Shareholder's Instructions for Schedule K-1 (Form 1120S) (2006)

Specific Instructions

This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Part I. Information About the Corporation

Item D

If the corporation is a registration-required tax shelter, it should have completed item D. Use the information on Schedule K-1 (name of the corporation, corporation identifying number, and tax shelter registration number) to complete your Form 8271, Investor Reporting of Tax Shelter Registration Number.

Item E

If you claim or report any income, loss, deduction, or credit from a registration-required tax shelter, you must attach Form 8271 to your tax return. If the corporation has invested in a registration-required tax shelter, it will check item E and give you a copy of its Form 8271 with Schedule K-1. Use this information to complete your Form 8271.

Part III. Shareholder's Share of Current Year Income, Deductions, Credits, and Other Items

The amounts shown in boxes 1 through 17 reflect your share of income, loss, deductions, credits, etc., from corporate business or rental activities without reference to limitations on losses, credits, or other items that may have to be adjusted because of:

The adjusted basis of your stock and debt in the corporation,
The at-risk limitations,
The passive activity limitations, or
Any other limitations that must be taken into account at the shareholder level in figuring taxable income (for example, the section 179 expense limitation).

For information on these provisions, see Limitations on Losses, Deductions, and Credits beginning on page 2.

If you are an individual, and the above limitations do not apply to the amounts shown on your Schedule K-1, take the amounts shown and enter them on the lines of your tax return as indicated in the summarized reporting information shown on page 2 of the Schedule K-1. If any of the above limitations apply, adjust the amounts on Schedule K-1 before you enter them on your return.

When applicable, the passive activity limitations on losses are applied after the limitations on losses for a shareholder's basis in stock and debt and the shareholder's at-risk amount.

The line numbers in the summarized reporting information on page 2 of Schedule K-1 are references to forms in use for calendar year 2006. If you file your tax return on a calendar year basis, but the corporation files a return for a fiscal year, enter the amounts on your tax return for the year in which the corporation's fiscal year ends. For example, if the corporation's tax year ends in February 2007, report the amounts on your 2007 tax return.

If you have losses, deductions, or credits from a prior year that were not deductible or usable because of certain limitations, such as the basis rules or the at-risk limitations, take them into account in determining your income, loss, or credits for this year. However, except for passive activity losses and credits, do not combine the prior-year amounts with any amounts shown on this Schedule K-1 to get a net figure to report on your return. Instead, report the amounts on your return on a year-by-year basis.

If you have amounts other than those shown on Schedule K-1 to report on Schedule E (Form 1040), enter each item separately on line 28 of Schedule E.

Codes. In box 10 and boxes 12 through 17, the corporation will identify each item by entering a code in the column to the left of the dollar amount entry space. These codes are identified on page 2 of Schedule K-1 and in these instructions.

Attached statements. The corporation will enter an asterisk (*) after the code, if any, in the column to the left of the dollar amount entry space for each item for which it has attached a statement providing additional information. For those informational items that cannot be reported as a single dollar amount, the corporation will enter an asterisk in the left column and enter “STMT” in the dollar amount entry space to indicate the information is provided on an attached statement.

Income (Loss)

Box 1. Ordinary Business Income (Loss)

The amount reported in box 1 is your share of the ordinary income (loss) from trade or business activities of the corporation. Generally, where you report this amount on Form 1040 depends on whether the amount is from an activity that is a passive activity to you. If you are an individual shareholder filing a 2006 Form 1040, find your situation below and report your box 1 income (loss) as instructed after applying the basis and at-risk limitations on losses. If the corporation had more than one trade or business activity, it will attach a statement identifying the income or loss from each activity.

Report box 1 income (loss) from corporate trade or business activities in which you materially participated on Schedule E (Form 1040), line 28, column (h) or (j).
Report box 1 income (loss) from corporate trade or business activities in which you did not materially participate, as follows.
1. If income is reported in box 1, report the income on Schedule E, line 28, column (g).
2. If a loss is reported in box 1, follow the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule E, line 28, column (f).

Box 2. Net Rental Real Estate Income (Loss)

Generally, the income (loss) reported in box 2 is a passive activity amount for all shareholders. However, the income (loss) in box 2 is not from a passive activity if you were a real estate professional (defined on page 3) and you materially participated in the activity. If the corporation had more than one rental real estate activity, it will attach a statement identifying the income or loss from each activity.

If you are filing a 2006 Form 1040, use the following instructions to determine where to enter a box 2 amount.

If you have a loss from a passive activity in box 2 and you meet all the following conditions, enter the loss on Schedule E (Form 1040), line 28, column (f).
1. You actively participated in the corporate rental real estate activities. See Special allowance for a rental real estate activity on page 4.
2. Rental real estate activities with active participation were your only passive activities.
3. You have no prior year unallowed losses from these activities.
4. Your total loss from the rental real estate activities was not more than $25,000 (not more than $12,500 if married filing separately and you lived apart from your spouse all year).
5. If you are a married person filing separately, you lived apart from your spouse all year.
6. You have no current or prior year unallowed credits from a passive activity.
7. Your modified adjusted gross income was not more than $100,000 (not more than $50,000 if married filing separately and you lived apart from your spouse all year).
If you have a loss from a passive activity in box 2 and you do not meet all the conditions in 1 above, follow the Instructions for Form 8582 to figure how much of the loss you can report on Schedule E (Form 1040), line 28, column (f).
If you were a real estate professional and you materially participated in the activity, report box 2 income (loss) on Schedule E, line 28, column (h) or (j).
If you have income from a passive activity in box 2, enter the income on Schedule E, line 28, column (g).

Box 3. Other Net Rental Income (Loss)

The amount in box 3 is a passive activity amount for all shareholders. If the corporation had more than one rental activity, it will attach a statement identifying the income or loss from each activity. Report the income or loss as follows.

If box 3 is a loss, follow the Instructions for Form 8582 to figure how much of the loss can be reported on Schedule E (Form 1040), line 28, column (f).
If income is reported in box 3, report the income on Schedule E (Form 1040), line 28, column (g).

Portfolio Income

Portfolio income or loss (shown in boxes 4 through 8b and in box 10, code A) is not subject to the passive activity limitations. Portfolio income includes income (not derived in the ordinary course of a trade or business) from interest, ordinary dividends, annuities, or royalties, and gain or loss on the sale of property that produces such income or is held for investment.

Box 4. Interest Income

Report interest income on line 8a of Form 1040.

Box 5a. Ordinary Dividends

Report ordinary dividends on line 9a of Form 1040.

Box 5b. Qualified Dividends

Report any qualified dividends on line 9b of Form 1040.

Note. Qualified dividends are excluded from investment income, but you may elect to include part or all of these amounts in investment income. See the instructions for line 4g of Form 4952, Investment Interest Expense Deduction, for important information on making this election.

Box 6. Royalties

Report royalties on Schedule E, Part I, line 4.

Box 7. Net Short-Term Capital Gain (Loss)

Report the net short-term capital gain (loss) on Schedule D (Form 1040), line 5, column (f).

Box 8a. Net Long-Term Capital Gain (Loss)

Report the net long-term capital gain (loss) on Schedule D (Form 1040), line 12, column (f).

Box 8b. Collectibles (28%) Gain (Loss)

This is your share of collectibles gain or loss. Include this amount on line 4 of the 28% Rate Gain Worksheet in the instructions for Schedule D (Form 1040), line 18.

Box 8c. Unrecaptured Section 1250 Gain

There are three types of unrecaptured section 1250 gain. Report your share of this unrecaptured gain on the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D (Form 1040) as follows.

Report unrecaptured section 1250 gain from the sale or exchange of the corporation's business assets on line 5.
Report unrecaptured section 1250 gain from the sale or exchange of an interest in a partnership on line 10.
Report unrecaptured section 1250 gain from an estate, trust, regulated investment company (RIC), or real estate investment trust (REIT) on line 11.

If the corporation reports only unrecaptured section 1250 gain from the sale or exchange of its business assets, it will enter a dollar amount in box 8c. If it reports the other two types of unrecaptured gain, it will provide an attached statement that shows the amount for each type of unrecaptured section 1250 gain.

Box 9. Net Section 1231 Gain (Loss)

The amount in box 9 is generally passive if it is from a:

Rental activity, or
Trade or business activity in which you did not materially participate.

However, an amount from a rental real estate activity is not from a passive activity if you were a real estate professional (defined on page 3) and you materially participated in the activity.

If the amount is either (a) a loss that is not from a passive activity or (b) a gain, report it on Form 4797, line 2, column (g). Do not complete columns (b) through (f) on line 2 of Form 4797. Instead, enter “From Schedule K-1 (Form 1120S)” across these columns.

If the amount is a loss from a passive activity, see Passive Loss Limitations in the Instructions for Form 4797. Report the loss following the Instructions for Form 8582 to figure how much of the loss is allowed on Form 4797. If the corporation had net section 1231 gain (loss) from more than one activity, it will attach a statement that will identify the section 1231 gain (loss) from each activity.

Box 10. Other Income (Loss)

Code A. Other portfolio income (loss). The corporation will report portfolio income other than interest, ordinary dividend, royalty, and capital gain (loss) income and attach a statement to tell you what kind of portfolio income is reported.

If the corporation held a residual interest in a real estate mortgage investment conduit (REMIC), it will report on the statement your share of REMIC taxable income (net loss) that you report on Schedule E (Form 1040), line 38, column (d). The statement will also report your share of any “excess inclusion” that you report on Schedule E, line 38, column (c), and your share of section 212 expenses that you report on Schedule E, line 38, column (e). If you itemize your deductions on Schedule A (Form 1040), you may also deduct these section 212 expenses as a miscellaneous deduction subject to the 2% limit on Schedule A, line 22.

Code B. Involuntary conversions. This is your net loss from involuntary conversions due to casualty or theft. The corporation will give you a schedule that shows the amounts to be entered on Form 4684, Casualties and Thefts, line 37, columns (b)(i), (b)(ii), and (c).

If there was a gain (loss) from a casualty or theft to property not used in a trade or business or for income-producing purposes, the corporation will provide you with the information you need to complete Form 4684.

Code C. Section 1256 contracts & straddles. The corporation will report any net gain or loss from section 1256 contracts. Report this amount on Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.

Code D. Mining exploration costs recapture. The corporation will give you a schedule that shows the information needed to recapture certain mining exploration costs (section 617). See Pub. 535 for details.

Code E. Other income (loss). Amounts with code E are other items of income, gain, or loss not included in boxes 1 through 9 or in box 10 using codes A through D. The corporation should give you a description and the amount of your share for each of these items.

Report loss items that are passive activity amounts to you following the Instructions for Form 8582.

Code E items may include the following.

Income from recoveries of tax benefit items. A tax benefit item is an amount you deducted in a prior tax year that reduced your income tax. Report this amount on Form 1040, line 21, to the extent it reduced your tax.
Gambling gains and losses.
1. If the corporation was not engaged in the trade or business of gambling, (a) report gambling winnings on Form 1040, line 21 and (b) deduct gambling losses to the extent of winnings on Schedule A (Form 1040), line 27.
2. If the corporation was engaged in the trade or business of gambling, (a) report gambling winnings on line 28 of Schedule E and (b) deduct gambling losses (to the extent of winnings) on line 28 of Schedule E, column (h).
Gain (loss) from the disposition of an interest in oil, gas, geothermal, or other mineral properties. The corporation will attach a statement that provides a description of the property, your share of the amount realized from the disposition, your share of the corporation's adjusted basis in the property (for other than oil or gas properties), and your share of the total intangible drilling costs, development costs, and mining exploration costs (section 59(e) expenditures) passed through for the property. You must figure your gain or loss from the disposition by increasing your share of the adjusted basis by the intangible drilling costs, development costs, or mine exploration costs for the property that you capitalized (that is, costs that you did not elect to deduct under section 59(e)). Report a loss in Part I of Form 4797. Report a gain in Part III of Form 4797 in accordance with the instructions for line 28. See Regulations section 1.1254-4 for details.
Gain from the sale or exchange of qualified small business stock (as defined in the Instructions for Schedule D) eligible for the partial section 1202 exclusion. The corporation should also give you the name of the corporation that issued the stock, your share of the corporation's adjusted basis and sales price of the stock, and the dates the stock was bought and sold. The following additional limitations apply at the shareholder level.
1. You must have held an interest in the corporation when the corporation acquired the qualified small business stock and at all times thereafter until the corporation disposed of the qualified small business stock.
2. Your pro rata share of the eligible section 1202 gain cannot exceed the amount that would have been allocated to you based on your interest in the corporation at the time the stock was acquired.
See the Instructions for Schedule D (Form 1040) for details on how to report the gain and the amount of the allowable exclusion.
Gain eligible for section 1045 rollover (replacement stock purchased by the corporation). The corporation should also give you the name of the corporation that issued the stock, your share of the corporation's adjusted basis and sales price of the stock, and the dates the stock was bought and sold. To qualify for the section 1045 rollover:
1. You must have held an interest in the corporation during the entire period in which the corporation held the qualified small business stock (more than 6 months prior to the sale), and
2. Your pro rata share of the gain eligible for the section 1045 rollover cannot exceed the amount that would have been allocated to you based on your interest in the corporation at the time the stock was acquired.
See the Instructions for Schedule D (Form 1040) for details on how to report the gain and the amount of the allowable postponed gain.
Gain eligible for section 1045 rollover (replacement stock not purchased by the corporation). The corporation should also give you the name of the corporation that issued the stock, your share of the corporation's adjusted basis and sales price of the stock, and the dates the stock was bought and sold. To qualify for the section 1045 rollover:
1. You must have held an interest in the corporation during the entire period in which the corporation held the qualified small business stock (more than 6 months prior to the sale),
2. Your pro rata share of the gain eligible for the section 1045 rollover cannot exceed the amount that would have been allocated to you based on your interest in the corporation at the time the stock was acquired, and
3. You must purchase other qualified small business stock (as defined in the Instructions for Schedule D (Form 1040)) during the 60-day period that began on the date the stock was sold by the corporation.
See the Instructions for Schedule D (Form 1040) for details on how to report the gain and the amount of the allowable postponed gain.
Net short-term capital gain (loss) and net long-term capital gain (loss) from Schedule D (Form 1120S) that is not portfolio income. An example is gain or loss from the disposition of nondepreciable personal property used in a trade or business activity of the corporation. Report total net short-term gain (loss) on Schedule D (Form 1040), line 5, column (f). Report the total net long-term gain (loss) on Schedule D (Form 1040), line 12, column (f).

Deductions

Box 11. Section 179 Deduction

Use this amount, along with the total cost of section 179 property placed in service during the year from other sources, to complete Part I of Form 4562, Depreciation and Amortization. The corporation will report on an attached statement your share of the cost of any qualified enterprise zone, renewal community, New York Liberty Zone, or section 179 Gulf Opportunity Zone property it placed in service during the tax year. Report the amount from line 12 of Form 4562 allocable to a passive activity using the Instructions for Form 8582. If the amount is not a passive activity deduction, report it on Schedule E (Form 1040), line 28, column (i).

Box 12. Other Deductions

Contributions. Codes A through F. The corporation will give you a schedule that shows contributions subject to the 50%, 30%, and 20% adjusted gross income limitations.

If the corporation made a property contribution, it will report on an attached statement your share of both the fair market value and adjusted basis of the property. Use these amounts to adjust your stock basis (see page 2). If the corporation made a qualified conservation contribution, it will report the fair market value of the underlying property before and after the donation, the type of legal interest contributed, and a description of the conservation purpose furthered by the donation. If the corporation made a contribution of real property located in a registered historic district, it will report any information you will need to take a deduction.

For more details, see Pub. 526, Charitable Contributions, and the instructions for Schedule A (Form 1040). If your contributions are subject to more than one of the AGI limitations, see Pub. 526.

Charitable contribution deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Code A. Cash contributions (50%). Report this amount, subject to the 50% AGI limitation, on line 15 of Schedule A (Form 1040).

Code B. Cash contributions (30%). Report this amount, subject to the 30% AGI limitation, on line 15 of Schedule A (Form 1040).

Code C. Noncash contributions (50%). If property other than cash is contributed, and if the claimed deduction for one item or group of similar items of property exceeds $5,000, the corporation must give you a copy of Form 8283, Noncash Charitable Contributions, to attach to your tax return. Do not deduct the amount shown on Form 8283. It is the corporation's contribution. Instead, deduct the amount identified by code C, box 12, subject to the 50% AGI limitation, on line 16 of Schedule A (Form 1040).

If the corporation provides you with information that the contribution was property other than cash and does not give you a Form 8283, see the Instructions for Form 8283 for filing requirements. Do not file Form 8283 unless the total claimed deduction for all contributed items of property exceeds $500.

Food inventory contributions. The corporation will report on an attached statement your share of qualified food inventory contributions. The food inventory contribution is not included in the amount reported in box 12 using code C. The corporation will also report your share of the corporation's net income from the business activities that made the food inventory contribution(s). Your deduction for food inventory contributions cannot exceed 10 percent of your aggregate net income for the tax year from the business activities from which the food inventory contribution was made (including your share of net income from partnership or S corporation businesses that made food inventory contributions). Report the deduction for the food inventory contribution on line 16 of Schedule A (Form 1040).

Qualified conservation contributions of property used in agriculture or livestock production. The corporation will report on an attached statement your pro rata share of qualified conservation contributions of property used in agriculture or livestock production. This contribution is not included in the amount reported in box 12 using code C. If you are a farmer or rancher, you qualify for a 100% AGI limitation for this contribution. Otherwise, your deduction for this contribution is subject to a 50% AGI limitation. Report this deduction on line 16 of Schedule A (Form 1040). See Pub. 526 for more information on qualified conservation contributions.

Code D. Noncash contributions (30%). Report this amount, subject to the 30% AGI limitation, on line 16 of Schedule A (Form 1040).

Code E. Capital gain property to a 50% organization (30%). Report this amount, subject to the 30% AGI limitation, on line 16 of Schedule A (Form 1040). See Special 30% Limit for Capital Gain Property in Pub. 526.

Code F. Capital gain property (20%). Report this amount, subject to the 20% AGI limitation, on line 16 of Schedule A (Form 1040).

Code G. Investment interest expense. Enter this amount on Form 4952, line 1.

If the corporation has investment income or other investment expense, it will report your share of these items in box 17 using codes A and B. Include investment income and expenses from other sources to figure how much of your total investment interest is deductible.

For more information on the special provisions that apply to investment interest expense, see Form 4952 and Pub. 550.

Code H. Deductions—royalty income. Enter deductions allocable to royalties on Schedule E (Form 1040), line 18. For this type of expense, enter “From Schedule K-1 (Form 1120S).”

These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Code I. Section 59(e)(2) expenditures. On an attached statement the corporation will show the type and the amount of qualified expenditures for which you may make a section 59(e) election. The statement will also identify the property for which the expenditures were paid or incurred. If there is more than one type of expenditure, the amount of each type will also be listed.

If you deduct these expenditures in full in the current year, they are treated as adjustments or tax preference items for purposes of alternative minimum tax. However, you may elect to amortize these expenditures over the number of years in the applicable period rather than deduct the full amount in the current year. If you make this election, these items are not treated as adjustments or tax preference items.

Under the election, you can deduct circulation expenditures ratably over a 3-year period. Research and experimental expenditures and mining exploration and development costs can be amortized over a 10-year period. Intangible drilling and development costs can be amortized over a 60-month period. The amortization periods begin with the month in which such costs were paid or incurred.

Make the election on Form 4562. If you make the election, report the current year amortization of section 59(e) expenditures from Part VI of Form 4562 on line 28 of Schedule E (Form 1040). If you do not make the election, report the section 59(e)(2) expenditures on line 28 of Schedule E (Form 1040) and compute the resulting adjustment or tax preference item (see Form 6251, Alternative Minimum Tax—Individuals). Whether you deduct the expenditures or elect to amortize them, report the amount on a separate line in column (h) of line 28 if you materially participated in the partnership activity. If you did not materially participate, follow the Instructions for Form 8582 to figure how much of the deduction can be reported in column (f).

Code J. Deductions—portfolio (2% floor). Amounts entered with code J are deductions that are clearly and directly allocable to portfolio income (other than investment interest expense and section 212 expenses from a REMIC). Generally, you should enter these amounts on Schedule A (Form 1040), line 22. See the instructions for Schedule A, lines 22 and 27, for details.

These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Code K. Deductions—portfolio (other). Generally, you should enter these amounts on Schedule A (Form 1040), line 27. See the instructions for Schedule A, lines 22 and 27, for details.

These deductions are not taken into account in figuring your passive activity loss for the year. Do not enter them on Form 8582.

Code L. Preproductive period expenses. You may be able to deduct these expenses currently or you may need to capitalize them under section 263A. See Pub. 225, Farmer's Tax Guide, and Regulations section 1.263A-4 for details.

Code M. Commercial revitalization deduction from rental real estate activities. Follow the Instructions for Form 8582 to figure how much of the deduction can be reported on Schedule E, line 28, column (f).

Code N. Reforestation expense deduction. The corporation will provide a statement that describes the qualified timber property for these reforestation expenses. Generally, the expense deduction is limited to $10,000 ($5,000 if married filing separately) for each qualified timber property, including your pro rata share of the corporation's expense and any reforestation expenses you separately paid or incurred during the tax year.

However, the limitation for the reforestation expense deduction is increased for qualified timber property located in the Gulf Opportunity Zones (GO Zones) for Hurricanes Katrina, Rita, and Wilma. The $10,000 limitation for each property is increased by the lesser of (a) $10,000 or (b) the amount of qualified reforestation expenses paid or incurred by the corporation during the tax year. The increased limitation does not apply if you held more than 500 acres of qualified timber property at any time during the tax year. See the Instructions for Form 4562 for details.

If you did not materially participate in the activity, use Form 8582 to figure the amount to report on Schedule E (Form 1040), line 28. If you materially participated in the reforestation activity, report the deduction on line 28, column (h), of Schedule E (Form 1040).

Code O. Domestic production activities information. The corporation will provide you with a statement with information that you must use to figure the domestic production activities deduction. Use Form 8903, Domestic Production Activities Deduction, to figure this deduction. For details, see the Instructions for Form 8903.

Code P. Qualified production activities income (QPAI). Report the QPAI reported to you by the corporation (in box 12 of Schedule K-1) on line 7 of Form 8903.

Code Q. Employer's W-2 wages. Report the portion of W-2 wages reported to you by the corporation (in box 12 of Schedule K-1) on line 13 of Form 8903.

Code R. Other deductions. Amounts with this code may include:

Itemized deductions that Form 1040 filers enter on Schedule A (Form 1040).
Soil and water conservation expenditures. See section 175 for limitations on the amount you are allowed to deduct.
Expenditures for the removal of architectural and transportation barriers to the elderly and disabled that the corporation elected to treat as a current expense. The deductions are limited by section 190(c) to $15,000 per year from all sources.
Interest expense allocated to debt-financed distributions. The manner in which you report such interest expense depends on your use of the distributed debt proceeds. If the proceeds were used in a trade or business activity, report the interest on line 28 of Schedule E (Form 1040). In column (a) enter the name of the corporation and “interest expense.” If you materially participated in the trade or business activity, enter the interest expense in column (h). If you did not materially participate in the activity, follow the instructions for Form 8582 to figure the interest expense you can report in column (f). See page 4 for a definition of material participation. If the proceeds were used in an investment activity, enter the interest on Form 4952. If the proceeds are used for personal purposes, the interest is generally not deductible.
Contributions to a capital construction fund (CCF). The deduction for a CCF investment is not taken on Schedule E (Form 1040). Instead, you subtract the deduction from the amount that would normally be entered as taxable income on line 43 (Form 1040). In the margin to the left of line 43, enter "CCF" and the amount of the deduction.
Penalty on early withdrawal of savings. Report this amount on Form 1040, line 30.
Film and television production expenses. The corporation will provide a statement that describes the film or television production generating these expenses. Generally, if the aggregate cost of the production exceeds $15 million, you are not entitled to the deduction. The limitation is $20 million for productions in certain areas (see section 181 for details). If you did not materially participate in the activity, use Form 8582 to determine the amount that can be reported on Schedule E (Form 1040), line 28, column (f). If you materially participated in the production activity, report the deduction on Schedule E (Form 1040), line 28, column (h).

The corporation will give you a description and the amount of your share for each of these items.

Box 13. Credits

If you have credits that are passive activity credits to you, you must complete Form 8582-CR in addition to the credit forms identified below. See Passive Activity Limitations on page 3 and the Instructions for Form 8582-CR for details.

In general, shareholders whose only source for credits listed on Form 3800 are from pass-through entities are not required to complete the source credit form or attach it to Form 3800. Instead, you can report this credit directly on Form 3800. However, there are two exceptions. When applicable, all shareholders must complete and attach the following credit forms to Form 3800.

Form 3468, Investment Credit (line 1a of Form 3800).
Form 8864, Biodiesel and Renewable Diesel Fuels Credit (line 1p of Form 3800).

Codes A and B. Low-income housing credit. The corporation will report your share of the low-income housing credit using code A if section 42(j)(5) applies. If section 42(j)(5) does not apply, your share of the credit will be reported using code B. Any allowable low-income housing credit (reported as code A or code B) is entered on line 4 of Form 8586, Low-Income Housing Credit, or line 1e of Form 3800 (see TIP on page 10).

Keep a separate record of the low-income housing credit from each of these sources so that you can correctly figure any recapture of low-income housing credit that may result from the disposition of all or part of your stock in the corporation. For more information on recapture, see the instructions for Form 8611, Recapture of Low-Income Housing Credit.

Code C. Qualified rehabilitation expenditures (rental real estate). The corporation will report your share of the qualified rehabilitation expenditures and other information you need to complete Form 3468 related to rental real estate activities using code C. Your share of qualified rehabilitation expenditures from property not related to rental real estate activities will be reported in box 17 using code C. See Form 3468 for details. If the corporation is reporting expenditures from more than one activity, the attached statement will separately identify the expenditures from each activity.

Combine the expenditures (for Form 3468 reporting) from box 13, code C, and from box 17, code C. The expenditures related to rental real estate activities (box 13, code C) are reported on Schedule K-1 separately from other qualified rehabilitation expenditures (box 17, code C) because they are subject to different passive activity limitation rules. See the Instructions for Form 8582-CR for details.

Code D. Other rental real estate credits. The corporation will identify the type of credit and any other information you need to figure these credits from rental real estate activities (other than the low-income housing credit and qualified rehabilitation expenditures). These credits may be limited by the passive activity limitations. If the credits are from more than one activity, the corporation will identify the credits from each activity on an attached statement. See Passive Activity Limitations on page 3 and Form 8582-CR for details.

Code E. Other rental credits. The corporation will identify the type of credit and any other information you need to figure these rental credits. These credits may be limited by the passive activity limitations. If the credits are from more than one activity, the corporation will identify the credits from each activity on an attached statement. See Passive Activity Limitations on page 3 and Form 8582-CR for details.

Code F. Undistributed capital gains credit. Code F represents taxes paid on undistributed capital gains by a regulated investment company or real estate investment trust. Form 1040 filers, enter your share of these taxes on line 70 of Form 1040, check box “a” for Form 2439, and enter “Form 1120S.” Reduce the basis of your stock by this tax.

Code G. Credit for alcohol used as fuel. If this credit includes the small ethanol producer credit, the corporation will provide additional information on an attached statement. If no statement is attached, report this amount on line 5 of Form 6478, Credit for Alcohol Used as Fuel. If a statement is attached, see the instructions for Form 6478, line 5.

Code H. Work opportunity credit. Report this amount on line 3 of Form 5884, Work Opportunity Credit, or line 1b of Form 3800 (see TIP on page 10).

Code I. Welfare-to-work credit. Report this amount on line 3 of Form 8861, Welfare-to-Work Credit, or line 1c of Form 3800 (see TIP on page 10).

Code J. Disabled access credit. Report this amount on line 7 of Form 8826, Disabled Access Credit, or line 1g of Form 3800 (see TIP on page 10).

Code K. Empowerment zone and renewal community employment credit. Report this amount on line 3 of Form 8844, Empowerment Zone and Renewal Community Employment Credit.

Code L. Credit for increasing research activities. Report this amount on line 43 of Form 6765, Credit for Increasing Research Activities, or line 1d of Form 3800 (see TIP on page 10).

Code M. New markets credit. Report this amount on line 2 of Form 8874, New Markets Credit, or line 1l of Form 3800 (see TIP on page 10).

Code N. Credit for employer social security and Medicare taxes. Report this amount on line 5 of Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, or on line 1j of Form 3800 (see TIP on page 10).

Code O. Backup withholding. This is your share of the credit for backup withholding on dividends, interest income, and other types of income. Include this amount in the total you enter on Form 1040, line 64.

Code P. Other credits. On an attachment to Schedule K-1, the corporation will identify the type of credit and any other information you need to figure credits other than those reported with codes A through P. Most credits identified by code P will be reported on Form 3800 (see TIP on page 10).

Credits that may be reported with code P include the following.

Nonconventional source fuel credit (Form 8907).
Qualified electric vehicle credit (Form 8834).
Unused investment credit from cooperatives (Form 3468, line 5).
Renewable electricity, refined coal, and Indian coal production credit. The corporation will provide a statement showing separately the amount of credit from section A and section B of Form 8835.
Indian employment credit (Form 8845).
Orphan drug credit (Form 8820).
Credit for contributions to selected community development corporations (Form 8847).
Credit for small employer pension plan startup costs (Form 8881).
Credit for employer-provided childcare facilities and services (Form 8882).
Qualified zone academy bond credit (Form 8860).
Qualified railroad track maintenance credit (Form 8900).
Biodiesel and renewable diesel fuels credit. If this credit includes the small agri-biodiesel producer credit, the corporation will provide additional information on an attached statement. If no statement is attached, report this amount on line 9 of Form 8864. If a statement is attached, see the instructions for Form 8864, line 9.
Low sulfur diesel fuel production credit (Form 8896).
Distilled spirits credit (Form 8906).
Energy efficient home credit (Form 8908).
Energy efficient appliance credit (Form 8909).
Alternative motor vehicle credit (Form 8910).
Alternative fuel vehicle refueling property credit (Form 8911).
Clean renewable energy bond credit. Report this amount on Form 8912.
Gulf tax credit bond credit. Report this amount on Form 8912.
Hurricane Katrina housing credit. Report this amount on Form 5884-A.
Mine rescue team training credit (Form 8923).
General credits from an electing large partnership. Report these credits on Form 3800, line 1z.

Box 14. Foreign Transactions

Codes A through N. Use the information identified by codes A through N, code Q, and any attached schedules to figure your foreign tax credit. For details, see Form 1116, Foreign Tax Credit, and its instructions. Also see Pub. 514, Foreign Tax Credit for Individuals.

Codes O and P. Extraterritorial income exclusion.

Corporation did not claim the exclusion. If the corporation reports your pro rata share of foreign trading gross receipts (code O) and the extraterritorial income exclusion (code P), the corporation was not entitled to claim the exclusion because it did not meet the foreign economic process requirements. You may still qualify for your pro rata share of this exclusion if the corporation's foreign trading gross receipts for the tax year were $5 million or less. To qualify for this exclusion, your foreign trading gross receipts from all sources for the tax year also must have been $5 million or less. If you qualify for the exclusion, report the exclusion amount in accordance with the instructions beginning on page 6 for box 1, 2, or 3, whichever applies. See Form 8873, Extraterritorial Income Exclusion, for details.
Corporation claimed the exclusion. If the corporation reports your pro rata share of foreign trading gross receipts but not the amount of the extraterritorial income exclusion, the corporation met the foreign economic process requirements and claimed the exclusion when figuring your pro rata share of corporate income. You also may need to know your pro rata share of foreign trading gross receipts from this corporation to determine if you met the $5 million or less exception discussed above for purposes of qualifying for an extraterritorial income exclusion from other sources.

Note. Upon request, the corporation should furnish you a copy of the corporation's Form 8873 if there is a reduction for international boycott operations, illegal bribes, kickbacks, etc.

Code Q. Other foreign transactions. On an attachment to Schedule K-1, the corporation will report any other information on foreign transactions that you may need using code Q.

Box 15. Alternative Minimum Tax (AMT) Items

Use the information reported in box 15 (as well as your adjustments and tax preference items from other sources) to prepare your Form 6251, Alternative Minimum Tax—Individuals, or Schedule I of Form 1041, U.S. Income Tax Return for Estates and Trusts.

Code A. This amount is your share of the corporation's post-1986 depreciation adjustment. If you are an individual shareholder, report this amount on line 17 of Form 6251.

Code B. This amount is your share of the corporation's adjusted gain or loss. If you are an individual shareholder, report this amount on line 16 of Form 6251.

Code C. This amount is your share of the corporation's depletion adjustment. If you are an individual shareholder, report this amount on line 9 of Form 6251.

Codes D and E. Oil, gas, & geothermal properties—gross income and deductions. The amounts reported on these lines include only the gross income (code D) from, and deductions (code E) allocable to, oil, gas, and geothermal properties included in box 1 of Schedule K-1. The corporation should have attached a schedule that shows any income from or deductions allocable to such properties that are included in boxes 2 through 12, and in box 17 of Schedule K-1. Use the amounts reported here and any other reported amounts to help you figure the net amount to enter on line 25 of Form 6251.

Code F. Other AMT items. Enter the information on the statement attached by the corporation on the applicable lines of Form 6251 or Schedule I of Form 1041.

Box 16. Items Affecting Shareholder Basis

Code A. Tax-exempt interest income. Report on your return, as an item of information, your share of the tax-exempt interest received or accrued by the corporation during the year. Individual shareholders include this amount on Form 1040, line 8b. Generally, you must increase the basis of your stock by this amount.

Code B. Other tax-exempt income. Generally, you must increase the basis of your stock by the amount shown, but do not include it in income on your tax return.

Code C. Nondeductible expenses. The nondeductible expenses paid or incurred by the corporation are not deductible on your tax return. Generally, you must decrease the basis of your stock by this amount.

Code D. Property distributions. Reduce the basis of your stock (as explained on page 2) by these distributions. If these distributions exceed the basis of your stock, the excess is treated as capital gain from the sale or exchange of property and is reported on Schedule D (Form 1040).

Code E. Repayment of loans from shareholders. If these payments are made on a loan with a reduced basis, the repayments must be allocated in part to a return of your basis in the loan and in part to the receipt of income. See Regulations section 1.1367-2 for information on reduction in basis of a loan and restoration in basis of a loan with a reduced basis. See Rev. Rul. 64-162, 1964-1 (Part 1) C.B. 304 and Rev. Rul. 68-537, 1968-2 C.B. 372, for details.

Box 17. Other Information

Code A. Investment income. Report this amount on line 4a of Form 4952.

Code B. Investment expenses. Report this amount on line 5 of Form 4952.

Code C. Qualified rehabilitation expenditures (other than rental real estate). The corporation will report your share of qualified rehabilitation expenditures and other information you need to complete Form 3468 for property not related to rental real estate activities in box 17 using code C. Your share of qualified rehabilitation expenditures related to rental real estate activities is reported in box 13 using code C. See Form 3468 for details. If the corporation is reporting expenditures from more than one activity, the attached statement will separately identify the expenditures from each activity.

Combine the expenditures (for Form 3468 reporting) from box 13, code C and from box 17, code C. The expenditures related to rental real estate activities (box 13, code C) are reported on Schedule K-1 separately from other qualified rehabilitation expenditures (box 17, code C) because they are subject to different passive activity limitation rules. See the Instructions for Form 8582-CR for details.

Code D. Basis of energy property. If the corporation provides an attached statement for code D, report the information shown on the attached statement on Form 3468, lines 2a-2d, 2f, or 2g, as applicable.

Codes E and F. Recapture of low-income housing credit. The corporation will identify by code E your share of any recapture of a low-income housing credit from its investment in partnerships to which the provisions of section 42(j)(5) apply. All other recapture of low-income housing credits will be identified by code F.

Keep a separate record of each type of recapture so that you will be able to correctly figure any credit recapture that may result from the disposition of all or part of your corporate stock. For details, see Form 8611.

Code G. Recapture of investment credit. The corporation will provide any information you need to figure your recapture tax on Form 4255, Recapture of Investment Credit. See the Form 3468 on which you took the original credit for other information you need to complete Form 4255.

You may also need Form 4255 if you disposed of more than one-third of your stock in the corporation.

Code H. Recapture of other credits. On an attachment to Schedule K-1, the corporation will report any information you need to figure the recapture of the new markets credit; qualified electric vehicle credit (see Form 8834); Indian employment credit (see section 45A(d)); or any credit for employer-provided childcare facilities and services.

Code I. Look-back interest—completed long-term contracts. The corporation will report any information you need to figure the interest due or to be refunded under the look-back method of section 460(b)(2) on certain long-term contracts. Use Form 8697, Interest Computation Under the Look-Back Method for Completed Long-Term Contracts, to report any such interest.

Code J. Look-back interest—income forecast method. The corporation will report any information you need to figure the interest due or to be refunded under the look-back method of section 167(g)(2) for certain property placed in service after September 13, 1995, and depreciated under the income forecast method. Use Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method, to report any such interest.

Code K. Dispositions of property with section 179 deductions. The corporation will report your pro rata share of gain or loss on the sale, exchange, or other disposition of property for which a section 179 expense deduction was passed through to shareholders with code K. If the corporation passed through a section 179 expense deduction for the property, you must report the gain or loss, if any, and any recapture of the section 179 expense deduction for the property on your income tax return (see the Instructions for Form 4797 for details). The corporation will provide all the following information.

Description of the property.
Date the property was acquired and placed in service.
Date of the sale or other disposition of the property.
Your pro rata share of the gross sales price or amount realized.
Your pro rata share of the cost or other basis plus the expense of sale.
Your pro rata share of the depreciation allowed or allowable.
Your pro rata share of the section 179 expense deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through.

To figure the depreciation allowed or allowable for Form 4797, line 22, add to the amount from item 6 above the amount of your pro rata share of the section 179 expense deduction, reduced by any unused carryover of the deduction for this property. This amount may be different than the amount of section 179 expense you deducted for the property if your interest in the corporation has changed.
If the disposition is due to a casualty or theft, any information you need to complete Form 4684.
If the sale was an installment sale made during the corporation's tax year, any information you need to complete Form 6252, Installment Sale Income. The corporation will separately report your share of all payments received for the property in the following tax years. See the Instructions for Form 6252 for details.

Code L. Recapture of section 179 deduction. The corporation will report your pro rata share of any recapture of section 179 expense deduction if business use of any property for which the section 179 expense deduction was passed through to shareholders dropped to 50 percent or less. If this occurs, the corporation must provide the following information.

Your pro rata share of the depreciation allowed or allowable (not including the section 179 expense deduction).
Your pro rata share of the section 179 expense deduction (if any) passed through for the property and the corporation's tax year(s) in which the amount was passed through. Reduce this amount by the portion, if any, of your unused (carryover) section 179 expense deduction for this property.

Code M. Section 453(l)(3) information. The corporation will report any information you need to figure the interest due under section 453(l)(3) with respect to the disposition of certain timeshares and residential lots on the installment method. If you are an individual, report the interest on Form 1040, line 63. Enter “453(l)(3)” and the amount of the interest on the dotted line to the left of line 63.

Code N. Section 453A(c) information. The corporation will report any information you need to figure the interest due under section 453A(c) with respect to certain installment sales. If you are an individual, report the interest on Form 1040, line 63. Enter “453A(c)” and the amount of the interest on the dotted line to the left of line 63. See section 453A(c) for details on making the computation.

Code O. Section 1260(b) information. The corporation will report any information you need to figure the interest due under section 1260(b). If the corporation had gain from certain constructive ownership transactions, your tax liability must be increased by the interest charge on any deferral of gain recognition under section 1260(b). Report the interest on Form 1040, line 63. Enter “1260(b)” and the amount of the interest on the dotted line to the left of line 63. See section 1260(b) for details, including how to figure the interest.

Code P. Interest allocable to production expenditures. The corporation will report any information you need relating to interest you are required to capitalize under section 263A for production expenditures. See Regulations sections 1.263A-8 through 1.263A-15 for details.

Code Q. CCF nonqualified withdrawals. The corporation will report your share of nonqualified withdrawals from a capital construction fund (CCF). These withdrawals are taxed separately from your other gross income at the highest marginal ordinary income or capital gains tax rate. Attach a statement to your federal income tax return to show your computation of both the tax and interest for a nonqualified withdrawal. Include the tax and interest on Form 1040, line 63. On the dotted line to the left of line 63, enter the amount of tax and interest and “CCF.”

Code R. Information needed to figure depletion—oil and gas. This is your share of gross income from the property, share of production for the tax year, etc., needed to figure your depletion deduction for oil and gas wells. The corporation should also allocate to you a proportionate share of the adjusted basis of each corporate oil or gas property. See Pub. 535 for information on how to figure your depletion deduction.

Reduce the basis of your stock by the amount of this deduction up to the extent of your adjusted basis in the property.

Code S. Amortization of reforestation costs. The corporation will provide a statement identifying your share of the amortizable basis of reforestation expenditures paid or incurred before October 23, 2004. The corporation will separately report your share of the amortizable basis of reforestation expenditures for 1999 through 2004. Your amortizable basis of reforestation expenditures for each tax year from all properties is limited to $10,000 ($5,000 if married filing separately), including your pro rata share of the corporation's expenditures and any qualified reforestation expenditures you separately paid or incurred. To figure your allowable amortization, see section 194 and Pub. 535.

Follow the Instructions for Form 8582 to report a deduction allocable to a passive activity. If you materially participated in the reforestation activity, report the deduction on line 28, column (h), of Schedule E (Form 1040).

Code T. Other information. The corporation will report:

Any information or statements you need to comply with the registration and disclosure requirements under sections 6111 and 6662(d)(2)(B)(ii) and the list keeping requirements of Regulations section 301.6112-1. See Form 8264 (or its successor form) and Notice 2004-80, 2004-50 I.R.B. 963; and Notice 2005-22, 2005-12 I.R.B. 756; for details.
Any information you need to complete a disclosure statement for reportable transactions in which the corporation participates. If the corporation participates in a transaction that must be disclosed on Form 8886, Reportable Transaction Disclosure Statement, both you and the corporation may be required to file Form 8886 for the transaction. The determination of whether you are required to disclose a transaction of the corporation is based on the category(s) under which the transaction qualifies for disclosure and is determined by the corporation. You may have to pay a penalty if you are required to file Form 8886 and do not do so. See the instructions for Form 8886 for details.
Gross farming and fishing income. If you are an individual shareholder, enter this income, as an item of information, on Schedule E (Form 1040), Part V, line 42. Do not report this income elsewhere on Form 1040.

For a shareholder that is an estate or trust, report this income to the beneficiaries, as an item of information, on Schedule K-1 (Form 1041). Do not report it elsewhere on Form 1041.
The amount included in gross income with respect to qualified zone academy bonds. Income with respect to qualified zone academy bonds cannot be used to increase your stock basis. Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount. See line 3 of the worksheet on page 2.
The amount included in gross income with respect to clean renewable energy bonds. Income with respect to clean renewable energy bonds cannot be used to increase your stock basis. Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount. See line 3 of the worksheet on page 2.
The amount included in gross income with respect to gulf tax credit bonds. Income with respect to gulf tax credit bonds cannot be used to increase your stock basis. Because this amount is already included in income elsewhere on Schedule K-1, you must reduce your stock basis by this amount. See line 3 of the worksheet on page 2.
Basis in qualifying advanced coal project property. The corporation will provide an attached statement that shows your share of the corporation's (a) basis in certified and qualified investment in integrated gasification combined cycle property placed in service during the tax year and (b) basis in qualified investment in other advanced coal project property placed in service during the tax year. Report these amounts on lines 3a and 3b of Form 3468, respectively.
Basis in qualifying gasification property. Report this amount on Form 3468, line 4.
Inversion gain. The corporation will provide a statement showing the amounts of each type of income or gain that is included in inversion gain. The corporation has included inversion gain in income elsewhere on Schedule K-1. Inversion gain is also reported under code T because your taxable income and alternative minimum taxable income cannot be less than the inversion gain. Also, your inversion gain (a) is not taken into account in figuring the net operating loss (NOL) for the tax year or the NOL that can be carried over to each tax year, (b) may limit your credits, and (c) is treated as income from sources within the U.S. for the foreign tax credit. See section 7874 for details.
Any other information you may need to file your return not shown elsewhere on Schedule K-1.

The corporation should give you a description and the amount of your share for each of these items.