us internal revenue service: i1120 a--1993

8/14/2019 US Internal Revenue Service: i1120 a--1993

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Cat. No. 11455T

ContentsChanges To Note 1

Voluntary Contributions To Reduce

the Public Debt 2Avoid Common Mistakes 2

General Instructions 2

Purpose of Form 2

Who Must File 2

When To File 3

Where To File 3

Who Must Sign 3

Accounting Methods 4

Change in Accounting Period 4

Rounding Off to Whole Dollars 4

Recordkeeping 4

Depositary Method of Tax Payment 4

Estimated Tax Payments 4

Interest and Penalties 5Unresolved Tax Problems 5

Other Required Forms, Returns,and Statements 5

Specific Instructions 6

Income 7

Deductions 8

Schedule A and Cost of Goods SoldWorksheet 12 and 13

Schedule C 13

Schedule J 15

Schedule K 17

Schedule L 18

Schedule M-1 18

Codes for Principal Business

Activity 19Index 20

Changes To NoteThe Revenue Reconciliation Act of 1993(the Act) made changes to the tax law forcorporations, including changes to the taxrates and the estimated tax rules.

Tax Rates and Related Changes

The Act increased the maximum corporatetax rate to 35% for corporations withtaxable income over $10 million.Corporations with taxable income over $15million are subject to an additional tax of3% of the excess over $15 million, or$100,000 whichever is smaller. The newrates appear in the Tax Rate Schedule onpage 15.

The tax rate for qualified personalservice corporations (as described insection 448(d)(2)) is increased to 35%.

The Act also increased the personalholding company tax rate (Schedule PH(Form 1120)) to 39.6%.

Estimated Tax Rules

The estimated tax penalty is waived forunderpayments of estimated taxes for anyperiod before March 16, 1994, to theextent that the underpayment isattributable to changes made by the Act.

There are new estimated tax rules for taxyears beginning after December 31, 1993.The new rules require a corporation tobase its estimated tax payments on 100%(rather than 97%) of the tax shown on itsreturn for the current year. The safeharbor rule that allows a corporation toavoid the penalty by paying 100% of itsprior year tax still applies. The Act also

added two new sets of periods over whicha corporation may elect to annualizeincome. For details, see Form 1120-W,Corporation Estimated Tax.

Depreciation and Amortization

Goodwill and certain other intangibleproperty acquired after August 10, 1993,may now be amortized over a 15-yearperiod.

Certain computer software acquired afterAugust 10, 1993, may be depreciatedusing the straight line method over a36-month period.

The recovery period for figuring

depreciation for nonresidential realproperty is 39 years for property placed inservice after May 12, 1993.

The maximum section 179 deduction formost filers has been increased to $17,500,for property placed in service in tax yearsbeginning after December 31, 1992.

For details, see Form 4562, Depreciationand Amortization.

Other Tax Law Changes

Dealers in securities must use themark-to-market accounting methoddescribed in new section 475 for tax yearsending on or after December 31, 1993.Under the new rules, any security that is

inventory to the dealer must be included ininventory at its fair market value. Anysecurity that is not inventory and that isheld at the close of the tax year is treatedas sold at its fair market value on the lastbusiness day of the tax year, and any gainor loss must be taken into account indetermining gross income. The gain or losstaken into account is generally treated asordinary gain or loss.

Dealers required to change theiraccounting method to comply with the newlaw are treated as having initiated thechange in accounting method and as

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

Paperwork Reduction Act NoticeWe ask for the information on these forms to carry out the Internal Revenue laws ofthe United States. You are required to give us the information. We need it to ensurethat you are complying with these laws and to allow us to figure and collect the rightamount of tax.

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

Copying,assembling,and sendingthe form to

the IRSPreparingthe form

Learning aboutthe law or the

formRecordkeepingForm

8 hr., 2 min.71 hr., 13 min.40 hr., 21 min.71 hr., 16 min.1120

4 hr., 34 min.40 hr., 47 min.23 hr., 15 min.43 hr., 17 min.1120-A32 min.5 hr., 39 min.3 hr., 31 min.6 hr., 56 min.Sch. D (1120)

Sch. H (1120)

If you have comments concerning the accuracy of these time estimates orsuggestions for making these forms more simple, we would be happy to hear fromyou. You can write to both the Internal Revenue Service, Attention: ReportsClearance Officer, PC:FP, Washington, DC 20224; and the Office of Managementand Budget, Paperwork Reduction Project (1545-0123), Washington, DC 20503. DONOT send the tax form to either of these offices. Instead, see Where To File.

Department of the TreasuryInternal Revenue Service

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

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


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having received the consent of the IRS tothe change. Generally, the net amount ofthe section 481(a) adjustment (reported online 10, page 1) is taken into accountratably over 5 tax years, beginning with thefirst tax year ending on or after December31, 1993.

For details, including exceptions, seenew section 475.

Lobbying expenses paid or incurred afterDecember 31, 1993, are no longerdeductible business expenses. Lobbying

expenses include amounts paid or incurredin connection with influencing Federal orstate legislation (but not local legislation),or amounts paid or incurred in connectionwith any communication with certaincovered Federal executive branch officialsin an attempt to influence the officialactions or positions of the officials. A deminimis rule applies if the total amount ofcertain in-house expenditures for lobbyingdoes not exceed $2,000. If thecorporationss lobbying expenses qualifyunder the de minimis rule, they aredeductible.

A portion of payments for membershipdues to a trade organization or othernoncharitable organization that engages in

lobbying activities may not be deductible ifthe dues are allocable to nondeductiblelobbying expenditures by the organization.For more information, see section 162.

Charitable contributions paid or incurredafter December 31, 1993, to anorganization that conducts lobbyingactivities are not deductible if (1) thelobbying activities relate to matters ofdirect financial interest to the donors t radeor business, and (2) the principal purposeof the contribution was to avoid Federalincome tax by obtaining a deduction foractivities that would have beennondeductible under the lobbying expenserules if conducted directly by the donor.

See section 170(f). No deduction is allowed for amountspaid or incurred for club dues (includingdues for airline and hotel clubs), afterDecember 31, 1993. For details, seesection 274.

No deduction is allowed for travelexpenses paid or incurred after December31, 1993, for a spouse, dependent, orother individual accompanying an officer oremployee of the corporation on businesstravel, unless that spouse, dependent, orother individual is an employee of thecorporation and the travel is for a bonafide business purpose and would otherwisebe deductible. For details, see section 274.

Generally, no deduction is allowed forany charitable contribution of $250 or moremade after December 31, 1993, unless thecorporation has a contemporaneouswritten acknowledgment from the doneeorganization of the contribution (including agood faith estimate of the value of anygoods or services provided to the donor inexchange for the donation). For details, seesection 170.

The deduction for dividends received onthe preferred stock of a public utility undersections 244 and 243(c)(1) and the

deduction for dividends paid on thepreferred stock of a public utility undersection 247 have changed as a result ofthe increase in the corporate tax rates.

Financial institutions must fileinformation returns on new Form 1099-Cwith regard to discharges of indebtednessof $600 or more. The reporting requirementapplies for discharges of indebtednessafter December 31, 1993. For details, seenew section 6050P.

The following credits, which expired onJune 30, 1992, are extended. Effective July1, 1992:

The orphan drug credit is extendedthrough December 31, 1994,

The credit for increasing researchactivities is extended through June 30,1995,

The targeted jobs credit is extendedthrough December 31, 1994, and

The low-income housing credit ispermanently extended.

The Act added the following new generalbusiness credits:

Corporations are allowed a credit of 5%of qualified cash contributions to certain

community development corporations(CDCs). The CDCs are to be selected bythe Secretary of Housing and UrbanDevelopment by July 1, 1994. Get Form8847, Credit for Contributions to CertainCommunity Development Corporations, formore information.

Employers may be able to claim a creditof 20% of a limited amount of the wagesand health insurance costs paid or incurredby the employer for qualified employeesafter December 31, 1993. A qualifiedemployee is a member of an enrolledIndian tribe (or their spouse), who alsomeets certain other qualifications. GetForm 8845, Indian Employment Credit, fordetails.

Food and beverage establishments mayclaim a credit equal to the employerssocial security tax obligation attributable totips in excess of those treated as wagesfor purposes of the minimum wage laws.The credit is available for taxes paid afterDecember 31, 1993. Get Form 8846,Credit for Employer Social Security TaxesPaid on Certain Employee Cash Tips, fordetails.

Voluntary Contributions ToReduce the Public DebtA corporation may make a contribution toreduce the public debt. To do so, enclose

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

Avoid Common MistakesTo speed the processing of the return, besure to do the following:

1. If the corporation does not use acalendar tax year, enter the beginning andending dates of its fiscal year in the spaceat the top of the form.

2. Unless the corporation changed itsname since it last filed, enter the name theway it appeared on the last filed return.

3. Enter the correct employeridentification number (EIN) in item B if youare not using the label.

4. Enter total assets in item D.

5. If this is a consolidated return, checkbox A1.

6. If you attach additional sheets, besure to show the totals from theattachments on the original form or

schedule.7. Complete line 32d (line 28d, Form

1120-A).

8. If the corporation is a qualifiedpersonal service corporation, check thebox on Schedule J, line 3 (Part I, line 1,Form 1120-A).

9. Enter the corporations businessactivity code number on Schedule K, line2a (Part II, line 1a, Form 1120-A).

10. To avoid interest and penalties, filethe return on time and pay any tax whendue. See pages 4 and 5.

General InstructionsNote: In addition to the publications listedin these instructions, taxpayers may wish toget:Pub. 534, Depreciation;Pub. 535,Business Expenses;Pub. 542, TaxInformation on Corporations; andPub. 946,How To Begin Depreciating Your Property.

You can get these publications and otherpublications referred to in the instructionsat most IRS offices. To order publicationsand forms, call our toll-free number1-800-TAX-FORM (1-800-829-3676).

Purpose of FormForm 1120, U.S. Corporation Income TaxReturn, and Form 1120-A, U.S.Corporation Short-Form Income TaxReturn, are used by corporations to reportincome, gains, losses, deductions, credits,and to figure their income tax liability.

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

Note: If an organization resembles acorporation more than it resembles apartnership or trust, it will be considered anassociation taxed as a corporation.

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


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Who May File Form 1120-A

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

Its gross receipts (line 1a, page 1) areunder $500,000.

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

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

It does not have any ownership in aforeign corporation.

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

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

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

It is not a consolidated corporate returnfiler.

It is not a corporation undergoing adissolution or liquidation.

It is not filing its final tax return.

Its only dividend income (none of whichrepresents debt-financed securities) is fromdomestic corporations, and those

dividends qualify for the 70% deduction. It has no nonrefundable tax credits otherthan the general business credit and thecredit for prior year minimum tax.

It is not subject to environmental taxunder section 59A.

It has no liability for interest undersection 453(l)(3) or 453A(c) (relating tocertain installment sales) or installmentpayments of tax under section 1363(d).

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

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

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

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

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

Special Returns for CertainOrganizations

Certain organizations, as shown below,have to file special returns.

If the organization is a File Form

Farmers cooperative(sec. 1381)

990-C

Exempt organization withunrelated trade or businessincome

990-T

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

1065

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

1066

Settlement fund (sec. 468B) 1120-SF

Interest charge domesticinternational salescorporation (sec. 992)

1120-IC-DISC

Foreign corporation (otherthan life and property andcasualty insurance

company filing Form 1120-Lor 1120-PC)

1120-F

Foreign sales corporation(sec. 922)

1120-FSC

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

1120-H

Life insurance company(sec. 801)

1120-L

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

1120-ND

Property and casualtyinsurance company(sec. 831)

1120-PC

Political organization(sec. 527)

1120-POL

Real estate investment trust(sec. 856)

1120-REIT

Regulated investmentcompany (sec. 851)

1120-RIC

S corporation (sec. 1361) 1120S

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

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

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

Extension.File Form 7004, Applicationfor Automatic Extension of Time To FileCorporation Income Tax Return, to requesta 6-month extension of time to file.

Where To File

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

If the corporationsprincipal business, office,

or agency is located in

Use the followingInternal RevenueService Center

address

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

Holtsville, NY 00501

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

Andover, MA 05501

Florida, Georgia, SouthCarolina

Atlanta, GA 39901

Indiana, Kentucky,Michigan, Ohio, WestVirginia

Cincinnati, OH 45999

Kansas, New Mexico,Oklahoma, Texas

Austin, TX 73301

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska,Nevada, North Dakota,Oregon, South Dakota,Utah, Washington,Wyoming

Ogden, UT 84201

California (all othercounties), Hawaii

Fresno, CA 93888

Illinois, Iowa, Minnesota,Missouri, Wisconsin

Kansas City, MO 64999

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

Memphis, TN 37501

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia

Philadelphia, PA 19255

Corporations having their principal placeof business outside the United States orclaiming a possessions tax credit (section936) must file with the Internal RevenueService Center, Philadelphia, PA 19255.

A group of corporations located inseveral service center regions will oftenkeep all the books and records at theprincipal office of the managingcorporation. If this is the case, the incometax returns of the corporations may be filedwith the service center region in which thisprincipal office is located.

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

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

The paid preparer must complete therequired preparer information and:


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

Give a copy of the return to thetaxpayer.

Accounting MethodsTaxable income must be computed usingthe method of accounting regularly used inkeeping the corporations books andrecords. Generally, permissible methods

include the cash, accrual, or any othermethod authorized by the Internal RevenueCode. In all cases, the method used mustclearly show taxable income.

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

Under the accrual method, an amount isincludible in income when all the eventshave occurred that fix the right to receivethe income and the amount can be

determined with reasonable accuracy. SeeRegulations section 1.451-1(a) for details.

Generally, an accrual basis taxpayer candeduct accrued expenses in the tax year inwhich all events that determine the liabilityhave occurred, the amount of the liabilitycan be figured with reasonable accuracy,and economic performance takes placewith respect to the expense. There areexceptions to the economic performancerule for certain items, including recurringexpenses. See section 461(h) and therelated regulations for the rules fordetermining when economic performancetakes place.

Long-term contracts (except for certain

real property construction contracts) mustgenerally be accounted for using thepercentage of completion methoddescribed in section 460. See section 460for general rules on long-term contracts.

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

Change in AccountingPeriodGenerally, before changing an accountingperiod, the Commissioners approval mustbe obtained (Regulations section 1.442-1)by filing Form 1128, Application To Adopt,Change, or Retain a Tax Year. Also seePub. 538.

Personal service corporations, as definedin Temporary Regulations section 1.441-4T(see the instructions for Item A on page 7),must use a calendar year unless:

The corporation can establish to thesatisfaction of the Commissioner that there

is a business purpose for having a differenttax year, or

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

Personal service corporations that wishto establish a business purpose for havinga different tax year should see Rev. Rul.87-57, 1987-2 C.B. 117, for moreinformation. Also see Rev. Proc. 87-32,1987-2 C.B. 396, for procedures to use inadopting, retaining, or changing thecorporations tax year. Personal servicecorporations that wish to adopt or retain anoncalendar tax year must file requests todo so on Form 1128 using the proceduresoutlined in Rev. Proc. 87-32.

Personal service corporations that wishto elect under section 444 to have a taxyear other than a calendar year must fileForm 8716, Election To Have a Tax YearOther Than a Required Tax Year.Generally, Form 8716 must be filed by theearlier of:

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

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

Electing corporations are subject tominimum distribution requirements undersection 280H(c) for each year the electionis in effect. If the corporation fails to makethe required minimum distributions, thededuction allowable for certain amountspaid to employee-owners is limited to amaximum deductible amount under section280H(d). Amounts not allowed as adeduction for the tax year are carried overto the following tax year. CompleteSchedule H (Form 1120), Section 280HLimitations for a Personal ServiceCorporation (PSC), to figure the requiredminimum distributions and the maximumdeductible amount, if applicable.

Rounding Off to WholeDollarsThe corporation may show amounts on thereturn and accompanying schedules aswhole dollars. To do so, drop any amountless than 50 cents and increase anyamount from 50 cents through 99 cents tothe next higher dollar.

RecordkeepingThe corporations records should be kept

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

The corporation should also keep copiesof any returns it has filed. They help inpreparing future returns and in making

computations when filing an amendedreturn.

Depositary Method of TaxPaymentThe corporation must pay the tax due infull no later than the 15th day of the 3rdmonth after the end of the tax year.Deposit corporation income tax payments(and estimated tax payments) with Form8109, Federal Tax Deposit Coupon. Do notsend deposits directly to an IRS office.

Mail or deliver the completed Form 8109with the payment to a qualified depositaryfor Federal taxes or to the Federal Reservebank (FRB) servicing the corporationsgeographic area. Make checks or moneyorders payable to that depositary or FRB.

To help ensure proper crediting, writethe corporations employer identificationnumber, the tax period to which thedeposit applies, and Form 1120 on thecheck or money order. Be sure to darkenthe 1120 box on the coupon. Theserecords of deposits will be sent to the IRS.

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

depositary or FRB.For more information on deposits, see

the instructions in the coupon booklet(Form 8109) and Pub. 583, TaxpayersStarting a Business.

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

Estimated Tax PaymentsGenerally, a corporation must makeinstallment payments of estimated tax if it

expects its estimated tax (income taxminus credits) to be $500 or more. For acalendar or fiscal year corporation, theinstallments are due by the 15th day of the4th, 6th, 9th, and 12th months of the taxyear. If any date falls on a Saturday,Sunday, or legal holiday, the installment isdue on the next regular business day. UseForm 1120-W, Corporation Estimated Tax,as a worksheet to compute estimated tax.Use the deposit coupons (Forms 8109) tomake deposits of estimated tax. For moreinformation on estimated tax payments,including penalties that apply if thecorporation fails to make requiredpayments, see the instructions for line 33on page 12.

If the corporation overpaid estimatedtax, it may be able to get a quick refundby filing Form 4466, CorporationApplication for Quick Refund ofOverpayment of Estimated Tax. Theoverpayment must be at least 10% of theexpected income tax liability and at least$500. To apply for a quick refund, file Form4466 before the 16th day of the 3rd monthafter the end of the tax year, but beforethe corporation files its income tax return.Do not file Form 4466 before the end ofthe corporations tax year.


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Interest and PenaltiesInterest.Interest is charged on taxes notpaid by the due date even if an extensionof time to file is granted. Interest is alsocharged on penalties imposed for failure tofile, negligence, fraud, gross valuationoverstatements, and substantialunderstatements of tax from the due date(including extensions) to the date ofpayment. The interest charge is figured ata rate determined under section 6621.

Late filing of return.A corporation that

does not file its tax return by the due date,including extensions, may have to pay apenalty of 5% of the unpaid tax for eachmonth or part of a month the return is late,up to a maximum of 25% of the unpaidtax. The minimum penalty for a return thatis more than 60 days late is the smaller ofthe tax due or $100. The penalty will notbe imposed if the corporation can showthat the failure to file on time was due toreasonable cause. Corporations that filelate must attach a statement explaining thereasonable cause.

Late payment of tax.A corporation thatdoes not pay the tax when due may haveto pay a penalty of 12 of 1% of the unpaid

tax for each month or part of a month thetax is not paid, up to a maximum of 25%of the unpaid tax. This penalty may alsoapply to any additional tax not paid within10 days of the date of the notice anddemand for payment. The penalty will notbe imposed if the corporation can showthat the failure to pay on time was due toreasonable cause.

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

Unresolved Tax ProblemsThe IRS has a Problem Resolution

Program for taxpayers who have beenunable to resolve their problems with theIRS. If the corporation has a tax problem ithas been unable to resolve through normalchannels, write to the corporations localIRS district director or call thecorporations local IRS office and ask forProblem Resolution Assistance.Hearing-impaired persons who haveaccess to TDD equipment may call1-800-829-4059 to ask for help. TheProblem Resolution office will ensure thatyour problem receives proper attention.Although the office cannot change the taxlaw or make technical decisions, it canhelp clear up problems that resulted from

previous contacts.

Other Forms, Returns, andStatements That May BeRequired

Forms

The corporation may have to file any of thefollowing:

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

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

Caution: The trust fund recovery penaltymay apply if certain excise taxes that mustbe collected are not collected or are notpaid to the IRS. The penalty is equal to theunpaid trust fund tax. The trust fundrecovery penalty may be imposed on all

persons who are determined by the IRS toberesponsible for collecting, accountingfor, and paying over these taxes, and whoacted willfully in not doing so. See theInstructions for Form 720 for more details,including the definition of responsibleperson.

Form 926, Return by a U.S. Transferor ofProperty to a Foreign Corporation, ForeignEstate or Trust, or Foreign Partnership.Use this form to report transfers ofproperty to a foreign corporation, foreignestate or trust, foreign partnership, and topay any excise tax due under section1491. On the day of the transfer, file Form926 with the service center where the

corporation is required to file its incometax return.

Also use Form 926 to report informationrequired under section 6038B. Acorporation that transfers property to aforeign corporation in an exchangedescribed in section 367(a) or (d), or thatmakes an election to apply principlessimilar to the principles of section 367 toany transfer covered by the excise tax,must file Form 926 and attach theinformation required by Regulations section1.6038B-1T. If section 6038B applies, fileForm 926 and the required information withthe corporations income tax return for thetax year that includes the transfer date.

If a corporation fails to t imely report theinformation required by section 6038B, apenalty may apply. The penalty is equal to25% of the gain realized on the exchangeof the property.

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

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

Caution: The trust fund recovery penaltymay apply if income, social security, andMedicare taxes that must be withheld arenot withheld or are not paid to the IRS.

The penalty is equal to the unpaid trustfund tax. The trust fund recovery penaltymay be imposed on all persons who aredetermined by the IRS to beresponsiblefor collecting, accounting for, and payingover these taxes, and who acted willfully innot doing so. SeeCircular E, EmployersTax Guide (orCircular A, AgriculturalEmployers Tax Guide), for details,including the definition of responsibleperson.

Form 966, Corporate Dissolution orLiquidation.

Form 1042, Annual Withholding Tax Returnfor U.S. Source Income of ForeignPersons, and Form 1042S, ForeignPersons U.S. Source Income Subject toWithholding. Use these forms to report andtransmit withheld tax on payments ordistributions made to nonresident alienindividuals, foreign partnerships, or foreigncorporations, to the extent such paymentsor distributions constitute gross incomefrom sources within the United States (seesections 861 through 865). For moreinformation, see sections 1441 and 1442,and Pub. 515, Withholding of Tax onNonresident Aliens and ForeignCorporations.

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

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

Forms 1099-A, B, DIV, INT, MISC, OID,PATR, R, and S. These information returnsare for reporting abandonments,acquisitions through foreclosure, proceedsfrom broker and barter exchangetransactions, certain dividends anddistributions, interest payments, paymentsfor certain fishing boat crew members,

medical and dental health care payments,direct sales of consumer goods for resale,miscellaneous income payments,nonemployee compensation, original issuediscount, patronage dividends,distributions from profit-sharing p lans,retirement plans, individual retirementarrangements, insurance contracts, etc.,and proceeds from real estatetransactions. Also use these returns toreport amounts that were received as anominee on behalf of another person.

For more information, see theInstructions for Forms 1099, 1098, 5498,and W-2G and Pub. 937, EmploymentTaxes and Information Returns.

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

Form 5452, Corporate Report ofNondividend Distributions.

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


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

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

benefits.Form 8264, Application for Registration ofa Tax Shelter. It is used by tax shelterorganizers to register tax shelters with theIRS, for the purpose of receiving a taxshelter registration number.

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

tax benefit attributable to a tax shelter istaken or any income attributable to a taxshelter is reported.

Form 8275, Disclosure Statement. Form8275 is used by taxpayers and income taxreturn preparers to disclose items orpositions (except those contrary to aregulationsee Form 8275-R below) thatare not otherwise adequately disclosed ona tax return. The disclosure is made toavoid parts of the accuracy-related penaltyimposed for negligence, disregard of rules,or substantial understatement of tax. Form8275 is also used for disclosures relatingto preparer penalties for understatementsdue to unrealistic positions or for willful or

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

Form 8281, Information Return for PubliclyOffered Original Issue DiscountInstruments. This form is generally requiredto be filed by issuers of public offerings ofdebt instruments within 30 days of theissuance of the debt instrument.

Form 8300, Report of Cash PaymentsOver $10,000 Received in a Trade orBusiness. Generally, this form is used toreport the receipt of more than $10,000 in

cash or foreign currency in one transactionor in a series of related transactions.

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

Form 8594, Asset Acquisition Statement,must be filed by both the purchaser andseller of a group of assets constituting atrade or business if goodwill or a goingconcern value attaches, or could attach, to

such assets and if the purchasers basis inthe assets is determined only by theamount paid for the assets.

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

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

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

Form 8817, Allocation of Patronage andNonpatronage Income and Deductions.Taxable cooperatives with gross receipts of$10 million or more that have bothpatronage and nonpatronage sourceincome and deductions must complete andattach this form to the return.

Consolidated Return

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

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

Items of gross income and deductions.

A computation of taxable income.

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

A reconciliation of income per bookswith income per return.

A reconciliation of retained earnings.

Enter the totals for the consolidatedgroup on Form 1120. Attach consolidatedbalance sheets and a reconciliation ofconsolidated retained earnings.

Amended Return

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

Statements

Stock ownership in foreigncorporations.Attach the statement

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

A corporation may have to file Form5471, Information Return of U.S. PersonsWith Respect to Certain ForeignCorporations, if any of the followingapplies:

1. It controls a foreign corporation.

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

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

Foreign ownership in a domesticcorporation.A domestic corporation thatis 25% or more foreign-owned may haveto file Form 5472, Information Return of a

25% Foreign-Owned U.S. Corporation or aForeign Corporation Engaged in a U.S.Trade or Business. See the instructions onpage 18 for more information.

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

Attachments

Attach Form 4136, Credit for Federal TaxPaid on Fuels, after page 4, Form 1120, or

page 2, Form 1120-A. Attach schedules inalphabetical order and other forms innumerical order after Form 4136.

To assist us in processing the return,please complete every applicable entryspace on Form 1120 or Form 1120-A. Donot write See attached instead ofcompleting the entry spaces. If you needmore space on the forms or schedules,attach separate sheets. Use the same sizeand format as on the printed forms. Butshow your totals on the printed forms.Attach these separate sheets after all theschedules and forms. Be sure to put thecorporations name and EIN on eachsheet.

Specific Instructions

Period Covered

File the 1993 return for calendar year 1993and fiscal years that begin in 1993 and endin 1994. For a fiscal year, fill in the tax yearspace at the top of the form.

Note: The 1993 Form 1120 may also beused if(1)the corporation has a tax year ofless than 12 months that begins and endsin 1994 and (2)the 1994 Form 1120 is notavailable at the time the corporation is


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required to file its return. However, thecorporation must show its 1994 tax year onthe 1993 Form 1120 and incorporate anytax law changes that are effective for taxyears beginning after December 31, 1993.

Name, Address, and EmployerIdentification Number (EIN)

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

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

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

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

Employer identification number (EIN).Show the correct EIN in item B on page 1of Form 1120 or Form 1120-A. If thecorporation does not have an EIN, itshould apply for one on Form SS-4,Application for Employer IdentificationNumber. Form SS-4 can be obtained atmost IRS or Social Security Administration(SSA) offices. If the corporation has notreceived its EIN by the time the return isdue, write Applied for in the space forthe EIN. See Pub. 583 for moreinformation.

Item APersonal ServiceCorporation

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

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

year or the last day of the calendar year inwhich the first tax year began.

Activities that are treated as theperformance of personal services are thosethat involve the performance of services inthe fields of health, law, engineering,architecture, accounting, actuarial science,performing arts, or consulting (as suchfields are defined in Temporary Regulationssection 1.448-1T(e)).

Personal services are substantiallyperformed by employee-owners if morethan 20% of the corporationscompensation cost for the testing period

attributable to the performance of personalservices is attributable to personal servicesperformed by employee-owners.

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

For details, see Temporary Regulationssection 1.441-4T.

Item DTotal Assets

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

Item EInitial Return, FinalReturn, or Change in Address

If this is the corporations first return,

check the Initial return box. If thecorporation ceases to exist, file Form 1120and check the Final return box. Do notfile Form 1120-A.

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

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

Line 1

Gross Receipts

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

Generally, the installment method cannotbe used for dealer dispositions of property.A dealer dispositon means anydisposition of personal property by aperson who regularly sells or otherwisedisposes of property of the same type onthe installment plan. The disposition ofproperty used or produced in the farmingbusiness is not included as a dealerdisposition. See section 453(l) for details

and exceptions.Enter on line 1 (and carry to line 3), the

gross profit on collections from installmentsales for any of the following:

Dealer dispositions of property beforeMarch 1, 1986.

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

Certain dispositions of timeshares andresidential lots reported under theinstallment method.

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

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

Form 1120 on page 17.Accrual method taxpayers need not

accrue certain amounts to be receivedfrom the performance of services that, onthe basis of their experience, will not becollected (section 448(d)(5)). This provisiondoes not apply to any amount if interest isrequired to be paid on the amount or ifthere is any penalty for failure to timely paythe amount. Corporations that fall underthis provision should attach a scheduleshowing total gross receipts, the amountnot accrued as a result of the applicationof section 448(d)(5), and the net amountaccrued. Enter the net amount on line 1a.For more information and guidelines on

this non-accrual experience method, seeTemporary Regulations section 1.448-2T.

Line 2

Cost of Goods Sold

Enter the cost of goods sold on line 2,page 1, of Form 1120 or Form 1120-A.Before making this entry, a Form 1120 filermust complete Schedule A on page 2 ofForm 1120. Form 1120-A filers may usethe worksheet on page 13 to figure theamount to enter on line 2. Both Form 1120and Form 1120-A filers should see theinstructions for Schedule A and theworksheet on pages 12 and 13.

Line 4Dividends

Form 1120 filers.See the instructions forSchedule C on page 13. Then, completeSchedule C and enter on line 4 the amountfrom Schedule C, line 19.

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

Line 5

Interest

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

Do not offset interest expense againstinterest income.

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


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Line 6

Gross Rents

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

Line 8Capital Gain Net Income

Every sale or exchange of a capital assetmust be reported in detail on Schedule D(Form 1120), Capital Gains and Losses,even though no gain or loss is indicated.

Line 9

Net Gain or (Loss)

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

Line 10

Other Income

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

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

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

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

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

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

of the date the property was placed inservice, the property ceases to qualify. SeePub. 535 for details, including how tofigure the recapture.

Deductions

Limitations on Deductions

Section 263A uniform capitalizationrules.These rules require corporations tocapitalize or include in inventory certaincosts incurred in connection with theproduction of real and personal tangible

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

during the production period of certainproperty must be capitalized and isgoverned by special rules. For moreinformation, see Notice 88-99, 1988-2 C.B.422. The uniform capitalization rules alsoapply to the production of propertyconstructed or improved by a taxpayer foruse in its trade or business or in an activityengaged in for profit.

Section 263A does not apply to personalproperty acquired for resale if thetaxpayers annual average gross receiptsare $10 million or less. It does not apply totimber or to most property produced undera long-term contract. Special rules applyfor farmers. The rules do not apply toproperty that is produced for use by thecorporation if substantial constructionoccurred before March 1, 1986.

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

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

Current deductions may still be claimedfor reasonable research and experimentalcosts under section 174, intangible drillingcosts for oil and gas and geothermalproperty, and mining and exploration anddevelopment costs. Temporary Regulationssection 1.263A-1T specifies other indirectcosts that may be currently deducted andthose that must be capitalized with respectto production or resale activities. For moreinformation, see Temporary Regulationssection 1.263A-1T.

Transactions between relatedtaxpayers.Generally, an accrual basistaxpayer may only deduct businessexpenses and interest owed to a relatedparty in the year the payment is included inthe income of the related party. Seesections 163(e)(3), 163(j), and 267 forlimitations on deductions for unpaidinterest and expenses.

Section 291 limitations.Corporationsmay be required to adjust deductions fordepletion of iron ore and coal, intangibledrilling and exploration and developmentcosts, certain deductions for financialinstitutions, and the amortizable basis ofpollution control facilities. See section 291to determine the amount of adjustment.Also see section 43.

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

Business startup expenses.Businessstartup expenses are required to becapitalized unless an election is made toamortize them over a period of 60 months.

See section 195.Passive activity limitations. Limitationson passive activity losses and creditsunder section 469 apply to personalservice corporations as defined inTemporary Regulations section 1.441-4T(see Item APersonal ServiceCorporation on page 7) and closely heldcorporations.

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

corporation. Certain organizations aretreated as individuals for purposes of thistest. (See section 542(a)(2).) For rules ofdetermining stock ownership, see section544 (as modified by section 465(a)(3)).

There are two kinds of passive activities:trade or business activities in which thecorporation did not materially participate(see Temporary Regulations section1.469-1T(g)(3)) for the tax year, and rentalactivities regardless of its participation. Anactivity is a trade or business activity if theactivity involves the conduct of a trade orbusiness (i.e., deductions from the activitywould be allowable under section 162 ifother limitations, such as the passive loss

rules, did not apply), or the activity involvesresearch and experimental costs that aredeductible under section 174 (or would bedeductible if the corporation chose todeduct rather than capitalize them), andthe activity is not a rental activity.

Corporations subject to the passiveactivity limitations must complete Form8810 to compute their allowable passiveactivity loss and credit. Before completingForm 8810, see Temporary Regulationssection 1.163-8T, which provides rules forallocating interest expense amongactivities. If a passive activity is alsosubject to the at-risk rules of section 465,the at-risk rules apply before the passiveloss rules. For more information, seesection 469, the related regulations, andPub. 925, Passive Activity and At-RiskRules.

Reducing certain expenses for whichcredits are allowable.For each of thecredits listed below, the corporation mustreduce the otherwise allowable deductionsfor expenses used to figure the credit bythe amount of the current year credit:

1. The orphan drug credit.

2. The credit for increasing researchactivities.


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3. The enhanced oil recovery credit.

4. The disabled access credit.

5. The jobs credit.

6. The new employer credit for socialsecurity taxes paid on tips.

7. The new Indian employment credit.

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

Line 12

Compensation of Officers

Enter any officers compensation on line12. Before entering an amount on line 12,Form 1120 filers must complete ScheduleE on page 2 if their total receipts (line 1a,plus lines 4 through 10, of page 1, Form1120) are $500,000 or more. Do notinclude compensation deductibleelsewhere on the return, such as amountsincluded in cost of goods sold, electivecontributions to a section 401(k) cash ordeferred arrangement, or amountscontributed under a salary reduction SEPagreement.

Complete Schedule E, line 1, columns (a)

through (f), for all officers. The corporationdetermines who is an officer under thelaws of the state where incorporated.

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

Line 13

Salaries and Wages

Enter the amount of total salaries andwages paid or incurred for the tax year. Donot include salaries and wages deductibleelsewhere on the return, such as amountsincluded in cost of goods sold, electivecontributions to a section 401(k) cash or

deferred arrangement, or amountscontributed under a salary reduction SEPagreement.

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

Enter on line 13b the total of the jobscredit from Form 5884, Jobs Credit, andthe Indian employment credit from Form8845, Indian Employment Credit.

Line 14

Repairs and Maintenance

Enter the cost of incidental repairs andmaintenance not claimed elsewhere on thereturn, such as labor and supplies, that donot add to the value of the property orappreciably prolong its life. New buildings,machinery, or permanent improvementsthat increase the value of the property arenot deductible. They must be depreciatedor amortized.

Line 15

Bad Debts

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

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

Line 16

Rents

If the corporation rented or leased avehicle, enter the total annual rent or leaseexpense paid or incurred during the year.Also complete Part V of Form 4562,Depreciation and Amortization. If thecorporation leased a vehicle for a term of30 days or more, the deduction for vehiclelease expense may have to be reduced byan amount called the inclusion amount.The corporation may have an inclusionamount if:

The lease term began:

And the vehiclesfair market value

on the first day ofthe lease exceeded:

After 12/31/92 $14,300

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

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

After 12/31/ 86 but before 1/1/91 $12,800

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

Line 17

Taxes and Licenses

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

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

Foreign or U.S. possession income taxesif a tax credit is claimed;

Taxes not imposed on the corporation;

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

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

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

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

If the corporation is liable for theenvironmental tax under section 59A, seeForm 4626, Alternative Minimum Tax

Corporations, for computation of theenvironmental tax deduction.

Line 18

Interest

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

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

Mutual savings banks, building and loanassociations, and cooperative banks candeduct the amounts paid or credited to theaccounts of depositors as dividends,interest, or earnings. See section 591.

Generally, a cash basis taxpayer cannotdeduct prepaid interest allocable to yearsfollowing the current tax year. For example,a cash basis calendar year taxpayer who in1993 prepaid interest allocable to anyperiod after 1993 can deduct only the

amount allocable to 1993.Generally, the interest and carrying

charges on straddles cannot be deductedand must be capitalized. See section263(g).

See section 163(e)(5) for special rules forthe disqualified portion of original issuediscount on a high yield discountobligation.

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

Do not deduct interest on debt allocable

to the production of qualified property.Interest that is allocable to propertyproduced by a corporation for its own useor for sale must be capitalized. Acorporation must also capitalize anyinterest on debt allocable to an asset usedto produce the above property. Seesection 263A and Notice 88-99 fordefinitions and more information.

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

Line 19

Charitable Contributions

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

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

Any deduction for contributions,

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


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The deduction allowed under section249,

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

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

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

Special rules apply if the corporation hasan NOL carryover to the tax year. In

figuring the charitable contributionsdeduction for the tax year, the 10% limit isapplied using the taxable income aftertaking into account any deduction for theNOL.

To figure the amount of any remainingNOL carryover to later years, taxableincome must be modified (see section172(b)). To the extent that contributions areused to reduce taxable income for thispurpose and increase an NOL carryover, acontributions carryover is not allowed. Seesection 170(d)(2)(B).

Corporations on the accrual basis mayelect to deduct contributions paid by the15th day of the 3rd month after the end of

the tax year if the contributions areauthorized by the board of directors duringthe tax year. Attach a declaration to thereturn, signed by an officer, stating that theresolution authorizing the contributions wasadopted by the board of directors duringthe tax year. Also attach a copy of theresolution.

If a corporation (other than a closely heldor personal service corporation) contributesproperty other than cash and thededuction claimed for the propertyexceeds $500, the corporation must attacha schedule to the return describing thekind of property contributed and themethod used to determine its fair market

value. Closely held corporations andpersonal service corporations mustcomplete Form 8283, Noncash CharitableContributions, and attach it to their returns.All other corporations generally mustcomplete and attach Form 8283 to theirreturns for contributions of property otherthan money if the total claimed deductionfor all property contributed was more than$5,000.

A corporation must also keep records,as required by the regulations for section170, for all of its charitable contributions.

If the corporation made a qualifiedconservation contribution under section170(h), also include the fair market value of

the underlying property before and afterthe donation, as well as the type of legalinterest contributed, and describe theconservation purpose benefited by thedonation.

If a contribution carryover is included,show the amount and how it wasdetermined.

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

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

For certain contributions, all of thelong-term capital gain that would haveresulted if the property were sold at its fairmarket value.

The reduction for the long-term capitalgain applies to:

Contributions of tangible personalproperty for use by an exempt organization

for a purpose or function unrelated to thebasis for its exemption, and

Contributions of any property (exceptstock for which market quotations arereadily availablesee section 170(e)(5)) toor for the use of certain privatefoundations. See section 170(e) andRegulations section 1.170A-4.

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

Charitable contributions of scientificproperty used for research.Acorporation (other than a personal holdingcompany or a service organization) can

receive a larger deduction for contributingscientific property used for research to aninstitution of higher education. For moredetails, see section 170(e).

Line 20

Depreciation

Besides depreciation, include on line 20the part of the cost that the corporationelected to expense under section 179 forcertain tangible property placed in serviceduring tax year 1993 or carried over from1992. See Form 4562, Depreciation andAmortization, and its instructions.

Line 22 (Form 1120 only)

Depletion

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

Foreign intangible drilling costs andforeign exploration and development costsmust either be added to the corporationsbasis for cost depletion purposes or bededucted ratably over a 10-year period.See sections 263(i), 616, and 617 fordetails.

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


Pension, Profit-Sharing, etc., Plans

Enter the deduction for contributions toqualified pension, profit-sharing, or otherfunded deferred compensation plans.Employers who maintain such a plangenerally must file one of the forms listedbelow, even if the plan is not a qualifiedplan under the Internal Revenue Code. Thefiling requirement applies even if the

corporation does not claim a deduction forthe current tax year. There are penalties forfailure to file these forms on time and foroverstating the pension plan deduction.See sections 6652(e) and 6662(f).

Form 5500.Complete this form for eachplan with 100 or more participants.

Form 5500-C/R.Complete this form foreach plan with fewer than 100 participants.

Form 5500-EZ.Complete this form for aone-participant plan. The termone-participant plan also means a plan

that covers the owner and his or herspouse, or a plan that covers partners in abusiness partnership (or the partners andtheir spouses).


Employee Benefit Programs

Enter contributions to employee benefitprograms not claimed elsewhere on thereturn (e.g., insurance, health and welfareprograms) that are not an incidental part ofa pension, profit-sharing, etc., planincluded on line 24.

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

Other Deductions

Note: Do not deduct penalties such asthose listed underInterest and Penaltieson page 5.

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

Include on this line the deduction foramortization of pollution control facilities,

organization expenses, etc. See Form4562.

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

Paid in cash directly to the planparticipants or beneficiaries;

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

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

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

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

Generally, the corporation can deductonly 80% of the amount otherwiseallowable for meals and entertainmentexpenses paid or incurred in its trade orbusiness. Also, meals must not be lavish orextravagant; a bona fide businessdiscussion must occur during, immediately


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before, or immediately after the meal; andan employee of the corporation must bepresent at the meal. See section 274(k)(2)for exceptions. If the corporation claims adeduction for unallowable meal expenses,it may have to pay a penalty.

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

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

The following expenses are notdeductible if paid or incurred afterDecember 31, 1993:

Club dues

Travel expenses for a spouse,dependent, and certain other individualsaccompanying an officer or employee of

the corporation on business travel.See Changes To Note on page 2.

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

Deduction for clean-fuel vehicles andcertain refueling property.Section 179Aallows a deduction for part of the cost ofqualified clean-fuel vehicle property andqualified clean-fuel vehicle refuelingproperty (defined below) placed in serviceafter June 30, 1993.

Qualified clean-fuel vehicle propertyincludes:

1. The part of the basis of a new vehicledesigned to use a clean-burning fuel thatis attributable to an engine that uses thatfuel (and its related fuel storage, delivery,and exhaust systems), and

2. New retrofit parts and componentsused to convert a motor vehicle to operateon a clean-burning fuel.

Clean-burning fuels are natural gas,liquefied natural gas, liquefied petroleum(LP) gas, hydrogen, electricity, and fuelscontaining at least 85% alcohol (includingmethanol or ethanol) or ether.

The deduction for most motor vehicles(except certain trucks and vans), is limitedto $2,000 per vehicle. A motor vehicle isany vehicle that has at least 4 wheels andis made for use on public roads. Thededuction for trucks and vans with a grossvehicle weight (gvw) over 10,000 poundsbut not over 26,000 pounds is limited to$5,000 per vehicle.

The deduction for trucks and vans with agvw over 26,000 pounds and for busesthat seat at least 20 adult passengers islimited to $50,000 per vehicle.

If a vehicle may be propelled by both aclean-burning fuel and any other fuel, onlythe incremental cost of permitting the useof the clean-burning fuel is taken intoaccount.

Qualified clean-fuel vehicle refuelingproperty is new depreciable property usedto store or dispense clean-burning fuels (orto recharge an electric vehicle) that islocated at the point where the fuel isdelivered into the tank of a clean-fuelvehicle (or where the vehicle is recharged).The deduction for this property is limited to

$100,000 per location.For more details, see section 179A.


Taxable Income Before NOL Deductionand Special Deductions

At-risk rules.Special at-risk rules undersection 465 generally apply to closely heldcorporations (see Passive activitylimitations on page 8) engaged in anyactivity as a trade or business or for theproduction of income. These corporationsmay have to adjust the amount on line 28,Form 1120, or line 24, Form 1120-A. (See

below.) But the at-risk rules do not applyto the following:

Holding real property placed in serviceby the taxpayer before 1987;

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

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

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

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

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

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

limited because of the at-risk rules.Treat any loss from an activity not

allowed for the tax year as a deductionallocable to the activity in the next taxyear.

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

Net Operating Loss Deduction

A net operating loss (NOL) incurred by acorporation in one tax year may be used toreduce the corporations taxable income inanother year. Generally, a corporation may

carry an NOL back to each of the 3 yearspreceding the year of the loss and thencarry any remaining amount over to eachof the 15 years following the year of theloss (but see Exceptions to carrybackrules below). Enter on line 29a (line 25a,Form 1120-A), the total NOL carryoversfrom prior tax years, but do not enter morethan the corporations taxable income(after special deductions). An NOLdeduction cannot be taken in a year inwhich the corporation has a negativetaxable income. Attach a schedule

showing the computation of the NOLdeduction. Form 1120 filers must alsocomplete question 15 on Schedule K.

For more information about NOLs andthe NOL deduction, get Pub. 536, NetOperating Losses.

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

corporations income tax return. Mail it in aseparate envelope to the service centerwhere the corporation files its income taxreturn.

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

After the corporation has applied theNOL to the first tax year to which it maybe carried, the taxable income of that yearis modified (as described in section 172(b))to determine how much of the remainingloss may be carried to other years. Seesection 172(b) and the related regulations

for details.Special rules apply when an ownership

change occurs (i.e., for any tax year endingafter a post-1986 ownership change, theamount of the taxable income of a losscorporation that can be offset bypre-change NOL carryovers is limited). Seesection 382. Also see TemporaryRegulations section 1.382-2T(a)(2)(ii), whichrequires that a loss corporation file aninformation statement with its income taxreturn for each tax year that it is a losscorporation and certain shifts in ownershipoccurred.

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

corporation to offset recognized built-ingains of another corporation.

Exceptions to carryback rules.Acorporation may make an irrevocableelection to forego the carryback period andinstead carry the NOL over to each of the15 years following the year of the loss. Tomake this election, check the box inquestion 14 on Schedule K. The returnmust be timely filed (including extensions).

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


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

Special rules apply to the carryback oflosses that are attributable to interest paidin connection with corporate equityreduction transactions (CERTs). The rulesapply if a corporation has a corporateequity reduction interest loss in a losslimitation year ending after August 2, 1989.

See section 172(b)(1)(E).Personal service corporations may not

carry back an NOL to or from any tax yearto which a section 444 election applies.

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

Special Deductions

Form 1120 filers.See the Instructions forSchedule C on page 13.

Form 1120-A filers.Generally, enter 70%of line 4, page 1, on line 25b. However,this deduction may not be more than 70%of line 24, page 1. Compute line 24 withoutregard to any adjustment under section1059 and without regard to any capitalloss carryback to the tax year undersection 1212(a)(1).

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


Taxable Income

Capital construction fund.To take adeduction for amounts contributed to acapital construction fund, reduce theamount that would otherwise be enteredon line 30 (line 26, Form 1120-A) by theamount of the deduction. On the dottedline next to the entry space, write CCFand the amount of the deduction. For moreinformation, get Pub. 595, Tax Guide forCommercial Fishermen.

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

Estimated Tax Payments

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

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

makes a section 643(g) election to creditits estimated tax payments to itsbeneficiaries, include the corporationsshare of the estimated tax payment in thetotal amount entered on line 32b, Form1120 (line 28b, Form 1120-A). Write Tand the amount of the payment on thedotted line next to the entry space.

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

(line 28b, Form 1120-A), the corporationstotal estimated tax payments. On thedotted line next to the entry space, writeSETP and the amount. Attach a scheduleshowing your computation of estimated taxpayments. See section 847(2) and Form8816, Special Loss Discount Account andSpecial Estimated Tax Payments forInsurance Companies, for moreinformation.

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

Credit for Federal Tax on Fuels

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

Credit for ozone-depleting chemicals.Include on line 32g (line 28g, Form 1120-A)any credit the corporation is claiming undersection 4682(g)(3) or (g)(4) for tax onozone-depleting chemicals. Write ODC tothe left of the entry space.

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

Total PaymentsOn Form 1120, add the amounts on lines32d through 32g and enter the total on line32h. On Form 1120-A, add the amounts onlines 28d through 28g and enter the totalon line 28h.

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

lines 31 and 32h, and write backupwithholding. On Form 1120-A, show theamount withheld on the dotted line to theleft of line 28h, and write backupwithholding.


Estimated Tax Penalty

A corporation that does not makeestimated tax payments when due may besubject to an underpayment penalty for theperiod of underpayment. Generally, acorporation is subject to the penalty if itstax liability is $500 or more, and it did not

timely pay the smaller of (a) 97% of its taxliability for 1993, or (b) 100% of its prioryears tax. See section 6655 for detailsand exceptions, including special rules forlarge corporations.

Note: The estimated tax penalty is waivedfor underpayments of estimated taxes forany period before March 16, 1994, to theextent that the underpayment isattributable to changes made by theRevenue Reconciliation Act of 1993.

Form 2220, Underpayment of EstimatedTax by Corporations, is used to see if thecorporation owes a penalty and to figure

the amount of the penalty. Generally, thecorporation does not have to file this formbecause the IRS can figure the amount ofany penalty and bill the corporation for it.However, you must complete and attachForm 2220 even if the corporation doesnot owe the penalty if any of the followingapply:

The annualized income or adjustedseasonal installment method is used.

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

The corporation is claiming a waiver ofthe penalty as described in the Noteabove.

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

Schedule A, Form 1120(Worksheet, Form 1120-A)

Cost of Goods Sold

All filers should see Section 263A uniformcapitalization rules on page 8 beforecompleting Schedule A or the worksheeton page 13. The instructions for lines 4through 7 below apply to both Schedule Aand the worksheet.

Note: If inventories are not anincome

us internal revenue service: i1120 a--1993

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