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2023
Instructions for Form 1120-S
U.S. Income Tax Return for an S Corporation
Department of the Treasury
Internal Revenue Service
Section references are to the Internal Revenue Code unless
otherwise noted.
Contents Page
What’s New ............................... 1
Photographs of Missing Children ................ 2
The Taxpayer Advocate Service ................. 2
Direct Deposit of Refund ...................... 2
How To Get Forms and Publications .............. 2
General Instructions ......................... 2
Purpose of Form ......................... 2
How To Make the Election .................. 2
Who Must File .......................... 2
Termination of Election .................... 2
Electronic Filing ......................... 3
When To File ........................... 3
Where To File ........................... 4
Who Must Sign .......................... 3
Paid Preparer Authorization ................. 3
Assembling the Return .................... 4
Tax Payments ........................... 4
Electronic Deposit Requirement .............. 4
Estimated Tax Payments ................... 5
Interest and Penalties ..................... 5
Accounting Methods ...................... 6
Accounting Period ....................... 6
Rounding Off to Whole Dollars ............... 6
Recordkeeping .......................... 6
Amended Return ........................ 6
Other Forms and Statements That May Be
Required ............................ 7
At-Risk Limitations ....................... 8
Passive Activity Limitations ................. 8
Net Investment Income Tax Reporting
Requirements ........................ 13
Specific Instructions ........................ 13
Income .............................. 14
Deductions ........................... 16
Tax and Payments ...................... 21
Schedule B. Other Information .............. 22
Schedules K and K-1 (General Instructions) .... 24
Specific Instructions (Schedule K-1 Only) ...... 25
Part I. Information About the Corporation ...... 25
Part II. Information About the Shareholder ...... 25
Specific Instructions (Schedules K and K-1,
Part III) ............................. 26
Schedule L. Balance Sheets per Books ....... 47
Schedule M-1. Reconciliation of Income
(Loss) per Books With Income (Loss) per
Return ............................. 48
Contents Page
Schedule M-2. Analysis of AAA, PTEP,
Accumulated E&P, and OAA ............. 48
Principal Business Activity Codes .............. 52
Index ................................... 55
Future Developments
For the latest information about developments related to Form
1120-S and its instructions, such as legislation enacted after
they were published, go to
IRS.gov/Form1120S.
What’s New
Electronically filed returns. The electronic filing threshold for
corporate returns required to be filed on or after January 1, 2024,
has decreased to 10 or more returns. See Electronic Filing, later.
Increase in penalty for failure to file. For tax returns required
to be filed in 2024, the minimum penalty for failure to file a return
that is more than 60 days late has increased to the smaller of the
tax due or $485. See
Late filing of return, later.
Deduction for certain energy efficient commercial building
property. For tax years beginning in 2023, corporations filing
Form 1120-S and claiming the energy efficient commercial
buildings deduction should report the deduction on line 19. See
the instructions for line 19.
Expiration of 100% business meal expense deduction. The
temporary 100% business meal expense deduction for food and
beverages provided by a restaurant does not apply to amounts
paid or incurred after 2022.
Elective payment election. Applicable entities and electing
taxpayers can elect to treat certain credits as elective payments.
See the instructions for line 24d and the Instructions for Form
3800.
Digital assets. Digital assets are required to be reported. See
new
question 16 on Schedule B, later.
Schedules K and K-1 reporting codes. Separate reporting
codes are assigned to items grouped under code H for Other
income (loss), code S for Other deductions, code P for Other
credits, and code AD for Other information in prior years. See the
List of Codes in the Shareholder's Instructions for Schedule K-1
(Form 1120-S).
The following new reporting credit codes are added to
line 13g.
•
Code A. Zero-emission nuclear power production credit.
•
Code B. Production from advanced nuclear power facilities
credit.
•
Code AG. Credit for military spouse participation.
•
Code AX. Carbon oxide sequestration credit recapture.
•
Code AY. New clean vehicle credit.
•
Code BC. Eligible credits from transferor(s) under section
6418.
Reminder
Election by a small business corporation. Don't file Form
1120-S unless the corporation has filed or is attaching Form
Jan 17, 2024
Cat. No. 11515K
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2553, Election by a Small Business Corporation. For details, see
the Instructions for Form 2553.
Photographs of
Missing Children
The Internal Revenue Service is a proud partner with the
National Center for Missing & Exploited Children® (NCMEC).
Photographs of missing children selected by the Center may
appear in instructions on pages that would otherwise be blank.
You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if
you recognize a child.
The Taxpayer Advocate Service
The Taxpayer Advocate Service (TAS) is an independent
organization within the IRS that helps taxpayers and protects
taxpayer rights. TAS strives to ensure that every taxpayer is
treated fairly and knows and understands their rights under the
Taxpayer Bill of Rights.
As a taxpayer, the corporation has rights that the IRS must
abide by in its dealings with the corporation. TAS can help the
corporation if:
•
A problem is causing financial difficulty for the business;
•
The business is facing an immediate threat of adverse action;
or
•
The corporation has tried repeatedly to contact the IRS but no
one has responded, or the IRS hasn't responded by the date
promised.
TAS has offices in every state, the District of Columbia, and
Puerto Rico. Local advocates' numbers are in their local
directories and at
TaxpayerAdvocate.IRS.gov. The corporation
can also call TAS at 877-777-4778.
TAS also works to resolve large-scale or systemic problems
that affect many taxpayers. If the corporation knows of one of
these broad issues, please report it to TAS through the Systemic
Advocacy Management System at
IRS.gov/SAMS.
For more information, go to IRS.gov/Advocate.
Direct Deposit of Refund
To request a direct deposit of the corporation's income tax refund
into an account at a U.S. bank or other financial institution, attach
Form 8050, Direct Deposit of Corporate Tax Refund. See the
instructions for line 28.
How To Get Forms and Publications
Internet. You can access the IRS website 24 hours a day, 7
days a week, at IRS.gov to:
•
Download forms, instructions, and publications;
•
Order IRS products online;
•
Research your tax questions online;
•
Search publications online by topic or keyword;
•
View Internal Revenue Bulletins (IRBs) published in recent
years; and
•
Sign up to receive local and national tax news by email.
Tax forms and publications. The corporation can view, print,
or download all of the forms and publications it may need on
IRS.gov/FormsPubs. Otherwise, the corporation can go to
IRS.gov/OrderForms to place an order and have forms mailed to
it.
General Instructions
Purpose of Form
Use Form 1120-S to report the income, gains, losses,
deductions, credits, and other information of a domestic
corporation or other entity for any tax year covered by an election
to be an S corporation.
How To Make the Election
For details about the election, see Form 2553, Election by a
Small Business Corporation, and the Instructions for Form 2553.
Who Must File
A corporation or other entity must file Form 1120-S if (a) it
elected to be an S corporation by filing Form 2553, (b) the IRS
accepted the election, and (c) the election remains in effect.
After filing Form 2553, you should have received confirmation
that Form 2553 was accepted. If you didn't receive notification of
acceptance or nonacceptance of the election within 2 months of
filing Form 2553 (5 months if you checked box Q1 to ask for a
letter ruling), please follow up by calling 800-829-4933. Don't file
Form 1120-S for any tax year before the year the election takes
effect.
Relief for late elections. If you haven't filed Form 2553, or
didn't file Form 2553 on time, you may be entitled to relief for a
late-filed election to be an S corporation. See the Instructions for
Form 2553 for details.
Termination of Election
Once the election is made, it stays in effect until it is terminated.
If the election is terminated, the corporation (or a successor
corporation) can make another election on Form 2553 only with
IRS consent for any tax year before the fifth tax year after the first
tax year in which the termination took effect. See Regulations
section 1.1362-5 for details.
An election terminates automatically in any of the following
cases.
1. The corporation is no longer a small business corporation
as defined in section 1361(b). This kind of termination of an
election is effective as of the day the corporation no longer
meets the definition of a small business corporation. Attach to
Form 1120-S for the final year of the S corporation a statement
notifying the IRS of the termination and the date it occurred.
2. For each of 3 consecutive tax years, the corporation (a)
has accumulated earnings and profits (AE&P), and (b) derives
more than 25% of its gross receipts from passive investment
income as defined in section 1362(d)(3)(C). The election
terminates on the first day of the 1st tax year beginning after the
3rd consecutive tax year. The corporation must pay a tax for
each year it has excess net passive income. See the line 23a
instructions for details on how to figure the tax.
3. The election is revoked. An election can be revoked only
with the consent of shareholders who, at the time the revocation
is made, hold more than 50% of the number of issued and
outstanding shares of stock (including nonvoting stock). The
revocation can specify an effective revocation date that is on or
after the day the revocation is filed. If no date is specified, the
revocation is effective at the start of the tax year if the revocation
is made on or before the 15th day of the 3rd month of that tax
year. If no date is specified and the revocation is made after the
15th day of the 3rd month of the tax year, the revocation is
effective at the start of the next tax year.
To revoke the election, the corporation must file a statement
with the appropriate service center listed under Where To File in
the Instructions for Form 2553. In the statement, the corporation
must notify the IRS that it is revoking its election to be an S
corporation. The statement must be signed by each shareholder
who consents to the revocation and contain the information
required by Regulations section 1.1362-6(a)(3).
A revocation can be rescinded before it takes effect. See
Regulations section 1.1362-6(a)(4) for details.
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For rules on allocating income and deductions between an S
corporation's short year and a C corporation's short year and
other special rules that apply when an election is terminated, see
section 1362(e) and Regulations section 1.1362-3.
If an election was terminated under (1) or (2) above and the
corporation believes the termination was inadvertent, the
corporation can ask for permission from the IRS to continue to
be treated as an S corporation. See Regulations section
1.1362-4 for the specific requirements that must be met to
qualify for inadvertent termination relief.
Electronic Filing
S corporations can generally electronically file (e-file) Form
1120-S, related forms, schedules, statements, and attachments;
Form 7004 (automatic extension of time to file); and Forms 940,
941, and 944 (employment tax returns). Form 1099 and other
information returns can also be electronically filed. The option to
e-file doesn't, however, apply to certain returns.
For returns filed on or after January 1, 2024, S corporations
that file 10 or more returns are required to e-file Form 1120-S.
See Regulations section 301.6037-2. However, these
corporations can request a waiver of the electronic filing
requirements.
For more information on e-filing, see E-file for Business and
Self Employed Taxpayers on IRS.gov.
Exclusions From Electronic Filing Requirement
Waivers. The IRS may waive the electronic filing rules if the S
corporation demonstrates that a hardship would result if it were
required to file its return electronically. A corporation interested in
requesting a waiver of the mandatory electronic filing
requirement must file a written request, and request one in the
manner prescribed by the IRS. All written requests for waivers
should be mailed to:
Internal Revenue Service
Ogden Submission Processing Center
Attn: Form 1120 e-file Waiver Request
Mail Stop 1057
Ogden, UT 84201
If using a delivery service, requests for waivers should be
mailed to:
Internal Revenue Service
Ogden Submission Processing Center
Attn: Form 1120 e-file Waiver Request
Mail Stop 1057
1973 N. Rulon White Blvd.
Ogden, UT 84404
Waiver requests can also be faxed to 877-477-0575. Contact
the e-Help Desk at 866-255-0654 for questions regarding the
waiver procedures or process.
Exemptions. The IRS may provide exemptions from the
requirements to electronically file. If using the technology
required to electronically file conflicts with religious beliefs, the
corporation is exempt from the requirement. Clearly indicate the
exemption on the corporation’s return. Write “Religious
Exemption” at the top of the Form 1120-S. File the return at the
applicable IRS address. See
Where To File, later. For more
information, see Notice 2024-18.
When To File
Generally, an S corporation must file Form 1120-S by the 15th
day of the 3rd month after the end of its tax year. For calendar
year corporations, the due date is March 15, 2024. A corporation
that has dissolved must generally file by the 15th day of the 3rd
month after the date it dissolved.
If the due date falls on a Saturday, Sunday, or legal holiday,
the corporation can file on the next day that isn’t a Saturday,
Sunday, or legal holiday.
If the S corporation election was terminated during the tax
year and the corporation reverts to a C corporation, file Form
1120-S for the S corporation's short year by the due date
(including extensions) of the C corporation's short year return.
Private Delivery Services
Corporations can use certain private delivery services (PDS)
designated by the IRS to meet the “timely mailing as timely filing”
rule for tax returns. Go to IRS.gov/PDS for the current list of
designated services.
The PDS can tell you how to get written proof of the mailing
date.
For the IRS mailing address to use if you are using a PDS, go
to
IRS.gov/PDSStreetAddresses.
Private delivery services can't deliver items to P.O.
boxes. You must use the U.S. Postal Service to mail any
item to an IRS P.O. box address.
Extension of Time To File
File Form 7004, Application for Automatic Extension of Time To
File Certain Business Income Tax, Information, and Other
Returns, to ask for an extension of time to file. Generally, the
corporation must file Form 7004 by the regular due date of the
return. See the Instructions for Form 7004.
Who Must Sign
The return must be signed and dated by:
•
The president, vice president, treasurer, assistant treasurer,
chief accounting officer; or
•
Any other corporate officer (such as tax officer) authorized to
sign.
If a return is filed on behalf of a corporation by a receiver,
trustee, or assignee, the fiduciary must sign the return instead of
the corporate officer. Returns and forms signed by a receiver or
trustee in bankruptcy on behalf of a corporation must be
accompanied by a copy of the order or instructions of the court
authorizing signing of the return or form.
If an employee of the corporation completes Form 1120-S,
the paid preparer space should remain blank. Anyone who
prepares Form 1120-S but doesn't charge the corporation
shouldn't complete that section. Generally, anyone who is paid to
prepare the return must sign it and fill in the “Paid Preparer Use
Only” area.
The paid preparer must complete the required preparer
information and:
•
Sign the return in the space provided for the preparer's
signature,
•
Include their Preparer Tax Identification Number (PTIN), and
•
Give a copy of the return to the taxpayer.
A paid preparer may sign original or amended returns by
rubber stamp, mechanical device, or computer software
program.
Paid Preparer Authorization
If the corporation wants to allow the IRS to discuss its 2023 tax
return with the paid preparer who signed it, check the “Yes” box
in the signature area of the return. This authorization applies only
to the individual whose signature appears in the “Paid Preparer
CAUTION
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Instructions for Form 1120-S (2023)
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Use Only” section of the return. It doesn't apply to the firm, if any,
shown in that section.
If the “Yes” box is checked, the corporation is authorizing the
IRS to call the paid preparer to answer any questions that may
arise during the processing of its return. The corporation is also
authorizing the paid preparer to:
•
Give the IRS any information that is missing from the return;
•
Call the IRS for information about the processing of the return
or the status of any related refund or payment(s); and
•
Respond to certain IRS notices about math errors, offsets,
and return preparation.
The corporation isn't authorizing the paid preparer to receive
any refund check, bind the corporation to anything (including any
additional tax liability), or otherwise represent the corporation
before the IRS.
The authorization will automatically end no later than the due
date (excluding extensions) for filing the corporation's 2024 tax
return. If the corporation wants to expand the paid preparer's
authorization or revoke the authorization before it ends, see Pub.
947, Practice Before the IRS and Power of Attorney.
Assembling the Return
To ensure that the corporation's tax return is correctly processed,
attach all schedules and other forms after page 5 of Form
1120-S in the following order.
1. Schedule N (Form 1120), Foreign Operations of U.S.
Corporations.
2. Schedule D (Form 1120-S), Capital Gains and Losses
and Built-in Gains.
3. Form 4797, Sales of Business Property.
4. Form 8949, Sales and Other Dispositions of Capital
Assets.
5. Form 8996, Qualified Opportunity Fund.
6. Form 8825, Rental Real Estate Income and Expenses of
a Partnership or an S Corporation.
7. Form 1125-A, Cost of Goods Sold.
8. Form 8050, Direct Deposit of Corporate Tax Refund.
9. Form 4136, Credit for Federal Tax Paid on Fuels.
10.
Form 8941, Credit for Small Employer Health Insurance
Premiums.
11.
Form 3800, General Business Credit.
12.
Form 8997, Initial and Annual Statement of Qualified
Opportunity Fund (QOF) Investments.
13.
Form 6252, Installment Sale Income.
14.
Schedule A (Form 8936), Clean Vehicle Credit Amount.
15.
Schedules K-1 (Form 1120-S), Shareholder's Share of
Income, Deductions, Credits, etc.
16.
Form 8938, Statement of Specified Foreign Financial
Assets.
17.
Additional schedules in alphabetical order, including
Schedule K-2 (Form 1120-S), Shareholders' Pro Rata Share
Items—International, and Schedules K-3 (Form 1120-S),
Shareholder's Share of Income, Deductions, Credits,
etc.—International.
18.
Additional forms in numerical order.
Complete every applicable entry space on Form 1120-S and
Schedule K-1. Don't enter “See Attached” or “Available Upon
Request” instead of completing the entry spaces. If more space
is needed on the forms or schedules, attach separate sheets
using the same size and format as the printed forms.
If there are supporting statements and attachments, arrange
them in the same order as the schedules or forms they support
and attach them last. Show the totals on the printed forms. Enter
the corporation's name and EIN on each supporting statement or
attachment.
Tax Payments
Generally, the corporation must pay any tax due in full no later
than the due date for filing its tax return (not including
extensions). See the
instructions for line 26. If the due date falls
on a Saturday, Sunday, or legal holiday, the payment is due on
the next day that isn't a Saturday, Sunday, or legal holiday.
Electronic Deposit Requirement
Corporations must use electronic funds transfers to make all
federal tax deposits (such as deposits of employment, excise,
and corporate income tax). Generally, electronic funds transfers
are made using the Electronic Federal Tax Payment System
Where To File
File the corporation's return at the applicable IRS address listed below.
If the corporation's principal business,
office, or agency is located in:
And the total assets at the end of the tax
year (Form 1120-S, page 1, item F) are:
Use the following address:
Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maine,
Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island,
South Carolina, Tennessee, Vermont, Virginia,
West Virginia, Wisconsin
Less than $10 million and
Schedule M-3 isn't filed
Department of the Treasury
Internal Revenue Service Center
Kansas City, MO 64999-0013
$10 million or more, or
less than $10 million and
Schedule M-3 is filed
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0013
Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas,
Louisiana, Minnesota, Mississippi, Missouri,
Montana, Nebraska, Nevada, New Mexico,
North Dakota, Oklahoma, Oregon, South
Dakota, Texas, Utah, Washington, Wyoming
Any amount
Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201-0013
A foreign country or U.S. territory Any amount
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
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(EFTPS). However, if the corporation doesn't want to use
EFTPS, it can arrange for its tax professional, financial
institution, payroll service, or other trusted third party to make
deposits on its behalf. Also, it may arrange for its financial
institution to submit a same-day wire payment (discussed below)
on its behalf. EFTPS is a free service provided by the
Department of the Treasury. Services provided by a tax
professional, financial institution, payroll service, or other third
party may have a fee.
To get more information about EFTPS or to enroll in EFTPS,
visit
www.EFTPS.gov or call 800-555-4477. To contact EFTPS
using the Telecommunications Relay Services (TRS), for people
who are deaf, hard of hearing, or have a speech disability, dial
711 and provide the TRS assistant the 800-555-4477 number
above or 800-733-4829.
Depositing on time. For any deposit made by EFTPS to be on
time, the corporation must submit the deposit by 8 p.m. Eastern
time the day before the date the deposit is due. If the corporation
uses a third party to make deposits on its behalf, they may have
different cutoff times.
Same-day wire payment option. If the corporation fails to
submit a deposit transaction on EFTPS by 8 p.m. Eastern time
the day before the date a deposit is due, it can still make its
deposit on time by using the Federal Tax Collection Service
(FTCS). To use the same-day wire payment method, the
corporation will need to make arrangements with its financial
institution ahead of time regarding availability, deadlines, and
costs. Financial institutions may charge a fee for payment made
this way. To learn more about the information the corporation will
need to provide to its financial institution to make a same-day
wire payment, go to
IRS.gov/SameDayWire.
Estimated Tax Payments
Generally, the corporation must make installment payments of
estimated tax for the following taxes if the total of these taxes is
$500 or more: (a) the tax on built-in gains, (b) the excess net
passive income tax, and (c) the investment credit recapture tax,
each discussed later.
The amount of estimated tax required to be paid annually is
the smaller of (a) the total of the above taxes shown on the return
for the tax year (or if no return is filed, the total of these taxes for
the year), or (b) the sum of (i) the investment credit recapture tax
and the built-in gains tax shown on the return for the tax year (or
if no return is filed, the total of these taxes for the tax year), and
(ii) any excess net passive income tax shown on the
corporation's return for the preceding tax year. If the preceding
tax year was less than 12 months, the estimated tax must be
determined under (a).
The estimated tax is generally payable in four equal
installments. However, the corporation may be able to lower the
amount of one or more installments by using the annualized
income installment method or adjusted seasonal installment
method under section 6655(e).
For a calendar year corporation, the payments are due for
2024 by April 15, June 15, September 15, and December 15. For
a fiscal year corporation, they are due by the 15th day of the 4th,
6th, 9th, and 12th months of the year. If any date falls on a
Saturday, Sunday, or legal holiday, the installment is due on the
next day that isn't a Saturday, Sunday, or legal holiday.
The corporation must make the payments using electronic
funds transfers as described earlier.
For information on penalties that may apply if the corporation
fails to make required payments, see the Instructions for Form
2220.
Interest and Penalties
If the corporation receives a notice about penalties after
it files its return, send the IRS an explanation and we will
determine if the corporation meets reasonable-cause
criteria.
Don't attach an explanation when the corporation's
return is filed.
Interest. Interest is charged on taxes paid late even if an
extension of time to file is granted. Interest is also charged on
penalties imposed for failure to file, negligence, fraud, substantial
valuation misstatements, substantial understatements of tax,
and reportable transaction understatements from the due date
(including extensions) to the date of payment. The interest
charge is figured at a rate determined under section 6621.
Late filing of return. A penalty may be assessed if the return is
filed after the due date (including extensions) or the return
doesn't show all the information required, unless each failure is
due to reasonable cause. See
Caution, earlier. For returns on
which no tax is due, the penalty is $235 for each month or part of
a month (up to 12 months) the return is late or doesn't include
the required information, multiplied by the total number of
persons who were shareholders in the corporation during any
part of the corporation's tax year for which the return is due. If tax
is due, the penalty is the amount stated above plus 5% of the
unpaid tax for each month or part of a month the return is late, up
to a maximum of 25% of the unpaid tax. The minimum penalty
for a tax return required to be filed in 2024 that is more than 60
days late is the smaller of the tax due or $485.
Late payment of tax. A corporation that doesn't pay the tax
when due may generally be penalized
1
/2 of 1% of the unpaid tax
for each month or part of a month the tax isn't paid, up to a
maximum of 25% of the unpaid tax. The penalty won't be
imposed if the corporation can show that the failure to pay on
time was due to reasonable cause. See
Caution, earlier.
Failure to furnish information timely. For each failure to
furnish Schedule K-1 (and Schedule K-3, if applicable) to a
shareholder when due and each failure to include on
Schedule K-1 (and Schedule K-3, if applicable) all the
information required to be shown (or the inclusion of incorrect
information), a $310 penalty may be imposed with respect to
each Schedule K-1 (and Schedule K-3, if applicable) for which a
failure occurs. If the requirement to report correct information is
intentionally disregarded, each $310 penalty is increased to
$630 or, if greater, 10% of the aggregate amount of items
required to be reported. See sections 6722 and 6724 for more
information.
The penalty won't be imposed if the corporation can show
that not furnishing information timely was due to reasonable
cause. See Caution, earlier.
Trust fund recovery penalty. This penalty may apply if certain
excise, income, social security, and Medicare taxes that must be
collected or withheld aren't collected or withheld, or these taxes
aren't paid. These taxes are generally reported on:
•
Form 720, Quarterly Federal Excise Tax Return;
•
Form 941, Employer's QUARTERLY Federal Tax Return;
•
Form 943, Employer's Annual Federal Tax Return for
Agricultural Employees;
•
Form 944, Employer's ANNUAL Federal Tax Return; or
•
Form 945, Annual Return of Withheld Federal Income Tax.
The trust fund recovery penalty may be imposed on all
persons who are determined by the IRS to have been
responsible for collecting, accounting for, or paying over these
taxes, and who acted willfully in not doing so. The penalty is
equal to the full amount of the unpaid trust fund tax. See the
Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax
Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax
CAUTION
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Instructions for Form 1120-S (2023)
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Guide, for details, including the definition of “responsible
persons.”
Other penalties. Other penalties can be imposed for
negligence, substantial understatement of tax, reportable
transaction understatements, and fraud. See sections 6662,
6662A, and 6663.
Accounting Methods
Figure income using the method of accounting regularly used in
keeping the corporation's books and records. The method used
must clearly reflect income. Permissible methods include cash,
accrual, or any other method authorized by the Internal Revenue
Code.
The following rules apply.
•
Generally, an S corporation can't use the cash method of
accounting if it’s a tax shelter (as defined in section 448(d)(3)).
See section 448 for details.
•
A corporation must use an accrual method for sales and
purchases of inventory items unless it is a small business
taxpayer (defined later). See the Form 1125-A instructions. If you
are a small business taxpayer, you can adopt or change your
accounting method to account for inventories (i) in the same
manner as materials and supplies that are non-incidental, or (ii)
to conform to the taxpayer’s treatment of inventories in an
applicable financial statement (as defined in section 451(b)(3))
or, if the taxpayer doesn’t have an applicable financial statement,
the method of accounting used in the taxpayer’s books and
records prepared in accordance with the taxpayer’s accounting
procedures. Generally, IRS consent is required for changes in
accounting methods. See Rev. Proc. 2018-40 for the procedures
by which a small business taxpayer may obtain automatic
consent to change its method of accounting to reflect the
statutory changes made in this area. Also, see
Change in
accounting method, later.
•
Special rules apply to long-term contracts. See section 460.
•
Generally, dealers in securities must use the mark-to-market
accounting method. Dealers in commodities and traders in
securities and commodities can elect to use the mark-to-market
accounting method. See section 475.
Small business taxpayer. A small business taxpayer is a
taxpayer that (a) has average annual gross receipts of $29
million or less for the 3 prior tax years, and (b) isn’t a tax shelter
(as defined in section 448(d)(3)).
Change in accounting method. Generally, the corporation
must get IRS consent to change either an overall method of
accounting or the accounting treatment of any material item for
income tax purposes. To obtain consent, the corporation must
generally file Form 3115, Application for Change in Accounting
Method, during the tax year for which the change is requested.
See the Instructions for Form 3115 and Pub. 538, Accounting
Periods and Methods, for more information and exceptions. See
also the Instructions for Form 3115 for procedures that may
apply for obtaining automatic consent to change certain
methods of accounting, non-automatic change procedures, and
reduced Form 3115 filing requirements.
Accounting Period
A corporation must figure its income on the basis of a tax year. A
tax year is the annual accounting period a corporation uses to
keep its records and report its income and expenses.
An S corporation must use one of the following tax years.
•
A tax year ending December 31.
•
A natural business year.
•
An ownership tax year.
•
A tax year elected under section 444.
•
A 52-53-week tax year that ends with reference to a year
listed above.
•
Any other tax year (including a 52-53-week tax year) for which
the corporation establishes a business purpose.
A new S corporation must use Form 2553 to elect a tax year.
To later change the corporation's tax year, see Form 1128,
Application To Adopt, Change, or Retain a Tax Year, and its
instructions (unless the corporation is making an election under
section 444, discussed next).
Electing a tax year under section 444. Under the provisions
of section 444, an S corporation can elect to have a tax year
other than a required year, but only if the deferral period of the
tax year isn't longer than the shorter of 3 months or the deferral
period of the tax year being changed. This election is made by
filing Form 8716, Election To Have a Tax Year Other Than a
Required Tax Year.
An S corporation may not make or continue an election under
section 444 if it is a member of a tiered structure, other than a
tiered structure that consists entirely of partnerships and S
corporations that have the same tax year. For the S corporation
to have a section 444 election in effect, it must make the
payments required by section 7519. See Form 8752, Required
Payment or Refund Under Section 7519.
A section 444 election ends if an S corporation:
•
Changes its accounting period to a calendar year or some
other permitted year,
•
Is penalized for willfully failing to comply with the requirements
of section 7519, or
•
Terminates its S election (unless it immediately becomes a
personal service corporation).
If the termination results in a short tax year, enter at the top of
the first page of Form 1120-S for the short tax year, “SECTION
444 ELECTION TERMINATED.”
Rounding Off to Whole Dollars
The corporation may enter decimal points and cents when
completing its return. However, the corporation should round off
cents to whole dollars on its return, forms, and schedules to
make completing its return easier. The corporation must either
round off all amounts on its return to whole dollars, or use cents
for all amounts. To round, drop amounts under 50 cents and
increase amounts from 50 to 99 cents to the next dollar. For
example, $8.40 rounds to $8 and $8.50 rounds to $9.
If two or more amounts must be added to figure the amount to
enter on a line, include cents when adding the amounts and
round off only the total.
Recordkeeping
Keep the corporation's records for as long as they may be
needed for the administration of any provision of the Internal
Revenue Code. Usually, records that support an item of income,
deduction, or credit on the return must be kept for 3 years from
the date each shareholder's return is due or filed, whichever is
later. Keep records that verify the corporation's basis in property
for as long as they are needed to figure the basis of the original
or replacement property.
The corporation should keep copies of all filed returns. They
help in preparing future and amended returns.
Amended Return
To correct a previously filed Form 1120-S, file an amended Form
1120-S and check box H(4) on page 1. Attach a statement that
identifies the line number of each amended item, the corrected
amount or treatment of the item, and an explanation of the
reasons for each change.
If the income, deductions, credits, or other information
provided to any shareholder on Schedule K-1 or K-3 is incorrect,
file an amended Schedule K-1 or K-3 (Form 1120-S) for that
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shareholder with the amended Form 1120-S. Also give a copy of
the amended Schedule K-1 or K-3 to that shareholder. Check
the “Amended K-1” or “Amended K-3” box at the top of the
Schedule K-1 or K-3 to indicate that it is an amended
Schedule K-1 or K-3.
A change to the corporation's federal return may affect its
state return. This includes changes made as the result of an IRS
examination. For more information, contact the state tax agency
for the state(s) in which the corporation's return was filed.
Other Forms and Statements That
May Be Required
Reportable transaction disclosure statement. Disclose
information for each reportable transaction in which the
corporation participated. Form 8886, Reportable Transaction
Disclosure Statement, must be filed for each tax year the
corporation participated in the transaction. The corporation may
have to pay a penalty if it is required to file Form 8886 and
doesn't do so. The following are reportable transactions.
1. Any listed transaction, which is a transaction that is the
same as or substantially similar to one of the types of
transactions that the IRS has determined to be a tax avoidance
transaction and identified by notice, regulation, or other
published guidance as a listed transaction.
2. Any transaction offered under conditions of confidentiality
for which the corporation (or a related party) paid an advisor a
fee of at least $50,000.
3. Certain transactions for which the corporation (or a
related party) has contractual protection against disallowance of
the tax benefits.
4. Certain transactions resulting in a loss of at least $2
million in any single year or $4 million in any combination of
years.
5. Any transaction identified by the IRS by notice, regulation,
or other published guidance as a “transaction of interest.”
For more information, see Regulations section 1.6011-4. Also
see the Instructions for Form 8886.
Penalties. The corporation may have to pay a penalty if it is
required to disclose a reportable transaction under section 6011
and fails to properly complete and file Form 8886. Penalties may
also apply under section 6707A if the corporation fails to file
Form 8886 with its corporate return, fails to provide a copy of
Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a
form that fails to include all the information required (or includes
incorrect information). Other penalties, such as an
accuracy-related penalty under section 6662A, may also apply.
See the Instructions for Form 8886 for details on these and other
penalties.
Reportable transactions by material advisors. Material
advisors to any reportable transaction must disclose certain
information about the reportable transaction by filing Form 8918,
Material Advisor Disclosure Statement, with the IRS. For details,
see the Instructions for Form 8918.
Transfers to a corporation controlled by the transferor.
Every significant transferor (as defined in Regulations section
1.351-3(d)) that receives stock of a corporation in exchange for
property in a nonrecognition event must include the statement
required by Regulations section 1.351-3(a) on or with the
transferor's tax return for the tax year of the exchange. The
transferee corporation must include the statement required by
Regulations section 1.351-3(b) on or with its return for the tax
year of the exchange, unless all the required information is
included in any statement(s) provided by a significant transferor
that is attached to the same return for the same section 351
exchange.
Election to reduce basis under section 362(e)(2)(C).
If
property is transferred to a corporation subject to section 362(e)
(2), the transferor and the acquiring corporation may elect, under
section 362(e)(2)(C), to reduce the transferor's basis in the stock
received instead of reducing the acquiring corporation's basis in
the property transferred. Once made, the election is irrevocable.
For more information, see section 362(e)(2) and Regulations
section 1.362-4. If an election is made, a statement must be filed
in accordance with Regulations section 1.362-4(d)(3).
Regulations section 1.1411-10(g) (section 1411 election
with respect to CFCs and QEFs). A corporation that directly
or indirectly owns stock of a controlled foreign corporation (CFC)
(within the meaning of section 953(c)(1)(B) or section 957(a)) or
a passive foreign investment company (within the meaning of
section 1297(a)) that the corporation treats as a qualified
electing fund (QEF) under section 1293 may make the election
provided in Regulations section 1.1411-10(g). The election must
be made no later than the first tax year beginning after 2013
during which the corporation (i) includes an amount in gross
income for chapter 1 purposes under section 951(a) or section
1293(a) for the CFC or QEF, and (ii) has a direct or indirect
owner that is subject to tax under section 1411 or would have
been if the election were made. This election must be made on
an entity-by-entity basis, and applies only to the particular CFCs
and QEFs for which an election is made. In general, for purposes
of section 1411, if an election is in effect for a CFC or QEF, the
amounts included in income under section 951 and section 1293
derived from the CFC or QEF are included in net investment
income, and distributions described in section 959(d) or section
1293(c) are excluded from net investment income. Additionally, if
the corporation elected to be treated as owning stock of a foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2), and an election
under Regulations section 1.1411-10(g) is in effect for a CFC,
the amount of global intangible low-taxed income included in
income under section 951A is included in net investment income
to the extent that it is allocated to the CFC under section 951A(f)
(2). An election that is made under Regulations section
1.1411-10(g) can't be revoked. For more information regarding
this election, see Regulations section 1.1411-10(g).
The election must be made in a statement that is filed with the
corporation's original or amended return for the tax year in which
the election is made. An election can be made on an amended
return only if the tax year for which the election is made, and all
tax years affected by the election, aren't closed by the period of
limitations on assessments under section 6501. The statement
must include:
•
The name and EIN of the corporation making the election;
•
A declaration that all of its shareholders consent to each
election made in the statement;
•
A declaration that the corporation elects under Regulations
section 1.1411-10(g) to apply the rules in Regulations section
1.1411-10(g) to the CFCs and QEFs identified in the statement;
and
•
The following information for each CFC and QEF for which an
election is made (i) the name of the CFC or QEF; and (ii) either
the EIN of the CFC or QEF, or, if the CFC or QEF doesn't have an
EIN, the reference ID number of the CFC or QEF.
In addition, for each CFC or QEF held by the corporation for
which an election under Regulations section 1.1411-10(g) has
already been made by the corporation, the statement should
include (i) the name of the CFC or QEF; and (ii) either the EIN of
the CFC or QEF, or, if the CFC or QEF doesn't have an EIN, the
reference ID number of the CFC or QEF.
Annual information reporting by specified domestic enti-
ties under section 6038D. Certain domestic corporations that
are formed or availed of to hold specified foreign financial assets
(“specified domestic entities”) must file Form 8938, Statement of
Instructions for Form 1120-S (2023)
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Specified Foreign Financial Assets. Form 8938 must be filed
each year the value of the corporation's specified foreign
financial assets meets or exceeds the reporting threshold. For
more information on domestic corporations that are specified
domestic entities and the types of foreign financial assets that
must be reported, see the Instructions for Form 8938, generally,
and in particular,
Who Must File, Specified Domestic Entity,
Types of Reporting Thresholds, Specified Foreign Financial
Assets, Interests in Specified Foreign Financial Assets, Assets
Not Required To Be Reported, and Exceptions to Reporting.
In addition, a domestic corporation required to file Form 8938
with its Form 1120-S for the tax year should check “Yes” to
Schedule N (Form 1120), question 8, and also include that
schedule with its Form 1120-S.
Certification as a qualified opportunity fund. If the
corporation is organized to invest in qualified opportunity zone
property, it must attach Form 8996 to Form 1120-S to self-certify
as a QOF. In addition, the corporation files Form 8996 annually
to report that the QOF meets the investment standard of section
1400Z-2 or to figure the penalty if it fails to meet the investment
standard. The corporation must also complete line 15 of
Schedule B. For more information, see the Instructions for Form
8996.
Qualified opportunity fund investment. If the corporation
deferred a capital gain in a qualified opportunity fund (QOF), the
corporation must file its return with Schedule D (Form 1120-S),
Form 8949, and Form 8997 attached. The corporation will need
to file Form 8997 annually until it disposes of the investment. See
the instructions for Form 8997 for details.
Form 8975, Country-by-Country Report. Certain U.S.
persons that are the ultimate parent entity of a U.S. multinational
enterprise group with annual revenue for the preceding reporting
period of $850 million or more are required to file Form 8975. For
more information, see the Instructions for Form 8975.
Other forms and statements. See Pub. 542, Corporations, for
a list of other forms and statements a corporation may need to
file in addition to the forms and statements discussed throughout
these instructions.
At-Risk Limitations
In general, section 465 limits the amount of deductible net losses
shareholders can claim from certain activities. The at-risk
limitations don't apply to the corporation, but instead apply to
each shareholder's share of net losses attributable to each
activity. Because the treatment of each shareholder's share of
corporate net losses depends on the nature of the activity that
generated it, the corporation must report the items of income,
loss, and deduction separately for each activity. See Pub. 925,
Passive Activity and At-Risk Rules, for additional information.
Activities Covered by the At-Risk Rules
If the S corporation is involved in one of the following activities as
a trade or business or for the production of income, the
shareholder may be subject to the at-risk rules.
1. Holding, producing, or distributing motion picture films or
video tapes.
2. Farming.
3. Leasing section 1245 property, including personal
property and certain other tangible property that is depreciable
or amortizable.
4. Exploring for, or exploiting, oil and gas.
5. Exploring for, or exploiting, geothermal deposits (for wells
started after September 1978).
6. Any other activity not included in (1) through (5) that is
carried on as a trade or business or for the production of income.
Aggregation of Activities
Activities described in (6) under Activities Covered by the At-Risk
Rules, earlier, that constitute a trade or business are treated as
one activity if:
•
You actively participate in the management of the trade or
business, or
•
The trade or business is carried on by a partnership or S
corporation and 65% or more of its losses for the tax year are
allocable to persons who actively participate in the management
of the trade or business.
Similar rules apply to activities described in (1) through (5) of
that earlier discussion. For more information, see Pub. 925. If
you aggregate your activities under these rules for section 465
purposes, check the appropriate box in item J.
At-Risk Activity Reporting Requirements
If the corporate items of income, loss, or deduction reported on
Schedule K-1 are from more than one activity covered by the
at-risk rules, the corporation must report information separately
for each activity.
The following information must be provided on an attachment
to Schedule K-1 for each activity.
•
A statement that the information is a breakdown of the items
of income, loss, or deduction by at-risk activity.
•
The identity of the at-risk activity; the items of income, loss, or
deduction for the activity; other items of income, loss, or
deduction; and any other information that relates to the activity
(that is, distributions, shareholder loans, etc.).
Passive Activity Limitations
In general, section 469 limits the amount of losses, deductions,
and credits that shareholders can claim from “passive activities.”
The passive activity limitations don't apply to the corporation.
Instead, they apply to each shareholder's share of any income or
loss and credit attributable to a passive activity. Because the
treatment of each shareholder's share of corporate income or
loss and credit depends on the nature of the activity that
generated it, the corporation must report income or loss and
credits separately for each activity.
The following instructions and the instructions for Schedules
K and K-1, later, explain the applicable passive activity limitation
rules and specify the type of information the corporation must
provide to its shareholders for each activity. If the corporation
had more than one activity, it must report information for each
activity on an attachment to Schedules K and K-1.
Generally, passive activities include (a) activities that involve
the conduct of a trade or business if the shareholder doesn't
materially participate in the activity, and (b) all rental activities
(defined later) regardless of the shareholder's participation. For
exceptions, see
Activities That Are Not Passive Activities, later.
The level of each shareholder's participation in an activity must
be determined by the shareholder.
The passive activity rules provide that losses and credits from
passive activities can generally be applied only against income
and tax (respectively) from passive activities. Thus, passive
losses can't be applied against income from salaries, wages,
professional fees, or a business in which the shareholder
materially participates or against “portfolio income” (defined
later). Passive credits can't be applied against the tax related to
any of these types of income.
Special rules require that net income from certain activities
that would otherwise be treated as passive income must be
recharacterized as nonpassive income for purposes of the
passive activity limitations. See Recharacterization of Passive
Income, later.
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To allow each shareholder to correctly apply the passive
activity limitations, the corporation must report income or loss
and credits separately by activity for each of the following.
•
Trade or business activities.
•
Rental real estate activities.
•
Rental activities other than rental real estate.
•
Portfolio income.
Activities That Are Not Passive Activities
The following aren't passive activities.
1. Trade or business activities in which the shareholder
materially participated for the tax year.
2. Any rental real estate activity in which the shareholder
materially participated if the shareholder met both of the
following conditions for the tax year.
a. More than half of the personal services the shareholder
performed in trades or businesses were performed in real
property trades or businesses in which the shareholder
materially participated.
b. The shareholder performed more than 750 hours of
services in real property trades or businesses in which the
shareholder materially participated.
For purposes of this rule, each interest in rental real estate is
a separate activity unless the shareholder elects to treat all
interests in rental real estate as one activity.
If the shareholder is married filing jointly, either the
shareholder or the shareholder’s spouse must separately meet
both of the above conditions, without taking into account
services performed by the other spouse.
A real property trade or business is any real property
development, redevelopment, construction, reconstruction,
acquisition, conversion, rental, operation, management, leasing,
or brokerage trade or business. Services the shareholder
performed as an employee aren't treated as performed in a real
property trade or business unless the shareholder owned more
than 5% of the stock in the employer.
3. The rental of a dwelling unit used by a shareholder for
personal purposes during the year for more than the greater of
14 days or 10% of the number of days that the residence was
rented at fair rental value.
4. An activity of trading personal property for the account of
owners of interests in the activity. For purposes of this rule,
personal property means property that is actively traded, such as
stocks, bonds, and other securities. See Temporary Regulations
section 1.469-1T(e)(6).
The section 469(c)(3) exception for a working interest in
oil and gas properties doesn't apply to an S corporation
because state law generally limits the liability of
shareholders.
Trade or Business Activities
A trade or business activity is an activity (other than a rental
activity or an activity treated as incidental to an activity of holding
property for investment) that:
1. Involves the conduct of a trade or business (within the
meaning of section 162),
2. Is conducted in anticipation of starting a trade or
business, or
3. Involves research or experimental expenditures under
section 174.
If the shareholder doesn't materially participate in the activity,
a trade or business activity of the corporation is a passive activity
for the shareholder.
TIP
Each shareholder must determine if he or she materially
participated in an activity. As a result, while the corporation's
ordinary business income (loss) is reported on page 1 of Form
1120-S, the specific income and deductions from each separate
trade or business activity must be reported on attachments to
Form 1120-S. Similarly, while each shareholder's allocable share
of the corporation's ordinary business income (loss) is reported
in box 1 of Schedule K-1, each shareholder's allocable share of
the income and deductions from each trade or business activity
must be reported on statements attached to each Schedule K-1.
See
Passive Activity Reporting Requirements, later, for more
information.
Rental Activities
Generally, except as noted below, if the gross income from an
activity consists of amounts paid principally for the use of real or
personal tangible property held by the corporation, the activity is
a rental activity.
There are several exceptions to this general rule. Under these
exceptions, an activity involving the use of real or personal
tangible property isn't a rental activity if any of the following
apply.
•
The average period of customer use (defined later) for such
property is 7 days or less.
•
The average period of customer use for such property is 30
days or less and significant personal services (defined later) are
provided by or on behalf of the corporation.
•
Extraordinary personal services (defined later) are provided
by or on behalf of the corporation.
•
The rental of such property is treated as incidental to a
nonrental activity of the corporation under Regulations section
1.469-1(e)(3)(vi).
•
The corporation customarily makes the property available
during defined business hours for nonexclusive use by various
customers.
•
The corporation provides property for use in a nonrental
activity of a partnership in its capacity as an owner of an interest
in such partnership. Whether the corporation provides property
used in an activity of a partnership in the corporation's capacity
as an owner of an interest in the partnership is determined on
the basis of all the facts and circumstances.
In addition, a guaranteed payment described in section
707(c) is never income from a rental activity.
Average period of customer use. Figure the average period
of customer use for a class of property by dividing the total
number of days in all rental periods by the number of rentals
during the tax year. If the activity involves renting more than one
class of property, multiply the average period of customer use of
each class by the ratio of the gross rental income from that class
to the activity's total gross rental income. The activity's average
period of customer use equals the sum of these class-by-class
average periods weighted by gross income. See Regulations
section 1.469-1(e)(3)(iii).
Significant personal services. Personal services include only
services performed by individuals. To determine if personal
services are significant personal services, consider all the
relevant facts and circumstances. Relevant facts and
circumstances include:
•
How often the services are provided,
•
The type and amount of labor required to perform the
services, and
•
The value of the services in relation to the amount charged for
use of the property.
The following services aren't considered in determining
whether personal services are significant.
•
Services necessary to permit the lawful use of the rental
property.
Instructions for Form 1120-S (2023)
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•
Services performed in connection with improvements or
repairs to the rental property that extend the useful life of the
property substantially beyond the average rental period.
•
Services provided in connection with the use of any improved
real property that are similar to those commonly provided in
connection with long-term rentals of high-grade commercial or
residential property. Examples include cleaning and
maintenance of common areas, routine repairs, trash collection,
elevator service, and security at entrances.
Extraordinary personal services. Services provided in
connection with making rental property available for customer
use are extraordinary personal services only if the services are
performed by individuals and the customers' use of the rental
property is incidental to their receipt of the services.
For example, a patient's use of a hospital room is generally
incidental to the care received from the hospital's medical staff.
Similarly, a student's use of a dormitory room in a boarding
school is incidental to the personal services provided by the
school's teaching staff.
Rental activity incidental to a nonrental activity. An activity
isn't a rental activity if the rental of the property is incidental to a
nonrental activity, such as the activity of holding property for
investment, a trade or business activity, or the activity of dealing
in property.
Rental of property is incidental to an activity of holding
property for investment if both of the following apply.
•
The main purpose for holding the property is to realize a gain
from the appreciation of the property.
•
The gross rental income from such property for the tax year is
less than 2% of the smaller of the property's unadjusted basis or
its fair market value (FMV).
Rental of property is incidental to a trade or business activity
if all of the following apply.
•
The corporation owns an interest in the trade or business at all
times during the year.
•
The rental property was mainly used in the trade or business
activity during the tax year or during at least 2 of the 5 preceding
tax years.
•
The gross rental income from the property for the tax year is
less than 2% of the smaller of the property's unadjusted basis or
its FMV.
If the corporation sells or exchanges property that is also
rented during the tax year (in which the gain or loss is
recognized), the rental is treated as incidental to the activity of
dealing in property if, at the time of the sale or exchange, the
property was held primarily for sale to customers in the ordinary
course of the corporation's trade or business.
See Temporary Regulations section 1.469-1T(e)(3) and
Regulations section 1.469-1(e)(3) for more information on the
definition of rental activities for purposes of the passive activity
limitations.
Reporting of rental activities. In reporting the corporation's
income or losses and credits from rental activities, the
corporation must separately report rental real estate activities
and rental activities other than rental real estate activities.
Shareholders who actively participate in a rental real estate
activity may be able to deduct part or all of their rental real estate
losses (and the deduction equivalent of rental real estate credits)
against income (or tax) from nonpassive activities. Generally, the
combined amount of rental real estate losses and the deduction
equivalent of rental real estate credits from all sources (including
rental real estate activities not held through the corporation) that
may be claimed is limited to $25,000.
Report rental real estate activity income (loss) on Form 8825
and line 2 of Schedule K and box 2 of Schedule K-1, rather than
on page 1 of Form 1120-S. Report credits related to rental real
estate activities on lines 13c and 13d of Schedule K (box 13,
codes E and F, of Schedule K-1) and low-income housing credits
on lines 13a and 13b of Schedule K (box 13, codes C and D of
Schedule K-1).
Report income (loss) from rental activities other than rental
real estate on line 3 of Schedule K and credits related to rental
activities other than rental real estate on line 13e of Schedule K
and in box 13, code G, of Schedule K-1.
Portfolio Income
Generally, portfolio income includes all gross income, other than
income derived in the ordinary course of a trade or business,
that is attributable to interest; dividends; royalties; income from a
real estate investment trust, a regulated investment company, a
real estate mortgage investment conduit, a common trust fund, a
controlled foreign corporation, a qualified electing fund, or a
cooperative; income from the disposition of property that
produces income of a type defined as portfolio income; and
income from the disposition of property held for investment. See
Self-Charged Interest, later, for an exception.
Solely for purposes of the preceding paragraph, gross
income derived in the ordinary course of a trade or business
includes (and portfolio income, therefore, doesn't include) the
following types of income.
•
Interest income on loans and investments made in the
ordinary course of a trade or business of lending money.
•
Interest on accounts receivable arising from the performance
of services or the sale of property in the ordinary course of a
trade or business of performing such services or selling such
property, but only if credit is customarily offered to customers of
the business.
•
Income from investments made in the ordinary course of a
trade or business of furnishing insurance or annuity contracts or
reinsuring risks underwritten by insurance companies.
•
Income or gain derived in the ordinary course of an activity of
trading or dealing in any property if such activity constitutes a
trade or business (unless the dealer held the property for
investment at any time before such income or gain is
recognized).
•
Royalties derived by the taxpayer in the ordinary course of a
trade or business of licensing intangible property.
•
Amounts included in the gross income of a patron of a
cooperative by reason of any payment or allocation to the patron
based on patronage occurring with respect to a trade or
business of the patron.
•
Other income identified by the IRS as income derived by the
taxpayer in the ordinary course of a trade or business.
See Temporary Regulations section 1.469-2T(c)(3) for more
information on portfolio income.
Report portfolio income and related deductions on
Schedule K rather than on page 1 of Form 1120-S.
Self-Charged Interest
Certain self-charged interest income and deductions may be
treated as passive activity gross income and passive activity
deductions if the loan proceeds are used in a passive activity.
Generally, self-charged interest income and deductions result
from loans between the corporation and its shareholders.
Self-charged interest also occurs in loans between the
corporation and another S corporation or partnership if each
owner in the borrowing entity has the same proportional
ownership interest in the lending entity.
The self-charged interest rules don't apply to a shareholder's
interest in an S corporation if the S corporation makes an
election under Regulations section 1.469-7(g) to avoid the
application of these rules. To make the election, the S
corporation must attach to its original or amended Form 1120-S
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a statement that includes the name, address, EIN of the S
corporation, and a declaration that the election is being made
under Regulations section 1.469-7(g). The election will apply to
the tax year for which it was made and all subsequent tax years.
Once made, the election can only be revoked with the consent of
the IRS.
For more details on the self-charged interest rules, see
Regulations section 1.469-7.
Grouping Activities
Generally, one or more trade or business or rental activities may
be treated as a single activity if the activities make up an
appropriate economic unit for measurement of gain or loss under
the passive activity rules. Whether activities make up an
appropriate economic unit depends on all the relevant facts and
circumstances. The factors given the greatest weight in
determining whether activities make up an appropriate economic
unit are:
•
Similarities and differences in types of trades or businesses,
•
The extent of common control,
•
The extent of common ownership,
•
Geographical location, and
•
Reliance between or among the activities.
Example. The corporation has a significant ownership
interest in a bakery and a movie theater in Baltimore and a
bakery and a movie theater in Philadelphia. Depending on the
relevant facts and circumstances, there may be more than one
reasonable method for grouping the corporation's activities. For
instance, the following groupings may or may not be permissible.
•
A single activity.
•
A movie theater activity and a bakery activity.
•
A Baltimore activity and a Philadelphia activity.
•
Four separate activities.
Once the corporation chooses a grouping under these rules,
it must continue using that grouping in later tax years unless
either:
•
The corporation determines that the original grouping was
clearly inappropriate, or
•
A material change in the facts and circumstances makes that
grouping clearly inappropriate.
The IRS may regroup the corporation's activities if the
corporation's grouping isn't an appropriate economic unit and
one of the primary purposes for the grouping (or failure to
regroup as required under Regulations section 1.469-4(e)) is to
avoid the passive activity limitations. If you group your activities
under these rules for section 469 purposes, check the
appropriate box in item J.
Limitation on grouping certain activities. The following
activities may not be grouped together.
1. A rental activity with a trade or business activity unless
the activities being grouped together make up an appropriate
economic unit and:
a. The rental activity is insubstantial relative to the trade or
business activity or vice versa; or
b. Each owner of the trade or business activity has the same
proportionate ownership interest in the rental activity. If so, the
portion of the rental activity involving the rental of property to be
used in the trade or business activity can be grouped with the
trade or business activity.
2. An activity involving the rental of real property with an
activity involving the rental of personal property (except personal
property provided in connection with the real property or vice
versa).
3. Any activity with another activity in a different type of
business and in which the corporation holds an interest as a
limited partner or as a limited entrepreneur (as defined in section
461(k)(4)) if that other activity is holding, producing, or
distributing motion picture films or videotapes; farming; leasing
section 1245 property; or exploring for or exploiting oil and gas
resources or geothermal deposits.
Activities conducted through partnerships. Once a
partnership determines its activities under these rules, the
corporation as a partner can use these rules to group those
activities with:
•
Each other,
•
Activities conducted directly by the corporation, or
•
Activities conducted through other partnerships.
The corporation can't treat as separate activities those
activities grouped together by a partnership.
Recharacterization of Passive Income
Under Temporary Regulations section 1.469-2T(f) and
Regulations section 1.469-2(f), net passive income from certain
passive activities must be treated as nonpassive income. Net
passive income is the excess of an activity's passive activity
gross income over its passive activity deductions (current year
deductions and prior year unallowed losses).
Any net passive income recharacterized as nonpassive
income is treated as investment income for purposes of figuring
investment interest expense limitations if it is from (a) an activity
of renting substantially nondepreciable property from an
equity-financed lending activity, or (b) an activity related to an
interest in a pass-through entity that licenses intangible property.
The amount of income from the activities in items (1) through
(3) below that any shareholder will be required to recharacterize
as nonpassive income may be limited under Temporary
Regulations section 1.469-2T(f)(8). Because the corporation
won't have information regarding all of a shareholder's activities,
it must identify all corporate activities meeting the definitions in
items (2) and (3) as activities that may be subject to
recharacterization.
Income from the following six sources is subject to
recharacterization.
1. Significant participation passive activities. A
significant participation passive activity is any trade or business
activity in which the shareholder participated for more than 100
hours during the tax year but didn't materially participate.
Because each shareholder must determine the shareholder's
level of participation, the corporation won't be able to identify
significant participation passive activities.
2. Certain nondepreciable rental property activities.
Net passive income from a rental activity is nonpassive income if
less than 30% of the unadjusted basis of the property used or
held for use by customers in the activity is subject to
depreciation under section 167.
3. Passive equity-financed lending activities. If the
corporation has net income from a passive equity-financed
lending activity, the smaller of the net passive income or the
equity-financed interest income from the activity is nonpassive
income.
4. Rental of property incidental to a development
activity. Net rental activity income is the excess of passive
activity gross income from renting or disposing of property over
passive activity deductions (current year deductions and prior
year unallowed losses) that are reasonably allocable to the
rented property. Net rental activity income is nonpassive income
for a shareholder if all of the following apply.
a. The corporation recognizes gain from the sale, exchange,
or other disposition of the rental property during the tax year.
b. The use of the item of property in the rental activity
started less than 12 months before the date of disposition. The
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use of an item of rental property begins on the first day on which
(a) the corporation owns an interest in the property, (b)
substantially all of the property is either rented or held out for rent
and ready to be rented, and (c) no significant value-enhancing
services remain to be performed.
c. The shareholder materially or significantly participated for
any tax year in an activity that involved performing services to
enhance the value of the property (or any other item of property,
if the basis of the property disposed of is determined in whole or
in part by reference to the basis of that item of property).
Because the corporation can't determine a shareholder's level
of participation, the corporation must identify net income from
property described above (without regard to the shareholder's
level of participation) as income that may be subject to
recharacterization.
5. Rental of property to a nonpassive activity. If a
taxpayer rents property to a trade or business activity in which
the taxpayer materially participates, the taxpayer's net rental
activity income (defined in item (4)) from the property is
nonpassive income.
6. Acquisition of an interest in a pass-through entity
that licenses intangible property. Generally, net royalty
income from intangible property is nonpassive income if the
taxpayer acquired an interest in the pass-through entity after the
pass-through entity created the intangible property or performed
substantial services or incurred substantial costs in developing
or marketing the intangible property. Net royalty income is the
excess of passive activity gross income from licensing or
transferring any right in intangible property over passive activity
deductions (current year deductions and prior year unallowed
losses) that are reasonably allocable to the intangible property.
See Temporary Regulations section 1.469-2T(f)(7)(iii) for
exceptions to this rule.
Passive Activity Reporting Requirements
To allow shareholders to correctly apply the passive activity loss
and credit limitation rules, the corporation must do the following.
1. If the corporation carries on more than one activity,
provide an attached statement for each activity conducted
through the corporation that identifies the type of activity
conducted (trade or business, rental real estate, or rental activity
other than rental real estate). See
Grouping Activities, earlier.
2. The attachment(s) must identify each group. The
attached group activity description must be sufficient for the
shareholders to determine if their other activities qualify to be
added to any groups provided by the corporation.
3. On the attached statement for each activity, provide a
statement using the same box numbers as shown on
Schedule K-1 and detailing the net income (loss), credits, and all
items required to be separately stated under section 1366(a)(1)
from each trade or business activity, from each rental real estate
activity, from each rental activity other than a rental real estate
activity, and from investments.
4. Identify the net income (loss) and the shareholder's share
of corporation interest expense from each activity of renting a
dwelling unit that any shareholder uses for personal purposes
during the year for more than the greater of 14 days or 10% of
the number of days that the residence is rented at fair rental
value.
5. Identify the net income (loss) and the shareholder's share
of interest expense from each activity of trading personal
property conducted through the corporation.
6. For any gain (loss) from the disposition of an interest in an
activity or of an interest in property used in an activity (including
dispositions before 1987 from which gain is being recognized
after 1986):
a.
Identify the activity in which the property was used at the
time of disposition;
b. If the property was used in more than one activity during
the 12 months preceding the disposition, identify the activities in
which the property was used and the adjusted basis allocated to
each activity; and
c. For gains only, if the property was substantially
appreciated at the time of the disposition and the applicable
holding period specified in Regulations section 1.469-2(c)(2)(iii)
(A) wasn't satisfied, identify the amount of the nonpassive gain
and indicate whether or not the gain is investment income under
Regulations section 1.469-2(c)(2)(iii)(F).
7. Specify the amount of gross portfolio income, the interest
expense properly allocable to portfolio income, and expenses
other than interest expense that are clearly and directly allocable
to portfolio income.
8. Identify the ratable portion of any section 481 adjustment
(whether a net positive or a net negative adjustment) allocable to
each corporate activity.
9. Identify any gross income from sources specifically
excluded from passive activity gross income, including:
a. Income from intangible property, if the shareholder is an
individual whose personal efforts significantly contributed to the
creation of the property;
b. Income from state, local, or foreign income tax refunds;
and
c. Income from a covenant not to compete, if the
shareholder is an individual who contributed the covenant to the
corporation.
10.
Identify any deductions that aren't passive activity
deductions.
11.
If the corporation makes a full or partial disposition of its
interest in another entity, identify the gain (loss) allocable to each
activity conducted through the entity, and the gain allocable to a
passive activity that would have been recharacterized as
nonpassive gain had the corporation disposed of its interest in
property used in the activity (because the property was
substantially appreciated at the time of the disposition, and the
gain represented more than 10% of the shareholder's total gain
from the disposition).
12.
Identify the following items from activities that may be
subject to the recharacterization rules (see Recharacterization of
Passive Income, earlier).
a. Net income from an activity of renting substantially
nondepreciable property.
b. The smaller of equity-financed interest income or net
passive income from an equity-financed lending activity.
c. Net rental activity income from property developed (by the
shareholder or the corporation), rented, and sold within 12
months after the rental of the property commenced.
d. Net rental activity income from the rental of property by
the corporation to a trade or business activity in which the
shareholder had an interest (either directly or indirectly).
e. Net royalty income from intangible property if the
shareholder acquired the shareholder's interest in the
corporation after the corporation created the intangible property
or performed substantial services, or incurred substantial costs
in developing or marketing the intangible property.
13.
Identify separately the credits from each activity
conducted by or through the corporation.
14.
Identify the shareholder's pro rata share of the
corporation's self-charged interest income or expense (see
Self-Charged Interest, earlier).
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a. Loans between a shareholder and the corporation.
Identify the lending or borrowing shareholder's share of the
self-charged interest income or expense. If the shareholder
made the loan to the corporation, also identify the activity in
which the loan proceeds were used. If the proceeds were used
in more than one activity, allocate the interest to each activity
based on the amount of the proceeds used in each activity.
b. Loans between the corporation and another S
corporation or partnership. If the corporation's shareholders
have the same proportional ownership interest in the corporation
and the other S corporation or partnership, identify each
shareholder's share of the interest income or expense from the
loan. If the corporation was the borrower, also identify the activity
in which the loan proceeds were used. If the proceeds were
used in more than one activity, allocate the interest to each
activity based on the amount of the proceeds used in each
activity.
Net Investment Income Tax Reporting
Requirements
The information described in this section should be
given directly to the shareholder and shouldn't be
reported by the corporation to the IRS.
To allow shareholders to correctly figure the net investment
income tax where a shareholder disposes of stock in the
corporation during the tax year, the corporation may be required
to provide the shareholder with certain information. The net
investment income tax is a tax imposed on an individual's,
trust's, or estate's net investment income. Net investment income
includes the net gains or losses from the sale of stock in the
corporation. A shareholder who is actively involved in one or
more of the corporation or subsidiary pass-through entities'
trades or businesses (other than trading in financial instruments
or commodities) can reduce the amount of the gain or loss
included in its net investment income. However, to figure its net
investment income, the active shareholder needs certain
information from the corporation.
Generally, the corporation must provide certain information to
the shareholder if the corporation knows, or has reason to know,
the following.
1. The shareholder disposed of stock in the corporation.
2. The shareholder materially participates (within the
meaning of the passive activity loss rules (section 469)) in one or
more of the trades or businesses (within the meaning of section
162) of the corporation or a subsidiary pass-through entity (other
than trading in financial instruments or commodities).
3. The shareholder doesn't qualify for the optional simplified
reporting method for figuring its net investment income
associated with the disposition of the stock. For more
information, see the instructions for Form 8960, line 5c.
Information to be provided to shareholder. Generally, the
corporation must provide the shareholder with its pro rata share
of the net gain and loss from the deemed sale for fair market
value of the corporation's property, other than property that
relates to the trades or businesses in which the shareholder
materially participates, as determined under the passive activity
loss rules applicable to the transfer of an interest in a
pass-through entity. For more information, see the instructions
for Form 8960, line 5c.
If a shareholder, who qualifies for the optional simplified
reporting method, prefers to determine net gain or loss
under the general calculation, the corporation may, but
isn't obligated to, provide the information to the shareholder at
the shareholder's request.
TIP
TIP
Specific Instructions
Period Covered
File the 2023 return for calendar year 2023 and fiscal years that
begin in 2023 and end in 2024. For a fiscal or short tax year
return, fill in the tax year space at the top of the form.
The 2023 Form 1120-S can also be used if:
•
The corporation has a tax year of less than 12 months that
begins and ends in 2024, and
•
The 2024 Form 1120-S isn't available at the time the
corporation is required to file its return.
The corporation must show its 2024 tax year on the 2023
Form 1120-S and take into account any tax law changes that are
effective for tax years beginning after December 31, 2023.
Name and Address
Enter the corporation's true name (as set forth in the charter or
other legal document creating it) and address on the appropriate
lines. Enter the address of the corporation's principal office or
place of business. Include the suite, room, or other unit number
after the street address. If the post office doesn't deliver mail to
the street address and the corporation has a P.O. box, show the
box number instead.
Don't use the address of the registered agent for the
state in which the corporation is incorporated. For
example, if a business is incorporated in Delaware or
Nevada and the corporation's principal office is located in Little
Rock, Arkansas, the corporation should enter the Little Rock
address.
If the corporation receives its mail in care of a third party
(such as an accountant or an attorney), enter “C/O” on the street
address line, followed by the third party's name and street
address or P.O. box.
If the corporation has a foreign address, include the city or
town, state or province, country, and foreign postal code. Don't
abbreviate the country name. Follow the country's practice for
entering the name of the state or province and postal code.
Item B. Business Code
See Principal Business Activity Codes, later. For nonstore
retailers, select the principal business activity (PBA) code by the
primary product that your establishment sells. For example,
establishments primarily selling prescription and
non-prescription drugs, select PBA code 456110 Pharmacies &
Drug Retailers.
Item C. Schedule M-3 Information
For 2023, a corporation that (a) is required to file Schedule M-3
(Form 1120-S), Net Income (Loss) Reconciliation for S
Corporations With Total Assets of $10 Million or More, and has
less than $50 million total assets at the end of the tax year, or (b)
isn't required to file Schedule M-3 (Form 1120-S) and voluntarily
files Schedule M-3 (Form 1120-S), must either complete
Schedule M-3 (Form 1120-S) entirely or complete Schedule M-3
(Form 1120-S) through Part I and complete Form 1120-S,
Schedule M-1, instead of completing Parts II and III of
Schedule M-3 (Form 1120-S). If a corporation chooses to
complete Form 1120-S, Schedule M-1, instead of completing
Parts II and III of Schedule M-3 (Form 1120-S), line 1, of Form
1120-S, Schedule M-1, must equal line 11 of Part I of
Schedule M-3 (Form 1120-S).
Any corporation that completes Parts II and III of
Schedule M-3 (Form 1120-S) must complete all columns,
without exception.
TIP
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If you are filing Schedule M-3, check the “Check if Sch. M-3
attached” box. See the Instructions for Schedule M-3 for more
details.
Item D. Employer Identification
Number (EIN)
Enter the corporation's EIN. If the corporation doesn't have an
EIN, it must apply for one. An EIN can be applied for in the
following ways.
•
Online—Go to IRS.gov/EIN. The EIN is issued immediately
once the application information is validated.
•
By faxing or mailing Form SS-4, Application for Employer
Identification Number.
If the corporation hasn't received its EIN by the time the return
is due, enter “Applied for” and the date the corporation applied in
the space for the EIN. However, if the corporation is filing its
returns electronically, an EIN is required at the time the return is
filed. For more information, see the Instructions for Form SS-4.
Item F. Total Assets
Enter the corporation's total assets (as determined by the
accounting method regularly used in keeping the corporation's
books and records) at the end of the tax year. If there were no
assets at the end of the tax year, enter -0-.
If the corporation is required to complete Schedule L, enter
total assets from Schedule L, line 15, column (d), on page 1,
item F. If the S election terminated during the tax year, see the
instructions for Schedule L, later, for special rules that may apply
when figuring the corporation's year-end assets.
Item G. Electing To Be an S
Corporation
If “Yes,” attach Form 2553 if not already filed. Form 2553 must
generally be filed no more than 2 months and 15 days after the
beginning of the tax year the election is to take effect. A Form
2553 filed with Form 1120-S will generally be a late election. But
with reasonable cause you may be able to request relief for the
late election on Form 2553. See “Relief for Late Elections” in the
Instructions for Form 2553.
Item H. Final Return, Name Change,
Address Change, Amended Return, or
S Election Termination
•
If this is the corporation's final return and it will no longer exist,
check the “Final return” box. Also check the “Final K-1” box on
each Schedule K-1.
•
If the corporation changed its name since it last filed a return,
check the “Name change” box. Generally, a corporation must
also have amended its articles of incorporation and filed the
amendment with the state in which it was incorporated.
•
If the corporation has changed its address since it last filed a
return (including a change to an “in care of” address), check the
“Address change” box.
•
If this amends a previously filed return, check the “Amended
return” box. If Schedules K-1 are also being amended, check the
“Amended K-1” box on each Schedule K-1.
•
If the corporation has terminated its S election, check the “S
election termination” box. See Termination of Election, earlier.
If a change in address or responsible party occurs after
the return is filed, use Form 8822-B, Change of Address
or Responsible Party — Business, to notify the IRS. See
the Instructions for Form 8822-B for details.
TIP
Item J. Aggregation or Grouping of
Certain Activities
For information about aggregating at-risk activities, see
Aggregation of Activities under At-Risk Limitations, earlier. For
information about grouping passive activities, see Grouping
Activities under Passive Activity Limitations, earlier.
Income
Report only trade or business activity income on lines 1a
through 5. Don't report rental activity income or portfolio
income on these lines. See
Passive Activity Limitations,
earlier, for definitions of rental income and portfolio income.
Rental activity income and portfolio income are reported on
Schedules K and K-1. Rental real estate activities are also
reported on Form 8825.
Tax-exempt income. Don't include any tax-exempt income on
lines 1a through 5. A corporation that receives any tax-exempt
income other than interest, or holds any property or engages in
any activity that produces tax-exempt income, reports this
income on line 16b of Schedule K and in box 16 of Schedule K-1
using code B.
Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other
regulated investment company, on line 16a of Schedule K and in
box 16 of Schedule K-1 using code A.
See Deductions, later, for information on how to report
expenses related to tax-exempt income.
Canceled debt exclusion. If the corporation has had debt
discharged resulting from a title 11 bankruptcy proceeding or
while insolvent, see Form 982, Reduction of Tax Attributes Due
to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax
Guide.
Line 1a. Gross Receipts or Sales
Enter on line 1a gross receipts or sales from all business
operations except for amounts that must be reported on lines 4
and 5. If a cost offset method under section 451(b) or (c) is
elected, the resulting gross income is reported on line 1a.
Special rules apply to certain income, as discussed below.
Advance payments. In general, advance payments are
reported in the year of receipt. For exceptions to this general rule
for corporations that use an accrual method of accounting, see
the following.
•
To report income from long-term contracts, see section 460.
•
For rules that allow a limited deferral of advance payments
beyond the current tax year, see section 451(c) and Regulations
section 1.451-8.
•
For information on adopting or changing to a permissible
method for reporting advance payments for goods and services
by an accrual method corporation, see the Instructions for Form
3115.
Installment sales. Generally, the installment method can't be
used for dealer dispositions of property. A “dealer disposition” is
any disposition of:
•
Personal property by a person who regularly sells or otherwise
disposes of personal property of the same type on the
installment plan, or
•
Real property held for sale to customers in the ordinary
course of the taxpayer's trade or business.
These restrictions on using the installment method don't
apply to dispositions of property used or produced in a farming
business or sales of timeshares and residential lots for which the
corporation elects to pay interest under section 453(l)(3).
CAUTION
!
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For sales of timeshares and residential lots reported under
the installment method, each shareholder's income tax is
increased by the shareholder's pro rata share of the interest
payable under section 453(l)(3).
Enter on line 1a the gross profit on collections from
installment sales for any of the following.
•
Dispositions of property used or produced in the trade or
business of farming.
•
Certain dispositions of timeshares and residential lots
reported under the installment method.
Attach a statement showing the following information for the
current and the 3 preceding years.
•
Gross sales.
•
Cost of goods sold.
•
Gross profits.
•
Percentage of gross profits to gross sales.
•
Amount collected.
•
Gross profit on the amount collected.
Line 1b. Returns and Allowances
Enter cash and credit refunds the corporation made to
customers for returned merchandise, rebates, and other
allowances made on gross receipts or sales.
Line 2. Cost of Goods Sold
Complete and attach Form 1125-A, Cost of Goods Sold, if
applicable. Enter on line 2 the amount from Form 1125-A, line 8.
See Form 1125-A and its instructions.
Line 4. Net Gain (Loss) From Form 4797
Include only ordinary gains or losses from the sale,
exchange, or involuntary conversion of assets used in a
trade or business activity. Ordinary gains or losses from
the sale, exchange, or involuntary conversion of rental activity
assets are reported separately on line 19 of Form 8825, or line 3
of Schedule K, and box 3 of Schedule K-1, generally as a part of
the net income (loss) from the rental activity.
A corporation that is a partner in a partnership must include
on Form 4797, Sales of Business Property, its share of ordinary
gains (losses) from sales, exchanges, or involuntary conversions
(other than casualties or thefts) of the partnership's trade or
business assets.
Corporations shouldn't use Form 4797 to report the sale or
other disposition of property if a section 179 expense deduction
was previously passed through to any of its shareholders for that
property. Instead, report it in box 17 of Schedule K-1 using code
K. See
Dispositions of property with section 179 deductions
(code K), later, for details.
Line 5. Other Income (Loss)
Enter any other trade or business income (loss) not included on
lines 1a through 4. List the type and amount of income on an
attached statement.
Examples of other income include the following.
•
Interest income derived in the ordinary course of the
corporation's trade or business, such as interest charged on
receivable balances. See Temporary Regulations section
1.469-2T(c)(3).
•
Recoveries of bad debts deducted in prior years under the
specific charge-off method.
•
Taxable income from insurance proceeds.
•
Any amount included in income from line 2 of Form 6478,
Biofuel Producer Credit.
•
Any amount included in income from line 10 of Form 8864,
Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels
Credit.
CAUTION
!
•
The recapture amount under section 280F if the business use
of listed property drops to 50% or less. To figure the recapture
amount, complete Part IV of Form 4797.
•
The ratable portion of any positive section 481(a) adjustments
resulting from changes in accounting methods. Show the
computation of the positive section 481(a) adjustments on an
attached statement. In the statement, include, for each section
481(a) adjustment, the total section 481(a) adjustment, the
ratable portion included in current year taxable income, and a
brief description of the changes in methods of accounting to
which the section 481(a) adjustment relates. See Rev. Proc.
2015-13, 2015-5 I.R.B. 419, available at
IRS.gov/irb/
2015-5_IRB#RP-2015-13.
•
Part or all of the proceeds received from certain
corporate-owned life insurance contracts issued after August 17,
2006. Corporations that own one or more employer-owned life
insurance contracts issued after this date must file Form 8925,
Report of Employer-Owned Life Insurance Contracts. See Form
8925.
•
Any payroll tax credit taken by an employer on its 2023
employment tax returns (Forms 941, 943, and 944) for qualified
paid sick and qualified paid family leave under FFCRA and ARP
(both the nonrefundable and refundable portions). The
corporation must include the full amount of the credit for qualified
sick and family leave wages in gross income for the tax year that
includes the last day of the calendar quarter in which the credit is
allowed.
Note. A credit is available only if the leave was taken after
March 31, 2020, and before October 1, 2021, and only after the
qualified leave wages were paid, which might, under certain
circumstances, not occur until a quarter after September 30,
2021, including quarters in 2023.
Don't include items requiring separate computations by
shareholders that must be reported on Schedules K and K-1.
See the instructions for Schedules K and K-1 later in these
instructions.
Ordinary Income (Loss) From a Partnership,
Estate, or Trust
Enter the ordinary income (loss) shown on Schedule K-1 (Form
1065) or Schedule K-1 (Form 1041), or other ordinary income
(loss) from a foreign partnership, estate, or trust. Show the
partnership's, estate's, or trust's name, address, and EIN on a
separate statement attached to this return. If the amount entered
is from more than one source, identify the amount from each
source.
Don't include portfolio income or rental activity income (loss)
from a partnership, estate, or trust on this line. Instead, report
these amounts on Schedules K and K-1, or on line 20a of Form
8825 if the amount is from a rental real estate activity.
Ordinary income or loss from a partnership that is a publicly
traded partnership isn't reported on this line. Instead, report the
amount separately on line 10 of Schedule K and in box 10 of
Schedule K-1 using code ZZ.
Treat shares of other items separately reported on
Schedule K-1 issued by the other entity as if the items were
realized or incurred by this corporation.
If there is a loss from a partnership, the amount of the loss
that may be claimed by the S corporation is subject to the basis
limitations.
If the tax year of the S corporation doesn't coincide with the
tax year of the partnership, estate, or trust, include the ordinary
Instructions for Form 1120-S (2023)
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income (loss) from the other entity in the tax year in which the
other entity's tax year ends.
Deductions
Report only trade or business activity deductions on
lines 7 through 20.
Don't report the following expenses on lines 7 through 20.
•
Rental activity expenses. Report these expenses on Form
8825 or line 3b of Schedule K.
•
Deductions allocable to portfolio income. Report these
deductions on line 12d of Schedule K and in box 12 of
Schedule K-1 using code I or L.
•
Nondeductible expenses (for example, expenses connected
with the production of tax-exempt income). Report
nondeductible expenses on line 16c of Schedule K and in box 16
of Schedule K-1 using code C.
•
Qualified expenditures to which an election under section
59(e) may apply. The instructions for line 12c of Schedule K and
for Schedule K-1, box 12, code J, explain how to report these
amounts.
•
Items the corporation must state separately that require
separate computations by the shareholders. Examples include
expenses incurred for the production of income instead of in a
trade or business, charitable contributions, foreign taxes paid or
accrued, intangible drilling and development costs, soil and
water conservation expenditures, amortizable basis of
reforestation expenditures, and exploration expenditures. The
pro rata shares of these expenses are reported separately to
each shareholder on Schedule K-1.
Limitations on Deductions
Section 263A uniform capitalization rules. The uniform
capitalization rules of section 263A generally require
corporations to capitalize, or include in inventory, certain costs
incurred in connection with the following.
•
The production of real property and tangible personal property
held in inventory or held for sale in the ordinary course of
business.
•
Real property or personal property (tangible and intangible)
acquired for resale.
•
The production of real property and tangible personal property
by a corporation for use in its trade or business or in an activity
engaged in for profit.
Tangible personal property produced by a corporation
includes a film, sound recording, videotape, book, or similar
property.
The costs required to be capitalized under section 263A
aren't deductible until the property to which the costs relate is
sold, used, or otherwise disposed of by the corporation.
Exceptions. Section 263A doesn't apply to the following.
•
Inventoriable items accounted for in the same manner as
materials and supplies that aren't incidental. See Form 1125-A
and its instructions for more details.
•
A small business taxpayer (defined earlier) isn’t required to
capitalize costs under section 263A. A taxpayer that wants to
discontinue capitalizing costs under section 263A must change
its method of accounting. See section 263A(i) and the
Instructions for Form 3115.
•
Timber.
•
Most property produced under a long-term contract.
•
Certain property produced in a farming business. See Special
rules for certain corporations engaged in farming, later.
•
Geological and geophysical costs amortized under section
167(h).
•
Certain plants bearing fruits and nuts depreciated under
section 168(k)(5).
CAUTION
!
The corporation must report the following costs separately to
the shareholders for purposes of determinations under section
59(e).
•
Research and experimental costs under section 174.
•
Intangible drilling costs for oil, gas, and geothermal property.
•
Mining exploration and development costs.
Indirect costs. Corporations subject to the uniform
capitalization rules are required to capitalize not only direct costs
but an allocable part of most indirect costs (including taxes) that
benefit the assets produced or acquired for resale, or are
incurred because of the performance of production or resale
activities.
For inventory, indirect costs that must be capitalized include
the following.
•
Administration expenses.
•
Taxes.
•
Depreciation.
•
Insurance.
•
Compensation paid to officers attributable to services.
•
Rework labor.
•
Contributions to pension, stock bonus, and certain
profit-sharing, annuity, or deferred compensation plans.
Regulations section 1.263A-1(e)(3) specifies other indirect
costs that relate to production or resale activities that must be
capitalized and those that may be currently deductible.
Interest expense paid or incurred during the production
period of designated property must be capitalized and is
governed by special rules. For more details, see Regulations
sections 1.263A-8 through 1.263A-15.
For more details on the uniform capitalization rules, see
Regulations sections 1.263A-1 through 1.263A-3.
Special rules for certain corporations engaged in farming.
For S corporations not required to use an accrual method of
accounting, the rules of section 263A don't apply to expenses of
raising any:
•
Animal, or
•
Plant that has a preproductive period of 2 years or less.
Shareholders of S corporations not required to use an accrual
method of accounting may elect to currently deduct the
preproductive period expenses of certain plants that have a
preproductive period of more than 2 years. Because each
shareholder makes the election to deduct these expenses, the
corporation shouldn't capitalize them. Instead, the corporation
should report the expenses separately on line 12d of Schedule K
and report each shareholder's pro rata share in box 12 of
Schedule K-1 using code M.
See Uniform Capitalization Rules in chapter 6 of Pub. 225,
Farmer's Tax Guide, sections 263A(d) and (e), and Regulations
section 1.263A-4 for definitions and other details.
Transactions between related taxpayers. Generally, an
accrual basis S corporation can deduct business expenses and
interest owed to a related party (including any shareholder) only
in the tax year of the corporation that includes the day on which
the payment is includible in the income of the related party. See
section 267 for details.
Business interest. Business interest expense may be limited.
See section 163(j) and Form 8990. Also see Schedule B,
questions 9 and 10, and the related instructions for question 9
and question 10, later.
Section 291 limitations. If the S corporation was a C
corporation for any of the 3 immediately preceding years, the
corporation may be required to adjust items such as deductions
for depletion of iron ore and coal, and the amortizable basis of
pollution control facilities. If this applies, see section 291 to figure
the adjustment.
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Business start-up and organizational costs. A corporation
can elect to deduct a limited amount of start-up and
organizational costs it paid or incurred. Any remaining costs
must generally be amortized over a 180-month period. See
sections 195 and 248 and the related regulations.
Time for making an election. The corporation generally
elects to deduct start-up or organizational costs by claiming the
deduction on its income tax return filed by the due date
(including extensions) for the tax year in which the active trade or
business begins. For more details, see the Instructions for Form
4562.
If the corporation timely filed its return for the year without
making an election, it can still make an election by filing an
amended return within 6 months of the due date of the return
(excluding extensions). Clearly indicate the election on the
amended return and enter “Filed pursuant to section
301.9100-2” at the top of the amended return. File the amended
return at the same address the corporation filed its original
return. The election applies when figuring taxable income for the
current tax year and all subsequent years.
The corporation can choose to forgo the elections above by
clearly electing to capitalize its start-up or organizational costs
on its income tax return filed by the due date (including
extensions) for the tax year in which the active trade or business
begins.
The election to either amortize or capitalize start-up
costs is irrevocable and applies to all start-up costs that
are related to the trade or business.
Report the deductible amount of start-up and organizational
costs and any amortization on line 20. For amortization that
begins during the current tax year, complete and attach Form
4562, Depreciation and Amortization.
Reducing certain expenses for which credits are allowable.
If the corporation claims certain credits, it may need to reduce
the otherwise allowable deductions for expenses used to figure
the credit. This applies to credits such as the following.
•
Work opportunity credit (Form 5884).
•
Credit for increasing research activities (Form 6765).
•
Orphan drug credit (Form 8820).
•
Disabled access credit (Form 8826).
•
Empowerment zone employment credit (Form 8844).
•
Credit for employer social security and Medicare taxes paid
on certain employee tips (Form 8846).
•
Credit for small employer pension plan startup costs,
auto-enrollment, and military spouse participation (Form 8881).
•
Credit for employer-provided childcare facilities and services
(Form 8882).
•
Low sulfur diesel fuel production credit (Form 8896).
•
Credit for employer differential wage payments (Form 8932).
•
Credit for small employer health insurance premiums (Form
8941).
•
Employer credit for paid family and medical leave (Form
8994).
If the corporation has any of the credits listed above, figure
the current year credit before figuring the deduction for expenses
on which the credit is based. If the corporation capitalized any
costs on which it figured the credit, it may need to reduce the
amount capitalized by the credit attributable to these costs.
See the instructions for the form used to figure the applicable
credit for more details.
TIP
Line 7. Compensation of Officers and
Line 8. Salaries and Wages
Distributions and other payments by an S corporation to
a corporate officer must be treated as wages to the
extent the amounts are reasonable compensation for
services rendered to the corporation.
Enter on line 7 the total compensation of all officers paid or
incurred in the trade or business activities of the corporation. The
corporation determines who is an officer under the laws of the
state where it is incorporated.
Enter on line 8 the total salaries and wages paid or incurred to
employees (other than officers) during the tax year.
If the corporation claims a credit for any wages paid or
incurred, it may need to reduce the amounts on lines 7
and 8. See
Reducing certain expenses for which credits
are allowable, earlier.
Don't include salaries and wages reported elsewhere on the
return, such as amounts included in cost of goods sold, elective
contributions to a section 401(k) cash or deferred arrangement,
or amounts contributed under a salary reduction SEP agreement
or a SIMPLE IRA plan.
If the corporation's total receipts (page 1, line 1a, plus lines 4
and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6;
income or net gain reported on Schedule K, lines 7, 8a, 9, and
10; and income or net gain reported on Form 8825, lines 2, 19,
and 20a) are $500,000 or more, complete Form 1125-E,
Compensation of Officers. Enter on Form 1120-S, line 7, the
amount from Form 1125-E, line 4.
Include fringe benefit expenditures made on behalf of officers
and employees owning more than 2% of the corporation's stock.
Also report these fringe benefits as wages in box 1 of Form W-2.
Don't include amounts paid or incurred for fringe benefits of
officers and employees owning 2% or less of the corporation's
stock. These amounts are reported on line 18. See the
instructions for that line for information on the types of
expenditures that are treated as fringe benefits and for the stock
ownership rules.
Report amounts paid for health insurance coverage for a
more-than-2% shareholder (including that shareholder's spouse,
dependents, and any children under age 27 who aren't
dependents) as an information item in box 14 of that
shareholder's Form W-2. A more-than-2% shareholder may be
allowed to deduct such amounts on Schedule 1 (Form 1040),
line 17.
If a shareholder or a member of the family of one or more
shareholders of the corporation renders services or furnishes
capital to the corporation for which reasonable compensation
isn’t paid, the IRS may make adjustments in the items taken into
account by such individuals to reflect the value of such services
or capital. See section 1366(e).
Line 9. Repairs and Maintenance
Enter the cost of repairs and maintenance not claimed
elsewhere on the return, such as labor and supplies, that don't
add to the value of the property or appreciably prolong its life.
The corporation can deduct these repairs only to the extent they
relate to a trade or business activity. See Regulations section
1.162-4. The corporation may elect to capitalize certain repair
and maintenance costs consistent with its books and records.
See Regulations section 1.263(a)-3(n) for information on how to
make the election.
New buildings, machinery, or permanent improvements that
increase the value of the property aren't deductible as repair and
CAUTION
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CAUTION
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maintenance expenses. These expenses must be capitalized
and depreciated or amortized. However, amounts paid for
routine maintenance on property, including buildings, may be
deductible. See Regulations section 1.263(a)-3(i).
Line 10. Bad Debts
Enter the total debts that became worthless in whole or in part
during the tax year, but only to the extent such debts relate to a
trade or business activity. Report deductible nonbusiness bad
debts as a short-term capital loss on Form 8949, Sales and
Other Dispositions of Capital Assets. A corporation that uses the
cash method of accounting can't claim a bad debt deduction
unless the amount was previously included in income.
Line 11. Rents
Enter rent paid on business property used in a trade or business
activity. Don't deduct rent for a dwelling unit occupied by any
shareholder for personal use.
If the corporation rented or leased a vehicle, enter the total
annual rent or lease expense paid or incurred in the trade or
business activities of the corporation during the tax year. Also
complete Part V of Form 4562. If the corporation leased a vehicle
for a term of 30 days or more, the deduction for vehicle lease
expense may have to be reduced by including in gross income
an amount called the “inclusion amount.” The corporation may
have an inclusion amount if:
The lease term began:
And the vehicle's
FMV on the first
day of the lease
exceeded:
Cars (excluding trucks and vans)
After 12/31/22 but before 1/1/24 ............ $60,000
After 12/31/21 but before 1/1/23 ............ $56,000
After 12/31/20 but before 1/1/22 ........... $51,000
After 12/31/17 but before 1/1/21 ........... $50,000
After 12/31/12 but before 1/1/18 ............ $19,000
Trucks and vans
After 12/31/22 but before 1/1/24 ............ $60,000
After 12/31/21 but before 1/1/23 ............ $56,000
After 12/31/20 but before 1/1/22 ............ $51,000
After 12/31/17 but before 1/1/21 ............ $50,000
After 12/31/13 but before 1/1/18 ............ $19,500
After 12/31/09 but before 1/1/14 ............ $19,000
See Pub. 463, Travel, Gift, and Car Expenses, for instructions
on figuring the inclusion amount.
Note. The inclusion amount for lease terms beginning in 2024
will be published in the Internal Revenue Bulletin in early 2024.
Line 12. Taxes and Licenses
Enter taxes and licenses paid or incurred in the trade or business
activities of the corporation, unless they are reflected elsewhere
on the return. Federal import duties and federal excise and
stamp taxes are deductible only if paid or incurred in carrying on
the trade or business of the corporation.
Foreign taxes are included on line 12 only if they are
deductible and not creditable taxes under sections 901 and 903.
See Schedule K-2 (Form 1120-S), Part II, Section 2, line 45,
column (g).
Do not reduce the corporation’s deduction for social
security and Medicare taxes by the nonrefundable and
refundable portions of any FFCRA and ARP credits for
qualified sick and family leave wages claimed on its employment
tax returns. Instead, report this amount as income on line 5.
Don't deduct the following taxes on line 12.
•
Federal income taxes (except for the portion of built-in gains
tax allocable to ordinary income) or taxes reported elsewhere on
the return.
•
Creditable foreign taxes under sections 901 and 903. Report
these taxes on line 16f of Schedule K and in box 16 of
Schedule K-1 using code F.
•
Taxes allocable to a rental activity. Report taxes allocable to a
rental real estate activity on Form 8825. Report taxes allocable
to a rental activity other than a rental real estate activity on
line 3b of Schedule K.
•
Taxes paid or incurred for the production or collection of
income, or for the management, conservation, or maintenance of
property held to produce income. Report these taxes separately
on line 12d of Schedule K and in box 12 of Schedule K-1 using
code ZZ.
See section 263A(a) for rules on capitalization of allocable
costs (including taxes) for any property.
•
Taxes not imposed on the corporation.
•
Taxes, including state or local sales taxes, that are paid or
incurred in connection with an acquisition or disposition of
property (these taxes must be treated as a part of the cost of the
acquired property or, in the case of a disposition, as a reduction
in the amount realized on the disposition).
•
Taxes assessed against local benefits that increase the value
of the property assessed (such as for paving, etc.).
See section 164(d) for information on apportionment of taxes
on real property between seller and purchaser.
Line 13. Interest
Include only interest incurred in the trade or business activities of
the corporation that isn't claimed elsewhere on the return.
Don't include interest expense on the following.
•
On debt used to purchase rental property or debt used in a
rental activity. Interest allocable to a rental real estate activity is
reported on Form 8825 and is used in arriving at net income
(loss) from rental real estate activities on line 2 of Schedule K
and in box 2 of Schedule K-1. Interest allocable to a rental
activity other than a rental real estate activity is included on
line 3b of Schedule K and is used in arriving at net income (loss)
from a rental activity (other than a rental real estate activity). This
net amount is reported on line 3c of Schedule K and in box 3 of
Schedule K-1.
•
On debt used to buy property held for investment. Interest that
is clearly and directly allocable to interest, dividend, royalty, or
annuity income not derived in the ordinary course of a trade or
business is reported on line 12b of Schedule K and in box 12 of
Schedule K-1 using code H. See the instructions for line 12b of
Schedule K; for box 12, code H, of Schedule K-1; and Form
4952, Investment Interest Expense Deduction, for more
information on investment property.
•
On debt proceeds allocated to distributions made to
shareholders during the tax year. Instead, report such interest on
line 12d of Schedule K and in box 12 of Schedule K-1 using
code AC. To determine the amount to allocate to distributions to
shareholders, see Notice 89-35, 1989-1 C.B. 675.
•
On debt required to be allocated to the production of
designated property. Designated property includes real property,
personal property that has a class life of 20 years or more, and
other tangible property requiring more than 2 years (1 year in the
case of property with a cost of more than $1 million) to produce
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or construct. Interest allocable to designated property produced
by a corporation for its own use or for sale must be capitalized. In
addition, a corporation must also capitalize any interest on debt
allocable to an asset used to produce designated property. A
shareholder may have to capitalize interest that the shareholder
incurs during the tax year for the S corporation's production
expenditures. Similarly, interest incurred by an S corporation may
have to be capitalized by a shareholder for the shareholder's
own production expenditures. The information required by the
shareholder to properly capitalize interest for this purpose must
be provided by the corporation on an attachment for box 17 of
Schedule K-1 using code P. See section 263A(f) and
Regulations sections 1.263A-8 through 1.263A-15.
Special rules apply to the following.
•
Allocating interest expense among activities so that the
limitations on passive activity losses, investment interest, and
personal interest can be properly figured. Generally, interest
expense is allocated in the same manner as debt is allocated.
Debt is allocated by tracing disbursements of the debt proceeds
to specific expenditures. Temporary Regulations section
1.163-8T gives rules for tracing debt proceeds to expenditures.
•
Prepaid interest, which can generally only be deducted over
the term of the debt. See Regulations sections 1.163-7, 1.446-2,
and 1.1273-2(g) for details. Also see section 461(g).
•
Interest that is allocable to unborrowed policy cash values of
life insurance, endowment, or annuity contracts issued after
June 8, 1997. See section 264(f). Attach a statement showing
the computation of the deduction.
•
Forgone interest on below-market-rate loans (see section
7872).
Limitation on deduction. Business interest expense is
generally limited to the sum of business interest income, 30% of
adjusted taxable income, and floor plan financing interest. See
Form 8990, Limitation on Business Interest Expense Under
Section 163(j), and its instructions for more information. The
limitation applies at the S corporation level, and any excess
business interest expense is carried over at the corporate level.
Business interest expense includes any interest paid or
accrued on indebtedness properly allocable to a trade or
business. A small business taxpayer is a taxpayer that isn’t a tax
shelter (as defined in section 448(d)(3)) and has average annual
gross receipts of $29 million or less for the 3 prior tax years
under the gross receipts test of section 448(c). Gross receipts
include the aggregate gross receipts from all persons treated as
a single employer, such as a controlled group of corporations,
commonly controlled partnerships or proprietorships, and
affiliated service groups. If the corporation fails to meet the gross
receipts test, Form 8990 is generally required. Also see
Schedule B, questions 9 and 10.
Line 14. Depreciation
Enter the depreciation claimed on assets used in a trade or
business activity less any depreciation reported elsewhere (for
example, on Form 1125-A). See the Instructions for Form 4562,
or Pub. 946, How To Depreciate Property, to figure the amount of
depreciation to enter on this line.
Complete and attach Form 4562 only if the corporation
placed property in service during the tax year or claims
depreciation on any car or other listed property.
Don't include any section 179 expense deduction on this line.
This amount isn't deducted by the corporation. Instead, it is
passed through to the shareholders in box 11 of Schedule K-1.
However, reduce the basis of any asset of the S corporation by
the amount of section 179 expense elected by the S corporation,
even if a portion of that amount can't be passed through to its
shareholders this year and must be carried forward because of
limitations at the S corporation level. See Regulations section
1.179-1(f)(2).
Line 15. Depletion
If the corporation claims a deduction for timber depletion,
complete and attach Form T (Timber), Forest Activities
Schedule.
Don't deduct depletion for oil and gas properties. Each
shareholder figures depletion on oil and gas properties.
See the instructions for Schedule K-1, box 17, code R,
for the information on oil and gas depletion that must be supplied
to the shareholders by the corporation.
Line 17. Pension, Profit-Sharing, etc., Plans
Enter the deductible contributions not claimed elsewhere on the
return made by the corporation for its employees under a
qualified pension, profit-sharing, annuity, or simplified employee
pension (SEP) or SIMPLE IRA plan, or any other deferred
compensation plan.
If the corporation contributes to an individual retirement
arrangement (IRA) for employees, include the contribution in
salaries and wages on page 1, line 8, or Form 1125-A, line 3,
and not on line 17.
Employers who maintain a pension, profit-sharing, or other
funded deferred compensation plan, whether or not the plan is
qualified under the Internal Revenue Code and whether or not a
deduction is claimed for the current tax year, must generally file
the applicable form listed below.
•
Form 5500, Annual Return/Report of Employee Benefit Plan.
•
Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan. File this form instead of Form 5500
generally if there were under 100 participants at the beginning of
the plan year.
•
Form 5500-EZ, Annual Return of A One-Participant (Owners/
Partners and Their Spouses) Retirement Plan or A Foreign Plan.
File this form for a plan that only covers the owner (or the owner
and the owner's spouse) but only if the owner (or the owner and
the owner's spouse) owns the entire business.
Form 5500 and Form 5500-SF must be filed
electronically under the computerized ERISA Filing
Acceptance System (EFAST2). For more information,
see the EFAST2 website at
www.EFAST.dol.gov.
There are penalties for not filing these forms on time and for
overstating the pension plan deduction. See sections 6652(e)
and 6662(f).
Line 18. Employee Benefit Programs
Enter amounts for fringe benefits paid or incurred on behalf of
employees owning 2% or less of the corporation's stock. These
fringe benefits include (a) employer contributions to certain
accident and health plans, (b) the cost of up to $50,000 of
group-term life insurance on an employee's life, and (c) meals
and lodging furnished for the employer's convenience.
Don't deduct amounts that are an incidental part of a pension,
profit-sharing, etc., plan included on line 17 or amounts reported
elsewhere on the return or on Form 1125-A.
Report amounts for fringe benefits paid on behalf of
employees owning more than 2% of the corporate stock on line 7
or 8 (or Form 1125-E), whichever applies. An employee is
considered to own more than 2% of the corporation's stock if that
person owns on any day during the tax year more than 2% of the
outstanding stock of the corporation or stock possessing more
than 2% of the combined voting power of all stock of the
corporation. See section 318 for attribution rules.
CAUTION
!
TIP
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Line 19. Energy Efficient Commercial Buildings
Deduction
Complete and attach Form 7205 if claiming the energy efficient
commercial building deduction. See the Instructions for Form
7205 for more information. Also, see section 179D.
Line 20. Other Deductions
Enter the total allowable trade or business deductions that aren't
deductible elsewhere on page 1 of Form 1120-S. Attach a
statement listing by type and amount each deduction included
on this line.
Examples of other deductions include the following.
•
Amortization. See Part VI of Form 4562.
•
Certain business start-up and organizational costs (discussed
earlier).
•
Insurance premiums.
•
Legal and professional fees.
•
Supplies used and consumed in the business.
•
Travel, meal, and entertainment expenses. Special rules apply
(discussed later).
•
Utilities.
•
Any negative section 481(a) adjustments resulting from
changes in accounting methods. Show the computation of the
negative section 481(a) adjustments on an attached statement.
In the statement, for each section 481(a) adjustment, include the
total section 481(a) adjustment and a brief description of the
changes in methods of accounting to which the section 481(a)
adjustment relates. See Rev. Proc. 2015-13.
Don't deduct the following on line 20.
•
Amounts paid or incurred for any settlement, payout, or
attorney fees related to sexual harassment or sexual abuse, if
such payments are subject to a nondisclosure agreement. See
section 162(q).
•
Expenses allocable to tax-exempt income. Report these
expenses on Schedule K, line 16c.
•
Fines or similar penalties paid to or at the direction of a
government or governmental entity for violating any law.
However, see exceptions (discussed later). Report these
expenses on Schedule K, line 16c.
•
Items that must be reported separately on Schedules K and
K-1.
Special Rules
Travel, meals, and entertainment. Subject to limitations and
restrictions discussed below, a corporation can deduct ordinary
and necessary travel and meal expenses paid or incurred in its
trade or business. Generally, entertainment expenses,
membership dues, and facilities used in connection with these
activities can't be deducted. Generally, no deduction is allowed
for qualified transportation fringe benefits. Also, special rules
apply to deductions for gifts, luxury water travel, and convention
expenses. See section 274 and Pub. 463 for details.
Travel. The corporation can't deduct travel expenses of any
individual accompanying a corporate officer or employee,
including a spouse or dependent of the officer or employee,
unless:
•
That individual is an employee of the corporation, and
•
The travel is for a bona fide business purpose and would
otherwise be deductible by that individual.
Meals. Generally, the corporation can deduct only 50% of the
amount otherwise allowable for meal expenses paid or incurred
in its trade or business. In addition (subject to exceptions under
section 274(k)(2)):
•
Meals must not be lavish or extravagant, and
•
An employee of the corporation must be present at the meal.
See section 274(n)(3) for a special rule that applies to
expenses for meals consumed by individuals subject to the
hours of service limits of the Department of Transportation.
Qualified transportation fringes (QTFs). Generally, under
section 274(a)(4), there is no deduction allowed with respect to
QTFs provided by employers to their employees. QTFs are
defined in section 132(f)(1) to include:
•
Transportation in a commuter highway vehicle between the
employee's residence and place of employment,
•
Any transit pass, and
•
Qualified parking.
See section 274 and Pub. 15-B, Employer’s Tax Guide to
Fringe Benefits, for details.
Membership dues. The corporation can generally deduct
amounts paid or incurred for membership dues in civic or public
service organizations, professional organizations (such as bar
and medical associations), business leagues, trade
associations, chambers of commerce, boards of trade, and real
estate boards. However, no deduction is allowed if a principal
purpose of the organization is to entertain or provide
entertainment facilities for members or their guests. In addition,
corporations can't deduct membership dues in any club
organized for business, pleasure, recreation, or other social
purpose. This includes country clubs, golf and athletic clubs,
airline and hotel clubs, and clubs operated to provide meals
under conditions favorable to business discussion.
Entertainment facilities. The corporation can't deduct an
expense paid or incurred for a facility (such as a yacht or hunting
lodge) used for an activity usually considered entertainment,
amusement, or recreation.
Amounts treated as compensation. The corporation may
be able to deduct otherwise nondeductible entertainment,
amusement, or recreation expenses if the amounts are treated
as compensation to the recipient and reported on Form W-2 for
an employee or on Form 1099-NEC for an independent
contractor.
However, if the recipient is an officer, director, or beneficial
owner (directly or indirectly) of more than 10% of the
corporation's stock, the deductible expense is limited. See
section 274(e)(2) and Regulations sections 1.274-9 and
1.274-10.
Fines and similar penalties. Generally, no deduction is
allowed for fines or similar penalties paid to or at the direction of
a government or governmental entity for violating any law except:
•
Amounts that constitute restitution (including remediation of
property),
•
Amounts paid to come into compliance with the law,
•
Amounts paid or incurred as the result of orders or
agreements in which no government or governmental entity is a
party, and
•
Amounts paid or incurred for taxes due to the extent the
amount would have been allowed as a deduction if timely paid,
and the taxpayer establishes that the amount paid or incurred
was for restitution, remediation, or to come into compliance.
No deduction is allowed unless the amounts are specifically
identified in the order or agreement and the taxpayer establishes
that the amounts were paid for a purpose mentioned above.
Also, any amount paid or incurred as reimbursement to the
government for the costs of any investigation or litigation are not
eligible for the exceptions and are nondeductible. See section
162(f). Also see Regulations section 1.162-21.
Lobbying expenses. Generally, lobbying expenses aren't
deductible. Report nondeductible expenses on Schedule K,
line 16c. These expenses include:
•
Amounts paid or incurred in connection with influencing
federal, state, or local legislation; or
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•
Amounts paid or incurred in connection with any
communication with certain federal executive branch officials in
an attempt to influence the official actions or positions of the
officials. See Regulations section 1.162-29 for the definition of
“influencing legislation.”
Dues and other similar amounts paid to certain tax-exempt
organizations may not be deductible. If certain in-house lobbying
expenditures don't exceed $2,000, they are deductible. For
information on contributions to charitable organizations that
conduct lobbying activities, see section 170(f)(9).
Certain corporations engaged in farming. Section 464(d)
limits the deduction for certain expenditures of S corporations
engaged in farming if they use the cash method of accounting,
and their prepaid farm supplies are more than 50% of other
deductible farming expenses.
Prepaid farm supplies include expenses for feed, seed,
fertilizer, and similar farm supplies not used or consumed during
the year. They also include the cost of poultry that would be
allowable as a deduction in a later tax year if the corporation
were to (a) capitalize the cost of poultry bought for use in its farm
business and deduct it ratably over the lesser of 12 months or
the useful life of the poultry, and (b) deduct the cost of poultry
bought for resale in the year it sells or otherwise disposes of it.
If the limit applies, the corporation can deduct prepaid farm
supplies that don't exceed 50% of its other deductible farm
expenses in the year of payment. The excess is deductible only
in the year the corporation uses or consumes the supplies (other
than poultry, which is deductible, as explained above). For
exceptions and more details on these rules, see Pub. 225.
Reforestation expenditures. If the corporation made an
election to deduct a portion of its reforestation expenditures on
line 12d of Schedule K, it must amortize over an 84-month
period the portion of these expenditures in excess of the amount
deducted on Schedule K (see section 194). Deduct on line 20
only the amortization of these excess reforestation expenditures.
See
Reforestation expense deduction (code O), later.
Line 22. Ordinary Business Income (Loss)
Enter this income or loss on line 1 of Schedule K. Line 22
income is not used in figuring the excess net passive income or
built-in gains taxes. See the instructions for line 23a for figuring
taxable income for purposes of these taxes.
Tax and Payments
Line 23a. Excess Net Passive Income and LIFO
Recapture Tax
These taxes can apply if the corporation was previously a C
corporation or if the corporation engaged in a tax-free
reorganization with a C corporation.
Excess net passive income tax. If the corporation has AE&P
at the close of its tax year and has passive investment income for
the tax year that is in excess of 25% of gross receipts, the
corporation must figure its excess net passive income and pay
tax on it. To make this determination, complete lines 1 through 3
and line 9 of the Excess Net Passive Income Tax Worksheet for
Line 23a. If line 2 is greater than line 3 and the corporation has
taxable income (see the instructions for line 9 of the worksheet),
it must pay the tax. Complete a separate statement using the
format of lines 1 through 11 of the worksheet to figure the tax.
Enter the tax on line 23a, page 1, Form 1120-S, and attach the
computation statement to Form 1120-S.
Reduce each item of passive investment income passed
through to shareholders by its portion of any excess net passive
income tax reported on line 23a. See section 1366(f)(3).
LIFO recapture tax. The corporation may be liable for the
additional tax due to LIFO recapture under Regulations section
1.1363-2 if:
•
The corporation used the LIFO inventory pricing method for its
last tax year as a C corporation, or
•
A C corporation transferred LIFO inventory to the corporation
in a nonrecognition transaction in which those assets were
transferred basis property.
The additional tax due to LIFO recapture is figured for the
corporation's last tax year as a C corporation or for the tax year
of the transfer, whichever applies. See the Instructions for Form
1120 to figure the tax.
The tax is paid in four equal installments. The C corporation
must pay the first installment by the due date (not including
extensions) of Form 1120 for the corporation's last tax year as a
C corporation or for the tax year of the transfer, whichever
applies. The S corporation must pay each of the remaining
installments by the due date (not including extensions) of Form
1120-S for the 3 succeeding tax years. Include this year's
Excess Net Passive Income Tax Worksheet for Line 23a
Keep for Your Records
1. Enter gross receipts for the tax year (see section
1362(d)(3)(B) for gross receipts from the sale of
capital assets)* ..........................
6. Net passive income—Subtract line 5 from
line 2 .................................
7. Divide amount on line 4 by amount on line 2 ...... %
2. Enter passive investment income as defined in
section 1362(d)(3)(C)* .....................
8. Excess net passive income—Multiply line 6 by
line 7 .................................
3. Multiply line 1 by 25% (0.25). (If line 2 is less than
line 3, stop here. You aren't liable for this tax.) .....
9. Enter taxable income (see instructions for taxable
income below) ..........................
4. Excess passive investment income—Subtract line 3
from line 2 .............................
10. Enter smaller of line 8 or line 9 ................
5. Enter deductions directly connected with the
production of the income listed on line 2 (see section
1375(b)(2))* ............................
11. Excess net passive income tax—Multiply line 10 by
21% (0.21). Enter here and on Form 1120-S,
line 23a ...............................
*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form
1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.
Line 9 of Worksheet—Taxable Income
Taxable income, for this purpose, is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form 1120, U.S.
Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form 1120-S. You don't have to attach the
schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120 schedules, such as Schedule D (Form 1120), if you have
capital gains or losses.
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installment in the total amount to be entered on line 23a. To the
left of the total on line 23a, enter the installment amount and
“LIFO tax.”
Line 23b. Tax From Schedule D (Form 1120-S)
Enter the built-in gains tax from line 23 of Part III of Schedule D.
See the instructions for Part III of Schedule D to determine if the
corporation is liable for the tax.
Line 23c
Include the following in the total for line 23c.
Investment credit recapture tax. The corporation is liable for
any required investment credit recapture attributable to credits
allowed for tax years for which the corporation wasn't an S
corporation. The corporation is also liable for any required
qualifying therapeutic discovery project grant recapture. Figure
the corporation's investment credit recapture tax and qualifying
therapeutic discovery project grant recapture tax by completing
Form 4255, Recapture of Investment Credit. See the Instructions
for Form 4255.
To the left of the line 23c total, enter the amount of recapture
tax and “Tax From Form 4255.” Attach Form 4255 to Form
1120-S.
Interest due under the look-back method—Completed
long-term contracts. If the corporation owes this interest,
attach Form 8697, Interest Computation Under the Look-Back
Method for Completed Long-Term Contracts. To the left of the
total on line 23c, enter the amount owed and “From Form 8697.”
Interest due under the look-back method—Property depre-
ciated under the income forecast method. If the corporation
owes this interest, attach Form 8866, Interest Computation
Under the Look-Back Method for Property Depreciated Under
the Income Forecast Method. To the left of the total on line 23c,
enter the amount owed and “From Form 8866.”
Line 24d. Elective Payment Election Amount
From Form 3800
Enter the total gross elective payment election amount from
Form 3800, Part III, line 6, column (h). See the Instructions for
Form 3800 for more information.
Line 24z
If the corporation is the beneficiary of a trust, and the trust makes
a section 643(g) election to credit its estimated tax payments to
its beneficiaries, include the corporation's share of the payment
in the total for line 24z. Enter “T” and the amount of the payment
on the dotted line to the left of the entry space.
Line 25. Estimated Tax Penalty
If Form 2220 is attached, check the box on line 25 and enter the
amount of any penalty on this line.
Line 26. Amount Owed
If the corporation can't pay the full amount of tax owed, it can
apply for an installment agreement online. The corporation can
apply for an installment agreement online if:
•
It can't pay the full amount shown on line 26,
•
The total amount owed is $25,000 or less, and
•
The corporation can pay the liability in full in 24 months.
To apply using the Online Payment Agreement Application,
go to IRS.gov/OPA.
Under an installment agreement, the corporation can pay
what it owes in monthly installments. There are certain
conditions that must be met to enter into and maintain an
installment agreement, such as paying the liability within 24
months and making all required deposits and timely filing tax
returns during the length of the agreement.
If the installment agreement is accepted, the corporation will
be charged a fee and it will be subject to penalties and interest
on the amount of tax not paid by the due date of the return.
Line 28
Direct deposit of refund. If the corporation wants its refund
directly deposited into its checking or savings account at any
U.S. bank or other financial institution instead of having a check
sent to the corporation, complete Form 8050 and attach it to the
corporation's return.
Schedule B. Other Information
Complete all items that apply to the corporation.
Item 2
See Principal Business Activity Codes at the end of these
instructions and enter the business activity and product or
service. For nonstore retailers, select the PBA code by the
primary product that your establishment sells. For example,
establishments primarily selling prescription and
non-prescription drugs, select PBA code 456110 Pharmacies &
Drug Retailers.
Question 4. Constructive Ownership of Other
Entities
For purposes of determining the corporation's constructive
ownership of other entities, the constructive ownership rules of
section 267(c) (excluding section 267(c)(3)) apply to ownership
of interests in partnerships and trusts as well as corporate stock.
Generally, if an entity (a corporation, partnership, or trust) is
owned, directly or indirectly, by or for another entity (corporation,
partnership, estate, or trust), the owned entity is considered to
be owned proportionately by or for the owners (shareholders,
partners, or beneficiaries) of the owning entity.
Maximum percentage owned in partnership profit, loss, or
capital. For the purposes of question 4b, the term “maximum
percentage owned” means the highest percentage of interest in
a partnership's profit, loss, or capital as of the end of the
partnership's tax year, as determined under the partnership
agreement, when taking into account the constructive ownership
rules discussed earlier. If the partnership agreement doesn't
express the partner's share of profit, loss, and capital as fixed
percentages, use a reasonable method in arriving at the
percentage items for the purposes of completing question 4b.
Such method must be consistent with the partnership
agreement. The method used to figure a percentage share of
profit, loss, and capital must be applied consistently from year to
year. Maintain records to support the determination of the share
of profits, losses, and share of capital.
Question 6
Answer “Yes” if the corporation filed, or is required to file, Form
8918, Material Advisor Disclosure Statement. For details, see
the Instructions for Form 8918.
Item 8
Complete item 8 if the corporation (a) was a C corporation before
it elected to be an S corporation or the corporation acquired an
asset with a basis determined by reference to its basis (or the
basis of any other property) in the hands of a C corporation, and
(b) has net unrealized built-in gain (defined below) in excess of
the net recognized built-in gain from prior years.
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The corporation is liable for section 1374 tax if (a) and (b)
above apply and it has a net recognized built-in gain (defined in
section 1374(d)(2)) for its tax year.
The corporation's net unrealized built-in gain is the amount, if
any, by which the aggregate fair market value of the assets of the
corporation at the beginning of its first S corporation year (or as
of the date the assets were acquired, for any asset with a basis
determined by reference to its basis (or the basis of any other
property) in the hands of a C corporation) exceeds the aggregate
adjusted basis of such assets at that time.
Enter the corporation's net unrealized built-in gain reduced by
the net recognized built-in gain from prior years. See sections
1374(c)(2) and (d)(1).
If the corporation has more than one pool of assets (as
defined in Regulations section 1.1374-3(b)(4)), attach a
statement showing for each pool of assets the amount of the
corporation's net unrealized built-in gain reduced by the net
recognized built-in gain from prior years.
Question 9. Business Interest Expense Election
The limitation on business interest expense under section 163(j)
applies to every taxpayer with a trade or business, unless the
taxpayer meets certain specified exceptions. A taxpayer may
elect out of the limitation for certain businesses otherwise
subject to the business interest expense limitation. This is an
irrevocable election.
Certain real property trades or businesses and farming
businesses qualify to make an election not to limit business
interest expense. This is an irrevocable election. If you make this
election, you are required to use the alternative depreciation
system to depreciate certain property. Also, you aren’t entitled to
the special depreciation allowance for that property. For a
taxpayer with more than one qualifying business, the election is
made with respect to each business.
Check “Yes” if the taxpayer has an election in effect to
exclude a real property trade or business or a farming business
from section 163(j). For more information, see the Instructions for
Form 8990.
Question 10. Conditions for Filing Form 8990
A taxpayer that isn’t a small business taxpayer (defined below)
must generally file Form 8990. In addition, any taxpayer that
owns an interest in a partnership with current year, or prior year
carryover, excess business interest expense allocated from the
partnership must file Form 8990.
A taxpayer who is a U.S. shareholder of an applicable CFC
that has business interest expense, disallowed business interest
expense carryforward, or is part of a CFC group must generally
apply section 163(j) to each applicable CFC and attach a Form
8990 with each Form 5471.
Exclusions from filing. A taxpayer isn’t required to file Form
8990 if the taxpayer is a small business taxpayer and doesn’t
have excess business interest expense from a partnership. A
taxpayer is also not required to file Form 8990 if the taxpayer
only has business interest expense from these excepted trades
or businesses:
•
The trade or business of providing services as an employee,
•
An electing real property trade or business,
•
An electing farming business, or
•
Certain regulated utility businesses.
Small business taxpayer. A small business taxpayer isn’t
subject to the business interest expense limitation and isn’t
required to file Form 8990. A small business taxpayer is a
taxpayer that (a) isn’t a tax shelter (as defined in section 448(d)
(3)), and (b) meets the gross receipts test of section 448(c),
discussed next.
Gross receipts test.
A taxpayer meets the gross receipts test if
the taxpayer has average annual gross receipts of $29 million or
less for the 3 prior tax years. A taxpayer's average annual gross
receipts for the 3 prior tax years is determined by adding the
gross receipts for the 3 prior tax years and dividing the total by 3.
Gross receipts include the aggregate gross receipts from all
persons treated as a single employer, such as a controlled group
of corporations, commonly controlled partnerships, or
proprietorships, and affiliated service groups. See section 448(c)
and the Instructions for Form 8990 for additional information.
Question 11
Total receipts is the sum of the following amounts.
•
Gross receipts or sales (page 1, line 1a).
•
All other income (page 1, lines 4 and 5).
•
Income reported on Schedule K, lines 3a, 4, 5a, and 6.
•
Income or net gain reported on Schedule K, lines 7, 8a, 9, and
10.
•
Income or net gain reported on Form 8825, lines 2, 19, and
20a.
Question 12
Amounts related to the forgiveness of PPP loans are disregarded
for purposes of this question.
Question 13
Answer “Yes” if, during the tax year, the corporation revoked a
qualified subchapter S subsidiary (QSub) election or a QSub
election of the corporation was terminated. If “Yes,” see
Regulations section 1.1361-5 for additional information.
Questions 14a and 14b
If the corporation made any payment in 2023 that would require it
to file any Form(s) 1099, check the “Yes” box for question 14a
and answer question 14b. Otherwise, check the “No” box for
question 14a and skip question 14b. See
Am I Required to File a
Form 1099 or Other Information Return on IRS.gov.
Question 15
To be certified as a qualified opportunity fund, the S corporation
must file Form 1120-S and attach Form 8996, even if the
corporation had no income or expenses to report. If the S
corporation is attaching Form 8996, check the “Yes” box and
enter the amount from Form 8996, line 15, in the entry space.
See
Certification as a qualified opportunity fund, earlier.
The penalty reported on this line from Form 8996, line 15, is
not due with the filing of this form. The IRS will separately send
you a notice setting forth the due date for the penalty payment
and where that payment should be sent.
Question 16
Digital assets are any digital representations of value that are
recorded on a cryptographically secured distributed ledger or
any similar technology. For example, digital assets include
non-fungible tokens (NFTs) and virtual currencies, such as
cryptocurrencies and stablecoins. If a particular asset has the
characteristics of a digital asset, it will be treated as a digital
asset for federal income tax purposes.
Check the “Yes” box if at any time during the tax year, the S
corporation (a) received (as a reward, award, or payment for
property or services); or (b) sold, exchanged, or otherwise
disposed of a digital asset (or any financial interest in any digital
asset).
For example, check “Yes” if at any time during the tax year,
the S corporation:
•
Received digital assets as payment for property or services
provided;
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•
Received digital assets as a result of a reward or award;
•
Received new digital assets as a result of mining, staking, and
similar activities;
•
Received digital assets as a result of a hard fork;
•
Disposed of digital assets in exchange for property or
services;
•
Disposed of a digital asset in exchange or trade for another
digital asset;
•
Sold a digital asset; or
•
Otherwise disposed of any other financial interest in a digital
asset.
The S corporation has a financial interest in a digital asset if it
is the owner of record of a digital asset, or has an ownership
stake in an account that holds one or more digital assets,
including the rights and obligations to acquire a financial interest,
or owns a wallet that holds digital assets.
The following actions or transactions in the tax year, alone,
generally do not require the S corporation to check “Yes.”
•
Holding a digital asset in a wallet or account;
•
Transferring a digital asset from one wallet or account the S
corporation owns or controls to another wallet or account that it
owns or controls; or
•
Purchasing digital assets using U.S. or other real currency,
including through the use of electronic platforms such as PayPal
and Venmo.
Do not leave the question unanswered. The S corporation
must answer “Yes” or “No” by checking the appropriate box. For
more information, go to IRS.gov/virtualcurrencyfaqs.
If the S corporation disposed of any digital asset that was
held as a capital asset, through a sale, trade, exchange,
payment, or other transfer, use Form 8949 to calculate the
capital gain or loss and report that gain or loss on Schedule D
(Form 1120-S). If the S corporation received any digital asset as
compensation for services or disposed of any digital asset that
was held for sale to customers in a trade or business, it must
report the income as it would report other income of the same
type.
Schedules K and K-1 (General
Instructions)
Purpose of Schedules
The corporation is liable for taxes on lines 23a, 23b, and 23c on
page 1 of Form 1120-S. Shareholders are liable for tax on their
shares of the corporation's income (reduced by any taxes paid
by the corporation on income). Shareholders must include their
share of the income on their tax return whether or not it is
distributed to them. Unlike most partnership income, S
corporation income isn't self-employment income and isn't
subject to self-employment tax.
Schedule K. Schedule K is a summary schedule of all
shareholders' shares of the corporation's income, deductions,
credits, etc. All corporations must complete Schedule K.
Schedule K-1. Schedule K-1 shows each shareholder's
separate share. Attach a copy of each Schedule K-1 to the Form
1120-S filed with the IRS. Keep a copy for the corporation's
records and give each shareholder a copy.
Give each shareholder a copy of the Shareholder's
Instructions for Schedule K-1 (Form 1120-S) or specific
instructions for each item reported on the shareholder's
Schedule K-1.
Substitute Forms
The corporation doesn't need IRS approval to use a substitute
Schedule K-1 if it is an exact copy of the IRS schedule. The
boxes must use the same numbers and titles and must be in the
same order and format as on the comparable IRS Schedule K-1.
The substitute schedule must include the OMB number. The
corporation must provide each shareholder with the
Shareholder's Instructions for Schedule K-1 (Form 1120-S) or
instructions that apply to the specific items reported on the
shareholder's Schedule K-1.
The corporation must ask for IRS approval to use other
substitute Schedules K-1.
Each shareholder's information must be on a separate sheet
of paper. Therefore, separate all continuously printed substitutes
before you file them with the IRS.
The corporation may be subject to a penalty if it files a
substitute Schedule K-1 that doesn't conform to the
specifications discussed in Pub. 1167, General Rules and
Specifications for Substitute Forms and Schedules.
For more information, see Pub. 1167.
Shareholder's Pro Rata Share Items
General Rule
Items of income, gain, loss, deduction, or credit are allocated to
a shareholder on a daily basis, according to the number of
shares of stock held by the shareholder on each day of the
corporation's tax year. See the detailed instructions for item G in
Part II. Information About the Shareholder, later.
Shareholders who dispose of stock are treated as
shareholders for the day of their disposition. Shareholders who
die are treated as shareholders for the day of their death.
Special Rules
Termination of shareholder's interest. If a shareholder
terminates shareholder’s interest in a corporation during the tax
year, the corporation, with the consent of all affected
shareholders (including those whose interest is terminated), may
elect to allocate income and expenses, etc., as if the
corporation's tax year consisted of 2 separate tax years, the first
of which ends on the date of the shareholder's termination.
To make the election, the corporation must attach a statement
to a timely filed original or amended Form 1120-S for the tax year
for which the election is made. In the statement, the corporation
must state that it is electing under section 1377(a)(2) and
Regulations section 1.1377-1(b) to treat the tax year as if it
consisted of 2 separate tax years. The statement must also
explain how the shareholder's entire interest was terminated (for
example, sale or gift), and state that the corporation and each
affected shareholder consent to the corporation making the
election. A single statement may be filed for all terminating
elections made for the tax year. If the election is made, enter
“Section 1377(a)(2) Election Made” at the top of each affected
shareholder's Schedule K-1.
For more details, see Regulations section 1.1377-1(b).
Qualifying dispositions. If a qualifying disposition takes place
during the tax year, the corporation may make an irrevocable
election to allocate income and expenses, etc., as if the
corporation's tax year consisted of 2 tax years, the first of which
ends on the close of the day the qualifying disposition occurs.
A qualifying disposition is:
1. A disposition by a shareholder of at least 20% of the
corporation's outstanding stock in one or more transactions in
any 30-day period during the tax year,
2. A redemption treated as an exchange under section
302(a) or 303(a) of at least 20% of the corporation's outstanding
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stock in one or more transactions in any 30-day period during the
tax year, or
3. An issuance of stock that equals at least 25% of the
previously outstanding stock to one or more new shareholders in
any 30-day period during the tax year.
To make the election, the corporation must attach a statement
to a timely filed original or amended Form 1120-S for the tax year
for which the election is made. In the statement, the corporation
must state that it is electing under Regulations section
1.1368-1(g)(2)(i) to treat the tax year as if it consisted of 2
separate tax years, give the facts relating to the qualifying
disposition (for example, sale, gift, stock issuance, or
redemption), and state that each shareholder who held stock in
the corporation during the tax year consents to the election. A
single election statement may be filed for all qualifying
disposition elections for the tax year.
For more details, see Regulations section 1.1368-1(g)(2).
Specific Instructions (Schedule K-1
Only)
General Information
Generally, the corporation is required to prepare and give a
Schedule K-1 to each person who was a shareholder in the
corporation at any time during the tax year. Schedule K-1 must
be provided to each shareholder on or before the day on which
the corporation's Form 1120-S is required to be filed.
How To Complete Schedule K-1
If the return is for a fiscal year or a short tax year, fill in the tax
year space at the top of each Schedule K-1. On each
Schedule K-1, enter the information about the corporation and
the shareholder in Parts I and II (items A through I). In Part III,
enter the shareholder's pro rata share of each item of income,
deduction, and credit and any other information the shareholder
needs to prepare the shareholder's tax return, including
information needed to prepare state and local tax returns. Use
10-point Helvetica Light Standard font (if possible) for all entries
if you are typing or using a computer to complete Schedule K-1.
Codes. In boxes 10, 12, 13, and boxes 15 through 17, identify
each item by entering a code in the left column of the entry
space. These codes are identified in these instructions and on
the List of Codes in the Shareholder's Instructions for
Schedule K-1 (Form 1120-S).
Attached statements. When attaching statements to
Schedule K-1 to report additional information to the shareholder,
indicate there is a statement depending upon the following.
•
If an amount can be input on Schedule K-1 but additional
information is required so the shareholder can determine the
proper reporting, enter an asterisk (*) after the code in the left
column of the entry space.
•
For items that can't be reported as a single dollar amount,
enter the code and asterisk (*) in the left column and enter
“STMT” in the right column to indicate that the information is
provided on an attached statement.
•
If the corporation has more coded items than the number of
entry boxes (for example, boxes 10, 12, 13, or boxes 15 through
17), don't enter a code or dollar amount in the last box. Instead,
enter an asterisk (*) in the left column and enter “STMT” in the
entry space to the right.
More than one attached statement can be placed on the
same sheet of paper. The information included in the statement
should be identified in alphanumeric order by box number
followed by the letter code (if any), description, and dollar
amount. For example: “Box 13, code J—Work opportunity
credit—$1,000.” This can be followed with any additional
information that the shareholder needs to determine the proper
tax treatment of the item.
For electronically filed returns, the corporation must
follow the instructions for attached statements as
described in Pub. 4164 when reporting the additional
information that may be required for each respective box. See
Pub. 4164, Modernized e-File (MeF) Guide for Software
Developers and Transmitters, for more information.
Special Reporting Requirements for At-Risk
Activities
If items of income, loss, or deduction from more than one at-risk
activity are reported on Schedule K-1, the corporation must
provide its shareholders with separate information for each
activity. See
At-Risk Activity Reporting Requirements under
At-Risk Limitations, earlier, for details.
Special Reporting Requirements for Corporations
With Multiple Activities
If items of income, loss, deduction, or credit from more than one
activity (determined for purposes of the passive activity loss and
credit limitations) are reported on Schedule K-1, the corporation
must provide information separately for each activity to its
shareholders. See Passive Activity Reporting Requirements,
earlier, for details on the reporting requirements.
Part I. Information About the Corporation
On each Schedule K-1, enter the corporation's name, address,
and identifying number.
Item C
If the corporation is filing its return electronically, enter “e-file.”
Otherwise, enter the name of the IRS service center where the
corporation will file its return. See
Where To File, earlier.
Item D
Report the total number of shares issued and outstanding at the
beginning and end of the S corporation’s tax year. An entity
without stock, such as an LLC, should enter the number of units
or other equivalent to S corporation stock. Round the number of
shares to the nearest whole number (but not below zero). For
example, round 0.6315 up to 1.
Part II. Information About the Shareholder
On each Schedule K-1, enter the shareholder's name, address,
identifying number, and percentage of stock ownership.
Truncating recipient's identification number on Sched-
ule K-1. The corporation can truncate a shareholder's
identifying number on the Schedule K-1 the corporation sends to
the shareholder. Truncation isn't allowed on the Schedule K-1
the corporation files with the IRS. Also, the corporation can't
truncate its own identification number on any form.
To truncate, where allowed, replace the first five digits of the
nine-digit number with asterisks (*) or Xs (for example, an SSN
xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For
more information, see Regulations section 301.6109-4.
CAUTION
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Items E and F
For an individual shareholder, enter the shareholder's social
security number (SSN) or individual taxpayer identification
number (ITIN) in item E. For all other shareholders, enter the
shareholder's EIN.
If stock of the corporation is held by a nominee, guardian,
custodian, or an agent, enter the name, address, and identifying
number of the person for whom the stock is held.
If S corporation stock is part of a decedent's estate, the
executor of the estate should notify the S corporation of the
name and taxpayer identification number of the decedent's
estate. See Pub. 559 for details.
If a single-member limited liability company (LLC) owns stock
in the corporation, and the LLC is treated as a disregarded entity
for federal income tax purposes, enter the LLC owner's
identifying number in item E and the LLC owner's name and
address in item F. The LLC’s owner must be eligible to be an S
corporation shareholder. An LLC that elects to be treated as a
corporation for federal income tax purposes isn't eligible to be an
S corporation shareholder.
Item G
Each shareholder's pro rata share items are figured separately
for each period on a daily basis, based on the percentage of
stock held by the shareholder on each day.
If there was no change in shareholders or in the relative
interest in stock the shareholders owned during the tax year,
enter the percentage of total stock owned by each shareholder
during the tax year (current year allocation percentage). For
example, if shareholders X and Y each owned 50% for the entire
tax year, enter 50% in item G for each shareholder. Each
shareholder's pro rata share items (boxes 1 through 17 of
Schedule K-1) are figured by multiplying the corresponding
Schedule K amount by the percentage in item G.
If there was a change in shareholders or in the relative
interest in stock the shareholders owned during the tax year,
figure the percentage as follows.
•
Each shareholder's percentage of ownership is weighted for
the number of days in the tax year that stock was owned. For
example, A and B each held 50% for half the tax year and A, B,
and C held 40%, 40%, and 20%, respectively, for the remaining
half of the tax year. The percentage of ownership for the year for
A, B, and C is figured as presented in the illustration and is then
entered in item G.
a b c (a × b)
% of total stock
owned
% of tax year held % of ownership for
the year
A 50 50 25
40 50 +20 45
B 50 50 25
40 50 +20 45
C 20 50 10 10
Total ................................. 100%
•
Each shareholder's pro rata share items are generally figured
by multiplying the Schedule K amount by the percentage in item
G. However, if a shareholder terminated the shareholder’s entire
interest in the corporation during the year or a qualifying
disposition took place, the corporation may elect to allocate
income and expenses, etc., as if the tax year consisted of 2 tax
years, the first of which ends on the day of the termination or
qualifying disposition. See Special Rules, earlier, for more
details.
Item H
Report the number of shares for purposes of allocating items of
income, loss, or deduction at the beginning and end of the S
corporation’s tax year. An entity without stock, such as an LLC,
should enter the number of units or other equivalent to S
corporation stock (including ownership percentages). Round the
number of shares to the nearest whole number (but not below
zero). For example, round 0.6315 up to 1.
Example. If shareholders X and Y each owned 50 shares for
the entire tax year, enter 50 in item H for both the beginning and
ending amounts for each shareholder. However, if A and B each
owned 50 shares of stock for the first half of the tax year and C
purchased 10 shares of A’s and B’s stock during the year, A’s
and B’s beginning of tax year number of shares is 50, while C’s is
0, and the end of tax year number of shares for A and B is 40,
while C’s is 20.
Item I
Report the amount of debt owed by the S corporation directly to
the shareholder as of the beginning and end of the S
corporation’s tax year. Generally, the amount reported on
Schedule L, line 19, Loans from shareholder, should reconcile to
the sum of all amounts reported on Schedules K
-1. Do not
include amounts for which the shareholder is a co-borrower or
guarantor of corporate level debt. Also do not include any
intercompany debt.
Specific Instructions (Schedules K
and K-1, Part III)
Income (Loss)
Reminder. Before entering income items on Schedule K or K-1,
reduce each item of passive investment income (within the
meaning of section 1362(d)(3)(C)) by its proportionate share of
the net passive income tax (Form 1120-S, page 1, line 23a).
Line 1. Ordinary Business Income (Loss)
Enter the amount from Form 1120-S, page 1, line 22. Enter the
income (loss) without reference to the shareholder's:
•
Basis in the stock of the corporation and in any indebtedness
of the corporation to the shareholders (section 1366(d)),
•
At-risk limitations, and
•
Passive activity limitations.
These limitations, if applicable, are determined at the
shareholder level.
Line 1 shouldn't include rental activity income (loss) or
portfolio income (loss).
Schedule K-1. Enter each shareholder's pro rata share of
ordinary business income (loss) in box 1 of Schedule K-1.
Identify on statements attached to Schedule K-1 any additional
information the shareholder needs to correctly apply the passive
activity limitations. For example, if the corporation has more than
one trade or business activity, identify the amount from each
activity. See Passive Activity Reporting Requirements, earlier.
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Line 2. Net Rental Real Estate Income (Loss)
Enter the net income (loss) from rental real estate activities of the
corporation from Form 8825. Attach the form to Form 1120-S.
Schedule K-1. Enter each shareholder's pro rata share of net
rental real estate income (loss) in box 2 of Schedule K-1. Identify
on statements attached to Schedule K-1 any additional
information the shareholder needs to correctly apply the passive
activity limitations. For example, if the corporation has more than
one rental real estate activity, identify the amount from each
activity. Also, for example, identify certain items from any rental
real estate activities that may be subject to the recharacterization
rules. See
Passive Activity Reporting Requirements, earlier.
Line 3. Other Net Rental Income (Loss)
Enter on line 3a gross income from rental activities other than
those reported on Form 8825. Include on line 3a gain (loss) from
line 17 of Form 4797 that is attributable to the sale, exchange, or
involuntary conversion of an asset used in a rental activity other
than a rental real estate activity.
Enter on line 3b the deductible expenses of the activity.
Attach a statement of these expenses to Form 1120-S.
Enter on line 3c the net income (loss).
See Rental Activities, earlier, and Pub. 925, for more
information on rental activities.
Schedule K-1. Enter in box 3 of Schedule K-1 each
shareholder's pro rata share of other net rental income (loss)
reported on line 3c of Schedule K. Identify on statements
attached to Schedule K-1 any additional information the
shareholder needs to correctly apply the passive activity
limitations. For example, if the corporation has more than one
rental activity reported in box 3, identify the amount from each
activity. See
Passive Activity Reporting Requirements, earlier.
Portfolio Income
See Portfolio Income, earlier, for a definition of portfolio income.
Don't reduce portfolio income by deductions allocated to it.
Report such deductions (other than interest expense) on
line 12d of Schedule K. Report each shareholder's pro rata
share of deductions in box 12 of Schedule K-1 using codes I or
L.
Interest expense allocable to portfolio income is generally
investment interest expense reported on line 12b of Schedule K.
Report each shareholder's pro rata share of interest expense
allocable to portfolio income in box 12 of Schedule K-1 using
code H.
Line 4. Interest Income
Enter only taxable portfolio interest on this line. Taxable interest
is interest from all sources except interest exempt from tax and
interest on tax-free covenant bonds.
Schedule K-1. Enter each shareholder's pro rata share of
interest income in box 4 of Schedule K-1.
Line 5a. Ordinary Dividends
Enter only taxable ordinary dividends on line 5a, including any
qualified dividends reported on line 5b. An S corporation that
directly or indirectly (through pass-through entities only) owns
(within the meaning of section 958(a)) stock in a foreign
corporation may have income inclusions (for example, subpart F
income and GILTI inclusions) with respect to the foreign
corporation and, as a result, previously taxed earnings and
profits (PTEP) in annual PTEP accounts with respect to the
foreign corporation. Do not include ordinary dividends or
qualified dividends received from a foreign corporation to the
extent that they are attributable to PTEP in annual PTEP
accounts of the S corporation with respect to the foreign
corporation. See Notice 2019-01. The amount by which ordinary
dividends and qualified dividends are attributable to PTEP in
annual PTEP accounts of a person other than the S corporation
(for example, a shareholder) is not relevant for purposes of
determining the ordinary dividends to be entered on line 5a.
Note. An annual PTEP account of the S corporation is different
than the shareholders’ undistributed taxable income previously
taxed account, as discussed in the instructions to Schedule M-2,
column (b).
Schedule K-1. Enter each shareholder's pro rata share of
ordinary dividends in box 5a of Schedule K-1.
Line 5b. Qualified Dividends
Enter qualified dividends on line 5b. Except as provided below,
qualified dividends are dividends received from domestic
corporations and qualified foreign corporations. Do not include
qualified dividends to the extent that they are attributable to
PTEP in annual PTEP accounts of the S corporation. See Notice
2019-01. The amount by which qualified dividends are
attributable to PTEP in annual PTEP accounts of a person other
than the S corporation (for example, a shareholder) is not
relevant for purposes of determining the qualified dividends to be
entered on line 5b.
Note. An annual PTEP account of the S corporation is different
than the shareholders’ undistributed taxable income previously
taxed account, as discussed in the instructions to Schedule M-2,
column (b).
Exceptions. The following dividends aren't qualified dividends.
•
Dividends the corporation received on any share of stock held
for less than 61 days during the 121-day period that began 60
days before the ex-dividend date. When determining the number
of days the corporation held the stock, don't count certain days
during which the corporation's risk of loss was diminished. The
ex-dividend date is the first date following the declaration of a
dividend on which the purchaser of a stock isn't entitled to
receive the next dividend payment. When counting the number
of days the corporation held the stock, include the day the
corporation disposed of the stock but not the day the corporation
acquired it.
•
Dividends attributable to periods totaling more than 366 days
that the corporation received on any share of preferred stock
held for less than 91 days during the 181-day period that began
90 days before the ex-dividend date. When determining the
number of days the corporation held the stock, don't count
certain days during which the corporation's risk of loss was
diminished. Preferred dividends attributable to periods totaling
less than 367 days are subject to the 61-day holding period rule
above.
•
Dividends that relate to payments that the corporation is
obligated to make with respect to short sales or positions in
substantially similar or related property.
•
Dividends paid by a regulated investment company that aren't
treated as qualified dividend income under section 854.
•
Dividends paid by a real estate investment trust that aren't
treated as qualified dividend income under section 857(c).
Instructions for Form 1120-S (2023)
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See Pub. 550, Investment Income and Expenses, for more
details.
Qualified foreign corporation. A foreign corporation is a
qualified foreign corporation if it is:
1. Incorporated in a territory of the United States, or
2. Eligible for benefits of a comprehensive income tax treaty
with the United States that the Secretary determines is
satisfactory for this purpose and that includes an exchange of
information program. See Notice 2011-64, 2011-37 I.R.B. 231,
for details.
If the foreign corporation doesn't meet either (1) or (2), then it
may be treated as a qualified foreign corporation for any dividend
paid by the corporation if the stock associated with the dividend
paid is readily tradable on an established securities market in the
United States.
However, qualified dividends don't include dividends paid by
an entity that was a passive foreign investment company
(defined in section 1297) in either the tax year of the distribution
or the preceding tax year.
See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3,
2006-3 I.R.B. 306, for more details.
Schedule K-1. Enter each shareholder's pro rata share of
qualified dividends in box 5b of Schedule K-1.
If any amounts from line 5b are from foreign sources, see
the instructions for Schedule K-2 (Form 1120-S) and
Schedule K-3 (Form 1120-S).
Line 6. Royalties
Enter the royalties received by the corporation.
Schedule K-1. Enter each shareholder's pro rata share of
royalties in box 6 of Schedule K-1.
Line 7. Net Short-Term Capital Gain (Loss)
Enter the gain (loss) that is portfolio income (loss) from
Schedule D (Form 1120-S), line 7.
Schedule K-1. Enter each shareholder's pro rata share of net
short-term capital gain (loss) in box 7 of Schedule K-1.
Line 8a. Net Long-Term Capital Gain (Loss)
Enter the gain or loss that is portfolio income (loss) from
Schedule D (Form 1120-S), line 15.
Schedule K-1. Enter each shareholder's pro rata share of net
long-term capital gain (loss) in box 8a of Schedule K-1.
If any gain or loss from line 7 or 15 of Schedule D is from
the disposition of nondepreciable personal property
used in a trade or business, it may not be treated as
portfolio income. Instead, report it on line 10 of Schedule K and
report each shareholder's pro rata share in box 10 of
Schedule K-1 using code ZZ.
Line 8b. Collectibles (28%) Gain (Loss)
Figure the amount attributable to collectibles from the amount
reported on Schedule D (Form 1120-S), line 15. A collectibles
gain (loss) is any long-term gain or deductible long-term loss
from the sale or exchange of a collectible that is a capital asset.
CAUTION
!
CAUTION
!
Collectibles include works of art, rugs, antiques, metal (such
as gold, silver, or platinum bullion), gems, stamps, coins,
alcoholic beverages, and certain other tangible property.
Also include gain (but not loss) from the sale or exchange of
an interest in a partnership or trust held for more than 1 year and
attributable to unrealized appreciation of collectibles. For details,
see Regulations section 1.1(h)-1. Also attach the statement
required under Regulations section 1.1(h)-1(e).
Schedule K-1. Report each shareholder's pro rata share of the
collectibles (28%) gain (loss) in box 8b of Schedule K-1.
Line 8c. Unrecaptured Section 1250 Gain
The three types of unrecaptured section 1250 gain must be
reported separately on an attached statement to Form 1120-S.
From the sale or exchange of the corporation's business
assets. Figure this amount in Part III of Form 4797 for each
section 1250 property (except property for which gain is reported
using the installment method on Form 6252) for which you had
an entry in Part I of Form 4797. Subtract line 26g of Form 4797
from the smaller of line 22 or line 24. Figure the total of these
amounts for all section 1250 properties. Generally, the result is
the corporation's unrecaptured section 1250 gain. However, if
the corporation is reporting gain on the installment method for a
section 1250 property held more than 1 year, see the next
paragraph.
The total unrecaptured section 1250 gain for an installment
sale of section 1250 property held more than 1 year is figured in
a manner similar to that used in the preceding paragraph.
However, the total unrecaptured section 1250 gain must be
allocated to the installment payments received from the sale. To
do so, the corporation must generally treat the gain allocable to
each installment payment as unrecaptured section 1250 gain
until all such gain has been used in full. Figure the unrecaptured
section 1250 gain for installment payments received during the
tax year as the smaller of (a) the amount from line 26 or line 37 of
Form 6252 (whichever applies), or (b) the total unrecaptured
section 1250 gain for the sale reduced by all gain reported in
prior years (excluding section 1250 ordinary income recapture).
If the corporation chose not to treat all of the gain from
payments received after May 6, 1997, and before August
24, 1999, as unrecaptured section 1250 gain, use only
the amount the corporation chose to treat as unrecaptured
section 1250 gain for those payments to reduce the total
unrecaptured section 1250 gain remaining to be reported for the
sale. See Regulations section 1.453-12.
From the sale or exchange of an interest in a partnership.
Also report as a separate amount any gain from the sale or
exchange of an interest in a partnership attributable to
unrecaptured section 1250 gain. See Regulations section
1.1(h)-1 and attach the statement required under Regulations
section 1.1(h)-1(e).
From an estate, trust, REIT, or RIC. If the corporation received
a Schedule K-1 or Form 1099-DIV from an estate, a trust, a real
estate investment trust (REIT), or a regulated investment
company (RIC) reporting “unrecaptured section 1250 gain,” don't
add it to the corporation's own unrecaptured section 1250 gain.
Instead, report it as a separate amount. For example, if the
corporation received a Form 1099-DIV from a REIT with
unrecaptured section 1250 gain, report it as “Unrecaptured
section 1250 gain from a REIT.”
Schedule K-1. Report each shareholder's pro rata share of
unrecaptured section 1250 gain from the sale or exchange of the
corporation's business assets in box 8c of Schedule K-1. If the
corporation is reporting unrecaptured section 1250 gain from an
CAUTION
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estate, trust, REIT, or RIC, or from the corporation's sale or
exchange of an interest in a partnership (as explained above),
enter “STMT” in box 8c and an asterisk (*) in the left column of
the box and attach a statement that separately identifies the
amount of unrecaptured section 1250 gain from:
•
The sale or exchange of the corporation's business assets;
•
The sale or exchange of an interest in a partnership; and
•
An estate, trust, REIT, or RIC.
If any amounts from line 8c are from foreign sources, see
the instructions for Schedule K-2 (Form 1120-S) and
Schedule K-3 (Form 1120-S).
Line 9. Net Section 1231 Gain (Loss)
Enter the net section 1231 gain (loss) from Form 4797, line 7.
Don't include net gain or loss from involuntary conversions
due to casualty or theft. Report net loss from involuntary
conversions due to casualty or theft on line 10 of Schedule K
(box 10, code B, of Schedule K-1). See the instructions for
line 10 on how to report net gain from involuntary conversions.
Schedule K-1. Report each shareholder's pro rata share of net
section 1231 gain (loss) in box 9 of Schedule K-1. If the
corporation has more than one rental, trade, or business activity,
identify on an attachment to Schedule K-1 the amount of section
1231 gain (loss) from each separate activity. See Passive Activity
Reporting Requirements, earlier.
If any amounts from line 9 are from foreign sources, see
the instructions for Schedule K-2 (Form 1120-S) and
Schedule K-3 (Form 1120-S).
Line 10. Other Income (Loss)
Enter any other item of income or loss not included on lines 1
through 9. On the line to the left of the entry space for line 10,
identify the type of income. If there is more than one type of
income, attach a statement to Form 1120-S that separately
identifies each type and amount of income for each of the
following categories. The codes needed for Schedule K-1
reporting are provided for each category.
Other portfolio income (loss) (code A). Portfolio income not
reported on lines 4 through 8.
Report and identify other portfolio income or loss on an
attachment for line 10.
If the corporation holds a residual interest in a Real Estate
Mortgage Investment Conduit (REMIC), report on an attachment
the shareholder's share of the following.
•
Taxable income (net loss) from the REMIC (line 1b of
Schedules Q (Form 1066)).
•
Excess inclusion (line 2c of Schedules Q (Form 1066)).
•
Section 212 expenses (line 3b of Schedules Q (Form 1066)).
Because Schedule Q (Form 1066) is a quarterly statement,
the corporation must follow the Schedule Q instructions to figure
the amounts to report to shareholders for the corporation's tax
year.
Involuntary conversions (code B). Report net loss from
involuntary conversions due to casualty or theft. The amount for
this item is shown on Form 4684, Casualties and Thefts, line 38a
or 38b.
Each shareholder's pro rata share must be entered on
Schedule K-1.
Enter the net gain from involuntary conversions of property
used in a trade or business (line 39 of Form 4684) on line 3 of
Form 4797.
CAUTION
!
CAUTION
!
If there was a gain (loss) from a casualty or theft to property
not used in a trade or business or for income-producing
purposes, notify the shareholder. The corporation shouldn't
complete Form 4684 for this type of casualty or theft. Instead,
each shareholder will complete the shareholder's own Form
4684.
Section 1256 contracts and straddles (code C). Report any
net gain or loss from section 1256 contracts from Form 6781,
Gains and Losses From Section 1256 Contracts and Straddles.
Mining exploration costs recapture (code D). Provide the
information shareholders need to recapture certain mining
exploration expenditures. See Regulations section 1.617-3.
Section 951A(a) income inclusions (code E). If the S
corporation elected to be treated as owning stock of a CFC
within the meaning of section 958(a) under Proposed
Regulations section 1.958-1(e)(2), and the S corporation is a
U.S. shareholder of a CFC, then the S corporation determines its
section 951A inclusion amount. Report the corporation's section
951A inclusion and its shareholders' pro rata shares of the
section 951A inclusions using code E. See Form 8992, Part II,
line 5.
Provide information on line 10 using code E only if the
corporation (and its shareholders, if applicable) has
elected to be treated as owning stock of a foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2). If no election has
been made, see instructions for Part V of the Schedule K-2
(Form 1120-S).
Inclusions of subpart F income (code F). The S corporation
should report its subpart F income inclusions and its
shareholders’ pro rata shares of its subpart F income inclusions.
An S corporation does not have subpart F income inclusions with
respect to a foreign corporation for tax years of the foreign
corporation beginning on or after January 25, 2022, under
Regulations section 1.958-1(d)(1) if the S corporation did not
make an election to be treated as owning stock of the foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2). An S corporation
does not have subpart F income inclusions with respect to a
foreign corporation for tax years of the foreign corporation
beginning before January 25, 2022, if the S corporation did not
make an election to be treated as owning stock of a foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2) and, pursuant to
Regulations section 1.958-1(d)(4)(i), applies Regulations section
1.958-1(d)(1) through (3) to such tax years.
Section 951(a)(1)(B) inclusions (code G). The S corporation
should report its section 951(a)(1)(B) inclusions and its
shareholders’ pro rata shares of its section 951(a)(1)(B)
inclusions. An S corporation does not have section 951(a)(1)(B)
inclusions with respect to a foreign corporation for tax years of
the foreign corporation beginning on or after January 25, 2022,
under Regulations section 1.958-1(d)(1) if the S corporation did
not make an election to be treated as owning stock of the foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2). An S corporation
does not have section 951(a)(1)(B) inclusions with respect to a
foreign corporation for tax years of the foreign corporation
beginning before January 25, 2022, if the S corporation did not
make an election to be treated as owning stock of a foreign
corporation within the meaning of section 958(a) under
Proposed Regulations section 1.958-1(e)(2) and, pursuant to
Regulations section 1.958-1(d)(4)(i), applies Regulations section
1.958-1(d)(1) through (3) to such tax years.
CAUTION
!
Instructions for Form 1120-S (2023)
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If the corporation does not have subpart F income
inclusions or section 951(a)(1)(B) inclusions with respect
to a foreign corporation, stock of which it owns within the
meaning of section 958(a) and without regard to Regulations
section 1.958-1(d), see instructions for Part V of the
Schedule K-2 (Form 1120-S) for reporting of information related
to subpart F income inclusions and section 951(a)(1)(B)
inclusions of shareholders with respect to the foreign
corporation.
Code H. Reserved for future use.
Gain (loss) from disposition of oil, gas, geothermal, or oth-
er mineral properties (code I). Report the following
information on a statement attached to Schedule K-1: (a) a
description of the property; (b) the shareholder's share of the
amount realized on the sale, exchange, or involuntary conversion
of each property (fair market value of the property for any other
disposition, such as a distribution); (c) the shareholder's share of
the corporation's adjusted basis in the property (except for oil or
gas properties); and (d) total intangible drilling costs,
development costs, and mining exploration costs (section 59(e)
expenditures) passed through to the shareholder for the
property. See Regulations section 1.1254-4 for more information.
Recoveries of tax benefit items (code J). Recoveries of tax
benefit items (section 111).
Gambling gains and losses (code K). Gambling gains and
losses subject to the limitations in section 165(d). Indicate on an
attached statement whether or not the corporation is in the trade
or business of gambling.
Code L. Reserved for future use.
Gain eligible for section 1045 rollover (replacement stock
purchased by the corporation) (code M). Include only gain
from the sale or exchange of QSB stock (as defined in the
Instructions for Schedule D) that was deferred by the corporation
under section 1045 and reported on Schedule D. See the
Instructions for Schedule D for more details. Additional
limitations apply at the shareholder level. Report each
shareholder's share of the gain eligible for section 1045 rollover
on Schedule K-1. Each shareholder will determine if they qualify
for the rollover. Report on an attachment to Schedule K-1 for
each sale or exchange (a) the name of the corporation that
issued the QSB stock, (b) the shareholder's pro rata share of the
corporation's adjusted basis and sales price of the QSB stock,
and (c) the dates the QSB stock was bought and sold.
Gain eligible for section 1045 rollover (replacement stock
not purchased by the corporation) (code N). Include only
gain from the sale or exchange of QSB stock (as defined in the
Instructions for Schedule D) the corporation held for more than 6
months but that wasn't deferred by the corporation under section
1045. See the Instructions for Schedule D for more details. A
shareholder may be eligible to defer the shareholder’s pro rata
share of this gain under section 1045 if the shareholder
purchases other QSB stock during the 60-day period that began
on the date the QSB stock was sold by the corporation.
Additional limitations apply at the shareholder level. Report on
an attachment to Schedule K-1 for each sale or exchange (a) the
name of the corporation that issued the QSB stock, (b) the
shareholder's pro rata share of the corporation's adjusted basis
and sales price of the QSB stock, and (c) the dates the QSB
stock was bought and sold.
Sale or exchange of QSB stock with section 1202 exclusion
(code O). Gain from the sale or exchange of qualified small
business (QSB) stock (as defined in the Instructions for
Schedule D) that is eligible for the section 1202 exclusion. The
section 1202 exclusion applies only to QSB stock held by the
corporation for more than 5 years. Additional limitations apply at
CAUTION
!
the shareholder level. Report each shareholder's share of
section 1202 gain on Schedule K-1. Each shareholder will
determine if they qualify for the exclusion. Report on an
attachment to Schedule K-1 for each sale or exchange (a) the
name of the corporation that issued the QSB stock, (b) the
shareholder's pro rata share of the corporation's adjusted basis
and sales price of the QSB stock, and (c) the dates the QSB
stock was bought and sold.
Codes P through R. Reserved for future use.
Non-portfolio capital gain (loss) (code S). Any gain or loss
from line 7 or 15 of Schedule D that isn't portfolio income (for
example, gain or loss from the disposition of nondepreciable
personal property used in a trade or business).
Codes T through X. Reserved for future use.
Other income (loss) (code ZZ). Include any other type of
income (loss) not reported using codes A through S.
Schedule K-1. Enter each shareholder's pro rata share of the
other income categories listed above in box 10 of Schedule K-1.
Enter the applicable code A through ZZ (as shown earlier).
If you are reporting each shareholder's pro rata share of only
one type of income under code ZZ, enter the code with an
asterisk (ZZ*) and the dollar amount in the entry space in box 10
and attach a statement that shows “Box 10, code ZZ,” and the
type of income. If you are reporting multiple types of income
under code ZZ, enter the code with an asterisk (ZZ*) and enter
“STMT” in the entry space in box 10 and attach a statement that
shows “Box 10, code ZZ,” and the dollar amount of each type of
income.
If the corporation has more than one trade or business or
rental activity (for codes B through ZZ), identify on an attachment
to Schedule K-1 the amount from each separate activity. See
Passive Activity Reporting Requirements, earlier.
Deductions
Line 11. Section 179 Deduction
A corporation can elect to expense part or all of the cost of
certain property the corporation purchased during the tax year
for use in its trade or business or certain rental activities. See
Pub. 946 for a definition of what kind of property qualifies for the
section 179 expense deduction and the Instructions for Form
4562 for limitations on the amount of the section 179 expense
deduction.
Complete Part I of Form 4562 to figure the corporation's
section 179 expense deduction. The corporation doesn't take
the deduction itself, but instead passes it through to the
shareholders. Attach Form 4562 to Form 1120-S and show the
total section 179 expense deduction on Schedule K, line 11.
Although the corporation can't take the section 179
deduction, it must generally still reduce the basis of the asset by
the amount of the section 179 deduction it elected, regardless of
whether any shareholder can use the deduction. However, the
corporation doesn't reduce the basis for any section 179
deduction allocable to a trust or estate because they aren't
eligible to take the section 179 deduction. See Regulations
section 1.179-1(f).
See the instructions for line 17d of Schedule K for sales or
other dispositions of property for which a section 179 deduction
has passed through to shareholders and for the recapture rules if
the business use of the property dropped to 50% or less.
Schedule K-1. Report each shareholder's pro rata share of the
section 179 expense deduction in box 11 of Schedule K-1.
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If the corporation has more than one rental, trade, or business
activity, identify on an attachment to Schedule K-1 the amount of
section 179 deduction from each separate activity. See Passive
Activity Reporting Requirements, earlier.
Don't complete box 11 of Schedule K-1 for any shareholder
that is an estate or trust; estates and trusts aren't eligible for the
section 179 expense deduction.
Line 12a. Charitable Contributions
Cash contributions must be supported by a dated bank record or
receipt.
Generally, no deduction is allowed for any contribution of
$250 or more unless the corporation obtains a written
acknowledgment from the charitable organization that shows the
amount of cash contributed, describes any property contributed,
and gives an estimate of the value of any goods or services
provided in return for the contribution or states that no goods or
services were provided. The acknowledgment must be obtained
by the due date (including extensions) of the corporation's
return, or, if earlier, the date the return is filed. Don't attach the
acknowledgment to the tax return, but keep it with the
corporation's records. These rules apply in addition to the filing
requirements for Form 8283, Noncash Charitable Contributions,
described under
Contributions of property, later.
Enter charitable contributions made during the tax year.
Attach a statement to Form 1120-S that separately identifies the
corporation's contributions for each of the following categories.
See
Limits on Deductions in Pub. 526, Charitable Contributions,
for information on adjusted gross income (AGI) limitations on
deductions for charitable contributions.
The codes needed for Schedule K-1 reporting are provided
for each category.
Cash contributions (60%) (code A). Enter cash contributions
subject to the 60% AGI limitation.
Cash contributions (30%) (code B). Enter cash contributions
subject to the 30% AGI limitation.
Noncash contributions (50%) (code C). Enter noncash
contributions subject to the 50% AGI limitation. Don't include
food inventory contributions reported separately on an attached
statement.
Food inventory contributions. Provide the following
information on a statement attached to Schedule K-1.
•
The shareholder's pro rata share of the amount of the
charitable contributions under section 170(e)(3) for qualified
food inventory that was donated to charitable organizations for
the care of the ill, needy, and infants. The food must meet all the
quality and labeling standards imposed by federal, state, and
local laws and regulations. The charitable contribution for
donated food inventory is the lesser of (a) the basis of the
donated food plus half of the appreciation (gain if the donated
food were sold at fair market value (FMV) on the date of the gift),
or (b) twice the basis of the donated food. The aggregate
amount of such contributions shall not exceed 15% of the
taxpayer's aggregate net income from all trades or businesses
from which such contributions were made. A corporation that
doesn’t account for inventories and isn’t required to capitalize
indirect costs under section 263A may elect to treat the basis of
the donated food as equal to 25% of the FMV of the food. See
section 170(e)(3)(C) for more details.
•
The shareholder's pro rata share of the net income for the tax
year from the corporation's trades or businesses that made the
contributions of food inventory.
Qualified conservation contributions.
The AGI limit for
qualified conservation contributions under section 170(h) is
generally 50%. However, if the corporation is a qualified farmer
or rancher (farm income is more than 50% of gross income), the
AGI limit for qualified conservation contributions of property used
in agriculture or livestock production (or available for such
production) is 100%. The carryover period is 15 tax years. See
section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for
details. Report qualified conservation contributions with a 50%
AGI limitation on Schedule K-1 in box 12 using code C. Report
qualified conservation contributions with a 100% AGI limitation
on a statement attached to Schedule K-1 using code G. See
Contributions of property, later, for special rules applicable to
qualified conservation contributions.
Noncash contributions (30%) (code D). Enter noncash
contributions subject to the 30% AGI limitation.
Capital gain property to a 50% limit organization (30%)
(code E). Enter capital gain property contributions subject to
the 30% AGI limitation.
Capital gain property (20%) (code F). Enter capital gain
property contributions subject to the 20% AGI limitation.
Contributions of property. See Contributions of Property in
Pub. 526 and Pub. 561, Determining the Value of Donated
Property, for information on noncash contributions and
contributions of capital gain property. If the deduction claimed for
noncash contributions exceeds $500, complete Form 8283 and
attach it to Form 1120-S.
Shareholders may deduct their pro rata share of the FMV of
property contributions, but will only need to adjust their stock
basis by their pro rata share of the property's adjusted basis.
Give each shareholder a statement identifying their pro rata
share of both the FMV and adjusted basis of the property.
If the corporation made a qualified conservation contribution
under section 170(h), also include the FMV of the underlying
property before and after the donation, as well as the type of
legal interest contributed, and describe the conservation
purpose furthered by the donation. Give a copy of this
information to each shareholder.
If the corporation made a qualified conservation contribution
for the preservation of an historic building, there are additional
requirements that may apply to obtain a charitable deduction.
This charitable deduction may be reduced if rehabilitation credits
were claimed for the historic building. This charitable deduction
may be denied if the corporation does not comply with section
170(f)(19). A $500 filing fee may apply to certain deductions over
$10,000. See the Instructions for Form 8283 and Pub. 526 for
details.
A corporation's charitable conservation contribution (or a
corporation's distributive share of a charitable conservation
contribution from a lower-tier partnership) is not treated as a
qualified conservation contribution if the amount of such
contribution (or such distributive share) exceeds 2.5 times the
sum of each shareholder's relevant basis in the corporation. In
an attachment to each Schedule K-1 issued to a shareholder,
report the shareholder's relevant basis allocable to the portion of
the real property or historic building on which the qualified
conservation contribution was made. The corporation should
coordinate with each shareholder in calculating relevant basis.
See Qualified Conservation Contribution in Pub. 526 and
Disallowance of Conservation Contribution deductions by certain
pass-through entities in the Instructions for Form 8283.
Nondeductible contributions. Certain contributions made to
an organization conducting lobbying activities aren't deductible.
See section 170(f)(9) for more details. Also see Contributions
You Can’t Deduct in Pub. 526 for more examples of
nondeductible contributions.
Instructions for Form 1120-S (2023)
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An accrual basis S corporation can't elect to treat a
contribution as having been paid in the tax year the
board of directors authorizes the payment if the
contribution isn't actually paid until the next tax year.
Contributions (100%) (code G). If the corporation is a
qualified farmer or rancher (farm income is more than 50% of
gross income), attach a statement to Schedule K-1 that shows
the shareholder's pro rata share of qualified conservation
contributions of property used in agriculture or livestock
production (or available for such production). Don’t include these
contributions in the amounts reported in box 12 of Schedule K-1
because shareholders must separately determine if they qualify
for the 50% or 100% AGI limitation for these contributions. The
contribution must be subject to a restriction that the property
remain available for such production. See section 170(b) for
details.
Schedule K-1. Report each shareholder's pro rata share of
charitable contributions in box 12 of Schedule K-1 using codes A
through G for each of the contribution categories shown earlier.
See Contributions of property, earlier, for information on
statements you may be required to attach to Schedule K-1. The
corporation must attach a copy of its Form 8283 to the
Schedule K-1 of each shareholder receiving an allocation of the
contribution deduction shown in Section A or Section B of its
Form 8283.
Line 12b. Investment Interest Expense
Include on this line the interest properly allocable to debt on
property held for investment purposes. Property held for
investment includes property that produces income (unless
derived in the ordinary course of a trade or business) from
interest, dividends, annuities, or royalties; and gains from the
disposition of property that produces those types of income or is
held for investment.
Investment interest expense doesn't include interest expense
allocable to a passive activity.
Investment income and investment expenses other than
interest are reported on lines 17a and 17b, respectively. This
information is needed by shareholders to determine the
investment interest expense limitation (see Form 4952 for
details).
Schedule K-1. Report each shareholder's pro rata share of
investment interest expense in box 12 of Schedule K-1 using
code H.
Line 12c. Section 59(e)(2) Expenditures
Generally, section 59(e) allows each shareholder to make an
election to deduct their pro rata share of the corporation's
otherwise deductible qualified expenditures ratably over 10
years (3 years for circulation expenditures). The deduction is
taken beginning with the tax year in which the expenditures were
made (or for intangible drilling and development costs, over the
60-month period beginning with the month in which such costs
were paid or incurred).
The term “qualified expenditures” includes only the following
types of expenditures paid or incurred during the tax year.
•
Circulation expenditures.
•
Research and experimental expenditures.
•
Intangible drilling and development costs.
•
Mining exploration and development costs.
CAUTION
!
If a shareholder makes the election, these items aren't treated
as alternative minimum tax (AMT) tax preference items.
Because the shareholders make this election, the corporation
can't deduct these amounts or include them as AMT items on
Schedule K-1. Instead, the corporation passes through the
information the shareholders need to figure their separate
deductions.
On the dotted line to the left of the entry space for line 12c,
enter the type of expenditures claimed on line 12c. Enter on
line 12c the qualified expenditures paid or incurred during the tax
year for which a shareholder may make an election under
section 59(e). Enter this amount for all shareholders whether or
not any shareholder makes an election under section 59(e).
On an attached statement, identify the property for which the
expenditures were paid or incurred. If the expenditures were for
intangible drilling or development costs for oil and gas
properties, identify the month(s) in which the expenditures were
paid or incurred. If there is more than one type of expenditure or
more than one property, provide the amounts (and the months
paid or incurred, if required) for each type of expenditure
separately for each property.
Schedule K-1. Report each shareholder's pro rata share of
section 59(e) expenditures in box 12 of Schedule K-1 using
code J. Identify the following information on an attached
statement.
•
The type of expenditure.
•
The property for which the expenditures are paid or incurred.
•
For oil and gas properties only, the month in which intangible
drilling costs and development costs were paid or incurred.
If there is more than one type of expenditure or the
expenditures are for more than one property, provide each
shareholder's pro rata share of the amounts (and the months
paid or incurred for oil and gas properties) for each type of
expenditure separately for each property.
Line 12d. Other Deductions
Enter deductions not included on line 11, 12a, 12b, 12c, or 16f.
On the line to the left of the entry space for line 12d, identify the
type of deduction. If there is more than one type of deduction,
attach a statement to Form 1120-S that separately identifies the
type and amount of each deduction for the following categories.
The codes needed for Schedule K-1 reporting are provided for
each category.
Deductions—Royalty income (code I). Enter deductions
related to royalty income.
Code K. Reserved for future use.
Deductions—Portfolio income (other) (code L). Enter any
other deductions related to portfolio income.
No deduction is allowed under section 212 for expenses
allocable to a convention, seminar, or similar meeting. Because
these expenses aren't deductible by shareholders, the
corporation doesn't report these expenses on line 12d of
Schedule K. The expenses are nondeductible and are reported
as such on line 16c of Schedule K and in box 16 of Schedule K-1
using code C.
Preproductive period expenses (code M). If the corporation
is required to use an accrual method of accounting under section
448(a)(3), it must capitalize these expenses. If the corporation is
permitted to use the cash method, enter the amount of
preproductive period expenses that qualify under section
263A(d). An election not to capitalize these expenses must be
made at the shareholder level. See
Uniform Capitalization Rules
in Pub. 225.
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Code N. Reserved for future use.
Reforestation expense deduction (code O). The corporation
can elect to deduct a limited amount of its reforestation
expenditures paid or incurred during the tax year. The amount
the corporation can elect to deduct is limited to $10,000 for each
qualified timber property. See section 194(c) for a definition of
reforestation expenditures and qualified timber property. See
Notice 2006-47, 2006-20 I.R.B. 892, for details on making the
election. The corporation must amortize over 84 months any
amount not deducted. See
Reforestation expenditures, earlier.
Schedule K-1. Enter the shareholder's pro rata share of
allowable reforestation expense in box 12 of Schedule K-1 using
code O and attach a statement that provides a description of the
qualified timber property. If the corporation is electing to deduct
amounts from more than one qualified timber property, provide a
description and the amount for each property.
Codes P through V. Reserved for future use.
Soil and water conservation (code W). Enter amounts for soil
and water conservation expenditures, and endangered species
recovery expenditures. See Pub. 225.
Film, television, and theatrical production expenditures
(code X). Film, television, and live theatrical production
expenses. The corporation can elect to deduct certain costs of a
qualified film, television, or live theatrical production
commencing before January 1, 2026 (after December 31, 2015,
and before January 1, 2026, for a live theatrical production),
limited to $15 million of the aggregate production cost of the
production. There is a higher dollar limitation for productions in
certain areas. A live theatrical performance commences on the
date of its first public performance for a paying audience. Provide
a description of the film, television, or live theatrical production
on an attached statement. If the corporation makes the election
for more than one production, attach a statement to
Schedule K-1 that shows each shareholder's pro rata share of
the qualified expenditures separately for each production. The
deduction is subject to recapture under section 1245 if the
election is voluntarily revoked or the production fails to meet the
requirements for the deduction. See section 181 and the related
regulations.
Expenditures for removal of barriers (code Y). Enter
expenditures paid or incurred for the removal of architectural and
transportation barriers to the elderly and disabled that the
corporation has elected to treat as a current expense. See
section 190.
Itemized deductions (code Z). Enter amounts paid by the
corporation that would be allowed as itemized deductions on any
of the shareholders' income tax returns if they were paid directly
by a shareholder for the same purpose. These amounts include,
but aren't limited to, expenses under section 212 for the
production of income other than from the corporation's trade or
business. However, don't enter expenses related to portfolio
income or investment interest expense reported on line 12b of
Schedule K on this line.
Contributions to a capital construction fund (CCF) (code
AA). Enter amount of contributions made to a capital
construction fund. See Pub. 595, Capital Construction Fund for
Commercial Fishermen.
Penalty on early withdrawal of savings (code AB). Enter
any penalty on early withdrawal of savings because the
corporation withdrew funds from its time savings deposit before
its maturity.
Interest expense allocated to debt financed distributions
(code AC). Enter interest expense allocated to debt-financed
distributions. See Notice 89-35, 1989-1 C.B. 675 for more
information.
Codes AD through AJ.
Reserved for future use.
Other deductions (code ZZ). Include any other deductions not
reported using codes A through AC.
Schedule K-1. Enter each shareholder's pro rata share of the
deduction categories listed above in box 12 of Schedule K-1 or
provide the required information on an attached statement. Enter
the applicable code shown above.
If you are reporting only one type of deduction under code
ZZ, enter code ZZ with an asterisk (ZZ*) and the dollar amount in
the entry space in box 12 and attach a statement that shows the
box number, code, and type of deduction. If you are reporting
multiple types of deductions under code ZZ, enter the code with
an asterisk (ZZ*), enter “STMT” in the dollar amount entry space
in box 12, and attach a statement that shows the box number,
code, and dollar amount of each type of deduction.
If the corporation has more than one trade or business
activity, identify on an attachment to Schedule K-1 the amount
for each separate activity. See Passive Activity Reporting
Requirements, earlier.
Credits
Low-Income Housing Credit
Section 42 provides a credit that can be claimed by owners of
low-income residential rental buildings. To qualify for the credit,
the corporation must file Form 8609, Low-Income Housing Credit
Allocation and Certification, separately with the IRS. Don't attach
Form 8609 to Form 1120-S. Complete and attach Form 8586,
Low-Income Housing Credit, and Form 8609-A, Annual
Statement for Low-Income Housing Credit, to Form 1120-S.
Line 13a. Low-Income Housing Credit (Section
42(j)(5))
If the corporation invested in a partnership to which the
provisions of section 42(j)(5) apply, report on line 13a the credit
reported to the corporation in box 15 of Schedule K-1 (Form
1065) using code C.
Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of the low-income housing credit
reported on line 13a of Schedule K. Use code C to report the
portion of the credit attributable to buildings placed in service
after 2007. If the corporation has credits from more than one
activity, identify on an attachment to Schedule K-1 the amount
for each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Line 13b. Low-Income Housing Credit (Other)
Report on line 13b any low-income housing credit not reported
on line 13a. This includes any credit reported to the corporation
in box 15 of Schedule K-1 (Form 1065) using code D.
Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of the low-income housing credit
reported on line 13b of Schedule K. Use code D to report the
portion of the credit attributable to buildings placed in service
after 2007. If the corporation has credits from more than one
rental activity, identify on an attachment to Schedule K-1 the
amount for each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Instructions for Form 1120-S (2023)
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Line 13c. Qualified Rehabilitation Expenditures
(Rental Real Estate)
Enter on line 13c the total qualified rehabilitation expenditures
related to rental real estate activities of the corporation. See the
Instructions for Form 3468 for details on qualified rehabilitation
expenditures.
Schedule K-1. Report each shareholder's pro rata share of
qualified rehabilitation expenditures related to rental real estate
activities in box 13 of Schedule K-1 using
code E. Attach a
statement to Schedule K-1 that provides the information and the
shareholder's pro rata share of the basis and expenditure
amounts the shareholder will need to figure the amounts to
report in Part VII of Form 3468, Investment Credit. See the
Instructions for Form 3468 for details. If the corporation has
expenditures from more than one rental real estate activity,
identify on an attachment to Schedule K-1 the information and
amounts for each separate activity. See
Passive Activity
Reporting Requirements, earlier.
Qualified rehabilitation expenditures for property not
related to rental real estate activities must be reported in
box 17 using code C.
Line 13d. Other Rental Real Estate Credits
Enter on line 13d any other credit (other than credits reported on
lines 13a through 13c) related to rental real estate activities. On
the dotted line to the left of the entry space for line 13d, identify
the type of credit. If there is more than one type of credit, attach
a statement to Form 1120-S that identifies the type and amount
for each credit. These credits may include any type of credit
listed in the instructions for line 13g.
Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of other rental real estate credits
using code F. If you are reporting each shareholder's pro rata
share of only one type of rental real estate credit under code F,
enter the code with an asterisk (F*) and the dollar amount in the
entry space in box 13 and attach a statement that shows “Box
13, code F” and the type of credit. If you are reporting multiple
types of rental real estate credit under code F, enter the code
with an asterisk (F*) and enter “STMT” in the entry space in
box 13 and attach a statement that shows “Box 13, code F” and
the dollar amount of each type of credit. If the corporation has
credits from more than one rental real estate activity, identify on
the attached statement the amount of each type of credit for
each separate activity. See
Passive Activity Reporting
Requirements, earlier.
Line 13e. Other Rental Credits
Enter on line 13e any other credit (other than credits reported on
lines 13a through 13d) related to rental activities. On the dotted
line to the left of the entry space for line 13e, identify the type of
credit. If there is more than one type of credit, attach a statement
to Form 1120-S that identifies the type and amount for each
credit. These credits may include any type of credit listed in the
instructions for line 13g.
Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of other rental credits using
code
G. If you are reporting each shareholder's pro rata share of only
one type of rental credit under code G, enter the code with an
asterisk (G*) and the dollar amount in the entry space in box 13
and attach a statement that shows “Box 13, code G” and the
type of credit. If you are reporting multiple types of rental credit
under code G, enter the code with an asterisk (G*) and enter
“STMT” in the entry space in box 13 and attach a statement that
CAUTION
!
shows “Box 13, code G” and the dollar amount of each type of
credit. If the corporation has credits from more than one rental
activity, identify on the attached statement the amount of each
type of credit for each separate activity. See Passive Activity
Reporting Requirements, earlier.
Line 13f. Biofuel Producer Credit
Enter on line 13f any biofuel producer credit attributable to trade
or business activities. If the credit is attributable to rental
activities, enter the amount on line 13d or 13e.
Figure this credit on Form 6478, if applicable. Attach it to
Form 1120-S. Include any amount shown on line 2 of Form 6478
in the corporation's income on line 5 of Form 1120-S.
See section 40(f) for an election the corporation can make to
have the credit not apply.
Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of the biofuel producer credit
reported on line 13f using
code I. If the corporation has credits
from more than one activity, identify on an attachment to
Schedule K-1 the amount for each separate activity. See Passive
Activity Reporting Requirements, earlier.
Line 13g. Other Credits
Enter on line 13g any other credit, except credits or expenditures
shown or listed for lines 13a through 13f or the credit for federal
tax paid on fuels (which is reported on line 24c of page 1). On
the line to the left of the entry space for line 13g, identify the type
of credit. If there is more than one type of credit, attach a
statement to Form 1120-S that separately identifies each type
and amount of credit for the following categories. The codes
needed for box 13 of Schedule K-1 are provided in the heading
of each category.
Zero-emission nuclear power production credit (code A).
Complete Form 7213, Nuclear Power Production Credit, Part II,
to figure the credit. Attach it to Form 1120-S.
Production from advanced nuclear power facilities credit
(code B). Complete Form 7213, Part I, to figure the credit.
Attach it to Form 1120-S.
Undistributed capital gains credit (code H). This credit
represents taxes paid on undistributed capital gains by a
regulated investment company (RIC) or a real estate investment
trust (REIT). As a shareholder of a RIC or REIT, the corporation
will receive notice of the amount of tax paid on undistributed
capital gains on Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains.
Work opportunity credit (code J). Complete Form 5884 to
figure the credit. Attach it to Form 1120-S.
Disabled access credit (code K). Complete Form 8826 to
figure the credit. Attach it to Form 1120-S.
Empowerment zone employment credit (code L). Complete
Form 8844 to figure the credit. Attach it to Form 1120-S.
Credit for increasing research activities (code M).
Complete Form 6765 to figure the credit. Attach it to Form
1120-S. For more information, see the Instructions for Form
6765.
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The corporation should provide the information
necessary for the shareholder to determine whether the
corporation is an eligible small business under section
38(c)(5)(A). If the shareholder and the corporation meet the
requirements of section 38(c)(5)(A), the research credit may be
treated as a specified credit.
Credit for employer social security and Medicare taxes
paid on certain employee tips (code N). Complete Form
8846 to figure the credit. Attach it to Form 1120-S.
Backup withholding (code O). This credit is for backup
withholding on dividends, interest, and other types of income of
the corporation.
Unused investment credit from the qualifying advanced
coal project credit or qualifying gasification project credit
allocated from cooperatives (code P). See the Instructions
for Form 3468.
Unused investment credit from the qualifying advanced en-
ergy project credit allocated from cooperatives (code Q).
See the Instructions for Form 3468.
Unused investment credit from the advanced manufactur-
ing investment credit allocated from cooperatives (code
R). See the Instructions for Form 3468.
Code S. Reserved for future use.
Unused investment credit from the energy credit allocated
from cooperatives (code T). See the Instructions for Form
3468.
Unused investment credit from the rehabilitation credit al-
located from cooperatives (code U). See the Instructions for
Form 3468.
Advanced manufacturing production credit (code V).
Complete Form 7207, Advanced Manufacturing Production
Credit, to figure the credit. Attach it to Form 1120-S.
Codes W and X. Reserved for future use.
Clean hydrogen production credit (code Y). Complete Form
7210, Clean Hydrogen Production Credit, to figure the credit.
Attach it to Form 1120-S.
Orphan drug credit (code Z). Complete Form 8820, Orphan
Drug Credit, to figure the credit. Attach it to Form 1120-S.
Enhanced oil recovery credit (code AA). Complete Form
8830, Enhanced Oil Recovery Credit, to figure the credit. Attach
it to Form 1120-S.
Renewable electricity production credit (code AB).
Complete Form 8835, Renewable Electricity Production Credit, if
applicable. Attach a statement to Form 1120-S and
Schedule K-1 showing the allocation of the credit for production
during the 4-year period beginning on the date the facility was
placed in service and for production after that period.
Biodiesel, renewable diesel, or sustainable aviation fuels
credit (code AC). Complete Form 8864, Biodiesel, Renewable
Diesel, or Sustainable Aviation Fuels Credit. Include any amount
from line 10 of Form 8864 in the corporation's income on line 5 of
Form 1120-S. If this credit includes the small agri-biodiesel
producer credit, identify on a statement attached to
Schedule K-1 (a) the small agri-biodiesel producer credit
included in the total credit allocated to the shareholder, (b) the
number of gallons for which the corporation claimed the small
agri-biodiesel producer credit, and (c) the corporation's
productive capacity for agri-biodiesel. Also report separately on
an attached statement the amount of any sustainable aviation
fuel credit.
TIP
New markets credit (code AD).
Complete Form 8874, New
Markets Credit.
Credit for small employer pension plan startup costs (code
AE). Complete Form 8881, Credit for Small Employer Pension
Plan Startup Costs, Auto-Enrollment, and Military Spouse
Participation, Part I.
Credit for small employer auto-enrollment (code AF).
Complete Form 8881, Part II.
Credit for military spouse participation (code AG).
Complete Form 8881, Part III.
Credit for employer-provided childcare facilities and serv-
ices (code AH). Complete Form 8882, Credit for
Employer-Provided Childcare Facilities and Services.
Low sulfur diesel fuel production credit (code AI).
Complete Form 8896, Low Sulfur Diesel Fuel Production Credit.
Qualified railroad track maintenance credit (code AJ).
Complete Form 8900, Qualified Railroad Track Maintenance
Credit.
Credit for oil and gas production from marginal wells (code
AK). Complete Form 8904, Credit for Oil and Gas Production
From Marginal Wells, if applicable.
Distilled spirits credit (code AL). Complete Form 8906,
Distilled Spirits Credit.
Energy efficient home credit (code AM). Complete Form
8908, Energy Efficient Home Credit.
Alternative motor vehicle credit (code AN). Complete Form
8910, Alternative Motor Vehicle Credit, if applicable.
Alternative fuel vehicle refueling property credit (code AO).
Complete Form 8911, Alternative Fuel Vehicle Refueling
Property Credit.
Clean renewable energy bond credit (code AP). The
amount of this credit (excluding any credits from partnerships,
estates, and trusts) is reported as interest income on line 4 of
Schedule K. In addition, the amount of this credit is reported on
line 16d of Schedule K. See the Instructions for Form 8912.
New clean renewable energy bond credit (code AQ). The
amount of this credit (excluding any credits from partnerships,
estates, and trusts) is reported as interest income on line 4 of
Schedule K. In addition, the amount of this credit is reported as a
property distribution on line 16d of Schedule K. See the
Instructions for Form 8912.
Qualified energy conservation bond credit (code AR). The
amount of this credit (excluding any credits from partnerships,
estates, and trusts) is reported as interest income on line 4 of
Schedule K. In addition, the amount of this credit is reported as a
property distribution on line 16d of Schedule K. See the
Instructions for Form 8912.
Qualified zone academy bond credit (code AS). The amount
of this credit (excluding any credits from partnerships, estates,
and trusts) is reported as interest income on line 4 of
Schedule K. In addition, the amount of this credit is reported on
line 16d of Schedule K. See the Instructions for Form 8912.
Qualified school construction bond credit (code AT). The
amount of this credit (excluding any credits from partnerships,
estates, and trusts) is reported as interest income on line 4 of
Schedule K. In addition, the amount of this credit is reported as a
property distribution on line 16d of Schedule K. See the
Instructions for Form 8912.
Build America bond credit (code AU). The amount of this
credit (excluding any credits from partnerships, estates, and
trusts) is reported as interest income on line 4 of Schedule K. In
Instructions for Form 1120-S (2023)
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addition, the amount of this credit is reported as a property
distribution on line 16d of Schedule K. See the Instructions for
Form 8912.
Credit for employer differential wage payments (code AV).
Complete Form 8932, Credit for Employer Differential Wage
Payments.
Carbon oxide sequestration credit (code AW). Complete
Form 8933, Carbon Oxide Sequestration Credit, to figure the
credit. Attach it to Form 1120-S.
Carbon oxide sequestration credit recapture (code AX).
Complete Form 8933 to figure the credit recapture. Attach it to
Form 1120-S. Report the carbon oxide sequestration credit
recapture amount from Form 8933, line 22.
New clean vehicle credit (code AY). Complete Form 8936,
Clean Vehicle Credits, Part II.
Qualified commercial clean vehicle credit (code AZ).
Complete Form 8936, Part V.
Credit for small employer health insurance premiums
(code BA). Complete Form 8941, Credit for Small Employer
Health Insurance Premiums.
Employer credit for paid family and medical leave (code
BB). Complete Form 8994, Employer Credit for Paid Family and
Medical Leave.
Eligible credits from transferor(s) under section 6418
(code BC). Enter the total amount of eligible credits received
from transferor(s) included in Part III, line 6, column (g), of your
Form 3800. Also, enter the total of the shareholder’s pro rata
share of all eligible credits received from transferor(s) that were
received from another pass-through entity. See required
statement below.
Partnership and S corporation pass-through entities that
transferred eligible credits from an unrelated person for
cash under section 6418 must use Form 3800, Part III
and Part V (if applicable), to report such credits. See the
Instructions for Form 3800 for reporting and other requirements.
Schedule K-1. Enter the shareholder’s pro rata share of all
eligible credits transferred from one or more unrelated
transferors pursuant to a transfer election under section 6418.
This amount must include the shareholder’s pro rata share of all
eligible credits from transferors that were received from another
pass-through entity. Enter the code BC and an asterisk (*) (BC*)
in the left column and enter “STMT” in the entry space to the
right. Attach a statement that contains the following information
for each purchased credit.
Attached statement. Attach a statement to Schedule K-1
that provides the source credit information and the pro rata share
of eligible credits received from transferor(s), including any share
of eligible credits from transferor(s) that were received from
another pass-through entity.
The statement must identify the amount and information for
each eligible credit so each shareholder can complete their Form
3800. For each eligible credit, you must provide:
•
The shareholder’s pro rata share of the eligible credits
received from transferor(s) reported on the applicable line,
column (g) of your Part III or Part V (if applicable) of Form 3800.
•
The name of the credit form in column (a) of the applicable
line of Part III or Part V (if applicable).
•
Source information for each eligible credit shown in Part III or
Part V (if applicable), including:
1. IRS-issued registration number for transfers in column (b)
of Part III and Part V, and
2. The transferor’s EIN in column (d) of Part III or column (c)
of Part V.
CAUTION
!
•
If a shareholder’s pro rata share includes an allocation of
eligible credits purchased by a lower tier pass-through entity and
reported on Schedule K-1, you must provide the EIN of such
transferee shareholder or S corporation and the source
information that was provided to you by such entity.
See the Instructions for Form 3800 for additional details.
Codes BD through BG. Reserved for future use.
Other credits (code ZZ) Include any other type of credits not
listed on lines 13a through 13f, or reported using codes A, B, H
through BC.
Schedule K-1. Enter in box 13 of Schedule K-1 each
shareholder's pro rata share of the credits listed above. See
additional Schedule K-1 reporting information provided in the
instructions above. Enter the applicable code, A, B, H, J through
BC, in the column to the left of the dollar amount entry space.
If you are reporting each shareholder's pro rata share of only
one type of credit under code ZZ, enter the code with an asterisk
(ZZ*) and the dollar amount in the entry space in box 13 and
attach a statement that shows “Box 13, code ZZ” and the type of
credit. If you are reporting multiple types of credit under code ZZ,
enter the code with an asterisk (ZZ*) and enter “STMT” in the
entry space in box 13 and attach a statement that shows “Box
13, code ZZ” and the dollar amount of each type of credit. If the
corporation has credits from more than one activity, identify on
an attachment to Schedule K-1 the amount of each type of credit
for each separate activity. See
Passive Activity Reporting
Requirements, earlier.
International Transactions
Check the box on line 14 if you are reporting items of
international tax relevance. See the Instructions for Schedule K-2
(Form 1120-S) to determine if you need to attach Schedules K-2
and K-3. If you satisfy the domestic filing exception to filing
Schedule K-3, you must provide notification to the shareholder
either through an attachment to the Schedule K-1, or a separate
statement prior to filing the Form 1120-S. If you satisfy an
exception to filing Schedule K-2 (Form 1120-S), you may also
attach a statement to the Form 1120-S that states “Qualified for
exception to filing Schedule K-2.”
Alternative Minimum Tax (AMT) Items
Lines 15a through 15f must be completed for all shareholders.
Enter items of income and deductions that are adjustments or
tax preference items for the AMT. For more information, see
Form 6251, Alternative Minimum Tax—Individuals, or Schedule I
(Form 1041), Alternative Minimum Tax—Estates and Trusts.
Don't include as a tax preference item any qualified
expenditures to which an election under section 59(e) may apply.
Instead, report these expenditures on line 12c. Because these
expenditures are subject to an election by each shareholder, the
corporation can't figure the amount of any tax preference related
to them. Instead, the corporation must pass through to each
shareholder in box 12, code J, of Schedule K-1, the information
needed to figure the deduction.
Schedule K-1. Report each shareholder's pro rata share of
amounts reported on lines 15a through 15f in box 15 of
Schedule K-1 using
codes A through F, respectively.
If the corporation is reporting items of income or deduction for
oil, gas, and geothermal properties, you may be required to
identify these items on a statement attached to Schedule K-1
(see the instructions for lines 15d and 15e). Also see the
requirement for an attached statement in the instructions for
line 15f.
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Line 15a. Post-1986 Depreciation Adjustment
Figure the adjustment for line 15a based only on tangible
property placed in service after 1986 (and tangible property
placed in service after July 31, 1986, and before 1987, for which
the corporation elected to use the Modified Accelerated Cost
Recovery System (MACRS)). Don't make an adjustment for
motion picture films, videotapes, sound recordings, certain
public utility property (see section 168(f)(2)), property
depreciated under the unit-of-production method (or any other
method not expressed in a term of years), qualified Indian
reservation property, property eligible for a special depreciation
allowance, qualified revitalization expenditures, or the section
179 expense deduction.
For property placed in service before 1999, refigure
depreciation for the AMT as follows (using the same convention
used for the regular tax).
•
For section 1250 property (generally, residential rental and
nonresidential real property), use the straight line method over
40 years.
•
For tangible property (other than section 1250 property)
depreciated using the straight line method for the regular tax,
use the straight line method over the property's class life. Use 12
years if the property has no class life.
•
For any other tangible property, use the 150% declining
balance method, switching to the straight line method the first tax
year it gives a larger deduction, over the property's AMT class
life. Use 12 years if the property has no class life.
See Pub. 946 for a table of class lives.
For property placed in service after 1998, refigure
depreciation for the AMT only for property depreciated for the
regular tax using the 200% declining balance method. For the
AMT, use the 150% declining balance method, switching to the
straight line method the first tax year it gives a larger deduction,
and the same convention and recovery period used for the
regular tax.
Figure the adjustment by subtracting the AMT deduction for
depreciation from the regular tax deduction and enter the result
on line 15a. If the AMT deduction is more than the regular tax
deduction, enter the difference as a negative amount.
Depreciation capitalized to inventory must also be refigured
using the AMT rules. Include on this line the current year
adjustment to income, if any, resulting from the difference.
Line 15b. Adjusted Gain or Loss
If the corporation disposed of any tangible property placed in
service after 1986 (or after July 31, 1986, if an election was
made to use the General Depreciation System), or if it disposed
of a certified pollution control facility placed in service after 1986,
refigure the gain or loss from the disposition using the adjusted
basis for the AMT. The property's adjusted basis for the AMT is
its cost or other basis minus all depreciation or amortization
deductions allowed or allowable for the AMT during the current
tax year and previous tax years. Enter on this line the difference
between the regular tax gain (loss) and the AMT gain (loss). If
the AMT gain is less than the regular tax gain, or the AMT loss is
more than the regular tax loss, or there is an AMT loss and a
regular tax gain, enter the difference as a negative amount.
If any part of the adjustment is allocable to net short-term
capital gain (loss), net long-term capital gain (loss), or net
section 1231 gain (loss), attach a statement that identifies the
amount of the adjustment allocable to each type of gain or loss.
TIP
For a net long-term capital gain (loss), also identify the
amount of the adjustment that is collectibles (28%) gain (loss).
For a net section 1231 gain (loss), also identify the amount of
adjustment that is unrecaptured section 1250 gain.
Line 15c. Depletion (Other Than Oil and Gas)
Don't include any depletion on oil and gas wells. The
shareholders must figure their oil and gas depletion deductions
and preference items separately under section 613A.
Refigure the depletion deduction under section 611 for mines,
wells (other than oil and gas wells), and other natural deposits
for the AMT. Percentage depletion is limited to 50% of the
taxable income from the property as figured under section
613(a), using only income and deductions for the AMT. Also, the
deduction is limited to the property's adjusted basis at the end of
the year as figured for the AMT. Figure this limit separately for
each property. When refiguring the property's adjusted basis,
take into account any AMT adjustments made this year or in
previous years that affect basis (other than the current year's
depletion).
Enter the difference between the regular tax and AMT
deduction. If the AMT deduction is greater, enter the difference
as a negative amount.
Oil, Gas, and Geothermal Properties—Gross
Income and Deductions
Generally, the amounts to be entered on lines 15d and 15e are
only the income and deductions for oil, gas, and geothermal
properties that are used to figure the corporation's ordinary
business income (loss) on line 22, page 1, Form 1120-S.
If there are any items of income or deductions for oil, gas, and
geothermal properties included in the amounts that are required
to be passed through separately to the shareholders on
Schedule K-1 (items not reported in box 1 of Schedule K-1), give
each shareholder a statement that shows, for the box in which
the income or deduction is included, the amount of income or
deductions included in the total amount for that box. Don't
include any of these direct pass-through amounts on line 15d or
15e. The shareholder is told in the Shareholder's Instructions for
Schedule K-1 (Form 1120-S) to adjust the amounts in box 15,
code D or E, for any other income or deductions from oil, gas, or
geothermal properties included in boxes 2 through 12, 16, or 17
of Schedule K-1 in order to determine the total income and
deductions from oil, gas, and geothermal properties for the
corporation.
Figure the amounts for lines 15d and 15e separately for oil
and gas properties that aren't geothermal deposits and for all
properties that are geothermal deposits.
Give each shareholder a statement that shows the separate
amounts included in the computation of the amounts on lines
15d and 15e of Schedule K.
Line 15d. Oil, Gas, and Geothermal
Properties—Gross Income
Enter the total amount of gross income (within the meaning of
section 613(a)) from all oil, gas, and geothermal properties
received or accrued during the tax year and included on page 1,
Form 1120-S.
Instructions for Form 1120-S (2023)
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Line 15e. Oil, Gas, and Geothermal
Properties—Deductions
Enter any deductions allowed for the AMT that are allocable to
oil, gas, and geothermal properties.
Line 15f. Other AMT Items
Attach a statement to Form 1120-S and Schedule K-1 that
shows other items not shown on lines 15a through 15e that are
adjustments or tax preference items or that the shareholder
needs to complete Form 6251 or Schedule I (Form 1041). See
these forms and their instructions to determine the amount to
enter.
Other AMT items include the following.
•
Accelerated depreciation of real property under pre-1987
rules.
•
Accelerated depreciation of leased personal property under
pre-1987 rules.
•
Long-term contracts entered into after February 28, 1986.
Except for certain home construction contracts, the taxable
income from these contracts must be figured using the
percentage of completion method of accounting for the AMT.
•
Losses from tax shelter farm activities. No loss from any tax
shelter farm activity is allowed for the AMT.
•
Any amount from Form 6478 reported as other income on
Form 1120-S, line 5.
•
Any amount from Form 8864 reported as other income on
Form 1120-S, line 5.
Schedule K-1. If you are reporting each shareholder's pro rata
share of only one type of AMT item under code F, enter the code
with an asterisk (F*) and the dollar amount in the entry space in
box 15 and attach a statement that shows the type of AMT item.
If you are reporting multiple types of AMT items under code F,
enter the code with an asterisk (F*) and enter “STMT” in the
entry space in box 15 and attach a statement that shows the
dollar amount of each type of AMT item.
Items Affecting Shareholder Basis
Line 16a. Tax-Exempt Interest Income
Enter on line 16a tax-exempt interest income, including any
exempt-interest dividends received from a mutual fund or other
regulated investment company. Individual shareholders must
report this information on line 2a of Form 1040 or 1040-SR.
Generally, under section 1367(a)(1)(A), the basis of the
shareholder's stock is increased by the amount shown on this
line.
Line 16b. Other Tax-Exempt Income
Enter on line 16b all income of the corporation exempt from tax
other than tax-exempt interest (for example, life insurance
proceeds, but see section 101(j) for limits and reporting
requirements). Generally, under section 1367(a)(1)(A), the basis
of the shareholder's stock is increased by the amount shown on
this line.
Tax-exempt income from transfer election. Enter the total
consideration received by the transferor S corporation as a result
of a transfer election under section 6418. If the S corporation is
allocated tax-exempt income from a pass-through entity (or
lower-tier pass-through entity) making a transfer election to
transfer its credits, include those amounts in code B as well.
Schedule K-1. This amount includes the shareholder’s pro
rata share of tax-exempt income allocated by the transferor S
corporation related to proceeds received by the S corporation as
a result of the S corporation making a transfer election to transfer
its credits under section 6418. This amount also includes the
shareholder’s pro rata share of allocations made to the transferor
S corporation from a pass-through entity for which the S
corporation was a partner related to the pass-through entity (or
lower-tier pass-through entity) making a transfer election to
transfer its credits.
Tax-exempt income from elective payment election. Enter
the amount from page 1, line 24d. This is the total amount of
credits determined by the S corporation for which an elective
payment election is being made.
Schedule K-1. The S corporation has claimed an amount on
page 1, line 24d, which is treated as tax-exempt income for
purposes of S corporation allocations. The amount listed on
line 16 as code B includes the shareholder’s pro rata share of
tax-exempt income as a result of the S corporation making an
elective payment election under section 6417. This amount also
includes the shareholder’s pro rata share of allocations to the S
corporation from a pass-through entity (or lower-tier
pass-through entity) that made an elective payment election.
Paycheck Protection Program (PPP) reporting. Report
tax-exempt income resulting from the forgiveness of a PPP loan
on this line. Attach a statement to the S corporation return for
each tax year in which the S corporation is applying Rev. Proc.
2021-48, sections 3.01(1), (2), or (3). The statement should also
include the following information for each PPP loan.
1. The S corporation’s name, address, and EIN;
2. A statement that the S corporation is applying section
3.01(1), (2), or (3) of Rev. Proc. 2021-48, as applicable;
3. The amount of tax-exempt income from forgiveness of the
PPP loan that the S corporation is treating as received or
accrued during the tax year; and
4. Whether forgiveness of the PPP loan has been granted as
of the date the return is filed.
An S corporation that didn’t report tax-exempt income from a
PPP loan on its 2020 return may file an amended return to apply
Rev. Proc. 2021-48 and should do so according to these
instructions. An S corporation that reported tax-exempt income
from a PPP loan on its 2020 return, the timing of which
corresponds to one of the options presented in Rev. Proc.
2021-48, need not file an amended return solely to attach the
statement that is described in the instructions for Schedule K,
line 16(b).
As explained in section 3.03 of Rev. Proc. 2021-48, if an S
corporation treats tax-exempt income resulting from a PPP loan
as received or accrued prior to when forgiveness of the PPP loan
is granted and the amount of forgiveness granted is less than the
amount of tax-exempt income that was previously treated as
received or accrued, the S corporation must make appropriate
adjustments (if any) on an amended return for the tax year in
which the S corporation treated the tax-exempt income as
received or accrued. The S corporation should attach a
statement to such amended return that includes the following
information.
1. The S corporation’s name, address, and EIN;
2. A statement that the S corporation is making adjustments
in accordance with section 3.03 of Rev. Proc. 2021-48; and
3. The tax year in which tax-exempt income was originally
reported, the amount of tax-exempt income that was originally
reported in such tax year, and the amount of tax-exempt income
being adjusted on the amended return.
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Line 16c. Nondeductible Expenses
Enter on line 16c nondeductible expenses paid or incurred by
the corporation.
Payments made by transferee S corporations to eligible
taxpayers for the purchase of eligible credits as a result of a
transfer election under section 6418 are treated as
nondeductible expenses and are reported on this line 16c.
Don't include separately stated deductions shown elsewhere
on Schedules K and K-1, capital expenditures, or items for which
the deduction is deferred to a later tax year.
Generally, under section 1367(a)(2)(D), the basis of the
shareholder's stock is decreased by the amount shown on this
line.
Line 16d. Distributions
Enter the total distributions (including cash) made to each
shareholder other than dividends reported on line 17c of
Schedule K. Include the shareholder's pro rata share of any
amounts included in interest income with respect to new clean
renewable energy, qualified energy conservation, qualified zone
academy (for bonds issued after October 3, 2008), qualified
school construction, or build America bonds. Distributions of
appreciated property are valued at fair market value. If property
other than cash was distributed, attach a statement to provide
the following information.
•
The date the property was acquired.
•
The date the property was distributed.
•
The property's FMV on the date of distribution.
•
The corporation's basis in the property.
See Distributions, later, for the ordering rules.
Line 16e. Repayment of Loans From Shareholders
Enter any repayments made to shareholders during the current
tax year.
Line 16f. Foreign Taxes Paid or Accrued
Enter in U.S. dollars the total creditable foreign taxes (described
in section 901 or section 903) that were paid or accrued
according to the corporation's method of accounting for such
taxes. Translate these amounts into U.S. dollars by using the
applicable exchange rate. See Pub. 514, Foreign Tax Credit for
Individuals.
Schedule K-1. Report each shareholder's pro rata share of
amounts reported on lines 16a, 16b, 16c, and 16f (concerning
items affecting shareholder basis) in box 16 of Schedule K-1
using
codes A, B, C, and F, respectively. Report property
distributions (line 16d) and repayment of loans from
shareholders (line 16e) on the Schedule K-1 of the
shareholder(s) that received the distributions or repayments
(using codes D and E).
Other Information
Lines 17a and 17b. Investment Income and
Expenses
Enter on line 17a the investment income included on lines 4, 5a,
6, and 10 of Schedule K. Don't include other portfolio gains or
losses on this line.
Enter on line 17b the investment expense included on
line 12d of Schedule K.
Investment income includes gross income from property held
for investment, the excess of net gain attributable to the
disposition of property held for investment over net capital gain
from the disposition of property held for investment, any net
capital gain from the disposition of property held for investment
that each shareholder elects to include in investment income
under section 163(d)(4)(B)(iii), and any qualified dividend
income that the shareholder elects to include in investment
income. Generally, investment income and investment expenses
don't include any income or expenses from a passive activity.
See Regulations section 1.469-2(f)(10) for exceptions.
Property subject to a net lease isn't treated as investment
property because it is subject to the passive loss rules. Don't
reduce investment income by losses from passive activities.
Investment expenses are deductible expenses (other than
interest) directly connected with the production of investment
income. See the Instructions for Form 4952 for more information.
Schedule K-1. Report each shareholder's pro rata share of
amounts reported on lines 17a and 17b (investment income and
expenses) in box 17 of Schedule K-1 using codes A and B,
respectively.
If there are other items of investment income or expense
included in the amounts that are required to be passed through
separately to the shareholders on Schedule K-1, such as net
short-term capital gain or loss, net long-term capital gain or loss,
and other portfolio gains or losses, give each shareholder a
statement identifying these amounts.
Line 17c. Dividend Distributions Paid From
Accumulated Earnings and Profits (Schedule K
Only)
Enter total dividends paid to shareholders from accumulated
earnings and profits. Report these dividends to shareholders on
Form 1099-DIV. Don't report them on Schedule K-1.
Line 17d. Other Items and Amounts
Report the following information on a statement attached to Form
1120-S. On Schedule K-1, enter the appropriate code in box 17
for each information item followed by an asterisk in the left-hand
column of the entry space (for example, C*). In the right-hand
column, enter “STMT.” The codes are provided for each
information category.
Qualified rehabilitation expenditures (other than rental real
estate) (code C). Enter total qualified rehabilitation
expenditures from activities other than rental real estate
activities. See the Instructions for Form 3468 for details on
qualified rehabilitation expenditures.
Report qualified rehabilitation expenditures related to
rental real estate activities on line 13c.
Schedule K-1. Report each shareholder's pro rata share of
qualified rehabilitation expenditures related to activities other
than rental real estate activities in box 17 of Schedule K-1 using
code C. Attach a statement to Schedule K-1 that provides the
information and the shareholder's pro rata share of the basis and
expenditure amounts the shareholder will need to figure the
amounts to report in Part VII of Form 3468. See the Instructions
for Form 3468 for details. If the corporation has expenditures
from more than one activity, identify on a statement attached to
Schedule K-1 the information and amounts for each separate
activity. See
Passive Activity Reporting Requirements, earlier.
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Basis of energy property (code D). In box 17 of
Schedule K-1, enter code D followed by an asterisk and enter
“STMT” in the entry space for the dollar amount. Attach a
statement to Schedule K-1 that provides the shareholder's pro
rata share of the basis and capacity amounts the shareholder
will need to figure the amounts to report on Part VI, lines 1a, 3a,
3e, 5a, 5f, 5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e,
19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 29a of Form 3468.
See the Instructions for Form 3468 for details.
Recapture of low-income housing credit (codes E and F). If
recapture of part or all of the low-income housing credit is
required because (a) the prior year qualified basis of a building
decreased, or (b) the corporation disposed of a building or part
of its interest in a building, see Form 8611, Recapture of
Low-Income Housing Credit. Complete lines 1 through 7 of Form
8611 to figure the amount of the credit to recapture.
Use code E on Schedule K-1 to report recapture of the
low-income housing credit from a section 42(j)(5) partnership.
Use code F to report recapture of any other low-income housing
credit. See the instructions for lines 13a and 13b, earlier, for
more information.
If a shareholder's ownership interest in a building
decreased because of a transaction at the shareholder
level, the corporation must provide the necessary
information to the shareholder to enable the shareholder to figure
the recapture.
The disposal of a building or an interest therein will
generate a credit recapture unless it is reasonably
expected that the building will continue to be operated
as a qualified low-income building for the remainder of the
building's compliance period.
See Form 8586, Form 8611, and section 42 for more
information.
Recapture of investment credit (code G). Complete and
attach Form 4255 if, before the end of the recapture period,
investment credit property is disposed of or no longer qualifies
for the credit or if credit recapture is otherwise required. See the
Instructions for Form 4255 for details about when credit
recapture is required. State the type of property at the top of
Form 4255, and complete lines 2, 3, 4, 10, and 11, whether or
not any shareholder is subject to recapture of the credit.
Attach to each Schedule K-1 a separate statement providing
the information the corporation is required to show on Form
4255, but list only the shareholder's pro rata share of the basis of
the property subject to recapture. Also indicate the lines of Form
4255 on which the shareholders should report these amounts.
The corporation itself is liable for investment credit recapture
in certain cases. See Investment credit recapture tax, earlier, for
details.
Recapture of other credits (code H). On an attached
statement to Schedule K-1, provide any information
shareholders will need to report recapture of credits (other than
recapture of low-income housing credit and investment credit
reported on Schedule K-1 using codes E, F, and G). The
following are examples of credits subject to recapture and
reported using code H.
•
The new clean vehicle credit. See section 30D(f)(5) for
details.
•
The new markets credit. See Form 8874 and Form 8874-B,
Notice of Recapture Event for New Markets Credit, for details.
•
The credit for employer-provided childcare facilities and
services. See section 45F(d) for details.
•
The alternative motor vehicle credit. See section 30B(h)(8) for
details.
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•
The alternative fuel vehicle refueling property credit. See
section 30C(e)(5) for details.
Look-back interest—Completed long-term contracts (code
I). If the corporation is closely held (defined in section 460(b)(4)
(C)(iii)) and it entered into any long-term contracts after February
28, 1986, that are accounted for under either the percentage of
completion-capitalized cost method or the percentage of
completion method, it must attach a statement to Form 1120-S
showing the information required in items (a) and (b) of the
instructions for lines 1 and 3 of Part II of Form 8697. It must also
report the amounts for Part II, lines 1 and 3, to its shareholders.
See the Instructions for Form 8697 for more information.
Look-back interest—Income forecast method (code J). If
the corporation is closely held (defined in section 460(b)(4)(C)
(iii)) and it depreciated certain property placed in service after
September 13, 1995, under the income forecast method, it must
attach to Form 1120-S the information specified in the
instructions for Form 8866, line 2, for the 3rd and 10th tax years
beginning after the tax year the property was placed in service. It
must also report the line 2 amounts to its shareholders. See the
Instructions for Form 8866 for more details.
Dispositions of property with section 179 deductions
(code K). This represents gain or loss on the sale, exchange, or
other disposition of property for which a section 179 deduction
has been passed through to shareholders. The corporation must
provide all the following information with respect to such
dispositions (see the instructions for Form 1120-S, line 4,
earlier).
•
Description of the property.
•
Date the property was acquired and placed in service.
•
Date of the sale or other disposition of the property.
•
The shareholder's pro rata share of the gross sales price or
amount realized.
•
The shareholder's pro rata share of the cost or other basis
plus expense of sale (reduced as explained in the instructions for
Form 4797, line 21).
•
The shareholder's pro rata share of the depreciation allowed
or allowable, determined as described in the instructions for
Form 4797, line 22, but excluding the section 179 deduction.
•
The shareholder's pro rata share of the section 179 deduction
(if any) passed through for the property and the corporation's tax
year(s) in which the amount was passed through.
•
If the disposition is due to a casualty or theft, a statement
indicating so, and any additional information needed by the
shareholder.
•
For an installment sale, any information the shareholder
needs to complete Form 6252. The corporation must also
separately report the shareholder's pro rata share of all
payments received for the property in future tax years.
(Installment payments received for installment sales made in
prior tax years should be reported in the same manner used in
prior tax years.) See the Instructions for Form 6252 for details.
Recapture of section 179 deduction (code L). This amount
represents recapture of the section 179 deduction if business
use of the property dropped to 50% or less before the end of the
recapture period. If the business use of any property for which a
section 179 deduction was passed through to shareholders
dropped to 50% or less (for a reason other than disposition), the
corporation must provide all the following information.
•
The shareholder's pro rata share of the original basis and
depreciation allowed or allowable (not including the section 179
deduction).
•
The shareholder's pro rata share of the section 179 deduction
(if any) passed through for the property and the corporation's tax
year(s) in which the amount was passed through.
See Regulations section 1.179-1(e) for details.
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Section 453(l)(3) information (code M). Supply any
information needed by a shareholder to figure the interest due
under section 453(l)(3). If the corporation elected to report the
dispositions of certain timeshares and residential lots on the
installment method, each shareholder's tax liability must be
increased by the shareholder's pro rata share of the interest on
tax attributable to the installment payments received during the
tax year.
Section 453A(c) information (code N). Supply any
information shareholders need to figure the interest charge
under section 453A(c). See Pub. 537, Installment Sales. This
information must include the following from each Form 6252
where the shareholder's pro rata share of the selling price,
including mortgages and other debts, is greater than $150,000.
•
Description of property.
•
Date acquired.
•
Date property sold.
•
Selling price, including mortgages and other debts (not
including interest, whether stated or unstated).
•
Mortgages, debts, and other liabilities the buyer assumed or
took the property subject to.
•
Gross profit.
•
Contract price.
•
Gross profit percentage.
•
Current year payments and deemed payments received
during the year, not including interest whether stated or unstated.
•
Origination year payments and deemed payments received
during the year, not including interest whether stated or unstated.
•
Payments received in prior years, not including interest
whether stated or unstated.
•
Installment sale income.
•
Character of the income—capital or ordinary.
See section 453A(c) for information on how to compute the
interest charge on the deferred tax liability. The section 453A
interest charge is reported on the other tax line of the
shareholder's tax return. See
Interest on Deferred Tax in Pub.
537 for additional details on how to compute the section 453A(c)
interest.
Section 1260(b) information (code O). Supply any
information needed by a shareholder to figure the interest due
under section 1260(b). If the corporation had gain from certain
constructive ownership transactions, each shareholder's tax
liability must be increased by the shareholder's pro rata share of
interest due on any deferral of gain recognition. See section
1260(b) for details, including how to figure the interest.
Interest allocable to production expenditures (code P).
Supply any information needed by a shareholder to properly
capitalize interest as required by section 263A(f). See
Section
263A uniform capitalization rules, earlier, for more information.
CCF nonqualified withdrawals (code Q). Report nonqualified
withdrawals by the corporation from a capital construction fund.
Attach a statement to the shareholder's Schedule K-1 providing
details of the withdrawal. See Pub. 595.
Depletion information—Oil and gas (code R). Report gross
income and other information relating to oil and gas well
properties to shareholders to allow them to figure the depletion
deduction for oil and gas well properties. Allocate to each
shareholder a proportionate share of the adjusted basis of each
corporate oil or gas well property. See section 613A(c)(11) for
details.
The corporation can't deduct depletion on oil and gas wells.
Each shareholder must determine the allowable amount to report
on the shareholder's return.
Codes S and T. Reserved for future use.
Net investment income (code U).
Use code U to report any
information that may be relevant for shareholders to figure their
net investment income tax when the information isn't otherwise
identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach
a statement that shows a description and dollar amount of each
relevant item.
Examples of items reported using code U may include the
following.
•
Net rental real estate income reported on Form 1120-S,
Schedule K, line 2, and other net rental income reported on
Form 1120-S, Schedule K, line 3c, derived from a section 212
for-profit activity (and not from a section 162 trade or business).
•
Gains and losses from dispositions of assets attributable to a
section 212 for-profit activity (and not from a section 162 trade or
business).
•
Gain reported on the installment sale basis (or attributable to
a private annuity) that is attributable to the disposition of property
held in a trade or business.
•
Gain or loss from the disposition of a partnership interest, but
only if such partnership was engaged, directly or indirectly, in
one or more trades or businesses, and at least one of those
trades or businesses wasn't trading in financial instruments or
commodities.
•
The shareholder’s pro rata share of interest income, or interest
expense, that is attributable to a loan between the corporation
and the shareholder (self-charged interest).
•
If the corporation received a Form 1065, Schedule K-1, the
detail and amounts reported to the corporation using box 20,
code Y.
•
If the corporation received a Form 1041, Schedule K-1, the
amount of the adjustment reported.
In addition, Regulations section 1.1411-10 provides special
rules with respect to stock of CFCs and passive foreign
investment companies (PFICs) owned by the corporation. If the
corporation owns, directly or indirectly, stock of a CFC or PFIC,
then additional reporting may be required under code U.
CFCs and QEFs. In the case of stock of CFCs and QEFs
owned directly or indirectly by the corporation, the corporation
must provide the name and EIN (if one has been issued) for
each CFC and QEF the stock of which is owned by the
corporation for which an election under Regulations section
1.1411-10(g) is
not in effect and with respect to which the
corporation isn't engaged in a trade or business described in
section 1411(c)(2). For each of these entities, the corporation
must provide the following information on an entity-by-entity
basis (to the extent such information isn't otherwise identifiable
on Schedule K-3).
•
Section 951(a) inclusions.
•
Section 951A inclusions to the extent allocated to the CFC
under section 951A(f)(2) if the corporation has elected entity
treatment under Notice 2020-60, 2020-39 I.R.B. 604.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
•
Section 959(d) distributions subject to section 1411.
•
Section 1293(c) distributions subject to section 1411.
•
Amount of gain or loss derived with respect to dispositions of
the stock of CFCs and QEFs that is taken into account for
section 1411 purposes.
•
Amounts that are derived with respect to the disposition of the
stock of CFCs and QEFs and included in income as a dividend
under section 1248 for section 1411 purposes.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the corporation for which an election under
Regulations section 1.1411-10(g) is in effect, the corporation
must provide the following information (to the extent such
information isn't otherwise identifiable on Schedule K-3), on
either an aggregate basis or an entity-by-entity basis.
•
Section 951(a) inclusions.
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•
Section 951A inclusions to the extent allocated to the CFC
under section 951A(f)(2) if the corporation has elected entity
treatment under Notice 2020-60.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
In the case of stock of CFCs and QEFs directly or indirectly
owned by the corporation with respect to which the corporation
is engaged in a trade or business described in section 1411(c)
(2), the corporation must provide the following information (to the
extent such information isn't otherwise identifiable on the
Schedule K-3), on either an aggregate or an entity-by-entity
basis, or may aggregate this information with other income
derived by the corporation that is net investment income under
section 1411(c)(1)(A)(ii).
•
Section 951(a) inclusions.
•
Section 951A inclusions to the extent allocated to the CFC
under section 951A(f)(2) if the corporation has elected entity
treatment under Notice 2020-60.
•
Section 1293(a)(1)(A) inclusions.
•
Section 1293(a)(1)(B) inclusions.
Section 1296 mark-to-market PFICs. In the case of stock of
PFICs directly or indirectly owned by the corporation for which an
election under section 1296 is in effect, the corporation must
provide the following information (to the extent such information
isn't otherwise identifiable on Schedule K-3), on either an
aggregate basis or an entity-by-entity basis (except as provided
below).
•
Amounts included in income under section 1296(a)(1).
•
Amounts deducted from income under section 1296(a)(2).
In the case of PFIC stock owned directly or indirectly by the
corporation for which an election under section 1296 is in effect
and with respect to which the corporation is engaged in a trade
or business described in section 1411(c)(2), the corporation may
aggregate this information with other income derived by the
corporation that is net investment income under section 1411(c)
(1)(A)(ii).
Section 1291 funds. In the case of stock of PFICs directly or
indirectly owned by the corporation with respect to which direct
or indirect shareholders are subject to section 1291, the
corporation must provide the following information (to the extent
such information isn't otherwise identifiable on Schedule K-3), on
an entity-by-entity basis.
•
Excess distributions made by a PFIC with respect to which the
shareholder is subject to section 1291.
•
Gains derived with respect to the disposition of stock of a
PFIC with respect to which a shareholder is subject to section
1291.
Section 199A information (code V). The qualified business
income (QBI) deduction may be taken by eligible taxpayers,
including individuals and some trusts and estates. The
deduction is determined at the shareholder level. S corporations
are required to report information necessary for their
shareholders to figure the deduction. Use the code with an
asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and
enter “STMT” in the entry space to indicate that the information is
provided on an attached statement separately identifying the
shareholder’s pro rata share of:
•
Qualified items of income, gain, deduction, and loss;
•
W-2 wages;
•
Unadjusted basis immediately after acquisition (UBIA) of
qualified property;
•
Qualified publicly traded partnership (PTP) items; and
•
Section 199A dividends, also known as qualified real estate
investment trust (REIT) dividends.
Don’t add amounts into a single number and report it in
box 17 on Schedule K-1. The section 199A information
must be separately identified for each trade or business
the S corporation directly conducts, including specified service
trades or businesses.
The S corporation must make an initial determination of which
items are qualified items of income, gain, deduction, and loss at
its level and report to each shareholder their pro rata share of all
items that may be qualified items at the shareholder level. These
items must be separately stated where necessary for the
shareholder to figure the deduction. See
Determining the S
corporation’s QBI or qualified PTP items, later. The shareholder
must then determine whether each item is includible in its QBI.
In addition, the S corporation must also report whether any of
its trades or businesses are specified service trades or
businesses (SSTBs) and identify on the statement any trades or
businesses that are aggregated.
Note. The S corporation must report the pro rata share of
qualified items of income, gain, deduction, and loss from a PTP
so that shareholders can determine their qualified PTP income.
However, W-2 wages and UBIA of qualified property from the
PTP shouldn’t be reported because shareholders can’t use that
information in figuring their QBI deduction.
S corporations should use Statement A—QBI Pass-Through
Entity Reporting, or a substantially similar statement, to report
each shareholder’s pro rata information from each trade or
business, including QBI items, W-2 wages, UBIA of qualified
property, qualified PTP items, and section 199A dividends by
attaching the completed statement(s) to each shareholder’s
Schedule K-1. The S corporation should also use Statement A to
report each shareholder’s pro rata share of QBI items, W-2
wages, UBIA of qualified property, qualified PTP items, and
section 199A dividends reported to the S corporation by another
entity.
S corporations should use Statement B—QBI Pass-Through
Entity Aggregation Election(s), or a substantially similar
statement, to report aggregated trades or businesses and
provide supporting information to shareholders on each
Schedule K-1.
S corporations should use Statement C—QBI Pass-Through
Entity Reporting—Patrons of Specified Agricultural and
Horticultural Cooperatives, or a substantially similar statement,
to report pro rata QBI and W-2 wages allocable to qualified
payments from a specified agricultural or horticultural
cooperative for each trade or business. This statement should
also be used to report each shareholder’s pro rata section
199A(g) deduction reported to the S corporation by the specified
cooperative.
The S corporation must also report all QBI information
reported to it by any entity in which the S corporation has an
ownership interest.
Determining the S corporation’s qualified trades or
businesses. The S corporation’s qualified trades or businesses
include its section 162 trades or businesses, except for SSTBs,
or the trade or business of providing services as an employee. A
section 162 trade or business generally includes any activity if
the taxpayer’s primary purpose for engaging in the activity is for
income or profit and the S corporation is involved in the activity
with continuity and regularity. For more information on what
qualifies as a trade or business for purposes of section 199A,
see the instructions for Form 8995, Qualified Business Income
Deduction Simplified Computation, or Form 8995-A, Qualified
Business Income Deduction.
Rental real estate. Rental real estate may constitute a trade
or business for purposes of the QBI deduction if the rental real
estate:
CAUTION
!
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•
Rises to the level of a trade or business under section 162;
•
Satisfies the requirements for the rental real estate safe
harbor in Rev. Proc. 2019-38, 2019-42 I.R.B. 942; or
•
Meets the self-rental exception (that is, the rental or licensing
of property to a commonly controlled trade or business
conducted by an individual or relevant pass-through entity)
described in Regulations section 1.199A-1(b)(14).
The determination of whether rental real estate constitutes a
trade or business for purposes of the QBI deduction is made by
the S corporation. The S corporation must first make this
determination and then only include the pro rata share of QBI
information for rental real estate that constitutes a trade or
business on the statement provided to shareholders. Rental real
estate that doesn’t meet any of the three conditions noted above
doesn’t constitute a trade or business for purposes of the QBI
deduction and must not be included in the QBI information
provided to shareholders.
Specified service trades or businesses excluded from
qualified trades or businesses. SSTBs are generally
excluded from the definition of a qualified trade or business. An
SSTB is any trade or business providing services in the fields of
health, law, accounting, actuarial science, performing arts,
consulting, athletics, financial services, brokerage services,
investing and investment management, trading or dealing in
securities, partnership interests, or commodities, or any other
trade or business where the principal asset is the reputation or
skill of one or more of its employees or owners. The term “any
trade or business” where the principal asset is the reputation or
skill of one or more of its employees or owners means any trade
or business that consists of (i) a trade or business in which a
person receives fees, compensation, or other income for
endorsing products or services; (ii) a trade or business in which
a person licenses or receives fees, compensation, or other
income for the use of an individual’s image, likeness, name,
signature, voice, trademark, or any other symbols associated
with the individual’s identity; or (iii) receiving fees, compensation,
or other income for appearing at an event or on radio, television,
or another media format.
Note. S corporations must separately report QBI information for
all trades or businesses engaged in by the S corporation,
including SSTBs, and must also identify which trades or
businesses are SSTBs.
Aggregation of trades or businesses. An S corporation
engaged in more than one trade or business may choose to
aggregate multiple trades or businesses into a single trade or
business for purposes of section 199A if it meets the following
requirements:
1. The same person, or group of persons, either directly or
through attribution, owns 50% or more of each trade or business
for a majority of the tax year, including the last day of the tax
year, and all trades or businesses use the same tax year-end;
2. None of the trades or businesses is an SSTB; and
3. The trades or businesses to be aggregated meet at least
two of the following three factors:
a. They provide products, property, or services that are the
same or that are customarily offered together;
b. They share facilities or share significant centralized
business elements, such as personnel, accounting, legal,
manufacturing, purchasing, human resources, or information
technology resources; or
c. They are operated in coordination with, or reliance upon,
one or more of the businesses in the aggregated group.
If the S corporation chooses to aggregate multiple trades or
businesses, it must report the aggregation on Statement B, or a
substantially similar statement, and attach it to each
Schedule K-1. The statement must provide the information
necessary to identify each separate trade or business included
in each aggregation, a description of the aggregated trades or
businesses, and an explanation of the factors met that allow the
aggregation in accordance with Regulations section 1.199A-4.
The aggregation statement must be completed each year to
show the S corporation's trade or business aggregations. Failure
to disclose the aggregations may cause them to be
disaggregated.
The S corporation's aggregations must be reported
consistently for all subsequent years, unless there is a change in
facts and circumstances that changes or disqualifies the
aggregation. The S corporation must provide a written
explanation for any changes to prior year aggregations that
describes the change in facts and circumstances.
If the S corporation directly or indirectly owns an interest in
another relevant pass-through entity (RPE) that aggregates
multiple trades or businesses, it must attach a copy of the RPE's
aggregation to each Schedule K-1. The S corporation can’t
break apart the aggregation of another RPE, but it may add
trades or businesses to the aggregation, assuming the
requirements above are satisfied.
Determining the S corporation’s QBI or qualified PTP
items. The S corporation’s items of QBI include qualified items
of income, gain, deduction, and loss from the S corporation’s
trades or businesses that are effectively connected with the
conduct of a trade or business within the United States. This may
include, but isn’t limited to, items such as ordinary business
income or losses, section 1231 gains or losses, section 179
deductions, and interest from debt-financed distributions.
QBI may also include rental income or losses or royalty
income, if the activity rises to the level of a trade or business, or
is a qualified trade or business for purposes of section 199A; and
gambling gains or losses, but only if the S corporation is
engaged in the trade or business of gambling. Whether an
activity rises to the level of a trade or business must be
determined at the entity level and, once made, is binding on
shareholders.
Qualified PTP items include the S corporation’s share of
qualified items of income, gain, deduction, and loss from a PTP
and may also include gain or loss recognized on the disposition
of the S corporation’s partnership interest that isn’t treated as a
capital gain or loss.
QBI and qualified PTP items don’t include the following:
•
Items that aren’t properly includible in income;
•
Income that isn’t effectively connected with the conduct of
business within the United States (go to
IRS.gov/ECI for more
information);
•
Items that are treated as capital gain or loss under any
provision of the Internal Revenue Code;
•
Dividends or dividend equivalents, including qualified REIT
dividends;
•
Interest income (unless received in connection with the trade
or business);
•
Wage income;
•
Commodities transactions, or foreign currency gains or losses
described in sections 954(c)(1)(C) or (D);
•
Income, loss, or deductions from notional principal contracts
under section 954(c)(1)(F);
•
Annuities (unless received in connection with the trade or
business);
•
Guaranteed payments described in section 707(c) received
by the entity for services rendered to a partnership; or
•
Payments described in section 707(a) received by the entity
for services rendered to a partnership.
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QBI Flowchart
S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to
shareholders.
Questions Yes No
1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question. Stop. This item isn’t QBI.
2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section
179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not
considered attributable to the trade or business at the entity level include gambling income (loss)
where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation
properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc.
Continue to next question. Stop. This item isn’t QBI.
3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or
is it a dividend or dividend equivalent?
Stop. This item isn’t QBI. Continue to next question.
4. Is the item interest income other than interest income properly allocable to a trade or business?
(Note that interest income attributable to an investment of working capital, reserves, or similar
accounts isn’t properly allocable to a trade or business).
Stop. This item isn’t QBI. Continue to next question.
5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn’t QBI. Continue to next question.
6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss
described in sections 954(c)(1)(C) or (D)?
Stop. This item isn’t QBI. Continue to next question.
7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn’t QBI. Continue to next question.
8. Is the item of income or loss from a qualified publicly traded partnership? This item is a qualified PTP
item. Report this item as
qualified PTP income or
loss, subject to
shareholder-specific
determinations, and check
the PTP box.
This item is QBI. Report this
item as QBI subject to
shareholder-specific
determinations.
Specific instructions for Statement A—QBI Pass-Through
Entity Reporting.
QBI or qualified PTP items. The S corporation must first
determine if it is engaged in one or more trades or businesses. It
must then determine if any of its trades or businesses are
SSTBs. It must also determine whether it has qualified PTP
items from an interest in a PTP. It must indicate the status in the
appropriate checkboxes for each trade or business (or
aggregated trade or business) or PTP interest reported.
Note. SSTBs and PTPs can’t be aggregated with any other
trade or business. So, if the aggregation box is checked, the
SSTB and PTP boxes for that specific aggregated trade or
business shouldn’t be checked.
Next, the S corporation must report to each shareholder their
pro rata share of all items that are QBI or qualified PTP items for
each trade or business the S corporation owns directly or
indirectly. Use the QBI flowchart above to determine if an item is
reportable as a QBI item or qualified PTP item subject to
shareholder-specific determination.
The descriptions on the statement generally match the
descriptions reported on Schedule K-1. So the amounts should
reflect each trade or business’s portion of the qualified items of
income, gain, deduction, or loss reported in the applicable box of
the shareholder’s Schedule K-1. For example, the amount
reported on the “Ordinary business income (loss)” line of this
statement should reflect the attributable portion of qualified items
of income, gain, deduction, and loss for each trade or business
included in the “Ordinary business income (loss)” reported in
box 1 of the shareholder’s Schedule K-1. Each item included
under “Other income (loss)” and “Other deductions” must be
stated separately, identifying the nature and amount of each
item.
W-2 wages and UBIA of qualified property. The S
corporation must determine the W-2 wages and UBIA of
qualified property properly allocable to QBI for each qualified
trade or business, including SSTBs, and report the pro rata
share to each shareholder on Statement A, or a substantially
similar statement, attached to Schedule K-1. This includes the
pro rata share of W-2 wages and UBIA of qualified property
reported to the S corporation from any qualified trades or
businesses of an RPE the S corporation owns directly or
indirectly. However, S corporations that own a direct or indirect
interest in a PTP may not include any amounts for W-2 wages or
UBIA of qualified property from the PTP, as the W-2 wages and
UBIA of qualified property from a PTP aren’t allowed in figuring
the W-2 wage and UBIA limitations.
The W-2 wages are amounts paid to employees described in
sections 6051(a)(3) and (8). If the S corporation conducts more
than one trade or business, it must allocate the W-2 wages
among its trades or businesses. See Rev. Proc. 2019-11,
2019-09 I.R.B. 742 for more information.
The unadjusted basis of qualified property is figured by
adding the unadjusted basis of all qualified assets immediately
after acquisition. Qualified property includes all tangible property
subject to depreciation under section 167 for which the
depreciable period hasn’t ended that is held and used for the
production of QBI by the trade or business during the tax year
and held on the last day of the tax year. The depreciable period
ends on the later of 10 years after the property is placed in
service or the last day of the full year for the applicable recovery
period under section 168.
Section 199A dividends. The S corporation must report the
pro rata share of any section 199A dividends, also known as
qualified real estate investment trust (REIT) dividends, to each
shareholder on Statement A, or a substantially similar statement,
attached to Schedule K-1. Section 199A dividends don’t have to
be separately reported by trades or businesses and can be
reported as a single amount to shareholders. Section 199A
dividends include any dividend the S corporation receives from a
REIT held for more than 45 days, for which the payment isn’t
obligated to someone else, isn’t a capital gain dividend under
section 857(b)(3), and isn’t a qualified dividend under section
1(h)(11), plus any qualified REIT dividends received from a
regulated investment company (RIC).
Fiscal year S corporations. For purposes of determining the
QBI or qualified PTP items, UBIA of qualified property, and the
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aggregate amount of qualified section 199A dividends, fiscal
year-end S corporations include all items from the fiscal tax year.
For purposes of determining W-2 wages, fiscal year-end S
corporations include amounts paid to employees under sections
6051(a)(3) and (8) for the calendar year ended with or within the
S corporation’s tax year. If the S corporation conducts more than
one trade or business, it must allocate W-2 wages among its
trades or businesses. See Rev. Proc. 2019-11 for more
information.
Statement A—QBI Pass-Through Entity Reporting
S corporation's name: S corporation's EIN:
Shareholder’s name: Shareholder’s identifying number:
Shareholder’s share of:
Trade or Business 1 Trade or Business 2 Trade or Business 3
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
QBI or qualified PTP items subject to shareholder-specific determinations:
Ordinary business income (loss) ...............
Rental income (loss) .....................
Royalty income (loss) ....................
Section 1231 gain (loss) ...................
Other income (loss) .....................
Section 179 deduction ....................
Other deductions .......................
W-2 wages........................................
UBIA of qualified property ..............................
Section 199A dividends .....
Specific instructions for Statement B—QBI Pass-Through
Entity Aggregation Election(s). If the S corporation elects to
aggregate more than one trade or business that meets all the
requirements to aggregate, the S corporation must report the
aggregation to shareholders on Statement B, or a substantially
similar statement, and attach it to each Schedule K-1. The S
corporation must indicate trades or businesses that were
aggregated by checking the appropriate box on Statement A for
each aggregated trade or business. The S corporation must also
provide a description of the aggregated trade or business and an
explanation of the factors met that allow the aggregation.
The aggregation statement must be completed each year to
show the S corporation's trade or business aggregations. Failure
to disclose the aggregations may cause them to be
disaggregated. The S corporation's aggregations must be
reported consistently for all subsequent years, unless there is a
change in facts and circumstances that changes or disqualifies
the aggregation. The S corporation must provide a written
explanation for any changes to prior year aggregations that
describes the change in facts and circumstances.
If the S corporation holds a direct or indirect interest in an
RPE that aggregates multiple trades or businesses, the S
corporation must also include a copy of the RPE’s aggregations
with each shareholder’s Schedule K-1. The S corporation can’t
break apart the aggregation of another RPE, but it may add
trades or businesses to the aggregation, assuming the
aggregation requirements are satisfied.
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Statement B—QBI Pass-Through Entity Aggregation Election(s)
S corporation's name: S corporation's EIN:
Trade or business aggregation 1*
Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations
section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or
businesses, attach a copy of the RPE's aggregations.
Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired,
or disposed of, or having ceased operations. If yes, explain.
* If the S corporation has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.
Specific instructions for Statement C—QBI Pass-Through
Entity Reporting—Patrons of Specified Agricultural and
Horticultural Cooperatives.
QBI items and W-2 wages allocable to qualified
payments. If the S corporation is a patron of a specified
agricultural or horticultural cooperative, the S corporation must
provide the pro rata share of QBI items and W-2 wages allocable
to qualified payments from each trade or business to each of its
shareholders on Statement C, or a substantially similar
statement, and attach it to each Schedule K-1 so each
shareholder can figure their patron reduction under section
199A(b)(7).
QBI items and W-2 wages allocable to qualified payments
include QBI items included on Statement A that are allocable to
the qualified payments reported to the S corporation on Form
1099-PATR from the cooperative.
Section 199A(g) deduction. The S corporation must report
to its shareholders their pro rata share of any section 199A(g)
deduction passed through from the cooperative, as reported on
Form 1099-PATR. Section 199A(g) deductions don’t have to be
separately reported by trades or businesses and can be
reported as a single amount to shareholders.
Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural
Cooperatives
S corporation's name: S corporation's EIN:
Shareholder’s name: Shareholder’s identifying number:
Shareholder’s share of:
Trade or Business 1 Trade or Business 2 Trade or Business 3
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
PTP
Aggregated
SSTB
QBI items allocable to qualified payments subject to shareholder-specific determinations:
Ordinary business income (loss) ...............
Rental income (loss) ......................
Royalty income (loss) .....................
Section 1231 gain (loss) ....................
Other income (loss) ......................
Section 179 deduction .....................
Other deductions ........................
W-2 wages allocable to qualified payments ....................
Section 199A(g) deduction ................
Codes W through Z. Reserved for future use.
Excess taxable income (code AA). If the S corporation is
required to file Form 8990, Limitation on Business Interest
Expense Under Section 163(j), it may determine it has excess
taxable income. If so, enter the amount from Form 8990, Part III,
line 41, for excess taxable income on Schedule K. Report the
shareholder's pro rata share in box 17 of Schedule K-1.
Excess business interest income (code AB). If the S
corporation is required to file Form 8990, it may determine it has
excess business interest income. If so, enter the amount from
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Form 8990, Part III, line 42, for excess taxable income on
Schedule K. Report the shareholder's pro rata share in box 17 of
Schedule K-1.
Gross receipts for section 448(c) (code AC). Provide
information shareholders need to complete the gross receipts
test for section 448(c) purposes. See the Instructions for Form
8990 for details.
Codes AD through AI. Reserved for future use.
Excess business loss limitation (code AJ). If the corporation
has deductions attributable to a business activity, provide a
statement showing the aggregate gross income or gain and the
aggregate deductions from the business activity that
shareholders need to figure any excess business loss limitation.
See section 461(l) and the Instructions for Form 461 for details.
Codes AK through AM. Reserved for future use.
Farming and fishing business (code AN). In box 17 of
Schedule K-1, enter code AN followed by an asterisk and enter
“STMT” in the entry space for the dollar amount. Attach a
statement to Schedule K-1 that provides the shareholder's pro
rata share of the following amounts.
1. Gross farming and fishing income the shareholder will
need to report on line 42 of Schedule E (Form 1040). See the
Instructions for Schedule E (Form 1040) for details.
2. Gross farming and fishing income and gains as well as
losses and deductions attributable to farming and fishing
business activities the shareholder may need to figure the
amounts to report on Schedule J (Form 1040). See section
1301.
Code AO. Reserved for future use.
Inversion gain (code AP). Any income or gain reported on
lines 1 through 10 of Schedule K that qualifies as inversion gain,
if the corporation is an expatriated entity or is a partner in an
expatriated entity. For details, see section 7874. Attach a
statement to Form 1120-S that shows the amount of each type of
income or gain included in the inversion gain. The corporation
must report each shareholder's pro rata share of the inversion
gain in box 17 of Schedule K-1 using code AP. Attach a
statement to Schedule K-1 that shows the shareholder's pro rata
share of the amount of each type of income or gain included in
the inversion gain.
Codes AQ and AR. Reserved for future use.
Qualifying advanced coal project property and qualifying
gasification project property (code AS). Basis in qualifying
advanced coal project property and qualifying gasification or
advanced energy project property. Attach a statement to
Schedule K-1 that provides the shareholder's pro rata share of
the basis amounts the shareholder will need to figure the
amounts to report on Part II, lines 1a, 2a, and 3a; or lines 4a and
5a of Form 3468. See the Instructions for Form 3468 for details.
Qualifying advanced energy project property (code AT).
Basis in qualifying advanced energy project property. Attach a
statement to Schedule K-1 that provides the shareholder's pro
rata share of the basis amounts the shareholder will need to
figure the amounts to report on Part III, line 1a, of Form 3468.
See the Instructions for Form 3468 for details.
Advanced manufacturing investment property (code AU).
Basis in advanced manufacturing investment facility property.
Attach a statement to Schedule K-1 that provides the
shareholder's pro rata share of the basis amounts the
shareholder will need to figure the amounts to report on Part IV,
line 1b, of Form 3468. See the Instructions for Form 3468 for
details.
Code AV. Reserved for future use.
Reportable transactions (code AW).
If the corporation
participates in a transaction that must be disclosed on Form
8886 (discussed earlier), both the corporation and its
shareholders may be required to file Form 8886. The corporation
must determine if any of its shareholders are required to disclose
the transaction and provide those shareholders with information
they will need to file Form 8886. This determination is based on
the category(ies) under which a transaction qualified for
disclosures. See the Instructions for Form 8886 for details.
Codes AX through BD. Reserved for future use.
Other information (code ZZ). Any other information the
shareholders need to prepare their tax returns, including
information needed to prepare state and local tax returns.
Line 18. More Than One At-Risk Activity
If the corporation entered into more than one activity subject to
the at-risk rules (at-risk activity), the corporation is required to
provide information separately for each at-risk activity to its
shareholders. This information is reported on an attachment to
Schedule K-1. Check the box to indicate there is more than one
at-risk activity for which a statement is attached. See
At-Risk
Activity Reporting Requirements under At-Risk Limitations,
earlier, for details.
Line 19. More Than One Passive Activity
If the corporation entered into more than one activity
(determined for purposes of the passive activity loss and credit
limitations), the corporation is required to provide information
separately for each activity to its shareholders. This information
is reported on an attachment to Schedule K-1. Check the box to
indicate there is more than one passive activity for which a
statement is attached. See
Passive Activity Reporting
Requirements under Passive Activity Limitations, earlier, for
details.
Reconciliation
Line 18. Income/Loss Reconciliation
(Schedule K Only)
To the extent the corporation has an amount on line 16f of
Schedule K (foreign taxes paid and accrued), subtract that
amount for purposes of figuring the corporation's net income
(loss). The amount reported on line 18 must be the same as the
amount reported on line 8 of Schedule M-1 or line 26, column
(d), in Part II of Schedule M-3 (Form 1120-S).
Schedule L. Balance Sheets per
Books
The balance sheets should agree with the corporation's books
and records. Schedule L isn't required to be completed if the
corporation answered “Yes” to question 11 on Schedule B. If the
corporation is required to complete Schedule L, include total
assets reported on Schedule L, line 15, column (d), on page 1,
item F.
Corporations with total assets of $10 million or more on the
last day of the tax year must file Schedule M-3 (Form 1120-S)
instead of Schedule M-1. However, see the instructions for
Schedule M-1, later. See the separate Instructions for
Schedule M-3 (Form 1120-S) for provisions that also affect
Schedule L.
If the S election terminated during the tax year and the
corporation reverted to a C corporation, the year-end balance
sheet should generally agree with the books and records at the
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end of the C short year. However, if the corporation elected
under section 1362(e)(3) to have items assigned to each short
year under normal tax accounting rules, the year-end balance
sheet should agree with the books and records at the end of the
S short year.
Line 5. Tax-Exempt Securities
Include on this line:
•
State and local government obligations, the interest on which
is excludable from gross income under section 103(a); and
•
Stock in a mutual fund or other regulated investment company
that distributed exempt-interest dividends during the tax year of
the corporation.
Line 24. Retained Earnings
If the corporation maintains separate accounts for appropriated
and unappropriated retained earnings, it may want to continue
such accounting for purposes of preparing its financial balance
sheet. Also, if the corporation converts to C corporation status in
a subsequent year, it will be required to report its appropriated
and unappropriated retained earnings on separate lines of
Schedule L of Form 1120.
Line 25. Adjustments to Shareholders' Equity
The following are some examples of adjustments to report on
this line.
•
Unrealized gains and losses on securities held “available for
sale.”
•
Foreign currency translation adjustments.
•
The excess of additional pension liability over unrecognized
prior service cost.
•
Guarantees of employee stock ownership plan (ESOP) debt.
•
Compensation related to employee stock award plans.
If the total adjustment to be entered is a negative amount,
enter the amount in parentheses.
Schedule M-1. Reconciliation of
Income (Loss) per Books With
Income (Loss) per Return
In completing Schedule M-1, the following apply.
•
Schedule M-1 isn't required to be completed if the corporation
answered “Yes” to question 11 on Schedule B.
•
Corporations with total assets of $10 million or more on the
last day of the tax year must file Schedule M-3 (Form 1120-S)
instead of Schedule M-1.
•
A corporation filing Form 1120-S that isn't required to file
Schedule M-3 may voluntarily file Schedule M-3 instead of
Schedule M-1. See the Instructions for Schedule M-3 (Form
1120-S) for more information.
•
For 2023, corporations that (a) are required to file
Schedule M-3 (Form 1120-S) and have less than $50 million
total assets at the end of the tax year, or (b) aren't required to file
Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3
(Form 1120-S), must either (i) complete Schedule M-3 (Form
1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S)
through Part I, and complete Form 1120-S, Schedule M-1,
instead of completing Parts II and III of Schedule M-3 (Form
1120-S). If the corporation chooses to complete Schedule M-1
instead of completing Parts II and III of Schedule M-3, line 1 of
Schedule M-1 must equal line 11 of Part I of Schedule M-3. See
the Instructions for Schedule M-3 (Form 1120-S) for more
information.
Line 2
Report on this line income included on Schedule K, lines 1, 2,
3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year.
Describe each such item of income. Attach a statement if
necessary.
Line 3b. Travel and Entertainment
Include any of the following applicable expenses.
•
Entertainment expenses not deductible under section 274(a).
•
Meal expenses not deductible under section 274(n).
•
Qualified transportation fringes not deductible under section
274(a)(4).
•
Expenses for the use of an entertainment facility.
•
The part of business gifts over $25.
•
Expenses of an individual over $2,000 that are allocable to
conventions on cruise ships.
•
Employee achievement awards of nontangible property or
tangible property over $400 ($1,600 if part of a qualified plan).
•
The cost of skyboxes.
•
The part of luxury water travel expenses not deductible under
section 274(m).
•
Expenses for travel as a form of education.
•
Nondeductible club dues.
•
Other nondeductible travel and entertainment expenses.
An S corporation should include tax-exempt income from
the forgiveness of PPP loans on line 5 of the
Schedule M-1 (if it was included on line 1 of the
Schedule M-1), or on Part II, line 22, of the Schedule M-3,
column (c), as a negative number (if it was included on line 22 in
column (a) as income per income statement).
If the corporation has an amount on line 16f of
Schedule K (foreign taxes paid and accrued), take that
amount into account for purposes of figuring expenses
and deductions to enter on lines 3 and 6.
Schedule M-2. Analysis of
Accumulated Adjustments Account,
Shareholders' Undistributed Taxable
Income Previously Taxed,
Accumulated Earnings and Profits,
and Other Adjustments Account
Column (a). Accumulated Adjustments Account
The accumulated adjustments account (AAA) is an account of
the S corporation that generally reflects the accumulated
undistributed net income of the corporation for the corporation's
post-1982 years. S corporations with accumulated earnings and
profits (AE&P) must maintain the AAA to determine the tax effect
of distributions during years as an S corporation, the
post-termination transition period, and cash distributions
following a post
-termination transition period. An S corporation
without AE&P doesn't need to maintain the AAA in order to
determine the tax effect of distributions. Nevertheless, if an S
corporation without AE&P engages in certain transactions to
which section 381(a) applies, such as a merger into an S
corporation with AE&P, the S corporation must be able to
calculate its AAA at the time of the merger for purposes of
determining the tax effect of post-merger distributions.
Therefore, it is recommended that the AAA be maintained by all
S corporations.
On the first day of the corporation's first tax year as an S
corporation, the balance of the AAA is zero. At the end of the tax
year, adjust the AAA for the items as explained below and in the
order listed.
1. Increase the AAA by income (other than tax-exempt
income) and the excess of the deduction for depletion over the
TIP
TIP
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basis of the property subject to depletion (unless the property is
an oil and gas property the basis of which has been allocated to
shareholders).
2. Generally, decrease the AAA by deductible losses and
expenses, nondeductible expenses (other than expenses related
to tax-exempt income), and the sum of the shareholders'
deductions for depletion for any oil or gas property held by the
corporation as described in section 1367(a)(2)(E). If deductible
losses and expenses include the fair market value (FMV) of
certain contributed property (discussed earlier), further adjust
AAA by adding back the FMV of the contributed property and
subtracting instead the property's adjusted basis. If the total
decreases under (2) exceed the total increases under (1) above,
the excess is a “net negative adjustment.” If the corporation has a
net negative adjustment, don't take it into account under (2).
Instead, take it into account only under (4) below.
3. Decrease AAA (but not below zero) by property
distributions (other than dividend distributions from AE&P),
unless the corporation elects to reduce AE&P first. See
Distributions, later, for definitions and other details.
4. Decrease AAA by any net negative adjustment. For
adjustments to the AAA for redemptions, reorganizations, and
corporate separations, see Regulations section 1.1368-2(d).
The AAA may have a negative balance at year end. See
section 1368(e).
Column (b). Shareholders' Undistributed
Taxable Income Previously Taxed
The shareholders' undistributed taxable income previously taxed
account, also called previously taxed earnings and profits
(PTEP), is maintained only if the corporation had a balance in
this account at the start of its 2023 tax year. If there is a
beginning balance for the 2023 tax year, no adjustments are
made to the account except to reduce the account for
distributions made under section 1375(d) (as in effect before the
enactment of the Subchapter S Revision Act of 1982). See
Distributions, later, for the order of distributions from the account.
Each shareholder's right to nontaxable distributions from
PTEP is personal and can't be transferred to another person.
The corporation is required to keep records of each
shareholder's net share of PTEP.
TIP
Column (c). Accumulated Earnings and Profits
If the corporation was a C corporation in a prior year, or if it
engaged in a tax-free reorganization with a C corporation, enter
the amount of any AE&P at the close of its 2022 tax year on
line 1 in column (c). For details on figuring AE&P, see section
312. Estimates based on retained earnings at the end of the tax
year are acceptable. If the corporation has AE&P, it may be liable
for tax imposed on excess net passive income. See
Excess net
passive income tax, earlier, for details on this tax.
Column (d). Other Adjustments Account
The other adjustments account is adjusted for tax-exempt
income (and related expenses) and federal taxes attributable to
a C corporation tax year. After these adjustments are made, the
account is reduced for any distributions made during the year.
See
Distributions, later.
PPP loans. An S corporation should include tax-exempt
income from the forgiveness of PPP loans in column (d)
on line 3 of the Schedule M-2.
An S corporation should report expenses paid this year with
proceeds from PPP loans that were forgiven this year in column
(d) on line 5 of the Schedule M-2.
If column (a) on line 2 or line 4 of the Schedule M-2 includes
expenses paid with proceeds from forgiven PPP loans, an S
corporation should report that amount in column (a) on line 3 and
in column (d) on line 5 of the Schedule M-2.
If column (a) on line 1 of the Schedule M-2 includes expenses
that were paid in a prior year with proceeds from PPP loans that
were forgiven this year, an S corporation should report that
amount in column (a) on line 3 and in column (d) on line 5 of the
Schedule M-2.
Distributions
General rule. Unless the corporation makes one of the
elections described below, property distributions (including
cash) are applied in the following order (to reduce accounts of
the S corporation that are used to figure the tax effect of
distributions made by the corporation to its shareholders).
1. Reduce the AAA determined without regard to any net
negative adjustment for the tax year (but not below zero). If
distributions during the tax year exceed the AAA at the close of
the tax year, determined without regard to any net negative
TIP
Schedule M-2 Worksheet
Keep for Your Records
(a)
Accumulated
adjustments account
(b)
Shareholders'
undistributed taxable
income previously taxed
(c)
Accumulated
earnings and profits
(d)
Other adjustments
account
1. Balance at beginning of tax
year .....................
-0- -0-
2. Ordinary income from page 1,
line 22 ...................
10,000
3. Other additions .............
20,000 5,000
4. Loss from page 1, line 22 .......
( )
5. Other reductions ............
(36,000) ( )
6. Combine lines 1 through 5 ......
(6,000) 5,000
7. Distributions ...............
-0- 5,000
8. Balance at end of tax year. Subtract
line 7 from line 6 .............
(6,000) -0-
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adjustment for the tax year, the AAA is allocated pro rata to each
distribution made during the tax year. See section 1368.
2. Reduce shareholders' PTEP account for any section
1375(d) (as in effect before 1983) distributions. A distribution
from the PTEP account is tax free to the extent of a
shareholder's basis in the shareholder's stock in the corporation.
3. Reduce AE&P. Generally, the S corporation has AE&P
only if it hasn't distributed E&P accumulated in prior years when
the S corporation was a C corporation (section 1361(a)(2)). See
section 312 for information on E&P. The only adjustments that
can be made to the AE&P of an S corporation are:
a. Reductions for dividend distributions;
b. Adjustments for redemptions, liquidations,
reorganizations, etc.; and
c. Reductions for investment credit recapture tax for which
the corporation is liable.
See section 1371(c) and (d)(3).
4. Reduce the other adjustments account (OAA).
5. Reduce any remaining shareholders' equity accounts.
Elections relating to source of distributions. The
corporation may modify the above ordering rules by making one
or more of the following elections.
Election to distribute AE&P first. If the corporation has
AE&P and wants to distribute from this account before making
distributions from the AAA, it may elect to do so with the consent
of all its affected shareholders (section 1368(e)(3)(B)). This
election is irrevocable and applies only for the tax year for which
it is made. For details on making the election, see
Statement
regarding elections, later.
Election to make a deemed dividend. If the corporation
wants to distribute all or part of its AE&P through a deemed
dividend, it may elect to do so with the consent of all its affected
shareholders (section 1368(e)(3)(B)). Under this election, the
corporation will be treated as also having made the election to
distribute AE&P first. The amount of the deemed dividend can't
exceed the AE&P at the end of the tax year. The E&P at year end
is first reduced by any actual distributions of AE&P made during
the tax year. A deemed dividend is treated as if it were a pro rata
distribution of money to the shareholders, received by the
shareholders, and immediately contributed back to the
corporation, all on the last day of the tax year. This election is
irrevocable and applies only for the tax year for which it is made.
For details on making the election, see
Statement regarding
elections, later.
Election to forego PTEP. If the corporation wants to forego
distributions of PTEP, it may elect to do so with the consent of all
its affected shareholders (section 1368(e)(3)(B)). Under this
election, item (2) under General rule, earlier, doesn't apply to any
distribution made during the tax year. This election is irrevocable
and applies only for the tax year for which it is made. For details
on making the election, see
Statement regarding elections next.
Statement regarding elections.
To make any of the above
elections, the corporation must attach a statement to a timely
filed original or amended Form 1120-S for the tax year for which
the election is made. In the statement, the corporation must
identify the election it is making and must state that each
shareholder consents to the election. The statement of election
to make a deemed dividend must include the amount of the
deemed dividend distributed to each shareholder. For more
details on the election, see Regulations section 1.1368-1(f)(5).
Example
The following example shows how the Schedule M-2 accounts
are adjusted for items of income (loss), deductions, and
distributions reported on Form 1120-S. In this example, the
corporation has no PTEP or AE&P.
Items per return are:
1. Page 1, line 22 income—$10,000;
2. Schedule K, line 2 loss—($3,000);
3. Schedule K, line 4 income—$4,000;
4. Schedule K, line 5a income—$16,000;
5. Schedule K, line 12a deduction—$24,000;
6. Schedule K, line 12d deduction—$3,000;
7. Schedule K, line 13g work opportunity credit—$6,000;
8. Schedule K, line 16a tax-exempt interest—$5,000;
9. Schedule K, line 16c nondeductible expenses—$6,000
(reduction in salaries and wages for work opportunity credit); and
10.
Schedule K, line 16d distributions—$65,000.
Based on items (1) through (10) above and starting balances
of zero, the columns for the AAA and the other adjustments
account are completed as shown in the Schedule M-2
Worksheet.
For the AAA, the worksheet line 3—$20,000 amount is the
total of the Schedule K, lines 4 and 5a income of $4,000 and
$16,000. The worksheet line 5—$36,000 amount is the total of
the Schedule K, line 2 loss of ($3,000), line 12a (code A)
deduction of $24,000, line 12d (code ZZ) deduction of $3,000,
and the line 16c nondeductible expenses of $6,000. The
worksheet line 7 is zero. The AAA at the end of the tax year
(figured without regard to distributions and the net negative
adjustment of $6,000) is zero, and distributions can't reduce the
AAA below zero.
For the other adjustments account, the worksheet line 3
amount is the Schedule K, line 16a, tax-exempt interest income
of $5,000. The worksheet line 7 amount is $5,000, reducing the
other adjustments account to zero. The remaining $60,000 of
distributions aren't entered on Schedule M-2.
Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents
may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential,
as required by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of
December 2023, for taxpayers filing 2023 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC,
1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented
separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs
include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and
submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden
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associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic
errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience
lower than average burden, with taxpayer burden varying considerably by taxpayer type.
The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden
for corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT,
1120-RIC, 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates there is significant variation in
taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer,
the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these
estimates.
Table 1 – Taxpayer Burden for Entities Taxed as Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of
Taxpayer
Number of Returns
(millions)
Average Time (hours) Average Cost ($) Average Monetized
Burden ($)
All Partnerships 5.3 60 5,000 8,700
Small 4.9 50 3,200 5,200
Large* 0.4 200 27,800 50,800
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.
Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of
Taxpayer
Number of Returns
(millions)
Average Time (hours) Average Cost ($) Average Monetized
Burden ($)
All Taxable Corporations 2.1 105 6,700 14,900
Small 2.0 55 3,600 6,200
Large* 0.1 830 53,800 149,000
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.
Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments
Primary Form Filed or Type of
Taxpayer
Number of Returns
(millions)
Average Time (hours) Average Cost ($) Average Monetized
Burden ($)
All Pass-Through Corporations 5.8 65 4,400 7,500
Small 5.7 60 3,800 6,400
Large* 0.1 295 37,700 71,800
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.
Note.The data shown are the best estimates for 2023 business entity income tax returns. Reported time and cost burdens are
national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by
taxpayer type. The estimates are subject to change as new forms and data become available.
Comments and suggestions. We welcome your comments about these forms and suggestions for future editions.
You can send us comments through IRS.gov/FormComments. Or you can write to the Internal Revenue Service, Tax Forms and
Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.
Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your
comments and suggestions as we revise our tax forms, instructions, and publications. Don't send tax questions, tax returns, or
payments to the above address.
Instructions for Form 1120-S (2023)
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Principal Business Activity Codes
This list of principal business activities and their
associated codes is designed to classify an enterprise
by the type of activity in which it is engaged to facilitate
the administration of the Internal Revenue Code. These
principal business activity codes are based on the North
American Industry Classification System.
Using the list of activities and codes below,
determine from which activity the company derives the
largest percentage of its “total receipts.” Total receipts is
defined as the sum of gross receipts or sales (page 1,
line 1a); all other income (page 1, lines 4 and 5); income
reported on Schedule K, lines 4, 5a, and 6; income or
net gain reported on Schedule K, lines 7, 8a, 9, and 10;
and income or net gain reported on Form 8825, lines 2,
19, and 20a. If the company purchases raw materials
and supplies them to a subcontractor to produce the
finished product, but retains title to the product, the
company is considered a manufacturer and must use
one of the manufacturing codes (311110-339900).
Once the principal business activity is determined,
enter the six-digit code from the list below on page 1,
item B. Also enter the business activity on page 2,
Schedule B, line 2(a) and a brief description of the
principal product or service of the business on line 2(b).
Agriculture, Forestry, Fishing
and Hunting
Crop Production
111100 Oilseed & Grain Farming
111210 Vegetable & Melon Farming
(including potatoes & yams)
111300 Fruit & Tree Nut Farming
111400 Greenhouse, Nursery, &
Floriculture Production
111900 Other Crop Farming (including
tobacco, cotton, sugarcane, hay,
peanut, sugar beet & all other
crop farming)
Animal Production
112111 Beef Cattle Ranching & Farming
112112 Cattle Feedlots
112120 Dairy Cattle & Milk Production
112210 Hog & Pig Farming
112300 Poultry & Egg Production
112400 Sheep & Goat Farming
112510 Aquaculture (including shellfish &
finfish farms & hatcheries)
112900 Other Animal Production
Forestry and Logging
113110 Timber Tract Operations
113210 Forest Nurseries & Gathering of
Forest Products
113310 Logging
Fishing, Hunting and Trapping
114110 Fishing
114210 Hunting & Trapping
Support Activities for Agriculture and
Forestry
115110 Support Activities for Crop
Production (including cotton
ginning, soil preparation,
planting, & cultivating)
115210 Support Activities for Animal
Production (including farriers)
115310 Support Activities For Forestry
Mining
211120 Crude Petroleum Extraction
211130 Natural Gas Extraction
212110 Coal Mining
212200 Metal Ore Mining
212310 Stone Mining & Quarrying
212320 Sand, Gravel, Clay, & Ceramic &
Refractory Minerals Mining &
Quarrying
212390 Other Nonmetallic Mineral
Mining & Quarrying
213110 Support Activities for Mining
Utilities
221100 Electric Power Generation,
Transmission & Distribution
221210 Natural Gas Distribution
221300 Water, Sewage & Other Systems
221500 Combination Gas & Electric
Construction
Construction of Buildings
236110 Residential Building Construction
236200 Nonresidential Building
Construction
Heavy and Civil Engineering
Construction
237100 Utility System Construction
237210 Land Subdivision
237310 Highway, Street, & Bridge
Construction
237990 Other Heavy & Civil Engineering
Construction
Specialty Trade Contractors
238100 Foundation, Structure, & Building
Exterior Contractors (including
framing carpentry, masonry,
glass, roofing, & siding)
238210 Electrical Contractors
238220 Plumbing, Heating, &
Air-Conditioning Contractors
238290 Other Building Equipment
Contractors
238300 Building Finishing Contractors
(including drywall, insulation,
painting, wallcovering, flooring,
tile, & finish carpentry)
238900 Other Specialty Trade
Contractors (including site
preparation)
Manufacturing
Food Manufacturing
311110 Animal Food Mfg
311200 Grain & Oilseed Milling
311300 Sugar & Confectionery Product
Mfg
311400 Fruit & Vegetable Preserving &
Specialty Food Mfg
311500 Dairy Product Mfg
311610 Animal Slaughtering &
Processing
311710 Seafood Product Preparation &
Packaging
311800 Bakeries, Tortilla, & Dry Pasta
Mfg
311900 Other Food Mfg (including
coffee, tea, flavorings &
seasonings)
Beverage and Tobacco Product
Manufacturing
312110 Soft Drink & Ice Mfg
312120 Breweries
312130 Wineries
312140 Distilleries
312200 Tobacco Manufacturing
Textile Mills and Textile Product Mills
313000 Textile Mills
314000 Textile Product Mills
Apparel Manufacturing
315100 Apparel Knitting Mills
315210 Cut & Sew Apparel Contractors
315250 Cut & Sew Apparel Mfg (except
Contractors)
315990 Apparel Accessories & Other
Apparel Mfg
Leather and Allied Product
Manufacturing
316110 Leather & Hide Tanning &
Finishing
316210 Footwear Mfg (including rubber &
plastics)
316990 Other Leather & Allied Product
Mfg
Wood Product Manufacturing
321110 Sawmills & Wood Preservation
321210 Veneer, Plywood, & Engineered
Wood Product Mfg
321900 Other Wood Product Mfg
Paper Manufacturing
322100 Pulp, Paper, & Paperboard Mills
322200 Converted Paper Product Mfg
Printing and Related Support Activities
323100 Printing & Related Support
Activities
Petroleum and Coal Products
Manufacturing
324110 Petroleum Refineries (including
integrated)
324120 Asphalt Paving, Roofing, &
Saturated Materials Mfg
324190 Other Petroleum & Coal Products
Mfg
Chemical Manufacturing
325100 Basic Chemical Mfg
325200 Resin, Synthetic Rubber, &
Artificial & Synthetic Fibers &
Filaments Mfg
325300 Pesticide, Fertilizer, & Other
Agricultural Chemical Mfg
325410 Pharmaceutical & Medicine Mfg
325500 Paint, Coating, & Adhesive Mfg
325600 Soap, Cleaning Compound, &
Toilet Preparation Mfg
325900 Other Chemical Product &
Preparation Mfg
Plastics and Rubber Products
Manufacturing
326100 Plastics Product Mfg
326200 Rubber Product Mfg
Nonmetallic Mineral Product
Manufacturing
327100 Clay Product & Refractory Mfg
327210 Glass & Glass Product Mfg
327300 Cement & Concrete Product Mfg
327400 Lime & Gypsum Product Mfg
327900 Other Nonmetallic Mineral
Product Mfg
Primary Metal Manufacturing
331110 Iron & Steel Mills & Ferroalloy
Mfg
331200 Steel Product Mfg from
Purchased Steel
331310 Alumina & Aluminum Production
& Processing
331400 Nonferrous Metal (except
Aluminum) Production &
Processing
331500 Foundries
Fabricated Metal Product
Manufacturing
332110 Forging & Stamping
332210 Cutlery & Handtool Mfg
332300 Architectural & Structural Metals
Mfg
332400 Boiler, Tank, & Shipping
Container Mfg
332510 Hardware Mfg
332610 Spring & Wire Product Mfg
332700 Machine Shops; Turned Product;
& Screw, Nut, & Bolt Mfg
332810 Coating, Engraving, Heat
Treating, & Allied Activities
332900 Other Fabricated Metal Product
Mfg
Machinery Manufacturing
333100 Agriculture, Construction, &
Mining Machinery Mfg
333200 Industrial Machinery Mfg
333310 Commercial & Service Industry
Machinery Mfg
333410 Ventilation, Heating,
Air-Conditioning, & Commercial
Refrigeration Equipment Mfg
333510 Metalworking Machinery Mfg
333610 Engine, Turbine & Power
Transmission Equipment Mfg
333900 Other General Purpose
Machinery Mfg
Computer and Electronic Product
Manufacturing
334110 Computer & Peripheral
Equipment Mfg
334200 Communications Equipment Mfg
334310 Audio & Video Equipment Mfg
334410 Semiconductor & Other
Electronic Component Mfg
334500 Navigational, Measuring,
Electromedical, & Control
Instruments Mfg
334610 Manufacturing & Reproducing
Magnetic & Optical Media
Electrical Equipment, Appliance, and
Component Manufacturing
335100 Electric Lighting Equipment Mfg
335200 Household Appliance Mfg
335310 Electrical Equipment Mfg
335900 Other Electrical Equipment &
Component Mfg
Transportation Equipment
Manufacturing
336100 Motor Vehicle Mfg
336210 Motor Vehicle Body & Trailer Mfg
336300 Motor Vehicle Parts Mfg
336410 Aerospace Product & Parts Mfg
336510 Railroad Rolling Stock Mfg
336610 Ship & Boat Building
336990 Other Transportation Equipment
Mfg
Furniture and Related Product
Manufacturing
337000 Furniture & Related Product
Manufacturing
Miscellaneous Manufacturing
339110 Medical Equipment & Supplies
Mfg
339900 Other Miscellaneous
Manufacturing
Wholesale Trade
Merchant Wholesalers, Durable Goods
423100 Motor Vehicle & Motor Vehicle
Parts & Supplies
423200 Furniture & Home Furnishings
423300 Lumber & Other Construction
Materials
423400 Professional & Commercial
Equipment & Supplies
423500 Metal & Mineral (except
Petroleum)
423600 Household Appliances &
Electrical & Electronic Goods
423700 Hardware, & Plumbing & Heating
Equipment & Supplies
423800 Machinery, Equipment, &
Supplies
423910 Sporting & Recreational Goods &
Supplies
423920 Toy & Hobby Goods & Supplies
423930 Recyclable Materials
423940 Jewelry, Watch, Precious Stone,
& Precious Metals
423990 Other Miscellaneous Durable
Goods
Merchant Wholesalers, Nondurable
Goods
424100 Paper & Paper Products
424210 Drugs & Druggists' Sundries
424300 Apparel, Piece Goods, & Notions
424400 Grocery & Related Products
424500 Farm Product Raw Materials
424600 Chemical & Allied Products
424700 Petroleum & Petroleum Products
424800 Beer, Wine, & Distilled Alcoholic
Beverages
424910 Farm Supplies
424920 Book, Periodical, & Newspapers
424930 Flower, Nursery Stock, & Florists'
Supplies
424940 Tobacco Products & Electronic
Cigarettes
424950 Paint, Varnish, & Supplies
424990 Other Miscellaneous Nondurable
Goods
Wholesale Trade Agents & Brokers
425120 Wholesale Trade Agents &
Brokers
Retail Trade
Motor Vehicle and Parts Dealers
441110 New Car Dealers
441120 Used Car Dealers
441210 Recreational Vehicle Dealers
441222 Boat Dealers
441227 Motorcycle, ATV, & All Other
Motor Vehicle Dealers
441300 Automotive Parts, Accessories, &
Tire Retailers
Building Material and Garden
Equipment and Supplies Dealers
444110 Home Centers
444120 Paint & Wallpaper Retailers
444140 Hardware Retailers
444180 Other Building Material Dealers
444200 Lawn & Garden Equipment &
Supplies Retailers
Food and Beverage Retailers
445110 Supermarkets & Other Grocery
Retailers (except Convenience)
445131 Convenience Retailers
52
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Principal Business Activity Codes (Continued)
445132
Vending Machine Operators
445230 Fruit & Vegetable Retailers
445240 Meat Retailers
445250 Fish & Seafood Retailers
445291 Baked Goods Retailers
445292 Confectionery & Nut Retailers
445298 All Other Specialty Food
Retailers
445320 Beer, Wine, & Liquor Retailers
Furniture and Home Furnishings
Retailers
449110 Furniture Retailers
449121 Floor Covering Retailers
449122 Window Treatment Retailers
449129 All Other Home Furnishings
Retailers
Electronics and Appliance Retailers
449210 Electronics & Appliance Retailers
(including computers)
General Merchandise Retailers
455110 Department Stores
455210 Warehouse Clubs, Supercenters,
& Other General Merch. Retailers
Health and Personal Care Retailers
456110 Pharmacies & Drug Retailers
456120 Cosmetics, Beauty Supplies, &
Perfume Retailers
456130 Optical Goods Retailers
456190 Other Health & Personal Care
Retailers
Gasoline Stations & Fuel Dealers
457100 Gasoline Stations (including
convenience stores with gas)
457210 Fuel Dealers (including heating
oil & liquefied petroleum)
Clothing and Accessories Retailers
458110 Clothing & Clothing Accessories
Retailers
458210 Shoe Retailers
458310 Jewelry Retailers
458320 Luggage & Leather Goods
Retailers
Sporting, Hobby, Book, Musical
Instrument, & Miscellaneous Retailers
459110 Sporting Goods Retailers
459120 Hobby, Toy, & Game Retailers
459130 Sewing, Needlework, & Piece
Goods Retailers
459140 Musical Instrument & Supplies
Retailers
459210 Book Retailers & News Dealers
(including newsstands)
459310 Florists
459410 Office Supplies & Stationery
Retailers
459420 Gift, Novelty, & Souvenir
Retailers
459510 Used Merchandise Retailers
459910 Pet & Pet Supplies Retailers
459920 Art Dealers
459930 Manufactured (Mobile) Home
Dealers
459990 All Other Miscellaneous Retailers
(including tobacco, candle, &
trophy retailers)
Nonstore Retailers
Nonstore Retailers sell all types
of merchandise using such
methods as Internet, mail-order
catalogs, interactive television, or
direct sales. These types of
Retailers should select the PBA
associated with their primary line
of products sold. For example,
establishments primarily selling
prescription and non-prescription
drugs, select PBA code
456110
Pharmacies & Drug Retailers.
Transportation and
Warehousing
Air, Rail, and Water Transportation
481000 Air Transportation
482110 Rail Transportation
483000 Water Transportation
Truck Transportation
484110 General Freight Trucking, Local
484120 General Freight Trucking,
Long-Distance
484200 Specialized Freight Trucking
Transit and Ground Passenger
Transportation
485110 Urban Transit Systems
485210 Interurban & Rural Bus
Transportation
485310 Taxi & Ridesharing Services
485320 Limousine Service
485410 School & Employee Bus
Transportation
485510 Charter Bus Industry
485990 Other Transit & Ground
Passenger Transportation
Pipeline Transportation
486000 Pipeline Transportation
Scenic & Sightseeing Transportation
487000 Scenic & Sightseeing
Transportation
Support Activities for Transportation
488100 Support Activities for Air
Transportation
488210 Support Activities for Rail
Transportation
488300 Support Activities for Water
Transportation
488410 Motor Vehicle Towing
488490 Other Support Activities for Road
Transportation
488510 Freight Transportation
Arrangement
488990 Other Support Activities for
Transportation
Couriers and Messengers
492110 Couriers & Express Delivery
Services
492210 Local Messengers & Local
Delivery
Warehousing and Storage
493100 Warehousing & Storage (except
lessors of miniwarehouses &
self-storage units)
Information
Motion Picture and Sound Recording
Industries
512100 Motion Picture & Video Industries
(except video rental)
512200 Sound Recording Industries
Publishing Industries
513110 Newspaper Publishers
513120 Periodical Publishers
513130 Book Publishers
513140 Directory & Mailing List
Publishers
513190 Other Publishers
513210 Software Publishers
Broadcasting & Content Providers &
Telecommunications
516100 Radio & Television Broadcasting
Stations
516210 Media Streaming, Social
Networks, & Other Content
Providers
517000 Telecommunications (including
wired, wireless, satellite, cable &
other program distribution,
resellers, agents, other
telecommunications, & Internet
service providers)
Data Processing, Web Search Portals, &
Other Information Services
518210 Computing Infrastructure
Providers, Data Processing, Web
Hosting, & Related Services
519200 Web Search Portals, Libraries,
Archives, & Other Info. Services
Finance and Insurance
Depository Credit Intermediation
522110 Commercial Banking
522130 Credit Unions
522180 Savings Institutions & Other
Depository Credit Intermediation
Nondepository Credit Intermediation
522210 Credit Card Issuing
522220 Sales Financing
522291 Consumer Lending
522292 Real Estate Credit (including
mortgage bankers & originators)
522299 Intl, Secondary Market, & Other
Nondepos. Credit Intermediation
Activities Related to Credit
Intermediation
522300 Activities Related to Credit
Intermediation (including loan
brokers, check clearing, & money
transmitting)
Securities, Commodity Contracts, and
Other Financial Investments and
Related Activities
523150 Investment Banking & Securities
Intermediation
523160 Commodity Contracts
Intermediation
523210 Securities & Commodity
Exchanges
523900 Other Financial Investment
Activities (including portfolio
management & investment
advice)
Insurance Carriers and Related
Activities
524110 Direct Life, Health, & Medical
Insurance Carriers
524120 Direct Insurance (except Life,
Health, & Medical) Carriers
524210 Insurance Agencies &
Brokerages
524290 Other Insurance Related
Activities (including third-party
administration of insurance &
pension funds)
Funds, Trusts, and Other Financial
Vehicles
525100 Insurance & Employee Benefit
Funds
525910 Open-End Investment Funds
(Form 1120-RIC)
525920 Trusts, Estates, & Agency
Accounts
525990 Other Financial Vehicles
(including mortgage REITs &
closed-end investment funds)
Real Estate and Rental and
Leasing
Real Estate
531110 Lessors of Residential Buildings
& Dwellings (including equity
REITs)
531120 Lessors of Nonresidential
Buildings (except
Miniwarehouses) (including
equity REITs)
531130 Lessors of Miniwarehouses &
Self-Storage Units (including
equity REITs)
531190 Lessors of Other Real Estate
Property (including equity REITs)
531210 Offices of Real Estate Agents &
Brokers
531310 Real Estate Property Managers
531320 Offices of Real Estate Appraisers
531390 Other Activities Related to Real
Estate
Rental and Leasing Services
532100 Automotive Equipment Rental &
Leasing
532210 Consumer Electronics &
Appliances Rental
532281 Formal Wear & Costume Rental
532282 Video Tape & Disc Rental
532283 Home Health Equipment Rental
532284 Recreational Goods Rental
532289 All Other Consumer Goods
Rental
532310 General Rental Centers
532400 Commercial & Industrial
Machinery & Equipment Rental &
Leasing
Lessors of Nonfinancial Intangible
Assets (except copyrighted works)
533110 Lessors of Nonfinancial
Intangible Assets (except
copyrighted works)
Professional, Scientific, and
Technical Services
Legal Services
541110 Offices of Lawyers
541190 Other Legal Services
Accounting, Tax Preparation,
Bookkeeping, and Payroll Services
541211 Offices of Certified Public
Accountants
541213 Tax Preparation Services
541214 Payroll Services
541219 Other Accounting Services
Architectural, Engineering, and Related
Services
541310 Architectural Services
541320 Landscape Architecture Services
541330 Engineering Services
541340 Drafting Services
541350 Building Inspection Services
541360 Geophysical Surveying &
Mapping Services
541370 Surveying & Mapping (except
Geophysical) Services
541380 Testing Laboratories & Services
Specialized Design Services
541400 Specialized Design Services
(including interior, industrial,
graphic, & fashion design)
Computer Systems Design and Related
Services
541511 Custom Computer Programming
Services
541512 Computer Systems Design
Services
541513 Computer Facilities Management
Services
541519 Other Computer Related
Services
Other Professional, Scientific, and
Technical Services
541600 Management, Scientific, &
Technical Consulting Services
541700 Scientific Research &
Development Services
541800 Advertising, Public Relations, &
Related Services
541910 Marketing Research & Public
Opinion Polling
541920 Photographic Services
541930 Translation & Interpretation
Services
541940 Veterinary Services
541990 All Other Professional, Scientific,
& Technical Services
Management of Companies
(Holding Companies)
551111 Offices of Bank Holding
Companies
551112 Offices of Other Holding
Companies
Administrative and Support and
Waste Management and
Remediation Services
Administrative and Support Services
561110 Office Administrative Services
561210 Facilities Support Services
561300 Employment Services
561410 Document Preparation Services
561420 Telephone Call Centers
561430 Business Service Centers
(including private mail centers &
copy shops)
561440 Collection Agencies
561450 Credit Bureaus
561490 Other Business Support
Services (including repossession
services, court reporting, &
stenotype services)
561500 Travel Arrangement &
Reservation Services
561600 Investigation & Security Services
561710 Exterminating & Pest Control
Services
561720 Janitorial Services
561730 Landscaping Services
561740 Carpet & Upholstery Cleaning
Services
561790 Other Services to Buildings &
Dwellings
561900 Other Support Services
(including packaging & labeling
services, & convention & trade
show organizers)
Waste Management and Remediation
Services
562000 Waste Management &
Remediation Services
Educational Services
611000 Educational Services (including
schools, colleges, & universities)
Health Care and Social
Assistance
Offices of Physicians and Dentists
621111 Offices of Physicians (except
mental health specialists)
621112 Offices of Physicians, Mental
Health Specialists
53
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Principal Business Activity Codes (Continued)
621210
Offices of Dentists
Offices of Other Health Practitioners
621310 Offices of Chiropractors
621320 Offices of Optometrists
621330 Offices of Mental Health
Practitioners (except Physicians)
621340 Offices of Physical, Occupational
& Speech Therapists, &
Audiologists
621391 Offices of Podiatrists
621399 Offices of All Other
Miscellaneous Health
Practitioners
Outpatient Care Centers
621410 Family Planning Centers
621420 Outpatient Mental Health &
Substance Abuse Centers
621491 HMO Medical Centers
621492 Kidney Dialysis Centers
621493 Freestanding Ambulatory
Surgical & Emergency Centers
621498 All Other Outpatient Care
Centers
Medical and Diagnostic Laboratories
621510 Medical & Diagnostic
Laboratories
Home Health Care Services
621610 Home Health Care Services
Other Ambulatory Health Care Services
621900 Other Ambulatory Health Care
Services (including ambulance
services & blood & organ banks)
Hospitals
622000 Hospitals
Nursing and Residential Care Facilities
623000 Nursing & Residential Care
Facilities
Social Assistance
624100 Individual & Family Services
624200 Community Food & Housing, &
Emergency & Other Relief
Services
624310 Vocational Rehabilitation
Services
624410 Childcare Services
Arts, Entertainment, and
Recreation
Performing Arts, Spectator Sports, and
Related Industries
711100 Performing Arts Companies
711210 Spectator Sports (including
sports clubs & racetracks)
711300 Promoters of Performing Arts,
Sports, & Similar Events
711410 Agents & Managers for Artists,
Athletes, Entertainers, & Other
Public Figures
711510 Independent Artists, Writers, &
Performers
Museums, Historical Sites, and Similar
Institutions
712100 Museums, Historical Sites, &
Similar Institutions
Amusement, Gambling, and Recreation
Industries
713100 Amusement Parks & Arcades
713200 Gambling Industries
713900 Other Amusement & Recreation
Industries (including golf
courses, skiing facilities,
marinas, fitness centers, &
bowling centers)
Accommodation and Food
Services
Accommodation
721110 Hotels (except Casino Hotels) &
Motels
721120 Casino Hotels
721191 Bed & Breakfast Inns
721199 All Other Traveler
Accommodation
721210 RV (Recreational Vehicle) Parks
& Recreational Camps
721310 Rooming & Boarding Houses,
Dormitories, & Workers' Camps
Food Services and Drinking Places
722300 Special Food Services (including
food service contractors &
caterers)
722410 Drinking Places (Alcoholic
Beverages)
722511 Full-Service Restaurants
722513 Limited-Service Restaurants
722514 Cafeterias, Grill Buffets, & Buffets
722515 Snack & Non-Alcoholic Beverage
Bars
Other Services
Repair and Maintenance
811110 Automotive Mechanical &
Electrical Repair & Maintenance
811120 Automotive Body, Paint, Interior,
& Glass Repair
811190 Other Automotive Repair &
Maintenance (including oil
change & lubrication shops & car
washes)
811210 Electronic & Precision Equipment
Repair & Maintenance
811310 Commercial & Industrial
Machinery & Equipment (except
Automotive & Electronic) Repair
& Maintenance
811410 Home & Garden Equipment &
Appliance Repair & Maintenance
811420 Reupholstery & Furniture Repair
811430 Footwear & Leather Goods
Repair
811490 Other Personal & Household
Goods Repair & Maintenance
Personal and Laundry Services
812111 Barber Shops
812112 Beauty Salons
812113 Nail Salons
812190 Other Personal Care Services
(including diet & weight reducing
centers)
812210 Funeral Homes & Funeral
Services
812220 Cemeteries & Crematories
812310 Coin-Operated Laundries &
Drycleaners
812320 Drycleaning & Laundry Services
(except Coin-Operated)
812330 Linen & Uniform Supply
812910 Pet Care (except Veterinary)
Services
812920 Photofinishing
812930 Parking Lots & Garages
812990 All Other Personal Services
Religious, Grantmaking, Civic,
Professional, and Similar Organizations
813000 Religious, Grantmaking, Civic,
Professional, & Similar
Organizations (including
condominium & homeowners
associations)
Other
999000 Unclassified Establishments
(unable to classify)
54
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Index
A
Accounting methods 6
Accounting period 6
Accumulated adjustments
account 48
Amended return 6
Amortization 17
Amount owed 22
Assembling return 4
B
Bad debt deduction 18
Balance sheets–Sch. L 47
Business startup expenses 17
C
Change in accounting method 6
Charitable contributions 31
Conservation contributions 31
Cost of goods sold 15
D
Deductions 16, 30
Deductions from oil and gas
properties 37
Deductions, limitations on 16
Depletion 19
Depletion (other than oil and gas) 37
Depreciation 19
Digital assets 23
Direct deposit of refund 2, 22
Distributions 49
Distributions, property 39
E
Election, termination of 2
Elective payment election 22
Electronic filing 3
Electronic filing waiver 3
Employee benefit programs 19
Employer identification number
(EIN) 14
Energy efficient commercial buildings
deduction 20
Estimated tax payment 5, 22
Estimated tax penalty 22
Exception to filing Schedule K-2 36
Exemptions 3
Expenses, nondeductible–Sch. K or
K-1 39
Extension of time to file 3
F
Farming, special rules 16
Final return 14
Forgiveness of PPP loans 49
Forms and Publications, how to get 2
G
Gain (loss), section 1231–Sch. K or
K-1 29
Gain, ordinary 15
Gross receipts 14
I
Income 14
Income from oil and gas
properties 37
Income, rental activities 27
Income, tax-exempt 38
Income, trade or business
activities 26
Installment sales 14
Interest deduction 18
Interest due on tax payment 5
Interest expense, investment 32
International transactions 36
Inventory 16
Investment income and expenses 39
L
Loans from shareholders 39
Lobbying expenses,
nondeductible 20
Low-income housing credit 33
Low-income housing credit
recapture 40
M
Multiple activities–reporting
requirements 25
N
Net investment income (code U) 41
Net investment income tax reporting
requirements 13
O
Officer compensation 17
P
Passive activities–rental 9
Passive activities–reporting
requirements 12
Passive activity limitations 8
Penalties 5
Pension, profit-sharing, etc., plans 19
Portfolio income 10, 27
PPP loan forgiveness 23, 49
PPP reporting 38
Preparer, tax return 3
Private delivery services 3
Property distributions 39
Q
Qualified business income
deduction 42
Qualified opportunity funds 8
Qualified rehabilitation
expenditures 34
R
Recapture, low-income housing
credit 40
Recapture, section 179 deduction 40
Recordkeeping 6
Reforestation 21, 33
Regulations section 1.1411-10(g) 7
Related party transactions 16
Religious exemption 3
Rental activities, income and
expenses 27
Rental deduction 18
Return, amended 6
S
Salaries and wages 17
Sales 14
Schedule K-2 36
Schedule K-3 36
Schedule L 47
Schedule M-1 48
Schedule M-2 48
Schedule M-3 13
Section 1400Z-1 8
Section 1411 election with respect to
CFCs and QEFs 7
Section 179 expense 30
Section 199A information 42
Section 263A rules 16
Section 59(e)(2) expenditures 32
Self-charged interest 10
Substitute Sch. K-1 24
T
Tax issues, unresolved 2
Taxes and licenses deduction 18
Taxes due 21
Termination of S election 2
Travel and entertainment
deduction 20
W
When to file 3
Where to file 4
Who must file 2
Who must sign 3
55
