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2011 Instructions for Form 1120 Department of the Treasury Internal Revenue Service U.S. Corporation Income Tax Return Section references are to the Internal Revenue Code unless otherwise noted. Contents Page Photographs of Missing Children . . . . 1 Unresolved Tax Issues . . . . . . . . . . . . 1 Direct Deposit of Refund . . . . . . . . . . . 1 How To Make a Contribution To Reduce Debt Held by the Public . . . . . . . . . . . . . . . . . . . . . . 1 How To Get Forms and Publications . . . . . . . . . . . . . . . . . . 2 General Instructions . . . . . . . . . . . . . 2 Purpose of Form . . . . . . . . . . . . . . . . 2 Who Must File . . . . . . . . . . . . . . . . . . 2 Electronic Filing . . . . . . . . . . . . . . . . . 2 When To File . . . . . . . . . . . . . . . . . . . 3 Where To File . . . . . . . . . . . . . . . . . . 3 Who Must Sign . . . . . . . . . . . . . . . . . 3 Paid Preparer Authorization . . . . . . . . 3 Assembling the Return . . . . . . . . . . . . 4 Tax Payments . . . . . . . . . . . . . . . . . . 4 Estimated Tax Payments . . . . . . . . . . 4 Interest and Penalties . . . . . . . . . . . . . 4 Accounting Methods . . . . . . . . . . . . . . 5 Accounting Period . . . . . . . . . . . . . . . 5 Rounding Off to Whole Dollars . . . . . . 5 Recordkeeping . . . . . . . . . . . . . . . . . . 5 Other Forms and Statements That May Be Required . . . . . . . . . . 5 Specific Instructions . . . . . . . . . . . . 6 Period Covered . . . . . . . . . . . . . . . . . 6 Name and Address . . . . . . . . . . . . . . 6 Identifying Information . . . . . . . . . . . . 6 Employer Identification Number (EIN) . . . . . . . . . . . . . . . . . . . . . . . 7 Total Assets . . . . . . . . . . . . . . . . . . . 7 Initial Return, Final Return, Name Change, or Address Change . . . . . . . . . . . . . . . . . . . . . 7 Income . . . . . . . . . . . . . . . . . . . . . . . 7 Deductions . . . . . . . . . . . . . . . . . . . . 9 Schedule C. Dividends and Special Deductions . . . . . . . . . . . . 14 Worksheet for Schedule C . . . . . . . . 15 Schedule J. Tax Computation and Payments . . . . . . . . . . . . . . . 16 Schedule K. Other Information . . . . . 18 Schedule L. Balance Sheets per Books . . . . . . . . . . . . . . . . . . . . . 19 Schedule M-1. Reconciliation of Income . . . . . . . . . . . . . . . . . . . . . 20 Principal Business Activity Codes . . . . . . . . . . . . . . . . . . . . . 21 Index . . . . . . . . . . . . . . . . . . . . . . . . 24 What's New Merchant card and third-party payments. For the 2011 tax year, the IRS has deferred the requirement to Jan 23, 2012 separately report on the corporation's return the amount of merchant card and third-party network payments from Form 1099-K, Merchant Card and Third-party Network Payments. Instead, report gross receipts or sales from all business operations as indicated in the instructions for lines 1a through 1d. New Form 1125-A, Cost of Goods Sold. For tax years beginning in 2011, filers of Form 1120, 1120-C, 1120-F, 1120S, 1065, or 1065-B must use new Form 1125-A, if the applicable entity reports a deduction for cost of goods sold. See the instructions for line 2. New Form 1125-E, Compensation of Officers. For tax years beginning in 2011, filers of Form 1120, 1120-C, 1120-F, or 1120-RIC must use new Form 1125-E, if the applicable entity deducts an expense for compensation for officers and has total receipts of $500,000 or more. See the instructions for line 12. Change of address. Form 8822-B, Change of Address Business, has been created specifically for business use. Corporations use this form to notify the IRS of its new business address or location. See the instructions for Item E. Expiring provisions. Certain tax provisions will expire for certain amounts paid or incurred after December 31, 2011, including the following. Certain film and television production expenses (see section 181). The increased deduction for charitable contributions of qualified food inventory (see section 170(e)(3)(C)), and contributions of qualified book inventory to public schools (see section 170(e)(3)(D)). Future developments. The IRS has created a page on IRS.gov for information about Form 1120 and its instructions at www.irs.gov/form1120. Information about any future developments affecting Form 1120 (such as legislation enacted after we release it) will be posted on that page. Photographs of Missing Children The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. 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. Cat. No. 11455T Unresolved Tax Issues The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should. The service is free, confidential, tailored to meet your needs, and is available for businesses, as well as individuals. The corporation can contact the TAS as follows. Call the TAS toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059 to see if the corporation is eligible for assistance. Call or write the corporation's local taxpayer advocate, whose phone number and address are listed in the local telephone directory and in Pub. 1546, Taxpayer Advocate Service - Your Voice at the IRS. File Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on the corporation's behalf. For more information, go to www.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 36. How To Make a Contribution To Reduce Debt Held by the Public To help reduce debt held by the public, make a check payable to \"Bureau of the Public Debt.\" Send it to: Bureau of the Public Debt, Department G, P.O. Box 2188, Parkersburg, WV 26106-2188. Or, enclose a check with the income tax return. Do not add the contributions to any tax the corporation may owe. Contributions to reduce debt held by the public are deductible subject to the rules and limitations for charitable contributions. 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. IRS Tax Products DVD. You can order Pub. 1796, IRS Tax Products DVD, and obtain the following. Current-year forms, instructions, and publications. Prior-year forms, instructions, and publications. Tax Map: an electronic research tool and finding aid. Tax law frequently asked questions (FAQs). Tax Topics from the IRS telephone response system. Internal Revenue Code - Title 26 of the U.S. Code. Fill-in, print, and save features for most tax forms. Internal Revenue Bulletins. Toll-free and email technical support. Two releases during the year. - The first release will ship early in January. - The final release will ship early in March. Buy the DVD from the National Technical Information Service (NTIS) at www.irs.gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee). By phone and in person. You can order forms and publications by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at your local IRS office. General Instructions Purpose of Form Use Form 1120, U.S. Corporation Income Tax Return, to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation. Who Must File Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. Domestic corporations must file Form 1120, unless they are required, or elect to file a special return. See Special Returns for Certain Organizations, below. Entities electing to be taxed as corporations. A domestic entity electing to be classified as an association taxable as a corporation must file Form 1120, unless it is required to, or elects to file a special return listed under Special Returns for Certain Organizations, below. The entity must also file Form 8832, Entity Classification Election, and attach a copy of Form 8832 to Form 1120 (or the applicable return) for the year of the election. For more information, see Form 8832 and its instructions. Limited liability companies. If an entity with more than one owner was formed as an LLC under state law, it generally is treated as a partnership for federal income tax purposes and files Form 1065, U.S. Return of Partnership Income. Generally, a single-member LLC is disregarded as an entity separate from its owner and reports its income and deductions on its owner's federal income tax return. The LLC can file a Form 1120 only if it has filed Form 8832 to elect to be treated as an association taxable as a corporation. For more information about LLCs, see Pub. 3402, Taxation of Limited Liability Companies. Corporations engaged in farming. A corporation (other than a corporation that is a subchapter T cooperative) that engages in farming should use Form 1120 to report the income (loss) from such activities. Enter the income and deductions of the corporation according to the instructions for lines 1 through 10 and 12 through 29. Ownership interest in a Financial Asset Securitization Investment Trust (FASIT). Special rules apply to a FASIT in existence on October 22, 2004, to the extent that regular interests issued by the FASIT before October 22, 2004, continue to remain outstanding in accordance with their original terms. If a corporation holds an ownership interest in a FASIT to which these special rules apply, it must report all items of income, gain, deductions, losses, and credits on the corporation's income tax return (except as provided in section 860H). Show a breakdown of the items on an attached statement. For more information, see sections 860H and 860L (repealed with certain exceptions). Electronic Filing Corporations can generally electronically file (e-file) Form 1120, related forms, schedules, and attachments, Form 7004 (automatic extension of time to file) and Forms 940, 941 and 944 (employment tax returns). If there is a balance due, the corporation can authorize an electronic funds withdrawal while e-filing. Form 1099 and other information returns can also be electronically filed. Exceptions. The option to e-file generally does not apply to certain returns, including: -2- Returns with precomputed penalty and interest, Returns with reasonable cause for failing to file timely, Returns with reasonable cause for failing to pay timely, and Returns with requests for overpayments to be applied to another account. Required e-filers. Certain corporations with total assets of $10 million or more that file at least 250 returns a year are required to e-file Form 1120, even if any of the above exceptions apply. See Regulations section 301.6011-5. However, these corporations can request a waiver of the electronic filing requirements. See Notice 2010-13, 2010-4 I.R.B. 327. Visit www.irs.gov/efile for more information. Special Returns for Certain Organizations Instead of filing Form 1120, certain organizations, as shown below, file special returns. If the organization is a: File Form Exempt organization with unrelated trade or business income 990-T Religious or apostolic organization exempt under section 501(d) 1065 Entity formed as a limited liability company under state law and treated as a partnership for federal income tax purposes 1065 Subchapter T cooperative association (including a farmers' cooperative) Entity that elects to be treated as a real estate mortgage investment conduit (REMIC) under section 860D Interest charge domestic international sales corporation (section 992) Foreign corporation (other than life and property and casualty insurance company filing Form 1120-L or Form 1120-PC) Foreign sales corporation (section 922) 1120-C 1066 1120-IC-DISC 1120-F 1120-FSC Instructions for Form 1120 Condominium management, residential real estate management, or timeshare association that elects to be treated as a homeowners association under section 528 1120-H Life insurance company (section 801) 1120-L Extension of Time To File Fund set up to pay for nuclear decommissioning costs (section 468A) 1120-ND Property and casualty insurance company (section 831) 1120-PC Political organization (section 527) 1120-POL Real estate investment trust (section 856) 1120-REIT Regulated investment company (section 851) Private delivery services cannot deliver items to P.O. boxes. You CAUTION must use the U.S. Postal Service to mail any item to an IRS P.O. box address. ! 1120-RIC S corporation (section 1361) Settlement fund (section 468B) 1120S 1120-SF File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, to request a 6-month 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, the paid preparer space should remain blank. Anyone who prepares Form 1120 but does not charge the corporation should not 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. Give a copy of the return to the taxpayer. Note. 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 2011 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 Use Only\" section of the return. It does not 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: When To File Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. 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 business day. Private Delivery Services Corporations can use certain private delivery services designated by the IRS to meet the \"timely mailing as timely filing\" rule for tax returns. These private delivery services include only the following. DHL Express (DHL): DHL Same Day Service. Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and FedEx International First. United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express. The private delivery service can tell you how to get written proof of the mailing date. Instructions for Form 1120 Where To File File the corporation's return at the applicable IRS address listed below. If the corporation's principal And the total assets at business, office, or agency the end of the tax year is located in: are: Connecticut, Delaware, District Less than $10 million and of Columbia, Georgia, Illinois, Schedule M-3 is not filed Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, $10 million or more or Rhode Island, South Carolina, Tennessee, Vermont, Virginia, less than $10 million and Schedule M-3 is filed West Virginia, Wisconsin 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 A foreign country or U.S. possession Use the following address: Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999-0012 Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012 Any amount Department of the Treasury Internal Revenue Service Center Ogden, UT 84201-0012 Any amount Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409 A group of corporations with members located in more than one service center area will often keep all the books and records at the principal office of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the area in which the principal office of the managing corporation is located. -3- 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 is not 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 2012 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 in the following order. 1. Schedule N (Form 1120). 2. Schedule O (Form 1120). 3. Form 4626. 4. Form 8050. 5. Form 1125-A. 6. Form 4136. 7. Form 8941. 8. Form 5884-B. 9. Form 3800. 10. Additional schedules in alphabetical order. 11. Additional forms in numerical order. 12. Supporting statements and attachments. Complete every applicable entry space on Form 1120. Do not 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 The corporation must pay any tax due in full no later than the 15th day of the 3rd month after the end of the tax year. 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 (EFTPS). However, if the corporation does not 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 initiate a same-day tax 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 1-800-555-4477. Additional information about EFTPS is also available in Pub. 966, The Secure Way to Pay Your Federal Taxes. Note. Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. Depositing on time. For deposits made by EFTPS to be on time, the corporation must initiate 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 initiate a deposit transaction on EFTPS by 8 p.m. Eastern time the day before the date a deposit is due, it can still make the deposit on time by using the Federal Tax Application (FTA). Before using the same-day wire payment option, the corporation will need to make arrangements with its financial institution ahead of time. Please check with the financial institution regarding availability, deadlines, and costs. To learn more about making a same-day wire payment and download the Same-Day Payment Worksheet, visit www.eftps.gov. Estimated Tax Payments Generally, the following rules apply to the corporation's payments of estimated tax. The corporation must make installment payments of estimated tax if it expects its total tax for the year (less applicable credits) to be $500 or more. The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day. The corporation must use electronic funds transfers to make installment payments of estimated tax. See the Instructions for Form 1120-W. Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax. If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. See the instructions for Schedule J, Part II, line 14. Estimated tax penalty. A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a corporation is -4- subject to the penalty if its tax liability is $500 or more and it did not timely pay at least the smaller of: Its tax liability for the current year, or Its prior year's tax. Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the corporation owes a penalty and to figure the amount of the penalty. If Form 2220 is completed, enter the penalty on line 33. See the instructions for line 33. Interest and Penalties If the corporation receives a notice about interest and penalties after it CAUTION files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. Do not 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 corporation that does not file its tax return by the due date, including extensions, may be penalized 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 return that is over 60 days late is the smaller of the tax due or $135. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause. See Caution, above. Late payment of tax. A corporation that does not pay the tax when due generally may be penalized 1/2 of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. See Caution, above. Trust fund recovery penalty. This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld are not collected or withheld, or these taxes are not 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, and paying over these taxes, and who acted willfully in not doing so. The penalty ! Instructions for Form 1120 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 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 taxable income using the method of accounting regularly used in keeping the corporation's books and records. In all cases, the method used must clearly show taxable income. Permissible methods include cash, accrual, or any other method authorized by the Internal Revenue Code. Generally, the following rules apply. A corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. However, see Nonaccrual experience method for service providers, in the instructions for line 1b. Unless it is a qualifying taxpayer or a qualifying small business taxpayer, a corporation must use the accrual method for sales and purchases of inventory items. See the instructions for Form 1125-A. A corporation engaged in farming must use the accrual method. For exceptions, see section 447. Special rules apply to long-term contracts. See section 460. 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. Change in accounting method. Generally, the corporation must get IRS consent to change the method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). To do so, the corporation generally must file Form 3115, Application for Change in Accounting Method. For more information, see the Instructions for Form 3115, and Pub. 538, Accounting Periods and Methods. There are some instances when the corporation can obtain automatic consent from the IRS to change to certain accounting methods. See Rev. Proc. 2011-14, 2011-4 I.R.B. 330, as modified, or its successor. Accounting Period A corporation must figure its taxable 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. Generally, corporations can use a Instructions for Form 1120 calendar year or a fiscal year. Personal service corporations, however, must use a calendar year unless they meet one of the exceptions, discussed later under Personal Service Corporation. Change of tax year. Generally, a corporation, including a personal service corporation, must get the consent of the IRS before changing its tax year by filing Form 1128, Application To Adopt, Change, or Retain a Tax Year. However, under certain conditions, a corporation can change its tax year without getting consent. See the Instructions for Form 1128 and Pub. 538 for more information on accounting periods and tax years. Rounding Off to Whole Dollars The corporation can round off cents to whole dollars on its return and schedules. If the corporation does round to whole dollars, it must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3. 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 the 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 and in the calculation of earnings and profits. Other Forms and Statements That May Be Required Amended return. Use Form 1120X, Amended U.S. Corporation Income Tax Return, to correct a previously filed Form 1120. 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 that the federal income tax liability of the corporation is affected by its participation in the transaction. The following are reportable transactions. 1. Any listed transaction, which is a transaction that is the same as or -5- 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 $250,000. 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 $10 million in any single year or $20 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. If the transferor or transferee corporation is a controlled foreign corporation, each U.S. shareholder (within the meaning of section 951(b)) must include the required statement on or with its return. Distributions under section 355. Every corporation that makes a distribution of stock or securities of a controlled corporation, as described in section 355 (or so much of section 356 as it relates to section 355), must include the statement required by Regulations section 1.355-5 on or with its return for the year of the distribution. If the distributing corporation is a controlled foreign corporation, each U.S. shareholder (within the meaning of section 951(b)), must include the statement on or with its return. 3. Any deferred COD income that has not been included in income in the current or prior tax years. 4. Any deferred OID deduction allowed as a deduction in the current tax year. 5. Any deferred OID deduction that is allowed as a deduction in the current tax year because of an accelerated event described in section 108(i)(5)(D). 6. Any deferred OID deduction that has not been deducted in the current or prior tax years. Dual consolidated losses. If a domestic corporation incurs a dual consolidated loss (as defined in Regulations section 1.1503-2(c)(5)), the corporation (or consolidated group) may need to attach an elective relief agreement and/or an annual certification as provided in Regulations section 1.1503-2(g)(2). In addition, include a copy of the election statement the corporation filed to make the election to defer the income. For more information on deferring the income, see the instructions for line 10. For more information regarding the annual information statement, see Rev. Proc. 2009-37, 2009-36 I.R.B. 309. 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. Election to reduce basis under section 362(e)(2)(C). The transferor may make an election under section 362(e)(2)(C) to limit the transferor's basis in the stock received instead of the transferor's basis in the transferred property. The transferor can make the election by including the certification provided in Notice 2005-70, 2005-41 I.R.B. 694 on or with its tax return filed by the due date (including extensions) for the tax year in which the transaction occurred. If the transferor is a controlled foreign corporation, its controlling U.S. shareholder(s) can make the election. The common parent of a consolidated group can make the election for the group. If the election is made as described above, no election need be made by the transferee (or any controlling U.S. shareholder thereof). Once made, the election is irrevocable. See section 362(e)(2)(C) and Notice 2005-70. Annual information statement for elections under section 108(i). If the corporation made an election in 2009 or 2010 to defer income from cancellation of debt (COD) in connection with the reacquisition of an applicable debt instrument, the corporation must attach a statement to its return beginning with the tax year following the tax year for which the corporation made the election, and ending the first tax year all income deferred has been included in income. The statement must be labeled \"Section 108(i) Information Statement\" and must clearly identify, for each applicable debt instrument to which an election under section 108(i) applies, the following. 1. Any deferred COD income that is included in income in the current tax year. 2. Any deferred COD income that has been accelerated because of an event described in section 108(i)(5)(D) and must be included in income in the current tax year. Include a description and the date of the acceleration event. Specific Instructions Period Covered File the 2011 return for calendar year 2011 and fiscal years that begin in 2011 and end in 2012. For a fiscal or short tax year return, fill in the tax year space at the top of the form. The 2011 Form 1120 can also be used if: The corporation has a tax year of less than 12 months that begins and ends in 2012, and The 2012 Form 1120 is not available at the time the corporation is required to file its return. The corporation must show its 2012 tax year on the 2011 Form 1120 and take into account any tax law changes that are effective for tax years beginning after December 31, 2011. Name and Address Enter the corporation's true name (as set forth in the charter or other legal document creating it), address, and EIN 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 does not deliver mail to the street address and the corporation has a P.O. box, show the box number instead. Note. Do not 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, AR, the corporation should enter the Little Rock address. -6- If the corporation receives its mail in care of a third party (such as an accountant or an attorney), enter on the street address line \"C/O\" followed by the third party's name and street address or P.O. box. Item A. Identifying Information Consolidated Return Corporations filing a consolidated return must check Item A, box 1a, and attach Form 851, Affiliations Schedule, and other supporting statements to the return. Also, for the first year a subsidiary corporation is being included in a consolidated return, attach Form 1122, Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return, to the parent's consolidated return. Attach a separate Form 1122 for each new subsidiary being included in the consolidated return. File supporting statements for each corporation included in the consolidated return. Do not use Form 1120 as a supporting statement. On the supporting statement, use columns to show the following, both before and after adjustments. 1. Items of gross income and deductions. 2. A computation of taxable income. 3. Balance sheets as of the beginning and end of the tax year. 4. A reconciliation of income per books with income per return. 5. A reconciliation of retained earnings. Enter on Form 1120 the totals for each item of income, gain, loss, expense, or deduction, net of eliminating entries for intercompany transactions between corporations within the consolidated group. Attach consolidated balance sheets and a reconciliation of consolidated retained earnings. The corporation does not have to TIP provide the information requested in (3), (4), and (5), above, if its total receipts (line 1c plus lines 4 through 10 on page 1 of the return) and its total assets at the end of the tax year (Schedule L, line 15(d)) are less than $250,000. See Schedule K, question 13. For more information on consolidated returns, see the regulations under section 1502. Life-Nonlife Consolidated Return If Item A, box 1a, is checked and the corporation is the common parent of a consolidated group that includes a life-nonlife insurance company, also check box 1b. See Regulations section 1.1502-47(s) for the filing requirements of a life-nonlife consolidated return. Instructions for Form 1120 Personal Holding Company A personal holding company must check Item A, box 2 and attach Schedule PH (Form 1120), U.S. Personal Holding Company (PHC) Tax. See the Instructions for Schedule PH (Form 1120) for details. Personal Service Corporation If the corporation is a personal service corporation, check Item A, box 3. A personal service corporation is a corporation whose principal activity for the testing period is the performance of personal services. The testing period for a tax year is generally the prior tax year unless the corporation has just been formed. Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health, law, and the performing arts. The services must be substantially performed by employee-owners. A personal service corporation must use a calendar tax year unless: It elects to use a 52-53-week tax year that ends with reference to the calendar year or tax year elected under section 444; It can establish a business purpose for a different tax year and obtains the approval of the IRS (see the Instructions for Form 1128 and Pub. 538); or It elects under section 444 to have a tax year other than a calendar year. To make the election, use Form 8716, Election To Have a Tax Year Other Than a Required Tax Year. If a corporation makes the section 444 election, its deduction for certain amounts paid to employee-owners may be limited. See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. If a section 444 election is terminated and the termination results in a short tax year, type or print at the top of the first page of Form 1120 for the short tax year \"SECTION 444 ELECTION TERMINATED.\" See Temporary Regulations section 1.444-1T(a)(5) for more information. Schedule M-3 (Form 1120) A corporation with total assets (non-consolidated or consolidated for all corporations included within a tax consolidation group) of $10 million or more on the last day of the tax year must complete Schedule M-3 (Form 1120), Net Income (Loss) Reconciliation for Corporations With Total Assets of $10 Million or More, instead of Schedule M-1. A corporation filing Form 1120 that is not required to file Schedule M-3 may voluntarily file Schedule M-3 instead of Schedule M-1. If you are filing Schedule M-3, check Item A, box 4, to indicate that Schedule M-3 is attached. See the Instructions for Schedule M-3 for more details. Instructions for Form 1120 Item B. Employer Identification Number (EIN) Enter the corporation's EIN. If the corporation does not have an EIN, it must apply for one. An EIN can be applied for: Online Click on the EIN link at www. irs.gov/businesses/small. The EIN is issued immediately once the application information is validated. By telephone at 1-800-829-4933. By faxing or mailing Form SS-4, Application for Employer Identification Number. Only corporations located in the United States or U.S. possessions CAUTION can use the online application. Foreign corporations must use one of the other methods to apply. EIN applied for, but not received. If the corporation has not 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 return electronically, an EIN is required at the time the return is filed. An exception applies to subsidiaries of corporations whose returns are filed with the parent's electronically filed consolidated Form 1120. These subsidiaries should enter \"Applied For\" in the space for the EIN on their returns. The subsidiaries' returns are identified under the parent corporation's EIN. ! For more information, see the Instructions for Form SS-4. Item D. 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 are no assets at the end of the tax year, enter -0-. If the corporation is required to complete Schedule L, enter on page 1, Item D. Total assets from Schedule L, line 15, column (d). If filing a consolidated return, report total consolidated assets for all corporations joining in the return. Item E. Initial Return, Final Return, Name Change, or Address Change If this is the corporation's first return, check the \"Initial return\" box. If this is the corporation's final return and it will no longer exist, check the \"Final return\" box. If the corporation changed its name since it last filed a return, check the \"Name change\" box. Generally, a corporation also must 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\" -7- address), check the \"Address change\" box. Note. If a change in address occurs after the return is filed, use Form 8822-B, Change of Address Business, to notify the IRS of the new address. Income Except as otherwise provided in the Internal Revenue Code, gross income includes all income from whatever source derived. Exception for income from qualifying shipping activities. Gross income does not include income from qualifying shipping activities if the corporation makes an election under section 1354 to be taxed on its notional shipping income (as defined in section 1353) at the highest corporate tax rate (35%). If the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. A corporation making this election also may elect to defer gain on the disposition of a qualifying vessel. Use Form 8902, Alternative Tax on Qualifying Shipping Activities, to figure the tax. Include the alternative tax on Schedule J, line 9e. Line 1. Gross Receipts or Sales Line 1a. Merchant card and third-party payments. For the 2011 tax year, the IRS has deferred the requirement to separately report on your return the amount of merchant card and third-party network payments received. Therefore, enter zero (-0-) on line 1a. Line 1b. Gross receipts or sales not reported on line 1a. Enter on line 1b gross receipts or sales from all business operations (including gross receipts or sales included in any amounts reported to the corporation on Form(s) 1099-K, Merchant Card and Third-Party Network Payments), except for amounts that must be reported on lines 4 through 10. Note. Amounts reported on Form 1099-K represent gross payments made to you (before reduction by any fees), and may include amounts that are not gross income to you. 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 the accrual method of accounting, see the following. To report income from long-term contracts, see section 460. For special rules for reporting certain advance payments for goods and long-term contracts, see Regulations section 1.451-5. For rules that allow a limited deferral of advance payments beyond the current tax year, see Rev. Proc. 2004-34, 2004-22 I.R.B. 991, as modified and clarified by Rev. Proc. 2011-18, 2011-5 I.R.B. 443, for advance payments from the sale of certain gift cards. For information on adopting or changing to a permissible method for reporting advance payments for services and certain goods by an accrual method corporation, see the Instructions for Form 3115. Installment sales. Generally, the installment method cannot be used for dealer dispositions of property. A \"dealer disposition\" is any disposition of: (a) personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan or (b) real property held for sale to customers in the ordinary course of the taxpayer's trade or business. The restrictions on using the installment method do not apply to the following. Dealer dispositions of property before March 1, 1986. 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 for which the corporation elects to pay interest under section 453(I)(3). Enter on line 1b (and carry to line 3), the gross profit on collections from these installment sales. Attach a statement showing the following information for the current and the 3 preceding years: (a) gross sales, (b) cost of goods sold, (c) gross profits, (d) percentage of gross profits to gross sales, (e) amount collected, and (f) gross profit on the amount collected. For sales of timeshares and residential lots reported under the installment method, if the corporation elects to pay interest under section 453(I)(3), the corporation's income tax is increased by the interest payable under section 453(l)(3). Report this addition to the tax on Schedule J, Part I, line 9f. Nonaccrual experience method for service providers. Accrual method corporations are not required to accrue certain amounts to be received from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, or The corporation's average annual gross receipts have not exceeded $5 million for any prior 3-tax-year period. For more details, see Regulations sections 1.448-2(a)(2) and 1.448-1T(f)(2). This provision does not apply to any amount if interest is required to be paid on the amount or if there is any penalty for failure to timely pay the amount. See Regulations section 1.448-2 for information on the nonaccrual experience method, including information on safe harbor methods. See Rev. Proc. 2011-46, 2011-42 I.R.B. 518, for information on a book safe harbor method of accounting for corporations that use the nonaccrual experience method of accounting. Also, see Rev. Proc. 2011-46, for procedures to obtain automatic consent to change to this method or make certain changes within this method. Corporations that qualify to use the nonaccrual experience method should attach a statement showing total gross receipts, the amount not accrued as a result of the application of section 448(d)(5), and the net amount accrued. Enter the net amount on line 1b. Line 1d. Returns and allowances plus any other adjustments. 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 Form 1125-A, Cost of Goods Sold. Enter on Form 1120, line 2, the amount from Form 1125-A, line 8. See Form 1125-A and its instructions. Line 4. Dividends See the instructions for Schedule C, later. Then, complete Schedule C and enter on line 4 the amount from Schedule C, line 19. Line 5. Interest Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, etc. Do not offset interest expense against interest income. Special rules apply to interest income from certain below-market-rate loans. See section 7872 for details. Note. Report tax-exempt interest income on Schedule K, item 9. Also, if required, include the same amount on Schedule M-1, line 7, or Schedule M-3 (Form 1120), Part II, line 13, if applicable. Line 6. Gross Rents Enter the gross amount received for the rental of property. Deduct expenses such as repairs, interest, taxes, and depreciation on the proper lines for deductions. A rental activity held by a closely held corporation or a personal service corporation may be subject to the passive activity loss rules. See Passive activity limitations below. Line 10. Other Income Enter any other taxable income not reported on lines 1 through 9. List the type and amount of income on an attached statement. If the corporation has only one item of other income, describe it in parentheses on line 10. Examples of other income to report on line 10 include the following. Recoveries of bad debts deducted in prior years under the specific charge-off method. -8- The amount included in income from Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit. The amount included in income from Form 8864, Biodiesel and Renewable Diesel Fuels Credit. Refunds of taxes deducted in prior years to the extent they reduced the amount of tax imposed. See section 111 and the related regulations. Do not offset current year taxes against tax refunds. Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065 or 1065-B)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 26. Show the partnership's name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership. Any LIFO recapture amount under section 1363(d). The corporation may have to include a LIFO recapture amount in income if it: 1. Used the LIFO inventory method for its last tax year before the first tax year for which it elected to become an S corporation or 2. Transferred LIFO inventory assets to an S corporation in a nonrecognition transaction in which those assets were transferred basis property. The LIFO recapture amount is the amount by which the C corporation's inventory under the FIFO method exceeds the inventory amount under the LIFO method at the close of the corporation's last tax year as a C corporation (or for the year of the transfer, if (2) above applies). For more information, see Regulations section 1.1363-2 and Rev. Proc. 94-61, 1994-2 C.B. 775. Also see the instructions for Schedule J, Part I, line 10. Any net positive section 481(a) adjustment. If the corporation's taxable income for the current tax year is figured under a method of accounting different from the method used in the preceding tax year, the corporation may have to make an adjustment under section 481(a) to prevent amounts of income or expense from being duplicated or omitted. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, if the net section 481(a) adjustment for the change is less than $25,000, a corporation can elect to use a 1-year adjustment period. The corporation must complete the appropriate lines of Form 3115 to make this election. Also, under certain other conditions, the corporation can modify the period for taking into account a net positive section 481 adjustment. See Rev. Proc. 2009-39, 2009-38 I.R.B. 371, and Rev. Proc. 2011-14. If the net section 481(a) adjustment is negative, report it on line 26. Part or all of the proceeds received from certain corporate-owned life Instructions for Form 1120 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 section 101(j) for details. Income from cancellation of debt (COD) for the repurchase of a debt instrument for less than its adjusted issue price. However, if a corporation elected under section 108(i), to defer the income from COD in connection with the reacquisition of an applicable debt instrument in 2009 and 2010, the income is deferred and ratably included in income over the 5-year period beginning with: 1. For a reacquisition that occurred in 2009, the fifth tax year following the tax year in which the reacquisition occurred, and 2. For a reacquisition that occurred in 2010, the fourth tax year following the tax year in which the reacquisition occurred. For more information see section 108(i) and Rev. Proc. 2009-37. Once made, the election is irrevocable and the exclusions for COD income under section 108(a)(1)(A), (B), (C), and (D) do not apply for the tax year of the election or any later tax year. See, the required Annual information statement for elections under section 108(i), discussed earlier. Also, see section 108(i)(5)(D) regarding any deferred COD income that has been accelerated because of certain events and must be included in income in the current year. If the corporation is a direct or indirect partner in a partnership, other special rules apply. See Temporary Regulations section 1.108(i)-2T. The corporation's share of the following income from Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. 1. Ordinary earnings of a qualified electing fund (QEF) (from Part II, line 1c). 2. Gain or loss from marking passive foreign investment company (PFIC) stock to market (from Part III, line 5c or 7). 3. Gain or loss from sale or other disposition of Section 1296 stock (from Part III, line 8c or 9b). 4. Excess distributions from a section 1291 fund (from Part IV, line 11b). See the Instructions for Form 8621. Deductions 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. Instructions for Form 1120 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. Corporations subject to the section 263A uniform capitalization rules are required to capitalize: 1. Direct costs and 2. An allocable part of most indirect costs (including taxes) that (a) benefit the assets produced or acquired for resale or (b) are incurred because of the performance of production or resale activities. For inventory, some of the indirect expenses that must be capitalized are: Administration expenses; Taxes; Depreciation; Insurance; Compensation paid to officers attributable to services; Rework labor; and 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. The costs required to be capitalized under section 263A are not deductible until the property (to which the costs relate) is sold, used, or otherwise disposed of by the corporation. Exceptions. Section 263A does not apply to the following. Personal property acquired for resale if the corporation's (or any of its predecessors) average annual gross receipts for the 3 prior tax years were $10 million or less. Timber. Most property produced under a long-term contract. Certain property produced in a farming business. Research and experimental costs under section 174. Geological and geophysical costs amortized under section 167(h). Capital costs incurred to comply with EPA sulfur regulations. Intangible drilling costs for oil, gas, and geothermal property. Mining exploration and development costs. -9- Inventoriable items accounted for in the same manner as materials and supplies that are not incidental. See the Instructions for Form 1125-A. For more details on the uniform capitalization rules, see Regulations sections 1.263A-1 through 1.263A-3. See Regulations section 1.263A-4 for rules for property produced in a farming business. Transactions between related taxpayers. Generally, an accrual basis taxpayer can only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. See sections 163(e)(3),163(j), and 267 for limitations on deductions for unpaid interest and expenses. Corporations use Form 8926, Disqualified Corporate Interest Expense Disallowed Under Section 163(j) and Related Information, to figure the amount of any corporate interest expense disallowed by section 163(j). Section 291 limitations. Corporations may be required to adjust deductions for depletion of iron ore and coal, intangible drilling and exploration and development costs, certain deductions for financial institutions, and the amortizable basis of pollution control facilities. See section 291 to determine the amount of the adjustment. Also see section 43. Election to deduct business start-up and organizational costs. For 2011 a corporation can elect to deduct up to $5,000 of business start-up and up to $5,000 of organizational costs paid or incurred after October 22, 2004. Any remaining costs must be amortized ratably over an 180-month period. The $5,000 deduction is reduced (but not below zero) by the amount the total costs exceed $50,000. If the total costs are $55,000 or more, the deduction is reduced to zero. See sections 195(b) and 248(a). 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. However, for start-up or organizational costs paid or incurred before September 9, 2008, the corporation may be required to attach a statement to its return to elect to deduct such costs. 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 write \"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 affirmatively 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. Note. 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 26. For amortization that begins during the 2011 tax year, complete and attach Form 4562, Depreciation and Amortization. For more details on business start-up and organizational costs, see the Instructions for Form 4562. Also see Pub. 535, Business Expenses. Passive activity limitations. Limitations on passive activity losses and credits under section 469 apply to personal service corporations (defined earlier) and closely held corporations (defined later). Generally, the two kinds of passive activities are: Trade or business activities in which the corporation did not materially participate for the tax year; and Rental activities, regardless of its participation. For exceptions, see Form 8810, Corporate Passive Activity Loss and Credit Limitations. Corporations subject to the passive activity limitations must complete Form 8810 to compute their allowable passive activity loss and credit. Before completing Form 8810, see Temporary Regulations section 1.163-8T, which provides rules for allocating interest expense among activities. If a passive activity is also subject to the earnings stripping rules of section 163(j), the at-risk rules of section 465, or the tax-exempt use loss rules of section 470, those rules apply before the passive loss rules. For more information, see section 469, the related regulations, and Pub. 925, Passive Activ