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Department of the Treasury

Internal Revenue Service

Instructions for Form 8810

Corporate Passive Activity Loss and Credit Limitations
Section references are to the Inter nal Revenue Code unless otherwise noted.

Paperwork Reduction Act closely held corporation has a passive prior year unallowed losses from the
activity credit for the year if its credits activity.
Notice from passive activities (including prior Overall loss means the excess of the
We ask for the information on this form year unallowed credits) exceed the sum prior year unallowed losses from the
to carry out the Internal Revenue laws of of the tax attributable to net passive activity over the net income from the
the United States. You are required to income and the tax attributable to net activity or the prior year unallowed
give us the information. We need it to active income. losses from the activity plus the net loss
ensure that you are complying with Generally, passive activities include from the activity.
these laws and to allow us to figure and trade or business activities in which the Prior year unallowed losses means the
collect the right amount of tax. corporation did not materially participate deductions and losses from an activity
The time needed to complete and file for the tax year, and rental activities that were disallowed under the passive
this form will vary depending on regardless of its participation. activity loss limitations in a prior year
individual circumstances. The estimated For more information, get Pub. 925, and carried forward to this tax year
average time is: Passive Activity and At-Risk Rules. under section 469(b). See Regulations
Recordkeeping 26 hr., 19 min. section 1.469-1(f)(4).
Learning about the law Who Must File
or the form 5 hr., 22 min. Personal service corporations and Coordination With
Preparing and sending closely held corporations that have Other Limitations
the form to the IRS 6 hr., 2 min. losses or credits from passive activities Losses from passive activities generally
must file Form 8810. are subject to other applicable
If you have comments concerning the
accuracy of these time estimates or For the definition of a “personal limitations (e.g., basis and at-risk
suggestions for making this form service corporation,” see Temporary limitations) before they are subject to the
simpler, we would be happy to hear from Regulations section 1.441-4T(d) or the passive loss limitations. Once a loss
you. See the instructions for the tax instructions for item A on page 6 of the becomes allowable under these other
return with which this form is filed. Instructions for Forms 1120 and 1120-A. limitations, the corporation must
A corporation is a “closely held determine whether the loss is limited
corporation” if at any time during the under the passive loss rules. See Form
General Instructions last half of the tax year more than 50% 6198, At-Risk Limitations, for details on
in value of its outstanding stock is the at-risk rules. Capital losses that are
Purpose of Form owned, directly or indirectly, by or for allowable under the passive loss rules,
not more than five individuals, and the however, may be limited under section
Form 8810 is used by personal service
corporation is not an S corporation or a 1211(a). Similarly, percentage depletion
corporations and closely held
personal service corporation. Certain deductions that are allowable under the
corporations to figure the amount of any
organizations described in section passive loss rules may be limited under
passive activity loss or credit for the
542(a)(2) are treated as individuals for section 613A(d).
current tax year and the amount of
losses and credits from passive activities this purpose. For stock ownership rules,
allowed on the corporation’s tax return. see section 544 (as modified by section Special Rules for
It is also used to make the election to Consolidated Group
increase the basis of credit property
Definitions The passive activity loss and passive
when the corporation disposes of its
activity credit of an affiliated group of
interest in an activity. Except as otherwise indicated, the corporations filing a consolidated return
A personal service corporation has a following terms are defined as shown for the tax year (a consolidated group)
passive activity loss for the year if the below. are determined by taking into account
total losses (including prior year Net income means the excess of the following items of each member of
unallowed losses) from its passive current year income over current year the group.
activities exceed the total income from deductions from the activity. This ● Passive activity gross income and
its passive activities. A closely held includes any current year gains or losses deductions.
corporation has a passive activity loss from the disposition of assets or an
for the year if the total losses (including ● Gain or loss on dispositions.
interest in the activity.
prior year unallowed losses) from all its ● Net active income (for a consolidated
Net loss means the excess of current group treated as a closely held
passive activities exceed the sum of the
year deductions over current year corporation).
total income from all its passive activities
income from the activity. This includes
and its net active income.
any current year gains or losses from the ● Credits from passive activities.
A personal service corporation has a disposition of assets or an interest in the
passive activity credit for the year if its activity. Activities That Are Not
credits from passive activities (including
prior year unallowed credits) exceed the
Overall gain means the excess of the Passive Activities
net income from the activity over the
tax attributable to net passive income. A The following are not passive activities:

Cat. No. 10357E

1. Trade or business activities in which use. The gross income (or expected The rental of property is incidental to
the corporation materially participated gross income) from the activity must an activity of holding property for
for the tax year. represent amounts paid (or to be paid) investment if the main purpose for
2. Any rental real estate activity in mainly for the use of the property. In holding the property is to realize a gain
which the corporation materially addition, the use of the property may be from the appreciation of the property
participated if the corporation was a under a lease, a service contract, or and the gross rental income is less than
closely held corporation that derived another arrangement that is not called a 2% of the smaller of the unadjusted
more than 50% of its gross receipts lease. basis of the property or the fair market
from real property trades or businesses However, if the corporation meets any value of the property.
in which it materially participated. one of the six exceptions listed below, Unadjusted basis means the cost of
For purposes of this rule, each interest the rental of the property is not treated the property without regard to
is a separate activity, unless the as a rental activity. See Reporting depreciation deductions or any other
corporation elects to treat all interests in Income, Deductions, Losses, and adjustment described in section 1016
rental real estate as one activity. Credits From the Activities on page 3 if that reduces basis.
the corporation meets any of the The rental of property is incidental to a
A real property trade or business is
exceptions. trade or business activity if:
any real property development,
redevelopment, construction, Exceptions a. The corporation owned an interest
reconstruction, acquisition, conversion, in the trade or business activity during
rental, operation, management, leasing, An activity is not a rental activity if: the year;
or brokerage trade or business. 1. The average period of customer use b. The rental property was mainly
Note: If an activity qualifies for the of the rental property is 7 days or less. used in the trade or business activity
exception described above in 1995, but Figure the average period of during the tax year or during at least 2
has a prior year unallowed loss, the prior customer use for a class of property by of the 5 preceding tax years; and
year unallowed loss is treated as a loss dividing the total number of days in all c. The gross rental income from the
from a former passive activity. See rental periods by the number of rentals property is less than 2% of the smaller
Former Passive Activities on page 5. during the tax year. If the activity of the unadjusted basis of the property
3. An interest in an oil or gas well involves renting more than one class of or the fair market value of the property.
drilled or operated under a working property, multiply the average period of
Lodging provided for the employer’s
interest if at any time during the tax year customer use of each class by the ratio
convenience to an employee or the
the corporation held the working interest of the gross rental income from that
employee’s spouse or dependents is
directly or through an entity that did not class to the activity’s total gross rental
incidental to the activity or activities in
limit the corporation’s liability (such as a income. The activity’s average period of
which the employee performs services.
general partner interest in a partnership). customer use equals the sum of these
class-by-class average periods weighted 5. The corporation customarily makes
This exception applies regardless of the rental property available during
whether the corporation materially by gross income. See Regulations
section 1.469-1(e)(3)(iii). defined business hours for nonexclusive
participated in the activity for the tax use by various customers.
year. 2. The average period of customer use
(defined above) of the rental property is 6. The corporation provides property
If, however, the corporation’s liability for use in a nonrental activity of a
was not unlimited for the entire year 30 days or less and significant personal
services were provided in connection partnership or joint venture in its
(e.g., the corporation converted its capacity as an owner of an interest in
general partner interest to a limited with making the rental property available
for customer use. such partnership or joint venture.
partner interest during the year), some of
the corporation’s income and losses Significant personal services include For example, if a partner contributes
from the working interest may be treated only services performed by individuals. the use of property to a partnership,
as passive activity gross income and In determining if personal services are none of the partner’s distributive share
passive activity deductions. See significant, all the relevant facts and of partnership income is income from a
Temporary Regulations section circumstances are taken into rental activity unless the partnership is
1.469-1T(e)(4)(ii). consideration. Facts and circumstances engaged in a rental activity. In addition,
include the frequency of the services, a partner’s gross income attributable to
4. An activity of trading personal a guaranteed payment under section
property for the account of owners of the type and amount of labor required to
perform the services, and the value of 707(c) is not income from a rental
interests in the activity. See Temporary activity. The determination of whether
Regulations section 1.469-1T(e)(6). the services relative to the amount
charged for the property’s use. the property used in the activity is
Generally, income, losses, and credits provided in the partner’s capacity as an
from these activities should not be Significant personal services do not
owner of an interest in the partnership is
entered on Form 8810. However, losses include excluded services. See
made on the basis of all the facts and
and credits from these activities may be Temporary Regulations section
subject to limitations other than the 1.469-1T(e)(3)(iv)(B).
passive loss and credit rules. 3. Extraordinary personal services Reporting Income, Deductions,
were provided in connection with making Losses, and Credits From the
Rental Activities the rental property available for Activities
customer use.
Except for a rental real estate activity If the corporation meets any of the six
Services provided in connection with
that meets the requirements described exceptions listed above, the
making rental property available for
under item 2 in Activities That Are Not corporation’s rental of the property is not
customer use are extraordinary
Passive Activities above, a rental a rental activity. The corporation then
personal services only if the services
activity is a passive activity even if the must determine whether the rental of the
are performed by individuals and the
corporation materially participated in the property is a trade or business activity
customers’ use of the rental property is
activity. and, if so, whether the corporation
incidental to their receipt of the services.
An activity is a rental activity if materially participated or significantly
4. The rental of the property is participated in the activity for the tax
tangible property (real or personal) is
incidental to a nonrental activity. year. (See Trade or Business Activities
used by customers or held for customer
and Material or Significant
Page 2
Participation below.) To report income, activity, special rules apply. See Publicly Work the individual did as an investor
deductions, losses, or credits from a Traded Partnerships (PTPs) on page in an activity is not treated as
trade or business activity in which the 10. See Pub. 925 for how to report participation unless the individual was
corporation did not materially income or losses from significant directly involved in the day-to-day
participate, see Trade or business participation passive activities. management or operations of the
activities without material In general, if the corporation has activity. Work done as an investor
participation below. credits from passive activities, use includes:
If the corporation meets any of the six Worksheet 5 on page 11 to figure the 1. Studying and reviewing financial
exceptions listed above and the activity amount to enter in Part II of Form 8810. statements or reports on operations of
is a trade or business activity in which However, if the corporation held the the activity.
the corporation materially participated, activity through a PTP, special rules 2. Preparing or compiling summaries
report any income, deduction, loss, or apply. See Credits From PTPs on page or analyses of the finances or operations
credit from the activity on the forms or 12 for how to report credits from these of the activity for the individual’s own
schedules normally used. activities. use.
If the corporation did not meet any of 3. Monitoring the finances or
the six exceptions, the rental activity is Material or Significant operations of the activity in a
generally a passive activity. Special rules Participation nonmanagerial capacity.
apply if the corporation conducted the If the individual is married for the tax
rental activity through a publicly traded In general.—Personal service
corporations and closely held year, the individual’s participation in an
partnership (PTP) or if any of the rules activity includes any participation in the
described in Recharacterization of corporations materially or significantly
participate in an activity if one or more activity during the tax year by that
Passive Income on page 5 apply. See individual’s spouse, whether or not the
Publicly Traded Partnerships (PTPs) on individuals, each of whom would
materially or significantly participate in spouse owned any interest in the activity
page 10. and whether or not the individual and
If none of the special rules apply, use the activity if the corporation’s activity
were the individual’s activity, directly or spouse file a joint return for the tax year.
Worksheets 1 and 2 on page 7 to An individual would materially
determine the amount to enter in Part I indirectly own more than 50% (by value)
of the corporation’s outstanding stock. participate in an activity of the
of Form 8810 for each passive rental corporation if one or more of the
activity. If the corporation has credits For this purpose, an individual’s
participation in all activities other than following tests are satisfied.
from passive rental activities, use
Worksheet 5 on page 11 to figure the activities of the corporation is 1. The individual participated in the
amount to enter in Part II of Form 8810. disregarded. activity for more than 500 hours.
A closely held corporation also 2. The individual’s participation in the
Trade or Business Activities materially participates in an activity if the activity for the tax year was substantially
corporation satisfies the requirements of all of the participation in the activity of
A trade or business activity is an activity section 465(c)(7)(C) (without regard to (iv) all individuals (including individuals who
(other than a rental activity or an activity for the “qualifying business” exception did not own any interest in the
treated as incidential to an activity of from the at-risk limitations). corporation or the activity) for the year.
holding property for investment) that: 3. The individual participated in the
These requirements are met if:
1. Involves the conduct of a trade or activity for more than 100 hours during
business (within the meaning of section 1. During the entire 12-month period
ending on the last day of the tax year, the tax year, and that individual
162), participated at least as much as any
substantially all the services of at least
2. Is conducted in anticipation of one full-time employee of the other individual (including individuals
starting a trade or business, or corporation were in the active who did not own any interest in the
3. Involves research or experimental management of the activity; corporation or the activity) for the year.
expenditures deductible under section 2. During the same period, 4. The activity is a significant
174 (or that would be if the corporation substantially all the services of at least participation activity for the individual for
chose to deduct rather than capitalize three full-time nonowner employees the tax year, and the individual’s total
them). were directly related to the activity; and participation in all significant
participation activities during the year
Reporting Income, Deductions, 3. The deductions attributable to the exceeded 500 hours. A significant
Losses, and Credits From the activity and allowed solely under participation activity is any trade or
Activities sections 162 and 404 exceed 15% of business activity in which the individual
the gross income from the activity for participated for more than 100 hours
Trade or business activities with the tax year. during the year and in which the
material participation.—If the Participation, for purposes of the individual did not materially participate
corporation materially participated in a material participation tests listed below, under any of the material participation
trade or business activity, the activity is generally includes any work the tests (other than this test 4).
not a passive activity. Report the individual did (without regard to the
income, deductions, losses, and credits For this purpose, an individual’s
capacity in which the individual did it) in participation in all activities other than
from the activity on the form or schedule connection with an activity in which the
normally used. activities of the corporation is
corporation owned an interest at the disregarded.
Trade or business activities without time the individual did the work. Work is
material participation.—In general, use not treated as participation, however, if 5. The individual materially
Worksheets 1 and 2 on page 7 to the work is not work that an owner of participated in the activity for any 5
determine the amount to enter in that type of activity would customarily (whether or not consecutive) of the 10
Part I of Form 8810 for each trade or do, and if one of the individual’s main preceding tax years. When determining
business activity in which the reasons for doing the work is to avoid whether the individual materially
corporation did not materially the disallowance of losses or credits participated in tax years beginning
participate. If, however, the corporation from the activity under the passive loss before 1987, the individual materially
held the activity through a PTP or the and credit rules. participated only if the individual
activity is a significant participation participated for more than 500 hours
during the tax year.
Page 3
6. The activity is a personal service corporation was a general partner in the a. The rental activity is insubstantial
activity in which the individual materially partnership at all times during the relative to the trade or business activity
participated for any 3 (whether or not partnership’s tax year ending with or or vice versa, or
consecutive) preceding tax years. When within the corporation’s tax year (or, if b. Each owner of the trade or
determining whether the individual shorter, during the portion of the business activity has the same
materially participated for tax years partnership’s tax year in which the proportionate ownership interest in the
beginning before 1987, the individual corporation directly or indirectly owned a rental activity. If so, the portion of the
materially participated only if the limited partner interest). rental activity involving the rental of
individual participated for more than 500 Participation of consolidated group.— property to be used in the trade or
hours during the tax year. See Regulations section 1.469-1(h)(4) for business activity may be grouped with
An activity is a personal service rules for determining whether a the trade or business activity.
activity if it involves the performance of consolidated group materially or 2. An activity involving the rental of
personal services in the fields of health, significantly participates. real property with an activity involving
law, engineering, architecture, the rental of personal property (except
accounting, actuarial science, Grouping the for personal property provided in
performing arts, consulting, or any other connection with the real property or vice
trade or business in which capital is not Corporation’s Activities
a material income-producing factor. Generally, one or more trade or business 3. Any activity with another activity in
7. Based on all the facts and activities or rental activities may be a different type of business and in which
circumstances, the individual treated as a single activity if the the corporation holds an interest as a
participated in the activity on a regular, activities make up an appropriate limited partner or as a limited
continuous, and substantial basis during economic unit for the measurement of entrepreneur (as defined in section
the tax year. gain or loss under the passive activity 464(e)(2)) if that other activity engages in
The individual did not materially rules. Whether activities make up an holding, producing, or distributing
participate in the activity under this appropriate economic unit depends on motion picture films or videotapes;
seventh test, however, if the individual all the relevant facts and circumstances. farming; leasing section 1245 property;
participated in the activity for 100 hours The factors given the greatest weight in or exploring for (or exploiting) oil and gas
or less during the year. Participation in determining whether activities make up resources or geothermal deposits.
managing the activity does not count in an appropriate economic unit are:
Activities conducted through
determining whether the individual 1. Similarities and differences in types partnerships and other C corporations
materially participated under the test if: of trades or businesses, subject to section 469.—Once a
a. Any person (except that individual) 2. The extent of common control, partnership or corporation determines its
received compensation for performing 3. The extent of common ownership, activities under these rules, a partner or
services in the management of the 4. Geographical location, and shareholder may use these rules to
activity; or group those activities with each other,
5. Reliance between or among the
b. Any person in the activity spent with activities conducted directly by the
more hours during the tax year than that partner or shareholder, and with
Example. The corporation has a activities conducted through other
individual spent performing services in
significant ownership interest in a bakery partnerships and corporations. A partner
the management of the activity
and a movie theater in Baltimore and in or shareholder may not treat as separate
(regardless of whether the individual was
a bakery and a movie theater in activities those activities grouped
compensated for the management
Philadelphia. Depending on all the together by the partnership or
relevant facts and circumstances, there corporation.
Proof of participation.—Participation in may be more than one reasonable
an activity can be proved by any Partial disposition of an activity.—The
method for grouping the corporation’s
reasonable means. Contemporaneous corporation may treat the disposition of
activities. For instance, the following
daily time reports, logs, or similar substantially all of an activity as a
groupings may or may not be
documents are not required if separate activity if it can prove with
permissible: a single activity, a movie
participation can be established by other reasonable certainty:
theater activity and a bakery activity, a
reasonable means. Reasonable means Baltimore activity and a Philadelphia 1. The prior year unallowed losses, if
for this purpose may include, but are not activity, or four separate activities. any, allocable to the part of the activity
limited to, the identification of services disposed of, and
Once the corporation chooses a
performed over a period of time and the 2. The net income or loss for the year
grouping under these rules, it must
approximate number of hours spent of disposition allocable to the part of the
continue using that grouping in later tax
performing the services during that activity disposed of.
years unless a material change in the
period, based on appointment books,
facts and circumstances makes it clearly
calendars, or narrative summaries.
inappropriate. Passive Activity Income
Special rules for limited partners.—
Generally, a limited partner cannot
The IRS may regroup the corporation’s and Deductions
activities if the grouping fails to reflect
materially participate in an activity. Take into account only passive activity
one or more appropriate economic units
However, the corporation is considered income and passive activity deductions
and one of the primary purposes of the
to materially participate in an activity in in determining the corporation’s overall
grouping is to avoid the passive activity
which it holds a limited partner interest if gain or overall loss from all passive
one or more individuals, each of whom activities or any passive activity. To
would materially participate in the Limitation on grouping certain figure its passive activity loss, a closely
activity under test 1, 5, or 6 for the tax activities.—The following activites may held corporation subtracts both passive
year if the corporation’s activity were the not be grouped together. activity income and net active income
individual’s activity, directly or indirectly 1. A rental activity with a trade or from its passive activity deductions. See
own more than 50% (by value) of the business activity unless the activities the instructions for line 2 on page 8 for
corporation’s outstanding stock. being grouped together make up an the definition of net active income.
The corporation is not treated as a appropriate economic unit, and
limited partner, however, if the
Page 4
Passive Activity Income forward to the tax year under section passive activity is any trade or business
469(b). See Regulations section activity (defined on page 3) in which the
Passive activity income includes all
1.469-1(f)(4). corporation is treated as having
income from passive activities, including
Passive activity deductions include participated for more than 100 hours
(with certain exceptions described in
losses from dispositions of property during the tax year but did not materially
Temporary Regulations section
used in a passive activity at the time of participate.
1.469-2T(c)(2) and Regulations section
1.469-2(c)(2)) gain from the disposition of the disposition and losses from a ● Rental of property when less than
an interest in a passive activity or disposition of less than an entire interest 30% of the unadjusted basis of the
property used in a passive activity at the in a passive activity. See Dispositions property is subject to depreciation.
time of the disposition. below for the treatment of losses on ● Passive equity-financed lending
certain dispositions of an entire interest activities.
Passive activity income does not
in an activity. ● Rental of property incidental to a
include the following:
Passive activity deductions do not development activity.
● Income from an activity that is not a
include the following: ● Rental of property to an activity in
passive activity.
● Deductions for expenses (other than which the corporation materially
● Portfolio income, including interest,
interest expense) that are clearly and participates.
dividends, annuities, and royalties not
directly allocable to portfolio income. ● Acquisition of an interest in a
derived in the ordinary course of a trade
or business, and gain or loss from the ● Dividends-received deductions for pass-through entity that licenses
disposition of property that produces dividends not included in passive activity intangible property.
those types of income or is held for gross income.
investment. See Temporary Regulations ● Interest expense, other than interest Former Passive Activities
section 1.469-2T(c)(3). expense properly allocable under
Temporary Regulations section 1.163-8T A former passive activity is any activity
● Personal service income, including that was a passive activity in a prior tax
commissions and income from trade or to passive activities. For example,
capitalized interest expense is not a year, but is not a passive activity in the
business activities in which the current tax year. A prior year unallowed
corporation materially participated for passive activity deduction.
loss from a former passive activity is
the tax year. See Temporary Regulations ● Losses from dispositions of property
allowed to the extent of the current year
section 1.469-2T(c)(4). that produce portfolio income or
income from the activity.
● Income from positive section 481 property held for investment.
If the current year net income from the
adjustments allocated to activities other ● State, local, and foreign income taxes.
activity is less than the prior year
than passive activities. See Temporary ● Charitable contribution deductions. unallowed loss, enter the prior year
Regulations section 1.469-2T(c)(5). ● Net operating loss deductions, unallowed loss and any current year net
● Income or gain from investments of percentage depletion carryovers under income from the activity on Form 8810
working capital in an activity. section 613A(d), and capital loss and the applicable worksheets.
● Income from an oil or gas property if carrybacks and carryovers. If the current year net income from the
the corporation treated any loss from a ● Deductions and losses that would activity is equal to or greater than the
working interest in the property for any have been allowed for tax years prior year unallowed loss from the
tax year beginning after 1986 as a beginning before 1987, but for basis or activity, report the income and loss on
nonpassive loss under the rule excluding at-risk limitations. the forms and schedules normally used;
working interests in oil and gas wells ● Net negative section 481 adjustments do not enter the amounts on Form 8810.
from passive activities. See Regulations allocated to activities other than passive If the activity has a net loss for the
section 1.469-2(c)(6). activities. See Temporary Regulations current year, enter the prior year
● Income treated as income that is not section 1.469-2T(d)(7). unallowed loss (but not the current year
passive activity income under Temporary ● Deductions for losses from fire, storm, loss) on Form 8810 and the applicable
Regulations section 1.469-2T(f) and shipwreck or other casualty, or from worksheets.
Regulations section 1.469-2(f). See theft, if losses similar in cause and To report a disposition of a former
Recharacterization of Passive Income severity do not recur regularly in the passive activity, follow the rules under
below. activity. Dispositions below.
● Overall gain from any interest in a
publicly traded partnership. Recharacterization of Passive
● State, local, and foreign income tax
refunds. Certain income from passive activities Disposition of Less Than an Entire
● Any reimbursement of a casualty or may be recharacterized and excluded Interest
theft loss included in income to recover from passive activity income. The Gains and losses from the disposition of
all or part of a prior year loss deduction, amount of income recharacterized less than an entire interest in an activity
if the deduction for the loss was not equals the net income from the sources are treated as part of the overall gain or
treated as a passive activity deduction. described below. If during the tax year loss from the activity for the current
● Cancellation of debt income to the the corporation received net income year. A disposition of less than an entire
extent that, at the time the debt is from any sources described below interest does not trigger the allowance
discharged, the debt is not properly (either directly or through a partnership), of prior year unallowed losses.
allocable under Temporary Regulations see Pub. 925 for details on reporting net
section 1.163-8T to passive activities. income or loss from these sources. Also Disposition of an Entire Interest
see Temporary Regulations section If the corporation disposed of its entire
Passive Activity Deductions 1.469-2T(f) and Regulations section interest in a passive activity or a former
Passive activity deductions include all 1.469-2(f) for more information. passive activity to an unrelated party in
deductions from activities that are Income from the following sources a fully taxable transaction during the tax
passive activities for the tax year and all may be subject to the net income year, the losses allocable to the activity
deductions from passive activities that recharacterization rules. for the year are not limited by the
were disallowed under the passive loss ● Significant participation passive passive activity loss rules. A fully taxable
rules in prior tax years and carried activities. A significant participation
Page 5
transaction is a transaction in which all complete Part III of Form 8810. No basis passive activity and also has other
the realized gain or loss is recognized. adjustment may be elected on a partial passive activities to report on Form
If the corporation is using the disposition of the corporation’s interest 8810, include the income, gains,
installment method to report this kind of in a passive activity. deductions, and losses (including prior
disposition, to figure the loss for the A partner in a publicly traded year unallowed losses) on Worksheet 1
current year that is not limited by the partnership (PTP) is not treated as on page 7. If this is the corporation’s
passive loss rules, multiply the having disposed of an entire interest in only passive activity or a former passive
corporation’s overall loss (which does an activity of a PTP until there is an activity, report the income, gains,
not include losses allowed in prior years) entire disposition of the partner’s interest deductions, and losses (including prior
by the following fraction: in the PTP. year unallowed losses) on the forms and
schedules normally used, but do not
Gain recognized in the current year
Reporting an Entire Disposition on enter them on the worksheets or on
Unrecognized gain as of the beginning Form 8810.
Schedule D or Form 4797
of the current year
When the corporation completely If the corporation has an overall loss
Unallowed passive activity credits, when combining the income, gains,
unlike unallowed passive activity losses, disposes of an entire interest in a
passive activity or a former passive deductions, and losses (including prior
are not allowable when the corporation year unallowed losses) from the activity,
disposes of its interest in an activity. activity, there may be net income or loss
and prior year unallowed losses from the report all of the income, gains,
However, the corporation may elect to deductions, and losses on the forms
increase the basis of the credit property activity. All the income, gains,
deductions, and losses are reported on and schedules normally used, but do
by the amount of the original basis not enter them on the worksheets or on
reduction of the property to the extent the forms and schedules normally used.
Form 8810.
that the credit has not been allowed Combine the income, gains,
deductions, and losses (including prior Note: Members of a consolidated group,
under the passive activity rules.
year unallowed losses) from the activity see Temporary Regulations section
Unallowed passive activity credits that
for the tax year to see if the corporation 1.469-1T(h)(6), (7), and (8) for rules on
are not used to increase the basis of the
has an overall gain or loss. If the applying the passive loss rules to
credit property are carried forward until
corporation has an overall gain from a dispositions of property and other
they are allowed. To make the election,
intercompany transactions.

Page 6
Specific Instructions Worksheet 1—Computation of Income, Gains, Deductions, and Losses
Note: Complete Worksheets 1 and 2 for Worksheet 2
before completing Part I of Form 8810. Name of activity: Name of activity:

Worksheet 1 1. Gross receipts

Worksheet 1 is used to figure the total 2. Schedule D gains
current year income, gains, deductions,
3. Form 4797 gains
and losses for each passive activity.
4. Other passive income
Gross receipts and other income from
passive activities and passive activity 5. Total income. Add lines 1
gains reported on Form 4797 and through 4. Enter the result
here and in column (a) of
Schedule D are entered on lines 1 Worksheet 2 ©
through 4 of Worksheet 1. Passive
6. Deductions:
activity deductions are entered on lines
6a through 6l, and passive activity a. Cost of goods sold
losses reported on Schedule D and b. Compensation of officers
Form 4797 are entered on lines 8 and 9. c. Salaries and wages
The total income from line 5 is entered d. Repairs and maintenance
in column (a) of Worksheet 2 and the
total deductions and losses from line 10 e. Bad debts
are entered in column (b) of f. Rents
Worksheet 2. g. Taxes and licenses
Gross receipts, gains from the sale of h. Interest
business assets, capital gains, and other i. Depreciation
passive income should also be entered
on the forms and schedules normally j. Depletion
used. Allowable passive activity k. Advertising
deductions and losses are entered on l. Other deductions
the forms and schedules after Form 7. Total deductions. Add
8810 is completed and the deductions
lines 6a through 6l
and losses are allocated to the activities.
8. Schedule D losses
9. Form 4797 losses
10. Total deductions and
losses. Add lines 7 through 9.
Enter the result here and in
column (b) of Worksheet 2 ©

Worksheet 2
Total income for the current year is shown on line 5 in Worksheet 1 and total deductions and losses for the current year are
shown on line 10 in Worksheet 1. The prior year unallowed losses can be found in the corporation’s Worksheet 4, column (c) of
the 1994 Form 8810 instructions. The totals from columns (a), (b), and (c) of Worksheet 2 are entered on lines 1a, 1b, and 1c of
Form 8810.
Combine income, deductions, and losses in columns (a) through (c) for each activity. Enter any overall gain in column (d) or
any overall loss in column (e). Columns (d) and (e) are not entered on Form 8810. These amounts will be used when Form 8810
is completed to figure the loss allowed for the current year.

Worksheet 2 for Form 8810, Lines 1a, 1b, and 1c

Current year Prior year Overall gain or loss
Name of activity (a) Income (b) Deductions and (c) Unallowed
(d) Gain (e) Loss
(line 1a) losses (line 1b) losses (line 1c)

Totals. Enter on lines 1a, 1b, and 1c of

Form 8810 ©

Page 7
Part I—1995 Passive income. Net active income is the If the corporation disposed of its entire
corporation’s taxable income for the tax interest in a passive activity to an
Activity Loss year, determined without regard to the unrelated party in a fully taxable
Lines 1d and 3.—If line 1d or 3 shows following items: transaction, figure net active income by
net income or zero, all the deductions ● Net passive income or loss. taking into account an overall loss from
and losses are allowed including any that activity only to the extent it exceeds
● Portfolio income. See Passive Activity
prior year unallowed losses entered on overall gain from all other passive
Income on page 4.
line 1c. Enter the deductions on the activities (the gain, if any, shown on line
appropriate lines of Form 1120 and any ● Deductions attributable to portfolio 1d of Form 8810). If there is an overall
losses from Form 4797 or Schedule D income described in Temporary loss from all other passive activities (line
(Form 1120) on that form or schedule, if Regulations section 1.469-2T(d)(2)(i), (ii), 1d of Form 8810 is a loss), figure net
applicable, including any prior year and (iv). active income by taking into account all
unallowed losses that should go on ● Interest expense allocated under of the overall loss from that activity.
those forms. If the prior year unallowed Temporary Regulations section 1.163-8T Line 4.—Use Worksheet 3 below and
losses include deductions that would to a portfolio expenditure (within the Worksheet 4 on page 9 to figure the
have been reported on page 1 of Form meaning of Temporary Regulations unallowed deductions and losses to be
1120 instead of on Form 4797 or section 1.163-8T(b)(6)). carried forward and the allowed
Schedule D, include the prior year ● Gain on the disposition of substantially deductions and losses to report on the
unallowed losses on the appropriate line appreciated property formerly held for forms and schedules for 1995.
along with any current year deduction or investment. See Regulations section Worksheet 2, columns (d) and (e), will
loss from that line. 1.469-2(c)(2)(iii)(F). show whether an activity had an overall
Example. The corporation had $1,000 of ● Gross income from certain oil or gas gain or loss. If an activity has an overall
deductions for current year repairs and properties treated under Regulations gain in column (d) of Worksheet 2, report
maintenance and $500 of deductions for section 1.469-2(c)(6) as not from a all of the deductions and losses listed in
prior year unallowed repairs and passive activity. Worksheet 1 and any prior year
maintenance. Enter $1,500 as the ● Gross income and deductions from unallowed losses in Worksheet 2 for
deduction for repairs and maintenance any trade or business activity of trading those activities on the appropriate lines
allowed from passive activities on the certain personal property described in of Form 1120 and on Schedule D or
proper line. Temporary Regulations section Form 4797, if applicable.
Line 2—Closely held corporations.— 1.469-1T(e)(6), but only if the corporation Use Worksheets 3 and 4 for activities
Closely held corporations can offset the did not materially participate in the in Worksheet 2 that show an overall loss
loss, if any, on line 1d with net active activity for the tax year. in column (e).

Worksheet 3
If the corporation has activities in Worksheet 2 with an overall loss in column (e), use Worksheet 3 to figure the unallowed
deductions and losses for each activity.
If any of the activities in Worksheet 2 had an overall gain in column (d), all of the deductions and losses (including prior year
unallowed losses) for that activity are allowed in full. Enter the deductions on the appropriate line of Form 1120 and enter any
losses on Form 4797 or Schedule D, if applicable.
Note: If there were prior year unallowed losses from 1994, include the prior year unallowed losses on the appropriate line along
with any current year deduction or loss for that line. See the example in the instructions for lines 1d and 3 above. Prior year
unallowed losses from Form 4797 and Schedule D (Form 1120) should have been kept separate last year and should be
identified as “prior year unallowed passive activity losses” on Form 4797 and Schedule D (Form 1120).
Column (a).—Enter the loss from column (e) of Worksheet 2.
Column (b).—Divide each of the individual losses in column (a) by the total of all the losses in column (a) and enter the ratio for
each of the activities in column (b). The total of all the ratios should equal 1.00.
Column (c).—Multiply the unallowed loss from line 3 of Form 8810 by each of the ratios in column (b) and enter the results in
column (c).
Use Worksheet 4 to figure the allowed deductions and losses.

Worksheet 3—Allocation of Unallowed Deductions and Losses

Name of activity (a) Loss from (b) Ratio (c) Unallowed deductions
Worksheet 2 col. (e) and losses

Totals © 1.00

Page 8
Worksheet 4 Line 3, column (a).—Enter any Form total Form 1120 deductions by each of
4797 losses from line 9 of Worksheet 1 the ratios in column (b). Enter the
Use Worksheet 4 to allocate the plus any prior year unallowed Form 4797 portion of the unallowed loss in
unallowed deductions and losses for losses for that activity. Worksheet 3, column (c) that is
each activity among Form 1120 attributable to a Schedule D or Form
deductions and any losses to be Line 1, column (b).—Divide each of the
individual Form 1120 deductions shown 4797 loss in column (c) of this
reported on Form 4797 and Schedule D. worksheet.
in column (a) by the total of all of the
If the unallowed loss is reported on Form 1120 deductions in column (a) and Column (d).—Subtract column (c) from
one form or schedule, skip the following enter the ratio for each of the column (a) and enter the results in this
example and complete Worksheet 4. deductions in column (b). The total of column. Enter the deductions allowed
If the unallowed loss is from losses the ratios must equal 1.00. for Form 1120 on the proper lines of
reported on more than one form or Column (c).—Allocate the portion of the Form 1120 and enter the allowed
schedule, allocate the unallowed loss loss in Worksheet 3, column (c), among Schedule D and Form 4797 losses on
from column (c) of Worksheet 3 among the Form 1120 deductions by multiplying that form or schedule.
the net losses as follows: the unallowed loss attributable to the
Example. The corporation has one
passive activity. The activity has an
unallowed loss of $18,000 in column (c)
of Worksheet 3 and the following net
losses and net gain: Worksheet 4—Allowed Deductions and Losses
Form 1120
Gross receipts $100,000 Name of activity: (b) Ratio (c) Unallowed (d) Allowed
(a) Deductions deductions and deductions and
Deductions 120,000 and losses losses losses
Net loss ($20,000)
1. Form 1120 deductions:
Schedule D Form 4797
Gain $1,000 Gain $5,000 a. Cost of goods sold
Loss (2,000) Loss (2,000) b. Compensation of officers
Net loss ($1,000) Net gain $3,000
c. Salaries and wages
Add the net losses of $20,000 and
d. Repairs and maintenance
$1,000, for a total of $21,000. Divide the
net loss reported on each form by the e. Bad debts
total of the net losses, and multiply the f. Rents
result by the unallowed loss of $18,000, g. Taxes and licenses
as shown below: h. Interest
Form 1120: 3 $18,000 = $17,143 i. Depreciation
j. Depletion
Schedule D: 3 $18,000 = $857 k. Advertising
l. Other deductions
On Form 4797, report the $2,000 loss
Total Form 1120 deductions © 1.00
and the $5,000 gain. On Worksheet 4,
enter the $17,143 of unallowed 2. Schedule D losses
deductions allocated to Form 1120 in 3. Form 4797 losses
column (c) on the line for total Form Name of activity: (b) Ratio (c) Unallowed (d) Allowed
(a) Deductions deductions and deductions and
1120 deductions. Enter the $857 of and losses losses losses
unallowed Schedule D losses in column
(c) of line 2. Worksheet 4 is used to 1. Form 1120 deductions:
allocate the $17,143 to the Form 1120 a. Cost of goods sold
deductions and show the allowed and b. Compensation of officers
unallowed Schedule D loss.
c. Salaries and wages
Line 1, column (a).—Enter the current
year deductions for each Form 1120 d. Repairs and maintenance
expense (lines 6a through 6l of e. Bad debts
Worksheet 1) plus any prior year f. Rents
unallowed Form 1120 deduction for that g. Taxes and licenses
activity. For example, if line 6i of
Worksheet 1 shows current year h. Interest
depreciation for the activity of $2,200, i. Depreciation
and the activity had prior year unallowed j. Depletion
depreciation of $1,200, enter $3,400 on k. Advertising
line 1i, column (a), of Worksheet 4.
l. Other deductions
Line 2, column (a).—Enter any © 1.00
Total Form 1120 deductions
Schedule D losses from line 8 of
Worksheet 1 plus any prior year 2. Schedule D losses
unallowed Schedule D losses for that 3. Form 4797 losses

Page 9
Publicly Traded Partnerships through each PTP that the corporation ● Nonconventional source fuel credit.
owned an interest in during the tax year:
1. Combine any current year income, Worksheet 5
A publicly traded partnership (PTP) is a gains, deductions, and losses, and prior
partnership whose interests are traded Use Worksheet 5 on page 11 to figure
year unallowed losses to see if there is
on an established securities market or the amounts to enter on line 5a and 5b
an overall gain or loss. Include only the
are readily tradable on a secondary of Form 8810.
same types of income and losses that
market (or its substantial equivalent). would be included in figuring net income Column (a).—Convert any current year
An established securities market or loss from a non-PTP passive activity qualified expenditures into credits before
includes any national securities (see Passive Activity Income and beginning Worksheet 5. Use the
exchange and any local exchange Deductions on page 4). following forms:
registered under the Securities 2. If there is an overall gain, the net Form 3800, General Business Credit.—
Exchange Act of 1934 or exempted from gain portion (total income in excess of Enter the credits from line 2 of Form
registration because of the limited total deductions and losses) is 3800 in column (a) of Worksheet 5. If the
volume of transactions. It also includes nonpassive income. Report the income, credits are from more than one activity
any over-the-counter market. deductions, and losses on the forms or more than one type of credit,
A secondary market generally exists and schedules normally used. separate the credits by activity or type
where a person stands ready to make a before making entries in the worksheet.
3. If there is an overall loss (other than
market in the interest. An interest is For example, the corporation has a jobs
in a year in which the corporation
treated as readily tradable if the interest credit from one passive activity and a
disposed of its entire interest in the
is regularly quoted by persons, such as research credit from a different passive
PTP), the deductions and losses are
brokers or dealers, who are making a activity. Enter the jobs credit and the
allowed to the extent of the income, and
market in the interest. research credit on separate lines in
the excess deductions and losses are
column (a) of Worksheet 5.
The substantial equivalent of a carried forward for use in a future year
secondary market exists where there is when there is income to offset them. Form 5735, Possessions Corporation
no identifiable market maker, but the Report the income and the loss allowed Tax Credit Allowed Under Section
holder of an interest has a readily to the extent of income on the form or 936.—Enter the portion of the credit
available, regular, and ongoing schedule normally used. attributable to passive activities from line
opportunity to sell or exchange an 17 or line 27 of Form 5735 in column (a)
interest through a public means of of Worksheet 5.
Part II—1995 Passive
obtaining or providing information of Form 8586, Low-Income Housing
offers to buy, sell, or exchange interests. Activity Credits Credit.—If the corporation is not
Similarly, the substantial equivalent of a Use Part II of Form 8810 to figure the required to file Form 3800, enter the
secondary market exists where the amount of credits allowed from passive portion of the credit attributable to
prospective buyers and sellers have the activities for the current year and the passive activities from line 6 of Form
opportunity to buy, sell, or exchange amount that is unallowed and carried 8586 in column (a) of Worksheet 5.
interests in a timeframe and with the forward. Form 8834, Qualified Electric Vehicle
regularity and continuity that the The following credits from passive Credit.—Enter the credits from line 10 of
existence of a market maker would activities are included on Form 8810: Form 8834 in column (a) of Worksheet 5.
provide. If the credits are from more than one
● Investment credit (including the
rehabilitation credit, energy credit, and activity, separate the credits by activity
Special Instructions for PTPs before making entries in the worksheet.
reforestation credit);
Section 469(k) provides that the passive Form 8844, Empowerment Zone
activity limitations must be applied ● Jobs credit;
Employment Credit.—Enter the credits
separately to items from each PTP. ● Credit for alcohol used as fuel; from line 5 in column (a) of Worksheet 5.
Losses from passive activities the ● Credit for increasing research If the credits are from more than one
corporation holds through a PTP activities; activity, separate the credits by activity
generally can be used only to offset ● Low-income housing credit; before making entries in the worksheet.
income or gain from passive activities of ● Enhanced oil recovery credit; Nonconventional source fuel credit.—
the same PTP. Any unallowed loss from Figure the credit from passive activities
● Disabled access credit;
a PTP passive activity is carried forward for fuel produced from a
and allowed in a tax year when the ● Renewable electricity production
nonconventional source and enter the
corporation has passive income from the credit;
credit in column (a) of Worksheet 5. See
same PTP or when the corporation ● Empowerment zone employment section 29 for more information on the
disposes of its entire interest in that PTP. credit; credit for fuel produced from a
Income from passive activities the ● Indian employment credit; nonconventional source.
corporation holds through a PTP cannot ● Credit for employer social security and Column (b).—In figuring this year’s
be used to offset losses from passive Medicare taxes paid on certain passive activity credit, the corporation
activities the corporation holds through employee tips; must take into account any credits from
another PTP or losses from any other ● Credit for contributions to selected passive activities disallowed for prior
passive activities. community development corporations; years and carried forward to this year.
Passive activity loss rules for partners ● Trans-Alaska pipeline liability fund Enter in column (b) of Worksheet 5 the
in PTPs.—Do not include any income, credit; prior year unallowed credits from column
gains, deductions, or losses from PTP (c) of Worksheet 6 in the 1994 Form
passive activities on Form 8810. Instead, ● Possessions corporation tax credit; 8810 instructions.
use the following rules to figure and ● Qualified electric vehicle credit; and
report income, gains, deductions, and
losses from passive activities held

Page 10
Worksheet 5—For Form 8810, Lines 5a and 5b

(b) Prior Year (c) Total Credits

(a) Current Year
Name of activity From Form Unallowed Credits (add columns (a)
Credits (line 5a)
(line 5b) and (b))

Totals. Enter on lines 5a and 5b of Form 8810 ©

Line 7.—If any of the following apply, necessary to refigure items based on M. Tax attributable to line L
enter zero on line 7 and do not complete taxable income, such as the N. Subtract line M from line G. If zero or
less, enter -0- here and on line P
Part I or Part II of the computation on contributions deduction, dividends-
O. Enter the corporation’s nonpassive
this page. received deduction, and the net credits without regard to the tax
● The corporation is a personal service operating loss deduction. liability limitations
corporation with a loss or zero on line Use the applicable tax rates in section P. Tax attributable to net active income.
1d of Form 8810. 11 when figuring the tax attributable Subtract line O from line N
Q. Tax attributable to net passive
● The corporation is a personal service amounts. Also, see how to figure tax in income and net active income. Add
corporation with net passive income on the instructions for the tax return filed. lines F and P. Enter the result here and
line 1d of Form 8810 and the on line 7 of Form 8810
corporation has an overall loss from the
Computation for Line 7
Line C.—Enter the net income, if any,
entire disposition of a passive activity Part I—Tax Attributable to Net Passive from line 1d of Form 8810. If the
that is equal to or greater than the net Income corporation has an overall loss from the
income on line 1d. A. Income tax before credits from Form entire disposition of a passive activity,
● The corporation is a closely held 1120 (Schedule J, line 3) the amount to enter on line C is the net
corporation with a loss or zero on line B. Taxable income from Form income from line 1d reduced by the
1d of Form 8810 and that amount is overall loss, but not below zero. If the
C. Net passive income. See
equal to or greater than the net active instructions for line C below result is zero, skip the rest of the Part I
income on line 2 of Form 8810. D. Subtract line C from line B. If computation.
● The corporation is a closely held zero or less, enter -0- here Line E.—Figure the tax on this amount
corporation with net income on line 3 of and on line E below
as if it were the corporation’s only
E. Tax attributable to line D. See
Form 8810, and the corporation has an instructions for line E below
taxable income.
overall loss from an entire disposition F. Tax attributable to net passive Line J.—If the corporation has net
that is equal to or greater than the net income. Subtract line E from line A. passive income, enter the amount from
income on line 3. Closely held corporations that do not line C on this line. If the corporation has
have net active income and personal
Part I is used by personal service service corporations enter the amount a net loss from line 1d of Form 8810,
corporations and closely held here and on line 7 of Form 8810 enter that amount on line J as a
corporations with net passive income. negative amount.
Part II is used by closely held Part II—Tax Attributable to Net Active Line 9.—If the corporation has one type
corporations that have net active Income of credit, the amount on line 9 is the
income. See the line 2 instructions on G. Enter amount from line E above if Part credit allowed for the year. See
I is completed. Otherwise, enter
page 8 for the definition of net active income tax before credits from Form Reporting Allowed Credits on Tax
income. If the corporation has both net 1120 (Schedule J, line 3) Return on page 12.
passive income and net active income, H. Taxable income from Form Use Worksheet 6 on page 12 to figure
complete Part I and Part II and enter the 1120 how much of the credit on line 9 is
amount from line Q on line 7 of Form I. Net active income
allowed for each activity. Keep a record
8810. J. Net passive income or loss.
See instructions for line J of the unallowed credit and the activity
Note: When using taxable income in the below to which it belongs to figure the credit
computation for line 7, it is not K. Add lines I and J. If less than allowed next year.
-0-, enter as a negative
L. Subtract line K from line H. If
zero or less, enter -0- here
and on line M below

Page 11
Worksheet 6
Use Worksheet 6 to allocate the allowed and unallowed credits for each activity.
Column (a).—Enter the total credits from column (c) of Worksheet 5.
Column (b).—Divide each of the credits in column (a) by the total of all credits in column (a). The total of the ratios should equal
Column (c).—Multiply line 8 of Form 8810 by the ratios in column (b) and enter the results in column (c). These are the
unallowed credits for 1995. Keep a record of these amounts so the credits can be carried to the next year.
Column (d).—Subtract column (c) from column (a). These are the allowed credits for 1995. The amounts in this column should
be reported on the forms normally used. See Reporting Allowed Credits on Tax Return below.

Worksheet 6—Allowed and Unallowed Credits

Form To Be
Name of activity (a) Credits (b) Ratio (c) Unallowed Credits (d) Allowed Credits
Reported on

Totals © 1.00

Reporting Allowed Credits applying the limitations and adjustments. Part III—Election To Increase
on Tax Return Report the credit on the line specified by
the instructions for the tax return being Basis of Credit Property
Form 3800.—Enter on line 4 of Form filed. Line 10.—Check the box on this line if
3800 the total passive activity general the corporation elects to increase the
business credit allowed from column (d) Credits From PTPs basis of credit property it used in a
of Worksheet 6. passive activity or former passive
A credit from a passive activity held
Form 5735.—Enter on line 17 or line 27 through a PTP is allowed to the extent activity by the unallowed credit that
of Form 5735 any allowed possessions of the tax attributable to net passive reduced the property’s basis. The
corporation tax credit. To the left of the income from that PTP. See page 10 for election is available for a fully taxable
entry write, “PAC.” the definition of a PTP. disposition of an entire interest in an
Form 8586.—If the corporation is not Do not enter credits from PTPs on activity for which a basis adjustment
required to file Form 3800, enter on line Form 8810 or the worksheets. Instead, was made as a result of placing in
7 of Form 8586 any allowed low-income use the following steps to figure the service property for which a credit was
housing credit. allowed and unallowed credits from taken. On such a disposition, the
Form 8834.—Enter on line 12 of Form passive activities held through PTPs: corporation may elect to increase the
8834 the passive activity qualified basis of the credit property immediately
1. Figure the tax attributable to net before the disposition (by an amount no
electric vehicle credit allowed from passive income for each PTP with
column (d) of Worksheet 6. greater than the amount of the original
current year passive activity credits or basis reduction) to the extent that the
Form 8844.—Enter on line 7 of Form prior year unallowed credits. credit has not previously been allowed
8844 the passive activity empowerment 2. Use the smaller of the tax because of the passive credit limitations.
zone employment credit allowed from attributable to net income from passive The amount of the unallowed credit that
column (d) of Worksheet 6. activities of the PTP or the credit may then be applied against tax is
Nonconventional source fuel credit.—If (including prior year unallowed credits) reduced by the amount of the basis
the corporation has an allowed passive from passive activities of the PTP as the adjustment.
activity credit for fuel produced from a amount allowed. Report the allowed No basis adjustment may be elected
nonconventional source, see section 29 credits on the form normally used and on a partial disposition of the
for limitations and adjustments to the keep a record of the unallowed credits corporation’s interest in a passive
credit. Attach a separate schedule to the to be carried to the next year. activity or if the disposition is not fully
tax return showing how the credit was taxable. The amount of any unallowed
figured. Combine any nonpassive credits credit, however, remains available to
for fuel from a nonconventional source offset the tax attributable to net passive
with the passive activity credit before and net active income.

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