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                                                                                                                      Department of the Treasury
                                                                                                                      Internal Revenue Service
2023

Instructions for Form 1120-S

U.S. Income Tax Return for an S Corporation

Section references are to the Internal Revenue Code unless                    Contents                                                                  Page
otherwise noted.                                                                Schedule M-2. Analysis of AAA, PTEP, 
Contents                                                               Page           Accumulated E&P, and OAA                . . . . . . . . . . . . .   48
What’s New   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1  Principal Business Activity Codes             . . . . . . . . . . . . . .   52
Photographs of Missing Children . . . . . . . . . . . . . . . .            2  Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
The Taxpayer Advocate Service . . . . . . . . . . . . . . . . .            2
Direct Deposit of Refund . . . . . . . . . . . . . . . . . . . . . .       2  Future Developments
How To Get Forms and Publications . . . . . . . . . . . . . .              2  For the latest information about developments related to Form 
General Instructions   . . . . . . . . . . . . . . . . . . . . . . . . .   2  1120-S and its instructions, such as legislation enacted after 
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . .          2  they were published, go to IRS.gov/Form1120S.

How To Make the Election . . . . . . . . . . . . . . . . . .               2  What’s New
Who Must File        . . . . . . . . . . . . . . . . . . . . . . . . . .   2
                                                                              Electronically filed returns.       The electronic filing threshold for 
Termination of Election          . . . . . . . . . . . . . . . . . . . .   2  corporate returns required to be filed on or after January 1, 2024, 
Electronic Filing      . . . . . . . . . . . . . . . . . . . . . . . . .   3  has decreased to 10 or more returns. See Electronic Filing, later.
When To File       . . . . . . . . . . . . . . . . . . . . . . . . . . .   3  Increase in penalty for failure to file.        For tax returns required 
Where To File . . . . . . . . . . . . . . . . . . . . . . . . . . .        4  to be filed in 2024, the minimum penalty for failure to file a return 
Who Must Sign . . . . . . . . . . . . . . . . . . . . . . . . . .          3  that is more than 60 days late has increased to the smaller of the 
Paid Preparer Authorization . . . . . . . . . . . . . . . . .              3  tax due or $485. See Late filing of return, later.
Assembling the Return            . . . . . . . . . . . . . . . . . . . .   4  Deduction for certain energy efficient commercial building 
                                                                              property. For tax years beginning in 2023, corporations filing 
Tax Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .         4
                                                                              Form 1120-S and claiming the energy efficient commercial 
Electronic Deposit Requirement . . . . . . . . . . . . . .                 4  buildings deduction should report the deduction on line 19. See 
Estimated Tax Payments . . . . . . . . . . . . . . . . . . .               5  the instructions for line 19.
Interest and Penalties         . . . . . . . . . . . . . . . . . . . . .   5  Expiration of 100% business meal expense deduction.                         The 
Accounting Methods . . . . . . . . . . . . . . . . . . . . . .             6  temporary 100% business meal expense deduction for food and 
Accounting Period          . . . . . . . . . . . . . . . . . . . . . . .   6  beverages provided by a restaurant does not apply to amounts 
                                                                              paid or incurred after 2022.
Rounding Off to Whole Dollars . . . . . . . . . . . . . . .                6
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . .          6  Elective payment election.          Applicable entities and electing 
                                                                              taxpayers can elect to treat certain credits as elective payments. 
Amended Return           . . . . . . . . . . . . . . . . . . . . . . . .   6  See the instructions for line 24d and the Instructions for Form 
Other Forms and Statements That May Be                                        3800.
Required         . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7  Digital assets.   Digital assets are required to be reported. See 
At-Risk Limitations        . . . . . . . . . . . . . . . . . . . . . . .   8  new question 16 on Schedule B, later.
Passive Activity Limitations           . . . . . . . . . . . . . . . . .   8  Schedules K and K-1 reporting codes.                Separate reporting 
Net Investment Income Tax Reporting                                           codes are assigned to items grouped under code H for Other 
Requirements           . . . . . . . . . . . . . . . . . . . . . . . .     13 income (loss), code S for Other deductions, code P for Other 
Specific Instructions  . . . . . . . . . . . . . . . . . . . . . . . .     13 credits, and code AD for Other information in prior years. See the 
                                                                              List of Codes in the Shareholder's Instructions for Schedule K-1 
Income       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14 (Form 1120-S).
Deductions       . . . . . . . . . . . . . . . . . . . . . . . . . . .     16   The following new reporting credit codes are added to 
Tax and Payments           . . . . . . . . . . . . . . . . . . . . . .     21 line 13g.
Schedule B. Other Information . . . . . . . . . . . . . .                  22 • Code A. Zero-emission nuclear power production credit.
Schedules K and K-1 (General Instructions)                     . . . .     24 • Code B. Production from advanced nuclear power facilities 
                                                                              credit.
Specific Instructions (Schedule K-1 Only) . . . . . .                      25 • Code AG. Credit for military spouse participation.
Part I. Information About the Corporation                  . . . . . .     25 • Code AX. Carbon oxide sequestration credit recapture.
Part II. Information About the Shareholder . . . . . .                     25 • Code AY. New clean vehicle credit.
Specific Instructions (Schedules K and K-1,                                   • Code BC. Eligible credits from transferor(s) under section 
                                                                              6418.
Part III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .        26
Schedule L. Balance Sheets per Books                     . . . . . . .     47 Reminder
Schedule M-1. Reconciliation of Income                                        Election by a small business corporation.               Don't file Form 
(Loss) per Books With Income (Loss) per                                       1120-S unless the corporation has filed or is attaching Form 
Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . .           48

Jan 17, 2024                                                           Cat. No. 11515K

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2553, Election by a Small Business Corporation. For details, see corporation or other entity for any tax year covered by an election
the Instructions for Form 2553. to be an S corporation.

Photographs of How To Make the Election
Missing Children For details about the election, see Form 2553, Election by a
Small Business Corporation, and the Instructions for Form 2553.
The Internal Revenue Service is a proud partner with the
National Center for Missing & Exploited Children® (NCMEC). Who Must File
Photographs of missing children selected by the Center may
A corporation or other entity must file Form 1120-S if (a) it
appear in instructions on pages that would otherwise be blank.
elected to be an S corporation by filing Form 2553, (b) the IRS
You can help bring these children home by looking at the
accepted the election, and (c) the election remains in effect.
photographs and calling 1-800-THE-LOST (1-800-843-5678) if
After filing Form 2553, you should have received confirmation
you recognize a child.
that Form 2553 was accepted. If you didn't receive notification of
The Taxpayer Advocate Service acceptance or nonacceptance of the election within 2 months of
filing Form 2553 (5 months if you checked box Q1 to ask for a
The Taxpayer Advocate Service (TAS) is an independent letter ruling), please follow up by calling 800-829-4933. Don't file
organization within the IRS that helps taxpayers and protects Form 1120-S for any tax year before the year the election takes
taxpayer rights. TAS strives to ensure that every taxpayer is effect.
treated fairly and knows and understands their rights under the
Taxpayer Bill of Rights. Relief for late elections. If you haven't filed Form 2553, or
didn't file Form 2553 on time, you may be entitled to relief for a
As a taxpayer, the corporation has rights that the IRS must late-filed election to be an S corporation. See the Instructions for
abide by in its dealings with the corporation. TAS can help the Form 2553 for details.
corporation if:
• A problem is causing financial difficulty for the business; Termination of Election
• The business is facing an immediate threat of adverse action;
or Once the election is made, it stays in effect until it is terminated.
• The corporation has tried repeatedly to contact the IRS but no If the election is terminated, the corporation (or a successor
one has responded, or the IRS hasn't responded by the date corporation) can make another election on Form 2553 only with
promised. IRS consent for any tax year before the fifth tax year after the first
tax year in which the termination took effect. See Regulations
TAS has offices in every state, the District of Columbia, and section 1.1362-5 for details.
Puerto Rico. Local advocates' numbers are in their local
directories and at TaxpayerAdvocate.IRS.gov. The corporation An election terminates automatically in any of the following
can also call TAS at 877-777-4778. cases.
TAS also works to resolve large-scale or systemic problems 1. The corporation is no longer a small business corporation
that affect many taxpayers. If the corporation knows of one of as defined in section 1361(b). This kind of termination of an
these broad issues, please report it to TAS through the Systemic election is effective as of the day the corporation no longer
Advocacy Management System at IRS.gov/SAMS. meets the definition of a small business corporation. Attach to
Form 1120-S for the final year of the S corporation a statement
For more information, go to IRS.gov/Advocate. notifying the IRS of the termination and the date it occurred.
Direct Deposit of Refund 2. For each of 3 consecutive tax years, the corporation (a)
has accumulated earnings and profits (AE&P), and (b) derives
To request a direct deposit of the corporation's income tax refund more than 25% of its gross receipts from passive investment
into an account at a U.S. bank or other financial institution, attach income as defined in section 1362(d)(3)(C). The election
Form 8050, Direct Deposit of Corporate Tax Refund. See the terminates on the first day of the 1st tax year beginning after the
instructions for line 28. 3rd consecutive tax year. The corporation must pay a tax for
each year it has excess net passive income. See the line 23a
How To Get Forms and Publications instructions for details on how to figure the tax.
Internet. You can access the IRS website 24 hours a day, 7 3. The election is revoked. An election can be revoked only
days a week, at IRS.gov to: with the consent of shareholders who, at the time the revocation
• Download forms, instructions, and publications; is made, hold more than 50% of the number of issued and
• Order IRS products online; outstanding shares of stock (including nonvoting stock). The
• Research your tax questions online; revocation can specify an effective revocation date that is on or
• Search publications online by topic or keyword; after the day the revocation is filed. If no date is specified, the
• View Internal Revenue Bulletins (IRBs) published in recent revocation is effective at the start of the tax year if the revocation
years; and is made on or before the 15th day of the 3rd month of that tax
• Sign up to receive local and national tax news by email. year. If no date is specified and the revocation is made after the
Tax forms and publications. The corporation can view, print, 15th day of the 3rd month of the tax year, the revocation is
or download all of the forms and publications it may need on effective at the start of the next tax year.
IRS.gov/FormsPubs. Otherwise, the corporation can go to To revoke the election, the corporation must file a statement
IRS.gov/OrderForms to place an order and have forms mailed to with the appropriate service center listed under Where To File in
it. the Instructions for Form 2553. In the statement, the corporation
must notify the IRS that it is revoking its election to be an S
corporation. The statement must be signed by each shareholder
General Instructions who consents to the revocation and contain the information
required by Regulations section 1.1362-6(a)(3).
Purpose of Form
Use Form 1120-S to report the income, gains, losses, A revocation can be rescinded before it takes effect. See
deductions, credits, and other information of a domestic Regulations section 1.1362-6(a)(4) for details.

2 Instructions for Form 1120-S (2023)

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For rules on allocating income and deductions between an S              that has dissolved must generally file by the 15th day of the 3rd 
corporation's short year and a C corporation's short year and           month after the date it dissolved.
other special rules that apply when an election is terminated, see 
section 1362(e) and Regulations section 1.1362-3.                          If the due date falls on a Saturday, Sunday, or legal holiday, 
                                                                        the corporation can file on the next day that isn’t a Saturday, 
If an election was terminated under (1) or (2) above and the            Sunday, or legal holiday.
corporation believes the termination was inadvertent, the 
corporation can ask for permission from the IRS to continue to             If the S corporation election was terminated during the tax 
be treated as an S corporation. See Regulations section                 year and the corporation reverts to a C corporation, file Form 
1.1362-4 for the specific requirements that must be met to              1120-S for the S corporation's short year by the due date 
qualify for inadvertent termination relief.                             (including extensions) of the C corporation's short year return.

Electronic Filing                                                       Private Delivery Services
S corporations can generally electronically file (e-file) Form          Corporations can use certain private delivery services (PDS) 
1120-S, related forms, schedules, statements, and attachments;          designated by the IRS to meet the “timely mailing as timely filing” 
Form 7004 (automatic extension of time to file); and Forms 940,         rule for tax returns. Go to IRS.gov/PDS for the current list of 
941, and 944 (employment tax returns). Form 1099 and other              designated services.
information returns can also be electronically filed. The option to        The PDS can tell you how to get written proof of the mailing 
e-file doesn't, however, apply to certain returns.                      date.
For returns filed on or after January 1, 2024, S corporations              For the IRS mailing address to use if you are using a PDS, go 
that file 10 or more returns are required to e-file Form 1120-S.        to IRS.gov/PDSStreetAddresses.
See Regulations section 301.6037-2. However, these 
corporations can request a waiver of the electronic filing                      Private delivery services can't deliver items to P.O. 
requirements.                                                              !    boxes. You must use the U.S. Postal Service to mail any 
                                                                        CAUTION item to an IRS P.O. box address.
For more information on e-filing, see E-file for Business and 
Self Employed Taxpayers on IRS.gov.
                                                                        Extension of Time To File
Exclusions From Electronic Filing Requirement                           File Form 7004, Application for Automatic Extension of Time To 
                                                                        File Certain Business Income Tax, Information, and Other 
Waivers. The IRS may waive the electronic filing rules if the S         Returns, to ask for an extension of time to file. Generally, the 
corporation demonstrates that a hardship would result if it were        corporation must file Form 7004 by the regular due date of the 
required to file its return electronically. A corporation interested in return. See the Instructions for Form 7004.
requesting a waiver of the mandatory electronic filing 
requirement must file a written request, and request one in the 
manner prescribed by the IRS. All written requests for waivers          Who Must Sign
should be mailed to:                                                    The return must be signed and dated by:
                                                                        •  The president, vice president, treasurer, assistant treasurer, 
Internal Revenue Service                                                chief accounting officer; or
Ogden Submission Processing Center                                      •  Any other corporate officer (such as tax officer) authorized to 
Attn: Form 1120 e-file Waiver Request                                   sign.
Mail Stop 1057
Ogden, UT 84201                                                            If a return is filed on behalf of a corporation by a receiver, 
                                                                        trustee, or assignee, the fiduciary must sign the return instead of 
If using a delivery service, requests for waivers should be             the corporate officer. Returns and forms signed by a receiver or 
mailed to:                                                              trustee in bankruptcy on behalf of a corporation must be 
                                                                        accompanied by a copy of the order or instructions of the court 
Internal Revenue Service                                                authorizing signing of the return or form.
Ogden Submission Processing Center                                         If an employee of the corporation completes Form 1120-S, 
Attn: Form 1120 e-file Waiver Request                                   the paid preparer space should remain blank. Anyone who 
Mail Stop 1057                                                          prepares Form 1120-S but doesn't charge the corporation 
1973 N. Rulon White Blvd.                                               shouldn't complete that section. Generally, anyone who is paid to 
Ogden, UT 84404                                                         prepare the return must sign it and fill in the “Paid Preparer Use 
                                                                        Only” area.
Waiver requests can also be faxed to 877-477-0575. Contact 
the e-Help Desk at 866-255-0654 for questions regarding the                The paid preparer must complete the required preparer 
waiver procedures or process.                                           information and:
                                                                        •  Sign the return in the space provided for the preparer's 
Exemptions.   The IRS may provide exemptions from the                   signature,
requirements to electronically file. If using the technology            •  Include their Preparer Tax Identification Number (PTIN), and
required to electronically file conflicts with religious beliefs, the   •  Give a copy of the return to the taxpayer.
corporation is exempt from the requirement. Clearly indicate the 
exemption on the corporation’s return. Write “Religious                         A paid preparer may sign original or amended returns by 
Exemption” at the top of the Form 1120-S. File the return at the        TIP     rubber stamp, mechanical device, or computer software 
applicable IRS address. See Where To File, later. For more                      program.
information, see Notice 2024-18.
                                                                        Paid Preparer Authorization
When To File                                                            If the corporation wants to allow the IRS to discuss its 2023 tax 
Generally, an S corporation must file Form 1120-S by the 15th           return with the paid preparer who signed it, check the “Yes” box 
day of the 3rd month after the end of its tax year. For calendar        in the signature area of the return. This authorization applies only 
year corporations, the due date is March 15, 2024. A corporation        to the individual whose signature appears in the “Paid Preparer 
Instructions for Form 1120-S (2023)                                                                                                        3

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Where To File
File the corporation's return at the applicable IRS address listed below.

If the corporation's principal business,        And the total assets at the end of the tax 
                                                                                            Use the following address:
office, or agency is located in:                year (Form 1120-S, page 1, item F) are:
Connecticut, Delaware, District of Columbia,                                                Department of the Treasury
                                                       Less than $10 million and
Georgia, Illinois, Indiana, Kentucky, Maine,                                                Internal Revenue Service Center
                                                       Schedule M-3 isn't filed
Maryland, Massachusetts, Michigan, New                                                      Kansas City, MO 64999-0013
Hampshire, New Jersey, New York, North 
Carolina, Ohio, Pennsylvania, Rhode Island,            $10 million or more, or              Department of the Treasury
South Carolina, Tennessee, Vermont, Virginia,          less than $10 million and            Internal Revenue Service Center
West Virginia, Wisconsin                                  Schedule M-3 is filed             Ogden, UT 84201-0013
Alabama, Alaska, Arizona, Arkansas, California, 
Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, 
                                                                                            Department of the Treasury
Louisiana, Minnesota, Mississippi, Missouri, 
                                                                  Any amount                Internal Revenue Service Center
Montana, Nebraska, Nevada, New Mexico, 
                                                                                            Ogden, UT 84201-0013
North Dakota, Oklahoma, Oregon, South 
Dakota, Texas, Utah, Washington, Wyoming
                                                                                            Internal Revenue Service Center
A foreign country or U.S. territory                               Any amount                            P.O. Box 409101
                                                                                                        Ogden, UT 84409

Use Only” section of the return. It doesn't apply to the firm, if any,   10. Form 8941, Credit for Small Employer Health Insurance 
shown in that section.                                                 Premiums.
                                                                         11. Form 3800, General Business Credit.
  If the “Yes” box is checked, the corporation is authorizing the 
IRS to call the paid preparer to answer any questions that may           12. Form 8997, Initial and Annual Statement of Qualified 
arise during the processing of its return. The corporation is also     Opportunity Fund (QOF) Investments.
authorizing the paid preparer to:                                        13. Form 6252, Installment Sale Income.
• Give the IRS any information that is missing from the return;          14. Schedule A (Form 8936), Clean Vehicle Credit Amount.
• Call the IRS for information about the processing of the return 
or the status of any related refund or payment(s); and                   15. Schedules K-1 (Form 1120-S), Shareholder's Share of 
• Respond to certain IRS notices about math errors, offsets,           Income, Deductions, Credits, etc.
and return preparation.                                                  16. Form 8938, Statement of Specified Foreign Financial 
                                                                       Assets.
  The corporation isn't authorizing the paid preparer to receive         17. Additional schedules in alphabetical order, including 
any refund check, bind the corporation to anything (including any      Schedule K-2 (Form 1120-S), Shareholders' Pro Rata Share 
additional tax liability), or otherwise represent the corporation      Items—International, and Schedules K-3 (Form 1120-S), 
before the IRS.                                                        Shareholder's Share of Income, Deductions, Credits, 
                                                                       etc.—International.
  The authorization will automatically end no later than the due 
date (excluding extensions) for filing the corporation's 2024 tax        18. Additional forms in numerical order.
return. If the corporation wants to expand the paid preparer's           Complete every applicable entry space on Form 1120-S and 
authorization or revoke the authorization before it ends, see Pub.     Schedule K-1. Don't enter “See Attached” or “Available Upon 
947, Practice Before the IRS and Power of Attorney.                    Request” instead of completing the entry spaces. If more space 
                                                                       is needed on the forms or schedules, attach separate sheets 
Assembling the Return                                                  using the same size and format as the printed forms.
To ensure that the corporation's tax return is correctly processed, 
attach all schedules and other forms after page 5 of Form                If there are supporting statements and attachments, arrange 
1120-S in the following order.                                         them in the same order as the schedules or forms they support 
                                                                       and attach them last. Show the totals on the printed forms. Enter 
  1. Schedule N (Form 1120), Foreign Operations of U.S.                the corporation's name and EIN on each supporting statement or 
Corporations.                                                          attachment.
  2. Schedule D (Form 1120-S), Capital Gains and Losses 
and Built-in Gains.                                                    Tax Payments
  3. Form 4797, Sales of Business Property.                            Generally, the corporation must pay any tax due in full no later 
  4. Form 8949, Sales and Other Dispositions of Capital                than the due date for filing its tax return (not including 
Assets.                                                                extensions). See the instructions for line 26. If the due date falls 
                                                                       on a Saturday, Sunday, or legal holiday, the payment is due on 
  5. Form 8996, Qualified Opportunity Fund.                            the next day that isn't a Saturday, Sunday, or legal holiday.
  6. Form 8825, Rental Real Estate Income and Expenses of 
a Partnership or an S Corporation.                                     Electronic Deposit Requirement
  7. Form 1125-A, Cost of Goods Sold.                                  Corporations must use electronic funds transfers to make all 
  8. Form 8050, Direct Deposit of Corporate Tax Refund.                federal tax deposits (such as deposits of employment, excise, 
                                                                       and corporate income tax). Generally, electronic funds transfers 
  9. Form 4136, Credit for Federal Tax Paid on Fuels.                  are made using the Electronic Federal Tax Payment System 

4                                                                                           Instructions for Form 1120-S (2023)

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(EFTPS). However, if the corporation doesn't want to use 
EFTPS, it can arrange for its tax professional, financial                Interest and Penalties
institution, payroll service, or other trusted third party to make                 If the corporation receives a notice about penalties after 
deposits on its behalf. Also, it may arrange for its financial             !       it files its return, send the IRS an explanation and we will 
institution to submit a same-day wire payment (discussed below)          CAUTION   determine if the corporation meets reasonable-cause 
on its behalf. EFTPS is a free service provided by the                   criteria. Don't attach an explanation when the corporation's 
Department of the Treasury. Services provided by a tax                   return is filed.
professional, financial institution, payroll service, or other third 
party may have a fee.                                                    Interest. Interest is charged on taxes paid late even if an 
                                                                         extension of time to file is granted. Interest is also charged on 
To get more information about EFTPS or to enroll in EFTPS,               penalties imposed for failure to file, negligence, fraud, substantial 
visit www.EFTPS.gov or call 800-555-4477. To contact EFTPS               valuation misstatements, substantial understatements of tax, 
using the Telecommunications Relay Services (TRS), for people            and reportable transaction understatements from the due date 
who are deaf, hard of hearing, or have a speech disability, dial         (including extensions) to the date of payment. The interest 
711 and provide the TRS assistant the 800-555-4477 number                charge is figured at a rate determined under section 6621.
above or 800-733-4829.
                                                                         Late filing of return. A penalty may be assessed if the return is 
Depositing on time.     For any deposit made by EFTPS to be on           filed after the due date (including extensions) or the return 
time, the corporation must submit the deposit by 8 p.m. Eastern          doesn't show all the information required, unless each failure is 
time the day before the date the deposit is due. If the corporation      due to reasonable cause. See Caution, earlier. For returns on 
uses a third party to make deposits on its behalf, they may have         which no tax is due, the penalty is $235 for each month or part of 
different cutoff times.                                                  a month (up to 12 months) the return is late or doesn't include 
Same-day wire payment option. If the corporation fails to                the required information, multiplied by the total number of 
submit a deposit transaction on EFTPS by 8 p.m. Eastern time             persons who were shareholders in the corporation during any 
the day before the date a deposit is due, it can still make its          part of the corporation's tax year for which the return is due. If tax 
deposit on time by using the Federal Tax Collection Service              is due, the penalty is the amount stated above plus 5% of the 
(FTCS). To use the same-day wire payment method, the                     unpaid tax for each month or part of a month the return is late, up 
corporation will need to make arrangements with its financial            to a maximum of 25% of the unpaid tax. The minimum penalty 
institution ahead of time regarding availability, deadlines, and         for a tax return required to be filed in 2024 that is more than 60 
costs. Financial institutions may charge a fee for payment made          days late is the smaller of the tax due or $485.
this way. To learn more about the information the corporation will       Late payment of tax.   A corporation that doesn't pay the tax 
need to provide to its financial institution to make a same-day          when due may generally be penalized  /  of 1% of the unpaid tax 1 2
wire payment, go to IRS.gov/SameDayWire.                                 for each month or part of a month the tax isn't paid, up to a 
                                                                         maximum of 25% of the unpaid tax. The penalty won't be 
Estimated Tax Payments                                                   imposed if the corporation can show that the failure to pay on 
Generally, the corporation must make installment payments of             time was due to reasonable cause. See Caution, earlier.
estimated tax for the following taxes if the total of these taxes is 
$500 or more: (a) the tax on built-in gains, (b) the excess net          Failure to furnish information timely. For each failure to 
passive income tax, and (c) the investment credit recapture tax,         furnish Schedule K-1 (and Schedule K-3, if applicable) to a 
each discussed later.                                                    shareholder when due and each failure to include on 
                                                                         Schedule K-1 (and Schedule K-3, if applicable) all the 
The amount of estimated tax required to be paid annually is              information required to be shown (or the inclusion of incorrect 
the smaller of (a) the total of the above taxes shown on the return      information), a $310 penalty may be imposed with respect to 
for the tax year (or if no return is filed, the total of these taxes for each Schedule K-1 (and Schedule K-3, if applicable) for which a 
the year), or (b) the sum of (i) the investment credit recapture tax     failure occurs. If the requirement to report correct information is 
and the built-in gains tax shown on the return for the tax year (or      intentionally disregarded, each $310 penalty is increased to 
if no return is filed, the total of these taxes for the tax year), and   $630 or, if greater, 10% of the aggregate amount of items 
(ii) any excess net passive income tax shown on the                      required to be reported. See sections 6722 and 6724 for more 
corporation's return for the preceding tax year. If the preceding        information.
tax year was less than 12 months, the estimated tax must be                The penalty won't be imposed if the corporation can show 
determined under (a).                                                    that not furnishing information timely was due to reasonable 
                                                                         cause. See Caution, earlier.
The estimated tax is generally payable in four equal 
installments. However, the corporation may be able to lower the          Trust fund recovery penalty. This penalty may apply if certain 
amount of one or more installments by using the annualized               excise, income, social security, and Medicare taxes that must be 
income installment method or adjusted seasonal installment               collected or withheld aren't collected or withheld, or these taxes 
method under section 6655(e).                                            aren't paid. These taxes are generally reported on:
                                                                         • Form 720, Quarterly Federal Excise Tax Return;
For a calendar year corporation, the payments are due for                • Form 941, Employer's QUARTERLY Federal Tax Return;
2024 by April 15, June 15, September 15, and December 15. For            • Form 943, Employer's Annual Federal Tax Return for 
a fiscal year corporation, they are due by the 15th day of the 4th,      Agricultural Employees;
6th, 9th, and 12th months of the year. If any date falls on a            • Form 944, Employer's ANNUAL Federal Tax Return; or
Saturday, Sunday, or legal holiday, the installment is due on the        • Form 945, Annual Return of Withheld Federal Income Tax.
next day that isn't a Saturday, Sunday, or legal holiday.                  The trust fund recovery penalty may be imposed on all 
                                                                         persons who are determined by the IRS to have been 
The corporation must make the payments using electronic                  responsible for collecting, accounting for, or paying over these 
funds transfers as described earlier.                                    taxes, and who acted willfully in not doing so. The penalty is 
For information on penalties that may apply if the corporation           equal to the full amount of the unpaid trust fund tax. See the 
fails to make required payments, see the Instructions for Form           Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax 
2220.                                                                    Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax 

Instructions for Form 1120-S (2023)                                                                                                          5

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Guide, for details, including the definition of “responsible • Any other tax year (including a 52-53-week tax year) for which
persons.” the corporation establishes a business purpose.
Other penalties. Other penalties can be imposed for A new S corporation must use Form 2553 to elect a tax year.
negligence, substantial understatement of tax, reportable To later change the corporation's tax year, see Form 1128,
transaction understatements, and fraud. See sections 6662, Application To Adopt, Change, or Retain a Tax Year, and its
6662A, and 6663. instructions (unless the corporation is making an election under
section 444, discussed next).
Accounting Methods
Electing a tax year under section 444. Under the provisions
Figure income using the method of accounting regularly used in of section 444, an S corporation can elect to have a tax year
keeping the corporation's books and records. The method used other than a required year, but only if the deferral period of the
must clearly reflect income. Permissible methods include cash, tax year isn't longer than the shorter of 3 months or the deferral
accrual, or any other method authorized by the Internal Revenue period of the tax year being changed. This election is made by
Code. filing Form 8716, Election To Have a Tax Year Other Than a
The following rules apply. Required Tax Year.
• Generally, an S corporation can't use the cash method of An S corporation may not make or continue an election under
accounting if it’s a tax shelter (as defined in section 448(d)(3)). section 444 if it is a member of a tiered structure, other than a
See section 448 for details. tiered structure that consists entirely of partnerships and S
• A corporation must use an accrual method for sales and corporations that have the same tax year. For the S corporation
purchases of inventory items unless it is a small business to have a section 444 election in effect, it must make the
taxpayer (defined later). See the Form 1125-A instructions. If you payments required by section 7519. See Form 8752, Required
are a small business taxpayer, you can adopt or change your Payment or Refund Under Section 7519.
accounting method to account for inventories (i) in the same A section 444 election ends if an S corporation:
manner as materials and supplies that are non-incidental, or (ii) • Changes its accounting period to a calendar year or some
to conform to the taxpayer’s treatment of inventories in an other permitted year,
applicable financial statement (as defined in section 451(b)(3)) • Is penalized for willfully failing to comply with the requirements
or, if the taxpayer doesn’t have an applicable financial statement, of section 7519, or
the method of accounting used in the taxpayer’s books and • Terminates its S election (unless it immediately becomes a
records prepared in accordance with the taxpayer’s accounting personal service corporation).
procedures. Generally, IRS consent is required for changes in
accounting methods. See Rev. Proc. 2018-40 for the procedures If the termination results in a short tax year, enter at the top of
by which a small business taxpayer may obtain automatic the first page of Form 1120-S for the short tax year, “SECTION
consent to change its method of accounting to reflect the 444 ELECTION TERMINATED.”
statutory changes made in this area. Also, see Change in
accounting method, later. Rounding Off to Whole Dollars
• Special rules apply to long-term contracts. See section 460. The corporation may enter decimal points and cents when
• Generally, dealers in securities must use the mark-to-market completing its return. However, the corporation should round off
accounting method. Dealers in commodities and traders in cents to whole dollars on its return, forms, and schedules to
securities and commodities can elect to use the mark-to-market make completing its return easier. The corporation must either
accounting method. See section 475. round off all amounts on its return to whole dollars, or use cents
for all amounts. To round, drop amounts under 50 cents and
Small business taxpayer. A small business taxpayer is a increase amounts from 50 to 99 cents to the next dollar. For
taxpayer that (a) has average annual gross receipts of $29 example, $8.40 rounds to $8 and $8.50 rounds to $9.
million or less for the 3 prior tax years, and (b) isn’t a tax shelter
(as defined in section 448(d)(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
Change in accounting method. Generally, the corporation round off only the total.
must get IRS consent to change either an overall method of
accounting or the accounting treatment of any material item for Recordkeeping
income tax purposes. To obtain consent, the corporation must
generally file Form 3115, Application for Change in Accounting Keep the corporation's records for as long as they may be
Method, during the tax year for which the change is requested. needed for the administration of any provision of the Internal
See the Instructions for Form 3115 and Pub. 538, Accounting Revenue Code. Usually, records that support an item of income,
Periods and Methods, for more information and exceptions. See deduction, or credit on the return must be kept for 3 years from
also the Instructions for Form 3115 for procedures that may the date each shareholder's return is due or filed, whichever is
apply for obtaining automatic consent to change certain later. Keep records that verify the corporation's basis in property
methods of accounting, non-automatic change procedures, and for as long as they are needed to figure the basis of the original
reduced Form 3115 filing requirements. or replacement property.
The corporation should keep copies of all filed returns. They
Accounting Period help in preparing future and amended returns.
A corporation must figure its income on the basis of a tax year. A
tax year is the annual accounting period a corporation uses to Amended Return
keep its records and report its income and expenses. To correct a previously filed Form 1120-S, file an amended Form
1120-S and check box H(4) on page 1. Attach a statement that
An S corporation must use one of the following tax years. identifies the line number of each amended item, the corrected
• A tax year ending December 31. amount or treatment of the item, and an explanation of the
• A natural business year. reasons for each change.
• An ownership tax year.
• A tax year elected under section 444. If the income, deductions, credits, or other information
• A 52-53-week tax year that ends with reference to a year provided to any shareholder on Schedule K-1 or K-3 is incorrect,
listed above. file an amended Schedule K-1 or K-3 (Form 1120-S) for that

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shareholder with the amended Form 1120-S. Also give a copy of Election to reduce basis under section 362(e)(2)(C). If
the amended Schedule K-1 or K-3 to that shareholder. Check property is transferred to a corporation subject to section 362(e)
the “Amended K-1” or “Amended K-3” box at the top of the (2), the transferor and the acquiring corporation may elect, under
Schedule K-1 or K-3 to indicate that it is an amended section 362(e)(2)(C), to reduce the transferor's basis in the stock
Schedule K-1 or K-3. received instead of reducing the acquiring corporation's basis in
A change to the corporation's federal return may affect its the property transferred. Once made, the election is irrevocable.
state return. This includes changes made as the result of an IRS For more information, see section 362(e)(2) and Regulations
examination. For more information, contact the state tax agency section 1.362-4. If an election is made, a statement must be filed
for the state(s) in which the corporation's return was filed. in accordance with Regulations section 1.362-4(d)(3).
Regulations section 1.1411-10(g) (section 1411 election
Other Forms and Statements That with respect to CFCs and QEFs). A corporation that directly
or indirectly owns stock of a controlled foreign corporation (CFC)
May Be Required (within the meaning of section 953(c)(1)(B) or section 957(a)) or
Reportable transaction disclosure statement. Disclose a passive foreign investment company (within the meaning of
information for each reportable transaction in which the section 1297(a)) that the corporation treats as a qualified
corporation participated. Form 8886, Reportable Transaction electing fund (QEF) under section 1293 may make the election
Disclosure Statement, must be filed for each tax year the provided in Regulations section 1.1411-10(g). The election must
corporation participated in the transaction. The corporation may be made no later than the first tax year beginning after 2013
have to pay a penalty if it is required to file Form 8886 and during which the corporation (i) includes an amount in gross
doesn't do so. The following are reportable transactions. income for chapter 1 purposes under section 951(a) or section
1. Any listed transaction, which is a transaction that is the 1293(a) for the CFC or QEF, and (ii) has a direct or indirect
same as or substantially similar to one of the types of owner that is subject to tax under section 1411 or would have
transactions that the IRS has determined to be a tax avoidance been if the election were made. This election must be made on
transaction and identified by notice, regulation, or other an entity-by-entity basis, and applies only to the particular CFCs
published guidance as a listed transaction. and QEFs for which an election is made. In general, for purposes
of section 1411, if an election is in effect for a CFC or QEF, the
2. Any transaction offered under conditions of confidentiality amounts included in income under section 951 and section 1293
for which the corporation (or a related party) paid an advisor a derived from the CFC or QEF are included in net investment
fee of at least $50,000. income, and distributions described in section 959(d) or section
3. Certain transactions for which the corporation (or a 1293(c) are excluded from net investment income. Additionally, if
related party) has contractual protection against disallowance of the corporation elected to be treated as owning stock of a foreign
the tax benefits. corporation within the meaning of section 958(a) under
4. Certain transactions resulting in a loss of at least $2 Proposed Regulations section 1.958-1(e)(2), and an election
million in any single year or $4 million in any combination of under Regulations section 1.1411-10(g) is in effect for a CFC,
years. the amount of global intangible low-taxed income included in
income under section 951A is included in net investment income
5. Any transaction identified by the IRS by notice, regulation, to the extent that it is allocated to the CFC under section 951A(f)
or other published guidance as a “transaction of interest.” (2). An election that is made under Regulations section
For more information, see Regulations section 1.6011-4. Also 1.1411-10(g) can't be revoked. For more information regarding
see the Instructions for Form 8886. this election, see Regulations section 1.1411-10(g).
Penalties. The corporation may have to pay a penalty if it is The election must be made in a statement that is filed with the
required to disclose a reportable transaction under section 6011 corporation's original or amended return for the tax year in which
and fails to properly complete and file Form 8886. Penalties may the election is made. An election can be made on an amended
also apply under section 6707A if the corporation fails to file return only if the tax year for which the election is made, and all
Form 8886 with its corporate return, fails to provide a copy of tax years affected by the election, aren't closed by the period of
Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files a limitations on assessments under section 6501. The statement
form that fails to include all the information required (or includes must include:
incorrect information). Other penalties, such as an • The name and EIN of the corporation making the election;
accuracy-related penalty under section 6662A, may also apply. • A declaration that all of its shareholders consent to each
See the Instructions for Form 8886 for details on these and other election made in the statement;
penalties. • A declaration that the corporation elects under Regulations
section 1.1411-10(g) to apply the rules in Regulations section
Reportable transactions by material advisors. Material 1.1411-10(g) to the CFCs and QEFs identified in the statement;
advisors to any reportable transaction must disclose certain and
information about the reportable transaction by filing Form 8918, The following information for each CFC and QEF for which an
Material Advisor Disclosure Statement, with the IRS. For details, •
election is made (i) the name of the CFC or QEF; and (ii) either
see the Instructions for Form 8918. the EIN of the CFC or QEF, or, if the CFC or QEF doesn't have an
Transfers to a corporation controlled by the transferor. EIN, the reference ID number of the CFC or QEF.
Every significant transferor (as defined in Regulations section In addition, for each CFC or QEF held by the corporation for
1.351-3(d)) that receives stock of a corporation in exchange for which an election under Regulations section 1.1411-10(g) has
property in a nonrecognition event must include the statement already been made by the corporation, the statement should
required by Regulations section 1.351-3(a) on or with the include (i) the name of the CFC or QEF; and (ii) either the EIN of
transferor's tax return for the tax year of the exchange. The the CFC or QEF, or, if the CFC or QEF doesn't have an EIN, the
transferee corporation must include the statement required by reference ID number of the CFC or QEF.
Regulations section 1.351-3(b) on or with its return for the tax
year of the exchange, unless all the required information is Annual information reporting by specified domestic enti-
included in any statement(s) provided by a significant transferor ties under section 6038D. Certain domestic corporations that
that is attached to the same return for the same section 351 are formed or availed of to hold specified foreign financial assets
exchange. (“specified domestic entities”) must file Form 8938, Statement of

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Specified Foreign Financial Assets. Form 8938 must be filed Aggregation of Activities
each year the value of the corporation's specified foreign Activities described in (6) under Activities Covered by the At-Risk
financial assets meets or exceeds the reporting threshold. For Rules, earlier, that constitute a trade or business are treated as
more information on domestic corporations that are specified one activity if:
domestic entities and the types of foreign financial assets that You actively participate in the management of the trade or
must be reported, see the Instructions for Form 8938, generally, •
business, or
and in particular, Who Must File Specified Domestic Entity, , The trade or business is carried on by a partnership or S
Types of Reporting Thresholds Specified Foreign Financial , •
corporation and 65% or more of its losses for the tax year are
Assets Interests in Specified Foreign Financial Assets Assets , , allocable to persons who actively participate in the management
Not Required To Be Reported, and Exceptions to Reporting. of the trade or business.
In addition, a domestic corporation required to file Form 8938
with its Form 1120-S for the tax year should check “Yes” to Similar rules apply to activities described in (1) through (5) of
Schedule N (Form 1120), question 8, and also include that that earlier discussion. For more information, see Pub. 925. If
schedule with its Form 1120-S. you aggregate your activities under these rules for section 465
purposes, check the appropriate box in item J.
Certification as a qualified opportunity fund. If the
corporation is organized to invest in qualified opportunity zone At-Risk Activity Reporting Requirements
property, it must attach Form 8996 to Form 1120-S to self-certify
as a QOF. In addition, the corporation files Form 8996 annually If the corporate items of income, loss, or deduction reported on
to report that the QOF meets the investment standard of section Schedule K-1 are from more than one activity covered by the
1400Z-2 or to figure the penalty if it fails to meet the investment at-risk rules, the corporation must report information separately
standard. The corporation must also complete line 15 of for each activity.
Schedule B. For more information, see the Instructions for Form The following information must be provided on an attachment
8996. to Schedule K-1 for each activity.
Qualified opportunity fund investment. If the corporation • A statement that the information is a breakdown of the items
deferred a capital gain in a qualified opportunity fund (QOF), the of income, loss, or deduction by at-risk activity.
corporation must file its return with Schedule D (Form 1120-S), • The identity of the at-risk activity; the items of income, loss, or
Form 8949, and Form 8997 attached. The corporation will need deduction for the activity; other items of income, loss, or
to file Form 8997 annually until it disposes of the investment. See deduction; and any other information that relates to the activity
the instructions for Form 8997 for details. (that is, distributions, shareholder loans, etc.).

Form 8975, Country-by-Country Report. Certain U.S. Passive Activity Limitations
persons that are the ultimate parent entity of a U.S. multinational
enterprise group with annual revenue for the preceding reporting In general, section 469 limits the amount of losses, deductions,
period of $850 million or more are required to file Form 8975. For and credits that shareholders can claim from “passive activities.”
more information, see the Instructions for Form 8975. The passive activity limitations don't apply to the corporation.
Instead, they apply to each shareholder's share of any income or
Other forms and statements. See Pub. 542, Corporations, for loss and credit attributable to a passive activity. Because the
a list of other forms and statements a corporation may need to treatment of each shareholder's share of corporate income or
file in addition to the forms and statements discussed throughout loss and credit depends on the nature of the activity that
these instructions. generated it, the corporation must report income or loss and
credits separately for each activity.
At-Risk Limitations
In general, section 465 limits the amount of deductible net losses The following instructions and the instructions for Schedules
shareholders can claim from certain activities. The at-risk K and K-1, later, explain the applicable passive activity limitation
limitations don't apply to the corporation, but instead apply to rules and specify the type of information the corporation must
each shareholder's share of net losses attributable to each provide to its shareholders for each activity. If the corporation
activity. Because the treatment of each shareholder's share of had more than one activity, it must report information for each
corporate net losses depends on the nature of the activity that activity on an attachment to Schedules K and K-1.
generated it, the corporation must report the items of income, Generally, passive activities include (a) activities that involve
loss, and deduction separately for each activity. See Pub. 925, the conduct of a trade or business if the shareholder doesn't
Passive Activity and At-Risk Rules, for additional information. materially participate in the activity, and (b) all rental activities
(defined later) regardless of the shareholder's participation. For
Activities Covered by the At-Risk Rules exceptions, see Activities That Are Not Passive Activities, later.
If the S corporation is involved in one of the following activities as The level of each shareholder's participation in an activity must
a trade or business or for the production of income, the be determined by the shareholder.
shareholder may be subject to the at-risk rules.
The passive activity rules provide that losses and credits from
1. Holding, producing, or distributing motion picture films or passive activities can generally be applied only against income
video tapes. and tax (respectively) from passive activities. Thus, passive
2. Farming. losses can't be applied against income from salaries, wages,
3. Leasing section 1245 property, including personal professional fees, or a business in which the shareholder
property and certain other tangible property that is depreciable materially participates or against “portfolio income” (defined
or amortizable. later). Passive credits can't be applied against the tax related to
4. Exploring for, or exploiting, oil and gas. any of these types of income.
5. Exploring for, or exploiting, geothermal deposits (for wells Special rules require that net income from certain activities
started after September 1978). that would otherwise be treated as passive income must be
6. Any other activity not included in (1) through (5) that is recharacterized as nonpassive income for purposes of the
carried on as a trade or business or for the production of income. passive activity limitations. See Recharacterization of Passive
Income, later.

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To allow each shareholder to correctly apply the passive Each shareholder must determine if he or she materially
activity limitations, the corporation must report income or loss participated in an activity. As a result, while the corporation's
and credits separately by activity for each of the following. ordinary business income (loss) is reported on page 1 of Form
• Trade or business activities. 1120-S, the specific income and deductions from each separate
• Rental real estate activities. trade or business activity must be reported on attachments to
• Rental activities other than rental real estate. Form 1120-S. Similarly, while each shareholder's allocable share
• Portfolio income. of the corporation's ordinary business income (loss) is reported
in box 1 of Schedule K-1, each shareholder's allocable share of
Activities That Are Not Passive Activities the income and deductions from each trade or business activity
The following aren't passive activities. must be reported on statements attached to each Schedule K-1.
See Passive Activity Reporting Requirements, later, for more
1. Trade or business activities in which the shareholder information.
materially participated for the tax year.
2. Any rental real estate activity in which the shareholder Rental Activities
materially participated if the shareholder met both of the Generally, except as noted below, if the gross income from an
following conditions for the tax year. activity consists of amounts paid principally for the use of real or
a. More than half of the personal services the shareholder personal tangible property held by the corporation, the activity is
performed in trades or businesses were performed in real a rental activity.
property trades or businesses in which the shareholder
materially participated. There are several exceptions to this general rule. Under these
b. The shareholder performed more than 750 hours of exceptions, an activity involving the use of real or personal
services in real property trades or businesses in which the tangible property isn't a rental activity if any of the following
shareholder materially participated. apply.
• The average period of customer use (defined later) for such
For purposes of this rule, each interest in rental real estate is property is 7 days or less.
a separate activity unless the shareholder elects to treat all • The average period of customer use for such property is 30
interests in rental real estate as one activity. days or less and significant personal services (defined later) are
If the shareholder is married filing jointly, either the provided by or on behalf of the corporation.
shareholder or the shareholder’s spouse must separately meet • Extraordinary personal services (defined later) are provided
both of the above conditions, without taking into account by or on behalf of the corporation.
services performed by the other spouse. • The rental of such property is treated as incidental to a
A real property trade or business is any real property nonrental activity of the corporation under Regulations section
development, redevelopment, construction, reconstruction, 1.469-1(e)(3)(vi).
acquisition, conversion, rental, operation, management, leasing, • The corporation customarily makes the property available
or brokerage trade or business. Services the shareholder during defined business hours for nonexclusive use by various
performed as an employee aren't treated as performed in a real customers.
property trade or business unless the shareholder owned more • The corporation provides property for use in a nonrental
than 5% of the stock in the employer. activity of a partnership in its capacity as an owner of an interest
in such partnership. Whether the corporation provides property
3. The rental of a dwelling unit used by a shareholder for used in an activity of a partnership in the corporation's capacity
personal purposes during the year for more than the greater of as an owner of an interest in the partnership is determined on
14 days or 10% of the number of days that the residence was the basis of all the facts and circumstances.
rented at fair rental value.
4. An activity of trading personal property for the account of In addition, a guaranteed payment described in section
owners of interests in the activity. For purposes of this rule, 707(c) is never income from a rental activity.
personal property means property that is actively traded, such as Average period of customer use. Figure the average period
stocks, bonds, and other securities. See Temporary Regulations of customer use for a class of property by dividing the total
section 1.469-1T(e)(6). number of days in all rental periods by the number of rentals
The section 469(c)(3) exception for a working interest in during the tax year. If the activity involves renting more than one
TIP oil and gas properties doesn't apply to an S corporation class of property, multiply the average period of customer use of
because state law generally limits the liability of each class by the ratio of the gross rental income from that class
shareholders. to the activity's total gross rental income. The activity's average
period of customer use equals the sum of these class-by-class
average periods weighted by gross income. See Regulations
Trade or Business Activities section 1.469-1(e)(3)(iii).
A trade or business activity is an activity (other than a rental
activity or an activity treated as incidental to an activity of holding Significant personal services. Personal services include only
property for investment) that: services performed by individuals. To determine if personal
services are significant personal services, consider all the
1. Involves the conduct of a trade or business (within the relevant facts and circumstances. Relevant facts and
meaning of section 162), circumstances include:
2. Is conducted in anticipation of starting a trade or • How often the services are provided,
business, or • The type and amount of labor required to perform the
3. Involves research or experimental expenditures under services, and
section 174. • The value of the services in relation to the amount charged for
use of the property.
If the shareholder doesn't materially participate in the activity, The following services aren't considered in determining
a trade or business activity of the corporation is a passive activity whether personal services are significant.
for the shareholder. Services necessary to permit the lawful use of the rental
•
property.
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• Services performed in connection with improvements or                  estate activities on lines 13c and 13d of Schedule K (box 13, 
repairs to the rental property that extend the useful life of the        codes E and F, of Schedule K-1) and low-income housing credits 
property substantially beyond the average rental period.                 on lines 13a and 13b of Schedule K (box 13, codes C and D of 
• Services provided in connection with the use of any improved           Schedule K-1).
real property that are similar to those commonly provided in               Report income (loss) from rental activities other than rental 
connection with long-term rentals of high-grade commercial or            real estate on line 3 of Schedule K and credits related to rental 
residential property. Examples include cleaning and                      activities other than rental real estate on line 13e of Schedule K 
maintenance of common areas, routine repairs, trash collection,          and in box 13, code G, of Schedule K-1.
elevator service, and security at entrances.
Extraordinary personal services. Services provided in                    Portfolio Income
connection with making rental property available for customer            Generally, portfolio income includes all gross income, other than 
use are extraordinary personal services only if the services are         income derived in the ordinary course of a trade or business, 
performed by individuals and the customers' use of the rental            that is attributable to interest; dividends; royalties; income from a 
property is incidental to their receipt of the services.                 real estate investment trust, a regulated investment company, a 
  For example, a patient's use of a hospital room is generally           real estate mortgage investment conduit, a common trust fund, a 
incidental to the care received from the hospital's medical staff.       controlled foreign corporation, a qualified electing fund, or a 
Similarly, a student's use of a dormitory room in a boarding             cooperative; income from the disposition of property that 
school is incidental to the personal services provided by the            produces income of a type defined as portfolio income; and 
school's teaching staff.                                                 income from the disposition of property held for investment. See 
                                                                         Self-Charged Interest, later, for an exception.
Rental activity incidental to a nonrental activity.      An activity 
isn't a rental activity if the rental of the property is incidental to a   Solely for purposes of the preceding paragraph, gross 
nonrental activity, such as the activity of holding property for         income derived in the ordinary course of a trade or business 
investment, a trade or business activity, or the activity of dealing     includes (and portfolio income, therefore, doesn't include) the 
in property.                                                             following types of income.
  Rental of property is incidental to an activity of holding             • Interest income on loans and investments made in the 
property for investment if both of the following apply.                  ordinary course of a trade or business of lending money.
• The main purpose for holding the property is to realize a gain         • Interest on accounts receivable arising from the performance 
from the appreciation of the property.                                   of services or the sale of property in the ordinary course of a 
• The gross rental income from such property for the tax year is         trade or business of performing such services or selling such 
less than 2% of the smaller of the property's unadjusted basis or        property, but only if credit is customarily offered to customers of 
its fair market value (FMV).                                             the business.
                                                                         • Income from investments made in the ordinary course of a 
  Rental of property is incidental to a trade or business activity       trade or business of furnishing insurance or annuity contracts or 
if all of the following apply.                                           reinsuring risks underwritten by insurance companies.
• The corporation owns an interest in the trade or business at all       • Income or gain derived in the ordinary course of an activity of 
times during the year.                                                   trading or dealing in any property if such activity constitutes a 
• The rental property was mainly used in the trade or business           trade or business (unless the dealer held the property for 
activity during the tax year or during at least 2 of the 5 preceding     investment at any time before such income or gain is 
tax years.                                                               recognized).
• The gross rental income from the property for the tax year is          • Royalties derived by the taxpayer in the ordinary course of a 
less than 2% of the smaller of the property's unadjusted basis or        trade or business of licensing intangible property.
its FMV.                                                                 • Amounts included in the gross income of a patron of a 
  If the corporation sells or exchanges property that is also            cooperative by reason of any payment or allocation to the patron 
rented during the tax year (in which the gain or loss is                 based on patronage occurring with respect to a trade or 
recognized), the rental is treated as incidental to the activity of      business of the patron.
dealing in property if, at the time of the sale or exchange, the         • Other income identified by the IRS as income derived by the 
property was held primarily for sale to customers in the ordinary        taxpayer in the ordinary course of a trade or business.
course of the corporation's trade or business.
                                                                           See Temporary Regulations section 1.469-2T(c)(3) for more 
  See Temporary Regulations section 1.469-1T(e)(3) and                   information on portfolio income.
Regulations section 1.469-1(e)(3) for more information on the 
definition of rental activities for purposes of the passive activity       Report portfolio income and related deductions on 
limitations.                                                             Schedule K rather than on page 1 of Form 1120-S.

Reporting of rental activities. In reporting the corporation's           Self-Charged Interest
income or losses and credits from rental activities, the 
corporation must separately report rental real estate activities         Certain self-charged interest income and deductions may be 
and rental activities other than rental real estate activities.          treated as passive activity gross income and passive activity 
                                                                         deductions if the loan proceeds are used in a passive activity. 
  Shareholders who actively participate in a rental real estate          Generally, self-charged interest income and deductions result 
activity may be able to deduct part or all of their rental real estate   from loans between the corporation and its shareholders. 
losses (and the deduction equivalent of rental real estate credits)      Self-charged interest also occurs in loans between the 
against income (or tax) from nonpassive activities. Generally, the       corporation and another S corporation or partnership if each 
combined amount of rental real estate losses and the deduction           owner in the borrowing entity has the same proportional 
equivalent of rental real estate credits from all sources (including     ownership interest in the lending entity.
rental real estate activities not held through the corporation) that 
may be claimed is limited to $25,000.                                      The self-charged interest rules don't apply to a shareholder's 
  Report rental real estate activity income (loss) on Form 8825          interest in an S corporation if the S corporation makes an 
and line 2 of Schedule K and box 2 of Schedule K-1, rather than          election under Regulations section 1.469-7(g) to avoid the 
on page 1 of Form 1120-S. Report credits related to rental real          application of these rules. To make the election, the S 
                                                                         corporation must attach to its original or amended Form 1120-S 

10                                                                                                 Instructions for Form 1120-S (2023)

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a statement that includes the name, address, EIN of the S 461(k)(4)) if that other activity is holding, producing, or
corporation, and a declaration that the election is being made distributing motion picture films or videotapes; farming; leasing
under Regulations section 1.469-7(g). The election will apply to section 1245 property; or exploring for or exploiting oil and gas
the tax year for which it was made and all subsequent tax years. resources or geothermal deposits.
Once made, the election can only be revoked with the consent of
the IRS. Activities conducted through partnerships. Once a
partnership determines its activities under these rules, the
For more details on the self-charged interest rules, see corporation as a partner can use these rules to group those
Regulations section 1.469-7. activities with:
• Each other,
Grouping Activities • Activities conducted directly by the corporation, or
Generally, one or more trade or business or rental activities may • Activities conducted through other partnerships.
be treated as a single activity if the activities make up an The corporation can't treat as separate activities those
appropriate economic unit for measurement of gain or loss under activities grouped together by a partnership.
the passive activity rules. Whether activities make up an
appropriate economic unit depends on all the relevant facts and Recharacterization of Passive Income
circumstances. The factors given the greatest weight in
determining whether activities make up an appropriate economic Under Temporary Regulations section 1.469-2T(f) and
unit are: Regulations section 1.469-2(f), net passive income from certain
• Similarities and differences in types of trades or businesses, passive activities must be treated as nonpassive income. Net
• The extent of common control, passive income is the excess of an activity's passive activity
• The extent of common ownership, gross income over its passive activity deductions (current year
• Geographical location, and deductions and prior year unallowed losses).
• Reliance between or among the activities. Any net passive income recharacterized as nonpassive
Example. The corporation has a significant ownership income is treated as investment income for purposes of figuring
interest in a bakery and a movie theater in Baltimore and a investment interest expense limitations if it is from (a) an activity
bakery and a movie theater in Philadelphia. Depending on the of renting substantially nondepreciable property from an
relevant facts and circumstances, there may be more than one equity-financed lending activity, or (b) an activity related to an
reasonable method for grouping the corporation's activities. For interest in a pass-through entity that licenses intangible property.
instance, the following groupings may or may not be permissible.
• A single activity. The amount of income from the activities in items (1) through
• A movie theater activity and a bakery activity. (3) below that any shareholder will be required to recharacterize
• A Baltimore activity and a Philadelphia activity. as nonpassive income may be limited under Temporary
• Four separate activities. Regulations section 1.469-2T(f)(8). Because the corporation
won't have information regarding all of a shareholder's activities,
Once the corporation chooses a grouping under these rules, it must identify all corporate activities meeting the definitions in
it must continue using that grouping in later tax years unless items (2) and (3) as activities that may be subject to
either: recharacterization.
• The corporation determines that the original grouping was
clearly inappropriate, or Income from the following six sources is subject to
• A material change in the facts and circumstances makes that recharacterization.
grouping clearly inappropriate. 1. Significant participation passive activities. A
significant participation passive activity is any trade or business
The IRS may regroup the corporation's activities if the
activity in which the shareholder participated for more than 100
corporation's grouping isn't an appropriate economic unit and
hours during the tax year but didn't materially participate.
one of the primary purposes for the grouping (or failure to
Because each shareholder must determine the shareholder's
regroup as required under Regulations section 1.469-4(e)) is to
level of participation, the corporation won't be able to identify
avoid the passive activity limitations. If you group your activities
significant participation passive activities.
under these rules for section 469 purposes, check the
appropriate box in item J. 2. Certain nondepreciable rental property activities.
Net passive income from a rental activity is nonpassive income if
Limitation on grouping certain activities. The following less than 30% of the unadjusted basis of the property used or
activities may not be grouped together. held for use by customers in the activity is subject to
1. A rental activity with a trade or business activity unless depreciation under section 167.
the activities being grouped together make up an appropriate 3. Passive equity-financed lending activities. If the
economic unit and: corporation has net income from a passive equity-financed
a. The rental activity is insubstantial relative to the trade or lending activity, the smaller of the net passive income or the
business activity or vice versa; or equity-financed interest income from the activity is nonpassive
b. Each owner of the trade or business activity has the same income.
proportionate ownership interest in the rental activity. If so, the 4. Rental of property incidental to a development
portion of the rental activity involving the rental of property to be activity. Net rental activity income is the excess of passive
used in the trade or business activity can be grouped with the activity gross income from renting or disposing of property over
trade or business activity. passive activity deductions (current year deductions and prior
2. An activity involving the rental of real property with an year unallowed losses) that are reasonably allocable to the
activity involving the rental of personal property (except personal rented property. Net rental activity income is nonpassive income
property provided in connection with the real property or vice for a shareholder if all of the following apply.
versa). a. The corporation recognizes gain from the sale, exchange,
3. Any activity with another activity in a different type of or other disposition of the rental property during the tax year.
business and in which the corporation holds an interest as a b. The use of the item of property in the rental activity
limited partner or as a limited entrepreneur (as defined in section started less than 12 months before the date of disposition. The
Instructions for Form 1120-S (2023) 11

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use of an item of rental property begins on the first day on which a. Identify the activity in which the property was used at the
(a) the corporation owns an interest in the property, (b) time of disposition;
substantially all of the property is either rented or held out for rent b. If the property was used in more than one activity during
and ready to be rented, and (c) no significant value-enhancing the 12 months preceding the disposition, identify the activities in
services remain to be performed. which the property was used and the adjusted basis allocated to
c. The shareholder materially or significantly participated for each activity; and
any tax year in an activity that involved performing services to c. For gains only, if the property was substantially
enhance the value of the property (or any other item of property, appreciated at the time of the disposition and the applicable
if the basis of the property disposed of is determined in whole or holding period specified in Regulations section 1.469-2(c)(2)(iii)
in part by reference to the basis of that item of property). (A) wasn't satisfied, identify the amount of the nonpassive gain
Because the corporation can't determine a shareholder's level and indicate whether or not the gain is investment income under
of participation, the corporation must identify net income from Regulations section 1.469-2(c)(2)(iii)(F).
property described above (without regard to the shareholder's 7. Specify the amount of gross portfolio income, the interest
level of participation) as income that may be subject to expense properly allocable to portfolio income, and expenses
recharacterization. other than interest expense that are clearly and directly allocable
5. Rental of property to a nonpassive activity. If a to portfolio income.
taxpayer rents property to a trade or business activity in which 8. Identify the ratable portion of any section 481 adjustment
the taxpayer materially participates, the taxpayer's net rental (whether a net positive or a net negative adjustment) allocable to
activity income (defined in item (4)) from the property is each corporate activity.
nonpassive income. 9. Identify any gross income from sources specifically
6. Acquisition of an interest in a pass-through entity excluded from passive activity gross income, including:
that licenses intangible property. Generally, net royalty a. Income from intangible property, if the shareholder is an
income from intangible property is nonpassive income if the individual whose personal efforts significantly contributed to the
taxpayer acquired an interest in the pass-through entity after the creation of the property;
pass-through entity created the intangible property or performed
substantial services or incurred substantial costs in developing b. Income from state, local, or foreign income tax refunds;
or marketing the intangible property. Net royalty income is the and
excess of passive activity gross income from licensing or c. Income from a covenant not to compete, if the
transferring any right in intangible property over passive activity shareholder is an individual who contributed the covenant to the
deductions (current year deductions and prior year unallowed corporation.
losses) that are reasonably allocable to the intangible property. 10. Identify any deductions that aren't passive activity
See Temporary Regulations section 1.469-2T(f)(7)(iii) for deductions.
exceptions to this rule. 11. If the corporation makes a full or partial disposition of its
interest in another entity, identify the gain (loss) allocable to each
Passive Activity Reporting Requirements activity conducted through the entity, and the gain allocable to a
To allow shareholders to correctly apply the passive activity loss passive activity that would have been recharacterized as
and credit limitation rules, the corporation must do the following. nonpassive gain had the corporation disposed of its interest in
1. If the corporation carries on more than one activity, property used in the activity (because the property was
provide an attached statement for each activity conducted substantially appreciated at the time of the disposition, and the
through the corporation that identifies the type of activity gain represented more than 10% of the shareholder's total gain
conducted (trade or business, rental real estate, or rental activity from the disposition).
other than rental real estate). See Grouping Activities, earlier. 12. Identify the following items from activities that may be
2. The attachment(s) must identify each group. The subject to the recharacterization rules (see Recharacterization of
attached group activity description must be sufficient for the Passive Income, earlier).
shareholders to determine if their other activities qualify to be a. Net income from an activity of renting substantially
added to any groups provided by the corporation. nondepreciable property.
3. On the attached statement for each activity, provide a b. The smaller of equity-financed interest income or net
statement using the same box numbers as shown on passive income from an equity-financed lending activity.
Schedule K-1 and detailing the net income (loss), credits, and all
items required to be separately stated under section 1366(a)(1) c. Net rental activity income from property developed (by the
from each trade or business activity, from each rental real estate shareholder or the corporation), rented, and sold within 12
activity, from each rental activity other than a rental real estate months after the rental of the property commenced.
activity, and from investments. d. Net rental activity income from the rental of property by
4. Identify the net income (loss) and the shareholder's share the corporation to a trade or business activity in which the
shareholder had an interest (either directly or indirectly).
of corporation interest expense from each activity of renting a
dwelling unit that any shareholder uses for personal purposes e. Net royalty income from intangible property if the
during the year for more than the greater of 14 days or 10% of shareholder acquired the shareholder's interest in the
the number of days that the residence is rented at fair rental corporation after the corporation created the intangible property
value. or performed substantial services, or incurred substantial costs
5. Identify the net income (loss) and the shareholder's share in developing or marketing the intangible property.
of interest expense from each activity of trading personal 13. Identify separately the credits from each activity
property conducted through the corporation. conducted by or through the corporation.
6. For any gain (loss) from the disposition of an interest in an 14. Identify the shareholder's pro rata share of the
activity or of an interest in property used in an activity (including corporation's self-charged interest income or expense (see
dispositions before 1987 from which gain is being recognized Self-Charged Interest, earlier).
after 1986):

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a. Loans between a shareholder and the corporation.
Identify the lending or borrowing shareholder's share of the Specific Instructions
self-charged interest income or expense. If the shareholder
made the loan to the corporation, also identify the activity in Period Covered
which the loan proceeds were used. If the proceeds were used
File the 2023 return for calendar year 2023 and fiscal years that
in more than one activity, allocate the interest to each activity
begin in 2023 and end in 2024. For a fiscal or short tax year
based on the amount of the proceeds used in each activity.
return, fill in the tax year space at the top of the form.
b. Loans between the corporation and another S
corporation or partnership. If the corporation's shareholders The 2023 Form 1120-S can also be used if:
have the same proportional ownership interest in the corporation • The corporation has a tax year of less than 12 months that
and the other S corporation or partnership, identify each begins and ends in 2024, and
shareholder's share of the interest income or expense from the • The 2024 Form 1120-S isn't available at the time the
loan. If the corporation was the borrower, also identify the activity corporation is required to file its return.
in which the loan proceeds were used. If the proceeds were
The corporation must show its 2024 tax year on the 2023
used in more than one activity, allocate the interest to each
Form 1120-S and take into account any tax law changes that are
activity based on the amount of the proceeds used in each
effective for tax years beginning after December 31, 2023.
activity.
Name and Address
Net Investment Income Tax Reporting Enter the corporation's true name (as set forth in the charter or
Requirements other legal document creating it) and address on the appropriate
lines. Enter the address of the corporation's principal office or
The information described in this section should be place of business. Include the suite, room, or other unit number
TIP given directly to the shareholder and shouldn't be after the street address. If the post office doesn't deliver mail to
reported by the corporation to the IRS. the street address and the corporation has a P.O. box, show the
To allow shareholders to correctly figure the net investment box number instead.
income tax where a shareholder disposes of stock in the Don't use the address of the registered agent for the
corporation during the tax year, the corporation may be required TIP state in which the corporation is incorporated. For
to provide the shareholder with certain information. The net example, if a business is incorporated in Delaware or
investment income tax is a tax imposed on an individual's, Nevada and the corporation's principal office is located in Little
trust's, or estate's net investment income. Net investment income Rock, Arkansas, the corporation should enter the Little Rock
includes the net gains or losses from the sale of stock in the address.
corporation. A shareholder who is actively involved in one or
more of the corporation or subsidiary pass-through entities' If the corporation receives its mail in care of a third party
trades or businesses (other than trading in financial instruments (such as an accountant or an attorney), enter “C/O” on the street
or commodities) can reduce the amount of the gain or loss address line, followed by the third party's name and street
included in its net investment income. However, to figure its net address or P.O. box.
investment income, the active shareholder needs certain
information from the corporation. If the corporation has a foreign address, include the city or
town, state or province, country, and foreign postal code. Don't
Generally, the corporation must provide certain information to abbreviate the country name. Follow the country's practice for
the shareholder if the corporation knows, or has reason to know, entering the name of the state or province and postal code.
the following.
1. The shareholder disposed of stock in the corporation. Item B. Business Code
2. The shareholder materially participates (within the See Principal Business Activity Codes, later. For nonstore
meaning of the passive activity loss rules (section 469)) in one or retailers, select the principal business activity (PBA) code by the
more of the trades or businesses (within the meaning of section primary product that your establishment sells. For example,
162) of the corporation or a subsidiary pass-through entity (other establishments primarily selling prescription and
than trading in financial instruments or commodities). non-prescription drugs, select PBA code 456110 Pharmacies &
Drug Retailers.
3. The shareholder doesn't qualify for the optional simplified
reporting method for figuring its net investment income Item C. Schedule M-3 Information
associated with the disposition of the stock. For more For 2023, a corporation that (a) is required to file Schedule M-3
information, see the instructions for Form 8960, line 5c. (Form 1120-S), Net Income (Loss) Reconciliation for S
Information to be provided to shareholder. Generally, the Corporations With Total Assets of $10 Million or More, and has
corporation must provide the shareholder with its pro rata share less than $50 million total assets at the end of the tax year, or (b)
of the net gain and loss from the deemed sale for fair market isn't required to file Schedule M-3 (Form 1120-S) and voluntarily
value of the corporation's property, other than property that files Schedule M-3 (Form 1120-S), must either complete
relates to the trades or businesses in which the shareholder Schedule M-3 (Form 1120-S) entirely or complete Schedule M-3
materially participates, as determined under the passive activity (Form 1120-S) through Part I and complete Form 1120-S,
loss rules applicable to the transfer of an interest in a Schedule M-1, instead of completing Parts II and III of
pass-through entity. For more information, see the instructions Schedule M-3 (Form 1120-S). If a corporation chooses to
for Form 8960, line 5c. complete Form 1120-S, Schedule M-1, instead of completing
Parts II and III of Schedule M-3 (Form 1120-S), line 1, of Form
If a shareholder, who qualifies for the optional simplified 1120-S, Schedule M-1, must equal line 11 of Part I of
TIP reporting method, prefers to determine net gain or loss Schedule M-3 (Form 1120-S).
under the general calculation, the corporation may, but
isn't obligated to, provide the information to the shareholder at Any corporation that completes Parts II and III of
the shareholder's request. Schedule M-3 (Form 1120-S) must complete all columns,
without exception.
Instructions for Form 1120-S (2023) 13

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If you are filing Schedule M-3, check the “Check if Sch. M-3
attached” box. See the Instructions for Schedule M-3 for more Item J. Aggregation or Grouping of
details. Certain Activities
For information about aggregating at-risk activities, see
Item D. Employer Identification Aggregation of Activities under At-Risk Limitations, earlier. For
Number (EIN) information about grouping passive activities, see Grouping
Enter the corporation's EIN. If the corporation doesn't have an Activities under Passive Activity Limitations, earlier.
EIN, it must apply for one. An EIN can be applied for in the
following ways. Income
• Online—Go to IRS.gov/EIN. The EIN is issued immediately Report only trade or business activity income on lines 1a
once the application information is validated. ! through 5. Don't report rental activity income or portfolio
• By faxing or mailing Form SS-4, Application for Employer CAUTION income on these lines. See Passive Activity Limitations,
Identification Number. earlier, for definitions of rental income and portfolio income.
If the corporation hasn't received its EIN by the time the return Rental activity income and portfolio income are reported on
is due, enter “Applied for” and the date the corporation applied in Schedules K and K-1. Rental real estate activities are also
the space for the EIN. However, if the corporation is filing its reported on Form 8825.
returns electronically, an EIN is required at the time the return is
Tax-exempt income. Don't include any tax-exempt income on
filed. For more information, see the Instructions for Form SS-4.
lines 1a through 5. A corporation that receives any tax-exempt
Item F. Total Assets income other than interest, or holds any property or engages in
any activity that produces tax-exempt income, reports this
Enter the corporation's total assets (as determined by the income on line 16b of Schedule K and in box 16 of Schedule K-1
accounting method regularly used in keeping the corporation's using code B.
books and records) at the end of the tax year. If there were no
assets at the end of the tax year, enter -0-. Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other
If the corporation is required to complete Schedule L, enter regulated investment company, on line 16a of Schedule K and in
total assets from Schedule L, line 15, column (d), on page 1, box 16 of Schedule K-1 using code A.
item F. If the S election terminated during the tax year, see the See Deductions, later, for information on how to report
instructions for Schedule L, later, for special rules that may apply expenses related to tax-exempt income.
when figuring the corporation's year-end assets.
Canceled debt exclusion. If the corporation has had debt
Item G. Electing To Be an S discharged resulting from a title 11 bankruptcy proceeding or
while insolvent, see Form 982, Reduction of Tax Attributes Due
Corporation to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax
If “Yes,” attach Form 2553 if not already filed. Form 2553 must Guide.
generally be filed no more than 2 months and 15 days after the
beginning of the tax year the election is to take effect. A Form Line 1a. Gross Receipts or Sales
2553 filed with Form 1120-S will generally be a late election. But Enter on line 1a gross receipts or sales from all business
with reasonable cause you may be able to request relief for the operations except for amounts that must be reported on lines 4
late election on Form 2553. See “Relief for Late Elections” in the and 5. If a cost offset method under section 451(b) or (c) is
Instructions for Form 2553. elected, the resulting gross income is reported on line 1a.
Item H. Final Return, Name Change, Special rules apply to certain income, as discussed below.
Address Change, Amended Return, or Advance payments. In general, advance payments are
reported in the year of receipt. For exceptions to this general rule
S Election Termination for corporations that use an accrual method of accounting, see
• If this is the corporation's final return and it will no longer exist, the following.
check the “Final return” box. Also check the “Final K-1” box on • To report income from long-term contracts, see section 460.
each Schedule K-1. • For rules that allow a limited deferral of advance payments
• If the corporation changed its name since it last filed a return, beyond the current tax year, see section 451(c) and Regulations
check the “Name change” box. Generally, a corporation must section 1.451-8.
also have amended its articles of incorporation and filed the • For information on adopting or changing to a permissible
amendment with the state in which it was incorporated. method for reporting advance payments for goods and services
• If the corporation has changed its address since it last filed a by an accrual method corporation, see the Instructions for Form
return (including a change to an “in care of” address), check the 3115.
“Address change” box. Installment sales. Generally, the installment method can't be
• If this amends a previously filed return, check the “Amended used for dealer dispositions of property. A “dealer disposition” is
return” box. If Schedules K-1 are also being amended, check the any disposition of:
“Amended K-1” box on each Schedule K-1. • Personal property by a person who regularly sells or otherwise
• If the corporation has terminated its S election, check the “S disposes of personal property of the same type on the
election termination” box. See Termination of Election, earlier. installment plan, or
If a change in address or responsible party occurs after • Real property held for sale to customers in the ordinary
TIP the return is filed, use Form 8822-B, Change of Address course of the taxpayer's trade or business.
or Responsible Party — Business, to notify the IRS. See These restrictions on using the installment method don't
the Instructions for Form 8822-B for details. apply to dispositions of property used or produced in a farming
business or sales of timeshares and residential lots for which the
corporation elects to pay interest under section 453(l)(3).

14 Instructions for Form 1120-S (2023)

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For sales of timeshares and residential lots reported under • The recapture amount under section 280F if the business use
the installment method, each shareholder's income tax is of listed property drops to 50% or less. To figure the recapture
increased by the shareholder's pro rata share of the interest amount, complete Part IV of Form 4797.
payable under section 453(l)(3). • The ratable portion of any positive section 481(a) adjustments
Enter on line 1a the gross profit on collections from resulting from changes in accounting methods. Show the
installment sales for any of the following. computation of the positive section 481(a) adjustments on an
• Dispositions of property used or produced in the trade or attached statement. In the statement, include, for each section
business of farming. 481(a) adjustment, the total section 481(a) adjustment, the
• Certain dispositions of timeshares and residential lots ratable portion included in current year taxable income, and a
reported under the installment method. brief description of the changes in methods of accounting to
which the section 481(a) adjustment relates. See Rev. Proc.
Attach a statement showing the following information for the 2015-13, 2015-5 I.R.B. 419, available at IRS.gov/irb/
current and the 3 preceding years. 2015-5_IRB#RP-2015-13.
• Gross sales. Part or all of the proceeds received from certain
•
• Cost of goods sold. corporate-owned life insurance contracts issued after August 17,
• Gross profits. 2006. Corporations that own one or more employer-owned life
• Percentage of gross profits to gross sales. insurance contracts issued after this date must file Form 8925,
• Amount collected. Report of Employer-Owned Life Insurance Contracts. See Form
• Gross profit on the amount collected. 8925.
• Any payroll tax credit taken by an employer on its 2023
Line 1b. Returns and Allowances employment tax returns (Forms 941, 943, and 944) for qualified
Enter cash and credit refunds the corporation made to paid sick and qualified paid family leave under FFCRA and ARP
customers for returned merchandise, rebates, and other (both the nonrefundable and refundable portions). The
allowances made on gross receipts or sales. corporation must include the full amount of the credit for qualified
sick and family leave wages in gross income for the tax year that
Line 2. Cost of Goods Sold includes the last day of the calendar quarter in which the credit is
Complete and attach Form 1125-A, Cost of Goods Sold, if allowed.
applicable. Enter on line 2 the amount from Form 1125-A, line 8.
See Form 1125-A and its instructions. Note. A credit is available only if the leave was taken after
March 31, 2020, and before October 1, 2021, and only after the
Line 4. Net Gain (Loss) From Form 4797 qualified leave wages were paid, which might, under certain
circumstances, not occur until a quarter after September 30,
Include only ordinary gains or losses from the sale, 2021, including quarters in 2023.
CAUTION trade or business activity. Ordinary gains or losses from
! exchange, or involuntary conversion of assets used in a Don't include items requiring separate computations by
the sale, exchange, or involuntary conversion of rental activity shareholders that must be reported on Schedules K and K-1.
assets are reported separately on line 19 of Form 8825, or line 3 See the instructions for Schedules K and K-1 later in these
of Schedule K, and box 3 of Schedule K-1, generally as a part of instructions.
the net income (loss) from the rental activity.
A corporation that is a partner in a partnership must include Ordinary Income (Loss) From a Partnership,
on Form 4797, Sales of Business Property, its share of ordinary Estate, or Trust
gains (losses) from sales, exchanges, or involuntary conversions
(other than casualties or thefts) of the partnership's trade or Enter the ordinary income (loss) shown on Schedule K-1 (Form
business assets. 1065) or Schedule K-1 (Form 1041), or other ordinary income
(loss) from a foreign partnership, estate, or trust. Show the
Corporations shouldn't use Form 4797 to report the sale or partnership's, estate's, or trust's name, address, and EIN on a
other disposition of property if a section 179 expense deduction separate statement attached to this return. If the amount entered
was previously passed through to any of its shareholders for that is from more than one source, identify the amount from each
property. Instead, report it in box 17 of Schedule K-1 using code source.
K. See Dispositions of property with section 179 deductions
(code K), later, for details. Don't include portfolio income or rental activity income (loss)
from a partnership, estate, or trust on this line. Instead, report
Line 5. Other Income (Loss) these amounts on Schedules K and K-1, or on line 20a of Form
Enter any other trade or business income (loss) not included on 8825 if the amount is from a rental real estate activity.
lines 1a through 4. List the type and amount of income on an
attached statement. Ordinary income or loss from a partnership that is a publicly
traded partnership isn't reported on this line. Instead, report the
Examples of other income include the following. amount separately on line 10 of Schedule K and in box 10 of
• Interest income derived in the ordinary course of the Schedule K-1 using code ZZ.
corporation's trade or business, such as interest charged on
receivable balances. See Temporary Regulations section Treat shares of other items separately reported on
1.469-2T(c)(3). Schedule K-1 issued by the other entity as if the items were
• Recoveries of bad debts deducted in prior years under the realized or incurred by this corporation.
specific charge-off method.
• Taxable income from insurance proceeds. If there is a loss from a partnership, the amount of the loss
• Any amount included in income from line 2 of Form 6478, that may be claimed by the S corporation is subject to the basis
Biofuel Producer Credit. limitations.
• Any amount included in income from line 10 of Form 8864,
Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels If the tax year of the S corporation doesn't coincide with the
Credit. tax year of the partnership, estate, or trust, include the ordinary
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income (loss) from the other entity in the tax year in which the The corporation must report the following costs separately to
other entity's tax year ends. the shareholders for purposes of determinations under section
59(e).
Deductions • Research and experimental costs under section 174.
Report only trade or business activity deductions on • Intangible drilling costs for oil, gas, and geothermal property.
• Mining exploration and development costs.
! lines 7 through 20. Indirect costs. Corporations subject to the uniform
CAUTION
capitalization rules are required to capitalize not only direct costs
Don't report the following expenses on lines 7 through 20. but an allocable part of most indirect costs (including taxes) that
• Rental activity expenses. Report these expenses on Form benefit the assets produced or acquired for resale, or are
8825 or line 3b of Schedule K. incurred because of the performance of production or resale
• Deductions allocable to portfolio income. Report these activities.
deductions on line 12d of Schedule K and in box 12 of
Schedule K-1 using code I or L. For inventory, indirect costs that must be capitalized include
• Nondeductible expenses (for example, expenses connected the following.
with the production of tax-exempt income). Report • Administration expenses.
nondeductible expenses on line 16c of Schedule K and in box 16 • Taxes.
of Schedule K-1 using code C. • Depreciation.
• Qualified expenditures to which an election under section • Insurance.
59(e) may apply. The instructions for line 12c of Schedule K and • Compensation paid to officers attributable to services.
for Schedule K-1, box 12, code J, explain how to report these • Rework labor.
amounts. • Contributions to pension, stock bonus, and certain
• Items the corporation must state separately that require profit-sharing, annuity, or deferred compensation plans.
separate computations by the shareholders. Examples include Regulations section 1.263A-1(e)(3) specifies other indirect
expenses incurred for the production of income instead of in a costs that relate to production or resale activities that must be
trade or business, charitable contributions, foreign taxes paid or capitalized and those that may be currently deductible.
accrued, intangible drilling and development costs, soil and Interest expense paid or incurred during the production
water conservation expenditures, amortizable basis of period of designated property must be capitalized and is
reforestation expenditures, and exploration expenditures. The governed by special rules. For more details, see Regulations
pro rata shares of these expenses are reported separately to sections 1.263A-8 through 1.263A-15.
each shareholder on Schedule K-1.
For more details on the uniform capitalization rules, see
Limitations on Deductions Regulations sections 1.263A-1 through 1.263A-3.
Special rules for certain corporations engaged in farming.
Section 263A uniform capitalization rules. The uniform
For S corporations not required to use an accrual method of
capitalization rules of section 263A generally require
accounting, the rules of section 263A don't apply to expenses of
corporations to capitalize, or include in inventory, certain costs
raising any:
incurred in connection with the following.
• The production of real property and tangible personal property • Animal, or
held in inventory or held for sale in the ordinary course of • Plant that has a preproductive period of 2 years or less.
business. Shareholders of S corporations not required to use an accrual
• Real property or personal property (tangible and intangible) method of accounting may elect to currently deduct the
acquired for resale. preproductive period expenses of certain plants that have a
• The production of real property and tangible personal property preproductive period of more than 2 years. Because each
by a corporation for use in its trade or business or in an activity shareholder makes the election to deduct these expenses, the
engaged in for profit. corporation shouldn't capitalize them. Instead, the corporation
should report the expenses separately on line 12d of Schedule K
Tangible personal property produced by a corporation
and report each shareholder's pro rata share in box 12 of
includes a film, sound recording, videotape, book, or similar
Schedule K-1 using code M.
property.
See Uniform Capitalization Rules in chapter 6 of Pub. 225,
The costs required to be capitalized under section 263A
Farmer's Tax Guide, sections 263A(d) and (e), and Regulations
aren't deductible until the property to which the costs relate is
section 1.263A-4 for definitions and other details.
sold, used, or otherwise disposed of by the corporation.
Exceptions. Section 263A doesn't apply to the following. Transactions between related taxpayers. Generally, an
• Inventoriable items accounted for in the same manner as accrual basis S corporation can deduct business expenses and
materials and supplies that aren't incidental. See Form 1125-A interest owed to a related party (including any shareholder) only
and its instructions for more details. in the tax year of the corporation that includes the day on which
• A small business taxpayer (defined earlier) isn’t required to the payment is includible in the income of the related party. See
capitalize costs under section 263A. A taxpayer that wants to section 267 for details.
discontinue capitalizing costs under section 263A must change Business interest. Business interest expense may be limited.
its method of accounting. See section 263A(i) and the See section 163(j) and Form 8990. Also see Schedule B,
Instructions for Form 3115. questions 9 and 10, and the related instructions for question 9
• Timber. and question 10, later.
• Most property produced under a long-term contract.
• Certain property produced in a farming business. See Special Section 291 limitations. If the S corporation was a C
rules for certain corporations engaged in farming, later. corporation for any of the 3 immediately preceding years, the
• Geological and geophysical costs amortized under section corporation may be required to adjust items such as deductions
167(h). for depletion of iron ore and coal, and the amortizable basis of
• Certain plants bearing fruits and nuts depreciated under pollution control facilities. If this applies, see section 291 to figure
section 168(k)(5). the adjustment.

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Business start-up and organizational costs. A corporation Line 7. Compensation of Officers and
can elect to deduct a limited amount of start-up and Line 8. Salaries and Wages
organizational costs it paid or incurred. Any remaining costs
must generally be amortized over a 180-month period. See Distributions and other payments by an S corporation to
sections 195 and 248 and the related regulations. ! a corporate officer must be treated as wages to the
Time for making an election. The corporation generally CAUTION extent the amounts are reasonable compensation for
elects to deduct start-up or organizational costs by claiming the services rendered to the corporation.
deduction on its income tax return filed by the due date Enter on line 7 the total compensation of all officers paid or
(including extensions) for the tax year in which the active trade or incurred in the trade or business activities of the corporation. The
business begins. For more details, see the Instructions for Form corporation determines who is an officer under the laws of the
4562. state where it is incorporated.
If the corporation timely filed its return for the year without Enter on line 8 the total salaries and wages paid or incurred to
making an election, it can still make an election by filing an employees (other than officers) during the tax year.
amended return within 6 months of the due date of the return
(excluding extensions). Clearly indicate the election on the If the corporation claims a credit for any wages paid or
amended return and enter “Filed pursuant to section ! incurred, it may need to reduce the amounts on lines 7
301.9100-2” at the top of the amended return. File the amended CAUTION and 8. See Reducing certain expenses for which credits
return at the same address the corporation filed its original are allowable, earlier.
return. The election applies when figuring taxable income for the
current tax year and all subsequent years. Don't include salaries and wages reported elsewhere on the
The corporation can choose to forgo the elections above by return, such as amounts included in cost of goods sold, elective
clearly electing to capitalize its start-up or organizational costs contributions to a section 401(k) cash or deferred arrangement,
on its income tax return filed by the due date (including or amounts contributed under a salary reduction SEP agreement
extensions) for the tax year in which the active trade or business or a SIMPLE IRA plan.
begins. If the corporation's total receipts (page 1, line 1a, plus lines 4
The election to either amortize or capitalize start-up and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6;
TIP costs is irrevocable and applies to all start-up costs that income or net gain reported on Schedule K, lines 7, 8a, 9, and
are related to the trade or business. 10; and income or net gain reported on Form 8825, lines 2, 19,
and 20a) are $500,000 or more, complete Form 1125-E,
Report the deductible amount of start-up and organizational Compensation of Officers. Enter on Form 1120-S, line 7, the
costs and any amortization on line 20. For amortization that amount from Form 1125-E, line 4.
begins during the current tax year, complete and attach Form
4562, Depreciation and Amortization. Include fringe benefit expenditures made on behalf of officers
and employees owning more than 2% of the corporation's stock.
Reducing certain expenses for which credits are allowable. Also report these fringe benefits as wages in box 1 of Form W-2.
If the corporation claims certain credits, it may need to reduce Don't include amounts paid or incurred for fringe benefits of
the otherwise allowable deductions for expenses used to figure officers and employees owning 2% or less of the corporation's
the credit. This applies to credits such as the following. stock. These amounts are reported on line 18. See the
• Work opportunity credit (Form 5884). instructions for that line for information on the types of
• Credit for increasing research activities (Form 6765). expenditures that are treated as fringe benefits and for the stock
• Orphan drug credit (Form 8820). ownership rules.
• Disabled access credit (Form 8826).
• Empowerment zone employment credit (Form 8844). Report amounts paid for health insurance coverage for a
• Credit for employer social security and Medicare taxes paid more-than-2% shareholder (including that shareholder's spouse,
on certain employee tips (Form 8846). dependents, and any children under age 27 who aren't
• Credit for small employer pension plan startup costs, dependents) as an information item in box 14 of that
auto-enrollment, and military spouse participation (Form 8881). shareholder's Form W-2. A more-than-2% shareholder may be
• Credit for employer-provided childcare facilities and services allowed to deduct such amounts on Schedule 1 (Form 1040),
(Form 8882). line 17.
• Low sulfur diesel fuel production credit (Form 8896).
• Credit for employer differential wage payments (Form 8932). If a shareholder or a member of the family of one or more
• Credit for small employer health insurance premiums (Form shareholders of the corporation renders services or furnishes
8941). capital to the corporation for which reasonable compensation
• Employer credit for paid family and medical leave (Form isn’t paid, the IRS may make adjustments in the items taken into
8994). account by such individuals to reflect the value of such services
or capital. See section 1366(e).
If the corporation has any of the credits listed above, figure
the current year credit before figuring the deduction for expenses Line 9. Repairs and Maintenance
on which the credit is based. If the corporation capitalized any Enter the cost of repairs and maintenance not claimed
costs on which it figured the credit, it may need to reduce the elsewhere on the return, such as labor and supplies, that don't
amount capitalized by the credit attributable to these costs. add to the value of the property or appreciably prolong its life.
See the instructions for the form used to figure the applicable The corporation can deduct these repairs only to the extent they
credit for more details. relate to a trade or business activity. See Regulations section
1.162-4. The corporation may elect to capitalize certain repair
and maintenance costs consistent with its books and records.
See Regulations section 1.263(a)-3(n) for information on how to
make the election.
New buildings, machinery, or permanent improvements that
increase the value of the property aren't deductible as repair and
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maintenance expenses. These expenses must be capitalized Do not reduce the corporation’s deduction for social
and depreciated or amortized. However, amounts paid for ! security and Medicare taxes by the nonrefundable and
routine maintenance on property, including buildings, may be CAUTION refundable portions of any FFCRA and ARP credits for
deductible. See Regulations section 1.263(a)-3(i). qualified sick and family leave wages claimed on its employment
tax returns. Instead, report this amount as income on line 5.
Line 10. Bad Debts
Enter the total debts that became worthless in whole or in part Don't deduct the following taxes on line 12.
during the tax year, but only to the extent such debts relate to a • Federal income taxes (except for the portion of built-in gains
trade or business activity. Report deductible nonbusiness bad tax allocable to ordinary income) or taxes reported elsewhere on
debts as a short-term capital loss on Form 8949, Sales and the return.
Other Dispositions of Capital Assets. A corporation that uses the • Creditable foreign taxes under sections 901 and 903. Report
cash method of accounting can't claim a bad debt deduction these taxes on line 16f of Schedule K and in box 16 of
unless the amount was previously included in income. Schedule K-1 using code F.
• Taxes allocable to a rental activity. Report taxes allocable to a
Line 11. Rents rental real estate activity on Form 8825. Report taxes allocable
Enter rent paid on business property used in a trade or business to a rental activity other than a rental real estate activity on
activity. Don't deduct rent for a dwelling unit occupied by any line 3b of Schedule K.
shareholder for personal use. • Taxes paid or incurred for the production or collection of
income, or for the management, conservation, or maintenance of
If the corporation rented or leased a vehicle, enter the total property held to produce income. Report these taxes separately
annual rent or lease expense paid or incurred in the trade or on line 12d of Schedule K and in box 12 of Schedule K-1 using
business activities of the corporation during the tax year. Also code ZZ.
complete Part V of Form 4562. If the corporation leased a vehicle
for a term of 30 days or more, the deduction for vehicle lease See section 263A(a) for rules on capitalization of allocable
expense may have to be reduced by including in gross income costs (including taxes) for any property.
an amount called the “inclusion amount.” The corporation may • Taxes not imposed on the corporation.
have an inclusion amount if: • Taxes, including state or local sales taxes, that are paid or
incurred in connection with an acquisition or disposition of
And the vehicle's property (these taxes must be treated as a part of the cost of the
FMV on the first acquired property or, in the case of a disposition, as a reduction
day of the lease in the amount realized on the disposition).
The lease term began: exceeded: • Taxes assessed against local benefits that increase the value
Cars (excluding trucks and vans) of the property assessed (such as for paving, etc.).
After 12/31/22 but before 1/1/24. . . . . . . . . . . . $60,000 See section 164(d) for information on apportionment of taxes
After 12/31/21 but before 1/1/23. . . . . . . . . . . . $56,000 on real property between seller and purchaser.

After 12/31/20 but before 1/1/22 . . . . . . . . . . . $51,000 Line 13. Interest
After 12/31/17 but before 1/1/21 . . . . . . . . . . . $50,000 Include only interest incurred in the trade or business activities of
After 12/31/12 but before 1/1/18. . . . . . . . . . . . $19,000 the corporation that isn't claimed elsewhere on the return.
Trucks and vans Don't include interest expense on the following.
After 12/31/22 but before 1/1/24. . . . . . . . . . . . $60,000 • On debt used to purchase rental property or debt used in a
rental activity. Interest allocable to a rental real estate activity is
After 12/31/21 but before 1/1/23. . . . . . . . . . . . $56,000 reported on Form 8825 and is used in arriving at net income
After 12/31/20 but before 1/1/22. . . . . . . . . . . . $51,000 (loss) from rental real estate activities on line 2 of Schedule K
and in box 2 of Schedule K-1. Interest allocable to a rental
After 12/31/17 but before 1/1/21. . . . . . . . . . . . $50,000 activity other than a rental real estate activity is included on
After 12/31/13 but before 1/1/18. . . . . . . . . . . . $19,500 line 3b of Schedule K and is used in arriving at net income (loss)
After 12/31/09 but before 1/1/14. . . . . . . . . . . . $19,000 from a rental activity (other than a rental real estate activity). This
net amount is reported on line 3c of Schedule K and in box 3 of
Schedule K-1.
• On debt used to buy property held for investment. Interest that
See Pub. 463, Travel, Gift, and Car Expenses, for instructions is clearly and directly allocable to interest, dividend, royalty, or
on figuring the inclusion amount. annuity income not derived in the ordinary course of a trade or
business is reported on line 12b of Schedule K and in box 12 of
Note. The inclusion amount for lease terms beginning in 2024 Schedule K-1 using code H. See the instructions for line 12b of
will be published in the Internal Revenue Bulletin in early 2024. Schedule K; for box 12, code H, of Schedule K-1; and Form
4952, Investment Interest Expense Deduction, for more
Line 12. Taxes and Licenses information on investment property.
Enter taxes and licenses paid or incurred in the trade or business • On debt proceeds allocated to distributions made to
activities of the corporation, unless they are reflected elsewhere shareholders during the tax year. Instead, report such interest on
on the return. Federal import duties and federal excise and line 12d of Schedule K and in box 12 of Schedule K-1 using
stamp taxes are deductible only if paid or incurred in carrying on code AC. To determine the amount to allocate to distributions to
the trade or business of the corporation. shareholders, see Notice 89-35, 1989-1 C.B. 675.
• On debt required to be allocated to the production of
Foreign taxes are included on line 12 only if they are designated property. Designated property includes real property,
deductible and not creditable taxes under sections 901 and 903. personal property that has a class life of 20 years or more, and
See Schedule K-2 (Form 1120-S), Part II, Section 2, line 45, other tangible property requiring more than 2 years (1 year in the
column (g). case of property with a cost of more than $1 million) to produce

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or construct. Interest allocable to designated property produced Line 15. Depletion
by a corporation for its own use or for sale must be capitalized. In If the corporation claims a deduction for timber depletion,
addition, a corporation must also capitalize any interest on debt complete and attach Form T (Timber), Forest Activities
allocable to an asset used to produce designated property. A Schedule.
shareholder may have to capitalize interest that the shareholder
incurs during the tax year for the S corporation's production Don't deduct depletion for oil and gas properties. Each
expenditures. Similarly, interest incurred by an S corporation may ! shareholder figures depletion on oil and gas properties.
have to be capitalized by a shareholder for the shareholder's CAUTION See the instructions for Schedule K-1, box 17, code R,
own production expenditures. The information required by the for the information on oil and gas depletion that must be supplied
shareholder to properly capitalize interest for this purpose must to the shareholders by the corporation.
be provided by the corporation on an attachment for box 17 of
Schedule K-1 using code P. See section 263A(f) and Line 17. Pension, Profit-Sharing, etc., Plans
Regulations sections 1.263A-8 through 1.263A-15.
Enter the deductible contributions not claimed elsewhere on the
Special rules apply to the following. return made by the corporation for its employees under a
• Allocating interest expense among activities so that the qualified pension, profit-sharing, annuity, or simplified employee
limitations on passive activity losses, investment interest, and pension (SEP) or SIMPLE IRA plan, or any other deferred
personal interest can be properly figured. Generally, interest compensation plan.
expense is allocated in the same manner as debt is allocated.
Debt is allocated by tracing disbursements of the debt proceeds If the corporation contributes to an individual retirement
to specific expenditures. Temporary Regulations section arrangement (IRA) for employees, include the contribution in
1.163-8T gives rules for tracing debt proceeds to expenditures. salaries and wages on page 1, line 8, or Form 1125-A, line 3,
• Prepaid interest, which can generally only be deducted over and not on line 17.
the term of the debt. See Regulations sections 1.163-7, 1.446-2, Employers who maintain a pension, profit-sharing, or other
and 1.1273-2(g) for details. Also see section 461(g). funded deferred compensation plan, whether or not the plan is
• Interest that is allocable to unborrowed policy cash values of qualified under the Internal Revenue Code and whether or not a
life insurance, endowment, or annuity contracts issued after deduction is claimed for the current tax year, must generally file
June 8, 1997. See section 264(f). Attach a statement showing the applicable form listed below.
the computation of the deduction. Form 5500, Annual Return/Report of Employee Benefit Plan.
• Forgone interest on below-market-rate loans (see section •
7872). • Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan. File this form instead of Form 5500
Limitation on deduction. Business interest expense is generally if there were under 100 participants at the beginning of
generally limited to the sum of business interest income, 30% of the plan year.
adjusted taxable income, and floor plan financing interest. See • Form 5500-EZ, Annual Return of A One-Participant (Owners/
Form 8990, Limitation on Business Interest Expense Under Partners and Their Spouses) Retirement Plan or A Foreign Plan.
Section 163(j), and its instructions for more information. The File this form for a plan that only covers the owner (or the owner
limitation applies at the S corporation level, and any excess and the owner's spouse) but only if the owner (or the owner and
business interest expense is carried over at the corporate level. the owner's spouse) owns the entire business.
Business interest expense includes any interest paid or Form 5500 and Form 5500-SF must be filed
accrued on indebtedness properly allocable to a trade or TIP electronically under the computerized ERISA Filing
business. A small business taxpayer is a taxpayer that isn’t a tax Acceptance System (EFAST2). For more information,
shelter (as defined in section 448(d)(3)) and has average annual see the EFAST2 website at www.EFAST.dol.gov.
gross receipts of $29 million or less for the 3 prior tax years
under the gross receipts test of section 448(c). Gross receipts There are penalties for not filing these forms on time and for
include the aggregate gross receipts from all persons treated as overstating the pension plan deduction. See sections 6652(e)
a single employer, such as a controlled group of corporations, and 6662(f).
commonly controlled partnerships or proprietorships, and
affiliated service groups. If the corporation fails to meet the gross Line 18. Employee Benefit Programs
receipts test, Form 8990 is generally required. Also see Enter amounts for fringe benefits paid or incurred on behalf of
Schedule B, questions 9 and 10. employees owning 2% or less of the corporation's stock. These
fringe benefits include (a) employer contributions to certain
Line 14. Depreciation accident and health plans, (b) the cost of up to $50,000 of
Enter the depreciation claimed on assets used in a trade or group-term life insurance on an employee's life, and (c) meals
business activity less any depreciation reported elsewhere (for and lodging furnished for the employer's convenience.
example, on Form 1125-A). See the Instructions for Form 4562,
or Pub. 946, How To Depreciate Property, to figure the amount of Don't deduct amounts that are an incidental part of a pension,
depreciation to enter on this line. profit-sharing, etc., plan included on line 17 or amounts reported
elsewhere on the return or on Form 1125-A.
Complete and attach Form 4562 only if the corporation
placed property in service during the tax year or claims Report amounts for fringe benefits paid on behalf of
depreciation on any car or other listed property. employees owning more than 2% of the corporate stock on line 7
Don't include any section 179 expense deduction on this line. or 8 (or Form 1125-E), whichever applies. An employee is
This amount isn't deducted by the corporation. Instead, it is considered to own more than 2% of the corporation's stock if that
passed through to the shareholders in box 11 of Schedule K-1. person owns on any day during the tax year more than 2% of the
However, reduce the basis of any asset of the S corporation by outstanding stock of the corporation or stock possessing more
the amount of section 179 expense elected by the S corporation, than 2% of the combined voting power of all stock of the
even if a portion of that amount can't be passed through to its corporation. See section 318 for attribution rules.
shareholders this year and must be carried forward because of
limitations at the S corporation level. See Regulations section
1.179-1(f)(2).
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Line 19. Energy Efficient Commercial Buildings See section 274(n)(3) for a special rule that applies to
expenses for meals consumed by individuals subject to the
Deduction
hours of service limits of the Department of Transportation.
Complete and attach Form 7205 if claiming the energy efficient Qualified transportation fringes (QTFs). Generally, under
commercial building deduction. See the Instructions for Form section 274(a)(4), there is no deduction allowed with respect to
7205 for more information. Also, see section 179D. QTFs provided by employers to their employees. QTFs are
defined in section 132(f)(1) to include:
Line 20. Other Deductions • Transportation in a commuter highway vehicle between the
Enter the total allowable trade or business deductions that aren't employee's residence and place of employment,
deductible elsewhere on page 1 of Form 1120-S. Attach a • Any transit pass, and
statement listing by type and amount each deduction included • Qualified parking.
on this line. See section 274 and Pub. 15-B, Employer’s Tax Guide to
Examples of other deductions include the following. Fringe Benefits, for details.
• Amortization. See Part VI of Form 4562. Membership dues. The corporation can generally deduct
• Certain business start-up and organizational costs (discussed amounts paid or incurred for membership dues in civic or public
earlier). service organizations, professional organizations (such as bar
• Insurance premiums. and medical associations), business leagues, trade
• Legal and professional fees. associations, chambers of commerce, boards of trade, and real
• Supplies used and consumed in the business. estate boards. However, no deduction is allowed if a principal
• Travel, meal, and entertainment expenses. Special rules apply purpose of the organization is to entertain or provide
(discussed later). entertainment facilities for members or their guests. In addition,
• Utilities. corporations can't deduct membership dues in any club
• Any negative section 481(a) adjustments resulting from organized for business, pleasure, recreation, or other social
changes in accounting methods. Show the computation of the purpose. This includes country clubs, golf and athletic clubs,
negative section 481(a) adjustments on an attached statement. airline and hotel clubs, and clubs operated to provide meals
In the statement, for each section 481(a) adjustment, include the under conditions favorable to business discussion.
total section 481(a) adjustment and a brief description of the Entertainment facilities. The corporation can't deduct an
changes in methods of accounting to which the section 481(a) expense paid or incurred for a facility (such as a yacht or hunting
adjustment relates. See Rev. Proc. 2015-13. lodge) used for an activity usually considered entertainment,
amusement, or recreation.
Don't deduct the following on line 20.
Amounts treated as compensation. The corporation may
• Amounts paid or incurred for any settlement, payout, or
be able to deduct otherwise nondeductible entertainment,
attorney fees related to sexual harassment or sexual abuse, if
amusement, or recreation expenses if the amounts are treated
such payments are subject to a nondisclosure agreement. See
as compensation to the recipient and reported on Form W-2 for
section 162(q).
an employee or on Form 1099-NEC for an independent
• Expenses allocable to tax-exempt income. Report these
contractor.
expenses on Schedule K, line 16c.
• Fines or similar penalties paid to or at the direction of a However, if the recipient is an officer, director, or beneficial
government or governmental entity for violating any law. owner (directly or indirectly) of more than 10% of the
However, see exceptions (discussed later). Report these corporation's stock, the deductible expense is limited. See
expenses on Schedule K, line 16c. section 274(e)(2) and Regulations sections 1.274-9 and
• Items that must be reported separately on Schedules K and 1.274-10.
K-1. Fines and similar penalties. Generally, no deduction is
allowed for fines or similar penalties paid to or at the direction of
Special Rules a government or governmental entity for violating any law except:
• Amounts that constitute restitution (including remediation of
Travel, meals, and entertainment. Subject to limitations and property),
restrictions discussed below, a corporation can deduct ordinary • Amounts paid to come into compliance with the law,
and necessary travel and meal expenses paid or incurred in its • Amounts paid or incurred as the result of orders or
trade or business. Generally, entertainment expenses, agreements in which no government or governmental entity is a
membership dues, and facilities used in connection with these party, and
activities can't be deducted. Generally, no deduction is allowed • Amounts paid or incurred for taxes due to the extent the
for qualified transportation fringe benefits. Also, special rules amount would have been allowed as a deduction if timely paid,
apply to deductions for gifts, luxury water travel, and convention and the taxpayer establishes that the amount paid or incurred
expenses. See section 274 and Pub. 463 for details. was for restitution, remediation, or to come into compliance.
Travel. The corporation can't deduct travel expenses of any No deduction is allowed unless the amounts are specifically
individual accompanying a corporate officer or employee, identified in the order or agreement and the taxpayer establishes
including a spouse or dependent of the officer or employee, that the amounts were paid for a purpose mentioned above.
unless: Also, any amount paid or incurred as reimbursement to the
• That individual is an employee of the corporation, and government for the costs of any investigation or litigation are not
• The travel is for a bona fide business purpose and would eligible for the exceptions and are nondeductible. See section
otherwise be deductible by that individual. 162(f). Also see Regulations section 1.162-21.
Meals. Generally, the corporation can deduct only 50% of the
amount otherwise allowable for meal expenses paid or incurred Lobbying expenses. Generally, lobbying expenses aren't
in its trade or business. In addition (subject to exceptions under deductible. Report nondeductible expenses on Schedule K,
section 274(k)(2)): line 16c. These expenses include:
• Meals must not be lavish or extravagant, and • Amounts paid or incurred in connection with influencing
• An employee of the corporation must be present at the meal. federal, state, or local legislation; or

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• Amounts paid or incurred in connection with any
communication with certain federal executive branch officials in Tax and Payments
an attempt to influence the official actions or positions of the
officials. See Regulations section 1.162-29 for the definition of Line 23a. Excess Net Passive Income and LIFO
“influencing legislation.” Recapture Tax
Dues and other similar amounts paid to certain tax-exempt These taxes can apply if the corporation was previously a C
organizations may not be deductible. If certain in-house lobbying corporation or if the corporation engaged in a tax-free
expenditures don't exceed $2,000, they are deductible. For reorganization with a C corporation.
information on contributions to charitable organizations that Excess net passive income tax. If the corporation has AE&P
conduct lobbying activities, see section 170(f)(9). at the close of its tax year and has passive investment income for
Certain corporations engaged in farming. Section 464(d) the tax year that is in excess of 25% of gross receipts, the
limits the deduction for certain expenditures of S corporations corporation must figure its excess net passive income and pay
engaged in farming if they use the cash method of accounting, tax on it. To make this determination, complete lines 1 through 3
and their prepaid farm supplies are more than 50% of other and line 9 of the Excess Net Passive Income Tax Worksheet for
deductible farming expenses. Line 23a. If line 2 is greater than line 3 and the corporation has
Prepaid farm supplies include expenses for feed, seed, taxable income (see the instructions for line 9 of the worksheet),
fertilizer, and similar farm supplies not used or consumed during it must pay the tax. Complete a separate statement using the
the year. They also include the cost of poultry that would be format of lines 1 through 11 of the worksheet to figure the tax.
allowable as a deduction in a later tax year if the corporation Enter the tax on line 23a, page 1, Form 1120-S, and attach the
were to (a) capitalize the cost of poultry bought for use in its farm computation statement to Form 1120-S.
business and deduct it ratably over the lesser of 12 months or Reduce each item of passive investment income passed
the useful life of the poultry, and (b) deduct the cost of poultry through to shareholders by its portion of any excess net passive
bought for resale in the year it sells or otherwise disposes of it. income tax reported on line 23a. See section 1366(f)(3).
If the limit applies, the corporation can deduct prepaid farm LIFO recapture tax. The corporation may be liable for the
supplies that don't exceed 50% of its other deductible farm additional tax due to LIFO recapture under Regulations section
expenses in the year of payment. The excess is deductible only 1.1363-2 if:
in the year the corporation uses or consumes the supplies (other • The corporation used the LIFO inventory pricing method for its
than poultry, which is deductible, as explained above). For last tax year as a C corporation, or
exceptions and more details on these rules, see Pub. 225. • A C corporation transferred LIFO inventory to the corporation
Reforestation expenditures. If the corporation made an in a nonrecognition transaction in which those assets were
election to deduct a portion of its reforestation expenditures on transferred basis property.
line 12d of Schedule K, it must amortize over an 84-month The additional tax due to LIFO recapture is figured for the
period the portion of these expenditures in excess of the amount corporation's last tax year as a C corporation or for the tax year
deducted on Schedule K (see section 194). Deduct on line 20 of the transfer, whichever applies. See the Instructions for Form
only the amortization of these excess reforestation expenditures. 1120 to figure the tax.
See Reforestation expense deduction (code O), later.
The tax is paid in four equal installments. The C corporation
Line 22. Ordinary Business Income (Loss) must pay the first installment by the due date (not including
extensions) of Form 1120 for the corporation's last tax year as a
Enter this income or loss on line 1 of Schedule K. Line 22 C corporation or for the tax year of the transfer, whichever
income is not used in figuring the excess net passive income or applies. The S corporation must pay each of the remaining
built-in gains taxes. See the instructions for line 23a for figuring installments by the due date (not including extensions) of Form
taxable income for purposes of these taxes. 1120-S for the 3 succeeding tax years. Include this year's

Excess Net Passive Income Tax Worksheet for Line 23a Keep for Your Records
1. Enter gross receipts for the tax year (see section 6. Net passive income—Subtract line 5 from
1362(d)(3)(B) for gross receipts from the sale of line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
capital assets)* . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Divide amount on line 4 by amount on line 2 . . . . . . %
2. Enter passive investment income as defined in 8. Excess net passive income—Multiply line 6 by
section 1362(d)(3)(C)* . . . . . . . . . . . . . . . . . . . . . line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Multiply line 1 by 25% (0.25). (If line 2 is less than 9. Enter taxable income (see instructions for taxable
line 3, stop here. You aren't liable for this tax.) . . . . . income below) . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Excess passive investment income—Subtract line 3 10. Enter smaller of line 8 or line 9 . . . . . . . . . . . . . . . .
from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5. Enter deductions directly connected with the 11. Excess net passive income tax—Multiply line 10 by
production of the income listed on line 2 (see section 21% (0.21). Enter here and on Form 1120-S,
1375(b)(2))* . . . . . . . . . . . . . . . . . . . . . . . . . . . . line 23a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*Income and deductions on lines 1, 2, and 5 are from total operations for the tax year. This includes applicable income and expenses from page 1, Form
1120-S, as well as those imported separately on Schedule K. See section 1375(b)(4) for an exception regarding lines 2 and 5.
Line 9 of Worksheet—Taxable Income
Taxable income, for this purpose, is defined in Regulations section 1.1374-1A(d)(1). Figure this income by completing lines 1 through 28 of Form 1120, U.S.
Corporation Income Tax Return. Include the Form 1120 computation with the worksheet computation you attach to Form 1120-S. You don't have to attach the
schedules, etc., called for on Form 1120. However, you may want to complete certain Form 1120 schedules, such as Schedule D (Form 1120), if you have
capital gains or losses.

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installment in the total amount to be entered on line 23a. To the months and making all required deposits and timely filing tax
left of the total on line 23a, enter the installment amount and returns during the length of the agreement.
“LIFO tax.”
If the installment agreement is accepted, the corporation will
Line 23b. Tax From Schedule D (Form 1120-S) be charged a fee and it will be subject to penalties and interest
on the amount of tax not paid by the due date of the return.
Enter the built-in gains tax from line 23 of Part III of Schedule D.
See the instructions for Part III of Schedule D to determine if the Line 28
corporation is liable for the tax.
Direct deposit of refund. If the corporation wants its refund
Line 23c directly deposited into its checking or savings account at any
Include the following in the total for line 23c. U.S. bank or other financial institution instead of having a check
sent to the corporation, complete Form 8050 and attach it to the
Investment credit recapture tax. The corporation is liable for corporation's return.
any required investment credit recapture attributable to credits
allowed for tax years for which the corporation wasn't an S
corporation. The corporation is also liable for any required Schedule B. Other Information
qualifying therapeutic discovery project grant recapture. Figure Complete all items that apply to the corporation.
the corporation's investment credit recapture tax and qualifying
therapeutic discovery project grant recapture tax by completing Item 2
Form 4255, Recapture of Investment Credit. See the Instructions See Principal Business Activity Codes at the end of these
for Form 4255. instructions and enter the business activity and product or
To the left of the line 23c total, enter the amount of recapture service. For nonstore retailers, select the PBA code by the
tax and “Tax From Form 4255.” Attach Form 4255 to Form primary product that your establishment sells. For example,
1120-S. establishments primarily selling prescription and
non-prescription drugs, select PBA code 456110 Pharmacies &
Interest due under the look-back method—Completed Drug Retailers.
long-term contracts. If the corporation owes this interest,
attach Form 8697, Interest Computation Under the Look-Back Question 4. Constructive Ownership of Other
Method for Completed Long-Term Contracts. To the left of the
total on line 23c, enter the amount owed and “From Form 8697.” Entities
For purposes of determining the corporation's constructive
Interest due under the look-back method—Property depre- ownership of other entities, the constructive ownership rules of
ciated under the income forecast method. If the corporation section 267(c) (excluding section 267(c)(3)) apply to ownership
owes this interest, attach Form 8866, Interest Computation of interests in partnerships and trusts as well as corporate stock.
Under the Look-Back Method for Property Depreciated Under Generally, if an entity (a corporation, partnership, or trust) is
the Income Forecast Method. To the left of the total on line 23c, owned, directly or indirectly, by or for another entity (corporation,
enter the amount owed and “From Form 8866.” partnership, estate, or trust), the owned entity is considered to
be owned proportionately by or for the owners (shareholders,
Line 24d. Elective Payment Election Amount partners, or beneficiaries) of the owning entity.
From Form 3800
Maximum percentage owned in partnership profit, loss, or
Enter the total gross elective payment election amount from capital. For the purposes of question 4b, the term “maximum
Form 3800, Part III, line 6, column (h). See the Instructions for percentage owned” means the highest percentage of interest in
Form 3800 for more information. a partnership's profit, loss, or capital as of the end of the
partnership's tax year, as determined under the partnership
Line 24z agreement, when taking into account the constructive ownership
If the corporation is the beneficiary of a trust, and the trust makes rules discussed earlier. If the partnership agreement doesn't
a section 643(g) election to credit its estimated tax payments to express the partner's share of profit, loss, and capital as fixed
its beneficiaries, include the corporation's share of the payment percentages, use a reasonable method in arriving at the
in the total for line 24z. Enter “T” and the amount of the payment percentage items for the purposes of completing question 4b.
on the dotted line to the left of the entry space. Such method must be consistent with the partnership
agreement. The method used to figure a percentage share of
Line 25. Estimated Tax Penalty profit, loss, and capital must be applied consistently from year to
If Form 2220 is attached, check the box on line 25 and enter the year. Maintain records to support the determination of the share
amount of any penalty on this line. of profits, losses, and share of capital.

Line 26. Amount Owed Question 6
If the corporation can't pay the full amount of tax owed, it can Answer “Yes” if the corporation filed, or is required to file, Form
apply for an installment agreement online. The corporation can 8918, Material Advisor Disclosure Statement. For details, see
apply for an installment agreement online if: the Instructions for Form 8918.
• It can't pay the full amount shown on line 26,
• The total amount owed is $25,000 or less, and Item 8
• The corporation can pay the liability in full in 24 months. Complete item 8 if the corporation (a) was a C corporation before
it elected to be an S corporation or the corporation acquired an
To apply using the Online Payment Agreement Application, asset with a basis determined by reference to its basis (or the
go to IRS.gov/OPA. basis of any other property) in the hands of a C corporation, and
Under an installment agreement, the corporation can pay (b) has net unrealized built-in gain (defined below) in excess of
what it owes in monthly installments. There are certain the net recognized built-in gain from prior years.
conditions that must be met to enter into and maintain an
installment agreement, such as paying the liability within 24

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The corporation is liable for section 1374 tax if (a) and (b) Gross receipts test. A taxpayer meets the gross receipts test if
above apply and it has a net recognized built-in gain (defined in the taxpayer has average annual gross receipts of $29 million or
section 1374(d)(2)) for its tax year. less for the 3 prior tax years. A taxpayer's average annual gross
The corporation's net unrealized built-in gain is the amount, if receipts for the 3 prior tax years is determined by adding the
any, by which the aggregate fair market value of the assets of the gross receipts for the 3 prior tax years and dividing the total by 3.
corporation at the beginning of its first S corporation year (or as Gross receipts include the aggregate gross receipts from all
of the date the assets were acquired, for any asset with a basis persons treated as a single employer, such as a controlled group
determined by reference to its basis (or the basis of any other of corporations, commonly controlled partnerships, or
property) in the hands of a C corporation) exceeds the aggregate proprietorships, and affiliated service groups. See section 448(c)
adjusted basis of such assets at that time. and the Instructions for Form 8990 for additional information.

Enter the corporation's net unrealized built-in gain reduced by Question 11
the net recognized built-in gain from prior years. See sections
1374(c)(2) and (d)(1). Total receipts is the sum of the following amounts.
• Gross receipts or sales (page 1, line 1a).
If the corporation has more than one pool of assets (as • All other income (page 1, lines 4 and 5).
defined in Regulations section 1.1374-3(b)(4)), attach a • Income reported on Schedule K, lines 3a, 4, 5a, and 6.
statement showing for each pool of assets the amount of the • Income or net gain reported on Schedule K, lines 7, 8a, 9, and
corporation's net unrealized built-in gain reduced by the net 10.
recognized built-in gain from prior years. • Income or net gain reported on Form 8825, lines 2, 19, and
20a.
Question 9. Business Interest Expense Election
The limitation on business interest expense under section 163(j) Question 12
applies to every taxpayer with a trade or business, unless the Amounts related to the forgiveness of PPP loans are disregarded
taxpayer meets certain specified exceptions. A taxpayer may for purposes of this question.
elect out of the limitation for certain businesses otherwise
subject to the business interest expense limitation. This is an Question 13
irrevocable election.
Answer “Yes” if, during the tax year, the corporation revoked a
Certain real property trades or businesses and farming qualified subchapter S subsidiary (QSub) election or a QSub
businesses qualify to make an election not to limit business election of the corporation was terminated. If “Yes,” see
interest expense. This is an irrevocable election. If you make this Regulations section 1.1361-5 for additional information.
election, you are required to use the alternative depreciation
system to depreciate certain property. Also, you aren’t entitled to Questions 14a and 14b
the special depreciation allowance for that property. For a If the corporation made any payment in 2023 that would require it
taxpayer with more than one qualifying business, the election is to file any Form(s) 1099, check the “Yes” box for question 14a
made with respect to each business. and answer question 14b. Otherwise, check the “No” box for
Check “Yes” if the taxpayer has an election in effect to question 14a and skip question 14b. See Am I Required to File a
exclude a real property trade or business or a farming business Form 1099 or Other Information Return on IRS.gov.
from section 163(j). For more information, see the Instructions for
Form 8990. Question 15
To be certified as a qualified opportunity fund, the S corporation
Question 10. Conditions for Filing Form 8990 must file Form 1120-S and attach Form 8996, even if the
A taxpayer that isn’t a small business taxpayer (defined below) corporation had no income or expenses to report. If the S
must generally file Form 8990. In addition, any taxpayer that corporation is attaching Form 8996, check the “Yes” box and
owns an interest in a partnership with current year, or prior year enter the amount from Form 8996, line 15, in the entry space.
carryover, excess business interest expense allocated from the See Certification as a qualified opportunity fund, earlier.
partnership must file Form 8990. The penalty reported on this line from Form 8996, line 15, is
A taxpayer who is a U.S. shareholder of an applicable CFC not due with the filing of this form. The IRS will separately send
that has business interest expense, disallowed business interest you a notice setting forth the due date for the penalty payment
expense carryforward, or is part of a CFC group must generally and where that payment should be sent.
apply section 163(j) to each applicable CFC and attach a Form
8990 with each Form 5471. Question 16
Exclusions from filing. A taxpayer isn’t required to file Form Digital assets are any digital representations of value that are
8990 if the taxpayer is a small business taxpayer and doesn’t recorded on a cryptographically secured distributed ledger or
have excess business interest expense from a partnership. A any similar technology. For example, digital assets include
taxpayer is also not required to file Form 8990 if the taxpayer non-fungible tokens (NFTs) and virtual currencies, such as
only has business interest expense from these excepted trades cryptocurrencies and stablecoins. If a particular asset has the
or businesses: characteristics of a digital asset, it will be treated as a digital
• The trade or business of providing services as an employee, asset for federal income tax purposes.
• An electing real property trade or business, Check the “Yes” box if at any time during the tax year, the S
• An electing farming business, or corporation (a) received (as a reward, award, or payment for
• Certain regulated utility businesses. property or services); or (b) sold, exchanged, or otherwise
Small business taxpayer. A small business taxpayer isn’t disposed of a digital asset (or any financial interest in any digital
subject to the business interest expense limitation and isn’t asset).
required to file Form 8990. A small business taxpayer is a For example, check “Yes” if at any time during the tax year,
taxpayer that (a) isn’t a tax shelter (as defined in section 448(d) the S corporation:
(3)), and (b) meets the gross receipts test of section 448(c), • Received digital assets as payment for property or services
discussed next. provided;
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• Received digital assets as a result of a reward or award; boxes must use the same numbers and titles and must be in the
• Received new digital assets as a result of mining, staking, and same order and format as on the comparable IRS Schedule K-1.
similar activities; The substitute schedule must include the OMB number. The
• Received digital assets as a result of a hard fork; corporation must provide each shareholder with the
• Disposed of digital assets in exchange for property or Shareholder's Instructions for Schedule K-1 (Form 1120-S) or
services; instructions that apply to the specific items reported on the
• Disposed of a digital asset in exchange or trade for another shareholder's Schedule K-1.
digital asset;
• Sold a digital asset; or The corporation must ask for IRS approval to use other
• Otherwise disposed of any other financial interest in a digital substitute Schedules K-1.
asset. Each shareholder's information must be on a separate sheet
The S corporation has a financial interest in a digital asset if it of paper. Therefore, separate all continuously printed substitutes
is the owner of record of a digital asset, or has an ownership before you file them with the IRS.
stake in an account that holds one or more digital assets, The corporation may be subject to a penalty if it files a
including the rights and obligations to acquire a financial interest, substitute Schedule K-1 that doesn't conform to the
or owns a wallet that holds digital assets. specifications discussed in Pub. 1167, General Rules and
The following actions or transactions in the tax year, alone, Specifications for Substitute Forms and Schedules.
generally do not require the S corporation to check “Yes.”
• Holding a digital asset in a wallet or account; For more information, see Pub. 1167.
• Transferring a digital asset from one wallet or account the S
corporation owns or controls to another wallet or account that it Shareholder's Pro Rata Share Items
owns or controls; or General Rule
• Purchasing digital assets using U.S. or other real currency,
including through the use of electronic platforms such as PayPal Items of income, gain, loss, deduction, or credit are allocated to
and Venmo. a shareholder on a daily basis, according to the number of
Do not leave the question unanswered. The S corporation shares of stock held by the shareholder on each day of the
must answer “Yes” or “No” by checking the appropriate box. For corporation's tax year. See the detailed instructions for item G in
more information, go to IRS.gov/virtualcurrencyfaqs. Part II. Information About the Shareholder, later.
If the S corporation disposed of any digital asset that was Shareholders who dispose of stock are treated as
held as a capital asset, through a sale, trade, exchange, shareholders for the day of their disposition. Shareholders who
payment, or other transfer, use Form 8949 to calculate the die are treated as shareholders for the day of their death.
capital gain or loss and report that gain or loss on Schedule D
(Form 1120-S). If the S corporation received any digital asset as
compensation for services or disposed of any digital asset that Special Rules
was held for sale to customers in a trade or business, it must Termination of shareholder's interest. If a shareholder
report the income as it would report other income of the same terminates shareholder’s interest in a corporation during the tax
type. year, the corporation, with the consent of all affected
shareholders (including those whose interest is terminated), may
Schedules K and K-1 (General elect to allocate income and expenses, etc., as if the
corporation's tax year consisted of 2 separate tax years, the first
Instructions) of which ends on the date of the shareholder's termination.
To make the election, the corporation must attach a statement
Purpose of Schedules to a timely filed original or amended Form 1120-S for the tax year
The corporation is liable for taxes on lines 23a, 23b, and 23c on for which the election is made. In the statement, the corporation
page 1 of Form 1120-S. Shareholders are liable for tax on their must state that it is electing under section 1377(a)(2) and
shares of the corporation's income (reduced by any taxes paid Regulations section 1.1377-1(b) to treat the tax year as if it
by the corporation on income). Shareholders must include their consisted of 2 separate tax years. The statement must also
share of the income on their tax return whether or not it is explain how the shareholder's entire interest was terminated (for
distributed to them. Unlike most partnership income, S example, sale or gift), and state that the corporation and each
corporation income isn't self-employment income and isn't affected shareholder consent to the corporation making the
subject to self-employment tax. election. A single statement may be filed for all terminating
elections made for the tax year. If the election is made, enter
Schedule K. Schedule K is a summary schedule of all “Section 1377(a)(2) Election Made” at the top of each affected
shareholders' shares of the corporation's income, deductions, shareholder's Schedule K-1.
credits, etc. All corporations must complete Schedule K.
For more details, see Regulations section 1.1377-1(b).
Schedule K-1. Schedule K-1 shows each shareholder's
separate share. Attach a copy of each Schedule K-1 to the Form Qualifying dispositions. If a qualifying disposition takes place
1120-S filed with the IRS. Keep a copy for the corporation's during the tax year, the corporation may make an irrevocable
records and give each shareholder a copy. election to allocate income and expenses, etc., as if the
corporation's tax year consisted of 2 tax years, the first of which
Give each shareholder a copy of the Shareholder's ends on the close of the day the qualifying disposition occurs.
Instructions for Schedule K-1 (Form 1120-S) or specific
instructions for each item reported on the shareholder's A qualifying disposition is:
Schedule K-1. 1. A disposition by a shareholder of at least 20% of the
corporation's outstanding stock in one or more transactions in
Substitute Forms any 30-day period during the tax year,
The corporation doesn't need IRS approval to use a substitute 2. A redemption treated as an exchange under section
Schedule K-1 if it is an exact copy of the IRS schedule. The 302(a) or 303(a) of at least 20% of the corporation's outstanding

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stock in one or more transactions in any 30-day period during the amount. For example: “Box 13, code J—Work opportunity
tax year, or credit—$1,000.” This can be followed with any additional
3. An issuance of stock that equals at least 25% of the information that the shareholder needs to determine the proper
previously outstanding stock to one or more new shareholders in tax treatment of the item.
any 30-day period during the tax year. For electronically filed returns, the corporation must
To make the election, the corporation must attach a statement ! follow the instructions for attached statements as
to a timely filed original or amended Form 1120-S for the tax year CAUTION described in Pub. 4164 when reporting the additional
for which the election is made. In the statement, the corporation information that may be required for each respective box. See
must state that it is electing under Regulations section Pub. 4164, Modernized e-File (MeF) Guide for Software
1.1368-1(g)(2)(i) to treat the tax year as if it consisted of 2 Developers and Transmitters, for more information.
separate tax years, give the facts relating to the qualifying
disposition (for example, sale, gift, stock issuance, or Special Reporting Requirements for At-Risk
redemption), and state that each shareholder who held stock in
the corporation during the tax year consents to the election. A Activities
single election statement may be filed for all qualifying
disposition elections for the tax year. If items of income, loss, or deduction from more than one at-risk
activity are reported on Schedule K-1, the corporation must
For more details, see Regulations section 1.1368-1(g)(2). provide its shareholders with separate information for each
activity. See At-Risk Activity Reporting Requirements under
Specific Instructions (Schedule K-1 At-Risk Limitations, earlier, for details.

Only) Special Reporting Requirements for Corporations
General Information With Multiple Activities
Generally, the corporation is required to prepare and give a If items of income, loss, deduction, or credit from more than one
Schedule K-1 to each person who was a shareholder in the activity (determined for purposes of the passive activity loss and
corporation at any time during the tax year. Schedule K-1 must credit limitations) are reported on Schedule K-1, the corporation
be provided to each shareholder on or before the day on which must provide information separately for each activity to its
the corporation's Form 1120-S is required to be filed. shareholders. See Passive Activity Reporting Requirements,
earlier, for details on the reporting requirements.
How To Complete Schedule K-1
Part I. Information About the Corporation
If the return is for a fiscal year or a short tax year, fill in the tax On each Schedule K-1, enter the corporation's name, address,
year space at the top of each Schedule K-1. On each and identifying number.
Schedule K-1, enter the information about the corporation and
the shareholder in Parts I and II (items A through I). In Part III,
enter the shareholder's pro rata share of each item of income, Item C
deduction, and credit and any other information the shareholder
needs to prepare the shareholder's tax return, including If the corporation is filing its return electronically, enter “e-file.”
information needed to prepare state and local tax returns. Use Otherwise, enter the name of the IRS service center where the
10-point Helvetica Light Standard font (if possible) for all entries corporation will file its return. See Where To File, earlier.
if you are typing or using a computer to complete Schedule K-1.
Item D
Codes. In boxes 10, 12, 13, and boxes 15 through 17, identify
each item by entering a code in the left column of the entry Report the total number of shares issued and outstanding at the
space. These codes are identified in these instructions and on beginning and end of the S corporation’s tax year. An entity
the List of Codes in the Shareholder's Instructions for without stock, such as an LLC, should enter the number of units
Schedule K-1 (Form 1120-S). or other equivalent to S corporation stock. Round the number of
Attached statements. When attaching statements to shares to the nearest whole number (but not below zero). For
Schedule K-1 to report additional information to the shareholder, example, round 0.6315 up to 1.
indicate there is a statement depending upon the following.
• If an amount can be input on Schedule K-1 but additional Part II. Information About the Shareholder
information is required so the shareholder can determine the On each Schedule K-1, enter the shareholder's name, address,
proper reporting, enter an asterisk (*) after the code in the left identifying number, and percentage of stock ownership.
column of the entry space.
• For items that can't be reported as a single dollar amount, Truncating recipient's identification number on Sched-
enter the code and asterisk (*) in the left column and enter ule K-1. The corporation can truncate a shareholder's
“STMT” in the right column to indicate that the information is identifying number on the Schedule K-1 the corporation sends to
provided on an attached statement. the shareholder. Truncation isn't allowed on the Schedule K-1
• If the corporation has more coded items than the number of the corporation files with the IRS. Also, the corporation can't
entry boxes (for example, boxes 10, 12, 13, or boxes 15 through truncate its own identification number on any form.
17), don't enter a code or dollar amount in the last box. Instead, To truncate, where allowed, replace the first five digits of the
enter an asterisk (*) in the left column and enter “STMT” in the nine-digit number with asterisks (*) or Xs (for example, an SSN
entry space to the right. xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For
More than one attached statement can be placed on the more information, see Regulations section 301.6109-4.
same sheet of paper. The information included in the statement
should be identified in alphanumeric order by box number
followed by the letter code (if any), description, and dollar

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Items E and F disposition took place, the corporation may elect to allocate
income and expenses, etc., as if the tax year consisted of 2 tax
For an individual shareholder, enter the shareholder's social years, the first of which ends on the day of the termination or
security number (SSN) or individual taxpayer identification qualifying disposition. See Special Rules, earlier, for more
number (ITIN) in item E. For all other shareholders, enter the details.
shareholder's EIN.
Item H
If stock of the corporation is held by a nominee, guardian,
custodian, or an agent, enter the name, address, and identifying Report the number of shares for purposes of allocating items of
number of the person for whom the stock is held. income, loss, or deduction at the beginning and end of the S
corporation’s tax year. An entity without stock, such as an LLC,
If S corporation stock is part of a decedent's estate, the should enter the number of units or other equivalent to S
executor of the estate should notify the S corporation of the corporation stock (including ownership percentages). Round the
name and taxpayer identification number of the decedent's number of shares to the nearest whole number (but not below
estate. See Pub. 559 for details. zero). For example, round 0.6315 up to 1.
If a single-member limited liability company (LLC) owns stock Example. If shareholders X and Y each owned 50 shares for
in the corporation, and the LLC is treated as a disregarded entity the entire tax year, enter 50 in item H for both the beginning and
for federal income tax purposes, enter the LLC owner's ending amounts for each shareholder. However, if A and B each
identifying number in item E and the LLC owner's name and owned 50 shares of stock for the first half of the tax year and C
address in item F. The LLC’s owner must be eligible to be an S purchased 10 shares of A’s and B’s stock during the year, A’s
corporation shareholder. An LLC that elects to be treated as a and B’s beginning of tax year number of shares is 50, while C’s is
corporation for federal income tax purposes isn't eligible to be an 0, and the end of tax year number of shares for A and B is 40,
S corporation shareholder. while C’s is 20.

Item G Item I

Each shareholder's pro rata share items are figured separately Report the amount of debt owed by the S corporation directly to
for each period on a daily basis, based on the percentage of the shareholder as of the beginning and end of the S
stock held by the shareholder on each day. corporation’s tax year. Generally, the amount reported on
Schedule L, line 19, Loans from shareholder, should reconcile to
If there was no change in shareholders or in the relative the sum of all amounts reported on Schedules K-1. Do not
interest in stock the shareholders owned during the tax year, include amounts for which the shareholder is a co-borrower or
enter the percentage of total stock owned by each shareholder guarantor of corporate level debt. Also do not include any
during the tax year (current year allocation percentage). For intercompany debt.
example, if shareholders X and Y each owned 50% for the entire
tax year, enter 50% in item G for each shareholder. Each
shareholder's pro rata share items (boxes 1 through 17 of Specific Instructions (Schedules K
Schedule K-1) are figured by multiplying the corresponding and K-1, Part III)
Schedule K amount by the percentage in item G.
Income (Loss)
If there was a change in shareholders or in the relative
interest in stock the shareholders owned during the tax year, Reminder. Before entering income items on Schedule K or K-1,
figure the percentage as follows. reduce each item of passive investment income (within the
• Each shareholder's percentage of ownership is weighted for meaning of section 1362(d)(3)(C)) by its proportionate share of
the number of days in the tax year that stock was owned. For the net passive income tax (Form 1120-S, page 1, line 23a).
example, A and B each held 50% for half the tax year and A, B,
and C held 40%, 40%, and 20%, respectively, for the remaining Line 1. Ordinary Business Income (Loss)
half of the tax year. The percentage of ownership for the year for
A, B, and C is figured as presented in the illustration and is then
entered in item G. Enter the amount from Form 1120-S, page 1, line 22. Enter the
income (loss) without reference to the shareholder's:
• Basis in the stock of the corporation and in any indebtedness
a b c (a × b) of the corporation to the shareholders (section 1366(d)),
% of total stock % of tax year held % of ownership for • At-risk limitations, and
owned the year • Passive activity limitations.
A 50 50 25
40 50 +20 45 These limitations, if applicable, are determined at the
shareholder level.
B 50 50 25
40 50 +20 45 Line 1 shouldn't include rental activity income (loss) or
C 20 50 10 10 portfolio income (loss).
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100% Schedule K-1. Enter each shareholder's pro rata share of
ordinary business income (loss) in box 1 of Schedule K-1.
Identify on statements attached to Schedule K-1 any additional
• Each shareholder's pro rata share items are generally figured information the shareholder needs to correctly apply the passive
by multiplying the Schedule K amount by the percentage in item activity limitations. For example, if the corporation has more than
G. However, if a shareholder terminated the shareholder’s entire one trade or business activity, identify the amount from each
interest in the corporation during the year or a qualifying activity. See Passive Activity Reporting Requirements, earlier.

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Line 2. Net Rental Real Estate Income (Loss) (within the meaning of section 958(a)) stock in a foreign
corporation may have income inclusions (for example, subpart F
Enter the net income (loss) from rental real estate activities of the income and GILTI inclusions) with respect to the foreign
corporation from Form 8825. Attach the form to Form 1120-S. corporation and, as a result, previously taxed earnings and
profits (PTEP) in annual PTEP accounts with respect to the
Schedule K-1. Enter each shareholder's pro rata share of net foreign corporation. Do not include ordinary dividends or
rental real estate income (loss) in box 2 of Schedule K-1. Identify qualified dividends received from a foreign corporation to the
on statements attached to Schedule K-1 any additional extent that they are attributable to PTEP in annual PTEP
information the shareholder needs to correctly apply the passive accounts of the S corporation with respect to the foreign
activity limitations. For example, if the corporation has more than corporation. See Notice 2019-01. The amount by which ordinary
one rental real estate activity, identify the amount from each dividends and qualified dividends are attributable to PTEP in
activity. Also, for example, identify certain items from any rental annual PTEP accounts of a person other than the S corporation
real estate activities that may be subject to the recharacterization (for example, a shareholder) is not relevant for purposes of
rules. See Passive Activity Reporting Requirements, earlier. determining the ordinary dividends to be entered on line 5a.
Line 3. Other Net Rental Income (Loss) Note. An annual PTEP account of the S corporation is different
than the shareholders’ undistributed taxable income previously
Enter on line 3a gross income from rental activities other than taxed account, as discussed in the instructions to Schedule M-2,
those reported on Form 8825. Include on line 3a gain (loss) from column (b).
line 17 of Form 4797 that is attributable to the sale, exchange, or Schedule K-1. Enter each shareholder's pro rata share of
involuntary conversion of an asset used in a rental activity other ordinary dividends in box 5a of Schedule K-1.
than a rental real estate activity.
Enter on line 3b the deductible expenses of the activity. Line 5b. Qualified Dividends
Attach a statement of these expenses to Form 1120-S.
Enter qualified dividends on line 5b. Except as provided below,
Enter on line 3c the net income (loss). qualified dividends are dividends received from domestic
corporations and qualified foreign corporations. Do not include
See Rental Activities, earlier, and Pub. 925, for more qualified dividends to the extent that they are attributable to
information on rental activities. PTEP in annual PTEP accounts of the S corporation. See Notice
2019-01. The amount by which qualified dividends are
Schedule K-1. Enter in box 3 of Schedule K-1 each attributable to PTEP in annual PTEP accounts of a person other
shareholder's pro rata share of other net rental income (loss) than the S corporation (for example, a shareholder) is not
reported on line 3c of Schedule K. Identify on statements relevant for purposes of determining the qualified dividends to be
attached to Schedule K-1 any additional information the entered on line 5b.
shareholder needs to correctly apply the passive activity
limitations. For example, if the corporation has more than one Note. An annual PTEP account of the S corporation is different
rental activity reported in box 3, identify the amount from each than the shareholders’ undistributed taxable income previously
activity. See Passive Activity Reporting Requirements, earlier. taxed account, as discussed in the instructions to Schedule M-2,
column (b).
Portfolio Income Exceptions. The following dividends aren't qualified dividends.
• Dividends the corporation received on any share of stock held
See Portfolio Income, earlier, for a definition of portfolio income. for less than 61 days during the 121-day period that began 60
days before the ex-dividend date. When determining the number
Don't reduce portfolio income by deductions allocated to it. of days the corporation held the stock, don't count certain days
Report such deductions (other than interest expense) on during which the corporation's risk of loss was diminished. The
line 12d of Schedule K. Report each shareholder's pro rata ex-dividend date is the first date following the declaration of a
share of deductions in box 12 of Schedule K-1 using codes I or dividend on which the purchaser of a stock isn't entitled to
L. receive the next dividend payment. When counting the number
of days the corporation held the stock, include the day the
Interest expense allocable to portfolio income is generally corporation disposed of the stock but not the day the corporation
investment interest expense reported on line 12b of Schedule K. acquired it.
Report each shareholder's pro rata share of interest expense • Dividends attributable to periods totaling more than 366 days
allocable to portfolio income in box 12 of Schedule K-1 using that the corporation received on any share of preferred stock
code H. held for less than 91 days during the 181-day period that began
90 days before the ex-dividend date. When determining the
Line 4. Interest Income number of days the corporation held the stock, don't count
certain days during which the corporation's risk of loss was
Enter only taxable portfolio interest on this line. Taxable interest diminished. Preferred dividends attributable to periods totaling
is interest from all sources except interest exempt from tax and less than 367 days are subject to the 61-day holding period rule
interest on tax-free covenant bonds. above.
• Dividends that relate to payments that the corporation is
Schedule K-1. Enter each shareholder's pro rata share of obligated to make with respect to short sales or positions in
interest income in box 4 of Schedule K-1. substantially similar or related property.
• Dividends paid by a regulated investment company that aren't
Line 5a. Ordinary Dividends treated as qualified dividend income under section 854.
• Dividends paid by a real estate investment trust that aren't
Enter only taxable ordinary dividends on line 5a, including any treated as qualified dividend income under section 857(c).
qualified dividends reported on line 5b. An S corporation that
directly or indirectly (through pass-through entities only) owns
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See Pub. 550, Investment Income and Expenses, for more Collectibles include works of art, rugs, antiques, metal (such
details. as gold, silver, or platinum bullion), gems, stamps, coins,
alcoholic beverages, and certain other tangible property.
Qualified foreign corporation. A foreign corporation is a
qualified foreign corporation if it is:
Also include gain (but not loss) from the sale or exchange of
1. Incorporated in a territory of the United States, or an interest in a partnership or trust held for more than 1 year and
2. Eligible for benefits of a comprehensive income tax treaty attributable to unrealized appreciation of collectibles. For details,
with the United States that the Secretary determines is see Regulations section 1.1(h)-1. Also attach the statement
satisfactory for this purpose and that includes an exchange of required under Regulations section 1.1(h)-1(e).
information program. See Notice 2011-64, 2011-37 I.R.B. 231, Schedule K-1. Report each shareholder's pro rata share of the
for details. collectibles (28%) gain (loss) in box 8b of Schedule K-1.
If the foreign corporation doesn't meet either (1) or (2), then it
may be treated as a qualified foreign corporation for any dividend Line 8c. Unrecaptured Section 1250 Gain
paid by the corporation if the stock associated with the dividend
paid is readily tradable on an established securities market in the The three types of unrecaptured section 1250 gain must be
United States. reported separately on an attached statement to Form 1120-S.
However, qualified dividends don't include dividends paid by From the sale or exchange of the corporation's business
an entity that was a passive foreign investment company assets. Figure this amount in Part III of Form 4797 for each
(defined in section 1297) in either the tax year of the distribution section 1250 property (except property for which gain is reported
or the preceding tax year. using the installment method on Form 6252) for which you had
See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3, an entry in Part I of Form 4797. Subtract line 26g of Form 4797
2006-3 I.R.B. 306, for more details. from the smaller of line 22 or line 24. Figure the total of these
Schedule K-1. Enter each shareholder's pro rata share of amounts for all section 1250 properties. Generally, the result is
qualified dividends in box 5b of Schedule K-1. the corporation's unrecaptured section 1250 gain. However, if
the corporation is reporting gain on the installment method for a
If any amounts from line 5b are from foreign sources, see section 1250 property held more than 1 year, see the next
! the instructions for Schedule K-2 (Form 1120-S) and paragraph.
CAUTION Schedule K-3 (Form 1120-S).
The total unrecaptured section 1250 gain for an installment
sale of section 1250 property held more than 1 year is figured in
Line 6. Royalties a manner similar to that used in the preceding paragraph.
However, the total unrecaptured section 1250 gain must be
Enter the royalties received by the corporation. allocated to the installment payments received from the sale. To
do so, the corporation must generally treat the gain allocable to
Schedule K-1. Enter each shareholder's pro rata share of each installment payment as unrecaptured section 1250 gain
royalties in box 6 of Schedule K-1. until all such gain has been used in full. Figure the unrecaptured
section 1250 gain for installment payments received during the
Line 7. Net Short-Term Capital Gain (Loss) tax year as the smaller of (a) the amount from line 26 or line 37 of
Form 6252 (whichever applies), or (b) the total unrecaptured
Enter the gain (loss) that is portfolio income (loss) from section 1250 gain for the sale reduced by all gain reported in
Schedule D (Form 1120-S), line 7. prior years (excluding section 1250 ordinary income recapture).
Schedule K-1. Enter each shareholder's pro rata share of net If the corporation chose not to treat all of the gain from
short-term capital gain (loss) in box 7 of Schedule K-1. ! payments received after May 6, 1997, and before August
CAUTION 24, 1999, as unrecaptured section 1250 gain, use only
the amount the corporation chose to treat as unrecaptured
Line 8a. Net Long-Term Capital Gain (Loss) section 1250 gain for those payments to reduce the total
Enter the gain or loss that is portfolio income (loss) from unrecaptured section 1250 gain remaining to be reported for the
Schedule D (Form 1120-S), line 15. sale. See Regulations section 1.453-12.
Schedule K-1. Enter each shareholder's pro rata share of net From the sale or exchange of an interest in a partnership.
long-term capital gain (loss) in box 8a of Schedule K-1. Also report as a separate amount any gain from the sale or
exchange of an interest in a partnership attributable to
If any gain or loss from line 7 or 15 of Schedule D is from unrecaptured section 1250 gain. See Regulations section
! the disposition of nondepreciable personal property 1.1(h)-1 and attach the statement required under Regulations
CAUTION used in a trade or business, it may not be treated as
section 1.1(h)-1(e).
portfolio income. Instead, report it on line 10 of Schedule K and
report each shareholder's pro rata share in box 10 of From an estate, trust, REIT, or RIC. If the corporation received
Schedule K-1 using code ZZ. a Schedule K-1 or Form 1099-DIV from an estate, a trust, a real
estate investment trust (REIT), or a regulated investment
company (RIC) reporting “unrecaptured section 1250 gain,” don't
Line 8b. Collectibles (28%) Gain (Loss) add it to the corporation's own unrecaptured section 1250 gain.
Instead, report it as a separate amount. For example, if the
Figure the amount attributable to collectibles from the amount corporation received a Form 1099-DIV from a REIT with
reported on Schedule D (Form 1120-S), line 15. A collectibles unrecaptured section 1250 gain, report it as “Unrecaptured
gain (loss) is any long-term gain or deductible long-term loss section 1250 gain from a REIT.”
from the sale or exchange of a collectible that is a capital asset.
Schedule K-1. Report each shareholder's pro rata share of
unrecaptured section 1250 gain from the sale or exchange of the
corporation's business assets in box 8c of Schedule K-1. If the
corporation is reporting unrecaptured section 1250 gain from an

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estate, trust, REIT, or RIC, or from the corporation's sale or     If there was a gain (loss) from a casualty or theft to property 
exchange of an interest in a partnership (as explained above),     not used in a trade or business or for income-producing 
enter “STMT” in box 8c and an asterisk (*) in the left column of   purposes, notify the shareholder. The corporation shouldn't 
the box and attach a statement that separately identifies the      complete Form 4684 for this type of casualty or theft. Instead, 
amount of unrecaptured section 1250 gain from:                     each shareholder will complete the shareholder's own Form 
• The sale or exchange of the corporation's business assets;       4684.
• The sale or exchange of an interest in a partnership; and
                                                                   Section 1256 contracts and straddles (code C).        Report any 
• An estate, trust, REIT, or RIC.
                                                                   net gain or loss from section 1256 contracts from Form 6781, 
        If any amounts from line 8c are from foreign sources, see  Gains and Losses From Section 1256 Contracts and Straddles.
  !     the instructions for Schedule K-2 (Form 1120-S) and        Mining exploration costs recapture (code D). Provide the 
CAUTION Schedule K-3 (Form 1120-S).
                                                                   information shareholders need to recapture certain mining 
                                                                   exploration expenditures. See Regulations section 1.617-3.
Line 9. Net Section 1231 Gain (Loss)                               Section 951A(a) income inclusions (code E).  If the S 
                                                                   corporation elected to be treated as owning stock of a CFC 
Enter the net section 1231 gain (loss) from Form 4797, line 7.     within the meaning of section 958(a) under Proposed 
                                                                   Regulations section 1.958-1(e)(2), and the S corporation is a 
  Don't include net gain or loss from involuntary conversions      U.S. shareholder of a CFC, then the S corporation determines its 
due to casualty or theft. Report net loss from involuntary         section 951A inclusion amount. Report the corporation's section 
conversions due to casualty or theft on line 10 of Schedule K      951A inclusion and its shareholders' pro rata shares of the 
(box 10, code B, of Schedule K-1). See the instructions for        section 951A inclusions using code E. See Form 8992, Part II, 
line 10 on how to report net gain from involuntary conversions.    line 5.
Schedule K-1. Report each shareholder's pro rata share of net              Provide information on line 10 using code E only if the 
section 1231 gain (loss) in box 9 of Schedule K-1. If the          !       corporation (and its shareholders, if applicable) has 
corporation has more than one rental, trade, or business activity, CAUTION elected to be treated as owning stock of a foreign 
identify on an attachment to Schedule K-1 the amount of section    corporation within the meaning of section 958(a) under 
1231 gain (loss) from each separate activity. See Passive Activity Proposed Regulations section 1.958-1(e)(2). If no election has 
Reporting Requirements, earlier.                                   been made, see instructions for Part V of the Schedule K-2 
                                                                   (Form 1120-S).
        If any amounts from line 9 are from foreign sources, see 
  !     the instructions for Schedule K-2 (Form 1120-S) and        Inclusions of subpart F income (code F).    The S corporation 
CAUTION Schedule K-3 (Form 1120-S).
                                                                   should report its subpart F income inclusions and its 
                                                                   shareholders’ pro rata shares of its subpart F income inclusions. 
                                                                   An S corporation does not have subpart F income inclusions with 
Line 10. Other Income (Loss)                                       respect to a foreign corporation for tax years of the foreign 
                                                                   corporation beginning on or after January 25, 2022, under 
Enter any other item of income or loss not included on lines 1     Regulations section 1.958-1(d)(1) if the S corporation did not 
through 9. On the line to the left of the entry space for line 10, make an election to be treated as owning stock of the foreign 
identify the type of income. If there is more than one type of     corporation within the meaning of section 958(a) under 
income, attach a statement to Form 1120-S that separately          Proposed Regulations section 1.958-1(e)(2). An S corporation 
identifies each type and amount of income for each of the          does not have subpart F income inclusions with respect to a 
following categories. The codes needed for Schedule K-1            foreign corporation for tax years of the foreign corporation 
reporting are provided for each category.                          beginning before January 25, 2022, if the S corporation did not 
Other portfolio income (loss) (code A).   Portfolio income not     make an election to be treated as owning stock of a foreign 
reported on lines 4 through 8.                                     corporation within the meaning of section 958(a) under 
                                                                   Proposed Regulations section 1.958-1(e)(2) and, pursuant to 
  Report and identify other portfolio income or loss on an         Regulations section 1.958-1(d)(4)(i), applies Regulations section 
attachment for line 10.                                            1.958-1(d)(1) through (3) to such tax years.
  If the corporation holds a residual interest in a Real Estate 
Mortgage Investment Conduit (REMIC), report on an attachment       Section 951(a)(1)(B) inclusions (code G).   The S corporation 
the shareholder's share of the following.                          should report its section 951(a)(1)(B) inclusions and its 
• Taxable income (net loss) from the REMIC (line 1b of             shareholders’ pro rata shares of its section 951(a)(1)(B) 
Schedules Q (Form 1066)).                                          inclusions. An S corporation does not have section 951(a)(1)(B) 
• Excess inclusion (line 2c of Schedules Q (Form 1066)).           inclusions with respect to a foreign corporation for tax years of 
• Section 212 expenses (line 3b of Schedules Q (Form 1066)).       the foreign corporation beginning on or after January 25, 2022, 
                                                                   under Regulations section 1.958-1(d)(1) if the S corporation did 
  Because Schedule Q (Form 1066) is a quarterly statement,         not make an election to be treated as owning stock of the foreign 
the corporation must follow the Schedule Q instructions to figure  corporation within the meaning of section 958(a) under 
the amounts to report to shareholders for the corporation's tax    Proposed Regulations section 1.958-1(e)(2). An S corporation 
year.                                                              does not have section 951(a)(1)(B) inclusions with respect to a 
Involuntary conversions (code B).  Report net loss from            foreign corporation for tax years of the foreign corporation 
involuntary conversions due to casualty or theft. The amount for   beginning before January 25, 2022, if the S corporation did not 
this item is shown on Form 4684, Casualties and Thefts, line 38a   make an election to be treated as owning stock of a foreign 
or 38b.                                                            corporation within the meaning of section 958(a) under 
  Each shareholder's pro rata share must be entered on             Proposed Regulations section 1.958-1(e)(2) and, pursuant to 
Schedule K-1.                                                      Regulations section 1.958-1(d)(4)(i), applies Regulations section 
                                                                   1.958-1(d)(1) through (3) to such tax years.
  Enter the net gain from involuntary conversions of property 
used in a trade or business (line 39 of Form 4684) on line 3 of 
Form 4797.
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If the corporation does not have subpart F income the shareholder level. Report each shareholder's share of
! inclusions or section 951(a)(1)(B) inclusions with respect section 1202 gain on Schedule K-1. Each shareholder will
CAUTION to a foreign corporation, stock of which it owns within the determine if they qualify for the exclusion. Report on an
meaning of section 958(a) and without regard to Regulations attachment to Schedule K-1 for each sale or exchange (a) the
section 1.958-1(d), see instructions for Part V of the name of the corporation that issued the QSB stock, (b) the
Schedule K-2 (Form 1120-S) for reporting of information related shareholder's pro rata share of the corporation's adjusted basis
to subpart F income inclusions and section 951(a)(1)(B) and sales price of the QSB stock, and (c) the dates the QSB
inclusions of shareholders with respect to the foreign stock was bought and sold.
corporation.
Codes P through R. Reserved for future use.
Code H. Reserved for future use. Non-portfolio capital gain (loss) (code S). Any gain or loss
Gain (loss) from disposition of oil, gas, geothermal, or oth- from line 7 or 15 of Schedule D that isn't portfolio income (for
er mineral properties (code I). Report the following example, gain or loss from the disposition of nondepreciable
information on a statement attached to Schedule K-1: (a) a personal property used in a trade or business).
description of the property; (b) the shareholder's share of the Codes T through X. Reserved for future use.
amount realized on the sale, exchange, or involuntary conversion
of each property (fair market value of the property for any other Other income (loss) (code ZZ). Include any other type of
disposition, such as a distribution); (c) the shareholder's share of income (loss) not reported using codes A through S.
the corporation's adjusted basis in the property (except for oil or Schedule K-1. Enter each shareholder's pro rata share of the
gas properties); and (d) total intangible drilling costs, other income categories listed above in box 10 of Schedule K-1.
development costs, and mining exploration costs (section 59(e) Enter the applicable code A through ZZ (as shown earlier).
expenditures) passed through to the shareholder for the If you are reporting each shareholder's pro rata share of only
property. See Regulations section 1.1254-4 for more information. one type of income under code ZZ, enter the code with an
Recoveries of tax benefit items (code J). Recoveries of tax asterisk (ZZ*) and the dollar amount in the entry space in box 10
benefit items (section 111). and attach a statement that shows “Box 10, code ZZ,” and the
type of income. If you are reporting multiple types of income
Gambling gains and losses (code K). Gambling gains and under code ZZ, enter the code with an asterisk (ZZ*) and enter
losses subject to the limitations in section 165(d). Indicate on an “STMT” in the entry space in box 10 and attach a statement that
attached statement whether or not the corporation is in the trade shows “Box 10, code ZZ,” and the dollar amount of each type of
or business of gambling. income.
Code L. Reserved for future use. If the corporation has more than one trade or business or
Gain eligible for section 1045 rollover (replacement stock rental activity (for codes B through ZZ), identify on an attachment
purchased by the corporation) (code M). Include only gain to Schedule K-1 the amount from each separate activity. See
from the sale or exchange of QSB stock (as defined in the Passive Activity Reporting Requirements, earlier.
Instructions for Schedule D) that was deferred by the corporation
under section 1045 and reported on Schedule D. See the Deductions
Instructions for Schedule D for more details. Additional
limitations apply at the shareholder level. Report each Line 11. Section 179 Deduction
shareholder's share of the gain eligible for section 1045 rollover
on Schedule K-1. Each shareholder will determine if they qualify A corporation can elect to expense part or all of the cost of
for the rollover. Report on an attachment to Schedule K-1 for certain property the corporation purchased during the tax year
each sale or exchange (a) the name of the corporation that for use in its trade or business or certain rental activities. See
issued the QSB stock, (b) the shareholder's pro rata share of the Pub. 946 for a definition of what kind of property qualifies for the
corporation's adjusted basis and sales price of the QSB stock, section 179 expense deduction and the Instructions for Form
and (c) the dates the QSB stock was bought and sold. 4562 for limitations on the amount of the section 179 expense
Gain eligible for section 1045 rollover (replacement stock deduction.
not purchased by the corporation) (code N). Include only
gain from the sale or exchange of QSB stock (as defined in the Complete Part I of Form 4562 to figure the corporation's
Instructions for Schedule D) the corporation held for more than 6 section 179 expense deduction. The corporation doesn't take
months but that wasn't deferred by the corporation under section the deduction itself, but instead passes it through to the
1045. See the Instructions for Schedule D for more details. A shareholders. Attach Form 4562 to Form 1120-S and show the
shareholder may be eligible to defer the shareholder’s pro rata total section 179 expense deduction on Schedule K, line 11.
share of this gain under section 1045 if the shareholder
purchases other QSB stock during the 60-day period that began Although the corporation can't take the section 179
on the date the QSB stock was sold by the corporation. deduction, it must generally still reduce the basis of the asset by
Additional limitations apply at the shareholder level. Report on the amount of the section 179 deduction it elected, regardless of
an attachment to Schedule K-1 for each sale or exchange (a) the whether any shareholder can use the deduction. However, the
name of the corporation that issued the QSB stock, (b) the corporation doesn't reduce the basis for any section 179
shareholder's pro rata share of the corporation's adjusted basis deduction allocable to a trust or estate because they aren't
and sales price of the QSB stock, and (c) the dates the QSB eligible to take the section 179 deduction. See Regulations
stock was bought and sold. section 1.179-1(f).

Sale or exchange of QSB stock with section 1202 exclusion See the instructions for line 17d of Schedule K for sales or
(code O). Gain from the sale or exchange of qualified small other dispositions of property for which a section 179 deduction
business (QSB) stock (as defined in the Instructions for has passed through to shareholders and for the recapture rules if
Schedule D) that is eligible for the section 1202 exclusion. The the business use of the property dropped to 50% or less.
section 1202 exclusion applies only to QSB stock held by the
corporation for more than 5 years. Additional limitations apply at Schedule K-1. Report each shareholder's pro rata share of the
section 179 expense deduction in box 11 of Schedule K-1.

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If the corporation has more than one rental, trade, or business Qualified conservation contributions. The AGI limit for
activity, identify on an attachment to Schedule K-1 the amount of qualified conservation contributions under section 170(h) is
section 179 deduction from each separate activity. See Passive generally 50%. However, if the corporation is a qualified farmer
Activity Reporting Requirements, earlier. or rancher (farm income is more than 50% of gross income), the
Don't complete box 11 of Schedule K-1 for any shareholder AGI limit for qualified conservation contributions of property used
that is an estate or trust; estates and trusts aren't eligible for the in agriculture or livestock production (or available for such
section 179 expense deduction. production) is 100%. The carryover period is 15 tax years. See
section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for
Line 12a. Charitable Contributions details. Report qualified conservation contributions with a 50%
AGI limitation on Schedule K-1 in box 12 using code C. Report
qualified conservation contributions with a 100% AGI limitation
Cash contributions must be supported by a dated bank record or on a statement attached to Schedule K-1 using code G. See
receipt. Contributions of property, later, for special rules applicable to
qualified conservation contributions.
Generally, no deduction is allowed for any contribution of
$250 or more unless the corporation obtains a written Noncash contributions (30%) (code D). Enter noncash
acknowledgment from the charitable organization that shows the contributions subject to the 30% AGI limitation.
amount of cash contributed, describes any property contributed, Capital gain property to a 50% limit organization (30%)
and gives an estimate of the value of any goods or services (code E). Enter capital gain property contributions subject to
provided in return for the contribution or states that no goods or the 30% AGI limitation.
services were provided. The acknowledgment must be obtained
by the due date (including extensions) of the corporation's Capital gain property (20%) (code F). Enter capital gain
return, or, if earlier, the date the return is filed. Don't attach the property contributions subject to the 20% AGI limitation.
acknowledgment to the tax return, but keep it with the Contributions of property. See Contributions of Property in
corporation's records. These rules apply in addition to the filing Pub. 526 and Pub. 561, Determining the Value of Donated
requirements for Form 8283, Noncash Charitable Contributions, Property, for information on noncash contributions and
described under Contributions of property, later. contributions of capital gain property. If the deduction claimed for
noncash contributions exceeds $500, complete Form 8283 and
Enter charitable contributions made during the tax year. attach it to Form 1120-S.
Attach a statement to Form 1120-S that separately identifies the Shareholders may deduct their pro rata share of the FMV of
corporation's contributions for each of the following categories. property contributions, but will only need to adjust their stock
See Limits on Deductions in Pub. 526, Charitable Contributions, basis by their pro rata share of the property's adjusted basis.
for information on adjusted gross income (AGI) limitations on Give each shareholder a statement identifying their pro rata
deductions for charitable contributions. share of both the FMV and adjusted basis of the property.
If the corporation made a qualified conservation contribution
The codes needed for Schedule K-1 reporting are provided under section 170(h), also include the FMV of the underlying
for each category. property before and after the donation, as well as the type of
Cash contributions (60%) (code A). Enter cash contributions legal interest contributed, and describe the conservation
subject to the 60% AGI limitation. purpose furthered by the donation. Give a copy of this
information to each shareholder.
Cash contributions (30%) (code B). Enter cash contributions
subject to the 30% AGI limitation. If the corporation made a qualified conservation contribution
for the preservation of an historic building, there are additional
Noncash contributions (50%) (code C). Enter noncash requirements that may apply to obtain a charitable deduction.
contributions subject to the 50% AGI limitation. Don't include This charitable deduction may be reduced if rehabilitation credits
food inventory contributions reported separately on an attached were claimed for the historic building. This charitable deduction
statement. may be denied if the corporation does not comply with section
Food inventory contributions. Provide the following 170(f)(19). A $500 filing fee may apply to certain deductions over
information on a statement attached to Schedule K-1. $10,000. See the Instructions for Form 8283 and Pub. 526 for
• The shareholder's pro rata share of the amount of the details.
charitable contributions under section 170(e)(3) for qualified A corporation's charitable conservation contribution (or a
food inventory that was donated to charitable organizations for corporation's distributive share of a charitable conservation
the care of the ill, needy, and infants. The food must meet all the contribution from a lower-tier partnership) is not treated as a
quality and labeling standards imposed by federal, state, and qualified conservation contribution if the amount of such
local laws and regulations. The charitable contribution for contribution (or such distributive share) exceeds 2.5 times the
donated food inventory is the lesser of (a) the basis of the sum of each shareholder's relevant basis in the corporation. In
donated food plus half of the appreciation (gain if the donated an attachment to each Schedule K-1 issued to a shareholder,
food were sold at fair market value (FMV) on the date of the gift), report the shareholder's relevant basis allocable to the portion of
or (b) twice the basis of the donated food. The aggregate the real property or historic building on which the qualified
amount of such contributions shall not exceed 15% of the conservation contribution was made. The corporation should
taxpayer's aggregate net income from all trades or businesses coordinate with each shareholder in calculating relevant basis.
from which such contributions were made. A corporation that See Qualified Conservation Contribution in Pub. 526 and
doesn’t account for inventories and isn’t required to capitalize Disallowance of Conservation Contribution deductions by certain
indirect costs under section 263A may elect to treat the basis of pass-through entities in the Instructions for Form 8283.
the donated food as equal to 25% of the FMV of the food. See
section 170(e)(3)(C) for more details. Nondeductible contributions. Certain contributions made to
• The shareholder's pro rata share of the net income for the tax an organization conducting lobbying activities aren't deductible.
year from the corporation's trades or businesses that made the See section 170(f)(9) for more details. Also see Contributions
contributions of food inventory. You Can’t Deduct in Pub. 526 for more examples of
nondeductible contributions.

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An accrual basis S corporation can't elect to treat a If a shareholder makes the election, these items aren't treated
! contribution as having been paid in the tax year the as alternative minimum tax (AMT) tax preference items.
CAUTION board of directors authorizes the payment if the
contribution isn't actually paid until the next tax year. Because the shareholders make this election, the corporation
can't deduct these amounts or include them as AMT items on
Contributions (100%) (code G). If the corporation is a Schedule K-1. Instead, the corporation passes through the
qualified farmer or rancher (farm income is more than 50% of information the shareholders need to figure their separate
gross income), attach a statement to Schedule K-1 that shows deductions.
the shareholder's pro rata share of qualified conservation
contributions of property used in agriculture or livestock On the dotted line to the left of the entry space for line 12c,
production (or available for such production). Don’t include these enter the type of expenditures claimed on line 12c. Enter on
contributions in the amounts reported in box 12 of Schedule K-1 line 12c the qualified expenditures paid or incurred during the tax
because shareholders must separately determine if they qualify year for which a shareholder may make an election under
for the 50% or 100% AGI limitation for these contributions. The section 59(e). Enter this amount for all shareholders whether or
contribution must be subject to a restriction that the property not any shareholder makes an election under section 59(e).
remain available for such production. See section 170(b) for
details. On an attached statement, identify the property for which the
expenditures were paid or incurred. If the expenditures were for
Schedule K-1. Report each shareholder's pro rata share of intangible drilling or development costs for oil and gas
charitable contributions in box 12 of Schedule K-1 using codes A properties, identify the month(s) in which the expenditures were
through G for each of the contribution categories shown earlier. paid or incurred. If there is more than one type of expenditure or
See Contributions of property, earlier, for information on more than one property, provide the amounts (and the months
statements you may be required to attach to Schedule K-1. The paid or incurred, if required) for each type of expenditure
corporation must attach a copy of its Form 8283 to the separately for each property.
Schedule K-1 of each shareholder receiving an allocation of the
contribution deduction shown in Section A or Section B of its Schedule K-1. Report each shareholder's pro rata share of
Form 8283. section 59(e) expenditures in box 12 of Schedule K-1 using
code J. Identify the following information on an attached
statement.
Line 12b. Investment Interest Expense • The type of expenditure.
• The property for which the expenditures are paid or incurred.
Include on this line the interest properly allocable to debt on • For oil and gas properties only, the month in which intangible
property held for investment purposes. Property held for drilling costs and development costs were paid or incurred.
investment includes property that produces income (unless If there is more than one type of expenditure or the
derived in the ordinary course of a trade or business) from expenditures are for more than one property, provide each
interest, dividends, annuities, or royalties; and gains from the shareholder's pro rata share of the amounts (and the months
disposition of property that produces those types of income or is paid or incurred for oil and gas properties) for each type of
held for investment. expenditure separately for each property.
Investment interest expense doesn't include interest expense
allocable to a passive activity. Line 12d. Other Deductions

Enter deductions not included on line 11, 12a, 12b, 12c, or 16f.
Investment income and investment expenses other than On the line to the left of the entry space for line 12d, identify the
interest are reported on lines 17a and 17b, respectively. This type of deduction. If there is more than one type of deduction,
information is needed by shareholders to determine the attach a statement to Form 1120-S that separately identifies the
investment interest expense limitation (see Form 4952 for type and amount of each deduction for the following categories.
details). The codes needed for Schedule K-1 reporting are provided for
Schedule K-1. Report each shareholder's pro rata share of each category.
investment interest expense in box 12 of Schedule K-1 using Deductions—Royalty income (code I). Enter deductions
code H. related to royalty income.
Line 12c. Section 59(e)(2) Expenditures Code K. Reserved for future use.
Deductions—Portfolio income (other) (code L). Enter any
Generally, section 59(e) allows each shareholder to make an other deductions related to portfolio income.
election to deduct their pro rata share of the corporation's No deduction is allowed under section 212 for expenses
otherwise deductible qualified expenditures ratably over 10 allocable to a convention, seminar, or similar meeting. Because
years (3 years for circulation expenditures). The deduction is these expenses aren't deductible by shareholders, the
taken beginning with the tax year in which the expenditures were corporation doesn't report these expenses on line 12d of
made (or for intangible drilling and development costs, over the Schedule K. The expenses are nondeductible and are reported
60-month period beginning with the month in which such costs as such on line 16c of Schedule K and in box 16 of Schedule K-1
were paid or incurred). using code C.
Preproductive period expenses (code M). If the corporation
The term “qualified expenditures” includes only the following is required to use an accrual method of accounting under section
types of expenditures paid or incurred during the tax year. 448(a)(3), it must capitalize these expenses. If the corporation is
• Circulation expenditures. permitted to use the cash method, enter the amount of
• Research and experimental expenditures. preproductive period expenses that qualify under section
• Intangible drilling and development costs. 263A(d). An election not to capitalize these expenses must be
• Mining exploration and development costs. made at the shareholder level. See Uniform Capitalization Rules
in Pub. 225.

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Code N. Reserved for future use. Codes AD through AJ. Reserved for future use.
Reforestation expense deduction (code O). The corporation Other deductions (code ZZ). Include any other deductions not
can elect to deduct a limited amount of its reforestation reported using codes A through AC.
expenditures paid or incurred during the tax year. The amount
Schedule K-1. Enter each shareholder's pro rata share of the
the corporation can elect to deduct is limited to $10,000 for each
deduction categories listed above in box 12 of Schedule K-1 or
qualified timber property. See section 194(c) for a definition of
provide the required information on an attached statement. Enter
reforestation expenditures and qualified timber property. See
the applicable code shown above.
Notice 2006-47, 2006-20 I.R.B. 892, for details on making the
election. The corporation must amortize over 84 months any If you are reporting only one type of deduction under code
amount not deducted. See Reforestation expenditures, earlier. ZZ, enter code ZZ with an asterisk (ZZ*) and the dollar amount in
Schedule K-1. Enter the shareholder's pro rata share of the entry space in box 12 and attach a statement that shows the
allowable reforestation expense in box 12 of Schedule K-1 using box number, code, and type of deduction. If you are reporting
code O and attach a statement that provides a description of the multiple types of deductions under code ZZ, enter the code with
qualified timber property. If the corporation is electing to deduct an asterisk (ZZ*), enter “STMT” in the dollar amount entry space
amounts from more than one qualified timber property, provide a in box 12, and attach a statement that shows the box number,
description and the amount for each property. code, and dollar amount of each type of deduction.
If the corporation has more than one trade or business
Codes P through V. Reserved for future use.
activity, identify on an attachment to Schedule K-1 the amount
Soil and water conservation (code W). Enter amounts for soil for each separate activity. See Passive Activity Reporting
and water conservation expenditures, and endangered species Requirements, earlier.
recovery expenditures. See Pub. 225.
Film, television, and theatrical production expenditures Credits
(code X). Film, television, and live theatrical production Low-Income Housing Credit
expenses. The corporation can elect to deduct certain costs of a
qualified film, television, or live theatrical production Section 42 provides a credit that can be claimed by owners of
commencing before January 1, 2026 (after December 31, 2015, low-income residential rental buildings. To qualify for the credit,
and before January 1, 2026, for a live theatrical production), the corporation must file Form 8609, Low-Income Housing Credit
limited to $15 million of the aggregate production cost of the Allocation and Certification, separately with the IRS. Don't attach
production. There is a higher dollar limitation for productions in Form 8609 to Form 1120-S. Complete and attach Form 8586,
certain areas. A live theatrical performance commences on the Low-Income Housing Credit, and Form 8609-A, Annual
date of its first public performance for a paying audience. Provide Statement for Low-Income Housing Credit, to Form 1120-S.
a description of the film, television, or live theatrical production
on an attached statement. If the corporation makes the election Line 13a. Low-Income Housing Credit (Section
for more than one production, attach a statement to
Schedule K-1 that shows each shareholder's pro rata share of 42(j)(5))
the qualified expenditures separately for each production. The
deduction is subject to recapture under section 1245 if the If the corporation invested in a partnership to which the
election is voluntarily revoked or the production fails to meet the provisions of section 42(j)(5) apply, report on line 13a the credit
requirements for the deduction. See section 181 and the related reported to the corporation in box 15 of Schedule K-1 (Form
regulations. 1065) using code C.
Expenditures for removal of barriers (code Y). Enter Schedule K-1. Report in box 13 of Schedule K-1 each
expenditures paid or incurred for the removal of architectural and shareholder's pro rata share of the low-income housing credit
transportation barriers to the elderly and disabled that the reported on line 13a of Schedule K. Use code C to report the
corporation has elected to treat as a current expense. See portion of the credit attributable to buildings placed in service
section 190. after 2007. If the corporation has credits from more than one
activity, identify on an attachment to Schedule K-1 the amount
Itemized deductions (code Z). Enter amounts paid by the for each separate activity. See Passive Activity Reporting
corporation that would be allowed as itemized deductions on any Requirements, earlier.
of the shareholders' income tax returns if they were paid directly
by a shareholder for the same purpose. These amounts include,
but aren't limited to, expenses under section 212 for the Line 13b. Low-Income Housing Credit (Other)
production of income other than from the corporation's trade or Report on line 13b any low-income housing credit not reported
business. However, don't enter expenses related to portfolio on line 13a. This includes any credit reported to the corporation
income or investment interest expense reported on line 12b of in box 15 of Schedule K-1 (Form 1065) using code D.
Schedule K on this line.
Schedule K-1. Report in box 13 of Schedule K-1 each
Contributions to a capital construction fund (CCF) (code shareholder's pro rata share of the low-income housing credit
AA). Enter amount of contributions made to a capital reported on line 13b of Schedule K. Use code D to report the
construction fund. See Pub. 595, Capital Construction Fund for portion of the credit attributable to buildings placed in service
Commercial Fishermen. after 2007. If the corporation has credits from more than one
Penalty on early withdrawal of savings (code AB). Enter rental activity, identify on an attachment to Schedule K-1 the
any penalty on early withdrawal of savings because the amount for each separate activity. See Passive Activity Reporting
corporation withdrew funds from its time savings deposit before Requirements, earlier.
its maturity.
Interest expense allocated to debt financed distributions
(code AC). Enter interest expense allocated to debt-financed
distributions. See Notice 89-35, 1989-1 C.B. 675 for more
information.

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Line 13c. Qualified Rehabilitation Expenditures shows “Box 13, code G” and the dollar amount of each type of
(Rental Real Estate) credit. If the corporation has credits from more than one rental
activity, identify on the attached statement the amount of each
type of credit for each separate activity. See Passive Activity
Enter on line 13c the total qualified rehabilitation expenditures Reporting Requirements, earlier.
related to rental real estate activities of the corporation. See the
Instructions for Form 3468 for details on qualified rehabilitation
expenditures. Line 13f. Biofuel Producer Credit
Schedule K-1. Report each shareholder's pro rata share of Enter on line 13f any biofuel producer credit attributable to trade
qualified rehabilitation expenditures related to rental real estate or business activities. If the credit is attributable to rental
activities in box 13 of Schedule K-1 using code E. Attach a activities, enter the amount on line 13d or 13e.
statement to Schedule K-1 that provides the information and the
shareholder's pro rata share of the basis and expenditure Figure this credit on Form 6478, if applicable. Attach it to
amounts the shareholder will need to figure the amounts to Form 1120-S. Include any amount shown on line 2 of Form 6478
report in Part VII of Form 3468, Investment Credit. See the in the corporation's income on line 5 of Form 1120-S.
Instructions for Form 3468 for details. If the corporation has
expenditures from more than one rental real estate activity, See section 40(f) for an election the corporation can make to
identify on an attachment to Schedule K-1 the information and have the credit not apply.
amounts for each separate activity. See Passive Activity Schedule K-1. Report in box 13 of Schedule K-1 each
Reporting Requirements, earlier. shareholder's pro rata share of the biofuel producer credit
Qualified rehabilitation expenditures for property not reported on line 13f using code I. If the corporation has credits
! related to rental real estate activities must be reported in from more than one activity, identify on an attachment to
CAUTION box 17 using code C. Schedule K-1 the amount for each separate activity. See Passive
Activity Reporting Requirements, earlier.
Line 13d. Other Rental Real Estate Credits
Line 13g. Other Credits
Enter on line 13d any other credit (other than credits reported on Enter on line 13g any other credit, except credits or expenditures
lines 13a through 13c) related to rental real estate activities. On shown or listed for lines 13a through 13f or the credit for federal
the dotted line to the left of the entry space for line 13d, identify tax paid on fuels (which is reported on line 24c of page 1). On
the type of credit. If there is more than one type of credit, attach the line to the left of the entry space for line 13g, identify the type
a statement to Form 1120-S that identifies the type and amount of credit. If there is more than one type of credit, attach a
for each credit. These credits may include any type of credit statement to Form 1120-S that separately identifies each type
listed in the instructions for line 13g. and amount of credit for the following categories. The codes
Schedule K-1. Report in box 13 of Schedule K-1 each needed for box 13 of Schedule K-1 are provided in the heading
shareholder's pro rata share of other rental real estate credits of each category.
using code F. If you are reporting each shareholder's pro rata Zero-emission nuclear power production credit (code A).
share of only one type of rental real estate credit under code F, Complete Form 7213, Nuclear Power Production Credit, Part II,
enter the code with an asterisk (F*) and the dollar amount in the to figure the credit. Attach it to Form 1120-S.
entry space in box 13 and attach a statement that shows “Box
13, code F” and the type of credit. If you are reporting multiple Production from advanced nuclear power facilities credit
types of rental real estate credit under code F, enter the code (code B). Complete Form 7213, Part I, to figure the credit.
with an asterisk (F*) and enter “STMT” in the entry space in Attach it to Form 1120-S.
box 13 and attach a statement that shows “Box 13, code F” and Undistributed capital gains credit (code H). This credit
the dollar amount of each type of credit. If the corporation has represents taxes paid on undistributed capital gains by a
credits from more than one rental real estate activity, identify on regulated investment company (RIC) or a real estate investment
the attached statement the amount of each type of credit for trust (REIT). As a shareholder of a RIC or REIT, the corporation
each separate activity. See Passive Activity Reporting will receive notice of the amount of tax paid on undistributed
Requirements, earlier. capital gains on Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains.
Line 13e. Other Rental Credits Work opportunity credit (code J). Complete Form 5884 to
figure the credit. Attach it to Form 1120-S.
Enter on line 13e any other credit (other than credits reported on
lines 13a through 13d) related to rental activities. On the dotted Disabled access credit (code K). Complete Form 8826 to
line to the left of the entry space for line 13e, identify the type of figure the credit. Attach it to Form 1120-S.
credit. If there is more than one type of credit, attach a statement Empowerment zone employment credit (code L). Complete
to Form 1120-S that identifies the type and amount for each Form 8844 to figure the credit. Attach it to Form 1120-S.
credit. These credits may include any type of credit listed in the
instructions for line 13g. Credit for increasing research activities (code M).
Complete Form 6765 to figure the credit. Attach it to Form
Schedule K-1. Report in box 13 of Schedule K-1 each 1120-S. For more information, see the Instructions for Form
shareholder's pro rata share of other rental credits using code 6765.
G. If you are reporting each shareholder's pro rata share of only
one type of rental credit under code G, enter the code with an
asterisk (G*) and the dollar amount in the entry space in box 13
and attach a statement that shows “Box 13, code G” and the
type of credit. If you are reporting multiple types of rental credit
under code G, enter the code with an asterisk (G*) and enter
“STMT” in the entry space in box 13 and attach a statement that

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The corporation should provide the information New markets credit (code AD). Complete Form 8874, New
TIP necessary for the shareholder to determine whether the Markets Credit.
corporation is an eligible small business under section
38(c)(5)(A). If the shareholder and the corporation meet the Credit for small employer pension plan startup costs (code
requirements of section 38(c)(5)(A), the research credit may be AE). Complete Form 8881, Credit for Small Employer Pension
treated as a specified credit. Plan Startup Costs, Auto-Enrollment, and Military Spouse
Participation, Part I.
Credit for employer social security and Medicare taxes Credit for small employer auto-enrollment (code AF).
paid on certain employee tips (code N). Complete Form Complete Form 8881, Part II.
8846 to figure the credit. Attach it to Form 1120-S.
Credit for military spouse participation (code AG).
Backup withholding (code O). This credit is for backup Complete Form 8881, Part III.
withholding on dividends, interest, and other types of income of
the corporation. Credit for employer-provided childcare facilities and serv-
ices (code AH). Complete Form 8882, Credit for
Unused investment credit from the qualifying advanced Employer-Provided Childcare Facilities and Services.
coal project credit or qualifying gasification project credit
allocated from cooperatives (code P). See the Instructions Low sulfur diesel fuel production credit (code AI).
for Form 3468. Complete Form 8896, Low Sulfur Diesel Fuel Production Credit.
Unused investment credit from the qualifying advanced en- Qualified railroad track maintenance credit (code AJ).
ergy project credit allocated from cooperatives (code Q). Complete Form 8900, Qualified Railroad Track Maintenance
See the Instructions for Form 3468. Credit.
Unused investment credit from the advanced manufactur- Credit for oil and gas production from marginal wells (code
ing investment credit allocated from cooperatives (code AK). Complete Form 8904, Credit for Oil and Gas Production
R). See the Instructions for Form 3468. From Marginal Wells, if applicable.
Code S. Reserved for future use. Distilled spirits credit (code AL). Complete Form 8906,
Distilled Spirits Credit.
Unused investment credit from the energy credit allocated
from cooperatives (code T). See the Instructions for Form Energy efficient home credit (code AM). Complete Form
3468. 8908, Energy Efficient Home Credit.
Unused investment credit from the rehabilitation credit al- Alternative motor vehicle credit (code AN). Complete Form
located from cooperatives (code U). See the Instructions for 8910, Alternative Motor Vehicle Credit, if applicable.
Form 3468. Alternative fuel vehicle refueling property credit (code AO).
Advanced manufacturing production credit (code V). Complete Form 8911, Alternative Fuel Vehicle Refueling
Complete Form 7207, Advanced Manufacturing Production Property Credit.
Credit, to figure the credit. Attach it to Form 1120-S. Clean renewable energy bond credit (code AP). The
Codes W and X. Reserved for future use. amount of this credit (excluding any credits from partnerships,
estates, and trusts) is reported as interest income on line 4 of
Clean hydrogen production credit (code Y). Complete Form Schedule K. In addition, the amount of this credit is reported on
7210, Clean Hydrogen Production Credit, to figure the credit. line 16d of Schedule K. See the Instructions for Form 8912.
Attach it to Form 1120-S.
New clean renewable energy bond credit (code AQ). The
Orphan drug credit (code Z). Complete Form 8820, Orphan amount of this credit (excluding any credits from partnerships,
Drug Credit, to figure the credit. Attach it to Form 1120-S. estates, and trusts) is reported as interest income on line 4 of
Enhanced oil recovery credit (code AA). Complete Form Schedule K. In addition, the amount of this credit is reported as a
8830, Enhanced Oil Recovery Credit, to figure the credit. Attach property distribution on line 16d of Schedule K. See the
it to Form 1120-S. Instructions for Form 8912.
Renewable electricity production credit (code AB). Qualified energy conservation bond credit (code AR). The
Complete Form 8835, Renewable Electricity Production Credit, if amount of this credit (excluding any credits from partnerships,
applicable. Attach a statement to Form 1120-S and estates, and trusts) is reported as interest income on line 4 of
Schedule K-1 showing the allocation of the credit for production Schedule K. In addition, the amount of this credit is reported as a
during the 4-year period beginning on the date the facility was property distribution on line 16d of Schedule K. See the
placed in service and for production after that period. Instructions for Form 8912.
Biodiesel, renewable diesel, or sustainable aviation fuels Qualified zone academy bond credit (code AS). The amount
credit (code AC). Complete Form 8864, Biodiesel, Renewable of this credit (excluding any credits from partnerships, estates,
Diesel, or Sustainable Aviation Fuels Credit. Include any amount and trusts) is reported as interest income on line 4 of
from line 10 of Form 8864 in the corporation's income on line 5 of Schedule K. In addition, the amount of this credit is reported on
Form 1120-S. If this credit includes the small agri-biodiesel line 16d of Schedule K. See the Instructions for Form 8912.
producer credit, identify on a statement attached to Qualified school construction bond credit (code AT). The
Schedule K-1 (a) the small agri-biodiesel producer credit amount of this credit (excluding any credits from partnerships,
included in the total credit allocated to the shareholder, (b) the estates, and trusts) is reported as interest income on line 4 of
number of gallons for which the corporation claimed the small Schedule K. In addition, the amount of this credit is reported as a
agri-biodiesel producer credit, and (c) the corporation's property distribution on line 16d of Schedule K. See the
productive capacity for agri-biodiesel. Also report separately on Instructions for Form 8912.
an attached statement the amount of any sustainable aviation
fuel credit. Build America bond credit (code AU). The amount of this
credit (excluding any credits from partnerships, estates, and
trusts) is reported as interest income on line 4 of Schedule K. In

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addition, the amount of this credit is reported as a property • If a shareholder’s pro rata share includes an allocation of
distribution on line 16d of Schedule K. See the Instructions for eligible credits purchased by a lower tier pass-through entity and
Form 8912. reported on Schedule K-1, you must provide the EIN of such
transferee shareholder or S corporation and the source
Credit for employer differential wage payments (code AV).
information that was provided to you by such entity.
Complete Form 8932, Credit for Employer Differential Wage
Payments. See the Instructions for Form 3800 for additional details.
Carbon oxide sequestration credit (code AW). Complete Codes BD through BG. Reserved for future use.
Form 8933, Carbon Oxide Sequestration Credit, to figure the Other credits (code ZZ) Include any other type of credits not
credit. Attach it to Form 1120-S. listed on lines 13a through 13f, or reported using codes A, B, H
Carbon oxide sequestration credit recapture (code AX). through BC.
Complete Form 8933 to figure the credit recapture. Attach it to Schedule K-1. Enter in box 13 of Schedule K-1 each
Form 1120-S. Report the carbon oxide sequestration credit shareholder's pro rata share of the credits listed above. See
recapture amount from Form 8933, line 22. additional Schedule K-1 reporting information provided in the
New clean vehicle credit (code AY). Complete Form 8936, instructions above. Enter the applicable code, A, B, H, J through
Clean Vehicle Credits, Part II. BC, in the column to the left of the dollar amount entry space.
Qualified commercial clean vehicle credit (code AZ). If you are reporting each shareholder's pro rata share of only
Complete Form 8936, Part V. one type of credit under code ZZ, enter the code with an asterisk
(ZZ*) and the dollar amount in the entry space in box 13 and
Credit for small employer health insurance premiums attach a statement that shows “Box 13, code ZZ” and the type of
(code BA). Complete Form 8941, Credit for Small Employer credit. If you are reporting multiple types of credit under code ZZ,
Health Insurance Premiums. enter the code with an asterisk (ZZ*) and enter “STMT” in the
Employer credit for paid family and medical leave (code entry space in box 13 and attach a statement that shows “Box
BB). Complete Form 8994, Employer Credit for Paid Family and 13, code ZZ” and the dollar amount of each type of credit. If the
Medical Leave. corporation has credits from more than one activity, identify on
an attachment to Schedule K-1 the amount of each type of credit
Eligible credits from transferor(s) under section 6418 for each separate activity. See Passive Activity Reporting
(code BC). Enter the total amount of eligible credits received Requirements, earlier.
from transferor(s) included in Part III, line 6, column (g), of your
Form 3800. Also, enter the total of the shareholder’s pro rata International Transactions
share of all eligible credits received from transferor(s) that were Check the box on line 14 if you are reporting items of
received from another pass-through entity. See required international tax relevance. See the Instructions for Schedule K-2
statement below. (Form 1120-S) to determine if you need to attach Schedules K-2
Partnership and S corporation pass-through entities that and K-3. If you satisfy the domestic filing exception to filing
Schedule K-3, you must provide notification to the shareholder
CAUTION cash under section 6418 must use Form 3800, Part III
! transferred eligible credits from an unrelated person for either through an attachment to the Schedule K-1, or a separate
and Part V (if applicable), to report such credits. See the statement prior to filing the Form 1120-S. If you satisfy an
Instructions for Form 3800 for reporting and other requirements. exception to filing Schedule K-2 (Form 1120-S), you may also
attach a statement to the Form 1120-S that states “Qualified for
Schedule K-1. Enter the shareholder’s pro rata share of all exception to filing Schedule K-2.”
eligible credits transferred from one or more unrelated
transferors pursuant to a transfer election under section 6418. Alternative Minimum Tax (AMT) Items
This amount must include the shareholder’s pro rata share of all
eligible credits from transferors that were received from another Lines 15a through 15f must be completed for all shareholders.
pass-through entity. Enter the code BC and an asterisk (*) (BC*) Enter items of income and deductions that are adjustments or
in the left column and enter “STMT” in the entry space to the tax preference items for the AMT. For more information, see
right. Attach a statement that contains the following information Form 6251, Alternative Minimum Tax—Individuals, or Schedule I
for each purchased credit. (Form 1041), Alternative Minimum Tax—Estates and Trusts.
Attached statement. Attach a statement to Schedule K-1
Don't include as a tax preference item any qualified
that provides the source credit information and the pro rata share
expenditures to which an election under section 59(e) may apply.
of eligible credits received from transferor(s), including any share
Instead, report these expenditures on line 12c. Because these
of eligible credits from transferor(s) that were received from
expenditures are subject to an election by each shareholder, the
another pass-through entity.
corporation can't figure the amount of any tax preference related
The statement must identify the amount and information for to them. Instead, the corporation must pass through to each
each eligible credit so each shareholder can complete their Form shareholder in box 12, code J, of Schedule K-1, the information
3800. For each eligible credit, you must provide: needed to figure the deduction.
• The shareholder’s pro rata share of the eligible credits
received from transferor(s) reported on the applicable line, Schedule K-1. Report each shareholder's pro rata share of
column (g) of your Part III or Part V (if applicable) of Form 3800. amounts reported on lines 15a through 15f in box 15 of
• The name of the credit form in column (a) of the applicable Schedule K-1 using codes A through F, respectively.
line of Part III or Part V (if applicable). If the corporation is reporting items of income or deduction for
• Source information for each eligible credit shown in Part III or oil, gas, and geothermal properties, you may be required to
Part V (if applicable), including: identify these items on a statement attached to Schedule K-1
1. IRS-issued registration number for transfers in column (b) (see the instructions for lines 15d and 15e). Also see the
of Part III and Part V, and requirement for an attached statement in the instructions for
line 15f.
2. The transferor’s EIN in column (d) of Part III or column (c)
of Part V.

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Line 15a. Post-1986 Depreciation Adjustment For a net long-term capital gain (loss), also identify the
amount of the adjustment that is collectibles (28%) gain (loss).
Figure the adjustment for line 15a based only on tangible
property placed in service after 1986 (and tangible property For a net section 1231 gain (loss), also identify the amount of
placed in service after July 31, 1986, and before 1987, for which adjustment that is unrecaptured section 1250 gain.
the corporation elected to use the Modified Accelerated Cost
Recovery System (MACRS)). Don't make an adjustment for Line 15c. Depletion (Other Than Oil and Gas)
motion picture films, videotapes, sound recordings, certain
public utility property (see section 168(f)(2)), property Don't include any depletion on oil and gas wells. The
depreciated under the unit-of-production method (or any other shareholders must figure their oil and gas depletion deductions
method not expressed in a term of years), qualified Indian and preference items separately under section 613A.
reservation property, property eligible for a special depreciation
allowance, qualified revitalization expenditures, or the section
179 expense deduction. Refigure the depletion deduction under section 611 for mines,
wells (other than oil and gas wells), and other natural deposits
For property placed in service before 1999, refigure for the AMT. Percentage depletion is limited to 50% of the
depreciation for the AMT as follows (using the same convention taxable income from the property as figured under section
used for the regular tax). 613(a), using only income and deductions for the AMT. Also, the
• For section 1250 property (generally, residential rental and deduction is limited to the property's adjusted basis at the end of
nonresidential real property), use the straight line method over the year as figured for the AMT. Figure this limit separately for
40 years. each property. When refiguring the property's adjusted basis,
• For tangible property (other than section 1250 property) take into account any AMT adjustments made this year or in
depreciated using the straight line method for the regular tax, previous years that affect basis (other than the current year's
use the straight line method over the property's class life. Use 12 depletion).
years if the property has no class life.
• For any other tangible property, use the 150% declining Enter the difference between the regular tax and AMT
balance method, switching to the straight line method the first tax deduction. If the AMT deduction is greater, enter the difference
year it gives a larger deduction, over the property's AMT class as a negative amount.
life. Use 12 years if the property has no class life.
See Pub. 946 for a table of class lives. Oil, Gas, and Geothermal Properties—Gross
TIP Income and Deductions

Generally, the amounts to be entered on lines 15d and 15e are
For property placed in service after 1998, refigure only the income and deductions for oil, gas, and geothermal
depreciation for the AMT only for property depreciated for the properties that are used to figure the corporation's ordinary
regular tax using the 200% declining balance method. For the business income (loss) on line 22, page 1, Form 1120-S.
AMT, use the 150% declining balance method, switching to the
straight line method the first tax year it gives a larger deduction, If there are any items of income or deductions for oil, gas, and
and the same convention and recovery period used for the geothermal properties included in the amounts that are required
regular tax. to be passed through separately to the shareholders on
Schedule K-1 (items not reported in box 1 of Schedule K-1), give
Figure the adjustment by subtracting the AMT deduction for each shareholder a statement that shows, for the box in which
depreciation from the regular tax deduction and enter the result the income or deduction is included, the amount of income or
on line 15a. If the AMT deduction is more than the regular tax deductions included in the total amount for that box. Don't
deduction, enter the difference as a negative amount. include any of these direct pass-through amounts on line 15d or
Depreciation capitalized to inventory must also be refigured 15e. The shareholder is told in the Shareholder's Instructions for
using the AMT rules. Include on this line the current year Schedule K-1 (Form 1120-S) to adjust the amounts in box 15,
adjustment to income, if any, resulting from the difference. code D or E, for any other income or deductions from oil, gas, or
geothermal properties included in boxes 2 through 12, 16, or 17
Line 15b. Adjusted Gain or Loss of Schedule K-1 in order to determine the total income and
deductions from oil, gas, and geothermal properties for the
If the corporation disposed of any tangible property placed in corporation.
service after 1986 (or after July 31, 1986, if an election was
made to use the General Depreciation System), or if it disposed Figure the amounts for lines 15d and 15e separately for oil
of a certified pollution control facility placed in service after 1986, and gas properties that aren't geothermal deposits and for all
refigure the gain or loss from the disposition using the adjusted properties that are geothermal deposits.
basis for the AMT. The property's adjusted basis for the AMT is
its cost or other basis minus all depreciation or amortization Give each shareholder a statement that shows the separate
deductions allowed or allowable for the AMT during the current amounts included in the computation of the amounts on lines
tax year and previous tax years. Enter on this line the difference 15d and 15e of Schedule K.
between the regular tax gain (loss) and the AMT gain (loss). If
the AMT gain is less than the regular tax gain, or the AMT loss is
Line 15d. Oil, Gas, and Geothermal
more than the regular tax loss, or there is an AMT loss and a
regular tax gain, enter the difference as a negative amount. Properties—Gross Income

If any part of the adjustment is allocable to net short-term Enter the total amount of gross income (within the meaning of
capital gain (loss), net long-term capital gain (loss), or net section 613(a)) from all oil, gas, and geothermal properties
section 1231 gain (loss), attach a statement that identifies the received or accrued during the tax year and included on page 1,
amount of the adjustment allocable to each type of gain or loss. Form 1120-S.
Instructions for Form 1120-S (2023) 37

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Line 15e. Oil, Gas, and Geothermal a result of the S corporation making a transfer election to transfer
Properties—Deductions its credits under section 6418. This amount also includes the
shareholder’s pro rata share of allocations made to the transferor
S corporation from a pass-through entity for which the S
Enter any deductions allowed for the AMT that are allocable to corporation was a partner related to the pass-through entity (or
oil, gas, and geothermal properties. lower-tier pass-through entity) making a transfer election to
transfer its credits.
Line 15f. Other AMT Items
Tax-exempt income from elective payment election. Enter
Attach a statement to Form 1120-S and Schedule K-1 that the amount from page 1, line 24d. This is the total amount of
shows other items not shown on lines 15a through 15e that are credits determined by the S corporation for which an elective
adjustments or tax preference items or that the shareholder payment election is being made.
needs to complete Form 6251 or Schedule I (Form 1041). See Schedule K-1. The S corporation has claimed an amount on
these forms and their instructions to determine the amount to page 1, line 24d, which is treated as tax-exempt income for
enter. purposes of S corporation allocations. The amount listed on
line 16 as code B includes the shareholder’s pro rata share of
Other AMT items include the following. tax-exempt income as a result of the S corporation making an
• Accelerated depreciation of real property under pre-1987 elective payment election under section 6417. This amount also
rules. includes the shareholder’s pro rata share of allocations to the S
• Accelerated depreciation of leased personal property under corporation from a pass-through entity (or lower-tier
pre-1987 rules. pass-through entity) that made an elective payment election.
• Long-term contracts entered into after February 28, 1986. Paycheck Protection Program (PPP) reporting. Report
Except for certain home construction contracts, the taxable tax-exempt income resulting from the forgiveness of a PPP loan
income from these contracts must be figured using the on this line. Attach a statement to the S corporation return for
percentage of completion method of accounting for the AMT. each tax year in which the S corporation is applying Rev. Proc.
• Losses from tax shelter farm activities. No loss from any tax 2021-48, sections 3.01(1), (2), or (3). The statement should also
shelter farm activity is allowed for the AMT. include the following information for each PPP loan.
• Any amount from Form 6478 reported as other income on 1. The S corporation’s name, address, and EIN;
Form 1120-S, line 5.
• Any amount from Form 8864 reported as other income on 2. A statement that the S corporation is applying section
Form 1120-S, line 5. 3.01(1), (2), or (3) of Rev. Proc. 2021-48, as applicable;
3. The amount of tax-exempt income from forgiveness of the
Schedule K-1. If you are reporting each shareholder's pro rata
PPP loan that the S corporation is treating as received or
share of only one type of AMT item under code F, enter the code
accrued during the tax year; and
with an asterisk (F*) and the dollar amount in the entry space in
box 15 and attach a statement that shows the type of AMT item. 4. Whether forgiveness of the PPP loan has been granted as
If you are reporting multiple types of AMT items under code F, of the date the return is filed.
enter the code with an asterisk (F*) and enter “STMT” in the An S corporation that didn’t report tax-exempt income from a
entry space in box 15 and attach a statement that shows the PPP loan on its 2020 return may file an amended return to apply
dollar amount of each type of AMT item. Rev. Proc. 2021-48 and should do so according to these
instructions. An S corporation that reported tax-exempt income
Items Affecting Shareholder Basis from a PPP loan on its 2020 return, the timing of which
Line 16a. Tax-Exempt Interest Income corresponds to one of the options presented in Rev. Proc.
2021-48, need not file an amended return solely to attach the
Enter on line 16a tax-exempt interest income, including any statement that is described in the instructions for Schedule K,
exempt-interest dividends received from a mutual fund or other line 16(b).
regulated investment company. Individual shareholders must As explained in section 3.03 of Rev. Proc. 2021-48, if an S
report this information on line 2a of Form 1040 or 1040-SR. corporation treats tax-exempt income resulting from a PPP loan
Generally, under section 1367(a)(1)(A), the basis of the as received or accrued prior to when forgiveness of the PPP loan
shareholder's stock is increased by the amount shown on this is granted and the amount of forgiveness granted is less than the
line. amount of tax-exempt income that was previously treated as
received or accrued, the S corporation must make appropriate
Line 16b. Other Tax-Exempt Income adjustments (if any) on an amended return for the tax year in
which the S corporation treated the tax-exempt income as
Enter on line 16b all income of the corporation exempt from tax received or accrued. The S corporation should attach a
other than tax-exempt interest (for example, life insurance statement to such amended return that includes the following
proceeds, but see section 101(j) for limits and reporting information.
requirements). Generally, under section 1367(a)(1)(A), the basis 1. The S corporation’s name, address, and EIN;
of the shareholder's stock is increased by the amount shown on 2. A statement that the S corporation is making adjustments
this line. in accordance with section 3.03 of Rev. Proc. 2021-48; and
Tax-exempt income from transfer election. Enter the total 3. The tax year in which tax-exempt income was originally
consideration received by the transferor S corporation as a result reported, the amount of tax-exempt income that was originally
of a transfer election under section 6418. If the S corporation is reported in such tax year, and the amount of tax-exempt income
allocated tax-exempt income from a pass-through entity (or being adjusted on the amended return.
lower-tier pass-through entity) making a transfer election to
transfer its credits, include those amounts in code B as well.
Schedule K-1. This amount includes the shareholder’s pro
rata share of tax-exempt income allocated by the transferor S
corporation related to proceeds received by the S corporation as

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Line 16c. Nondeductible Expenses Investment income includes gross income from property held
for investment, the excess of net gain attributable to the
Enter on line 16c nondeductible expenses paid or incurred by disposition of property held for investment over net capital gain
the corporation. from the disposition of property held for investment, any net
capital gain from the disposition of property held for investment
Payments made by transferee S corporations to eligible that each shareholder elects to include in investment income
taxpayers for the purchase of eligible credits as a result of a under section 163(d)(4)(B)(iii), and any qualified dividend
transfer election under section 6418 are treated as income that the shareholder elects to include in investment
nondeductible expenses and are reported on this line 16c. income. Generally, investment income and investment expenses
don't include any income or expenses from a passive activity.
Don't include separately stated deductions shown elsewhere See Regulations section 1.469-2(f)(10) for exceptions.
on Schedules K and K-1, capital expenditures, or items for which
the deduction is deferred to a later tax year. Property subject to a net lease isn't treated as investment
property because it is subject to the passive loss rules. Don't
Generally, under section 1367(a)(2)(D), the basis of the reduce investment income by losses from passive activities.
shareholder's stock is decreased by the amount shown on this
line. Investment expenses are deductible expenses (other than
interest) directly connected with the production of investment
Line 16d. Distributions income. See the Instructions for Form 4952 for more information.
Enter the total distributions (including cash) made to each Schedule K-1. Report each shareholder's pro rata share of
shareholder other than dividends reported on line 17c of amounts reported on lines 17a and 17b (investment income and
Schedule K. Include the shareholder's pro rata share of any expenses) in box 17 of Schedule K-1 using codes A and B,
amounts included in interest income with respect to new clean respectively.
renewable energy, qualified energy conservation, qualified zone If there are other items of investment income or expense
academy (for bonds issued after October 3, 2008), qualified included in the amounts that are required to be passed through
school construction, or build America bonds. Distributions of separately to the shareholders on Schedule K-1, such as net
appreciated property are valued at fair market value. If property short-term capital gain or loss, net long-term capital gain or loss,
other than cash was distributed, attach a statement to provide and other portfolio gains or losses, give each shareholder a
the following information. statement identifying these amounts.
• The date the property was acquired.
• The date the property was distributed. Line 17c. Dividend Distributions Paid From
• The property's FMV on the date of distribution.
• The corporation's basis in the property. Accumulated Earnings and Profits (Schedule K
See Distributions, later, for the ordering rules. Only)

Line 16e. Repayment of Loans From Shareholders Enter total dividends paid to shareholders from accumulated
earnings and profits. Report these dividends to shareholders on
Enter any repayments made to shareholders during the current Form 1099-DIV. Don't report them on Schedule K-1.
tax year.
Line 17d. Other Items and Amounts
Line 16f. Foreign Taxes Paid or Accrued
Report the following information on a statement attached to Form
Enter in U.S. dollars the total creditable foreign taxes (described 1120-S. On Schedule K-1, enter the appropriate code in box 17
in section 901 or section 903) that were paid or accrued for each information item followed by an asterisk in the left-hand
according to the corporation's method of accounting for such column of the entry space (for example, C*). In the right-hand
taxes. Translate these amounts into U.S. dollars by using the column, enter “STMT.” The codes are provided for each
applicable exchange rate. See Pub. 514, Foreign Tax Credit for information category.
Individuals.
Qualified rehabilitation expenditures (other than rental real
Schedule K-1. Report each shareholder's pro rata share of estate) (code C). Enter total qualified rehabilitation
amounts reported on lines 16a, 16b, 16c, and 16f (concerning expenditures from activities other than rental real estate
items affecting shareholder basis) in box 16 of Schedule K-1 activities. See the Instructions for Form 3468 for details on
using codes A, B, C, and F, respectively. Report property qualified rehabilitation expenditures.
distributions (line 16d) and repayment of loans from
shareholders (line 16e) on the Schedule K-1 of the Report qualified rehabilitation expenditures related to
shareholder(s) that received the distributions or repayments TIP rental real estate activities on line 13c.
(using codes D and E).
Schedule K-1. Report each shareholder's pro rata share of
Other Information qualified rehabilitation expenditures related to activities other
than rental real estate activities in box 17 of Schedule K-1 using
Lines 17a and 17b. Investment Income and code C. Attach a statement to Schedule K-1 that provides the
Expenses information and the shareholder's pro rata share of the basis and
expenditure amounts the shareholder will need to figure the
Enter on line 17a the investment income included on lines 4, 5a, amounts to report in Part VII of Form 3468. See the Instructions
6, and 10 of Schedule K. Don't include other portfolio gains or for Form 3468 for details. If the corporation has expenditures
losses on this line. from more than one activity, identify on a statement attached to
Schedule K-1 the information and amounts for each separate
Enter on line 17b the investment expense included on activity. See Passive Activity Reporting Requirements, earlier.
line 12d of Schedule K.
Instructions for Form 1120-S (2023) 39

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Basis of energy property (code D). In box 17 of • The alternative fuel vehicle refueling property credit. See
Schedule K-1, enter code D followed by an asterisk and enter section 30C(e)(5) for details.
“STMT” in the entry space for the dollar amount. Attach a Look-back interest—Completed long-term contracts (code
statement to Schedule K-1 that provides the shareholder's pro I). If the corporation is closely held (defined in section 460(b)(4)
rata share of the basis and capacity amounts the shareholder (C)(iii)) and it entered into any long-term contracts after February
will need to figure the amounts to report on Part VI, lines 1a, 3a, 28, 1986, that are accounted for under either the percentage of
3e, 5a, 5f, 5o, 7a, 7j, 9a, 9b, 11a, 11d, 11h, 13a, 15a, 17a, 17e, completion-capitalized cost method or the percentage of
19a, 21a, 23a, 23e, 25a, 25d, 25g, 25j, and 29a of Form 3468. completion method, it must attach a statement to Form 1120-S
See the Instructions for Form 3468 for details. showing the information required in items (a) and (b) of the
Recapture of low-income housing credit (codes E and F). If instructions for lines 1 and 3 of Part II of Form 8697. It must also
recapture of part or all of the low-income housing credit is report the amounts for Part II, lines 1 and 3, to its shareholders.
required because (a) the prior year qualified basis of a building See the Instructions for Form 8697 for more information.
decreased, or (b) the corporation disposed of a building or part Look-back interest—Income forecast method (code J). If
of its interest in a building, see Form 8611, Recapture of the corporation is closely held (defined in section 460(b)(4)(C)
Low-Income Housing Credit. Complete lines 1 through 7 of Form (iii)) and it depreciated certain property placed in service after
8611 to figure the amount of the credit to recapture. September 13, 1995, under the income forecast method, it must
Use code E on Schedule K-1 to report recapture of the attach to Form 1120-S the information specified in the
low-income housing credit from a section 42(j)(5) partnership. instructions for Form 8866, line 2, for the 3rd and 10th tax years
Use code F to report recapture of any other low-income housing beginning after the tax year the property was placed in service. It
credit. See the instructions for lines 13a and 13b, earlier, for must also report the line 2 amounts to its shareholders. See the
more information. Instructions for Form 8866 for more details.
If a shareholder's ownership interest in a building Dispositions of property with section 179 deductions
TIP decreased because of a transaction at the shareholder (code K). This represents gain or loss on the sale, exchange, or
level, the corporation must provide the necessary other disposition of property for which a section 179 deduction
information to the shareholder to enable the shareholder to figure has been passed through to shareholders. The corporation must
the recapture. provide all the following information with respect to such
dispositions (see the instructions for Form 1120-S, line 4,
The disposal of a building or an interest therein will earlier).
! generate a credit recapture unless it is reasonably • Description of the property.
CAUTION expected that the building will continue to be operated • Date the property was acquired and placed in service.
as a qualified low-income building for the remainder of the • Date of the sale or other disposition of the property.
building's compliance period. • The shareholder's pro rata share of the gross sales price or
amount realized.
See Form 8586, Form 8611, and section 42 for more • The shareholder's pro rata share of the cost or other basis
information. plus expense of sale (reduced as explained in the instructions for
Recapture of investment credit (code G). Complete and Form 4797, line 21).
attach Form 4255 if, before the end of the recapture period, • The shareholder's pro rata share of the depreciation allowed
investment credit property is disposed of or no longer qualifies or allowable, determined as described in the instructions for
for the credit or if credit recapture is otherwise required. See the Form 4797, line 22, but excluding the section 179 deduction.
Instructions for Form 4255 for details about when credit • The shareholder's pro rata share of the section 179 deduction
recapture is required. State the type of property at the top of (if any) passed through for the property and the corporation's tax
Form 4255, and complete lines 2, 3, 4, 10, and 11, whether or year(s) in which the amount was passed through.
not any shareholder is subject to recapture of the credit. • If the disposition is due to a casualty or theft, a statement
indicating so, and any additional information needed by the
Attach to each Schedule K-1 a separate statement providing shareholder.
the information the corporation is required to show on Form For an installment sale, any information the shareholder
4255, but list only the shareholder's pro rata share of the basis of •
needs to complete Form 6252. The corporation must also
the property subject to recapture. Also indicate the lines of Form separately report the shareholder's pro rata share of all
4255 on which the shareholders should report these amounts. payments received for the property in future tax years.
The corporation itself is liable for investment credit recapture (Installment payments received for installment sales made in
in certain cases. See Investment credit recapture tax, earlier, for prior tax years should be reported in the same manner used in
details. prior tax years.) See the Instructions for Form 6252 for details.
Recapture of other credits (code H). On an attached Recapture of section 179 deduction (code L). This amount
statement to Schedule K-1, provide any information represents recapture of the section 179 deduction if business
shareholders will need to report recapture of credits (other than use of the property dropped to 50% or less before the end of the
recapture of low-income housing credit and investment credit recapture period. If the business use of any property for which a
reported on Schedule K-1 using codes E, F, and G). The section 179 deduction was passed through to shareholders
following are examples of credits subject to recapture and dropped to 50% or less (for a reason other than disposition), the
reported using code H. corporation must provide all the following information.
• The new clean vehicle credit. See section 30D(f)(5) for • The shareholder's pro rata share of the original basis and
details. depreciation allowed or allowable (not including the section 179
• The new markets credit. See Form 8874 and Form 8874-B, deduction).
Notice of Recapture Event for New Markets Credit, for details. • The shareholder's pro rata share of the section 179 deduction
• The credit for employer-provided childcare facilities and (if any) passed through for the property and the corporation's tax
services. See section 45F(d) for details. year(s) in which the amount was passed through.
• The alternative motor vehicle credit. See section 30B(h)(8) for See Regulations section 1.179-1(e) for details.
details.

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Section 453(l)(3) information (code M). Supply any Net investment income (code U). Use code U to report any
information needed by a shareholder to figure the interest due information that may be relevant for shareholders to figure their
under section 453(l)(3). If the corporation elected to report the net investment income tax when the information isn't otherwise
dispositions of certain timeshares and residential lots on the identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach
installment method, each shareholder's tax liability must be a statement that shows a description and dollar amount of each
increased by the shareholder's pro rata share of the interest on relevant item.
tax attributable to the installment payments received during the Examples of items reported using code U may include the
tax year. following.
Section 453A(c) information (code N). Supply any • Net rental real estate income reported on Form 1120-S,
information shareholders need to figure the interest charge Schedule K, line 2, and other net rental income reported on
under section 453A(c). See Pub. 537, Installment Sales. This Form 1120-S, Schedule K, line 3c, derived from a section 212
information must include the following from each Form 6252 for-profit activity (and not from a section 162 trade or business).
where the shareholder's pro rata share of the selling price, • Gains and losses from dispositions of assets attributable to a
including mortgages and other debts, is greater than $150,000. section 212 for-profit activity (and not from a section 162 trade or
• Description of property. business).
• Date acquired. • Gain reported on the installment sale basis (or attributable to
• Date property sold. a private annuity) that is attributable to the disposition of property
• Selling price, including mortgages and other debts (not held in a trade or business.
including interest, whether stated or unstated). • Gain or loss from the disposition of a partnership interest, but
• Mortgages, debts, and other liabilities the buyer assumed or only if such partnership was engaged, directly or indirectly, in
took the property subject to. one or more trades or businesses, and at least one of those
• Gross profit. trades or businesses wasn't trading in financial instruments or
• Contract price. commodities.
• Gross profit percentage. • The shareholder’s pro rata share of interest income, or interest
• Current year payments and deemed payments received expense, that is attributable to a loan between the corporation
during the year, not including interest whether stated or unstated. and the shareholder (self-charged interest).
• Origination year payments and deemed payments received • If the corporation received a Form 1065, Schedule K-1, the
during the year, not including interest whether stated or unstated. detail and amounts reported to the corporation using box 20,
• Payments received in prior years, not including interest code Y.
whether stated or unstated. • If the corporation received a Form 1041, Schedule K-1, the
• Installment sale income. amount of the adjustment reported.
• Character of the income—capital or ordinary. In addition, Regulations section 1.1411-10 provides special
See section 453A(c) for information on how to compute the rules with respect to stock of CFCs and passive foreign
interest charge on the deferred tax liability. The section 453A investment companies (PFICs) owned by the corporation. If the
interest charge is reported on the other tax line of the corporation owns, directly or indirectly, stock of a CFC or PFIC,
shareholder's tax return. See Interest on Deferred Tax in Pub. then additional reporting may be required under code U.
537 for additional details on how to compute the section 453A(c) CFCs and QEFs. In the case of stock of CFCs and QEFs
interest. owned directly or indirectly by the corporation, the corporation
must provide the name and EIN (if one has been issued) for
Section 1260(b) information (code O). Supply any each CFC and QEF the stock of which is owned by the
information needed by a shareholder to figure the interest due corporation for which an election under Regulations section
under section 1260(b). If the corporation had gain from certain 1.1411-10(g) is not in effect and with respect to which the
constructive ownership transactions, each shareholder's tax corporation isn't engaged in a trade or business described in
liability must be increased by the shareholder's pro rata share of section 1411(c)(2). For each of these entities, the corporation
interest due on any deferral of gain recognition. See section must provide the following information on an entity-by-entity
1260(b) for details, including how to figure the interest. basis (to the extent such information isn't otherwise identifiable
Interest allocable to production expenditures (code P). on Schedule K-3).
Supply any information needed by a shareholder to properly • Section 951(a) inclusions.
capitalize interest as required by section 263A(f). See Section • Section 951A inclusions to the extent allocated to the CFC
263A uniform capitalization rules, earlier, for more information. under section 951A(f)(2) if the corporation has elected entity
treatment under Notice 2020-60, 2020-39 I.R.B. 604.
CCF nonqualified withdrawals (code Q). Report nonqualified Section 1293(a)(1)(A) inclusions.
withdrawals by the corporation from a capital construction fund. •
Attach a statement to the shareholder's Schedule K-1 providing • Section 1293(a)(1)(B) inclusions.
details of the withdrawal. See Pub. 595. • Section 959(d) distributions subject to section 1411.
• Section 1293(c) distributions subject to section 1411.
Depletion information—Oil and gas (code R). Report gross • Amount of gain or loss derived with respect to dispositions of
income and other information relating to oil and gas well the stock of CFCs and QEFs that is taken into account for
properties to shareholders to allow them to figure the depletion section 1411 purposes.
deduction for oil and gas well properties. Allocate to each • Amounts that are derived with respect to the disposition of the
shareholder a proportionate share of the adjusted basis of each stock of CFCs and QEFs and included in income as a dividend
corporate oil or gas well property. See section 613A(c)(11) for under section 1248 for section 1411 purposes.
details. In the case of stock of CFCs and QEFs directly or indirectly
The corporation can't deduct depletion on oil and gas wells. owned by the corporation for which an election under
Each shareholder must determine the allowable amount to report Regulations section 1.1411-10(g) is in effect, the corporation
on the shareholder's return. must provide the following information (to the extent such
information isn't otherwise identifiable on Schedule K-3), on
Codes S and T. Reserved for future use. either an aggregate basis or an entity-by-entity basis.
• Section 951(a) inclusions.

Instructions for Form 1120-S (2023) 41

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• Section 951A inclusions to the extent allocated to the CFC Don’t add amounts into a single number and report it in
under section 951A(f)(2) if the corporation has elected entity ! box 17 on Schedule K-1. The section 199A information
treatment under Notice 2020-60. CAUTION must be separately identified for each trade or business
• Section 1293(a)(1)(A) inclusions. the S corporation directly conducts, including specified service
• Section 1293(a)(1)(B) inclusions. trades or businesses.
In the case of stock of CFCs and QEFs directly or indirectly The S corporation must make an initial determination of which
owned by the corporation with respect to which the corporation items are qualified items of income, gain, deduction, and loss at
is engaged in a trade or business described in section 1411(c) its level and report to each shareholder their pro rata share of all
(2), the corporation must provide the following information (to the items that may be qualified items at the shareholder level. These
extent such information isn't otherwise identifiable on the items must be separately stated where necessary for the
Schedule K-3), on either an aggregate or an entity-by-entity shareholder to figure the deduction. See Determining the S
basis, or may aggregate this information with other income corporation’s QBI or qualified PTP items, later. The shareholder
derived by the corporation that is net investment income under must then determine whether each item is includible in its QBI.
section 1411(c)(1)(A)(ii).
• Section 951(a) inclusions. In addition, the S corporation must also report whether any of
• Section 951A inclusions to the extent allocated to the CFC its trades or businesses are specified service trades or
under section 951A(f)(2) if the corporation has elected entity businesses (SSTBs) and identify on the statement any trades or
treatment under Notice 2020-60. businesses that are aggregated.
• Section 1293(a)(1)(A) inclusions.
• Section 1293(a)(1)(B) inclusions. Note. The S corporation must report the pro rata share of
Section 1296 mark-to-market PFICs. In the case of stock of qualified items of income, gain, deduction, and loss from a PTP
PFICs directly or indirectly owned by the corporation for which an so that shareholders can determine their qualified PTP income.
election under section 1296 is in effect, the corporation must However, W-2 wages and UBIA of qualified property from the
provide the following information (to the extent such information PTP shouldn’t be reported because shareholders can’t use that
isn't otherwise identifiable on Schedule K-3), on either an information in figuring their QBI deduction.
aggregate basis or an entity-by-entity basis (except as provided S corporations should use Statement A—QBI Pass-Through
below). Entity Reporting, or a substantially similar statement, to report
• Amounts included in income under section 1296(a)(1). each shareholder’s pro rata information from each trade or
• Amounts deducted from income under section 1296(a)(2). business, including QBI items, W-2 wages, UBIA of qualified
In the case of PFIC stock owned directly or indirectly by the property, qualified PTP items, and section 199A dividends by
corporation for which an election under section 1296 is in effect attaching the completed statement(s) to each shareholder’s
and with respect to which the corporation is engaged in a trade Schedule K-1. The S corporation should also use Statement A to
or business described in section 1411(c)(2), the corporation may report each shareholder’s pro rata share of QBI items, W-2
aggregate this information with other income derived by the wages, UBIA of qualified property, qualified PTP items, and
corporation that is net investment income under section 1411(c) section 199A dividends reported to the S corporation by another
(1)(A)(ii). entity.
Section 1291 funds. In the case of stock of PFICs directly or S corporations should use Statement B—QBI Pass-Through
indirectly owned by the corporation with respect to which direct Entity Aggregation Election(s), or a substantially similar
or indirect shareholders are subject to section 1291, the statement, to report aggregated trades or businesses and
corporation must provide the following information (to the extent provide supporting information to shareholders on each
such information isn't otherwise identifiable on Schedule K-3), on Schedule K-1.
an entity-by-entity basis. S corporations should use Statement C—QBI Pass-Through
• Excess distributions made by a PFIC with respect to which the Entity Reporting—Patrons of Specified Agricultural and
shareholder is subject to section 1291. Horticultural Cooperatives, or a substantially similar statement,
• Gains derived with respect to the disposition of stock of a to report pro rata QBI and W-2 wages allocable to qualified
PFIC with respect to which a shareholder is subject to section payments from a specified agricultural or horticultural
1291. cooperative for each trade or business. This statement should
Section 199A information (code V). The qualified business also be used to report each shareholder’s pro rata section
income (QBI) deduction may be taken by eligible taxpayers, 199A(g) deduction reported to the S corporation by the specified
including individuals and some trusts and estates. The cooperative.
deduction is determined at the shareholder level. S corporations The S corporation must also report all QBI information
are required to report information necessary for their reported to it by any entity in which the S corporation has an
shareholders to figure the deduction. Use the code with an ownership interest.
asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and Determining the S corporation’s qualified trades or
enter “STMT” in the entry space to indicate that the information is businesses. The S corporation’s qualified trades or businesses
provided on an attached statement separately identifying the include its section 162 trades or businesses, except for SSTBs,
shareholder’s pro rata share of: or the trade or business of providing services as an employee. A
• Qualified items of income, gain, deduction, and loss; section 162 trade or business generally includes any activity if
• W-2 wages; the taxpayer’s primary purpose for engaging in the activity is for
• Unadjusted basis immediately after acquisition (UBIA) of income or profit and the S corporation is involved in the activity
qualified property; with continuity and regularity. For more information on what
• Qualified publicly traded partnership (PTP) items; and qualifies as a trade or business for purposes of section 199A,
• Section 199A dividends, also known as qualified real estate see the instructions for Form 8995, Qualified Business Income
investment trust (REIT) dividends. Deduction Simplified Computation, or Form 8995-A, Qualified
Business Income Deduction.
Rental real estate. Rental real estate may constitute a trade
or business for purposes of the QBI deduction if the rental real
estate:

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• Rises to the level of a trade or business under section 162;         substantially similar statement, and attach it to each 
• Satisfies the requirements for the rental real estate safe           Schedule K-1. The statement must provide the information 
harbor in Rev. Proc. 2019-38, 2019-42 I.R.B. 942; or                   necessary to identify each separate trade or business included 
• Meets the self-rental exception (that is, the rental or licensing    in each aggregation, a description of the aggregated trades or 
of property to a commonly controlled trade or business                 businesses, and an explanation of the factors met that allow the 
conducted by an individual or relevant pass-through entity)            aggregation in accordance with Regulations section 1.199A-4. 
described in Regulations section 1.199A-1(b)(14).                      The aggregation statement must be completed each year to 
  The determination of whether rental real estate constitutes a        show the S corporation's trade or business aggregations. Failure 
trade or business for purposes of the QBI deduction is made by         to disclose the aggregations may cause them to be 
the S corporation. The S corporation must first make this              disaggregated.
determination and then only include the pro rata share of QBI            The S corporation's aggregations must be reported 
information for rental real estate that constitutes a trade or         consistently for all subsequent years, unless there is a change in 
business on the statement provided to shareholders. Rental real        facts and circumstances that changes or disqualifies the 
estate that doesn’t meet any of the three conditions noted above       aggregation. The S corporation must provide a written 
doesn’t constitute a trade or business for purposes of the QBI         explanation for any changes to prior year aggregations that 
deduction and must not be included in the QBI information              describes the change in facts and circumstances.
provided to shareholders.                                                If the S corporation directly or indirectly owns an interest in 
  Specified service trades or businesses excluded from                 another relevant pass-through entity (RPE) that aggregates 
qualified trades or businesses.     SSTBs are generally                multiple trades or businesses, it must attach a copy of the RPE's 
excluded from the definition of a qualified trade or business. An      aggregation to each Schedule K-1. The S corporation can’t 
SSTB is any trade or business providing services in the fields of      break apart the aggregation of another RPE, but it may add 
health, law, accounting, actuarial science, performing arts,           trades or businesses to the aggregation, assuming the 
consulting, athletics, financial services, brokerage services,         requirements above are satisfied.
investing and investment management, trading or dealing in               Determining the S corporation’s QBI or qualified PTP 
securities, partnership interests, or commodities, or any other        items. The S corporation’s items of QBI include qualified items 
trade or business where the principal asset is the reputation or       of income, gain, deduction, and loss from the S corporation’s 
skill of one or more of its employees or owners. The term “any         trades or businesses that are effectively connected with the 
trade or business” where the principal asset is the reputation or      conduct of a trade or business within the United States. This may 
skill of one or more of its employees or owners means any trade        include, but isn’t limited to, items such as ordinary business 
or business that consists of (i) a trade or business in which a        income or losses, section 1231 gains or losses, section 179 
person receives fees, compensation, or other income for                deductions, and interest from debt-financed distributions.
endorsing products or services; (ii) a trade or business in which 
a person licenses or receives fees, compensation, or other               QBI may also include rental income or losses or royalty 
income for the use of an individual’s image, likeness, name,           income, if the activity rises to the level of a trade or business, or 
signature, voice, trademark, or any other symbols associated           is a qualified trade or business for purposes of section 199A; and 
with the individual’s identity; or (iii) receiving fees, compensation, gambling gains or losses, but only if the S corporation is 
or other income for appearing at an event or on radio, television,     engaged in the trade or business of gambling. Whether an 
or another media format.                                               activity rises to the level of a trade or business must be 
                                                                       determined at the entity level and, once made, is binding on 
Note. S corporations must separately report QBI information for        shareholders.
all trades or businesses engaged in by the S corporation,                Qualified PTP items include the S corporation’s share of 
including SSTBs, and must also identify which trades or                qualified items of income, gain, deduction, and loss from a PTP 
businesses are SSTBs.                                                  and may also include gain or loss recognized on the disposition 
  Aggregation of trades or businesses. An S corporation                of the S corporation’s partnership interest that isn’t treated as a 
engaged in more than one trade or business may choose to               capital gain or loss.
aggregate multiple trades or businesses into a single trade or           QBI and qualified PTP items don’t include the following:
business for purposes of section 199A if it meets the following        • Items that aren’t properly includible in income;
requirements:                                                          • Income that isn’t effectively connected with the conduct of 
  1. The same person, or group of persons, either directly or          business within the United States (go to IRS.gov/ECI for more 
through attribution, owns 50% or more of each trade or business        information);
for a majority of the tax year, including the last day of the tax      • Items that are treated as capital gain or loss under any 
year, and all trades or businesses use the same tax year-end;          provision of the Internal Revenue Code;
  2. None of the trades or businesses is an SSTB; and                  • Dividends or dividend equivalents, including qualified REIT 
                                                                       dividends;
  3. The trades or businesses to be aggregated meet at least           • Interest income (unless received in connection with the trade 
two of the following three factors:                                    or business);
  a. They provide products, property, or services that are the         • Wage income;
same or that are customarily offered together;                         • Commodities transactions, or foreign currency gains or losses 
  b. They share facilities or share significant centralized            described in sections 954(c)(1)(C) or (D);
business elements, such as personnel, accounting, legal,               • Income, loss, or deductions from notional principal contracts 
manufacturing, purchasing, human resources, or information             under section 954(c)(1)(F);
technology resources; or                                               • Annuities (unless received in connection with the trade or 
                                                                       business);
  c. They are operated in coordination with, or reliance upon,           Guaranteed payments described in section 707(c) received 
one or more of the businesses in the aggregated group.                 •
                                                                       by the entity for services rendered to a partnership; or
  If the S corporation chooses to aggregate multiple trades or         • Payments described in section 707(a) received by the entity 
businesses, it must report the aggregation on Statement B, or a        for services rendered to a partnership.

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QBI Flowchart

S corporations may use this flowchart to determine if an item of income, gain, deduction, or loss is includible in QBI reportable to
shareholders.
Questions Yes No
1. Is the item effectively connected with the conduct of a trade or business within the United States? Continue to next question. Stop. This item isn’t QBI.
2. Is the item attributable to a trade or business (this may include section 1231 gain (loss), section Continue to next question. Stop. This item isn’t QBI.
179 deductions, interest from debt-financed distributions, etc.)? Examples of an item not
considered attributable to the trade or business at the entity level include gambling income (loss)
where the entity isn’t engaged in the trade or business of gambling, income (loss) from vacation
properties when the entity isn’t in that trade or business, activities not engaged in for profit, etc.
3. Is the item treated as a capital gain or loss under any provision of the Internal Revenue Code or Stop. This item isn’t QBI. Continue to next question.
is it a dividend or dividend equivalent?
4. Is the item interest income other than interest income properly allocable to a trade or business? Stop. This item isn’t QBI. Continue to next question.
(Note that interest income attributable to an investment of working capital, reserves, or similar
accounts isn’t properly allocable to a trade or business).
5. Is the item an annuity, other than an annuity received in connection with the trade or business? Stop. This item isn’t QBI. Continue to next question.
6. Is the item gain or loss from a commodities transaction or foreign currency gain or loss Stop. This item isn’t QBI. Continue to next question.
described in sections 954(c)(1)(C) or (D)?
7. Is the item gain or loss from a notional principal contract under section 954(c)(1)(F)? Stop. This item isn’t QBI. Continue to next question.
8. Is the item of income or loss from a qualified publicly traded partnership? This item is a qualified PTP This item is QBI. Report this
item. Report this item as item as QBI subject to
qualified PTP income or shareholder-specific
loss, subject to determinations.
shareholder-specific
determinations, and check
the PTP box.
Specific instructions for Statement A—QBI Pass-Through similar statement, attached to Schedule K-1. This includes the
Entity Reporting. pro rata share of W-2 wages and UBIA of qualified property
QBI or qualified PTP items. The S corporation must first reported to the S corporation from any qualified trades or
determine if it is engaged in one or more trades or businesses. It businesses of an RPE the S corporation owns directly or
must then determine if any of its trades or businesses are indirectly. However, S corporations that own a direct or indirect
SSTBs. It must also determine whether it has qualified PTP interest in a PTP may not include any amounts for W-2 wages or
items from an interest in a PTP. It must indicate the status in the UBIA of qualified property from the PTP, as the W-2 wages and
appropriate checkboxes for each trade or business (or UBIA of qualified property from a PTP aren’t allowed in figuring
aggregated trade or business) or PTP interest reported. the W-2 wage and UBIA limitations.
The W-2 wages are amounts paid to employees described in
Note. SSTBs and PTPs can’t be aggregated with any other sections 6051(a)(3) and (8). If the S corporation conducts more
trade or business. So, if the aggregation box is checked, the than one trade or business, it must allocate the W-2 wages
SSTB and PTP boxes for that specific aggregated trade or among its trades or businesses. See Rev. Proc. 2019-11,
business shouldn’t be checked. 2019-09 I.R.B. 742 for more information.
Next, the S corporation must report to each shareholder their The unadjusted basis of qualified property is figured by
pro rata share of all items that are QBI or qualified PTP items for adding the unadjusted basis of all qualified assets immediately
each trade or business the S corporation owns directly or after acquisition. Qualified property includes all tangible property
indirectly. Use the QBI flowchart above to determine if an item is subject to depreciation under section 167 for which the
reportable as a QBI item or qualified PTP item subject to depreciable period hasn’t ended that is held and used for the
shareholder-specific determination. production of QBI by the trade or business during the tax year
The descriptions on the statement generally match the and held on the last day of the tax year. The depreciable period
descriptions reported on Schedule K-1. So the amounts should ends on the later of 10 years after the property is placed in
reflect each trade or business’s portion of the qualified items of service or the last day of the full year for the applicable recovery
income, gain, deduction, or loss reported in the applicable box of period under section 168.
the shareholder’s Schedule K-1. For example, the amount Section 199A dividends. The S corporation must report the
reported on the “Ordinary business income (loss)” line of this pro rata share of any section 199A dividends, also known as
statement should reflect the attributable portion of qualified items qualified real estate investment trust (REIT) dividends, to each
of income, gain, deduction, and loss for each trade or business shareholder on Statement A, or a substantially similar statement,
included in the “Ordinary business income (loss)” reported in attached to Schedule K-1. Section 199A dividends don’t have to
box 1 of the shareholder’s Schedule K-1. Each item included be separately reported by trades or businesses and can be
under “Other income (loss)” and “Other deductions” must be reported as a single amount to shareholders. Section 199A
stated separately, identifying the nature and amount of each dividends include any dividend the S corporation receives from a
item. REIT held for more than 45 days, for which the payment isn’t
W-2 wages and UBIA of qualified property. The S obligated to someone else, isn’t a capital gain dividend under
corporation must determine the W-2 wages and UBIA of section 857(b)(3), and isn’t a qualified dividend under section
qualified property properly allocable to QBI for each qualified 1(h)(11), plus any qualified REIT dividends received from a
trade or business, including SSTBs, and report the pro rata regulated investment company (RIC).
share to each shareholder on Statement A, or a substantially Fiscal year S corporations. For purposes of determining the
QBI or qualified PTP items, UBIA of qualified property, and the

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aggregate amount of qualified section 199A dividends, fiscal                            S corporation’s tax year. If the S corporation conducts more than 
year-end S corporations include all items from the fiscal tax year.                     one trade or business, it must allocate W-2 wages among its 
For purposes of determining W-2 wages, fiscal year-end S                                trades or businesses. See Rev. Proc. 2019-11 for more 
corporations include amounts paid to employees under sections                           information.
6051(a)(3) and (8) for the calendar year ended with or within the 

Statement A—QBI Pass-Through Entity Reporting
S corporation's name:                                                                                       S corporation's EIN:
Shareholder’s name:                                                                     Shareholder’s identifying number:

                                                                                        Trade or Business 1 Trade or Business 2 Trade or Business 3
                                                                                         PTP                 PTP                 PTP
                                                                                         Aggregated          Aggregated          Aggregated
Shareholder’s share of:                                                                  SSTB                SSTB                SSTB 
QBI or qualified PTP items subject to shareholder-specific determinations:
                Ordinary business income (loss) . . . . . . . . . . . . . . .
                 Rental income (loss) . . . . . . . . . . . . . . . . . . . . .
                 Royalty income (loss)     . . . . . . . . . . . . . . . . . . . .
                 Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . .
                 Other income (loss)     . . . . . . . . . . . . . . . . . . . . .
                 Section 179 deduction . . . . . . . . . . . . . . . . . . . .
                 Other deductions . . . . . . . . . . . . . . . . . . . . . . .
W-2 wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UBIA of qualified property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 199A dividends. . . . .
Specific instructions for Statement B—QBI Pass-Through                                  disaggregated. The S corporation's aggregations must be 
Entity Aggregation Election(s).            If the S corporation elects to               reported consistently for all subsequent years, unless there is a 
aggregate more than one trade or business that meets all the                            change in facts and circumstances that changes or disqualifies 
requirements to aggregate, the S corporation must report the                            the aggregation. The S corporation must provide a written 
aggregation to shareholders on Statement B, or a substantially                          explanation for any changes to prior year aggregations that 
similar statement, and attach it to each Schedule K-1. The S                            describes the change in facts and circumstances.
corporation must indicate trades or businesses that were                                If the S corporation holds a direct or indirect interest in an 
aggregated by checking the appropriate box on Statement A for                           RPE that aggregates multiple trades or businesses, the S 
each aggregated trade or business. The S corporation must also                          corporation must also include a copy of the RPE’s aggregations 
provide a description of the aggregated trade or business and an                        with each shareholder’s Schedule K-1. The S corporation can’t 
explanation of the factors met that allow the aggregation.                              break apart the aggregation of another RPE, but it may add 
The aggregation statement must be completed each year to                                trades or businesses to the aggregation, assuming the 
show the S corporation's trade or business aggregations. Failure                        aggregation requirements are satisfied.
to disclose the aggregations may cause them to be 

Instructions for Form 1120-S (2023)                                                                                                                    45

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Statement B—QBI Pass-Through Entity Aggregation Election(s)
S corporation's name:                                                                               S corporation's EIN:
Trade or business aggregation 1*
   Provide a description of the aggregated trades or businesses and an explanation of the factors met that allow the aggregation in accordance with Regulations 
   section 1.199A-4. In addition, if the S corporation holds a direct or indirect interest in a relevant pass-through entity (RPE) that aggregates multiple trades or 
   businesses, attach a copy of the RPE's aggregations.
    
   Has this trade or business aggregation changed from the prior year? This includes changes in the aggregation due to a trade or business being formed, acquired, 
   or disposed of, or having ceased operations. If yes, explain.
    
* If the S corporation has more than one aggregated group, attach additional Statements B. Name the additional aggregations 2, 3, 4, etc.
Specific instructions for Statement C—QBI Pass-Through                          QBI items and W-2 wages allocable to qualified payments 
Entity Reporting—Patrons of Specified Agricultural and                          include QBI items included on Statement A that are allocable to 
Horticultural Cooperatives.                                                     the qualified payments reported to the S corporation on Form 
  QBI items and W-2 wages allocable to qualified                                1099-PATR from the cooperative.
payments.  If the S corporation is a patron of a specified                      Section 199A(g) deduction.                               The S corporation must report 
agricultural or horticultural cooperative, the S corporation must               to its shareholders their pro rata share of any section 199A(g) 
provide the pro rata share of QBI items and W-2 wages allocable                 deduction passed through from the cooperative, as reported on 
to qualified payments from each trade or business to each of its                Form 1099-PATR. Section 199A(g) deductions don’t have to be 
shareholders on Statement C, or a substantially similar                         separately reported by trades or businesses and can be 
statement, and attach it to each Schedule K-1 so each                           reported as a single amount to shareholders.
shareholder can figure their patron reduction under section 
199A(b)(7).

Statement C—QBI Pass-Through Entity Reporting—Patrons of Specified Agricultural and Horticultural 
Cooperatives
S corporation's name:                                                                               S corporation's EIN:
Shareholder’s name:                                                             Shareholder’s identifying number:

                                                                                Trade or Business 1 Trade or Business 2                  Trade or Business 3
                                                                                 PTP                 PTP                                  PTP
                                                                                 Aggregated          Aggregated                           Aggregated
Shareholder’s share of:                                                          SSTB                SSTB                                 SSTB 
QBI items allocable to qualified payments subject to shareholder-specific determinations:
            Ordinary business income (loss) . . . . . . . . . . . . . . .
           Rental income (loss) . . . . . . . . . . . . . . . . . . . . . .
           Royalty income (loss)       . . . . . . . . . . . . . . . . . . . . .
           Section 1231 gain (loss) . . . . . . . . . . . . . . . . . . . .
           Other income (loss)       . . . . . . . . . . . . . . . . . . . . . .
           Section 179 deduction . . . . . . . . . . . . . . . . . . . . .
           Other deductions . . . . . . . . . . . . . . . . . . . . . . . .
W-2 wages allocable to qualified payments. . . . . . . . . . . . . . . . . . . .
Section 199A(g) deduction. . . . . . . . . . . . . . . .
Codes W through Z.      Reserved for future use.                                line 41, for excess taxable income on Schedule K. Report the 
                                                                                shareholder's pro rata share in box 17 of Schedule K-1.
Excess taxable income (code AA).             If the S corporation is 
required to file Form 8990, Limitation on Business Interest                     Excess business interest income (code AB).                   If the S 
Expense Under Section 163(j), it may determine it has excess                    corporation is required to file Form 8990, it may determine it has 
taxable income. If so, enter the amount from Form 8990, Part III,               excess business interest income. If so, enter the amount from 

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Form 8990, Part III, line 42, for excess taxable income on Reportable transactions (code AW). If the corporation
Schedule K. Report the shareholder's pro rata share in box 17 of participates in a transaction that must be disclosed on Form
Schedule K-1. 8886 (discussed earlier), both the corporation and its
Gross receipts for section 448(c) (code AC). Provide shareholders may be required to file Form 8886. The corporation
information shareholders need to complete the gross receipts must determine if any of its shareholders are required to disclose
test for section 448(c) purposes. See the Instructions for Form the transaction and provide those shareholders with information
8990 for details. they will need to file Form 8886. This determination is based on
the category(ies) under which a transaction qualified for
Codes AD through AI. Reserved for future use. disclosures. See the Instructions for Form 8886 for details.
Excess business loss limitation (code AJ). If the corporation Codes AX through BD. Reserved for future use.
has deductions attributable to a business activity, provide a
statement showing the aggregate gross income or gain and the Other information (code ZZ). Any other information the
aggregate deductions from the business activity that shareholders need to prepare their tax returns, including
shareholders need to figure any excess business loss limitation. information needed to prepare state and local tax returns.
See section 461(l) and the Instructions for Form 461 for details.
Codes AK through AM. Reserved for future use. Line 18. More Than One At-Risk Activity
Farming and fishing business (code AN). In box 17 of If the corporation entered into more than one activity subject to
Schedule K-1, enter code AN followed by an asterisk and enter the at-risk rules (at-risk activity), the corporation is required to
“STMT” in the entry space for the dollar amount. Attach a provide information separately for each at-risk activity to its
statement to Schedule K-1 that provides the shareholder's pro shareholders. This information is reported on an attachment to
rata share of the following amounts. Schedule K-1. Check the box to indicate there is more than one
1. Gross farming and fishing income the shareholder will at-risk activity for which a statement is attached. See At-Risk
need to report on line 42 of Schedule E (Form 1040). See the Activity Reporting Requirements under At-Risk Limitations,
Instructions for Schedule E (Form 1040) for details. earlier, for details.
2. Gross farming and fishing income and gains as well as
losses and deductions attributable to farming and fishing Line 19. More Than One Passive Activity
business activities the shareholder may need to figure the
amounts to report on Schedule J (Form 1040). See section If the corporation entered into more than one activity
1301. (determined for purposes of the passive activity loss and credit
limitations), the corporation is required to provide information
Code AO. Reserved for future use. separately for each activity to its shareholders. This information
Inversion gain (code AP). Any income or gain reported on is reported on an attachment to Schedule K-1. Check the box to
lines 1 through 10 of Schedule K that qualifies as inversion gain, indicate there is more than one passive activity for which a
if the corporation is an expatriated entity or is a partner in an statement is attached. See Passive Activity Reporting
expatriated entity. For details, see section 7874. Attach a Requirements under Passive Activity Limitations, earlier, for
statement to Form 1120-S that shows the amount of each type of details.
income or gain included in the inversion gain. The corporation
Reconciliation
must report each shareholder's pro rata share of the inversion
gain in box 17 of Schedule K-1 using code AP. Attach a
statement to Schedule K-1 that shows the shareholder's pro rata Line 18. Income/Loss Reconciliation
share of the amount of each type of income or gain included in (Schedule K Only)
the inversion gain. To the extent the corporation has an amount on line 16f of
Codes AQ and AR. Reserved for future use. Schedule K (foreign taxes paid and accrued), subtract that
amount for purposes of figuring the corporation's net income
Qualifying advanced coal project property and qualifying (loss). The amount reported on line 18 must be the same as the
gasification project property (code AS). Basis in qualifying amount reported on line 8 of Schedule M-1 or line 26, column
advanced coal project property and qualifying gasification or (d), in Part II of Schedule M-3 (Form 1120-S).
advanced energy project property. Attach a statement to
Schedule K-1 that provides the shareholder's pro rata share of
the basis amounts the shareholder will need to figure the Schedule L. Balance Sheets per
amounts to report on Part II, lines 1a, 2a, and 3a; or lines 4a and Books
5a of Form 3468. See the Instructions for Form 3468 for details.
The balance sheets should agree with the corporation's books
Qualifying advanced energy project property (code AT). and records. Schedule L isn't required to be completed if the
Basis in qualifying advanced energy project property. Attach a corporation answered “Yes” to question 11 on Schedule B. If the
statement to Schedule K-1 that provides the shareholder's pro corporation is required to complete Schedule L, include total
rata share of the basis amounts the shareholder will need to assets reported on Schedule L, line 15, column (d), on page 1,
figure the amounts to report on Part III, line 1a, of Form 3468. item F.
See the Instructions for Form 3468 for details.
Corporations with total assets of $10 million or more on the
Advanced manufacturing investment property (code AU). last day of the tax year must file Schedule M-3 (Form 1120-S)
Basis in advanced manufacturing investment facility property. instead of Schedule M-1. However, see the instructions for
Attach a statement to Schedule K-1 that provides the Schedule M-1, later. See the separate Instructions for
shareholder's pro rata share of the basis amounts the Schedule M-3 (Form 1120-S) for provisions that also affect
shareholder will need to figure the amounts to report on Part IV, Schedule L.
line 1b, of Form 3468. See the Instructions for Form 3468 for
details. If the S election terminated during the tax year and the
corporation reverted to a C corporation, the year-end balance
Code AV. Reserved for future use. sheet should generally agree with the books and records at the
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end of the C short year. However, if the corporation elected Describe each such item of income. Attach a statement if
under section 1362(e)(3) to have items assigned to each short necessary.
year under normal tax accounting rules, the year-end balance
sheet should agree with the books and records at the end of the Line 3b. Travel and Entertainment
S short year. Include any of the following applicable expenses.
• Entertainment expenses not deductible under section 274(a).
Line 5. Tax-Exempt Securities • Meal expenses not deductible under section 274(n).
Include on this line: • Qualified transportation fringes not deductible under section
• State and local government obligations, the interest on which 274(a)(4).
is excludable from gross income under section 103(a); and • Expenses for the use of an entertainment facility.
• Stock in a mutual fund or other regulated investment company • The part of business gifts over $25.
that distributed exempt-interest dividends during the tax year of • Expenses of an individual over $2,000 that are allocable to
the corporation. conventions on cruise ships.
• Employee achievement awards of nontangible property or
Line 24. Retained Earnings tangible property over $400 ($1,600 if part of a qualified plan).
If the corporation maintains separate accounts for appropriated • The cost of skyboxes.
and unappropriated retained earnings, it may want to continue • The part of luxury water travel expenses not deductible under
such accounting for purposes of preparing its financial balance section 274(m).
sheet. Also, if the corporation converts to C corporation status in • Expenses for travel as a form of education.
a subsequent year, it will be required to report its appropriated • Nondeductible club dues.
and unappropriated retained earnings on separate lines of • Other nondeductible travel and entertainment expenses.
Schedule L of Form 1120. An S corporation should include tax-exempt income from
TIP the forgiveness of PPP loans on line 5 of the
Line 25. Adjustments to Shareholders' Equity Schedule M-1 (if it was included on line 1 of the
The following are some examples of adjustments to report on Schedule M-1), or on Part II, line 22, of the Schedule M-3,
this line. column (c), as a negative number (if it was included on line 22 in
• Unrealized gains and losses on securities held “available for column (a) as income per income statement).
sale.”
• Foreign currency translation adjustments. If the corporation has an amount on line 16f of
• The excess of additional pension liability over unrecognized TIP Schedule K (foreign taxes paid and accrued), take that
prior service cost. amount into account for purposes of figuring expenses
• Guarantees of employee stock ownership plan (ESOP) debt. and deductions to enter on lines 3 and 6.
• Compensation related to employee stock award plans.

If the total adjustment to be entered is a negative amount, Schedule M-2. Analysis of
enter the amount in parentheses.
Accumulated Adjustments Account,
Schedule M-1. Reconciliation of Shareholders' Undistributed Taxable
Income (Loss) per Books With Income Previously Taxed,
Income (Loss) per Return Accumulated Earnings and Profits,
In completing Schedule M-1, the following apply. and Other Adjustments Account
• Schedule M-1 isn't required to be completed if the corporation
answered “Yes” to question 11 on Schedule B. Column (a). Accumulated Adjustments Account
• Corporations with total assets of $10 million or more on the
last day of the tax year must file Schedule M-3 (Form 1120-S) The accumulated adjustments account (AAA) is an account of
instead of Schedule M-1. the S corporation that generally reflects the accumulated
• A corporation filing Form 1120-S that isn't required to file undistributed net income of the corporation for the corporation's
Schedule M-3 may voluntarily file Schedule M-3 instead of post-1982 years. S corporations with accumulated earnings and
Schedule M-1. See the Instructions for Schedule M-3 (Form profits (AE&P) must maintain the AAA to determine the tax effect
1120-S) for more information. of distributions during years as an S corporation, the
• For 2023, corporations that (a) are required to file post-termination transition period, and cash distributions
Schedule M-3 (Form 1120-S) and have less than $50 million following a post-termination transition period. An S corporation
total assets at the end of the tax year, or (b) aren't required to file without AE&P doesn't need to maintain the AAA in order to
Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3 determine the tax effect of distributions. Nevertheless, if an S
(Form 1120-S), must either (i) complete Schedule M-3 (Form corporation without AE&P engages in certain transactions to
1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S) which section 381(a) applies, such as a merger into an S
through Part I, and complete Form 1120-S, Schedule M-1, corporation with AE&P, the S corporation must be able to
instead of completing Parts II and III of Schedule M-3 (Form calculate its AAA at the time of the merger for purposes of
1120-S). If the corporation chooses to complete Schedule M-1 determining the tax effect of post-merger distributions.
instead of completing Parts II and III of Schedule M-3, line 1 of Therefore, it is recommended that the AAA be maintained by all
Schedule M-1 must equal line 11 of Part I of Schedule M-3. See S corporations.
the Instructions for Schedule M-3 (Form 1120-S) for more On the first day of the corporation's first tax year as an S
information. corporation, the balance of the AAA is zero. At the end of the tax
year, adjust the AAA for the items as explained below and in the
Line 2 order listed.
Report on this line income included on Schedule K, lines 1, 2, 1. Increase the AAA by income (other than tax-exempt
3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year. income) and the excess of the deduction for depletion over the

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basis of the property subject to depletion (unless the property is Column (c). Accumulated Earnings and Profits
an oil and gas property the basis of which has been allocated to If the corporation was a C corporation in a prior year, or if it
shareholders). engaged in a tax-free reorganization with a C corporation, enter
2. Generally, decrease the AAA by deductible losses and the amount of any AE&P at the close of its 2022 tax year on
expenses, nondeductible expenses (other than expenses related line 1 in column (c). For details on figuring AE&P, see section
to tax-exempt income), and the sum of the shareholders' 312. Estimates based on retained earnings at the end of the tax
deductions for depletion for any oil or gas property held by the year are acceptable. If the corporation has AE&P, it may be liable
corporation as described in section 1367(a)(2)(E). If deductible for tax imposed on excess net passive income. See Excess net
losses and expenses include the fair market value (FMV) of passive income tax, earlier, for details on this tax.
certain contributed property (discussed earlier), further adjust
AAA by adding back the FMV of the contributed property and Column (d). Other Adjustments Account
subtracting instead the property's adjusted basis. If the total The other adjustments account is adjusted for tax-exempt
decreases under (2) exceed the total increases under (1) above, income (and related expenses) and federal taxes attributable to
the excess is a “net negative adjustment.” If the corporation has a a C corporation tax year. After these adjustments are made, the
net negative adjustment, don't take it into account under (2). account is reduced for any distributions made during the year.
Instead, take it into account only under (4) below. See Distributions, later.
3. Decrease AAA (but not below zero) by property
distributions (other than dividend distributions from AE&P), PPP loans. An S corporation should include tax-exempt
unless the corporation elects to reduce AE&P first. See TIP income from the forgiveness of PPP loans in column (d)
Distributions, later, for definitions and other details. on line 3 of the Schedule M-2.
4. Decrease AAA by any net negative adjustment. For An S corporation should report expenses paid this year with
adjustments to the AAA for redemptions, reorganizations, and proceeds from PPP loans that were forgiven this year in column
corporate separations, see Regulations section 1.1368-2(d). (d) on line 5 of the Schedule M-2.
The AAA may have a negative balance at year end. See If column (a) on line 2 or line 4 of the Schedule M-2 includes
TIP section 1368(e). expenses paid with proceeds from forgiven PPP loans, an S
corporation should report that amount in column (a) on line 3 and
in column (d) on line 5 of the Schedule M-2.
Column (b). Shareholders' Undistributed
If column (a) on line 1 of the Schedule M-2 includes expenses
Taxable Income Previously Taxed that were paid in a prior year with proceeds from PPP loans that
The shareholders' undistributed taxable income previously taxed were forgiven this year, an S corporation should report that
account, also called previously taxed earnings and profits amount in column (a) on line 3 and in column (d) on line 5 of the
(PTEP), is maintained only if the corporation had a balance in Schedule M-2.
this account at the start of its 2023 tax year. If there is a
beginning balance for the 2023 tax year, no adjustments are Distributions
made to the account except to reduce the account for
distributions made under section 1375(d) (as in effect before the General rule. Unless the corporation makes one of the
enactment of the Subchapter S Revision Act of 1982). See elections described below, property distributions (including
Distributions, later, for the order of distributions from the account. cash) are applied in the following order (to reduce accounts of
the S corporation that are used to figure the tax effect of
Each shareholder's right to nontaxable distributions from distributions made by the corporation to its shareholders).
PTEP is personal and can't be transferred to another person. 1. Reduce the AAA determined without regard to any net
The corporation is required to keep records of each negative adjustment for the tax year (but not below zero). If
shareholder's net share of PTEP. distributions during the tax year exceed the AAA at the close of
the tax year, determined without regard to any net negative

Schedule M-2 Worksheet Keep for Your Records
(a) (b) (c) (d)
Accumulated Shareholders' Accumulated Other adjustments
adjustments account undistributed taxable earnings and profits account
income previously taxed
1. Balance at beginning of tax -0- -0-
year . . . . . . . . . . . . . . . . . . . . .
2. Ordinary income from page 1, 10,000
line 22 . . . . . . . . . . . . . . . . . . .
3. Other additions . . . . . . . . . . . . . 20,000 5,000
4. Loss from page 1, line 22 . . . . . . . ( )
5. Other reductions . . . . . . . . . . . . (36,000) ( )
6. Combine lines 1 through 5 . . . . . . (6,000) 5,000
7. Distributions . . . . . . . . . . . . . . . -0- 5,000
8. Balance at end of tax year. Subtract (6,000) -0-
line 7 from line 6 . . . . . . . . . . . . .

Instructions for Form 1120-S (2023) 49

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adjustment for the tax year, the AAA is allocated pro rata to each Statement regarding elections. To make any of the above
distribution made during the tax year. See section 1368. elections, the corporation must attach a statement to a timely
2. Reduce shareholders' PTEP account for any section filed original or amended Form 1120-S for the tax year for which
1375(d) (as in effect before 1983) distributions. A distribution the election is made. In the statement, the corporation must
from the PTEP account is tax free to the extent of a identify the election it is making and must state that each
shareholder's basis in the shareholder's stock in the corporation. shareholder consents to the election. The statement of election
3. Reduce AE&P. Generally, the S corporation has AE&P to make a deemed dividend must include the amount of the
only if it hasn't distributed E&P accumulated in prior years when deemed dividend distributed to each shareholder. For more
the S corporation was a C corporation (section 1361(a)(2)). See details on the election, see Regulations section 1.1368-1(f)(5).
section 312 for information on E&P. The only adjustments that
can be made to the AE&P of an S corporation are: Example
a. Reductions for dividend distributions; The following example shows how the Schedule M-2 accounts
are adjusted for items of income (loss), deductions, and
b. Adjustments for redemptions, liquidations, distributions reported on Form 1120-S. In this example, the
reorganizations, etc.; and corporation has no PTEP or AE&P.
c. Reductions for investment credit recapture tax for which
the corporation is liable. Items per return are:
See section 1371(c) and (d)(3). 1. Page 1, line 22 income—$10,000;
4. Reduce the other adjustments account (OAA). 2. Schedule K, line 2 loss—($3,000);
5. Reduce any remaining shareholders' equity accounts. 3. Schedule K, line 4 income—$4,000;
4. Schedule K, line 5a income—$16,000;
Elections relating to source of distributions. The 5. Schedule K, line 12a deduction—$24,000;
corporation may modify the above ordering rules by making one
or more of the following elections. 6. Schedule K, line 12d deduction—$3,000;
Election to distribute AE&P first. If the corporation has 7. Schedule K, line 13g work opportunity credit—$6,000;
AE&P and wants to distribute from this account before making 8. Schedule K, line 16a tax-exempt interest—$5,000;
distributions from the AAA, it may elect to do so with the consent 9. Schedule K, line 16c nondeductible expenses—$6,000
of all its affected shareholders (section 1368(e)(3)(B)). This (reduction in salaries and wages for work opportunity credit); and
election is irrevocable and applies only for the tax year for which
it is made. For details on making the election, see Statement 10. Schedule K, line 16d distributions—$65,000.
regarding elections, later. Based on items (1) through (10) above and starting balances
Election to make a deemed dividend. If the corporation of zero, the columns for the AAA and the other adjustments
wants to distribute all or part of its AE&P through a deemed account are completed as shown in the Schedule M-2
dividend, it may elect to do so with the consent of all its affected Worksheet.
shareholders (section 1368(e)(3)(B)). Under this election, the For the AAA, the worksheet line 3—$20,000 amount is the
corporation will be treated as also having made the election to total of the Schedule K, lines 4 and 5a income of $4,000 and
distribute AE&P first. The amount of the deemed dividend can't $16,000. The worksheet line 5—$36,000 amount is the total of
exceed the AE&P at the end of the tax year. The E&P at year end the Schedule K, line 2 loss of ($3,000), line 12a (code A)
is first reduced by any actual distributions of AE&P made during deduction of $24,000, line 12d (code ZZ) deduction of $3,000,
the tax year. A deemed dividend is treated as if it were a pro rata and the line 16c nondeductible expenses of $6,000. The
distribution of money to the shareholders, received by the worksheet line 7 is zero. The AAA at the end of the tax year
shareholders, and immediately contributed back to the (figured without regard to distributions and the net negative
corporation, all on the last day of the tax year. This election is adjustment of $6,000) is zero, and distributions can't reduce the
irrevocable and applies only for the tax year for which it is made. AAA below zero.
For details on making the election, see Statement regarding
elections, later. For the other adjustments account, the worksheet line 3
Election to forego PTEP. If the corporation wants to forego amount is the Schedule K, line 16a, tax-exempt interest income
distributions of PTEP, it may elect to do so with the consent of all of $5,000. The worksheet line 7 amount is $5,000, reducing the
its affected shareholders (section 1368(e)(3)(B)). Under this other adjustments account to zero. The remaining $60,000 of
election, item (2) under General rule, earlier, doesn't apply to any distributions aren't entered on Schedule M-2.
distribution made during the tax year. This election is irrevocable
and applies only for the tax year for which it is made. For details
on making the election, see Statement regarding elections next.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents
may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential,
as required by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of
December 2023, for taxpayers filing 2023 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC,
1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented
separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs
include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and
submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates don’t include burden

50 Instructions for Form 1120-S (2023)

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associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic 
errors, implying lower post-filing burden.
Reported time and cost burdens are national averages and don't necessarily reflect a “typical” case. Most taxpayers experience 
lower than average burden, with taxpayer burden varying considerably by taxpayer type.
The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden 
for corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1120-REIT, 
1120-RIC, 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates there is significant variation in 
taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the taxpayer, 
the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in these 
estimates.

Table 1 – Taxpayer Burden for Entities Taxed as Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of        Number of Returns Average Time (hours)                                        Average Cost ($) Average Monetized 
Taxpayer                                  (millions)                                                                                Burden ($)
All Partnerships                          5.3          60                                                          5,000            8,700
                 Small                    4.9          50                                                          3,200            5,200
                 Large*                   0.4          200                                                         27,800           50,800
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of        Number of Returns Average Time (hours)                                        Average Cost ($) Average Monetized 
Taxpayer                                  (millions)                                                                                Burden ($)
All Taxable Corporations                  2.1          105                                                         6,700            14,900
                 Small                    2.0          55                                                          3,600            6,200
                 Large*                   0.1          830                                                         53,800           149,000
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 
pass-through corporations. A small business is any business that does not meet the definition of a large business. 

Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments
Primary Form Filed or Type of        Number of Returns Average Time (hours)                                        Average Cost ($) Average Monetized 
Taxpayer                                  (millions)                                                                                Burden ($)
All Pass-Through Corporations             5.8          65                                                          4,400            7,500
                 Small                    5.7          60                                                          3,800            6,400
                 Large*                   0.1          295                                                         37,700           71,800
*A large business is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and 
pass-through corporations. A small business is any business that does not meet the definition of a large business. 

Note.The data shown are the best estimates for 2023 business entity income tax returns. Reported time and cost burdens are 
national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by 
taxpayer type. The estimates are subject to change as new forms and data become available.
Comments and suggestions. We welcome your comments about these forms and suggestions for future editions.
You can send us comments through IRS.gov/FormComments. Or you can write to the Internal Revenue Service, Tax Forms and 
Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224.
Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your 
comments and suggestions as we revise our tax forms, instructions, and publications. Don't send tax questions, tax returns, or 
payments to the above address.

Instructions for Form 1120-S (2023)                                                                                                                                          51

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Principal Business Activity Codes                                largest percentage of its “total receipts.” Total receipts is      Once the principal business activity is determined, 
                                                                 defined as the sum of gross receipts or sales (page 1,        enter the six-digit code from the list below on page 1, 
This list of principal business activities and their             line 1a); all other income (page 1, lines 4 and 5); income    item B. Also enter the business activity on page 2, 
associated codes is designed to classify an enterprise           reported on Schedule K, lines 4, 5a, and 6; income or         Schedule B, line 2(a) and a brief description of the 
by the type of activity in which it is engaged to facilitate     net gain reported on Schedule K, lines 7, 8a, 9, and 10;      principal product or service of the business on line 2(b).
the administration of the Internal Revenue Code. These           and income or net gain reported on Form 8825, lines 2, 
principal business activity codes are based on the North         19, and 20a. If the company purchases raw materials 
American Industry Classification System.                         and supplies them to a subcontractor to produce the 
                                                                 finished product, but retains title to the product, the 
Using the list of activities and codes below,                    company is considered a manufacturer and must use 
determine from which activity the company derives the            one of the manufacturing codes (311110-339900).
Agriculture, Forestry, Fishing            238290             Other Building Equipment          325900 Other Chemical Product &          336990 Other Transportation Equipment 
                                                             Contractors                              Preparation Mfg                          Mfg
and Hunting                               238300             Building Finishing Contractors    Plastics and Rubber Products             Furniture and Related Product 
Crop Production                                              (including drywall, insulation,   Manufacturing                            Manufacturing
                                                             painting, wallcovering, flooring, 
111100 Oilseed & Grain Farming                               tile, & finish carpentry)         326100 Plastics Product Mfg              337000 Furniture & Related Product 
111210 Vegetable & Melon Farming          238900             Other Specialty Trade             326200 Rubber Product Mfg                       Manufacturing
       (including potatoes & yams)                           Contractors (including site       Nonmetallic Mineral Product              Miscellaneous Manufacturing
111300 Fruit & Tree Nut Farming                              preparation)                      Manufacturing                            339110 Medical Equipment & Supplies 
                                                                                               327100 Clay Product & Refractory Mfg            Mfg
111400 Greenhouse, Nursery, &             Manufacturing                                        327210 Glass & Glass Product Mfg         339900 Other Miscellaneous 
       Floriculture Production                                                                                                                 Manufacturing
111900 Other Crop Farming (including      Food Manufacturing                                   327300 Cement & Concrete Product Mfg
       tobacco, cotton, sugarcane, hay,   311110             Animal Food Mfg                   327400 Lime & Gypsum Product Mfg         Wholesale Trade
       peanut, sugar beet & all other     311200             Grain & Oilseed Milling           327900 Other Nonmetallic Mineral         Merchant Wholesalers, Durable Goods
       crop farming)                      311300             Sugar & Confectionery Product            Product Mfg                       423100 Motor Vehicle & Motor Vehicle 
Animal Production                                            Mfg                               Primary Metal Manufacturing                     Parts & Supplies
112111 Beef Cattle Ranching & Farming     311400             Fruit & Vegetable Preserving &    331110 Iron & Steel Mills & Ferroalloy   423200 Furniture & Home Furnishings
112112 Cattle Feedlots                                       Specialty Food Mfg                       Mfg                               423300 Lumber & Other Construction 
112120 Dairy Cattle & Milk Production     311500             Dairy Product Mfg                 331200 Steel Product Mfg from                   Materials
112210 Hog & Pig Farming                  311610             Animal Slaughtering &                    Purchased Steel                   423400 Professional & Commercial 
112300 Poultry & Egg Production                              Processing                        331310 Alumina & Aluminum Production            Equipment & Supplies
112400 Sheep & Goat Farming               311710             Seafood Product Preparation &            & Processing                      423500 Metal & Mineral (except 
112510 Aquaculture (including shellfish &                    Packaging                         331400 Nonferrous Metal (except                 Petroleum)
       finfish farms & hatcheries)        311800             Bakeries, Tortilla, & Dry Pasta          Aluminum) Production &            423600 Household Appliances & 
112900 Other Animal Production                               Mfg                                      Processing                               Electrical & Electronic Goods
Forestry and Logging                      311900             Other Food Mfg (including         331500 Foundries                         423700 Hardware, & Plumbing & Heating 
                                                             coffee, tea, flavorings &         Fabricated Metal Product 
113110 Timber Tract Operations                               seasonings)                       Manufacturing                                   Equipment & Supplies
113210 Forest Nurseries & Gathering of    Beverage and Tobacco Product                         332110 Forging & Stamping                423800 Machinery, Equipment, & 
                                                                                                                                               Supplies
       Forest Products                    Manufacturing                                        332210 Cutlery & Handtool Mfg            423910 Sporting & Recreational Goods & 
113310 Logging                            312110             Soft Drink & Ice Mfg              332300 Architectural & Structural Metals        Supplies
Fishing, Hunting and Trapping             312120             Breweries                                Mfg                               423920 Toy & Hobby Goods & Supplies
114110 Fishing                            312130             Wineries                          332400 Boiler, Tank, & Shipping          423930 Recyclable Materials
114210 Hunting & Trapping                 312140             Distilleries                             Container Mfg                     423940 Jewelry, Watch, Precious Stone, 
Support Activities for Agriculture and    312200             Tobacco Manufacturing             332510 Hardware Mfg                             & Precious Metals
Forestry                                  Textile Mills and Textile Product Mills              332610 Spring & Wire Product Mfg         423990 Other Miscellaneous Durable 
115110 Support Activities for Crop        313000             Textile Mills                     332700 Machine Shops; Turned Product;           Goods
       Production (including cotton       314000             Textile Product Mills                    & Screw, Nut, & Bolt Mfg          Merchant Wholesalers, Nondurable 
       ginning, soil preparation,                                                              332810 Coating, Engraving, Heat          Goods
       planting, & cultivating)           Apparel Manufacturing                                       Treating, & Allied Activities     424100 Paper & Paper Products
115210 Support Activities for Animal      315100             Apparel Knitting Mills            332900 Other Fabricated Metal Product    424210 Drugs & Druggists' Sundries
       Production (including farriers)    315210             Cut & Sew Apparel Contractors            Mfg                               424300 Apparel, Piece Goods, & Notions
115310 Support Activities For Forestry    315250             Cut & Sew Apparel Mfg (except     Machinery Manufacturing                  424400 Grocery & Related Products
Mining                                                       Contractors)                      333100 Agriculture, Construction, &      424500 Farm Product Raw Materials
                                          315990             Apparel Accessories & Other              Mining Machinery Mfg
211120 Crude Petroleum Extraction                            Apparel Mfg                       333200 Industrial Machinery Mfg          424600 Chemical & Allied Products
211130 Natural Gas Extraction             Leather and Allied Product                           333310 Commercial & Service Industry     424700 Petroleum & Petroleum Products
212110 Coal Mining                        Manufacturing                                               Machinery Mfg                     424800 Beer, Wine, & Distilled Alcoholic 
212200 Metal Ore Mining                   316110             Leather & Hide Tanning &          333410 Ventilation, Heating,                    Beverages
212310 Stone Mining & Quarrying                              Finishing                                Air-Conditioning, & Commercial    424910 Farm Supplies
212320 Sand, Gravel, Clay, & Ceramic &    316210             Footwear Mfg (including rubber &         Refrigeration Equipment Mfg       424920 Book, Periodical, & Newspapers
       Refractory Minerals Mining &                          plastics)                         333510 Metalworking Machinery Mfg        424930 Flower, Nursery Stock, & Florists' 
       Quarrying                          316990             Other Leather & Allied Product    333610 Engine, Turbine & Power                  Supplies
212390 Other Nonmetallic Mineral                             Mfg                                      Transmission Equipment Mfg        424940 Tobacco Products & Electronic 
       Mining & Quarrying                 Wood Product Manufacturing                           333900 Other General Purpose                    Cigarettes
213110 Support Activities for Mining      321110             Sawmills & Wood Preservation             Machinery Mfg                     424950 Paint, Varnish, & Supplies
                                          321210             Veneer, Plywood, & Engineered     Computer and Electronic Product 
Utilities                                                    Wood Product Mfg                  Manufacturing                            424990 Other Miscellaneous Nondurable 
                                                                                                                                               Goods
221100 Electric Power Generation,         321900             Other Wood Product Mfg            334110 Computer & Peripheral             Wholesale Trade Agents & Brokers
       Transmission & Distribution        Paper Manufacturing                                         Equipment Mfg                     425120 Wholesale Trade Agents & 
221210 Natural Gas Distribution           322100             Pulp, Paper, & Paperboard Mills   334200 Communications Equipment Mfg             Brokers
221300 Water, Sewage & Other Systems      322200             Converted Paper Product Mfg       334310 Audio & Video Equipment Mfg
221500 Combination Gas & Electric         Printing and Related Support Activities              334410 Semiconductor & Other             Retail Trade
Construction                              323100             Printing & Related Support               Electronic Component Mfg          Motor Vehicle and Parts Dealers
                                                             Activities                        334500 Navigational, Measuring,          441110 New Car Dealers
Construction of Buildings                 Petroleum and Coal Products                                 Electromedical, & Control         441120 Used Car Dealers
236110 Residential Building Construction  Manufacturing                                               Instruments Mfg                   441210 Recreational Vehicle Dealers
236200 Nonresidential Building            324110             Petroleum Refineries (including   334610 Manufacturing & Reproducing       441222 Boat Dealers
       Construction                                          integrated)                              Magnetic & Optical Media
Heavy and Civil Engineering               324120             Asphalt Paving, Roofing, &        Electrical Equipment, Appliance, and     441227 Motorcycle, ATV, & All Other 
Construction                                                 Saturated Materials Mfg           Component Manufacturing                         Motor Vehicle Dealers
237100 Utility System Construction        324190             Other Petroleum & Coal Products   335100 Electric Lighting Equipment Mfg   441300 Automotive Parts, Accessories, & 
237210 Land Subdivision                                      Mfg                               335200 Household Appliance Mfg                  Tire Retailers
237310 Highway, Street, & Bridge          Chemical Manufacturing                               335310 Electrical Equipment Mfg          Building Material and Garden 
                                                                                                                                        Equipment and Supplies Dealers
       Construction                       325100             Basic Chemical Mfg                335900 Other Electrical Equipment &      444110 Home Centers
237990 Other Heavy & Civil Engineering    325200             Resin, Synthetic Rubber, &               Component Mfg                     444120 Paint & Wallpaper Retailers
       Construction                                          Artificial & Synthetic Fibers &   Transportation Equipment                 444140 Hardware Retailers
Specialty Trade Contractors                                  Filaments Mfg                     Manufacturing
238100 Foundation, Structure, & Building  325300             Pesticide, Fertilizer, & Other    336100 Motor Vehicle Mfg                 444180 Other Building Material Dealers
       Exterior Contractors (including                       Agricultural Chemical Mfg         336210 Motor Vehicle Body & Trailer Mfg  444200 Lawn & Garden Equipment & 
       framing carpentry, masonry,        325410             Pharmaceutical & Medicine Mfg     336300 Motor Vehicle Parts Mfg                  Supplies Retailers
       glass, roofing, & siding)          325500             Paint, Coating, & Adhesive Mfg    336410 Aerospace Product & Parts Mfg     Food and Beverage Retailers
238210 Electrical Contractors             325600             Soap, Cleaning Compound, &        336510 Railroad Rolling Stock Mfg        445110 Supermarkets & Other Grocery 
                                                                                                                                               Retailers (except Convenience)
238220 Plumbing, Heating, &                                  Toilet Preparation Mfg            336610 Ship & Boat Building              445131 Convenience Retailers
       Air-Conditioning Contractors

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Principal Business Activity Codes (Continued)
445132 Vending Machine Operators            485210 Interurban & Rural Bus              Securities, Commodity Contracts, and     541340  Drafting Services
445230 Fruit & Vegetable Retailers                 Transportation                      Other Financial Investments and          541350  Building Inspection Services
445240 Meat Retailers                       485310 Taxi & Ridesharing Services         Related Activities                       541360  Geophysical Surveying & 
445250 Fish & Seafood Retailers             485320 Limousine Service                   523150 Investment Banking & Securities           Mapping Services
445291 Baked Goods Retailers                485410 School & Employee Bus                      Intermediation                    541370  Surveying & Mapping (except 
445292 Confectionery & Nut Retailers               Transportation                      523160 Commodity Contracts                       Geophysical) Services
445298 All Other Specialty Food             485510 Charter Bus Industry                       Intermediation                    541380  Testing Laboratories & Services
       Retailers                            485990 Other Transit & Ground              523210 Securities & Commodity            Specialized Design Services
445320 Beer, Wine, & Liquor Retailers              Passenger Transportation                   Exchanges
Furniture and Home Furnishings              Pipeline Transportation                    523900 Other Financial Investment        541400  Specialized Design Services 
                                                                                              Activities (including portfolio           (including interior, industrial, 
Retailers                                   486000 Pipeline Transportation                    management & investment                   graphic, & fashion design)
449110 Furniture Retailers                  Scenic & Sightseeing Transportation               advice)                           Computer Systems Design and Related 
449121 Floor Covering Retailers             487000 Scenic & Sightseeing                Insurance Carriers and Related           Services
449122 Window Treatment Retailers                  Transportation                      Activities                               541511  Custom Computer Programming 
449129 All Other Home Furnishings           Support Activities for Transportation      524110 Direct Life, Health, & Medical            Services
       Retailers                            488100 Support Activities for Air                 Insurance Carriers                541512  Computer Systems Design 
Electronics and Appliance Retailers                Transportation                      524120 Direct Insurance (except Life,            Services
449210 Electronics & Appliance Retailers    488210 Support Activities for Rail                Health, & Medical) Carriers       541513  Computer Facilities Management 
       (including computers)                       Transportation                      524210 Insurance Agencies &                      Services
General Merchandise Retailers               488300 Support Activities for Water               Brokerages                        541519  Other Computer Related 
                                                   Transportation                      524290 Other Insurance Related                   Services
455110 Department Stores                    488410 Motor Vehicle Towing                       Activities (including third-party Other Professional, Scientific, and 
                                                                                              administration of insurance &     Technical Services
455210 Warehouse Clubs, Supercenters,       488490 Other Support Activities for Road          pension funds)                    541600  Management, Scientific, & 
       & Other General Merch. Retailers            Transportation                      Funds, Trusts, and Other Financial               Technical Consulting Services
Health and Personal Care Retailers          488510 Freight Transportation              Vehicles                                 541700  Scientific Research & 
456110 Pharmacies & Drug Retailers                 Arrangement                         525100 Insurance & Employee Benefit              Development Services
456120 Cosmetics, Beauty Supplies, &        488990 Other Support Activities for               Funds                             541800  Advertising, Public Relations, & 
       Perfume Retailers                           Transportation                      525910 Open-End Investment Funds                 Related Services
456130 Optical Goods Retailers              Couriers and Messengers                           (Form 1120-RIC)                   541910  Marketing Research & Public 
456190 Other Health & Personal Care         492110 Couriers & Express Delivery         525920 Trusts, Estates, & Agency                 Opinion Polling
       Retailers                                   Services                                   Accounts                          541920  Photographic Services
Gasoline Stations & Fuel Dealers            492210 Local Messengers & Local            525990 Other Financial Vehicles          541930  Translation & Interpretation 
457100 Gasoline Stations (including                Delivery                                   (including mortgage REITs &               Services
       convenience stores with gas)         Warehousing and Storage                           closed-end investment funds)      541940  Veterinary Services
457210 Fuel Dealers (including heating      493100 Warehousing & Storage (except       Real Estate and Rental and               541990  All Other Professional, Scientific, 
       oil & liquefied petroleum)                  lessors of miniwarehouses &                                                          & Technical Services
Clothing and Accessories Retailers                 self-storage units)                 Leasing
458110 Clothing & Clothing Accessories      Information                                Real Estate                              Management of Companies 
       Retailers                                                                       531110 Lessors of Residential Buildings  (Holding Companies)
458210 Shoe Retailers                       Motion Picture and Sound Recording                & Dwellings (including equity     551111  Offices of Bank Holding 
458310 Jewelry Retailers                    Industries                                        REITs)                                    Companies
458320 Luggage & Leather Goods              512100 Motion Picture & Video Industries   531120 Lessors of Nonresidential         551112  Offices of Other Holding 
       Retailers                                   (except video rental)                      Buildings (except                         Companies
Sporting, Hobby, Book, Musical              512200 Sound Recording Industries                 Miniwarehouses) (including 
Instrument, & Miscellaneous Retailers       Publishing Industries                             equity REITs)                     Administrative and Support and 
459110 Sporting Goods Retailers             513110 Newspaper Publishers                531130 Lessors of Miniwarehouses & 
459120 Hobby, Toy, & Game Retailers         513120 Periodical Publishers                      Self-Storage Units (including     Waste Management and 
459130 Sewing, Needlework, & Piece          513130 Book Publishers                            equity REITs)
       Goods Retailers                      513140 Directory & Mailing List            531190 Lessors of Other Real Estate      Remediation Services
459140 Musical Instrument & Supplies               Publishers                                 Property (including equity REITs) Administrative and Support Services
       Retailers                            513190 Other Publishers                    531210 Offices of Real Estate Agents &   561110  Office Administrative Services
                                                                                              Brokers                           561210  Facilities Support Services
459210 Book Retailers & News Dealers        513210 Software Publishers                 531310 Real Estate Property Managers     561300  Employment Services
       (including newsstands)               Broadcasting & Content Providers &         531320 Offices of Real Estate Appraisers 561410  Document Preparation Services
459310 Florists                             Telecommunications                         531390 Other Activities Related to Real  561420  Telephone Call Centers
459410 Office Supplies & Stationery         516100 Radio & Television Broadcasting            Estate
       Retailers                                   Stations                            Rental and Leasing Services              561430  Business Service Centers 
                                                                                                                                        (including private mail centers & 
459420 Gift, Novelty, & Souvenir            516210 Media Streaming, Social             532100 Automotive Equipment Rental &             copy shops)
459510 Used Merchandise Retailers                  Providers
       Retailers                                   Networks, & Other Content                  Leasing                           561440  Collection Agencies
459910 Pet & Pet Supplies Retailers         517000 Telecommunications (including       532210 Consumer Electronics &            561450  Credit Bureaus
459920 Art Dealers                                 wired, wireless, satellite, cable &        Appliances Rental
                                                   other program distribution,         532281 Formal Wear & Costume Rental      561490  Other Business Support 
                                                                                                                                        Services (including repossession 
459930 Manufactured (Mobile) Home                  resellers, agents, other            532282 Video Tape & Disc Rental                  services, court reporting, & 
       Dealers                                     telecommunications, & Internet      532283 Home Health Equipment Rental              stenotype services)
459990 All Other Miscellaneous Retailers           service providers)                                                           561500  Travel Arrangement & 
       (including tobacco, candle, &        Data Processing, Web Search Portals, &     532284 Recreational Goods Rental
       trophy retailers)                    Other Information Services                 532289 All Other Consumer Goods                  Reservation Services
Nonstore Retailers                          518210 Computing Infrastructure                   Rental                            561600  Investigation & Security Services
       Nonstore Retailers sell all types           Providers, Data Processing, Web     532310 General Rental Centers            561710  Exterminating & Pest Control 
       of merchandise using such                   Hosting, & Related Services         532400 Commercial & Industrial                   Services
       methods as Internet, mail-order      519200 Web Search Portals, Libraries,             Machinery & Equipment Rental &    561720  Janitorial Services
       catalogs, interactive television, or        Archives, & Other Info. Services           Leasing                           561730  Landscaping Services
       direct sales. These types of                                                    Lessors of Nonfinancial Intangible       561740  Carpet & Upholstery Cleaning 
       Retailers should select the PBA      Finance and Insurance                      Assets (except copyrighted works)                Services
       associated with their primary line   Depository Credit Intermediation           533110 Lessors of Nonfinancial           561790  Other Services to Buildings & 
       of products sold. For example,                                                         Intangible Assets (except                 Dwellings
       establishments primarily selling     522110 Commercial Banking                         copyrighted works)                561900  Other Support Services 
       prescription and non-prescription    522130 Credit Unions
       drugs, select PBA code 456110        522180 Savings Institutions & Other        Professional, Scientific, and                    (including packaging & labeling 
       Pharmacies & Drug Retailers.                Depository Credit Intermediation                                                     services, & convention & trade 
Transportation and                          Nondepository Credit Intermediation        Technical Services                               show organizers)
Warehousing                                 522210 Credit Card Issuing                 Legal Services                           Waste Management and Remediation 
                                                                                                                                Services
                                            522220 Sales Financing                     541110 Offices of Lawyers                562000  Waste Management & 
Air, Rail, and Water Transportation         522291 Consumer Lending                    541190 Other Legal Services                      Remediation Services
481000 Air Transportation                   522292 Real Estate Credit (including       Accounting, Tax Preparation,             Educational Services
482110 Rail Transportation                         mortgage bankers & originators)     Bookkeeping, and Payroll Services
483000 Water Transportation                 522299 Intl, Secondary Market, & Other     541211 Offices of Certified Public       611000  Educational Services (including 
Truck Transportation                               Nondepos. Credit Intermediation            Accountants                               schools, colleges, & universities)
484110 General Freight Trucking, Local      Activities Related to Credit               541213 Tax Preparation Services          Health Care and Social 
484120 General Freight Trucking,            Intermediation                             541214 Payroll Services
       Long-Distance                        522300 Activities Related to Credit        541219 Other Accounting Services         Assistance
484200 Specialized Freight Trucking                Intermediation (including loan      Architectural, Engineering, and Related  Offices of Physicians and Dentists
                                                   brokers, check clearing, & money 
Transit and Ground Passenger                       transmitting)                       Services                                 621111  Offices of Physicians (except 
Transportation                                                                         541310 Architectural Services                    mental health specialists)
485110 Urban Transit Systems                                                           541320 Landscape Architecture Services   621112  Offices of Physicians, Mental 
                                                                                       541330 Engineering Services                      Health Specialists

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Principal Business Activity Codes (Continued)
621210 Offices of Dentists               624200 Community Food & Housing, &     721120 Casino Hotels                        811430 Footwear & Leather Goods 
Offices of Other Health Practitioners           Emergency & Other Relief        721191 Bed & Breakfast Inns                        Repair
621310 Offices of Chiropractors                 Services                        721199 All Other Traveler                   811490 Other Personal & Household 
621320 Offices of Optometrists           624310 Vocational Rehabilitation              Accommodation                               Goods Repair & Maintenance
                                                Services
621330 Offices of Mental Health          624410 Childcare Services              721210 RV (Recreational Vehicle) Parks      Personal and Laundry Services
       Practitioners (except Physicians)                                               & Recreational Camps                 812111 Barber Shops
621340 Offices of Physical, Occupational Arts, Entertainment, and               721310 Rooming & Boarding Houses,           812112 Beauty Salons
       & Speech Therapists, &                                                          Dormitories, & Workers' Camps        812113 Nail Salons
       Audiologists                      Recreation                             Food Services and Drinking Places           812190 Other Personal Care Services 
621391 Offices of Podiatrists            Performing Arts, Spectator Sports, and 722300 Special Food Services (including            (including diet & weight reducing 
621399 Offices of All Other              Related Industries                            food service contractors &                  centers)
       Miscellaneous Health              711100 Performing Arts Companies              caterers)                            812210 Funeral Homes & Funeral 
       Practitioners                     711210 Spectator Sports (including     722410 Drinking Places (Alcoholic                  Services
Outpatient Care Centers                         sports clubs & racetracks)             Beverages)                           812220 Cemeteries & Crematories
621410 Family Planning Centers           711300 Promoters of Performing Arts,   722511 Full-Service Restaurants             812310 Coin-Operated Laundries & 
621420 Outpatient Mental Health &               Sports, & Similar Events        722513 Limited-Service Restaurants                 Drycleaners
       Substance Abuse Centers           711410 Agents & Managers for Artists,  722514 Cafeterias, Grill Buffets, & Buffets 812320 Drycleaning & Laundry Services 
621491 HMO Medical Centers                      Athletes, Entertainers, & Other 722515 Snack & Non-Alcoholic Beverage              (except Coin-Operated)
621492 Kidney Dialysis Centers                  Public Figures                         Bars                                 812330 Linen & Uniform Supply
621493 Freestanding Ambulatory           711510 Independent Artists, Writers, &                                             812910 Pet Care (except Veterinary) 
       Surgical & Emergency Centers             Performers                      Other Services                                     Services
621498 All Other Outpatient Care         Museums, Historical Sites, and Similar Repair and Maintenance                      812920 Photofinishing
       Centers                           Institutions                           811110 Automotive Mechanical &              812930 Parking Lots & Garages
Medical and Diagnostic Laboratories      712100 Museums, Historical Sites, &           Electrical Repair & Maintenance      812990 All Other Personal Services
                                                Similar Institutions            811120 Automotive Body, Paint, Interior, 
621510 Medical & Diagnostic              Amusement, Gambling, and Recreation           & Glass Repair                       Religious, Grantmaking, Civic, 
                                                                                                                            Professional, and Similar Organizations
       Laboratories                      Industries                             811190 Other Automotive Repair &            813000 Religious, Grantmaking, Civic, 
Home Health Care Services                713100 Amusement Parks & Arcades              Maintenance (including oil                  Professional, & Similar 
621610 Home Health Care Services         713200 Gambling Industries                    change & lubrication shops & car            Organizations (including 
Other Ambulatory Health Care Services    713900 Other Amusement & Recreation           washes)                                     condominium & homeowners 
621900 Other Ambulatory Health Care             Industries (including golf      811210 Electronic & Precision Equipment            associations)
       Services (including ambulance            courses, skiing facilities,            Repair & Maintenance
       services & blood & organ banks)          marinas, fitness centers, &     811310 Commercial & Industrial              Other
Hospitals                                       bowling centers)                       Machinery & Equipment (except        999000 Unclassified Establishments 
                                                                                       Automotive & Electronic) Repair 
622000 Hospitals                         Accommodation and Food                        & Maintenance                               (unable to classify)
Nursing and Residential Care Facilities                                         811410 Home & Garden Equipment & 
623000 Nursing & Residential Care        Services                                      Appliance Repair & Maintenance
       Facilities                        Accommodation                          811420 Reupholstery & Furniture Repair
Social Assistance                        721110 Hotels (except Casino Hotels) & 
624100 Individual & Family Services             Motels

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Index
 
                                      Forgiveness of PPP loans   49           Private delivery services 3
A                                     Forms and Publications, how to get   2  Property distributions 39
Accounting methods    6
Accounting period   6                 G                                       Q
Accumulated adjustments               Gain (loss), section 1231–Sch. K or     Qualified business income 
  account 48                            K-1 29                                 deduction    42
Amended return    6                   Gain, ordinary 15                       Qualified opportunity funds                8
Amortization  17                      Gross receipts  14                      Qualified rehabilitation 
Amount owed    22                                                              expenditures   34
Assembling return   4                 I
                                      Income 14                               R
B                                     Income from oil and gas                 Recapture, low-income housing 
Bad debt deduction  18                  properties 37                          credit 40
Balance sheets–Sch. L    47           Income, rental activities 27            Recapture, section 179 deduction               40
Business startup expenses   17        Income, tax-exempt   38                 Recordkeeping   6
                                      Income, trade or business               Reforestation 21 33, 
C                                       activities 26                         Regulations section 1.1411-10(g)               7
                                      Installment sales 14                    Related party transactions                 16
Change in accounting method     6
                                      Interest deduction 18                   Religious exemption  3
Charitable contributions  31
                                      Interest due on tax payment   5         Rental activities, income and 
Conservation contributions  31                                                 expenses     27
                                      Interest expense, investment   32
Cost of goods sold  15                                                        Rental deduction 18
                                      International transactions 36
                                      Inventory 16                            Return, amended  6
D
                                      Investment income and expenses   39
Deductions   16 30,                                                           S
Deductions from oil and gas           L                                       Salaries and wages   17
  properties  37
Deductions, limitations on  16        Loans from shareholders   39            Sales 14
Depletion 19                          Lobbying expenses,                      Schedule K-2  36
                                        nondeductible   20                    Schedule K-3  36
Depletion (other than oil and gas) 37
                                      Low-income housing credit     33        Schedule L 47
Depreciation  19
                                      Low-income housing credit               Schedule M-1  48
Digital assets 23                       recapture  40                         Schedule M-2  48
Direct deposit of refund  2 22, 
                                                                              Schedule M-3  13
Distributions 49                      M                                       Section 1400Z-1  8
Distributions, property  39
                                      Multiple activities–reporting           Section 1411 election with respect to 
                                        requirements   25                      CFCs and QEFs    7
E                                                                             Section 179 expense   30
Election, termination of  2           N                                       Section 199A information  42
Elective payment election   22        Net investment income (code U)   41     Section 263A rules  16
Electronic filing 3                   Net investment income tax reporting     Section 59(e)(2) expenditures                32
Electronic filing waiver 3              requirements   13                     Self-charged interest 10
Employee benefit programs      19                                             Substitute Sch. K-1  24
Employer identification number        O
  (EIN) 14                                                                    T
Energy efficient commercial buildings Officer compensation   17
  deduction   20                                                              Tax issues, unresolved   2
Estimated tax payment    5 22,        P                                       Taxes and licenses deduction                 18
Estimated tax penalty  22             Passive activities–rental 9             Taxes due 21
Exception to filing Schedule K-2  36  Passive activities–reporting            Termination of S election 2
Exemptions   3                          requirements   12                     Travel and entertainment 
Expenses, nondeductible–Sch. K or     Passive activity limitations 8           deduction    20
  K-1 39                              Penalties 5
Extension of time to file 3           Pension, profit-sharing, etc., plans 19 W
                                      Portfolio income 10 27,                 When to file 3
F                                     PPP loan forgiveness   23 49,           Where to file 4
Farming, special rules 16             PPP reporting  38                       Who must file 2
Final return 14                       Preparer, tax return 3                  Who must sign   3

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