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Shareholder's Instructions For Schedule K-1 (Form 1120S)
Shareholder's Instructions For Schedule K-1 (Form 1120S)
Shareholder's Instructions For Schedule K-1 (Form 1120S)
Shareholder's Instructions
for Schedule K-1
(Form 1120S)
Shareholder's Share of Income, Credits, Deductions,
etc. (For Shareholder's Use Only)
Section references are to the Internal Revenue Code unless otherwise noted.
distributed, and you must include your Note: You must report the taxable
General Instructions share on your tax return if a return is income on your return (if you are required
required. Your distributive share of S to file a return) for it to increase your
Changes To Note corporation income is not basis.
self-employment income and it is not 2. Basis is decreased by property
Treatment of Distributions Made subject to self-employment tax. distributions (including cash) made by the
During Loss Years You should use these instructions to corporation (excluding dividend
help you report the items shown on distributions reported on Form 1099-DIV
For tax years beginning after 1996, the
Schedule K-1 on your tax return. and distributions in excess of basis)
Small Business Job Protection Act of
Where “(attach schedule)” appears next reported on Schedule K-1, line 20.
1996 (the Act) requires shareholders to
reduce the adjusted basis of their stock to a line on Schedule K-1, it means the 3. Basis is decreased by (a)
by the distributions made during the tax information for these lines (if applicable) nondeductible expenses and (b) the
year before applying the basis limitation will be shown in the “Supplemental depletion deduction for any oil and gas
rule on losses. Information” space below line 23 of property held by the corporation, but only
Schedule K-1. If additional space was to the extent your pro rata share of the
All Shareholders Required To File needed, the corporation will have property's adjusted basis exceeds that
Notice of Inconsistent Treatment attached a statement to Schedule K-1 to deduction.
show the information for the line item. 4. Basis is decreased by all deductible
For tax years beginning after 1996, the
Act requires every shareholder to report The notation “(see instructions for losses and deductions reported on
Subchapter S items the same way the Schedule K-1)” in items A and C at the top Schedule K-1.
corporation treated the items on its return, of Schedule K-1 is directed to the You may elect to decrease your basis
unless the shareholder files Form 8082, corporation. You, as a shareholder, under 4 above prior to decreasing your
Notice of Inconsistent Treatment or should disregard these notations. basis under 3 above. If you make this
Administrative Adjustment Request Schedule K-1 does not show the election, any amount described under 3
(AAR). amount of actual dividend distributions that exceeds the basis of your stock and
the corporation made to you. The debt owed to you by the corporation is
Capital Gains Reporting Revised corporation must report to you such treated as an amount described under 3
To Reflect Reduced Tax Rates amounts totaling $10 or more for the for the following tax year. To make the
calendar year on Form 1099-DIV, election, attach a statement to your timely
The Taxpayer Relief Act of 1997 generally Dividends and Distributions. You report filed original or amended return that states
reduced the tax rates for shareholders actual dividend distributions on Form you agree to the carryover rule of
that apply to net capital gain for sales, 1040, line 9. Regulations section 1.1367-1(f) and the
exchanges, and conversions of assets name of the S corporation to which the
(including installment payments received)
after May 6, 1997. Schedule K-1 has been Basis of Your Stock rule applies. Once made, the election
applies to the year for which it is made
revised to reflect the reporting of capital You are responsible for maintaining and all future tax years for that S
gains under the new law. records to show the computation of the corporation, unless the IRS agrees to
basis of your stock in the corporation. revoke your election.
Purpose of Schedule K-1 Schedule K-1 provides information to help The basis of each share of stock is
you make the computation at the end of increased or decreased (but not below
The corporation uses Schedule K-1 (Form each corporate tax year. The basis of your
1120S) to report your pro rata share of the zero) based on its pro rata share of the
stock (generally, its cost) is adjusted as above adjustments. If the total decreases
corporation's income (reduced by any tax follows and, except as noted, in the order
the corporation paid on the income), in basis attributable to a share exceed
listed. These rules apply for tax years of that share's basis, the excess reduces
credits, deductions, etc. Please keep it the S corporation beginning after 1996. In
for your records. Do not file it with (but not below zero) the remaining bases
addition, basis may be adjusted under of all other shares of stock in proportion
your tax return. The corporation has filed other provisions of the Internal Revenue
a copy with the IRS. to the remaining basis of each of those
Code. shares.
Although the corporation may have to 1. Basis is increased by (a) all income
pay a capital gains tax (or built-in gains (including tax-exempt income) reported
tax) and an excess net passive income on Schedule K-1 and (b) the excess of the Inconsistent Treatment of
tax, you, the shareholder, are liable for deduction for depletion (other than oil and Items
income tax on your share of the gas depletion) over the basis of the
corporation's income, whether or not Generally, you must report subchapter S
property subject to depletion. items shown on your Schedule K-1 (and
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Line 12e—Credits Related to Other Minimum Tax—Individuals, or Schedule I Because each shareholder decides
Rental Activities of Form 1041, U.S. Income Tax Return whether to make the election under
for Estates and Trusts. section 59(e), the corporation cannot
If applicable, your share of any credit from provide you with the amount of the
other rental activities will be reported on Lines 14d(1) and 14d(2)—Gross adjustment or tax preference item related
line 12e. Income or loss from these Income From, and Deductions to the expenses listed on line 16a. You
activities is reported on line 3 of Schedule Allocable to, Oil, Gas, and must decide both how to claim the
K-1. If more than one credit is involved, expenses on your return and how to figure
the credits will be listed separately, each
Geothermal Properties
the resulting adjustment or tax preference
credit identified as a line 12e credit, and The amounts reported on these lines
item.
the activity to which the credit relates will include only the gross income from, and
be identified. This information will be deductions allocable to, oil, gas, and Line 17—Tax-Exempt Interest
shown on the line 23 Supplemental geothermal properties included on line 1 Income
Information space. The credit may be of Schedule K-1. The corporation should
limited by the passive activity limitations. have reported separately any income You must report on your return, as an
from or deductions allocable to such item of information, your share of the
Line 13—Other Credits properties that are included on lines 2 tax-exempt interest received or accrued
through 10. This separate information is by the corporation during the year.
lf applicable, your pro rata share of any
reported in the line 23 Supplemental Individual shareholders should include
other credit (other than on lines 12a
Information space. Use the amounts this amount on Form 1040, line 8b.
through 12e) will be shown on line 13. If
reported on lines 14d(1) and 14d(2) and Generally, you must increase the basis
more than one credit is reported, the
any amounts reported separately to help of your stock by this amount.
credits will be shown and identified in the
line 23 Supplemental Information space. you determine the net amount to enter on
line 14f of Form 6251. Line 18—Other Tax-Exempt
Expenditures qualifying for the (a) Income
rehabilitation credit from other than rental
real estate activities, (b) energy credit, or
Line 14e—Other Adjustments and Generally, you must increase the basis
(c) reforestation credit will be reported to Tax Preference Items of your stock by the amount shown on line
you on line 23. Enter the line 14e adjustments and tax 18, but do not include it in income on your
Line 13 credits include the following: preference items shown in the line 23 tax return.
● Credit for backup withholding on Supplemental Information space, with
other items from other sources, on the Line 19—Nondeductible Expenses
dividends, interest income, and other
types of income. Include the amount the applicable lines of Form 6251. The nondeductible expenses paid or
corporation reports to you in the total that incurred by the corporation are not
you enter on line 54, page 2, Form 1040. Foreign Taxes deductible on your tax return. Generally,
you must decrease the basis of your stock
● Nonconventional source fuel credit. Use the information on lines 15a through by this amount.
Enter this credit on a schedule you 15g, and attached schedules, to figure
prepare yourself to determine the allowed your foreign tax credit. For more Line 20
credit to take on your tax return. See information, see Form 1116, Foreign Tax
section 29 for rules on how to figure the Reduce the basis of your stock (as
Credit (Individual, Estate, Trust, or explained on page 1) by the distributions
credit. Nonresident Alien Individual), and its on line 20. If these distributions exceed
● Qualified electric vehicle credit (Form instructions. the basis of your stock, the excess is
8834). treated as gain from the sale or exchange
● Unused investment credit from Other of property and is reported on Schedule
cooperatives. Enter this credit on Form D (Form 1040).
3468 to figure your allowable investment Lines 16a and 16b—Section
credit. 59(e)(2) Expenditures Line 21
● Work opportunity credit (Form 5884). If the line 21 payments are made on
The corporation will show on line 16a the
● Welfare-to-work credit (Form 8861). indebtedness with a reduced basis, the
type of qualified expenditures to which an
● Credit for increasing research activities election under section 59(e) may apply. It repayments result in income to you to the
(Form 6765). will identify the amount of the extent the repayments are more than the
● Enhanced oil recovery credit (Form expenditures on line 16b. If there is more adjusted basis of the loan. See
8830). than one type of expenditure, the amount Regulations section 1.1367-2 for
● Disabled access credit (Form 8826). of each type will be listed on an information on reduction in basis of a loan
attachment. and restoration in basis of a loan with a
● Renewable electricity production credit
Generally, section 59(e) allows each reduced basis. See Rev. Rul. 64-162,
(Form 8835). 1964-1 (Part 1) C.B. 304 and Rev. Rul.
● Empowerment zone employment credit shareholder to elect to deduct certain
expenses ratably over the number of 68-537, 1968-2 C.B. 372, for other
(Form 8844). information.
● Indian employment credit (Form 8845).
years in the applicable period rather than
deduct the full amount in the current year. Lines 22a and 22b—Recapture of
● Credit for employer social security and
Under the election, you may deduct Low-Income Housing Credit
Medicare taxes paid on certain employee circulation expenditures ratably over a
tips (Form 8846). 3-year period. Research and experimental The corporation will report separately on
● Orphan drug credit (Form 8820). line 22a your share of any recapture of a
expenditures and mining exploration and
● Credit for contributions to selected development costs qualify for a writeoff low-income housing credit from its
community development corporations period of 10 years. Intangible drilling and investment in partnerships to which the
(Form 8847). development costs may be deducted over provisions of section 42(j)(5) apply. All
a 60-month period, beginning with the other recapture of low-income housing
Adjustments and Tax month in which such costs were paid or credits will be reported on line 22b. You
incurred. must keep a separate record of recapture
Preference Items from line 22a and 22b so that you will be
If you make this election, these items
Use the information reported on lines 14a are not treated as adjustments or tax able to correctly figure any credit
through 14e (as well as adjustments and preference items for purposes of the recapture that may result from the
tax preference items from other sources) alternative minimum tax. Make the disposition of all or part of your corporate
to prepare your Form 6251, Alternative election on Form 4562. stock. Use the line 22a and 22b amounts
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to figure the low-income housing credit this income, as an item of information, on on certain long-term contracts. Use Form
recapture on Form 8611. See the Schedule E (Form 1040), Part V, line 41. 8697, Interest Computation Under the
instructions for Form 8611 and section Do not report this income elsewhere on Look-Back Method for Completed
42(j) for additional information. Form 1040. Long-Term Contracts, to report any such
For a shareholder that is an estate or interest.
Supplemental Information trust, report this income to the 11. Your share of expenditures
beneficiaries, as an item of information, qualifying for the (a) rehabilitation credit
Line 23 on Schedule K-1 (Form 1041). Do not from other than rental real estate
report it elsewhere on Form 1041. activities, (b) energy credit, or (c)
If applicable, the corporation should have reforestation credit. Enter the
listed in line 23, Supplemental 7. Any information you need to figure
the interest due under section 453(l)(3). expenditures on the appropriate line of
Information, or on an attached statement Form 3468 to figure your allowable credit.
to Schedule K-1, your distributive share If the corporation elected to report the
of the following: dispositions of certain timeshares and 12. Investment credit properties subject
residential lots on the installment method, to recapture. Any information you need to
1. Taxes paid on undistributed capital figure your recapture tax on Form 4255,
your tax liability must be increased by the
gains by a regulated investment company Recapture of Investment Credit. See the
interest on tax attributable to your pro rata
or real estate investment trust. (Form Form 3468 on which you took the original
share of the installment payments
1040 filers, enter your share of these credit for other information you need to
received by the corporation during its tax
taxes on line 59 of Form 1040, check the complete Form 4255.
year. If applicable, use the information
box for Form 2439, and add the words
provided by the corporation to figure your You may also need Form 4255 if you
“Form 1120S.” Also reduce the basis of
interest. Include the interest on Form disposed of more than one-third of your
your stock by this tax.)
1040, line 53. Also write “453(l)(3)” and stock in the corporation.
2. Gross income from the property, the amount of the interest on the dotted
share of production for the tax year, etc., 13. Preproductive period farm
line to the left of line 53. expenses. You may elect to deduct these
needed to figure your depletion deduction
8. Any information you need to figure expenses currently or capitalize them
for oil and gas wells. The corporation
the interest due under section 453A(c) under section 263A. See Pub. 225,
should also allocate to you a
with respect to certain installment sales Farmer's Tax Guide, and Temporary
proportionate share of the adjusted basis
of property. If you are an individual, report Regulations section 1.263A-4T(c) for
of each corporate oil or gas property. See
the interest on Form 1040, line 53. Write more information.
Pub. 535 for how to figure your depletion
“453A(c)” and the amount of the interest 14. Any information you need to figure
deduction. Also, reduce the basis of your
on the dotted line to the left of line 53. See recapture of the qualified electric vehicle
stock by the amount of this deduction to
the instructions for Form 6252, credit. See Pub. 535 for details, including
the extent the deduction does not exceed
Installment Sale Income, for more how to figure the recapture.
your share of the adjusted basis of the
information. Also see section 453A(c) for 15. Any information you need to figure
property.
details on making the computation. your recapture of the Indian employment
3. Recapture of the section 179
9. Capitalization of interest under credit. Generally, if the corporation
expense deduction. If the recapture was
section 263A(f). To the extent certain terminated a qualified employee less than
caused by a disposition of the property,
production or construction expenditures 1 year after the date of initial employment,
include the amount on Form 4797, line 17.
of the corporation are made from any Indian employment credit allowed for
The recapture amount is limited to the
proceeds associated with debt you incur a prior tax year by reason of wages paid
amount you deducted in earlier years.
as an owner-shareholder, you must or incurred to that employee must be
4. Recapture of certain mining capitalize the interest on this debt. If
exploration expenditures (section 617). recaptured. For details, see section
applicable, use the information on 45A(d).
5. Any information or statements you expenditures the corporation gives to you
need to comply with section 6111 16. Unrecaptured section 1250 gain.
to determine the amount of interest you See the instructions for line 25 of
(registration of tax shelters) or must capitalize. See Regulations sections
6662(d)(2)(B)(ii) (regarding adequate Schedule D (Form 1040) for how to report
1.263A-8 through 1.263A-15 for more the gain.
disclosure of items that may cause an information.
understatement of income tax). 17. Any other information you may
10. Any information you need to figure need to file with your individual tax return
6. Gross farming and fishing income. the interest due or to be refunded under
If you are an individual shareholder, enter that is not shown elsewhere on Schedule
the look-back method of section 460(b)(2) K-1.
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