US Internal Revenue Service: i1120 a--1995

8/14/2019 US Internal Revenue Service: i1120 a--1995

1/20

Cat. No. 11455T

ContentsChanges To Note 1

Voluntary Contributions To Reducethe Public Debt 1

General Instructions 1

Purpose of Form 1Who Must File 2

When To File 2

Where To File 2

Who Must Sign 3

Accounting Methods 3

Change in Accounting Period 3

Rounding Off to Whole Dollars 3

Recordkeeping 3

Depository Method of Tax Payment 3

Estimated Tax Payments 4

Interest and Penalties 4

Unresolved Tax Problems 4

Other Forms, Returns, and StatementsThat May Be Required 4

Consolidated Return 5

Amended Return 6

Statements 6

Attachments 6

Specific Instructions 6

Period Covered by Return 6

Name, Address, and EIN 6

Personal Service Corporation 6

Total Assets 6

Initial Return, Final Return,or Change of Address 6

Income 6

Deductions 7

Schedule A and Cost of Goods SoldWorksheet 12

Schedule C 13

Schedule J 14

Schedule K 17

Schedule L 18

Schedule M-1 18

Codes for Principal BusinessActivity 19

Index 20

Changes To Note Corporations that had total deposits ofwithheld income, social security, andMedicare taxes during calendar year 1993or 1994 in excess of $47 million arerequired to use the electronic fundstransfer (EFT) system for depository taxesdue in 1996. Corporations required to usethe EFT system in 1995 must continue touse the system in 1996. For details, seeDepository Method of Tax Payment onpage 3.

Final regulations have been issued onthe capitalization of interest expense paidor incurred during the production period ofcertain property. For details, seeRegulations sections 1.263A-8 through1.263A-15. These regulations, which

generally are effective for tax yearsbeginning after 1994, may require achange in accounting method. Any suchchange must be made under Rev. Proc.95-19, 1995-12 I.R.B. 6.

You can use your computer to get taxforms and publications. See GeneralInstructions.

Voluntary Contributions ToReduce the Public DebtA corporation may make a contribution to

reduce the public debt. To do so, enclosewith the tax return a check made payableto Bureau of the Public Debt. Voluntarycontributions to reduce the public debt aredeductible subject to the rules andlimitations for charitable contributions.

General InstructionsNote: In addition to the publications listedthroughout these instructions, corporationsmay find it helpful to get:Pub. 534,Depreciating Property Placed in ServiceBefore 1987;Pub. 535, BusinessExpenses;Pub. 542, Tax Information onCorporations; andPub. 946, How ToDepreciate Property.

You can get these publications and otherforms and publications referred to in theinstructions at most IRS offices. To orderpublications and forms, call our toll-freenumber 1-800-TAX-FORM(1-800-829-3676).

If you subscribe to an on-line service,ask if IRS information is available and, if so,how to access it. You can get informationthrough IRIS, the Internal RevenueInformation Services, on FedWorld, agovernment bulletin board. Tax forms,instructions, publications, and other IRSinformation are available through IRIS.

IRIS is accessible directly by calling703-321-8020. On the Internet, telnet tofedworld.gov or, for file transfer protocolservices, connect to ftp.fedworld.gov. Ifyou are using the World-Wide Web,connect to http://www.ustreas.gov.FedWorlds help desk offers technicalassistance on accessing IRIS (not tax help)during regular business hours at703-487-4608. The IRIS menus offerinformation on available file formats andsoftware needed to read and print files.You must print the forms to use them; theforms are not designed to be filled outon-screen.

Tax forms, instructions, and publicationsare also available on CD-ROM, includingprior-year forms starting with the 1991 tax

year. For ordering information and softwarerequirements, contact the GovernmentPrinting Offices Superintendent ofDocuments (202-512-1800) or FederalBulletin Board (202-512-1387).

Purpose of FormUse Form 1120, U.S. Corporation IncomeTax Return, and Form 1120-A, U.S.Corporation Short-Form Income TaxReturn, to report the income, gains, losses,deductions, credits, and to figure theincome tax liability of a corporation.

Instructions forForms 1120 and 1120-ASection references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act NoticeWe ask for the information on these forms to carry out the Internal Revenue laws of theUnited States. You are required to give us the information. We need it to ensure that youare complying with these laws and to allow us to figure and collect the right amount oftax.

The time needed to complete and file the following forms will vary depending onindividual circumstances. The estimated average times are:

Copying,assembling,and sendingthe form to

the IRSPreparingthe form

Learning aboutthe law or the

formRecordkeepingForm

7 hr., 47 min.71 hr., 59 min.41 hr., 58 min.71 hr., 59 min.1120

4 hr., 34 min.40 hr., 47 min.23 hr., 15 min.43 hr., 17 min.1120-A

32 min.5 hr., 39 min.3 hr., 31 min.6 hr., 56 min.Sch. D (1120)Sch. H (1120)

If you have comments concerning the accuracy of these time estimates or suggestionsfor making these forms simpler, we would be happy to hear from you. You can write tothe Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA95743-0001. DO NOT send these tax forms to this office. Instead, see Where To File onpage 2.

Department of the TreasuryInternal Revenue Service

32 min.8 hr., 29 min.6 hr., 6 min.15 hr., 19 min.Sch. PH (1120)

0 min.43 min.35 min.5 hr., 59 min.


2/20

Page 2

Who Must FileUnless exempt under section 501, alldomestic corporations (includingcorporations in bankruptcy) must filewhether or not they have taxable income.Domestic corporations must file Form1120, or, if they qualify, Form 1120-A,unless they are required to file a specialreturn (see Special Returns for CertainOrganizations below).

Note: If an organization resembles acorporation more than it resembles a

partnership or trust, it will be considered anassociation taxed as a corporation.

Limited liability companies.If an entitywas formed as a limited liability companyunder state law and is treated as apartnership for Federal income taxpurposes, it should not file Form 1120 or1120-A. Instead, it should file Form 1065,U.S. Partnership Return of Income. For thedefinition of a limited liability company, seethe Instructions for Form 1065.

Who May File Form 1120-A

A corporation may file Form 1120-A if itmeets all of the following requirements:

Its gross receipts (line 1a, page 1) are

under $500,000. Its total income (line 11, page 1) is under$500,000.

Its total assets (line 12, column (b), PartIII on page 2) are under $500,000.

It does not have any ownership in aforeign corporation.

It does not have foreign shareholderswho own, directly or indirectly, 50% ormore of its stock.

It is not a member of a controlled groupof corporations (sections 1561 and 1563).

It is not a personal holding company(sections 541 through 547).

It is not a consolidated corporate return

filer. It is not a corporation undergoing adissolution or liquidation.

It is not filing its final tax return.

Its only dividend income (none of whichrepresents debt-financed securities) is fromdomestic corporations, and thosedividends qualify for the 70% deduction.

It has no nonrefundable tax credits otherthan the general business credit and thecredit for prior year minimum tax.

It is not subject to environmental taxunder section 59A.

It has no liability for interest undersection 453(l)(3) or 453A(c) (relating to

certain installment sales) or installmentpayments of tax under section 1363(d).

It has no liability for interest due underthe look-back method of section 460(b)(2).

It is not required to file Form 8621,Return by a Shareholder of a PassiveForeign Investment Company or QualifiedElecting Fund.

It has no liability for tax under section7518 on a nonqualified withdrawal from acapital construction fund.

It is not making an election undersection 172(b)(3) to forego the carrybackperiod of an NOL.

It is not electing to pay tax on the gainfrom the sale of an intangible as describedin section 197(f)(9)(B)(ii).

It is not required to file one of thespecial tax returns listed below.

Special Returns for CertainOrganizations

Certain organizations, as shown below,

have to file special returns.If the organization is a File Form

Farmers cooperative(sec. 1381)

990-C

Exempt organization withunrelated trade or businessincome

990-T

Entity formed as a limitedliability company understate law and treated as apartnership for Federalincome tax purposes

1065

Religious or apostolicorganization exempt undersection 501(d)

1065

Entity that elects to betreated as real estatemortgage investmentconduit (REMIC) under sec.860D

1066

Settlement fund (sec. 468B) 1120-SF

Interest charge domesticinternational salescorporation (sec. 992)

1120-IC-DISC

Foreign corporation (otherthan life and property andcasualty insurancecompany filing Form 1120-Lor Form 1120-PC)

1120-F

Foreign sales corporation

(sec. 922)1120-FSC

Condominium managementassociation or residentialreal estate managementassociation that elects tobe treated as ahomeowners associationunder sec. 528

1120-H

Life insurance company(sec. 801)

1120-L

Fund set up to pay fornuclear decommissioningcosts (sec. 468A)

1120-ND

Property and casualtyinsurance company(sec. 831)

1120-PC

Political organization(sec. 527)

1120-POL

Real estate investment trust(sec. 856)

1120-REIT

Regulated investmentcompany (sec. 851)

1120-RIC

S corporation (sec. 1361) 1120S

When To FileIn general, a corporation must file itsincome tax return by the 15th day of the

3rd month after the end of the tax year. Anew corporation filing a short-period returnmust generally file by the 15th day of the3rd month after the short period ends. Acorporation that has dissolved mustgenerally file by the 15th day of the 3rdmonth after the date it dissolved.

If the due date falls on a Saturday,Sunday, or legal holiday, the corporationmay file on the next business day.

Extension.File Form 7004, Applicationfor Automatic Extension of Time To FileCorporation Income Tax Return, to request

a 6-month extension of time to file.

Where To FileUse the preaddressed envelope. If you donot use the envelope, file your return at theapplicable IRS address listed below.

If the corporationsprincipal business, office,

or agency is located in

Use the followingInternal RevenueService Center

address

New Jersey, New York(New York City andcounties of Nassau,Rockland, Suffolk, andWestchester)

Holtsville, NY00501-0012

New York (all othercounties), Connecticut,Maine, Massachusetts, NewHampshire, Rhode Island,Vermont

Andover, MA05501-0012

Florida, Georgia, SouthCarolina

Atlanta, GA39901-0012

Indiana, Kentucky,Michigan, Ohio, WestVirginia

Cincinnati, OH45999-0012

Kansas, New Mexico,Oklahoma, Texas

Austin, TX73301-0012

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,

Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska,Nevada, North Dakota,Oregon, South Dakota,Utah, Washington,Wyoming

Ogden, UT84201-0012

California (all othercounties), Hawaii

Fresno, CA93888-0012

Illinois, Iowa, Minnesota,

Missouri, Wisconsin

Kansas City, MO

64999-0012

Alabama, Arkansas,Louisiana, Mississippi,North Carolina, Tennessee

Memphis, TN37501-0012

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia

Philadelphia, PA19255-0012

Corporations with their principal place ofbusiness outside the United States orclaiming a possessions tax credit (section936) must file with the Internal RevenueService Center, Philadelphia, PA19255-0012.


3/20

Page 3

A group of corporations located inseveral service center regions will oftenkeep all the books and records at theprincipal office of the managingcorporation. In this case, the income taxreturns of the corporations may be filedwith the service center for the region inwhich the principal office is located.

Who Must SignThe return must be signed and dated bythe president, vice president, treasurer,assistant treasurer, chief accountingofficer, or any other corporate officer (suchas tax officer) authorized to sign.Receivers, trustees, or assignees must alsosign and date any return filed on behalf ofa corporation.

If a corporate officer completes Form1120 or Form 1120-A, the Paid Preparersspace should remain blank. Anyone whoprepares Form 1120 or Form 1120-A butdoes not charge the corporation shouldnot sign the return. Generally, anyone whois paid to prepare the return must sign itand fill in the Paid Preparers Use Onlyarea.

The paid preparer must complete therequired preparer information and

Sign the return, by hand, in the spaceprovided for the preparers signature(signature stamps and labels are notacceptable).

Give a copy of the return to thetaxpayer.

Accounting MethodsFigure taxable income using the method ofaccounting regularly used in keeping thecorporations books and records.Permissible methods include the cash,accrual, or any other method authorized bythe Internal Revenue Code. In all cases,the method used must clearly show

taxable income.Generally, a corporation (other than a

qualified personal service corporation)must use the accrual method ofaccounting if its average annual grossreceipts exceed $5 million. See section448(c). A corporation engaged in farmingoperations must also use the accrualmethod. For exceptions, see section 447.

Under the accrual method, an amount isincludible in income when all the eventshave occurred that fix the right to receivethe income and the amount can bedetermined with reasonable accuracy. SeeRegulations section 1.451-1(a) for details.

Generally, an accrual basis taxpayer can

deduct accrued expenses in the tax year inwhich (1) all events that determine theliability have occurred, (2) the amount ofthe liability can be figured with reasonableaccuracy, and (3) economic performancetakes place with respect to the expense.There are exceptions to the economicperformance rule for certain items,including recurring expenses. See section461(h) and the related regulations for therules for determining when economicperformance takes place.

Long-term contracts (except for certainreal property construction contracts) mustgenerally be accounted for using the

percentage of completion methoddescribed in section 460. See section 460for general rules on long-term contracts.

Generally, the corporation may changethe method of accounting used to reporttaxable income (for income as a whole orfor any material item) only by gettingconsent on Form 3115, Application forChange in Accounting Method. For moreinformation, get Pub. 538, AccountingPeriods and Methods.

Mark-to-market accounting method fordealers in securities.Dealers in

securities must use the mark-to-marketaccounting method described in section475 for tax years ending on or afterDecember 31, 1993. Under this method,any security that is inventory to the dealermust be included in inventory at its fairmarket value. Any security held by a dealerthat is not inventory and that is held at theclose of the tax year is treated as sold atits fair market value on the last businessday of the tax year. Any gain or loss mustbe taken into account in determining grossincome. The gain or loss taken intoaccount is generally treated as ordinarygain or loss.

Dealers required to change theiraccounting method to comply with the newlaw are considered as having initiated thechange with the consent of the IRS.Generally, the net amount of the section481(a) adjustment (reported on line 10,page 1) is taken into account ratably overa 5-year period, beginning with the first taxyear ending on or after December 31,1993. For details, including exceptions, seesection 475, the related temporaryregulations, and Rev. Rul. 94-7, 1994-1C.B. 151.

Change in AccountingPeriodGenerally, before changing an accounting

period, a corporation must get theCommissioners approval (Regulationssection 1.442-1) by filing Form 1128,Application To Adopt, Change, or Retain aTax Year. Also see Pub. 538.

Personal service corporations, as definedin Temporary Regulations section 1.441-4T(see the instructions for Item A on page 6),must use a calendar year unless:

The corporation can establish to thesatisfaction of the Commissioner that thereis a business purpose for having a differenttax year, or

The corporation elects under section 444to have a tax year other than a calendaryear.

Personal service corporations that wishto establish a business purpose for havinga different tax year should see Rev. Rul.87-57, 1987-2 C.B. 117. See Rev. Proc.87-32, 1987-2 C.B. 396, for procedures touse in adopting, retaining, or changing thecorporations tax year. Personal servicecorporations that wish to adopt or retain anoncalendar tax year must file Form 1128.

Personal service corporations that wishto elect under section 444 to have a taxyear other than a calendar year must fileForm 8716, Election To Have a Tax YearOther Than a Required Tax Year.

Generally, Form 8716 must be filed by theearlier of:

The 15th day of the 5th month followingthe month that includes the 1st day of thetax year for which the election will beeffective, or

The due date (not including extensions)of the income tax return resulting from thesection 444 election.

Electing corporations are subject tominimum distribution requirements undersection 280H(c) for each year the electionis in effect. If the requirements are not met,the deduction allowable for certainamounts paid to employee-owners islimited. Disallowed amounts are carriedover to the following tax year. GetSchedule H (Form 1120), Section 280HLimitations for a Personal ServiceCorporation (PSC), to figure the requiredminimum distributions and the maximumdeductible amount.

If a section 444 election is terminatedand the termination results in a short taxyear, type or print at the top of the firstpage of Form 1120 or 1120-A for the shorttax year SECTION 444 ELECTIONTERMINATED. See TemporaryRegulations section 1.444-1T(a)(5) for more

information.

Rounding Off to WholeDollarsThe corporation may show amounts on thereturn and accompanying schedules aswhole dollars. To do so, drop amounts lessthan 50 cents and increase amounts from50 cents through 99 cents to the nexthigher dollar.

RecordkeepingKeep the corporations records for as longas they may be needed for theadministration of any provision of the

Internal Revenue Code. Usually, recordsthat support an item of income, deduction,or credit on the return must be kept for 3years from the date the return is due orfiled, whichever is later. Keep records thatverify the corporations basis in propertyfor as long as they are needed to figurethe basis of the original or replacementproperty.

The corporation should keep copies ofall filed returns. They help in preparingfuture returns and amended returns.

Depository Method of TaxPayment

The corporation must pay the tax due infull no later than the 15th day of the 3rdmonth after the end of the tax year. If thecorporation does not use the electronicfunds transfer (EFT) system, depositcorporation income tax payments (andestimated tax payments) with Form 8109,Federal Tax Deposit Coupon. Do not senddeposits directly to an IRS office. Mail ordeliver the completed Form 8109 with thepayment to a qualified depository forFederal taxes or to the Federal Reservebank (FRB) servicing the corporationsgeographic area. Make checks or moneyorders payable to that depository or FRB.


4/20

Page 4

To help ensure proper crediting, writethe corporations EIN, the tax period towhich the deposit applies, and Form1120 on the check or money order. Besure to darken the 1120 box on thecoupon. Records of these deposits will besent to the IRS.

A penalty may be imposed if thedeposits are mailed or delivered to an IRSoffice rather than to an authorizeddepository or FRB.

For more information on deposits, seethe instructions in the coupon booklet

(Form 8109) and Pub. 583, Starting aBusiness and Keeping Records.

Caution: If the corporation owes tax whenit files Form 1120 or Form 1120-A, do notinclude the payment with the tax return.Instead, mail or deliver the payment withForm 8109 to a qualified depository orFRB, or use the EFT system, if applicable.

Generally, corporations that had totaldeposits of withheld income, socialsecurity, and Medicare taxes duringcalendar year 1993 or 1994 that exceeded$47 million are required to deposit alldepository taxes due in 1996 by electronicfunds transfer (EFT). TAXLINK, anelectronic remittance processing system,

must be used to make deposits by EFT.Corporations that are not required to makedeposits by EFT may voluntarily participatein TAXLINK. For more details on TAXLINK,call the toll-free TAXLINK HELPLINE at1-800-829-5469 (for TAXLINK informationonly), or write to:

Internal Revenue ServiceCash Management OfficeP.O. Box 47669, Stop 295Doraville, GA 30362

Estimated Tax PaymentsGenerally, a corporation must makeinstallment payments of estimated tax if itexpects its estimated tax (income tax

minus credits) to be $500 or more. For acalendar or fiscal year corporation, theinstallments are due by the 15th day of the4th, 6th, 9th, and 12th months of the taxyear. If any date falls on a Saturday,Sunday, or legal holiday, the installment isdue on the next regular business day. UseForm 1120-W, Estimated Tax forCorporations, as a worksheet to computeestimated tax. Use the deposit coupons(Forms 8109) to make deposits ofestimated tax. For more information onestimated tax payments, includingpenalties that apply if the corporation failsto make required payments, see theinstructions for line 33 on page 12.

If the corporation overpaid estimated

tax, it may be able to get a quick refundby filing Form 4466, CorporationApplication for Quick Refund ofOverpayment of Estimated Tax. Theoverpayment must be at least 10% of thecorporations expected income tax liabilityand at least $500. To apply for a quickrefund, file Form 4466 before the 16th dayof the 3rd month after the end of the taxyear, but before the corporation files itsincome tax return. Do not file Form 4466before the end of the corporations taxyear.

Interest and PenaltiesInterest.Interest is charged on taxespaid late even if an extension of time to fileis granted. Interest is also charged onpenalties imposed for failure to file,negligence, fraud, gross valuationoverstatements, and substantialunderstatements of tax from the due date(including extensions) to the date ofpayment. The interest charge is figured ata rate determined under section 6621.

Penalty for late filing of return.A

corporation that does not file its tax returnby the due date, including extensions, maybe penalized 5% of the unpaid tax foreach month or part of a month the returnis late, up to a maximum of 25% of theunpaid tax. The minimum penalty for areturn that is over 60 days late is thesmaller of the tax due or $100. The penaltywill not be imposed if the corporation canshow that the failure to file on time wasdue to reasonable cause. Corporations thatfile late must attach a statement explainingthe reasonable cause.

Penalty for late payment of tax.Acorporation that does not pay the tax whendue may have to pay a penalty of 12 of 1%of the unpaid tax for each month or part of

a month the tax is not paid, up to amaximum of 25% of the unpaid tax. Thepenalty will not be imposed if thecorporation can show that the failure topay on time was due to reasonable cause.

Other penalties.Other penalties can beimposed for negligence, substantialunderstatement of tax, and fraud. Seesections 6662 and 6663.

Unresolved Tax ProblemsThe IRS has a Problem ResolutionProgram for taxpayers who have beenunable to resolve their problems with theIRS. If the corporation has a tax problem ithas been unable to resolve through normal

channels, write to the corporations localIRS district director or call thecorporations local IRS office and ask forProblem Resolution Assistance.Hearing-impaired persons who haveaccess to TDD equipment may call1-800-829-4059 to ask for help. TheProblem Resolution office will ensure thatyour problem receives proper attention.Although the office cannot change the taxlaw or make technical decisions, it canhelp clear up problems that resulted fromprevious contacts.

Other Forms, Returns, andStatements That May Be

RequiredForms

The corporation may have to file:

Form W-2, Wage and Tax Statement, andForm W-3, Transmittal of Income and TaxStatements.

Form 720, Quarterly Federal Excise TaxReturn. Use Form 720 to report the luxurytax on passenger vehicles, environmentalexcise taxes, communications and airtransportation taxes, fuel taxes,manufacturers taxes, ship passenger tax,

and certain other excise taxes. Also, seeTrust fund recovery penalty on page 5.

Form 926, Return by a U.S. Transferor ofProperty to a Foreign Corporation, ForeignEstate or Trust, or Foreign Partnership.Use this form to report transfers ofproperty to a foreign corporation, foreignestate or trust, or foreign partnership, topay any excise tax due under section1491, and to report information requiredunder section 6038B. For details, see Form926.

Form 940 or Form 940-EZ, Employers

Annual Federal Unemployment (FUTA) TaxReturn. The corporation may be liable forFUTA tax and may have to file Form 940 or940-EZ if it paid wages of $1,500 or morein any calendar quarter during the calendaryear (or the preceding calendar year) orone or more employees worked for thecorporation for some part of a day in any20 different weeks during the calendar year(or the preceding calendar year).

Form 941, Employers Quarterly FederalTax Return. Employers must file this formquarterly to report income tax withheld andemployer and employee social security andMedicare taxes. Agricultural employersmust file Form 943, Employers Annual TaxReturn for Agricultural Employees, insteadof Form 941, to report income tax withheldand employer and employee social securityand Medicare taxes for farmworkers. Alsosee Trust fund recovery penalty onpage 5.

Form 945, Annual Return of WithheldFederal Income Tax. File Form 945 toreport income tax withholding fromnonpayroll distributions or payments.Nonpayroll payments include pensions,annuities, IRAs, military retirement,gambling winnings, Indian gaming profits,and backup withholding. Also see Trustfund recovery penalty on page 5.

Form 952, Consent To Extend Period ofLimitation on Assessment of Income

Taxes, is used to extend the period ofassessment of all income taxes of thereceiving corporation on the completeliquidation of a subsidiary under section332. File Form 952 if the liquidation will becompleted within the 3-year periodfollowing the end of the subsidiarys taxyear in which the first distribution wasmade.

Form 966, Corporate Dissolution orLiquidation.

Form 1042, Annual Withholding Tax Returnfor U.S. Source Income of ForeignPersons, and Form 1042-S, ForeignPersons U.S. Source Income Subject toWithholding. Use these forms to report and

send withheld tax on payments ordistributions made to nonresident alienindividuals, foreign partnerships, or foreigncorporations, to the extent payments ordistributions constitute gross income fromsources within the United States (seesections 861 through 865). For moreinformation, see sections 1441 and 1442,and Pub. 515, Withholding of Tax onNonresident Aliens and ForeignCorporations.

Form 1096, Annual Summary andTransmittal of U.S. Information Returns.


5/20

Page 5

Form 1098, Mortgage Interest Statement.This form is used to report the receipt fromany individual of $600 or more of mortgageinterest and points in the course of thecorporations trade or business for anycalendar year.

Forms 1099-A, B, C, DIV, INT, MISC,OID, PATR, R, and S. Use theseinformation returns to reportabandonments; acquisitions throughforeclosure; proceeds from broker andbarter exchange transactions; dischargesof indebtedness; certain dividends and

distributions; interest payments; paymentsfor certain fishing boat crew members;medical and dental health care payments;direct sales of consumer goods for resale;miscellaneous income payments andnonemployee compensation; original issuediscount; patronage dividends;distributions from profit-sharing p lans,retirement plans, individual retirementarrangements, insurance contracts, etc.;and proceeds from real estatetransactions. Also use these returns toreport amounts received as a nominee foranother person.

For more information, see theInstructions for Forms 1099, 1098, 5498,and W-2G.

Note: Every corporation must file Form1099-MISC if, in the course of its trade orbusiness, it makes payments of rents,commissions, or other fixed ordeterminable income (see section 6041)totaling $600 or more to any one personduring the calendar year.

Form 2553, Election by a Small BusinessCorporation. Corporations use this form toelect to be an S corporation.

Form 5452, Corporate Report ofNondividend Distributions.

Form 5498, Individual RetirementArrangement Information. Use this form toreport contributions (including rollovercontributions) to an individual retirement

arrangement (IRA) and the value of an IRAor simplified employee pension (SEP)account.

Form 5713, International Boycott Report,for persons having operations in or relatedto boycotting countries. Also, personswho participate in or cooperate with aninternational boycott may have to completeSchedule A or Schedule B and Schedule Cof Form 5713 to compute their loss of thefollowing items: the foreign tax credit, thedeferral of earnings of a controlled foreigncorporation, IC-DISC benefits, and FSCbenefits.

Form 8264, Application for Registration ofa Tax Shelter. Tax shelter organizers use

Form 8264 to register tax shelters with theIRS to get a tax shelter registrationnumber.

Form 8271, Investor Reporting of TaxShelter Registration Number. Taxpayerswho have acquired an interest in a taxshelter which is required to be registereduse this form to report the tax sheltersregistration number. Form 8271 must beattached to any tax return (including anapplication for tentative refund (Form 1139)and an amended return (Form 1120X)) onwhich a deduction, credit, loss, or othertax benefit attributable to a tax shelter is

taken or any income attributable to a taxshelter is reported.

Form 8275, Disclosure Statement.Taxpayers and income tax return preparersfile Form 8275 to disclose items orpositions (except those contrary to aregulationsee Form 8275-R below) thatare not otherwise adequately disclosed ona tax return. The disclosure is made toavoid parts of the accuracy-related penaltyimposed for disregard of rules orsubstantial understatement of tax. Form8275 is also used for disclosures relating

to preparer penalties for understatementsdue to unrealistic positions or disregard ofrules.

Form 8275-R, Regulation DisclosureStatement, is used to disclose any item ona tax return for which a position has beentaken that is contrary to Treasuryregulations.

Form 8281, Information Return for PubliclyOffered Original Issue DiscountInstruments. Issuers of public offerings ofdebt instruments generally must file thisform within 30 days of the issuance of thedebt instrument.

Form 8300, Report of Cash PaymentsOver $10,000 Received in a Trade or

Business. File this form to report thereceipt of more than $10,000 in cash orforeign currency in one transaction or in aseries of related transactions.

Cashiers checks, bank drafts, andmoney orders with face amounts of$10,000 or less are considered cash undercertain circumstances. For moreinformation, see Form 8300 andRegulations section 1.6050I-1(c).

Form 8594, Asset Acquisition Statementunder Section 1060, must be filed by boththe purchaser and seller of a group ofassets constituting a trade or business ifsection 197 intangibles attach to suchassets and if the purchasers basis in theassets is determined only by the amountpaid for the assets.

Form 8621, Return by a Shareholder of aPassive Foreign Investment Company orQualified Electing Fund. A corporation thatwas a shareholder in a passive foreigninvestment company (as defined in section1296) at any time during the tax year mustcomplete and attach this form to its return.

Form 8697, Interest Computation Underthe Look-Back Method for CompletedLong-Term Contracts. Use this form tofigure the interest due or to be refundedunder the look-back method of section460(b)(2) on certain long-term contractsaccounted for under either the percentageof completion-capitalized cost method or

the percentage of completion method.Form 8810, Corporate Passive ActivityLoss and Credit Limitations. Closely heldcorporations and personal servicecorporations that are subject to thepassive activity limitations of section 469use this form to compute their allowablepassive activity loss and credit.

Form 8817, Allocation of Patronage andNonpatronage Income and Deductions.Taxable cooperatives with gross receipts of$10 million or more that have bothpatronage and nonpatronage source

income and deductions must complete andattach this form to the return.

Form 8842, Election To Use DifferentAnnualization Periods for CorporateEstimated Tax. Corporations use Form8842 for each year they want to elect oneof the annualization periods in section6655(e)(2)(C) for figuring estimated taxpayments under the annualized incomeinstallment method.

Form 8849, Claim for Refund of ExciseTaxes. Use this form in the first threequarters of the tax year to claim a refund

of excise taxes paid on Form 720, Form730, or Form 2290. See the instructions toForm 8849 and Pub. 378, Fuel Tax Creditsand Refunds, for more information.

Trust fund recovery penalty.Thispenalty may apply if certain excise,income, social security, and Medicaretaxes that must be collected or withheldare not collected or withheld, or thesetaxes are not paid to the IRS. These taxesare generally reported on Forms 720, 941,943, or 945. The trust fund recoverypenalty may be imposed on all personswho are determined by the IRS to havebeen responsible for collecting, accountingfor, and paying over these taxes, and whoacted willfully in not doing so. The penaltyis equal to the unpaid trust fund tax. Seethe instructions for Form 720, Pub. 15(Circular E), Employers Tax Guide, or Pub.51 (Circular A), Agricultural Employers TaxGuide, for details, including the definitionof responsible persons.

Consolidated Return

The parent corporation of an affiliatedgroup of corporations must attach Form851, Affiliations Schedule, to theconsolidated return. For the first year aconsolidated return is filed, each subsidiarymust attach Form 1122, Authorization andConsent of Subsidiary Corporation to beIncluded in a Consolidated Income Tax

Return.File supporting statements for each

corporation included in the consolidatedreturn. Do not use Form 1120 as asupporting statement. On the supportingstatement, use columns to show thefollowing, both before and afteradjustments:

Items of gross income and deductions.

A computation of taxable income.

Balance sheets as of the beginning andend of the tax year.

A reconciliation of income per bookswith income per return.

A reconciliation of retained earnings.

Enter the totals for the consolidatedgroup on Form 1120. Attach consolidatedbalance sheets and a reconciliation ofconsolidated retained earnings. For moreinformation on consolidated returns, seethe regulations under section 1502.

Farm ReturnDo not file Schedule F (Form 1040),

Profit or Loss From Farming. Instead, enterincome on lines 1a through 10, page 1,Form 1120 (Form 1120-A) and read therelated instructions. Forms 1120 and1120-A have entry lines for many of the


6/20

Page 6

expenses deducted by farmingcorporations. Expenses not listed on theform should be entered on the line for"Other deductions." Attach a schedule,listing by type and amount, all deductionsshown on this line. Also, see theinstructions for lines 12 through 26, Form1120 (lines 12 through 22, Form 1120-A).

Amended Return

Use Form 1120X, Amended U.S.Corporation Income Tax Return, to correctany error in a previously filed Form 1120 or

Form 1120-A.

Statements

Stock ownership in foreigncorporations.Attach the statementrequired by section 551(c) if (a) thecorporation owned 5% or more in value ofthe outstanding stock of a foreign personalholding company and (b) the corporationwas required to include in its gross incomeany undistributed foreign personal holdingcompany income from a foreign personalholding company.

A corporation may have to file Form5471, Information Return of U.S. PersonsWith Respect to Certain Foreign

Corporations, if any of the followingapplies:

1. It controls a foreign corporation.

2. It acquires, disposes of, or owns 5%or more in value of the outstanding stockof a foreign corporation.

3. It owns stock in a foreign corporationthat is a controlled foreign corporation foran uninterrupted period of 30 days or moreduring the tax year of the foreigncorporation that ends with or within its taxyear, and it owned that stock on the lastday of the foreign corporations tax year.

Foreign ownership in a domesticcorporation.A domestic corporation thatis 25% or more foreign-owned may have

to file Form 5472, Information Return of a25% Foreign-Owned U.S. Corporation or aForeign Corporation Engaged in a U.S.Trade or Business. See the instructions onpage 18 for more information.

Transfers to a corporation controlled bythe transferor.If a person receives stockof a corporation in exchange for property,and no gain or loss is recognized undersection 351, the person (transferor) and thetransferee must each attach to their taxreturns the information required byRegulations section 1.351-3.

Dual consolidated losses.If a domesticcorporation incurs a dual consolidated loss(as defined in Regulations section1.1503-2(c)(5)), the corporation (orconsolidated group) may need to attach anelective relief agreement and/or an annualcertification as provided in Regulationssection 1503-2(g)(2).

Attachments

Attach Form 4136, Credit for Federal TaxPaid on Fuels, after page 4, Form 1120, orpage 2, Form 1120-A. Attach schedules inalphabetical order and other forms innumerical order after Form 4136.

Complete every applicable entry spaceon Form 1120 or Form 1120-A. Do not

write See attached instead of completingthe entry spaces. If you need more spaceon the forms or schedules, attach separatesheets, using the same size and format asthe printed forms. Show the totals on theprinted forms. Attach these separatesheets after all the schedules and forms.Be sure to put the corporations name andEIN on each sheet.

Specific InstructionsPeriod Covered

File the 1995 return for calendar year 1995and fiscal years that begin in 1995 and endin 1996. For a fiscal year, fill in the tax yearspace at the top of the form.

Note: The 1995 Form 1120 may also beused if(1)the corporation has a tax year ofless than 12 months that begins and endsin 1996 and (2)the 1996 Form 1120 is notavailable at the time the corporation isrequired to file its return. However, thecorporation must show its 1996 tax year onthe 1995 Form 1120 and incorporate anytax law changes that are effective for taxyears beginning after December 31, 1995.

Name, Address, and Employer

Identification Number (EIN)Use the label on the package that wasmailed to the corporation. Cross out anyerrors and print the correct information onthe label. If the corporation doesnt have alabel, print or type the corporations truename (as set forth in the charter or otherlegal document creating it), address, andEIN on the appropriate lines.

Address.Include the suite, room, orother unit number after the street address.If a preaddressed label is used, includethis information on the label.

If the Post Office does not deliver mail tothe street address and the corporation hasa P.O. box, show the box number instead

of the street address.Note: If a change in address occurs afterthe return is filed, useForm 8822, Changeof Address, to notify the IRS of the newaddress.

Employer identification number (EIN).Show the correct EIN in item B on page 1of Form 1120 or Form 1120-A. If thecorporation does not have an EIN, itshould apply for one on Form SS-4,Application for Employer IdentificationNumber. Form SS-4 can be obtained atmost IRS or Social Security Administration(SSA) offices. If the corporation has notreceived its EIN by the time the return isdue, write Applied for in the space for

the EIN. See Pub. 583 for details.

Item APersonal ServiceCorporation

The term personal service corporationmeans a corporation whose principalactivity during the testing period for the taxyear is the performance of personalservices that are substantially performedby employee-owners who own more than10% of the fair market value of thecorporations outstanding stock as of thelast day of the testing period for the taxyear.

The testing period for a tax year is thetax year preceding the tax year. Thetesting period for a new corporation in itsfirst tax year is the period beginning on thefirst day of its first tax year and ending onthe earlier of the last day of its first taxyear or the last day of the calendar year inwhich the first tax year began.

Activities that are treated as theperformance of personal services are thosethat involve the performance of services inthe fields of health, law, engineering,architecture, accounting, actuarial science,

performing arts, or consulting (as suchfields are defined in Temporary Regulationssection 1.448-1T(e)).

Personal services are substantiallyperformed by employee-owners if morethan 20% of the corporationscompensation cost for the testing periodattributable to the performance of personalservices is attributable to personal servicesperformed by employee-owners.

A person is considered to be anemployee-owner if the person is anemployee of the corporation on any day ofthe testing period and the person ownsany outstanding stock of the corporationon any day of the testing period. Stockownership is determined under theattribution rules of section 318 (except thatany is substituted for 50% in section318(a)(2)(C)).

For details, see Temporary Regulationssection 1.441-4T.

Item DTotal Assets

Enter the corporations total assets (asdetermined by the accounting methodregularly used in keeping the corporationsbooks and records) at the end of the taxyear. If there are no assets at the end ofthe tax year, enter the total assets as ofthe beginning of the tax year.

Item EInitial Return, Final

Return, or Change of AddressIf this is the corporations first return,check the Initial return box. If thecorporation ceases to exist, file Form 1120and check the Final return box. Do notfile Form 1120-A.

If the corporation has changed itsaddress since it last filed a return, checkthe box for Change of address.

IncomeNote: Generally, income from all sources,whether U.S. or foreign, must be included.

Line 1

Gross Receipts

Enter gross receipts or sales from allbusiness operations except those thatmust be reported on lines 4 through 10.For reporting advance payments, seeRegulations section 1.451-5. To reportincome from long-term contracts, seesection 460.

Installment sales.Generally, theinstallment method cannot be used fordealer dispositions of property. A dealerdispositon means any disposition ofpersonal property by a person who


7/20

Page 7

regularly sells or otherwise disposes ofproperty of the same type on theinstallment plan. The disposition ofproperty used or produced in the farmingbusiness is not included as a dealerdisposition. See section 453(l) for detailsand exceptions.

Enter on line 1 (and carry to line 3), thegross profit on collections from installmentsales for any of the following:

Dealer dispositions of property beforeMarch 1, 1986.

Dispositions of property used orproduced in the trade or business offarming.

Certain dispositions of timeshares andresidential lots reported under theinstallment method.

Attach a schedule showing the followinginformation for the current and the 3preceding years: (a) gross sales, (b) costof goods sold, (c) gross profits, (d)percentage of gross profits to gross sales,(e) amount collected, and (f) gross profiton the amount collected.

For sales of timeshares and residentiallots reported under the installment method,the corporations income tax is increasedby the interest payable under section453(l)(3). To report this addition to the tax,see the instructions for line 10, Schedule J,Form 1120.

Accrual method taxpayers need notaccrue certain amounts to be receivedfrom the performance of services that, onthe basis of their experience, will not becollected (section 448(d)(5)). This provisiondoes not apply to any amount if interest isrequired to be paid on the amount or ifthere is any penalty for failure to timely paythe amount. Corporations that fall underthis provision should attach a scheduleshowing total gross receipts, the amountnot accrued as a result of the applicationof section 448(d)(5), and the net amount

accrued. Enter the net amount on line 1a.For more information and guidelines onthis non-accrual experience method, seeTemporary Regulations section 1.448-2T.

Line 2

Cost of Goods Sold

Enter the cost of goods sold on line 2,page 1. Before making this entry, a Form1120 filer must complete Schedule A onpage 2 of Form 1120. Form 1120-A filersmay use the worksheet on page 12 tofigure the amount to enter on line 2. BothForm 1120 and Form 1120-A filers shouldsee the instructions for Schedule A and theworksheet.

Line 4

Dividends

Form 1120 filers.See the instructions forSchedule C. Then, complete Schedule Cand enter on line 4 the amount fromSchedule C, line 19.

Form 1120-A filers.Enter the totaldividends received (that are not fromdebt-financed stock) from domesticcorporations that qualify for the 70%dividends-received deduction.

Line 5

Interest

Enter taxable interest on U.S. obligationsand on loans, notes, mortgages, bonds,bank deposits, corporate bonds, taxrefunds, etc.

Do not offset interest expense againstinterest income.

Special rules apply to interest incomefrom certain below-market-rate loans. Seesection 7872 for more information.

Line 6

Gross Rents

Enter the gross amount received for therent of property. Deduct expenses such asrepairs, interest, taxes, and depreciation onthe proper lines for deductions. A rentalactivity held by a closely held corporationor a personal service corporation may besubject to the passive activity loss rules.See Form 8810 and its instructions.

Line 8

Capital Gain Net Income

Every sale or exchange of a capital asset

must be reported in detail on Schedule D(Form 1120), Capital Gains and Losses,even though no gain or loss is indicated.

Line 9

Net Gain or (Loss)

Enter the net gain or (loss) from line 20,Part ll, Form 4797, Sales of BusinessProperty.

Line 10

Other Income

Enter any other taxable income notreported on lines 1 through 9. List the typeand amount of income on an attachedschedule. If the corporation has only oneitem of other income, describe it inparentheses on line 10. Examples of otherincome to report on line 10 are:

Any adjustment under section 481(a)required to be included in income duringthe current tax year due to a change in amethod of accounting.

Recoveries of bad debts deducted inprior years under the specific charge-offmethod.

The amount of credit for alcohol used asfuel (determined without regard to thelimitation based on tax) that was enteredon Form 6478, Credit for Alcohol Used asFuel.

Refunds of taxes deducted in prior yearsto the extent they reduced income subjectto tax in the year deducted (see section111). Do not offset current year taxesagainst tax refunds.

The amount of any deduction previouslytaken under section 179A that is subject torecapture. The corporation must recapturethe benefit of any allowable deduction forclean-fuel vehicle property (or clean-fuelvehicle refueling property), if, within 3 yearsof the date the property was placed in

service, the property ceases to qualify. SeeRegulations section 1.179A-1 for details.

Ordinary income from trade or businessactivities of a partnership (from ScheduleK-1 (Form 1065), line 1).

Deductions

Limitations on Deductions

Section 263A uniform capitalizationrules.These rules require corporations tocapitalize or include in inventory certain

costs incurred in connection with theproduction of real and tangible personalproperty held in inventory or held for salein the ordinary course of business.Tangible personal property produced by acorporation includes a film, soundrecording, videotape, book, or similarproperty. The rules also apply to personalproperty (tangible and intangible) acquiredfor resale. Corporations subject to the rulesare required to capitalize not only directcosts but an allocable portion of mostindirect costs (including taxes) that relateto the assets produced or acquired forresale. Interest expense paid or incurredduring the production period of certainproperty must be capitalized and is

governed by special rules. For moreinformation, see Regulations sections1.263A-8 through 1.263A-15. The uniformcapitalization rules also apply to theproduction of property constructed orimproved by a taxpayer for use in its tradeor business or in an activity engaged in forprofit.

Section 263A does not apply to personalproperty acquired for resale if thetaxpayers annual average gross receiptsfor the 3 prior tax years are $10 million orless. It does not apply to timber or to mostproperty produced under a long-termcontract. Special rules apply for farmers.The rules do not apply to property that isproduced for use by the corporation if

substantial construction occurred beforeMarch 1, 1986.

In the case of inventory, some of theindirect costs that must be capitalized areadministration expenses; taxes;depreciation; insurance; compensationpaid to officers attributable to services;rework labor; and contributions to pension,stock bonus, and certain profit-sharing,annuity, or deferred compensation plans.

The costs that must be capitalized undersection 263A are not deductible until theproperty to which the costs relate is sold,used, or otherwise disposed of by thecorporation.

Current deductions may still be claimed

for reasonable research and experimentalcosts under section 174, intangible drillingcosts for oil and gas and geothermalproperty, and mining and exploration anddevelopment costs. Regulations section1.263A-1(e)(3) specifies other indirect coststhat may be currently deducted and thosethat must be capitalized with respect toproduction or resale activities. For moreinformation, see Regulations sections1.263A-1 through 1.263A-3.

Transactions between relatedtaxpayers.Generally, an accrual basistaxpayer may only deduct business


8/20

Page 8

expenses and interest owed to a relatedparty in the year the payment is included inthe income of the related party. Seesections 163(e)(3), 163(j), and 267 forlimitations on deductions for unpaidinterest and expenses.

Section 291 limitations.Corporationsmay be required to adjust deductions fordepletion of iron ore and coal, intangibledrilling and exploration and developmentcosts, certain deductions for financialinstitutions, and the amortizable basis ofpollution control facilities. See section 291

to determine the amount of adjustment.Also see section 43.

Golden parachute payments.A portionof the payments made by a corporation tokey personnel that exceeds their usualcompensation may not be deductible. Thisoccurs when the corporation has anagreement (golden parachute) with thesekey employees to pay them theseexcessive amounts if control of thecorporation changes. See section 280G.

Business startup expenses.Businessstartup expenses must be capitalizedunless an election is made to amortizethem over a period of 60 months. Seesection 195.

Passive activity limitations.Limitationson passive activity losses and creditsunder section 469 apply to personalservice corporations as defined inTemporary Regulations section 1.441-4T(see Item APersonal ServiceCorporation on page 6) and closely heldcorporations.

For this purpose, a corporation is aclosely held corporation if at any timeduring the last half of the tax year morethan 50% in value of its outstanding stockis owned, directly or indirectly, by or fornot more than five individuals, and thecorporation is not a personal servicecorporation. Certain organizations aretreated as individuals for purposes of this

test. (See section 542(a)(2).) For rules ofdetermining stock ownership, see section544 (as modified by section 465(a)(3)).

Generally, there are two kinds of passiveactivities: trade or business activities inwhich the corporation did not materiallyparticipate (see Temporary Regulationssection 1.469-1T(g)(3)) for the tax year, andrental activities regardless of itsparticipation. For exceptions, see Form8810. An activity is a trade or businessactivity if the activity involves the conductof a trade or business (i.e., deductionsfrom the activity would be allowable undersection 162 if other limitations, such as thepassive loss rules, did not apply), or theactivity involves research and experimental

costs that are deductible under section174 (or would be deductible if thecorporation chose to deduct rather thancapitalize them), and the activity is not arental activity.

Corporations subject to the passiveactivity limitations must complete Form8810 to compute their allowable passiveactivity loss and credit. Before completingForm 8810, see Temporary Regulationssection 1.163-8T, which provides rules forallocating interest expense amongactivities. If a passive activity is alsosubject to the at-risk rules of section 465,

the at-risk rules apply before the passiveloss rules. For more information, seesection 469, the related regulations, andPub. 925, Passive Activity and At-RiskRules.

Reducing certain expenses for whichcredits are allowable.For each creditlisted below, the corporation must reducethe otherwise allowable deductions forexpenses used to figure the credit by theamount of the current year credit:

1. The credit for increasing researchactivities.

2. The enhanced oil recovery credit.

3. The disabled access credit.

4. The jobs credit.

5. The employer credit for social securityand Medicare taxes paid on tips.

6. The empowerment zone employmentcredit.

7. The Indian employment credit.

If the corporation has any of thesecredits, be sure to figure each current yearcredit before figuring the deduction forexpenses on which the credit is based.

Line 12

Compensation of OfficersEnter deductible off icers compensation online 12. Before entering an amount on line12, Form 1120 filers must completeSchedule E if their total receipts (line 1a,plus lines 4 through 10) are $500,000 ormore. Do not include compensationdeductible elsewhere on the return, suchas amounts included in cost of goods sold,elective contributions to a section 401(k)cash or deferred arrangement, or amountscontributed under a salary reduction SEPagreement.

Include only the deductible part ofofficers compensation on Schedule E.(See Disallowance of deduction for

employee compensation in excess of $1million below.) Complete Schedule E, line1, columns (a) through (f), for all officers.The corporation determines who is anofficer under the laws of the state whereincorporated.

If a consolidated return is filed, eachmember of an affiliated group must furnishthis information.

Disallowance of deduction for employeecompensation in excess of $1 million.Publicly held corporations may not deductcompensation to a covered employee tothe extent that the compensation exceeds$1 million. Generally, a covered employeeis:

The chief executive officer of thecorporation (or an individual acting in that

capacity) as of the end of the tax year, or

An employee whose total compensationmust be reported to shareholders underthe Securities Exchange Act of 1934because the employee is among the fourhighest compensated officers for that taxyear (other than the chief executive officer).

For this purpose, compensation does notinclude the following:

Income from certain employee trusts,annuity plans, or pensions;

Any benefit paid to an employee that isexcluded from the employees income.

The deduction limit does not apply to:

Commissions based on individualperformance;

Qualified performance-basedcompensation; and,

Income payable under a written, bindingcontract in effect on February 17, 1993.

The $1 million limit is reduced byamounts disallowed as excess parachutepayments under section 280G.

For details, see section 162(m) andNotice 94-68, 1994-1 C.B. 376.

Line 13

Salaries and Wages

Enter the amount of salaries and wagespaid for the tax year, less the amount ofany jobs credit from Form 5884,empowerment zone employment creditfrom Form 8844, and Indian employmentcredit from Form 8845. See theinstructions for these forms for moreinformation. Do not include salaries andwages deductible elsewhere on the return,such as amounts included in cost of goods

sold, elective contributions to a section401(k) cash or deferred arrangement, oramounts contributed under a salaryreduction SEP agreement.

Caution: If the corporation providedtaxable fringe benefits to its employees,such as personal use of a car, do notdeduct as wages the amount allocated fordepreciation and other expenses claimedon lines 20 and 26, Form 1120, or lines 20and 22, Form 1120-A.

Line 14

Repairs and Maintenance

Enter the cost of incidental repairs andmaintenance not claimed elsewhere on the

return, such as labor and supplies, that donot add to the value of the property orappreciably prolong its life. New buildings,machinery, or permanent improvementsthat increase the value of the property arenot deductible. They must be depreciatedor amortized.

Line 15

Bad Debts

Enter the total debts that becameworthless in whole or in part during the taxyear. A small bank or thrift institution usingthe reserve method should attach aschedule showing how it arrived at thecurrent years provision.

Caution: A cash basis taxpayer may notclaim a bad debt deduction unless theamount was previously included in income.

Line 16

Rents

If the corporation rented or leased avehicle, enter the total annual rent or leaseexpense paid or incurred during the year.Also complete Part V of Form 4562,Depreciation and Amortization. If thecorporation leased a vehicle for a term of30 days or more, the deduction for vehicle


9/20

Page 9

lease expense may have to be reduced byan amount called the inclusion amount.The corporation may have an inclusionamount if:

The lease term began:

And the vehiclesfair market value

on the first day ofthe lease exceeded:

After 12/31/94 $15,500

After 12/31/ 93 but before 1/1/95 $14,600

After 12/31/ 92 but before 1/1/94 $14,300

After 12/31/ 91 but before 1/1/93 $13,700

After 12/31/ 90 but before 1/1/92 $13,400After 12/31/ 86 but before 1/1/91 $12,800

If the lease term began after June 18,1984, but before January 1, 1987, seePub. 917, Business Use of a Car, to findout if the corporation has an inclusionamount. Also see Pub. 917 for instructionson figuring the inclusion amount.

Line 17

Taxes and Licenses

Enter taxes paid or accrued during the taxyear, but do not include the following:

Federal income taxes (except theenvironmental tax under section 59A).

Foreign or U.S. possession income taxesif a tax credit is claimed (however, see theInstructions for Form 5735 for special rulesfor possession income taxes).

Taxes not imposed on the corporation.

Taxes, including state or local salestaxes, that are paid or incurred inconnection with an acquisition ordisposition of property (these taxes mustbe treated as a part of the cost of theacquired property or, in the case of adisposition, as a reduction in the amountrealized on the disposition).

Taxes assessed against local benefitsthat increase the value of the propertyassessed (such as for paving, etc.).

Taxes deducted elsewhere on the return,such as those reflected in cost of goodssold.

See section 164(d) for apportionment oftaxes on real property between seller andpurchaser.

If the corporation is liable for theenvironmental tax under section 59A, getForm 4626, Alternative Minimum TaxCorporations, for computation of theenvironmental tax deduction.

Line 18

Interest

If the proceeds of a loan were used formore than one purpose (e.g., to purchasea portfolio investment and to acquire aninterest in a passive activity), an interestallocation must be made. See TemporaryRegulations section 1.163-8T for theinterest allocation rules.

Do not include interest on indebtednessincurred or continued to purchase or carryobligations if the interest is wholly exemptfrom income tax. For exceptions, seesection 265(b).

Mutual savings banks, building and loanassociations, and cooperative banks can

deduct the amounts paid or credited to theaccounts of depositors as dividends,interest, or earnings. See section 591.

Generally, a cash basis taxpayer cannotdeduct prepaid interest allocable to yearsfollowing the current tax year. For example,a cash basis calendar year taxpayer who in1995 prepaid interest allocable to anyperiod after 1995 can deduct only theamount allocable to 1995.

Generally, the interest and carryingcharges on straddles cannot be deductedand must be capitalized. See section

263(g).See section 163(e)(5) for special rules for

the disqualified portion of original issuediscount on a high yield discountobligation.

Certain interest paid or accrued by thecorporation (directly or indirectly) to arelated person may be limited if no tax isimposed on that interest. See section163(j) for more information.

Do not deduct interest on debt allocableto the production of qualified property.Interest that is allocable to propertyproduced by a corporation for its own useor for sale must be capitalized. Acorporation must also capitalize any

interest on debt allocable to an asset usedto produce the above property. Seesection 263A and Regulations section1.263A-8 through 1.263A-15 for definitionsand more information.

See section 7872 for special rules on thedeductibility of foregone interest on certainbelow-market-rate loans.

Line 19

Charitable Contributions

Enter contributions or gifts actually paidwithin the tax year to or for the use ofcharitable and governmental organizationsdescribed in section 170(c) and anyunused contributions carried over fromprior years.

The total amount claimed may not bemore than 10% of taxable income (line 30,Form 1120, or line 26, Form 1120-A)computed without regard to the following:

Any deduction for contributions,

The special deductions on line 29b,Form 1120 (line 25b, Form 1120-A),

The deduction allowed under section249,

Any net operating loss (NOL) carrybackto the tax year under section 172, and

Any capital loss carryback to the taxyear under section 1212(a)(1).

Charitable contributions over the 10%limitation may not be deducted for the taxyear but may be carried over to the next 5tax years.

Special rules apply if the corporation hasan NOL carryover to the tax year. Infiguring the charitable contributionsdeduction for the tax year, the 10% limit isapplied using the taxable income aftertaking into account any deduction for theNOL.

To figure the amount of any remainingNOL carryover to later years, taxableincome must be modified (see section

172(b)). To the extent that contributions areused to reduce taxable income for thispurpose and increase an NOL carryover, acontributions carryover is not allowed. Seesection 170(d)(2)(B).

Corporations on the accrual basis mayelect to deduct contributions paid by the15th day of the 3rd month after the end ofthe tax year if the contributions areauthorized by the board of directors duringthe tax year. Attach a declaration to thereturn, signed by an officer, stating that theresolution authorizing the contributions was

adopted by the board of directors duringthe tax year. Also attach a copy of theresolution.

Substantiation requirements.Generally,no deduction is allowed for anycontribution of $250 or more unless thecorporation gets a written acknowledgmentfrom the donee organization that showsthe amount of cash contributed, describesany property contributed, and gives anestimate of the value of any goods orservices provided in return for thecontribution. The acknowledgment must beobtained by the due date (includingextensions) of the corporations return, or,if earlier, the date the return is filed. Do notattach the acknowledgment to the tax

return, but keep it with the corporationsrecords. These rules apply in addition tothe filing requirements for Form 8283described below.

For more information on substantiationand recordkeeping requirements, see theregulations under section 170 and Pub.526, Charitable Contributions.

Contributions of property other thancash.If a corporation (other than aclosely held or personal servicecorporation) contributes property otherthan cash and claims over a $500deduction for the property, it must attach aschedule to the return describing the kindof property contributed and the method

used to determine its fair market value.Closely held corporations and personalservice corporations must complete Form8283, Noncash Charitable Contributions,and attach it to their returns. All othercorporations generally must complete andattach Form 8283 to their returns forcontributions of property other than moneyif the total claimed deduction for allproperty contributed was more than$5,000.

If the corporation made a qualifiedconservation contribution under section170(h), also include the fair market value ofthe underlying property before and afterthe donation, as well as the type of legalinterest contributed, and describe the

conservation purpose benefited by thedonation. If a contribution carryover isincluded, show the amount and how it wasdetermined.

Special rule for contributions of certainproperty.For a charitable contribution ofproperty, the corporation must reduce thecontribution by the sum of:

The ordinary income, short-term capitalgain that would have resulted if theproperty were sold at its fair market value,and

For certain contributions, all of thelong-term capital gain that would have


10/20

Page 10

resulted if the property were sold at its fairmarket value.

The reduction for the long-term capitalgain applies to:

Contributions of tangible personalproperty for use by an exempt organizationfor a purpose or function unrelated to thebasis for its exemption, and

Contributions of any property to or forthe use of certain private foundations. Seesection 170(e) and Regulations section1.170A-4.

For special rules for contributions ofinventory and other property to certainorganizations, see section 170(e)(3) andRegulations section 1.170A-4A.

Charitable contributions of scientificproperty used for research.Acorporation (other than a personal holdingcompany or a service organization) canreceive a larger deduction for contributingscientific property used for research to aninstitution of higher education. For moredetails, see section 170(e).

Contributions to organizationsconducting lobbying activities.Contributions made to an organization thatconducts lobbying activities are notdeductible if:

The lobbying activities relate to mattersof direct financial interest to the donorstrade or business, and

The principal purpose of the contributionwas to avoid Federal income tax byobtaining a deduction for activities thatwould have been nondeductible under thelobbying expense rules if conducteddirectly by the donor.

Line 20

Depreciation

Besides depreciation, include on line 20the part of the cost that the corporationelected to expense under section 179 for

certain tangible property placed in serviceduring tax year 1995 or carried over from1994. See Form 4562, Depreciation andAmortization, and its instructions.

Line 22 (Form 1120 only)

Depletion

See sections 613 and 613A for percentagedepletion rates applicable to naturaldeposits. Also, see section 291 for thelimitation on the depletion deduction foriron ore and coal (including lignite).

Foreign intangible drilling costs andforeign exploration and development costsmust either be added to the corporations

basis for cost depletion purposes or bededucted ratably over a 10-year period.See sections 263(i), 616, and 617 fordetails.

Attach Form T (Timber), ForestActivities Schedules, if a deduction fordepletion of timber is taken.


Pension, Profit-Sharing, etc., Plans

Enter the deduction for contributions toqualified pension, profit-sharing, or otherfunded deferred compensation plans.

Employers who maintain such a plangenerally must file one of the forms listedbelow, even if the plan is not a qualifiedplan under the Internal Revenue Code. Thefiling requirement applies even if thecorporation does not claim a deduction forthe current tax year. There are penalties forfailure to file these forms on time and foroverstating the pension plan deduction.See sections 6652(e) and 6662(f).

Form 5500.File this form for each planwith 100 or more participants.

Form 5500-C/R.File this form for each

plan with fewer than 100 participants.Form 5500-EZ.File this form for aone-participant plan. The termone-participant plan also means a planthat covers the owner and his or herspouse, or a plan that covers partners in abusiness partnership (or the partners andtheir spouses).


Employee Benefit Programs

Enter contributions to employee benefitprograms not claimed elsewhere on thereturn (e.g., insurance, health and welfareprograms) that are not an incidental part of

a pension, profit-sharing, etc., planincluded on line 24.

Line 26, Form 1120(Line 22, Form 1120-A)

Other Deductions

Note: Do not deduct fines or penalties paidto a government for violating any law.

Attach a schedule, listing by type andamount, all allowable deductions that arenot deductible elsewhere on Form 1120 orForm 1120-A. Form 1120-A filers shouldinclude amounts described in theinstructions above for lines 22, 24, and 25of Form 1120. Enter the total on line 26,Form 1120 (line 22, Form 1120-A).

Include on this line the deduction foramortization of pollution control facilities,organization expenses, etc. See Form4562.

Also include ordinary losses from tradeor business activities of a partnership (fromSchedule K-1 (Form 1065), line 1).

A corporation may deduct d ividends itpays in cash on stock held by anemployee stock ownership plan. However,a deduction may only be taken if,according to the plan, the dividends are:

Paid in cash directly to the planparticipants or beneficiaries;

Paid to the plan, which distributes them

in cash to the plan participants or theirbeneficiaries no later than 90 days afterthe end of the plan year in which thedividends are paid; or

Used to make payments on a loandescribed in section 404(a)(9).

See section 404(k) for more details andthe limitation on certain dividends.

Generally, a deduction may not be takenfor any amount that is allocable to a classof exempt income. See section 265(b) forexceptions.

Meals, travel, and entertainment.Generally, the corporation can deduct only50% of the amount otherwise allowable formeals and entertainment expenses paid orincurred in its trade or business. Also,meals must not be lavish or extravagant; abona fide business discussion must occurduring, immediately before, or immediatelyafter the meal; and an employee of thecorporation must be present at the meal.See section 274(k)(2) for exceptions. If thecorporation claims a deduction forunallowable meal expenses, it may have topay a penalty.

Additional limitations apply to deductionsfor gifts, skybox rentals, luxury watertravel, convention expenses, andentertainment tickets. For details, seesection 274 and Pub. 463, Travel,Entertainment, and Gift Expenses.

No deduction is allowed for dues paid orincurred for membership in any cluborganized for business, pleasure,recreation, or other social purpose. Thisincludes country clubs, golf and athleticclubs, airline and hotel clubs, and clubsoperated to provide meals underconditions favorable to businessdiscussion. But it does not include civic orpublic service organizations, professional

organizations (such as bar and medicalassociations), business leagues, tradeassociations, chambers of commerce,boards of trade, and real estate boards,unless a principal purpose of theorganization is to entertain or provideentertainment facilities for members ortheir guests.

Also, no deduction is allowed for travelexpenses paid or incurred for a spouse,dependent, or other individualaccompanying an officer or employee ofthe corporation on business travel, unlessthat spouse, dependent, or other individualis an employee of the corporation and thetravel is for a bona fide business purposeand would otherwise be deductible by thatperson.

Generally, a corporation can deduct allother ordinary and necessary travel andentertainment expenses paid or incurred inits trade or business. However, it cannotdeduct an expense paid or incurred for afacility (such as a yacht or hunting lodge)used for an activity that is usuallyconsidered entertainment, amusement, orrecreation.

Note: The corporation may be able todeduct otherwise nondeductible meals,travel, and entertainment expenses if theamounts are treated as compensation andreported on Form W-2 for an employee oron Form 1099-MISC for an independent

contractor.Deduction for clean-fuel vehicles andcertain refueling property.Section 179Aallows a deduction for part of the cost ofqualified clean-fuel vehicle property andqualified clean-fuel vehicle refuelingproperty placed in service after June 30,1993. For more information, see Pub. 535.

Lobbying expenses.Generally, lobbyingexpenses are not deductible. Theseexpenses include amounts paid or incurredin connection with influencing Federal orstate legislation (but not local legislation),or amounts paid or incurred in connection


11/20

Page 11

with any communication with certainFederal executive branch officials in anattempt to influence the official actions orpositions of the officials. See Regulationssection 1.162-29 for the definition ofinfluencing legislation. If certain in-houselobbying expenditures do not exceed$2,000, they are deductible. Dues andother similar amounts paid to certaintax-exempt organizations may not bededuct ible. See section 162(e)(3). Forinformation on contributions to charitableorganizations that conduct lobbyingactivities, see the instructions for line 19.For more information on lobbyingexpenses, see section 162(e).


Taxable Income Before NOL Deductionand Special Deductions

At-risk rules.Generally, special at-riskrules under section 465 apply to closelyheld corporations (see Passive activitylimitations on page 8) engaged in anyactivity as a trade or business or for theproduction of income. These corporationsmay have to adjust the amount on line 28,Form 1120, or line 24, Form 1120-A. (See

below.)But the at-risk rules do not apply to:

Holding real property placed in serviceby the taxpayer before 1987;

Equipment leasing under sections465(c)(4), (5), and (6); or

Any qualifying business of a qualifiedcorporation under section 465(c)(7).

However, the at-risk rules do apply tothe holding of mineral property.

If the at-risk rules apply, adjust theamount on this line for any section 465(d)losses. These losses are limited to theamount for which the corporation is at riskfor each separate activity at the close of

the tax year. If the corporation is involvedin one or more activities, any of whichincurs a loss for the year, report the lossesfor each activity separately. Attach Form6198, At-Risk Limitations, showing theamount at risk and gross income anddeductions for the activities with thelosses.

If the corporation sells or otherwisedisposes of an asset or its interest (eithertotal or partial) in an activity to which theat-risk rules apply, determine the net profitor loss from the activity by combining thegain or loss on the sale or disposition withthe profit or loss from the activity. If thecorporation has a net loss, it may belimited because of the at-risk rules.

Treat any loss from an activity notallowed for the tax year as a deductionallocable to the activity in the next taxyear.

Line 29a, Form 1120(Line 25a, Form 1120-A)

Net Operating Loss Deduction

A corporation may use the net operatingloss (NOL) incurred in one tax year toreduce its taxable income in another year.Generally, a corporation may carry an NOL

back to each of the 3 years preceding theyear of the loss and then carry anyremaining amount over to each of the 15years following the year of the loss (butForm 1120 filers see Exceptions tocarryback rules below). Enter on line 29a(line 25a, Form 1120-A), the total NOLcarryovers from prior tax years, but do notenter more than the corporations taxableincome (after special deductions). An NOLdeduction cannot be taken in a year inwhich the corporation has a negativetaxable income. Attach a scheduleshowing the computation of the NOLdeduction. Form 1120 filers must alsocomplete question 15 on Schedule K.

For details on the NOL deduction, getPub. 536, Net Operating Losses.

Carryback and carryover rules.Generally, an NOL first must be carriedback to the third tax year preceding theyear of the loss. To carry back the lossand obtain a quick refund of taxes, useForm 1139, Corporation Application forTentative Refund. Form 1139 must be filedwithin 12 months after the close of the taxyear of the loss. See section 6411 fordetails. Do not attach Form 1139 to thecorporations income tax return. Mail it in aseparate envelope to the service center

where the corporation files its income taxreturn.

For carryback claims filed later than 12months after the close of the tax year ofthe loss, file Form 1120X, Amended U.S.Corporation Income Tax Return, instead ofForm 1139.

After the corporation applies the NOL tothe first tax year to which it may becarried, the taxable income of that year ismodified (as described in section 172(b)) todetermine how much of the remaining lossmay be carried to other years. See section172(b) and the related regulations fordetails.

Special rules apply when an ownership

change occurs (i.e., for any tax year endingafter a post-1986 ownership change, theamount of the taxable income of a losscorporation that can be offset bypre-change NOL carryovers is limited). Seesection 382 and the related regulations.Also see Temporary Regulations section1.382-2T(a)(2)(ii), which requires that a losscorporation file an information statementwith its income tax return for each tax yearthat it is a loss corporation and certainshifts in ownership occurred. Also seeRegulations section 1.382-6(b) for detailson how to make the closing-of-the-bookselection.

See section 384 for the limitation on theuse of preacquistion losses of one

corporation to offset recognized built-ingains of another corporation.

Exceptions to carryback rules (Form1120 filers only).A corporation maymake an irrevocable election to forego thecarryback period and instead carry theNOL over to each of the 15 years followingthe year of the loss. To make this election,check the box in question 14 on ScheduleK. The return must be timely filed(including extensions).

Different carryback periods apply forcertain losses. The part of an NOL that isattributable to a specified liability loss,

including a product liability loss, may becarried back 10 years (section 172(b)(1)(C)).See Regulations section 1.172-13(c) for thestatement that must be attached to Form1120 if the corporation is claiming the10-year carryback period for a productliability loss.

Special rules apply to the carryback oflosses that are attributable to interest paidin connection with corporate equityreduction transactions (CERTs). The rulesapply if a corporation has a corporateequity reduction interest loss in a loss

limitation year ending after August 2, 1989.See section 172(b)(1)(E).

Personal service corporations may notcarry back an NOL to or from any tax yearto which a section 444 election applies.

Line 29b, Form 1120(Line 25b, Form 1120-A)

Special Deductions

Form 1120 filers.See the Instructions forSchedule C.

Form 1120-A filers.Generally, enter 70%of line 4, page 1, on line 25b. However,this deduction may not be more than 70%of line 24, page 1. Compute line 24 without

regard to any adjustment under section1059 and without regard to any capitalloss carryback to the tax year undersection 1212(a)(1).

In a year in which an NOL occurs, this70% limitation does not apply even if theloss is created by the dividends-receiveddeduction. See sections 172(d) and 246(b).


Taxable Income

Capital construction fund.To take adeduction for amounts contributed to acapital construction fund, reduce the

amount that would otherwise be enteredon line 30 (line 26, Form 1120-A) by theamount of the deduction. On the dottedline next to the entry space, write CCFand the amount of the deduction. For moreinformation, get Pub. 595, Tax Guide forCommercial Fishermen.

Line 32b, Form 1120(Line 28b, Form 1120-A)

Estimated Tax Payments

Enter any estimated tax payments thecorporation made for the tax year.

Beneficiaries of trusts.If the corporationis the beneficiary of a trust, and the trust

makes a section 643(g) election to creditits estimated tax payments to itsbeneficiaries, include the corporationsshare of the payment in the total for line32b, Form 1120 (line 28b, Form 1120-A).Write T and the amount on the dottedline next to the entry space.

Special estimated tax payments forcertain life insurance companies.If thecorporation is required to make or applyspecial estimated tax payments (SETP)under section 847 in addition to its regularestimated tax payments, enter on line 32b(line 28b, Form 1120-A), the corporationstotal estimated tax payments. On the


12/20

Page 12

dotted line next to the entry space, writeSETP and the amount. Attach a scheduleshowing your computation of estimated taxpayments. See section 847(2) and Form8816, Special Loss Discount Account andSpecial Estimated Tax Payments forInsurance Companies, for moreinformation.

Line 32g, Form 1120(Line 28g, Form 1120-A)

Credit for Federal Tax on Fuels

Complete Form 4136 if the corporationqualifies to take this credit. Attach Form4136 after page 4, Form 1120, or page 2,Form 1120-A.

Credit for ozone-depleting chemicals.Include on line 32g (line 28g, Form 1120-A)any credit the corporation is claiming undersection 4682(g)(4) for tax onozone-depleting chemicals. Write ODC tothe left of the entry space.

Line 32h, Form 1120(Line 28h, Form 1120-A)

Total Payments

On Form 1120, add the amounts on lines

32d through 32g and enter the total on line32h. On Form 1120-A, add the amounts onlines 28d through 28g and enter the totalon line 28h.

Backup withholding.If the corporationhad income tax withheld from anypayments it received, because, forexample, it failed to give the payer itscorrect EIN, include the amount withheld inthe total for line 32h, Form 1120 (line 28h,Form 1120-A). This type of withholding iscalled backup withholding. On Form 1120,show the amount withheld in the blankspace in the right-hand column betweenlines 31 and 32h, and write backupwithholding. On Form 1120-A, show theamount withheld on the dotted line to the

left of line 28h, and write backupwithholding.


Estimated Tax Penalty

A corporation that does not makeestimated tax payments when due may besubject to an underpayment penalty for theperiod of underpayment. Generally, acorporation is subject to the penalty if itstax liability is $500 or more, and it did nottimely pay the smaller of (a) 100% of itstax liability for 1995, or (b) 100% of itsprior years tax. See section 6655 for

details and exceptions, including specialrules for large corporations.

Form 2220, Underpayment of EstimatedTax by Corporations, is used to see if thecorporation owes a penalty and to figurethe amount of the penalty. Generally, thecorporation does not have to file this formbecause the IRS can figure the amount ofany penalty and bill the corporation for it.However, even if the corporation does notowe the penalty you must complete andattach Form 2220 if:

The annualized income or adjustedseasonal installment method is used, or

The corporation is a large corporationcomputing its first required installmentbased on the prior years tax. (See theForm 2220 instructions for the definition ofa large corporation.)

If you attach Form 2220, check the boxon line 33, Form 1120 (line 29, Form1120-A), and enter the amount of anypenalty on this line.

Schedule A, Form 1120

(Worksheet, Form 1120-A)Cost of Goods Sold

Inventories are required at the beginningand end of each tax year if the production,purchase, or sale of merchandise is anincome-producing factor. See Regulationssection 1.471-1. If inventories are notused, enter zero on lines 1 and 7 ofSchedule A, Form 1120, or the worksheet.

All filers should see Section 263Auniform capitalization rules on page 7before completing Schedule A or theworksheet below. The instructions for lines4 through 7 below apply to both ScheduleA and the worksheet.

Line 4

Additional Section 263A Costs

An entry is required on this line only forcorporations that have elected a simplifiedmethod of accounting.

For corporations that have elected thesimplified production method, additionalsection 263A costs are generally thosecosts, other than interest, that were notcapitaliz

Date post:	31-May-2018
Category:	Documents
Upload:	irs
View:	216 times
Download:	0 times