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Department of the Treasury

Internal Revenue Service

Shareholder’s Instructions for


Schedule K-1 (Form 1120S)
Shareholder’s Share of Income, Credits, Deductions, etc.
(For Shareholder’s Use Only)
Section references are to the Internal Revenue Code unless otherwise noted.

General Instructions Schedule K-1 provides information to


help you make the computation at the
that shown on the corporation’s return.
Any deficiency that results from making
end of each corporate tax year. The the amounts consistent may be
Purpose of Schedule K-1 basis of your stock is adjusted as assessed immediately.
The corporation uses Schedule K-1 follows (this list is not all-inclusive).
(Form 1120S) to report your pro rata Basis is increased by: Errors
share of the corporation’s income 1. All income (including tax-exempt
(reduced by any tax the corporation paid If you believe the corporation has made
income) reported on Schedule K-1. an error on your Schedule K-1, notify the
on the income), credits, deductions, etc. Note: Taxable income must be reported
Please keep it for your records. Do corporation and ask for a corrected
on your tax retur n (if a retur n is required) Schedule K-1. Do not change any items
not file it with your tax return. A copy for it to increase your basis.
has been filed with the IRS. on your copy. Be sure that the
2. The excess of the deduction for corporation sends a copy of the
Although the corporation may have to depletion over the basis of the property corrected Schedule K-1 to the IRS. If
pay a capital gains tax (or built-in gains subject to depletion. your corporation does not meet the
tax) and an excess net passive income small S corporation exception, and you
tax, you, the shareholder, are liable for Basis is decreased by:
are unable to reach agreement with the
income tax on your share of the 1. Property distributions made by the corporation regarding the inconsistency,
corporation’s income, whether or not corporation (excluding dividend you must file Form 8082.
distributed, and you must include your distributions reported on Form 1099-DIV
share on your tax return if a return is and distributions in excess of basis)
required. Your distributive share of S reported on Schedule K-1, line 20. International Boycotts
corporation income is not 2. All losses and deductions (including Every corporation that had operations in,
self-employment income and it is not nondeductible expenses) reported on or related to, a boycotting country,
subject to self-employment tax. Schedule K-1. company, or national of a country, must
You should use these instructions to file Form 5713, International Boycott
help you report the items shown on Report.
Inconsistent Treatment of
Schedule K-1 on your tax return. If the corporation cooperated with an
Where (attach schedule) appears next
Items international boycott, it must give you a
to a line on Schedule K-1, it means the Generally, you must report subchapter S copy of its Form 5713. You must file
information for these lines (if applicable) items shown on your Schedule K-1 (and your own Form 5713 to report the
will be shown in the “Supplemental any attached schedules) the same way activities of the corporation and any
Information” space below line 23 of that the corporation treated the items on other boycott operations that you may
Schedule K-1. If additional space was its return. This rule does not apply if have. You may lose certain tax benefits
needed, the corporation will have your corporation is within the small S if the corporation participated in, or
attached a statement to Schedule K-1 to corporation exception and does not cooperated with, an international
show the information for the line item. elect to have the tax treatment of boycott. Please see Form 5713 and the
The notation “(see Instructions for subchapter S items determined at the instructions for more information.
Schedule K-1)” in items A and C at the corporate level.
top of Schedule K-1 is directed to the If the treatment on your original or Elections
corporation. You, as a shareholder, amended return is inconsistent with the
Generally, the corporation decides how
should disregard these notations. corporation’s treatment, or if the
to figure taxable income from its
Schedule K-1 does not show the corporation has not filed a return, you
operations. For example, it chooses the
amount of actual dividend distributions must file Form 8082, Notice of
accounting method and depreciation
the corporation made to you. The Inconsistent Treatment or Amended
methods it will use.
corporation must report to you such Return (Administrative Adjustment
Request (AAR)), with your original or However, certain elections are made
amounts totaling $10 or more for the by you separately on your income tax
calendar year on Form 1099-DIV, amended return to identify and explain
any inconsistency (or to note that a return and not by the corporation. These
Dividends and Distributions. You report elections are made under:
actual dividend distributions on corporate return has not been filed).
Schedule B (Form 1040). If you are required to file Form 8082 ● Section 59(e) (deduction of certain
but fail to do so, you may be subject to qualified expenditures ratably over the
the accuracy-related penalty. This period of time specified in that section—
Basis of Your Stock see the instructions for lines 16a and
penalty is in addition to any tax that
You are responsible for maintaining results from making your amount or 16b);
records to show the computation of the treatment of the item consistent with
basis of your stock in the corporation.
Cat. No. 11521O
● Section 617 (deduction and recapture Generally, you are not at risk for The corporation will identify separately
of certain mining exploration amounts such as the following: each activity that may be passive to
expenditures); and ● The basis of your stock in the you. If the corporation is conducting
● Section 901 (foreign tax credit). corporation or basis of your loans to the more than one activity, it will report
corporation if the cash or other property information in the line 23 Supplemental
used to purchase the stock or make the Information space, or attach a statement
Additional Information if more space is needed, that
loans was from a source (a) covered by
For more information on the treatment of nonrecourse indebtedness (except for (a) identifies each activity (trade or
S corporation income, credits, certain qualified nonrecourse financing, business activity, rental real estate
deductions, etc., get Pub. 589, Tax as defined in section 465(b)(6)); (b) activity, rental activity other than rental
Information on S Corporations; Pub. protected against loss by a guarantee, real estate, etc.); (b) specifies the
535, Business Expenses; Pub. 550, stop-loss agreement, or other similar income (loss), deductions, and credits
Investment Income and Expenses; and arrangement; or (c) that is covered by from each activity; and (c) provides
Pub. 925, Passive Activity and At-Risk indebtedness from a person who has an other details you may need to determine
Rules. interest in the activity or from a related if an activity loss or credit is subject to
These and other publications person to a person (except you) having the passive activity limitations.
referenced throughout these instructions such an interest, other than a creditor. If you determine that you have a
may be obtained at most IRS offices. To ● Any cash or property contributed to a passive activity loss or credit, get Form
order publications and forms, call our corporate activity, or your interest in the 8582, Passive Activity Loss Limitations,
toll-free number, 1-800-TAX-FORM corporate activity, that is (a) covered by to figure your allowable passive losses,
(1-800-829-3676). nonrecourse indebtedness (except for and Form 8582-CR, Passive Activity
certain qualified nonrecourse financing, Credit Limitations, to figure your
Limitations on Losses, as defined in section 465(b)(6)); (b) allowable passive credit. See the
protected against loss by a guarantee, instructions for these forms for more
Deductions, and Credits information.
stop-loss agreement, or other similar
Aggregate Losses and Deductions arrangement; or (c) that is covered by Material participation in trade or
Limited to Basis of Stock and indebtedness from a person who has an business activities.—You must
Debt interest in such activity or from a related determine whether you materially
person to a person (except you) having participated in each trade or business
Generally, the deduction for your share such an interest, other than a creditor. activity held through the corporation. All
of aggregate losses and deductions determinations of material participation
Any loss from a section 465 activity
reported on Schedule K-1 is limited to are made with respect to your
not allowed for this tax year will be
the basis of your stock and debt owed participation during the corporation’s tax
treated as a deduction allocable to the
to you by the corporation. The basis of year.
activity in the next tax year.
your stock is figured at year end. See
To help you complete Form 6198, the Material participation standards for
Basis of Your Stock on page 1. The
corporation should specify on an shareholders who are individuals are
basis of loans to the corporation is the
attachment to Schedule K-1 your share listed below. Special rules apply to
balance the corporation now owes you,
of the total pre-1976 losses from a certain retired or disabled farmers and to
less any reduction for losses in a prior
section 465(c)(1) activity (i.e., films or the surviving spouses of farmers. See
year. See the instructions for line 21.
video tapes, and leasing section 1245, the Instructions for Form 8582 for
Any loss not allowed for the tax year
farm, or oil and gas property) for which details.
because of this limitation is available for
indefinite carryover, limited to the basis there existed a corresponding amount of Individuals.—If you are an individual,
of your stock and debt, in each nonrecourse liability at the end of the you are considered to materially
subsequent tax year. See section year in which the losses occurred. Also, participate in a trade or business activity
1366(d) for details. you should get a separate statement of only if one or more of the following
income, expenses, etc., for each activity apply:
At-Risk Limitations from the corporation. 1. You participated in the activity for
Generally, if you have: more than 500 hours during the tax year.
Passive Activity Limitations
1. A loss or other deduction from any 2. Your participation in the activity for
Section 469 provides rules that limit the the tax year constituted substantially all
activity carried on by the corporation as
deduction of certain losses and credits. of the participation in the activity of all
a trade or business or for the production
The rules apply to shareholders who— individuals (including individuals who are
of income, and
● Are individuals, estates, or trusts, and not owners of interests in the activity).
2. Amounts in the activity for which
you are not at risk, ● Have a passive activity loss or credit 3. You participated in the activity for
for the year. more than 100 hours during the tax year,
you will have to complete Form 6198,
At-Risk Limitations, to figure your Passive activities include: and your participation in the activity for
allowable loss. 1. Trade or business activities in which the tax year was not less than the
you do not materially participate, and participation in the activity of any other
The at-risk rules generally limit the individual (including individuals who were
amount of loss (including loss on the 2. Activities that meet the definition of not owners of interests in the activity) for
disposition of assets) and other rental activities under Temporary the tax year.
deductions (such as the section 179 Regulations section 1.469-1T(e)(3) and
expense deduction) that you can claim Regulations section 1.469-1(e)(3). 4. The activity was a significant
to the amount you could actually lose in participation activity for the tax year, and
Passive activities do not include: your aggregate participation in all
the activity. However, if you acquired 1. Trade or business activities in which
your stock before 1987, the at-risk rules significant participation activities
you materially participate, (including those outside the corporation)
do not apply to losses from an activity of
holding real property placed in service 2. Qualifying low-income housing during the tax year exceeded 500 hours.
before 1987 by the corporation. The activities, and A significant participation activity is any
activity of holding mineral property does 3. Activities of trading personal trade or business activity in which you
not qualify for this exception. property for the account of owners of participated for more than 100 hours
interests in the activities. during the year and in which you did not
Page 2
materially participate under any of the 1. If you have an overall gain (the special allowance for which an estate
material participation tests (other than excess of income over deductions and can qualify is $25,000 reduced by the
this test 4). losses, including any prior year special allowance for which the surviving
5. You materially participated in the unallowed loss) from a passive activity, spouse qualifies.
activity for any 5 tax years (whether or report the income, deductions, and If your modified adjusted gross
not consecutive) during the 10 tax years losses from the activity as indicated on income (defined below) is $100,000 or
that immediately precede the tax year. Schedule K-1 or in these instructions. less ($50,000 or less in the case of
6. The activity was a personal service 2. If you have an overall loss (the married persons filing separately), your
activity and you materially participated in excess of deductions and losses, loss is deductible up to the amount of
the activity for any 3 tax years (whether including any prior year unallowed loss, the maximum special allowance referred
or not consecutive) preceding the tax over income) or credits from a passive to in the preceding paragraph. If your
year. An activity is a personal service activity, you must report the income, modified adjusted gross income is more
activity if it involves the performance of deductions, losses, and credits from all than $100,000 (more than $50,000 in the
personal services in the fields of health, passive activities following the case of married persons filing
law, engineering, architecture, Instructions for Form 8582 or Form separately), the special allowance is
accounting, actuarial science, 8582-CR, to see if your deductions, limited to 50% of the difference between
performing arts, consulting, or any other losses, and credits are limited under the $150,000 ($75,000 in the case of
trade or business, in which capital is not passive activity rules. married persons filing separately) and
a material income-producing factor. Active participation in a rental real your modified adjusted gross income.
estate activity.—If you actively When modified adjusted gross income is
7. Based on all of the facts and
participated in a rental real estate $150,000 or more ($75,000 or more in
circumstances, you participated in the
activity, you may be able to deduct up the case of married persons filing
activity on a regular, continuous, and
to $25,000 of the loss from the activity separately), there is no special
substantial basis during the tax year.
from nonpassive income. This special allowance.
Work counted toward material
allowance is an exception to the general Modified adjusted gross income is
participation.—Generally, any work that
rule disallowing losses in excess of your adjusted gross income figured
you or your spouse does in connection
income from passive activities. The without taking into account any passive
with an activity held through an S
special allowance is not available if you activity loss, any taxable social security
corporation (in which you own stock at
were married, file a separate return for or equivalent railroad retirement benefits,
the time the work is done) is counted
the year, and did not live apart from your any deductible contributions to an IRA
toward material participation. However,
spouse at all times during the year. or certain other qualified retirement
work in connection with an activity is not
Only individuals and qualifying estates plans under section 219, the deduction
counted toward material participation if
can actively participate in a rental real allowed under section 164(f) for one-half
either of the following applies:
estate activity. Estates (other than of self-employment taxes, or the
1. The work is not the sort of work exclusion from income of interest from
qualifying estates) and trusts cannot
that owners of the activity would usually Series EE U.S. Savings Bonds used to
actively participate.
do and one of the principal purposes of pay higher education expenses.
the work that you or your spouse does You are not considered to actively
participate in a rental real estate activity Special rule for low-income housing
is to avoid the passive loss or credit
if, at any time during the tax year, your activities.—Transitional relief from the
limitations.
interest (including your spouse’s interest) passive activity limitations is provided in
2. You do the work in your capacity as the case of certain losses from qualified
in the activity was less than 10% (by
an investor and you are not directly low-income housing projects. The
value) of all interests in the activity.
involved in the day-to-day operations of corporation will identify losses from
the activity. Examples of work done as Active participation is a less stringent
qualified low-income housing projects on
an investor that would not count toward requirement than material participation.
an attachment to your Schedule K-1.
material participation include: You may be treated as actively
See Pub. 925 for more information.
participating if you participated, for
a. Studying and reviewing financial
example, in making management
statements or reports on operations of
the activity;
decisions or arranging for others to Specific Instructions
provide services (such as repairs) in a
b. Preparing or compiling summaries significant and bona fide sense.
or analyses of the finances or operations Item C
Management decisions that can count
of the activity; and If the corporation is a registration-
as active participation include approving
c. Monitoring the finances or new tenants, deciding on rental terms, required tax shelter or has invested in a
operations of the activity in a approving capital or repair expenditures, registration-required tax shelter, it should
nonmanagerial capacity. and other similar decisions. have completed Item C. If you claim or
Effect of determination.—If you report any income, loss, deduction, or
An estate is a qualifying estate if the credit from a tax shelter, you are
determine that you materially decedent would have satisfied the active
participated in a trade or business required to attach Form 8271, Investor
participation requirement for the activity Reporting of Tax Shelter Registration
activity of the corporation, report the for the year the decedent died. A
income (loss), deductions, and credits Number, to your tax return. If the
qualifying estate is treated as actively corporation has invested in a tax shelter,
from that activity as indicated in either participating for tax years ending less
column (c) of Schedule K-1 or the it is required to give you a copy of its
than 2 years after the date of the Form 8271 with your Schedule K-1. Use
instructions for your tax return. decedent’s death. the information on this Form 8271 to
If you determine that you did not The maximum special allowance that complete your Form 8271.
materially participate in a trade or single individuals and married individuals
business activity of the corporation, or If the corporation itself is a
filing a joint return for the tax year can registration-required tax shelter, use the
you have income (loss), deductions, or qualify for is $25,000. The maximum is
credits from a rental activity of the information on Schedule K-1 (name of
$12,500 in the case of married corporation, corporation identifying
corporation, the amounts from that individuals who file separate returns for
activity are passive. Report passive number, and tax shelter registration
the tax year and who lived apart at all number) to complete your Form 8271.
income (losses), deductions, and credits times during the year. The maximum
as follows:
Page 3
Lines 1 Through 23 the basis and at-risk limitations on reported on Schedule E (Form 1040),
losses: Part II, column (g).
The amounts on lines 1 through 23 show
your pro rata share of ordinary income, 1. Report line 1 income (loss) from 3. If you are a qualified investor
loss, deductions, credits, and other trade or business activities in which you reporting a qualified low-income housing
information from all corporate activities. materially participated on Schedule E project loss, report the loss on Schedule
These amounts do not take into account (Form 1040), Part II, column (i) or (k). E, Part II, column (i).
limitations on losses, credits, or other 2. Report line 1 income (loss) from 4. If you have income on line 2, enter
items that may have to be adjusted trade or business activities in which you the income on Schedule E, Part II,
because of: did not materially participate, as follows: column (h).
1. The adjusted basis of your stock a. If income is reported on line 1,
report the income on Schedule E, Part II,
Line 3—Net Income (Loss) From
and debt in the corporation, Other Rental Activities
2. The at-risk limitations, column (h).
b. If a loss is reported on line 1, follow The amount on line 3 is a passive
3. The passive activity limitations, or activity amount for all shareholders.
the Instructions for Form 8582 to
4. Any other limitations that must be determine how much of the loss can be Report the income or loss as follows:
taken into account at the shareholder reported on Schedule E, Part II, column 1. If line 3 is a loss, report the loss
level in figuring taxable income (e.g., the (g). following the Instructions for Form 8582.
section 179 expense limitation).
Line 2—Net Income (Loss) From 2. If income is reported on line 3,
The limitations of 1, 2, and 3 are report the income on Schedule E (Form
discussed above, and the limitations for Rental Real Estate Activities 1040), Part II, column (h).
4 are discussed throughout these Generally, the income (loss) reported on
instructions and in other referenced line 2 is a passive activity amount for all Line 4—Portfolio Income (Loss)
forms and instructions. shareholders. There is an exception, Portfolio income or loss is not subject to
If you are an individual, and your pro however, for losses from a qualified the passive activity limitations. Portfolio
rata share items are not affected by any low-income housing project. The passive income includes income not derived in
of the limitations, report the amounts activity loss limitations do not apply to the ordinary course of a trade or
shown in column (b) of Schedule K-1 as losses incurred by qualified investors in business from interest, dividends,
indicated in column (c). If any of the qualified low-income housing projects annuities, or royalties, and gain or loss
limitations apply, adjust the column (b) (see Pub. 925). The corporation will have on the sale of property that produces
amounts for the limitations before you attached a schedule for line 2 to identify these types of income or is held for
enter the amounts on your return. When any such amounts. investment.
applicable, the passive activity If you are filing a 1993 Form 1040, use
limitations on losses are applied after Column (c) of Schedule K-1 tells
the following instructions to determine shareholders where to report this income
the limitations on losses for a where to enter a line 2 amount:
shareholder’s basis in stock and debt on Form 1040 and related schedules.
and the shareholder’s at-risk amount. 1. If you have a loss (other than from Line 4f of Schedule K-1 is used to report
a qualified low-income housing project) income other than that reported on lines
Note: The line number references in on line 2 and you meet all of the 4a through 4e. The type and the amount
column (c) are to for ms in use for tax following conditions, enter the loss on of income reported on line 4f will be
years beginning in 1993. If you are a Schedule E (Form 1040), Part II, column listed in the line 23 Supplemental
calendar year shareholder in a fiscal year (g): Information space of Schedule K-1. An
1993–94 corporation, enter these example of the type of income that is
amounts on the corresponding lines of a. You actively participated in the
corporate rental real estate activities. reported on line 4f is income from a real
the tax for m in use for 1994. estate mortgage investment conduit
(See Active participation in a rental
Caution: If you have losses, deductions, real estate activity on page 3.) (REMIC) in which the corporation is a
credits, etc., from a prior year that were residual interest holder. Report your
not deductible or usable because of b. Rental real estate activities with
share of any REMIC income on
certain limitations, such as the basis active participation were your only
Schedule E (Form 1040), Part IV.
rules or the at-r isk limitations, take them passive activities.
into account in deter mining your income, c. You have no prior year unallowed Line 5—Net Gain (Loss) Under
loss, etc., for this year. However, except losses from these activities. Section 1231 (Other Than Due to
for passive activity losses and credits, do d. Your total loss from the rental real Casualty or Theft)
not combine the pr ior-year amounts with estate activities was not more than
any amounts shown on this Schedule Section 1231 gain or loss is reported on
$25,000 (not more than $12,500 if
K-1 to get a net figure to report on your line 5. The corporation will identify in the
married filing separately and you lived
retur n. Instead, report the amounts on line 23 Supplemental Information space
apart from your spouse all year).
your retur n on a year-by-year basis. the activity to which the section 1231
e. If you are a married person filing gain (loss) relates.
separately, you lived apart from your
Income (Loss) If the amount on line 5 relates to a
spouse all year.
rental activity, the section 1231 gain
Line 1—Ordinary Income (Loss) f. You have no current or prior year (loss) is a passive activity amount.
unallowed credits from a passive activity. Likewise, if the amount relates to a trade
From Trade or Business Activities
g. Your modified adjusted gross or business activity and you do not
The amount reported on line 1 is your income was not more than $100,000 materially participate in the activity, the
share of the ordinary income (loss) from (not more than $50,000 if married filing section 1231 gain (loss) is a passive
trade or business activities of the separately and you lived apart from your activity amount.
corporation. Generally, where you report spouse all year). ● If the amount is not a passive activity
this amount on Form 1040 depends on
2. If you have a loss on line 2 (other amount to you, report it on line 2,
whether the amount is from an activity
than from a qualified low-income column (g) or (h), whichever is
that is a passive activity to you. If you
housing project), and you do not meet applicable, of Form 4797, Sales of
are an individual shareholder, find your
all of the conditions in 1 above, follow Business Property. You do not have to
situation below and report your line 1
the Instructions for Form 8582 to complete the information called for in
income (loss) as instructed after applying
determine how much of the loss can be columns (b) through (f), Form 4797.
Page 4
Write “From Schedule K-1 (Form capital gain or loss on Schedule D (Form These deductions are not taken into
1120S)” across these columns. 1040), line 13, column (f) or (g). account in figuring your passive activity
● If gain is reported on line 5 and it is a ● Any net gain or loss from section 1256 loss for the year. Do not enter them on
passive activity amount to you, report contracts. Report this amount on line 1 Form 8582.
the gain on line 2, column (h) of Form of Form 6781, Gains and Losses From
4797. Section 1256 Contracts and Straddles.
Line 10—Other Deductions
● If a loss is reported on line 5 and it is Amounts on this line are other
a passive activity amount to you, see Deductions deductions not included on lines 7, 8, 9,
Passive loss limitations in the 15e, and 16a, such as:
Instructions for Form 4797. You will Line 7—Charitable Contributions ● Itemized deductions that Form 1040
need to report the loss following the The corporation will give you a schedule filers enter on Schedule A (Form 1040).
Instructions for Form 8582 to determine that shows the amount of contributions Note: If there was a gain (loss) from a
how much of the loss is allowed on subject to the 50%, 30%, and 20% casualty or theft to property not used in
Form 4797. limitations. For more details, see the a trade or business or for income-
Form 1040 instructions. producing purposes, you will be notified
Line 6—Other Income (Loss) by the corporation. You will have to
If property other than cash is
Amounts on this line are other items of contributed, and the claimed deduction complete your own For m 4684.
income, gain, or loss not included on for one item or group of similar items of ● Any penalty on early withdrawal of
lines 1 through 5. The corporation property exceeds $5,000, the savings.
should give you a description and the corporation is required to give you a ● Soil and water conservation
amount of your share for each of these copy of Form 8283, Noncash Charitable expenditures. See section 175 for
items. Contributions, and you must attach it to limitations on the amount you are
Report loss items that are passive your tax return. Do not deduct the allowed to deduct.
activity amounts to you following the amount shown on Form 8283. It is the ● Expenditures for the removal of
Instructions for Form 8582. corporation’s contribution. You should architectural and transportation barriers
Report income or gain items that are deduct the amount shown on line 7, to the elderly and disabled that the
passive activity amounts to you as Schedule K-1. corporation elected to treat as a current
instructed below. If the corporation provides you with expense. The deductions are limited by
The instructions below tell you where information that the contribution was section 190(c) to $15,000 per year from
to report line 6 items if such items are property other than cash and does not all sources.
not passive activity amounts. give you a Form 8283, see the ● Interest expense allocated to
Line 6 items include the following: Instructions for Form 8283 for filing debt-financed distributions. The manner
requirements. A Form 8283 does not in which you report such interest
● Income from recoveries of tax benefit have to be filed unless the total claimed
items. A tax benefit item is an amount expense depends on your use of the
deduction of all contributed items of distributed debt proceeds. See Notice
you deducted in a prior tax year that property exceeds $500.
reduced your income tax. Report this 89-35, 1989-1 C.B. 675, for details.
amount on Form 1040, line 22, to the Charitable contribution deductions are ● 1994 meals and entertainment
extent it reduced your tax. not taken into account in figuring your expenses. If your tax year began in
passive activity loss for the year. Do not 1993, deduct 80% of this amount.
● Gambling gains and losses. enter them on Form 8582. Otherwise, you may deduct only 50% of
1. If the corporation was not engaged
Line 8—Section 179 Expense this amount.
in the trade or business of gambling:
Deduction If the corporation has more than one
a. Report gambling winnings on Form
corporate activity (line 1, 2, or 3 of
1040, line 22. Use this amount, along with the total Schedule K-1), it will identify the activity
b. Deduct gambling losses to the cost of section 179 property placed in to which the expenses relate.
extent of winnings on Schedule A, line service during the year from other
sources, to complete Part I of Form The corporation should also give you
25.
4562, Depreciation and Amortization. a description and your share of each of
2. If the corporation was engaged in the expense items. Associate any
the trade or business of gambling: Part I of Form 4562 is used to figure
your allowable section 179 expense passive activity deduction included on
a. Report gambling winnings in Part II line 10 with the line 1, 2, or 3 activity to
deduction from all sources. Report the
of Schedule E. which it relates and report the deduction
amount on line 12 of Form 4562
b. Deduct gambling losses to the allocable to a passive activity from the following the Instructions for Form 8582
extent of winnings in Part II of Schedule corporation following the Instructions for (or only on Schedule E (Form 1040), if
E. Form 8582. If the amount is not a applicable).
● Net gain (loss) from involuntary passive activity deduction, report it on
conversions due to casualty or theft. The Schedule E (Form 1040), Part II, Investment Interest
corporation will give you a schedule that column (j). If the corporation paid or accrued
shows the amounts to be reported on interest on debts properly allocable to
Form 4684, Casualties and Thefts, line Line 9—Deductions Related to
investment property, the amount of
34, columns (b)(i), (b)(ii), and (c). Portfolio Income (Loss) interest you are allowed to deduct may
● Net short-term capital gain or loss and Amounts on line 9 are deductions that be limited.
net long-term capital gain or loss from are clearly and directly allocable to For more information on the special
Schedule D (Form 1120S) that is not portfolio income reported on lines 4a provisions that apply to investment
portfolio income (e.g., gain or loss from through 4f (other than investment interest expense, get Form 4952,
the disposition of nondepreciable interest expense and section 212 Investment Interest Expense Deduction,
personal property used in a trade or expenses from a REMIC). Generally, you and Pub. 550, Investment Income and
business activity of the corporation). should enter line 9 amounts on Expenses.
Report a net short-term capital gain or Schedule A (Form 1040), line 20. See
loss on Schedule D (Form 1040), line 5, the instructions for Schedule A, lines 20
column (f) or (g), and a net long-term and 25, for more information.
Page 5
Line 11a—Interest Expense on credit is entered on Form 8586, through 12e) will be shown on line 13. If
Investment Debts Low-Income Housing Credit, to more than one credit is reported, the
determine your allowed credit for the credits will be shown and identified in
Enter this amount on Form 4952, line 1, year. the line 23 Supplemental Information
along with investment interest expense space. Expenditures qualifying for the
from Schedule K-1, line 10, if any, and If the corporation invested in a
partnership to which the provisions of (a) rehabilitation credit from other than
from other sources to determine how rental real estate activities, (b) energy
much of your total investment interest is section 42(j)(5) apply, it will report
separately on lines 12b(1) and 12b(3) credit, or (c) reforestation credit will be
deductible. reported to you on line 23.
your share of the credit it received from
Lines 11b(1) and (2)—Investment the partnership. Line 13 credits include the following:
Income and Investment Expenses Your share of all other low-income ● Nonconventional source fuel credit.
housing credits of the corporation is Enter this credit on a schedule you
Use the amounts on these lines to
reported on lines 12b(2) and 12b(4). You prepare yourself to determine the
determine the amounts to enter in Part II
must keep a separate record of the allowed credit to take on your tax return.
of Form 4952.
amount of low-income housing credit See section 29 for rules on how to figure
Caution: The amounts shown on lines from these lines so that you will be able the credit.
11b(1) and 11b(2) include only to correctly compute any recapture of ● Unused investment credit from
investment income and expenses the credit that may result from the cooperatives. Enter this credit on Form
reported on lines 4 and 9 of this disposition of all or part of your stock in 3468 to figure your allowable investment
Schedule K-1. If applicable, the the corporation. For more information, credit.
corporation will have listed in the line 23 see the instructions for Form 8611,
Supplemental Infor mation space any ● Credit for backup withholding on
Recapture of Low-Income Housing
other items of investment income and dividends, interest income, and other
Credit.
expenses reported elsewhere on this types of income. Include the amount the
Caution: You cannot claim the corporation reports to you in the total
Schedule K-1. Be sure to take these
low-income housing credit on any that you enter on line 54, page 2, Form
amounts into account, along with the
qualified low-income housing project if 1040. Be sure to check the box on line
amounts on lines 11b(1) and 11b(2) and
you, or any person, were allowed relief 54 and write “From Schedule K-1.”
your investment income and expenses
from the passive activity limitations on
from other sources, when figuring the ● Credit for increasing research activities
losses from the project (section 502 of
amounts to enter in Part II of Form and orphan drug credit. Enter these
the Tax Refor m Act of 1986).
4952. credits on Form 6765, Credit for
Line 12c—Qualified Rehabilitation Increasing Research Activities.
Credits Expenditures Related to Rental ● Jobs credit. Enter this credit on Form
Real Estate Activities 5884, Jobs Credit.
Caution: If you have credits that are
passive activity credits to you, you must ● Disabled access credit. Enter this
The corporation should identify your
complete For m 8582-CR in addition to credit on Form 8826, Disabled Access
share of rehabilitation expenditures from
the credit for ms named below. See the Credit.
each rental real estate activity. Enter the
Instructions for For m 8582-CR for more expenditures on the appropriate line of ● Enhanced oil recovery credit. Enter
infor mation. Form 3468, Investment Credit, to figure this credit on Form 8830, Enhanced Oil
Also, if you are entitled to claim more your allowable credit. Recovery Credit.
than one general business credit (i.e., ● Qualified electric vehicle credit. Enter
investment credit, jobs credit, credit for Line 12d—Credits (Other Than this credit on Form 8834, Qualified
alcohol used as fuel, research credit, Credits Shown on Lines 12b and Electric Vehicle Credit.
low-income housing credit, enhanced oil 12c) Related to Rental Real Estate ● Renewable electricity production
recovery credit, disabled access credit, Activities credit. Enter this credit on Form 8835,
renewable electr icity production credit, Renewable Electricity Production Credit.
Indian employment credit, employer The corporation will identify the type of
credit and any other information you ● Indian employment credit. Enter this
social secur ity credit, and credit for credit on Form 8845, Indian
contr ibutions to certain community need to compute credits from rental real
estate activities (other than the Employment Credit.
development corporations), you must
complete Form 3800, General Business low-income housing credit and qualified ● Employer social security credit. Enter
Credit, in addition to the credit forms rehabilitation expenditures). this credit on Form 8846, Credit for
named below. If you have more than one Employer Social Security Taxes Paid on
Line 12e—Credits Related to Other Certain Employee Cash Tips.
credit, see the instructions for Form Rental Activities
3800 for more infor mation. ● Credit for contributions to certain
If applicable, your share of any credit community development corporations.
Line 12a—Credit for Alcohol Used from other rental activities will be Enter this credit on Form 8847, Credit
as Fuel reported on line 12e. Income or loss for Contributions to Certain Community
Your share of the corporation’s credit for from these activities is reported on line 3 Development Corporations.
alcohol used as fuel from all trade or of Schedule K-1. If more than one credit
business activities is reported on line is involved, the credits will be listed Adjustments and Tax
separately, each credit identified as a
12a. Enter this credit on Form 6478,
line 12e credit, and the activity to which Preference Items
Credit for Alcohol Used as Fuel, to
determine your allowed credit for the the credit relates will be identified. This Use the information reported on lines
year. information will be shown on the line 23 14a through 14e (as well as adjustments
Supplemental Information space. The and tax preference items from other
Line 12b—Low-Income Housing credit may be limited by the passive sources) to prepare your Form 6251,
Credit activity limitations. Alternative Minimum Tax—Individuals, or
Schedule H of Form 1041, U.S.
Your share of the corporation’s Line 13—Other Credits Fiduciary Income Tax Return.
low-income housing credit is shown on lf applicable, your pro rata share of any
lines 12b(1) through (4). Your allowable other credit (other than on lines 12a
Page 6
Lines 14d(1) and 14d(2)—Gross provide you with the amount of the 22b amounts to compute the
Income From, and Deductions adjustment or tax preference item low-income housing credit recapture on
Allocable to, Oil, Gas, and related to the expenses listed on line Form 8611. See the instructions for
16a. You must decide both how to claim Form 8611 and section 42(j) for
Geothermal Properties
the expenses on your return and how to additional information.
The amounts reported on these lines compute the resulting adjustment or tax
include only the gross income from, and preference item. Supplemental Information
deductions allocable to, oil, gas, and
geothermal properties included on line 1 Line 17—Tax-Exempt Interest Line 23
of Schedule K-1. The corporation should Income
If applicable, the corporation should
have reported separately any income You must report on your return, as an have listed in line 23, Supplemental
from or deductions allocable to such item of information, your share of the Information, or on an attached
properties that are included on lines 2 tax-exempt interest received or accrued statement to Schedule K-1, your
through 10. This separate information is by the corporation during the year. distributive share of the following:
reported in the line 23 Supplemental Individual shareholders should include
Information space. Use the amounts 1. Taxes paid on undistributed capital
this amount on Form 1040, line 8b. gains by a regulated investment
reported on lines 14d(1) and 14d(2) and Generally, you must increase the basis
any amounts reported separately to help company. (Form 1040 filers, enter your
of your stock in the corporation by this share of these taxes on line 59 of Form
you determine the net amount to enter amount.
on line 14f of Form 6251. 1040, check the box for Form 2439, and
Line 18—Other Tax-Exempt add the words “Form 1120S.” Also
Line 14e—Other Adjustments and reduce the basis of your stock in the
Income corporation by this tax.)
Tax Preference Items
Generally, you must increase the basis 2. Gross income from the property,
Enter the line 14e adjustments and tax of your stock in the corporation by the
preference items shown in the line 23 share of production for the tax year, etc.,
amount shown on line 18, but do not needed to figure your depletion
Supplemental Information space, with include it in income on your tax return.
other items from other sources, on the deduction for oil and gas wells. The
applicable lines of Form 6251. corporation should also allocate to you a
Line 19—Nondeductible Expenses
proportionate share of the adjusted
The nondeductible expenses paid or basis of each corporate oil or gas
Foreign Taxes incurred by the corporation are not property. See Pub. 535 for how to figure
Use the information on lines 15a through deductible on your tax return. Generally, your depletion deduction. Also, reduce
15g, and attached schedules, to figure you must decrease the basis of your the basis of your stock in the
your foreign tax credit. For more stock in the corporation by this amount. corporation by the amount of this
information, get Form 1116, Foreign Tax deduction to the extent the deduction
Credit—Individual, Fiduciary, or Line 20 does not exceed your share of the
Nonresident Alien Individual, and its Reduce the basis of your stock in the adjusted basis of the property.
instructions. corporation by the distributions on line 3. Recapture of the section 179
20. If these distributions exceed the expense deduction. If the recapture was
Other basis of your stock, the excess is caused by a disposition of the property,
treated as gain from the sale or include the amount on Form 4797,
Lines 16a and 16b exchange of property and is reported on line 18.
The corporation will show on line 16a Schedule D (Form 1040). The recapture amount is limited to the
the total qualified expenditures to which Line 21 amount you deducted in earlier years.
an election under section 59(e) may 4. Recapture of certain mining
apply. It will identify the type of If the line 21 payments are made on exploration expenditures (section 617).
expenditures on line 16b. If there is indebtedness with a reduced basis, the
repayments result in income to you to 5. Any information or statements you
more than one type of expenditure, the
the extent the repayments are more than need to comply with section 6111
amount of each type will be listed on an
the adjusted basis of the loan. See (registration of tax shelters) or
attachment. Generally, section 59(e)
section 1367(b)(2) for information on 6662(d)(2)(B)(ii) (regarding adequate
allows each shareholder to elect to
reduction in basis of a loan and disclosure of items that may cause an
deduct certain expenses ratably over the
restoration in basis of a loan with a understatement of income tax).
number of years in the applicable period
rather than deduct the full amount in the reduced basis. See Rev. Rul. 64-162, 6. Gross farming and fishing income.
current year. Under the election, you 1964-1 (Part 1) C.B. 304 and Rev. Rul. If you are an individual shareholder,
may deduct circulation expenditures 68-537, 1968-2 C.B. 372, for other enter this income, as an item of
ratably over a 3-year period. Research information. information, on Schedule E (Form 1040),
and experimental expenditures and Part V, line 41. Do not report this income
mining exploration and development Lines 22a and 22b—Recapture of elsewhere on Form 1040.
costs qualify for a writeoff period of 10 Low-Income Housing Credit For a shareholder that is an estate or
years. Intangible drilling and The corporation will report separately on trust, report this income to the
development costs may be deducted line 22a your share of any recapture of a beneficiaries, as an item of information,
over a 60-month period, beginning with low-income housing credit from its on Schedule K-1 (Form 1041). Do not
the month in which such costs were investment in partnerships to which the report it elsewhere on Form 1041.
paid or incurred. If you make this provisions of section 42(j)(5) apply. All 7. Any information you need to figure
election, these items are not treated as other recapture of low-income housing the interest due under section 453(l)(3). If
adjustments or tax preference items for credits will be reported on line 22b. You the corporation elected to report the
purposes of the alternative minimum tax. must keep a separate record of dispositions of certain timeshares and
Make the election on Form 4562. recapture from line 22a and 22b so that residential lots on the installment
Because each shareholder decides you will be able to correctly figure any method, your tax liability must be
whether to make the election under credit recapture that may result from the increased by the interest on tax
section 59(e), the corporation cannot disposition of all or part of your attributable to your pro rata share of the
corporate stock. Use the line 22a and installment payments received by the
Page 7
corporation during its tax year. If applicable, use the information on you need to figure your recapture tax on
applicable, use the information provided expenditures the corporation gives to Form 4255, Recapture of Investment
by the corporation to figure your interest. you to determine the amount of interest Credit. See the Form 3468 on which you
Include the interest on Form 1040, line you must capitalize. See Section XII of took the original credit for other
53. Also write “453(l)(3)” and the amount Notice 88-99, 1988-2 C.B. 422, for more information you need to complete Form
of the interest on the dotted line to the information. 4255.
left of line 53. 10. Any information you need to You may also need Form 4255 if you
8. Any information you need to compute the interest due or to be disposed of more than one-third of your
compute the interest due under section refunded under the look-back method of stock in the corporation.
453A(c) with respect to certain section 460(b)(2) on certain long-term 13. Preproductive period farm
installment sales of property. If you are contracts. Use Form 8697, Interest expenses. You may elect to deduct
an individual, report the interest on Form Computation Under the Look-Back these expenses currently or capitalize
1040, line 53. Write “453A(c)” and the Method for Completed Long-Term them under section 263A. See Pub. 225,
amount of the interest on the dotted line Contracts, to report any such interest. Farmer’s Tax Guide, and Temporary
to the left of line 53. See the instructions 11. Your share of expenditures Regulations section 1.263A-1T(c) for
for Form 6252, Installment Sale Income, qualifying for the (a) rehabilitation credit more information.
for more information. Also see section from other than rental real estate 14. Any information you need to figure
453A(c) for details on making the activities, (b) energy credit, or recapture of the qualified electric vehicle
computation. (c) reforestation credit. Enter the credit. See Pub 535 for details, including
9. Capitalization of interest under expenditures on the appropriate line of how to figure the recapture.
section 263A(f). To the extent certain Form 3468 to figure your allowable 15. Any other information you may
production or construction expenditures credit. need to file with your individual tax
of the corporation are made from 12. Investment credit properties return that is not shown elsewhere on
proceeds associated with debt you incur subject to recapture. Any information Schedule K-1.
as an owner-shareholder, you must
capitalize the interest on this debt. If

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