OMB No. 1545-1810 Credit for Small Employer Pension Plan

Startup Costs Form 8881

 Attach to your tax return.

Department of the Treasury

Internal Revenue Service

Attachment

Sequence No. 130

Name(s) shown on return Identifying number

Current Year Credit (Members of controlled groups or businesses under common control, see instructions.)

1

2 2

3

4

5

Allowable Credit (See Who must file Form 3800 to find out if you complete Part II or file Form 3800.)

Form 8881 (2005)

Part I

Part II

Qualified startup costs incurred during the tax year. Do not enter more

than $1,000

3 Form 8881 credits from

pass-through entities:

5 Current year credit. Enter the smaller of line 4 or $500

Cat. No. 33435N

Enter one-half of line 1

a

b

Shareholder

Partner

If you are a—

4

Then enter the Form 8881 credits from—

Schedule K-1 (Form 1065) box 15, code F, G, or U

Schedule K-1 (Form 1120S) box 13, code F, G, or U 

● Individuals. Enter the amount from Form 1040, line 44

6

Corporations. Enter the amount from Form 1120, Schedule J, line 3; Form 1120-A,

Part I, line 1; or the applicable line of your return

●

●

9a 9a

b 9b

9d

Foreign tax credit

d

e 9e

Possessions tax credit (Form 5735, line 17 or 27)

f

Nonconventional source fuel credit (Form 8907, line 23)

Other specified credits (see instructions)

Add lines 9a through 9e 9f

10

10 Net income tax. Subtract line 9f from line 8. If zero, skip lines 11 through 14 and enter -0- on

line 15

7 Alternative minimum tax:

● Individuals. Enter the amount from Form 6251, line 35

● Corporations. Enter the amount from Form 4626, line 14 7

● Estates and trusts. Enter the amount from Form 1041, Schedule I, line 56

13 Tentative minimum tax (see instructions):

● Individuals. Enter the amount from Form 6251, line 33

11

● Corporations. Enter the amount from Form 4626, line 12

● Estates and trusts. Enter the amount from Form 1041,

Schedule I, line 54

11

Enter 25% (.25) of the excess, if any, of line 11 over $25,000 (see instructions)

14

Subtract line 14 from line 10. If zero or less, enter -0-

14

15

Credit allowed for the current year. Enter the smaller of line 5 or line 15 here and on

Form 1040, line 55; Form 1120, Schedule J, line 6d; Form 1120-A, Part I, line 2; Form 1041,

Schedule G, line 2c; or the applicable line of your return. If line 15 is smaller than line 5, see

instructions 16



c 9c

6 Regular tax before credits:

8 Add lines 6 and 7 8

12

Enter the greater of line 12 or line 13

12

13

Estates and trusts. Enter the sum of the amounts from Form 1041, Schedule G, lines 1a

and 1b, or the amount from the applicable line of your return

Net regular tax. Subtract line 9f from line 6. If zero or less, enter -0-

16

15



1

Add lines 2 and 3

For Paperwork Reduction Act Notice, see page 2.

Credits from Form 1040, lines 48 through 54

2005
Form 8881 (2005) Page 2

Specific Instructions

Printed on recycled paper

The credit is allowed under section 45E and is part of the general

business credit. You may elect, however, to have section 45E not

apply for your tax year beginning in 2005 by not filing Form 8881

with your 2005 tax return.

Purpose of Form

Eligible small employers use Form 8881 to claim the credit for

qualified startup costs incurred in establishing or administering an

eligible employer plan. The credit is allowed only for costs paid or

incurred in tax years beginning after 2001 with respect to qualified

employer plans first effective after 2001.

S Corporations and Partnerships

A partnership or S corporation that is an eligible small employer

completes Part I of the form to figure the credit to pass through to

its partners and shareholders. Show on Schedule K-1 each

shareholder’s or partner’s allocable portion of the line 5 credit.

Electing large partnerships must include this credit in “general

credits.”

How To Figure the Credit

For an eligible small employer, the credit is 50% of the qualified

startup costs paid or incurred during the tax year. The credit is

limited to $500 per year for the first credit year and each of the

following 2 tax years. No credit is allowed for any other tax year.

Eligible small employer. To be an eligible small employer, you must

have had no more than 100 employees during the tax year preceding

the first credit year who received at least $5,000 of compensation

from you during that tax year. However, you are not an eligible small

employer if, during the 3 tax years preceding the first credit year,

you established or maintained a qualified employer plan with respect

to which contributions were made, or benefits were accrued, for

substantially the same employees as are in the new qualified

employer plan. See section 45E(c) for rules for controlled groups and

predecessor employers.

Qualified startup costs. Qualified startup costs are expenses paid

or incurred in connection with (a) establishing or administering an

eligible employer plan or (b) the retirement-related education of

employees about the plan.

Eligible employer plan. An eligible employer plan is a qualified

employer plan (as defined in section 4972(d)) with at least one

employee eligible to participate who is not a highly compensated

employee. All eligible employer plans of the same employer are

treated as one eligible employer plan.

First credit year. The first credit year generally is your tax year that

includes the date that the eligible employer plan becomes effective.

However, you may elect to have the preceding tax year be the first

credit year, and claim the credit for qualified startup costs paid or

incurred during that tax year. For example, a calendar-year eligible

small employer whose eligible plan is first effective on January 1,

2006, may elect to treat 2005 as the first credit year and claim the

credit on its 2005 tax return for qualified startup costs incurred in

2005.

No Deduction Allowed for Credit Amount

You must reduce your otherwise allowable deduction for startup

costs by the credit amount on line 2.

Controlled Groups

All persons treated as a single employer under section 52(a), 52(b),

414(m), or 414(o) are treated as one person for purposes of the

credit. If the group qualifies as an eligible small employer, the group

member with the greatest startup costs figures the group credit on

lines 1 and 2 and skips the rest of the form. On separate Forms

8881, each member skips line 1 and enters its share of the group

credit on line 2. Each member then completes the remaining

applicable lines on its separate Form 8881 (and Form 3800, if

required). Each member must also attach a statement showing how

the group credit was divided among all members. The members

share the credit in the same proportion as they contributed qualified

startup costs.

Additional Information

For more details, see section 45E.

Part I. Current Year Credit

If you paid or incurred qualified startup costs, complete lines 1 and

2. Complete line 3 for credits that were allocated to you from an S

corporation or a partnership.

Part II. Allowable Credit

The credit allowed for the current year may be limited based on your

tax liability. Use Part II to figure the allowable credit unless you must

file Form 3800, General Business Credit.

Who must file Form 3800. You must file Form 3800 if you have:

● A credit for small employer pension plan startup costs from a

passive activity,

● More than one of the credits included in the general business

credit (other than a credit from Form 8844, Form 6478, or Section B

of Form 8835), or

● A carryback or carryforward of any of those credits.

See the instructions for Form 3800 to find out which credits are

included in the general business credit.

Line 12

See section 38(c)(5) for special rules that apply to married couples

filing separate returns, controlled corporate groups, and estates and

trusts.

Line 13

Although you may not owe alternative minimum tax (AMT), you

generally must still compute the tentative minimum tax (TMT) to

figure your allowable credit. For a small corporation exempt from the

AMT under section 55(e), enter zero. Otherwise, complete and attach

the applicable AMT form or schedule and enter the TMT on line 13.

Line 16

If you cannot use all of the credit because of the tax liability limit

(line 15 is smaller than line 5), carry the unused credit back one year

and then forward up to 20 years. See the instructions for Form 3800

for details.

The time needed to complete and file this form will vary depending

on individual circumstances. The estimated burden for individual

taxpayers filing this form is approved under OMB control number

1545-0074 and is included in the estimates shown in the instructions

for their individual income tax return. The estimated burden for all

other taxpayers who file this form is shown below. Recordkeeping,

5 hr., 58 min.; Learning about the law or the form, 53 min.;

Preparing and sending the form to the IRS, 1 hr., 1 min. If you

have comments concerning the accuracy of these time estimates or

suggestions for making this form simpler, we would be happy to

hear from you. See the instructions for the tax return with which this

form is filed.

Paperwork Reduction Act Notice. We ask for the information on

this form to carry out the Internal Revenue laws of the United States.

You are required to give us the information. We need it to ensure

that you are complying with these laws and to allow us to figure and

collect the right amount of tax.

You are not required to provide the information requested on a

form that is subject to the Paperwork Reduction Act unless the form

displays a valid OMB control number. Books or records relating to a

form or its instructions must be retained as long as their contents

may become material in the administration of any Internal Revenue

law. Generally, tax returns and return information are confidential, as

required by section 6103.

General Instructions

Section references are to the Internal Revenue Code.

Line 9e

Include on line 9e any amounts claimed on:

● Form 8834, Qualified Electric Vehicle Credit, line 20;

● Form 8910, Alternative Motor Vehicle Credit, line 18; and

● Form 8911, Alternative Fuel Vehicle Refueling Property Credit, line

19.