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                                                                                                                    Department of the Treasury
                                                                                                                    Internal Revenue Service
2022

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-1. Reconciliation of Income 
Contents                                                               Page           (Loss) per Books With Income (Loss) per 
Future Developments      . . . . . . . . . . . . . . . . . . . . . . . . 1            Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  46
What’s New . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1  Schedule M-2. Analysis of AAA, PTEP, 
                                                                                      Accumulated E&P, and OAA              . . . . . . . . . . . . .   46
Photographs of Missing Children . . . . . . . . . . . . . . . .          1
                                                                            Principal Business Activity Codes             . . . . . . . . . . . . . .   50
The Taxpayer Advocate Service            . . . . . . . . . . . . . . . . 2
                                                                            Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Direct Deposit of Refund . . . . . . . . . . . . . . . . . . . . . .     2
How To Get Forms and Publications              . . . . . . . . . . . . . 2  Future Developments
General Instructions   . . . . . . . . . . . . . . . . . . . . . . . . . 2  For the latest information about developments related to Form 
Purpose of Form . . . . . . . . . . . . . . . . . . . . . . . . .        2  1120-S and its instructions, such as legislation enacted after 
How To Make the Election . . . . . . . . . . . . . . . . . .             2  they were published, go to IRS.gov/Form1120S.

Who Must File        . . . . . . . . . . . . . . . . . . . . . . . . . . 2  What’s New
Termination of Election . . . . . . . . . . . . . . . . . . . .          2
                                                                            COVID-19 related credit for qualified sick and family leave. 
Electronic Filing      . . . . . . . . . . . . . . . . . . . . . . . . . 3  Generally, the credit for qualified sick and family leave wages as 
When To File       . . . . . . . . . . . . . . . . . . . . . . . . . . . 3  enacted under the Families First Coronavirus Response Act (the 
Where To File      . . . . . . . . . . . . . . . . . . . . . . . . . . . 3  FFCRA), as amended and extended by the COVID-related Tax 
                                                                            Relief Act of 2020 for leave taken after March 31, 2020, and 
Who Must Sign . . . . . . . . . . . . . . . . . . . . . . . . . .        3  before April 1, 2021, and the credit for qualified sick and family 
Paid Preparer Authorization . . . . . . . . . . . . . . . . .            4  leave wages as enacted under the American Rescue Plan Act of 
Assembling the Return            . . . . . . . . . . . . . . . . . . . . 4  2021 (the ARP), have expired. However, employers that pay 
Tax Payments         . . . . . . . . . . . . . . . . . . . . . . . . . . 4  qualified sick and family leave wages in 2022 for leave taken 
                                                                            after March 31, 2020, and before October 1, 2021, are eligible to 
Electronic Deposit Requirement               . . . . . . . . . . . . . . 4  claim a credit for qualified sick and family leave wages in 2022. 
Estimated Tax Payments             . . . . . . . . . . . . . . . . . . . 4  See the March 2022 revision of the Instructions for Form 941 
Interest and Penalties . . . . . . . . . . . . . . . . . . . . .         5  and the 2022 Instructions for Form 944 for more information. The 
                                                                            no double benefit rules continue to apply.
Accounting Methods . . . . . . . . . . . . . . . . . . . . . .           5
Accounting Period          . . . . . . . . . . . . . . . . . . . . . . . 6  Increase in penalty for failure to file.          For returns due in 2023, 
                                                                            the minimum penalty for failure to file a return that is more than 
Rounding Off to Whole Dollars . . . . . . . . . . . . . . .              6  60 days late has increased to the smaller of the tax due or $450. 
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . .        6  See Late filing of return, later.
Amended Return           . . . . . . . . . . . . . . . . . . . . . . . . 6  Principal business activity codes.            We revised the list of 
Other Forms and Statements That May Be                                      principal business activity codes. See Principal Business Activity 
Required         . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6  Codes.
At-Risk Limitations        . . . . . . . . . . . . . . . . . . . . . . . 8  Research and experimental expenses.                 Research and 
Passive Activity Limitations           . . . . . . . . . . . . . . . . . 8  experimental expenses paid or incurred in tax years beginning 
Net Investment Income Tax Reporting                                         after 2021, are required to be amortized over 5 years. See 
Requirements           . . . . . . . . . . . . . . . . . . . . . . . .   12 section 174.
Specific Instructions  . . . . . . . . . . . . . . . . . . . . . . . .   13 Schedules K-2 and K-3.          There is a new exception for filing and 
Income       . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 furnishing Schedules K-2 and K-3 for tax years beginning in 
                                                                            2022. See International Transactions, later.
Deductions       . . . . . . . . . . . . . . . . . . . . . . . . . . .   15
Tax and Payments           . . . . . . . . . . . . . . . . . . . . . .   21 Reminder
Schedule B. Other Information . . . . . . . . . . . . . .                22 Election by a small business corporation.               Don't file Form 
Schedules K and K-1 (General Instructions)                     . . . .   23 1120-S unless the corporation has filed or is attaching Form 
Specific Instructions (Schedule K-1 Only) . . . . . .                    24 2553, Election by a Small Business Corporation. For details, see 
                                                                            the Instructions for Form 2553.
Part I. Information About the Corporation                  . . . . . .   25
Part II. Information About the Shareholder                 . . . . . .   25 Photographs of
Specific Instructions (Schedules K and K-1, 
                                                                            Missing Children
Part III) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      26
                                                                            The Internal Revenue Service is a proud partner with the 
Schedule L. Balance Sheets per Books                     . . . . . . .   45 National Center for Missing & Exploited Children® (NCMEC). 
                                                                            Photographs of missing children selected by the Center may 

Jan 27, 2023                                                           Cat. No. 11515K

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appear in instructions on pages that would otherwise be blank.
You can help bring these children home by looking at the Who Must File
photographs and calling 1-800-THE-LOST (1-800-843-5678) if A corporation or other entity must file Form 1120-S if (a) it
you recognize a child. elected to be an S corporation by filing Form 2553, (b) the IRS
accepted the election, and (c) the election remains in effect.
The Taxpayer Advocate Service After filing Form 2553, you should have received confirmation
The Taxpayer Advocate Service (TAS) is an independent that Form 2553 was accepted. If you didn't receive notification of
organization within the IRS that helps taxpayers and protects acceptance or nonacceptance of the election within 2 months of
taxpayer rights. TAS's job is to ensure that every taxpayer is filing Form 2553 (5 months if you checked box Q1 to ask for a
treated fairly and knows and understands their rights under the letter ruling), please follow up by calling 800-829-4933. Don't file
Taxpayer Bill of Rights. Form 1120-S for any tax year before the year the election takes
effect.
As a taxpayer, the corporation has rights that the IRS must Relief for late elections. If you haven't filed Form 2553, or
abide by in its dealings with the corporation. TAS can help the didn't file Form 2553 on time, you may be entitled to relief for a
corporation if: late-filed election to be an S corporation. See the Instructions for
• A problem is causing financial difficulty for the business; Form 2553 for details.
• The business is facing an immediate threat of adverse action;
or Termination of Election
• The corporation has tried repeatedly to contact the IRS but no
one has responded, or the IRS hasn't responded by the date Once the election is made, it stays in effect until it is terminated.
promised. If the election is terminated, the corporation (or a successor
corporation) can make another election on Form 2553 only with
TAS has offices in every state, the District of Columbia, and IRS consent for any tax year before the fifth tax year after the
Puerto Rico. Local advocates' numbers are in their local first tax year in which the termination took effect. See
directories and at TaxpayerAdvocate.IRS.gov. The corporation Regulations section 1.1362-5 for details.
can also call TAS at 877-777-4778. An election terminates automatically in any of the following
TAS also works to resolve large-scale or systemic problems cases.
that affect many taxpayers. If the corporation knows of one of 1. The corporation is no longer a small business corporation
these broad issues, please report it to TAS through the Systemic as defined in section 1361(b). This kind of termination of an
Advocacy Management System at IRS.gov/SAMS. election is effective as of the day the corporation no longer
meets the definition of a small business corporation. Attach to
For more information, go to IRS.gov/Advocate. Form 1120-S for the final year of the S corporation a statement
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)
To request a direct deposit of the corporation's income tax has accumulated earnings and profits (AE&P), and (b) derives
refund into an account at a U.S. bank or other financial more than 25% of its gross receipts from passive investment
institution, attach Form 8050, Direct Deposit of Corporate Tax income as defined in section 1362(d)(3)(C). The election
Refund. See the instructions for line 27. terminates on the first day of the 1st tax year beginning after the
3rd consecutive tax year. The corporation must pay a tax for
How To Get Forms each year it has excess net passive income. See the line 22a
and Publications instructions for details on how to figure the tax.
3. The election is revoked. An election can be revoked only
Internet. You can access the IRS website 24 hours a day, 7
with the consent of shareholders who, at the time the revocation
days a week, at IRS.gov to:
is made, hold more than 50% of the number of issued and
• Download forms, instructions, and publications;
outstanding shares of stock (including nonvoting stock). The
• Order IRS products online;
revocation can specify an effective revocation date that is on or
• Research your tax questions online;
after the day the revocation is filed. If no date is specified, the
• Search publications online by topic or keyword;
revocation is effective at the start of the tax year if the revocation
• View Internal Revenue Bulletins (IRBs) published in recent
is made on or before the 15th day of the 3rd month of that tax
years; and
year. If no date is specified and the revocation is made after the
• Sign up to receive local and national tax news by email.
15th day of the 3rd month of the tax year, the revocation is
Tax forms and publications. The corporation can view, print, effective at the start of the next tax year.
or download all of the forms and publications it may need on
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 A revocation can be rescinded before it takes effect. See
Use Form 1120-S to report the income, gains, losses, Regulations section 1.1362-6(a)(4) for details.
deductions, credits, and other information of a domestic
corporation or other entity for any tax year covered by an For rules on allocating income and deductions between an S
election to be an S corporation. corporation's short year and a C corporation's short year and
other special rules that apply when an election is terminated, see
How To Make the Election section 1362(e) and Regulations section 1.1362-3.
For details about the election, see Form 2553, Election by a If an election was terminated under (1) or (2) above and the
Small Business Corporation, and the Instructions for Form 2553. corporation believes the termination was inadvertent, the

-2- Instructions for Form 1120-S (2022)

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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. possession                              Any amount                         P.O. Box 409101
                                                                                                     Ogden, UT 84409

corporation can ask for permission from the IRS to continue to         1120-S for the S corporation's short year by the due date 
be treated as an S corporation. See Regulations section                (including extensions) of the C corporation's short year return.
1.1362-4 for the specific requirements that must be met to 
qualify for inadvertent termination relief.                            Private Delivery Services
                                                                       Corporations can use certain private delivery services (PDS) 
Electronic Filing                                                      designated by the IRS to meet the “timely mailing as timely filing” 
S corporations can generally electronically file (e-file) Form         rule for tax returns. Go to IRS.gov/PDS for the current list of 
1120-S, related forms, schedules, statements, and attachments;         designated services.
Form 7004 (automatic extension of time to file); and Forms 940, 
941, and 944 (employment tax returns). Form 1099 and other                The PDS can tell you how to get written proof of the mailing 
information returns can also be electronically filed. The option to    date.
e-file doesn't, however, apply to certain returns.                        For the IRS mailing address to use if you are using a PDS, go 
Certain corporations with total assets of $10 million or more          to IRS.gov/PDSStreetAddresses.
that file at least 250 returns a year are required to e-file Form                   Private delivery services can't deliver items to P.O. 
1120-S. See Regulations section 301.6037-2. However, these                !         boxes. You must use the U.S. Postal Service to mail any 
corporations can ask for a waiver of the electronic filing             CAUTION      item to an IRS P.O. box address.
requirements. See Guidance on Waivers for Corporations 
Unable to Meet e-file Requirements on IRS.gov.
                                                                       Extension of Time To File
For more information, see E-file for Business and Self                 File Form 7004, Application for Automatic Extension of Time To 
Employed Taxpayers on IRS.gov.                                         File Certain Business Income Tax, Information, and Other 
        The Taxpayer First Act of 2019, enacted July 1, 2019,          Returns, to ask for an extension of time to file. Generally, the 
                                                                       corporation must file Form 7004 by the regular due date of the 
CAUTION to issue regulations that reduce the 250 return 
!       authorized the Department of the Treasury and the IRS          return. See the Instructions for Form 7004.
requirement for 2022 tax returns. If those regulations are issued 
and effective for 2022 tax returns required to be filed in 2023, we    Who Must Sign
will post an article at IRS.gov/Form1120S explaining the change. 
Until regulations are issued, however, the number remains at           The return must be signed and dated by:
250, as reflected in these instructions.                               •  The president, vice president, treasurer, assistant treasurer, 
                                                                       chief accounting officer; or
                                                                       •  Any other corporate officer (such as tax officer) authorized to 
When To File                                                           sign.
Generally, an S corporation must file Form 1120-S by the 15th 
day of the 3rd month after the end of its tax year. For calendar          If a return is filed on behalf of a corporation by a receiver, 
year corporations, the due date is March 15, 2023. A corporation       trustee, or assignee, the fiduciary must sign the return instead of 
that has dissolved must generally file by the 15th day of the 3rd      the corporate officer. Returns and forms signed by a receiver or 
month after the date it dissolved.                                     trustee in bankruptcy on behalf of a corporation must be 
                                                                       accompanied by a copy of the order or instructions of the court 
If the due date falls on a Saturday, Sunday, or legal holiday,         authorizing signing of the return or form.
the corporation can file on the next day that isn’t a Saturday, 
Sunday, or legal holiday.                                                 If an employee of the corporation completes Form 1120-S, 
                                                                       the paid preparer space should remain blank. Anyone who 
If the S corporation election was terminated during the tax            prepares Form 1120-S but doesn't charge the corporation 
year and the corporation reverts to a C corporation, file Form         shouldn't complete that section. Generally, anyone who is paid 
Instructions for Form 1120-S (2022)                                 -3-

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to prepare the return must sign it and fill in the “Paid Preparer          15.   Additional schedules in alphabetical order, including 
Use Only” area.                                                            Schedule K-2 (Form 1120-S), Shareholders' Pro Rata Share 
  The paid preparer must complete the required preparer                    Items—International, and Schedules K-3 (Form 1120-S), 
information and:                                                           Shareholder's Share of Income, Deductions, Credits, 
• Sign the return in the space provided for the preparer's                 etc.—International.
signature, and                                                             16.   Additional forms in numerical order.
• Give a copy of the return to the taxpayer.                               Complete every applicable entry space on Form 1120-S and 
       A paid preparer may sign original or amended returns by             Schedule K-1. Don't enter “See Attached” or “Available Upon 
TIP    rubber stamp, mechanical device, or computer software               Request” instead of completing the entry spaces. If more space 
       program.                                                            is needed on the forms or schedules, attach separate sheets 
                                                                           using the same size and format as the printed forms.
Paid Preparer Authorization                                                If there are supporting statements and attachments, arrange 
If the corporation wants to allow the IRS to discuss its 2022 tax          them in the same order as the schedules or forms they support 
return with the paid preparer who signed it, check the “Yes” box           and attach them last. Show the totals on the printed forms. Enter 
in the signature area of the return. This authorization applies only       the corporation's name and EIN on each supporting statement or 
to the individual whose signature appears in the “Paid Preparer            attachment.
Use Only” section of the return. It doesn't apply to the firm, if any, 
shown in that section.                                                     Tax Payments
                                                                           Generally, the corporation must pay any tax due in full no later 
  If the “Yes” box is checked, the corporation is authorizing the          than the due date for filing its tax return (not including 
IRS to call the paid preparer to answer any questions that may             extensions). See the instructions for line 25. If the due date falls 
arise during the processing of its return. The corporation is also         on a Saturday, Sunday, or legal holiday, the payment is due on 
authorizing the paid preparer to:                                          the next day that isn't a Saturday, Sunday, or legal holiday.
• Give the IRS any information that is missing from the return;
• Call the IRS for information about the processing of the return          Electronic Deposit Requirement
or the status of any related refund or payment(s); and
• Respond to certain IRS notices about math errors, offsets,               Corporations must use electronic funds transfers to make all 
and return preparation.                                                    federal tax deposits (such as deposits of employment, excise, 
                                                                           and corporate income tax). Generally, electronic funds transfers 
  The corporation isn't authorizing the paid preparer to receive           are made using the Electronic Federal Tax Payment System 
any refund check, bind the corporation to anything (including any          (EFTPS). However, if the corporation doesn't want to use 
additional tax liability), or otherwise represent the corporation          EFTPS, it can arrange for its tax professional, financial 
before the IRS.                                                            institution, payroll service, or other trusted third party to make 
  The authorization will automatically end no later than the due           deposits on its behalf. Also, it may arrange for its financial 
date (excluding extensions) for filing the corporation's 2023 tax          institution to submit a same-day wire payment (discussed below) 
return. If the corporation wants to expand the paid preparer's             on its behalf. EFTPS is a free service provided by the 
authorization or revoke the authorization before it ends, see Pub.         Department of the Treasury. Services provided by a tax 
947, Practice Before the IRS and Power of Attorney.                        professional, financial institution, payroll service, or other third 
                                                                           party may have a fee.
Assembling the Return                                                      To get more information about EFTPS or to enroll in EFTPS, 
To ensure that the corporation's tax return is correctly                   visit www.EFTPS.gov or call 800-555-4477. To contact EFTPS 
processed, attach all schedules and other forms after page 5 of            using the Telecommunications Relay Services (TRS), for people 
Form 1120-S in the following order.                                        who are deaf, hard of hearing, or have a speech disability, dial 
  1. Schedule N (Form 1120), Foreign Operations of U.S.                    711 and provide the TRS assistant the 800-555-4477 number 
Corporations.                                                              above or 800-733-4829.
  2. Schedule D (Form 1120-S), Capital Gains and Losses                    Depositing on time.    For any deposit made by EFTPS to be on 
and Built-in Gains.                                                        time, the corporation must submit the deposit by 8 p.m. Eastern 
  3. Form 4797, Sales of Business Property.                                time the day before the date the deposit is due. If the corporation 
                                                                           uses a third party to make deposits on its behalf, they may have 
  4. Form 8949, Sales and Other Dispositions of Capital                    different cutoff times.
Assets.
                                                                           Same-day wire payment option. If the corporation fails to 
  5. Form 8996, Qualified Opportunity Fund.                                submit a deposit transaction on EFTPS by 8 p.m. Eastern time 
  6. Form 8825, Rental Real Estate Income and Expenses of                  the day before the date a deposit is due, it can still make its 
a Partnership or an S Corporation.                                         deposit on time by using the Federal Tax Collection Service 
  7. Form 1125-A, Cost of Goods Sold.                                      (FTCS). To use the same-day wire payment method, the 
  8. Form 8050, Direct Deposit of Corporate Tax Refund.                    corporation will need to make arrangements with its financial 
                                                                           institution ahead of time regarding availability, deadlines, and 
  9. Form 4136, Credit for Federal Tax Paid on Fuels.                      costs. Financial institutions may charge a fee for payment made 
  10. Form 8941, Credit for Small Employer Health Insurance                this way. To learn more about the information the corporation will 
Premiums.                                                                  need to provide to its financial institution to make a same-day 
  11. Form 6252, Installment Sale Income.                                  wire payment, go to IRS.gov/SameDayWire.

  12. Form 8997, Initial and Annual Statement of Qualified                 Estimated Tax Payments
Opportunity Fund (QOF) Investments.
                                                                           Generally, the corporation must make installment payments of 
  13. Schedules K-1 (Form 1120-S), Shareholder's Share of                  estimated tax for the following taxes if the total of these taxes is 
Income, Deductions, Credits, etc.                                          $500 or more: (a) the tax on built-in gains, (b) the excess net 
  14. Form 8938, Statement of Specified Foreign Financial                  passive income tax, and (c) the investment credit recapture tax, 
Assets.                                                                    each discussed later.

                                                                       -4-                        Instructions for Form 1120-S (2022)

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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                information), a $290 penalty may be imposed with respect to 
return for the tax year (or if no return is filed, the total of these       each Schedule K-1 (and Schedule K-3, if applicable) for which a 
taxes for the year), or (b) the sum of (i) the investment credit            failure occurs. If the requirement to report correct information is 
recapture tax and the built-in gains tax shown on the return for            intentionally disregarded, each $290 penalty is increased to 
the tax year (or if no return is filed, the total of these taxes for the    $580 or, if greater, 10% of the aggregate amount of items 
tax year), and (ii) any excess net passive income tax shown on              required to be reported. See sections 6722 and 6724 for more 
the corporation's return for the preceding tax year. If the                 information.
preceding tax year was less than 12 months, the estimated tax                 The penalty won't be imposed if the corporation can show 
must be determined under (a).                                               that not furnishing information timely was due to reasonable 
The estimated tax is generally payable in four equal                        cause. See Caution, earlier.
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:
For a calendar year corporation, the payments are due for                   • Form 720, Quarterly Federal Excise Tax Return;
2023 by April 18, June 15, September 15, and December 15.                   • Form 941, Employer's QUARTERLY Federal Tax Return;
For a fiscal year corporation, they are due by the 15th day of the          • Form 943, Employer's Annual Federal Tax Return for 
4th, 6th, 9th, and 12th months of the year. If any date falls on a          Agricultural Employees;
Saturday, Sunday, or legal holiday, the installment is due on the           • Form 944, Employer's ANNUAL Federal Tax Return; or
next day that isn't a Saturday, Sunday, or legal holiday.                   • Form 945, Annual Return of Withheld Federal Income Tax.
                                                                              The trust fund recovery penalty may be imposed on all 
The corporation must make the payments using electronic                     persons who are determined by the IRS to have been 
funds transfers as described earlier.                                       responsible for collecting, accounting for, or paying over these 
For information on penalties that may apply if the corporation              taxes, and who acted willfully in not doing so. The penalty is 
fails to make required payments, see the Instructions for Form              equal to the full amount of the unpaid trust fund tax. See the 
2220.                                                                       Instructions for Form 720, Pub. 15 (Circular E), Employer's Tax 
                                                                            Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax 
Interest and Penalties                                                      Guide, for details, including the definition of “responsible 
                                                                            persons.”
          If the corporation receives a notice about penalties after 
                                                                            Other penalties. Other penalties can be imposed for 
CAUTION   determine if the corporation meets reasonable-cause 
!         it files its return, send the IRS an explanation and we will      negligence, substantial understatement of tax, reportable 
criteria. Don't attach an explanation when the corporation's                transaction understatements, and fraud. See sections 6662, 
return is filed.                                                            6662A, and 6663.

Interest. Interest is charged on taxes paid late even if an                 Accounting Methods
extension of time to file is granted. Interest is also charged on           Figure income using the method of accounting regularly used in 
penalties imposed for failure to file, negligence, fraud,                   keeping the corporation's books and records. The method used 
substantial valuation misstatements, substantial                            must clearly reflect income. Permissible methods include cash, 
understatements of tax, and reportable transaction                          accrual, or any other method authorized by the Internal Revenue 
understatements from the due date (including extensions) to the             Code.
date of payment. The interest charge is figured at a rate 
determined under section 6621.                                                The following rules apply.
                                                                            • Generally, an S corporation can't use the cash method of 
Late filing of return. A penalty may be assessed if the return is           accounting if it’s a tax shelter (as defined in section 448(d)(3)). 
filed after the due date (including extensions) or the return               See section 448 for details.
doesn't show all the information required, unless each failure is           • A corporation must use an accrual method for sales and 
due to reasonable cause. See Caution, earlier. For returns on               purchases of inventory items unless it is a small business 
which no tax is due, the penalty is $220 for each month or part of          taxpayer (defined later). See the Form 1125-A instructions. If you 
a month (up to 12 months) the return is late or doesn't include             are a small business taxpayer, you can adopt or change your 
the required information, multiplied by the total number of                 accounting method to account for inventories (i) in the same 
persons who were shareholders in the corporation during any                 manner as materials and supplies that are non-incidental, or (ii) 
part of the corporation's tax year for which the return is due. If tax      to conform to the taxpayer’s treatment of inventories in an 
is due, the penalty is the amount stated above plus 5% of the               applicable financial statement (as defined in section 451(b)(3)) 
unpaid tax for each month or part of a month the return is late, up         or, if the taxpayer doesn’t have an applicable financial 
to a maximum of 25% of the unpaid tax. The minimum penalty                  statement, the method of accounting used in the taxpayer’s 
for a return that is more than 60 days late is the smaller of the tax       books and records prepared in accordance with the taxpayer’s 
due or $450.                                                                accounting procedures. Generally, IRS consent is required for 
Late payment of tax.   A corporation that doesn't pay the tax               changes in accounting methods. See Rev. Proc. 2018-40 for the 
when due may generally be penalized  /  of 1% of the unpaid tax 1 2         procedures by which a small business taxpayer may obtain 
for each month or part of a month the tax isn't paid, up to a               automatic consent to change its method of accounting to reflect 
maximum of 25% of the unpaid tax. The penalty won't be                      the statutory changes made in this area. Also, see Change in 
imposed if the corporation can show that the failure to pay on              accounting method, later.
time was due to reasonable cause. See Caution, earlier.                     • Special rules apply to long-term contracts. See section 460.
                                                                            • Generally, dealers in securities must use the mark-to-market 
Failure to furnish information timely. For each failure to                  accounting method. Dealers in commodities and traders in 
furnish Schedule K-1 (and Schedule K-3, if applicable) to a                 securities and commodities can elect to use the mark-to-market 
shareholder when due and each failure to include on                         accounting method. See section 475.
Schedule K-1 (and Schedule K-3, if applicable) all the 
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Small business taxpayer. A small business taxpayer is a for all amounts. To round, drop amounts under 50 cents and
taxpayer that (a) has average annual gross receipts of $27 increase amounts from 50 to 99 cents to the next dollar. For
million or less for the 3 prior tax years, and (b) isn’t a tax shelter example, $8.40 rounds to $8 and $8.50 rounds to $9.
(as defined in section 448(d)(3)). If two or more amounts must be added to figure the amount to
Change in accounting method. Generally, the corporation enter on a line, include cents when adding the amounts and
must get IRS consent to change either an overall method of round off only the total.
accounting or the accounting treatment of any material item for
income tax purposes. To obtain consent, the corporation must Recordkeeping
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
• Any other tax year (including a 52-53-week tax year) for which shareholder with the amended Form 1120-S. Also give a copy of
the corporation establishes a business purpose. the amended Schedule K-1 or K-3 to that shareholder. Check
the “Amended K-1” or “Amended K-3” box at the top of the
A new S corporation must use Form 2553 to elect a tax year. Schedule K-1 or K-3 to indicate that it is an amended
To later change the corporation's tax year, see Form 1128, Schedule K-1 or K-3.
Application To Adopt, Change, or Retain a Tax Year, and its A change to the corporation's federal return may affect its
instructions (unless the corporation is making an election under state return. This includes changes made as the result of an IRS
section 444, discussed next). examination. For more information, contact the state tax agency
Electing a tax year under section 444. Under the provisions for the state(s) in which the corporation's return was filed.
of section 444, an S corporation can elect to have a tax year
other than a required year, but only if the deferral period of the Other Forms and Statements That
tax year isn't longer than the shorter of 3 months or the deferral May Be Required
period of the tax year being changed. This election is made by
filing Form 8716, Election To Have a Tax Year Other Than a Reportable transaction disclosure statement. Disclose
Required Tax Year. information for each reportable transaction in which the
An S corporation may not make or continue an election under corporation participated. Form 8886, Reportable Transaction
section 444 if it is a member of a tiered structure, other than a Disclosure Statement, must be filed for each tax year the
tiered structure that consists entirely of partnerships and S corporation participated in the transaction. The corporation may
corporations that have the same tax year. For the S corporation have to pay a penalty if it is required to file Form 8886 and
to have a section 444 election in effect, it must make the doesn't do so. The following are reportable transactions.
payments required by section 7519. See Form 8752, Required 1. Any listed transaction, which is a transaction that is the
Payment or Refund Under Section 7519. same as or substantially similar to one of the types of
A section 444 election ends if an S corporation: transactions that the IRS has determined to be a tax avoidance
• Changes its accounting period to a calendar year or some transaction and identified by notice, regulation, or other
other permitted year, published guidance as a listed transaction.
• Is penalized for willfully failing to comply with the requirements 2. Any transaction offered under conditions of confidentiality
of section 7519, or for which the corporation (or a related party) paid an advisor a
• Terminates its S election (unless it immediately becomes a fee of at least $50,000.
personal service corporation). 3. Certain transactions for which the corporation (or a
If the termination results in a short tax year, enter at the top of related party) has contractual protection against disallowance of
the first page of Form 1120-S for the short tax year, “SECTION the tax benefits.
444 ELECTION TERMINATED.” 4. Certain transactions resulting in a loss of at least $2
million in any single year or $4 million in any combination of
Rounding Off to Whole Dollars years.
The corporation may enter decimal points and cents when 5. Any transaction identified by the IRS by notice, regulation,
completing its return. However, the corporation should round off or other published guidance as a “transaction of interest.”
cents to whole dollars on its return, forms, and schedules to
make completing its return easier. The corporation must either For more information, see Regulations section 1.6011-4. Also
round off all amounts on its return to whole dollars, or use cents see the Instructions for Form 8886.

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Penalties. The corporation may have to pay a penalty if it is information regarding this election, see Regulations section
required to disclose a reportable transaction under section 6011 1.1411-10(g).
and fails to properly complete and file Form 8886. Penalties may The election must be made in a statement that is filed with the
also apply under section 6707A if the corporation fails to file corporation's original or amended return for the tax year in which
Form 8886 with its corporate return, fails to provide a copy of the election is made. An election can be made on an amended
Form 8886 to the Office of Tax Shelter Analysis (OTSA), or files return only if the tax year for which the election is made, and all
a form that fails to include all the information required (or tax years affected by the election, aren't closed by the period of
includes incorrect information). Other penalties, such as an limitations on assessments under section 6501. The statement
accuracy-related penalty under section 6662A, may also apply. must include:
See the Instructions for Form 8886 for details on these and other • The name and EIN of the corporation making the election;
penalties. • A declaration that all of its shareholders consent to each
Reportable transactions by material advisors. Material election made in the statement;
advisors to any reportable transaction must disclose certain • A declaration that the corporation elects under Regulations
information about the reportable transaction by filing Form 8918, section 1.1411-10(g) to apply the rules in Regulations section
Material Advisor Disclosure Statement, with the IRS. For details, 1.1411-10(g) to the CFCs and QEFs identified in the statement;
see the Instructions for Form 8918. and
• The following information for each CFC and QEF for which an
Transfers to a corporation controlled by the transferor. election is made (i) the name of the CFC or QEF; and (ii) either
Every significant transferor (as defined in Regulations section the EIN of the CFC or QEF, or, if the CFC or QEF doesn't have
1.351-3(d)) that receives stock of a corporation in exchange for an EIN, the reference ID number of the CFC or QEF.
property in a nonrecognition event must include the statement
required by Regulations section 1.351-3(a) on or with the In addition, for each CFC or QEF held by the corporation for
transferor's tax return for the tax year of the exchange. The which an election under Regulations section 1.1411-10(g) has
transferee corporation must include the statement required by already been made by the corporation, the statement should
Regulations section 1.351-3(b) on or with its return for the tax include (i) the name of the CFC or QEF; and (ii) either the EIN of
year of the exchange, unless all the required information is the CFC or QEF, or, if the CFC or QEF doesn't have an EIN, the
included in any statement(s) provided by a significant transferor reference ID number of the CFC or QEF.
that is attached to the same return for the same section 351 Annual information reporting by specified domestic enti-
exchange. ties under section 6038D. Certain domestic corporations that
Election to reduce basis under section 362(e)(2)(C). If are formed or availed of to hold specified foreign financial assets
property is transferred to a corporation subject to section 362(e) (“specified domestic entities”) must file Form 8938, Statement of
(2), the transferor and the acquiring corporation may elect, under Specified Foreign Financial Assets. Form 8938 must be filed
section 362(e)(2)(C), to reduce the transferor's basis in the stock each year the value of the corporation's specified foreign
received instead of reducing the acquiring corporation's basis in financial assets meets or exceeds the reporting threshold. For
the property transferred. Once made, the election is irrevocable. more information on domestic corporations that are specified
For more information, see section 362(e)(2) and Regulations domestic entities and the types of foreign financial assets that
section 1.362-4. If an election is made, a statement must be filed must be reported, see the Instructions for Form 8938, generally,
in accordance with Regulations section 1.362-4(d)(3). and in particular, Who Must File Specified Domestic Entity, ,
Types of Reporting Thresholds Specified Foreign Financial ,
Regulations section 1.1411-10(g) (section 1411 election Assets Interests in Specified Foreign Financial Assets Assets , ,
with respect to CFCs and QEFs). A corporation that directly Not Required To Be Reported, and Exceptions to Reporting.
or indirectly owns stock of a controlled foreign corporation (CFC) In addition, a domestic corporation required to file Form 8938
(within the meaning of section 953(c)(1)(B) or section 957(a)) or with its Form 1120-S for the tax year should check “Yes” to
a passive foreign investment company (within the meaning of Schedule N (Form 1120), question 8, and also include that
section 1297(a)) that the corporation treats as a qualified schedule with its Form 1120-S.
electing fund (QEF) under section 1293 may make the election
provided in Regulations section 1.1411-10(g). The election must Certification as a qualified opportunity fund. If the
be made no later than the first tax year beginning after 2013 corporation is organized to invest in qualified opportunity zone
during which the corporation (i) includes an amount in gross property, it must attach Form 8996 to Form 1120-S to self-certify
income for chapter 1 purposes under section 951(a) or section as a QOF. In addition, the corporation files Form 8996 annually
1293(a) for the CFC or QEF, and (ii) has a direct or indirect to report that the QOF meets the investment standard of section
owner that is subject to tax under section 1411 or would have 1400Z-2 or to figure the penalty if it fails to meet the investment
been if the election were made. This election must be made on standard. The corporation must also complete line 15 of
an entity-by-entity basis, and applies only to the particular CFCs Schedule B. For more information, see the Instructions for Form
and QEFs for which an election is made. In general, for 8996.
purposes of section 1411, if an election is in effect for a CFC or Qualified opportunity fund investment. If the corporation
QEF, the amounts included in income under section 951 and deferred a capital gain in a qualified opportunity fund (QOF), the
section 1293 derived from the CFC or QEF are included in net corporation must file its return with Schedule D (Form 1120-S),
investment income, and distributions described in section 959(d) Form 8949, and Form 8997 attached. The corporation will need
or section 1293(c) are excluded from net investment income. to file Form 8997 annually until it disposes of the investment.
Additionally, if the corporation elected to be treated as owning See the instructions for Form 8997 for details.
stock of a foreign corporation within the meaning of section
958(a) under Proposed Regulations section 1.958-1(e)(2), and Form 8975, Country-by-Country Report. Certain U.S.
an election under Regulations section 1.1411-10(g) is in effect persons that are the ultimate parent entity of a U.S. multinational
for a CFC, the amount of global intangible low-taxed income enterprise group with annual revenue for the preceding reporting
included in income under section 951A is included in net period of $850 million or more are required to file Form 8975. For
investment income to the extent that it is allocated to the CFC more information, see the Instructions for Form 8975.
under section 951A(f)(2). An election that is made under Other forms and statements. See Pub. 542, Corporations, for
Regulations section 1.1411-10(g) can't be revoked. For more a list of other forms and statements a corporation may need to

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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
The following instructions and the instructions for Schedules
In general, section 465 limits the amount of deductible net losses K and K-1, later, explain the applicable passive activity limitation
shareholders can claim from certain activities. The at-risk rules and specify the type of information the corporation must
limitations don't apply to the corporation, but instead apply to provide to its shareholders for each activity. If the corporation
each shareholder's share of net losses attributable to each had more than one activity, it must report information for each
activity. Because the treatment of each shareholder's share of activity on an attachment to Schedules K and K-1.
corporate net losses depends on the nature of the activity that
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,
professional fees, or a business in which the shareholder
3. Leasing section 1245 property, including personal materially participates or against “portfolio income” (defined
property and certain other tangible property that is depreciable later). Passive credits can't be applied against the tax related to
or amortizable. any of these types of income.
4. Exploring for, or exploiting, oil and gas.
Special rules require that net income from certain activities
5. Exploring for, or exploiting, geothermal deposits (for wells that would otherwise be treated as passive income must be
started after September 1978). recharacterized as nonpassive income for purposes of the
6. Any other activity not included in (1) through (5) that is passive activity limitations. See Recharacterization of Passive
carried on as a trade or business or for the production of income. Income, later.
Aggregation of Activities To allow each shareholder to correctly apply the passive
activity limitations, the corporation must report income or loss
Activities described in (6) under Activities Covered by the and credits separately by activity for each of the following.
At-Risk Rules, earlier, that constitute a trade or business are • Trade or business activities.
treated as one activity if: • Rental real estate activities.
• You actively participate in the management of the trade or • Rental activities other than rental real estate.
business, or • Portfolio income.
• The trade or business is carried on by a partnership or S
corporation and 65% or more of its losses for the tax year are Activities That Are Not Passive Activities
allocable to persons who actively participate in the management
of the trade or business. The following aren't passive activities.
1. Trade or business activities in which the shareholder
Similar rules apply to activities described in (1) through (5) of materially participated for the tax year.
that earlier discussion. For more information, see Pub. 925. If
you aggregate your activities under these rules for section 465 2. Any rental real estate activity in which the shareholder
purposes, check the appropriate box in item J. materially participated if the shareholder met both of the
following conditions for the tax year.
At-Risk Activity Reporting Requirements a. More than half of the personal services the shareholder
If the corporate items of income, loss, or deduction reported on performed in trades or businesses were performed in real
Schedule K-1 are from more than one activity covered by the property trades or businesses in which he or she materially
at-risk rules, the corporation must report information separately participated.
for each activity. b. The shareholder performed more than 750 hours of
services in real property trades or businesses in which he or she
The following information must be provided on an attachment materially participated.
to Schedule K-1 for each activity.
• A statement that the information is a breakdown of the items For purposes of this rule, each interest in rental real estate is
of income, loss, or deduction by at-risk activity. a separate activity unless the shareholder elects to treat all
• The identity of the at-risk activity; the items of income, loss, or interests in rental real estate as one activity.
deduction for the activity; other items of income, loss, or If the shareholder is married filing jointly, either the
deduction; and any other information that relates to the activity shareholder or the shareholder’s spouse must separately meet
(that is, distributions, shareholder loans, etc.). both of the above conditions, without taking into account
services performed by the other spouse.
Passive Activity Limitations A real property trade or business is any real property
In general, section 469 limits the amount of losses, deductions, development, redevelopment, construction, reconstruction,
and credits that shareholders can claim from “passive activities.” acquisition, conversion, rental, operation, management, leasing,
The passive activity limitations don't apply to the corporation. or brokerage trade or business. Services the shareholder
Instead, they apply to each shareholder's share of any income or performed as an employee aren't treated as performed in a real
loss and credit attributable to a passive activity. Because the property trade or business unless he or she owned more than
treatment of each shareholder's share of corporate income or 5% of the stock in the employer.

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3. The rental of a dwelling unit used by a shareholder for as an owner of an interest in the partnership is determined on
personal purposes during the year for more than the greater of the basis of all the facts and circumstances.
14 days or 10% of the number of days that the residence was
rented at fair rental value. In addition, a guaranteed payment described in section
4. An activity of trading personal property for the account of 707(c) is never income from a rental activity.
owners of interests in the activity. For purposes of this rule, Average period of customer use. Figure the average period
personal property means property that is actively traded, such as of customer use for a class of property by dividing the total
stocks, bonds, and other securities. See Temporary Regulations number of days in all rental periods by the number of rentals
section 1.469-1T(e)(6). during the tax year. If the activity involves renting more than one
class of property, multiply the average period of customer use of
The section 469(c)(3) exception for a working interest in
each class by the ratio of the gross rental income from that class
TIP oil and gas properties doesn't apply to an S corporation to the activity's total gross rental income. The activity's average
because state law generally limits the liability of
period of customer use equals the sum of these class-by-class
shareholders.
average periods weighted by gross income. See Regulations
section 1.469-1(e)(3)(iii).
Trade or Business Activities
Significant personal services. Personal services include only
A trade or business activity is an activity (other than a rental services performed by individuals. To determine if personal
activity or an activity treated as incidental to an activity of holding services are significant personal services, consider all the
property for investment) that: relevant facts and circumstances. Relevant facts and
1. Involves the conduct of a trade or business (within the circumstances include:
meaning of section 162), • How often the services are provided,
2. Is conducted in anticipation of starting a trade or • The type and amount of labor required to perform the
business, or services, and
• The value of the services in relation to the amount charged for
3. Involves research or experimental expenditures use of the property.
deductible under section 174.
The following services aren't considered in determining
If the shareholder doesn't materially participate in the activity, whether personal services are significant.
a trade or business activity of the corporation is a passive activity • Services necessary to permit the lawful use of the rental
for the shareholder. property.
Each shareholder must determine if he or she materially • Services performed in connection with improvements or
participated in an activity. As a result, while the corporation's repairs to the rental property that extend the useful life of the
ordinary business income (loss) is reported on page 1 of Form property substantially beyond the average rental period.
1120-S, the specific income and deductions from each separate • Services provided in connection with the use of any improved
trade or business activity must be reported on attachments to real property that are similar to those commonly provided in
Form 1120-S. Similarly, while each shareholder's allocable connection with long-term rentals of high-grade commercial or
share of the corporation's ordinary business income (loss) is residential property. Examples include cleaning and
reported in box 1 of Schedule K-1, each shareholder's allocable maintenance of common areas, routine repairs, trash collection,
share of the income and deductions from each trade or business elevator service, and security at entrances.
activity must be reported on statements attached to each Extraordinary personal services. Services provided in
Schedule K-1. See Passive Activity Reporting Requirements, connection with making rental property available for customer
later, for more information. use are extraordinary personal services only if the services are
performed by individuals and the customers' use of the rental
Rental Activities property is incidental to their receipt of the services.
Generally, except as noted below, if the gross income from an For example, a patient's use of a hospital room is generally
activity consists of amounts paid principally for the use of real or incidental to the care received from the hospital's medical staff.
personal tangible property held by the corporation, the activity is Similarly, a student's use of a dormitory room in a boarding
a rental activity. school is incidental to the personal services provided by the
There are several exceptions to this general rule. Under these school's teaching staff.
exceptions, an activity involving the use of real or personal Rental activity incidental to a nonrental activity. An activity
tangible property isn't a rental activity if any of the following isn't a rental activity if the rental of the property is incidental to a
apply. nonrental activity, such as the activity of holding property for
• The average period of customer use (defined later) for such investment, a trade or business activity, or the activity of dealing
property is 7 days or less. in property.
• The average period of customer use for such property is 30
days or less and significant personal services (defined later) are Rental of property is incidental to an activity of holding
provided by or on behalf of the corporation. property for investment if both of the following apply.
• Extraordinary personal services (defined later) are provided • The main purpose for holding the property is to realize a gain
by or on behalf of the corporation. from the appreciation of the property.
• The rental of such property is treated as incidental to a • The gross rental income from such property for the tax year is
nonrental activity of the corporation under Regulations section less than 2% of the smaller of the property's unadjusted basis or
1.469-1(e)(3)(vi). its fair market value (FMV).
• The corporation customarily makes the property available Rental of property is incidental to a trade or business activity
during defined business hours for nonexclusive use by various if all of the following apply.
customers. • The corporation owns an interest in the trade or business at
• The corporation provides property for use in a nonrental all times during the year.
activity of a partnership in its capacity as an owner of an interest • The rental property was mainly used in the trade or business
in such partnership. Whether the corporation provides property activity during the tax year or during at least 2 of the 5 preceding
used in an activity of a partnership in the corporation's capacity tax years.

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• 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               Certain self-charged interest income and deductions may be 
corporation must separately report rental real estate activities       treated as passive activity gross income and passive activity 
and rental activities other than rental real estate activities.        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 
                                                                       interest in an S corporation if the S corporation makes an 
  Report rental real estate activity income (loss) on Form 8825 
                                                                       election under Regulations section 1.469-7(g) to avoid the 
and line 2 of Schedule K and box 2 of Schedule K-1, rather than 
                                                                       application of these rules. To make the election, the S 
on page 1 of Form 1120-S. Report credits related to rental real 
                                                                       corporation must attach to its original or amended Form 1120-S 
estate activities on lines 13c and 13d of Schedule K (box 13, 
                                                                       a statement that includes the name, address, EIN of the S 
codes E and F, of Schedule K-1) and low-income housing 
                                                                       corporation, and a declaration that the election is being made 
credits on lines 13a and 13b of Schedule K (box 13, codes C 
                                                                       under Regulations section 1.469-7(g). The election will apply to 
and D of Schedule K-1).
                                                                       the tax year for which it was made and all subsequent tax years. 
  Report income (loss) from rental activities other than rental        Once made, the election can only be revoked with the consent of 
real estate on line 3 of Schedule K and credits related to rental      the IRS.
activities other than rental real estate on line 13e of Schedule K 
and in box 13, code G, of Schedule K-1.                                     For more details on the self-charged interest rules, see 
                                                                       Regulations section 1.469-7.
Portfolio Income
Generally, portfolio income includes all gross income, other than      Grouping Activities
income derived in the ordinary course of a trade or business,          Generally, one or more trade or business or rental activities may 
that is attributable to interest; dividends; royalties; income from a  be treated as a single activity if the activities make up an 
real estate investment trust, a regulated investment company, a        appropriate economic unit for measurement of gain or loss under 
real estate mortgage investment conduit, a common trust fund, a        the passive activity rules. Whether activities make up an 
controlled foreign corporation, a qualified electing fund, or a        appropriate economic unit depends on all the relevant facts and 
cooperative; income from the disposition of property that              circumstances. The factors given the greatest weight in 
produces income of a type defined as portfolio income; and             determining whether activities make up an appropriate economic 
income from the disposition of property held for investment. See       unit are:
Self-Charged Interest, later, for an exception.                        •    Similarities and differences in types of trades or businesses,
                                                                       •    The extent of common control,
  Solely for purposes of the preceding paragraph, gross                •    The extent of common ownership,
income derived in the ordinary course of a trade or business           •    Geographical location, and
includes (and portfolio income, therefore, doesn't include) the        •    Reliance between or among the activities.
following types of income.                                                  Example. The corporation has a significant ownership 
• Interest income on loans and investments made in the                 interest in a bakery and a movie theater in Baltimore and a 
ordinary course of a trade or business of lending money.               bakery and a movie theater in Philadelphia. Depending on the 
• Interest on accounts receivable arising from the performance         relevant facts and circumstances, there may be more than one 
of services or the sale of property in the ordinary course of a        reasonable method for grouping the corporation's activities. For 
trade or business of performing such services or selling such          instance, the following groupings may or may not be permissible.
property, but only if credit is customarily offered to customers of    •    A single activity.
the business.                                                          •    A movie theater activity and a bakery activity.
• Income from investments made in the ordinary course of a             •    A Baltimore activity and a Philadelphia activity.
trade or business of furnishing insurance or annuity contracts or      •    Four separate activities.
reinsuring risks underwritten by insurance companies.
• Income or gain derived in the ordinary course of an activity of           Once the corporation chooses a grouping under these rules, 
trading or dealing in any property if such activity constitutes a      it must continue using that grouping in later tax years unless 
trade or business (unless the dealer held the property for             either:
investment at any time before such income or gain is                   •    The corporation determines that the original grouping was 
recognized).                                                           clearly inappropriate, or

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• A material change in the facts and circumstances makes that 1. Significant participation passive activities. A
grouping clearly inappropriate. 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 2. Certain nondepreciable rental property activities.
appropriate box in item J. Net passive income from a rental activity is nonpassive income if
less than 30% of the unadjusted basis of the property used or
Limitation on grouping certain activities. The following held for use by customers in the activity is subject to
activities may not be grouped together. depreciation under section 167.
1. A rental activity with a trade or business activity unless 3. Passive equity-financed lending activities. If the
the activities being grouped together make up an appropriate corporation has net income from a passive equity-financed
economic unit and: lending activity, the smaller of the net passive income or the
a. The rental activity is insubstantial relative to the trade or equity-financed interest income from the activity is nonpassive
business activity or vice versa; or income.
b. Each owner of the trade or business activity has the same 4. Rental of property incidental to a development
proportionate ownership interest in the rental activity. If so, the activity. Net rental activity income is the excess of passive
portion of the rental activity involving the rental of property to be activity gross income from renting or disposing of property over
used in the trade or business activity can be grouped with the passive activity deductions (current year deductions and prior
trade or business activity. year unallowed losses) that are reasonably allocable to the
2. An activity involving the rental of real property with an rented property. Net rental activity income is nonpassive income
activity involving the rental of personal property (except personal for a shareholder if all of the following apply.
property provided in connection with the real property or vice a. The corporation recognizes gain from the sale, exchange,
versa). or other disposition of the rental property during the tax year.
3. Any activity with another activity in a different type of b. The use of the item of property in the rental activity
business and in which the corporation holds an interest as a started less than 12 months before the date of disposition. The
limited partner or as a limited entrepreneur (as defined in section use of an item of rental property begins on the first day on which
461(k)(4)) if that other activity is holding, producing, or (a) the corporation owns an interest in the property, (b)
distributing motion picture films or videotapes; farming; leasing substantially all of the property is either rented or held out for
section 1245 property; or exploring for or exploiting oil and gas rent and ready to be rented, and (c) no significant
resources or geothermal deposits. value-enhancing services remain to be performed.
c. The shareholder materially or significantly participated for
Activities conducted through partnerships. Once a
any tax year in an activity that involved performing services to
partnership determines its activities under these rules, the
enhance the value of the property (or any other item of property,
corporation as a partner can use these rules to group those
if the basis of the property disposed of is determined in whole or
activities with:
in part by reference to the basis of that item of property).
• Each other,
• Activities conducted directly by the corporation, or Because the corporation can't determine a shareholder's
• Activities conducted through other partnerships. level of participation, the corporation must identify net income
The corporation can't treat as separate activities those from property described above (without regard to the
activities grouped together by a partnership. shareholder's level of participation) as income that may be
subject to recharacterization.
Recharacterization of Passive Income 5. Rental of property to a nonpassive activity. If a
Under Temporary Regulations section 1.469-2T(f) and taxpayer rents property to a trade or business activity in which
Regulations section 1.469-2(f), net passive income from certain the taxpayer materially participates, the taxpayer's net rental
passive activities must be treated as nonpassive income. Net activity income (defined in item (4)) from the property is
passive income is the excess of an activity's passive activity nonpassive income.
gross income over its passive activity deductions (current year 6. Acquisition of an interest in a pass-through entity
deductions and prior year unallowed losses). that licenses intangible property. Generally, net royalty
Any net passive income recharacterized as nonpassive income from intangible property is nonpassive income if the
income is treated as investment income for purposes of figuring taxpayer acquired an interest in the pass-through entity after the
investment interest expense limitations if it is from (a) an activity pass-through entity created the intangible property or performed
of renting substantially nondepreciable property from an substantial services or incurred substantial costs in developing
equity-financed lending activity, or (b) an activity related to an or marketing the intangible property. Net royalty income is the
interest in a pass-through entity that licenses intangible property. excess of passive activity gross income from licensing or
transferring any right in intangible property over passive activity
The amount of income from the activities in items (1) through deductions (current year deductions and prior year unallowed
(3) below that any shareholder will be required to recharacterize losses) that are reasonably allocable to the intangible property.
as nonpassive income may be limited under Temporary See Temporary Regulations section 1.469-2T(f)(7)(iii) for
Regulations section 1.469-2T(f)(8). Because the corporation exceptions to this rule.
won't have information regarding all of a shareholder's activities,
it must identify all corporate activities meeting the definitions in Passive Activity Reporting Requirements
items (2) and (3) as activities that may be subject to
recharacterization. To allow shareholders to correctly apply the passive activity loss
and credit limitation rules, the corporation must do the following.
Income from the following six sources is subject to
recharacterization.
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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
from each trade or business activity, from each rental real estate the 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
of corporation interest expense from each activity of renting a shareholder had an interest (either directly or indirectly).
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): a. Loans between a shareholder and the corporation.
a. Identify the activity in which the property was used at the Identify the lending or borrowing shareholder's share of the
time of disposition; self-charged interest income or expense. If the shareholder
b. If the property was used in more than one activity during made the loan to the corporation, also identify the activity in
the 12 months preceding the disposition, identify the activities in which the loan proceeds were used. If the proceeds were used
which the property was used and the adjusted basis allocated to in more than one activity, allocate the interest to each activity
each activity; and based on the amount of the proceeds used in each activity.
c. For gains only, if the property was substantially b. Loans between the corporation and another S
appreciated at the time of the disposition and the applicable corporation or partnership. If the corporation's shareholders
holding period specified in Regulations section 1.469-2(c)(2)(iii) have the same proportional ownership interest in the corporation
(A) wasn't satisfied, identify the amount of the nonpassive gain and the other S corporation or partnership, identify each
and indicate whether or not the gain is investment income under shareholder's share of the interest income or expense from the
Regulations section 1.469-2(c)(2)(iii)(F). loan. If the corporation was the borrower, also identify the activity
in which the loan proceeds were used. If the proceeds were
7. Specify the amount of gross portfolio income, the interest used in more than one activity, allocate the interest to each
expense properly allocable to portfolio income, and expenses activity based on the amount of the proceeds used in each
other than interest expense that are clearly and directly allocable activity.
to portfolio income.
8. Identify the ratable portion of any section 481 adjustment Net Investment Income Tax Reporting
(whether a net positive or a net negative adjustment) allocable to
each corporate activity. Requirements
9. Identify any gross income from sources specifically The information described in this section should be
excluded from passive activity gross income, including: TIP given directly to the shareholder and shouldn't be
a. Income from intangible property, if the shareholder is an reported by the corporation to the IRS.
individual whose personal efforts significantly contributed to the To allow shareholders to correctly figure the net investment
creation of the property; income tax where a shareholder disposes of stock in the
b. Income from state, local, or foreign income tax refunds; corporation during the tax year, the corporation may be required
and to provide the shareholder with certain information. The net
c. Income from a covenant not to compete, if the investment income tax is a tax imposed on an individual's,
shareholder is an individual who contributed the covenant to the trust's, or estate's net investment income. Net investment
corporation. income includes the net gains or losses from the sale of stock in
the corporation. A shareholder who is actively involved in one or
10. Identify any deductions that aren't passive activity more of the corporation or subsidiary pass-through entities'
deductions. trades or businesses (other than trading in financial instruments
11. If the corporation makes a full or partial disposition of its or commodities) can reduce the amount of the gain or loss
interest in another entity, identify the gain (loss) allocable to each included in its net investment income. However, to figure its net
activity conducted through the entity, and the gain allocable to a investment income, the active shareholder needs certain
passive activity that would have been recharacterized as information from the corporation.
nonpassive gain had the corporation disposed of its interest in

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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 2022, 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.
If you are filing Schedule M-3, check the “Check if Sch. M-3
Specific Instructions attached” box. See the Instructions for Schedule M-3 for more
details.
Period Covered
Item D. Employer Identification
File the 2022 return for calendar year 2022 and fiscal years that
begin in 2022 and end in 2023. For a fiscal or short tax year Number (EIN)
return, fill in the tax year space at the top of the form. Enter the corporation's EIN. If the corporation doesn't have an
The 2022 Form 1120-S can also be used if: EIN, it must apply for one. An EIN can be applied for in the
• The corporation has a tax year of less than 12 months that following ways.
begins and ends in 2023, and • Online—Go to IRS.gov/EIN. The EIN is issued immediately
• The 2023 Form 1120-S isn't available at the time the once the application information is validated.
corporation is required to file its return. • By faxing or mailing Form SS-4, Application for Employer
Identification Number.
The corporation must show its 2023 tax year on the 2022
Form 1120-S and take into account any tax law changes that are If the corporation hasn't received its EIN by the time the return
effective for tax years beginning after December 31, 2022. is due, enter “Applied for” and the date the corporation applied in
the space for the EIN. However, if the corporation is filing its
Name and Address returns electronically, an EIN is required at the time the return is
Enter the corporation's true name (as set forth in the charter or filed. For more information, see the Instructions for Form SS-4.

other legal document creating it) and address on the appropriate Item F. Total Assets
lines. Enter the address of the corporation's principal office or
place of business. Include the suite, room, or other unit number Enter the corporation's total assets (as determined by the
after the street address. If the post office doesn't deliver mail to accounting method regularly used in keeping the corporation's
the street address and the corporation has a P.O. box, show the books and records) at the end of the tax year. If there were no
box number instead. assets at the end of the tax year, enter -0-.
Don't use the address of the registered agent for the If the corporation is required to complete Schedule L, enter
TIP state in which the corporation is incorporated. For total assets from Schedule L, line 15, column (d), on page 1,
example, if a business is incorporated in Delaware or item F. If the S election terminated during the tax year, see the
Nevada and the corporation's principal office is located in Little instructions for Schedule L, later, for special rules that may apply
Rock, Arkansas, the corporation should enter the Little Rock when figuring the corporation's year-end assets.
address.
Item G. Electing To Be an S
If the corporation receives its mail in care of a third party Corporation
(such as an accountant or an attorney), enter “C/O” on the street
address line, followed by the third party's name and street If “Yes,” attach Form 2553 if not already filed. Form 2553 must
address or P.O. box. 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
If the corporation has a foreign address, include the city or 2553 filed with Form 1120-S will generally be a late election. But
town, state or province, country, and foreign postal code. Don't with reasonable cause you may be able to request relief for the
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late election on Form 2553. See “Relief for Late Elections” in the Special rules apply to certain income, as discussed below.
Instructions for Form 2553.
Advance payments. In general, advance payments are
Item H. Final Return, Name Change, reported in the year of receipt. For exceptions to this general rule
for corporations that use an accrual method of accounting, see
Address Change, Amended Return, or the following.
• To report income from long-term contracts, see section 460.
S Election Termination • For rules that allow a limited deferral of advance payments
• If this is the corporation's final return and it will no longer exist, beyond the current tax year, see section 451(c) and Regulations
check the “Final return” box. Also check the “Final K-1” box on section 1.451-8.
each Schedule K-1. • For information on adopting or changing to a permissible
• If the corporation changed its name since it last filed a return, method for reporting advance payments for goods and services
check the “Name change” box. Generally, a corporation must by an accrual method corporation, see the Instructions for Form
also have amended its articles of incorporation and filed the 3115.
amendment with the state in which it was incorporated.
Installment sales. Generally, the installment method can't be
• If the corporation has changed its address since it last filed a
used for dealer dispositions of property. A “dealer disposition” is
return (including a change to an “in care of” address), check the
any disposition of:
“Address change” box.
• If this amends a previously filed return, check the “Amended • Personal property by a person who regularly sells or
otherwise disposes of personal property of the same type on the
return” box. If Schedules K-1 are also being amended, check the
installment plan, or
“Amended K-1” box on each Schedule K-1.
• If the corporation has terminated its S election, check the “S • Real property held for sale to customers in the ordinary
course of the taxpayer's trade or business.
election termination” box. See Termination of Election, earlier.
These restrictions on using the installment method don't
If a change in address or responsible party occurs after apply to dispositions of property used or produced in a farming
TIP the return is filed, use Form 8822-B, Change of Address business or sales of timeshares and residential lots for which the
or Responsible Party — Business, to notify the IRS. See corporation elects to pay interest under section 453(l)(3).
the Instructions for Form 8822-B for details.
For sales of timeshares and residential lots reported under
the installment method, each shareholder's income tax is
Item J. Aggregation or Grouping of increased by the shareholder's pro rata share of the interest
Certain Activities payable under section 453(l)(3).
For information about aggregating at-risk activities, see Enter on line 1a the gross profit on collections from
Aggregation of Activities under At-Risk Limitations, earlier. For installment sales for any of the following.
information about grouping passive activities, see Grouping • Dispositions of property used or produced in the trade or
Activities under Passive Activity Limitations, earlier. business of farming.
• Certain dispositions of timeshares and residential lots
Income reported under the installment method.
Attach a statement showing the following information for the
Report only trade or business activity income on lines 1a current and the 3 preceding years.
! through 5. Don't report rental activity income or portfolio • Gross sales.
CAUTION income on these lines. See Passive Activity Limitations,
• Cost of goods sold.
earlier, for definitions of rental income and portfolio income. • Gross profits.
Rental activity income and portfolio income are reported on • Percentage of gross profits to gross sales.
Schedules K and K-1. Rental real estate activities are also • Amount collected.
reported on Form 8825. • Gross profit on the amount collected.

Tax-exempt income. Don't include any tax-exempt income on Line 1b. Returns and Allowances
lines 1a through 5. A corporation that receives any tax-exempt
income other than interest, or holds any property or engages in Enter cash and credit refunds the corporation made to
any activity that produces tax-exempt income, reports this customers for returned merchandise, rebates, and other
income on line 16b of Schedule K and in box 16 of Schedule K-1 allowances made on gross receipts or sales.
using code B.
Line 2. Cost of Goods Sold
Report tax-exempt interest income, including exempt-interest
dividends received as a shareholder in a mutual fund or other Complete and attach Form 1125-A, Cost of Goods Sold, if
regulated investment company, on line 16a of Schedule K and in applicable. Enter on line 2 the amount from Form 1125-A, line 8.
box 16 of Schedule K-1 using code A. See Form 1125-A and its instructions.

See Deductions, later, for information on how to report Line 4. Net Gain (Loss) From Form 4797
expenses related to tax-exempt income.
Include only ordinary gains or losses from the sale,
Canceled debt exclusion. If the corporation has had debt ! exchange, or involuntary conversion of assets used in a
discharged resulting from a title 11 bankruptcy proceeding or CAUTION trade or business activity. Ordinary gains or losses from
while insolvent, see Form 982, Reduction of Tax Attributes Due the sale, exchange, or involuntary conversion of rental activity
to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax assets are reported separately on line 19 of Form 8825, or line 3
Guide. of Schedule K, and box 3 of Schedule K-1, generally as a part of
the net income (loss) from the rental activity.
Line 1a. Gross Receipts or Sales
Enter on line 1a gross receipts or sales from all business A corporation that is a partner in a partnership must include
operations except for amounts that must be reported on lines 4 on Form 4797, Sales of Business Property, its share of ordinary
and 5. If a cost offset method under section 451(b) or (c) is gains (losses) from sales, exchanges, or involuntary conversions
elected, the resulting gross income is reported on line 1a.

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(other than casualties or thefts) of the partnership's trade or Ordinary Income (Loss) From a Partnership,
business assets. Estate, or Trust
Corporations shouldn't use Form 4797 to report the sale or
other disposition of property if a section 179 expense deduction Enter the ordinary income (loss) shown on Schedule K-1 (Form
was previously passed through to any of its shareholders for that 1065) or Schedule K-1 (Form 1041), or other ordinary income
property. Instead, report it in box 17 of Schedule K-1 using code (loss) from a foreign partnership, estate, or trust. Show the
K. See Dispositions of property with section 179 deductions partnership's, estate's, or trust's name, address, and EIN on a
(code K), later, for details. separate statement attached to this return. If the amount entered
is from more than one source, identify the amount from each
Line 5. Other Income (Loss) source.
Enter any other trade or business income (loss) not included on
lines 1a through 4. List the type and amount of income on an Don't include portfolio income or rental activity income (loss)
attached statement. from a partnership, estate, or trust on this line. Instead, report
these amounts on Schedules K and K-1, or on line 20a of Form
Examples of other income include the following. 8825 if the amount is from a rental real estate activity.
• Interest income derived in the ordinary course of the
corporation's trade or business, such as interest charged on
receivable balances. See Temporary Regulations section Ordinary income or loss from a partnership that is a publicly
1.469-2T(c)(3). traded partnership isn't reported on this line. Instead, report the
• Recoveries of bad debts deducted in prior years under the amount separately on line 10 of Schedule K and in box 10 of
specific charge-off method. Schedule K-1 using code H.
• Taxable income from insurance proceeds.
• Any amount included in income from line 2 of Form 6478, Treat shares of other items separately reported on
Biofuel Producer Credit. Schedule K-1 issued by the other entity as if the items were
• Any amount included in income from line 9 of Form 8864, realized or incurred by this corporation.
Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels
Credit. If there is a loss from a partnership, the amount of the loss
• The recapture amount under section 280F if the business use that may be claimed by the S corporation is subject to the basis
of listed property drops to 50% or less. To figure the recapture limitations.
amount, complete Part IV of Form 4797.
• The ratable portion of any positive section 481(a) adjustments If the tax year of the S corporation doesn't coincide with the
resulting from changes in accounting methods. Show the tax year of the partnership, estate, or trust, include the ordinary
computation of the positive section 481(a) adjustments on an income (loss) from the other entity in the tax year in which the
attached statement. In the statement, include, for each section other entity's tax year ends.
481(a) adjustment, the total section 481(a) adjustment, the
ratable portion included in current year taxable income, and a Deductions
brief description of the changes in methods of accounting to
which the section 481(a) adjustment relates. See Rev. Proc. Report only trade or business activity deductions on
2015-13, 2015-5 I.R.B. 419, available at IRS.gov/irb/ ! lines 7 through 19.
CAUTION
2015-5_IRB#RP-2015-13.
• Part or all of the proceeds received from certain Don't report the following expenses on lines 7 through 19.
corporate-owned life insurance contracts issued after August 17, • Rental activity expenses. Report these expenses on Form
2006. Corporations that own one or more employer-owned life 8825 or line 3b of Schedule K.
insurance contracts issued after this date must file Form 8925, • Deductions allocable to portfolio income. Report these
Report of Employer-Owned Life Insurance Contracts. See Form deductions on line 12d of Schedule K and in box 12 of
8925. Schedule K-1 using code I or L.
• The amount of payroll tax credit taken by an employer on its • Nondeductible expenses (for example, expenses connected
2022 employment tax returns (Forms 941, 943, and 944) for with the production of tax-exempt income). Report
qualified paid sick and qualified paid family leave under FFCRA nondeductible expenses on line 16c of Schedule K and in
and ARP (both the nonrefundable and refundable portions). The box 16 of Schedule K-1 using code C.
corporation must include the full amount of the credit for qualified • Qualified expenditures to which an election under section
sick and family leave wages in gross income for the tax year that 59(e) may apply. The instructions for line 12c of Schedule K and
includes the last day of the calendar quarter in which the credit is for Schedule K-1, box 12, code J, explain how to report these
allowed. amounts.
• Items the corporation must state separately that require
Note. A credit is available only if the leave was taken after separate computations by the shareholders. Examples include
March 31, 2020, and before October 1, 2021, and only after the expenses incurred for the production of income instead of in a
qualified leave wages were paid, which might, under certain trade or business, charitable contributions, foreign taxes paid or
circumstances, not occur until a quarter after September 30, accrued, intangible drilling and development costs, soil and
2021, including quarters in 2022. water conservation expenditures, amortizable basis of
• The amount of any COBRA premium assistance credit reforestation expenditures, and exploration expenditures. The
allowed to employers under section 6432. See Form 941 (Rev. pro rata shares of these expenses are reported separately to
June 2021), lines 11e and 13f; Form 944, lines 8e and 10g; or each shareholder on Schedule K-1.
Form 943, lines 12e and 14g. Also see Notices 2021-31 and
2021-46. Limitations on Deductions
Don't include items requiring separate computations by Section 263A uniform capitalization rules. The uniform
shareholders that must be reported on Schedules K and K-1. capitalization rules of section 263A generally require
See the instructions for Schedules K and K-1 later in these corporations to capitalize, or include in inventory, certain costs
instructions. incurred in connection with the following.

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• The production of real property and tangible personal property accounting, the rules of section 263A don't apply to expenses of
held in inventory or held for sale in the ordinary course of raising any:
business. • Animal, or
• Real property or personal property (tangible and intangible) • Plant that has a preproductive period of 2 years or less.
acquired for resale. Shareholders of S corporations not required to use an accrual
• The production of real property and tangible personal property method of accounting may elect to currently deduct the
by a corporation for use in its trade or business or in an activity preproductive period expenses of certain plants that have a
engaged in for profit. preproductive period of more than 2 years. Because each
Tangible personal property produced by a corporation shareholder makes the election to deduct these expenses, the
includes a film, sound recording, videotape, book, or similar corporation shouldn't capitalize them. Instead, the corporation
property. should report the expenses separately on line 12d of Schedule K
The costs required to be capitalized under section 263A and report each shareholder's pro rata share in box 12 of
aren't deductible until the property to which the costs relate is Schedule K-1 using code M.
sold, used, or otherwise disposed of by the corporation. See Uniform Capitalization Rules in chapter 6 of Pub. 225,
Exceptions. Section 263A doesn't apply to the following. Farmer's Tax Guide, sections 263A(d) and (e), and Regulations
• Inventoriable items accounted for in the same manner as section 1.263A-4 for definitions and other details.
materials and supplies that aren't incidental. See Form 1125-A Transactions between related taxpayers. Generally, an
and its instructions for more details. accrual basis S corporation can deduct business expenses and
• A small business taxpayer (defined earlier) isn’t required to interest owed to a related party (including any shareholder) only
capitalize costs under section 263A. A taxpayer that wants to in the tax year of the corporation that includes the day on which
discontinue capitalizing costs under section 263A must change the payment is includible in the income of the related party. See
its method of accounting. See section 263A(i) and the section 267 for details.
Instructions for Form 3115.
• Timber. Business interest. Business interest expense may be limited.
• Most property produced under a long-term contract. See section 163(j) and Form 8990. Also see Schedule B,
• Certain property produced in a farming business. See Special questions 9 and 10, and the related instructions for question 9
rules for certain corporations engaged in farming, later. and question 10, later.
• Geological and geophysical costs amortized under section Section 291 limitations. If the S corporation was a C
167(h). corporation for any of the 3 immediately preceding years, the
• Certain plants bearing fruits and nuts depreciated under corporation may be required to adjust items such as deductions
section 168(k)(5). for depletion of iron ore and coal, and the amortizable basis of
The corporation must report the following costs separately to pollution control facilities. If this applies, see section 291 to figure
the shareholders for purposes of determinations under section the adjustment.
59(e).
• Research and experimental costs under section 174. Business start-up and organizational costs. A corporation
• Intangible drilling costs for oil, gas, and geothermal property. can elect to deduct a limited amount of start-up and
• Mining exploration and development costs. organizational costs it paid or incurred. Any remaining costs
must generally be amortized over a 180-month period. See
Indirect costs. Corporations subject to the uniform sections 195 and 248 and the related regulations.
capitalization rules are required to capitalize not only direct costs
but an allocable part of most indirect costs (including taxes) that Time for making an election. The corporation generally
benefit the assets produced or acquired for resale, or are elects to deduct start-up or organizational costs by claiming the
incurred because of the performance of production or resale deduction on its income tax return filed by the due date
activities. (including extensions) for the tax year in which the active trade
or business begins. For more details, including special rules for
For inventory, indirect costs that must be capitalized include costs paid or incurred before September 9, 2008, see the
the following. Instructions for Form 4562. Also see Pub. 535, Business
• Administration expenses. Expenses.
• Taxes.
• Amortization of research and experimental costs under If the corporation timely filed its return for the year without
section 174. making an election, it can still make an election by filing an
• Depreciation. amended return within 6 months of the due date of the return
• Insurance. (excluding extensions). Clearly indicate the election on the
• Compensation paid to officers attributable to services. amended return and write “Filed pursuant to section 301.9100-2”
• Rework labor. at the top of the amended return. File the amended return at the
• Contributions to pension, stock bonus, and certain same address the corporation filed its original return. The
profit-sharing, annuity, or deferred compensation plans. election applies when figuring taxable income for the current tax
year and all subsequent years.
Regulations section 1.263A-1(e)(3) specifies other indirect
costs that relate to production or resale activities that must be The corporation can choose to forgo the elections above by
capitalized and those that may be currently deductible. clearly electing to capitalize its start-up or organizational costs
on its income tax return filed by the due date (including
Interest expense paid or incurred during the production extensions) for the tax year in which the active trade or business
period of designated property must be capitalized and is begins.
governed by special rules. For more details, see Regulations
sections 1.263A-8 through 1.263A-15. The election to either amortize or capitalize start-up
TIP costs is irrevocable and applies to all start-up costs that
For more details on the uniform capitalization rules, see are related to the trade or business.
Regulations sections 1.263A-1 through 1.263A-3.
Special rules for certain corporations engaged in farming. Report the deductible amount of start-up and organizational
For S corporations not required to use an accrual method of costs and any amortization on line 19. For amortization that

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begins during the current tax year, complete and attach Form Include fringe benefit expenditures made on behalf of officers
4562, Depreciation and Amortization. and employees owning more than 2% of the corporation's stock.
Also report these fringe benefits as wages in box 1 of Form W-2.
Reducing certain expenses for which credits are allowable.
Don't include amounts paid or incurred for fringe benefits of
If the corporation claims certain credits, it may need to reduce
officers and employees owning 2% or less of the corporation's
the otherwise allowable deductions for expenses used to figure
stock. These amounts are reported on line 18. See the
the credit. This applies to credits such as the following.
instructions for that line for information on the types of
• Work opportunity credit (Form 5884).
expenditures that are treated as fringe benefits and for the stock
• Employee retention credit for employers affected by qualified
ownership rules.
disasters (Form 5884-A), if applicable.
• Credit for increasing research activities (Form 6765). Report amounts paid for health insurance coverage for a
• Orphan drug credit (Form 8820). more-than-2% shareholder (including that shareholder's spouse,
• Disabled access credit (Form 8826). dependents, and any children under age 27 who aren't
• Empowerment zone employment credit (Form 8844). dependents) as an information item in box 14 of that
• Indian employment credit (Form 8845), if applicable. shareholder's Form W-2. A more-than-2% shareholder may be
• Credit for employer social security and Medicare taxes paid allowed to deduct such amounts on Schedule 1 (Form 1040),
on certain employee tips (Form 8846). line 17. To find out if the shareholder can claim this deduction,
• Credit for small employer pension plan startup costs and see Self-Employed Health Insurance Deduction in chapter 6 of
auto-enrollment (Form 8881). Pub. 535, Business Expenses.
• Credit for employer-provided childcare facilities and services
(Form 8882). If a shareholder or a member of the family of one or more
• Low sulfur diesel fuel production credit (Form 8896). shareholders of the corporation renders services or furnishes
• Mine rescue team training credit (Form 8923), if applicable. capital to the corporation for which reasonable compensation
• Credit for employer differential wage payments (Form 8932). isn’t paid, the IRS may make adjustments in the items taken into
• Credit for small employer health insurance premiums (Form account by such individuals to reflect the value of such services
8941). or capital. See section 1366(e).
• Employer credit for paid family and medical leave (Form
8994). Line 9. Repairs and Maintenance
If the corporation has any of the credits listed above, figure Enter the cost of repairs and maintenance not claimed
the current year credit before figuring the deduction for elsewhere on the return, such as labor and supplies, that don't
expenses on which the credit is based. If the corporation add to the value of the property or appreciably prolong its life.
capitalized any costs on which it figured the credit, it may need The corporation can deduct these repairs only to the extent they
to reduce the amount capitalized by the credit attributable to relate to a trade or business activity. See Regulations section
these costs. 1.162-4. The corporation may elect to capitalize certain repair
and maintenance costs consistent with its books and records.
See the instructions for the form used to figure the applicable See Regulations section 1.263(a)-3(n) for information on how to
credit for more details. make the election.
Line 7. Compensation of Officers and New buildings, machinery, or permanent improvements that
Line 8. Salaries and Wages increase the value of the property aren't deductible as repair and
maintenance expenses. These expenses must be capitalized
Distributions and other payments by an S corporation to and depreciated or amortized. However, amounts paid for
! a corporate officer must be treated as wages to the routine maintenance on property, including buildings, may be
CAUTION extent the amounts are reasonable compensation for deductible. See Regulations section 1.263(a)-3(i).
services rendered to the corporation.
Enter on line 7 the total compensation of all officers paid or Line 10. Bad Debts
incurred in the trade or business activities of the corporation. Enter the total debts that became worthless in whole or in part
The corporation determines who is an officer under the laws of during the tax year, but only to the extent such debts relate to a
the state where it is incorporated. trade or business activity. Report deductible nonbusiness bad
debts as a short-term capital loss on Form 8949, Sales and
Enter on line 8 the total salaries and wages paid or incurred to Other Dispositions of Capital Assets. A corporation that uses the
employees (other than officers) during the tax year. cash method of accounting can't claim a bad debt deduction
If the corporation claims a credit for any wages paid or unless the amount was previously included in income.

! incurred, it may need to reduce the amounts on lines 7 Line 11. Rents
CAUTION and 8. See Reducing certain expenses for which credits
are allowable, earlier. Enter rent paid on business property used in a trade or business
activity. Don't deduct rent for a dwelling unit occupied by any
shareholder for personal use.
Don't include salaries and wages reported elsewhere on the
return, such as amounts included in cost of goods sold, elective If the corporation rented or leased a vehicle, enter the total
contributions to a section 401(k) cash or deferred arrangement, annual rent or lease expense paid or incurred in the trade or
or amounts contributed under a salary reduction SEP agreement business activities of the corporation during the tax year. Also
or a SIMPLE IRA plan. complete Part V of Form 4562. If the corporation leased a
vehicle for a term of 30 days or more, the deduction for vehicle
If the corporation's total receipts (page 1, line 1a, plus lines 4 lease expense may have to be reduced by including in gross
and 5; income reported on Schedule K, lines 3a, 4, 5a, and 6; income an amount called the “inclusion amount.” The
income or net gain reported on Schedule K, lines 7, 8a, 9, and corporation may have an inclusion amount if:
10; and income or net gain reported on Form 8825, lines 2, 19,
and 20a) are $500,000 or more, complete Form 1125-E,
Compensation of Officers. Enter on Form 1120-S, line 7, the
amount from Form 1125-E, line 4.

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And the vehicle's • Taxes, including state or local sales taxes, that are paid or
FMV on the first incurred in connection with an acquisition or disposition of
day of the lease property (these taxes must be treated as a part of the cost of the
The lease term began: exceeded: acquired property or, in the case of a disposition, as a reduction
in the amount realized on the disposition).
Cars (excluding trucks and vans) • Taxes assessed against local benefits that increase the value
After 12/31/21 but before 1/1/23 . . . . . . . . . . . $56,000 of the property assessed (such as for paving, etc.).
After 12/31/20 but before 1/1/22 . . . . . . . . . . . $51,000 See section 164(d) for information on apportionment of taxes
After 12/31/17 but before 1/1/21 . . . . . . . . . . . $50,000 on real property between seller and purchaser.

After 12/31/12 but before 1/1/18 . . . . . . . . . . . $19,000 Line 13. Interest
After 12/31/07 but before 1/1/13 . . . . . . . . . . . $18,500 Include only interest incurred in the trade or business activities of
Trucks and vans the corporation that isn't claimed elsewhere on the return.
After 12/31/21 but before 1/1/23 . . . . . . . . . . . $56,000 Don't include interest expense on the following.
After 12/31/20 but before 1/1/22 . . . . . . . . . . . $51,000 • On debt used to purchase rental property or debt used in a
rental activity. Interest allocable to a rental real estate activity is
After 12/31/17 but before 1/1/21 . . . . . . . . . . . $50,000 reported on Form 8825 and is used in arriving at net income
After 12/31/13 but before 1/1/18 . . . . . . . . . . . $19,500 (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 12/31/09 but before 1/1/14 . . . . . . . . . . . $19,000 activity other than a rental real estate activity is included on
After 12/31/08 but before 1/1/10 . . . . . . . . . . . $18,500 line 3b of Schedule K and is used in arriving at net income (loss)
After 12/31/07 but before 1/1/09 . . . . . . . . . . . $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 2023 Schedule K-1 using code H. See the instructions for line 12b of
will be published in early 2023. 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 • On debt proceeds allocated to distributions made to
business activities of the corporation, unless they are reflected shareholders during the tax year. Instead, report such interest on
elsewhere on the return. Federal import duties and federal line 12d of Schedule K and in box 12 of Schedule K-1 using
excise and stamp taxes are deductible only if paid or incurred in code S. To determine the amount to allocate to distributions to
carrying on 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
Do not reduce the corporation’s deduction for social or construct. Interest allocable to designated property produced
by a corporation for its own use or for sale must be capitalized.
CAUTION refundable portions of the FFCRA and ARP credits for
! security and Medicare taxes by the nonrefundable and In addition, a corporation must also capitalize any interest on
qualified sick and family leave wages claimed on its employment debt allocable to an asset used to produce designated property.
tax returns. Instead, report this amount as income on line 5. A shareholder may have to capitalize interest that the
shareholder incurs during the tax year for the S corporation's
Don't deduct the following taxes on line 12. production expenditures. Similarly, interest incurred by an S
• Federal income taxes (except for the portion of built-in gains corporation may have to be capitalized by a shareholder for the
tax allocable to ordinary income) or taxes reported elsewhere on shareholder's own production expenditures. The information
the return. required by the shareholder to properly capitalize interest for this
• Creditable foreign taxes under sections 901 and 903. Report purpose must be provided by the corporation on an attachment
these taxes on line 16f of Schedule K and in box 16 of for box 17 of Schedule K-1 using code P. See section 263A(f)
Schedule K-1 using code F. and Regulations sections 1.263A-8 through 1.263A-15.
• Taxes allocable to a rental activity. Report taxes allocable to a Special rules apply to the following.
rental real estate activity on Form 8825. Report taxes allocable • Allocating interest expense among activities so that the
to a rental activity other than a rental real estate activity on limitations on passive activity losses, investment interest, and
line 3b of Schedule K. personal interest can be properly figured. Generally, interest
• Taxes paid or incurred for the production or collection of expense is allocated in the same manner as debt is allocated.
income, or for the management, conservation, or maintenance of Debt is allocated by tracing disbursements of the debt proceeds
property held to produce income. Report these taxes separately to specific expenditures. Temporary Regulations section
on line 12d of Schedule K and in box 12 of Schedule K-1 using 1.163-8T gives rules for tracing debt proceeds to expenditures.
code S. • Prepaid interest, which can generally only be deducted over
See section 263A(a) for rules on capitalization of allocable the term of the debt. See Regulations sections 1.163-7, 1.446-2,
costs (including taxes) for any property. and 1.1273-2(g) for details. Also see section 461(g).
• Interest that is allocable to unborrowed policy cash values of
• Taxes not imposed on the corporation. life insurance, endowment, or annuity contracts issued after

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June 8, 1997. See section 264(f). Attach a statement showing qualified under the Internal Revenue Code and whether or not a
the computation of the deduction. deduction is claimed for the current tax year, must generally file
• Forgone interest on below-market-rate loans (see section the applicable form listed below.
7872). • Form 5500, Annual Return/Report of Employee Benefit Plan.
Limitation on deduction. Business interest expense is • Form 5500-SF, Short Form Annual Return/Report of Small
Employee Benefit Plan. File this form instead of Form 5500
generally limited to the sum of business interest income, 30% of
generally if there were under 100 participants at the beginning of
adjusted taxable income, and floor plan financing interest. See
the plan year.
Form 8990, Limitation on Business Interest Expense Under
Section 163(j), and its instructions for more information. The • Form 5500-EZ, Annual Return of A One-Participant (Owners/
Partners and Their Spouses) Retirement Plan or A Foreign Plan.
limitation applies at the S corporation level, and any excess
File this form for a plan that only covers the owner (or the owner
business interest expense is carried over at the corporate level.
and the owner's spouse) but only if the owner (or the owner and
Business interest expense includes any interest paid or the owner's spouse) owns the entire business.
accrued on indebtedness properly allocable to a trade or
business. A small business taxpayer is a taxpayer that isn’t a tax Form 5500 and Form 5500-SF must be filed
shelter (as defined in section 448(d)(3)) and has average annual TIP electronically under the computerized ERISA Filing
gross receipts of $27 million or less for the 3 prior tax years Acceptance System (EFAST2). For more information,
under the gross receipts test of section 448(c). Gross receipts see the EFAST2 website at www.EFAST.dol.gov.
include the aggregate gross receipts from all persons treated as
a single employer, such as a controlled group of corporations, There are penalties for not filing these forms on time and for
commonly controlled partnerships or proprietorships, and overstating the pension plan deduction. See sections 6652(e)
affiliated service groups. If the corporation fails to meet the gross and 6662(f).
receipts test, Form 8990 is generally required. Also see
Schedule B, questions 9 and 10. Line 18. Employee Benefit Programs
Enter amounts for fringe benefits paid or incurred on behalf of
Line 14. Depreciation employees owning 2% or less of the corporation's stock. These
Enter the depreciation claimed on assets used in a trade or fringe benefits include (a) employer contributions to certain
business activity less any depreciation reported elsewhere (for accident and health plans, (b) the cost of up to $50,000 of
example, on Form 1125-A). See the Instructions for Form 4562, group-term life insurance on an employee's life, and (c) meals
or Pub. 946, How To Depreciate Property, to figure the amount and lodging furnished for the employer's convenience.
of depreciation to enter on this line. Don't deduct amounts that are an incidental part of a pension,
Complete and attach Form 4562 only if the corporation profit-sharing, etc., plan included on line 17 or amounts reported
placed property in service during the tax year or claims elsewhere on the return or on Form 1125-A.
depreciation on any car or other listed property. Report amounts for fringe benefits paid on behalf of
employees owning more than 2% of the corporate stock on
Don't include any section 179 expense deduction on this line. line 7 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 Line 19. Other Deductions
1.179-1(f)(2).
Enter the total allowable trade or business deductions that aren't
Line 15. Depletion deductible elsewhere on page 1 of Form 1120-S. Attach a
statement listing by type and amount each deduction included
If the corporation claims a deduction for timber depletion, on this line.
complete and attach Form T (Timber), Forest Activities
Schedule. Examples of other deductions include the following.
Don't deduct depletion for oil and gas properties. Each • Amortization. See Part VI of Form 4562.
• Certain business start-up and organizational costs (discussed
! shareholder figures depletion on oil and gas properties. earlier).
CAUTION See the instructions for Schedule K-1, box 17, code R,
for the information on oil and gas depletion that must be supplied • Insurance premiums.
to the shareholders by the corporation. • Legal and professional fees.
• Supplies used and consumed in the business.
• Travel, meal, and entertainment expenses. Special rules
Line 17. Pension, Profit-Sharing, etc., Plans apply (discussed later).
Enter the deductible contributions not claimed elsewhere on the • Utilities.
return made by the corporation for its employees under a • Deduction for certain costs of energy efficient commercial
qualified pension, profit-sharing, annuity, or simplified employee building property. See section 179D. Attach Form 7205, Energy
pension (SEP) or SIMPLE IRA plan, or any other deferred Efficient Commercial Buildings Deduction.
compensation plan. • Any negative section 481(a) adjustments resulting from
changes in accounting methods. Show the computation of the
If the corporation contributes to an individual retirement negative section 481(a) adjustments on an attached statement.
arrangement (IRA) for employees, include the contribution in In the statement, for each section 481(a) adjustment, include the
salaries and wages on page 1, line 8, or Form 1125-A, line 3, total section 481(a) adjustment and a brief description of the
and not on line 17. changes in methods of accounting to which the section 481(a)
adjustment relates. See Rev. Proc. 2015-13.
Employers who maintain a pension, profit-sharing, or other
funded deferred compensation plan, whether or not the plan is Don't deduct the following on line 19.
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• Items that must be reported separately on Schedules K and lodge) used for an activity usually considered entertainment,
K-1. amusement, or recreation.
• Fines or similar penalties paid to or at the direction of a Amounts treated as compensation. The corporation may
government or governmental entity for violating any law. be able to deduct otherwise nondeductible entertainment,
However, see exceptions (discussed later). Report these amusement, or recreation expenses if the amounts are treated
expenses on Schedule K, line 16c. as compensation to the recipient and reported on Form W-2 for
• Expenses allocable to tax-exempt income. Report these an employee or on Form 1099-NEC for an independent
expenses on Schedule K, line 16c. contractor.
• Amounts paid or incurred for any settlement, payout, or However, if the recipient is an officer, director, or beneficial
attorney fees related to sexual harassment or sexual abuse, if owner (directly or indirectly) of more than 10% of the
such payments are subject to a nondisclosure agreement. See corporation's stock, the deductible expense is limited. See
section 162(q). section 274(e)(2) and Regulations sections 1.274-9 and
1.274-10.
Special Rules
Fines and similar penalties. Generally, no deduction is
Travel, meals, and entertainment. Subject to limitations and allowed for fines or similar penalties paid to or at the direction of
restrictions discussed below, a corporation can deduct ordinary a government or governmental entity for violating any law
and necessary travel and meal expenses paid or incurred in its except:
trade or business. Generally, entertainment expenses, • Amounts that constitute restitution (including remediation of
membership dues, and facilities used in connection with these property),
activities can't be deducted. Generally, no deduction is allowed • Amounts paid to come into compliance with the law,
for qualified transportation fringe benefits. Also, special rules • Amounts paid or incurred as the result of orders or
apply to deductions for gifts, luxury water travel, and convention agreements in which no government or governmental entity is a
expenses. See section 274, Pub. 463, and Pub. 535 for details. party, and
Travel. The corporation can't deduct travel expenses of any • Amounts paid or incurred for taxes due to the extent the
individual accompanying a corporate officer or employee, amount would have been allowed as a deduction if timely paid,
including a spouse or dependent of the officer or employee, and the taxpayer establishes that the amount paid or incurred
unless: was for restitution, remediation, or to come into compliance.
• That individual is an employee of the corporation, and No deduction is allowed unless the amounts are specifically
• The travel is for a bona fide business purpose and would identified in the order or agreement and the taxpayer establishes
otherwise be deductible by that individual. that the amounts were paid for a purpose mentioned above.
Meals. Generally, the corporation can deduct only 50% of the Also, any amount paid or incurred as reimbursement to the
amount otherwise allowable for meal expenses paid or incurred government for the costs of any investigation or litigation are not
in its trade or business. However, the corporation can deduct eligible for the exceptions and are nondeductible. See section
100% of business meals if the meals are food or beverages 162(f). Also see Regulations section 1.162-21.
provided by a restaurant, and paid or incurred after December Lobbying expenses. Generally, lobbying expenses aren't
31, 2020, and before January 1, 2023. In addition (subject to deductible. Report nondeductible expenses on Schedule K,
exceptions under 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
See section 274(n)(3) for a special rule that applies to • Amounts paid or incurred in connection with any
expenses for meals consumed by individuals subject to the communication with certain federal executive branch officials in
hours of service limits of the Department of Transportation. an attempt to influence the official actions or positions of the
Qualified transportation fringes (QTFs). Generally, under officials. See Regulations section 1.162-29 for the definition of
section 274(a)(4), there is no deduction allowed with respect to “influencing legislation.”
QTFs provided by employers to their employees. QTFs are Dues and other similar amounts paid to certain tax-exempt
defined in section 132(f)(1) to include: organizations may not be deductible. If certain in-house lobbying
• Transportation in a commuter highway vehicle between the expenditures don't exceed $2,000, they are deductible. For
employee's residence and place of employment, information on contributions to charitable organizations that
• Any transit pass, and conduct lobbying activities, see section 170(f)(9).
• Qualified parking.
Certain corporations engaged in farming. Section 464(d)
See section 274, Pub. 15-B, Employer’s Tax Guide to Fringe
limits the deduction for certain expenditures of S corporations
Benefits, and Pub. 535 for details.
engaged in farming if they use the cash method of accounting,
Membership dues. The corporation can generally deduct and their prepaid farm supplies are more than 50% of other
amounts paid or incurred for membership dues in civic or public deductible farming expenses.
service organizations, professional organizations (such as bar
and medical associations), business leagues, trade Prepaid farm supplies include expenses for feed, seed,
associations, chambers of commerce, boards of trade, and real fertilizer, and similar farm supplies not used or consumed during
estate boards. However, no deduction is allowed if a principal the year. They also include the cost of poultry that would be
purpose of the organization is to entertain or provide allowable as a deduction in a later tax year if the corporation
entertainment facilities for members or their guests. In addition, were to (a) capitalize the cost of poultry bought for use in its farm
corporations can't deduct membership dues in any club business and deduct it ratably over the lesser of 12 months or
organized for business, pleasure, recreation, or other social the useful life of the poultry, and (b) deduct the cost of poultry
purpose. This includes country clubs, golf and athletic clubs, bought for resale in the year it sells or otherwise disposes of it.
airline and hotel clubs, and clubs operated to provide meals If the limit applies, the corporation can deduct prepaid farm
under conditions favorable to business discussion. supplies that don't exceed 50% of its other deductible farm
Entertainment facilities. The corporation can't deduct an expenses in the year of payment. The excess is deductible only
expense paid or incurred for a facility (such as a yacht or hunting in the year the corporation uses or consumes the supplies (other

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than poultry, which is deductible, as explained above). For • The corporation used the LIFO inventory pricing method for its
exceptions and more details on these rules, see Pub. 225. last tax year as a C corporation, or
Reforestation expenditures. If the corporation made an • A C corporation transferred LIFO inventory to the corporation
election to deduct a portion of its reforestation expenditures on in a nonrecognition transaction in which those assets were
line 12d of Schedule K, it must amortize over an 84-month transferred basis property.
period the portion of these expenditures in excess of the amount The additional tax due to LIFO recapture is figured for the
deducted on Schedule K (see section 194). Deduct on line 19 corporation's last tax year as a C corporation or for the tax year
only the amortization of these excess reforestation expenditures. of the transfer, whichever applies. See the Instructions for Form
See Reforestation expense deduction (code O), later. 1120 to figure the tax.
The tax is paid in four equal installments. The C corporation
Line 21. Ordinary Business Income (Loss) must pay the first installment by the due date (not including
Enter this income or loss on line 1 of Schedule K. Line 21 extensions) of Form 1120 for the corporation's last tax year as a
income is not used in figuring the excess net passive income or C corporation or for the tax year of the transfer, whichever
built-in gains taxes. See the instructions for line 22a for figuring applies. The S corporation must pay each of the remaining
taxable income for purposes of these taxes. installments by the due date (not including extensions) of Form
1120-S for the 3 succeeding tax years. Include this year's
Tax and Payments installment in the total amount to be entered on line 22a. To the
left of the total on line 22a, enter the installment amount and
Line 22a. Excess Net Passive Income and LIFO “LIFO tax.”
Recapture Tax
These taxes can apply if the corporation was previously a C Line 22b. Tax From Schedule D (Form 1120-S)
corporation or if the corporation engaged in a tax-free Enter the built-in gains tax from line 23 of Part III of Schedule D.
reorganization with a C corporation. See the instructions for Part III of Schedule D to determine if the
corporation is liable for the tax.
Excess net passive income tax. If the corporation has AE&P
at the close of its tax year and has passive investment income Line 22c
for the tax year that is in excess of 25% of gross receipts, the
corporation must figure its excess net passive income and pay Include the following in the total for line 22c.
tax on it. To make this determination, complete lines 1 through 3 Investment credit recapture tax. The corporation is liable for
and line 9 of the Excess Net Passive Income Tax Worksheet for any required investment credit recapture attributable to credits
Line 22a. If line 2 is greater than line 3 and the corporation has allowed for tax years for which the corporation wasn't an S
taxable income (see the instructions for line 9 of the worksheet), corporation. The corporation is also liable for any required
it must pay the tax. Complete a separate statement using the qualifying therapeutic discovery project grant recapture. Figure
format of lines 1 through 11 of the worksheet to figure the tax. the corporation's investment credit recapture tax and qualifying
Enter the tax on line 22a, page 1, Form 1120-S, and attach the therapeutic discovery project grant recapture tax by completing
computation statement to Form 1120-S. Form 4255, Recapture of Investment Credit. See the Instructions
Reduce each item of passive investment income passed for Form 4255.
through to shareholders by its portion of any excess net passive To the left of the line 22c total, enter the amount of recapture
income tax reported on line 22a. See section 1366(f)(3). tax and “Tax From Form 4255.” Attach Form 4255 to Form
LIFO recapture tax. The corporation may be liable for the 1120-S.
additional tax due to LIFO recapture under Regulations section Interest due under the look-back method—Completed
1.1363-2 if: long-term contracts. If the corporation owes this interest,

Excess Net Passive Income Tax Worksheet for Line 22a 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 income below) . . . . . . . . . . . . . . . . . . . . . . . . . .
tax.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 22a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

*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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attach Form 8697, Interest Computation Under the Look-Back Generally, if an entity (a corporation, partnership, or trust) is
Method for Completed Long-Term Contracts. To the left of the owned, directly or indirectly, by or for another entity (corporation,
total on line 22c, enter the amount owed and “From Form 8697.” partnership, estate, or trust), the owned entity is considered to
be owned proportionately by or for the owners (shareholders,
Interest due under the look-back method—Property depre-
partners, or beneficiaries) of the owning entity.
ciated under the income forecast method. If the corporation
owes this interest, attach Form 8866, Interest Computation Maximum percentage owned in partnership profit, loss, or
Under the Look-Back Method for Property Depreciated Under capital. For the purposes of question 4b, the term “maximum
the Income Forecast Method. To the left of the total on line 22c, percentage owned” means the highest percentage of interest in
enter the amount owed and “From Form 8866.” a partnership's profit, loss, or capital as of the end of the
partnership's tax year, as determined under the partnership
Line 23d 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 23d. Enter “T” and the amount on the dotted percentage items for the purposes of completing question 4b.
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 24. Estimated Tax Penalty profit, loss, and capital must be applied consistently from year to
year. Maintain records to support the determination of the share
If Form 2220 is attached, check the box on line 24 and enter the
of profits, losses, and share of capital.
amount of any penalty on this line.
Question 6
Line 25. Amount Owed
Answer “Yes” if the corporation filed, or is required to file, Form
If the corporation can't pay the full amount of tax owed, it can
8918, Material Advisor Disclosure Statement. For details, see
apply for an installment agreement online. The corporation can
the Instructions for Form 8918.
apply for an installment agreement online if:
• It can't pay the full amount shown on line 25,
Item 8
• The total amount owed is $25,000 or less, and
• 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
To apply using the Online Payment Agreement Application, acquired an asset with a basis determined by reference to its
go to IRS.gov/OPA. basis (or the basis of any other property) in the hands of a C
Under an installment agreement, the corporation can pay corporation, and (b) has net unrealized built-in gain (defined
what it owes in monthly installments. There are certain below) in excess of the net recognized built-in gain from prior
conditions that must be met to enter into and maintain an years.
installment agreement, such as paying the liability within 24 The corporation is liable for section 1374 tax if (a) and (b)
months and making all required deposits and timely filing tax above apply and it has a net recognized built-in gain (defined in
returns during the length of the agreement. section 1374(d)(2)) for its tax year.
If the installment agreement is accepted, the corporation will The corporation's net unrealized built-in gain is the amount, if
be charged a fee and it will be subject to penalties and interest any, by which the aggregate fair market value of the assets of
on the amount of tax not paid by the due date of the return. the corporation at the beginning of its first S corporation year (or
as of the date the assets were acquired, for any asset with a
Line 27 basis determined by reference to its basis (or the basis of any
Direct deposit of refund. If the corporation wants its refund other property) in the hands of a C corporation) exceeds the
directly deposited into its checking or savings account at any aggregate adjusted basis of such assets at that time.
U.S. bank or other financial institution instead of having a check Enter the corporation's net unrealized built-in gain reduced by
sent to the corporation, complete Form 8050 and attach it to the the net recognized built-in gain from prior years. See sections
corporation's return. 1374(c)(2) and (d)(1).
If the corporation has more than one pool of assets (as
Schedule B. Other Information defined in Regulations section 1.1374-3(b)(4)), attach a
Complete all items that apply to the corporation. statement showing for each pool of assets the amount of the
corporation's net unrealized built-in gain reduced by the net
Item 2 recognized built-in gain from prior years.
See Principal Business Activity Codes at the end of these
instructions and enter the business activity and product or Question 9. Business Interest Expense Election
service. For nonstore retailers, select the PBA code by the The limitation on business interest expense under section 163(j)
primary product that your establishment sells. For example, applies to every taxpayer with a trade or business, unless the
establishments primarily selling prescription and taxpayer meets certain specified exceptions. A taxpayer may
non-prescription drugs, select PBA code 456110 Pharmacies & elect out of the limitation for certain businesses otherwise
Drug Retailers. subject to the business interest expense limitation. This is an
irrevocable election.
Question 4. Constructive Ownership of Other
Certain real property trades or businesses and farming
Entities businesses qualify to make an election not to limit business
For purposes of determining the corporation's constructive interest expense. This is an irrevocable election. If you make this
ownership of other entities, the constructive ownership rules of election, you are required to use the alternative depreciation
section 267(c) (excluding section 267(c)(3)) apply to ownership system to depreciate certain property. Also, you aren’t entitled to
of interests in partnerships and trusts as well as corporate stock. the special depreciation allowance for that property. For a

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taxpayer with more than one qualifying business, the election is Questions 14a and 14b
made with respect to each business. If the corporation made any payment in 2022 that would require
Check “Yes” if the taxpayer has an election in effect to it to file any Form(s) 1099, check the “Yes” box for question 14a
exclude a real property trade or business or a farming business and answer question 14b. Otherwise, check the “No” box for
from section 163(j). For more information, see section 163(j) and question 14a and skip question 14b. See Am I Required to File a
the Instructions for Form 8990. Form 1099 or Other Information Return on IRS.gov.

Question 10. Conditions for Filing Form 8990 Question 15
A taxpayer that isn’t a small business taxpayer (defined below) To be certified as a qualified opportunity fund, the S corporation
must generally file Form 8990. In addition, any taxpayer that must file Form 1120-S and attach Form 8996, even if the
owns an interest in a partnership with current year, or prior year corporation had no income or expenses to report. If the S
carryover, excess business interest expense allocated from the corporation is attaching Form 8996, check the “Yes” box and
partnership must file Form 8990. enter the amount from Form 8996, line 15, in the entry space.
See Certification as a qualified opportunity fund, earlier.
A taxpayer who is a U.S. shareholder of an applicable CFC
that has business interest expense, disallowed business interest The penalty reported on this line from Form 8996, line 15, is
expense carryforward, or is part of a CFC group must generally not due with the filing of this form. The IRS will separately send
apply section 163(j) to each applicable CFC and attach a Form you a notice setting forth the due date for the penalty payment
8990 with each Form 5471. and where that payment should be sent.
Exclusions from filing. A taxpayer isn’t required to file Form
8990 if the taxpayer is a small business taxpayer and doesn’t Schedules K and K-1 (General
have excess business interest expense from a partnership. A
taxpayer is also not required to file Form 8990 if the taxpayer Instructions)
only has business interest expense from these excepted trades
or businesses: Purpose of Schedules
• The trade or business of providing services as an employee, The corporation is liable for taxes on lines 22a, 22b, and 22c on
• An electing real property trade or business, page 1 of Form 1120-S. Shareholders are liable for tax on their
• An electing farming business, or shares of the corporation's income (reduced by any taxes paid
• Certain regulated utility businesses. by the corporation on income). Shareholders must include their
Small business taxpayer. A small business taxpayer isn’t share of the income on their tax return whether or not it is
subject to the business interest expense limitation and isn’t distributed to them. Unlike most partnership income, S
required to file Form 8990. A small business taxpayer is a corporation income isn't self-employment income and isn't
taxpayer that (a) isn’t a tax shelter (as defined in section 448(d) subject to self-employment tax.
(3)), and (b) meets the gross receipts test of section 448(c), Schedule K. Schedule K is a summary schedule of all
discussed next. shareholders' shares of the corporation's income, deductions,
Gross receipts test. A taxpayer meets the gross receipts test if credits, etc. All corporations must complete Schedule K.
the taxpayer has average annual gross receipts of $27 million or Schedule K-1. Schedule K-1 shows each shareholder's
less for the 3 prior tax years. A taxpayer's average annual gross separate share. Attach a copy of each Schedule K-1 to the Form
receipts for the 3 prior tax years is determined by adding the 1120-S filed with the IRS. Keep a copy for the corporation's
gross receipts for the 3 prior tax years and dividing the total by 3. records and give each shareholder a copy.
Gross receipts include the aggregate gross receipts from all Give each shareholder a copy of the Shareholder's
persons treated as a single employer, such as a controlled group Instructions for Schedule K-1 (Form 1120-S) or specific
of corporations, commonly controlled partnerships, or instructions for each item reported on the shareholder's
proprietorships, and affiliated service groups. See section 448(c) Schedule K-1.
and the Instructions for Form 8990 for additional information.
Substitute Forms
Question 11
The corporation doesn't need IRS approval to use a substitute
Total receipts is the sum of the following amounts. Schedule K-1 if it is an exact copy of the IRS schedule. The
• Gross receipts or sales (page 1, line 1a). boxes must use the same numbers and titles and must be in the
• All other income (page 1, lines 4 and 5). same order and format as on the comparable IRS Schedule K-1.
• Income reported on Schedule K, lines 3a, 4, 5a, and 6. The substitute schedule must include the OMB number. The
• Income or net gain reported on Schedule K, lines 7, 8a, 9, and corporation must provide each shareholder with the
10. Shareholder's Instructions for Schedule K-1 (Form 1120-S) or
• Income or net gain reported on Form 8825, lines 2, 19, and instructions that apply to the specific items reported on the
20a. shareholder's Schedule K-1.
Question 12 The corporation must ask for IRS approval to use other
Amounts related to the forgiveness of PPP loans are substitute Schedules K-1.
disregarded for purposes of this question. Each shareholder's information must be on a separate sheet
of paper. Therefore, separate all continuously printed substitutes
Question 13 before you file them with the IRS.
Answer “Yes” if, during the tax year, the corporation revoked a
qualified subchapter S subsidiary (QSub) election or a QSub The corporation may be subject to a penalty if it files a
election of the corporation was terminated. If “Yes,” see substitute Schedule K-1 that doesn't conform to the
Regulations section 1.1361-5 for additional information. specifications discussed in Pub. 1167, General Rules and
Specifications for Substitute Forms and Schedules.
For more information, see Pub. 1167.
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Shareholder's Pro Rata Share Items
Specific Instructions (Schedule K-1
General Rule
Only)
Items of income, gain, loss, deduction, or credit are allocated to
a shareholder on a daily basis, according to the number of General Information
shares of stock held by the shareholder on each day of the
corporation's tax year. See the detailed instructions for item G in Generally, the corporation is required to prepare and give a
Part II. Information About the Shareholder, later. Schedule K-1 to each person who was a shareholder in the
corporation at any time during the tax year. Schedule K-1 must
Shareholders who dispose of stock are treated as be provided to each shareholder on or before the day on which
shareholders for the day of their disposition. Shareholders who the corporation's Form 1120-S is required to be filed.
die are treated as shareholders for the day of their death.
How To Complete Schedule K-1
Special Rules
If the return is for a fiscal year or a short tax year, fill in the tax
Termination of shareholder's interest. If a shareholder year space at the top of each Schedule K-1. On each
terminates shareholder’s interest in a corporation during the tax Schedule K-1, enter the information about the corporation and
year, the corporation, with the consent of all affected the shareholder in Parts I and II (items A through I). In Part III,
shareholders (including those whose interest is terminated), may enter the shareholder's pro rata share of each item of income,
elect to allocate income and expenses, etc., as if the deduction, and credit and any other information the shareholder
corporation's tax year consisted of 2 separate tax years, the first needs to prepare the shareholder's tax return, including
of which ends on the date of the shareholder's termination. information needed to prepare state and local tax returns. Use
To make the election, the corporation must attach a 10-point Helvetica Light Standard font (if possible) for all entries
statement to a timely filed original or amended Form 1120-S for if you are typing or using a computer to complete Schedule K-1.
the tax year for which the election is made. In the statement, the Codes. In boxes 10, 12, 13, and boxes 15 through 17, identify
corporation must state that it is electing under section 1377(a)(2) each item by entering a code in the left column of the entry
and Regulations section 1.1377-1(b) to treat the tax year as if it space. These codes are identified in these instructions and on
consisted of 2 separate tax years. The statement must also the List of Codes in the Shareholder's Instructions for
explain how the shareholder's entire interest was terminated (for Schedule K-1 (Form 1120-S).
example, sale or gift), and state that the corporation and each
affected shareholder consent to the corporation making the Attached statements. When attaching statements to
election. A single statement may be filed for all terminating Schedule K-1 to report additional information to the shareholder,
elections made for the tax year. If the election is made, enter indicate there is a statement depending upon the following.
“Section 1377(a)(2) Election Made” at the top of each affected • If an amount can be input on Schedule K-1 but additional
shareholder's Schedule K-1. information is required so the shareholder can determine the
For more details, see Regulations section 1.1377-1(b). proper reporting, enter an asterisk (*) after the code in the left
column of the entry space.
Qualifying dispositions. If a qualifying disposition takes place • For items that can't be reported as a single dollar amount,
during the tax year, the corporation may make an irrevocable enter the code and asterisk (*) in the left column and enter
election to allocate income and expenses, etc., as if the “STMT” in the right column to indicate that the information is
corporation's tax year consisted of 2 tax years, the first of which provided on an attached statement.
ends on the close of the day the qualifying disposition occurs. • If the corporation has more coded items than the number of
A qualifying disposition is: entry boxes (for example, boxes 10, 12, 13, or boxes 15 through
1. A disposition by a shareholder of at least 20% of the 17), don't enter a code or dollar amount in the last box. Instead,
corporation's outstanding stock in one or more transactions in enter an asterisk (*) in the left column and enter “STMT” in the
any 30-day period during the tax year, entry space to the right.
2. A redemption treated as an exchange under section More than one attached statement can be placed on the
302(a) or 303(a) of at least 20% of the corporation's outstanding same sheet of paper. The information included in the statement
stock in one or more transactions in any 30-day period during should be identified in alphanumeric order by box number
the tax year, or followed by the letter code (if any), description, and dollar
amount. For example: “Box 13, code J—Work opportunity
3. An issuance of stock that equals at least 25% of the credit—$1,000.” This can be followed with any additional
previously outstanding stock to one or more new shareholders in information that the shareholder needs to determine the proper
any 30-day period during the tax year. tax treatment of the item.
To make the election, the corporation must attach a For electronically filed returns, the corporation must
statement to a timely filed original or amended Form 1120-S for ! follow the instructions for attached statements as
the tax year for which the election is made. In the statement, the CAUTION described in Pub. 4164 when reporting the additional
corporation must state that it is electing under Regulations information that may be required for each respective box. See
section 1.1368-1(g)(2)(i) to treat the tax year as if it consisted of Pub. 4164, Modernized e-File (MeF) Guide for Software
2 separate tax years, give the facts relating to the qualifying Developers and Transmitters, for more information.
disposition (for example, sale, gift, stock issuance, or
redemption), and state that each shareholder who held stock in
the corporation during the tax year consents to the election. A Special Reporting Requirements for At-Risk
single election statement may be filed for all qualifying Activities
disposition elections for the tax year.
For more details, see Regulations section 1.1368-1(g)(2). If items of income, loss, or deduction from more than one at-risk
activity are reported on Schedule K-1, the corporation must
provide its shareholders with separate information for each

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activity. See At-Risk Activity Reporting Requirements under corporation shareholder. An LLC that elects to be treated as a
At-Risk Limitations, earlier, for details. corporation for federal income tax purposes isn't eligible to be an
S corporation shareholder.
Special Reporting Requirements for Corporations
With Multiple Activities Item G

If items of income, loss, deduction, or credit from more than one Each shareholder's pro rata share items are figured separately
activity (determined for purposes of the passive activity loss and for each period on a daily basis, based on the percentage of
credit limitations) are reported on Schedule K-1, the corporation stock held by the shareholder on each day.
must provide information separately for each activity to its
shareholders. See Passive Activity Reporting Requirements, If there was no change in shareholders or in the relative
earlier, for details on the reporting requirements. interest in stock the shareholders owned during the tax year,
enter the percentage of total stock owned by each shareholder
Part I. Information About the Corporation during the tax year (current year allocation percentage). For
On each Schedule K-1, enter the corporation's name, address, example, if shareholders X and Y each owned 50% for the entire
and identifying number. tax year, enter 50% in item G for each shareholder. Each
shareholder's pro rata share items (boxes 1 through 17 of
Schedule K-1) are figured by multiplying the corresponding
Item C Schedule K amount by the percentage in item G.

If the corporation is filing its return electronically, enter “e-file.” If there was a change in shareholders or in the relative
Otherwise, enter the name of the IRS service center where the interest in stock the shareholders owned during the tax year,
corporation will file its return. See Where To File, earlier. figure the percentage as follows.
• Each shareholder's percentage of ownership is weighted for
Item D the number of days in the tax year that stock was owned. For
example, A and B each held 50% for half the tax year and A, B,
Report the total number of shares issued and outstanding at the and C held 40%, 40%, and 20%, respectively, for the remaining
beginning and end of the S corporation’s tax year. An entity half of the tax year. The percentage of ownership for the year for
without stock, such as an LLC, should enter the number of units A, B, and C is figured as presented in the illustration and is then
or other equivalent to S corporation stock. Round the number of entered in item G.
shares to the nearest whole number (but not below zero). For
example, round 0.6315 up to 1. a b c (a × b)
Part II. Information About the Shareholder % of total stock % of tax year held % of ownership for
owned the year
On each Schedule K-1, enter the shareholder's name, address,
identifying number, and percentage of stock ownership. A 50 50 25
40 50 +20 45
Truncating recipient's identification number on Sched-
ule K-1. The corporation can truncate a shareholder's B 50 50 25
identifying number on the Schedule K-1 the corporation sends to 40 50 +20 45
the shareholder. Truncation isn't allowed on the Schedule K-1 C 20 50 10 10
the corporation files with the IRS. Also, the corporation can't
truncate its own identification number on any form. Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100%
To truncate, where allowed, replace the first five digits of the
nine-digit number with asterisks (*) or Xs (for example, an SSN • Each shareholder's pro rata share items are generally figured
xxx-xx-xxxx would appear as ***-**-xxxx or XXX-XX-xxxx). For by multiplying the Schedule K amount by the percentage in item
more information, see Regulations section 301.6109-4. G. However, if a shareholder terminated the shareholder’s entire
interest in the corporation during the year or a qualifying
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
number of the person for whom the stock is held. Report the number of shares for purposes of allocating items of
income, loss, or deduction at the beginning and end of the S
If S corporation stock is part of a decedent's estate, the corporation’s tax year. An entity without stock, such as an LLC,
executor of the estate should notify the S corporation of the should enter the number of units or other equivalent to S
name and taxpayer identification number of the decedent's corporation stock (including ownership percentages). Round the
estate. See Pub. 559 for details. number of shares to the nearest whole number (but not below
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
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and B’s beginning of tax year number of shares is 50, while C’s line 17 of Form 4797 that is attributable to the sale, exchange, or
is 0, and the end of tax year number of shares for A and B is 40, involuntary conversion of an asset used in a rental activity other
while C’s is 20. than a rental real estate activity.

Item I Enter on line 3b the deductible expenses of the activity.
Attach a statement of these expenses to Form 1120-S.
Report the amount of debt owed by the S corporation directly to
the shareholder as of the beginning and end of the S Enter on line 3c the net income (loss).
corporation’s tax year. Generally, the amount reported on
Schedule L, line 19, Loans from shareholder, should reconcile to See Rental Activities, earlier, and Pub. 925, for more
the sum of all amounts reported on Schedules K 1. Do not ‐ information on rental activities.
include amounts for which the shareholder is a co borrower or ‐ Schedule K-1. Enter in box 3 of Schedule K-1 each
guarantor of corporate level debt. Also do not include any shareholder's pro rata share of other net rental income (loss)
intercompany debt. reported on line 3c of Schedule K. Identify on statements
attached to Schedule K-1 any additional information the
shareholder needs to correctly apply the passive activity
Specific Instructions (Schedules K limitations. For example, if the corporation has more than one
and K-1, Part III) rental activity reported in box 3, identify the amount from each
activity. See Passive Activity Reporting Requirements, earlier.
Income (Loss)
Reminder. Before entering income items on Schedule K or K-1, Portfolio Income
reduce each item of passive investment income (within the
meaning of section 1362(d)(3)(C)) by its proportionate share of See Portfolio Income, earlier, for a definition of portfolio income.
the net passive income tax (Form 1120-S, page 1, line 22a).
Don't reduce portfolio income by deductions allocated to it.
Report such deductions (other than interest expense) on
Line 1. Ordinary Business Income (Loss) line 12d of Schedule K. Report each shareholder's pro rata
share of deductions in box 12 of Schedule K-1 using codes I or
Enter the amount from Form 1120-S, page 1, line 21. Enter the L.
income (loss) without reference to the shareholder's:
• Basis in the stock of the corporation and in any indebtedness Interest expense allocable to portfolio income is generally
of the corporation to the shareholders (section 1366(d)), investment interest expense reported on line 12b of Schedule K.
• At-risk limitations, and Report each shareholder's pro rata share of interest expense
• Passive activity limitations. allocable to portfolio income in box 12 of Schedule K-1 using
code H.
These limitations, if applicable, are determined at the
shareholder level.
Line 4. Interest Income
Line 1 shouldn't include rental activity income (loss) or
portfolio income (loss). Enter only taxable portfolio interest on this line. Taxable interest
is interest from all sources except interest exempt from tax and
Schedule K-1. Enter each shareholder's pro rata share of interest on tax-free covenant bonds.
ordinary business income (loss) in box 1 of Schedule K-1.
Identify on statements attached to Schedule K-1 any additional Schedule K-1. Enter each shareholder's pro rata share of
information the shareholder needs to correctly apply the passive interest income in box 4 of Schedule K-1.
activity limitations. For example, if the corporation has more than
one trade or business activity, identify the amount from each Line 5a. Ordinary Dividends
activity. See Passive Activity Reporting Requirements, earlier.
Enter only taxable ordinary dividends on line 5a, including any
Line 2. Net Rental Real Estate Income (Loss) qualified dividends reported on line 5b. An S corporation that
directly or indirectly (through pass-through entities only) owns
Enter the net income (loss) from rental real estate activities of (within the meaning of section 958(a)) stock in a foreign
the corporation from Form 8825. Attach the form to Form corporation may have income inclusions (for example, subpart F
1120-S. income and GILTI inclusions) with respect to the foreign
corporation and, as a result, previously taxed earnings and
Schedule K-1. Enter each shareholder's pro rata share of net profits (PTEP) in annual PTEP accounts with respect to the
rental real estate income (loss) in box 2 of Schedule K-1. Identify foreign corporation. Do not include ordinary dividends or
on statements attached to Schedule K-1 any additional qualified dividends received from a foreign corporation to the
information the shareholder needs to correctly apply the passive extent that they are attributable to PTEP in annual PTEP
activity limitations. For example, if the corporation has more than accounts of the S corporation with respect to the foreign
one rental real estate activity, identify the amount from each corporation. See Notice 2019-01. The amount by which ordinary
activity. Also, for example, identify certain items from any rental dividends and qualified dividends are attributable to PTEP in
real estate activities that may be subject to the annual PTEP accounts of a person other than the S corporation
recharacterization rules. See Passive Activity Reporting (for example, a shareholder) is not relevant for purposes of
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).

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Schedule K-1. Enter each shareholder's pro rata share of (defined in section 1297) in either the tax year of the distribution
ordinary dividends in box 5a of Schedule K-1. or the preceding tax year.
See Notice 2004-71, 2004-45 I.R.B. 793, and Notice 2006-3,
Line 5b. Qualified Dividends 2006-3 I.R.B. 306, for more details.
Schedule K-1. Enter each shareholder's pro rata share of
Enter qualified dividends on line 5b. Except as provided below, qualified dividends in box 5b of Schedule K-1.
qualified dividends are dividends received from domestic
corporations and qualified foreign corporations. Do not include If any amounts from line 5b are from foreign sources,
qualified dividends to the extent that they are attributable to ! see the instructions for Schedule K-2 (Form 1120-S) and
PTEP in annual PTEP accounts of the S corporation. See Notice CAUTION Schedule K-3 (Form 1120-S).
2019-01. The amount by which qualified dividends are
attributable to PTEP in annual PTEP accounts of a person other Line 6. Royalties
than the S corporation (for example, a shareholder) is not
relevant for purposes of determining the qualified dividends to
Enter the royalties received by the corporation.
be entered on line 5b.
Schedule K-1. Enter each shareholder's pro rata share of
Note. An annual PTEP account of the S corporation is different royalties in box 6 of Schedule K-1.
than the shareholders’ undistributed taxable income previously
taxed account, as discussed in the instructions to Schedule M-2,
Line 7. Net Short-Term Capital Gain (Loss)
column (b).
Exceptions. The following dividends aren't qualified dividends. Enter the gain (loss) that is portfolio income (loss) from
• Dividends the corporation received on any share of stock held Schedule D (Form 1120-S), line 7.
for less than 61 days during the 121-day period that began 60
days before the ex-dividend date. When determining the number Schedule K-1. Enter each shareholder's pro rata share of net
of days the corporation held the stock, don't count certain days short-term capital gain (loss) in box 7 of Schedule K-1.
during which the corporation's risk of loss was diminished. The
ex-dividend date is the first date following the declaration of a Line 8a. Net Long-Term Capital Gain (Loss)
dividend on which the purchaser of a stock isn't entitled to
receive the next dividend payment. When counting the number Enter the gain or loss that is portfolio income (loss) from
of days the corporation held the stock, include the day the Schedule D (Form 1120-S), line 15.
corporation disposed of the stock but not the day the corporation Schedule K-1. Enter each shareholder's pro rata share of net
acquired it. long-term capital gain (loss) in box 8a of Schedule K-1.
• Dividends attributable to periods totaling more than 366 days
that the corporation received on any share of preferred stock If any gain or loss from line 7 or 15 of Schedule D is from
held for less than 91 days during the 181-day period that began ! the disposition of nondepreciable personal property
90 days before the ex-dividend date. When determining the CAUTION used in a trade or business, it may not be treated as
number of days the corporation held the stock, don't count portfolio income. Instead, report it on line 10 of Schedule K and
certain days during which the corporation's risk of loss was report each shareholder's pro rata share in box 10 of
diminished. Preferred dividends attributable to periods totaling Schedule K-1 using code H.
less than 367 days are subject to the 61-day holding period rule
above.
• Dividends that relate to payments that the corporation is Line 8b. Collectibles (28%) Gain (Loss)
obligated to make with respect to short sales or positions in
substantially similar or related property. Figure the amount attributable to collectibles from the amount
• Dividends paid by a regulated investment company that aren't reported on Schedule D (Form 1120-S), line 15. A collectibles
treated as qualified dividend income under section 854. gain (loss) is any long-term gain or deductible long-term loss
• Dividends paid by a real estate investment trust that aren't from the sale or exchange of a collectible that is a capital asset.
treated as qualified dividend income under section 857(c).
Collectibles include works of art, rugs, antiques, metal (such
See Pub. 550, Investment Income and Expenses, for more as gold, silver, or platinum bullion), gems, stamps, coins,
details. 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 possession of the United States, or an interest in a partnership or trust held for more than 1 year and
attributable to unrealized appreciation of collectibles. For details,
2. Eligible for benefits of a comprehensive income tax treaty see Regulations section 1.1(h)-1. Also attach the statement
with the United States that the Secretary determines is required under Regulations section 1.1(h)-1(e).
satisfactory for this purpose and that includes an exchange of
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 Line 8c. Unrecaptured Section 1250 Gain
dividend paid by the corporation if the stock associated with the
dividend paid is readily tradable on an established securities The three types of unrecaptured section 1250 gain must be
market in the 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
section 1250 property (except property for which gain is reported
using the installment method on Form 6252) for which you had
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an entry in Part I of Form 4797. Subtract line 26g of Form 4797 (box 10, code B, of Schedule K-1). See the instructions for
from the smaller of line 22 or line 24. Figure the total of these line 10 on how to report net gain from involuntary conversions.
amounts for all section 1250 properties. Generally, the result is
Schedule K-1. Report each shareholder's pro rata share of net
the corporation's unrecaptured section 1250 gain. However, if
section 1231 gain (loss) in box 9 of Schedule K-1. If the
the corporation is reporting gain on the installment method for a
corporation has more than one rental, trade, or business activity,
section 1250 property held more than 1 year, see the next
identify on an attachment to Schedule K-1 the amount of section
paragraph.
1231 gain (loss) from each separate activity. See Passive
The total unrecaptured section 1250 gain for an installment Activity Reporting Requirements, earlier.
sale of section 1250 property held more than 1 year is figured in
a manner similar to that used in the preceding paragraph. If any amounts from line 9 are from foreign sources, see
However, the total unrecaptured section 1250 gain must be ! the instructions for Schedule K-2 (Form 1120-S) and
allocated to the installment payments received from the sale. To CAUTION Schedule K-3 (Form 1120-S).
do so, the corporation must generally treat the gain allocable to
each installment payment as unrecaptured section 1250 gain
until all such gain has been used in full. Figure the unrecaptured Line 10. Other Income (Loss)
section 1250 gain for installment payments received during the
tax year as the smaller of (a) the amount from line 26 or line 37 of Enter any other item of income or loss not included on lines 1
Form 6252 (whichever applies), or (b) the total unrecaptured through 9. On the line to the left of the entry space for line 10,
section 1250 gain for the sale reduced by all gain reported in identify the type of income. If there is more than one type of
prior years (excluding section 1250 ordinary income recapture). income, attach a statement to Form 1120-S that separately
identifies each type and amount of income for each of the
If the corporation chose not to treat all of the gain from following categories. The codes needed for Schedule K-1
! payments received after May 6, 1997, and before reporting are provided for each category.
CAUTION August 24, 1999, as unrecaptured section 1250 gain,
use only the amount the corporation chose to treat as Other portfolio income (loss) (code A). Portfolio income not
unrecaptured section 1250 gain for those payments to reduce reported on lines 4 through 8.
the total unrecaptured section 1250 gain remaining to be Report and identify other portfolio income or loss on an
reported for the sale. See Regulations section 1.453-12. attachment for line 10.
If the corporation holds a residual interest in a Real Estate
From the sale or exchange of an interest in a partnership. Mortgage Investment Conduit (REMIC), report on an attachment
Also report as a separate amount any gain from the sale or the shareholder's share of the following.
exchange of an interest in a partnership attributable to • Taxable income (net loss) from the REMIC (line 1b of
unrecaptured section 1250 gain. See Regulations section Schedules Q (Form 1066)).
1.1(h)-1 and attach the statement required under Regulations • Excess inclusion (line 2c of Schedules Q (Form 1066)).
section 1.1(h)-1(e). • Section 212 expenses (line 3b of Schedules Q (Form 1066)).
From an estate, trust, REIT, or RIC. If the corporation Because Schedule Q (Form 1066) is a quarterly statement,
received a Schedule K-1 or Form 1099-DIV from an estate, a the corporation must follow the Schedule Q instructions to figure
trust, a real estate investment trust (REIT), or a regulated the amounts to report to shareholders for the corporation's tax
investment company (RIC) reporting “unrecaptured section 1250 year.
gain,” don't add it to the corporation's own unrecaptured section
1250 gain. Instead, report it as a separate amount. For example, Involuntary conversions (code B). Report net loss from
if the corporation received a Form 1099-DIV from a REIT with involuntary conversions due to casualty or theft. The amount for
unrecaptured section 1250 gain, report it as “Unrecaptured this item is shown on Form 4684, Casualties and Thefts, line 38a
section 1250 gain from a REIT.” or 38b.
Each shareholder's pro rata share must be entered on
Schedule K-1. Report each shareholder's pro rata share of Schedule K-1.
unrecaptured section 1250 gain from the sale or exchange of the
corporation's business assets in box 8c of Schedule K-1. If the Enter the net gain from involuntary conversions of property
corporation is reporting unrecaptured section 1250 gain from an used in a trade or business (line 39 of Form 4684) on line 3 of
estate, trust, REIT, or RIC, or from the corporation's sale or Form 4797.
exchange of an interest in a partnership (as explained above), If there was a gain (loss) from a casualty or theft to property
enter “STMT” in box 8c and an asterisk (*) in the left column of not used in a trade or business or for income-producing
the box and attach a statement that separately identifies the purposes, notify the shareholder. The corporation shouldn't
amount of unrecaptured section 1250 gain from: complete Form 4684 for this type of casualty or theft. Instead,
• The sale or exchange of the corporation's business assets; each shareholder will complete the shareholder's own Form
• The sale or exchange of an interest in a partnership; and 4684.
• An estate, trust, REIT, or RIC. Section 1256 contracts and straddles (code C). Report any
If any amounts from line 8c are from foreign sources, net gain or loss from section 1256 contracts from Form 6781,
Gains and Losses From Section 1256 Contracts and Straddles.
! see the instructions for Schedule K-2 (Form 1120-S) and
CAUTION Schedule K-3 (Form 1120-S).
Mining exploration costs recapture (code D). Provide the
information shareholders need to recapture certain mining
Line 9. Net Section 1231 Gain (Loss) exploration expenditures. See Regulations section 1.617-3.
Section 951A(a) income inclusions (code E). If the S
Enter the net section 1231 gain (loss) from Form 4797, line 7. corporation elected to be treated as owning stock of a CFC
within the meaning of section 958(a) under Proposed
Don't include net gain or loss from involuntary conversions Regulations section 1.958-1(e)(2), and the S corporation is a
due to casualty or theft. Report net loss from involuntary U.S. shareholder of a CFC, then the S corporation determines its
conversions due to casualty or theft on line 10 of Schedule K section 951A inclusion amount. Report the corporation's section
951A inclusion and its shareholders' pro rata shares of the

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section 951A inclusions using code E. See Form 8992, Part II,          as a distribution); (c) the shareholder's share of the corporation's 
line 5.                                                                adjusted basis in the property (except for oil or gas properties); 
                                                                       and (d) total intangible drilling costs, development costs, and 
        Provide information on line 10 using code E only if the 
                                                                       mining exploration costs (section 59(e) expenditures) passed 
  !     corporation (and its shareholders, if applicable) has          through to the shareholder for the property. See Regulations 
CAUTION elected to be treated as owning stock of a foreign 
                                                                       section 1.1254-4 for more information.
corporation within the meaning of section 958(a) under 
Proposed Regulations section 1.958-1(e)(2). If no election has         • Gain from the sale or exchange of qualified small business 
                                                                       (QSB) stock (as defined in the Instructions for Schedule D) that 
been made under the Notice, see instructions for Part V of the 
                                                                       is eligible for the section 1202 exclusion. The section 1202 
Schedule K-2 (Form 1120-S).
                                                                       exclusion applies only to QSB stock held by the corporation for 
Inclusions of subpart F income (code F).     The S corporation         more than 5 years. Additional limitations apply at the 
should report its subpart F income inclusions and its                  shareholder level. Report each shareholder's share of section 
shareholders’ pro rata shares of its subpart F income inclusions.      1202 gain on Schedule K-1. Each shareholder will determine if 
An S corporation does not have subpart F income inclusions             he or she qualifies for the exclusion. Report on an attachment to 
with respect to a foreign corporation for tax years of the foreign     Schedule K-1 for each sale or exchange (a) the name of the 
corporation beginning on or after January 25, 2022, under              corporation that issued the QSB stock, (b) the shareholder's pro 
Regulations section 1.958-1(d)(1) if the S corporation did not         rata share of the corporation's adjusted basis and sales price of 
make an election to be treated as owning stock of the foreign          the QSB stock, and (c) the dates the QSB stock was bought and 
corporation within the meaning of section 958(a) under                 sold.
Proposed Regulations section 1.958-1(e)(2). An S corporation           • Gain eligible for section 1045 rollover (replacement stock 
does not have subpart F income inclusions with respect to a            purchased by the corporation). Include only gain from the sale or 
foreign corporation for tax years of the foreign corporation           exchange of QSB stock (as defined in the Instructions for 
beginning before January 25, 2022, if the S corporation did not        Schedule D) that was deferred by the corporation under section 
make an election to be treated as owning stock of a foreign            1045 and reported on Schedule D. See the Instructions for 
corporation within the meaning of section 958(a) under                 Schedule D for more details. Additional limitations apply at the 
Proposed Regulations section 1.958-1(e)(2) and, pursuant to            shareholder level. Report each shareholder's share of the gain 
Regulations section 1.958-1(d)(4)(i), applies Regulations section      eligible for section 1045 rollover on Schedule K-1. Each 
1.958-1(d)(1) through (3) to such tax years.                           shareholder will determine if he or she qualifies for the rollover. 
                                                                       Report on an attachment to Schedule K-1 for each sale or 
Section 951(a)(1)(B) inclusions (code G).    The S corporation         exchange (a) the name of the corporation that issued the QSB 
should report its section 951(a)(1)(B) inclusions and its              stock, (b) the shareholder's pro rata share of the corporation's 
shareholders’ pro rata shares of its section 951(a)(1)(B)              adjusted basis and sales price of the QSB stock, and (c) the 
inclusions. An S corporation does not have section 951(a)(1)(B)        dates the QSB stock was bought and sold.
inclusions with respect to a foreign corporation for tax years of      • Gain eligible for section 1045 rollover (replacement stock not 
the foreign corporation beginning on or after January 25, 2022,        purchased by the corporation). Include only gain from the sale or 
under Regulations section 1.958-1(d)(1) if the S corporation did       exchange of QSB stock (as defined in the Instructions for 
not make an election to be treated as owning stock of the foreign      Schedule D) the corporation held for more than 6 months but 
corporation within the meaning of section 958(a) under                 that wasn't deferred by the corporation under section 1045. See 
Proposed Regulations section 1.958-1(e)(2). An S corporation           the Instructions for Schedule D for more details. A shareholder 
does not have section 951(a)(1)(B) inclusions with respect to a        may be eligible to defer the shareholder’s pro rata share of this 
foreign corporation for tax years of the foreign corporation           gain under section 1045 if he or she purchases other QSB stock 
beginning before January 25, 2022, if the S corporation did not        during the 60-day period that began on the date the QSB stock 
make an election to be treated as owning stock of a foreign            was sold by the corporation. Additional limitations apply at the 
corporation within the meaning of section 958(a) under                 shareholder level. Report on an attachment to Schedule K-1 for 
Proposed Regulations section 1.958-1(e)(2) and, pursuant to            each sale or exchange (a) the name of the corporation that 
Regulations section 1.958-1(d)(4)(i), applies Regulations section      issued the QSB stock, (b) the shareholder's pro rata share of the 
1.958-1(d)(1) through (3) to such tax years.                           corporation's adjusted basis and sales price of the QSB stock, 
        If the corporation does not have subpart F income              and (c) the dates the QSB stock was bought and sold.
                                                                       • Any gain or loss from line 7 or 15 of Schedule D that isn't 
  !     inclusions or section 951(a)(1)(B) inclusions with respect     portfolio income (for example, gain or loss from the disposition of 
CAUTION to a foreign corporation, stock of which it owns within the 
meaning of section 958(a) and without regard to Regulations            nondepreciable personal property used in a trade or business).
section 1.958-1(d), see instructions for Part V of the                 • Amounts related to the forgiveness of PPP loans are 
Schedule K-2 (Form 1120-S) for reporting of information related        disregarded for purposes of this line.
to subpart F income inclusions and section 951(a)(1)(B)                Schedule K-1. Enter each shareholder's pro rata share of the 
inclusions of shareholders with respect to the foreign                 other income categories listed above in box 10 of Schedule K-1. 
corporation.                                                           Enter the applicable code A, B, C, D, E, F, G, or H (as shown 
                                                                       earlier).
Other income (loss) (code H).  Include any other type of                 If you are reporting each shareholder's pro rata share of only 
income, such as the following.                                         one type of income under code H, enter the code with an 
• Recoveries of tax benefit items (section 111).                       asterisk (H*) and the dollar amount in the entry space in box 10 
• Gambling gains and losses subject to the limitations in section      and attach a statement that shows “Box 10, code H,” and the 
165(d). Indicate on an attached statement whether or not the           type of income. If you are reporting multiple types of income 
corporation is in the trade or business of gambling.                   under code H, enter the code with an asterisk (H*) and enter 
• Disposition of an interest in oil, gas, geothermal, or other         “STMT” in the entry space in box 10 and attach a statement that 
mineral properties. Report the following information on a              shows “Box 10, code H,” and the dollar amount of each type of 
statement attached to Schedule K-1: (a) a description of the           income.
property; (b) the shareholder's share of the amount realized on 
the sale, exchange, or involuntary conversion of each property           If the corporation has more than one trade or business or 
(fair market value of the property for any other disposition, such     rental activity (for codes B through H), identify on an attachment 

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to Schedule K-1 the amount from each separate activity. See for information on adjusted gross income (AGI) limitations on
Passive Activity Reporting Requirements, earlier. deductions for charitable contributions.

Deductions The codes needed for Schedule K-1 reporting are provided
for each category.
Line 11. Section 179 Deduction Cash contributions (60%) (code A). Enter cash contributions
subject to the 60% AGI limitation.
A corporation can elect to expense part or all of the cost of
Cash contributions (30%) (code B). Enter cash contributions
certain property the corporation purchased during the tax year
subject to the 30% AGI limitation.
for use in its trade or business or certain rental activities. See
Pub. 946 for a definition of what kind of property qualifies for the Noncash contributions (50%) (code C). Enter noncash
section 179 expense deduction and the Instructions for Form contributions subject to the 50% AGI limitation. Don't include
4562 for limitations on the amount of the section 179 expense food inventory contributions reported separately on an attached
deduction. statement.
Food inventory contributions. Provide the following
Complete Part I of Form 4562 to figure the corporation's information on a statement attached to Schedule K-1.
section 179 expense deduction. The corporation doesn't take • The shareholder's pro rata share of the amount of the
the deduction itself, but instead passes it through to the charitable contributions under section 170(e)(3) for qualified
shareholders. Attach Form 4562 to Form 1120-S and show the food inventory that was donated to charitable organizations for
total section 179 expense deduction on Schedule K, line 11. the care of the ill, needy, and infants. The food must meet all the
quality and labeling standards imposed by federal, state, and
Although the corporation can't take the section 179 local laws and regulations. The charitable contribution for
deduction, it must generally still reduce the basis of the asset by donated food inventory is the lesser of (a) the basis of the
the amount of the section 179 deduction it elected, regardless of donated food plus half of the appreciation (gain if the donated
whether any shareholder can use the deduction. However, the food were sold at fair market value (FMV) on the date of the gift),
corporation doesn't reduce the basis for any section 179 or (b) twice the basis of the donated food. The aggregate
deduction allocable to a trust or estate because they aren't amount of such contributions shall not exceed 15% of the
eligible to take the section 179 deduction. See Regulations taxpayer's aggregate net income from all trades or businesses
section 1.179-1(f). from which such contributions were made. A corporation that
doesn’t account for inventories and isn’t required to capitalize
See the instructions for line 17d of Schedule K for sales or indirect costs under section 263A may elect to treat the basis of
other dispositions of property for which a section 179 deduction the donated food as equal to 25% of the FMV of the food. See
has passed through to shareholders and for the recapture rules if section 170(e)(3)(C) for more details.
the business use of the property dropped to 50% or less. • The shareholder's pro rata share of the net income for the tax
Schedule K-1. Report each shareholder's pro rata share of the year from the corporation's trades or businesses that made the
section 179 expense deduction in box 11 of Schedule K-1. contributions of food inventory.
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
AGI limit for qualified conservation contributions of property used
Don't complete box 11 of Schedule K-1 for any shareholder in agriculture or livestock production (or available for such
that is an estate or trust; estates and trusts aren't eligible for the production) is 100%. The carryover period is 15 tax years. See
section 179 expense deduction. section 170(b) and Notice 2007-50, 2007-25 I.R.B. 1430, for
details. Report qualified conservation contributions with a 50%
Line 12a. Charitable Contributions 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.
receipt. Noncash contributions (30%) (code D). Enter noncash
contributions subject to the 30% AGI limitation.
Generally, no deduction is allowed for any contribution of
$250 or more unless the corporation obtains a written Capital gain property to a 50% limit organization (30%)
acknowledgment from the charitable organization that shows the (code E). Enter capital gain property contributions subject to
amount of cash contributed, describes any property contributed, the 30% AGI limitation.
and gives an estimate of the value of any goods or services Capital gain property (20%) (code F). Enter capital gain
provided in return for the contribution or states that no goods or property contributions subject to the 20% AGI limitation.
services were provided. The acknowledgment must be obtained
by the due date (including extensions) of the corporation's Contributions of property. See Contributions of Property in
return, or, if earlier, the date the return is filed. Don't attach the Pub. 526 and Pub. 561, Determining the Value of Donated
acknowledgment to the tax return, but keep it with the Property, for information on noncash contributions and
corporation's records. These rules apply in addition to the filing contributions of capital gain property. If the deduction claimed for
requirements for Form 8283, Noncash Charitable Contributions, noncash contributions exceeds $500, complete Form 8283 and
described under Contributions of property, later. attach it to Form 1120-S.
Shareholders can deduct their pro rata share of the FMV of
Enter charitable contributions made during the tax year. property contributions, but will only need to adjust their stock
Attach a statement to Form 1120-S that separately identifies the basis by their pro rata share of the property's adjusted basis.
corporation's contributions for each of the following categories. Give each shareholder a statement identifying their pro rata
See Limits on Deductions in Pub. 526, Charitable Contributions, share of both the FMV and adjusted basis of the property.

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If the corporation made a qualified conservation contribution Line 12c. Section 59(e)(2) Expenditures
under section 170(h), also include the FMV of the underlying
property before and after the donation, as well as the type of Generally, section 59(e) allows each shareholder to make an
legal interest contributed, and describe the conservation election to deduct their pro rata share of the corporation's
purpose furthered by the donation. Give a copy of this otherwise deductible qualified expenditures ratably over 10
information to each shareholder. years (3 years for circulation expenditures). The deduction is
If the corporation made a contribution of real property located taken beginning with the tax year in which the expenditures were
in a registered historic district, restrictions apply. Generally, no made (or for intangible drilling and development costs, over the
deductions are allowed for structures or land (deductions are 60-month period beginning with the month in which such costs
only allowed for buildings), and the charitable contribution may were paid or incurred).
be reduced if rehabilitation credits were claimed for the building.
A $500 filing fee may apply to certain deductions over $10,000. The term “qualified expenditures” includes only the following
See Pub. 526 for details. types of expenditures paid or incurred during the tax year.
Nondeductible contributions. Certain contributions made to • Circulation expenditures.
an organization conducting lobbying activities aren't deductible. • Research and experimental expenditures.
See section 170(f)(9) for more details. Also see Contributions • Intangible drilling and development costs.
You Can’t Deduct in Pub. 526 for more examples of • Mining exploration and development costs.
nondeductible contributions.
If a shareholder makes the election, these items aren't treated
An accrual basis S corporation can't elect to treat a as alternative minimum tax (AMT) tax preference items.
! contribution as having been paid in the tax year the
CAUTION board of directors authorizes the payment if the
Because the shareholders make this election, the corporation
contribution isn't actually paid until the next tax year. can't deduct these amounts or include them as AMT items on
Schedule K-1. Instead, the corporation passes through the
Contributions (100%) (code G). If the corporation is a information the shareholders need to figure their separate
qualified farmer or rancher (farm income is more than 50% of deductions.
gross income), attach a statement to Schedule K-1 that shows
the shareholder's pro rata share of qualified conservation
On the dotted line to the left of the entry space for line 12c,
contributions of property used in agriculture or livestock
enter the type of expenditures claimed on line 12c. Enter on
production (or available for such production). Don’t include these
line 12c the qualified expenditures paid or incurred during the tax
contributions in the amounts reported in box 12 of Schedule K-1
year for which a shareholder may make an election under
because shareholders must separately determine if they qualify
section 59(e). Enter this amount for all shareholders whether or
for the 50% or 100% AGI limitation for these contributions. The
not any shareholder makes an election under section 59(e).
contribution must be subject to a restriction that the property
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.
• The type of expenditure.
Line 12b. Investment Interest Expense • The property for which the expenditures are paid or incurred.
• For oil and gas properties only, the month in which intangible
Include on this line the interest properly allocable to debt on drilling costs and development costs were paid or incurred.
property held for investment purposes. Property held for
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 Line 12d. Other Deductions
allocable to a passive activity.
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.
Code K. Reserved for future use.
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Deductions—Portfolio (other) (code L). Enter any other theatrical performance commences on the date of its first public
deductions related to portfolio income. performance for a paying audience. Provide a description of the
film, television, or live theatrical production on an attached
No deduction is allowed under section 212 for expenses statement. If the corporation makes the election for more than
allocable to a convention, seminar, or similar meeting. Because one production, attach a statement to Schedule K-1 that shows
these expenses aren't deductible by shareholders, the each shareholder's pro rata share of the qualified expenditures
corporation doesn't report these expenses on line 12d of separately for each production. The deduction is subject to
Schedule K. The expenses are nondeductible and are reported recapture under section 1245 if the election is voluntarily
as such on line 16c of Schedule K and in box 16 of Schedule K-1 revoked or the production fails to meet the requirements for the
using code C. deduction. See section 181 and the related regulations.
Preproductive period expenses (code M). If the corporation Schedule K-1. Enter each shareholder's pro rata share of the
is required to use an accrual method of accounting under section deduction categories listed above in box 12 of Schedule K-1 or
448(a)(3), it must capitalize these expenses. If the corporation is provide the required information on an attached statement. Enter
permitted to use the cash method, enter the amount of the applicable code shown above.
preproductive period expenses that qualify under section
263A(d). An election not to capitalize these expenses must be If you are reporting only one type of deduction under code S,
made at the shareholder level. See Uniform Capitalization Rules enter code S with an asterisk (S*) and the dollar amount in the
in Pub. 225. entry space in box 12 and attach a statement that shows the box
number, code, and type of deduction. If you are reporting
Code N. Reserved for future use. multiple types of deductions under code S, enter the code with
Reforestation expense deduction (code O). The corporation an asterisk (S*), enter “STMT” in the dollar amount entry space
can elect to deduct a limited amount of its reforestation in box 12, and attach a statement that shows the box number,
expenditures paid or incurred during the tax year. The amount code, and dollar amount of each type of deduction.
the corporation can elect to deduct is limited to $10,000 for each If the corporation has more than one trade or business
qualified timber property. See section 194(c) for a definition of activity, identify on an attachment to Schedule K-1 the amount
reforestation expenditures and qualified timber property. See for each separate activity. See Passive Activity Reporting
Notice 2006-47, 2006-20 I.R.B. 892, for details on making the Requirements, earlier.
election. The corporation must amortize over 84 months any
amount not deducted. See Reforestation expenditures, earlier. Credits
Schedule K-1. Enter the shareholder's pro rata share of Don't attach Form 3800, General Business Credit, to
allowable reforestation expense in box 12 of Schedule K-1 using TIP Form 1120-S.
code O and attach a statement that provides a description of the
qualified timber property. If the corporation is electing to deduct
amounts from more than one qualified timber property, provide a
description and the amount for each property. Low-Income Housing Credit
Codes P through R. Reserved for future use. Section 42 provides a credit that can be claimed by owners of
Other deductions (code S). Include any other deductions, low-income residential rental buildings. To qualify for the credit,
such as the following. the corporation must file Form 8609, Low-Income Housing
• Amounts paid by the corporation that would be allowed as Credit Allocation and Certification, separately with the IRS. Don't
itemized deductions on any of the shareholders' income tax attach Form 8609 to Form 1120-S. Complete and attach Form
returns if they were paid directly by a shareholder for the same 8586, Low-Income Housing Credit, and Form 8609-A, Annual
purpose. These amounts include, but aren't limited to, expenses Statement for Low-Income Housing Credit, to Form 1120-S.
under section 212 for the production of income other than from Codes A and B. Reserved for future use.
the corporation's trade or business. However, don't enter
expenses related to portfolio income or investment interest
expense reported on line 12b of Schedule K on this line. Line 13a. Low-Income Housing Credit (Section
• Soil and water conservation expenditures (section 175). See 42(j)(5))
Pub. 225.
• Endangered species recovery expenditures (section 175). If the corporation invested in a partnership to which the
• Expenditures paid or incurred for the removal of architectural provisions of section 42(j)(5) apply, report on line 13a the credit
and transportation barriers to the elderly and disabled that the reported to the corporation in box 15 of Schedule K-1 (Form
corporation has elected to treat as a current expense. See 1065) using code C.
section 190. Schedule K-1. Report in box 13 of Schedule K-1 each
• Interest expense allocated to debt-financed distributions. See shareholder's pro rata share of the low-income housing credit
Notice 89-35, 1989-1 C.B. 675, or Pub. 535, chapter 4, for more reported on line 13a of Schedule K. Use code C to report the
information. portion of the credit attributable to buildings placed in service
• Contributions to a capital construction fund. See Pub. 595, after 2007. If the corporation has credits from more than one
Capital Construction Fund for Commercial Fishermen. activity, identify on an attachment to Schedule K-1 the amount
• Any penalty on early withdrawal of savings because the for each separate activity. See Passive Activity Reporting
corporation withdrew funds from its time savings deposit before Requirements, earlier.
its maturity.
• Film, television, and live theatrical production expenses. The
corporation can elect to deduct certain costs of a qualified film, Line 13b. Low-Income Housing Credit (Other)
television, or live theatrical production commencing before
January 1, 2026 (after December 31, 2015, and before January Report on line 13b any low-income housing credit not reported
1, 2026, for a live theatrical production), limited to $15 million of on line 13a. This includes any credit reported to the corporation
the aggregate production cost of the production. There is a in box 15 of Schedule K-1 (Form 1065) using code D.
higher dollar limitation for productions in certain areas. A live

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Schedule K-1. Report in box 13 of Schedule K-1 each Schedule K-1. Report in box 13 of Schedule K-1 each
shareholder's pro rata share of the low-income housing credit shareholder's pro rata share of other rental credits using code G.
reported on line 13b of Schedule K. Use code D to report the If you are reporting each shareholder's pro rata share of only one
portion of the credit attributable to buildings placed in service type of rental credit under code G, enter the code with an
after 2007. If the corporation has credits from more than one asterisk (G*) and the dollar amount in the entry space in box 13
rental activity, identify on an attachment to Schedule K-1 the and attach a statement that shows “Box 13, code G” and the
amount for each separate activity. See Passive Activity type of credit. If you are reporting multiple types of rental credit
Reporting Requirements, earlier. 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
Line 13c. Qualified Rehabilitation Expenditures shows “Box 13, code G” and the dollar amount of each type of
credit. If the corporation has credits from more than one rental
(Rental Real Estate) 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 on lines 11b through 11g of Form 3468, Investment in the corporation's income on line 5 of Form 1120-S.
Credit. See the Instructions for Form 3468 for details. If the
corporation has expenditures from more than one rental real See section 40(f) for an election the corporation can make to
estate activity, identify on an attachment to Schedule K-1 the have the credit not apply.
information and amounts for each separate activity. See Passive Schedule K-1. Report in box 13 of Schedule K-1 each
Activity 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
from more than one activity, identify on an attachment to
CAUTION box 17 using code C.
! related to rental real estate activities must be reported in 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 23c 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 Undistributed capital gains credit (code H). This credit
share of only one type of rental real estate credit under code F, represents taxes paid on undistributed capital gains by a
enter the code with an asterisk (F*) and the dollar amount in the regulated investment company (RIC) or a real estate investment
entry space in box 13 and attach a statement that shows “Box trust (REIT). As a shareholder of a RIC or REIT, the corporation
13, code F” and the type of credit. If you are reporting multiple will receive notice of the amount of tax paid on undistributed
types of rental real estate credit under code F, enter the code capital gains on Form 2439, Notice to Shareholder of
with an asterisk (F*) and enter “STMT” in the entry space in Undistributed Long-Term Capital Gains.
box 13 and attach a statement that shows “Box 13, code F” and
the dollar amount of each type of credit. If the corporation has Work opportunity credit (code J). Complete Form 5884 to
credits from more than one rental real estate activity, identify on figure the credit. Attach it to Form 1120-S.
the attached statement the amount of each type of credit for Disabled access credit (code K). Complete Form 8826 to
each separate activity. See Passive Activity Reporting figure the credit. Attach it to Form 1120-S.
Requirements, earlier.
Empowerment zone employment credit (code L). Complete
Form 8844 to figure the credit. Attach it to Form 1120-S.
Line 13e. Other Rental Credits
Credit for increasing research activities (code M).
Enter on line 13e any other credit (other than credits reported on Complete Form 6765 to figure the credit. Attach it to Form
lines 13a through 13d) related to rental activities. On the dotted 1120-S. For more information, see the Instructions for Form
line to the left of the entry space for line 13e, identify the type of 6765.
credit. If there is more than one type of credit, attach a statement
to Form 1120-S that identifies the type and amount for each
credit. These credits may include any type of credit listed in the
instructions for line 13g.
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The corporation should provide the information • New clean renewable energy bond credit (Form 8912). The
TIP necessary for the shareholder to determine whether the amount of this credit (excluding any credits from partnerships,
corporation is an eligible small business under section estates, and trusts) is reported as interest income on line 4 of
38(c)(5)(A). If the shareholder and the corporation meet the Schedule K. In addition, the amount of this credit is reported as a
requirements of section 38(c)(5)(A), the research credit may be property distribution on line 16d of Schedule K.
treated as a specified credit. • Qualified energy conservation bond credit (Form 8912). The
amount of this credit (excluding any credits from partnerships,
Credit for employer social security and Medicare taxes estates, and trusts) is reported as interest income on line 4 of
paid on certain employee tips (code N). Complete Form Schedule K. In addition, the amount of this credit is reported as a
8846 to figure the credit. Attach it to Form 1120-S. property distribution on line 16d of Schedule K.
Backup withholding (code O). This credit is for backup • Qualified zone academy bond credit (for bonds issued after
withholding on dividends, interest, and other types of income of October 3, 2008) (Form 8912). The amount of this credit
the corporation. (excluding any credits from partnerships, estates, and trusts) is
reported as interest income on line 4 of Schedule K. In addition,
Other credits (code P). Attach a statement to Form 1120-S the amount of this credit is reported as a property distribution on
that identifies the type and amount of any other credits not line 16d of Schedule K.
reported elsewhere. Complete the credit form identified below • Qualified school construction bond credit (Form 8912). The
and attach it to Form 1120-S. amount of this credit (excluding any credits from partnerships,
• Unused investment credit from the qualifying advanced coal estates, and trusts) is reported as interest income on line 4 of
project credit, qualifying gasification project credit, qualifying Schedule K. In addition, the amount of this credit is reported as a
advanced energy project credit, or advanced manufacturing property distribution on line 16d of Schedule K.
investment credit allocated from cooperatives. • Build America bond credit (Form 8912). The amount of this
• Unused investment credit from the rehabilitation credit or credit (excluding any credits from partnerships, estates, and
energy credit allocated from cooperatives. trusts) is reported as interest income on line 4 of Schedule K. In
• Employee retention credit for employers affected by qualified addition, the amount of this credit is reported as a property
disasters (Form 5884-A), if applicable. distribution on line 16d of Schedule K.
• Advanced manufacturing production credit (Form 7207). • Mine rescue team training credit (Form 8923), if applicable.
• Orphan drug credit (Form 8820). • Credit for employer differential wage payments (Form 8932).
• Renewable electricity production credit (Form 8835), if • Carbon oxide sequestration credit (Form 8933).
applicable. Attach a statement to Form 1120-S and • Qualified plug-in electric drive motor vehicle credit (including
Schedule K-1 showing the allocation of the credit for production qualified two-wheeled plug-in electric vehicles and new clean
during the 4-year period beginning on the date the facility was vehicles)(Form 8936).
placed in service and for production after that period. Also report • Qualified commercial clean vehicle credit (Form 8936-A) for
separately on an attached statement the amount of any clean vehicles acquired after 2022.
hydrogen production credit. • Credit for small employer health insurance premiums (Form
• Indian employment credit (Form 8845), if applicable. 8941).
• Biodiesel, renewable diesel, or sustainable aviation fuels • Employer credit for paid family and medical leave (Form
credit (Form 8864). Include any amount from line 9 of Form 8864 8994).
in the corporation's income on line 5 of Form 1120-S. If this
credit includes the small agri-biodiesel producer credit, identify Schedule K-1. Enter in box 13 of Schedule K-1 each
on a statement attached to Schedule K-1 (a) the small shareholder's pro rata share of the credits listed above. See
agri-biodiesel producer credit included in the total credit additional Schedule K-1 reporting information provided in the
allocated to the shareholder, (b) the number of gallons for which instructions above. Enter the applicable code, H through P, in
the corporation claimed the small agri-biodiesel producer credit, the column to the left of the dollar amount entry space.
and (c) the corporation's productive capacity for agri-biodiesel. If you are reporting each shareholder's pro rata share of only
Also report separately on an attached statement the amount of one type of credit under code P, enter the code with an asterisk
any sustainable aviation fuel credit. (P*) and the dollar amount in the entry space in box 13 and
• New markets credit (Form 8874). attach a statement that shows “Box 13, code P” and the type of
• Credit for small employer pension plan startup costs and credit. If you are reporting multiple types of credit under code P,
auto-enrollment (Form 8881). enter the code with an asterisk (P*) and enter “STMT” in the
• Credit for employer-provided childcare facilities and services entry space in box 13 and attach a statement that shows “Box
(Form 8882). 13, code P” and the dollar amount of each type of credit. If the
• Low sulfur diesel fuel production credit (Form 8896). corporation has credits from more than one activity, identify on
• Qualified railroad track maintenance credit (Form 8900). an attachment to Schedule K-1 the amount of each type of credit
• Credit for oil and gas production from marginal wells (Form for each separate activity. See Passive Activity Reporting
8904), if applicable. Requirements, earlier.
• Distilled spirits credit (Form 8906).
• Energy efficient home credit (Form 8908). International Transactions
• Alternative motor vehicle credit (Form 8910), if applicable. Check the box on line 14 if you are reporting items of
• Alternative fuel vehicle refueling property credit (Form 8911). international tax relevance. See the Instructions for
• Clean renewable energy bond credit (Form 8912). The Schedule K-2 (Form 1120-S) to determine if you need to attach
amount of this credit (excluding any credits from partnerships, Schedules K-2 and K-3. If you satisfy the domestic filing
estates, and trusts) is reported as interest income on line 4 of exception to filing Schedule K-3, you must provide notification to
Schedule K. In addition, the amount of this credit is reported on the shareholder either through an attachment to the
line 17d of Schedule K. Schedule K-1, or a separate statement prior to filing the Form
• Qualified zone academy bond credit (for bonds issued before 1120-S. If you satisfy an exception to filing Schedule K-2 (Form
October 4, 2008) (Form 8912). The amount of this credit is 1120-S), you may also attach a statement to the Form 1120-S
reported as interest income on line 4 of Schedule K. In addition, that states “Qualified for exception to filing Schedule K-2.”
the amount of this credit is reported on line 17d of Schedule K.

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Alternative Minimum Tax (AMT) Items on line 15a. If the AMT deduction is more than the regular tax
Lines 15a through 15f must be completed for all shareholders. deduction, enter the difference as a negative amount.
Depreciation capitalized to inventory must also be refigured
Enter items of income and deductions that are adjustments or using the AMT rules. Include on this line the current year
tax preference items for the AMT. For more information, see adjustment to income, if any, resulting from the difference.
Form 6251, Alternative Minimum Tax—Individuals, or Schedule I
(Form 1041), Alternative Minimum Tax—Estates and Trusts. Line 15b. Adjusted Gain or Loss
Don't include as a tax preference item any qualified
expenditures to which an election under section 59(e) may If the corporation disposed of any tangible property placed in
apply. Instead, report these expenditures on line 12c. Because service after 1986 (or after July 31, 1986, if an election was
these expenditures are subject to an election by each made to use the General Depreciation System), or if it disposed
shareholder, the corporation can't figure the amount of any tax of a certified pollution control facility placed in service after 1986,
preference related to them. Instead, the corporation must pass refigure the gain or loss from the disposition using the adjusted
through to each shareholder in box 12, code J, of Schedule K-1, basis for the AMT. The property's adjusted basis for the AMT is
the information needed to figure the deduction. its cost or other basis minus all depreciation or amortization
deductions allowed or allowable for the AMT during the current
Schedule K-1. Report each shareholder's pro rata share of tax year and previous tax years. Enter on this line the difference
amounts reported on lines 15a through 15f in box 15 of between the regular tax gain (loss) and the AMT gain (loss). If
Schedule K-1 using codes A through F, respectively. the AMT gain is less than the regular tax gain, or the AMT loss is
If the corporation is reporting items of income or deduction for more than the regular tax loss, or there is an AMT loss and a
oil, gas, and geothermal properties, you may be required to regular tax gain, enter the difference as a negative amount.
identify these items on a statement attached to Schedule K-1
(see the instructions for lines 15d and 15e). Also see the If any part of the adjustment is allocable to net short-term
requirement for an attached statement in the instructions for capital gain (loss), net long-term capital gain (loss), or net
line 15f. section 1231 gain (loss), attach a statement that identifies the
amount of the adjustment allocable to each type of gain or loss.
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
motion picture films, videotapes, sound recordings, certain Line 15c. Depletion (Other Than Oil and Gas)
public utility property (see section 168(f)(2)), property
depreciated under the unit-of-production method (or any other Don't include any depletion on oil and gas wells. The
method not expressed in a term of years), qualified Indian shareholders must figure their oil and gas depletion deductions
reservation property, property eligible for a special depreciation and preference items separately under section 613A.
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
For property placed in service before 1999, refigure deposits for the AMT. Percentage depletion is limited to 50% of
depreciation for the AMT as follows (using the same convention the 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 deduction. If the AMT deduction is greater, enter the difference
tax year it gives a larger deduction, over the property's AMT as a negative amount.
class 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 21, 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
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deductions included in the total amount for that box. Don't Items Affecting Shareholder Basis
include any of these direct pass-through amounts on line 15d or
15e. The shareholder is told in the Shareholder's Instructions for Line 16a. Tax-Exempt Interest Income
Schedule K-1 (Form 1120-S) to adjust the amounts in box 15,
code D or E, for any other income or deductions from oil, gas, or Enter on line 16a tax-exempt interest income, including any
geothermal properties included in boxes 2 through 12, 16, or 17 exempt-interest dividends received from a mutual fund or other
of Schedule K-1 in order to determine the total income and regulated investment company. Individual shareholders must
deductions from oil, gas, and geothermal properties for the report this information on line 2a of Form 1040 or 1040-SR.
corporation. Generally, under section 1367(a)(1)(A), the basis of the
shareholder's stock is increased by the amount shown on this
Figure the amounts for lines 15d and 15e separately for oil line.
and gas properties that aren't geothermal deposits and for all
properties that are geothermal deposits. Line 16b. Other Tax-Exempt Income

Give each shareholder a statement that shows the separate Enter on line 16b all income of the corporation exempt from tax
amounts included in the computation of the amounts on lines other than tax-exempt interest (for example, life insurance
15d and 15e of Schedule K. proceeds, but see section 101(j) for limits and reporting
requirements). Generally, under section 1367(a)(1)(A), the basis
Line 15d. Oil, Gas, and Geothermal of the shareholder's stock is increased by the amount shown on
Properties—Gross Income this line.
Paycheck Protection Program (PPP) reporting. Report
Enter the total amount of gross income (within the meaning of tax-exempt income resulting from the forgiveness of a PPP loan
section 613(a)) from all oil, gas, and geothermal properties on this line. Attach a statement to the S corporation return for
received or accrued during the tax year and included on page 1, each tax year in which the S corporation is applying Rev. Proc.
Form 1120-S. 2021-48, sections 3.01(1), (2), or (3). The statement should also
include the following information for each PPP loan.
Line 15e. Oil, Gas, and Geothermal 1. The S corporation’s name, address, and EIN;
Properties—Deductions 2. A statement that the S corporation is applying section
3.01(1), (2), or (3) of Rev. Proc. 2021-48, as applicable;
Enter any deductions allowed for the AMT that are allocable to
oil, gas, and geothermal properties. 3. The amount of tax-exempt income from forgiveness of the
PPP loan that the S corporation is treating as received or
accrued during the tax year; and
Line 15f. Other AMT Items
4. Whether forgiveness of the PPP loan has been granted
Attach a statement to Form 1120-S and Schedule K-1 that as of the date the return is filed.
shows other items not shown on lines 15a through 15e that are An S corporation that didn’t report tax-exempt income from a
adjustments or tax preference items or that the shareholder PPP loan on its 2020 return may file an amended return to apply
needs to complete Form 6251 or Schedule I (Form 1041). See Rev. Proc. 2021-48 and should do so according to these
these forms and their instructions to determine the amount to instructions. An S corporation that reported tax-exempt income
enter. from a PPP loan on its 2020 return, the timing of which
corresponds to one of the options presented in Rev. Proc.
Other AMT items include the following. 2021-48, need not file an amended return solely to attach the
• Accelerated depreciation of real property under pre-1987 statement that is described in the instructions for Schedule K,
rules. line 16(b).
• Accelerated depreciation of leased personal property under
pre-1987 rules. As explained in section 3.03 of Rev. Proc. 2021-48, if an S
• Long-term contracts entered into after February 28, 1986. corporation treats tax-exempt income resulting from a PPP loan
Except for certain home construction contracts, the taxable as received or accrued prior to when forgiveness of the PPP loan
income from these contracts must be figured using the is granted and the amount of forgiveness granted is less than the
percentage of completion method of accounting for the AMT. amount of tax-exempt income that was previously treated as
• Losses from tax shelter farm activities. No loss from any tax received or accrued, the S corporation must make appropriate
shelter farm activity is allowed for the AMT. adjustments (if any) on an amended return for the tax year in
• Any amount from Form 6478 reported as other income on which the S corporation treated the tax-exempt income as
Form 1120-S, line 5. received or accrued. The S corporation should attach a
• Any amount from Form 8864 reported as other income on statement to such amended return that includes the following
Form 1120-S, line 5. information.
1. The S corporation’s name, address, and EIN;
Schedule K-1. If you are reporting each shareholder's pro rata
share of only one type of AMT item under code F, enter the code 2. A statement that the S corporation is making adjustments
with an asterisk (F*) and the dollar amount in the entry space in in accordance with section 3.03 of Rev. Proc. 2021-48; and
box 15 and attach a statement that shows the type of AMT item. 3. The tax year in which tax-exempt income was originally
If you are reporting multiple types of AMT items under code F, reported, the amount of tax-exempt income that was originally
enter the code with an asterisk (F*) and enter “STMT” in the reported in such tax year, and the amount of tax-exempt income
entry space in box 15 and attach a statement that shows the being adjusted on the amended return.
dollar amount of each type of AMT item.
Line 16c. Nondeductible Expenses

Enter on line 16c nondeductible expenses paid or incurred by
the corporation.

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Don't include separately stated deductions shown elsewhere don't include any income or expenses from a passive activity.
on Schedules K and K-1, capital expenditures, or items for which See Regulations section 1.469-2(f)(10) for exceptions.
the deduction is deferred to a later tax year.
Property subject to a net lease isn't treated as investment
Generally, under section 1367(a)(2)(D), the basis of the property because it is subject to the passive loss rules. Don't
shareholder's stock is decreased by the amount shown on this reduce investment income by losses from passive activities.
line.
Investment expenses are deductible expenses (other than
Line 16d. Distributions interest) directly connected with the production of investment
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
academy (for bonds issued after October 3, 2008), qualified If there are other items of investment income or expense
school construction, or build America bonds. Distributions of included in the amounts that are required to be passed through
appreciated property are valued at fair market value. If property separately to the shareholders on Schedule K-1, such as net
other than cash was distributed, attach a statement to provide short-term capital gain or loss, net long-term capital gain or loss,
the following information. and other portfolio gains or losses, give each shareholder a
• The date the property was acquired. statement identifying these amounts.
• The date the property was distributed.
• The property's FMV on the date of distribution. Line 17c. Dividend Distributions Paid From
• 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
Enter in U.S. dollars the total creditable foreign taxes (described Form 1120-S. On Schedule K-1, enter the appropriate code in
in section 901 or section 903) that were paid or accrued box 17 for each information item followed by an asterisk in the
according to the corporation's method of accounting for such left-hand column of the entry space (for example, C*). In the
taxes. Translate these amounts into U.S. dollars by using the right-hand column, enter “STMT.” The codes are provided for
applicable exchange rate. See Pub. 514, Foreign Tax Credit for each 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
Lines 17a and 17b. Investment Income and than rental real estate activities in box 17 of Schedule K-1 using
code C. Attach a statement to Schedule K-1 that provides the
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 on lines 11b through 11g of Form 3468. See
6, and 10 of Schedule K. Don't include other portfolio gains or the Instructions for Form 3468 for details. If the corporation has
losses on this line. expenditures from more than one activity, identify on a statement
attached to Schedule K-1 the information and amounts for each
Enter on line 17b the investment expense included on separate activity. See Passive Activity Reporting Requirements,
line 12d of Schedule K. earlier.
Investment income includes gross income from property held Basis of energy property (code D). In box 17 of
for investment, the excess of net gain attributable to the Schedule K-1, enter code D followed by an asterisk and enter
disposition of property held for investment over net capital gain “STMT” in the entry space for the dollar amount. Attach a
from the disposition of property held for investment, any net statement to Schedule K-1 that provides the shareholder's pro
capital gain from the disposition of property held for investment rata share of the basis and capacity amounts the shareholder
that each shareholder elects to include in investment income will need to figure the amounts to report on lines 12a–12c, 12e,
under section 163(d)(4)(B)(iii), and any qualified dividend 12f, 12h, 12i, 12k, 12l, 12q, 12r, 12t, 12u, 12w, 12y, 12z, 12bb–
income that the shareholder elects to include in investment 12dd, and 12hh of Form 3468. See the Instructions for Form
income. Generally, investment income and investment expenses 3468 for details.
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Recapture of low-income housing credit (codes E and F). If showing the information required in items (a) and (b) of the
recapture of part or all of the low-income housing credit is instructions for lines 1 and 3 of Part II of Form 8697. It must also
required because (a) the prior year qualified basis of a building report the amounts for Part II, lines 1 and 3, to its shareholders.
decreased, or (b) the corporation disposed of a building or part See the Instructions for Form 8697 for more information.
of its interest in a building, see Form 8611, Recapture of Look-back interest—Income forecast method (code J). If
Low-Income Housing Credit. Complete lines 1 through 7 of Form the corporation is closely held (defined in section 460(b)(4)(C)
8611 to figure the amount of the credit to recapture. (iii)) and it depreciated certain property placed in service after
Use code E on Schedule K-1 to report recapture of the September 13, 1995, under the income forecast method, it must
low-income housing credit from a section 42(j)(5) partnership. attach to Form 1120-S the information specified in the
Use code F to report recapture of any other low-income housing instructions for Form 8866, line 2, for the 3rd and 10th tax years
credit. See the instructions for lines 13a and 13b, earlier, for beginning after the tax year the property was placed in service. It
more information. must also report the line 2 amounts to its shareholders. See the
Instructions for Form 8866 for more details.
If a shareholder's ownership interest in a building
TIP decreased because of a transaction at the shareholder Dispositions of property with section 179 deductions
level, the corporation must provide the necessary (code K). This represents gain or loss on the sale, exchange, or
information to the shareholder to enable the shareholder to other disposition of property for which a section 179 deduction
figure the recapture. has been passed through to shareholders. The corporation must
provide all the following information with respect to such
The disposal of a building or an interest therein will dispositions (see the instructions for Form 1120-S, line 4,
! generate a credit recapture unless it is reasonably earlier).
CAUTION expected that the building will continue to be operated • Description of the property.
as a qualified low-income building for the remainder of the • Date the property was acquired and placed in service.
building's compliance period. • Date of the sale or other disposition of the property.
• The shareholder's pro rata share of the gross sales price or
See Form 8586, Form 8611, and section 42 for more amount realized.
information. • The shareholder's pro rata share of the cost or other basis
Recapture of investment credit (code G). Complete and plus expense of sale (reduced as explained in the instructions
attach Form 4255 if, before the end of the recapture period, for Form 4797, line 21).
investment credit property is disposed of or no longer qualifies • The shareholder's pro rata share of the depreciation allowed
for the credit or if credit recapture is otherwise required. See the or allowable, determined as described in the instructions for
Instructions for Form 4255 for details about when credit Form 4797, line 22, but excluding the section 179 deduction.
recapture is required. State the type of property at the top of • The shareholder's pro rata share of the section 179 deduction
Form 4255, and complete lines 2, 3, 4, 10, and 11, whether or (if any) passed through for the property and the corporation's tax
not any shareholder is subject to recapture of the credit. year(s) in which the amount was passed through.
Attach to each Schedule K-1 a separate statement providing • If the disposition is due to a casualty or theft, a statement
indicating so, and any additional information needed by the
the information the corporation is required to show on Form shareholder.
4255, but list only the shareholder's pro rata share of the basis of For an installment sale, any information the shareholder
the property subject to recapture. Also indicate the lines of Form •
needs to complete Form 6252. The corporation must also
4255 on which the shareholders should report these amounts. separately report the shareholder's pro rata share of all
The corporation itself is liable for investment credit recapture payments received for the property in future tax years.
in certain cases. See Investment credit recapture tax, earlier, for (Installment payments received for installment sales made in
details. prior tax years should be reported in the same manner used in
Recapture of other credits (code H). On an attached prior tax years.) See the Instructions for Form 6252 for details.
statement to Schedule K-1, provide any information Recapture of section 179 deduction (code L). This amount
shareholders will need to report recapture of credits (other than represents recapture of the section 179 deduction if business
recapture of low-income housing credit and investment credit use of the property dropped to 50% or less before the end of the
reported on Schedule K-1 using codes E, F, and G). The recapture period. If the business use of any property (placed in
following are examples of credits subject to recapture and service after 1986) for which a section 179 deduction was
reported using code H. passed through to shareholders dropped to 50% or less (for a
• The qualified plug-in electric drive motor vehicle credit reason other than disposition), the corporation must provide all
(including qualified two-wheeled plug-in electric vehicles and the following information.
new clean vehicles). See section 30D(f)(5) for details. • The shareholder's pro rata share of the original basis and
• The new markets credit. See Form 8874 and Form 8874-B, depreciation allowed or allowable (not including the section 179
Notice of Recapture Event for New Markets Credit, for details. deduction).
• The Indian employment credit. See section 45A(d) 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.
• The alternative fuel vehicle refueling property credit. See Section 453(l)(3) information (code M). Supply any
section 30C(e)(5) for details. information needed by a shareholder to figure the interest due
under section 453(l)(3). If the corporation elected to report the
Look-back interest—Completed long-term contracts (code dispositions of certain timeshares and residential lots on the
I). If the corporation is closely held (defined in section 460(b)(4) installment method, each shareholder's tax liability must be
(C)(iii)) and it entered into any long-term contracts after February increased by the shareholder's pro rata share of the interest on
28, 1986, that are accounted for under either the percentage of tax attributable to the installment payments received during the
completion-capitalized cost method or the percentage of tax year.
completion method, it must attach a statement to Form 1120-S

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Section 453A(c) information (code N). Supply any Codes S and T. Reserved for future use.
information needed by a shareholder to figure the interest due
Net investment income (code U). Use code U to report any
under section 453A(c). This information may include the
information that may be relevant for shareholders to figure their
following from each Form 6252 where the selling price, including
net investment income tax when the information isn't otherwise
mortgages and other debts, is greater than $150,000.
identifiable elsewhere on Schedule K-1 or Schedule K-3. Attach
1. Description of property. a statement that shows a description and dollar amount of each
2. Date acquired. relevant item.
3. Date property sold. Examples of items reported using code U may include the
4. Selling price, including mortgages and other debts (not following.
including interest, whether stated or unstated), less mortgages, • Net rental real estate income reported on Form 1120-S,
debts, and other liabilities the buyer assumed or took the Schedule K, line 2, and other net rental income reported on
property subject to. Form 1120-S, Schedule K, line 3c, derived from a section 212
for-profit activity (and not from a section 162 trade or business).
5. Gross profit. • Gains and losses from dispositions of assets attributable to a
6. Gross profit percentage. section 212 for-profit activity (and not from a section 162 trade or
7. Contract price less (4) above, plus payments received business).
during the year, not including interest, whether stated or • Gain reported on the installment sale basis (or attributable to
unstated. a private annuity) that is attributable to the disposition of property
held in a trade or business.
8. Payments received in prior years, not including interest Gain or loss from the disposition of a partnership interest, but
whether stated or unstated. •
only if such partnership was engaged, directly or indirectly, in
9. Installment sale income. one or more trades or businesses, and at least one of those
10. Character of the income—capital or ordinary. trades or businesses wasn't trading in financial instruments or
11. Shareholder’s share of the deferred obligation. See commodities.
computation below. • The shareholder’s pro rata share of interest income, or
interest expense, that is attributable to a loan between the
Schedule K-1 deferred obligation computation. For each corporation and the shareholder (self-charged interest).
Form 6252 where line 5 is greater than $150,000, figure the • If the corporation received a Form 1065, Schedule K-1, the
Schedule K-1 deferred obligation as follows. detail and amounts reported to the corporation using box 20,
• Line (4) from the list above, less the sum of lines (7) and (8). code Y.
This equals the Schedule K deferred obligation. • If the corporation received a Form 1041, Schedule K-1, the
• Multiply the Schedule K deferred obligation by each amount of the adjustment reported.
shareholder’s current year allocation percentage. This equals In addition, Regulations section 1.1411-10 provides special
each shareholder’s share of the deferred obligation. rules with respect to stock of CFCs and passive foreign
If an obligation arising from the disposition of property to investment companies (PFICs) owned by the corporation. If the
which section 453A applies is outstanding at the close of the corporation owns, directly or indirectly, stock of a CFC or PFIC,
year, each shareholder's tax liability must be increased by the then additional reporting may be required under code U.
tax due under section 453A(c) on the shareholder's pro rata CFCs and QEFs. In the case of stock of CFCs and QEFs
share of the tax deferred under the installment method. owned directly or indirectly by the corporation, the corporation
Section 1260(b) information (code O). Supply any must provide the name and EIN (if one has been issued) for
information needed by a shareholder to figure the interest due each CFC and QEF the stock of which is owned by the
under section 1260(b). If the corporation had gain from certain corporation for which an election under Regulations section
constructive ownership transactions, each shareholder's tax 1.1411-10(g) is not in effect and with respect to which the
liability must be increased by the shareholder's pro rata share of corporation isn't engaged in a trade or business described in
interest due on any deferral of gain recognition. See section section 1411(c)(2). For each of these entities, the corporation
1260(b) for details, including how to figure the interest. must provide the following information on an entity-by-entity
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
CCF nonqualified withdrawal (code Q). Report nonqualified treatment under Notice 2020-60, 2020-39 I.R.B. 604.
withdrawals by the corporation from a capital construction fund. • Section 1293(a)(1)(A) inclusions.
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 Regulations section 1.1411-10(g) is in effect, the corporation
report on the shareholder's return. See Pub. 535 for more must provide the following information (to the extent such
information. information isn't otherwise identifiable on Schedule K-3), on
either an aggregate basis or an entity-by-entity basis.

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• Section 951(a) inclusions. Don’t add amounts into a single number and report it in
• Section 951A inclusions to the extent allocated to the CFC ! box 17 on Schedule K-1. The section 199A information
under section 951A(f)(2) if the corporation has elected entity CAUTION must be separately identified for each trade or business
treatment under Notice 2020-60. the S corporation directly conducts, including specified service
• Section 1293(a)(1)(A) inclusions. trades or businesses.
• Section 1293(a)(1)(B) inclusions.
The S corporation must make an initial determination of which
In the case of stock of CFCs and QEFs directly or indirectly items are qualified items of income, gain, deduction, and loss at
owned by the corporation with respect to which the corporation its level and report to each shareholder their pro rata share of all
is engaged in a trade or business described in section 1411(c) items that may be qualified items at the shareholder level. These
(2), the corporation must provide the following information (to the items must be separately stated where necessary for the
extent such information isn't otherwise identifiable on the shareholder to figure the deduction. See Determining the S
Schedule K-3), on either an aggregate or an entity-by-entity corporation’s QBI or qualified PTP items, later. The shareholder
basis, or may aggregate this information with other income must then determine whether each item is includible in its QBI.
derived by the corporation that is net investment income under
section 1411(c)(1)(A)(ii). In addition, the S corporation must also report whether any of
• Section 951(a) inclusions. its trades or businesses are specified service trades or
• Section 951A inclusions to the extent allocated to the CFC businesses (SSTBs) and identify on the statement any trades or
under section 951A(f)(2) if the corporation has elected entity businesses that are aggregated.
treatment under Notice 2020-60.
• Section 1293(a)(1)(A) inclusions. Note. The S corporation must report the pro rata share of
• Section 1293(a)(1)(B) inclusions. qualified items of income, gain, deduction, and loss from a PTP
Section 1296 mark-to-market PFICs. In the case of stock of so that shareholders can determine their qualified PTP income.
PFICs directly or indirectly owned by the corporation for which However, W-2 wages and UBIA of qualified property from the
an election under section 1296 is in effect, the corporation must PTP shouldn’t be reported because shareholders can’t use that
provide the following information (to the extent such information information in figuring their QBI deduction.
isn't otherwise identifiable on Schedule K-3), on either an S corporations should use Statement A—QBI Pass-Through
aggregate basis or an entity-by-entity basis (except as provided Entity Reporting, or a substantially similar statement, to report
below). each shareholder’s pro rata information from each trade or
• Amounts included in income under section 1296(a)(1). business, including QBI items, W-2 wages, UBIA of qualified
• Amounts deducted from income under section 1296(a)(2). property, qualified PTP items, and section 199A dividends by
In the case of PFIC stock owned directly or indirectly by the attaching the completed statement(s) to each shareholder’s
corporation for which an election under section 1296 is in effect Schedule K-1. The S corporation should also use Statement A to
and with respect to which the corporation is engaged in a trade report each shareholder’s pro rata share of QBI items, W-2
or business described in section 1411(c)(2), the corporation may wages, UBIA of qualified property, qualified PTP items, and
aggregate this information with other income derived by the section 199A dividends reported to the S corporation by another
corporation that is net investment income under section 1411(c) entity.
(1)(A)(ii). S corporations should use Statement B—QBI Pass-Through
Section 1291 funds. In the case of stock of PFICs directly or Entity Aggregation Election(s), or a substantially similar
indirectly owned by the corporation with respect to which direct statement, to report aggregated trades or businesses and
or indirect shareholders are subject to section 1291, the provide supporting information to shareholders on each
corporation must provide the following information (to the extent Schedule K-1.
such information isn't otherwise identifiable on Schedule K-3), S corporations should use Statement C—QBI Pass-Through
on an entity-by-entity basis. Entity Reporting—Patrons of Specified Agricultural and
• Excess distributions made by a PFIC with respect to which Horticultural Cooperatives, or a substantially similar statement,
the shareholder is subject to section 1291. to report pro rata QBI and W-2 wages allocable to qualified
• Gains derived with respect to the disposition of stock of a payments from a specified agricultural or horticultural
PFIC with respect to which a shareholder is subject to section cooperative for each trade or business. This statement should
1291. also be used to report each shareholder’s pro rata section
Section 199A information (code V). The qualified business 199A(g) deduction reported to the S corporation by the specified
income (QBI) deduction may be taken by eligible taxpayers, cooperative.
including individuals and some trusts and estates. The The S corporation must also report all QBI information
deduction is determined at the shareholder level. S corporations reported to it by any entity in which the S corporation has an
are required to report information necessary for their ownership interest.
shareholders to figure the deduction. Use the code with an Determining the S corporation’s qualified trades or
asterisk (V*) in box 17 on each shareholder’s Schedule K-1 and businesses. The S corporation’s qualified trades or businesses
enter “STMT” in the entry space to indicate that the information include its section 162 trades or businesses, except for SSTBs,
is provided on an attached statement separately identifying the or the trade or business of providing services as an employee. A
shareholder’s pro rata share of: section 162 trade or business generally includes any activity if
• Qualified items of income, gain, deduction, and loss; the taxpayer’s primary purpose for engaging in the activity is for
• W-2 wages; income or profit and the S corporation is involved in the activity
• Unadjusted basis immediately after acquisition (UBIA) of with continuity and regularity. For more information on what
qualified property; qualifies as a trade or business for purposes of section 199A,
• Qualified publicly traded partnership (PTP) items; and see the instructions for Form 8995, Qualified Business Income
• Section 199A dividends, also known as qualified real estate Deduction Simplified Computation, or Form 8995-A, Qualified
investment trust (REIT) dividends. 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 
skill of one or more of its employees or owners means any trade         may 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; 
with the individual’s identity; or (iii) receiving fees, compensation,  and 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 Continue to next question. Stop. This item isn’t QBI.
States?
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 share to each shareholder on Statement A, or a substantially
Entity Reporting. similar statement, attached to Schedule K-1. This includes the
QBI or qualified PTP items. The S corporation must first pro rata share of W-2 wages and UBIA of qualified property
determine if it is engaged in one or more trades or businesses. It reported to the S corporation from any qualified trades or
must then determine if any of its trades or businesses are businesses of an RPE the S corporation owns directly or
SSTBs. It must also determine whether it has qualified PTP indirectly. However, S corporations that own a direct or indirect
items from an interest in a PTP. It must indicate the status in the interest in a PTP may not include any amounts for W-2 wages or
appropriate checkboxes for each trade or business (or UBIA of qualified property from the PTP, as the W-2 wages and
aggregated trade or business) or PTP interest reported. UBIA of qualified property from a PTP aren’t allowed in figuring
the W-2 wage and UBIA limitations.
Note. SSTBs and PTPs can’t be aggregated with any other The W-2 wages are amounts paid to employees described in
trade or business. So, if the aggregation box is checked, the sections 6051(a)(3) and (8). If the S corporation conducts more
SSTB and PTP boxes for that specific aggregated trade or than one trade or business, it must allocate the W-2 wages
business shouldn’t be checked. among its trades or businesses. See Rev. Proc. 2019-11,
Next, the S corporation must report to each shareholder their 2019-09 I.R.B. 742 for more information.
pro rata share of all items that are QBI or qualified PTP items for The unadjusted basis of qualified property is figured by
each trade or business the S corporation owns directly or adding the unadjusted basis of all qualified assets immediately
indirectly. Use the QBI flowchart above to determine if an item is after acquisition. Qualified property includes all tangible property
reportable as a QBI item or qualified PTP item subject to subject to depreciation under section 167 for which the
shareholder-specific determination. depreciable period hasn’t ended that is held and used for the
The descriptions on the statement generally match the production of QBI by the trade or business during the tax year
descriptions reported on Schedule K-1. So the amounts should and held on the last day of the tax year. The depreciable period
reflect each trade or business’s portion of the qualified items of ends on the later of 10 years after the property is placed in
income, gain, deduction, or loss reported in the applicable box of service or the last day of the full year for the applicable recovery
the shareholder’s Schedule K-1. For example, the amount period under section 168.
reported on the “Ordinary business income (loss)” line of this Section 199A dividends. The S corporation must report the
statement should reflect the attributable portion of qualified items pro rata share of any section 199A dividends, also known as
of income, gain, deduction, and loss for each trade or business qualified real estate investment trust (REIT) dividends, to each
included in the “Ordinary business income (loss)” reported in shareholder on Statement A, or a substantially similar statement,
box 1 of the shareholder’s Schedule K-1. Each item included attached to Schedule K-1. Section 199A dividends don’t have to
under “Other income (loss)” and “Other deductions” must be be separately reported by trades or businesses and can be
stated separately, identifying the nature and amount of each reported as a single amount to shareholders. Section 199A
item. dividends include any dividend the S corporation receives from a
W-2 wages and UBIA of qualified property. The S REIT held for more than 45 days, for which the payment isn’t
corporation must determine the W-2 wages and UBIA of obligated to someone else, isn’t a capital gain dividend under
qualified property properly allocable to QBI for each qualified section 857(b)(3), and isn’t a qualified dividend under section
trade or business, including SSTBs, and report the pro rata

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

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 

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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 Line 18. More Than One At-Risk Activity
Schedule K. Report the shareholder's pro rata share in box 17 of
Schedule K-1. If the corporation entered into more than one activity subject to
Gross receipts for section 448(c) (code AC). Provide the at-risk rules (at-risk activity), the corporation is required to
information shareholders need to complete the gross receipts provide information separately for each at-risk activity to its
test for section 448(c) purposes. See the Instructions for Form shareholders. This information is reported on an attachment to
8990 for details. Schedule K-1. Check the box to indicate there is more than one
at-risk activity for which a statement is attached. See At-Risk
Other information (code AD). Report the following information Activity Reporting Requirements under At-Risk Limitations,
to each shareholder. earlier, for details.
1. If the corporation participates in a transaction that must
be disclosed on Form 8886 (discussed earlier), both the
corporation and its shareholders may be required to file Form Line 19. More Than One Passive Activity
8886. The corporation must determine if any of its shareholders
are required to disclose the transaction and provide those If the corporation entered into more than one activity
shareholders with information they will need to file Form 8886. (determined for purposes of the passive activity loss and credit
This determination is based on the category(ies) under which a limitations), the corporation is required to provide information
transaction qualified for disclosures. See the Instructions for separately for each activity to its shareholders. This information
Form 8886 for details. is reported on an attachment to Schedule K-1. Check the box to
indicate there is more than one passive activity for which a
2. If the corporation is involved in a farming or fishing
statement is attached. See Passive Activity Reporting
business, report the gross income and gains as well as losses
Requirements under Passive Activity Limitations, earlier, for
and deductions attributable to such business activities. See
details.
section 1301.
3. If the corporation has deductions attributable to a Reconciliation
business activity, provide a statement showing the aggregate
gross income or gain and the aggregate deductions from the Line 18. Income/Loss Reconciliation
business activity that shareholders need to figure any excess
business loss limitation. See section 461(l) and the Instructions (Schedule K Only)
for Form 461 for details. To the extent the corporation has an amount on line 16f of
Schedule K (foreign taxes paid and accrued), subtract that
4. The shareholder's pro rata share of any amount included
amount for purposes of figuring the corporation's net income
in interest income on line 4 of Schedule K with respect to clean
(loss). The amount reported on line 18 must be the same as the
renewable energy or (for bonds issued before October 4, 2008)
amount reported on line 8 of Schedule M-1 or line 26, column
qualified zone academy bonds. Shareholders need this
(d), in Part II of Schedule M-3 (Form 1120-S).
information to properly adjust their stock basis. See Form 8912.
5. Any income or gain reported on lines 1 through 10 of
Schedule K that qualifies as inversion gain, if the corporation is Schedule L. Balance Sheets per
an expatriated entity or is a partner in an expatriated entity. For
details, see section 7874. Attach a statement to Form 1120-S Books
that shows the amount of each type of income or gain included The balance sheets should agree with the corporation's books
in the inversion gain. The corporation must report each and records. Schedule L isn't required to be completed if the
shareholder's pro rata share of the inversion gain in box 17 of corporation answered “Yes” to question 11 on Schedule B. If the
Schedule K-1 using code AD. Attach a statement to corporation is required to complete Schedule L, include total
Schedule K-1 that shows the shareholder's pro rata share of the assets reported on Schedule L, line 15, column (d), on page 1,
amount of each type of income or gain included in the inversion item F.
gain.
Corporations with total assets of $10 million or more on the
6. Basis in qualifying advanced coal project property. Attach last day of the tax year must file Schedule M-3 (Form 1120-S)
a statement to Schedule K-1 that provides the shareholder's pro instead of Schedule M-1. However, see the instructions for
rata share of the basis amounts the shareholder will need to Schedule M-1, later. See the separate Instructions for
figure the amounts to report on lines 5a, 5b, and 5c of Form Schedule M-3 (Form 1120-S) for provisions that also affect
3468. See the Instructions for Form 3468 for details. Schedule L.
7. Basis in qualifying gasification or advanced energy
project property. Attach a statement to Schedule K-1 that If the S election terminated during the tax year and the
provides the shareholder's pro rata share of the basis amounts corporation reverted to a C corporation, the year-end balance
the shareholder will need to figure the amounts to report on lines sheet should generally agree with the books and records at the
6a and 6b of Form 3468. See the Instructions for Form 3468 for end of the C short year. However, if the corporation elected
details. under section 1362(e)(3) to have items assigned to each short
8. Basis in advanced manufacturing investment facility year under normal tax accounting rules, the year-end balance
property. Attach a statement to Schedule K-1 that provides the sheet should agree with the books and records at the end of the
shareholder's pro rata share of the basis amounts the S short year.
shareholder will need to figure the amounts to report on line 7 of
Form 3468. See the Instructions for Form 3468 for details. Line 5. Tax-Exempt Securities
9. Any other information the shareholders need to prepare Include on this line:
their tax returns, including information needed to prepare state • State and local government obligations, the interest on which
and local tax returns. is excludable from gross income under section 103(a); and
• Stock in a mutual fund or other regulated investment company
that distributed exempt-interest dividends during the tax year of
the corporation.

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Line 24. Retained Earnings • Employee achievement awards of nontangible property or
If the corporation maintains separate accounts for appropriated tangible property over $400 ($1,600 if part of a qualified plan).
and unappropriated retained earnings, it may want to continue • The cost of skyboxes.
such accounting for purposes of preparing its financial balance • The part of luxury water travel expenses not deductible under
sheet. Also, if the corporation converts to C corporation status in section 274(m).
a subsequent year, it will be required to report its appropriated • Expenses for travel as a form of education.
and unappropriated retained earnings on separate lines of • Nondeductible club dues.
Schedule L of Form 1120. • Other nondeductible travel and entertainment expenses.
For more information, see Pub. 535.
Line 25. Adjustments to Shareholders' Equity
An S corporation should include tax-exempt income
The following are some examples of adjustments to report on TIP from the forgiveness of PPP loans on line 5 of the
this line. Schedule M-1 (if it was included on line 1 of the
• Unrealized gains and losses on securities held “available for Schedule M-1), or on Part II, line 22, of the Schedule M-3,
sale.” column (c), as a negative number (if it was included on line 22 in
• Foreign currency translation adjustments. column (a) as income per income statement).
• The excess of additional pension liability over unrecognized
prior service cost. If the corporation has an amount on line 16f of
• Guarantees of employee stock ownership plan (ESOP) debt. TIP Schedule K (foreign taxes paid and accrued), take that
• Compensation related to employee stock award plans. amount into account for purposes of figuring expenses
If the total adjustment to be entered is a negative amount, and deductions to enter on lines 3 and 6.
enter the amount in parentheses.
Schedule M-2. Analysis of
Schedule M-1. Reconciliation of
Accumulated Adjustments Account,
Income (Loss) per Books With
Shareholders' Undistributed Taxable
Income (Loss) per Return
In completing Schedule M-1, the following apply. Income Previously Taxed,
• Schedule M-1 isn't required to be completed if the corporation Accumulated Earnings and Profits,
answered “Yes” to question 11 on Schedule B.
• Corporations with total assets of $10 million or more on the and Other Adjustments Account
last day of the tax year must file Schedule M-3 (Form 1120-S)
instead of Schedule M-1. Column (a). Accumulated Adjustments Account
• A corporation filing Form 1120-S that isn't required to file The accumulated adjustments account (AAA) is an account of
Schedule M-3 may voluntarily file Schedule M-3 instead of the S corporation that generally reflects the accumulated
Schedule M-1. See the Instructions for Schedule M-3 (Form undistributed net income of the corporation for the corporation's
1120-S) for more information. post-1982 years. S corporations with accumulated earnings and
• For 2022, corporations that (a) are required to file profits (AE&P) must maintain the AAA to determine the tax effect
Schedule M-3 (Form 1120-S) and have less than $50 million of distributions during years as an S corporation, the
total assets at the end of the tax year, or (b) aren't required to file post-termination transition period, and cash distributions
Schedule M-3 (Form 1120-S) and voluntarily file Schedule M-3 following a post termination transition period. An S corporation ‐
(Form 1120-S), must either (i) complete Schedule M-3 (Form without AE&P doesn't need to maintain the AAA in order to
1120-S) entirely, or (ii) complete Schedule M-3 (Form 1120-S) determine the tax effect of distributions. Nevertheless, if an S
through Part I, and complete Form 1120-S, Schedule M-1, corporation without AE&P engages in certain transactions to
instead of completing Parts II and III of Schedule M-3 (Form which section 381(a) applies, such as a merger into an S
1120-S). If the corporation chooses to complete 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, line 1 of calculate its AAA at the time of the merger for purposes of
Schedule M-1 must equal line 11 of Part I of Schedule M-3. See determining the tax effect of post-merger distributions.
the Instructions for Schedule M-3 (Form 1120-S) for more Therefore, it is recommended that the AAA be maintained by all
information. S corporations.
Line 2 On the first day of the corporation's first tax year as an S
Report on this line income included on Schedule K, lines 1, 2, corporation, the balance of the AAA is zero. At the end of the tax
3c, 4, 5a, 6, 7, 8a, 9, and 10 not recorded on the books this year. year, adjust the AAA for the items as explained below and in the
Describe each such item of income. Attach a statement if order listed.
necessary. 1. Increase the AAA by income (other than tax-exempt
income) and the excess of the deduction for depletion over the
Line 3b. Travel and Entertainment basis of the property subject to depletion (unless the property is
Include any of the following applicable expenses. an oil and gas property the basis of which has been allocated to
• Entertainment expenses not deductible under section 274(a). shareholders).
• Meal expenses not deductible under section 274(n). 2. Generally, decrease the AAA by deductible losses and
• Qualified transportation fringes not deductible under section expenses, nondeductible expenses (other than expenses
274(a)(4). related to tax-exempt income), and the sum of the shareholders'
• Expenses for the use of an entertainment facility. deductions for depletion for any oil or gas property held by the
• The part of business gifts over $25. corporation as described in section 1367(a)(2)(E). If deductible
• Expenses of an individual over $2,000 that are allocable to losses and expenses include the fair market value (FMV) of
conventions on cruise ships. certain contributed property (discussed earlier), further adjust
AAA by adding back the FMV of the contributed property and

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subtracting instead the property's adjusted basis. If the total Column (d). Other Adjustments Account
decreases under (2) exceed the total increases under (1) above, The other adjustments account is adjusted for tax-exempt
the excess is a “net negative adjustment.” If the corporation has income (and related expenses) and federal taxes attributable to
a net negative adjustment, don't take it into account under (2). a C corporation tax year. After these adjustments are made, the
Instead, take it into account only under (4) below. account is reduced for any distributions made during the year.
3. Decrease AAA (but not below zero) by property See Distributions, later.
distributions (other than dividend distributions from AE&P),
unless the corporation elects to reduce AE&P first. See PPP loans. An S corporation should include tax-exempt
Distributions, later, for definitions and other details. TIP income from the forgiveness of PPP loans in column (d)
on line 3 of the Schedule M-2.
4. Decrease AAA by any net negative adjustment. For
adjustments to the AAA for redemptions, reorganizations, and
corporate separations, see Regulations section 1.1368-2(d). An S corporation should report expenses paid this year with
proceeds from PPP loans that were forgiven this year in column
The AAA may have a negative balance at year end. See (d) on line 5 of the Schedule M-2.
TIP section 1368(e).
If column (a) on line 2 or line 4 of the Schedule M-2 includes
expenses paid with proceeds from forgiven PPP loans, an S
Column (b). Shareholders' Undistributed corporation should report that amount in column (a) on line 3 and
in column (d) on line 5 of the Schedule M-2.
Taxable Income Previously Taxed
The shareholders' undistributed taxable income previously taxed If column (a) on line 1 of the Schedule M-2 includes expenses
account, also called previously taxed earnings and profits that were paid in a prior year with proceeds from PPP loans that
(PTEP), is maintained only if the corporation had a balance in were forgiven this year, an S corporation should report that
this account at the start of its 2022 tax year. If there is a amount in column (a) on line 3 and in column (d) on line 5 of the
beginning balance for the 2022 tax year, no adjustments are Schedule M-2.
made to the account except to reduce the account for
distributions made under section 1375(d) (as in effect before the Distributions
enactment of the Subchapter S Revision Act of 1982). See General rule. Unless the corporation makes one of the
Distributions, later, for the order of distributions from the elections described below, property distributions (including
account. cash) are applied in the following order (to reduce accounts of
Each shareholder's right to nontaxable distributions from the S corporation that are used to figure the tax effect of
PTEP is personal and can't be transferred to another person. distributions made by the corporation to its shareholders).
The corporation is required to keep records of each 1. Reduce the AAA determined without regard to any net
shareholder's net share of PTEP. negative adjustment for the tax year (but not below zero). If
distributions during the tax year exceed the AAA at the close of
Column (c). Accumulated Earnings and Profits the tax year, determined without regard to any net negative
If the corporation was a C corporation in a prior year, or if it adjustment for the tax year, the AAA is allocated pro rata to each
engaged in a tax-free reorganization with a C corporation, enter distribution made during the tax year. See section 1368.
the amount of any AE&P at the close of its 2021 tax year on 2. Reduce shareholders' PTEP account for any section
line 1 in column (c). For details on figuring AE&P, see section 1375(d) (as in effect before 1983) distributions. A distribution
312. Estimates based on retained earnings at the end of the tax from the PTEP account is tax free to the extent of a
year are acceptable. If the corporation has AE&P, it may be shareholder's basis in the shareholder's stock in the corporation.
liable for tax imposed on excess net passive income. See 3. Reduce AE&P. Generally, the S corporation has AE&P
Excess net passive income tax, earlier, for details on this tax. only if it hasn't distributed E&P accumulated in prior years when
the S corporation was a C corporation (section 1361(a)(2)). See

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 21 . . . . . . . . . . . . . . . . . . .
3. Other additions . . . . . . . . . . . . . 20,000 5,000
4. Loss from page 1, line 21 . . . . . . . ( )
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 . . . . . . . . . . . . .

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section 312 for information on E&P. The only adjustments that identify the election it is making and must state that each
can be made to the AE&P of an S corporation are: shareholder consents to the election. The statement of election
a. Reductions for dividend distributions; to make a deemed dividend must include the amount of the
deemed dividend distributed to each shareholder. For more
b. Adjustments for redemptions, liquidations, details on the election, see Regulations section 1.1368-1(f)(5).
reorganizations, etc.; and
c. Reductions for investment credit recapture tax for which Example
the corporation is liable. The following example shows how the Schedule M-2 accounts
See section 1371(c) and (d)(3). are adjusted for items of income (loss), deductions, and
4. Reduce the other adjustments account (OAA). distributions reported on Form 1120-S. In this example, the
corporation has no PTEP or AE&P.
5. Reduce any remaining shareholders' equity accounts.
Items per return are:
Elections relating to source of distributions. The 1. Page 1, line 21 income—$10,000;
corporation may modify the above ordering rules by making one
or more of the following elections. 2. Schedule K, line 2 loss—($3,000);
Election to distribute AE&P first. If the corporation has 3. Schedule K, line 4 income—$4,000;
AE&P and wants to distribute from this account before making 4. Schedule K, line 5a income—$16,000;
distributions from the AAA, it may elect to do so with the consent 5. Schedule K, line 12a deduction—$24,000;
of all its affected shareholders (section 1368(e)(3)(B)). This
election is irrevocable and applies only for the tax year for which 6. Schedule K, line 12d deduction—$3,000;
it is made. For details on making the election, see Statement 7. Schedule K, line 13g work opportunity credit—$6,000;
regarding elections, later. 8. Schedule K, line 16a tax-exempt interest—$5,000;
Election to make a deemed dividend. If the corporation
wants to distribute all or part of its AE&P through a deemed 9. Schedule K, line 16c nondeductible expenses—$6,000
dividend, it may elect to do so with the consent of all its affected (reduction in salaries and wages for work opportunity credit);
shareholders (section 1368(e)(3)(B)). Under this election, the and
corporation will be treated as also having made the election to 10. Schedule K, line 16d distributions—$65,000.
distribute AE&P first. The amount of the deemed dividend can't Based on items (1) through (10) above and starting balances
exceed the AE&P at the end of the tax year. The E&P at year of zero, the columns for the AAA and the other adjustments
end is first reduced by any actual distributions of AE&P made account are completed as shown in the Schedule M-2
during the tax year. A deemed dividend is treated as if it were a Worksheet.
pro rata distribution of money to the shareholders, received by
the shareholders, and immediately contributed back to the For the AAA, the worksheet line 3—$20,000 amount is the
corporation, all on the last day of the tax year. This election is total of the Schedule K, lines 4 and 5a income of $4,000 and
irrevocable and applies only for the tax year for which it is made. $16,000. The worksheet line 5—$36,000 amount is the total of
For details on making the election, see Statement regarding the Schedule K, line 2 loss of ($3,000), line 12a (code A)
elections, later. deduction of $24,000, line 12d (code S) deduction of $3,000,
Election to forego PTEP. If the corporation wants to forego and the line 16c nondeductible expenses of $6,000. The
distributions of PTEP, it may elect to do so with the consent of all worksheet line 7 is zero. The AAA at the end of the tax year
its affected shareholders (section 1368(e)(3)(B)). Under this (figured without regard to distributions and the net negative
election, item (2) under General rule, earlier, doesn't apply to any adjustment of $6,000) is zero, and distributions can't reduce the
distribution made during the tax year. This election is irrevocable AAA below zero.
and applies only for the tax year for which it is made. For details For the other adjustments account, the worksheet line 3
on making the election, see Statement regarding elections next. amount is the Schedule K, line 16a, tax-exempt interest income
of $5,000. The worksheet line 7 amount is $5,000, reducing the
Statement regarding elections. To make any of the above other adjustments account to zero. The remaining $60,000 of
elections, the corporation must attach a statement to a timely distributions aren't entered on Schedule M-2.
filed original or amended Form 1120-S for the tax year for which
the election is made. In the statement, the corporation must

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
November 2022, for taxpayers filing 2022 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
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. For instance, the estimated average time

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burden for all business entities is 93 hours, with an average cost of $3,927 per return. This average includes all associated forms and
schedules, across all preparation methods and taxpayer activities.
The average burden for partnerships filing Forms 1065 and related attachments is about 85 hours and $3,900; the average burden
for corporations filing Form 1120 and associated forms is about 140 hours and $6,100; and the average burden for Forms 1066,
1120-REIT, 1120-RIC, 1120-S, and all related attachments is 80 hours and $3,100. 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 per Taxpayer Average Cost per Average Monetized
Taxpayer (millions) (hours) Taxpayer Burden
All Partnerships 4.8 85 $3,900 $7,900
Small 4.5 75 $2,800 $5,300
Large* 0.3 245 $20,600 $45,900
*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 per Taxpayer Average Cost per Average Monetized
Taxpayer (millions) (hours) Taxpayer Burden
All Taxable Corporations 2.1 140 $6,100 $15,100
Small 2.0 90 $3,100 $6,400
Large* 0.1 895 $49,700 $142,600
*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 per Taxpayer Average Cost per Average Monetized
Taxpayer (millions) (hours) Taxpayer Burden
All Pass-Through Corporations 5.4 80 $3,100 $6,400
Small 5.3 80 $2,800 $5,800
Large* 0.1 330 $24,500 $58,500
*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 2022 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. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms
simpler, we would be happy to hear from you. You can send us comments from 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. Don't
send the form to this office.

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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            335100 Electric Lighting Equipment Mfg   441300 Automotive Parts, Accessories, 
237210 Land Subdivision                                      Products 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 and   Technical Services
455210 Warehouse Clubs,                     488490 Other Support Activities for Road          pension funds)                    541600  Management, Scientific, & 
       Supercenters, & Other General               Transportation                      Funds, Trusts, and Other Financial               Technical Consulting Services
       Merch. Retailers                     488510 Freight Transportation              Vehicles                                 541700  Scientific Research & 
Health and Personal Care Retailers                 Arrangement                         525100 Insurance & Employee Benefit              Development Services
456110 Pharmacies & Drug Retailers          488990 Other Support Activities for               Funds                             541800  Advertising, Public Relations, & 
456120 Cosmetics, Beauty Supplies, &               Transportation                      525910 Open-End Investment Funds                 Related Services
       Perfume Retailers                    Couriers and Messengers                           (Form 1120-RIC)                   541910  Marketing Research & Public 
456130 Optical Goods Retailers              492110 Couriers & Express Delivery         525920 Trusts, Estates, & Agency                 Opinion Polling
456190 Other Health & Personal Care                Services                                   Accounts                          541920  Photographic Services
       Retailers                            492210 Local Messengers & Local            525990 Other Financial Vehicles          541930  Translation & Interpretation 
Gasoline Stations & Fuel Dealers                   Delivery                                   (including mortgage REITs &               Services
457100 Gasoline Stations (including         Warehousing and Storage                           closed-end investment funds)      541940  Veterinary Services
       convenience stores with gas)         493100 Warehousing & Storage (except       Real Estate and Rental and               541990  All Other Professional, Scientific, 
457210 Fuel Dealers (including heating             lessors of miniwarehouses &                                                          & Technical Services
       oil & liquefied petroleum)                  self-storage units)                 Leasing
Clothing and Accessories Retailers          Information                                Real Estate                              Management of Companies 
458110 Clothing & Clothing Accessories                                                 531110 Lessors of Residential Buildings  (Holding Companies)
       Retailers                            Motion Picture and Sound Recording                & Dwellings (including equity     551111  Offices of Bank Holding 
458210 Shoe Retailers                       Industries                                        REITs)                                    Companies
458310 Jewelry Retailers                    512100 Motion Picture & Video Industries   531120 Lessors of Nonresidential         551112  Offices of Other Holding 
458320 Luggage & Leather Goods                     (except video rental)                      Buildings (except                         Companies
       Retailers                            512200 Sound Recording Industries                 Miniwarehouses) (including 
Sporting, Hobby, Book, Musical              Publishing Industries                             equity REITs)                     Administrative and Support and 
Instrument, & Miscellaneous Retailers       513110 Newspaper Publishers                531130 Lessors of Miniwarehouses & 
459110 Sporting Goods Retailers             513120 Periodical Publishers                      Self-Storage Units (including     Waste Management and 
459120 Hobby, Toy, & Game Retailers         513130 Book Publishers                            equity REITs)
459130 Sewing, Needlework, & Piece          513140 Directory & Mailing List            531190 Lessors of Other Real Estate      Remediation Services
       Goods Retailers                             Publishers                                 Property (including equity REITs) Administrative and Support Services
459140 Musical Instrument & Supplies        513190 Other Publishers                    531210 Offices of Real Estate Agents &   561110  Office Administrative Services
                                                                                              Brokers                           561210  Facilities Support Services
       Retailers                            513210 Software Publishers                 531310 Real Estate Property Managers     561300  Employment Services
459210 Book Retailers & News Dealers        Broadcasting & Content Providers &         531320 Offices of Real Estate Appraisers 561410  Document Preparation Services
       (including newsstands)               Telecommunications                         531390 Other Activities Related to Real  561420  Telephone Call Centers
459310 Florists                             516100 Radio & Television Broadcasting            Estate
459410 Office Supplies & Stationery                Stations                            Rental and Leasing Services              561430  Business Service Centers 
                                                                                                                                        (including private mail centers & 
       Retailers                            516210 Media Streaming, Social             532100 Automotive Equipment Rental &             copy shops)
       Retailers                                   Providers
459420 Gift, Novelty, & Souvenir                   Networks, & Other Content                  Leasing                           561440  Collection Agencies
459510 Used Merchandise Retailers           517000 Telecommunications (including       532210 Consumer Electronics &            561450  Credit Bureaus
459910 Pet & Pet Supplies Retailers                wired, wireless, satellite, cable &        Appliances Rental
459920 Art Dealers                                 other program distribution,         532281 Formal Wear & Costume Rental      561490  Other Business Support Services 
                                                   resellers, agents, other                                                             (including repossession services, 
459930 Manufactured (Mobile) Home                  telecommunications, & Internet      532282 Video Tape & Disc Rental                  court reporting, & stenotype 
       Dealers                                     service providers)                  532283 Home Health Equipment Rental              services)
459990 All Other Miscellaneous Retailers    Data Processing, Web Search Portals,       532284 Recreational Goods Rental         561500  Travel Arrangement & 
       (including tobacco, candle, &        & Other Information Services               532289 All Other Consumer Goods                  Reservation Services
       trophy retailers)                    518210 Computing Infrastructure                   Rental                            561600  Investigation & Security Services
Nonstore Retailers                                 Providers, Data Processing, Web     532310 General Rental Centers            561710  Exterminating & Pest Control 
       Nonstore Retailers sell all types           Hosting, & Related Services         532400 Commercial & Industrial                   Services
       of merchandise using such            519200 Web Search Portals, Libraries,             Machinery & Equipment Rental &    561720  Janitorial Services
       methods as Internet, mail-order             Archives, & Other Info. Services           Leasing                           561730  Landscaping Services
       catalogs, interactive television, or                                            Lessors of Nonfinancial Intangible       561740  Carpet & Upholstery Cleaning 
       direct sales. These types of         Finance and Insurance                      Assets (except copyrighted works)                Services
       Retailers should select the PBA      Depository Credit Intermediation           533110 Lessors of Nonfinancial           561790  Other Services to Buildings & 
       associated with their primary line                                                     Intangible Assets (except                 Dwellings
       of products sold. For example,       522110 Commercial Banking                         copyrighted works)                561900  Other Support Services 
       establishments primarily selling     522130 Credit Unions
       prescription and non-prescription    522180 Savings Institutions & Other        Professional, Scientific, and                    (including packaging & labeling 
       drugs, select PBA code 456110               Depository Credit Intermediation                                                     services, & convention & trade 
       Pharmacies & Drug Retailers.                                                    Technical Services                               show organizers)
                                            Nondepository Credit Intermediation
Transportation and                          522210 Credit Card Issuing                 Legal Services                           Waste Management and Remediation 
                                                                                                                                Services
Warehousing                                 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
                                                   mortgage bankers & originators)     Bookkeeping, and Payroll Services
482110 Rail Transportation                  522299 Intl, Secondary Market, & Other     541211 Offices of Certified Public       611000  Educational Services (including 
483000 Water Transportation                        Nondepos. Credit Intermediation            Accountants                               schools, colleges, & universities)
Truck Transportation                        Activities Related to Credit               541213 Tax Preparation Services          Health Care and Social 
484110 General Freight Trucking, Local      Intermediation                             541214 Payroll Services
484120 General Freight Trucking,            522300 Activities Related to Credit        541219 Other Accounting Services         Assistance
       Long-Distance                               Intermediation (including loan      Architectural, Engineering, and Related  Offices of Physicians and Dentists
484200 Specialized Freight Trucking                brokers, check clearing, &          Services                                 621111  Offices of Physicians (except 
                                                   money transmitting)
Transit and Ground Passenger                                                           541310 Architectural Services                    mental health specialists)
Transportation                                                                         541320 Landscape Architecture Services   621112  Offices of Physicians, Mental 
485110 Urban Transit Systems                                                           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, &      812320 Drycleaning & Laundry Services 
621491 HMO Medical Centers                      Athletes, Entertainers, & Other        Buffets                                  (except Coin-Operated)
621492 Kidney Dialysis Centers                  Public Figures                  722515 Snack & Non-Alcoholic             812330 Linen & Uniform Supply
621493 Freestanding Ambulatory           711510 Independent Artists, Writers, &        Beverage Bars                     812910 Pet Care (except Veterinary) 
       Surgical & Emergency Centers             Performers                                                                      Services
621498 All Other Outpatient Care         Museums, Historical Sites, and Similar Other Services                           812920 Photofinishing
       Centers                           Institutions                           Repair and Maintenance                   812930 Parking Lots & Garages
Medical and Diagnostic Laboratories      712100 Museums, Historical Sites, &    811110 Automotive Mechanical &           812990 All Other Personal Services
                                                Similar Institutions                   Electrical Repair & Maintenance
621510 Medical & Diagnostic              Amusement, Gambling, and Recreation    811120 Automotive Body, Paint, Interior, Religious, Grantmaking, Civic, 
       Laboratories                      Industries                                    & Glass Repair                    Professional, and Similar Organizations
Home Health Care Services                713100 Amusement Parks & Arcades       811190 Other Automotive Repair &         813000 Religious, Grantmaking, Civic, 
621610 Home Health Care Services         713200 Gambling Industries                    Maintenance (including oil               Professional, & Similar 
Other Ambulatory Health Care Services    713900 Other Amusement & Recreation           change & lubrication shops & car         Organizations (including 
621900 Other Ambulatory Health Care             Industries (including golf             washes)                                  condominium and homeowners 
                                                                                                                                associations)
       Services (including ambulance            courses, skiing facilities,     811210 Electronic & Precision 
       services & blood & organ banks)          marinas, fitness centers, &            Equipment Repair &                Other
Hospitals                                       bowling centers)                       Maintenance                       999000 Unclassified Establishments 
                                                                                811310 Commercial & Industrial 
622000 Hospitals                         Accommodation and Food                        Machinery & Equipment (except            (unable to classify)
Nursing and Residential Care Facilities                                                Automotive & Electronic) Repair 
623000 Nursing & Residential Care        Services                                      & Maintenance
       Facilities                        Accommodation                          811410 Home & Garden Equipment & 
Social Assistance                        721110 Hotels (except Casino Hotels) &        Appliance Repair & Maintenance
624100 Individual & Family Services             Motels                          811420 Reupholstery & Furniture Repair

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Index
 
                                       Gain, ordinary 14
A                                      Gross receipts  14                      Q
Accounting methods    5                                                        Qualified business income 
Accounting period   6                  I                                        deduction    40
Accumulated adjustments                Income 14                               Qualified opportunity funds               7
  account 46                           Income from oil and gas                 Qualified rehabilitation 
Amended return    6                      properties 35                          expenditures   33
Amortization  16                       Income, rental activities 26
Amount owed   22                       Income, tax-exempt   36                 R
Assembling return   4                  Income, trade or business               Recapture, low-income housing 
                                         activities 26                          credit 38
B                                      Installment sales 14                    Recapture, section 179 deduction             38
Bad debt deduction  17                 Interest deduction 18                   Recordkeeping   6
Balance sheets–Sch. L   45             Interest due on tax payment   5         Reforestation 21 32, 
Business startup expenses   16         Interest expense, investment   31       Regulations section 1.1411-10(g)             7
                                       International transactions 34           Related party transactions 16
C                                      Inventory 15                            Rental activities, income and 
                                       Investment income and expenses    37     expenses     26
Change in accounting method     6                                              Rental deduction 17
Charitable contributions  30           L                                       Return, amended  6
Cost of goods sold  14
                                       Loans from shareholders   37
D                                      Lobbying expenses,                      S
                                         nondeductible   20                    Salaries and wages   17
Deductions   15 30,                    Low-income housing credit    32         Sales 14
Deductions from oil and gas            Low-income housing credit               Schedule K-2  34
  properties  35                         recapture  38                         Schedule K-3  34
Deductions, limitations on  15
                                                                               Schedule L 45
Depletion 19                           M                                       Schedule M-1  46
Depletion (other than oil and gas) 35
                                       Multiple activities–reporting           Schedule M-2  46
Depreciation  19                         requirements  25                      Schedule M-3  13
Direct deposit of refund  2 22, 
                                                                               Section 1400Z-1  7
Distributions 47                       N                                       Section 1411 election with respect to 
Distributions, property 37                                                      CFCs and QEFs     7
                                       Net investment income (code U)    39
E                                      Net investment income tax reporting     Section 179 expense   30
                                         requirements  12                      Section 199A information  40
Election, termination of  2                                                    Section 263A rules  15
Electronic filing 3                    O                                       Section 59(e)(2) expenditures              31
Employee benefit programs      19      Officer compensation   17               Self-charged interest 10
Employer identification number                                                 Substitute Sch. K-1 23
  (EIN) 13
Estimated tax payment    4 22,         P
                                                                               T
Estimated tax penalty 22               Passive activities–rental 9
Exception to filing Schedule K-2  34   Passive activities–reporting            Tax issues, unresolved   2
Expenses, nondeductible–Sch. K or        requirements  11                      Taxes and licenses deduction               18
  K-1 36                               Passive activity limitations 8          Taxes due 21
Extension of time to file 3            Penalties 5                             Termination of S election 2
                                       Pension, profit-sharing, etc., plans 19 Travel and entertainment 
F                                      Portfolio income 10 26,                  deduction    20
Farming, special rules 16              PPP loan forgiveness  23 29 47, , 
Final return 14                        PPP reporting  36                       W
Forgiveness of PPP loans    47         Preparer, tax return 4                  When to file 3
Forms and Publications, how to get   2 Private delivery services 3             Where to file 3
                                       Property distributions 37               Who must file 2
                                                                               Who must sign   3
G
Gain (loss), section 1231–Sch. K or 
  K-1 28

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