehicle and Parts Dealers 452900 Other General Merchandise Information 524210 Insurance Agencies & 441110 New Car Dealers Stores Publishing Industries (except Brokerages 441120 Used Car Dealers Miscellaneous Store Retailers Internet) 524290 Other Insurance Related 441210 Recreational Vehicle Dealers 453110 Florists 511110 Newspaper Publishers Activities (including 441221 Motorcycle Dealers 453210 Office Supplies & Stationery 511120 Periodical Publishers third-party administration of

441222 Boat Dealers Stores 511130 Book Publishers insurance and pension funds)

441229 All Other Motor Vehicle 453220 Gift, Novelty, & Souvenir 511140 Directory & Mailing List Funds, Trusts, and Other Financial

Dealers Stores Publishers Vehicles

441300 Automotive Parts, 453310 Used Merchandise Stores 511190 Other Publishers 525100 Insurance & Employee Accessories, & Tire Stores 453910 Pet & Pet Supplies Stores Benefit Funds 511210 Software Publishers

Furniture and Home Furnishings 453920 Art Dealers Motion Picture and Sound 525910 Open-End Investment Funds

Stores (Form 1120-RIC) 453930 Manufactured (Mobile) Home Recording Industries 442110 Furniture Stores Dealers 525920 Trusts, Estates, & Agency 512100 Motion Picture & Video

442210 Floor Covering Stores Accounts 453990 All Other Miscellaneous Store Industries (except video

442291 Window Treatment Stores Retailers (including tobacco, rental) 525990 Other Financial Vehicles

442299 All Other Home Furnishings candle, & trophy shops) (including mortgage REITs & 512200 Sound Recording Industries

Stores Nonstore Retailers closed-end investment funds) Broadcasting (except Internet) “Offices of Bank Holding Companies” Electronics and Appliance Stores 454110 Electronic Shopping & 515100 Radio & Television

Mail-Order Houses and “Offices of Other Holding 443111 Household Appliance Stores Broadcasting Companies” are located under 443112 Radio, Television, & Other 454210 Vending Machine Operators 515210 Cable & Other Subscription Management of Companies (Holding Electronics Stores 454311 Heating Oil Dealers Programming Companies) on page 24. 443120 Computer & Software Stores 454312 Liquefied Petroleum Gas Telecommunications

443130 Camera & Photographic (Bottled Gas) Dealers 517000 Telecommunications Real Estate and Rental and Supplies Stores 454319 Other Fuel Dealers (including paging, cellular, Leasing Building Material and Garden 454390 Other Direct Selling satellite, cable & other

Establishments (including program distribution, Real Estate Equipment and Supplies Dealers

door-to-door retailing, frozen resellers, other 531110 Lessors of Residential 444110 Home Centers food plan providers, party telecommunications, & Buildings & Dwellings 444120 Paint & Wallpaper Stores plan merchandisers, & internet service providers) (including equity REITs) 444130 Hardware Stores coffee-break service Data Processing Services 531114 Cooperative Housing 444190 Other Building Material providers) 518210 Data Processing, Hosting, & (including equity REITs) Dealers Related Services 531120 Lessors of Nonresidential

444200 Lawn & Garden Equipment & Transportation and Other Information Services Buildings (except Supplies Stores Warehousing Miniwarehouses) (including 519100 Other Information Services Food and Beverage Stores equity REITs) Air, Rail, and Water Transportation (including news syndicates, 445110 Supermarkets and Other libraries, internet publishing & 531130 Lessors of Miniwarehouses & 481000 Air Transportation Grocery (except Self-Storage Units (including broadcasting) Convenience) Stores 482110 Rail Transportation equity REITs) 483000 Water Transportation

Instructions for Form 1120 -23-
Principal Business Activity Codes (continued)

Code Code Code Code

531190 Lessors of Other Real Estate 541920 Photographic Services 621391 Offices of Podiatrists 721120 Casino Hotels

Property (including equity 541930 Translation & Interpretation 621399 Offices of All Other 721191 Bed & Breakfast Inns REITs) Services Miscellaneous Health 721199 All Other Traveler

531210 Offices of Real Estate Agents Practitioners 541940 Veterinary Services Accommodation & Brokers 541990 All Other Professional, 721210 RV (Recreational Vehicle) Outpatient Care Centers

531310 Real Estate Property Scientific, & Technical Parks & Recreational Camps 621410 Family Planning Centers Managers Services 621420 Outpatient Mental Health & 721310 Rooming & Boarding Houses 531320 Offices of Real Estate Substance Abuse Centers Food Services and Drinking Places Appraisers Management of Companies 621491 HMO Medical Centers 722110 Full-Service Restaurants 531390 Other Activities Related to (Holding Companies) 621492 Kidney Dialysis Centers 722210 Limited-Service Eating Real Estate 551111 Offices of Bank Holding 621493 Freestanding Ambulatory Places Rental and Leasing Services Companies Surgical & Emergency 722300 Special Food Services 532100 Automotive Equipment Rental 551112 Offices of Other Holding Centers (including food service & Leasing Companies 621498 All Other Outpatient Care contractors & caterers) 532210 Consumer Electronics & Centers 722410 Drinking Places (Alcoholic Appliances Rental Administrative and Support Medical and Diagnostic Laboratories Beverages) 532220 Formal Wear & Costume and Waste Management and 621510 Medical & Diagnostic Rental Remediation Services Laboratories Other Services 532230 Video Tape & Disc Rental Administrative and Support Services Home Health Care Services Repair and Maintenance 532290 Other Consumer Goods

561110 Office Administrative 621610 Home Health Care Services 811110 Automotive Mechanical & Rental

Services Other Ambulatory Health Care Electrical Repair & 532310 General Rental Centers Services Maintenance 561210 Facilities Support Services 532400 Commercial & Industrial 621900 Other Ambulatory Health 811120 Automotive Body, Paint, Machinery & Equipment 561300 Employment Services Care Services (including Interior, & Glass Repair Rental & Leasing 561410 Document Preparation ambulance services & blood 811190 Other Automotive Repair & Services Lessors of Nonfinancial Intangible & organ banks) Maintenance (including oil Assets (except copyrighted works) 561420 Telephone Call Centers Hospitals change & lubrication shops & 533110 Lessors of Nonfinancial 561430 Business Service Centers car washes) 622000 Hospitals Intangible Assets (except (including private mail centers 811210 Electronic & Precision copyrighted works) & copy shops) Nursing and Residential Care Equipment Repair & 561440 Collection Agencies Facilities Maintenance

Professional, Scientific, and 561450 Credit Bureaus 623000 Nursing & Residential Care 811310 Commercial & Industrial Facilities Technical Services 561490 Other Business Support Machinery & Equipment

Legal Services Services (including Social Assistance (except Automotive &

repossession services, court 624100 Individual & Family Services Electronic) Repair & 541110 Offices of Lawyers reporting, & stenotype 624200 Community Food & Housing, Maintenance 541190 Other Legal Services services) & Emergency & Other Relief 811410 Home & Garden Equipment & Accounting, Tax Preparation, 561500 Travel Arrangement & Services Appliance Repair & Bookkeeping, and Payroll Services Reservation Services 624310 Vocational Rehabilitation Maintenance

541211 Offices of Certified Public 561600 Investigation & Security Services 811420 Reupholstery & Furniture Accountants Services 624410 Child Day Care Services Repair

541213 Tax Preparation Services 561710 Exterminating & Pest Control 811430 Footwear & Leather Goods

541214 Payroll Services Services Arts, Entertainment, and Repair

541219 Other Accounting Services 561720 Janitorial Services Recreation 811490 Other Personal & Household

Architectural, Engineering, and 561730 Landscaping Services Goods Repair & Maintenance Performing Arts, Spectator Sports, Related Services 561740 Carpet & Upholstery Cleaning Personal and Laundry Services and Related Industries

541310 Architectural Services Services 812111 Barber Shops 711100 Performing Arts Companies 541320 Landscape Architecture 561790 Other Services to Buildings & 812112 Beauty Salons 711210 Spectator Sports (including Services Dwellings sports clubs & racetracks) 812113 Nail Salons

541330 Engineering Services 561900 Other Support Services 711300 Promoters of Performing Arts, 812190 Other Personal Care

541340 Drafting Services (including packaging & Sports, & Similar Events Services (including diet &

541350 Building Inspection Services labeling services, & weight reducing centers) 711410 Agents & Managers for convention & trade show 541360 Geophysical Surveying & Artists, Athletes, Entertainers, 812210 Funeral Homes & Funeral organizers) Mapping Services & Other Public Figures Services

Waste Management and 541370 Surveying & Mapping (except 711510 Independent Artists, Writers, 812220 Cemeteries & Crematories Remediation Services Geophysical) Services & Performers 812310 Coin-Operated Laundries & 562000 Waste Management & 541380 Testing Laboratories Museums, Historical Sites, and Drycleaners Remediation Services

Specialized Design Services Similar Institutions 812320 Drycleaning & Laundry

712100 Museums, Historical Sites, & Services (except 541400 Specialized Design Services Educational Services Similar Institutions Coin-Operated) (including interior, industrial, 611000 Educational Services graphic, & fashion design) Amusement, Gambling, and 812330 Linen & Uniform Supply (including schools, colleges, Computer Systems Design and Recreation Industries 812910 Pet Care (except Veterinary) & universities) Related Services 713100 Amusement Parks & Arcades Services

541511 Custom Computer 713200 Gambling Industries 812920 Photofinishing Health Care and Social Programming Services 713900 Other Amusement & 812930 Parking Lots & Garages Assistance 541512 Computer Systems Design Recreation Industries 812990 All Other Personal Services Offices of Physicians and Dentists Services (including golf courses, skiing Religious, Grantmaking, Civic,

541513 Computer Facilities 621111 Offices of Physicians (except facilities, marinas, fitness Professional, and Similar

Management Services mental health specialists) centers, & bowling centers) Organizations 621112 Offices of Physicians, Mental 541519 Other Computer Related 813000 Religious, Grantmaking,

Services Health Specialists Accommodation and Food Civic, Professional, & Similar

Other Professional, Scientific, and 621210 Offices of Dentists Services Organizations (including

Technical Services Offices of Other Health Practitioners condominium and Accommodation homeowners associations) 541600 Management, Scientific, & 621310 Offices of Chiropractors 721110 Hotels (except Casino Hotels) Technical Consulting 621320 Offices of Optometrists & Motels

Services 621330 Offices of Mental Health

541700 Scientific Research & Practitioners (except

Development Services Physicians)

541800 Advertising & Related 621340 Offices of Physical,

Services Occupational & Speech

541910 Marketing Research & Public Therapists, & Audiologists

Opinion Polling

-24- Instructions for Form 1120
Index

A Electronic filing ................ 2 Limitations on deductions . . . . . . 8, R

Accounting methods ........... 5 Employee benefit Recapture taxes 11 . . . . . . . . . . . . . . 18

Accounting period (Tax programs . . . . . . . . . . . . . . . . . . 12 Limited liability companies ..... 2 Reconciliation of income . . . . . . 20

Year) ....................... 5 Employer identification number Lobbying expenses, Recordkeeping ................ 5

Address change ............... 7 (EIN) ....................... 7 nondeductibility . . . . . . . . . . . . 13 Refundable credits . . . . . . . . . . . 14

Affiliated group . . . . . . . . . . . . . . . 18 Estimated tax: Related party transactions ..... 8

Amended return ............... 5 Penalty . . . . . . . . . . . . . . . . . . 4, 14 M Rents (expense) . . . . . . . . . . . . . . 10

Amortization .................. 9 Estimated tax payments ....... 4 Merchant Marine capital Rents (income) ................ 8

Assembling the return ......... 4 Extension of time to file ........ 3 construction fund: Repairs and maintenance . . . . . 10

At-risk rules . . . . . . . . . . . . . . . . . . 13 Deduction for

F contributions . . . . . . . . . . . . . 13 S Tax on nonqualified B Farming, corporations engaged withdrawal Salaries and wages . . . . . . . . . . . 10 . . . . . . . . . . . . . . . 18 in . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Backup withholding . . . . . . . . . . . 14 Minimum tax: Schedule: Final return .................... 7 Bad debts . . . . . . . . . . . . . . . . . . . . 10 Alternative A . . . . . . . . . . . . . . . . . . . . . . . . . . 14 . . . . . . . . . . . . . . . . . 17

Balance sheets . . . . . . . . . . . . . . . 20 Financial asset securitization Prior year, credit for C . . . . . . . . . . . . . . . . . . . . . . . . . . 15 . . . . . . . . 17

Business startup expenses ..... 9 investment trust (FASIT) ..... 2 J . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Mutual savings banks conducting Foreign person (defined) . . . . . . 20 K . . . . . . . . . . . . . . . . . . . . . . . . . . 18 life insurance business . . . . . 17 Foreign tax credit . . . . . . . . . . . . . 17 L . . . . . . . . . . . . . . . . . . . . . . . . . . 20

C Forms and publications, how to M-1 . . . . . . . . . . . . . . . . . . . . . . . . 20

Capital construction fund (See get . . . . . . . . . . . . . . . . . . . . . . . . . 2 N M-3 . . . . . . . . . . . . . . . . . . . . . . 7, 20

Merchant Marine capital Name change ................. 7 O . . . . . . . . . . . . . . . . . . . . . . . . . . 17

construction fund) Net operating loss ........ 13, 20 Section 263A costs . . . . . . . . . 8, 14

Closely held corporations ...... 9 G Nonaccrual experience Shareholders’ equity General business credit . . . . . . . 17 Compensation of officers ....... 9 method ..................... 7 adjustments . . . . . . . . . . . . . . . . 20 Golden parachute Consolidated return . . . . . . . . . 6, 20 Signature ..................... 3 payments ................... 9 Contributions to reduce debt held O Special returns for certain Gross receipts ................. 7 by the public ................ 1 organizations ............... 2 Other deductions . . . . . . . . . . . . . 12 Contributions, charitable . . . . . . 11 Other income ................. 8 Controlled group . . . . . . . . . . . . . 17 I Other taxes . . . . . . . . . . . . . . . . . . 18 T

Cost of goods sold . . . . . . . . . . 7, 14 Income ....................... 7 Overpaid estimated tax . . . . . . . 14 Tax issues, unresolved ........ 1

Credits against tax . . . . . . . . . . . . 17 Installment sales .............. 7 Tax rate schedule . . . . . . . . . . . . 17 Interest due: Taxes and licenses . . . . . . . . . . . 10 Late payment of tax ......... 4 P D Tax-exempt securities . . . . . . . . 20 Look-back method . . . . . . . . . . 18 Partnership income (loss) . . . . . . 8, Deductions .................... 8 Travel, meals, and Interest expense . . . . . . . . . . . . . 10 12 Depletion . . . . . . . . . . . . . . . . . . . . 12 entertainment . . . . . . . . . . . . . . 12 Interest expense (relating to Passive activity limitations ...... 9 Depository methods of tax section 263A) ............... 8 Penalties . . . . . . . . . . . . . . . . . . . 4, 14 payment .................... 4 Interest income: Pension, profit-sharing, etc. W

Depreciation . . . . . . . . . . . . . . . . . 12 Taxable ..................... 7 plans . . . . . . . . . . . . . . . . . . . . . . 12 When to file ................... 3

Direct deposit of refund . . . . . 1, 14 Tax-exempt . . . . . . . . . . . . . . . . 20 Personal holding company ..... 6 Where to file .................. 3

Disclosure statement .......... 5 Inventory: Personal holding company Who must file ................. 2

Dividend income .............. 7 Section 263A uniform tax . . . . . . . . . . . . . . . . . . . . . . . . 17 Who must sign ................ 3

Dividends-received capitalization rules . . . . . 8, 14 Personal service Worksheets . . . . . . . . . . . . . . . . . . 17 deduction ............... 15-17 Valuation methods . . . . . . . . . 14 corporation ................. 6 Schedule C . . . . . . . . . . . . . . . . 16

Dues, membership and Preparer, tax return ............ 3 other . . . . . . . . . . . . . . . . . . . . . . 12 L Private delivery services ....... 3 ■

LIFO recapture:

E Tax on . . . . . . . . . . . . . . . . . . . . . 18 Q Electronic Federal Tax Payment Where to report ............. 8 Qualified personal service System (EFTPS) ............ 4 corporation . . . . . . . . . . . . . . . . 17

Instructions for Form 1120 -25-