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                                                                                                            Department of the Treasury
                                                                                                            Internal Revenue Service
2022

Instructions for Form 

1120-REIT

U.S. Income Tax Return for Real Estate Investment Trusts

Section references are to the Internal Revenue    Contents                                  Page   Advanced manufacturing investment 
Code unless otherwise noted.
                                                  Schedule A—Deduction for                         credit.  If a REIT held a qualified 
Contents                                  Page    Dividends Paid .      . . . . . . . . . . .   15 investment in an advanced manufacturing 
Photographs of Missing Children       . . . . 1   Schedule J—Tax Computation .        . . . .   15 facility that is placed in service after 
The Taxpayer Advocate Service .       . . . . 1   Schedule K—Other Information .        . . .   18 December 31, 2022, it can elect to treat 
How To Get Forms and                              Schedule L—Balance Sheets per                    the credit for the advanced manufacturing 
Publications .    . . . . . . . . . . . . . . 2   Books .  . . . . . . . . . . . . . . . . .    19 investment as a deemed payment. If the 
General Instructions .  . . . . . . . . . . . . 2 Schedule M-1 .  . . . . . . . . . . . . . . . 20 election is made, the REIT is treated as 
Purpose of Form . . . . . . . . . . . . . . . 2                                                    making a payment against tax by the 
Who Must File   . . . . . . . . . . . . . . . . 2 Future Developments                              amount of the credit. See section 48D. 
General Requirements To Qualify                   For the latest information about                 See the Instructions for Form 3468 for 
as a REIT       . . . . . . . . . . . . . . . . 2 developments related to Form 1120-REIT           information on how to report the deemed 
Other Requirements      . . . . . . . . . . . . 2 and its instructions, such as legislation        credit on the REIT’s return.
Termination of Election . . . . . . . . . . . 2   enacted after they were published, go to 
Taxable REIT Subsidiaries (TRS) .       . . . 2   IRS.gov/Form1120REIT.                            Photographs of Missing 
Where To File . . . . . . . . . . . . . . . . . 3                                                  Children
When To File .  . . . . . . . . . . . . . . . . 3 What’s New                                       The Internal Revenue Service is a proud 
Who Must Sign . . . . . . . . . . . . . . . . 3   Increase in penalty for failure to file.         partner with the National Center for 
Paid Preparer Authorization .   . . . . . . . 4   For returns due in 2023, the minimum             Missing & Exploited Children® (NCMEC). 
Assembling the Return .   . . . . . . . . . . 4   penalty for failure to file a return that is     Photographs of missing children selected 
Tax Payments    . . . . . . . . . . . . . . . . 4 over 60 days late has increased to the           by the Center may appear in instructions 
Estimated Tax Payments      . . . . . . . . . 4   smaller of the tax due or $450. See the          on pages that would otherwise be blank. 
Interest and Penalties . . . . . . . . . . . . 4  Late filing of return, later.                    You can help bring these children home 
                                                                                                   by looking at the photographs and calling 
Accounting Methods .     . . . . . . . . . . . 5  Form 1120-W now historical.           Form       1-800-THE-LOST (1-800-843-5678) if you 
Accounting Period . . . . . . . . . . . . . . 5   1120-W, Estimated Tax for Corporations,          recognize a child.
Rounding Off to Whole Dollars .     . . . . . 5   and the Instructions for Form 1120-W are 
Recordkeeping . . . . . . . . . . . . . . . . 6   now historical. The 2022 Form 1120-W             The Taxpayer Advocate 
Other Forms That May Be                           (released in 2021) and the 2022 
Required .      . . . . . . . . . . . . . . . . 6 Instructions for Form 1120-W (released in        Service
Statements . . . . . . . . . . . . . . . . . . 7  2021) will be the last revision of both the      The Taxpayer Advocate Service (TAS) is 
Specific Instructions . . . . . . . . . . . . . 8 form and its instructions. Prior versions will   an independent organization within the 
Period Covered  . . . . . . . . . . . . . . . 8   be available on IRS.gov.                         IRS that helps taxpayers and protects 
                                                                                                   taxpayer rights. TAS's job is to ensure that 
Name and Address .      . . . . . . . . . . . . 8 Payroll credit for COVID-related paid            every taxpayer is treated fairly and knows 
Item B. 100% owned Subsidiaries                   sick and family leave.    Generally, the         and understands their rights under the 
and Personal Holding                              credit for qualified sick and family leave       Taxpayer Bill of Rights.
Companies .       . . . . . . . . . . . . . . 8   wages, as enacted under the Families 
Item C. Employer Identification                   First Coronavirus Response Act (FFCRA),            As a taxpayer, the REIT has rights that 
Number (EIN) .      . . . . . . . . . . . . . 8   and amended and extended by the                  the IRS must abide by in its dealings with 
Item D. Date REIT Established .     . . . . . 8   COVID-related Tax Relief Act of 2020, and        the REIT. TAS can help the REIT if:
Item E. Total Assets .  . . . . . . . . . . . . 8 the credit for qualified sick and family         • A problem is causing financial difficulty 
Item F. Final Return, Name                        leave wages, as enacted under the                for the business;
Change, Address Change, or                        American Rescue Plan Act of 2021 (the            • The business is facing an immediate 
Amended Return .         . . . . . . . . . . . 8  ARP), have expired. However, employers           threat of adverse action; or
Item G. Type of REIT .   . . . . . . . . . . . 8  that paid qualified sick and family leave        • The REIT has tried repeatedly to 
Item H. PBA Code (Equity REITs                    wages in 2022 for leave taken after March        contact the IRS but no one has 
Only) .  . . . . . . . . . . . . . . . . . . 8    31, 2020, and before October 1, 2021,            responded, or the IRS hasn't responded 
Part I—Real Estate Investment                     may be eligible to claim a credit for            by the date promised.
Trust Taxable Income          . . . . . . . . 8   qualified sick and family leave wages in 
Part II—Tax on Net Income From                    2022. See the March 2022 revision of the           The TAS tax toolkit at 
Foreclosure Property .        . . . . . . .   14  Instructions for Form 941 and the 2022           TaxpayerAdvocate.IRS.gov can help the 
Part III—Tax for Failure To Meet                  Instructions for Form 944 for more               REIT understand these rights.
Certain Source-of-Income 
Requirements .      . . . . . . . . . . . .   15  information. There’s no double tax benefit 
Part IV—Tax on Net Income From                    allowed and the amounts claimed are                TAS has offices in every state, the 
Prohibited Transactions .         . . . . .   15  reportable as income. See Line 7, Other          District of Columbia, and Puerto Rico. 
                                                  income , later.                                  Local advocates' numbers are in their 
                                                                                                   local directories and at 

Feb 16, 2023                                               Cat. No. 64243J

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TaxpayerAdvocate.IRS.gov. The REIT            General Requirements To                     Termination of Election
can also call TAS at 877-777-4778.                                                        The election to be treated as a REIT 
                                              Qualify as a REIT
  TAS also works to resolve large-scale       To qualify as a REIT, an organization:      remains in effect until terminated, revoked, 
or systemic problems that affect many         • Must be a corporation, trust, or          or the REIT has failed to meet the 
taxpayers. If the REIT knows of one of        association.                                requirements of the statutory relief 
these broad issues, please report it to TAS   • Must be managed by one or more            provisions. It terminates automatically for 
through the Systemic Advocacy                 trustees or directors.                      any tax year in which the corporation, 
Management System at IRS.gov/SAMS.            • Must have beneficial ownership (a)        trust, or association is not a qualified 
  For more information, go to IRS.gov/        evidenced by transferable shares, or by     REIT.
Advocate.                                     transferable certificates of beneficial 
                                                                                            The organization may revoke the 
                                              interest; and (b) held by 100 or more 
                                                                                          election for any tax year after the 1st tax 
                                              persons. (The REIT does not have to meet 
                                                                                          year the election is effective by filing a 
How To Get Forms                              this requirement until its 2nd tax year.)
                                                                                          statement with the service center where it 
and Publications                              • Would otherwise be taxed as a 
                                                                                          files its income tax return. The statement 
Internet. You can access the IRS website      domestic corporation.
                                                                                          must be filed on or before the 90th day 
24 hours a day, 7 days a week, at IRS.gov     • Must be neither a financial institution 
                                                                                          after the 1st day of the tax year for which 
to:                                           (referred to in section 582(c)(2)), nor a 
                                                                                          the revocation is to be effective. The 
• Download forms, instructions, and           subchapter L insurance company.
                                                                                          statement must include the following:
publications;                                 • Cannot be closely held, as defined in 
• Order IRS products online;                  section 856(h). (The REIT does not have     • The name, address, and employer 
                                                                                          identification number (EIN) of the 
• Research your tax questions online;         to meet this requirement until its 2nd tax 
                                                                                          organization;
• Search publications online by topic or      year.)
                                                                                          • The tax year for which the election was 
keyword;                                         If a REIT meets the requirement for      made;
• View Internal Revenue Bulletins (IRBs)      ascertaining actual ownership (see          • A statement that the organization 
published in recent years; and                Regulations section 1.857-8 for details),   (according to section 856(g)(2)) revokes 
• Sign up to receive local and national tax   and did not know (after exercising          its election under section 856(c)(1) to be a 
news by email.                                reasonable diligence), or have reason to    REIT; and
                                              know, that it was closely held, it will be  • The signature of an official authorized 
Tax forms and publications.     The REIT      treated as meeting the requirement that it  to sign the income tax return of the 
can view, download, or print all of the       is not closely held.                        organization.
forms and publications it may need at 
IRS.gov/FormsPubs.                                                                          The organization may not make a new 
                                              Other Requirements
  Otherwise, the REIT can go to IRS.gov/      The gross income and diversification of     election to be taxed as a REIT during the 4 
OrderForms to place an order and have         investment requirements of section 856(c)   years following the 1st year for which the 
forms mailed to it.                           must be met and the organization must:      termination or revocation is effective. See 
                                              • Have been treated as a REIT for all tax   section 856(g)(4) for exceptions.
General Instructions                          years beginning after February 28, 1986, 
                                              or                                          Taxable REIT Subsidiaries 
Purpose of Form                               • Had, at the end of the tax year, no       (TRS)
                                              accumulated earnings and profits from       A REIT may own up to 100% of the stock 
Use Form 1120-REIT, U.S. Income Tax           any tax year that it was not a REIT.        in one or more taxable REIT subsidiaries 
Return for Real Estate Investment Trusts, 
to report the income, gains, losses,             For this purpose, distributions are      (TRS). A TRS must be a corporation 
deductions, credits, certain penalties, and   treated as made from the earliest earnings  (other than a REIT or a qualified REIT 
to figure the income tax liability of a REIT. and profits accumulated in any non-REIT     subsidiary) and may provide services to 
                                              tax year. See section 857(d)(3).            the REIT's tenants without disqualifying 
Who Must File                                 • The organization must adopt a calendar    the rent received by the REIT. See section 
                                              tax year unless it first qualified for REIT 856(l) for details, including certain 
A corporation, trust, or association that     status before October 5, 1976.              restrictions on the type of business 
meets certain conditions (discussed           • The deduction for dividends paid          activities a TRS may perform. Also, not 
below) must file Form 1120-REIT if it         (excluding net capital gain dividends, if   more than 20% of the fair market value 
elects to be treated as a REIT for the tax    any) must equal or exceed:                  (FMV) of a REIT's total assets (25% for tax 
year (or has made that election for a prior 
tax year and the election has not been           1. 90% of the REIT's taxable income      years beginning after July 30, 2008, and 
terminated or revoked). The election is       (excluding the deduction for dividends      no later than December 31, 2017) may be 
made by figuring taxable income as a          paid and any net capital gain), plus        securities of one or more TRSs (see 
REIT on Form 1120-REIT.                          2. 90% of the excess of the REIT's net   section 856(c)(4) for details).
                                              income from foreclosure property over the     Transactions between a TRS and its 
Qualified opportunity funds.    To certify    tax imposed on that income by section       associated REIT must be at arm's length. 
as a qualified opportunity fund (QOF), the    857(b)(4)(A); less                          A REIT may be subject to a 100% tax to 
corporation must file Form 1120-REIT and 
attach Form 8996, even if the corporation        3. Any excess noncash income, as         the extent it improperly allocates income 
had no income or expenses to report. See      determined under section 857(e).            and deductions between the REIT and the 
Schedule K, Question 12, later. Also, see        See sections 856 and 857, and the        TRS (see section 857(b)(7) for details). 
the Instructions for Form 8996.               related regulations for details and         Additional limitations on transactions 
                                              exceptions.                                 between a TRS and its associated REIT 
                                                                                          include:
                                                                                          • Limitations on income from a TRS that 
                                                                                          may be treated as rents from real property 
                                                                                          by the REIT (see section 856(d)(8)), and

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• Limitations on a TRS's deduction for        by the 15th day of the 3rd month after the  Business Income Tax, Information, and 
interest paid to its associated REIT (see     end of its tax year.                        Other Returns, to request an extension of 
section 163(j)).                                                                          time to file. Generally, file Form 7004 by 
                                              If the due date falls on a Saturday,        the regular due date of the REIT's income 
  To elect to have an eligible corporation    Sunday, or legal holiday, the REIT can file tax return. See the Instructions for Form 
treated as a TRS, the corporation and the     on the next business day.                   7004 for more information.
REIT must jointly file Form 8875, Taxable 
REIT Subsidiary Election.                     Private Delivery Services
Restrictions on tax-free spinoffs from        The REIT can use certain private delivery   Who Must Sign
REITs. For distributions after December       services (PDS) designated by the IRS to     The return must be signed and dated by:
6, 2015, a REIT is generally ineligible to    meet the “timely mailing as timely filing”  • The president, vice president, treasurer, 
participate in a tax-free spinoff as either a rule for tax returns. Go to IRS.gov/PDS for assistant treasurer, chief accounting 
distributing or controlled corporation under  the current list of designated services.    officer; or
                                                                                          • Any other corporate officer (such as a 
section 355. This general rule does not       The PDS can tell you how to get written     tax officer) authorized to sign.
apply if both the distributing corporation    proof of the mailing date.
and the controlled corporation are REITs                                                    If a return is filed on behalf of a REIT by 
immediately after the distribution. Also, a   For the IRS mailing address to use if       a receiver, trustee, or assignee, the 
REIT may spin off a TRS if the following      you're using a PDS, go to IRS.gov/          fiduciary must sign the return, instead of 
apply.                                        PDSStreetAddresses.                         the corporate officer. Returns and forms 
• The distributing corporation has been a             Private delivery services can't     signed by a receiver or trustee in 
                                                                                          bankruptcy on behalf of a REIT must be 
ending on the date of distribution;           CAUTION must use the U.S. Postal Service 
REIT at all times during the 3-year period    !       deliver items to P.O. boxes. You    accompanied by a copy of the order or 
• The controlled corporation has been a       to mail any item to an IRS P.O. box         instructions of the court authorizing 
TRS of the REIT at all times during such      address.                                    signing of the return or form.
period; and
                                                                                          Paid Preparer Use Only section.        If an 
• The REIT has had control (as defined in     Extension of Time To File                   employee of the REIT completes Form 
section 368(c) applied by taking into 
account stock owned, directly and             File Form 7004, Application for Automatic   1120-REIT, the paid preparer's section 
indirectly, including through partnerships,   Extension of Time To File Certain           should remain blank. Anyone who 
by the REIT) of the TRS at all times during 
such period.                                  Where To File
  A controlled corporation is treated as      File the REIT's return at the applicable IRS address listed below.
meeting the control requirements if the 
stock of the corporation was distributed by   If the REIT's principal        And the total assets at   Use the following address:
a TRS in a transaction to which section       business, office, or agency  the end of the tax year 
355 applies and the assets of the             is located in:                 are:
corporation consist solely of the stock or 
assets held by one or more TRSs of the        Connecticut, Delaware,                                   Department of the Treasury
                                                                             Less than $10 million and 
distributing corporation meeting the          District of Columbia, Georgia,                           Internal Revenue Service
                                                                             Schedule M-3 is not filed
control requirements described above.         Illinois, Indiana, Kentucky,                             Kansas City, MO 64999-0012
                                              Maine, Maryland, 
  If a corporation that is not a REIT was a   Massachusetts, Michigan, 
distributing or controlled corporation with   New Hampshire, New 
respect to any distribution to which section  Jersey, New York, North        $10 million or more, or   Department of the Treasury
355 applied, the corporation will not be      Carolina, Ohio,                less than $10 million and  Internal Revenue Service
eligible to make a REIT election for any tax  Pennsylvania, Rhode Island,    Schedule M-3 is filed     Ogden, UT 84201-0012
year beginning before the end of the          South Carolina, Tennessee, 
10-year period beginning on the date of       Vermont, Virginia, West 
such distribution.                            Virginia, Wisconsin
  See sections 355(h) and 856(c)(8) for       Alabama, Alaska, Arizona, 
more details.                                 Arkansas, California, 
                                              Colorado, Florida, Hawaii, 
When To File                                  Idaho, Iowa, Kansas, 
Generally, a REIT must file its income tax    Louisiana, Minnesota,                                    Department of the Treasury
return by the 15th day of the 4th month       Mississippi, Missouri,             Any Amount            Internal Revenue Service
after the end of its tax year. A new REIT     Montana, Nebraska, Nevada,                               Ogden, UT 84201-0012
filing a short-period return must generally   New Mexico, North Dakota, 
file by the 15th day of the 4th month after   Oklahoma, Oregon, South 
the short period ends. A REIT that has        Dakota, Texas, Utah, 
dissolved must generally file by the 15th     Washington, Wyoming
day of the 4th month after the date it                                                                 Internal Revenue Service
dissolved.                                    A foreign country or U.S.          Any Amount            P.O. Box 409101
                                              possession 
  However, a REIT with a fiscal tax year                                                               Ogden, UT 84409
ending June 30 must file by the 15th day 
of the 3rd month after the end of its tax 
year. A REIT with a short tax year ending     A group of corporations with members located in more than one service center area will 
anytime in June will be treated as if the     often keep all the books and records at the principal office of the managing corporation. 
short year ended on June 30, and must file    In this case, the tax returns of the corporations may be filed with the service center for 
                                              the area in which the principal office of the managing corporation is located.

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prepares Form 1120-REIT but does not          5. Form 4136.                                     800-733-4829. Additional information 
charge the REIT should not complete that      6. Form 8978.                                     about EFTPS is also available in Pub. 966.
section. Generally, anyone who is paid to 
prepare the return must sign it and           7. Form 965-B.                                    Depositing on time.    For any deposit 
complete the section.                         8. Form 8941.                                     made by EFTPS to be on time, the REIT 
                                                                                                must submit the deposit by 8 p.m. Eastern 
                                              9. Form 3800.
  The paid preparer must complete the                                                           time the day before the date the deposit is 
required preparer information and:            10. Form 8997                                     due. If the REIT uses a third party to make 
• Sign the return in the space provided       11. Additional schedules in                       deposits on its behalf, they may have 
for the preparer's signature,                 alphabetical order.                               different cutoff times.
• Include their Preparer Tax Identification   12. Additional forms in numerical order.          Same-day wire payment option.     If the 
Number (PTIN), and                                                                              REIT fails to submit a deposit transaction 
• Give a copy of the return to the REIT.      13. Supporting statements and 
                                              attachments.                                      on EFTPS by 8 p.m. Eastern time on the 
    A paid preparer may sign the                                                                day before the date a deposit is due, it can 
TIP original or amended returns by            Complete every applicable entry space             still make its deposit on time by using the 
    rubber stamp, mechanical device,          on Form 1120-REIT. Do not enter “See              Federal Tax Collection Service (FTCS). 
or computer software program.                 attached” instead of completing the entry         To use the same-day payment method, 
                                              spaces. If more space is needed on the            the REIT will need to make arrangements 
                                              forms or schedules, attach separate               with its financial institution ahead of time 
Paid Preparer                                 sheets using the same size and format as          regarding availability, deadlines, and 
Authorization                                 the printed forms.                                costs. Financial institutions may charge a 
                                                                                                fee for payments made this way. To learn 
If the REIT wants to allow the IRS to         If there are supporting statements and            more about the information the REIT will 
discuss its 2022 tax return with the paid     attachments, arrange them in the same             need to provide its financial institution to 
preparer who signed it, check the “Yes”       order as the schedules or forms they              make a same-day wire payment, visit the 
box in the signature area of the return.      support and attach them last. Show the            IRS website at IRS.gov/SameDayWire.
This authorization applies only to the        totals on the printed forms. Enter the 
individual whose signature appears in the     REIT's name and EIN on each supporting 
                                                                                                Estimated Tax Payments
“Paid Preparer Use Only” section of the       statement or attachment.
REIT's return. It does not apply to the firm,                                                   Generally, the following rules apply to the 
if any, shown in that section.                                                                  REIT's payments of estimated tax.
                                              Tax Payments                                      • The REIT must make installment 
  If the “Yes” box is checked, the REIT is    Generally, the REIT must pay the tax due          payments of estimated tax if it expects its 
authorizing the IRS to call the paid          in full no later than the due date for filing its total tax for the year (less applicable 
preparer to answer any questions that         tax return (not including extensions). See        credits) to be $500 or more.
may arise during the processing of its        the instructions for line 27, later. If the due   • The REIT must use electronic funds 
return. The REIT is also authorizing the      date falls on a Saturday, Sunday, or legal        transfer to make installment payments of 
paid preparer to:                             holiday, the payment is due on the next           estimated tax.
• Give the IRS any information that is        day that isn't a Saturday, Sunday, or legal       • The installments are due by the 15th 
missing from the return;                      holiday.                                          day of the 4th, 6th, 9th, and 12th months 
• Call the IRS for information about the                                                        of the tax year. If any date falls on a 
processing of the return or the status of     Electronic Deposit 
                                                                                                Saturday, Sunday, or legal holiday, the 
any related refund or payment(s); and         Requirement                                       installment is due on the next regular 
• Respond to certain IRS notices about        REITs must use electronic funds transfer          business day.
math errors, offsets, and return              to make all federal tax deposits (such as         • If, after the REIT figures and deposits 
preparation.                                  deposits of employment, excise, and               estimated tax, it finds that its tax liability for 
                                              corporate income tax). Generally,                 the year will be more or less than originally 
  The REIT is not authorizing the paid        electronic funds transfers are made using         estimated, it may have to refigure its 
preparer to receive any refund check, bind    the Electronic Federal Tax Payment                required installments. If earlier 
the REIT to anything (including any           System (EFTPS). However, if the REIT              installments were underpaid, the REIT 
additional tax liability), or otherwise       does not want to use EFTPS, it can                may owe a penalty. See the instructions 
represent the REIT before the IRS.            arrange for its tax professional, financial       for line 26, later.
  The authorization will automatically end    institution, payroll service, or other trusted    • If the REIT overpaid its estimated tax, it 
no later than the due date (without regard    third party to make deposits on its behalf.       may be able to get a quick refund by filing 
to extensions) for filing the REIT's 2023     Also, it may arrange for its financial            Form 4466, Corporation Application for 
tax return. If the REIT wants to expand the   institution to submit a same-day wire             Quick Refund of Overpayment of 
paid preparer's authorization, see Pub.       payment (discussed below) on its behalf.          Estimated Tax. The overpayment must be 
947, Practice Before the IRS and Power of     EFTPS is a free service provided by the           at least 10% of the REIT's expected 
Attorney.                                     Department of the Treasury. Services              income tax liability and at least $500.
                                              provided by a tax professional, financial 
                                              institution, payroll service, or other third        See section 6655 for more information 
Assembling the Return                         party may have a fee.                             on how to figure estimated taxes.
To ensure that the REIT's tax return is 
correctly processed, attach all schedules     To get more information about EFTPS               Interest and Penalties
and other forms after page 5 of Form          or to enroll in EFTPS, visit EFTPS.gov. To 
1120-REIT, in the following order.            contact EFTPS using                                       If the corporation receives a notice 
  1. Schedule N (Form 1120).                  Telecommunications Relay Services                   !     about penalties after it files its 
  2. Schedule D (Form 1120).                  (TRS) for people who are deaf, hard of            CAUTION return, send the IRS an 
                                              hearing, or have a speech disability, dial        explanation and we will determine if the 
  3. Form 8949.                               711 and provide the TRS assistant the             corporation meets the reasonable-cause 
  4. Form 8996.                               800-555-4477 number above or 

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criteria. Do not attach an explanation the credit for qualified sick and family Section 481(a) adjustment. If the
when the corporation’s return is filed. leave wages or the employee retention REIT's taxable income for the current tax
credit that they are entitled to. See Pub. 15 year is figured under a method of
Interest. Interest is charged on taxes or Pub. 51 for more information. accounting different from the method used
paid late even if an extension of time to file in the preceding tax year, the REIT may
is granted. Interest is also charged on Failure to ascertain ownership. If the
have to make an adjustment under section
penalties imposed for failure to file, REIT fails to comply with Regulations
481(a) to prevent amounts of income or
negligence, fraud, substantial valuation section 1.857-8 for ascertaining ownership
expenses from being duplicated or
misstatements, and substantial and maintaining factual ownership records
omitted. This is referred to as a “section
understatements of tax from the due date for a tax year, it must pay a $25,000
481(a) adjustment.” The section 481(a)
(including extensions) to the date of penalty ($50,000 for intentional disregard)
adjustment period is generally 1 year for a
payment. The interest charge is figured at upon notice and demand by the IRS. If the
net negative adjustment and 4 years for a
a rate determined under section 6621. REIT can show that the failure was due to
net positive adjustment. However, in some
reasonable cause, the penalty may not be
cases, a REIT can elect to modify the
Late filing of return. A REIT that does imposed. For more information, see
section 481(a) adjustment period. The
not file its tax return by the due date, section 857(f).
including extensions, may be penalized REIT must complete the appropriate lines
5% of the unpaid tax for each month or Failure to satisfy certain REIT qualifi- of Form 3115 to make the election. See
part of a month the return is late, up to a cation provisions. If the REIT is required the Instructions for Form 3115 for more
maximum of 25% of the unpaid tax. The to pay the $50,000 penalty under section information and exceptions. If the net
minimum penalty for a return that is over 856(g)(5)(C) for each failure to satisfy a section 481(a) adjustment is positive,
60 days late is the smaller of the tax due REIT qualification provision of sections report it on line 7 as other income. If the
or $450. The penalty will not be imposed if 856–859 (other than section 856(c)(2), net section 481(a) adjustment is negative,
the REIT can show that the failure to file 856(c)(3), or 856(c)(4)) due to reasonable report it on line 18 as a deduction.
on time was due to reasonable cause. See cause and not willful neglect, see the
Caution above. instructions for Schedule J, line 2f, later. Note. Include any net positive section
481(a) adjustment on Part I, line 7. Report
Late payment of tax. A REIT that does Other penalties. Other penalties can be any negative adjustment on Part I, line 18.
not pay the tax when due may generally imposed for negligence, substantial
be charged a penalty for the failure to pay understatement of tax, reportable
tax. The amount of the penalty is / of 1% 1 2 transaction understatements, and fraud. Accounting Period
of the unpaid tax for each month or part of See sections 6662, 6662A, and 6663. A REIT must figure its taxable income on
the basis of a tax year. A tax year is the
a month the tax is not paid, up to a annual accounting period a REIT uses to
maximum of 25% of the unpaid tax. The Accounting Methods
keep its records and report its income and
penalty will not be imposed if the REIT can Figure taxable income using the method of expenses. A REIT adopts a tax year when
show that the failure to pay on time was accounting regularly used in keeping the it files its first income tax return. It must
due to reasonable cause. See Caution REIT's books and records. In all cases, adopt a tax year by the due date (not
above. the method used must clearly show including extensions) of its initial income
taxable income.
Trust fund recovery penalty. This tax return.
penalty may apply if certain excise, Generally, permissible methods
income, social security, and Medicare include: Note. A REIT must adopt a calendar year
taxes that must be collected or withheld • Cash, unless it first qualified for REIT status
are not collected or withheld, or these • Accrual, or before October 5, 1976.
taxes are not paid. These taxes are • Any other method authorized by the Change of tax year. A REIT may not
generally reported on: Internal Revenue Code. change its tax year to any tax year other
• Form 720, Quarterly Federal Excise than the calendar year. Generally, a REIT
Accrual method. Generally, a REIT must
Tax Return; must receive consent from the IRS before
use the accrual method of accounting if its
• Form 941, Employer's QUARTERLY changing its tax year by filing Form 1128,
average annual gross receipts for the 3
Federal Tax Return; Application To Adopt, Change, or Retain a
prior tax years exceed $27 million. See
• Form 943, Employer Annual Federal Tax Year.
section 448(c).
Tax Return for Agricultural Employees;
• Form 944, Employer's ANNUAL For more information, see Pub. 538, However, upon electing to be taxed as
Federal Tax Return; or Accounting Periods and Methods. a REIT, an entity that has not engaged in
any active trade or business may change
• Form 945, Annual Return of Withheld Change in accounting method. its tax year to a calendar year without
Federal Income Tax. Generally, the REIT must get IRS consent obtaining the consent.
The trust fund recovery penalty may be to change either an overall method of
See the Instructions for Form 1128 and
imposed on all persons who are accounting or the accounting treatment of
Pub. 538 for more information on
determined by the IRS to be responsible any material item for income tax purposes.
accounting periods and tax years.
for collecting, accounting for, or paying To obtain consent, the REIT must
over these taxes, and who acted willfully in generally file Form 3115, Application for
not doing so. The penalty is equal to the Change in Accounting Method. See the Rounding Off to Whole
full amount of the unpaid trust fund tax. Instructions for Form 3115 and Pub. 538 Dollars
See the Instructions for Form 720 or Pub. for more information and exceptions. Also, The REIT may enter decimal points and
15 (Circular E), Employer's Tax Guide, for see the Instructions for Form 3115 for cents when completing its return.
details, including the definition of procedures that may apply for obtaining However, the REIT should round off cents
responsible persons. automatic consent to change certain to whole dollars on its return, forms, and
methods of accounting, non-automatic schedules to make completing its return
Note. The trust fund recovery penalty will change procedures, and reduced Form easier. The REIT must either round off all
not apply to any amount of trust fund taxes 3115 filing requirements. amounts on its return to whole dollars, or
an employer holds back in anticipation of use cents for all amounts. To round, drop

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amounts under 50 cents and increase Form 1099-DIV, Dividends and foreign currency in one transaction or a
amounts from 50 to 99 cents to the next Distributions. Use this form to report series of related transactions.
dollar. For example, $8.40 rounds to $8 certain dividends and distributions. Form 8612, Return of Excise Tax on
and $8.50 rounds to $9.
Form 2438, Undistributed Capital Gains Undistributed Income of Real Estate
If two or more amounts must be added Tax Return, must be filed by the REIT if it Investment Trusts, is filed if the REIT is
to figure the amount to enter on a line, designates undistributed net long-term liable for the 4% excise tax on
include cents when adding the amounts capital gains under section 857(b)(3)(C). undistributed income imposed under
and round off only the total. section 4981.
Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains, Form 8621, Information Return by a
Recordkeeping must be completed and a copy given to Shareholder of a Passive Foreign
Keep the REIT's records for as long as each shareholder for whom the REIT paid Investment Company or Qualified Electing
they may be needed for the administration tax on undistributed net long-term capital Fund, is required if the REIT is a direct or
of any provision of the Internal Revenue gains under section 857(b)(3)(C). indirect shareholder of a passive foreign
Code. Usually, records that support an investment company, as defined in
item of income, deduction, or credit on the Form 3520, Annual Return To Report section 1297(a).
return must be kept for 3 years from the Transactions With Foreign Trusts and
date the return is due or filed, whichever is Receipt of Certain Foreign Gifts, is Form 8810, Corporate Passive Activity
later. Keep records that verify the REIT's required either if the REIT received a Loss and Credit Limitations. Use this form
basis in property for as long as they are distribution from a foreign trust or if the if a REIT is closely held, as described in
needed to figure the basis of the original or REIT was a grantor of, transferor of, or section 469(j)(1), and has losses or credits
replacement property. transferor to a foreign trust that existed from passive activities. See section 469,
during the tax year. See Question 5 of the related regulations, and the
The REIT should also keep copies of Schedule N (Form 1120). Instructions for Form 8810.
all filed returns. They help in preparing Form 8865, Return of U.S. Persons With
future and amended returns and in the Form 5471, Information Return of U.S.
calculation of earnings and profits. Persons With Respect to Certain Foreign Respect To Certain Foreign Partnerships.
Corporations, is required if the REIT is a A REIT may have to file Form 8865 if it:
U.S. shareholder of a controlled foreign 1. Controlled a foreign partnership
Other Forms That May Be corporation, a specified foreign (that is, owned more than a 50% direct or
Required corporation, or otherwise subject to the indirect interest in the partnership).
In addition to Form 1120-REIT, the REIT reporting requirements of section 6038 or 2. Owned at least a 10% direct or
may have to file some of the following 6046, and the related regulations. indirect interest in a foreign partnership
forms. while U.S. persons controlled that
Form 5472, Information Return of a 25%
Form 926, Return by a U.S. Transferor of Foreign-Owned U.S. Corporation or a partnership.
Property to a Foreign Corporation, is filed Foreign Corporation Engaged in a U.S. 3. Had an acquisition, disposition, or
to report certain transfers to foreign Trade or Business. This form is filed if the change in proportional interest in a foreign
corporations under section 6038B. REIT is 25% or more foreign owned. See partnership that:
Form 966, Corporate Dissolution or the instructions for Schedule K, Question • Increased its direct interest to at least
5, later.
Liquidation, is used to report the adoption 10% or reduced its direct interest of at
of a resolution or plan to dissolve the Form 6198, At-Risk Limitations. Use this least 10% to less than 10%.
corporation or liquidate any of its stock. form if a REIT is closely held, as described • Changed its direct interest by at least a
in section 465(a)(1)(B), and (1) directly or 10% interest.
Form 976, Claim for Deficiency 4. Contributed property to a foreign
indirectly has any amounts not at risk that
Dividends Deductions by a Personal partnership in exchange for a partnership
are invested in an at-risk activity that
Holding Company, Regulated Investment interest if:
Company, or a Real Estate Investment incurred a loss; or (2) engages in certain
Trust, is used to claim a deduction for activities and has borrowed amounts not • Immediately after the contribution, the
at risk. See section 465 and the REIT owned, directly or indirectly, at least
deficiency dividends. See section 860 and a 10% interest in the foreign partnership;
Instructions for Form 6198.
the related regulations. or
Form 7205, Energy Efficient Commercial
Form 1042, Annual Withholding Tax • The FMV of the property the REIT
Return for U.S. Source Income of Foreign Buildings Deduction. Use Form 7205 to contributed to the foreign partnership in
Persons; Form 1042-S, Foreign Person's calculate and claim the deduction under exchange for a partnership interest, when
U.S. Source Income Subject to section 179D for qualifying energy efficient added to other contributions of property
commercial buildings placed in service
Withholding; and Form 1042-T, Annual made to the foreign partnership during the
Summary and Transmittal of Forms during the tax year. preceding 12-month period, exceeds
1042-S. Use these forms to report and Form 8275, Disclosure Statement, and $100,000.
send withheld tax on payments or Form 8275-R, Regulation Disclosure Also, the REIT may have to file Form
distributions made to nonresident alien Statement, are used to disclose items or 8865 to report certain dispositions by a
individuals, foreign partnerships, or foreign positions taken on a tax return that are not foreign partnership of property it
corporations to the extent these payments otherwise adequately disclosed on a tax previously contributed to that foreign
constitute gross income from sources return or that are contrary to Treasury partnership if it was a partner at the time of
within the United States (see sections 861 Regulations (to avoid parts of the the disposition. For more details, including
through 865). accuracy-related penalty or certain penalties for failing to file Form 8865, see
Also, see sections 1441 and 1442, and preparer penalties). Form 8865 and its separate instructions.
Pub. 515, Withholding of Tax on Form 8300, Report of Cash Payments
Nonresident Aliens and Foreign Entities. Over $10,000 Received in a Trade or Form 8875, Taxable REIT Subsidiary
Business. Use this form to report the Election, is filed jointly by a corporation
receipt of more than $10,000 in cash or

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and a REIT to have the corporation treated files Form 8996 annually to report that it accuracy-related penalty under section
as a taxable REIT subsidiary. meets the 90% investment standard of 6662A, may also apply. See the
section 1400Z-2 or to compute the penalty Instructions for Form 8886 for details on
Form 8927, Determination Under Section
if it fails to meet the investment standard. these and other penalties.
860(e)(4) by a Qualified Investment Entity.
Use Form 8927 to make a determination Form 8997, Initial and Annual Statement Reportable transactions by material
under section 860(e)(4) and to establish of Qualified Opportunity Fund (QOF) advisors. Material advisors to any
the date of determination for purposes of Investments. Use this form to report reportable transaction must disclose
making a deficiency dividend distribution. investments in one or more QOFs. Report certain information about the reportable
the amount of deferred gains invested in transaction by filing Form 8918, Material
Form 8937, Report of Organizational
QOFs for the current tax year, which Advisor Disclosure Statement, with the
Action Affecting Basis of Securities. Use
include capital gains deferred and IRS. For details, see the Instructions for
this form when any organizational action
invested in QOFs and disposal Form 8918.
affects the basis of holders of either a
investments in QOFs, and the amount of
security or a class of the security. For Transfers to a corporation controlled
deferred gains invested in QOFs at the
example, a REIT may use this form in by the transferor. Every significant
end of the current tax year.
connection with transactions such as a transferor (as defined in Regulations
nontaxable cash or stock distribution to section 1.351-3(d)(1)) that receives stock
shareholders, or a conversion rate Statements of a corporation in exchange for property
adjustment on a convertible debt Reportable transaction disclosure in a nonrecognition event must include the
instrument that results in a distribution statement. Disclose information for each statement required by Regulations section
under section 305(c). However, a REIT reportable transaction in which the REIT 1.351-3(a) on or with the transferor's tax to
that reports undistributed capital gains to participated. Form 8886, Reportable its return for the tax year of the exchange.
shareholders on Form 2439 can satisfy Transaction Disclosure Statement, must The transferee corporation must include
the organizational action reporting be filed for each tax year that the federal the statement required by Regulations
requirements for those undistributed gains income tax liability of the REIT is affected section 1.351-3(b) on or with its return for
if the REIT timely files and gives Form by its participation in the transaction. The the tax year of the exchange, unless all the
2439 to all proper parties for the following are reportable transactions. required information is included in any
organizational action. For more statement(s) provided by a significant
information, see the Instructions for Form 1. Any listed transaction, which is a transferor that is attached to the same
8937. transaction that is the same as or return for the same section 351 exchange.
substantially similar to one of the types of If the transferor or transferee corporation
Form 8975, Country-by-Country Report. transactions that the IRS has determined is a controlled foreign corporation (CFC),
Certain U.S. persons that are the ultimate to be a tax avoidance transaction and each U.S. shareholder (within the meaning
parent entity of a U.S. multinational identified by notice, regulation, or other of section 951(b)) must include the
enterprise group with annual revenue for published guidance as a listed required statement on or with its return.
the preceding reporting period of $850 transaction.
million or more are required to file Form 2. Any transaction offered under Distributions under section 355. Every
8975. Form 8975 and its Schedules A conditions of confidentiality for which the REIT that makes a distribution of stock or
(Form 8975) must be filed with the income REIT (or a related party) paid an advisor a securities of a controlled corporation, as
tax return of the ultimate parent entity of a fee of at least $250,000. described in section 355 (or so much of
U.S. multinational enterprise group for the section 356 as it relates to section 355),
tax year in or within which the reporting 3. Certain transactions for which the must include the statement required by
period covered by Form 8975 ends. The REIT (or a related party) has contractual Regulations section 1.355-5(a) on or with
first required reporting period for an protection against disallowance of the tax its return for the year of the distribution. A
ultimate parent entity is the 12-month benefits. significant distributee (as defined in
reporting period that begins on or after the 4. Certain transactions resulting in a Regulations section 1.355-5(c)) that
first day of a tax year of the ultimate parent loss of at least $10 million in any single receives stock or securities of a controlled
entity that begins on or after June 30, year or $20 million in any combination of corporation must include the statement
2016. For more information, see Form years. required by Regulations section
8975, Schedule A (Form 8975) and the 5. Any transaction identified by the 1.355-5(b) on or with its return for the year
Instructions for Form 8975 and IRS by notice, regulation, or other of receipt. If the distributing or distributee
Schedule A (Form 8975). published guidance as a “transaction of corporation is a CFC, each U.S.
Form 8990, Limitation on Business interest.” See Notice 2009-55, 2009-31 shareholder (within the meaning of section
Interest Expense Under Section 163(j). I.R.B. 170. 951(b)) must include the statement on or
with its return.
Use this form to calculate the amount of For more information, see Regulations
business interest expense you can deduct section 1.6011-4. Also, see the Dual consolidated losses. If a domestic
and the amount to carry forward to the Instructions for Form 8886. corporation incurs a dual consolidated
next year. loss (as defined in Regulations section
Penalties. The REIT may have to pay 1.1503-2(c)(5)), the corporation (or
Form 8992, U.S. Shareholder Calculation a penalty if it is required to disclose a consolidated group) may need to attach
of Global Intangible Low-Taxed Income reportable transaction under section 6011 an elective relief agreement and/or an
(GILTI). Use this form to figure the and fails to properly complete and file annual certification, as provided in
domestic corporation's GILTI under Form 8886. Penalties may also apply Regulations section 1.1503-2(g)(2).
section 951A and attach it to Form under section 6707A if the REIT fails to file
1120-REIT. Form 8886 with its Form 1120-REIT, fails Election to reduce basis under section
Form 8996, Qualified Opportunity Fund. to provide a copy of Form 8886 to the 362(e)(2)(C). If property is transferred to
Use this form to certify that the REIT Office of Tax Shelter Analysis (OTSA), or a corporation subject to section 362(e)(2),
organized as a qualified opportunity fund files a form that fails to include all the the transferor and the transferee
(QOF) to invest in qualified opportunity information required (or includes incorrect corporation may elect under section
zone property. In addition, a QOF REIT information). Other penalties, such as an 362(e)(2)(C) to reduce the transferor's

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basis in the stock received instead of Item B. 100% owned • If the REIT has changed its name since
reducing the transferee corporation's it last filed a return, check the box for
basis in the property transferred. Once Subsidiaries and Personal “Name change.” Generally, a REIT must
made, the election is irrevocable. For Holding Companies also have amended its articles of
more information, see section 362(e)(2) incorporation and filed the amendment
and Regulations section 1.362-4. If an REITs With 100% owned with the state in which it was incorporated.
election is made, a statement must be Subsidiaries • If the REIT has changed its address
filed in accordance with Regulations Check this box if this return is filed for a since it last filed a return (including a
section 1.362-4(d)(3). REIT with 100%-owned REIT subsidiaries change to an “in care of” address), check
Other forms and statements. See Pub. under section 856(i). These subsidiaries the box for “Address change.”
542, Corporations, for a list of other forms are not treated as separate corporations. Note. If a change in address or
responsible party occurs after the return is
and statements a REIT may need to file in Do not check this box for a taxable filed, use Form 8822-B, Change of
addition to the forms and statements REIT subsidiary. See the instructions for Address or Responsible Party—Business,
discussed throughout these instructions. Taxable REIT Subsidiaries, earlier. to notify the IRS of the new address. See
Personal Holding Companies the instructions for Form 8822-B for
details.
Specific Instructions Personal holding companies must attach If the REIT is amending its return, check
•
to Form 1120-REIT a Schedule PH (Form the box for “Amended Return,” complete
Period Covered 1120), U.S. Personal Holding Company the entire return, correct the appropriate
File the 2022 return for calendar year 2022 (PHC) Tax. See the Instructions for lines with the new information, and
and fiscal years that begin in 2022 and Schedule PH (Form 1120) for details. refigure the REIT's tax liability. Attach a
end in 2023. For a fiscal year return, fill in statement that explains the reasons for the
the tax year in the space at the top of the Item C. Employer amendments and identifies the lines being
form. changed on the amended return.
Identification Number
Note. The 2022 Form 1120-REIT can (EIN)
also be used if: Enter the REIT's EIN. If the REIT does not Item G. Type of REIT
• The REIT has a tax year of less than 12 have an EIN, it must apply for one. An EIN Check the appropriate box to indicate
months that begins and ends in 2023, and may be applied for: whether you are filing a return for a
• The 2023 Form 1120-REIT is not • Online by visiting IRS.gov/EIN. The EIN “Mortgage REIT” or an “Equity REIT.” If
available at the time the REIT is required is issued immediately once the application the primary source of gross receipts is
to file its return. information is validated. derived from mortgage interest and fees,
• By faxing or mailing Form SS-4, check the “Mortgage” box. Otherwise,
The REIT must show its 2023 tax year Application for Employer Identification check the “Equity” box.
on the 2022 Form 1120-REIT and take Number.
into account any tax law changes that are If the REIT has not received its EIN by Item H. PBA Code (Equity
effective for tax years beginning after the time the return is due, enter “Applied REITs Only)
December 31, 2022. for” in the space for the EIN. For more Enter only one code that best reflects the
details, see the Instructions for Form principal business activity of an equity
Name and Address SS-4. REIT from the selection below.
Enter the REIT's true name (as set forth in • 531110– Lessors of Residential
the charter or other legal document Note. REITs located in the United States Buildings & Dwellings.
creating it), address, and EIN on the or U.S. possessions can use the online • 531120– Lessors of Nonresidential
appropriate lines. Include the suite, room, application process. Buildings (except Miniwarehouses).
or other unit number after the street • 531130– Lessors of Miniwarehouses &
address. Enter the address of the REIT's Item D. Date REIT Self-Storage Units.
principal office or place of business. If the • 531190– Lessors of Other Real Estate
Post Office does not deliver mail to the Established
Property.
street address and the REIT has a P.O. If the REIT is a corporation under state or
box, show the box number instead. local law, enter the date incorporated. If it
is a trust or association, enter the date Part I—Real Estate
Note. Do not use the address of the organized.
registered agent for the state in which the Investment Trust Taxable
corporation is incorporated. For example, Item E. Total Assets Income
if a business is incorporated in Delaware Enter the REIT's total assets (as Include in Part I the REIT's share of gross
or Nevada and the corporation's principal determined by the accounting method income from partnerships in which the
office is located in Little Rock, Arkansas, regularly used in keeping its books and REIT is a partner, and the deductions
the corporation should enter the Little records) at the end of the tax year. If there attributable to the gross income items.
Rock address. are no assets at the end of the tax year, See Regulations section 1.856-3(g).
If the REIT receives its mail in care of a enter -0-. Real estate investment trust taxable
third party (such as an accountant or an income does not include the following.
attorney), enter on the street address line Item F. Final Return, Name • Gross income, gains, losses, and
“C/O” followed by the third party's name Change, Address Change, deductions from foreclosure property
and street address or P.O. box. (defined in section 856(e)). If the
or Amended Return aggregate of such amounts results in net
• If this is the REIT's final return, and it income, report these amounts in Part II.
will no longer exist, check the “Final • Income or deductions from any
return” box. See the instructions for prohibited transaction (defined in section
Termination of Election, earlier.

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857(b)(6)) resulting in a gain. Report these Line 4. Other gross rents. Enter the over 8 years in accordance with section
amounts in Part IV. gross amount received for renting property 965(m), include the current-year net
Income not included on line 3. section 965 inclusion (the section 965(a)
inclusion less the corresponding section
Line 1. Dividends. Enter the total Line 5. Capital gain net income. Every 965(c) deduction) on this line 7. You must
amount of dividends received during the sale or exchange of a capital asset must also complete and attach Form 965-B,
tax year. be reported on Schedule D (Form 1120), Corporate and Real Estate Investment
Capital Gains and Losses, even if there is Trust (REIT) Report of Net 965 Tax
Line 2. Interest. Enter taxable interest on no gain or loss. Liability and Electing REIT Report of 965
U.S. obligations and on loans, notes, Amounts.
mortgages, bonds, bank deposits, Line 7. Other income. Enter any other
corporate bonds, tax refunds, etc. Do not taxable income not reported on lines 1 • Form 965-B must be completed by an
offset interest expense against interest through 6, except amounts that must be electing REIT for every tax year for which
income. Special rules apply to interest reported in Part II or IV. the REIT has any section 965 amounts
taken into account in accordance with
income from certain below-market-rate Enter amounts included in income section 965(m) or not fully taken into
loans. See section 7872 for details. under the section 951A GILTI provisions. account at any point during the tax year.
See Form 8992, Part II, line 5, and the For more information, see Form 965-B
Note. Report tax-exempt interest income Instructions for Form 8992. Also, consider and the related instructions.
on Form 1120-REIT, Schedule K, line 8. the applicability of section 951A with The amount of payroll tax credit taken
Do not include tax-exempt interest on respect to controlled foreign corporations •
by an employer on its 2022 employment
line 2. Also, if required, include the same owned by domestic partnerships in which tax returns (Forms 941, 943, and 944) for
amount on Schedule M-1, line 7. the REIT has an interest. If the REIT also qualified paid sick and qualified paid
Include interest income from tax credit has a Form 5471 reporting requirement, family leave under the FFCRA and the
bonds on line 2. attach the form. ARP (both the nonrefundable and
List the type and amount of income on
Line 3. Gross rents. Include the refundable portions). The REIT must
an attached schedule. If the REIT has only
following. include the full amount of the credit for
one item of other income, describe it in
• Charges for customary services that qualified sick and family leave wages in
parentheses on line 7. Examples of other
may qualify as rents from real property are gross income for the tax year that includes
income to report on line 7 include the
described in Regulations section the last day of any calendar quarter in
following.
1.856-4(b)(1). Services customarily which the credit is allowed.
furnished to tenants of a REIT include • Amounts received or accrued as Note. A credit is available only if the leave
consideration for entering into agreements
parking facilities. See Rev. Rul. 2004-24, was taken after March 31, 2020, and
to make real property loans or to purchase
2004-10 I.R.B. 550, for guidance to before October 1, 2021, and only after the
or lease real property.
determine whether amounts received by a qualified leave wages were paid, which
REIT that provides parking facilities at its • Recoveries of bad debts deducted in might under certain circumstances not
prior years under the specific charge-off
rental real properties qualify as rents from occur until a quarter after September 30,
method.
real property. 2021, including quarters in 2022.
• Rent from personal property leased • Refunds of taxes deducted in prior
years if they reduced income subject to Deductions
under or with a lease of real property (but
tax in the year deducted (see section 111).
only if the rent from the personal property Limitations on Deductions
Do not offset current year taxes against
does not exceed 15% of the total rent for
tax refunds. Section 263A uniform capitalization
the tax year charged for both the real and
personal property under such lease). • Any deduction previously taken under rules. The uniform capitalization rules of
section 179A that is subject to recapture. section 263A generally require REITs to
Figure the percentage of rents from
The REIT must recapture the benefit of capitalize certain costs to inventory or
personal property by comparing the FMV
any allowable deduction for clean-fuel other property.
of the personal rental property to the FMV
vehicle property (or clean-fuel vehicle
of the total rental property. See section REITs subject to the section 263A
refueling property), if the property later
856(d)(1) for details. uniform capitalization rules are required to
ceases to qualify. See Regulations section
• Rent from a taxable REIT subsidiary capitalize:
1.179A-1 for details.
(TRS) either (a) if at least 90% of the 1. Direct costs of assets produced or
leased space of the property is leased to • Ordinary income from trade or business
activities of a partnership (from acquired for resale, and
persons other than TRSs of the REIT and 2. Certain indirect costs (including
Schedule K-1 (Form 1065)). Do not offset
other than persons described in section taxes) that are properly allocable to
ordinary losses against ordinary income.
856(d)(2)(B) at rents comparable to the property produced or property acquired for
Instead, include the losses on line 18 of
rent paid by the other tenants of the REIT resale.
Form 1120-REIT. Show the partnership's
for comparable space; or (b) for certain
name, address, and EIN on a separate
lodging facilities or health care property A REIT cannot deduct the costs
statement attached to this return. If the
operated by an eligible independent required to be capitalized under section
amount entered is from more than one
contractor. For more information, including 263A until it sells, uses, or otherwise
partnership, identify the amount from each
definitions and additional requirements, disposes of the property (to which the
partnership.
see sections 856(d)(8) and 856(d)(9). costs relate). The REIT recovers these
Also, see Rev. Proc. 2003-66, 2003-33 • Any net positive section 481(a) costs through depreciation, amortization,
adjustment. See Section 481(a)
I.R.B. 364, for the special rules on rents or costs of goods sold.
adjustment, earlier.
paid to a REIT by certain joint ventures For more details, including exemptions
that include a TRS. • Income from cancellation of debt (COD)
from the repurchase of a debt instrument to the uniform capitalization rules, see
See section 856(d)(2) for amounts for less than its adjusted issue price. Pub. 538. See section 263A(i) for
excluded from “rents from real property.” • If the REIT elected to take section exemption for certain small businesses.
965(a) inclusions and corresponding For non-small business taxpayers, see
section 965(c) deductions into account Regulations sections 1.263A-1 through

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1.263A-3. See section 263A(d), year in which the active trade or business Line 10. Salaries and wages. Enter the
Regulations section 1.263A-4, and Pub. begins. total salaries and wages paid for the tax
225 for rules for property produced in a Report the deductible amount of such year, reduced by the amount claimed on:
farming business. costs and any amortization on line 18. For • Form 5884, Work Opportunity Credit;
Transactions between related taxpay- amortization that begins during the current • Form 8844, Empowerment Zone
ers. Generally, an accrual basis taxpayer tax year, complete and attach Form 4562. Employment Credit;
may only deduct business expenses and Passive activity and at-risk limitations. • Form 8845, Indian Employment Credit,
if applicable;
interest owed to a related party in the year Loss and credit limitations under sections
the payment is included in the income of 465 and 469 apply to REITs that are • Form 8932, Credit for Employer
Differential Wage Payments; and
the related party. See sections 163(e)(3) closely held, as described in sections
and 267 for limitations on deductions for 465(a)(1)(B) and 469(j)(1). REITs subject • Form 8994, Employer Credit for Paid
Family and Medical Leave.
unpaid interest and expenses. to sections 465 and 469 must complete
Limitations on business interest ex- Forms 6198 and 8810 to compute See the instructions for these forms for
pense. Business interest expense may allowable losses or credits. Before more information.
be limited. See section 163(j) and Form completing Form 8810, see Temporary Do not include salaries and wages
8990. Also, see Limitation on deduction in Regulations section 1.163-8T for rules on deductible elsewhere on the return, such
the instructions for line 15 and allocating interest expense among as amounts included in officers
Schedule K, Question 11, later. activities. compensation, elective contributions to a
Golden parachute payments. A portion Reducing certain expenses for which section 401(k) cash or deferred
of the payments made by a REIT to key credits are allowable. For each credit arrangement, or amounts contributed
personnel that exceeds their usual listed below, the REIT must reduce the under a salary reduction SEP agreement
compensation may not be deductible. This otherwise allowable deductions for or a SIMPLE IRA plan.
occurs when the REIT has an agreement expenses used to figure the credit by the If the REIT provided taxable fringe
(golden parachute) with these key amount of the current-year credit. Do not ! benefits to its employees, such as
employees to pay them these excessive reduce the amount of the allowable CAUTION personal use of a car, do not
amounts if control of the REIT changes. deduction for any portion of the credit that deduct as wages the amounts allocated
See section 280G and Regulations was passed through to the REIT from a for depreciation and other expenses
section 1.280G-1. Also, see the pass-through entity on Schedule K-1. claimed on lines 16 and 18.
instructions for line 9, later. • Employment credits. See the
instructions for line 10, later. If the REIT claims a credit for any
Business start-up and organizational • Disabled access credit (Form 8826). ! wages paid or incurred, it may
costs. A REIT can elect to deduct a • Credit for employer social security and CAUTION need to reduce any corresponding
limited amount of start-up and Medicare taxes paid on certain employee deduction for officers’ compensation and
organizational costs it paid or incurred. tips (Form 8846). salaries and wages. See the instructions
Any remaining costs must generally be • Credit for small employer pension plan for the form used to figure the applicable
amortized over a 180-month period. See start-up costs (Form 8881). credit for more details.
sections 195 and 248 and the related • Credit for employer-provided childcare
regulations. facilities and services (Form 8882). Line 11. Repairs and maintenance.
Time for making an election. The If the REIT is eligible to claim any of Enter the cost of repairs and maintenance
REIT generally elects to deduct start-up or these credits, figure each current- year not claimed elsewhere on the return, such
organizational costs by claiming the credit before figuring the deduction for as labor and supplies, that are not
deduction on its income tax return filed by expenses on which the credit is based. If payments to produce or improve tangible
the due date (including extensions) for the the REIT capitalized any costs on which it or real property. See Regulations section
tax year in which the active trade or figured the credit, reduce the amount 1.263(a)-1. For example, amounts are
business begins. capitalized by the credit attributable to paid for improvements if they are for
For more details, see the Instructions these costs. betterments to the property, restorations
of the property (such as replacements of
for Form 4562, Depreciation and See the instructions for the form used major components or substantial structural
Amortization. Also, see Pub. 535, to figure the applicable credit. parts), or if they adapt the property to a
Business Expenses. new or different use. Amounts paid to
Line 9. Compensation of officers.
If the REIT timely filed its return for the Enter the deductible officers’ produce or improve property must be
year without making an election, it can still compensation on line 9. Do not include capitalized. See Regulations sections
make an election by filing an amended compensation deductible elsewhere on 1.263(a)-2 and -3. The REIT can deduct
return within 6 months of the due date of the return, such as elective contributions repair and maintenance expenses only to
the return (excluding extensions). Clearly to a section 401(k) cash or deferred the extent they relate to a trade or
indicate the election on the amended arrangement, or amounts contributed business activity. See Regulations section
return and write “Filed pursuant to section under a salary reduction SEP agreement 1.162-4. The REIT may elect to capitalize
301.9100-2” at the top of the amended or a SIMPLE IRA plan. certain repair and maintenance costs
return. File the amended return at the consistent with its books and records. See
same address the REIT filed its original If the REIT's total receipts are $500,000
or more, complete and attach Form Regulations section 1.263(a)-3(n) for
return. The election applies when figuring information on how to make the election.
taxable income for the current tax year 1125-E. Total receipts are figured by
adding:
and all subsequent years. Line 12. Bad debts. Enter the total debts
• Part I, line 8; that became worthless in whole or in part
Note. The REIT can choose to forgo the • Net capital gain from Part III, line 10; during the tax year. A cash basis taxpayer
elections above by clearly electing to and may not claim a bad debt deduction
capitalize its start-up or organizational • Form 2438, line 9a. unless the amount was previously
costs on an income tax return filed by the Enter on line 9 the amount from Form included in income.
due date (including extensions) for the tax 1125-E, line 4.

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Line 13. Rents. If the REIT rented or Do not reduce the REIT’s average annual gross receipts of $27
leased a vehicle, enter the total annual ! deduction for social security and million or less for the 3 prior tax years.
rent or lease expense paid or incurred CAUTION Medicare taxes by the Gross receipts generally include the
during the year. Also, complete Part V of nonrefundable and refundable portions of aggregate gross receipts from all persons
Form 4562. If the REIT leased a vehicle the FFCRA and ARP credits for qualified treated as a single employer such as a
for a term of 30 days or more, the sick and family leave wages claimed on its controlled group of corporations,
deduction for the vehicle lease expense employment tax returns. Instead, report commonly controlled partnerships or
may have to be reduced by an amount this amount as income on line 7. proprietorships, and affiliated service
called the inclusion amount. groups.
Line 15. Interest. The deduction for If the corporation fails to meet the gross
The REIT may have an inclusion interest is limited when the REIT is a receipts test, Form 8990 is generally
amount if: policyholder or beneficiary with respect to required. An electing real property trade or
And the a life insurance, endowment, or annuity business is excepted from the interest
vehicle's FMV
on the first contract issued after June 8, 1997. For expense limitation of section 163(j). See
day of the details, see section 264(f). Attach a section 163(j)(7), Form 8990, and the
lease statement showing the computation of the related instructions. Also, see the
The lease term began: exceeded: deduction. questions on Schedule K, line 10, for
Cars (excluding trucks and vans):
The REIT must make an interest business interest expense elections, and
After 12/31/21 but before 1/1/23. . . $56,000 allocation if the proceeds of a loan were on Schedule K, line 11, regarding
After 12/31/20 but before 1/1/22. . . $51,000 used for more than one purpose. For conditions for filing Form 8990.
After 12/31/17 but before 1/1/21. . . $50,000 example, the loan proceeds were used to Special rules apply to:
After 12/31/12 but before 1/1/18. . . $19,000 purchase a financial investment and • Foregone interest on certain
After 12/31/07 but before 1/1/13. . . $18,500 acquire an interest in a passive activity. below-market-rate loans (see section
Trucks and vans: See Temporary Regulations section 7872).
After 12/31/21 but before 1/1/23. . . $56,000 1.163-8T for the interest allocation rules. • Original issue discount (OID) on certain
After 12/31/20 but before 1/1/22. . . $51,000 The following interest is not deductible. high-yield discount obligations. See
After 12/31/17 but before 1/1/21. . . $50,000 • Interest on indebtedness incurred or section 163(e)(5) to determine the amount
After 12/31/13 but before 1/1/18. . . $19,500 continued to purchase or carry obligations of the deduction for OID that is deferred
After 12/31/09 but before 1/1/14. . . $19,000 if the interest is wholly exempt from and the amount that is disallowed on a
After 12/31/08 but before 1/1/10. . . $18,500 income tax. See section 265(b) for special high-yield discount obligation. The rules
After 12/31/07 but before 1/1/09. . . $19,000 rules and exceptions for financial under section 163(e)(5) do not apply to
See Pub. 463, Travel, Gift, and Car Expenses, for instructions on institutions. Also, see section 265(b)(7) for certain high-yield discount obligations
figuring the inclusion amount. The inclusion amount for lease terms a temporary de minimis safe-harbor issued after August 31, 2008, and before
beginning in 2023 will be published in the Internal Revenue Bulletin
in early 2023. exception for certain financial institutions January 1, 2011. See section 163(e)(5)
for tax-exempt bonds issued in 2009 and (F). Also, see Notice 2010-11, 2010-4
2010. I.R.B. 326.
Line 14. Taxes and licenses. Enter • For cash basis taxpayers, prepaid
taxes paid or incurred during the tax year, interest allocable to years following the Interest expense cannot be used
but do not include the following. current tax year (for example, a cash basis ! to offset interest income.
CAUTION
• Federal income taxes (except for the calendar year taxpayer who in 2022
tax imposed on net recognized built-in prepaid interest allocable to any period Line 16. Depreciation. Include on line 16
gain allocable to ordinary income). after 2022 can deduct only the amount depreciation and the cost of certain
• Foreign or U.S. possession income allocable to 2022). property that the REIT elected to expense
taxes if a tax credit is claimed (however, • Interest and carrying charges on under section 179. See Form 4562 and
see the Instructions for Form 5735 for straddles. Generally, these amounts must the related instructions to figure the
special rules for possession income be capitalized. See section 263(g). amount to enter on this line.
taxes). • Interest paid or incurred on any portion
• Taxes not imposed on the REIT. of an underpayment of tax that is Line 18. Other deductions. Attach a
• Taxes, including state or local sales attributable to an understatement arising statement listing, by type and amount, all
taxes, that are paid or incurred in from an undisclosed listed transaction or allowable deductions that are not
connection with an acquisition or an undisclosed reportable avoidance deductible elsewhere on the return. Enter
disposition of property (these taxes must transaction (other than a listed the total on line 18. Include amortization
be treated as a part of the cost of the transaction) entered into in tax years and organization expenses. Generally, a
acquired property or, in the case of a beginning after October 22, 2004. deduction may not be taken for any
amount that is allocable to a class of
disposition, as a reduction in the amount Limitation on deduction. Under exempt income. See section 265(b) for
realized on the disposition). section 163(j), business interest expense exceptions.
• Taxes assessed against local benefits is generally limited to the sum of business Examples of other deductions include
that increase the value of the property interest income, 30% of the adjusted the following.
assessed (such as for paving, etc.). taxable income, and floor plan financing • Amortization (see Form 4562).
• Taxes deducted elsewhere on the interest. Business interest expense • Any applicable deduction under section
return. includes any interest paid or accrued on 179D for costs of energy efficient
• Excise taxes imposed under section indebtedness properly allocable to a trade commercial building properly placed in
4981 on undistributed REIT income. or business. service during the tax year. Complete and
See section 164(d) for information on A taxpayer, other than a tax shelter, attach new Form 7205.
apportionment of taxes on real property that meets the gross receipts test is not • Certain business start-up and
between the seller and the purchaser. required to limit business interest expense organizational costs that the REIT elects
under section 163(j). A taxpayer meets the to deduct.
gross receipts test if the taxpayer has

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• Depletion. Attach Form T (Timber), and Form 2438, line 11) computed without unless exempt from filing under
Forest Activities Schedule, if a deduction regard to the following. regulations or other applicable guidance,
for depletion of timber is taken. • Any deduction for contributions. even if the plan is not a qualified plan
• Reforestation costs. The REIT can elect • The limitation under section 249 on the under the Internal Revenue Code. The
to deduct up to $10,000 of qualified deduction for bond premium. filing requirement applies even if the REIT
reforestation expenses for each qualifying • Any net operating loss (NOL) carryback does not claim a deduction for the current
timber property. The REIT can elect to to the tax year under section 172. tax year. There are penalties for failure to
amortize over 84 months any amount not • Any capital loss carryback to the tax file these forms on time and for overstating
deducted. year under section 1212(a)(1). the pension plan deduction. See sections
• Insurance premiums. 6652(e) and 6662(f). Also, see the
• Legal and professional fees. Carryover. Charitable contributions instructions for the applicable forms.
• Supplies used and consumed in the that exceed the 10% limitation cannot be
business. deducted for the tax year but may be Form 5500, Annual Return/Report of
• Utilities. carried over to the next 5 tax years. Employee Benefit Plan.
• Ordinary losses from trade or business Special rules apply if the REIT has an Form 5500-SF, Short Form Annual
activities of a partnership (from NOL carryover to the tax year. In figuring Return/Report of Small Employee Benefit
Schedule K-1 (Form 1065)). Do not offset the charitable contributions deduction for Plan, instead of Form 5500, generally if
ordinary income against ordinary losses. the tax year, the 10% limit is applied using under 100 participants at the beginning of
Instead, include the income on line 7. the taxable income after taking into the plan year.
Show the partnership's name, address, account any deduction for the NOL.
and EIN on a separate statement attached To figure the amount of any remaining Note. Form 5500 and Form 5500-SF
to this return. If the amount is from more NOL carryover to later years, taxable must be filed electronically under the
than one partnership, identify the amount income must be modified (see section computerized ERISA Filing Acceptance
from each partnership. 172(b)). To the extent that contributions System (EFAST2). For more information,
• Any net negative section 481(a) are used to reduce taxable income for this see the EFAST2 website at
adjustment. See Section 481(a) purpose and increase an NOL carryover, a EFAST.dol.gov.
adjustment, earlier. contributions carryover is not allowed. See Form 5500-EZ, Annual Return of
Do not deduct expenses such as the section 170(d)(2)(B). One-Participant (Owners/Partners and
following. Cash contributions. For contributions Their Spouses) Retirement Plan or a
• Fines or penalties paid to a government of cash, check, or other monetary gifts Foreign Plan. File this form for a plan that
for violating any law. However, exceptions (regardless of the amount), the REIT must only covers the owner (or the owner and
apply for certain amounts paid or incurred maintain a bank record, or a receipt, letter, spouse) or a foreign plan that is required
after December 21, 2017. See section or other written communication from the to file an annual return and does not file
162(f), as amended by P.L. 115-97, donee organization indicating the name of the annual return electronically on Form
section 13306 (discussed later). the organization, the date of the 5500-SF. See the Instructions for Form
• Lobbying expenses. However, see contribution, and the amount of the 5500-EZ.
exceptions (discussed later). contribution. Travel, meals, and entertainment.
• Amounts paid or incurred after
December 22, 2017, for any settlement, Contributions of $250 or more. A Subject to limitations and restrictions
payout, or attorney fees related to sexual REIT can deduct a contribution of $250 or discussed below, a REIT can deduct
harassment or sexual abuse, if such more only if the REIT receives a written ordinary and necessary travel, meals, and
payments are subject to a nondisclosure acknowledgment from the donee non-entertainment expenses paid or
agreement. See new section 162(q). organization that shows the amount of incurred in its trade or business.
Charitable contributions. Enter cash contributed, describes any property Generally, entertainment expenses,
contributions or gifts actually paid within contributed, and gives a description and a membership dues, and facilities used in
the tax year to or for the use of charitable good faith estimate of the value of any connection with these activities cannot be
and governmental organizations goods or services provided in return for deducted. In addition, no deduction is
described in section 170(c) and any the contribution, or states that no goods or generally allowed for qualified
unused contributions carried over from services were provided in return for the transportation fringe benefits. Also,
prior years. contribution. The acknowledgment must special rules apply to deductions for gifts,
be obtained by the due date (including luxury water travel, and convention
REITs reporting taxable income on the extensions) of the REIT's return, or, if expenses. See section 274, Pub. 463, and
accrual method may elect to treat as paid earlier, the date the return is filed. Do not Pub. 535 for more details.
during the tax year any deductible attach the acknowledgment to the tax Travel. A REIT cannot deduct travel
contributions paid by the due date of the return, but keep it with the REIT's records. expenses of any individual accompanying
REIT’s tax return (not including
extensions) if the contributions were For more information on charitable a corporate officer or employee, including
authorized by the board of directors during contributions, including substantiation and a spouse or dependent of the officer or
the tax year. Attach a declaration to the recordkeeping requirements, see section employee, unless:
return stating that the resolution 170 and the related regulations, and Pub. • That individual is an employee of the
authorizing the contributions was adopted 526, Charitable Contributions. For special REIT, and
by the board of directors during the tax rules that apply to corporations, see Pub. • That individual’s travel is for a bona fide
year. The declaration must include the 542. business purpose and would otherwise be
date the resolution was adopted. See Pension, profit-sharing, etc., plans. deductible by that individual.
Regulations section 1.170(a)(2)(B). Include the deduction for contributions to Meals. Generally, the REIT can
qualified pension, profit-sharing, or other deduct only 50% of the amount otherwise
Limitation on deduction. Generally, funded deferred compensation plans. allowable for non-entertainment related
the total amount claimed may not be more Employers who maintain such a plan must meal expenses paid or incurred in its trade
than 10% of taxable income (the sum of generally file one of the forms listed below or business. However, the REIT can
Part I, line 22; Part II, line 5; Part IV, line 3;

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deduct 100% of the business meal However, if the recipient is an officer, However, the at-risk rules do apply to
expenses if the meals are food and director, beneficial owner (directly or the holding of mineral property.
beverages provided by a restaurant. This indirectly), or other “specified individual” If the at-risk rules apply, adjust the
applies only to amounts incurred after (as defined in section 274(e)(2)(B) and amount on this line for any section 465(d)
December 31, 2020, and before January Regulations section 1.274-9(b)), special losses. These losses are limited to the
1, 2023. rules apply. amount for which the REIT is at risk for
Meals not separately stated from Fines or similar penalties. Generally, each separate activity at the close of the
entertainment are generally not no deduction is allowed for fines or similar tax year. If the REIT is involved in one or
deductible. In addition (subject to penalties paid or incurred to, or at the more activities, any of which incurs a loss
exceptions under section 274(k)(2)): direction of a government or governmental for the year, report the losses for each
• Meals must not be lavish or entity for violating any law, or for the activity separately. Attach Form 6198,
extravagant, and investigation or inquiry into the potential At-Risk Limitations, showing the amount at
• An employee of the REIT must be violation of a law, except: risk and gross income and deductions for
present at the meal. • Amounts that constitute restitution; the activities with the losses.
See section 274(n)(3) for a special rule • Amounts paid to come into compliance If the REIT sells or otherwise disposes
that applies to expenses for meals with the law; of an asset or its interest (either total or
consumed by individuals subject to the • Amounts paid or incurred as the result partial) in an activity to which the at-risk
hours of service limits of the Department of orders or agreements in which no rules apply, determine the net profit or loss
of Transportation. government or governmental entity is a from the activity by combining the gain or
party; and loss on the sale or disposition with the
Qualified transportation fringes • Amounts paid or incurred for taxes due. profit or loss from the activity. If the REIT
(QTFs). Generally, no deduction is has a net loss, it may be limited because
allowed under section 274(a)(4) for QTFs No deduction is allowed unless the
provided by employers to their employees. amounts are specifically identified in the of the at-risk rules.
QTFs are defined in section 132(f)(1) and order or agreement and the REIT Treat any loss from an activity not
include: establishes that the amounts were paid for allowed for the tax year as a deduction
• Transportation in a commuter highway that purpose. Also, any amount paid or allocable to the activity in the next tax
vehicle between the employee’s residence incurred as reimbursement to the year.
and place of employment, government for the costs of any
• Any transit pass, and investigation or litigation are not eligible for Line 21a. Net operating loss deduc-
• Qualified parking. the exceptions and are nondeductible. tion. A REIT can use the net operating
See section 274, Pub. 15-B, and Pub. 535 See section 162(f). loss (NOL) incurred in one tax year to
reduce its taxable income in another tax
for details. Lobbying expenses. Generally, year.
lobbying expenses are not deductible.
Membership dues. The REIT can Generally, a REIT may carry an NOL
These expenses include:
deduct amounts paid or incurred for over indefinitely to tax years following the
membership dues in civic or public service • Amounts paid or incurred in connection year of loss. REITs are not permitted to
organizations, professional organizations with influencing federal, state, or local carry back an NOL to any year preceding
legislation; or
(such as bar and medical associations), the year of the loss.
business leagues, trade associations, • Amounts paid or incurred in connection
with any communication with certain Enter the total NOL carryovers from
chambers of commerce, boards of trade, other tax years, but do not enter more than
federal executive branch officials in an
and real estate boards. However, no the REIT's taxable income. The REIT's
attempt to influence the official actions or
deduction is allowed if a principal purpose taxable income for purposes of the NOL
positions of the officials. See Regulations
of the organization is to entertain or deduction is taxable income (line 20)
section 1.162-29 for the definition of
provide entertainment facilities to reduced by the dividends paid deduction
“influencing legislation.”
members or their guests. In addition, (line 21b) and the section 857(b)(2)(E)
REITs cannot deduct membership dues to Dues and other similar amounts paid to deduction (line 21c). If this amount is less
any club organized for business, pleasure, certain tax-exempt organizations may not than zero, an NOL deduction cannot be
recreation, or other social purpose. This be deductible. If certain in-house lobbying taken for the tax year. Attach a statement
includes country clubs, golf and athletic expenditures do not exceed $2,000, they showing the computation of the NOL
clubs, airline and hotel clubs, and clubs are deductible. deduction. Also, complete item 9 on
operated to provide meals under Line 20. Taxable income before NOL Schedule K.
conditions favorable to business deduction, total deduction for divi- If capital gain dividends are paid during
discussion. dends paid, and section 857(b)(2)(E) any tax year, the amount of the net capital
Entertainment facilities. Generally, deduction. Generally, special at-risk gain for such tax year (to the extent of the
the REIT cannot deduct an expense paid rules under section 465 apply to closely capital gain dividends) is excluded in
or incurred for a facility (such as a yacht or held corporations engaged in any activity determining:
hunting lodge) used for an activity usually as a trade or business or for the
1. The NOL for the tax year, and
considered entertainment, amusement, or production of income. Those REITs that
recreation. are closely held may have to adjust the 2. The amount of the NOL of any prior
amount on line 20. tax year that may be carried over to any
succeeding tax year.
Amounts treated as compensation. The at-risk rules do not apply to:
Generally, the REIT may be able to deduct Holding real property placed in service Carryover rules. The NOL for the
•
otherwise nondeductible meals, travel, by the taxpayer before 1987; current year is computed using the REIT's
and entertainment expenses if the Equipment leasing under sections taxable income before it is reduced by the
•
amounts are treated as compensation to 465(c)(4), (5), and (6); or dividends paid deduction. After the REIT
the recipient and reported on Form W-2 Any qualifying business of a qualified applies the NOL to the first tax year to
•
for an employee or on Form 1099-NEC for REIT under section 465(c)(7). which it may be carried, the taxable
an independent contractor.
income of that year must be modified (as

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described by section 172(b) and the Line 25b. Estimated tax payments. • The total amount owed is $25,000 or
modified rules for REITs in section 172(d) Enter any estimated tax payments the less (including tax, penalties, and
(6)) to determine how much of the REIT made for the tax year. interest); and
remaining loss may be carried to other • The REIT can pay the liability in full in
years. Although the current-year NOL is Line 25f(1). Enter the credit (from Form 24 months.
computed without regard to the dividends 2439) for the REIT's share of the tax paid .
paid deduction, an NOL carryover from a by a Regulated Investment Company
To apply using the Online Payment
prior year is applied to the current year (RIC) or another REIT on undistributed
Agreement Application, go to IRS.gov/
using taxable income after it is reduced by long-term capital gains included in the
OPA.
the dividends paid deduction. The NOL REIT's income. Attach Form 2439 to Form
amounts carried forward by the REIT are 1120-REIT. Under an installment agreement, the
REIT can pay what it owes in monthly
not reduced by subsequent year dividends Line 25f(2). Enter the credit from Form installments. There are certain conditions
paid deductions. See Example 1 in 4136, Credit for Federal Tax Paid on that must be met to enter into and
Regulations section 1.172-5(a)(4). Fuels, if the REIT qualifies to claim this maintain an installment agreement, such
credit. Attach Form 4136 to Form as paying the liability within 72 months
Note. Generally, NOL deductions arising 1120-REIT. and making all required deposits and
in tax years beginning after 2017 are
limited to 80% of taxable income Line 25g. Reserved for future use. timely filing tax returns during the length of
the agreement.
(determined without regard to the NOL). Line 25h. Reserved for future use.
However, NOLs arising in taxable years If the installment agreement is
prior to January 1, 2018, and carried over Line 25i. Add the amounts on lines 25d accepted, the REIT will be charged a fee
to the current taxable year are not subject through 25f and enter the total on line 25i. and it will be subject to penalties and
to this limitation. Backup withholding. If the REIT had interest on the amount of tax not paid by
Special NOL rules apply when: income tax withheld from any payments it the due date of the return.
• An ownership change (described in received because, for example, it failed to
section 382(g)) occurs, the amount of the give the payer its correct EIN, include the
taxable income of a loss REIT that may be amount withheld in the total for line 25i. Part II—Tax on Net Income
offset by the pre-change NOL carryovers Enter the amount withheld and the words From Foreclosure
is limited (see section 382 and the related “Backup Withholding” in the blank space Property
regulations). A loss REIT must file an above line 25i. Complete Part II only if the gross income,
information statement with its income tax Line 26. Estimated tax penalty. A REIT gains, losses, and deductions from
return for each tax year that certain that does not make estimated tax foreclosure property (defined in section
ownership shifts occur (see Temporary payments when due may be subject to an 856(e)) result in net income. If an overall
Regulations section 1.382-2T(a)(2)(ii) for underpayment penalty for the period of net loss results, report the gross income,
details). See Regulations section underpayment. Generally, a REIT is gains, losses, and deductions from
1.382-6(b) for details on how to make the subject to the penalty if its tax liability is foreclosure property on the appropriate
closing-of-the-books election. $500 or more and it did not timely pay the lines of Part I.
• When a REIT acquires control of smaller of:
another REIT (or acquires its assets in a • Its total tax for the current tax year, or Property may be treated as foreclosure
reorganization), the amount of • Its prior year's tax. property only if it meets the requirements
pre-acquisition losses that may offset of section 856(e) and the REIT elects to
recognized built-in gains is limited (see Use Form 2220, Underpayment of treat the property as foreclosure property
section 384). Estimated Tax by Corporations, to in the year it was acquired. The property
• A REIT may elect under section 965(n) determine whether the REIT owes a continues to be foreclosure property until
to reduce the amount of the NOL for a tax penalty and to figure the amount of the the close of the 3rd tax year following the
year determined under section 172 and penalty. Generally, the REIT does not tax year in which the REIT acquired it. For
the amount of taxable income reduced by have to file this form because the IRS can more information, see section 856(e).
NOL carryovers to such tax year. The figure the amount of any penalty and bill
reduction amount is equal to the amount the REIT for it. However, even if it does However, if the foreclosure property is
of the section 965(a) inclusion (net of the not owe the penalty, the REIT must qualified health care property, it will cease
section 965(c) deduction) plus, in the case complete and attach Form 2220 if the to be foreclosure property as of the close
of a domestic corporation that claims a annualized income or adjusted seasonal of the 2nd year following the tax year the
credit for deemed paid foreign taxes, the installment method is used, or the REIT is REIT acquired it (although the REIT may
section 78 gross-up with respect to the a large corporation computing its first request one or more extensions to this
foreign taxes deemed paid with respect to required installment based on the prior 2-year grace period not to extend beyond
the section 965(a) inclusion. If, as a result year's tax. See the Instructions for Form the 6th year). See section 856(e)(6) for
of an election under section 965(n), the 2220 for the definition of a “large details.
amount of the NOL for the tax year is corporation.”
reduced, the reduction amount is included If Form 2220 is attached, check the box This election must be made by the due
in other income on line 7. If, as a result of on this line and enter the amount of any date for filing Form 1120-REIT (including
an election under section 965(n), the penalty. extensions). To make the election, attach
a statement that:
taxable income reduced by NOL Line 27. Tax due. If the REIT cannot pay • Indicates that the election under section
carryovers is reduced, the NOL deduction the full amount of tax owed, it can apply 856(e) is being made;
on line 21a is reduced by the reduction for an installment agreement online. The • Identifies the property to which the
amount. See section 965(n) for more REIT can apply for an installment election applies;
information. agreement online if: • Includes the name, address, and EIN of
Tax and Payments • It cannot pay the full amount shown on the REIT, the date the property was
line 27; acquired, and a brief description of how
Line 24. Reserved for future use. the property was acquired (including the

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name of the person from whom the                section 856(c)(5)(J)(i) on line 5c, the REIT 
property was acquired); and                     must attach a copy of this determination        Schedule A—Deduction 
• Gives a description of the lease or debt      allowing for such exclusion to its return.      for Dividends Paid
with respect to which default occurred or       Additionally, if a REIT reports income on 
was imminent.                                   line 7 in Part I that is excluded from          Lines 1 through 5. Section 561 (taking 
                                                sections 856(c)(2) and 856(c)(3) pursuant       into account sections 857(b)(9), 857(d)(3)
  The REIT can revoke the election by           to section 965(m)(1), report that amount        (B), and 858(a)) determines the deduction 
filing a revocation on or before the due        on lines 2d and 5d of Part III. The REIT        for dividends paid.
date (including extensions) for filing Form     must attach Forms 965 and 965-B, as             Line 3. Dividends declared in October, 
1120-REIT. See section 856(e) for more          applicable, to its return.                      November, or December and payable to 
details.
Line 2. Gross income from foreclosure           A REIT that has failed the                      shareholders of record in October, 
property. Do not include income that            source-of-income requirements of                November, or December are treated by 
qualifies under the REIT's 75% gross            sections 856(c)(2) and 856(c)(3) may            the REIT as paid on December 31 of that 
income test under section 856(c)(3)(A),         avoid loss of its REIT status as a result of    calendar year. The REIT is then eligible for 
(B), (C), (D), (E), or (G). These amounts       the failure if, following identification of its the deduction for dividends paid for the 
must be reported in Part I.                     failure to meet the source-of-income            year the dividends are declared even 
                                                requirements, the REIT sets forth a             though they are not actually paid until 
Line 4. Deductions. Deduct only those           description of each item of its gross           January of the following calendar year.
expenses that have a proximate and              income described in sections 856(c)(2)          If the REIT declared dividends in any of 
primary relationship to earning the income      and 856(c)(3) on an attached schedule. In       those months and actually paid them in 
shown on line 3. This includes:                 addition, its failure to meet the               January, as discussed above, enter on 
• Depreciation on foreclosure property;         source-of-income requirements must be           line 3 those dividends not already included 
• Interest paid or accrued on debt of the       due to reasonable cause and not due to          on lines 1, 2, and 4 of Schedule A.
REIT that is attributable to the carrying of    willful neglect.
the property;                                                                                   Line 7. If, for any tax year the REIT has 
• Real estate taxes; and                        For information on the relief provisions        net income from foreclosure property (as 
• Fees charged by an independent                under sections 856(c)(7) and 856(g)(5),         defined in section 857(b)(4)(B)), the 
contractor to manage such property.             see the instructions for Schedule J, line 2f.   deduction for dividends paid to be entered 
                                                                                                on line 6 (and on Part I, line 21b) is 
  Do not deduct general overhead and                                                            determined by multiplying the amount on 
administrative expenses in Part II.             Part IV—Tax on Net                              line 5 by the following fraction.
                                                Income From Prohibited                          REIT taxable income (determined without regard 
Part III—Tax for Failure To                     Transactions                                            to the deduction for dividends paid)
Meet Certain                                    Section 857(b)(6) imposes a tax equal to        REIT taxable income (determined without regard 
                                                100% of the net income derived from                     to the deduction for dividends paid) +
Source-of-Income                                prohibited transactions. The 100% tax is         (Net income from foreclosure property minus 
Requirements                                    imposed to prevent a REIT from retaining        the tax on net income from foreclosure property)
Section 856(c)(6) provides REITs with a         any profit from ordinary retailing activities 
relief provision if they have failed to satisfy such as sales to customers of 
the source-of-income requirements of            condominium units or subdivided lots in a 
sections 856(c)(2) and 856(c)(3). If            development tract.                              Schedule J—Tax 
section 856(c)(6) applies to a REIT for any     Line 1. Gain from sale or other disposi-        Computation
tax year, a tax is imposed on the REIT          tion of property. Include only gain from 
under section 857(b)(5).                        the sale or other disposition of property       Line 1
  All REITs must complete lines 1a              described in section 1221(a)(1) that is not     A member of a controlled group must 
through 8 of Part III to determine whether      foreclosure property and that does not          check the box on line 1 and complete and 
they are subject to the tax imposed under       qualify as an exception. See section            attach Schedule O (Form 1120). See 
section 857(b)(5). If line 8 is zero, the tax   857(b)(6)(C) for information on certain         Schedule O (Form 1120) and its 
does not apply, and the REIT does not           sales that do not qualify as prohibited         instructions for more information.
have to complete the rest of Part III.          transactions. See section 856(j) for a 
However, if line 8 is greater than zero, the    special rule regarding a shared                 Line 2a—Tax on REIT Taxable 
REIT is subject to this tax, and must           appreciation mortgage. Exceptions apply         Income
complete the rest of Part III to determine      for certain sales of timber property by a       Most REITs figure their tax by multiplying 
the amount of tax.                              timber REIT. See section 857(b)(6)(D).          taxable income by 21%. A member of a 
  If a REIT reports passive foreign             Do not net losses from prohibited               controlled group must use Schedule O 
exchange gain on line 2b or real estate         transactions against gains in determining       (Form 1120) to figure its tax.
foreign exchange gain on line 5b, and any       the amount to enter on line 1. Enter losses 
part of such gain is characterized as such      from prohibited transactions on the             Line 2c
by a determination of the Secretary under       appropriate line in Part I.                     Taxes are imposed for the failure to meet 
                                                                                                the requirements of the asset test and/or 
section 856(n)(3)(C) or 856(n)(2)(C), the       Line 2. Deductions.  Deduct only those          gross income test. To qualify for relief from 
REIT must attach a copy of this                 expenses that have a proximate and              the failure to meet these requirements, 
determination to its return. Similarly, if a    primary relationship to the earning of the      attach an explanation of why the REIT 
REIT reports income that is excluded from       income shown on line 1. Do not deduct           failed to meet the asset test and/or gross 
section 856(c)(2) pursuant to a                 general overhead and administrative             income test. Attach supporting schedules 
determination of the Secretary under            expenses in Part IV.                            and a statement showing the computation 
section 856(c)(5)(J)(i) on line 2c or 
excluded from section 856(c)(3) pursuant                                                        of the amount of tax. Also, include a 
to a determination of the Secretary under                                                       reason why the failure was due to 

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reasonable cause and not willful neglect.      • The REIT sets forth a description of         Line 2g—Income Tax
See sections 856(c)(2), 856(c)(3), and         each asset that causes the REIT to fail to 
856(c)(4).                                     satisfy the requirements of the asset test     Deferred tax under section 1291.          If the 
  The statement for reasonable cause           at the close of a quarter in a statement for   REIT was a shareholder in a passive 
should be attached to Form 1120-REIT at        the quarter attached to its timely filed Form  foreign investment company (PFIC) and 
the time it is filed.                          1120-REIT;                                     received an excess distribution or 
                                               • The failure must be due to reasonable        disposed of its investment in the PFIC 
Line 2e                                        cause and not due to willful neglect; and      during the year, it must include the 
Enter the amount of the 100% REIT tax          • The REIT either (a) disposes of the          increase in taxes due under section 
imposed on the following:                      assets shown on the specified statement        1291(c)(2) in the total for line 2g. On the 
• Income of a REIT for services provided       within 6 months after the last day of the      dotted line to the left of line 2g, enter 
to the REIT's tenants that is improperly       quarter in which the REIT's identification of  “Section 1291” and the amount.
included in rents from real property           the failure occurred (or such other time       Do not include on line 2g any interest 
reported by the REIT instead of being          and in the manner prescribed by                due under section 1291(c)(3). Instead, 
reported by the TRS (see section 857(b)        regulations); or (b) the requirements of the   include the amount of interest owed on 
(7)(B));                                       asset test of section 856(c)(4) are            Schedule J, line 7, Other taxes.
• Deductions that are improperly               otherwise met within the specified time        For more information on reporting the 
allocated between the REIT and its TRS         period.                                        deferred tax and interest, see the 
(see section 857(b)(7)(C));                      In addition, if section 856(c)(7)(A)         Instructions for Form 8621.
• Interest deductions of a TRS to the          applies to a REIT for any tax year, the 
extent that interest payments to its REIT      REIT must pay a tax which is the greater       Additional tax under section 197(f).      A 
are in excess of a rate that is commercially   of:                                            REIT that elects to recognize gain and pay 
reasonable (see section 857(b)(7)(D));         • $50,000, or                                  tax on the sale of a section 197 intangible 
and                                            • The amount determined (as prescribed         under the related person exception to the 
• Gross income of a TRS of a REIT              by regulations to be promulgated by the        anti-churning rules should include any 
attributable to services provided to, or on    Secretary) by multiplying the net income       additional tax due in the total for line 2g. 
behalf of, the REIT (less the deductions       generated by the assets described in the       On the dotted line next to line 2g, enter 
properly allocable thereto) that is            specified schedule for the quarter in which    “Section 197” and the amount. See 
improperly allocated between the REIT          the failure occurred by 21%.                   section 197(f)(9)(B)(ii).
and the TRS (see section 857(d)(7)(E)).                                                       Increase in tax attributable to partner’s 
                                               Note.     There is no tax imposed and you      audit liability under section 6226.       If the 
  See section 857(b)(7) for details and        are not required to attach a schedule of       REIT is filing Form 8978 to report 
exceptions.                                    assets to Form 1120-REIT for the de            adjustments shown on Form 8986 they 
Line 2f—Taxes Imposed Under                    minimus relief provision under section         received from partnerships which have 
                                               856(c)(7)(B).
Section 856(c)(7) and Section                                                                 been audited and have elected to push 
856(g)(5)                                        Under section 856(c)(7)(B), a REIT           out imputed underpayments to their 
                                               may avoid loss of its REIT status as a         partners, include any increase in taxes 
Enter the taxes imposed for the following      result of certain failures to meet the asset   due (positive amount) from Form 8978, 
relief provisions:                             test requirements of section 856(c)(4)(B)      line 14, in the total for Form 1120-REIT, 
• Section 856(c)(7) relating to failures to    (iii) if:                                      Schedule J, line 2g. On the dotted line 
meet the requirements of the asset test of     • Following its identification of the failure, next to line 2g, enter “Section 6226” and 
section 856(c)(4); and                         the REIT disposes of assets within 6           the amount. Attach Form 8978. If Form 
• Section 856(g)(5) relating to failures to    months after the last day of the quarter in    8978, line 14, shows a decrease in tax, 
meet certain requirements under sections       which the REIT's identification of the         see the instructions for Schedule J, 
856 through 859 (other than sections           failure occurred (or such time period          line 3d.
856(c)(2), 856(c)(3), and 856(c)(4)). See      prescribed by the Secretary and in the 
sections 856(c)(7) and 856(g)(5) for           manner prescribed by the Secretary); or        Line 3a—Foreign Tax Credit
detailed information on the requirements       • The requirements of the asset test of        To find out when a REIT can claim the 
for these relief provisions and check the      section 856(c)(4) are otherwise met within     foreign tax credit for payment of income 
appropriate box(es) for the tax(es)            the specified time period.                     tax to a foreign country or U.S. 
imposed under them.                                                                           possession, see Form 1118, Foreign Tax 
                                               Certain REIT qualification failures of         Credit—Corporations.
  If a tax is imposed under section 856(c)     sections 856–859 (other than sections 
(7) or 856(g)(5), attach a statement           856(c)(2), 856(c)(3), and 856(c)(4)).          Line 3b—Credit From Form 
providing an explanation of why the REIT       Under section 856(g)(5), a REIT that fails     8834
failed to meet the requirements of the         to meet the REIT qualification                 Enter any qualified electric vehicle passive 
asset test or other qualification              requirements under sections 856–859,           activity credits from prior years allowed for 
requirements under sections 856–859,           except for section 856(c)(2), 856(c)(3),       the current tax year from Form 8834, 
and a description of why such failure is       and 856(c)(4), may avoid loss of its REIT      Qualified Electric Vehicle Credit, line 7.
due to reasonable cause and not willful        status if the failure is due to reasonable 
neglect.                                       cause and not due to willful neglect. In       Line 3c—General Business 
Failure to meet the asset test require-        addition, the REIT must pay (as                Credit
ments of section 856(c)(4) (other than         prescribed by regulations and in the same 
de minimus failures).  Under section           manner as tax) a penalty of $50,000 for        The REIT is required to file Form 3800, 
856(c)(7)(A), a REIT may avoid loss of its     each failure to satisfy a provision of         General Business Credit, to claim most 
REIT status as a result of certain failures    sections 856–859. See section 856(g)(5).       business credits. For a list of allowable 
to meet the asset test requirements of                                                        credits, see Form 3800. Enter the 
section 856(c)(4) if, following identification                                                allowable credit from Form 3800, Part II, 
of the failure, each of the following                                                         line 38, on line 3c. Also, see the applicable 
requirements are met:                                                                         credit form and its instructions. See Form 

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3800 for a complete listing of general did not follow the procedures that would or after June 7, 2019, as well as
business credits. have prevented recapture of the credit, it conversion transactions with a related
may owe a tax. See Form 8611, section 355 distribution. See Regulations
Line 3d—Other Credits Recapture of Low-Income Housing Credit. section 1.337(d)-7 for details.

Minimum tax credit. Enter any allowable Interest due under the look-back meth- A REIT’s recognition period for
credit from Form 8827, Credit for Prior ods. If the REIT used the look-back conversion transactions that occur on or
Year Minimum Tax—Corporations. method under section 460(b)(2) for certain after August 8, 2016, and on or before
Complete and attach Form 8827. long-term contracts, use Form 8697, February 17, 2017, is the 10-year period
Bond credits from Form 8912. Enter Interest Computation Under the beginning on its first day as a REIT or the
the allowable credits from Form 8912, Look-Back Method for Completed day the REIT acquired the property, as
Credit to Holders of Tax Credit Bonds, Long-Term Contracts, to figure the interest described in Temporary Regulations
line 12. the REIT may have to include. See the section 1.337(d)-7T(b)(2)(iii), as in effect
Instructions for Form 8697.
Decrease attributable to partner’s au- on August 8, 2016. However, under the
dit liability under section 6226. If the The REIT may also have to include provisions of final Regulations section
REIT is filing Form 8978 to report interest due under the look-back method 1.337(d)-7(g)(2)(iii), a REIT may choose to
adjustments shown on Form 8986 they for property depreciated under the income apply a 5-year recognition period to
received from partnerships which have forecast method. Use Form 8866, Interest conversion transactions that occur on or
been audited and have elected to push Computation Under the Look-Back after August 8, 2016, and on or before
out imputed underpayments to their Method for Property Depreciated Under February 17, 2017. See final Regulations
partners, include any decrease in taxes the Income Forecast Method, to figure any section 1.337(d)-7 and Temporary
due (negative amount) from Form 8978, interest due or to be refunded. See the Regulations section 1.337(d)-7T for
line 14, in the total for Form 1120-REIT, Instructions for Form 8866. details.
Schedule J, line 3d. Attach Form 8978. If Other. Additional taxes and interest
Form 8978, line 14, shows an increase in amounts can be included in the total Recognized built-in gains and losses
tax, see the instructions for Schedule J, entered on line 7. Check the box for generally retain their character (for
line 2g. “Other” if the REIT includes any of the example, ordinary income or capital gain)
taxes and interest discussed below. See and are treated the same as other gains or
Line 5—Personal Holding How to report, later, for details on losses of the REIT. The REIT's tax on net
Company Tax reporting these amounts on an attached recognized built-in gain is treated as a loss
A REIT is taxed as a personal holding schedule. incurred by the REIT during the same tax
company under section 542 if: • Recapture of Indian employment credit. year (see the instructions for line i of the
• At least 60% of its adjusted ordinary Generally, if an employer terminates the Built-in Gains Tax Worksheet, later). See
gross income for the tax year is personal employment of a qualified employee less Regulations section 1.337(d)-7 for details.
holding company income, and than 1 year after the date of initial
• At any time during the last half of the tax employment, any Indian employment Different rules apply to elections to be a
year more than 50% in value of its credit allowed for a prior tax year because REIT and transfers of property in a
outstanding stock is owned, directly or of wages paid or incurred to that employee carryover basis transaction that occurred
indirectly, by five or fewer individuals. must be recaptured. For details, see Form prior to January 2, 2002. For REIT
8845 and section 45A. elections and property transfers before
See Schedule PH (Form 1120), U.S. • Recapture of new markets credit (see this date, the C corporation is subject to
Personal Holding Company (PHC) Tax, Form 8874 and Form 8874-B). deemed sale treatment on the transferred
for definitions and details on how to figure • Recapture of employer-provided property unless the REIT elects section
the tax. childcare facilities and services credit (see 1374 treatment. See Regulations section
Line 6—Interest on Deferred Form 8882). 1.337(d)-6 for information on how to make
• Interest due on deferred gain (section the election and figure the tax for REIT
Tax Liability 1260(b)). elections and property transfers before
Include any interest on deferred tax • Interest due under section 1291(c)(3). this date. The REIT may also rely on
attributable to certain nondealer See Form 8621 and the Instructions for Regulations section 1.337(d)-5 for REIT
installment obligations (section 453A(c)) Form 8621. elections and property transfers that
and dealer installment obligations (section occurred before January 2, 2002.
453(l)). Built-in Gains Tax
Built-in Gains Tax Worksheet
Line 7—Other Taxes
Include any of the following taxes and If, on or after January 2, 2002, property of Instructions
interest in the total on line 7. Check the a C corporation becomes property of a
appropriate box(es) for the form, if any, REIT by either (a) the qualification of the C Complete the Built-in Gains Tax
used to compute the total. corporation as a REIT, or (b) the transfer Worksheet to figure the built-in gains tax
of such property to a REIT, then the REIT under Regulations section 1.337(d)-7 or
Recapture of investment credit. If the will be subject to the built-in gains tax 1.337(d)-6.
REIT disposed of investment credit under section 1374 unless the C Line a. Enter the amount that would be
property or changed its use before the end corporation elects deemed sale treatment the taxable income of the REIT for the tax
of its useful life or recovery period, it may on the transferred property. Generally, if year if only recognized built-in gain,
owe a tax. See Form 4255, Recapture of the C corporation does not make this recognized built-in loss, and recognized
Investment Credit, for details. election for tax years beginning in 2020, built-in gain carryover were taken into
Recapture of low-income housing the REIT must pay tax on the net account, reduced by any portion of the
credit. If the REIT disposed of property recognized built-in gain during the 5-year REIT's recognized built-in gain from:
(or there was a reduction in the qualified period beginning on its first day as a REIT • Net income from foreclosure property,
basis of the property) for which it took the or the day it acquired the property. Special • Amounts subject to tax for failure to
low-income housing credit, and the REIT rules apply to conversion transactions on meet certain source-of-income

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Built-in Gains Tax Worksheet                                                                          Keep for Your Records
a. Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . . . .                                         a.  
b. Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .          b.  
c. Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior 
   years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c.  
d. Net recognized built-in gain (enter the smallest of line a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                  d.  
e. Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                  e.  
f. Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                f.  
g. Enter 21% (0.21) of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            g.  
h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation 
   years (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .            h.  
i. Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 7 of 
   Schedule J. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                i.  

requirements under section 857(b)(5)           Line g. A REIT reporting built-in gain for a How To Report
computed in accordance with Regulations        tax year ending before 2022 will enter 
section 1.337(d)-6(c)(2),                      21% of line f.                               Attach a statement showing the 
• Net income from prohibited                                                                computation of each item included in, or 
transactions under section 857(b)(6), and      Line h. Credit carryforwards arising in tax 
• Amounts subject to tax under section         years for which the REIT was a C             subtracted from, the total for line 8. On the 
857(b)(7).                                     corporation must be used to reduce the       dotted line next to line 8, enter the amount 
                                               tax on net built-in gain for the tax year to of tax or interest, identify it as tax or 
Line b. Add the amounts shown on:              the greatest extent possible before the      interest, and specify the Code section that 
• Form 1120-REIT, Part l, line 20;             credit carryforwards can be used to          applies.
• Form 1120-REIT, Part II, line 5; and         reduce the tax on the REIT's taxable 
• Form 2438, line 11.                          income.                                      Schedule K—Other 
  Subtract from the total the amount on 
                                               Line i. The REIT's tax on net recognized 
Form 1120-REIT, line 21c. Enter the result                                                  Information
                                               built-in gain is treated as a loss sustained 
on line b of the Built-in Gains Tax                                                         Be sure to answer all the lines that apply 
                                               by the REIT during the same tax year. 
Worksheet.                                                                                  to the REIT.
                                               Deduct the tax attributable to:
Line c. The REIT's net unrealized built-in     • Ordinary gain as a deduction for taxes     Question 3
gain is the amount, if any, by which the fair  on Form 1120-REIT, line 14.                  Check the “Yes” box if the REIT is a 
market value of the assets of the REIT at      • Short-term capital gain as a short-term    subsidiary in a parent-subsidiary 
the beginning of its first REIT year (or as of capital loss in Part I of Form 8949.         controlled group (defined below), even if 
the date the assets were acquired, for any     • Long-term capital gain as a long-term      the REIT is a subsidiary member of one 
asset with a basis determined by               capital loss in Part II of Form 8949.        group and the parent corporation of 
reference to its basis (or the basis of any                                                 another.
other property) in the hands of a C            How To Report
corporation) exceeds the aggregate                                                          Note.     If the REIT is an “excluded 
adjusted basis of such assets at that time.    If the REIT checked the “Other” box,         member” of a controlled group (see 
  Enter on line c the REIT's net               attach a schedule showing the                section 1563(b)(2)), it is still considered a 
unrealized built-in gain reduced by the net    computation of each item included in the     member of a controlled group for this 
recognized built-in gain for prior years.      total for Schedule J, line 7. In addition,   purpose.
See sections 1374(c)(2) and (d)(1).            identify: (a) the applicable Code section;   Parent-subsidiary controlled group. 
Line d. If the amount on line b exceeds        (b) the type of taxes or interest; and (c)   The term “parent-subsidiary controlled 
the amount on line a, the excess is treated    enter the amount of tax or interest.         group” means one or more chains of 
as a recognized built-in gain in the           Line 8—Total Tax                             corporations connected through stock 
                                                                                            ownership (section 1563(a)(1)). Both of 
succeeding tax year.                           Include any deferred tax on the              the following requirements must be met.
Line e. Enter the section 1374(b)(2)           termination of a section 1294 election 
deduction. Generally, this is any NOL          applicable to shareholders in a qualified    1. At least 80% of the total combined 
carryforward or capital loss carryforward      electing fund in the amount entered on       voting power of all classes of voting stock 
(to the extent of the net capital gain         line 8. See Form 8621 and How To Report      entitled to vote or at least 80% of the total 
included in recognized built-in gain for the   below.                                       value of all classes of stock of each 
tax year) arising in tax years for which the                                                corporation in the group (except the 
REIT was a C corporation. These loss             Subtract from the total for line 8 the     parent) must be owned by one or more of 
carryforwards must be used to reduce           deferred tax on the REIT's share of the      the other corporations in the group, and
recognized built-in gain for the tax year to   undistributed earnings of a qualified        2. The common parent must own at 
the greatest extent possible before they       electing fund (see Form 8621).               least 80% of the total combined voting 
can be used to reduce the REIT's taxable                                                    power of all classes of stock entitled to 
income.                                                                                     vote or at least 80% of the total value of all 
                                                                                            classes of stock of one or more of the 

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other corporations in the group. Stock used to offset income on this return. The A small business taxpayer is a taxpayer
owned directly by other members of the amount to enter is the total of all NOLs that (a) is not a tax shelter (as defined in
group is not counted when computing the generated in prior years but not used to section 448(d)(3)); and (b) meets the
voting power or value. offset income in a tax year prior to 2022. gross receipts test of section 448(c),
Do not reduce the amount by any NOL discussed next.
See section 1563(d)(1) for the deduction reported on line 21a.
definition of “stock” for purposes of Gross receipts test. For 2022, a
determining stock ownership above. Question 10 taxpayer meets the gross receipts test if
the taxpayer has average annual gross
Question 5 Business Interest Expense receipts of $27 million or less for the 3
Check the “Yes” box if one foreign person Election prior tax years. A taxpayer's average
owned at least 25% of (a) the total voting annual gross receipts for the 3 prior tax
power of all classes of stock of the REIT The limitation on business interest years is determined by adding the gross
entitled to vote, or (b) the total value of all expense applies to every taxpayer with a receipts for the 3 prior tax years and
classes of stock of the REIT. trade or business, unless the taxpayer dividing the total by 3.
The constructive ownership rules of meets certain specified exceptions. A Gross receipts include the aggregate
section 318 apply in determining if a REIT taxpayer may elect out of the limitation for gross receipts from all persons treated as
is foreign owned. See section 6038A(c)(5) certain businesses otherwise subject to a single employer, such as a controlled
and the related regulations. the business interest expense limitation. group of corporations, commonly
controlled partnerships, or proprietorships,
Enter on line 5a the percentage owned Certain real property trades or and affiliated service groups. See section
by the foreign person specified on line 5. businesses and farming businesses 448(c) and the Instructions for Form 8990
On line 5b, enter the name of the owner's qualify to make an election not to limit for additional information.
country. business interest expense. This is an
irrevocable election. If you make this Question 12
Note. If there is more than one election, you are required to use the To certify as a QOF, the REIT must file
25%-or-more foreign owner, complete alternative depreciation system to Form 1120-REIT and attach Form 8996,
lines 5a and 5b for the foreign person with depreciate any property with a recovery even if the REIT had no income or
the highest percentage of ownership. period of 10 years or more. Also, you are expenses to report. If the REIT is attaching
Foreign person. The term “foreign not entitled to the special depreciation Form 8996, check the “Yes” box for
person” means: allowance for that property. For a taxpayer Question 12. On the line following the
• A foreign citizen or nonresident alien. with more than one qualifying business, dollar sign, enter the amount from Form
• An individual who is a citizen or resident the election is made with respect to each 8996, line 15.
of a U.S. possession (but who is not a business.
U.S. citizen or resident).
• A foreign partnership. Check “Yes” if the taxpayer has an Schedule L—Balance
• A foreign corporation. election in effect to exclude a real property Sheets per Books
• Any foreign estate or trust within the trade or business or a farming business The balance sheets should agree with the
meaning of section 7701(a)(31). from section 163(j). For more information, REIT's books and records.
• A foreign government (or one of its see section 163(j) and the Instructions for
agencies or instrumentalities) if it is Form 8990. Line 1. Cash. Include certificates of
engaged in the conduct of a commercial deposits as cash on line 1.
activity as described in section 892. Question 11
Line 4. Tax-exempt securities. Include
Owner's country. For individuals, the Conditions for Filing Form 8990 on this line:
term “owner's country” means the country • State and local government obligations,
of residence. For all others, it is the Generally, a REIT with a trade or business the interest on which is excludable from
country where incorporated, organized, must file Form 8990 to claim a deduction gross income under section 103(a), and
created, or administered. for business interest. In addition, Form • Stock in a mutual fund or other RIC that
8990 must be filed by any REIT that owns distributed exempt-interest dividends
Requirement to file Form 5472. If the an interest in a partnership with current or during the tax year of the REIT.
REIT checked “Yes” on line 5, it may have prior-year carryover from excess business
to file Form 5472. Generally, a 25% interest expense allocated from the Line 24. Adjustments to shareholders'
foreign-owned corporation that had a partnership. equity. Examples of adjustments to
reportable transaction with a foreign or report on this line include:
domestic related party during the tax year Exclusions from filing. A REIT is not • Unrealized gains and losses on
must file Form 5472. required to file Form 8990 if the REIT is a securities held “available for sale.”
See Form 5472 for filing instructions small business taxpayer and does not • Foreign currency translation
and penalties for failure to file. have excess business interest expense adjustments.
from a partnership. A REIT is also not • The excess of additional pension
Item 8 required to file Form 8990 if the REIT only liability over unrecognized prior service
has business interest expense from the cost.
Tax-exempt interest. Show any following excepted trades or businesses: • Guarantees of employee stock (ESOP)
tax-exempt interest received or accrued. An electing real property trade or debt.
•
Include any exempt-interest dividends business, • Compensation related to employee
received as a shareholder in a mutual fund An electing farming business, or stock award plans.
•
•
or other RIC. Certain utility businesses. If the total adjustment to be entered on
Item 9 Small business taxpayer. For 2022, a line 24 is a negative number, enter the
Enter the amount of the net operating loss small business taxpayer is not subject to amount in parentheses.
(NOL) carryforward to the tax year from the business interest expense limitation
prior years, even if some of the loss is and is not required to file Form 8990.

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• Expenses for the use of an • Expenses for travel as a form of
Schedule M-1 entertainment facility. education.
• The part of business gifts over $25. • Other nondeductible travel and
Reconciliation of Income (Loss) • Expenses of an individual over $2,000, entertainment expenses.
per Books With Income per that are allocable to conventions on cruise For more information, see Pub. 535.
Return ships.
• Employee achievement awards of Line 7. Tax-exempt interest. Include as
Line 5c. Travel and entertainment. nontangible or tangible property over $400 interest any exempt-interest dividends
Include any of the following. ($1,600 if part of a qualified plan). received by the REIT as a shareholder in a
• Entertainment not deductible under • The cost of skyboxes. mutual fund or other RIC.
section 274(a). • Nondeductible club dues.
• Entertainment-related meal expenses. • The part of luxury water travel not
• Non-entertainment meal expenses not deductible under section 274(m).
deductible under section 274(n).

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
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 Total Number of Returns Average Time (hours) Average Cost ($) Average Monetized
Taxpayer (millions) Burden ($)
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 doesn’t 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 Total Number of Returns Average Time (hours) Average Cost ($) Average Monetized
Taxpayer (millions) Burden ($)
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 doesn’t meet the definition of a large business.

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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 Total Number of Returns Average Time (hours) Average Cost ($) Average Monetized
Taxpayer (millions) Burden ($)
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 doesn’t meet the definition of a large business.

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, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the
tax form to this address. Instead, see Where To File, near the beginning of the instructions.

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