Page 104 - BusinessStructures & Forms

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Line 4. Dividends and substantially all the assets of a foreign sick and family leave wages in gross
Inclusions branch are transferred to a specified 10% income for the tax year that includes the
See the instructions for Schedule C, later. owned foreign corporation (as defined in last day of any calendar quarter in which
the credit is allowed.
section 245A(b)) with respect to which the
Complete Schedule C and enter on line 4 corporation was a U.S. shareholder
the amount from Schedule C, line 23, immediately after the transfer. See section Note. A credit is available only if the leave
column (a). 91. was taken after March 31, 2020, and
Line 5. Interest • Any LIFO recapture amount under before October 1, 2021, and only after the
qualified leave wages were paid, which
Enter taxable interest on U.S. obligations section 1363(d). The corporation may might, under certain circumstances, not
have to include a LIFO recapture amount
and on loans, notes, mortgages, bonds, in income if it: occur until a quarter after September 30,
bank deposits, corporate bonds, tax 2021, including quarters in 2022.
refunds, etc. Do not offset interest 1. Used the LIFO inventory method
expense against interest income. Special for its last tax year before the first tax year
rules apply to interest income from certain for which it elected to become an S Deductions
below-market-rate loans. See section corporation, or
7872 for details. 2. Transferred LIFO inventory assets Limitations on Deductions
to an S corporation in a nonrecognition
Note. Report tax-exempt interest on transaction in which those assets were Uniform capitalization rules. The
uniform capitalization rules of section
Schedule K, item 9. Also, if required, transferred basis property. 263A require corporations to capitalize
include the same amount on certain costs to inventory or other
Schedule M-1, line 7, or Schedule M-3 The LIFO recapture amount is the property. Corporations subject to the
(Form 1120), Part II, line 13, if applicable. amount by which the C corporation's section 263A uniform capitalization rules
inventory under the FIFO method exceeds
Line 6. Gross Rents the inventory amount under the LIFO are required to capitalize:
Enter the gross amount received for the method at the close of the corporation's 1. Direct costs of assets produced or
rental of property. Deduct expenses such last tax year as a C corporation (or for the acquired for resale, and
as repairs, interest, taxes, and year of the transfer, if (2) above applies). 2. Certain indirect costs (including
depreciation on the proper lines for Also, see the instructions for Schedule J, taxes) that are properly allocable to
deductions. A rental activity held by a Part I, line 11. property produced or property acquired for
closely held corporation or a personal • The ratable portion of any net positive resale.
service corporation may be subject to the section 481(a) adjustment. See Section
passive activity loss rules. See Passive 481(a) adjustment, earlier. The corporation cannot deduct the
activity limitations, later. • Part or all of the proceeds received costs required to be capitalized under
Line 10. Other Income from certain corporate-owned life section 263A until it sells, uses, or
insurance contracts issued after August
otherwise disposes of the property (to
Enter any other taxable income not 17, 2006. Corporations that own one or which the costs relate). The corporation
reported on lines 1 through 9. List the type more employer-owned life insurance recovers these costs through
and amount of income on an attached contracts issued after this date must file depreciation, amortization, or cost of
statement. If the corporation has only one Form 8925, Report of Employer-Owned goods sold.
item of other income, describe it in Life Insurance Contracts. See Form 8925. A small business taxpayer (defined
parentheses on line 10. • Income from cancellation of debt (COD) earlier) is not required to capitalize costs
from the repurchase of a debt instrument
Examples of other income to report on for less than its adjusted issue price. under section 263A. A small business
line 10 include the following. • The corporation's share of the following taxpayer that wants to discontinue
• Recoveries of bad debts deducted in income from Form 8621, Information capitalizing costs under section 263A
prior years under the specific charge-off Return by a Shareholder of a Passive must change its method of accounting.
method. Foreign Investment Company or Qualified See section 263A(i) and Regulations
• The amount included in income from Electing Fund. section 1.263A-1(j). Also, see the
Form 6478, Biofuel Producer Credit. 1. Ordinary earnings of a qualified Instructions for Form 3115.
• The amount included in income from electing fund. For more information on the uniform
Form 8864, Biodiesel, Renewable Diesel, capitalization rules, see Pub. 538. Also,
or Sustainable Aviation Fuels Credit. 2. Gain or loss from marking passive see Regulations sections 1.263A-1
• Refunds of taxes deducted in prior foreign investment company (PFIC) stock through 1.263A-3. See section 263A(d),
years to the extent they reduced the to market. Regulations section 1.263A-4, and Pub.
amount of tax imposed. See section 111 3. Gain or loss from sale or other 225 for rules for property produced in a
and the related regulations. Do not offset disposition of section 1296 stock. farming business.
current year taxes against tax refunds. 4. Excess distributions from a section
• Ordinary income from trade or business 1291 fund allocated to the current year Transactions between related taxpay-
activities of a partnership (from and pre-PFIC years, if any. ers. Generally, an accrual basis taxpayer
can only deduct business expenses and
Schedule K-1 (Form 1065)). Do not offset interest owed to a related party in the year
ordinary losses against ordinary income. See Form 8621 and the Instructions for the payment is included in the income of
Instead, include the losses on line 26. Form 8621 for details.
Show the partnership's name, address, • The amount of payroll tax credit taken the related party. See sections 163(e)(3)
and 267(a)(2) for limitations on deductions
and EIN on a separate statement attached by an employer on its 2022 employment for unpaid interest and expenses.
to this return. If the amount entered is from tax returns (Forms 941, 943, and 944) for
more than one partnership, identify the qualified paid sick and qualified paid Limitations on business interest ex-
amount from each partnership. family leave under FFCRA and ARP (both pense. Business interest expense may
• The transferred loss amount identified the nonrefundable and refundable be limited. See section 163(j) and Form
as “Section 91 Transferred Loss Amount,” portions). The corporation must include 8990. Also, see Limitation on deduction in
which is required to be recognized when the full amount of the credit for qualified the instructions for line 18 and

-10- Instructions for Form 1120