5 Corporations introduction and Operating Rules 327 A corporation with total assets of $10 million or more must file Schedule UTP (Wacertain Tax Position Statemend) with its Form 1120. In general, a corporation required to report tax positions taken on a current or prior year’s Federal income tax reruen and for which the corporation recorled a reserve for Federal income tax in udited financial statements (or for which no reserve was recorded because of an expectation to tigate) Financial reporting of tax positions is discussed in Chapter 14 33g Form 1120 11 To provide an illustration of the corporate income tax retuen, a Form 1120 has been completed for Swift Corporation, Due to the $10 million test, Swift Corporation does et need 10 complete Schedule M3. ‘swift Corporation was formed on January 10, 1985, by James Brown and Martha Swift to sell men's clothing, Pertinent information regarding Swift is summarized 3s follows: ustrated the business addvess is 6210 Norman Street, Bullalo, TX 75831 “the employer identification number is 11-11 111415 the principal business activity code is 448110, James Brown and Martha Swift each own one-half of the outstanding common ‘tock; no other class of stock is authorized. James Brown is president of the com- pany, and Martha Swift is secretary-reasures. Both are Fulltime employees of the ness Social Security number is 12-45-6789; Martha’s Social Security number is 987-65-4321. “The comporation uses the accrual method! of accounting and reports on a c basis. The specific chargeof! method is used in handling bad clebt losses, and inventories are determined using the lower of cost or market method. For book and tax purposes, the stmight-ine method of depreciation is used. During 2019, the corporation distributed a cash dividend of $35,000, Swift's profit andl loss statement reflect the following information: corporation, and each receives a salary of $70,000. fa Account Debit Credit Gross sales 51,085,000 Sales returns and allowances $ 500007 Purchases 506,000, Dividends received from stock investments in less-than-20%-owned US. corporations 60,000 Interest income State bonds 2¥eripk- Certificates of deposit Premiums on term life insurance policies on the lives of James Brown and ‘Martina Swf Swift Corporation isthe 10,000 designated beneficiary 8,000 Salaries—officers 140.0007 Solaries—clerical and sales 100.000 “Taxes (state local, and payroll) 35000, Repairs 20000/ Interest expense Loan to purchase state bonds, $2,000 Other business loans 10000 12,000 Advertising 8000 © Rental expense 24000, Depreciation 16000) Other deductions 21000 ¥ Otherdeduators Or228 Corporations A comparative balance sheet for Swift Corporation reveals the following information: Assets January 1, 2019) December31, 2019 Cash $240,000 § 178850 ‘Tadenotes and accounts receivable 104200 142300 Inventories 200,000 256,000 Certificates of deposit 150,000 150,000 State bonds 100,000 100,000 Prepald Federal tax - 2,530 Stock investment 300,000 400,000 Buildings and other depreciable assets 120,000 120,000 ‘Accumulated deprecation (44,400) (60,400) Land 10,000 10,000 Other assets 1,800 1,000 Total assets 53,181,600 0,280 abilities and Equity January 1, 2019 December 31, 2019, ‘Accounts payable $150,000 3 125,000 (ther current lables 40,150 36,300 Mortgages 105,000 100,000 Capital stock 250,000 250,000 Retained earnings 636450 798.980 Total liabilities and equity $1,181,600 $33,300,280 Net income per books (before any income tax accrual) is $231,000, During 2019, Swit Corporation made estimated tax payments to the IRS of $46,009. Swift Corporation's Form 1120 for 2019 is reproduced on the following pages. “Although most ofthe entries on Form 1120 for Swift Corporation are self-explanatory the following comments may be helpful: {o artive atthe cost of goods sole amount (line 2.0n page 1D, Form 1125-A must be completed. Reporting of dividends requires the completion of Schedule C (page 2). Total divi lends are shown on line 4 (page 1), and the dividends received «eduction appears ‘on line 29b (page 1). Separating the dividend from the deduction facilitates the application of any taxable income limitations (which did not apply in Swifts case), Income tax lability is $43,470 ($207,000 219), The computed tax lability is placed on line 2 of Schedule J and ultimately is tstec cn line 31 (page 1). Because the estimated tax payments of $46,000 are more than the tax liability of $13,470, Swift will receive a tax refund of $2,530. Schedule K, line 4b, requires a Schedule G (Form 1120) to be completed; the schedule has not been completed for this illustrated example. In completing Schedule M-1 (page 6), the net income per books (line 1) is net of the Federal income tax ($231,000 ~ $43,470). The left side of Schedule M=1 lines 2-5) represents positive adjustments to net income per books. Afier the negative adjustments are made (line 9), the result is taxable income before NOLs cl special deductions (line 28, page D. {In completing Schedule M-2 (page 6), net income per books of $187,530 is added tothe beginning retained earnings figure of $636,450. The dividends distributed in the amount of $35,000 are entered on line 5 and subtracted to arrive at the ending balance ia unappropriated retained earnings of $788,980. Because this example lacks certain details, supporting schedules that would be tached to Form 1120 have not been included. For example, a Form 1125-E would be included to suppor the offcer compensation dexluction (page 1, line 12), a Fos 1562 would be inchuded to verify the depreciation deduction (page 1, ine 20), and other deductions (page 1, line 26) would be supported by a scheduleCorporations Inioduction and Operating Rules 32 1 1 20 U.S. Corporation Income Tax Return OMB No, 1545-0129 fm For ener ee 230° x yer begin aa a pean gov Farm 120 forinallana and th tata 2019 ‘Cheek I [B Employer wtontfication nomber ‘acest Ol eype |_———_Sult Common enn vegies [DPE nara anton ene Tara aT pee Poe YOR Ln z10 norma Set nk SESS | PANT Ta sro tt pin in TPO OORT Car * See cl bau, 7875831 s 1.300.280 bau 4_sencouomsanacned [ITE Check (8) [J tnt rotum 2] Final roi ELL) Name change oy ‘Adress change. i Gaels ean ST > tana are ewes Tf ord Ws, ye Som 7 © Balance, Subtract line 1b from line 1a * ‘te | oh 995,000 V 2 Conte gotn pac own 128) 2 sso 3 Gone ph, Sac te 2 om Te 3 [som | « Otanas adnan hdd 2) tL at. ETS morc ss £) 6 Gross rents |6 | 7 Gross yates r - & Coe garcons orm iz & Nergsver ost) wom For #707 Pat re 1 ach For 477 + 12 Onwrhcome po Intuconeclch eae = Tol eam, Ades 3 tug Serna TI 12 Conpersstonof fees ee actors “atach Form 1123) La Fro soesar ages ees emplyertcreis) el Sta rosa ano mantonnce re] 4]te tron Z| 16 Rents 8) i7 Taxes andicenees 5) 48 intaroet coo instructions) B18 Chto, 2 onprecenon tam fam 652 rt cned on oem i1254or Bowie on tum atch Fam 56) B| 21 Oepieton B| 22 Adwrsng Z| 23 Pension. profit-sharing, ete. plans Be Ensoye teat popame 8] 2 Reomostortuwewee fs One conctors er ster 27 ora deducted 1 rough 28 : [3 Ttedncneowe menounos Si asinine. © 8 220 Net operating loss devon (ee instruction) | 200 4) °o Spoca eaicsons Somade ne) [epsom S| © Addiines 29 and 200. 20 40,000 T |S toute orcsearrortine ne = tse saan fs Sieroter ty pata Pat te 2 | s _Toutpnmert tess an econ 95 a ox aly (Sl Pat ine 5) 3s [a EIS SUS Sectors cnet om 220 atcha ote FA)5 Rountowed Yi $ave tan ool re 2,ond nt anci co 3 £33 Snonaymont nu 9'c ru tan tet! oftnes 1, 8. and 34 eter ameut ers Se[ £ |S) Sitter amine 3 youre Greed to 205 estat te satundeas_[3r [250 Sign) Secsariebiceencmratnerccsccaeacna timer ——_—_— Nev | sparsameae —ss— be — SR ives pea ea Fae = eet Preparer _ 7050/25 - Use Only (ysis = as - Far Peperwork edt Al Wo, so parse STECIONS Tara TTT330 Corporations for 3120 2010 Fone 2 EEIETMIEGG Dividends, inclusions, and Special Deductions (eee 1e) iadends nd | gy yg 9 Sel deacons instructions) inns we) “1 Dividends tem less-thar-2086-owned domestic carpraion (ther than debi-inancee | stock) ; I ooo | _50 30.000 2 Dividends from 20%6-or-more-owned domestic corporations (other than debt-fnanced | stock) 3 6 3 Dhidonds on cotain dobttnanced stock of domestic and foreign corporations nin 4 Dividends on sean protered stock of lees-then-20%-cwned publ utes 233 55 Ohidends on certain prefered stock of 20%-ormore-owned pubic bites 267 6 50. 7. Dividends om 20%6-or-more-ownad foreign corporations and cerainFSCs 6s 7 {8 Dividends rom wholy owned forign subsidiaries. Wns a 100 9 Subtotal, Ad ines + though 8, See instructions ferlimitations| 0.90 | wasn 0.000 10 Ohidends trom domestic comorations received by = small business investment company operating under he Smal Busineee ivastment Act of 1958 100 11. hicends trom aiates groun members ea 100 12 Dividends rom certain FSCs : * = 400 12 Foregnsource porion of sidends raaved trom a speciied 10%-owned foreign corperation excudng hyena aidan) sa structions) i _ 44 Dhidends from foreign corperations not included on fne 3, 8 7, 8 11, 12, oF 13, fnctudng any hybrid avicencsy : 18 Seation 986) incon : . wn 180 Subpar F inclusions derived fram the saleby a controed foreign corporation (CFO) of the stock of a lover foreign corporation tested as a iden (attach Foes) 5471) (coe instuetions) _ 100 Subpar Ftsone ders tom hice of ee corpratonsatach Fors 5471) (600 instructions) . {© Other inclusins from GFCS under subpart F net included en lne 18, 163, 16b, oF 17 {attach Fos) 5471) (92 instructions) : {7 Global ntangtole Low-Taxse Income (GILT) attach Forms) $471 and Form 8682) 18 Gross-upfor fooign taxes deemed pad 49° IC-DISC and former DISC dividends not included on ine 7, 2, oF 3 20 Other eivicends 121 Deduction fr dividends paid on cetan preferred stock of pubic tts | 22 Section 250 deduction attach Form 8889) 23 Total dividends and inclusions. Adc column (nes 9 trough 20. Enter here and on page 1, tre 0.000, 24 Total special deductions. Ads column (clings 8 through 22. Enter here end on page 1, ine 296 _ 30000, Farm 4420 2018n and Operating Rules 331 fen nnct 008 Tax Computation and Payment see instructions) 7 — ian - Check th operation Sa rebar conoid gop atach Schedule Fern 120), Sea inactons » CT 2 income tax See insctions : 2| sis Seen mm ei om 95) 2 4° Addines2 one “ey favo taxed (atscn Form 1118). sa Get Hom Form 894 Gee inseuetons) Es @ General ousinaes ere atach Form 3500) se {Great fr pr oar nium tx aan Fm 8827) So =| fe Bond crest tem Form 6812 52 6 Total eracits, Aa ines 5a tough 82 Ls| _ 7 Subact ine 6 trom ine & TL aia {8 PersonaiRoting compeny tax ttn SchesulePH Frm 1120) 2 9 Recapte of investment cet atach Farm 4255) oa 1D Rocaplue of onincore housing ceo attach Form 8611 [| rts cu ede te leak-oack mthed=comies lon-om cenrats (ach Form 80). se eros! dun unde ook back metned—incoma fracas method atch Fom 6686) [8d = @Atenave axon auating shaping acts (tac For 6802) [oe [ {teres rstructonsattaen sateen s 40 Total. Asdtnes 9a Wrought 10 4 _Total tae, Ad ngs 76 and 10, Ent neve anon page 1.80031 Gta art -Section 065 Payments (c69 Instructions) ~ 12 2019 el 965 a aby pad tm Frm 96-0, Pa column td Ina 8 sev eon p58 Lal Part li-Payments, Refundable Credits, and Section 965 Net Tax Liability 12018 overpayment crectes to 2019 ® 442019 ectmatod tax payments 4152019 rund apple for on Form 4466 48 Combine nes 13,14, ona 18 47 Tax deposited with Form 7008 48 wtnolding foe instructions) 49 Total payments. Adclines 16,1 20. Rolundabia crects rom: 908 18 8 Form 2839 200 b Form arse 200 (© Form 8827, ine Se 206 1d. Otho (attach statement ooo insructons) 208 21 Totalereats, Ads ines 20a trough 204 at 22 toxbret ots ax ast om Fo S668, Pa, column, 983. So instructions : : Te 28 Total payments, credits, and section 965 net tax ibility. Add Enes 18,28, and 22. Enter here and on page + line 33 . : - 23 | 46,000 Fam 1120 a016352 Corporations em 08 ras thar Tnormnaton (see HSTUSTCTS] 1 Check accounting method: aL) Cash b WAccrusl —¢ C) Other (spacity) > ‘Yes | No 2 Ste etncioneand nar hs 0 Busrassacty cadena HSNO. — > Busnes aceay Rerises oS @ Pret reece) Men sell : : 2° aimcomorton «wikia nan fitted gain ora pica cortoied goin? ‘ wves> ene ue and EWN! he pet comprar» . a Ribera ea 404 any foo98 or conesie corm, parstptrckng ay ety Hela af parr sto teva Qian cacy sus or seen rotor ec, 2% or mor etal oka per sss oe cipruss stuck neste "Yes coma of Seca Pom 920 ach Sec ‘ ba any civil er entat oun tec 2% of moe er ov eye ec, 6% or moo ek voi perf Paseo Sins saan sce asa? '¥ucs compte Pa es Sched Fem M20 etn SenadseO) 5 plo erdot he tx yu he corporation 's unateay 2% er mor oor, ety oft, 5% or moro he el ig por of msc ck ana vt ot Sgrtcaons caporson so reuceen arn 8 Aten Sch Fe mrckconanasveowewsn ea maustone |__| ¥ veo" compete teagh buon ame of Ceperation an ENS i Canin ot a ste | _ See © Onn an 60% emo oo aro ey, nae of SO or ern ny reg or sonatoparesp OnStar paecnghorn teers mest ofa at wes secnacoe ones seremcons |__| ¥ Ives compte iow bow ‘Name ot En deren suber a cemstag perfonage Oud in Sheen wees arsaten come Sea @ burn ta jr Gh coor py dled hor en sk iden ond Sarmuonen exhange soc Bee Sine sapuatn's cunt daca exhgs na pct See seston 201 376 ey Ios or 52 Coorte por o ona ana Deters, Sie ne wsttone or Form S852, itmaisncontantaa ‘eum, reer hrforwpset cepantion and on orm 5 or ech stacey | 1 Alanya cng ne a oar. cso fag person aun dec r nett tat 25% of ha ot van Bowe ft doers oem ntact eat wast 8 oh oul tal caves lth caperaions sc? ‘ Ferruoscl aut, sen scion st. ¥en” tr fo) Porconayy owned re Omer SCONE {@) Tmecaperaton may have Form 572, roman tun ofa 2 Faregn-Owrad US Coporion oa Fon Curoeese gee nas Mass rtusroc trot Perunterotfors oeemmsouae cracks bon he corporation sued putty oftred etinsmets wh geal iene coi * onehes, te como'sten may hve arm aa, osen Ror Pus Oe Ogle Osea stent 9 tnermeamovnta'tscexemp mes eco or acc mg MA YBBS nn 18 Emer norbe ef suarcol tn en tata 100 ree) — {1 tw coponton nas an KOLer re aya arcing to fego te cab pare, cack eee ison ® C1 tine apratona nga coveted tune Stent eqs by Repaaton eton 1150-2) mus be atc rte ouetonss nt bela 2 Err tn avtale HOU cary tom por ax yan ot ee yay douse esr on age 1.16 208), : on For 1120 2019on Corporations: Introduction ang Operating ules 33 om 120 2018) Pome 8 ‘Other Information (continued from page 9 “ 160 6 7 1° 28 2s ue the corporations total eeapts(pago 1, line 12, pls res 4 trough 10) forte tax year and its total assets atthe end ofthe tax yea loc than $250,000 ~ IF -Yes" the corporation et cequted to complete Schedles L, Met, Ane M2. instead, enter the tot amount of cash Catrouions and the book valve of property dstibutors (ether than Gash) made curing the tax yaar ® $, 1s tho corporation require to fle Schedule UTP (Form 1120), Uncertain Tax Postion Statement? See insrtions t-Vas," complete an attach Schedule UTP. 1a the corporation make any payments in 2079 that woud equieit tole Form(s) 10907. ¥ 1," el or wil the corporation fie required Form(s) 1089 v Duy bs tx yar, ite cepeaton have an 60%-ormor charge owt ncn & change due to radeeton ois ‘nn stock? ‘Dingo subequat ois tx yar, but bore te ego his eta, ithe corporation dispose omc than 5% (va) of is assets in taxable, ton taxabe, tax deterred tansacton? ia the corporation receive assets ina section 351 transfer in which any of the transfered assets had a fai market basis far market valve of more than S1 millon? . ss o oe v During the corporations tax year, did the corporation make any payments that would requ to fle Forms 1082 and 1042-5 Linder chapter (sections 1441 through 1464) 0° chaptar#ectlons 1471 through 1478) ofthe Code? oo v {s the caparation operating ona cooperative bass ‘During the tx yar, ci the corporation pay or acer any interest or royalty for which he deduction isnot alowed under section 287A? Ses instructions : v {¥-¥en, ener he ot! amount otha dsalowed deductions PS - Bosse carmraten have Gs acops fas E50 mien nyo ha 9 precatig year? Ge actos ‘s0n/e12) and) tf-¥es" compli and atach Frm 8981. Die the coxporation have an election urder section 168) for any real property trade or business or any farming business intact | | lung ho tox year? Sep instructions a ¥ ‘Doce tre corporation sais on or mo ofthe folowing? 6a insbtons Zz “The eoporation uns apass-trough entity wh curen, of por year caryover,oxcess business interest expense “The coxporation’s aggregate average annual gross recess (Steriod uncer section 448() forthe 5 tax years preceding the Eaent tx yea are more than $26 millon an th corporation Nas Busnes interest expence, “The corporation sa tax shelter and tne corporation has business interest expense. 1-¥6s," to any, complete and attach Form 8990, Is tne corporation attaching Form 8996 to cetiy 2s a Quaified Opparuniy Fund? . “ 11 Ye" enter amount rom Form 8996, ne 14 eS Fem 120200334 Corporations For 120 2019 roe Balance Sheets per Boors Dogma oT yer aaa Assets @ a o co + cams anh Tss50 25 Trade ots andaccouts ceva 720 me 7300 'D_Less alonance for bad debts 104300 Tas 2 nvr: 2on000| 254000, ‘4 US. government ebigatons 5 Tacowarp! scizas Go irstuctors) roan Tone 8 Otor curt sans aac statement 73.00 [2.509 — 7 Loansto steetedes [ez = {© Morgage andcel estat ans 9 Otterinvesinents tan statment) [io ‘ao 108. Buldngs and ter depeeible assets ooo | rao 'b_Leseaccumuated deprecation (so) 7500 casi): 110 Dap assets - Lots accumats xptin | I 42 Landnat ofanyamerteaton) Tao Ta 18a. Intangble asst erocizate ony Lass socumulited amortzton 14 tor assets ataen sateen 10 Te 15._Totn aot . TBI 00 Toa ‘iabilties and Sharohoiders” Eaulty 16 Account payee 130.000, 12500 17 Noes ote bos payaio iis an 185" 18 Orercurent adits tach stator ws Ta 18 Loors trom =naretokes 20 otnges ote bonds pyaar ocnare is005 Too 21 Othertabites ach stateren) 22 capa sook_a Prefered sex ‘commen stock Em Eo ammo 35000 22 Acciona paldn capa 24 Retane xrins Aamo atch sateen) 25. Rela earings Urapeoprated Ta a 26 icsirra 0 earl aay ae sateen) - 27 Less cst ol Yeast sock fq i 2 ra shaders Sty Tara Toa Reconciliation of Income (Loss) par Books With Income per Retum Note: Tecuporaton may be equ fi Seed M3. Senso, 7 Noi neon oes) parbocks 7730 | 7 ote record on boa Ws yoo 2 Fesealiteam x p5rbo0ks 70 incl on hi 2 ern) ‘8 Exceno expt! aes oor ental ans Tocwsemgtineret $4100 4 incom sujet to tx nat ceded on Books ‘ nayear tome’: : a a 4000, is TEE L______] 8 esvetions om iis tin not etre 5 Exponses recorded on books Ts year hat at book neo th yoar erse ducted on etn ene: 2 Deprcaton..$ 1 eprecaton 5 Chaalecontone§ 2 Chariabiocontibutons - : © Tavwtanderturanment. § ) = = be S00 Se mpo0 | 9 aiiines Fond 6 dines | ough 5 3i,Gi —| 10 _tnzons pag m2 28) es no “Knalysis of Unappropriated Retained Earnings por Books (Line 25, Schedule L) 1 Balarce at bapining eae itso | -§ batons: aCash 2 Notncome oss par b004S THz 50 stock 2 Other nereaees tomo «Propet . © omer deroasoe (tom) 7 a ines San TO 4 Balance stn of yearne dss ine 7) | 76ROND Fon 120rem 1125-0, (Per Nowe 2016) nna le Feu P Corporations: introduction and Operating Rules aa Cost of Goods Sold > attach to Form 1120, 1120-6, 1120-F 11205, 01 1095, Goto wnrnin.gon Form 1254 Tor ha itost information, Sree stesee fare Taye aniston nober Sif Corporation ea 7 Inventory at agislig of yar i 200.000 [7 2 Pavenases 2 "08,000 | 2 Costof ator 2 - 44 Aston seoton 263A cost (attach shee) ‘4 $5 Other eossaach schedule) 5 6 Total Ade ins + though FT 7 nventory at and of year 256,000. {8 Cost of goods sol Suivact line 7 fom tna 6. Ente nore and on Form 1120, page tne 2 or “sppropriat ne of your tax otum, Soo nstuctons sooo | _ ‘98 Check al methods ved for vain cosh ivertry @ Cl Cost (i Loner of cost or markt {ip C Omer Specy method vse and attach exptanation) > > Chekiinee was a witadoan of subonra ood ro Gekifte LFO mnt motod wa adopt hs tox yea for ary goo Ui checked, atch Form 970) >o {Tt UFO inentory mated was used for x your, ne moun of cls vein computed Unger UFO pnpery predic or acquire, do ef scton 289A appy tthe ently? Sen instore. CIves WAIN {War ths ary chngeindetorieg quits, cos, orvaluten between oerng ac osing nen? Ye mucheanaion os enna ar cls imeem EN Chee ito Section references 470 the ntomal Revenue Gace unloseothenvise noted. What's New ‘Small business taxpayers. For tax years ‘begining after December 81,2017, the following ape. +A smal businass taxpayer (defines below may use a methos of accounting for Inwontorise tat ether () eats rwantores {Bs nonneicental materials and supplies, or {@) conforms tthe taxpayers tna! Saccounting teatmert of Inverteres + Asma busioss taxpayer's not required Tecaptalize costs under section 288A. General Instructions Purpose of Form Use Form 1125-4 to calculate and deduct ‘cost of goads eld for certain entes, ‘Who Must File Fars of Form 1120, 1120, 1120. 41208, or 1003, must complete and attach Form {126-Ai the appicabie ony reports ‘2 decuction fr cost of goats sold Inventories Generally, iventovies are require atthe Begining anc end of each tx yoo tthe production, purenase, or ee oF marchandsa isan income-producing ‘tor. See Regulations pection 1.47%-1.11 Inventories are roqured you general trust yse an acerl meitod of accounting forsalas and purchases af invartry toms, Exception for certain taxpayers. Azmal ‘business taxpayer (osfinec Below), can ‘adopt or change ts aeseurting method to ‘Secount for imvantanes nthe same manner ‘ss material and supobes that ere non incidental or conform ts ieatment of inventories in an appieabie francis! ‘Sotement (as defined in eoction #210013), frit tds not have an applicable financial Statement tha mainod of eccouning used: Init Books and records proparedi socordance wih is accounting Procedures See section 471(6(). ‘Amal business taxpayer claiming exemption rom the requsement to Keep Frventoresis changing ts metnad of ‘scouting for aurposes of section 481 For adaitional gudanee on tis method of ‘Bccounting, 208 Pub, 836, Azseuring Pemogs and tthods. For guidance on fenanging to this methos of secaunting, 00 Form 3119 and the Instructions for Form ai. ‘Small business taxpayer. A sma business taxpayer isa txayer at) Nas fveraga anual rose racopts cf 825 Ilion or late fdaxed formation) forthe Srior tax yours, and () snot a tax shelter {ab'dernedin section 426.(3)See Pub, 5u8. Uniform capitalization rules. The uniter baptalzation rules of secon 2624, ‘general require you to capitalize, or fude ninventory, ceva cost Incured ‘rconneation wi the folowing. + The production of ral property and {angie personal property held in iventory brid forse the oranary course of Business. «foal property 0” personal property (tenga and intangible) acquired fr resale + The production of real property anc {angie personal propery for use ints {rade or Business Orin an actty engaged Inor prot ‘Asmat business taxpayer (defined nove isnot quedo captalize costs Under section 2690. See section 263A). ‘See the discussion on eotion 263A uniform capitalization resin the Instroaons for your tx retum before ‘completing Form 1128-A. Alto see Regulatong sections 126381 roam 1263A-3. See Regulations section 1 2ee8c8 for rua for propery produced in «farming business. For Paperwork Reciction Aet Notice, see atuctons Fem DEA fer aw